<PAGE> 1
Filed Pursuant to Rule 424(b)(1)
Registration Statement No. 33-62455
PROSPECTUS
3,500,000 Shares
LOGO
COMMON STOCK
------------------------
OF THE 3,500,000 SHARES OF COMMON STOCK BEING OFFERED, 2,800,000 SHARES ARE
BEING OFFERED INITIALLY IN THE UNITED STATES AND CANADA BY THE U.S.
UNDERWRITERS AND 700,000 SHARES ARE BEING OFFERED INITIALLY OUTSIDE OF THE
UNITED STATES AND CANADA BY THE INTERNATIONAL UNDERWRITERS. SEE
"UNDERWRITERS." ALL OF THE SHARES OF COMMON STOCK OFFERED HEREBY ARE
BEING SOLD BY THE COMPANY. THE COMPANY'S COMMON STOCK IS TRADED IN
THE OVER-THE-COUNTER MARKET UNDER THE NASDAQ NATIONAL MARKET
SYMBOL "SVGI." THE LAST SALE PRICE FOR THE COMMON STOCK ON
OCTOBER 5, 1995, AS REPORTED ON THE NASDAQ NATIONAL MARKET,
WAS $33 3/4 PER SHARE. SEE "PRICE RANGE OF COMMON STOCK."
------------------------
THIS OFFERING INVOLVES A HIGH DEGREE OF RISK. SEE "RISK FACTORS"
COMMENCING ON PAGE 6 HEREOF.
------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
------------------------
PRICE $32 3/4 A SHARE
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UNDERWRITING
PRICE TO DISCOUNTS AND PROCEEDS TO
PUBLIC COMMISSIONS(1) COMPANY(2)
---------------- ---------------- ----------------
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Per Share................................ $32.75 $1.31 $31.44
Total(3)................................. $114,625,000 $4,585,000 $110,040,000
</TABLE>
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(1) The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act of 1933, as
amended. See "Underwriters."
(2) Before deducting expenses payable by the Company estimated at $350,000.
(3) The Company has granted to the U.S. Underwriters an option, exercisable
within 30 days of the date hereof, to purchase up to 525,000 additional
Shares at the price to public less underwriting discounts and
commissions for the purpose of covering over-allotments, if any. If the
U.S. Underwriters exercise such option in full, the total price to
public, underwriting discounts and commissions and proceeds to Company
will be $131,818,750, $5,272,750, and $126,546,000, respectively. See
"Underwriters."
------------------------
The Shares are offered subject to prior sale, when, as and if accepted by
the Underwriters named herein and subject to approval of certain legal matters
by Morrison & Foerster, counsel for the Underwriters. It is expected that
delivery of the Shares will be made on or about October 12, 1995 at the offices
of Morgan Stanley & Co. Incorporated, New York, N.Y., against payment therefor
in New York funds.
------------------------
MORGAN STANLEY & CO.
Incorporated
PRUDENTIAL SECURITIES INCORPORATED
COWEN & COMPANY
October 5, 1995
<PAGE> 2
NO PERSON IS AUTHORIZED IN CONNECTION WITH ANY OFFERING MADE HEREBY TO GIVE
ANY INFORMATION OR TO MAKE ANY REPRESENTATION NOT CONTAINED OR INCORPORATED BY
REFERENCE IN THIS PROSPECTUS, AND ANY INFORMATION OR REPRESENTATION NOT
CONTAINED OR INCORPORATED HEREIN MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY THE COMPANY OR ANY UNDERWRITER. THIS PROSPECTUS DOES NOT
CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY BY ANY PERSON
IN ANY JURISDICTION IN WHICH IT IS UNLAWFUL FOR SUCH PERSON TO MAKE SUCH AN
OFFERING OR SOLICITATION. NEITHER THE DELIVERY OF THIS PROSPECTUS AT ANY TIME
NOR ANY SALE MADE HEREUNDER SHALL UNDER ANY CIRCUMSTANCE IMPLY THAT THE
INFORMATION HEREIN IS CORRECT AS OF ANY DATE SUBSEQUENT TO THE DATE HEREOF.
