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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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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, 1997
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
COMMISSION FILE NUMBER
0-12933
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LAM RESEARCH CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 94-2634797
(STATE OF OTHER JURISDICTION OF (I.R.S. EMPLOYER IDENTIFICATION NO.)
INCORPORATION)
4650 CUSHING PARKWAY, 94538
FREMONT, CALIFORNIA (ZIP CODE)
(ADDRESS OF PRINCIPAL EXECUTIVE
OFFICES)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (510) 659-0200
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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
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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
September 9, 1997, as reported by the Nasdaq National Market, was
approximately $1,735,438,000. 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 September 9, 1997, the Registrant had outstanding 36,612,676 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, 1997 (1997 Annual Report to Stockholders) are incorporated by reference
into Parts I, II and IV of this Form 10-K Report. Except as otherwise
specifically incorporated by reference in this Form 10-K Report, the 1997
Annual Report to Stockholders is not deemed filed as part of this Form 10-K
Report.
Parts of Registrant's Proxy Statement for the Annual Meeting of Stockholders
to be held on November 7, 1997 are incorporated by reference into 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
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
The statements in this Report that are forward-looking are based on current
expectations and beliefs and involve numerous risks and uncertainties that
could cause actual results to differ materially. The forward-looking
statements relate to operating results, cash flows, capital expenditures and
adequacy of resources to fund operations and capital investments; the market
demand for integrated circuits and products utilizing integrated circuits;
development and market acceptance of Lam Research Corporation's (the Company
or Lam) new products; the Company's ability to manage product transitions;
ability of the Company to expand its international operations; the integration
of operations with OnTrak Systems, Inc. (OnTrak); and the Company's ability to
integrate future acquisitions. For discussion of the factors that could cause
actual results to differ materially, see the discussion of such risks and
uncertainties set forth below in this Report and in the section of the 1997
Annual Report to Stockholders entitled "Management's Discussion and Analysis
of Financial Condition and Results of Operations," incorporated by reference
in this Report.
THE COMPANY
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. Lam's products are used to deposit special films on silicon wafers
(deposition) and 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. Lam's etch technology
is also used to process device features in flat panel displays (FPDs). With
the acquisition of OnTrak, consummated in August 1997, Lam has added both
chemical mechanical planarization (CMP) cleaning and polishing product lines.
CMP enables the fabrication of devices featuring design rules of 0.5 micron
and below with multiple metal layers and is currently the fastest growing
segment of the semiconductor capital equipment industry.
Lam sells a broad range of plasma (dry) etch products to address specific
applications, including the AutoEtch, Advanced Capability Rainbow, and
Transformer Coupled Plasma (TCP) product lines. Lam's TCP etchers utilize a
high density plasma process to etch device features down to 0.18 microns and
below. In the deposition market, Lam offers its DSM 9800 low pressure chemical
vapor deposition (CVD) system, a fully automated batch thermal CVD system for
pre-metal dielectric applications, and its DSM 9900 high density plasma (HDP)
CVD system, which addresses advanced intermetal dielectric applications for
logic and microprocessor integrated circuits as well as shallow trenches for
isolation in memory circuits. All current generation TCP and DSM 9900 modules
are available on Lam's Alliance multi-chamber cluster platform. Lam
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formally entered the FPD market in calendar 1996 with the introduction of its
Continuum etch system based on Transformer Coupled Plasma technology. Through
OnTrak, the Company markets both the DSS-200 and Synergy product lines of
cleaners, which are used to remove residual slurries and other contaminants
from wafer surfaces both after CMP polishing and before and after essential
semiconductor process steps. Lam's Aurora Polishing System, currently under
development, leverages OnTrak's CMP expertise to provide the Company's first
fully integrated polishing and cleaning solutions such as CVD, etch and
photoresist removal to its customers.
On August 5, 1997, Lam acquired OnTrak, a leading manufacturer of CMP
cleaning and polishing equipment. As part of the transaction, James W. Bagley,
Chairman and Chief Executive Officer of OnTrak, became Chief Executive Officer
of Lam.
PRODUCTS
Semiconductor wafers are subjected to a complex series of process steps that
result in the simultaneous creation of many individual semiconductor circuits.
Basic steps include deposition, CMP and cleaning photolithography, etching,
assembly and testing. Lam's products are used in the deposition, etch process
and CMP steps of semiconductor device manufacturing and are available as
stand-alone systems or on the Company's Advanced Capabilities Alliance multi-
chamber cluster platform. Lam incorporates its Envision 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 of producing devices with feature sizes smaller than
0.1 micron. In addition, advanced manufacturing facilities are producing
integrated circuits on silicon wafers of 200 mm (8 inches) in diameter, and a
transition in wafer diameters is expected to increase to 300 mm (12 inches)
starting in calendar year 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.
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, 690 and 790 series for etching polysilicon, oxide, aluminum and
tungsten 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 and
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 line 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
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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 and TCP
9600PTX 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 etch systems operate 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 multi-chamber 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 metal 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 deposition products, the
DSM 9800 and DSM 9900, to address advanced device requirements.
DSM 9800. The DSM 9800 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.
The DSM 9800 has been installed worldwide and is currently being used for
production of semiconductor devices at 0.35 micron and below.
DSM 9900. Lam introduced its first DSM 9900 HDP CVD system in November 1995.
The DSM 9900 represents the next generation in HDP CVD technology. First
introduced as the Epic system, the DSM 9900 has a smaller footprint, higher
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 inter-
metal dielectric films created by simultaneously depositing and etching are
planarized more easily by chemical and mechanical polishing than films that
are repeatedly deposited and etched by conventional techniques. The DSM 9900,
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.
CMP Products
Cleaning Systems
OnTrak's DSS-200 cleaning systems have a number of features that distinguish
them from alternative cleaning methods. A double-sided design permits
simultaneous scrubbing of both sides of the wafer while limiting wafer
handling contact, which can contaminate the backside of the wafer. For
selected applications, its
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brush cleaning systems provide significant advantages over traditional batch
wet bench cleaning systems, including improved cleaning efficiency, reduced
chemical usage, a smaller footprint, lower operating costs, and greater
process flexibility. In addition, the single wafer design minimizes the risks
inherent in processing wafers in batches. OnTrak works with its customers to
incorporate a customer's unique requirements in its cleaning systems.
CMP Polisher
Aurora. Lam is developing the Aurora CMP polishing system based on a
technological approach different from that of conventional polishers which
utilize a rotating table and rotating polishing heads. Lam has developed a
proprietary linear polishing method and has designed its polishing system to
be installed in a Class 1 clean room environment to planarize patterned films
on wafers, and to polish wafers at higher rates and achieve the uniformity and
planarity that is necessary to manufacture advanced semiconductor devices.
When released, Aurora will possess unique advantages by being the Company's
first fully integrated CMP polisher and cleaner system. Aurora is currently
under development and is expected to be launched in early calendar 1998.
Flat Panel Display Products
The Company formally entered the FPD market in calendar 1996 with the
introduction of its Continuum etch system, based upon the Transformer Coupled
Plasma technology also used in semiconductor fabrication.
TRADEMARKS
Lam, Lam Research, Transformer Coupled Plasma, TCP, Aurora, DSM, Rainbow,
Advanced Capability Rainbow, Continuum, Alliance and Envision are trademarks
of Lam Research Corporation. AutoEtch and Epic are registered trademarks of
Lam Research Corporation
OnTrak and Synergy are trademarks and DSS-200 is a registered trademark of
OnTrak Systems, Inc.
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 1997, 1996 and 1995, were
approximately $170.6 million, $173.0 million, and $127.8 million,
respectively, and represented 17.0%, 13.6%, and 15.8% of total revenue,
respectively. Such R&D expenses were net of third party funding from industry
consortia, and customers, representing approximately $1.2 million, $3.4
million, and $2.6 million during fiscal 1997, 1996 and 1995, 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 multi-year contract from the United
States Display Consortium (USDC) for the development of a FPD etch system,
based on the Company's Transformer Coupled Plasma technology. The Continuum
etch system is designed for use in the manufacture of large scale FPDs for
several new technologies including active matrix liquid crystal displays
(AMLCDs) and field emission displays (FEDs). Included in the $1.2 million,
$3.4 million, and $2.6 million of third party funded R&D for fiscal 1997,
1996, and 1995 was $1.2 million, $3.2 million, and $1.2 million from the 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
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products. There can be no assurance that future technologies, processes or
product developments will not render the Company's 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 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 material 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 adversely affect
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 has more than 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 increased that effort by furthering its direct sales
and service capability in Japan to directly market and support its advanced
products. The Company offers its customers a comprehensive 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 fiscal 1997, the
Company completed construction of a second facility in Sagamihara.
Export sales accounted for approximately 41%, 41%, and 38% of net sales in
fiscal 1997, 1996, and 1995, respectively. Export sales consist of sales from
the Company's U.S. operating subsidiary to nonaffiliated customers in foreign
countries. 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.
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CUSTOMERS
The Company's customers include most of the world's leading semiconductor
manufacturers. In fiscal 1997 and 1996, no individual customer accounted for
more than 10% of Lam's total revenue. Revenue from Intel Corporation accounted
for 11% of total revenue for fiscal 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 has been experiencing a
slowdown in terms of overcapacity 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 canceled capital equipment purchases. 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 continue to 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, 1997 and 1996, the Company's order backlog was
approximately $272.1 million and $328.0 million, respectively. During fiscal
1997, the semiconductor market experienced 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, in some
cases with limited penalty. Because some orders are received for systems to be
shipped in the same quarter and because of 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 multiple facilities in Fremont and San Jose,
California and one location in Wilmington, Massachusetts for the manufacture
of its etch, deposition and CMP 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
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Company to control the use of, or adequately restrict the discharge or
disposal of, hazardous substances could subject the Company to future
liabilities.
EMPLOYEES
As of September 9, 1997, the Company had approximately 4,800 full-time
employees. 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 good.
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, deposition or CMP 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.
The Company faces significant competitive factors in the etch equipment
market including 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.
The Company faces significant competitive factors in the deposition
equipment market including 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.
The CMP polishing system under development by the Company is expected to
face significant competition from multiple current and future competitors.
Companies currently offering polishing systems include Applied Materials,
Inc., Cybeq Systems, Ebara Corporation, Integrated Process Equipment Corp.
(IPEC), SpeedFam Corp., Strasbaugh and Sumitomo. IPEC currently has the
largest installed base of CMP polishers and also offers an integrated CMP
polishing and cleaning system. Lam believes that other companies are
developing polishing systems and are planning to introduce new products to
this market before or during the same time frame as the Company's planned
introduction of its CMP polishing system.
In CMP slurry removal and cleaning applications, OnTrak's principal
competitor is Dainippon Screen Manufacturing Co. Ltd. (Dainippon Screen).
OnTrak expects that it will face increased competition from IPEC, which
currently offers a slurry removal system, and SpeedFam, as well as others as
the CMP market continues to develop. In general cleaning applications, OnTrak
competes against Dainippon Screen and others.
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RECENT EVENTS
OnTrak Merger
On August 5, 1997, the stockholders of the Company approved the issuance of
Lam Common Stock under the Agreement and Plan of Merger with OnTrak (the
Merger). The Company is in the process of issuing approximately 8,759,000
shares of Lam Common Stock for all the outstanding common stock and options
and rights to purchase common stock on the basis of 0.83 of a share of Lam
Common Stock for one share of OnTrak common stock. The transaction was
accounted for as a pooling of interests and is structured to qualify as a tax-
free reorganization. The anticipated financial impact of the conforming
accounting methods is not expected to be material to the financial position of
the Company. The Company estimates that costs associated with the Merger were
approximately $17.7 million. Such expenses include investment advisory fees,
legal and accounting fees, financial printing costs and other Merger related
costs. Such costs associated with the Merger will negatively impact the
results of operations in the fiscal quarter ended September 30, 1997.
Approval of Lam Research Corporation Stock Incentive Plan
On August 5, 1997, the stockholders of the Company approved the Lam Research
Corporation 1997 Stock Incentive Plan, which will provide for a grant of stock
options, restricted stock, deferred stock and performance share awards to
participating officers, directors, employees, consultants and advisors of the
Company and its subsidiaries. Initially, 3,000,000 shares were reserved for
issuance. The number of shares will automatically be increased each quarter
subject to certain provisions and restrictions and shall in no event exceed
5,000,000 shares.
Convertible Subordinated Notes
During August 1997, Lam completed an offering of $310.0 million of
Convertible Subordinated Notes (the Notes). The Notes bear interest at five
percent, mature on September 1, 2002 and are convertible into shares of Lam
Common Stock at $87.77 per share. Expenses associated with the offering of
approximately $9.0 million will be deferred and will be included in other
assets. Such expenses will be amortized to interest expense over the term of
the Notes.
In connection with the issuance of Notes, the Company received consents and
waivers with respect to certain financial and other covenants contained in
agreements relating to certain existing financial arrangements. In addition,
as a consequence of the Merger with OnTrak as well as issuance of the Notes,
the Company on or prior to the end of the fiscal quarter ending September 30,
1997, would be out of compliance with certain other covenants unless
appropriate amendments or waivers are completed prior to that time. The
Company is currently in discussions with lenders that are parties to these
agreements. Based on these discussions, the Company believes that appropriate
amendments or waivers will be obtained prior to fiscal quarter end on terms no
less favorable to the Company than the existing terms. In the event any such
amendments or waivers are not obtained by fiscal quarter end, the Company
could be required to terminate the revolving credit facility, purchase certain
of its leased facilities, purchase sold receivables and pay certain of the
Japanese term loans.
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
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of the Company's products covered by such patents could require licenses that
may not be available on acceptable terms, or at all.
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, or at all. 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. 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 originally set to expire in December 1996 but was renegotiated to a
reduced royalty rate of 1% from 5%. The Company expects that royalty income
for fiscal 1998 will be significantly lower than fiscal 1997 as 1998 will be
the first full fiscal year with royalty income from TEL computed at the
reduced rate.
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.
ITEM 2. PROPERTIES
The Company's executive offices and principal manufacturing and R&D
facilities are located in over 20 buildings in Fremont, San Jose and Milpitas,
California occupying over 1,600,000 square feet under leases expiring from
1998 to 2020. As a result of the restructuring of operations, the Company has
excess capacity and has consolidated and subleased most 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. In
July 1995, the Company completed, construction of a 40,000 square foot
manufacturing, sales and service facility in CheonAn, South Korea. In fiscal
1996, the Company expanded its current facility in Sagamihara, Japan by
building a third floor on an existing building and in fiscal 1997 completed
the construction of the second facility.
The Company's fiscal 1997 rental payments for the facilities occupied as of
June 30, 1997 aggregated approximately $45.7 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 been reassigned to a new judge. The
trial date has been set for March 1998. 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.
10
<PAGE>
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.
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 1997 Annual Report to Stockholders under the heading "Selected
Financial Data" on page 12.
ITEM 6. SELECTED FINANCIAL DATA
The information required by this Item is incorporated by reference to the
Company's 1997 Annual Report to Stockholders under the heading "Selected
Financial Data" on page 12.
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 1997 Annual Report to Stockholders under the heading "Management's
Discussion and Analysis of Financial Condition and Results of Operations" on
pages 13-21.
ITEM 8. CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The Consolidated Financial Statements required by this Item are incorporated
by reference to pages 22-36 of the Company's 1997 Annual Report to
Stockholders. The unaudited quarterly results of operations are incorporated
by reference to page 12 of the Company's 1997 Annual Report to Stockholders.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not applicable.
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 November 7, 1997, 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.
11
<PAGE>
The executive officers of the Company, who are elected by and serve at the
discretion of the Board of Directors, are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION WITH THE COMPANY
---- --- -------------------------
<S> <C> <C>
Roger D. Emerick........ 58 Chairman of the Board
James W. Bagley......... 58 Chief Executive Officer, Director
Hsui Sheng (Way) Tu..... 40 President
Stephen G. Newberry..... 44 Executive Vice President and Chief Operating Officer
Mercedes Johnson........ 43 Vice President, Finance and Chief Financial Officer
Alexander M.
Voshchenkov............ 52 Vice President and Chief Technical Officer
Raymond L. Degner....... 53 Senior Vice President
Robert C. Fink.......... 62 Senior Vice President
Thomas O. Yep........... 58 Senior Vice President
George R. Canavan....... 50 Vice President
Rick P. Friedman........ 40 Vice President
Richard H. Lovgren...... 43 Vice President, General Counsel and Secretary
</TABLE>
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. Mr.
Emerick is currently a director of Electroglas, Inc., Brooks Automation, Inc.,
and Semiconductor Equipment and Materials International. From 1980 to 1982, he
was Senior Vice President of Optical Specialties, Inc., which markets
automated visual wafer inspection equipment for the semiconductor industry.
James W. Bagley became Chief Executive Officer and a Director of Lam upon
consummation of the Merger. Mr. Bagley currently is a director of KLA-Tencor
Corporation, Teradyne, Inc., Kulicke & Soffe Industries, Inc. and Micron
Technology, Inc. From June 1996 to August 1997, Mr. Bagley served as Chairman
of the Board and Chief Executive Officer of OnTrak. Prior to joining OnTrak,
Mr. Bagley was employed by Applied Materials, Inc. for 15 years in various
senior management positions, most recently as Chief Operating Officer and Vice
Chairman of the Board. Mr. Bagley held various management positions at Texas
Instruments, Inc. before he joined Applied Materials, Inc.
Hsui-Sheng (Way) Tu joined the Company in 1983 and has held various
positions with the Company. In 1996, Mr. Tu was named President of Lam. 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.
Stephen G. Newberry joined the Company in August 1997 as Executive Vice
President and Chief Operating Officer. Previously, he was employed by Applied
Materials, Inc. for 17 years, most recently as Group Vice President of Global
Operations and Planning. From 1990 to 1992, Mr. Newberry served as Vice
President of Applied Materials Japan and was responsible for Customer Service,
Engineering and Manufacturing. Upon his return to the United States, Mr.
Newberry served in a variety of executive management positions at Applied
Materials, Inc.
Mercedes Johnson joined the Company in April 1997. She was formerly Vice
President and Worldwide Operations Controller of Applied Materials, Inc. where
she also served as Division Controller of Etch Products Division, Manager of
International Treasury, Director and Senior Controller for CVD and Etch
Technologies Group, and Senior Director and Worldwide Business Operations
Controller. Prior to joining Applied Materials, Inc., Ms. Johnson held senior
finance and controller positions at Nanometrics, Inc., NCR Corporation and
Hewlett-Packard Company.
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
12
<PAGE>
AT&T Bell Labs, 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 April 1997, Dr. Degner became the senior executive in charge
of Lam's Flat Panel Display Division. In August 1996, he was named Senior Vice
President of Etch Products. In 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.
Robert C. Fink joined the Company in 1993 as Vice President and Chief
Operating Officer. In August 1997, he was named Senior Vice President,
Administration. Between 1993 and 1997, Mr. Fink held various senior management
positions within Lam. Mr. Fink is currently a Director of SEMI/SEMATECH,
Uniphase Corporation and Consilium Inc. Prior to joining Lam, Mr. Fink held
various senior management positions in the semiconductor industry, including
serving as President of Drytek, Inc. from 1988 to 1993.
Thomas O. Yep, Ph.D. joined the Company in 1985 as Director of Process
Technology. In August 1996, Dr. Yep was named Senior Vice President of the CVD
Products and Japan. In 1992, he was named Vice President of the Metal Etch
Business Unit. In 1989, Dr. Yep was named Vice President of Process
Technology. 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 a solid-state physicist at Varian Central Research.
George R. Canavan joined the Company in December 1994 as Director of
Business Development for the Oxide Etch Business Unit. In August 1996, he was
named 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.
Rick P. 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, Mr.
Friedman 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. His most recent
position at Drytek, Inc. was North American sales manager.
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
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
(a) (1) Financial Statements: See Index to Financial Statements........ 15
(2) Financial Statement Schedules: See Index to Financial Statement
Schedules...................................................... 15
(3) Exhibits: See Index to Exhibits................................ 19-20
(b) No reports on Form 8-K were filed by the Registrant during the
quarter ended June 30, 1997.
</TABLE>
14
<PAGE>
LAM RESEARCH CORPORATION
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE(S) IN
1997
ANNUAL
REPORT*
----------
<S> <C>
Consolidated Balance Sheets--June 30, 1997 and 1996................ 22
Consolidated Statements of Operations--Years Ended June 30, 1997,
1996 and 1995..................................................... 23
Consolidated Statements of Cash Flows--Years Ended June 30, 1997,
1996 and 1995..................................................... 24
Consolidated Statements of Stockholders' Equity--Years Ended June
30, 1997, 1996 and 1995........................................... 25
Notes to Consolidated Financial Statements......................... 26
Report of Independent Auditors..................................... 36
<CAPTION>
INDEX TO FINANCIAL STATEMENT SCHEDULES
PAGE
----------
<S> <C>
Schedule II Valuation and Qualifying Accounts...................... 18
</TABLE>
- --------
* Incorporated by reference to the Company's 1997 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
/s/ Roger D. Emerick
By___________________________________
Roger D. Emerick,
Chairman of the Board
Dated: September 26, 1997
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 Mercedes Johnson, 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.
SIGNATURES TITLE DATE
---------- ----- ----
/s/ Roger D. Emerick Chairman of the September 26,
- ------------------------------------- Board 1997
ROGER D. EMERICK
/s/ James W. Bagley Chief Executive September 26,
- ------------------------------------- Officer, Director 1997
JAMES W. BAGLEY
/s/ Mercedes Johnson Vice President, September 26,
- ------------------------------------- Finance and Chief 1997
MERCEDES JOHNSON Financial Officer
(Principal
Financial Officer
and Principal
Accounting Officer)
/s/ David G. Arscott Director September 26,
- ------------------------------------- 1997
DAVID G. ARSCOTT
/s/ Richard J. Elkus, Jr. Director September 26,
- ------------------------------------- 1997
RICHARD J. ELKUS, JR.
/s/ Jack R. Harris Director September 26,
- ------------------------------------- 1997
JACK R. HARRIS
/s/ Grant M. Inman Director September 26,
- ------------------------------------- 1997
GRANT M. INMAN
/s/ Osamu Kano Director September 26,
- ------------------------------------- 1997
OSAMU KANO
17
<PAGE>
SCHEDULE II VALUATION AND QUALIFYING ACCOUNTS
LAM RESEARCH CORPORATION
<TABLE>
<CAPTION>
ADDITIONS
--------------------------------------------------------------------------
BALANCE AT CHARGED TO OTHER
BEGINNING OF CHARGED TO COSTS ACCOUNTS DEDUCTIONS BALANCE AT END
DESCRIPTION PERIOD AND EXPENSES DESCRIBE DESCRIBE OF PERIOD
----------- ------------ ---------------- ---------------- ---------- --------------
COL. A COL. B COL. C COL. D COL. E
------ ------------ --------------------------------- ---------- --------------
<S> <C> <C> <C> <C> <C>
YEAR ENDED JUNE 30, 1997
Deducted from asset
accounts:
Other allowance(1).... $ 0 $6,550,000(2) $1,530,000(3) $ 0 $8,080,000
Allowance for doubtful
accounts............. $1,663,000 $ 738,000 $ 0 $424,000(4) $1,977,000
YEAR ENDED JUNE 30, 1996
Deducted from asset
accounts:
Allowance for doubtful
accounts............. $1,189,000 $ 500,000 $ 0 $ 26,000(4) $1,663,000
YEAR ENDED JUNE 30, 1995
Deducted from asset
accounts:
Allowance for doubtful
accounts............. $1,156,000 $ 217,000 $ 0 $184,000(4) $1,189,000
</TABLE>
- --------
(1) Included in the Balance Sheet under the caption "Other assets." Represents
allowance relating to the write-off of certain at-risk receivables.
(2) Represents write-off of bad debt relating to certain at-risk receivables.
(3) Represents related installation and warranty.
(4) Represents specific customer accounts written-off.
18
<PAGE>
LAM RESEARCH CORPORATION
ANNUAL REPORT ON FORM 10-K
FOR THE FISCAL YEAR ENDED JUNE 30, 1997
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT DESCRIPTION
------- -----------
<C> <S>
3.1(7) Certificate of Incorporation of the Registrant, as amended.
3.2 Amended and Restated ByLaws of the Registrant, dated March 24, 1997
4.1(1) Amended 1981 Incentive Stock Option Plan and Forms of Stock Option
Agreements.
4.2(1) Amended 1984 Incentive Stock Option Plan and Forms of Stock Option
Agreements.
4.3(8) Amended 1984 Employee Stock Purchase Plan and Form of Subscription
Agreement.
