<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR QUARTER ENDED DECEMBER 26, 1999
Commission File No. 0-12933
LAM RESEARCH CORPORATION
(Exact name of Registrant, as specified in its charter)
DELAWARE 94-2634797
- ------------------------------- ----------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
4650 CUSHING PARKWAY, FREMONT, CALIFORNIA 94538
- -------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (510) 572-0200
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 [ ]
As of December 26, 1999 there were 40,124,100 shares of Registrant's Common
Stock outstanding.
<PAGE> 2
INDEX
<TABLE>
<CAPTION>
Page
No.
<S> <C> <C>
PART I. FINANCIAL INFORMATION ........................................... 3
Item 1. Financial Statements (unaudited) ................................ 3
Condensed Consolidated Balance Sheets ........................ 3
Condensed Consolidated Statements of Operations .............. 4
Condensed Consolidated Statements of Cash Flows .............. 5
Notes to Condensed Consolidated Financial
Statements ................................................. 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations ............................. 14
Results of Operations ........................................ 14
Liquidity and Capital Resources .............................. 19
Risk Factors ................................................. 20
Item 3. Quantitative and Qualitative Disclosures about Market
Risk ............................................................ 29
PART II. OTHER INFORMATION ............................................... 30
Item 1. Legal Proceedings ............................................... 30
Item 4. Submission of Matters to Vote of Security Holders ............... 31
Item 6. Exhibits and Reports on Form 8-K ................................ 31
</TABLE>
2
<PAGE> 3
ITEM 1. FINANCIAL STATEMENTS
LAM RESEARCH CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except per share data)
<TABLE>
<CAPTION>
December 26,
1999 June 30,
(unaudited) 1999
------------- -----------
<S> <C> <C>
Assets
Cash and cash equivalents $ 31,891 $ 37,965
Short-term investments 295,469 273,836
Accounts receivable, net 236,752 170,531
Inventories 198,721 183,716
Prepaid expenses and other assets 18,956 17,177
Deferred income taxes 55,645 55,645
----------- -----------
Total Current Assets 837,434 738,870
Equipment and leasehold improvements, net 103,297 103,337
Restricted cash 60,348 60,348
Deferred income taxes 51,745 51,745
Other assets 29,100 25,151
----------- -----------
$ 1,081,924 $ 979,451
=========== ===========
Liabilities and Stockholders' Equity
Trade accounts payable $ 54,613 $ 51,216
Accrued expenses and other
current liabilities 207,637 172,213
Current portion of long-term debt and
capital lease obligations 12,420 20,566
----------- -----------
Total Current Liabilities 274,670 243,995
Long-term debt and capital lease
obligations, less current portion 321,838 326,500
----------- -----------
Total Liabilities 596,508 570,495
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 40,124 shares at December 26,
1999 and 38,845 shares at June 30, 1999 40 39
Additional paid-in capital 402,221 388,946
Treasury stock (41) (8,429)
Accumulated other comprehensive loss (7,026) (432)
Retained earnings 90,222 28,832
----------- -----------
Total Stockholders' Equity 485,416 408,956
----------- -----------
$ 1,081,924 $ 979,451
=========== ===========
</TABLE>
See Notes to Condensed Consolidated Financial Statements.
3
<PAGE> 4
LAM RESEARCH CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data)
(unaudited)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
---------------------------- ----------------------------
December 26, December 31, December 26, December 31,
1999 1998 1999 1998
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Total revenue $ 288,620 $ 141,895 $ 530,202 $ 284,094
Costs and expenses:
Cost of goods sold 162,944 94,803 303,715 186,846
Research and development 40,284 33,992 79,548 69,106
Selling, general and administrative 38,000 37,578 72,500 79,414
Purchased technology for
research and development 7,460 5,000 7,460 5,000
Restructuring charge -- 53,372 -- 53,372
--------- --------- --------- ---------
Operating income (loss) 39,932 (82,850) 66,979 (109,644)
Other income, net 2,752 84 3,130 106
--------- --------- --------- ---------
Income (loss) before taxes 42,684 (82,766) 70,109 (109,538)
Income taxes 5,976 -- 8,719 --
--------- --------- --------- ---------
Net income (loss) $ 36,708 $ (82,766) $ 61,390 $(109,538)
========= ========= ========= =========
Net income (loss) per share
Basic $ 0.92 $ (2.16) $ 1.56 $ (2.85)
========= ========= ========= =========
Diluted $ 0.83 $ (2.16) $ 1.42 $ (2.85)
========= ========= ========= =========
Number of shares used in
per share calculations
Basic 39,781 38,400 39,432 38,400
========= ========= ========= =========
Diluted 44,057 38,400 43,320 38,400
========= ========= ========= =========
</TABLE>
See Notes to Condensed Consolidated Financial Statements.
4
<PAGE> 5
LAM RESEARCH CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
<TABLE>
<CAPTION>
Six Months Ended
-------------------------------
December 26, December 31,
1999 1998
------------ ------------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $ 61,390 $ (109,538)
Adjustments to reconcile net income (loss)
to net cash provided by (used in)
operating activities:
Depreciation and amortization 22,843 28,792
Restructuring -- 34,141
Change in certain working capital
accounts (45,220) (21,322)
----------- -----------
Net cash provided by (used in) operating
activities 39,013 (67,927)
Cash flows from investing activities:
Capital expenditures, net (20,867) (17,137)
Purchase of short-term investments (1,805,611) (1,665,335)
Sale/maturities of short-term investments 1,783,978 1,781,472
Other (3,033) 6,350
----------- -----------
Net cash provided by (used in) investing activities (45,533) 105,350
----------- -----------
Cash flows from financing activities:
Treasury stock repurchase (5,146) (3,937)
Reissuance of treasury stock 13,534 --
Sale of stock, net of issuance costs 13,272 3,959
Principal payments on long-term debt
and capital lease obligations (23,305) (18,467)
Net proceeds from the issuance of short and
long term debt 8,685 12,076
Foreign currency translation adjustment (6,594) (563)
----------- -----------
Net cash provided by (used in) financing
activities 446 (6,932)
----------- -----------
Net increase (decrease) in cash and
cash equivalents (6,074) 30,491
Cash and cash equivalents at beginning
of period 37,965 13,509
----------- -----------
Cash and cash equivalents at end of
period $ 31,891 $ 44,000
=========== ===========
</TABLE>
See Notes to Condensed Consolidated Financial Statements.
5
<PAGE> 6
LAM RESEARCH CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
December 26, 1999
(Unaudited)
NOTE A -- BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements
have been prepared in accordance with generally accepted accounting principles
for interim financial information and with the instructions to Article 10 of
Regulation S-X. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments (consisting
only of normal recurring adjustments) considered necessary for a fair
presentation have been included. The accompanying unaudited condensed
consolidated financial statements should be read in conjunction with the audited
consolidated financial statements of Lam Research Corporation (the "Company" or
"Lam") for the fiscal year ended June 30, 1999, which are included in the Annual
Report on Form 10-K, File Number 0-12933.
Effective fiscal year 2000, the Company will change its reporting period
to a fifty-two/fifty-three week fiscal year. The Company's fiscal year end will
fall on the last Sunday of June each year. The Company's third fiscal 2000
quarter will end on March 26, 2000 and the fiscal year will end on June 25,
2000. Adoption of the change in fiscal year is not expected to have a material
impact on the Company's consolidated financial statements.
NOTE B -- INVENTORIES
Inventories consist of the following:
<TABLE>
<CAPTION>
December 26, June 30,
(in thousands) 1999 1999
------------ --------
<S> <C> <C>
Raw materials $142,946 $123,311
Work-in-process 48,967 44,181
Finished goods 6,808 16,224
-------- --------
$198,721 $183,716
======== ========
</TABLE>
NOTE C -- EQUIPMENT AND LEASEHOLD IMPROVEMENTS
Equipment and leasehold improvements consist of the following:
<TABLE>
<CAPTION>
December 26, June 30,
(in thousands) 1999 1999
------------ ---------
<S> <C> <C>
Equipment $ 104,327 $ 93,112
Leasehold improvements 95,923 90,902
Furniture & fixtures 48,184 45,427
--------- ---------
248,434 229,441
Accumulated depreciation and
amortization (145,137) (126,104)
--------- ---------
$ 103,297 $ 103,337
========= =========
</TABLE>
6
<PAGE> 7
NOTE D -- OTHER INCOME (EXPENSE), NET
The significant components of other income (expense), net are as
follows:
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
---------------------------- ----------------------------
December 26, December 31, December 26, December 31,
(in thousands) 1999 1998 1999 1998
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Interest expense $ (4,910) $ (5,121) $ (9,755) $ (9,992)
Interest income 6,147 5,853 11,622 11,785
Other 1,515 (648) 1,263 (1,687)
-------- -------- -------- --------
$ 2,752 $ 84 $ 3,130 $ 106
======== ======== ======== ========
</TABLE>
NOTE E -- NET INCOME (LOSS) PER SHARE
Basic net income (loss) per share is calculated using the weighted
average number of shares of common stock outstanding during the period. Diluted
net income per share includes the assumed exercise of employee stock options.
The assumed conversion of the convertible subordinated notes to common shares
was excluded from diluted net income (loss) per share because its effect is
antidilutive for all periods. Options outstanding during the three and six month
periods ended December 31, 1998 were excluded from the computation of diluted
net loss per share because the effect in periods with a net loss would have been
antidilutive. The shares potentially issuable under the third party put option
transactions have been excluded from the computation of net income per share
because the effect would have been antidilutive.
7
<PAGE> 8
The Company's basic and diluted net income (loss) per share amounts are
as follows:
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
---------------------------- ----------------------------
(in thousands except per share data) December 26, December 31, December 26, December 31,
1999 1998 1999 1998
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Numerator:
Numerator for basic net income
(loss) per share $ 36,708 $ (82,766) $ 61,390 $(109,538)
--------- --------- --------- ---------
Numerator for diluted net income
(loss) per share $ 36,708 $ (82,766) $ 61,390 $(109,538)
--------- --------- --------- ---------
Denominator:
Basic net income (loss) per share -
average shares outstanding 39,781 38,400 39,432 38,400
--------- --------- --------- ---------
Effect of potential dilutive securities:
Convertible subordinated notes -- -- -- --
Employee stock options 4,276 -- 3,888 --
--------- --------- --------- ---------
Total potential net dilutive common
shares 4,276 -- 3,888 --
--------- --------- --------- ---------
Diluted net income (loss) per
share - average shares
outstanding and other
potential common shares 44,057 38,400 43,320 38,400
--------- --------- --------- ---------
Basic net income (loss) per share $ 0.92 $ (2.16) $ 1.56 $ (2.85)
========= ========= ========= =========
Diluted net income (loss) per share $ 0.83 $ (2.16) $ 1.42 $ (2.85)
========= ========= ========= =========
</TABLE>
NOTE F -- COMPREHENSIVE INCOME (LOSS)
The components of comprehensive income (loss), net of tax, are as
follows:
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
----------------------------- -----------------------------
December 26, December 31, December 26, December 31,
(in thousands) 1999 1998 1999 1998
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Net income (loss) $ 36,708 $ (82,766) $ 61,390 $(109,538)
Foreign currency translation
adjustment (1,007) 442 (6,594) (563)
--------- --------- --------- ---------
Comprehensive income (loss) $ 35,701 $ (82,324) $ 54,796 $(110,101)
========= ========= ========= =========
</TABLE>
Accumulated other comprehensive income (loss) presented on the
accompanying consolidated condensed balance sheets consists of the accumulated
foreign currency translation adjustment.
NOTE G -- RESTRUCTURING
During the Company's first fiscal 1997 quarter ended September 30, 1996,
the Company projected and announced that revenues would be lower than previous
quarters due to a projected 20% general market decline. The Company's revenues
during that quarter fell to $299.2 million, a decrease of 24% from the prior
quarter. The Company
8
<PAGE> 9
assessed that market conditions would remain depressed and, therefore, that its
revenues would continue to be adversely affected. Accordingly, and as announced
on August 26, 1996, the Company organizationally restructured its business units
into a more centralized structure and cut its workforce by approximately 11%.
The Company's quarterly revenue would eventually decline to $233.3
million in the March 1997 quarter, 40% lower than the peak reached in the
quarter ended June 1996. Subsequently, in the latter part of calendar 1997, the
industry rebounded quickly and entered into what eventually became a short-lived
upturn cycle. During the June 1997 quarter, the Company's revenues grew back to
$282.6 million and reached $292.1 million by the December 1997 quarter. However,
the Company's outlook in late January 1998 was that the industry was again
entering into a steep downturn brought on by depressed DRAM pricing and the
Asian financial crisis. The Company therefore announced a further set of
restructuring activities in a news release on February 12, 1998. At that time,
the Company's assessment related to industry conditions was that its revenues
for the March and June 1998 quarters would decline by approximately 20%. The
Company's restructuring plans aligned its cost structure to this level of
revenues by exiting part of its Chemical Vapor Deposition ("CVD") business and
all of its Flat Panel Display ("FPD") business, consolidating its manufacturing
facilities and substantially reducing its remaining infrastructure and
workforce. The Company's actual June 1998 revenues were in line with those
expectations; however, by the mid-June 1998 time-frame the industry conditions
further deteriorated and the outlook for future quarters significantly worsened.
The Company projected revenues to drop to a run rate of approximately $180
million per quarter and determined it needed once more to reduce its cost
structure in line with the projected reductions in revenue. Accordingly, another
separate restructuring plan was developed and announced in June 1998. As a
result of the restructurings in fiscal 1998, the Company reduced its global
workforce by approximately 28% and exited the remainder of its CVD operations.
The Company's revenue outlook in June 1998 was based on the Company's
projection that the worldwide wafer fabrication industry would deteriorate from
a quarterly revenue amount of $4.2 billion to $3.2 billion, or a 25% decline.