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TABLE OF CONTENTS
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PAGE
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Incorporation of Certain Documents by Reference............................................ 2
Prospectus Summary......................................................................... 3
The Company................................................................................ 4
Risk Factors............................................................................... 6
Use of Proceeds............................................................................ 11
Price Range of Common Stock................................................................ 12
Dividend Policy............................................................................ 12
Capitalization............................................................................. 13
Selected Consolidated Financial Data....................................................... 14
Business................................................................................... 16
Underwriters............................................................................... 23
Legal Matters.............................................................................. 26
Experts.................................................................................... 26
Available Information...................................................................... 26
</TABLE>
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INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents heretofore filed by the Company with the Securities
and Exchange Commission (the "Commission") pursuant to the Securities Exchange
Act of 1934, as amended (the "Exchange Act") are incorporated herein by
reference: (1) the Company's Annual Report on Form 10-K for the fiscal year
ended September 30, 1994; (2) the Company's Quarterly Report on Form 10-Q for
the quarter ended December 31, 1994; (3) the Company's Current Report on Form
8-K filed on March 2, 1995; (4) the Company's Quarterly Report on Form 10-Q for
the quarter ended March 31, 1995; (5) the Company's Quarterly Report on Form
10-Q for the quarter ended June 30, 1995; and (6) the Company's Registration
Statement on Form 8-A filed with the Commission on November 23, 1983.
All documents filed by the Company pursuant to Sections 13(a), 13(c), 14 or
15(d) of the Exchange Act subsequent to the date of this Prospectus and prior to
the termination of the offering of the Common Stock hereunder shall be deemed to
be incorporated by reference herein and to be a part hereof from the date of the
filing of such reports and documents. The Company will provide a copy of any or
all of such documents (exclusive of exhibits unless such exhibits are
specifically incorporated by reference herein), without charge, to each person
to whom this Prospectus is delivered, upon written or oral request to the Chief
Financial Officer at the corporate headquarters of the Company, 2240 Ringwood
Avenue, San Jose, California 95131 (telephone 408-434-0500).
Any statement contained in a document incorporated or deemed to be
incorporated by reference herein shall be deemed to be modified or superseded
for purposes of this Prospectus to the extent that a statement contained herein
or in any other subsequently filed document that also is or is deemed to be
incorporated by reference herein modifies or supersedes such statement. Any
statement so modified or superseded shall not be deemed, except as so modified
or superseded, to constitute a part of this Prospectus.
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IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK
OFFERED HEREBY AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN
MARKET. SUCH TRANSACTIONS MAY BE EFFECTED ON THE NASDAQ NATIONAL MARKET, IN THE
OVER-THE-COUNTER MARKET OR OTHERWISE. SUCH STABILIZING, IF COMMENCED, MAY BE
DISCONTINUED AT ANY TIME.
THE U.S. SHARES MAY NOT BE OFFERED OR SOLD, DIRECTLY OR INDIRECTLY, OUTSIDE
THE UNITED STATES OR CANADA OR TO ANY PERSON WHO IS NOT A UNITED STATES OR
CANADIAN PERSON, AS PART OF THE DISTRIBUTION OF THE U.S. SHARES. FOR A
DESCRIPTION OF THIS AND OTHER RESTRICTIONS ON THE OFFERING AND SALE OF THESE
SHARES, SEE "UNDERWRITERS."
IN CONNECTION WITH THIS OFFERING, CERTAIN UNDERWRITERS AND SELLING GROUP
MEMBERS (IF ANY) OR THEIR RESPECTIVE AFFILIATES MAY ENGAGE IN PASSIVE MARKET
MAKING TRANSACTIONS IN THE COMMON STOCK ON THE NASDAQ NATIONAL MARKET IN
ACCORDANCE WITH RULE 10B-6A UNDER THE SECURITIES EXCHANGE ACT OF 1934. SEE
"UNDERWRITERS."
2
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PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information and financial statements appearing elsewhere or incorporated by
reference in this Prospectus.
THE COMPANY
Silicon Valley Group, Inc. designs, manufactures, markets and services
semiconductor fabrication equipment for the worldwide semiconductor industry.
The Company has three principal product groups which focus primarily on
photolithography, photoresist processing, and deposition for oxidation/diffusion
and low pressure chemical vapor deposition. The Company's products incorporate
proprietary technologies and unique processes, and focus on providing process
and product technologies and productivity enhancements to its customers. SVG
believes that its Micrascan step and scan photolithography exposure system,
which utilizes a deep ultraviolet light source allowing line widths of 0.35
micron and below, is the most technologically advanced machine currently being
shipped in quantity to global semiconductor manufacturers. The Company supports
its reliable, cost-effective products through a network of worldwide service and
technical support organizations. The Company works closely with its existing and
potential customers, including leading semiconductor manufacturers such as
Analog Devices, Cypress Semiconductor, Hewlett-Packard, Intel, IBM, LG Semicon,
Loral, Motorola, Philips Semiconductor, SGS-Thomson, Samsung, Siemens, Symbios
Logic and Texas Instruments. As evidence of the Company's commitment to its
customers, in February 1995 the Company entered into a business relationship
with Intel, Motorola and Texas Instruments pursuant to which such companies made
an equity investment in the Company. Additionally, SEMATECH and IBM have made an
equity investment in the Company and its subsidiary, SVGL, respectively.