4.4(8) Amended 1991 Stock Option Plan and Forms of Stock Option Agreements.
4.5(10) 1996 Performance-Based Restricted Stock Plan
4.7(13) Rights Agreement, dated as of January 23, 1997, between the
Registrant and Chase Mellon Shareholder Service, L.L.C., which
includes Exhibit B thereto the Form of Right Certificate
4.8(16) Lam Research Corporation 1997 Stock Incentive Plan
10.3(2) Form of Indemnification Agreement.
10.12(4) ECR Technology License Agreement and Rainbow Technology License
Agreement by and between Registrant and Sumitomo Metal Industries,
Ltd.
10.16(5) License Agreement effective January 1, 1992 between the Registrant
and Tokyo Electron Limited.
10.19(6) Deferred Compensation Agreement with Roger D. Emerick.
10.27(7) Receivables Purchase Agreement between Lam Research Corporation and
ABN-AMRO Bank N.V., Tokyo Branch
10.28(7) Guaranty of Supplemental Receivables Purchase Agreement between Lam
Research Corporation and ABN-AMRO Bank N.V., Tokyo Branch dated June
28, 1995
10.29(8) Credit Agreement Between Lam Research Corporation and ABN-AMRO Bank
N. V., as agent for a syndicate of banks, dated December 20, 1995
10.30(9) Lease Agreement Between Lam Research Corporation and the Industrial
Bank of Japan, Limited dated March 27, 1996
10.31(10) Term Loan Agreement between The Sakura Bank and Lam Research Co.,
Ltd. dated June 26, 1996
10.32(10) The Continuing Guaranty between The Sakura Bank Ltd. and Lam
Research Corporation dated June 26, 1996
10.33(11) Employment Contract for Roger D. Emerick, effective July 1, 1996
10.34(12) Agreement between Registrant and Henk J. Evenhuis, dated January 21,
1997.
10.35(14) Agreement and Plan of Merger by and among Lam Research Corporation,
Omega Acquisition Corporation and OnTrak Systems, Inc. dated as of
March 24, 1997.
10.37(15) Second Amendment to Credit Agreement between Lam Research
Corporation and ABN AMRO Bank N.V., San Francisco International
Branch dated March 30, 1997.
10.38(15) Consent and Waiver Agreement between Lam Research Corporation and
IBJTC Leasing Corporation-BSC, The Industrial Bank of Japan,
Limited, Wells Fargo Bank, N.A., The Bank of Nova Scotia and the
Nippon Credit Bank, LTD. dated March 28, 1997.
</TABLE>
19
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT DESCRIPTION
------- -----------
<C> <S>
10.39(15) Waiver Agreement between Lam Research Co., Ltd. and The Sakura Bank
dated March 30, 1997.
10.40(15) Amendment to Continuing Guaranty between Lam Research Corporation
and The Sakura Bank dated March 30, 1997.
10.41(16) Employment Agreement for James W. Bagley, dated July 1, 1997
10.42 Addendum to Roger D. Emerick Employment Contract, dated June 26,
1997
10.43 Employment Agreement for Stephen G. Newberry, dated August 5, 1997
11.1 Computation of Earnings Per Share
13.1 Annual Report to Stockholders for the year ended June 30, 1997 (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
</TABLE>
- --------
(1) 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.
(2) Incorporated by reference to the Registrant's Quarterly Report on Form
10-Q for the quarter ended April 3, 1988.
(3) Incorporated by reference to Registrant's Quarterly Report on Form 10-Q
for the quarter ended December 31, 1989.
(4) Incorporated by reference to Registrant's Quarterly Report on Form 10-Q
for the quarter ended December 31, 1991.
(5) Incorporated by reference to Registrant's Annual Report on Form 10-K for
the fiscal year ended June 30, 1993.
(6) Incorporated by reference to Registrant's Annual Report on Form 10-K for
the fiscal year ended June 30, 1995.
(7) Incorporated by reference to Registrant's Quarterly Report on Form 10-Q
for the quarter ended December 31, 1995.
(8) Incorporated by reference to Registrant's Quarterly Report on Form 10-Q
for the quarter ended March 31, 1996.
(9) Incorporated by reference to Registrant's Annual Report on Form 10-K for
the fiscal year ended June 30, 1996.
(10) Incorporated by reference to Registrant's Quarterly Report on Form 10-Q
for the quarter ended September 30, 1996
(11) Incorporated by reference to Registrant's Quarterly Report on Form 10-Q
for the quarter ended December 31, 1996.
(12) Incorporated by reference to Registrant's Report on Form 8-K dated
February 4, 1997.
(13) Incorporated by reference to Registrant's Report on Form 8-K dated March
31, 1997.
(14) Incorporated by reference to Registrant's Quarterly Report on Form 10-Q
for the quarter ended March 31, 1997.
(15) Incorporated by reference to Registrant's Report on Form S-4 dated July
1, 1997.
20
<PAGE>
Exhibit 3.2
-----------
AMENDED AND RESTATED
--------------------
BYLAWS
------
OF
--
LAM RESEARCH CORPORATION
------------------------
ARTICLE I
CORPORATE OFFICES
-----------------
1.1 REGISTERED OFFICE
-----------------
The registered office of the corporation shall be in the City of Wilmington,
County of New Castle, State of Delaware. The name of the registered agent of
the corporation at such location is The Corporation Trust company.
1.2 OTHER OFFICES
-------------
The board of directors may at any time establish other offices at any place or
places where the corporation is qualified to do business.
ARTICLE II
MEETINGS OF STOCKHOLDERS
------------------------
2.1 PLACE OF MEETINGS
-----------------
Meetings of stockholders shall be held at any place, within or outside the
State of Delaware, designated by the board of directors. In the absence of any
such designation, stockholders' meetings shall be held at the registered office
of the Corporation.
1
<PAGE>
2.2 ANNUAL MEETING
--------------
The annual meeting of stockholders shall be held each year on a date and at a
time designated by the board of directors. In the absence of such designation,
the annual meeting of stockholders shall be held on the second Thursday of
November in each year at 2:00 p.m. However, if such day falls on a legal
holiday, then the meeting shall be held at the same time and place on the next
succeeding full business day. At the meeting, directors shall be elected and
any other proper business may be transacted.
Only persons who are nominated in accordance with the following procedures
shall be eligible for election as directors of the corporation. Nominations of
persons for election to the board of directors may be made at any annual meeting
of stockholders (a) by or at the direction of the board of directors (or any
duly authorized committee thereof) or (b) by any stockholder of the corporation
(i) who is a stockholder of record on the date of the giving of the notice
provided for in this Section 2.2 and on the record date for the determination of
stockholders entitled to vote at such annual meeting and (ii) who complies with
the notice procedures set forth in this Section 2.2.
In addition to any other applicable requirements, for a nomination to be made
by a stockholder, such stockholder must have given timely notice thereof in
proper written form to the secretary of the corporation.
To be timely, a stockholder's notice to the secretary must be delivered to or
mailed and received at the principal executive offices of the corporation not
less than sixty (60) days nor more than ninety (90) days prior to the date of
the annual meeting of stockholders; provided, however, that in the event that
-------
less than seventy (70) days' notice or prior public disclosure of the date of
the meeting is given to stockholders, notice by the stockholder to be timely
must be so received not later than the close of business on the tenth (10th) day
following the day on which such notice of the date of the annual meeting was
mailed or such public disclosure of the date of the annual meeting was made,
whichever first occurs.
To be in proper written form, a stockholder's notice to the secretary must set
forth (a) as to each person whom the stockholder proposes to nominate for
election as a director (i) the name, age,
2
<PAGE>
business address and residence address of the person, (ii) the principal
occupation or employment of the person, (ii) the class or series and number of
shares of capital stock of the corporation that are owned beneficially or of
record by the person and (iv) any other information relating to the person that
would be required to be disclosed in a proxy statement or other filings required
to be made in connection with solicitations of proxies for election of directors
pursuant to Section 14 of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), and the rules and regulations promulgated thereunder; and (b)
as to the stockholder giving the notice (i) the name and record address of such
stockholder, (ii) the class or series and number of shares of capital stock of
the corporation that are owned beneficially or of record by such stockholder,
(iii) a description of all arrangements or understandings between such
stockholder and each proposed nominee and any other person or persons (including
their names) pursuant to which the nomination(s) are to be made by such
stockholder, (iv) a representation that such stockholder intends to appear in
person or by proxy at the meeting to nominate the persons named in its notice
and (v) any other information relating to such stockholder that would be
required to be disclosed in a proxy statement or other filings required to be
made in connection with solicitations of proxies for election of directors
pursuant to Section 14 of the Exchange Act and the rules and regulations
promulgated thereunder. Such notice must be accompanied by a written consent of
each proposed nominee to being named as a nominee and to serve as a director if
elected.
No person shall be eligible for election as a director of the corporation
unless nominated in accordance with the procedures set forth in this Section
2.2. If the chairman of the meeting determines that a nomination was not made in
accordance with the foregoing procedures, the chairman shall declare to the
meeting that the nomination was defective and such defective nomination shall be
disregarded.
No business may be transacted at an annual meeting of stockholders, other than
business that is either (a) specified in the notice of meeting (or any
supplement thereto) given by or at the direction of the board of directors (or
any duly authorized committee thereof), (b) otherwise properly brought before
the annual meeting by or at the direction of the board of directors (or any duly
authorized committee thereof) or (c) otherwise properly brought before the
annual meeting by any stockholder of the corporation (i) who is a stockholder of
record on the date of the giving of the notice provided for in this Section 2.2
and on the record date for the
3
<PAGE>
determination of stockholders entitled to vote at such annual meeting and (ii)
who complies with the notice procedure set forth in this Section 2.2.
In addition to any other applicable requirements, for business to be properly
brought before an annual meeting by a stockholder, such stockholder must have
given timely notice thereof in proper written form to the secretary of the
corporation.
To be timely, a stockholder's notice to the secretary must be delivered to or
mailed and received at the principal executive offices of the corporation not
less than sixty (60) days nor more
than ninety (90) days prior to the date of the annual meeting of stockholders;
provided, however, that in the event that less than seventy (70) days' notice or
-------
prior public disclosure of the date of the meeting is given to stockholders,
notice by the stockholder to be timely must be so received not later than the
close of business on the tenth (10th) day following the day on which such notice
of the date of the annual meeting was mailed or such public disclosure of the
date of the annual meeting was made, whichever first occurs.
To be in proper written form, a stockholder's notice to the secretary must set
forth as to each matter such stockholder proposes to bring before the annual
meeting (i) a brief description of the business desired to be brought before the
annual meeting and the reasons for conducting such business at the annual
meeting, (ii) the name and record address of such stockholder, (iii) the class
or series and number of shares of capital stock of the corporation that are
owned beneficially or of record by such stockholder, (iv) a description of all
arrangements or understandings between such stockholder and any other person or
persons (including their names) in connection with the proposal of such business
by such stockholder and any material interest of such stockholder in such
business and (v) a representation that such stockholder intends to appear in
person or by proxy at the annual meeting to bring such business before the
meeting.
No business shall be conducted at the annual meeting of stockholders except
business brought before the annual meeting in accordance with the procedures set
forth in this Section 2.2, provided, however, that, once business has been
-------- -------
properly brought before the annual meeting in accordance with such procedures,
nothing in this Section 2.2 shall be deemed to preclude discussion by any
stockholder of any such business. If the chairman of an annual meeting
determines that business was not properly brought before the
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annual meeting in accordance with the foregoing procedures, the chairman shall
declare to the meeting that the business was not properly brought before the
meeting and such business shall not be transacted.
2.3 SPECIAL MEETING
---------------
Unless otherwise expressly provided in the Certificate of Incorporation of the
corporation, special meetings of the stockholders may only be called by the
chairman of the board, by the president or at the request in writing of a
majority of the board of directors. Special meetings of stockholders of the
corporation may not be called by any other person or persons.
If a special meeting is called by any person or persons other than the board
of directors, the request shall be in writing, specifying the time of such
meeting and the general nature of the business proposed to be transacted, and
shall be delivered personally or sent by registered mail or by telegraphic or
other facsimile transmission to the chairman of the board, the president, any
vice president or the secretary of the corporation. No business may be
transacted at such special meeting otherwise than specified in such notice. The
officer receiving the request shall cause notice to be promptly given to the
stockholders entitled to vote, in accordance with the provisions of Sections 2.4
and 2.5, and that a meeting will be held at the time requested by the person or
persons who called the meeting, not less than thirty-five (35) nor more than
sixty (60) days after the receipt of the request. If the notice is not given
within twenty (20) days after the receipt of the request, the person or persons
requesting the meeting may give the notice. Nothing contained in this paragraph
of this Section 2.3 shall be construed as limiting, fixing, or affecting the
time when a meeting of stockholders called by action of the board of directors
may be held.
2.4 NOTICE OF STOCKHOLDERS' MEETINGS
--------------------------------
All notices of meetings with stockholders shall be in writing and shall be
sent or otherwise given in accordance with Section 2.5 of these bylaws not less
than ten (10) nor more than sixty (60) days before the date of the meeting to
each stockholder entitled to vote at such meeting. The notice shall specify the
place, date, and hour of the meeting, and, in the case of a special meeting, the
purpose or purposes for which the meeting is called.
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2.5 MANNER OF GIVING NOTICE; AFFIDAVIT OF NOTICE
--------------------------------------------
Written notice of any meeting of stockholders, if mailed, is given when
deposited in the United States mail, postage prepaid, directed to the
stockholder at his address as it appears on the records of the corporation. An
affidavit of the secretary or an assistant secretary or of the transfer agent of
the corporation that the notice has been given shall, in the absence of fraud,
be prima facie evidence of the facts stated therein.
2.6 QUORUM
------
The holders of a majority of the stock issued and outstanding and entitled to
vote thereat, present in person or represented by proxy, shall constitute a
quorum at all meetings of the stockholders for the transaction of business
except as otherwise provided by statute or by the certificate of incorporation.
If, however, such quorum is not present or represented at any meeting of the
stockholders, then either (i) the chairman of the meeting or (ii) the
stockholders entitled to vote thereat, present in person or represented by
proxy, shall have power to adjourn the meeting from time to time, without notice
other than announcement at the meeting, until a quorum is present or
represented. At such adjourned meeting at which a quorum is present or
represented, any business may be transacted that might have been transacted at
the meeting as originally noticed.
2.7 ADJOURNED MEETING; NOTICE
-------------------------
When a meeting is adjourned to another time or place, unless these Bylaws
otherwise require, notice need not be given of the adjourned meeting if the time
and place thereof are announced at the meeting at which the adjournment is
taken. At the adjourned meeting the corporation may transact any business that
might have been transacted at the original meeting. If the adjournment is for
more than thirty (30) days, or if after the adjournment a new record date is
fixed for the adjourned meeting, a notice of the adjourned meeting shall be
given to each stockholder of record entitled to vote at the meeting.
2.8 VOTING
------
The stockholders entitled to vote at any meeting of stockholders shall be
determined in accordance with the provisions of Section 2.11 of these bylaws,
subject to the provisions of Sections
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217 and 218 of the General Corporation Law of Delaware (relating to voting
rights of fiduciaries, pledgors and joint owners of stock and to voting trusts
and other voting agreements).
Except as set forth in the immediately following paragraph of this Section 2.8
or otherwise provided in the Certificate of Incorporation, each stockholder
represented at a meeting of stockholders shall be entitled to cast one vote for
each share of the capital stock entitled to vote thereat held by such
stockholder. The board of directors, in its discretion, or the officer of the
corporation presiding at a meeting of stockholders, in his discretion, may
require that any votes cast at such meeting shall be cast by written ballot.
At the election of directors of the corporation, each holder of stock or of
any class or classes or of a series or series thereof shall be entitled to as
many votes as shall equal the number of which (except for such provision as to
cumulative voting) he would be entitled to cast for the election of directors
with respect to his shares of stock multiplied by the number of directors to be
elected by him, and he may cast all of such votes for a single director or may
distribute them among the number for, or for any two or more of them as he may
see fit; provided, however, that no stockholder shall be entitled to so cumulate
such stockholder's votes unless the candidates for which such stockholder is
voting have been placed in nomination in accordance with Section 2.2 of this
Article II and a stockholder has given timely notice of an intention to cumulate
votes. To be timely, a stockholder's notice shall be delivered to or mailed and
received at the principal executive offices of the corporation not less than
sixty (60) days nor more than ninety (90) days prior to the meeting; provided,
--------
however, that in the event that less than seventy (70) days' notice or prior
public disclosure of the date of the meeting is given or made to stockholders,
notice by the stockholder to be timely must be so received not later than the
close of business on the tenth (10th) day following the day on which such notice
of the date of the meeting was mailed or such public disclosure was made,
whichever first occurs. If any one stockholder has given proper notice of an
intention to cumulate votes pursuant to this Section 2.8, all stockholders may
cumulate their votes for candidates properly in nomination.
When a quorum is present at any meeting, the vote of the holders of a majority
of the stock having voting power present in person or represented by proxy shall
decide any question brought before such meeting, unless the question is one upon
which, by
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express provision of the statutes or of the Certificate of Incorporation, a
different vote is required, in which case such express provision shall govern
and control the decision of the question.
2.9 WAIVER OF NOTICE
----------------
Whenever notice is required to be given under any provision of the General
Corporation Law of Delaware or of the certificate of incorporation or these
bylaws, a written waiver thereof, signed by the person entitled to notice,
whether before or after the time stated therein, shall be deemed equivalent to
notice. Attendance of a person at a meeting shall constitute a waiver of notice
of such meeting, except when the person attends a meeting for the express
purpose of objecting, at the beginning of the meeting, to the transaction of any
business because the meeting is not lawfully called or convened. Neither the
business to be transacted at, nor the purpose of, any regular or special meeting
of the stockholders need be specified in any written waiver of notice unless so
required by the certificate of incorporation or these bylaws.
2.10 STOCKHOLDER ACTION BY WRITTEN CONSENT WITHOUT A MEETING
-------------------------------------------------------
Unless otherwise provided in the certificate of incorporation, any action
required by this chapter to be taken at any annual or special meeting of
stockholders of a corporation, or any action that may be taken at any annual or
special meeting of such stockholders, may be taken without a meeting, without
prior notice, and without a vote if a consent in writing, setting forth the
action so taken, is signed by the holders of outstanding stock having not less
than the minimum number of votes that would be necessary to authorize or take
such action at a meeting at which all shares entitled to vote thereon were
present and voted.
Prompt notice of the taking of the corporate action without a meeting by less
than unanimous written consent shall be given to those stockholders who have not
consented in writing. If the action which is consented to is such as would have
required the filing of a certificate under any section of the General
Corporation Law of Delaware if such action had been voted on by stockholders at
a meeting thereof, then the certificate filed under such section shall state, in
lieu of any statement required by such section concerning any vote of
stockholders, that written notice and written consent have been given as
provided in Section 228 of the General Corporation Law of Delaware.
8
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In order that the corporation may determine the stockholders entitled to
consent to corporate action in writing without a meeting, the board of directors
may fix a record date, which record date shall not precede the date upon which
the resolution fixing the record date is adopted by the board of directors, and
which date shall not be more than ten (10) days after the date upon which the
resolution fixing the record date is adopted by the board of directors. Any
stockholder of record seeking to have the stockholders authorize or take
corporate action by written consent shall, by written notice to the secretary,
request the board of directors to fix a record date. The board of directors
shall promptly, but in all events within ten (10) days after the date on which
such a request is received, adopt a resolution fixing the record date. If no
record date has been fixed by the board of directors within ten (10) days of the
date on which such a request is received, the record date for determining
stockholders entitled to consent to corporate action in writing without a
meeting, when no prior action by the board of directors is required by
applicable law, shall be the first date on which a signed written consent
setting forth the action taken or proposed to be taken is delivered to the
corporation by delivery to its registered office in the State of Delaware, its
principal place of business or an officer or agent of the corporation having
custody of the book in which proceedings of meetings of stockholders are
recorded, to the attention of the secretary of the corporation. Delivery shall
be by hand or by certified or registered mail, return receipt requested.
If no record date has been fixed by the board of directors and prior action by
the board of directors is required by applicable law, the record date for
determining stockholders entitled to consent to corporate action in writing
without a meeting shall be at the close of business on the date on which the
board of directors adopts the resolution taking such prior action.
In the event of the delivery to the corporation of a written consent or
consents purporting to authorize or take corporate action and/or related
revocations (each such written consent and any revocation thereof is referred to
in this Section 2.10 as a "Consent"), the secretary of the corporation shall
provide for the safekeeping of such Consents and shall as soon as practicable
thereafter conduct such reasonable investigation as he deems necessary or
appropriate for the purpose of ascertaining the validity of such Consents and
all matters incident thereto, including, without limitation, whether the holders
of shares having the requisite voting power to authorize or take the action
specified in the Consents have given consents. No consent to corporate action
in writing without a
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meeting shall be effective unless delivered to the corporation within sixty (60)
days following the record date relating thereto fixed pursuant to this Section
2.10.
2.11 RECORD DATE FOR STOCKHOLDER NOTICE; VOTING; GIVING CONSENTS
-----------------------------------------------------------
In order that the corporation may determine the stockholders entitled to
notice of or to vote at any meeting of stockholders or any adjournment thereof,
or entitled to receive payment of any dividend or other distribution or
allotment of any rights, or entitled to exercise any rights in respect of any
change, conversion or exchange of stock or for the purpose of any other lawful
action, the board of directors may fix, in advance, a record date, which shall
be not more than sixty (60) nor less than ten (10) days before the date of such
meeting, nor more than sixty (60) days prior to any other action.
If the board of directors does not so fix a record date:
(i) The record date for determining stockholders entitled to notice of or to
vote at a meeting of stockholders shall be at the close of business on
the day next preceding the day on which notice is given, or, if notice is
waived, at the close of business on the day next preceding the day on
which the meeting is held.
(ii) The record date for determining stockholders for any other purpose shall
be at the close of business on the day on which the board of directors
adopts the resolution relating thereto.
A determination of stockholders of record entitled to notice of or to vote at
a meeting of stockholders shall apply to any adjournment of the meeting;
provided, however, that the board of directors may fix a new record date for the
adjourned meeting.
2.12 PROXIES
-------
Each stockholder entitled to vote at a meeting of stockholders or to express
consent or dissent to corporate action in writing without a meeting may
authorize another person or persons to act for him by a written proxy, signed by
the stockholder and filed with the secretary of the corporation, but no such
proxy shall be voted or acted upon after three (3) years from its date, unless
the proxy provides for a longer period. A proxy shall be deemed signed if the
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stockholder's name is placed on the proxy (whether by manual signature,
typewriting, telegraphic transmission or otherwise) by the stockholder or the
stockholder's attorney-in-fact. The revocability of a proxy that states on its
face that it is irrevocable shall be governed by the provisions of Section
212(c) of the General Corporation Law of Delaware.
2.13 LIST OF STOCKHOLDERS ENTITLED TO VOTE
-------------------------------------
The officer who has charge of the stock ledger of a corporation shall
prepare and make, at least ten (10) days before every meeting of stockholders, a
complete list of the stockholders entitled to vote at the meeting, arranged in
alphabetical order, and showing the address of each stockholder and the number
of shares registered in the name of each stockholder. Such list shall be open to
the examination of any stockholder, for any purpose germane to the meeting,
during ordinary business hours, for a period of at least ten (10) days prior to
the meeting, either at a place within the city where the meeting is to be held,
which place shall be specified in the notice of the meeting, or, if not so
specified, at the place where the meeting is to be held. The list shall also be
produced and kept at the time and place of the meeting during the whole time
thereof, and may be inspected by any stockholder who is present. Such list shall
presumptively determine the identity of the stockholders entitled to vote at the
meeting and the number of shares held by each of them.
2.14 CONDUCT OF BUSINESS
-------------------
The chairman of any meeting of stockholders shall determine the order of
business and the procedures at the meeting, including such matters as the
regulation of the manner of voting and the conduct of business.
ARTICLE III
DIRECTORS
---------
3.1 POWERS
------
Subject to the provisions of the General Corporation Law of Delaware and
any limitations in the certificate of incorporation or
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these bylaws relating to action required to be approved by the stockholders or
by the outstanding shares, the business and affairs of the corporation shall be
managed and all corporate powers shall be exercised by or under the direction of
the board of directors.