The semiconductor equipment market contracted beyond what was
anticipated, to quarterly revenues of $2.6 billion. The Company's shortfall of
revenues during the September 1998 quarter declined in line with the industry as
a whole, and resulted in lower than anticipated revenues, falling to $142.2
million. At that point in time, the Company projected that its quarterly
revenues would remain closer to the $140-$150 million levels for at least the
next several quarters. This necessitated another restructuring plan and further
cost reductions via employee terminations, facilities consolidation and a
contraction of operating activities, all of which resulted in the additional
write-down of plant related assets. This plan was announced and publicly
communicated on November 12, 1998. As a result of the fiscal 1999 restructuring,
the Company reduced further its global workforce by approximately 15%.
9
<PAGE> 10
Below is a table summarizing restructuring activity relating to the
fiscal 1999 restructuring:
<TABLE>
<CAPTION>
Lease
Severance Payments Credit on
and on Vacated Abandoned Returned
(in thousands) Benefits Facilities Fixed Assets Equipment Total
---------- ---------- ------------ ----------- --------
<S> <C> <C> <C> <C> <C>
Fiscal year 1999 provision $ 16,521 $ 1,125 $ 28,141 $ 7,585 $ 53,372
Cash payments (11,663) (440) -- (258) (12,361)
Non-cash charges -- -- (28,141) (1,959) (30,100)
-------- -------- -------- -------- --------
Balance at June 30, 1999 4,858 685 -- 5,368 10,911
Cash payments (1,386) (342) -- (1,275) (3,003)
-------- -------- -------- -------- --------
Balance at December 26, 1999 $ 3,472 $ 343 $ -- $ 4,093 $ 7,908
======== ======== ======== ======== ========
</TABLE>
Severance and Benefits relates to the salary and fringe benefit expense
for the involuntarily terminated employees representing approximately 15% of the
global workforce. Prior to the date of the financial statements, management,
with the proper level of authority, approved and committed the Company to a plan
of termination and determined the benefits the employees being terminated would
receive. Prior to the financial statement date, the expected termination
benefits were communicated to employees in enough detail that they could
determine their type and amount of benefit. The termination of employees
occurred shortly after the plan of restructuring was finalized.
Lease Payments on Vacated Facilities relates to 24 months of rent and
common area maintenance expense for the vacated facilities. The Company also
estimated, given the then-current real estate market conditions, that it would
take approximately 24 months to sub-lease its excess facilities in Fremont,
California.
The Company wrote-off all leasehold improvements for the excess
facilities, computer equipment, furniture and fixtures related to the
involuntarily terminated employees, and other assets deemed to have no future
use as a result of the restructuring.
Credit on Returned Equipment relates to the charge associated with the
requirement by certain of the Company's customers to return their previously
purchased CVD systems and spare parts.
10
<PAGE> 11
Below is a table summarizing restructuring activity relating to the
fiscal 1998 restructuring:
<TABLE>
<CAPTION>
Lease
Payments Abandoned Excess and Credit on Other
Severance on Vacated Fixed Obsolete Returned Exit
(in thousands) and Benefits Facilities Assets Inventory Equipment Costs Total
------------ ------------ --------- ----------- ----------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Fiscal year 1998 provision $ 40,317 $ 16,998 $ 47,341 $ 31,933 $ 6,547 $ 5,722 $ 148,858
Cash payments (9,766) (1,518) -- -- -- -- (11,284)
Non-cash charges -- -- (47,341) (31,933) (4,135) (5,722) (89,131)
--------- --------- --------- --------- --------- --------- ---------
Balance at June 30, 1998 30,551 15,480 -- -- 2,412 -- 48,443
Adjustment -- -- -- -- 1,528 -- 1,528
Cash payments (19,777) (3,039) -- -- (2,150) -- (24,966)
--------- --------- --------- --------- --------- --------- ---------
Balance at June 30, 1999 10,774 12,441 -- -- 1,790 -- 25,005
Cash payments (899) (1,443) -- -- -- -- (2,342)
--------- --------- --------- --------- --------- --------- ---------
Balance at December 26, 1999 $ 9,875 $ 10,998 $ -- $ -- $ 1,790 $ -- $ 22,663
========= ========= ========= ========= ========= ========= =========
</TABLE>
Severance and Benefits relates to the salary and fringe benefit expense
for the involuntarily terminated employees of the CVD and FPD operations which
were exited, the shutdown of the Wilmington, Massachusetts manufacturing
facility, and the employees impacted by the overall across-the-board reduction
of the employee base. Prior to the date of the financial statements, management,
with the proper level of authority, approved and committed the Company to a plan
of termination and determined the benefits the employees being terminated would
receive. Prior to the financial statement date, the expected termination
benefits were communicated to employees in enough detail that they could
determine their type and amount of benefit. The restructuring plans resulted in
the Company reducing its global workforce by approximately 28%. The termination
of employees occurred shortly after the plan of restructuring was finalized.
Lease Payments on Vacated Facilities which was included in the
restructuring charge related to remaining rent and common area maintenance on
the closed Wilmington, Massachusetts manufacturing facility. The Company also
estimated, given the then-current real estate market conditions, that it would
take approximately 24 months to sub-lease its excess facilities in Fremont,
California. The Company, therefore, included 24 months of rent and common area
maintenance expense related to excess facilities in its restructuring charge.
Subsequently, the Company has subleased some of its excess facilities.
The Company wrote-off all fixed assets relating to the operations which
were exited, leasehold improvements for the excess facilities, computer
equipment, furniture and fixtures related to the involuntarily terminated
employees, and other assets deemed to have no future use as a result of the
restructuring.
The inventory write-off which was included in the restructuring charge
related to inventory from the operations which were exited. The inventory
write-off included raw material on hand and inventory purchased under
non-cancelable commitments from suppliers, spare parts, work-in-process and
finished goods related to the products from the exited operations.
Credit on Returned Equipment relates to the charge associated with the
requirement by certain of the Company's customers to return their
11
<PAGE> 12
previously purchased CVD systems and spare parts. During fiscal 1999, the
Company recorded an adjustment to the restructuring reserve of $1.5 million for
the recovery of a previously written off machine.
Other Exit Costs of $5.7 million relates to the net book value of
licensing and manufacturing agreements related to the restructured operations.
Below is a table summarizing restructuring activity relating to the fiscal
1997 restructuring:
<TABLE>
<CAPTION>
Lease
Severance Payments Abandoned
and on Vacated Fixed
(in thousands) Benefits Facilities Assets Total
--------- ---------- --------- -------
<S> <C> <C> <C> <C>
Fiscal year 1997 provision $ 6,170 $ 1,789 $ 1,062 $ 9,021
Cash payments (5,592) (703) -- (6,295)
Non-cash charges -- -- (1,062) (1,062)
------- ------- ------- -------
Balance at June 30, 1997 578 1,086 -- 1,664
Adjustment 1,086 (1,086) -- --
Cash payments (406) -- -- (406)
------- ------- ------- -------
Balance at June 30, 1998 1,258 -- -- 1,258
Cash charges (409) -- -- (409)
------- ------- ------- -------
Balance at June 30, 1999 849 -- -- 849
Cash payments (87) -- -- (87)
------- ------- ------- -------
Balance at December 26, 1999 $ 762 $ -- $ -- $ 762
======= ======= ======= =======
</TABLE>
Severance and Benefits relates to the salary and fringe benefit expense
for the involuntarily terminated employees, which represented approximately 11%
of the global workforce. Prior to the date of the financial statements,
management, with the proper level of authority, approved and committed the
Company to a plan of termination and determined the benefits the employees being
terminated would receive. Prior to the financial statement date, the expected
termination benefits were communicated to employees in enough detail that they
could determine their type and amount of benefit. The termination of employees
occurred shortly after the plan of restructuring was finalized. During fiscal
1998, the Company revised its estimate relating to severance and benefits and
transferred the excess balance of remaining lease payments on vacated facilities
to severance and benefits.
Lease Payments on Vacated Facilities relates to remaining rent and
common area maintenance expense for the vacated facilities.
The Company wrote-off all leasehold improvements for the excess
facilities, computer equipment, furniture and fixtures related to the
involuntarily terminated employees, and other assets deemed to have no future
use as a result of the restructuring.
NOTE H -- CHANGE IN FUNCTIONAL CURRENCY
The Company has determined that the functional currency of its European
and Asia Pacific foreign subsidiaries is no longer the U.S. dollar but the
individual subsidiary's local currency. The following
12
<PAGE> 13
are the reasons for the Company's change in functional currency: the Company's
European and Asia Pacific foreign subsidiaries primarily generate and expend
cash in their local currency; their labor and services are primarily in local
currency (workforce is paid in local currency); their individual assets and
liabilities are primarily dominated in the local foreign currency and do not
materially impact the Company's cash flows and there is an active local sales
market for the foreign subsidiaries products and services. The European and Asia
Pacific foreign subsidiaries are currently less dependent on US corporate office
with their daily operations. In addition, the European community adopted a new
Single European Currency, the Euro, which required implementation of that
currency as of January 1, 1999 and transition through January 1, 2002. All
balance sheet accounts are translated at the current exchange rate, and income
statement accounts are translated at an average rate for the period. The
resulting translation adjustments are recorded as currency translation
adjustment, which is a component of accumulated other comprehensive loss.
Previously, some balance sheet accounts were translated at an historic rate and
translation adjustments were made directly to the statement of operations. The
impact of the change in functional currency was not material to the Company's
financial statements.
NOTE I -- LITIGATION
See Part II, item 1 for discussion of litigation.
NOTE J -- PURCHASED TECHNOLOGY FOR RESEARCH and DEVELOPMENT
During the second quarter of fiscal 2000, the Company purchased
intellectual property rights related to the semiconductor equipment industry
from Oliver Design, Inc. ("Oliver"). The Company recognized an expense for the
purchase of research development technology of approximately $7.5 million and
capitalized $1.5 million related to patents, which will be amortized ratably
over five years. The technology is being used in a single discrete next
generation post-CMP wafer cleaning product development project and has no future
alternative use. The Company may make up to $2.0 million in additional license
payments to Oliver based on product sales in the event it is successful in
commercialization of the technology.
NOTE K -- SUBSEQUENT EVENT
During January 2000, the Company's Board of Directors approved a
three-for-one split of the company's outstanding common stock, subject to
stockholders approval of an increase in the Company's authorized common stock to
400 million shares, at a special meeting scheduled for March 6, 2000. If the
required approval is obtained, the Company expects the three-to-one stock split
to be effective March 7, 2000. Stockholders of record at the close of business
on the effective date will be entitled to two additional shares of common stock
for each share of the Company's common stock held on that date. The distribution
date for the stock split will be March 16, 2000. On or about that date, the
Company's transfer agent will mail the new shares to stockholders. The Company
expects that its outstanding common stock will begin to trade on a post-split
basis on March 17, 2000.
13
<PAGE> 14
ITEM 2. 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 27A of
the Securities Act of 1933 and Section 21E of the Securities Exchange Act of
1934, 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 our future revenue, product development, demand, acceptance and market
share, competitiveness, royalty income, gross margins, levels of research and
development and operating expenses, our management's plans and objectives for
our current and future operations, the effects of our on-going reorganization
and consolidation of operations and facilities, our ability to complete
reorganizations or consolidations on time or within anticipated costs, and the
sufficiency of financial resources to support future operations and capital
expenditures. Such statements are based on current expectations and are subject
to risks, uncertainties, and changes in condition, significance, value and
effect, including those discussed below under the heading Risk Factors, and
other documents we may file from time to time with the Securities and Exchange
Commission, specifically our last filed Annual Report on Form 10-K for the
fiscal year ended June 30, 1999. Such risks, uncertainties and changes in
condition, significance, value and effect could cause our actual results to
differ materially from those expressed herein and in ways not readily
foreseeable. Readers are cautioned not to place undue reliance on these
forward-looking statements, which speak only as of the date hereof and of
information currently and reasonably known. We undertake no obligation to
release any revisions to these forward-looking statements which may be made to
reflect events or circumstances which occur after the date hereof or to reflect
the occurrence or effect of anticipated or unanticipated events. This discussion
should be read in conjunction with the Condensed Consolidated Financial
Statements and Notes presented thereto on pages 3 to 13 of this Form 10-Q for a
full understanding of our financial position and results of operations for the
three and six month periods ended December 26, 1999.
RESULTS OF OPERATIONS
Total Revenue
Our total revenue for both the three and six month periods ended
December 26, 1999 increased 103.4% and 86.6%, respectively, compared to the
respective periods of the prior fiscal year. We experienced increased revenues
for all of our product lines during both the three and six month periods of
fiscal 2000 compared to the year-ago periods. Our product sales continued to
shift from our single-chamber systems to our multi-chamber cluster systems. Our
increased revenue in AllianceTM cluster system, which utilizes from one to four
chambers each, was the major contributor to our higher total revenue for both
three and six month periods ended December 26, 1999 compared to the year ago
periods.
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<PAGE> 15
Geographic breakdown of revenue is as follows:
<TABLE>
<CAPTION>
Three months ended Six Months ended
--------------------------- ---------------------------
December 26, December 31 December 26, December 31
1999 1998 1999 1998
------------ ----------- ------------ -----------
<S> <C> <C> <C> <C>
North America 28% 51% 34% 54%
Europe 31% 22% 25% 21%
Asia Pacific 31% 19% 29% 17%
Japan 10% 8% 12% 8%
</TABLE>
The global semiconductor equipment industry is experiencing an upturn
which was brought on by increased sales and profitability of semiconductor
manufacturers. We anticipate greater demand for our systems, as our customers
continue to add capacity in their most advanced lines, and migrate to new lines
and materials such as copper and the new interconnect processes required to
implement them. We expect our net revenues for the next six months to be higher
than first half of fiscal year 2000. During calendar 1998, the global
semiconductor industry experienced a slowdown. Consequently depressed DRAM
pricing, production overcapacity as well as uncertainty in the worldwide
financial markets brought on a slowdown in equipment demand which unfavorably
impacted our sales for both the September and December quarters of calendar
1998.