THE OFFERING
U.S. offering(1).......................... 2,800,000 Shares
International offering.................... 700,000 Shares
Total(1)......................... 3,500,000 Shares
Common Stock to be outstanding after the
offering.................................. 28,720,921 Shares(1)(2)
Use of proceeds........................... For certain capital expenditures
and facility expansion related to
increasing production, primarily
at SVGL, and for working capital,
research and development and other
general corporate purposes. See
"Use of Proceeds."
The Nasdaq National Market symbol......... SVGI
SUMMARY CONSOLIDATED FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
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NINE MONTHS ENDED
FISCAL YEAR ENDED SEPTEMBER 30, JUNE 30,
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1990(3) 1991 1992 1993 1994 1994 1995
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CONSOLIDATED INCOME STATEMENT DATA:
Net sales................................. $184,289 $234,798 $192,457 $240,633 $319,922 $237,942 $323,073
Gross profit.............................. 73,848 85,461 77,161 93,426 124,411 92,216 126,896
Operating income.......................... 8,269 4,796 1,608 7,384 26,451 19,238 34,184
Net income (loss)......................... 4,449 1,641 (292) 4,485 16,764 11,780 24,861
Net income (loss) per common share........ $ 0.42 $ 0.12 $ (0.03) $ 0.22 $ 0.84 $ 0.60 $ 1.04
Shares used in per share computation...... 10,708 13,166 14,754 15,277 18,538 18,212 23,973
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JUNE 30, 1995
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ACTUAL AS ADJUSTED(4)
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CONSOLIDATED BALANCE SHEET DATA:
Cash and equivalents.................................................................. $194,472 $304,162
Working capital....................................................................... 312,068 421,758
Total assets.......................................................................... 471,702 581,392
Short-term debt and current portion of long-term debt................................. 877 877
Long-term debt and capital leases..................................................... 874 874
Stockholders' equity.................................................................. 330,695 440,385
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(1) Assumes the Underwriters' over-allotment option to purchase 525,000 shares
from the Company is not exercised. See "Underwriters."
(2) Based on shares outstanding on August 31, 1995. Excludes (i) 1,534,750
shares issuable upon exercise of outstanding stock options at a weighted
average exercise price of $16.82 per share and (ii) 1,750,000 shares
issuable upon exercise of a warrant with an exercise price of $13.625 per
share.
(3) Includes the results of operations of one of the Company's subsidiaries, SVG
Lithography Systems, Inc. ("SVGL") from May 1, 1990.
(4) Gives effect to the sale of the 3,500,000 shares offered hereby by the
Company.
3
<PAGE> 4
THE COMPANY
Silicon Valley Group, Inc. ("SVG" or the "Company") designs, manufactures,
markets and services semiconductor fabrication equipment for the worldwide
semiconductor industry. The Company has three principal product groups which
focus primarily on photolithography, photoresist processing, deposition for
oxidation/diffusion and low pressure chemical vapor deposition ("LPCVD"). The
Company supports its reliable, cost-effective products through a network of
worldwide service and technical support organizations. The Company works closely
with its existing and potential customers, including leading semiconductor
manufacturers such as Analog Devices, Cypress Semiconductor, Hewlett-Packard,
Intel, IBM, LG Semicon, Loral, Motorola, Philips Semiconductor, SGS-Thomson,
Samsung, Siemens, Symbios Logic and Texas Instruments.
The Company's products incorporate proprietary technologies and unique
processes and focus on providing process and product technologies and
productivity enhancements to customers. The Company manufactures and markets its
photolithography exposure products through its majority owned subsidiary, SVG
Lithography Systems, Inc. ("SVGL"), its photoresist processing products through
its Track Systems Division ("Track") and its oxidation/diffusion and LPCVD
products through its Thermco Systems Division ("Thermco").