3.2 NUMBER OF DIRECTORS
-------------------
The number of directors of the corporation shall be not less than four (4)
nor more than (7). The exact number of directors shall be seven (7) until
changed, within the limits specified above, by a bylaw amending this Section
3.2, duly adopted by the board of directors or by the stockholders. The
indefinite number of directors may be changed, or a definite number may be fixed
without provision for an indefinite number, by a duly adopted amendment to the
certificate of incorporation or by an amendment to this bylaw duly adopted by
the vote or written consent of the holders of a majority of the stock issued and
outstanding and entitled to vote.
No reduction of the authorized number of directors shall have the effect of
removing any director before that director's term of office expires.
3.3 ELECTION, QUALIFICATION AND TERM OF OFFICE OF DIRECTORS
-------------------------------------------------------
Except as provided in Section 3.4 of these bylaws, directors shall be
elected at each annual meeting of stockholders to hold. office until the next
annual meeting. Directors need not be stockholders unless so required by the
certificate of incorporation or these bylaws, wherein other qualifications for
directors may be prescribed. Each director, including a director elected to fill
a vacancy, shall hold office until his successor is elected and qualified or
until his earlier resignation or removal.
Elections of directors need not be by written ballot.
3.4 RESIGNATION AND VACANCIES
-------------------------
Any director may resign at any time upon written notice to the corporation.
When one or more directors so resigns and the resignation is effective at a
future date, a majority of the directors then in office, including those who
have so resigned, shall have power to fill such vacancy or vacancies, the vote
thereon to take effect when such resignation or resignations shall become
effective, and each director so chosen shall hold office as provided in this
section in the filling of other vacancies.
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A vacancy created by the removal of a director by the vote or written
consent of the stockholders or by a court order may be filled only by the vote
of a majority of the outstanding shares entitled to vote thereon represented at
a duly held meeting at which a quorum is present, or by the unanimous written
consent of all shares entitled to vote thereon. Each director so elected shall
hold office until the next annual meeting of the stockholders and until a
successor has been elected and qualified.
Unless otherwise provided in the certificate of incorporation or these
bylaws:
(i) Vacancies and newly created directorships resulting from any increase
in the authorized number of directors elected by all of the stockholders having
the right to vote as a single class may be filled by a majority of the directors
then in office, although less than a quorum, or by a sole remaining director.
(ii) Whenever the holders of any class or classes of stock or series
thereof are entitled to elect one or more directors by the provisions of the
certificate of incorporation, vacancies and newly created directorships of such
class or classes or series may be filled by a majority of the directors elected
by such class or classes or series thereof then in office, or by a sole
remaining director so elected.
If at any time, by reason of death or resignation or other cause, the
corporation should have no directors in office, then any officer or any
stockholder or an executor, administrator, trustee or guardian of a stockholder,
or other fiduciary entrusted with like responsibility for the person or estate
of a stockholder, may call a special meeting of stockholders in accordance with
the provisions of the certificate of incorporation or these bylaws, or may apply
to the Court of Chancery for a decree summarily ordering an election as provided
in Section 211 of the General Corporation Law of Delaware.
If, at the time of filling any vacancy or any newly created directorship,
the directors then in office constitute less than a majority of the whole board
(as constituted immediately prior to any such increase), then the Court of
Chancery may, upon application of any stockholder or stockholders holding at
least ten (10) percent of the total number of the shares at the time outstanding
having the right to vote for such directors, summarily order an election to be
held to fill any such vacancies or newly created directorships, or to
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replace the directors chosen by the directors then in office as aforesaid, which
election shall be governed by the provisions of Section 211 of the General
Corporation Law of Delaware as far as applicable.
A director elected or appointed to fill a vacancy shall serve until the
next annual meeting of stockholders or until a successor shall be elected and
qualified.
3.5 PLACE OF MEETINGS; MEETINGS BY TELEPHONE
----------------------------------------
The board of directors of the corporation may hold meetings, both regular
and special, either within or outside the State of Delaware.
Unless otherwise restricted by the certificate of incorporation or these
bylaws, members of the board of directors, or any committee designated by the
board of directors, may participate in a meeting of the board of directors, or
any committee, by means of conference telephone or similar communications
equipment by means of which all persons participating in the meeting can hear
each other, and such participation in a meeting shall constitute presence in
person at the meeting.
3.6 FIRST MEETINGS
--------------
The first meeting of each newly elected board of directors shall be held
at such time and place as shall be fixed by the vote of the stockholders at the
annual meeting and no notice of such meeting shall be necessary to the newly
elected directors in order legally to constitute the meeting, provided a quorum
shall be present. In the event of the failure of the stockholders to fix the
time or place of such first meeting of the newly elected board of directors , or
in the event such meeting is not held at the time and place so fixed by the
stockholders, the meeting may be held at such time and place as shall be
specified in a notice given as hereinafter provided for special meetings of the
board of directors, or as shall be specified in a written waiver signed by all
of the directors.
3.7 REGULAR MEETINGS
----------------
Regular meetings of the board of directors may be held without notice if
the times of such meetings are fixed by the board of directors.
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3.8 SPECIAL MEETINGS; NOTICE
------------------------
Notice of the time and place of special meetings shall be given to each
director at that director's address as it is shown on the records of the
corporation. Notice of such special meeting stating the place, date and hour of
the meeting shall be given to each director either (i) by mail not less than
four (4) days before the date of the meeting, or (ii) personally, by telephone,
telecopy, telegram, telex or other similar means of communication on twenty-four
(24) hours' notice, or on such shorter notice as the person or persons calling
such meeting may deem necessary or appropriate in the circumstances. Any oral
notice given personally or by telephone may be communicated either to the
director or to a person at the office of the director whom the person giving the
notice has reason to believe will promptly communicate it to the director.
3.9 QUORUM
------
At all meetings of the board of directors, a majority of the authorized
number of directors shall constitute a quorum for the transaction of business
and the act of a majority of the directors present at any meeting at which there
is a quorum shall be the act of the board of directors, except as may be
otherwise specifically provided by statute or by the certificate of
incorporation. If a quorum is not present at any meeting of the board of
directors, then the directors present thereat may adjourn the meeting from time
to time, without notice other than announcement at the meeting, until a quorum
is present.
3.10 WAIVER OF NOTICE
----------------
Whenever notice is required to be given under any provision of the General
Corporation Law of Delaware or of the certificate of incorporation or these
bylaws, a written waiver thereof, signed by the person entitled to notice,
whether before or after the time stated therein, shall be deemed equivalent to
notice. Attendance of a person at a meeting shall constitute a waiver of notice
of such meeting, except when the person attends a meeting for the express
purpose of objecting, at the beginning of the meeting, to the transaction of any
business because the meeting is not lawfully called or convened. Neither the
business to be transacted at, nor the purpose of, any regular or special meeting
of the directors, or members of a committee of directors, need be specified in
any written waiver of notice unless so required by the certificate of
incorporation or these bylaws.
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3.11 ADJOURNED MEETING; NOTICE
-------------------------
If a quorum is not present at any meeting of the board of directors, then
the directors present thereat may adjourn the meeting from time to time, without
notice other than announcement at the meeting, until a quorum is present.
3.12 BOARD ACTION BY WRITTEN CONSENT WITHOUT A MEETING
-------------------------------------------------
Unless otherwise restricted by the certificate of incorporation or these
bylaws, any action required or permitted to be taken at any meeting of the board
of directors, or of any committee thereof, may be taken without a meeting if all
members of the board or committee, as the case may be, consent thereto in
writing and the writing or writings are filed with the minutes of proceedings of
the board or committee.
3.13 FEES AND COMPENSATION OF DIRECTORS
----------------------------------
Unless otherwise restricted by the certificate of incorporation or these
bylaws, the board of directors shall have the authority to fix the compensation
of directors. The directors may be paid their expenses, if any, of attending
each meeting of the board of directors and may be paid a fixed sum for attending
each meeting of the board of directors or a stated salary as director. No such
payment shall preclude any director from serving the corporation in any other
capacity and receiving compensation therefor. Members of special or standing
committees may be allowed like compensation for attending committee meetings.
3.14 APPROVAL OF LOANS TO OFFICERS
-----------------------------
The corporation may lend money to, or guarantee any obligation of, or
otherwise assist any officer or other employee of the corporation or of its
subsidiary, including any officer or employee who is a director of the
corporation or its subsidiary, whenever in the judgment of the directors, such
loan, guaranty or assistance may reasonably be expected to benefit the
corporation. The loan, guaranty or other assistance may be with or without
interest and may be unsecured, or secured in such manner as the board of
directors shall approve, including, without limitation, a pledge of shares of
stock of the corporation. Nothing in this section contained shall be deemed to
deny, limit or restrict the powers of guaranty or warranty of the corporation at
common law or under any statute.
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3.15 REMOVAL OF DIRECTORS
--------------------
Unless otherwise restricted by statute, by the certificate of incorporation
or by these bylaws, any director or the entire board of directors may be
removed, with or without cause, by the holders of a majority of the shares then
entitled to vote at an election of directors; provided, however, that, so long
as stockholders of the corporation are entitled to cumulative voting, if less
than the entire board is to be removed, no director may be removed without cause
if the votes cast against his or her removal would be sufficient to elect him or
her if then cumulatively voted at an election of the entire board of directors.
No reduction of the authorized number of directors shall have the effect of
removing any director prior to the expiration of such director's term of office.
ARTICLE IV
COMMITTEES
----------
4.1 COMMITTEES OF DIRECTORS
-----------------------
The board of directors may, by resolution passed by a majority of the whole
board, designate one or more committees, with each committee to consist of one
or more of the directors of the corporation. The board may designate one or
more directors as alternate members of any committee, who may replace any absent
or disqualified member at any meeting of the committee. In the absence or
disqualification of a member of a committee, the member or members thereof
present at any meeting and not disqualified from voting, whether or not he or
they constitute a quorum, may unanimously appoint another member of the board of
directors to act at the meeting in the place of any such absent or disqualified
member. Any such committee, to the extent provided in the resolution of the
board of directors or in the bylaws of the corporation, shall have and may
exercise all the powers and authority of the board of directors in the
management of the business and affairs of the corporation, and may authorize the
seal of the corporation to be affixed to all papers that may require it; but no
such committees shall have the power or authority to (i) amend the certificate
of incorporation (except that
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a committee may, to the extent authorized in the resolution or resolutions
providing for the issuance of shares of stock adopted by the board of directors
as provided in Section 151(a) of the General Corporation Law of Delaware, fix
any of the preferences or rights of such shares relating to dividends,
redemption, dissolution, any distribution of assets of the corporation or the
conversion into, or the exchange of such shares for, shares of any other class
or classes or any other series of the same or any other class or classes of
stock of the corporation), (ii) adopt an agreement of merger or consolidation
under Sections 251 or 252 of the General Corporation Law of Delaware, (iii)
recommend to the stockholders the sale, lease or exchange of all or
substantially all of the corporation's property and assets, (iv) recommend to
the stockholders a dissolution of the corporation or a revocation of a
dissolution, or (v) amend the bylaws of the corporation; and, unless the board
resolution establishing the committee, the bylaws or the certificate of
incorporation expressly so provide, no such committee shall have the power or
authority to declare a dividend, to authorize the issuance of stock, or to adopt
a certificate of ownership and merger pursuant to section 253 of the General
Corporation Law of Delaware.
4.2 COMMITTEE MINUTES
-----------------
Each committee shall keep regular minutes of its meetings and report the
same to the board of directors when required.
4.3 MEETINGS AND ACTION OF COMMITTEES
---------------------------------
Meetings and actions of committees shall be governed by, and held and taken
in accordance with, the provisions of Article III of these bylaws, Section 3.5
(place of meetings and meetings by telephone), Section 3.7 (regular meetings),
Section 3.8 (special meetings and notice), Section 3.9 (quorum), Section 3.10
(waiver of notice), Section 3.11 (adjournment and notice of adjournment), and
Section 3.12 (action without a meeting), with such changes in the context of
those bylaws as are necessary to substitute the committee and its members for
the board of directors and its members; provided, however, that the time of
regular meetings of committees may also be called by resolution of the board of
directors and that notice of special meeting of committees shall also be given
to all alternate members, who shall have the right to attend all meetings of the
committee. The board of directors may adopt rules for the government of any
committee not inconsistent with the provisions of these bylaws.
18
<PAGE>
ARTICLE V
OFFICERS
--------
1. OFFICERS
--------
The officers of the corporation shall be a president, one or more vice
presidents, a secretary, and a treasurer. The corporation may also have, at the
discretion of the board of directors, a chairman of the board, one or more
assistant vice presidents, assistant secretaries, assistant treasurers, and any
such other officers as may be appointed in accordance with the provisions of
Section 5.3 of these bylaws. Any number of offices may be held by the same
person.
2. ELECTION OF OFFICERS
--------------------
The officers of the corporation, except such officers as may be appointed
in accordance with the provisions of Section 5.3 or 5.5 of these bylaws, shall
be chosen by the board of directors, subject to the rights, if any, of any
officer under any contract of employment.
3. SUBORDINATE OFFICERS
--------------------
The board of directors may appoint or empower the president to appoint,
such other officers and agents as the business of the corporation may require,
each of whom shall hold office for such period, have such authority, and perform
such duties as are provided in these bylaws or as the board of directors may
from time to time determine.
4. REMOVAL AND RESIGNATION OF OFFICERS
-----------------------------------
Subject to the rights, if any, of an officer under any contract of
employment, any officer may be removed, either with or without cause, by an
affirmative vote of the majority of the board of directors at any regular or
special meeting of the board or, except in the case of an officer chosen by the
board of directors, by any officer upon whom such power of removal may be
conferred by the board of directors.
Any officer may resign at any time by giving written notice to the
corporation. Any resignation shall take effect at the date of the receipt of
that notice or at any later time specified in that
19
<PAGE>
notice; the acceptance of the resignation shall not be necessary to make it
effective. Any resignation is without prejudice to the rights, if any, of the
corporation under any contract to which the officer is a party.
5. VACANCIES IN OFFICES
--------------------
Any vacancy occurring in any office of the corporation shall be filled by
the board of directors.
6. CHAIRMAN OF THE BOARD
---------------------
The chairman of the board shall be the chief executive officer of the
corporation and shall, subject to the control of the board of directors, have
general supervision, direction and control of the business and the officers of
the corporation. He shall preside at all meetings of the board of directors and
shareholders. He shall have the general powers and duties of management
generally vested in the office of chief executive officer of a corporation, and
shall have such other powers and duties as may be prescribed by the board of
directors or these bylaws.
7. PRESIDENT
---------
The president shall be the chief operating officer of the corporation and
shall, subject to the control of the board of directors, have general
supervision, direction, and control of the internal affairs and operations of
the corporation. He shall have the general powers and duties of management
usually vested in the office of chief operating officer of a corporation, and
shall have such other powers and duties as may be prescribed by the board of
directors or these bylaws.
8. VICE PRESIDENTS
---------------
In the absence or disability of the president, the vice presidents, if any,
in order of their rank as fixed by the board of directors or, if not ranked, a
vice president designated by the board of directors, shall perform all the
duties of the president and when so acting shall have all the powers of, and be
subject to all the restrictions upon, the president. The vice presidents shall
have such other powers and perform such other duties as from time to time may be
prescribed for them respectively by the board of directors, these bylaws, the
president or the chairman of the board.
20
<PAGE>
9. SECRETARY
---------
The secretary shall keep or cause to be kept, at the principal office of
the corporation or such other place as the board of directors may direct, a book
of minutes of all meetings and actions of directors, committees of directors,
and shareholders. The minutes shall show the time and place of each meeting,
whether regular or special (and, if special, how authorized and the notice
given), the names of those present at directors' meetings or committee meetings,
the number of shares present or represented at shareholders' meetings, and the
proceedings thereof.
The secretary shall keep, or cause to be kept, at the principal executive
office of the corporation or at the office of the corporation's transfer agent
or registrar, as determined by resolution of the board of directors, a share
register, or a duplicate share register, showing the names of all shareholders
and their addresses, the number and classes of shares held by each, the number
and date of certificates evidencing such shares, and the number and date of
cancellation of every certificate surrendered for cancellation.
The secretary shall give, or cause to be given, notice of all meetings of
the shareholders and of the board of directors required to be given by law or by
these bylaws. He shall keep the seal of the corporation, if one be adopted, in
safe custody and shall have such other power and perform such other duties as
may be prescribed by the board of directors or by these bylaws.
10. CHIEF FINANCIAL OFFICER
-----------------------
The chief financial officer shall keep and maintain, or cause to be kept
and maintained, adequate and correct books and records of accounts of the
properties and business transactions of the corporation, including accounts of
its assets, liabilities, receipts, disbursements, gains, losses, capital,
retained earnings, and shares. The books of account shall at all reasonable
times be open to inspection by any director.
The chief financial officer shall deposit all money and other valuables in
the name and to the credit of the corporation with such depositories as may be
designated by the board of directors. He shall disburse the funds of the
corporation as may be ordered by the board of directors, shall render to the
president and directors, whenever they request it, an account of all of his
transactions as
21
<PAGE>
chief financial officer and of the financial condition of the corporation, and
shall have such other powers and perform such other duties as may be prescribed
by the board of directors or these bylaws.
11. ASSISTANT SECRETARY
-------------------
The assistant secretary, or if there is more than one, the assistant
secretaries in the order determined by the stockholders or board of directors
(or if there be no such determination then in the order of their election)
shall, in the absence of the secretary or in the event of his or her inability
or refusal to act, perform the duties and exercise the powers of the secretary
and shall perform such other duties and have such other powers as the board of
directors or the stockholders may from time to time prescribe.
12. ASSISTANT TREASURERS
--------------------
The assistant treasurer, or, if there is more than one, the assistant
treasurer, in the order determined by the stockholders or board of directors (or
if there be no such determination, then in the order of their election), shall,
in the absence of the chief financial officer or in the event of his or her
inability or refusal to act, perform the duties and exercise the powers of the
chief financial officer and shall perform such other duties and have such other
powers as the board of directors or the stockholders may from time to time
prescribe.
13. AUTHORITY AND DUTIES OF OFFICERS
--------------------------------
In addition to the foregoing authority and duties, all officers of the
corporation shall respectively have such authority and perform such duties in
the management of the business of the corporation as may be designated form time
to time by the board of directors or the stockholders.
ARTICLE VI
INDEMNITY
---------
1. INDEMNIFICATION OF DIRECTORS AND OFFICERS
-----------------------------------------
The corporation shall, to the maximum extent and in the manner permitted by
the General Corporation Law of Delaware, indemnify each
22
<PAGE>
of its directors and officers against expenses (including attorneys' fees),
judgments, fines, settlements, and other amounts actually and reasonably
incurred in connection with any proceeding, arising by reason of the fact that
such person is or was an agent of the corporation. For purposes of this Section
6.1, a "director" or "officer" of the corporation includes any person (i) who is
or was a director or officer of the corporation, (ii) who is or was servicing at
the request of the corporation as a director or officer of another corporation,
partnership, joint venture, trust or other enterprise, or (iii) who was a
director or officer of a corporation which was a predecessor corporation of the
corporation or of another enterprise at the request of such predecessor
corporation.
2. INDEMNIFICATION OF OTHERS
-------------------------
The corporation shall have the power, to the extent and in the manner
permitted by the General Corporation Law of Delaware, to indemnify each of its
employees and agents (other than directors and officers) against expenses
(including attorneys' fees), judgments, fines, settlements, and other amounts
actually and reasonably incurred in connection with any proceeding, arising by
reason of the fact that such person is or was an agent of the corporation. For
purposes of this Section 6.2, an "employee" or "agent" of the corporation (other
than a director or officer) includes any person (i) who is or was an employee or
agent of the corporation, (ii) who is or was serving at the request of the
corporation as an employee or agent or another corporation, partnership, joint
venture, trust or other enterprise, or (iii) who was an employee or agent of a
corporation which was a predecessor corporation of the corporation or of another
enterprise at the request of such predecessor corporation.
3. INSURANCE
---------
The corporation may purchase and maintain insurance on behalf of any person
who is or was a director, officer, employee or agent of the corporation, or is
or was serving at the request of the corporation as a director, officer,
employee or agent of another corporation, partnership, joint venture, trust or
other enterprise against any liability asserted against him and incurred by him
in any such capacity, or arising out of his status as such, whether or not the
corporation would have the power to indemnify him against such liability under
the provisions of the General Corporation Law of Delaware.
23
<PAGE>
ARTICLE VII
RECORDS AND REPORTS
-------------------
1. MAINTENANCE AND INSPECTION OF RECORDS
-------------------------------------
The corporation shall, either at its principal executive office or at such
place or places as designated by the board of directors, keep a record of its
shareholders listing their names and addresses and the number and class of
shares held by each shareholder, a copy of these bylaws as amended to date,
accounting books, and other records.
Any stockholder of record, in person or by attorney or other agent, shall,
upon written demand under oath stating the purpose thereof, have the right
during the usual hours for business to inspect for any proper purpose the
corporation's stock ledger, a list of its stockholders, and its other books and
records and to make copies or extracts therefrom. A proper purpose shall mean a
purpose reasonably related to such person's interest as a stockholder. In every
instance where an attorney or other agent is the person who seeks the right to
inspection, the demand under oath shall be accompanied by a power of attorney of
such other writing that authorizes the attorney or other agent to so act on
behalf of stockholder. The demand under oath shall be directed to the
corporation at its registered office in Delaware or at its principal place of
business.
The officer who has charge of the stock ledger of the corporation shall
prepare and make, at least ten (10) days before every meeting of stockholders, a
complete list of the stockholders entitled to vote at the meeting, arranged in
alphabetical order, and showing the address of each stockholder and the number
of shares registered in the name of each stockholder. Such list shall be open
to the examination of any stockholder, for any purpose germane to the meeting,
during ordinary business hours, for, a period of at least ten (10) days prior to
the meeting, either at a place within the city where the meeting is to be held,
which place shall be specified in the notice of the meeting, or, if not
specified, at the place where the meeting is to be held. The list shall also be
produced and kept at the time and place of the meeting during the whole time
thereof, and may be inspected by any stockholder who is present.
2. INSPECTION BY DIRECTORS
-----------------------
24
<PAGE>
Any director shall have the right to examine the corporation's stock
ledger, a list of its stockholders, and its other books and records for a
purpose reasonably related to his position as a director. The Court of Chancery
is hereby vested with the exclusive jurisdiction to determine whether a director
is entitled to the inspection sought. The Court may summarily order the
corporation to permit the director to inspect any and all books and records, the
stock ledger, and the stock list and to make copies or extracts therefrom. The
Court may, in its discretion, prescribe any limitations or conditions with
reference to the inspection, or award such other and further relief as the Court
may deem just and proper.
3. ANNUAL STATEMENT TO STOCKHOLDERS
--------------------------------
The board of directors shall present at each annual meeting, and at any
special meeting of the stockholders when called for by vote of the stockholders,
a full and clear statement of the business and condition of the corporation.
4. REPRESENTATION OF SHARES OF OTHER CORPORATIONS
----------------------------------------------
The chairman of the board, the president, any vice president, the chief
financial officer, the secretary or assistant secretary of this corporation, or
any other person authorized by the board of directors or the president or a vice
president, is authorized to vote, represent, and exercise on behalf of this
corporation all rights incident to any and all shares of any other corporation
or corporations standing in the name of this corporation. The authority granted
herein may be exercised either by such person directly or by any other person
authorized to do so by proxy or power of attorney duly executed by such person
having the authority.
ARTICLE VIII
1. CHECKS
------
From time to time, the board of directors, shall determine by resolution
which person or persons may sign or endorse all checks, drafts, other orders for
payment of money, notes or other evidences of indebtedness that are issued in
the name of or payable to the corporation, and only the persons so authorized
shall sign or endorse those instruments.
25
<PAGE>
2. EXECUTION OF CORPORATE CONTRACTS AND INSTRUMENTS
------------------------------------------------
The board of directors, except as otherwise provided in these bylaws, may
authorize any officer or officers, or agent or agents, to enter into any
contract or execute any instrument in the name of and on behalf of the
corporation; such authority may be general or confined to specific instances.
Unless so authorized or ratified by the board of directors or within the agency
power of any officer, no officer, agent or employee shall have any power or
authority to bind the corporation by any contract or engagement or to pledge its
credit or to render it liable for any purpose or for any amount.