Gross Margin
Our gross margin percentage increased to 43.5% and 42.7%, respectively,
in the three and six month periods ended December 26, 1999, compared with 33.2%
and 34.2%, respectively, for the year-ago periods. The increase in our gross
margin percentage is due in large part to material cost reductions and higher
economy of scale due to greater volumes. We anticipate that our gross margins
will improve further by the end of fiscal 2000.
Research and Development
Research and development ("R&D") expenses for the three and six month
periods ended December 26, 1999 were 18.5% and 15.1% higher than the year-ago
periods, respectively. However, as a percentage of revenue, R&D expenses were
14.0% and 15.0% of total revenue for the three and six month periods of fiscal
2000, respectively, compared with 24.0% and 24.3% for the three and six month
periods of fiscal 1999. The increase in R&D expenses is a result of our
continued investments in strategic R&D programs and initiatives in etch, CMP and
post-CMP wafer cleaning products. We believe that in order to remain
competitive, we must continue to invest substantially in R&D.
Selling, General and Administrative
Selling, general and administrative ("SG&A") expenses increased by 1.1%
for the three month period ended December 26, 1999 when compared to the year-ago
period. SG&A expenses for the six month period ended December 26, 1999 were 8.7%
lower than the year-ago period. As a percentage of revenue, SG&A expenses for
the three and six month periods ended December 26, 1999 were 13.2% and 13.7%,
respectively, of total revenue compared to 26.5% and 28.0%, respectively, of
total revenue for the year-ago periods. The decrease in SG&A expenses for the
six month period ended December 26, 1999,
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<PAGE> 16
when compared to the prior year period is a result of our downsizing activities
in both fiscal 1998 and 1999 and our continued focus on improving efficiencies.
Purchased Technology for R&D
During the second quarter of fiscal 2000, we purchased intellectual
property rights related to semiconductor equipment from "Oliver". We recognized
an expense for the purchase of research development technology of approximately
$7.5 million and capitalized $1.5 million related to patents which will be
amortized ratably over five years. The technology is being used in a single
discrete next generation post-CMP wafer cleaning product development project and
has no future alternative use. We may make up to $2.0 million in additional
license payments to Oliver based on product sales in the event we are successful
in commercializing this technology.
Restructuring Charge
Our overall outlook in late January 1998 was that the industry had
entered into a steep downturn brought on by depressed DRAM pricing and the Asian
financial crisis. We therefore announced a set of restructuring activities in a
news release on February 12, 1998. At that time, our assessment related to
industry conditions was that our revenues for the March and June 1998 quarters
would decline by approximately 20%. Our restructuring plans aligned our cost
structure to a lower level of revenues by exiting part of our CVD business and
our FPD business, consolidating our manufacturing facilities and substantially
reducing our remaining infrastructure and workforce. Our actual June 1998
revenues were in line with those expectations; however, by the mid-June 1998
time-frame the industry conditions further deteriorated and the outlook for
future quarters significantly worsened. We projected revenues to decrease to a
run-rate of approximately $180 million per quarter and determined that, once
more, reductions of our cost structure were required to align with the projected
reductions in revenue. Accordingly, another separate restructuring plan was
developed and announced in June 1998. During fiscal 1998, we incurred a total
restructuring charge of $148.9 million relating to severance and benefits, lease
payments on vacated facilities, the write-off of fixed assets, excess and
obsolete inventory, returned equipment credits and other exit costs. As a result
of the fiscal 1998 restructurings, we reduced our global workforce by
approximately 28%. During fiscal 1999, we recorded an adjustment to the
restructuring reserve of $1.5 million for the recovery of a previously
written-off machine. At December 26, 1999, a total of $22.7 million of
restructuring-related accruals remained on our balance sheet, of which $9.9
million, $11.0 million and $1.8 million, respectively, relates to future
severance and benefit costs, lease payments, and returned equipment credits.
There will be further charges against the restructuring reserves in fiscal 2000,
as we complete the restructuring programs.
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<PAGE> 17
Below is a table summarizing restructuring activity relating to the fiscal
1998 restructurings:
<TABLE>
<CAPTION>
Lease Excess
Severance Payments Abandoned and Credit on Other
and on Vacated Fixed Obsolete Returned Exit
(in thousands) Benefits Facilities Assets Inventory Equipment Costs Total
--------- ---------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Fiscal year 1998 provision $ 40,317 $ 16,998 $ 47,341 $ 31,933 $ 6,547 $ 5,722 $ 148,858
Cash payments (9,766) (1,518) -- -- -- -- (11,284)
Non-cash charges -- -- (47,341) (31,933) (4,135) (5,722) (89,131)
--------- --------- --------- --------- --------- --------- ---------
Balance at June 30, 1998 30,551 15,480 -- -- 2,412 -- 48,443
Adjustment -- -- -- -- 1,528 -- 1,528
Cash payments (19,777) (3,039) -- -- (2,150) -- (24,966)
--------- --------- --------- --------- --------- --------- ---------
Balance at June 30, 1999 10,774 12,441 -- -- 1,790 -- 25,005
Cash payments (899) (1,443) -- -- -- -- (2,342)
--------- --------- --------- --------- --------- --------- ---------
Balance at December 26, 1999 $ 9,875 $ 10,998 $ -- $ -- $ 1,790 $ -- $ 22,663
========= ========= ========= ========= ========= ========= =========
</TABLE>
During the quarter ended September 30, 1998, the semiconductor equipment
market contracted beyond the anticipated $3.2 billion revenue level to $2.6
billion, according to Dataquest. Our shortfall of revenues during the September
1998 quarter was in line with the industry as a whole, and resulted in our
revenues falling to $142.2 million for the quarter ended September 30, 1998. At
that point in time, we projected that our quarterly revenues would remain closer
to the $140-$150 million levels for at least the next several quarters. This
necessitated another restructuring plan and further cost reductions through
employee terminations, facilities consolidation and a contraction of operating
activities, and the write-off of vacated plant related assets. This plan was
announced and publicly communicated on November 12, 1998. During the second
quarter of fiscal 1999, we recorded a restructuring charge of $53.4 million,
relating to severance compensation and benefits for involuntarily terminated
employees worldwide (representing approximately 15% of the global workforce),
lease payments on abandoned facilities, the write-off of related leasehold
improvements and fixed assets and returned equipment credits issued to certain
customers. At December 26, 1999, $7.9 million of this charge remains accrued on
our consolidated balance sheet to cover continuing obligations. There will be
further charges against this restructuring reserve in fiscal 2000, as we
complete the restructuring program.
Below is a table summarizing restructuring activity relating to the
fiscal 1999 restructuring:
<TABLE>
<CAPTION>
Lease
Severance Payments on Abandoned Credit on
and Vacated Fixed Returned
(in thousands) Benefits Facilities Assets Equipment Total
---------- ----------- --------- ---------- --------
<S> <C> <C> <C> <C> <C>
Fiscal year 1999 provision $ 16,521 $ 1,125 $ 28,141 $ 7,585 $ 53,372
Cash payments (11,663) (440) -- (258) (12,361)
Non-cash charges -- -- (28,141) (1,959) (30,100)
-------- -------- -------- -------- --------
Balance at June 30, 1999 4,858 685 -- 5,368 10,911
Cash payments (1,386) (342) -- (1,275) (3,003)
-------- -------- -------- -------- --------
Balance at December 26, 1999 $ 3,472 $ 343 $ -- $ 4,093 $ 7,908
======== ======== ======== ======== ========
</TABLE>
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<PAGE> 18
We have carried-out, and continue to carry-out, our restructuring
activities according to our original plans and timeline and we believe that the
anticipated cost reductions did not vary materially from our original
expectations. We intend to operate at levels of spending that are consistent
with our ability to generate revenues, therefore our spending levels may
increase or decrease depending upon our assessment of our current needs. We do
not believe that our decision to exit the CVD and FPD business will have a
material impact on our ability to generate future revenue growth.
Tax Expenses
Our second fiscal quarter income tax provision was 14% of profits, in
accordance with a revised estimated effective tax rate of 13% for the fiscal
year ending June 25, 2000. This rate reflects the benefit of net operating
losses and research tax credits carried over from prior periods. We expect to
increase the effective income tax rate to approximately 30% in fiscal year 2001,
based on our current revenue and profit outlook for that period.
Transition to Single European Currency
During fiscal 1999, we established a team to address issues raised by
the introduction of the Single European Currency ("Euro") for initial
implementation as of January 1, 1999, and through the transition period to
January 1, 2002. We met all related legal requirements by January 1, 1999, and
we expect to meet all legal requirements through the transition period. We do
not expect the cost of any related system modifications to be material and do
not currently expect that the introduction and use of the Euro will materially
affect our foreign exchange and hedging activities, or will result in any
material increase in transaction costs. We will continue to evaluate the impact
over time of the introduction of the Euro; however, based on currently available
information our management does not believe that the introduction of the Euro
has or will have a material adverse impact on our financial condition or results
of our operations.
Year 2000 Issues
The Year 2000 compliance issue (in which systems do not properly
recognize date-sensitive information when the year changes from 1999 to 2000)
creates risks for us: if internal data management, accounting and/or
manufacturing or operational software and systems do not adequately or
accurately process or manage day or date information beyond the year 1999, there
could be an adverse impact on our operations. To address the issue, we assembled
in fiscal 1999 a task force to review and assess internal software, data
management, accounting, and manufacturing and operational systems to ensure that
they do not malfunction as a result of the Year 2000 date transition.
Our next-generation enterprise resource planning and information system
will replace many of the system operations currently being performed by existing
internal system software. Implementation of this next-generation system is now
scheduled for completion during the first half of calendar 2000, and we have
received assurances that it will be Year 2000-compliant. Our existing internal
system encompassing core manufacturing, service, sales, inventory and warranty
operations, which will be replaced by the next-generation
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<PAGE> 19
system, is currently Year 2000-compliant and can continue to support our
significant operational systems, as needed.
With respect to compliance of our products we supply to our customers,
we adhere to Year 2000 test case scenarios established by SEMATECH, an industry
group consisting of U.S. semiconductor manufacturers. Our compliance efforts,
and review and identification of corrective measures and contingency planning
(where necessary), are substantially complete. The application systems and
software of a significant number of our products currently supplied to our
customers are Year 2000-compliant, with the remainder expected to be so by the
end of the second quarter of fiscal 2000. With respect to certain of our
products already installed in the field, we have determined that in most
instances where the application systems and software are not Year
2000-compliant, there is either no appreciable effect or the effect during the
product's operation is limited to certain aspects of the product's ability to
report data concerning its operational parameters. However, the product's
operation, manufacturing capabilities or quality are not affected. We are in the
process of identifying and offering to our customers product upgrades with the
goal of resolving all material programs and systems prior to the Year 2000 date
transition. In this regard, we are incurring, and will continue to incur
throughout fiscal 2000, various costs to provide customer support regarding Year
2000 issues. Through the end of the second quarter of fiscal 2000, these costs
have totaled approximately $5.0 million.
Our failure to ensure, at all or in a timely or reasonable manner, that
our products are Year 2000-compliant may cause disruption in the ability of our
customers to derive expected productivity from those products or to integrate
the products fully and functionally into certain automated manufacturing
environments.
To date, we have experienced no material Year 2000 issues, and we expect
minimal future Year 2000 issues based on the performance to date of internal
systems that we use and the products we supply to our customers.
LIQUIDITY AND CAPITAL RESOURCES
As of December 26, 1999, we had $387.7 million in cash, cash
equivalents, short-term investments and restricted cash, compared with $372.1
million at June 30, 1999. We have a total of $100.0 million available under a
syndicated bank line of credit which is due to expire in April 2001. Borrowings
are subject to our compliance with financial and other covenants set forth in
the credit documents. The syndicated bank line bears interest at rates ranging
from 0.55% to 1.25% over London Interbank Offered Rate ("LIBOR"). At December
26, 1999, we were in compliance with all our financial and other covenants.
Net cash provided by operating activities was $39.0 million for the six
months ended December 26, 1999. This primarily resulted from net income before
non-cash charges of $84.2 million, increases in accounts payable and accrued
liabilities offset by increases in accounts receivable, inventory and prepaid
expenses. Cash used in investing activities was $45.5 million, which was
primarily from the net purchase of short-term investments of $21.6 million and
net capital expenditures of $20.9 million. Net cash provided by financing
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<PAGE> 20
activities was $0.4 million. We made principal payments on long-term debt and
capital lease obligations of $23.3 million offset by proceeds from the issuance
of long-term debt of $8.7 million. We purchased $5.1 million of common stock and
reissued $13.5 million of our treasury stock through our employee option and
stock purchase programs. Net proceeds from the issuance of our common stock
generated $13.3 million. Cash payments relating to our restructurings were
approximately $5.4 million.
Given the cyclical nature of the semiconductor equipment industry, we
believe that maintenance of sufficient liquidity reserves is important to ensure
our ability to maintain levels of investment in R&D and capital infrastructure
through ensuing business cycles. Based upon our current business outlook, our
cash, cash equivalents, short-term investments, restricted cash and available
lines of credit at December 26, 1999 are expected to be sufficient to support
our currently anticipated levels of operations and capital expenditures through
at least the next 12 months.
RISK FACTORS
OUR QUARTERLY REVENUES AND OPERATING RESULTS ARE UNPREDICTABLE
Our revenues and operating results may fluctuate significantly from
quarter to quarter due to a number of factors, not all of which are in our
control. These factors include:
- economic conditions in the semiconductor industry generally, and the
equipment industry specifically;
- customer capacity requirements;
- the size and timing of orders from customers;
- customer cancellations or delays in our shipments;
- our ability in a timely manner to develop, introduce and market new,
enhanced and competitive products;
- our competitors' introduction of new products;
- legal or technical challenges to our products and technology;
- changes in average selling prices and product mix; and
- exchange rate fluctuations.