SVG LITHOGRAPHY SYSTEMS, INC. designs, manufactures, markets and
services advanced photolithography exposure systems. SVGL has two broad
families, Micrascan step and scan systems and the more mature Micralign
scanning projection aligners. The Company believes that its Micrascan
photolithography exposure system provides the greater resolution required
for the next generation of complex, fine geometry integrated circuits
through its use of a deep ultraviolet ("Deep UV") light source and
overcomes the throughput and yield limitations of steppers by combining the
elements of both steppers and scanners into the Micrascan's "step and scan"
technology. The Company also believes that its Micrascan step and scan
photolithography exposure system is the most technologically advanced
machine currently being shipped in quantity to global semiconductor
manufacturers. In addition, it believes that as larger and more complex
logic and memory devices move from development to production, semiconductor
manufacturers will have a greater incentive to purchase SVGL's step and
scan systems rather than steppers to achieve higher yields, faster
throughput and more precise line-width control.
TRACK SYSTEMS DIVISION designs, manufacturers, markets and services
equipment which performs all the steps necessary to process semiconductor
wafers prior to photolithography exposure, including cleaning, adhesion
promotion and photoresist coating, and which performs all the steps
required to treat wafers after photolithography exposure prior to etching,
including developing and baking. As photoresist processing technology has
evolved, the Company has developed increasingly advanced products for this
market, which are capable of handling integrated circuits with line widths
as narrow as 0.35 micron. Track's most advanced product line, the 90
Series, offers a proprietary wafer transfer system to increase throughput,
features substantially improved contamination control specifications as
compared to the Company's previous products and provides features allowing
it to interface with factory automation systems. The Company believes it is
the only manufacturer to offer a cluster which integrates its
photolithography and photoresist products. In addition, the Track products
are designed to interface with all stepper products in the industry.
THERMCO SYSTEMS DIVISION designs, manufactures, markets and services
large batch thermal products which address the oxidation/diffusion and
LPCVD steps of the semiconductor fabrication process. Thermco products are
used for a broad range of processing applications required in the
fabrication of most semiconductor devices, including growing insulating
layers on wafers, diffusing dopants into the silicon structure and
depositing insulating or conducting films on the wafer surface. Thermco's
products incorporate proprietary technology it has developed in the areas
of thermal control, gas handling, particle control and automated wafer
handling. Thermco offers a full range of both horizontal and vertical
processing systems. The most advanced product currently offered by the
Company is the Series 8000 Advanced Vertical Processor ("AVP"). The Series
8000 single tube systems include advanced process control, leading software
for data acquisition and display, advanced automation, a proprietary
process chamber design and an option for atmosphere control within the
wafer handling area.
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As part of its continuing commitment to work closely with its existing and
potential customers, the Company has entered into business relationships with
IBM, SEMATECH, Inc. ("SEMATECH"), Intel, Motorola and Texas Instruments pursuant
to which these customers have made equity investments in, and SEMATECH has
agreed to provide certain additional funding to, the Company. See
"Business -- Business Relationships."
Because of the highly technical nature of its products, the Company markets
its products primarily through a direct sales force with sales, service and
spare parts offices worldwide. The Company believes that its field service and
process support capabilities are an important factor in its selection as an
equipment supplier. Increasingly, semiconductor manufacturers are requiring
seven-day, around the clock, on site or on call support. To meet this need, the
Company is expanding its field service organization, increasing its technical
and process support personnel and enhancing its training programs. Service
personnel are based in field offices throughout the United States, Western
Europe, Japan and the Pacific Rim and increasingly on site at particularly large
customer locations. In addition, each customer has a single designated service
account manager for all its support needs.
The Company's principal executive office is located at 2240 Ringwood
Avenue, San Jose, California 95131, and its telephone number is (408) 434-0500.
5
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RISK FACTORS
Prospective purchasers of Shares offered hereby should carefully consider
the following risk factors in addition to the other information presented in
this Prospectus.
Cyclical Nature of the Semiconductor Industry. The semiconductor industry
into which the Company sells its products is highly cyclical and has
historically experienced periodic downturns, which often have had a severe
effect on the semiconductor industry's demand for semiconductor processing
equipment. Prior semiconductor industry downturns have resulted in significant
reductions in the Company's net sales, gross margin and net income. For example,
due in part to weakness in the semiconductor market, demand for the Company's
semiconductor processing equipment declined during fiscal 1992 and the Company
was not profitable for the year. While the Company has been profitable for the
past 14 quarters, there is no assurance that the Company will be able to
maintain profitability. Moreover, the Company's operations as a whole will
continue to be dependent on the capital expenditures of semiconductor
manufacturers, which in turn will be largely dependent on the current and
anticipated market demand for integrated circuits and products utilizing
integrated circuits. Any future weakness in demand in the semiconductor industry
is likely to have a material adverse effect on the Company's business and
results of operations.