3. STOCK CERTIFICATES; PARTLY PAID SHARES
--------------------------------------
The shares of the corporation shall be represented by certificates,
provided that the board of directors may establish by resolution or resolutions
that some or all of any or all classes or series of the corporation's stock
shall be uncertificated shares. Any such resolution shall not apply to shares
represented by a certificate until such certificate is surrendered to the
corporation. Notwithstanding the adoption of such a resolution by the board of
directors, every holder of stock represented by certificates and, upon request,
every holder of uncertificated shares shall be entitled to have a certificate
signed by, or in the name of the corporation by the chairman or vice chairman of
the board of directors, or the president or vice president, and by the chief
financial officer or an assistant treasurer, or the secretary or an assistant
secretary of the corporation representing the number of shares registered in
certificate form. Any or all of the signatures on the certificate may be a
facsimile. In case any officer, transfer agent or registrar who has signed or
whose facsimile signatures has been placed upon a certificate has ceased to be
such officer, transfer agent or registrar before such certificate is issued, it
may be issued by the corporation with the same effect as if he or she were such
officer, transfer agent or registrar at the date of issue.
The corporation may issue the whole or any part of its shares as partly
paid and subject to call for the remainder of the consideration to be paid
therefor. Upon the face or back of each stock certificate issued to represent
any such partly paid shares, or upon the books and records of the corporation in
the case of uncertificated partly paid shares, the total amount of the
consideration to be paid therefor and the amount paid thereon shall be stated.
Upon the declaration of any dividend on fully paid
26
<PAGE>
shares, the corporation shall declare a dividend upon partly paid shares of the
same class, but only upon the basis of the percentage of the consideration
actually paid thereon.
4. SPECIAL DESIGNATION CERTIFICATES
--------------------------------
If the corporation is authorized to issue more than one class of stock or
more than one series of any class, then the powers, the designations, the
preferences, and the relative, participating, optional or other special rights
of each class of stock or series thereof and the qualifications, limitations or
restrictions of such preferences and/or rights shall be set forth in full or
summarized on the face or back of the certificate that the corporation shall
issue to represent such class or series of stock; provided, however, that,
except as otherwise provided in Section 202 of the General Corporation Law of
Delaware, in lieu of the foregoing requirements there may be set forth on the
face or back of the certificate that the corporation shall issue to represent
such class or series of stock a statement that the corporation will furnish
without charge to each stockholder who so requests the powers, the designations,
the preferences, and the relatives, participating, optional or other special
rights of each class of stock or series thereof and the qualifications,
limitations or restrictions of such preferences and/or rights.
5. LOST CERTIFICATES
-----------------
Except as provided in this Section 8.5, no new certificates for shares
shall be issued to replace a previously issued certificate unless the latter is
surrendered to the corporation and canceled at the same time. The corporation
may issue a new certificate of stock or uncertificated shares in the place of
any certificate theretofore issued by it, alleged to have been lost, stolen or
destroyed, and the corporation may require the owner of the lost, stolen or
destroyed certificate, or his legal representative, to give the corporation a
bond sufficient to indemnify it against any claim that may be made against it on
account of the alleged loss, theft or destruction of any uncertificated shares.
6. CONSTRUCTION; DEFINITIONS
-------------------------
Unless the context requires otherwise, the general provisions rules of
construction, and definitions in the Delaware General Corporation Law shall
govern the construction of these bylaws. Without limiting the generality of
this provision, the singular
27
<PAGE>
number includes the plural, the plural number includes the singular, the
masculine gender includes the feminine, the feminine gender includes the
masculine, and the term "Person" includes both a corporation and a natural
person.
7. DIVIDENDS
---------
The directors of the corporation, subject to any restrictions contained in
the certificate of incorporation, may declare and pay dividends upon the shares
of its capital stock pursuant to the General Corporation Law of Delaware.
Dividends may be paid in cash, in property, or in shares of the corporation's
capital.
The directors of the corporation may set apart out of any of the funds of
the corporation available for dividends a reserve or reserves for any proper
purpose and may abolish any such reserves. Such purposes shall include but not
be limited to equalizing dividends, repairing or maintaining any property of the
corporation, and meeting contingencies.
8. FISCAL YEAR
-----------
The fiscal year of the corporation shall be fixed by resolution of the
board of directors and may be changed by the board of directors. Unless
otherwise designated, the fiscal year of the corporation shall end on June 30.
9. SEAL
----
The corporation may adopt a corporate seal, which may be altered at
pleasure, and may use the same by causing it or a facsimile thereof to be
impressed or affixed or in any other manner reproduced.
10. TRANSFER OF STOCKS
------------------
Upon surrender to the corporation or the transfer agent of the corporation
of a certificate for shares duly endorsed or accompanied by proper evidence of
succession, assignation or authority to transfer, it shall be the duty of the
corporation to issue a new certificate to the person entitled thereto, cancel
the old certificate, and record the transaction in its books.
11. STOCK TRANSFER AGREEMENTS
-------------------------
28
<PAGE>
The corporation shall have power to enter into and perform, any agreement
with any number of shareholders of any one or more classes of stock of the
corporation to restrict the transfer of shares of stock of the corporation of
any one or more classes owned by such stockholders in any manner not prohibited
by the General Corporation Law of Delaware.
12. REGISTERED STOCKHOLDERS
-----------------------
The corporation shall be entitled to recognize the exclusive right of a
person registered on its books as the owner of shares to receive dividends and
to vote as such owner, shall be entitled to hold liable for calls and
assessments the person registered on its books as the owner of shares, and shall
not be bound to recognize any equitable or other claim to or interest in such
share or shares on the part of another person, whether or not it shall have
express or other notice thereof, except as otherwise provided by the laws of
Delaware.
ARTICLE IX
AMENDMENTS
----------
The original or other bylaws of the corporation may be adopted, amended or
repealed by the stockholders entitled to vote, provided, however, that the
corporation may, in its certificate of incorporation, confer the power to adopt,
amend or repeal bylaws upon the directors. The fact that such power has been so
conferred upon the directors shall not divest the stockholders of the power, nor
limit their power to adopt, amend or repeal bylaws.
ARTICLE X
DISSOLUTION
-----------
If it should be deemed advisable in the judgment of the board of directors
of the corporation that the corporation should be dissolved, the board, after
the adoption of a resolution to that effect by a majority of the whole board at
any meeting called for that purpose, shall cause notice to be mailed to each
stockholder entitled to vote thereon of the adoption of the resolution and of a
meeting of stockholders to take action upon the resolution.
29
<PAGE>
At the meeting a vote shall be taken for and against the proposed
dissolution. If a majority of the outstanding stock of the corporation entitled
to vote thereon votes for the proposed dissolution, then a certificate stating
that the dissolution has been authorized in accordance with the provision of
section 275 of the General Corporation Law of Delaware and setting forth the
names and residences of the directors and officers shall be executed,
acknowledged, and filed and shall become effective in accordance with Section
103 of the Federal Corporation Law of Delaware. Upon such certificates becoming
effective in accordance with Section 103 of the General Corporation Law of
Delaware, the corporation shall be dissolved.
Whenever all the stockholders entitled to vote on a dissolution consent in
writing, either in person or by duly authorized attorney, to a dissolution, no
meeting of directors or stockholders shall be necessary. The consent shall be
filed and shall become effective in accordance with Section 103 of the General
Corporation Law of Delaware. Upon such consents becoming effective in
accordance with Section 103 of the General Corporation Law of Delaware, the
corporation shall be dissolved. If the consent is signed by an attorney, then
the original power of attorney or a photocopy thereof shall be attached to and
filed with the consent. The consent filed with the Secretary of State shall
have attached to it the affidavit of the secretary of some other officer of the
corporation stating that the consent has been signed by or on behalf of all the
stockholders entitled to vote on a dissolution; in addition, there shall be
attached to the consent a certification by the secretary or some other officer
of the corporation setting forth the names and residences of the directors and
officers of the corporation.
ARTICLE XI
CUSTODIAN
---------
1. APPOINTMENT OF A CUSTODIAN IN CERTAIN CASES
-------------------------------------------
The Court of Chancery, upon application of any stockholder, may appoint one
or more persons to be custodians and, if the corporation is insolvent, to be
receivers, of and for the corporation when:
(i) at any meeting held for the election of directors the
stockholders are so divided that they have failed to elect successors to
directors
30
<PAGE>
whose terms have expired or would have expired upon qualification of their
successors; or
(ii) the business of the corporation is suffering or is
threatened with irreparable injury because the directors are so divided
respecting the management of the affairs of the corporation that the
required vote for action by the board of directors cannot be obtained and
the stockholders are unable to terminate this division; or
(iii) the corporation has abandoned its business and has
failed within a reasonable time to take steps to dissolve, liquidate or
distribute its assets.
2. DUTIES OF CUSTODIAN
-------------------
The custodian shall have all the powers and title of a receiver appointed
under Section 291 of the General Corporation Law of Delaware, but the authority
of the custodian shall be to continue the business of the corporation and not to
liquidate its affairs and distribute its assets, except when the Court of
Chancery otherwise orders and except in cases arising under Sections 226(a)(3)
or 352 (a)(2) of the General Corporation Law of Delaware.
31
<PAGE>
CERTIFICATE OF ADOPTION OF AMENDED AND RESTATED BYLAWS
OF
LAM RESEARCH CORPORATION
Certificate of Adoption
-----------------------
The undersigned hereby certifies that he is the duly elected, qualified, and
acting Secretary of Lam Research Corporation (the "Company") and that the
foregoing Amended and Restated Bylaws, comprising thirty-five (35) pages, were
adopted as the Amended and Restated Bylaws of the Company on January 23, 1997 at
a duly called meeting of the Board of Directors of the Company.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand and affixed
the corporate seal this ___ day of March, 1997.
----------------------------------------
Richard H. Lovgren, Secretary
32
<PAGE>
Exhibit 10.42
ADDENDUM TO EMPLOYMENT AGREEMENT
--------------------------------
This Addendum to Employment Agreement (the "Addendum") is made and
effective this 26th day of June, 1997, by and between Roger D. Emerick (the
"Executive") and Lam Research Corporation (the "Company").
R E C I T A L S
---------------
A. The Executive is currently employed by the Company as its Chief
Executive Officer pursuant to an Employment Agreement entered into by the
parties effective as of July 1, 1996 (the "Employment Agreement"). The
Executive also serves as Chairman of the Company's Board of Directors.
B. Section 2(b)(iii) of the Employment Agreement provides that the
Executive's employment with the Company shall terminate in the event the Company
hires a successor to the Executive as Chief Executive Officer, and that in such
event the Executive's status shall convert to that of a consultant, as
contemplated by Section 6 of the Employment Agreement.
C. Pursuant to an Agreement and Plan of Merger by and among the
Company, Omega Acquisition Corporation and OnTrak Systems, Inc. dated as of
March 24, 1997 (the "Merger Agreement"), the Company contemplates merging
through a subsidiary with and into OnTrak Systems, Inc. (the "Merger") and
entering into an employment agreement with James W. Bagley whereby Mr. Bagley
will become the Company's Chief Executive Officer following the Merger and the
Executive will continue to serve as the Company's Chairman.
D. In light of the considerable services contemplated to be required
of and performed by the Executive following the Merger, the Company and the
Executive desire to amend the Employment Agreement to provide for the
Executive's continued full-time employment by the Company following the Merger.
<PAGE>
E. Capitalized terms used in this Addendum and not otherwise defined
herein shall have the meanings ascribed to them in the Employment Agreement.
In consideration of the mutual covenants herein contained, the
parties agree as follows:
1. Duties and Scope of Employment. In the event the Merger is
------------------------------
consummated and Mr. Bagley assumes the role of Chief Executive Officer of the
Company:
(a) The Executive shall continue as a full-time employee of
the Company with, notwithstanding the provisions of the first sentence of
Section 1(a) of the Employment Agreement, such strategic, senior level duties
and responsibilities as the Board may from time to time reasonably assign to
him. Notwithstanding the provision of Section 8(d) of the Employment Agreement,
the assignment of such duties shall not alone be deemed a material breach of the
Employment Agreement or otherwise constitute an "Involuntary Termination."
(b) Effective as of the date Mr. Bagley assumes the role of
Chief Executive Officer of the Company, Section 2(b)(iii) of the Employment
Agreement is hereby deleted, and the first sentence of Section 6(a) of the
Employment Agreement is hereby amended to read as follows:
"Commencing upon the expiration of the Employment Period and ending June
30, 2002, unless sooner terminated in accordance with Sections (b) or (c)
below (the "Consulting Period"), the Executive shall serve as a consultant
to the Company."
2. Survival. Except as otherwise provided herein, the terms and
--------
conditions of the Employment Agreement shall remain in full force and effect.
3. Counterparts. This Addendum may be executed in counterparts,
------------
each of which shall be deemed an original, but both of which together will
constitute one and the same instrument.
<PAGE>
IN WITNESS WHEREOF, each of the parties has executed this Addendum, in
the case of the Company, by its duly authorized officer, as of the day and year
first above written.
COMPANY LAM RESEARCH CORPORATION
By:
------------------------------------
Title: Member of the Board of Directors
EXECUTIVE
----------------------------------------
Roger D. Emerick
<PAGE>
Exhibit 10.43
EMPLOYMENT AGREEMENT
--------------------
This Employment Agreement (the "Agreement") is made and entered into as
of August 5, 1997 (the "Effective Date"), by and between Stephen Newberry (the
"Executive") and Lam Research Corporation, a Delaware corporation (the
"Company").
R E C I T A L S
A. The Company and Executive desire to enter into this Agreement with
respect to the Executive's employment with the Company.
B. Certain capitalized terms used in the Agreement are defined in
Section 7 below.
In consideration of the mutual covenants herein contained, and in
consideration of the employment of Executive by the Company, the parties agree
as follows:
1. Duties and Scope of Employment.
------------------------------
(a) Position. During the Employment Period (as defined in
--------
Section 2(a) below), the Executive shall initially serve as Executive Vice
President and Chief Operating Officer of the Company and a member of the Office
of the President. The duties and responsibilities of the Executive shall include
the duties and responsibilities for the Executive's corporate offices and
positions as set forth in the Company's Bylaws from time to time in effect and
such other duties and responsibilities as the Chief Executive Officer and the
Board of Directors of the Company (the "Board") may from time to time reasonably
assign to the Executive, in all cases to be consistent with the Executive's
corporate offices and positions.
(b) Obligations. During the Employment Period, the Executive
-----------
shall devote his full business efforts and time to the Company. The foregoing,
however, shall not preclude the Executive from engaging in such activities and
services as do not interfere or conflict with his responsibilities to the
Company.
2. Employment Period.
-----------------
(a) Basic Rule. The Employment Period (the "Employment Period")
----------
shall begin upon the Effective Date and shall continue thereafter until the
fifth anniversary of the Effective Date, unless earlier terminated in accordance
herewith. For the period August 5, 1997 through August 17, 1997, Executive will
be on unpaid leave from the Company, although he will be an employee of the
Company during such period.
(b) Early Termination.
-----------------
<PAGE>
(i) By the Company. The Company may terminate the
--------------
Executive's employment for Cause (as defined in Section 7(a) below), by giving
the Executive 30 days' advance written notice, subject, however, to the cure
provisions of such Section. The Company may terminate the Executive's employment
with the Company other than for Cause by giving the Executive 180 days' advance
notice in writing. Any waiver of notice shall be valid only if it is made in
writing and expressly refers to the applicable notice requirement of this
Section 2(b).
(ii) By the Executive. The Executive may terminate his
----------------
employment with the Company by reason of Involuntary Termination (as defined in
Section 7(d) below) by giving the Company 30 days' advance written notice,
subject, however, to the cure provisions of such Section. The Executive may
terminate his employment with the Company at any time for any other reason by
giving the Company 180 days' advance written notice. Any waiver of notice shall
be valid only if it is made in writing and expressly refers to the applicable
notice requirement of this Section 2(b).
(c) Death. The Executive's employment shall terminate in the
-----
event of his death. The Company shall pay to the Executive's estate any earned
but unpaid salary and vacation pay accrued to the date of his death.
(d) Disability. The Company may terminate the Executive's
----------
employment for Disability (as defined in Section 7(c) below) by giving the
Executive 90 days' advance notice in writing. In the event the Executive resumes
the performance of substantially all of his duties hereunder before the
termination of his employment under this Section 2(d) becomes effective, the
notice of termination shall automatically be deemed to have been revoked.
3. Compensation and Benefits.
-------------------------
(a) Base Compensation. During the Employment Period, the Company
-----------------
shall pay the Executive as compensation for services a base salary at the
annualized rate of $450,000. The Board, at least annually, will review such
base salary for possible increase, reasonably taking into account Executive's
performance and prevailing compensation for executives at similar levels in
similar sized companies in the industry. Such salary shall be paid periodically
in accordance with normal Company payroll. The annual compensation specified in
this Section 3(a) is referred to in this Agreement as "Base Compensation."
(b) Bonus. Unless otherwise determined by the Board of Directors
in its sole discretion, Executive shall not be entitled to participate in any
performance bonus plan of the Company.
(c) Stock Options.
-------------
(i) The Executive shall be granted non-qualified stock
options (the "Incentive Options") to purchase 200,000 shares of the Company's
common stock, par value $.001 per share (the "Common Stock"), with an exercise
price equal to the closing price of the Common Stock as reported on the NASDAQ
Stock Market on the date of grant, as determined by the Compensation Committee
of the Board of Directors in its sole discretion, but in no event later than
August 31, 1997 (the "Grant Date"). The Incentive Options shall vest with
respect to one-fifth of the option shares on the first anniversary of the Grant
Date, and with respect to an additional one-sixtieth of the option shares on the
last day of each of the thirteenth through sixtieth months of the Employment
Period;
-2-
<PAGE>
provided, that except as provided in Section 5(c) below, no portion of the
- --------
Incentive Options shall vest following the termination of Executive's employment
with the Company. The Incentive Options shall have a term of ten (10) years
from the Grant Date, but, except as otherwise provided herein or in the
Company's 1997 Stock Incentive Plan (the "1997 Stock Plan") (in the case of any
inconsistencies between the 1997 Stock Plan and this Agreement, this Agreement
will control), the Incentive Options shall terminate 90 days following the
termination of Executive's employment with the Company.
(ii) In lieu of entitlement to participate in performance
bonus plans, Executive shall also be granted nonqualified stock options (the
"Base Options") to purchase an additional 100,000 shares of Common Stock, with
an exercise price equal to the closing price of the Common Stock as reported on
the NASDAQ Stock Market on the Grant Date. The Base Options shall vest with
respect to one-fifth of the option shares on the first anniversary of the Grant
Date, and with respect to an additional one-sixtieth of the option shares on the
last day of each of the thirteenth through sixtieth months of the Employment
Period; provided, that except as provided in Section 5(c) below, no portion of
the Base Options shall vest following the termination of Executive's employment
with the Company. The Base Options shall have a term of ten (10) years from the
Grant Date, but, except as otherwise provided herein or in the 1997 Stock Plan
(in the case of any inconsistencies between the 1997 Stock Plan and this
Agreement, this Agreement will control), the Base Options shall terminate 90
days following the termination of Executive's employment with the Company.
(d) Deferred Compensation. The Executive shall be entitled to
---------------------
participate in the Company's Executive Deferred Compensation Plan pursuant to
the terms thereof.
(e) Benefits. During the Employment Period, the Executive shall
--------
be eligible to participate in the benefit plans and compensation programs
maintained by the Company of general applicability to other key executives of
the Company, including (without limitation) retirement plans, savings or profit-
sharing plans, deferred compensation plans, supplemental retirement or excess-
benefit plans, stock option, life, disability, health, accident and other
insurance programs, paid vacations (but accruing at not less than four weeks per
year), and similar plans or programs, but excluding any performance bonus plans,
subject in each case to the generally applicable terms and conditions of the
plan or program in question and to the determination of the Board or any
committee administering such plan or program. Without limiting the generality of
the foregoing, Executive shall be entitled to an automobile allowance of not
less than $800 per month.
(f) Reimbursement of Business Expenses. The Company shall
----------------------------------
reimburse the Executive for all reasonable and necessary business expenses
incurred by the Executive in the performance of his duties hereunder upon proper
submission of expense reports in accordance with Company policies regarding such
reimbursement.
(g) Section 162(m). Executive and the Company agree to use
--------------
reasonable good faith efforts, to the extent reasonably practicable and not
materially adverse to Executive, to structure payment of all amounts of
Executive's compensation from the Company so as to avoid non-deductibility of
any such amounts under Section 162(m) of the Internal Revenue Code (the "Code")
or any successor provision.
(h) Deferred Bonus. Upon execution of this Agreement, Executive
--------------
shall be entitled to a signing bonus in the amount of $500,000, the entire
amount of which shall
-3-
<PAGE>
immediately be deferred and held in a deferred compensation account (the
"Deferred Account") pursuant to the Company's Elective Deferred Compensation
Plan, provided that notwithstanding the provisions of the Elective Deferred
Compensation Plan, the following terms shall apply:
(i) Except as provided below, Executive's interest in the
Deferred Account shall vest in equal 25% installments on each of the first four
anniversaries of the Effective Date, including with respect to associated
investment gains.
(ii) Executive's interest in the Deferred Account shall vest
in full upon his death, Disability or Involuntary Termination.
(iii) In the event Executive's employment is terminated by the
Company for Cause or by Executive's voluntary termination (other than an
Involuntary Termination), Executive shall forfeit any interest in the Deferred
Account that has not vested prior to the date of such termination of employment.
4. Benefits Upon a Change in Control. In the event of a Change in
---------------------------------
Control (as defined in Section 7(b) below) that occurs during the Employment
Period, any unvested portion of the Incentive Options shall automatically be
accelerated in full so as to become completely vested.
5. Severance Benefits.
------------------
(a) Severance Benefits. If Executive's employment with the Company
------------------
terminates prior to the fifth anniversary of the Effective Date, then the
Executive shall be entitled to receive severance benefits as follows:
(i) Involuntary Termination.
-----------------------
(A) If the Executive's employment terminates as a
result of Involuntary Termination prior to the first anniversary of the
Effective Date, then the Company shall pay the Executive within ten (10)
business days after the Termination Date a lump sum amount in cash equal to two
(2) times annual Base Compensation (based on annualizing the rate at which
Executive most recently was accruing Base Compensation).
(B) If the Executive's employment terminates as a
result of Involuntary Termination on or after the first anniversary of the
Effective Date, then the Company shall pay the Executive within ten (10)
business days after the Termination Date a lump sum amount in cash equal to one
times annual Base Compensation (based on annualizing the rate at which Executive
most recently was accruing Base Compensation).
In the case of either (A) or (B), the Executive shall also receive such other
benefits as may be payable to the Executive under the Company's then-existing
benefit plans in accordance with the terms of such plans.
(ii) Voluntary Resignation; Disability; Death; Termination
-----------------------------------------------------
for Cause. If (A) the Executive's employment terminates by reason of the
- ---------
Executive's (i) voluntary resignation (and is not the result of an Involuntary
Termination), (ii) Disability or (iii) death, or (B) the Executive's employment
is terminated by the Company for Cause, then the Executive shall not be entitled
to receive severance or other benefits except for those (if any) as may then be
established (and applicable) under the Company's then-existing
-4-
<PAGE>
severance and benefits plans and policies at the time of such termination and
except as otherwise provided in Section 5(b).
(b) Benefits; Miscellaneous. In the event the Executive is
-----------------------
entitled to severance benefits pursuant to subsection 5(a)(i) or is terminated
due to death or Disability, then in addition to such severance benefits, the
Company shall continue to provide the Executive (and his family), (A) if his
employment is terminated prior to the first anniversary of the Effective Date,
through the second anniversary of the Effective Date, and (B) if his employment
is terminated on or after the first anniversary of the Effective Date, for a
period of one year following the Termination Date, welfare benefits or such
comparable alternative welfare benefits as the Company may, in its discretion,
determine to be sufficient to satisfy its obligations to the Executive under
this Agreement (including, without limitation, medical, prescription, dental,
disability, individual life, group life, accidental death and travel accident
plans and programs) which are at least as favorable as the most favorable plans
of the Company applicable to other peer executives and their families as of the
Termination Date. Notwithstanding the foregoing, if the Executive is covered
under any medical, life, or disability insurance plan(s) provided by a
subsequent employer, then the amount of coverage required to be provided by the
Company hereunder shall be reduced by the amount of coverage provided by the
subsequent employer's medical, life or disability insurance plan(s). The
Executive's rights under this Section 5(b) shall be in addition to, and not in
lieu of, any post-termination continuation coverage or conversion rights the
Executive may have pursuant to applicable law, including without limitation,
continuation coverage required by Section 4980B of the Code.
In addition, in the event of any termination of Executive's employment,
(i) the Company shall pay the Executive any unpaid Base Compensation due for
periods prior to the Termination Date; (ii) the Company shall pay the Executive
all of the Executive's accrued and unused vacation through the Termination Date;
and (iii) following submission of proper expense reports by the Executive, the
Company shall reimburse the Executive for all expenses reasonably and
necessarily incurred by the Executive in connection with the business of the
Company prior to termination. These payments shall be made promptly upon
termination and within the period of time mandated by law.