We base our expense levels in part on our expectations of future
revenues. If revenue levels in a particular quarter do not meet our
expectations, our operating results are adversely affected.
We derive our revenue primarily from the sale of a relatively small
number of high-priced systems. Our systems can range in price from approximately
$150,000 to over $4 million per unit. Our operating results for a quarter may
suffer substantially if:
- we sell fewer systems than we anticipate in any quarter;
- we do not receive anticipated orders in time to enable actual shipment
during that quarter;
- one or more customers delay or cancel anticipated shipments; or
- shipments are delayed by procurement shortages or manufacturing
difficulties.
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<PAGE> 21
Further, because of our continuing consolidation of manufacturing
operations and capacity at our Fremont, California facility, natural, physical,
logistical or other events or disruptions affecting this facility (including
labor disruptions) could adversely impact our financial performance.
WE MAY EXPERIENCE DIFFICULTY IMPLEMENTING OUR NEW ENTERPRISE RESOURCE
Our next-generation enterprise resource planning and information system
will replace many of the system operations currently being performed by existing
internal system software, including core manufacturing, service, sales,
shipping, inventory and warranty operations and other significant operational
systems. Implementation of this next-generation system is now scheduled for
completion during the first half of calendar 2000. Delays in our ability to
implement or transition to this new planning and information system, or
disruptions in our internal operations or systems caused by the transition or
the need to free up additional support and resources in order to ensure our
timely implementation of or transition to this new planning and information
system, could temporarily disrupt certain of our operations. This could include,
a temporary delay in our ability to manufacture and ship equipment and/or spare
parts to our customers, which could cause a near-term short fall in quarterly
operating results, including revenues and earnings.
THE SEMICONDUCTOR EQUIPMENT INDUSTRY IS VOLATILE, WHICH AFFECTS OUR
REVENUES AND FINANCIAL RESULTS
Our business 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 using integrated circuits.
The semiconductor industry is cyclical in nature and historically experiences
periodic downturns. During the past two years the semiconductor industry has
experienced severe swings of product demand and volatility in product pricing.
In early fiscal 1999 and fiscal 1998, the semiconductor industry reduced or
delayed significantly purchases of semiconductor manufacturing equipment and
construction of new fabrication facilities because of an industry downturn.
However, beginning in late fiscal 1999, we saw indications of a recovery, which
is expected to extend through fiscal 2000. Fluctuating levels of investment by
the semiconductor manufacturers and pricing volatility will continue to affect
materially our aggregate bookings, revenues and operating results. Even during
periods of reduced revenues, we must continue to invest in research and
development and to maintain extensive ongoing worldwide customer service and
support capabilities to remain competitive, which may harm our financial
results.
WE DEPEND ON NEW PRODUCTS AND PROCESSES FOR OUR SUCCESS. FOR THIS
REASON, WE ARE SUBJECT TO RISKS ASSOCIATED WITH RAPID TECHNOLOGICAL
CHANGE
Rapid technological changes in semiconductor manufacturing processes
subject us to increased pressure to maintain technological parity with deep
submicron process technology. We believe that our
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<PAGE> 22
future success depends in part upon our ability to develop, manufacture and
introduce successfully new products and product lines with improved
capabilities, and to continue to enhance our existing products. Due to the risks
inherent in transitioning to new products, we must forecast accurately 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, product
introductions caused some delays and reliability and quality problems. We may be
unable to develop and manufacture new products successfully, or new products
that we introduce may fail in the marketplace, which would materially and
adversely affect our results from operations.
We expect to continue to make significant investments in research and
development and to pursue joint development relationships with customers or
other members of the industry. We must manage product transitions or joint
development relationships successfully, as introduction of new products could
adversely affect our sales of existing products. Future technologies, processes
or product developments may render our current product offerings obsolete, or we
may be unable in a timely manner to develop and introduce new products or
enhancements to our existing products which satisfy customer needs or achieve
market acceptance. Furthermore, if we are unsuccessful in the marketing and
selling of advanced processes or equipment to customers with whom we have
strategic alliances, we may be unsuccessful in selling existing products to
those customers. In addition, in connection with our developing new products, we
will invest in significant levels of initial production inventory, and our
failure in a timely manner to complete commercialization of these new products
could result in inventory obsolescence, which would adversely affect our
financial results.
WE ARE SUBJECT TO RISKS ASSOCIATED WITH THE INTRODUCTION OF A NEW
PRODUCT
During the second quarter of fiscal 1999, we began shipping units of our
Teres(TM) chemical mechanical planarization system, for which we recorded
revenue during the two quarters of fiscal 2000. We expect to face significant
competition from multiple current and future competitors. Among the companies
currently offering polishing systems are Applied Materials, Inc., Ebara
Corporation and SpeedFam-IPEC, Inc. We believe that other companies are
developing polishing systems and are planning to introduce new products to this
market, which may affect our ability to sell this new product.
During the first quarter of fiscal 2000, we began shipping units of our
Exelan(TM) oxide etch system. We expect to face significant competition from
multiple current competitors. Among the companies currently offering oxide etch
systems are Applied Materials, Inc., and Tokyo Electron Limited.
WE ARE SUBJECT TO RISKS RELATING TO PRODUCT CONCENTRATION AND LACK OF
PRODUCT REVENUE DIVERSIFICATION
We derive a substantial percentage of our revenues to date from a limited
number of products, and we expect these products to continue
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<PAGE> 23
to account for a large percentage of our revenues in the near term. Continued
market acceptance of our primary products is, therefore, critical to our future
success. Our business, operating results, financial condition and cash flows
could therefore be adversely affected by:
- a decline in demand for our products;
- a failure to achieve continued market acceptance of our products;
- an improved version of one of our products being produced by a
competitor;
- technological change which we are unable to match in our products; and
- a failure to release new enhanced versions of our products on a timely
basis.
WE ARE DEPENDENT UPON A LIMITED NUMBER OF KEY SUPPLIERS
We obtain certain components and sub-assemblies included in our products
from a single supplier or a limited group of suppliers. Each of our key
suppliers has a one year blanket purchase contract under which we may issue
purchase orders. We may renew these contracts periodically. Each of these
suppliers sold us products during at least the last four years, and we expect
that we will continue to renew these contracts in the future or that we will
otherwise replace them with competent alternative source suppliers. We believe
that we could obtain alternative sources to supply these products. Nevertheless,
a prolonged inability to obtain certain components could adversely affect our
operating results and result in damage to our customer relationships.
ONCE A SEMICONDUCTOR MANUFACTURER COMMITS TO PURCHASE A COMPETITOR'S
SEMICONDUCTOR MANUFACTURING EQUIPMENT IT TYPICALLY CONTINUES TO PURCHASE
THAT EQUIPMENT, MAKING IT MORE DIFFICULT FOR LAM TO SELL ITS EQUIPMENT
TO THAT CUSTOMER
The semiconductor equipment industry is highly competitive. We expect to
continue to face substantial competition throughout the world. Semiconductor
manufacturers must make a substantial investment to install and integrate
capital equipment into a semiconductor production line. We believe that once a
semiconductor manufacturer selects a particular supplier's capital equipment,
the manufacturer generally relies upon that equipment for that specific
production line application. Accordingly, we expect it to be more difficult to
sell to a given customer if that customer initially selects a competitor's
equipment. We believe that to remain competitive we 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
research and development.
WE MAY LACK THE FINANCIAL RESOURCES OR TECHNOLOGICAL CAPABILITIES OF
CERTAIN OF OUR COMPETITORS NEEDED TO CAPTURE INCREASED MARKET SHARE
Large semiconductor equipment manufacturers who have the resources to
support customers on a worldwide basis are increasingly dominating the
semiconductor equipment industry. Certain of our competitors have substantially
greater financial resources and more
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<PAGE> 24
extensive engineering, manufacturing, marketing and customer service and support
resources than we do. In addition, there are smaller emerging semiconductor
equipment companies that may provide innovative technology which may have
performance advantages over systems we currently, or expect to, offer.
We expect our competitors to continue to improve the design and
performance of their current products and processes and to introduce new
products and processes with enhanced performance characteristics. If our
competitors enter into strategic relationships with leading semiconductor
manufacturers covering products similar to those we sell or may develop, it
could adversely affect our ability to sell products to those manufacturers. For
these reasons, we may fail to continue to compete successfully worldwide.
Our present or future competitors may be able to develop products
comparable or superior to those we offer or that adapt more quickly to new
technologies or evolving customer requirements. In particular, while we
currently are developing additional product enhancements that we believe will
address customer requirements, we may fail in a timely manner to complete the
development or introduction of these additional product enhancements
successfully, or these product enhancements may not achieve market acceptance or
be competitive. Accordingly, we may be unable to continue to compete effectively
in our markets, competition may intensify or future competition may have a
material adverse effect on our revenues, operating results, financial condition
and cash flows.
OUR FUTURE SUCCESS DEPENDS ON INTERNATIONAL SALES
International sales accounted for approximately 54% of our total revenue
in fiscal 1999, 55% in fiscal 1998, 57% in fiscal 1997, 66% for the six months
ended December 26, 1999 of fiscal 2000 and 46% for the six months ended December
31, 1998 of fiscal 1999. We expect that international sales will continue to
account for a significant portion of our total revenue in future years.
International sales are subject to risks, including:
- foreign exchange risks; and
- economic, banking and currency problems in the relevant region.
We currently enter into foreign currency forward contracts to minimize
the short term impact of exchange rate fluctuations on yen-denominated assets,
and will continue to enter into hedging transactions in the future.
A FAILURE TO COMPLY WITH ENVIRONMENTAL REGULATIONS MAY ADVERSELY AFFECT
OUR OPERATING RESULTS
We are 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. We believe that we are in general compliance with
these regulations and that we have obtained (or will obtain or are otherwise
addressing) all necessary environmental permits to conduct our 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 us, suspension of production, cessation of our
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<PAGE> 25
operations generally or reduction in our customers' acceptance of our products.
These regulations could require us to alter our current operations, to acquire
significant equipment or to incur substantial other expenses to comply with
environmental regulations. Our failure to control the use, sale or transport, or
adequately to restrict our discharge or disposal, of hazardous substances could
subject us to future liabilities.
OUR ABILITY TO MANAGE POTENTIAL GROWTH; INTEGRATION OF POTENTIAL
ACQUISITIONS AND POTENTIAL DISPOSITION OF PRODUCT LINES AND TECHNOLOGIES
CREATES RISKS FOR US
Our management may face significant challenges in improving financial
and business controls, management processes, information systems and procedures
on a timely basis, and expanding, training and managing our work force if we
experience additional growth. There can be no assurance that we will be able to
perform such actions successfully. In the future, we may make additional
acquisitions of complementary companies, products or technologies, or we may
reduce or dispose of certain product lines or technologies which no longer
complement our long-term strategy, such as our exiting of Flat Panel Display and
Chemical Vapor Deposition operations. Managing an acquired business or disposing
of product technologies entails numerous operational and financial risks,
including difficulties in assimilating acquired operations and new personnel or
separating existing business or product groups, diversion of management's
attention to other business concerns, amortization of acquired intangible assets
and potential loss of key employees or customers of acquired or disposed
operations. Our success will depend, to a significant extent, on the ability of
our executive officers and other members of our senior management to identify
and respond to these challenges effectively. There can be no assurance that we
will be able to achieve and manage effectively any such growth, integration of
potential acquisitions or disposition of product lines or technologies, or that
our management, personnel or systems will be adequate to support continued
operations. Any such inabilities or inadequacies would have a material adverse
effect on our business, operating results, financial condition and cash flows.
An important element of our management strategy is to review acquisition
prospects that would complement our existing products, augment our market
coverage and distribution ability, or enhance our technological capabilities. We
may acquire additional businesses, products or technologies in the future. Any
acquisitions could result in changes such as potentially dilutive issuances of
equity securities, the incurrence of debt and contingent liabilities and the
amortization expense related to goodwill and other intangible assets, any of
which could materially adversely affect our business, financial condition and
results of operations and/or the price of our Common Stock.
THE MARKET FOR OUR COMMON STOCK IS VOLATILE, WHICH MAY AFFECT OUR
ABILITY TO RAISE CAPITAL OR MAKE ACQUISITIONS
The market price for our common stock is volatile and has fluctuated
significantly over the past years. The trading price of our common stock could
continue to be highly volatile and fluctuate widely in response to factors,
including the following:
25
<PAGE> 26
- general market or semiconductor industry conditions;
- variations in our quarterly operating results;
- shortfalls in our revenues or earnings from levels securities analysts
expect;
- announcements of restructurings, technological innovations, reductions
in force, departure of key employees, consolidations of operations or
introduction of new products;
- government regulations;
- developments in or claims relating to patent or other proprietary
rights;
- disruptions with key customers; or
- political, economic or environmental events occurring globally or in our
key sales regions.
In addition, the stock market has in recent years experienced
significant price and volume fluctuations. Recent fluctuations affecting our
common stock were tied in part to the actual or anticipated fluctuations in
interest rates, and the price of and market for semiconductors generally. These
broad market and industry factors may adversely affect the market price of our
common stock, regardless of our actual operating performance. In the past,
following volatile periods in the market price of stock, many companies become
the object of securities class action litigation. If we are sued in a securities
class action, we could incur substantial costs and it could divert management's
attention and resources and have an effect on the market price for our common
stock.
RISK ASSOCIATED WITH OUR CALL AND PUT OPTIONS
We have entered into a third party option transactions for the purchase
and sale of our stock. The option position will be of value to us if our stock
price exceeds the exercise price of the call options at the time the option is
exercised. Of course, our stock price could also decline. If our stock price on
the exercise date of the options were below the put option exercise price, we
would have to settle the put obligation by paying cash or the equivalent value
of our common stock obligation.
During fiscal 1999, we entered into a third party option transactions
for the purchase and sale of our common stock, in order to offset the
antidilutive effect of a potential conversion into common stock of the $310.0
million Convertible Subordinated Notes (the "Notes") we previously issued and
which are due September 2, 2002. We have as of December 26, 1999 acquired call
options to purchase 1.24 million shares of our common stock: the weighted
average exercise price of these options is $33.87. The call options provide that
our maximum benefit at expiration is $53.90 per option share (the difference
between $87.77, which is the conversion price of the Notes, and the weighted
average exercise price of the call options). We have also entered into put
options with the same third parties covering 1.86 million shares of our common
stock, giving those third parties the right to sell to us shares of our common
stock at a weighted average price of $28.43 per share.
THE POTENTIAL ANTI-TAKEOVER EFFECTS OF OUR BYLAWS PROVISIONS AND THE
RIGHTS PLAN WE HAVE IN PLACE MAY AFFECT OUR STOCK PRICE AND INHIBIT A
CHANGE OF CONTROL DESIRED BY SOME OF OUR STOCKHOLDERS
26
<PAGE> 27
On January 23, 1997, Lam 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 our Common Stock, 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, our Board of Directors also adopted a number of amendments to
our 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
Lam 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. Rather it is designed to enhance the ability of our Board
of Directors to negotiate with a potential acquirer on behalf of all of our
stockholders.
In addition, our Certificate of Incorporation authorizes issuance of
5,000,000 shares of undesignated preferred stock. Our Board of Directors,
without further stockholder approval, may issue this preferred stock on such
terms as the Board of Directors may determine, which also could have the effect
of delaying or preventing a change in control of Lam. The issuance of preferred
stock could also adversely affect the voting power of the holders of our common
stock, including causing the loss of voting control. Our Bylaws and indemnity
agreements with certain officers, directors and key employees provide that we
will indemnify officers and directors against losses that they may incur in
legal proceedings resulting from their service to Lam. Moreover, Section 203 of
the Delaware General Corporation Law restricts certain business combinations
with "interested stockholders", as defined by that statute.
INTELLECTUAL PROPERTY AND OTHER CLAIMS AGAINST US CAN BE COSTLY AND
COULD RESULT IN THE LOSS OF SIGNIFICANT RIGHTS WHICH ARE NECESSARY TO
OUR CONTINUED BUSINESS AND PROFITABILITY
Other parties may assert infringement, unfair competition or other
claims against us. Additionally, from time to time, other parties send us
notices alleging that our products infringe their patent or other intellectual
property rights. In such cases, it is our policy either to defend the claims or
to negotiate licenses on commercially reasonable terms. However, we may be
unable in the future to negotiate necessary licenses on commercially reasonable
terms, or at all, and any litigation resulting from these claims by other
parties may materially adversely affect our business and financial results.
In October 1993, Varian Associates, Inc. ("Varian") sued us in the
United States District Court for the Northern District of California, seeking
monetary damages and injunctive relief based on our alleged infringement of
certain patents Varian held. We asserted defenses that the subject patents are
invalid and unenforceable, and that our products do not infringe these patents.
Litigation is inherently uncertain and we may fail to prevail in this
litigation. However, we believe that the Varian lawsuit will not materially
27
<PAGE> 28
adversely affect our operating results or financial position. See Part II Item 1
of this Form 10-Q for a discussion of the Varian lawsuit.
Additionally, in September 1999, Tegal Corporation ("Tegal") sued us in
the United States District Court for the Eastern District of Virginia, seeking
monetary damages and injunctive relief based on our alleged infringement of
certain patents Tegal holds. Specifically, Tegal identified our 4520XLe(TM) and
Exelan(TM) products as infringing the patents Tegal is asserting. Litigation is
inherently uncertain and we may fail to prevail in this litigation. However, we
believe that the Tegal lawsuit will not materially adversely affect our
operating results or financial position. See Part II Item 1 of this Form 10-Q
for a discussion of the Tegal lawsuit.
WE MAY FAIL TO PROTECT OUR PROPRIETARY TECHNOLOGY RIGHTS, WHICH WOULD
AFFECT OUR BUSINESS
Our success depends in part on our proprietary technology. While we
attempt to protect our proprietary technology through patents, copyrights and
trade secret protection, we believe that our success depends on increasing our
technological expertise, continuing our development of new systems, increasing
market penetration and growth of our installed base, and providing comprehensive
support and service to our customers. However, we may be unable to protect our
technology in all instances, or our competitors may develop similar or more
competitive technology independently. We currently hold a number of United
States and foreign patents and pending patent applications. However, other
parties may challenge or attempt to invalidate or circumvent any patents United
States or foreign governments issue to us or these governments may fail to issue
pending applications. In addition, the rights granted or anticipated under any
of these patents or pending patent applications may be narrower than we expect
or in fact provide no competitive advantages.
YEAR 2000 COMPLIANCE
See discussion of Year 2000 issues in the section of this report
entitled "Management's Discussion and Analysis of Financial Condition and
Results of Operations".
28
<PAGE> 29
ITEM 3. Quantitative And Qualitative Disclosures about Market Risk
For financial market risks related to changes in interest rates and
foreign currency exchange rates, refer to Part II, Item 7A, Quantitative and
Qualitative Disclosures About Market Risk, in the Company's Annual Report on
Form 10-K for the year ended June 30, 1999.
During fiscal 1999, we entered into a third party option transactions
for the purchase and sale of our common stock, in order to offset the
antidilutive effect of a potential conversion into common stock of the $310.0
million Convertible Subordinated Notes (the "Notes") we previously issued and
which are due September 2, 2002. We have as of December 26, 1999 acquired call
options to purchase 1.24 million shares of our common stock: the weighted
average exercise price of these options is $33.87. The call options provide that
our maximum benefit at expiration is $53.90 per option share (the difference
between $87.77, which is the conversion price of the Notes, and the weighted
average exercise price of the call options). We have also entered into put
options with the same third parties covering 1.86 million shares of our common
stock, giving those third parties the right to sell to us shares of our common
stock at a weighted average price of $28.43 per share.
Below is a table showing, at assumed exercise prices for the put and
call options and market prices for our common stock, our gain or (loss) under
the put and call options upon exercise or upon maturity of the option
transactions.
<TABLE>
<CAPTION>
At December 26,
Stock Value 1999 At Maturity
- ----------- --------------- -----------
(in thousands)
<S> <C> <C>
$ 5.00 $(34,771) $(43,605)
$ 25.00 $(10,151) $ (6,390)
$ 45.00 $ 4,874 $ 13,808
$ 65.00 $ 15,037 $ 38,618
$ 85.00 $ 22,332 $ 63,428
$105.00 $ 27,788 $ 66,863
$125.00 $ 31,992 $ 66,863
$145.00 $ 35,309 $ 66,863
</TABLE>
29
<PAGE> 30
PART II. OTHER INFORMATION
ITEM 1. Legal Proceedings
In October 1993, 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. By order of the Court, those proceedings were
bifurcated into an initial phase to determine the validity of the Varian patents
and Lam's infringement (if any), and a secondary phase to determine damages to
Varian (if any) and whether Lam's infringement (if shown) was willful. On April
13, 1999, the Court issued an interlocutory order construing the meaning of the
terms of the patent claims at issue in the action. To date, however, there has
been no determination as to the actual scope of those claims, or whether Lam's
products have infringed or are infringing Varian's patents. The trial date
previously scheduled for March 2000 has been vacated, pending the courts
decision of certain motions. There have been no findings in the action which
have caused the Company reasonably to believe that any infringement, if found,
or any damages, if awarded, would have a material adverse effect on the
Company's operating results or the Company's financial position.
In September 1999, Tegal brought suit against the Company in the United
States District Court, for the Eastern District of Virginia, seeking monetary
damages and injunctive relief based on the Company's alleged infringement of
certain patents held by Tegal. Specifically, Tegal identified the Company's
4520XLE and Exelan products as infringing the patents Tegal is asserting. On
Lam's motion, this case was transferred to California and is now pending in the
United States District Court for the Northern District of California. To date,
however, there has been no determination as to the actual scope of those claims,
or whether Lam's products have infringed or are infringing Tegal's patents. No
trial date is currently scheduled in the action. Furthermore, there have been no
findings in the action which have caused the Company reasonably to believe that
any infringement, if found, or any damages, if awarded, could have a material
adverse effect on the Company's operating results or the Company's financial
position.
From time to time, Lam has received notices from third parties alleging
infringement of such parties' patent or other intellectual property rights by
the Company's products. In such cases, it is the policy of the Company to defend
the claims or negotiate licenses on commercially reasonable terms, where
considered appropriate. However, no assurance can be given that Lam will be able
in the future 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.
30
<PAGE> 31
ITEM 4. Submission of Matters to Vote of Security Holders
The Annual Meeting of Stockholders of Lam Research Corporation was held
at the principal office of the Company at 4650 Cushing Parkway, Fremont,
California 94538 on November 4, 1999.
Out of 39,429,800 shares of Common Stock entitled to vote at the
meeting, 34,600,618 shares were present in person or by proxy.
The vote for nominated directors, to serve for the ensuing year, and
until their successors are elected, was as follows:
<TABLE>
<CAPTION>
NOMINEE IN FAVOR WITHHELD
- ------- ---------- ----------
<S> <C> <C>
James W. Bagley 34,339,378 261,240
Roger D. Emerick 34,237,474 363,144
David G. Arscott 34,319,830 280,788
Richard J. Elkus, Jr 34,346,232 254,386
Jack R. Harris 34,313,548 287,070
Grant M. Inman 34,314,630 285,988
Kenneth M. Thompson 34,346,011 254,607
</TABLE>
The results of voting on the following items were as set forth below:
Ratification of appointment of Ernst & Young LLP as independent auditors
for the Company for the fiscal year ending June 25, 2000:
<TABLE>
<CAPTION>
IN FAVOR OPPOSED ABSTAIN BROKER NON VOTE
-------- ------- ------- ---------------
<S> <C> <C> <C>
34,466,769 112,208 21,563 78
</TABLE>
ITEM 6. Exhibits and Reports on Form 8-K
(a) Exhibits
<TABLE>
<S> <C>
Exhibit 4.11 Amended and restated 1996 Performance-Based Restricted
Stock Plan.
Exhibit 4.12 Amended and restated 1999 Stock Option Plan.
Exhibit 27 Financial Data Schedule
</TABLE>
(b) Reports on Form 8-K
The Company filed a Form 8-K on November 16, 1999 making an Item
5 disclosure to disclose the Company's announcement of an
acquisition of research and development technology.
31
<PAGE> 32
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this Report to be signed on its behalf by the
undersigned thereunto duly authorized.
Date: February 3, 2000
LAM RESEARCH CORPORATION
By: /s/ Mercedes Johnson
-------------------------------------
Mercedes Johnson, Vice President,
Finance & Chief Financial Officer
32
<PAGE> 33
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------ -----------
<S> <C>
Exhibit 4.11 Amended and restated 1996 Performance-Based Restricted
Stock Plan.
Exhibit 4.12 Amended and restated 1999 Stock Option Plan.
Exhibit 27 Financial Data Schedule
</TABLE>
<PAGE> 1
EXHIBIT 4.11
LAM RESEARCH CORPORATION
PERFORMANCE-BASED RESTRICTED STOCK PLAN
(Effective January 1, 1996)
AMENDED AND RESTATED AS OF OCTOBER 21, 1999)
SECTION 1
ESTABLISHMENT AND PURPOSE
1.1 Purpose. Lam Research Corporation hereby establishes the Lam
Research Corporation Performance-Based Restricted Stock Plan (the "Plan"). The
Plan is intended to increase shareholder value and advance the success of the
Company by (a) motivating key employees to perform to the best of their
abilities, and (b) increasing the desire of key employees to continue their
employment with the Company. The Plan's goals are to be achieved by providing
such employees with restricted stock awards based on the achievement of goals
relating to the financial performance of the Company. Payments under the Plan
are intended to qualify as performance-based compensation within the meaning of
Code Section 162(m).
1.2 Effective Date. The Plan is effective January 1, 1996, subject to
the approval of a majority of the shares of the Company's common stock which are
present in person or by proxy and entitled to vote at the 1995 Annual Meeting of
Stockholders.
SECTION 2
DEFINITIONS
The following words and phrases shall have the following meanings
unless a different meaning is plainly required by the context:
2.1 "Actual Award" means, as to any Performance Period, the
cash-denominated bonus amount which is earned by a Participant for such
Performance Period and which is converted into Restricted Stock pursuant to
Section 6.3, subject to Section 2.13 and the Administrator's authority under
Section 5.5 to reduce the award otherwise determined by the Payout Formula.
2.2 "Administrator" means the Board or any of its Committees as shall
be administering the Plan from time to time pursuant to Section 4 of the Plan.
2.3 "Board" means the Company's Board of Directors.
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<PAGE> 2
2.4 "Code" means the Internal Revenue Code of 1986, as amended.
2.5 "Committee" means a committee, if any, appointed by the Board in
accordance with Section 4.1 to administer the Plan.
2.6 "Common Stock" means the Common Stock of the Company.
2.7 "Company" means Lam Research Corporation, a Delaware corporation.
2.8 "Covered Employee" means a "covered employee" within the meaning of
Section 162(m).
2.9 "Determination Date" means as to any Performance Period, (a) the
first day of the Performance Period, or (b) if later, the latest date possible
which will not jeopardize qualification of payments under the Plan as
Performance-Based Compensation.
2.10 "Disability" means a permanent and total disability determined in
accordance with uniform and nondiscriminatory standards adopted by the Committee
from time to time.
2.11 "Exchange Act" means the Securities Exchange Act of 1934, as
amended.