(c) Option Accelerated Vesting; Post-Termination Exercisability of
--------------------------------------------------------------
Options.
- -------
(i) In the event the Executive is entitled to severance
benefits pursuant to subsection 5(a)(i), any unvested portion of the Incentive
Options shall automatically be accelerated in full so as to become completely
vested. In addition, if the Executive's employment terminates as a result of
Involuntary Termination prior to the first anniversary of the Effective Date,
that portion of the Base Options that would have vested on or before the second
anniversary of the Effective Date had Executive continued employment with the
Company through such anniversary shall automatically be accelerated so as to
become completely vested. Alternatively, if the Executive's employment
terminates as a result of Involuntary Termination on or after the first
anniversary of the Effective Date, any portion of the Base Options that would
have vested within the one year period following the date of such termination
had Executive continued employment with the Company through the end of such
period shall automatically be accelerated so as to become completely vested. In
the event Executive is entitled to severance benefits pursuant to
subsection 5(a)(i), any options to purchase Common Stock held by Executive that
have vested as of the Termination Date
-5-
<PAGE>
shall remain exercisable for a period of two (2) years following the Termination
Date (or, if earlier, until the expiration of the term of such options),
whereupon such options shall terminate.
(ii) In the event Executive's employment is terminated by
reason of the Executive's voluntary resignation (and is not the result of an
Involuntary Termination), any options to purchase Common Stock held by the
Executive that have vested as of the Termination Date shall remain exercisable
for a period of six months following the Termination Date (or, if earlier, until
the expiration of the term of such options), whereupon such options shall
terminate.
(iii) In the event Executive is terminated for Cause, any
options to purchase Common Stock held by the Executive that have vested as of
the Termination Date shall remain exercisable for a period of 30 days following
the Termination Date (or, if earlier, until expiration of the term of such
options), whereupon such options shall terminate.
(iv) In the event Executive's employment terminates due to
death or Disability, any options to purchase Common Stock held by Executive that
have vested as of the Termination Date shall remain exercisable for a period of
two (2) years following the Termination Date (or, if earlier, until the
expiration of the term of such options), whereupon such options shall terminate.
However, if such event occurs within one year of the Effective Date, (x) there
shall be deemed vested as of the Termination Date, such number of options to
purchase Common Stock as would have vested had Executive remained employed by
the Company through the date that is twelve months following the date of
termination due to death or Disability; and (y) such vested options shall remain
exercisable for a period of three (3) years following the Termination Date.
6. Excise Tax on Payments. Notwithstanding anything to the contrary
----------------------
contained herein, in the event it shall be determined that any payment or
benefit by the Company to or for the benefit of the Executive, whether paid or
payable but determined without regard to any additional payments required under
this Section 6 (a "Payment"), would be subject to the excise tax imposed by
Section 4999 of the Code or any comparable federal, state or local excise tax
(such excise tax, together with any interest and penalties, are hereinafter
collectively referred to as the "Excise Tax"), then the Executive shall be
entitled to receive an additional payment (a "Gross-Up Payment") in such an
amount that after the payment of all taxes (including, without limitation, any
interest and penalties on such taxes and the Excise Tax) on the Payment and on
the Gross-Up Payment, the Executive shall retain an amount equal to the Payment
minus all applicable taxes on the Payment not imposed as a result of the Excise
Tax. The intent of the parties is that the Company shall be solely responsible
for, and shall pay, any Excise Tax on the Payment and Gross-Up Payment and any
income and employment taxes (including, without limitation, penalties and
interest) imposed on any Gross-Up payment, as well as any loss of tax deduction
caused by the Gross-Up Payment.
All determinations required to be made under this Section, including
without limitation, whether and when a Gross-Up Payment is required and the
amount of such Gross-Up Payment and the assumptions to be utilized in arriving
at such determinations, shall be made by a nationally recognized accounting firm
that is the Company's outside auditor at the time of such determinations, which
firm must be reasonably acceptable to the Executive (the "Accounting Firm").
All fees and expenses of the Accounting Firm shall be borne solely by the
Company.
-6-
<PAGE>
7. Definition of Terms. The following terms referred to in this
-------------------
Agreement shall have the following meanings:
(a) Cause. "Cause" shall mean (i) a willful act of personal
-----
dishonesty knowingly taken by the Executive in connection with his
responsibilities as an employee and intended to result in his substantial
personal enrichment, (ii) a willful and knowing act by the Executive which
constitutes gross misconduct, (iii) any refusal by the Executive to comply with
a reasonable written directive of the Board, (iv) a willful breach by the
Executive of a material provision of this Agreement, or (v) a material and
willful violation of a federal or state law or regulation applicable to the
business of the Company. No act, or failure to act, by the Executive shall be
considered "willful" unless committed without good faith and without a
reasonable belief that the act or omission was in the Company's best interest.
Termination for Cause shall not be deemed to have occurred unless, by the
affirmative vote of all of the members of the Board (excluding the Executive, if
applicable), at a meeting called and held for that purpose (after reasonable
notice to the Executive and his counsel and after allowing the Executive and his
counsel to be heard before the Board), a resolution is adopted finding that in
the good faith opinion of such Board members the Executive was guilty of conduct
set forth in (i), (ii), (iii), (iv) or (v), specifying the particulars thereof;
provided that in the case of conduct set forth in (iii), (iv) or (v), the
Executive shall have the opportunity to cure same within 30 days following the
Executive's receipt of written notice thereof.
(b) Change in Control. "Change in Control" shall mean the
-----------------
occurrence of any of the following events:
(i) Any "person" or "group" (as such term is used in
Sections 13(d) and 14(d) of the Securities Exchange Act of 1934, as amended, but
excluding any person or group as such term is used in Rule 13d-1(b) under the
Exchange Act)) is or becomes the "beneficial owner" (as defined in Rule 13d-3
under said Act), directly or indirectly, of securities of the Company
representing twenty percent (20%) or more of the total voting power represented
by the Company's then outstanding voting securities; or
(ii) A change in the composition of the Board occurring
within a two-year period, as a result of which fewer than a majority of the
directors are Incumbent Directors. "Incumbent Directors" shall mean directors
who either (A) are directors of the Company as of the Effective Date, or (B) are
elected, or nominated for election, to the Board with the affirmative votes of
at least a majority of the Incumbent Directors at the time of such election or
nomination (but shall not include an individual whose election or nomination is
in connection with an actual or threatened proxy contest relating to the
election of directors to the Company); or
(iii) The stockholders of the Company approve a merger or
consolidation of the Company with any other corporation, other than a merger or
consolidation which would result in the voting securities of the Company
outstanding immediately prior thereto continuing to represent (either by
remaining outstanding or by being converted into voting securities of the
surviving entity) more than fifty percent (50%) of the total voting power
represented by the voting securities of the Company or such surviving entity
outstanding immediately after such merger or consolidation, or the stockholders
of the Company approve a plan of complete liquidation of the Company or an
agreement for the sale or disposition by the Company of all or substantially all
the Company's assets (other than to a subsidiary or subsidiaries).
-7-
<PAGE>
(c) Disability. "Disability" shall mean that the Executive has
----------
been or will be unable to substantially perform his duties under this Agreement
for a period of six or more consecutive months due to illness, accident or other
physical or mental incapacity.
(d) Involuntary Termination. "Involuntary Termination" shall
-----------------------
mean:
(i) the continued assignment to the Executive of any duties
or the continued significant change in the Executive's duties, either of which
is substantially inconsistent with the Executive's duties immediately prior to
such assignment or change for a period of 30 days after notice thereof from the
Executive to the Board setting forth in reasonable detail the respects in which
Executive believes such assignments or duties are significantly inconsistent
with the Executive's prior duties;
(ii) a reduction in the Executive's Base Compensation, other
than any such reduction which is part of, and generally consistent with, a
general reduction of officer salaries;
(iii) a material reduction by the Company in the kind or level
of employee benefits (other than salary) to which the Executive is entitled
immediately prior to such reduction with the result that the Executive's overall
benefits package (other than salary) is substantially reduced (other than any
such reduction applicable to officers of the Company generally);
(iv) the relocation of the Company's principal executive
office to a location more than fifty (50) miles from its present location;
(v) any purported termination of the Executive's employment
by the Company other than for Cause;
(vi) the failure of the Company to obtain the assumption of
this Agreement by any successors contemplated in Section 8 below; or
(vii) any material breach by the Company of any material
provision of this Agreement;
provided, that none of the foregoing shall constitute Involuntary Termination to
- --------
the extent the Executive has agreed thereto; and provided, further, that the
-------- -------
foregoing shall constitute Involuntary Termination only if and to the extent
that (i) the Executive provides written notice to the Company setting forth in
reasonable detail such facts which Executive believes constitute Involuntary
Termination and (ii) any circumstances constituting Involuntary Termination
remain uncured for a period of 30 days following the Company's receipt of such
written notice.
(e) Termination Date. "Termination Date" shall mean the last day
----------------
of the applicable notice period set forth in Section 2(b) above, the date as of
which such notice is waived in accordance with the terms of Section 2(b) or the
date of Executive's employment termination pursuant hereto if notice of same is
otherwise not required under Section 2.
8. Successors.
----------
-8-
<PAGE>
(a) Company's Successors. Any successor to the Company (whether
--------------------
direct or indirect and whether by purchase, lease, merger, consolidation,
liquidation or otherwise) to all or substantially all of the Company's business
and/or assets shall assume the Company's obligations under this Agreement and
agree expressly to perform such obligations in the same manner and to the same
extent as the Company would be required to perform such obligations in the
absence of a succession. For all purposes under this Agreement, the term
"Company" shall include any successor to the Company's business and/or assets
which executes and delivers the assumption agreement described in this
subsection (a) or which becomes bound by the terms of this Agreement by
operation of law.
(b) Executive's Successors. The terms of this Agreement and all
----------------------
rights of the Executive hereunder shall inure to the benefit of, and be
enforceable by, the Executive's personal or legal representatives, executors,
administrators, successors, heirs, distributees, devisees and legatees.
9. Notice.
------
(a) General. Notices and all other communications contemplated by
-------
this Agreement shall be in writing and shall be deemed to have been duly given
when personally delivered or when mailed by U.S. registered or certified mail,
return receipt requested and postage prepaid. In the case of the Executive,
mailed notices shall be addressed to him at the home address which he most
recently communicated to the Company in writing. In the case of the Company,
mailed notices shall be addressed to its corporate headquarters, and all notices
shall be directed to the attention of its Secretary.
(b) Notice of Termination. Any termination by the Company for
---------------------
Cause or by the Executive as a result of a voluntary resignation or an
Involuntary Termination shall be communicated by a notice of termination to the
other party hereto given in accordance with Section 9(a) of this Agreement. Such
notice shall indicate the specific termination provision in this Agreement
relied upon, shall set forth in reasonable detail the facts and circumstances
claimed to provide a basis for termination under the provision so indicated, and
shall specify the termination date in accordance with Section 2(b). Subject to
the second provision to Section 7(d), the failure by the Executive to include in
the notice any fact or circumstance which contributes to a showing of
Involuntary Termination shall not waive any right of Executive hereunder or
preclude the Executive from asserting such fact or circumstance in enforcing his
rights hereunder.
10. Non-Compete; Non-Solicit.
------------------------
(a) The parties hereto recognize that the Executive's services are
special and unique and that his level of compensation and the provisions herein
for compensation upon Involuntary Termination are partly in consideration of and
conditioned upon the Executive's not competing with the Company, and that the
covenant on his part not to compete and not to solicit as set forth in this
Section 10 is essential to protect the business and goodwill of the Company.
(b) The Executive agrees that during the Employment Period, the
Executive will not either directly or indirectly, whether as a director,
officer, consultant, employee or advisor or in any other capacity (i) render any
planning, marketing or other services respecting the creation, design,
manufacture or sale of semiconductor manufacturing equipment and/or software to
any business, agency, partnership or entity
-9-
<PAGE>
("Restricted Business") other than the Company, or (ii) make or hold any
investment in any Restricted Business in the United States other than the
Company, whether such investment be by way of loan, purchase of stock or
otherwise, provided that there shall be excluded from the foregoing the
ownership of not more than 2% of the listed or traded stock of any publicly held
corporation. For purposes of this Section 10, the term "Company" shall mean and
include the Company, any subsidiary or affiliate of the Company, any successor
to the business of the Company (by merger, consolidation, sale of assets or
stock or otherwise) and any other corporation or entity of which the Executive
may serve as a director, officer or employee at the request of the Company or
any successor of the Company.
(c) During the Employment Period and for the period ending twelve
(12) months following the date the Executive ceases to render services to the
Company as an employee (other than upon expiration of the five-year Employment
Period without early termination thereof), the Executive will not, directly or
indirectly, induce or attempt to influence any employee of the Company to leave
its employ and the Executive will not, directly or indirectly, involve himself
in decisions to hire any employee who has left the Company's employ within the
three-month period preceding the Executive's cessation of employment or the
three-month period following his cessation of employment.
(d) The Executive agrees that the Company would suffer an
irreparable injury if he were to breach the covenants contained in subparagraphs
(b) or (c) and that the Company would by reason of such breach or threatened
breach be entitled to injunctive relief in a court of appropriate jurisdiction
and the Executive hereby stipulates to the entering of such injunctive relief
prohibiting him from engaging in such breach.
(e) If any of the restrictions contained in this Section 10 shall
be deemed to be unenforceable by reason of the extent, duration or geographical
scope or other provisions thereof, then the parties hereto contemplate that the
court shall reduce such extent, duration, geographical scope or other provisions
hereof (but only to the extent necessary to render such restrictions
enforceable) and then enforce this Section 10 in its reduced form for all
purposes in the manner contemplated hereby.
11. Existing Confidentiality and Non-Compete Agreements. Executive
---------------------------------------------------
represents and warrants (i) that prior to the date hereof he has provided the
Company with true and complete copies of any and all written confidentiality
and/or non-compete agreements to which Executive is a party as of the date
hereof (together with a written description of any oral such agreements), and
(ii) to the best of Executive's knowledge, full compliance with the terms of
each such agreement will not materially interfere with Executive's duties
hereunder (except to the extent that Executive reasonably may determine to
absent himself from certain Company meetings and communication during the first
year of the Employment Period). The Executive further covenants that he will
not willfully and knowingly fail to fully abide by the terms of any and all such
agreements, and will work in good faith with the Company to avoid any breach
thereof.
12. Arbitration. At the option of either party, any and all disputes
-----------
or controversies whether of law or fact and of any nature whatsoever arising
from or respecting this Agreement shall be decided by arbitration by the
American Arbitration Association in accordance with the rules and regulations of
that Association.
The arbitrator shall be selected as follows. In the event the Company
and the Executive agree on one arbitrator, the arbitration shall be conducted by
such arbitrator.
-10-
<PAGE>
In the event the Company and the Executive do not so agree, the Company and the
Executive shall each select one independent, qualified arbitrator and the two
arbitrators so selected shall select the third arbitrator. The Company reserves
the right to object to any individual arbitrator who shall be employed by or
affiliated with a competing organization.
Arbitration shall take place in San Jose, California, or any other
location mutually agreeable to the parties. At the request of either party,
arbitration proceedings will be conducted in the utmost secrecy; in such case
all documents, testimony and records shall be received, heard and maintained by
the arbitrators in secrecy under seal, available for the inspection only by the
Company and the Executive and their respective attorneys and their respective
experts who shall agree in advance and in writing to receive all such
information confidentially and to maintain such information in secrecy unless
and until such information shall become generally known. The arbitrator, who,
if more than one, shall act by majority vote, shall have the power and authority
to decree any and all relief of an equitable nature including, but not limited
to, such relief as a temporary restraining order, a temporary and/or permanent
injunction, and shall also have the power and authority to award damages, with
or without an accounting and costs, provided, that punitive damages shall not be
--------
awarded, and provided, further, that the Executive shall be entitled to
-------- -------
reimbursement for his reasonable attorney's fees to the extent he prevails as to
the material issues in such dispute. The decree or judgment of an award
rendered by the arbitrators may be entered in any court having jurisdiction
thereof.
Reasonable notice of the time and place of arbitration shall be given to
all persons, other than the parties, as shall be required by law, in which case
such persons or those authorized representatives shall have the right to attend
and/or participate in all the arbitration hearings in such a manner as the law
shall require.
13. Miscellaneous Provisions.
------------------------
(a) No Duty to Mitigate. The Executive shall not be required to
-------------------
mitigate the amount of any payment contemplated by this Agreement, nor shall any
such payment be reduced by any earnings that the Executive may receive from any
other source.
(b) Waiver. No provisions of this Agreement shall be modified,
------
waived or discharged unless the modification, waiver or discharge is agreed to
in writing and signed by the Executive and by an authorized officer of the
Company (other than the Executive). No waiver by either party of any breach of,
or of compliance with, any condition or provision of this Agreement by the other
party shall be considered a waiver of any other condition or provision or of the
same condition or provision at another time.
(c) Whole Agreement. This Agreement and the documents expressly
---------------
referred to herein represent the entire agreement of the parties with respect to
the matters set forth herein. No agreements, representations or understandings
(whether oral or written and whether express or implied) which are not expressly
referred to herein have been made or entered into by either party with respect
to the subject matter hereof. Nothing herein affects the continued
enforceability of that certain pre-existing indemnification letter between the
parties.
(d) Choice of Law. The validity, interpretation, construction and
-------------
performance of this Agreement shall be governed by the laws of the State of
California.
-11-
<PAGE>
(e) Severability. The invalidity or unenforceability of any
------------
provision or provisions of this Agreement shall not affect the validity or
enforceability of any other provision hereof, which shall remain in full force
and effect.
(f) No Assignment of Benefits. The rights of any person to
-------------------------
payments or benefits under this Agreement shall not be made subject to option or
assignment, either by voluntary or involuntary assignment or by operation of
law, including (without limitation) bankruptcy, garnishment, attachment or other
creditor's process, and any action in violation of this subsection (f) shall be
void.
(g) Employment Taxes. All payments made pursuant to this
----------------
Agreement shall be subject to withholding of applicable income and employment
taxes.
(h) Assignment by Company. The Company may assign its rights
---------------------
under this Agreement to an affiliate, and an affiliate may assign its rights
under this Agreement to another affiliate of the Company or to the Company,
provided, however, that no assignment shall be made if the net worth of the
assignee is less than the net worth of the Company at the time of assignment. In
the case of any such assignment, the term "Company" when used in a section of
this Agreement shall mean the corporation that actually employs the Executive.
(i) Counterparts. This Agreement may be executed in counterparts,
------------
each of which shall be deemed an original, but all of which together will
constitute one and the same instrument.
(j) Expense Reimbursement. The Company will reimburse Executive
---------------------
for his reasonable legal fees and costs associated with the negotiation and
execution of this Agreement and all other matters associated with becoming an
employee of the Company, not to exceed $12,000 in the aggregate.
-12-
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement.
LAM RESEARCH CORPORATION
By:
-------------------------------
Its:
------------------------------
- ----------------------------------
STEPHEN NEWBERRY
-13-
<PAGE>
EXHIBIT 11.1
LAM RESEARCH CORPORATION
STATEMENT OF COMPUTATION OF EARNINGS (LOSS) PER SHARE
FOR THE YEARS ENDED JUNE 30, 1997, 1996 AND 1995
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
FULLY
PRIMARY DILUTED
-------- --------
<S> <C> <C>
Year-ended June 30, 1997
Net loss.................................................. $(33,634) $(33,634)
-------- --------
$(33,634) $(33,634)
======== ========
Average shares outstanding................................ 30,600 30,600
-------- --------
Common and common equivalent shares used in computing per
share amounts............................................ 30,600 30,600
======== ========
Net loss per share........................................ ($1.10) ($1.10)
======== ========
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
======== ========
</TABLE>
<PAGE>
Selected Financial Data
(in thousands, except per share data)
<TABLE>
<CAPTION>
Year ended June 30, 1997 1996 1995 1994 1993
=============================================================================================================================
<S> <C> <C> <C> <C> <C>
Operations:
Total revenue $ 1,002,404 $ 1,276,884 $ 810,557 $ 493,695 $265,038
Gross profit 312,945 613,703 391,739 227,664 125,110
Restructuring charge 9,021 -- -- -- --
Operating income (loss) (63,789) 212,935 118,392 60,206 28,153
Net income (loss) (33,634) 141,091 89,211 37,756 18,907
Net income (loss) per share
Primary $ (1.10) $ 4.92 $ 3.27 $ 1.55 $ 0.79
Fully diluted $ (1.10) $ 4.67 $ 3.06 $ 1.51 $ 0.79
Balance sheet:
Working capital $ 416,932 $ 470,192 $ 337,386 $ 171,918 $154,723
Total assets 965,449 969,365 682,649 381,497 268,839
Long-term obligations, less current portion 45,706 52,926 95,928 78,843 79,066
- -----------------------------------------------------------------------------------------------------------------------------
<CAPTION>
Quarterly 1997 1st 2nd 3rd 4th
=================================================================================================================================
<S> <C> <C> <C> <C>
Total revenue $ 282,759 $ 241,356 $ 215,602 $ 262,687
Gross profit 115,106 88,124 11,442 98,273
Restructuring charge 9,021 -- -- --
Operating income (loss) 15,678 3,592 (80,499) (2,560)
Net income (loss) 10,610 2,493 (44,779) (1,958)
Net income (loss) per share
Primary $ 0.35 $ 0.08 $ (1.46) $ (0.06)
Fully diluted $ 0.35 $ 0.08 $ (1.46) $ (0.06)
Price range per share $20.00-28.88 $24.00-38.25 $27.13-43.25 $23.38-38.63
- ----------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
Quarterly 1996 1st 2nd 3rd 4th
==================================================================================================================================
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
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Stock and Dividend Information:
Common Stock of Lam Research Corporation (Lam or the Company) 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, 1997, the Company had 1,012 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 financing agreements restrict the payment of
dividends.
<PAGE>
Management's Discussion and Analysis
of Financial Condition and Results of Operations
With the exception of historical facts, the statements contained in this
discussion are forward-looking statements within the meaning of Section 21E of
the Securities Exchange Act of 1934, as amended, and are subject to the Safe
Harbor provisions created by that statute. Such forward-looking statements
include, but are not limited to, statements that relate to the Company's future
revenue, royalty income, gross margins, levels of research and development and
operating expenses, management's plans and objectives for future operations of
the Company, the effects of the Company's merger with OnTrak Systems, Inc.
(OnTrak), and the sufficiency of financial resources to support future
operations and capital expenditures. Such statements are based on current
expectations that involve risks and uncertainties, including those discussed
below and under the heading Risk Factors, that could cause actual results to
differ materially from those expressed. Readers are cautioned not to place undue
reliance on these forward-looking statements, which speak only as of the date
hereof. 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. This discussion should be read in conjunction with the
Consolidated Financial Statements and Notes presented thereto on pages 22 to 35
of this Annual Report for a full understanding of the Company's financial
position and results of operations.
Results of Operations
The following table sets forth, for the fiscal years indicated, certain income
and expense items as a percentage of total revenue:
<TABLE>
<CAPTION>
Year ended June 30, 1997 1996 1995
=================================================================
<S> <C> <C> <C>
Net sales 98.7% 98.2% 98.5%
Royalty income 1.3 1.8 1.5
- ----------------------------------------------------------------
Total revenue 100.0 100.0 100.0
Cost of goods sold 68.8 51.9 51.7
Research and development 17.0 13.6 15.8
Selling, general and administrative 19.7 17.8 17.9
Restructuring charge 0.9 -- --
- ----------------------------------------------------------------
Operating income (loss) (6.4) 16.7 14.6
Other income (expense), net (0.1) (0.3) 1.1
- ----------------------------------------------------------------
Income (loss) before income taxes (6.5) 16.4 15.7
- ----------------------------------------------------------------
Income tax expense (benefit) (3.1) 5.3 4.7
- ----------------------------------------------------------------
Net income (loss) (3.4)% 11.1% 11.0%
================================================================
</TABLE>
Fiscal 1997 vs. 1996
Lam's revenue for fiscal year 1997 totaled $1,002.4 million, a 21% decrease
from the prior fiscal year total revenue of $1,276.9 million. Overall, revenue
was lower in fiscal 1997 due to the reduced demand for Lam's equipment based
upon its customers' reduced production capacity requirements in response to a
slowdown in the semiconductor market. Also, during fiscal 1997, Lam's product
mix began to shift with a higher percentage of revenues contributed by the
multi-chamber Alliance and Chemical Vapor Deposition (CVD) products and a lower
percentage of revenues derived from the more mature single-chamber Rainbow and
Transformer Coupled Plasma (TCP) etch systems. Regionally, revenue reflected a
higher percentage attributable to North America sales, with revenue from foreign
regions decreasing to 58% of revenue in fiscal 1997 from 64% in fiscal 1996. The
Japan region experienced the largest decline in revenue, a 50% decrease from the
prior year representing approximately 31% of the total decline in revenue. Total
spares and service revenue dollars remained virtually flat in fiscal 1997
compared to fiscal 1996. Service revenue represented approximately 5% of total
revenue in fiscal 1997 and fiscal 1996.