2.12 "Fair Market Value" means, as of any date, the value of Common
Stock determined as follows:
(a) If the Common Stock is listed on any established stock
exchange or a national market system, including without limitation the Nasdaq
National Market or The Nasdaq SmallCap Market of The Nasdaq Stock Market, its
Fair Market Value shall be the closing sales price for such stock (or the
closing bid, if no sales were reported) as quoted on such exchange or system for
the last market trading day prior to the time of determination, as reported in
The Wall Street Journal or such other source as the Administrator deems
reliable;
(b) If the Common Stock is regularly quoted by a recognized
securities dealer but selling prices are not reported, the Fair Market Value of
a Share of Common Stock shall be the mean between the high bid and low asked
prices for the Common Stock on the last market trading day prior to the day of
determination, as reported in The Wall Street Journal or such other source as
the Administrator deems reliable;
(c) In the absence of an established market for the Common
Stock, the Fair Market Value shall be determined in good faith by the
Administrator.
2.13 "Maximum Award" means as to any Participant for any Plan Year,
[10,000] Shares, which is the maximum amount of Restricted Stock that may be
awarded to a Participant for any Plan Year (the "Plan").
-2-
<PAGE> 3
2.14 "Participant" means as to any Performance Period, an employee of
the Company who has been selected by the Committee for participation in the Plan
for that Performance Period.
2.15 "Payout Formula" means as to any Performance Period, the formula
or payout matrix established by the Committee pursuant to Section 5.4 to
determine the Actual Awards (if any) to be paid to Participants. The formula or
matrix may differ from Participant to Participant.
2.16 "Performance-Based Compensation" means compensation that is
intended to qualify as "performance-based compensation" within the meaning of
Section 162(m).
2.17 "Performance Goals" means the Company's financial goal(s)
determined by the Committee to be applicable for a Performance Period, based on
earnings, earnings per share, revenue growth or return on equity.
2.18 "Performance Period" means the quarterly, semi-annual or annual
fiscal period of the Company that is established by the Administrator as the
period over which the Company's financial performance is to be measured for
purposes of the Plan.
2.19 "Plan" means this Lam Research Corporation Performance-Based
Restricted Stock Plan.
2.20 "Plan Year" means the 1995 fiscal year of the Company and each
succeeding fiscal year of the Company.
2.21 "Restricted Stock" means Shares awarded pursuant to Section 6, and
subject to the Company's reacquisition right as specified in the Restricted
Stock Agreement.
2.22 "Restricted Stock Agreement" means an agreement in the form
approved by the Administrator setting forth the terms and conditions applicable
to the award of Restricted Stock.
2.23 "Retirement Age" means the attainment of age 60 and the completion
of seven "years of service," as that term is defined under the Company's
Executive Deferred Compensation Plan, as amended from time to time, or any
successor plan thereto.
2.24 "Section 16 Officer" means an officer of the Company within the
meaning of Section 16 of the Exchange Act and the rules and regulations
promulgated thereunder.
2.25 "Section 162(m)" means Section 162(m) of the Code, or any
successor to Section 162(m), as that Section may be interpreted from time to
time by the Internal Revenue Service, whether by regulation, notice or
otherwise.
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<PAGE> 4
2.26 "Share" means a share of the Common Stock, as adjusted in
accordance with Section 3.2 of the Plan.
2.27 "Target Award" means the dollar-denominated target award that
establishes a Participant's bonus opportunity under the Plan for a Performance
Period, as determined by the Administrator in accordance with Section 5.3.
SECTION 3
STOCK SUBJECT TO THE PLAN
3.1 Number of Shares. Subject to the provisions of Section 3.2 of the
Plan, the maximum aggregate number of Shares that may be issued under the Plan
is 150,000 Shares. The Shares may be authorized, but unissued, or reacquired
Common Stock. If Shares are forfeited to the Company pursuant to a Restricted
Stock Agreement, such Shares, unless the Plan shall have been terminated, shall
be returned to the Plan and shall become available for reissuance under the
Plan; provided, however, that any such Shares shall not return to the Plan if
the Participant to whom they were originally issued received the benefits of
ownership of such Shares (other than voting), as interpreted from time to time
by the Securities and Exchange Commission in the context of Rule 16b-3 under the
Securities Exchange Act of 1934, as amended ("Rule 16b-3").
3.2 Adjustments in Awards and Authorized Shares. In the event of any
recapitalization, stock dividend, stock split, reverse stock split, split-up,
combination or reclassification of the Common Stock, or any other increase or
decrease in the number of issued shares of Common Stock effected without receipt
of consideration by the Company, the Administrator shall adjust the number and
class of Shares that may be delivered under the Plan, the number and class of
Shares subject to outstanding awards, and any applicable numerical Share limits
in such manner as the Administrator in its sole discretion shall determine to be
appropriate to prevent the dilution or diminution of such awards.
SECTION 4
ADMINISTRATION OF THE PLAN
4.1 Composition of Administrator. The Board may establish a Committee
to administer the Plan, and may establish different Committees with respect to
(a) Participants who are Section 16 Officers, (b) Participants who are Covered
Employees, and (c) Participants who are neither Section 16 Officers nor Covered
Employees. With respect to participation by Section 16 Officers, the Plan shall
be administered in such a manner as to permit the Plan and awards hereunder to
comply with Rule 16b-3 as it applies to a plan intended to qualify thereunder as
a discretionary grant or award plan. With respect to participants who are
Covered Employees, the Plan shall be administered by two or more "outside
directors" within the meaning of Section 162(m) in such a manner as to permit
payments under the Plan to qualify as Performance-Based Compensation.
-4-
<PAGE> 5
4.2 Powers of the Administrator. Subject to the provisions of the Plan
and, in the case of a Committee, subject to the specific duties delegated by the
Board to such Committee, the Administrator shall have the discretion and
authority necessary or appropriate to administer the Plan and to interpret the
provisions of the Plan, consistent with the requirements of Rule 16b-3, as
applicable, and with the qualification of payments under the Plan as
Performance-Based Compensation with respect to Participants who are Covered
Employees. Any determination, decision or action of the Administrator in
connection with the construction, interpretation, administration or application
of the Plan shall be final, conclusive and binding upon all persons, and shall
be given the maximum deference permitted by law.
SECTION 5
SELECTION OF PARTICIPANTS AND DETERMINATION OF AWARDS
5.1 Selection of Participants. On or prior to the Determination Date,
the Administrator, in its sole discretion, shall select the employees of the
Company who shall be Participants for the Performance Period. In selecting
Participants, the Administrator shall choose employees whose responsibilities
are likely to significantly influence the financial performance of the Company.
No person shall be automatically entitled to participate in the Plan in any
given Performance Period.
5.2 Determination of Performance Goals. On or prior to the
Determination Date, the Administrator shall establish written Performance Goals
for the Performance Period.
5.3 Determination of Target Awards. On or prior to the Determination
Date, the Administrator shall establish a written Target Award for the
Performance Period for each Participant.
5.4 Determination of Payout Formula or Formulae. On or prior to the
Determination Date, the Administrator shall establish a Payout Formula or
Formulae for purposes of determining the Actual Award, if any, payable to each
Participant. Each Payout Formula shall (a) be in writing, (b) be based on a
comparison of actual performance to the Performance Goals, (c) provide for the
payment of a Participant's Target Award if the Performance Goals for the
Performance Period are achieved, and (d) provide for an Actual Award greater
than or less than the Participant's Target Award, depending upon the extent to
which actual performance exceeds or falls below the Performance Goals.
5.5 Determination of Actual Awards. After the end of each Performance
Period, the Administrator shall certify in writing the extent to which the
Performance Goals applicable to each Participant for the Performance Period were
achieved or exceeded. The Actual Award for each Participant shall be determined
by applying the Payout Formula to the level of actual performance which has been
certified by the Administrator. Notwithstanding any contrary provision of the
Plan: (a) the Administrator, in its sole discretion, may eliminate or reduce the
-5-
<PAGE> 6
Actual Award payable to any Participant below that which otherwise would be
payable under the Payout formula; (b) if a Participant terminates employment
with the Company prior to the end of a Performance Period, he or she shall not
be entitled to the payment of an Actual Award for the Performance Period; and
(c) no Participant's Actual Award under the Plan may exceed the Maximum Award.
SECTION 6
PAYMENT OF AWARDS
6.1 Right to Receive Payment. Nothing in this Plan shall be construed
to create a trust or to establish or evidence any Participant's claim of any
right other than as an unsecured general creditor with respect to any payment to
which he or she may be entitled under the Plan.
6.2 Timing and Payment of Awards. Payment of each Actual Award shall be
made as soon as practicable after the end of the Performance Period during which
the award was earned.
6.3 Form of Payment. Each Actual Award shall be paid in the form of
Restricted Stock. The number of Shares shall be determined by dividing the
cash-denominated value of the Actual Award by the Fair Market Value of a Share
on the last day of the Performance Period, rounded up to the nearest whole
Share. The payment of the Actual Award shall be evidenced by a Notice of Award
of Restricted Stock that, together with a Restricted Stock Agreement, shall
specify the applicable vesting restrictions, the amount of Restricted Stock
awarded, and such other terms and conditions as the Administrator, in its sole
discretion, shall determine.
6.4 Termination of Employment; Acceleration of Vesting. In the event a
Participant's status as an employee of the Company terminates for any or no
reason, any unvested Restricted Stock previously awarded to the Participant
shall be forfeited to the Company without consideration to the Participant;
provided that, in the event a Participant reaches Retirement Age, the
Participant shall become 100% vested in all of his or her Restricted Stock and
such Shares shall no longer be subject to the Company's reacquisition option
contained in the Restricted Stock Agreement; provided further, that in the event
the Participant's employment with the Company terminates as a result of his or
her death or Disability, the Administrator may, in its sole discretion, vest all
or any portion of any of his or her unvested Restricted Stock. Any Restricted
Stock that is forfeited pursuant to this Section 6.4 shall again become
available for award under this Plan in accordance with Section 3.1.
6.5 Stock Withholding to Satisfy Tax Withholding Obligations. When a
Participant incurs tax liability in connection with the acquisition or vesting
of Shares under the Plan, which tax liability is subject to tax withholding
under applicable tax laws, and the Participant is obligated to pay the Company
an amount required to be withheld under applicable tax laws, the Participant may
satisfy the withholding tax obligation by electing to have the Company withhold,
from the Shares acquired under the Plan that have vested, that number of Shares
having a Fair Market Value equal to the amount required to be withheld. The Fair
Market Value of the Shares
-6-
<PAGE> 7
to be withheld shall be determined on the date that the amount of tax to be
withheld is to be determined. All elections by a Participant to have Shares
withheld for this purpose shall be made in writing in a form acceptable to the
Administrator and shall be subject to such uniform and nondiscriminatory
restrictions and limitations as the Administrator may specify.
SECTION 7
STOCK OPTION GRANTS
7.1 Authority to Grant Stock Options. The Administrator may, in its
discretion, grant to Participants that it selects options to purchase Shares
under the Plan.
Unless otherwise determined by the Administrator:
(a) The term of an option shall not exceed ten years from the
date of grant;
(b) The number of Shares subject to options granted to any
individual Participant in any Plan Year shall not exceed 10,000;
(c) The per-Share exercise price of an option shall be at
least the Fair Market Value of a Share on the date the option is granted;
(d) The selection of a Participant to receive an option shall
be deemed to satisfy the selection requirements of Section 5.1;
(e) Setting the exercise price of an option at no less than
the Fair Market Value of a Share on the date the option is granted and execution
in due course of a written option agreement with the Participant shall be deemed
to be the determination of a written Performance Goal satisfying the
requirements of Section 5.2;
(f) Determining the number of Shares subject to an option
shall be deemed to be the determination of a Target Award and Payout Formula
satisfying the requirements of Sections 5.3 and 5.4; and
(g) The period from grant to exercise (or expiration) of the
option shall be deemed to be the Performance Period, and confirmation by the
Administrator to the Participant following an exercise of the option shall be
deemed to be the written certification required by Section 5.5.
7.2 Application of 1991 and 1997 Stock Plans. Unless otherwise
determined by the Administrator, other terms of each option and option grant
shall be consistent with options granted pursuant to the Company's 1991 Stock
Option Plan or 1997 Stock Incentive Plan.
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SECTION 8
GENERAL PROVISIONS
8.1 Nonassignability. A Participant shall have no right to assign or
transfer any interest under this Plan.
8.2 No Effect on Employment. The establishment and subsequent operation
of the Plan, including eligibility as a Participant, shall not be construed as
conferring any legal or other rights upon any Participant for the continuation
of his or her employment for any Performance Period or any other period.
Employment with the Company is on an at will basis only, unless provided
differently in Participant's employment contract, if any, with the Company. The
Company expressly reserves the right, which may be exercised at any time and
without regard to when during a Performance Period such exercise occurs, to
terminate any individual's employment with or without cause, and to treat him or
her without regard to the effect which such treatment might have upon him or her
as a Participant.
8.3 Indemnification. Each person who is or shall have been a member of
the Administrator shall be indemnified and held harmless by the Company against
and from (a) any loss, cost, liability, or expense that may be imposed upon or
reasonably incurred by him or her in connection with or resulting from any
claim, action, suit or proceeding to which he or she may be a party or in which
he or she may be involved by reason of any action taken or a failure to act
under the Plan, and (b) from any and all amounts paid by him or her in
settlement thereof, with the Company's approval, or paid by him or her in
satisfaction of any judgment in any such claim, action, suit or proceeding
against him or her, provided he or she shall give the Company an opportunity, at
its own expense, to handle and defend the same before he or she undertakes to
handle and defend it on his or her own behalf. The foregoing right of
indemnification shall not be exclusive of any other rights or indemnification to
which such persons may be entitled under the Company's certificate of
incorporation or bylaws, by contract, as a matter of law, or otherwise, or under
any power that the Company may have to indemnify them and hold them harmless.
8.4 Beneficiary Designations. If permitted by the Administrator, a
Participant may name a beneficiary or beneficiaries to whom any vested but
unpaid amount due to Participant under the Plan shall be paid in the event of
the Participant's death. Each such designation shall revoke all prior
designations by the Participant and shall be effective only if given in a form
and manner acceptable to the Administrator. In the absence of any such
designation, any amounts remaining unpaid at the Participant's death shall be
paid to the Participant's estate.
8.5 Severability; Governing Law. If any provision of the Plan is found
to be invalid or unenforceable, such provision shall not affect the other
provisions of the Plan, and the Plan shall be construed in all respects as if
such invalid provision had been omitted. The provisions of
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the Plan shall be governed by and construed in accordance with the laws of the
State of California, with the exception of California's conflict of laws
provisions.
8.6 Affiliates of the Company. Requirements referring to employment
with the Company or payment of awards may, in the Committee's discretion, be
performed through the Company or any affiliate of the Company.
SECTION 9
AMENDMENT AND TERMINATION
9.1 Amendment and Termination. The Board may at any time amend, alter,
suspend or terminate the Plan, as it may deem advisable; provided that, to the
extent necessary and desirable to comply with Rule 16b-3, Section 162(m), or any
other applicable law, the Company shall obtain shareholder approval of any Plan
amendment in such a manner and to such a degree as is required.
9.2 Affect of Amendment or Termination. Any such amendment, alteration,
suspension or termination of the Plan shall not impair the rights of any
Participant under any award (or right to receive an award), unless such
Participant consents in writing to such amendment, alteration, suspension or
termination. Such awards shall remain in full force and effect as if this Plan
had not been amended or terminated.
SECTION 10
COMPLIANCE WITH LAWS AND REGULATIONS
Shares shall not be issued with respect to an award hereunder unless
the issuance and delivery of such Shares pursuant thereto shall comply with all
relevant provisions of law, including, without limitation, the Securities Act of
1933, as amended, the Exchange Act, the rules and regulations promulgated
thereunder, and the requirements of any stock exchange or quotation system upon
which the Shares may then be listed or quoted, and shall be further subject to
the approval of counsel for the Company with respect to such compliance.
Inability of the Company to obtain authority from any regulatory body having
jurisdiction, which authority is deemed by the Company's counsel to be necessary
to the lawful issuance and sale of any Shares hereunder, shall relieve the
Company of any liability in respect of the non-issuance or sale of such Shares
as to which such requisite authority shall not have been obtained.
SECTION 11
SHAREHOLDER APPROVAL
The Plan, the grant of Share awards and the acquisition of Shares shall
be subject to approval by the holders of a majority of the Shares of Common
Stock of the Company represented (in person or by proxy) and voting at a
meeting. Such approval shall be solicited substantially in accordance with
Section 14(a) of the Exchange Act and the rules and regulations
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promulgated thereunder within such time as is required by Rule 16b-3, Section
162(m), or other applicable law.
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EXHIBIT 4.12
LAM RESEARCH CORPORATION
1999 STOCK OPTION PLAN
AMENDED AND RESTATED EFFECTIVE OCTOBER 21, 1999
SECTION 1 PURPOSE OF PLAN
This 1999 Stock Option Plan (the "Plan") is adopted as of November 5,
1998 (the "Effective Date"). The purpose of the Plan is to enable Lam Research
Corporation, a Delaware corporation (the "Company"), to attract and retain
highly qualified personnel who will contribute to the Company's success by their
ability, ingenuity and industry by allowing eligible individuals to acquire or
increase proprietary interests in the Company as an incentive to remain in the
service of the Company.
SECTION 2 DEFINITIONS
For purposes of the Plan, the following terms shall be defined as set
forth below:
(a) "Administrator" means the Board, or if and to the extent
the Board does not administer the Plan, the Committee appointed by the
Board to administer the Plan.
(b) "Board" means the Board of Directors of the Company.
(c) "Code" means the Internal Revenue Code of 1986, as amended
from time to time, or any successor thereto.
(d) "Committee" means the Stock Committee of the Board or any
Committee the Board may subsequently appoint to administer the Plan. If
at any time or to any extent the Board shall not administer the Plan,
then the functions of the Board or Administrator specified in the Plan
shall be exercised by the Committee.
(e) "Designated Subsidiaries" means the Subsidiaries that have
been designated by the Board or Administrator from time to time in its
sole discretion, whose Employees are thereon eligible to participate in
this Plan.
(f) "Date of Grant" means the date on which the award of a
Stock Option is effective.
(g) "Disability" means the inability of a Participant to
perform substantially his or her duties and responsibilities to the
Company by reason of a physical or mental disability or infirmity (i)
for a continuous period of six months, or (ii) at such earlier time as
the Participant submits medical evidence satisfactory to the
Administrator that he or she has a physical or mental disability or
infirmity which will likely prevent him or her from returning to the
performance of his or her work duties for six months or longer. The
date of such Disability shall be the date of interruption of or
separation from employment with the Company due to such Disability or
the day on which the Participant submits such satisfactory medical
evidence establishing such Disability, as the case may be.
<PAGE> 2
(h) "Employee" means any person who is customarily and
continuously employed for at least 20 hours per week by the Company or
one of its Designated Subsidiaries. Unless the Administrator makes a
contrary determination, the Employees of the Company shall, for all
purposes of this Plan, be those individuals who satisfy the customary
employment criteria set forth above and are carried as employees by the
Company or a Designated Subsidiary for regular payroll purposes;
provided however, that an Employee's continuous employment shall not be
considered interrupted in the case of a leave of absence agreed to in
writing by the Company, where such leave is for a period of not more
than 90 days or where re-employment upon the expiration of any such
leave is guaranteed by contract or statute.
(i) "Fair Market Value" means, as of any given date, with
respect to any Stock Option award granted hereunder, and at the
discretion of the Administrator, any of the following: (i) if the Stock
is publicly traded, the closing sale price of the Stock on such date as
reported in the Wall Street Journal, or the average of the closing
price of the Stock on each day on which the Stock was traded over a
period of up to twenty trading days immediately prior to such date,
(ii) the fair market value of the Stock as determined in accordance
with a method prescribed in the agreement evidencing any award
hereunder, or (iii) the fair market value of the Stock as otherwise
determined by the Administrator in the good faith exercise of its
discretion.
(j) "Parent Corporation" means any corporation (other the
Company) in an unbroken chain of corporations ending with the Company,
if each of the corporations in the chain (other than the Company) owns
stock possessing 50% or more of the combined voting power of all
classes of stock in one of the other corporations in the chain.
(k) "Participant" means any Employee determined to be eligible
to be awarded Stock Options under this Plan.
(l) "Stock" means the common stock, par value $0.001 per share
(the "Common Stock"), of the Company.
(m) "Stock Option" means any option to purchase shares of
Stock granted pursuant to this Plan. Each Stock Option shall be a
non-qualified stock option which, as of the time such Stock Option is
granted, shall not be treated as an Incentive Stock Option within the
meaning of Section 422 of the Code.
(n) "Subsidiary" means any corporation (other than the
Company) in an unbroken chain of corporations beginning with the
Company, if each of the corporations (other than the last corporation)
in the unbroken chain owns stock possessing 50% or more of the total
combined voting power of all classes of stock in one of the other
corporations in the chain.
SECTION 3 ADMINISTRATION OF PLAN
The Administrator shall have full authority (subject to the provisions
of this Plan) to establish such rules and regulations as it deems appropriate
for the proper administration of this Plan, and to make such determinations and
interpretations concerning this Plan and Stock Options awarded under this Plan
as it deems necessary or advisable.
In particular, the Administrator shall have the authority, consistent
with the terms of the Plan:
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(a) to select those Employees who shall be Participants;
(b) to determine whether and to what extent Stock Options are
to be awarded hereunder to Participants;
(c) to determine the number of shares of Stock to be covered
by each such Stock Option awarded hereunder, including the maximum term
for which a Stock Option is to be outstanding;
(d) to determine the terms and conditions of any Stock Option
awarded hereunder; and
(e) to determine the terms and conditions which shall govern
all written instruments evidencing the Stock Options awarded to
Participants.
The Administrator shall have the authority, in its discretion, to adopt, alter
and repeal such administrative rules, guidelines and practices governing the
Plan as it shall from time to time deem advisable; to interpret the terms and
provisions of the Plan and any Stock Option awarded under the Plan (and any
agreements relating thereto); and otherwise to supervise the administration of
the Plan. All decisions made by the Administrator pursuant to the
administration, interpretation and execution of the Plan shall be final and
binding on all persons, including the Company and the Participants.
SECTION 4 STOCK SUBJECT TO PLAN
The total number of shares of Stock reserved and available for issuance
under the Plan shall be four million (4,000,000), subject to adjustment from
time to time in accordance with this Section, or as provided by amendment of the
Board. The shares may be authorized but unissued shares of Common Stock or
reacquired shares of Common Stock, including shares repurchased by the Company
on the open market or in private purchases.
To the extent that (i) a Stock Option expires or is otherwise terminated
without being exercised, or (ii) any shares of Stock awarded hereunder are
forfeited, such shares shall again be available for issuance in connection with
future awards under the Plan. If any shares of Stock have been pledged as
collateral for indebtedness incurred by a Participant in connection with the
exercise of a Stock Option, and such shares are returned to the Company in
satisfaction of such indebtedness, such shares shall again be available for
issuance in connection with future awards under the Plan.
In the event of any merger, reorganization, consolidation,
recapitalization, stock dividend or other change in corporate structure of the
Company affecting the Stock, a substitution or adjustment shall be made in (i)
the aggregate number of shares reserved for issuance under the Plan, and/or (ii)
the kind, number and class of shares and option price of shares subject to
outstanding Stock Options granted under the Plan, as may be determined by the
Administrator, in its sole discretion. Such other substitutions or adjustments
shall be made as may be determined by the Administrator, in its sole discretion.
In connection with any event described in this paragraph, the Administrator may
provide, in its discretion, for the cancellation of any outstanding grants and
payment in cash or other property therefor. The adjustments determined by the
Administrator shall be final, binding, and conclusive.
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<PAGE> 4
SECTION 5 ELIGIBILITY
Unless otherwise designated by the Administrator, Participants eligible
to be awarded Stock Options under the Plan include Employees whose services
contribute to the management, growth or financial success of the Company (or a
Parent Corporation or a Subsidiary), or consultants, advisors or independent
contractors who provide valuable services to the Company (or a Parent
Corporation or a Subsidiary). Any Member of the Board or member of the Company's
senior management (which specifically includes, but is not limited to, all
"officers" of the Company, as that term is intended under Rule 16(b) of the
Securities Exchange Act of 1934, as amended ("Rule 16(b)")), and any principal
stockholder otherwise an eligible Employee, consultant, advisor or independent
contractor of the Company, is not eligible to be awarded Stock Options under
this Plan.
SECTION 6 DISCRETIONARY GRANTS OF STOCK OPTIONS
Any Stock Option granted under the Plan shall be in such form as the
Administrator may from time to time approve, and the provisions of Stock Option
awards need not be the same with respect to each optionee. Recipients of Stock
Options shall enter into an option agreement with the Company, in such form as
the Administrator shall determine, which agreement shall set forth, among other
things, the exercise price of the option, the term of the option and provisions
regarding exercisability of the option awarded thereunder. More than one option
may be awarded to the same optionee and be outstanding concurrently hereunder.
Stock Options awarded under the Plan shall be subject to the following
terms and conditions and shall contain such additional terms and conditions, not
inconsistent with the terms of the Plan, as the Administrator shall deem
desirable:
(a) Option Price. The option price per share of Stock
purchasable under a Stock Option shall be determined by the
Administrator in its sole discretion as of the Date of Grant but shall
not be less than 100% of the Fair Market Value of the Stock on such
date.
(b) Option Term. The term of each Stock Option shall be fixed
by the Administrator, but no Stock Option shall be exercisable more
than ten years after the date such Stock Option is granted.
(c) Exercisability. Stock Options shall be exercisable at such
time or times and subject to such terms and conditions as shall be
determined by the Administrator at or after grant. The Administrator
may provide, in its discretion, that any Stock Option shall be
exercisable only in installments, and the Administrator may waive such
installment exercise provisions at any time in whole or in part based
on such factors as the Administrator may determine, in its sole
discretion, including, but not limited to, in connection with any
"change in control" of the Company, as defined in any stock option
agreement or otherwise.
(d) Method of Exercise. Subject to Section 6(c), above, Stock
Options may be exercised in whole or in part at any time during the
option period, by giving written notice of exercise to the Company
specifying the number of shares to be purchased, accompanied by payment
in full of the option exercise price, as provided below or as otherwise
determined by the Administrator. As determined by the Administrator, in
its sole discretion, payment in whole or
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in part may also be made by means of any cashless exercise procedure
approved by the Administrator. An optionee shall generally have the
rights to dividends and any other rights of a stockholder with respect
to the Stock subject to the Stock Option, including the right to vote
any such Stock, only after the optionee has given written notice of
exercise, has paid in full for such shares, and, if requested, has
given the representation described in paragraph (a) of Section 9,
below. The option exercise price shall be immediately due upon exercise
of the Stock Option and shall be payable in one or a combination of the
following forms:
(i) cash or check payable to the Company drawn on
good and sufficient funds;
(ii) shares of Common Stock held by the optionee
for the period necessary to avoid a charge to
the Company's earnings for financial reporting
purposes and valued at Fair Market Value on
the exercise date; or
(iii) a broker-dealer sale-and-remittance procedure
pursuant to which the optionee shall provide
irrevocable written instructions (x) to a
designated brokerage firm to effect the
immediate sale of the option shares and remit
to the Company, from the sale proceeds
available on the settlement date, sufficient
funds to cover the aggregate option exercise
price, plus all income and employment taxes
required to be withheld by the Company in
connection with the exercise and (y) to the
Company to deliver the certificates for the
purchased shares directly to the brokerage
firm to complete the transaction.