During fiscal 1997, Lam's revenue declined sequentially for three quarters,
then increased for the fourth quarter. Lam anticipates that quarterly revenues
for the first half of fiscal 1998 are likely to be relatively flat with revenue
for the fourth quarter of fiscal 1997. The Company believes that as the industry
returns to historical growth rates revenues may increase during the second half
of fiscal 1998.
Royalty income for fiscal 1997 decreased 44% to $12.7 million from $22.8
million in fiscal 1996. The reduction in royalty income was due primarily to the
lower royalty rate effective January 1, 1997 under the extended royalty
agreement with Tokyo Electron Limited (TEL). The agreement, originally set to
expire on December 31, 1996, was renegotiated to a reduced royalty rate of 1%
from 5%. Lam expects that royalty income for fiscal 1998 will be significantly
lower than fiscal 1997 as 1998 will be the first full fiscal year with royalty
income from TEL computed at the reduced rate.
Lam's gross margin percentage for fiscal 1997 was 31.2% compared to 48.1%
for fiscal 1996. As noted above, during fiscal 1997, Lam's product mix shifted
from the higher-margin Rainbow and TCP products to the newer, lower-margin
Alliance cluster etch and CVD products. Furthermore, as a result of this faster
than expected customer transition to the multi-chamber from the single-chamber
tools, and continuing revisions to the design and features of such multi-chamber
products, during the third quarter of fiscal 1997, Lam established additional
reserves for excess and obsolete manufacturing and spare parts inventories and
inventory-related commitments of approximately $42.0 million. Lam also re-
evaluated its warranty and installation reserves and determined that additional
provisions of approximately $15.0 million were required, primarily because the
Alliance cluster and CVD tools are more costly to install and fulfill warranty
obligations.
<PAGE>
Management's Discussion and Analysis
of Financial Condition and Results of Operations
Additionally, the slowdown in the semiconductor industry brought about reduced
manufacturing volumes which in turn caused Lam to experience an increase in
fixed manufacturing costs as a percentage of revenue. Also contributing to the
decline in gross margin percent was an overall decline in the spare parts and
service margin caused by a shift whereby a lower percentage of revenue was
derived from higher-margin spares and a higher percentage of revenue was derived
from lower-margin service.
While Lam expects that gross margin percentages in the first half of fiscal
1998 will continue to be affected by the slowdown in the semiconductor industry
and Lam's related excess manufacturing capacity, the Company anticipates that
the gross margin percentages may start to increase in the second half of fiscal
1998.
Research and development (R&D) expenses decreased to $170.6 million in
fiscal 1997 from $173.0 million in fiscal 1996. As a percentage of revenue, R&D
expenses increased to 17.0% of revenue in fiscal 1997 compared with 13.6% in
fiscal 1996. During the first quarter of fiscal 1997, Lam implemented a
restructuring of its operations which eliminated the previously existing
business unit structure. As a result of the restructuring, R&D activities were
centralized and certain duplicate R&D functions were eliminated. Partially
offsetting the overall decrease in R&D spending during fiscal 1997 was an
approximate $3.0 million write-off of R&D-related fixed assets during the third
quarter of fiscal 1997. Lam believes that in order to remain competitive in the
semiconductor equipment industry it must continue to significantly invest in
R&D. Over the next five to ten years, Lam intends to invest a significant
percentage of R&D resources to create production ready systems that allow Lam's
customers to process 300 mm wafers efficiently and effectively. Lam continues to
invest in advanced etch applications, and flat panel display (FPD) technology,
to develop its CVD technology and to make enhancements to its Alliance and TCP
products.
Selling, general and administrative (S,G&A) expenses decreased $30.7
million in fiscal 1997 from $227.8 million in fiscal 1996. During fiscal 1996,
Lam added employees in all administrative areas to accommodate the increase in
sales volume. During fiscal 1997, in response to the slowdown in the
semiconductor market and the decrease in sales volume, Lam implemented a
restructuring of its operations which resulted in a reduction in workforce and
initiated programs which reduced expenses and capital spending. Partially
offsetting the overall reduction in S,G&A expenses were $6.6 million of bad debt
expense for at-risk receivables relating to SubMicron Technology PLC (SubMicron)
and an adjustment of approximately $3.0 million for the write-off of certain
customer evaluation systems.
During fiscal 1997, Lam restructured its operations by consolidating its
previous business unit structure into a more centralized functional
organization. As a result of the restructuring, and in response to market
conditions, Lam reduced its workforce by approximately 11% and recorded a charge
of $9.0 million related primarily to severance compensation and consolidation of
facilities. At June 30, 1997, $1.7 million remains in accrued liabilities
relating primarily to executive severance and lease payments on remaining unused
facilities. As of June 30, 1997, Lam has made $6.3 million of cash payments
relating to the restructuring. Lam anticipates that operating expenses for the
first half of fiscal 1998 will remain relatively flat when compared with the
second half of fiscal 1997.
Interest expense for Lam decreased by 35% in fiscal 1997 from fiscal 1996,
due primarily to the retirement of the subordinated convertible debentures in
the fourth quarter of fiscal 1996. Lam expects that interest expense will
increase in future periods due to the additional interest expense which Lam will
incur on the Convertible Subordinated Notes, which Lam offered in August 1997
(see Note U). Lam also expects that interest income will increase as a result of
the additional cash acquired from sale of the Convertible Subordinated Notes.
Lam recorded a tax benefit of 48.5% of its pre-tax loss related primarily
to the benefit from its operating loss carryback and R&D tax credits for fiscal
1997.
Lam experienced its first net loss in fiscal 1997 since fiscal 1990. In
summary, items that contributed to the net loss included lower revenues due to
the slowdown in the semiconductor industry and lower gross margins due to the
transition from the higher-margin, mature Rainbow and TCP products to the lower-
margin Alliance and CVD products. Additionally, adjustments relating to excess
and obsolete manufacturing and spare parts inventory, increased reserves for
installation and warranty, a charge for the restructuring of operations and bad
debt expenses during the year contributed to the net loss.
On August 5, 1997, the stockholders of Lam approved the issuance of common
stock under the Agreement and Plan of Merger (the Merger Agreement) between Lam
and OnTrak. Each share of OnTrak common stock, par value $0.0001 per share
(OnTrak Common Stock), was exchanged for 0.83 of a share of Lam common stock,
par value $0.001 per share (Lam Common Stock), and each option and right to
acquire one share of OnTrak Common Stock was exchanged for options and rights to
purchase 0.83 of a share of Lam Common Stock. The transaction will be accounted
for as a pooling of interests and is structured to qualify as a tax-free
reorganization.
Lam's merger with OnTrak (the Merger) will give Lam entrance into the
chemical mechanical planarization (CMP) market and accordingly Lam anticipates
an increase in revenue related to the sale of CMP products. At this time, Lam
cannot predict the impact that the Merger will have on future results of
operations or financial condition.
<PAGE>
Management's Discussion and Analysis
of Financial Condition and Results of Operations
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. Lam's 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 Lam'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 Lam'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.
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 TEL and Sumitomo Metals Industries, Ltd. (Sumitomo).
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 Lam sold a relatively higher percentage of the lower-margin TCP and Alliance
machines and a relatively lower percentage of the higher-margin Rainbow
machines.
R&D dollar spending increased 35% 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 Lam continued to invest in the development of advanced etch
applications, CVD technologies, including the DSM 9800 and DSM 9900, continued
enhancements to the TCP and Alliance products, and continued development of
Lam's FPD technology. Although R&D expenditures increased due to additional
engineering and scientific headcount, R&D expenditures increased at a rate
slightly slower than revenue increased. During the quarter ended June 30, 1996,
Lam began occupancy in an additional engineering facility at Lam's Fremont
campus, which Lam is utilizing under an operating lease.
S,G&A expenses increased by 57% in fiscal 1996 over fiscal 1995 and
decreased slightly as a percentage of sales. During fiscal 1996, Lam added
employees in all customer support, sales and administration areas to accommodate
the increased sales volume. During fiscal 1996, Lam significantly expanded its
foreign facilities: Lam opened a manufacturing facility in Korea, expanded its
facilities in Japan and relocated and began the expansion of its Taiwan
facility.
Interest expense for Lam increased by 17% in fiscal 1996 over fiscal 1995,
due to additional yen bank borrowings by Lam's Japanese subsidiary, additional
interest expense related to an interest rate swap and the increased interest
expense associated with the additional capital leases for equipment and
leasehold improvements. 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 Lam in Brooks Automation, Inc., a vendor to Lam.
The combined effective tax rate was 32.5% for fiscal 1996, an increase over
the prior year's 30%, due primarily to the expiration of federal R&D tax
credits.
LIQUIDITY AND CAPITAL RESOURCES
Despite a net loss of $33.6 million for fiscal 1997, operating activities
provided approximately $80.2 million in cash flows. Non-cash depreciation and
amortization accounted for $53.1 million of the net operating cash flow;
partially offsetting the cash flow from depreciation and amortization
adjustments was $24.4 million related to additional deferred tax assets recorded
as a result of reserves recorded in the third quarter of fiscal 1997 which are
not immediately deductible for income tax purposes. Working capital accounts
provided $85.1 million in cash flows due to decreases in inventory and accounts
receivable, increases in accrued liabilities, and was partially offset by
increases in prepaid expenses and other assets. During fiscal 1997, inventories
decreased due to the impact of Lam's company-wide inventory reduction program
and additional reserves recorded in the third quarter, such decreases were
offset by increases in inventory needed to increase worldwide spares
capabilities. Lam's asset management efforts and the decrease in revenues
contributed to the overall decrease in the accounts receivable balance. Prepaid
expenses and other assets increased $19.4 million due to the reclassification of
the net balance of some other receivables and increases in prepaid corporate and
consumption taxes at Lam's foreign subsidiaries. During fiscal 1997, an
additional $60.0 million of cash was provided from the sale of yen-denominated
Japanese receivables to a bank. At June 30, 1997, $39.9 million of the total
receivables sold under this agreement remained uncollected by the bank and
subject to recourse provisions. Lam enters into foreign-currency forward
contracts to minimize the impact of exchange rate fluctuations on the value of
yen-denominated assets and liabilities. The realized 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 at June 30, 1997 were offset by gains on the underlying
receivables.
<PAGE>
Management's Discussion and Analysis
of Financial Condition and Results of Operations
Net cash used for investing activities during fiscal 1997 was $22.2
million. Net capital expenditures were $39.5 million, primarily for the
completion of leasehold improvements. Offsetting cash used for investing were
net sales of short-term investments of $29.0 million. Cash totaling $11.7
million was also used to purchase certain technology rights and other
investments classified as other assets on Lam's balance sheet.
Net cash flows provided by financing activities were $4.8 million.
Contributing to the cash from financing activities was $13.4 million relating to
common stock issuances, primarily for the employee stock purchase and option
plans and net cash borrowings of $10.0 million against the syndicated line of
credit. Offsetting the cash contributions were payments of capital lease
obligations of $18.6 million.
As of June 30, 1997, Lam had $164.2 million in cash, cash equivalents and
short-term investments compared with $130.5 million at June 30, 1996. Lam has a
total of $210.0 million available under a syndicated bank line of credit, which
is due to expire in December 1998. Borrowings under the line of credit bear
interest at the bank's prime rate or 0.7% to 0.9% over London Interbank Offered
Rate (LIBOR) and are subject to Lam's compliance with financial and other
covenants. Lam received amendments or waivers for certain of its financial
covenants in anticipation of the net loss reported for the three and nine month
periods ended March 31, 1997. Lam was in compliance with all of the covenants as
amended at June 30, 1997. At June 30, 1997, Lam had borrowings against the
syndicated bank line of credit of $35.0 million. Borrowings under the line of
credit are unsecured. During August 1997, Lam completed an offering of $310.0
million of Convertible Subordinated Notes (the Notes). The Notes bear interest
at five percent, mature on September 1, 2002 and are convertible into shares of
Lam Common Stock at $87.77 per share. Expenses associated with the offering of
approximately $9.0 million will be deferred and will be included in other
assets. Such expenses will be amortized to interest expense over the term of the
Notes.
In connection with the issuance of the Notes, the Company received consents
and waivers with respect to certain financial and other covenants contained in
agreements related to certain existing financial arrangements. In addition, as a
consequence of the Merger with OnTrak as well as issuance of the Notes, the
Company, on or prior to the end of the fiscal quarter ending September 30, 1997,
would be out of compliance with certain other financial covenants unless
appropriate amendments or waivers are completed prior to that time. The Company
is currently in discussions with lenders that are party to these agreements.
Based on these discussions, the Company believes that appropriate amendments
or waivers will be obtained prior to fiscal quarter end on terms no less
favorable to the Company than the existing terms. In the event any such waivers
are not obtained by fiscal quarter end, the Company could be required to
terminate the revolving credit facility, purchase certain of its leased
facilities, purchase the sold receivables and pay the certain of Japanese
term loans.
Lam's commitments consist primarily of debt obligations and operating and
capital lease commitments for its facilities and equipment. Based upon current
forecasts, Lam's cash, cash equivalents, short-term investments and available
lines of credit at June 30, 1997 as well as the proceeds from the Notes are
expected to be sufficient to support anticipated levels of operations and
capital expenditures through at least June 30, 1998.
RISK FACTORS
FLUCTUATIONS IN QUARTERLY REVENUES
The Company's quarterly revenues have fluctuated in the past and may
fluctuate in the future. The Company's revenues are dependent on many factors,
including but not limited to the economic conditions in the semiconductor
industry, customer capacity requirements, the size and timing of the receipt of
orders from customers, customer cancellations or delays of shipments, the
Company's ability to develop, introduce and market new and enhanced products on
a timely basis, the introduction of new products by its competitors, changes in
average selling prices and product mix, and exchange rate fluctuations, among
others. The Company's expense levels will be based, in part, on expectations of
future revenues. If revenue levels in a particular quarter do not meet
expectations, operating results could be adversely affected. The Company derives
its revenue primarily from the sale of a relatively small number of high-priced
systems. The Company's systems including OnTrak's systems can range in price
from approximately $150,000 to over $3 million per unit. The sale of fewer
systems than anticipated in any quarter may have a substantial negative impact
on the operating results for the quarter. The Company's results of operations
for a particular quarter could be adversely affected if anticipated orders are
not received in time to enable shipment during such quarter, if anticipated
shipments are delayed or canceled by one or more customers, or if shipments are
delayed due to procurement shortages or manufacturing difficulties. The slowdown
in the semiconductor industry and in the construction of new wafer fabrication
facilities has resulted in the Company experiencing a reduction in new orders as
well as rescheduled and canceled orders. There can be no assurance that this
slowdown will not continue. The Company generally realizes a higher margin on
sales of its mature etch products, such as Rainbow etch systems, and on revenue
from service and spare parts than on sales of Alliance, CVD, FPD and newly
released TCP products. Newer products usually have lower margins in the initial
phase of production. The impact of these and other factors on the
<PAGE>
Management's Discussion and Analysis
of Financial Condition and Results of Operations
Company's revenues and operating results in any future period is difficult for
the Company to forecast. There can be no assurance that these and other factors
will not materially adversely affect the Company's future business and financial
results.
VOLATILITY IN THE SEMICONDUCTOR EQUIPMENT INDUSTRY
The business of the Company depends on 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 has experienced periodic downturns. The semiconductor industry has
been experiencing a slowdown of product demand and volatility in product
pricing. This slowdown and volatility have caused the semiconductor industry to
reduce or delay purchases of semiconductor manufacturing equipment and
construction of new fabrication facilities. These conditions have adversely
affected and may continue to adversely affect the Company's aggregate bookings,
revenues and operating results, and no assurance can be given that the Company's
bookings, revenue and operating results will not be adversely affected by future
downturns in the semiconductor industry. Even during periods of reduced
revenues, in order to remain competitive, the Company will be required to
continue to invest in R&D and to maintain extensive ongoing worldwide customer
service and support capability, which could adversely affect its financial
results.
RISKS RELATED TO THE MERGER WITH ONTRAK
Integration of Operations
The realization of the benefits sought from the Merger between Lam and
OnTrak depends on the ability of the combined company to effectively utilize the
joint product development capabilities, sales and marketing capabilities,
administrative organizations and facilities of the two companies. There can be
no assurance that these benefits will be achieved or that the activities of Lam
and OnTrak will be integrated in a coordinated, timely and efficient manner. The
combination of the two organizations also will require the dedication of
management resources, which will detract such persons' attention from the day-
to-day business of the Company. There can be no assurance that the integration
will be completed without disrupting the Company's business. The inability of
Lam and OnTrak to effectively utilize resources and to achieve integration in a
timely and coordinated fashion could result in a material adverse effect on the
Company's financial condition, operating results and cash flows. There can be no
assurance that the Company will retain and successfully integrate its key
management, technical, sales and customer support personnel, or that it will
obtain any of the anticipated benefits of the Merger.
Substantial Expenses Resulting from the Merger
Lam estimates that costs associated with the Merger were approximately
$17.7 million. Such expenses include investment advisory fees, legal and
accounting fees, financial printing costs and other Merger-related costs.
Although Lam does not believe that the costs will exceed the aforementioned
amount, there can be no assurance that the Company's estimate is correct or that
unanticipated contingencies will not occur that will substantially increase the
costs of combining the operations of the two companies. In any event, costs
associated with the Merger will negatively impact results of operations in the
fiscal quarter ending September 30, 1997.
Potential Dilutive Effect to Stockholders
Although Lam believes that beneficial synergies will result from the
Merger, there can be no assurance that combining the two companies' businesses,
even in an efficient, effective and timely manner, will result in combined
results of operations and financial condition superior to what would have been
achieved by each company independently, or as to the period of time required to
achieve such result. The issuance of Lam Common Stock in connection with the
Merger may have the effect of reducing the Company's net income per share from
levels otherwise expected for Lam and could reduce the market price of Lam
Common Stock unless revenue growth or cost savings and other business synergies
sufficient to offset the effect of such issuance can be achieved.
DEPENDENCE ON NEW PRODUCTS AND PROCESSES; RAPID TECHNOLOGICAL CHANGE
Rapid technological changes in semiconductor manufacturing processes
subject the semiconductor manufacturing equipment industry to increased pressure
to maintain technological parity with deep submicron process technology. The
Company believes that the future success of the Company will depend in part upon
its ability to develop, manufacture and successfully introduce new products and
product lines with improved capabilities and to continue to enhance existing
products. Due to the risks inherent in transitioning to new products, the
Company will be required to accurately forecast demand for new products while
managing the transition from older products. If new products have reliability or
quality problems, reduced orders, higher manufacturing costs, delays in
acceptance of and payment for new products and additional service and warranty
expenses may result. In the past, the Company has experienced some delays as
well as reliability and quality problems in connection with product
introductions, resulting in some of these consequences. There can be no
assurance that the Company will successfully develop and manufacture new
products, or that new products introduced by the Company will be accepted in the
marketplace. If the Company does not successfully introduce new
<PAGE>
Management's Discussion and Analysis
of Financial Condition and Results of Operations
products, the Company's results of operations will be materially adversely
affected.
In addition, the Company expects to continue to make significant
investments in R&D. The Company also must manage product transitions
successfully, as introduction 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 existing products which satisfy customer needs in a timely
manner 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
marketing and selling of advanced processes or equipment to customers with whom
the Company has formed strategic alliances, the results of operations of the
Company to sell its products to those customers could be adversely affected. In
addition, in connection with the development of the Company's new products, the
Company will invest 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.
PRODUCT CONCENTRATION; LACK OF PRODUCT REVENUE DIVERSIFICATION
A substantial percentage of the Company's revenues to date have been
derived from a limited number of products, and such products are expected to
continue to account for a substantial percentage of the Company's revenues in
the near term. Collective sales of the Company's two primary products, Alliance
multi-chamber etch cluster tools and TCP single-chamber etch systems, accounted
for approximately 66% of Lam and OnTrak's combined machine revenues for the
fiscal year ended June 30, 1997. Continued market acceptance of the Company's
primary products is therefore critical to the future success of the Company. Any
decline in demand for or failure to achieve continued market acceptance of such
products or any new version of these products, if any, as a result of
competition, technological change, failure of the Company to timely release new
versions of these products, or otherwise, could have a material adverse effect
on the business, operating results, financial condition and cash flows of the
Company. During the quarter ended March 31, 1997, the Company experienced a
faster than anticipated transition from its single-chamber etch products to its
next generation, multi-chamber etch cluster tools, which has resulted in the
need for higher-than-anticipated reserve provisions for excess and obsolete
manufacturing and spare parts inventories and additional provisions for
installation and warranty costs. These factors, among others, have resulted in
the Company reporting a loss for the fiscal year ended June 30, 1997.
DEPENDENCE UPON KEY SUPPLIERS AND KEY DISTRIBUTORS
Certain of the components and subassemblies included in the products of the
Company are obtained from a single supplier or a limited group of suppliers. The
Company's key suppliers include Bullen Ultrasonics, Inc., which supplies
electrodes, Edwards High Vacuum Inc., Lam's supplier of chillers, and Advanced
Energy Industries, Lam's RF generator supplier. Lam purchases in excess of
$500,000 of supplies on a monthly basis from these suppliers. Each of these
suppliers has a one year blanket purchase contract with Lam under which Lam may
issue purchase orders. These contracts may be renewed annually. Each of these
suppliers has sold products to Lam during at least the last four years, and Lam
has no reason to expect that they will not continue to renew these contracts in
the future. Lam 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.
Highly Competitive Industry
The semiconductor processing industry is highly competitive. The Company
has experienced and expects to continue to face substantial competition
throughout the world. A substantial investment is required by semiconductor
manufacturers to install and integrate capital equipment into a semiconductor
production line. The Company believes that as a result, once a semiconductor
manufacturer has selected a particular supplier's capital equipment, the
manufacturer generally relies upon that equipment for the specific production
line application and frequently will attempt to consolidate its other capital
equipment requirements with the same supplier. Accordingly, the Company would
expect to experience difficulty in selling to a given customer if that customer
had initially selected or selects a competitor's capital equipment. The Company
believes that to remain competitive, the Company 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 R&D.
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 its 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
<PAGE>
equipment companies that provide innovative technology that may have performance
advantages over systems offered by the Company.
The Company faces significant competitive factors in the etch equipment
market which 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.
The Company faces significant competitive factors in the CVD equipment
market, including 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 CVD
equipment market, the principal suppliers of equipment are Applied Materials,
Inc., Canon Sales Co. Inc., Novellus Systems, Inc. and Watkins-Johnson Company.
The CMP polishing system under development by the Company is expected to
face significant competition from multiple current and future competitors.
Companies currently offering polishing systems include Applied Materials, Inc.,
Cybeq Systems, Ebara Corporation, Integrated Process Equipment Corp. (IPEC),
SpeedFam Corp., Strasbaugh and Sumitomo. IPEC currently has the largest
installed base of CMP polishers and also offers an integrated CMP polishing and
cleaning system. Lam believes that other companies are developing polishing
systems and are planning to introduce new products to this market before or
during the same time frame as the Company's planned introduction of its CMP
polishing system.
In CMP slurry removal and cleaning applications, OnTrak's principal
competitor is Dainippon Screen Manufacturing Co. Ltd. (Dainippon Screen). OnTrak
expects that it will face increased competition from IPEC, which currently
offers a slurry removal cleaning system, and SpeedFam, as well as others as the
CMP market continues to develop. In general cleaning applications, OnTrak
competes against Dainippon Screen and others.
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, CMP or CVD products similar to those
sold or being developed by the Company, the Company's 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.
Present or future competitors may be able to develop products comparable or
superior to those offered by the Company or adapt more quickly to new
technologies or evolving customer requirements. In particular, while the Company
currently is developing additional product enhancements that it believes
addresses customer requirements, there can be no assurance that the development
or introduction of these additional product enhancements will be successfully
completed on a timely basis or that these product enhancements will achieve
market acceptance. Accordingly, there can be no assurance that the Company will
be able to continue to compete effectively in its markets, that competition will
not intensify or that future competition will not have a material adverse effect
on the business, operating results, financial condition and cash flows of the
Company.