(e) Re-Pricing of Options. The Administrator may require the
voluntary surrender of all or a portion of any Stock Option granted
under the Plan as a condition precedent to the award of a new Stock
Option. Subject to the provisions of the Plan, such new Stock Option
shall be exercisable at the price, during such period and on such other
terms and conditions as are specified by the Administrator at the time
the new Stock Option is granted. Upon their surrender, Stock Options
shall be canceled and the shares previously subject to such canceled
Stock Options shall again be available for awards of Stock Options and
other awards hereunder.
(f) Loans. The Company may make loans available to Stock
Option holders in connection with the exercise of outstanding options
granted under the Plan, as the Administrator, in its discretion, may
determine. Such loans shall (i) be evidenced by promissory notes
entered into by the Stock Option holders in favor of the Company, (ii)
be subject to the terms and conditions set forth in this Section and
such other terms and conditions, not inconsistent with the Plan, as the
Administrator shall determine, (iii) bear interest, if any, at such
rate as the Administrator shall determine, and (iv) be subject to Board
approval (or to approval by the Administrator to the extent the Board
may delegate such authority). In no event may the principal amount of
any such loan exceed the sum of (x) the exercise price less the par
value (if any) of the shares of Stock covered by the Stock Option, or
portion thereof, exercised by the holder, and (y) any Federal, state,
and local income tax attributable to such exercise. The initial term of
the loan, the schedule of payments of principal and interest under the
loan, the extent to which the loan is to be with or without recourse
against the holder with respect to principal or interest and the
conditions upon which the loan will become payable in the event of the
holder's termination of employment shall be determined by the
Administrator. Unless the Administrator
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<PAGE> 6
determines otherwise, when a loan is made, shares of Stock having a
Fair Market Value at least equal to the principal amount of the loan
shall be pledged by the holder to the Company as security for payment
of the unpaid balance of the loan, and such pledge shall be evidenced
by a pledge agreement, the terms of which shall be determined by the
Administrator, in its discretion; provided, however, that each loan
shall comply with all applicable laws, regulations and rules of the
Board of Governors of the Federal Reserve System and any other
governmental agency having jurisdiction.
(g) Non-Transferability of Options. Unless otherwise provided
herein or as otherwise determined by the Administrator, no Stock Option
shall be transferable by the optionee, and all Stock Options shall be
exercisable, during the optionee's lifetime, only by the optionee.
(h) Termination of Employment or Service. If an optionee's
employment with or service as an Employee, consultant, advisor or
independent contractor to the Company terminates by reason of death,
Disability or for any other reason, the Stock Option may thereafter be
exercised as provided below, or as otherwise provided in the applicable
award agreement or determined by the Administrator.
If an optionee's employment with or service to the Company is
terminated:
(i) for or without cause (and whether termination
is voluntary or involuntary), each
then-outstanding unexercised Stock Option
vested and held by the optionee as of the
termination date shall expire within thirty
(30) days of such termination;
(ii) by reason of Disability, each then-outstanding
unexercised Stock Option vested and held by
the optionee as of the termination date shall
expire within six (6) months of such
termination date; and
(iii) by reason of the optionee's death during
employment, or if the optionee dies during the
three (3) month period after termination of
his or her employment (or such other shorter
period of time as may be determined by the
Administrator), where such termination is
other than for cause or by reason of
Disability, each then-outstanding unexercised
Stock Option vested and held by the optionee
as of the termination date shall expire within
six (6) months of such termination date. After
the optionee's death, the Stock Option may be
exercised by the personal representative of
the optionee's estate or by the person(s) to
whom the option is transferred pursuant to the
optionee's will or in accordance with the laws
of descent and distribution.
Following termination of the optionee's employment or service, a Stock
Option shall not be exercisable to any greater extent than on the
termination date; provided, however, that the Administrator shall have
complete discretion, at any time while the Stock Option remains
outstanding, to permit the Stock Option to be exercised, not only with
respect to the number of shares for which the Stock Option is
exercisable at the time of the termination, but also with
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respect to one or more subsequent installments of purchasable shares
for which the Stock Option would otherwise have become exercisable had
termination not occurred.
SECTION 7 AMENDMENT AND TERMINATION OF PLAN
The Board may amend, alter or discontinue the Plan, but no amendment,
alteration, or discontinuation shall be made that would impair the rights of a
Participant under any Stock Option theretofore awarded without such
Participant's consent. The Administrator may amend the terms of any Stock Option
theretofore awarded, prospectively or retroactively, but, as herein provided, no
such amendment shall impair the rights of any Participant without his or her
consent.
SECTION 8 GENERAL PROVISIONS
(a) The Administrator may require each person purchasing
shares pursuant to the exercise of a Stock Option to represent to and
agree with the Company in writing that such person is acquiring the
shares without a view to distribution thereof. The certificates for
such shares may include any legend which the Administrator deems
appropriate to reflect any restrictions on transfer.
(b) All certificates for shares of Stock delivered under the
Plan shall be subject to such stock-transfer orders and other
restrictions as the Administrator may deem advisable under the rules,
regulations, and other requirements of the Securities and Exchange
Commission ("SEC"), any stock exchange upon which the Stock is then
listed, and any applicable Federal or state securities law, and the
Administrator may cause a legend or legends to be placed on any such
certificates to make appropriate reference to such restrictions.
(c) Nothing contained in the Plan shall prevent the Board from
adopting other or additional compensation arrangements, subject to
stockholder approval if such approval is required; and such
arrangements may be either generally applicable or applicable only in
specific cases.
(d) Each Participant shall, no later than the date as of which
the value of a stock option exercise first becomes includable in the
gross income of the Participant for Federal income tax purposes, pay to
the Company, or make arrangements satisfactory to the Administrator
regarding payment of, any Federal, state, or local taxes of any kind
required by law (as determined by the Administrator, in its sole
discretion) to be withheld with respect to the award. The obligations
of the Company under the Plan shall be conditional on the making of
such payments or arrangements, and the Company shall, to the extent
permitted by law, have the right to deduct any such taxes from any
payment of any kind otherwise due to the Participant.
SECTION 9 NON-LIABILITY
No member of the Board or the Administrator, nor any officer or
employee of the Company acting on behalf of the Board or the Administrator,
shall be personally liable for any action, determination, or interpretation
taken or made in good faith with respect to the Plan, and all members of the
Board or the Administrator and each and any officer or employee of the Company
acting on their behalf shall, to the extent permitted by law, be fully
indemnified and protected by the Company in respect of any such action,
determination or interpretation.
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SECTION 10 TERM OF PLAN
No Stock Option award shall be awarded pursuant to the Plan on or after
the tenth anniversary of the Effective Date, but awards theretofore awarded may
extend and be exercisable beyond that date.
SECTION 11 CORPORATE TRANSACTIONS/CHANGES OF CONTROL
(a) In the event of any of the following stockholder-approved
transactions (a "Corporate Transaction"):
(i) a merger or consolidation in which the Company
is not the surviving entity, except for a
transaction whose principal purpose is to
change the State of the Company's
incorporation,
(ii) the sale, transfer, or other disposition of
all or substantially all of the assets of the
Company in liquidation or dissolution, or
(iii) any "reverse" merger in which the Company is
the surviving entity but in which securities
possessing more than 50% of the total combined
voting power of the Company's outstanding
securities are transferred to holders other
than those who owned such voting power
immediately before the merger,
then immediately before the effective date of the Corporate
Transaction, each Stock Option granted under this Plan shall become
fully exercisable ("accelerate") with respect to the total number of
shares of Common Stock then subject to the Stock Option. However, a
Stock Option shall not accelerate if and to the extent: (i) the Stock
Option is, in connection with the Corporate Transaction, either to be
assumed by the successor corporation or parent thereof or to be
replaced by an option on equivalent terms to purchase shares of the
capital stock of the successor corporation or parent thereof, or (ii)
acceleration of the Stock Option is subject to other limitations
imposed by the Administrator at the Date of Grant. The determination of
equivalence under clause (i) above shall be made by the Administrator
and shall be final, binding, and conclusive as to all parties.
(b) Upon consummation of the Corporate Transaction, all Stock
Options granted under this Plan shall terminate and cease to be
outstanding, except to the extent assumed by the successor (or
surviving) corporation or its parent company.
(c) Each Stock Option granted under this Plan that is replaced
by an equivalent option in a Corporate Transaction or that otherwise
continues in effect shall be appropriately adjusted, immediately after
the Corporate Transaction, to apply to the number and class of
securities that would have been issued in the Corporate Transaction to
an actual holder of the number of shares of Common Stock that were
subject to the Stock Option immediately before the Corporate
Transaction. Appropriate adjustment shall also be made to the Option
Price payable per share; provided that the aggregate Option Price
payable for such securities shall remain the same. In addition, the
class and number of securities available for issuance under this Plan
following the consummation of the Corporate Transaction shall be
appropriately adjusted.
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(d) The Administrator shall have full discretionary authority,
exercisable either in advance of, or at the time of, a Change in
Control, to provide for the automatic acceleration of Stock Options
granted under this Plan upon the occurrence of the Change in Control.
The Administrator shall also have full discretionary authority to
condition any such acceleration upon the subsequent termination of the
optionee's service to the Company (or a parent or subsidiary) within a
specified period after the Change in Control. Any Stock Option
accelerated in connection with the Change in Control shall remain fully
exercisable until the expiration of the option term. For all purposes
of this Plan, a Change in Control shall mean a change in control of the
Company of a nature that would be required to be reported in response
to Item 6(e) of Schedule 14A of Regulation 14A promulgated under the
Securities Exchange Act of 1934, as amended (the "Exchange Act"),
whether or not the Company is then subject to such reporting
requirement, other than a Corporate Transaction; provided that, without
limitation, a Change in Control shall be deemed to have occurred if:
(i) any individual, partnership, firm,
corporation, association, trust,
unincorporated organization or other entity,
or any syndicate or group deemed to be a
"person" under Section 14(d) (2) of the
Exchange Act, is or becomes the "beneficial
owner" (as defined in Rule 13d-3 of the
General Rules and Regulations under the
Exchange Act), directly or indirectly, of
securities of the Company representing 40% or
more of the combined voting power of the
Company's then-outstanding securities entitled
to vote in the election of directors of the
Company, pursuant to a tender or exchange
offer that the Board does not recommend that
the Company's stockholders accept; or
(ii) during any period of two consecutive years,
individuals who at the beginning of such
period constituted the Board and any new
members of the Board, whose election by the
Board or nomination for election by the
Company's stockholders was approved by a vote
of at least three-quarters of the directors
then in office who either were directors at
the beginning of the period or whose election
or nomination for election was previously so
approved, cease for any reason to constitute a
majority thereof.
(e) The grant of Stock Options under this Plan shall not
affect the right of the Company to adjust, reclassify, reorganize, or
otherwise change its capital or business structure or to merge,
consolidate, dissolve, liquidate, or sell or transfer all or any part
of its business or assets.
SECTION 12 MISCELLANEOUS
(a) Use of Proceeds. Any cash proceeds received by the Company
from the sale of shares pursuant to Stock Options granted under this
Plan may be used for general corporate purposes.
(b) Regulatory Approvals. The implementation of this Plan, the
awarding of any Stock Option hereunder, and the issuance of Stock upon
the exercise or surrender of any such
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Stock Option shall be subject to and conditional upon the procurement
by the Company of all approvals and permits required by regulatory
authorities having jurisdiction over this Plan, Stock Options granted
under it, and Stock issued pursuant to it.
(c) Securities Laws. No shares of Common Stock or other assets
shall be issued or delivered under this Plan unless and until there
shall have been compliance with all applicable requirements of federal
and state securities laws, including the filing and effectiveness of a
Form S-8 registration statement for the shares of Common Stock issuable
under this Plan, and all applicable listing requirements of any
securities exchange on which stock of the same class is then listed.
(d) No Employment Rights. Neither the action of the Company in
establishing this Plan, nor any action taken by the Administrator
hereunder, nor any provision of this Plan, shall be construed so as to
grant or offer any individual the right to remain in the employ or
service of the Company (or any parent or subsidiary corporation) for
any period, and the Company (or any parent or subsidiary corporation
retaining the services of such individual) may terminate such
individual's employment or service at any time and for any reason, with
or without cause.
(e) Assignment. Except as otherwise provided in this Plan, the
right to acquire Common Stock or other assets under this Plan may not
be assigned, encumbered, or otherwise transferred by any optionee.
(f) Governing Law. The provisions of this Plan shall be
governed by the laws of the State of California, as such laws are
applied to contracts entered into and performed in that State. The
provisions of this Plan shall inure to the benefit of, and be binding
upon, the Company and its successors or assigns, and the optionees, the
legal representatives of their respective estates, their respective
heirs or legatees, and their permitted assignees.
10
<TABLE> <S> <C>
<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> 6-MOS
<FISCAL-YEAR-END> JUN-25-2000
<PERIOD-START> JUL-01-1999
<PERIOD-END> DEC-26-1999
<CASH> 31,891
<SECURITIES> 295,469
<RECEIVABLES> 241,148
<ALLOWANCES> 4,396
<INVENTORY> 198,721
<CURRENT-ASSETS> 837,434
<PP&E> 248,434
<DEPRECIATION> 145,137
<TOTAL-ASSETS> 1,081,924
<CURRENT-LIABILITIES> 274,670
<BONDS> 310,000
0
0
<COMMON> 40
<OTHER-SE> 485,376
<TOTAL-LIABILITY-AND-EQUITY> 1,081,924
<SALES> 530,202
<TOTAL-REVENUES> 530,202
<CGS> 303,715
<TOTAL-COSTS> 463,223
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 9,755
<INCOME-PRETAX> 70,109
<INCOME-TAX> 8,719
<INCOME-CONTINUING> 61,390
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 61,390
<EPS-BASIC> 1.56
<EPS-DILUTED> 1.42
</TABLE>