INTERNATIONAL OPERATIONS AND EXPANSION
International sales accounted for 58%, 64%, and 54%, respectively, of the
Company's net revenues in the fiscal years 1997, 1996 and 1995. The Company
anticipates that international sales will continue to account for a significant
portion of net sales. Additionally, the Company intends to continue expansion of
international operations, including expansion of facilities in the Asia Pacific
region. 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 difficulties in accounts receivable collection.
In addition to the uncertainty as to the Company's ability to expand its
international presence, there are certain risks inherent in doing business on an
international level, such as unexpected changes in regulatory requirements,
political instability, fluctuations in currency exchange rates, and seasonal
reductions in business activity during summer months in Europe and certain other
parts of the world, any of which could have an adverse impact on the success of
international operations. Sales of products by the Company currently are
denominated principally in United States dollars. Accordingly, any increase in
the value of the United States dollar as compared to currencies in the Company's
principal overseas markets would increase the foreign currency-denominated cost
of the Company's products, which may negatively affect the Company's sales in
those markets. The Japanese yen has decreased in value relative to the United
States dollar in recent months. In addition to the potential impact on the
pricing of the Company's products, this decline will likely lower the rate
<PAGE>
Management's Discussion and Analysis
of Financial Condition and Results of Operations
of dollar revenue growth. Currently, the Company enters into foreign currency
forward contracts to minimize the impact of exchange rate fluctuations on the
value of the yen-denominated assets and liabilities, and the Company will enter
into such hedging transactions in the future. In addition, effective patent,
copyright, trademark and trade secret protection may be limited or unavailable
under the laws of certain foreign jurisdictions. There can be no assurance that
one or more of such factors will not have a material adverse effect on the
Company's international operations and, consequently, on the business, operating
results, financial condition and cash flows of the Company. 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.
INTELLECTUAL PROPERTY MATTERS
From time to time, the Company has received notices from third parties
alleging infringement of such parties' patent rights by the Company's products.
In such cases, it is the policy of the Company to defend against the claims or
negotiate licenses on commercially reasonable terms where considered
appropriate. However, no assurance can be given that the Company will be able to
negotiate necessary licenses on commercially reasonable terms, or at all, or
that any litigation resulting from such claims would not have a material adverse
effect on the Company's business and financial results.
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 been reassigned to a new judge. The
trial date has been set for March 1998. 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 Lam 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
operating results or the Company's financial position.
The Company's success depends in part on its proprietary technology. While
the Company attempts to protect its proprietary technology through patents,
copyrights and trade secret protection, it believes that the success of the
Company will depend on more technological expertise, continuing the development
of new systems, market penetration and growth of its installed base and the
ability to provide comprehensive support and service to customers. There can be
no assurance that the Company will be able to protect its technology or that
competitors will not be able to develop similar technology independently. The
Company currently has a number of United States and foreign patents and patent
applications. There can be no assurance that any patents issued to the Company
will not be challenged, invalidated or circumvented or that the rights granted
thereunder will provide competitive advantages to the Company.
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 general
compliance with these regulations and that it has obtained (or otherwise
addressed) 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.
DEPENDENCE ON KEY PERSONNEL AND DIFFICULTY OF IDENTIFYING AND HIRING CERTAIN
PERSONNEL
The performance of the Company is substantially dependent on the
performance of its executive officers and key employees. The loss of the
services of any of the executive officers or other key employees of Lam or
OnTrak could have a material adverse effect on the business, operating results,
financial condition and cash flows of the Company.
The future success of the Company also depends on its continuing ability to
identify, hire, train and retain other highly qualified technical and managerial
personnel. Competition for such personnel is intense, and the Company has
experienced difficulty in identifying and hiring qualified engineering
personnel. There can be no assurance that the Company will be able to attract,
assimilate or retain highly qualified technical and managerial personnel in the
future. The inability to attract and retain the necessary technical and
managerial personnel could have a material adverse effect on the Company's
business, operating results, financial condition and cash flows.
MANAGEMENT TRANSITION
In recent years, the Company has experienced expansion of its operations
that has placed significant
<PAGE>
Management's Discussion and Analysis
of Financial Condition and Results of Operations
demands on its respective administrative, operational and financial resources,
the demands of which are expected to intensify as a result of the Merger. James
W. Bagley, the Chairman and Chief Executive Officer of OnTrak, became the Chief
Executive Officer of Lam on August 6, 1997. In addition, Lam hired a new Chief
Financial Officer, Mercedes Johnson, in April 1997 and a new Chief Operating
Officer, Stephen G. Newberry, in August 1997. There can be no assurance that
such management transitions can be accomplished in an efficient manner without
business disruption.
MANAGEMENT OF POTENTIAL GROWTH; INTEGRATION OF POTENTIAL ACQUISITIONS
To manage future growth, if any, management of the Company will face
significant challenges in improving financial and management controls,
management processes, business and management information systems and procedures
on a timely basis and expanding, training and managing its work force. There can
be no assurance that the Company will be able to perform such actions
successfully. In the future, the Company may make additional acquisitions of
complementary companies, products or technologies. Managing an acquired business
entails numerous operational and financial risks, including difficulties in
assimilating acquired operations and new personnel, diversion of management's
attention to other business concerns, amortization of acquired intangible assets
and potential loss of key employees or customers of acquired operations. The
Company's success will depend, to a significant extent, on the ability of its
executive officers and other members of senior management to respond to these
challenges effectively. There can be no assurance that the Company will be able
to effectively achieve and manage any such growth, or that its management,
personnel or systems will be adequate to support the Company's operations. Any
such inabilities or inadequacies would have a material adverse effect on the
Company's business, operating results, financial condition and cash flows.
An important element of the Company's management strategy is to review
acquisition prospects that would complement the Company's existing products,
augment its market coverage and distribution ability or enhance its
technological capabilities. While the Company has no current agreements or
negotiations underway with respect to any new acquisitions, the Company may
acquire additional businesses, products or technologies in the future. Future
acquisitions by the Company could result in potentially dilutive issuances of
equity securities, the incurrence of debt and contingent liabilities and
amortization expense related to goodwill and other intangible assets, and other
changes which could materially adversely affect the Company's business,
financial condition and results of operations and/or the price of the Lam Common
Stock.
POTENTIAL VOLATILITY OF COMMON STOCK PRICE
The market price of Lam Common Stock has been volatile. Significant
fluctuations have occurred and could occur in the future in response to
variations in quarterly operating results, shortfalls in revenues or earnings
from levels expected by securities analysts and other factors such as
announcements of technological innovations or new products by the Company or by
the Company's competitors, government regulations, or developments in patent or
other proprietary rights. In addition, the stock market has in recent years
experienced significant price fluctuations. These fluctuations often have been
unrelated to the operating performance of the specific companies whose stocks
are affected. Broad market fluctuations, as well as economic conditions
generally in the semiconductor industry, may adversely affect the market price
of the Lam Common Stock.
POTENTIAL ANTI-TAKEOVER EFFECTS OF RIGHTS PLAN AND BYLAWS
On January 23, 1997, the Company adopted a Rights Plan (the Rights Plan) in
which rights were distributed as a dividend at the rate of one right for each
share of Common Stock, par value $0.001 per share, of the Company held by
stockholders of record as of the close of business on January 31, 1997 and
thereafter. In connection with the adoption of the Rights Plan, the Board of
Directors also adopted a number of amendments to the Company's Bylaws, including
amendments requiring advance notice of stockholder nominations of directors and
stockholder proposals.
The Rights Plan may have certain anti-takeover effects. The Rights Plan
will cause substantial dilution to a person or group that attempts to acquire
the Company in certain circumstances. Accordingly, the existence of the Rights
Plan and the issuance of the related rights may deter certain acquirers from
making takeover proposals or tender offers. The Rights Plan, however, is not
intended to prevent a takeover but rather is designed to enhance the ability of
the Board of Directors to negotiate with a potential acquirer on behalf of all
of the stockholders.
In addition, the Certificate of Incorporation authorizes 5,000,000 shares
of undesignated preferred stock. The Board of Directors of the Company, without
further stockholder approval, may issue this preferred stock with such terms as
the Board of Directors may determine, which could have the effect of delaying or
preventing a change in control of the Company. The issuance of preferred stock
could also adversely affect the voting power of the holders of Common Stock,
causing the loss of voting control. The Company's Bylaws and indemnity
agreements with officers and directors provide that the Company will indemnify
officers and directors against losses that they may incur in legal proceedings
resulting from their service to the Company. Moreover, Section 203 of the
Delaware General Corporation Law restricts certain business combinations with
"interested stockholders" as defined by that statute.
<PAGE>
Consolidated Balance Sheets
(in thousands, except per share data)
<TABLE>
<CAPTION>
June 30, 1997 1996
==============================================================
<S> <C> <C>
Assets
Cash and cash equivalents $125,725 $ 62,879
Short-term investments 38,520 67,605
Accounts receivable less allowance for
doubtful accounts of $1,977
in 1997 and $1,663 in 1996 217,723 256,767
Inventories 253,762 322,366
Prepaid expenses and other assets 36,547 17,193
Deferred income taxes 73,761 50,035
- --------------------------------------------------------------
Total current assets 746,038 776,845
Equipment and leasehold improvements, 184,500 170,839
net
Other assets 34,911 21,681
- --------------------------------------------------------------
$965,449 $969,365
==============================================================
Liabilities and Stockholders' Equity
Trade accounts payable $113,661 $112,883
Accrued expenses and other liabilities 159,604 155,874
Line of credit borrowings 35,000 25,000
Current portion of long-term debt and
capital lease obligations 20,841 12,896
- --------------------------------------------------------------
Total current liabilities 329,106 306,653
Long-term debt and capital lease
obligations, less current portion 45,706 52,926
Commitments and contingencies
Preferred Stock; 5,000 shares
authorized, none outstanding -- --
Common stock at par value of $0.001 per
share
Authorized--90,000 shares; issued
and outstanding--30,890 shares
at June 30, 1997 and 30,266 shares
at June 30, 1996 31 30
Additional paid-in capital 312,644 298,160
Retained earnings 277,962 311,596
- --------------------------------------------------------------
Total stockholders' equity 590,637 609,786
- --------------------------------------------------------------
$965,449 $969,365
==============================================================
</TABLE>
See notes to consolidated financial statements.
<PAGE>
Consolidated Statements of Operations
(in thousands, except per share data)
<TABLE>
<CAPTION>
Year ended June 30, 1997 1996 1995
===============================================================================
<S> <C> <C> <C>
Net sales $ 989,742 $1,254,070 $798,209
Royalty income 12,662 22,814 12,348
- -------------------------------------------------------------------------------
Total revenue 1,002,404 1,276,884 810,557
Costs and expenses:
Cost of goods sold 689,459 663,181 418,818
Research and development 170,624 173,013 127,840
Selling, general and administrative 197,089 227,755 145,507
Restructuring charge 9,021 -- --
- -------------------------------------------------------------------------------
1,066,193 1,063,949 692,165
- -------------------------------------------------------------------------------
Operating income (loss) (63,789) 212,935 118,392
- -------------------------------------------------------------------------------
Other (income) expense:
Interest income (4,257) (5,442) (5,138)
Interest expense 5,110 7,887 6,732
Other, net 636 1,453 (10,646)
- -------------------------------------------------------------------------------
1,489 3,898 (9,052)
- -------------------------------------------------------------------------------
Income (loss) before income taxes (65,278) 209,037 127,444
Income tax expense (benefit) (31,644) 67,946 38,233
- -------------------------------------------------------------------------------
Net income (loss) $ (33,634) $ 141,091 $ 89,211
===============================================================================
Net income (loss) per share
Primary $(1.10) $4.92 $3.27
===============================================================================
Fully diluted $(1.10) $4.67 $3.06
===============================================================================
Number of shares used in per share
calculations
Primary 30,600 28,700 27,300
===============================================================================
Fully diluted 30,600 30,940 30,300
===============================================================================
</TABLE>
See notes to consolidated financial statements.
<PAGE>
Consolidated Statements of Cash Flows
(in thousands)
<TABLE>
<CAPTION>
Year ended June 30, 1997 1996 1995
=========================================================================================================
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss) $ (33,634) $ 141,091 $ 89,211
Adjustments to reconcile net income (loss) to net
cash provided by operating activities:
Depreciation and amortization 53,109 33,756 23,532
Deferred income taxes (24,437) (21,519) (12,529)
Changes in certain working capital accounts:
Accounts receivable 39,044 (61,085) (75,356)
Inventories 60,930 (150,965) (55,832)
Prepaid expenses and other assets (19,354) (3,968) (19,240)
Trade accounts payable 778 30,341 16,415
Accrued expenses and other liabilities 3,730 58,960 52,895
- --------------------------------------------------------------------------------------------------------
Total adjustments 113,800 (114,480) (70,115)
- --------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 80,166 26,611 19,096
Cash flows from investing activities:
Net capital expenditures (39,548) (66,588) (63,405)
Purchase of available-for-sale securities (589,223) (405,819) (348,204)
Sale of available-for-sale securities 618,308 420,572 289,968
Proceeds from the sale of securities -- 12,038 --
Other (11,695) (7,947) (3,026)
- --------------------------------------------------------------------------------------------------------
Net cash used in investing activities (22,158) (47,744) (124,667)
Cash flows from financing activities:
Proceeds from borrowings under line of credit 95,000 40,000 --
Repayment of borrowings under line of credit (85,000) (15,000) --
Proceeds from issuance of long-term debt 2,956 21,873 9,468
Principal payments on long-term debt
and capital lease obligations (21,564) (13,987) (6,406)
Proceeds from issuance of Common Stock 13,446 7,451 122,092
- --------------------------------------------------------------------------------------------------------
Net cash provided by financing activities 4,838 40,337 125,154
- --------------------------------------------------------------------------------------------------------
Net increase in cash and cash equivalents 62,846 19,204 19,583
Cash and cash equivalents at beginning of year 62,879 43,675 24,092
- --------------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of year $ 125,725 $ 62,879 $ 43,675
========================================================================================================
Cash payments for interest $ 5,198 $ 8,574 $ 6,614
========================================================================================================
Cash payments for income taxes $ 31,341 $ 74,666 $ 31,319
========================================================================================================
</TABLE>
See notes to consolidated financial statements.
<PAGE>
Consolidated Statements of Stockholders' Equity
(in thousands)
<TABLE>
<CAPTION>
Common Common Additional
Stock Stock Paid-in Retained
Shares Amount Capital Earnings Total
===========================================================================================================
<S> <C> <C> <C> <C> <C>
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 -- -- 7,128 -- 7,128
transactions
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
Sale of Common Stock, net of repurchases 624 1 13,445 -- 13,446
Income tax benefit from stock option
transactions -- -- 1,039 -- 1,039
Net loss -- -- -- (33,634) (33,634)
- -----------------------------------------------------------------------------------------------------------
Balance at June 30, 1997 30,890 $31 $312,644 $277,962 $590,637
===========================================================================================================
</TABLE>
See notes to consolidated financial statements.
<PAGE>
Notes To Consolidated Financial Statements
June 30, 1997
NOTE 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 evaluates the need to record adjustments for impairment of
inventory on a quarterly basis. The Company's policy is to evaluate all
inventory including manufacturing raw materials, work-in-process, finished
goods, and spare parts. Inventory in excess of the Company's estimated usage
requirements is written down to its estimated net realizable value. Inherent in
the estimates of net realizable value are management estimates related to the
Company's future manufacturing schedules, customer demand, possible alternative
uses and ultimate realization of potentially excess inventory.
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 underlying lease. Amortization of equipment under capital leases
is included with depreciation.
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 (loss) 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 a
component of stockholders' equity, but have not been material through June 30,
1997.
Income (Loss) Per Share
For fiscal 1997, net loss per share is calculated using the weighted
average number of shares of Lam Common Stock outstanding during the period. For
fiscal 1996 and 1995, primary net income per share is calculated using the
weighted average number of shares of common stock and common stock equivalents
outstanding during the period. The common stock equivalents include shares
issuable upon the assumed exercise of stock options reflected under the treasury
stock method. The 6% convertible subordinated debentures were not deemed to be
common stock equivalents and, accordingly, were excluded from the calculation of
primary net income per share. Fully diluted net income per share for fiscal 1996
and 1995 reflects the assumed conversion of the Company's 6% convertible
subordinated debentures at the beginning of that period, and also adjusts net
income to reflect the exclusion of net interest expense and net amortization
expense of the debt issuance cost related to the debentures. The 6% convertible
subordinated debentures were called by the Company during the quarter ended June
30, 1996. Primary income per share, for fiscal 1996, calculated to reflect the
conversion of the 6% convertible subordinated debentures as if they were
converted on July 1, 1995 is $4.67.
In March 1997, the Financial Accounting Standards Board (FASB) released
Statement of Financial Accounting Standards No. 128 "Earnings Per Share" (FAS
128), which is required to be adopted on December 31, 1997. At that time, the
Company will be required to change the method currently used to compute earnings
per share and to restate all prior periods. Under the new requirements for
calculating primary net income per share (basic earnings per share), the
dilutive effect of stock options will be excluded. The Company's basic and
diluted earnings (loss) per share as calculated according to FAS 128 would have
been as follows:
<TABLE>
<CAPTION>
1997 1996 1995
<S> <C> <C> <C>
============================================
Basic $(1.10) $5.08 $3.42
Diluted $(1.10) $4.67 $3.06
============================================
</TABLE>
<PAGE>
Notes To Consolidated Financial Statements
June 30, 1997
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 FASB released Statement of Financial Accounting Standard No.
123, "Accounting For Stock-Based Compensation" (FAS 123) which provides an
alternative to APB 25. As allowed under FAS 123, the Company continues to
account for its employee stock plans in accordance with the provisions of APB
25. See note J.
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.
Transfer of Financial Assets
During fiscal 1997, the Company adopted Statement of Financial Accounting
Standard No. 125, "Accounting for Transfers and Servicing of Financial Assets
and Extinguishments of Liabilities" (FAS 125), which requires the Company to
recognize the financial and servicing assets it controls and the liabilities it
has incurred and to derecognize financial assets when control has been
surrendered in accordance with criteria provided. FAS 125 is required to be
applied to sales of receivables by the Company occurring after January 1, 1997.
The effect of adopting FAS 125 for the six months ended June 30, 1997 was not
material.
Capital Structure
In February 1997, the FASB released Statement of Financial Accounting
Standards No. 129, "Disclosure of Information about Capital Structure" (FAS
129). FAS 129 consolidates the existing guidance regarding disclosure relating
to a company's capital structure and is effective for fiscal years beginning
after December 15, 1997. Adoption of FAS 129 is not expected to have a material
impact on the Company's consolidated financial statements.
Comprehensive Income
In June 1997, the FASB released Statement of Financial Accounting Standards
No. 130, "Reporting Comprehensive Income" (FAS 130). FAS 130 establishes
standards for the reporting and display of comprehensive income and its
components in a full set of general purpose financial statements and is
effective for fiscal years beginning after December 15, 1997. The Company
believes that adoption of FAS 130 will not have a material impact on the
Company's consolidated financial statements.
Segment Information
In June 1997, the FASB released Statement of Financial Accounting Standards
No. 131, "Disclosures about Segments of an Enterprise and Related Information"
(FAS 131). FAS 131 will change the way companies report selected segment
information in annual financial statements and also requires those companies to
report selected segment information in interim financial reports to
stockholders. FAS 131 is effective for fiscal years beginning after December 15,
1997. Based on the current circumstances, the Company believes that the
application of the new rules will not have a material impact on the Company's
consolidated financial statements.
NOTE B: COMPANY AND INDUSTRY INFORMATION
Lam 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 CVD, CMP and FPD 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 9 billion yen and 6 billion
yen, respectively, in fiscal 1997 and 1996 to sell specific Japanese yen-
denominated receivables subject to recourse provisions. At June 30, 1997 and
1996, $59,986,000 and $82,104,000, of these receivables,
<PAGE>
Notes To Consolidated Financial Statements
June 30, 1997
respectively, had been sold to a bank, of which $39,924,000 and $49,467,000 at
June 30, 1997 and 1996, respectively, remained uncollected by the bank and
subject to recourse provisions.
During fiscal 1997 and 1996, no individual customer accounted for greater
than 10% of total sales. One customer accounted for 11% of total sales in fiscal
1995.
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:
<TABLE>
<CAPTION>
(in thousands) 1997 1996 1995
=================================================================
<S> <C> <C> <C>
Revenue:
United States $ 832,429 $1,045,571 $715,015
Europe 42,942 40,365 26,925
Japan 69,427 138,713 45,856
Asia Pacific 57,606 52,235 22,761
- -----------------------------------------------------------------
$1,002,404 $1,276,884 $810,557
=================================================================
Operating income (loss):
United States $ (61,091) $ 126,700 $ 90,145
Europe (8,730) 9,696 4,657
Japan 2,342 56,903 18,174
Asia Pacific 3,690 19,636 5,416
- -----------------------------------------------------------------
$ (63,789) $ 212,935 $118,392
=================================================================
Identifiable assets:
United States $ 803,057 $ 829,842 $590,291
Europe 31,538 28,688 20,974
Japan 71,847 65,344 43,791
Asia Pacific 59,007 45,491 27,593
- -----------------------------------------------------------------
$ 965,449 $ 969,365 $682,649
=================================================================
</TABLE>
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 three years ended June 30 are as follows:
<TABLE>
<CAPTION>
(in thousands) 1997 1996 1995
==================================================
<S> <C> <C> <C>
Asia Pacific $277,685 $334,149 $173,549
Europe 116,668 172,586 105,349
Japan 18,138 22,936 29,477
- --------------------------------------------------
$412,491 $529,671 $308,375
==================================================
</TABLE>
NOTE C: FINANCIAL INSTRUMENTS
In November 1995, the FASB 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, which approximated their fair value.
Investments at June 30 are comprised of the following:
<TABLE>
<CAPTION>
1997 1996
===========================================
Estimated Estimated
Fair Fair
(in thousands) Cost Value Cost Value
====================================================================
<S> <C> <C> <C> <C>
Available-for-Sale:
Municipal Notes $ 80,798 $ 80,798 $ -- $ --
Institutional Money
Market Funds 28,000 28,000 5,546 5,546
- -------------------------------------------------------------------
Amounts included
in cash and cash
equivalents 108,798 108,798 5,546 5,546
Floating Rate
Municipal Notes 19,549 19,549 44,600 44,600
U.S. Treasury Notes 18,971 18,971 23,005 23,005
- -------------------------------------------------------------------
Amounts included
in short-term
investments 38,520 38,520 67,605 67,605
- -------------------------------------------------------------------
$147,318 $147,318 $73,151 $73,151
===================================================================
</TABLE>
The difference between cost and fair value of available-for-sale securities
was not significant at June 30, 1997 and 1996.
The amortized cost and estimated fair value of investments in debt
securities at June 30 by contractual maturities are as follows:
<TABLE>
<CAPTION>
1997 1996
===========================================
Estimated Estimated
Fair Fair
(in thousands) Cost Value Cost Value
====================================================================
<S> <C> <C> <C> <C>
Due in less than
one year $128,347 $128,347 $50,146 $50,146
Due after one year
through five years 18,971 18,971 23,005 23,005
- -------------------------------------------------------------------
$147,318 $147,318 $73,151 $73,151
===================================================================
</TABLE>
<PAGE>
Notes To Consolidated Financial Statements
June 30, 1997
The carrying and fair values of the Company's financial instruments at June
30, are as follows:
<TABLE>
<CAPTION>
1997 1996
============================================
Estimated Estimated
Carrying Fair Carrying Fair
(in thousands) Value Value Value Value
======================================================================
<S> <C> <C> <C> <C>
Cash &
cash equivalents $125,725 $125,725 $62,879 $62,879
Foreign currency
forward contracts $ -- $ 31,604 $ -- $43,632
Other long-term debt $ 66,547 $ 66,573 $65,822 $65,591
=====================================================================
</TABLE>
The fair values of the Company's short-term investments are based on quoted
market prices at June 30, 1997 and 1996. The fair value of the Company's foreign
currency forward contracts is estimated based upon the yen exchange rate at June
30, 1997 and 1996. 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.
NOTE 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 1997 were offset by gains on the
underlying receivables.
At June 30, 1997 and 1996, the notional amount of outstanding foreign
currency forward contracts were $30,651,000 and $44,580,000, respectively. Of
the total outstanding contracts at June 30, 1997 and 1996, $13,828,000 and
$38,794,000, respectively, were to hedge yen intercompany receivables and
$17,776,000 and $4,838,000, respectively, were to hedge firm commitments from
customers in Japan. The unrealized loss on these contracts at June 30, 1997 was
$953,000. The unrealized gain on these contracts at June 30, 1996 was $948,000.
NOTE E: INVENTORIES
Inventories consist of the following at June 30:
<TABLE>
<CAPTION>
(in thousands) 1997 1996
==========================================================
<S> <C> <C>
Raw materials $133,995 $167,513
Work-in-process 88,413 122,828
Finished goods 31,354 32,025
- ----------------------------------------------------------
$253,762 $322,366
==========================================================
</TABLE>
NOTE F: PREPAID EXPENSES AND OTHER ASSETS
Prepaid expenses and other assets consist of the following at June 30:
<TABLE>
<CAPTION>
(in thousands) 1997 1996
===============================================================
<S> <C> <C>
Prepaid expenses $ 13,092 $ 10,408
Net realizable value of collateral 5,320 --
Taxes receivable 5,400 --
Other 12,735 6,785
- ---------------------------------------------------------------
$ 36,547 $ 17,193
===============================================================
</TABLE>
During fiscal 1997, the Company recorded bad debt expense of $6,550,000
relating to the former at-risk receivables from SubMicron. The estimated net
realizable value of the collateral which the Company holds related to these
receivables has been included in prepaid expenses and other assets.
NOTE G: EQUIPMENT AND LEASEHOLD IMPROVEMENTS
Equipment and leasehold improvements consist of the following at June 30:
<TABLE>
<CAPTION>
(in thousands) 1997 1996
==========================================================
<S> <C> <C>
Equipment $ 146,692 $120,770
Furniture and fixtures 56,234 45,740
Leasehold improvements 97,263 88,131
- ----------------------------------------------------------
300,189 254,641
Less allowance for depreciation
and amortization (115,689) (83,802)
- ----------------------------------------------------------
$ 184,500 $170,839
==========================================================
</TABLE>
<PAGE>
Notes To Consolidated Financial Statements
June 30, 1997
NOTE H: ACCRUED EXPENSES AND OTHER LIABILITIES
The significant components of accrued expenses and other liabilities
consist of the following at June 30:
<TABLE>
<CAPTION>
(in thousands) 1997 1996
================================================================
<S> <C> <C>
Warranty and installation reserves $ 72,896 $ 62,180
Accrued compensation 26,581 27,752
Income and other taxes payable 21,381 45,471
Other 38,746 20,471
- ----------------------------------------------------------------
$159,604 $155,874
================================================================
</TABLE>
NOTE I: LINE OF CREDIT, LONG-TERM DEBT AND CAPITAL LEASE OBLIGATIONS
Long-term debt and capital lease obligations at June 30 consist of the
following:
<TABLE>
<CAPTION>
(in thousands) 1997 1996
=================================================================================================================
<S> <C> <C>
Capitalized lease obligations with varying interest rates from 4.6% to 9.6% $ 35,666 $ 30,043
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 1997 to April 2003 28,562 32,724
Other 2,319 3,055
- -----------------------------------------------------------------------------------------------------------------
66,547 65,822
Less current portion (20,841) (12,896)
- -----------------------------------------------------------------------------------------------------------------
$ 45,706 $ 52,926
=================================================================================================================
</TABLE>
During the second quarter of fiscal 1996, the Company entered into a
syndicated bank line of credit totaling $210,000,000, under 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, 1997 and
1996, the Company had outstanding borrowings of $35,000,000 and $25,000,000,
respectively, against the syndicated bank line of credit. The credit agreement
includes terms requiring satisfaction of certain financial ratios, interest
coverage, maximum leverage, senior indebtedness, tangible net worth, minimum
profitability and also restricts the Company from paying dividends. During the
third quarter of fiscal 1997, the Company received amendments or waivers for
certain of its financial covenants which would have otherwise been breached by
the net loss reported by the Company. At June 30, 1997, the Company was in
compliance with all of its covenants as amended.
At June 30, 1997, future maturities of long-term debt and minimum payments
for capital lease obligations are as follows:
<TABLE>
<CAPTION>
Capital
Year ending June 30 Long-term Lease
(in thousands) Debt Obligations Total
==============================================================
<S> <C> <C> <C>
1998 $ 8,172 $14,776 $22,948
1999 8,048 12,921 20,969
2000 7,627 9,351 16,978
2001 5,759 2,304 8,063
2002 737 472 1,209
Thereafter 538 -- 538
Less amounts
representing interest -- (4,158) (4,158)
- --------------------------------------------------------------
$30,881 $35,666 $66,547
==============================================================
</TABLE>
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 $56,671,000 and $(22,698,000),
respectively, at June 30, 1997 and $45,484,000 and $(15,309,000), respectively,
at June 30, 1996.
NOTE J: INCENTIVE STOCK OPTION PLANS AND STOCK PURCHASE PLAN
The Company has adopted incentive stock option plans that provide for the
granting to qualified employees of incentive stock options to purchase shares of
Lam Common Stock. In addition, the plans permit the granting of nonstatutory
stock options to 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 Lam Common Stock during January of each year
with the exercise price equal to the fair market value on date of grant.
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 1997
A summary of incentive stock option plan transactions follows:
<TABLE>
<CAPTION>
Authorized Outstanding Option Price Wtd. Average
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
June 30, 1994 473,716 1,871,620 $ 2.04-35.88 $15.98
Additional amount authorized 1,075,000 -- --
Granted (820,600) 820,600 28.00-63.88 33.78
Exercised -- (563,965) 2.04-35.88 8.47
Canceled 49,654 (49,654) 1.70-50.63 25.90
Expired (5,481) -- --
- ----------------------------------------------------------------------------------------------------------
June 30, 1995 772,289 2,078,601 $ 2.04-63.88 $24.87
Additional amount authorized 1,000,000 -- --
Granted (1,995,948) 1,995,948 25.94-68.00 42.85
Exercised -- (156,552) 2.04-45.13 17.78
Canceled 1,121,602 (1,121,602) 2.04-68.00 51.83
Expired (8,174) -- --
- ----------------------------------------------------------------------------------------------------------
June 30, 1996 889,769 2,796,395 $ 2.26-62.88 $28.16
Granted (940,915) 940,915 20.63-40.31 25.54
Exercised -- (229,377) 2.26-35.75 21.50
Canceled 260,252 (260,252) 2.26-44.88 31.53
Expired (1,319) -- --
- ----------------------------------------------------------------------------------------------------------
June 30, 1997 207,787 3,247,681 $ 5.25-62.88 $27.41
==========================================================================================================
</TABLE>
Outstanding and exercisable options presented by price range at June 30,
1997 are as follows:
<TABLE>
<CAPTION>
Outstanding Options Options Exercisable
- ----------------------------------------------------------------------------------------------------------
Number of Options Wtd. Average Number of Options
Range of Outstanding at Remaining Life Wtd. Average Exercisable at Wtd. Average
Exercise Prices June 30, 1997 (Years) Exercise Price June 30, 1997 Exercise Price
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
$ 5.25-20.63 784,886 6.62 $14.26 452,221 $ 9.57
22.13-29.00 729,922 8.13 27.75 303,023 28.54
29.06-32.38 624,984 7.42 29.66 392,293 29.82
33.63-33.63 760,832 8.54 33.63 267,815 33.63
33.81-62.88 347,057 8.56 38.79 144,897 39.29
- ----------------------------------------------------------------------------------------------------------
$ 5.25-62.88 3,247,681 7.77 $27.41 1,560,249 $25.23
==========================================================================================================
</TABLE>
<PAGE>
Notes To Consolidated Financial Statements
June 30, 1997
At June 30, 1997, 3,455,468 shares of Lam Common Stock were reserved for
future issuance under the stock option plans and options to purchase 1,560,249
shares were exercisable at a range of $5.25-$62.88 per share.
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 Lam 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 Restricted Stock Plan. At June 30, 1997, 120,879 shares remain
available under this plan.
Lam Common Stock is sold to employees under the 1984 Employee Stock
Purchase Plan (ESPP). During fiscal 1996, the Company authorized an additional
150,000 shares to be reserved for issuance under the 1984 ESPP. The purchase
price per share is the lower of 85% of the fair market value of the Lam Common
Stock on the first or last day of a six-month offering period. A total of
1,348,873 shares of Lam Common Stock was issued under the ESPP through June 30,
1997 at prices ranging from $2.65 to $43.03 per share. At June 30, 1997, 338,627
shares remain available for sale under the ESPP.
As permitted under FAS 123, the Company has elected to follow APB 25 and
related Interpretations, in accounting for stock-based awards to employees.
Under APB 25, the Company generally recognized no compensation expense with
respect to such awards.
Pro forma information regarding net income (loss) and net income (loss) per
share is required by FAS 123 for awards granted after June 30, 1995 as if the
Company had accounted for its stock-based awards to employees under the fair
value method of FAS 123. The fair value of the Company's stock-based awards to
employees was estimated using a Black-Scholes option pricing model. The Black-
Scholes option valuation model was developed for use in estimating the fair
value of traded options which have no vesting restrictions and are fully
transferable. In addition, the Black-Scholes model requires the input of highly
subjective assumptions including the expected stock price volatility. Because
the Company's stock-based awards to employees have characteristics significantly
different from those of traded options, and because changes in the subjective
input assumptions can materially affect the fair value estimate, in management's
opinion, the existing models do not necessarily provide a reliable single
measure of the fair value of its stock-based awards to employees. The fair value
of the Company's stock-based awards to employees was estimated assuming no
expected dividends and the following weighted-average assumptions:
<TABLE>
<CAPTION>
Options ESPP
=================================
1997 1996 1997 1996
=============================================================
<S> <C> <C> <C> <C>
Expected life (years) 3.4 3.5 0.5 0.5
Expected stock
price volatility 57.7% 52.7% 57.8% 57.7%
Risk-free interest rate 6.2% 5.5% 5.3% 5.4%
============================================================
</TABLE>
The weighted average fair value of options granted during fiscal 1997 and
1996 was $11.52 and $13.88 per share, respectively. The weighted average fair
value of shares granted under the ESPP during fiscal 1997 and 1996 was $7.65 and
$9.76 per share, respectively.
For pro forma purposes, the estimated fair value of the Company's stock-
based awards to employees is amortized over the options' vesting period (for
options) and the six-month purchase period (for stock purchases under the ESPP).
The Company's pro forma information follows:
<TABLE>
<CAPTION>
(in thousands, except per share amounts) 1997 1996
====================================================================
<S> <C> <C>
Net income (loss)--as reported $(33,634) $141,091
Net income (loss)--pro forma (40,482) 133,905
Primary net income (loss) per share--
as reported (1.10) 4.92
Primary net income (loss) per share--
pro forma (1.32) 4.67
Fully diluted net income (loss) per share--
as reported (1.10) 4.67
Fully diluted net income (loss) per share--
pro forma (1.32) 4.43
=====================================================================
</TABLE>
FAS 123 is applicable only to awards granted subsequent to June 30, 1995.
As a result, its pro forma effect will not be fully reflected until fiscal 1999.
NOTE K: 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 and performance goals are 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
<PAGE>
Notes To Consolidated Financial Statements
June 30, 1997
met. In fiscal 1997, the Company did not incur profit sharing plan expense.
Profit sharing plan expense for fiscal 1996 and 1995 was $14,438,000 and
$9,506,000, respectively.
The Company maintains a 401(k) retirement savings plan for its full-time
domestic employees. 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. The
Company matches employee contributions to the plan at the rate of 50% of the
first 6% of salary contributed. The Company match expense for fiscal 1997, 1996
and 1995 was $4,417,000, $3,754,000, and $2,342,000 respectively.
NOTE L: COMMITMENTS
The Company leases its administrative, R&D, and manufacturing facilities,
regional customer support offices and certain equipment under noncancelable
operating leases, which expire at various dates through 2020. Certain of the
Company's labs and other equipment are also supplied under operating leases. 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 leases 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:
<TABLE>
<CAPTION>
(in thousands)
===========================
<S> <C>
1998 $ 49,213
1999 42,171
2000 33,651
2001 24,268
2002 18,986
Thereafter 111,614
- ----------------------------
$279,903
============================
</TABLE>
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 approximately $47,900,000 as
lease collateral five years after lease inception.
Total rental expense for all leases amounted to approximately $45,656,000,
$35,303,000, and $9,528,000, for the years ended June 30, 1997, 1996 and 1995,
respectively.
The Company has subleased some of its buildings and will receive income of
approximately $1,914,000, $2,442,000, $2,448,000, $2,293,000, $1,978,000 and
$471,000 for fiscal 1998, 1999, 2000, 2001, 2002 and thereafter, respectively,
which will offset minimum lease payments.
For the fiscal year ended June 30, 1997, the Company recorded income
totaling $405,000 on its subleased facilities.
NOTE M: LICENSING/ROYALTY AGREEMENTS
The Company receives royalty income from TEL under a licensing agreement
signed in fiscal 1987 and extended in fiscal 1992 and 1996. For the years ended
June 30, 1997, 1996 and 1995, the Company earned approximately $11,700,000,
$20,700,000, and $10,500,000, respectively, of royalty income from TEL. The
current royalty agreement, which was set to expire December 31, 1996, was
renegotiated at a reduced royalty rate (5% to 1%) which went into effect
January 1, 1997.
The Company also receives royalty income from Sumitomo. Royalty income
earned from Sumitomo for fiscal 1997, 1996 and 1995 amounted to approximately
$1,000,000, $2,100,000, and $1,700,000, respectively.
During fiscal 1995, the Company earned approximately $100,000 of royalty
income from other sources.
NOTE N: INCOME TAXES
Income tax expense (benefit) consists of the following:
<TABLE>
<CAPTION>
(in thousands) 1997 1996 1995
====================================================
Federal:
<S> <C> <C> <C>
Current $(21,871) $ 61,950 $ 36,093
Deferred (14,926) (18,397) (10,247)
- ----------------------------------------------------
(36,797) 43,553 25,846
State:
Current 2,225 6,746 6,131
Deferred (9,511) (1,572) (2,282)
- ----------------------------------------------------
(7,286) 5,174 3,849
Foreign:
Current 12,439 20,769 8,538
Deferred -- (1,550) --
- ----------------------------------------------------
12,439 19,219 8,538
- ----------------------------------------------------
$(31,644) $ 67,946 $ 38,233
====================================================
</TABLE>
Actual current tax benefits are higher than reflected above for fiscal 1997
by $1,039,000 and actual current tax liabilities are lower than tax expense
reflected above for fiscal years 1996 and 1995 by $1,719,000 and $7,128,000,
respectively, for the stock option deduction benefits recorded as a credit to
stockholders' equity.
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
<PAGE>
Notes To Consolidated Financial Statements
June 30, 1997
purposes. Significant components of the Company's net deferred tax assets as of
June 30, are as follows:
<TABLE>
<CAPTION>
(in thousands) 1997 1996
==========================================================
<S> <C> <C>
Deferred tax assets:
Accounting reserves and accruals
deductible in different periods $42,163 $24,745
Inventory valuation differences 24,635 21,696
Tax credit carryforward 15,189 --
Net undistributed profits of
foreign subsidiaries 3,805 6,753
Other -- 446
- ----------------------------------------------------------
Total deferred tax assets 85,792 53,640
Deferred tax liabilities:
Temporary differences for
capital assets (8,534) --
Other (1,236) (2,055)
- ----------------------------------------------------------
Total deferred tax liabilities (9,770) (2,055)
- ----------------------------------------------------------
$76,022 $51,585
==========================================================
</TABLE>
A reconciliation of income tax expense provided at the federal statutory
rate (35% in 1997, 1996 and 1995) to income tax expense follows:
<TABLE>
<CAPTION>
(in thousands) 1997 1996 1995
====================================================================
<S> <C> <C> <C>
Income tax expense computed
at federal statutory rate -- $73,163 $44,605
Net operating loss benefit $(22,847) -- --
Tax credits (5,159) -- (2,800)
State income taxes, net of
federal tax benefits (provision) (4,736) 3,363 2,502
Foreign sales corporation
tax benefits -- (9,074) (5,250)
Other 1,098 494 (824)
- ---------------------------------------------------------------------
$(31,644) $67,946 $38,233
=====================================================================
</TABLE>
Income before income taxes from foreign operations for fiscal years 1997,
1996 and 1995 was $31,621,000, $42,216,000, and $17,830,000, respectively. In
addition, the Company received royalty and other income from foreign sources of
$12,662,000, $22,814,000 and $12,227,000, in fiscal years 1997, 1996 and 1995,
respectively, which is subject to foreign tax withholding.
NOTE O: RESTRUCTURING
During the first quarter of fiscal 1997, the Company restructured its
operations by consolidating its previous business unit structure into a more
centralized functional organization. As a result of the restructuring, and in
response to industry and market conditions, the Company reduced its work force
by approximately 11%. The Company recorded a restructuring charge of $9.0
million for costs related primarily to severance compensation and consolidation
of facilities. At June 30, 1997, $1.7 million remains in accrued liabilities
relating primarily to executive severance and remaining lease payments on unused
facilities. As of June 30, 1997, the Company had made $6.3 million of cash
payments relating to the restructuring.
NOTE P: RIGHTS PLAN
On January 23, 1997, the Company adopted a Rights Plan (the Rights Plan).
Pursuant to the Rights Plan, rights were distributed as a dividend at the rate
of one right for each share of Lam Common Stock, par value $0.001 per share
(Right), of the Company held by stockholders of record as of the close of
business on January 31, 1997 and thereafter. The Rights will expire on January
31, 2007, unless redeemed or exchanged. Under the Rights Plan, each Right
initially will entitle the registered holder to buy one unit of a share of
preferred stock for $250.00. The Rights will become exercisable only if a person
or group (other than stockholders currently owning 15% of Lam Common Stock)
acquires beneficial ownership of 15% or more of Lam Common Stock or commences a
tender or exchange offer upon consummation of which such person or group would
beneficially own 15% or more of Lam Common Stock.
NOTE Q: RELATED PARTY TRANSACTION
During fiscal 1997, the Company invested $4.0 million for a 32% interest in
a limited partnership (the Partnership). The Partnership was organized for the
purpose of investing in emerging technology companies to seek income and gains
to the Partnership. Three of the Company's directors are principals in the
limited liability company that is the general partner of the Partnership. The
Company is accounting for its investment in the Partnership under the equity
method. Accordingly, the Company will adjust the recorded value of its
investment for its share (32%) of the Partnership's net income or loss. The
Company's portion of the Partnership's net income was not material for the year
ended June 30, 1997.
NOTE R: 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 been reassigned to a new judge. The trial date has
been set for March 1998. 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
<PAGE>
Notes To Consolidated Financial Statements
June 30, 1997
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.
NOTE S: SUBSEQUENT EVENT--ONTRAK MERGER (UNAUDITED)
On August 5, 1997, the stockholders of the Company approved the issuance of
Lam Common Stock under the Agreement and Plan of Merger with OnTrak. The Company
will issue approximately 8,759,000 shares of Lam Common Stock for all the
outstanding common stock and options and rights to purchase OnTrak Common Stock
on the basis of 0.83 of a share of Lam Common Stock for one share of OnTrak
Common Stock. The transaction will be accounted for as a pooling of interests
and is structured to qualify as a tax-free reorganization. The anticipated
financial impact of the conforming accounting methods is not expected to be
material to the financial position of the Company. The Company estimates that
costs associated with the Merger were approximately $17.7 million. Such expenses
include investment advisory fees, legal and accounting fees, financial printing
costs and other Merger related costs. Such costs associated with the Merger will
negatively impact results of operations in the fiscal quarter ended September
30, 1997.
The following summary, prepared on a pro forma basis, combines the results
of operations of the Company and OnTrak as if the Merger had been effective as
of the beginning of the fiscal periods presented below:
<TABLE>
<CAPTION>
(in thousands, except per share data) 1997 1996 1995
==============================================================================
<S> <C> <C> <C>
Net sales $1,073,197 $1,332,713 $836,581
Net income (loss) (30,676) 145,878 90,279
Net income (loss)
per share--primary $ (0.83) $ 4.11 $ 2.79
Net income (loss)
per share--fully diluted $ (0.83) $ 3.95 $ 2.65
==============================================================================
</TABLE>
NOTE T: SUBSEQUENT EVENT--APPROVAL OF LAM RESEARCH CORPORATION 1997 STOCK
INCENTIVE PLAN
On August 5, 1997, the stockholders of the Company approved the Lam
Research Corporation 1997 Stock Incentive Plan, which will provide for the grant
of stock options, restricted stock, deferred stock and performance share awards
to participating officers, directors, employees, consultants and advisors of the
Company and its subsidiaries. Initially, 3,000,000 shares were reserved for
issuance. The number of shares to be issued will automatically be increased each
calendar quarter subject to certain provisions and restrictions but in no event
exceed 5,000,000 shares.
NOTE U: SUBSEQUENT EVENT--CONVERTIBLE SUBORDINATED NOTES
During August 1997, Lam completed an offering of $310.0 million of
Convertible Subordinated Notes (the Notes). The Notes bear interest at five
percent, mature on September 1, 2002 and are convertible into shares of Lam's
Common Stock at $87.77 per share. Expenses associated with the offering of
approximately $9.0 million will be deferred and will be included in other
assets. Such expenses will be amortized to interest expense over the term of the
Notes.
In connection with the issuance of the Notes, the Company received consents
and waivers with respect to certain financial and other covenants contained in
agreements related to certain existing financial arrangements. In addition, as a
consequence of the Merger with OnTrak as well as issuance of the Notes, the
Company, on or prior to the end of the fiscal quarter ending September 30, 1997,
would be out of compliance with certain other financial covenants unless
appropriate waivers are completed prior to that time. The Company is currently
in discussions with lenders that are parties to these agreements. Based on these
discussions, the Company believes that appropriate amendments or waivers will
be obtained prior to fiscal quarter end on terms no less favorable to the
Company than the existing terms. In the event any such amendments or waivers
are not obtained by fiscal quarter end, the Company could be required to
terminate the revolving credit facility, purchase certain of its leased
facilities, purchase sold receivables and pay certain of the Japanese term
loans.
<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, 1997 and 1996, and the related consolidated
statements of operations, stockholders' equity and cash flows for each of the
three years in the period ended June 30, 1997. 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, 1997 and 1996, and the consolidated results of its
operations and its cash flows for each of the three years in the period ended
June 30, 1997, in conformity with generally accepted accounting principles.
/s/ Ernst & Young LLP
San Jose, California
August 26, 1997
<PAGE>
EXHIBIT 21
SUBSIDIARIES OF THE REGISTRANT
<TABLE>
<CAPTION>
STATE OR OTHER
SUBSIDIARY JURISDICTION OF OPERATION
---------- -------------------------
<S> <C>
LAM RESEARCH GMBH............................... GERMANY
LAM RESEARCH CO., LTD. ......................... JAPAN (KANAGAWA)
LRJ 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
LAM RESEARCH CO., LTD........................... THAILAND
ONTRAK SYSTEMS, INC. ........................... DELAWARE
</TABLE>
<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 August 26, 1997, included
in the 1997 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, presents fairly in all material respects the information set forth
therein.
We also consent to incorporation by reference in the Registration Statements
(Form S-4 No. 333-30545; and Form S-8 Nos. 333-01011, 333-18115 and 333-32981)
of our report dated August 26, 1997, 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 schedule
included in this Annual Report (Form 10-K) of Lam Research Corporation.
/s/ Ernst & Young LLP
San Jose, California
September 25, 1997
<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-30-1997
<PERIOD-START> JUL-01-1996
<PERIOD-END> JUN-30-1997
<CASH> 125,725
<SECURITIES> 38,520
<RECEIVABLES> 219,700
<ALLOWANCES> 1,977
<INVENTORY> 253,762
<CURRENT-ASSETS> 746,038
<PP&E> 300,189
<DEPRECIATION> 115,689
<TOTAL-ASSETS> 965,449
<CURRENT-LIABILITIES> 329,106
<BONDS> 0
0
0
<COMMON> 31
<OTHER-SE> 590,606
<TOTAL-LIABILITY-AND-EQUITY> 965,449
<SALES> 989,742
<TOTAL-REVENUES> 1,002,404
<CGS> 689,459
<TOTAL-COSTS> 1,066,193
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 5,110
<INCOME-PRETAX> (65,278)
<INCOME-TAX> (31,644)
<INCOME-CONTINUING> (33,634)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (33,634)
<EPS-PRIMARY> (1.10)
<EPS-DILUTED> (1.10)
</TABLE>