Uncertain Development of Market for Micrascan Products. The development of
a market for the Company's Micrascan photolithography products will be highly
dependent on the continued trend towards finer line widths in integrated
circuits and the inability of traditional I-Line stepper manufacturers to keep
pace with this trend through either enhanced technologies or improved processes.
The market for the Company's Micrascan photolithography products has developed
more slowly than the Company anticipated at the time the Company acquired SVGL
in May 1990. From fiscal 1990 to fiscal 1993, SVGL sold an aggregate of 26
Micrascan systems, 20 of which were sold to IBM, a minority shareholder in SVGL,
and three of which were sold to SEMATECH. In fiscal 1994 through the third
quarter of fiscal 1995, SVGL shipped 14 Micrascan systems to six customers, of
which eight were shipped in fiscal 1995. At June 30, 1995, SVGL had a backlog of
26 Micrascan units for shipment to seven global semiconductor manufacturers.
While such orders are encouraging, they are not necessarily indicative of
industry-wide acceptance of the Micrascan technology. The Company and many
industry observers initially believed that I-Line steppers, the most advanced
photolithography exposure equipment in widespread production use at the time the
Company acquired SVGL, could not be modified to be capable of fabricating
complex semiconductor devices with line widths of less than 0.5 micron, such as
64 and 256 megabit dynamic random access memories ("DRAMs"). Since 1990,
however, stepper manufacturers have extended the capability of their I-Line
steppers to 0.5 micron or finer line widths. The Company believes that, as a
consequence, many manufacturers of complex devices are likely to continue to use
steppers for fabricating such devices. The Company believes that as devices
increase in size and complexity and require finer line widths, the technical
advantages of Micrascan systems as compared to steppers will enable
semiconductor manufacturers to achieve finer line widths, higher yields and
increased throughput. The Company believes, however, that these larger and more
complex devices will not be produced in volume until 1996 or 1997. It is
possible that the demand for these larger and more complex devices, and the
fabrication equipment to manufacture them, may never develop or may develop even
later than 1997. The Company believes semiconductor manufacturers will not
require production equipment as advanced as Micrascan until at least 1996, and
that substantial sales of the Company's Micrascan systems will not begin until
late 1996 or 1997, if at all. Stepper manufacturers have enhanced their machines
in the past, and in the future may further enhance their machines to achieve
finer line widths, sufficiently to erode Micrascan's expected yield, throughput
and line width control advantages. If this occurs, demand for Micrascan systems
may not develop as the Company expects. SVGL was not profitable in fiscal 1994
or the first two quarters of fiscal 1995 and was marginally profitable in the
third quarter of fiscal 1995 and there can be no assurance that it will be able
to operate profitably in the future. Failure of SVGL to achieve substantial
sales of Micrascan systems or a delay in achieving such sales could have a
material adverse effect on the Company's ability to continue to operate
profitably.
Fluctuations in Quarterly Operating Results. The Company has historically
experienced substantial quarterly fluctuations in its operating results. Due to
the relatively small number of systems sold during each fiscal quarter and the
relatively high revenues per system, production or shipping delays, which could
require pricing adjustments, or customer order rescheduling can significantly
affect quarterly revenues and profitabil-
6
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ity. The Company has experienced and may again experience quarters during which
a substantial portion of the Company's net sales are realized near the end of
the quarter. Accordingly, delays in shipments near the end of a quarter can
cause quarterly net sales to fall significantly short of anticipated levels.
Since most of the Company's expenses are fixed in the short term, such
shortfalls in net sales could have a material adverse effect on the Company's
business and results of operations. The Company's operating results may also
vary from quarter to quarter based upon numerous factors including the timing of
new product introductions, product mix, levels of sales, proportions of domestic
and international sales, activities of competitors, acquisitions, international
events and problems in obtaining adequate materials or components on a timely
basis. Historically, gross margins in the Thermco and SVGL businesses have been
lower than in the Track business. To the extent sales of Micrascan products, and
to a lesser extent Thermco products, increase as a percentage of total net
sales, the Company's overall gross margins may be unfavorably impacted. In light
of these factors and the cyclical nature of the semiconductor industry, the
Company expects to continue to experience variability in quarterly operating
results.
Need to Increase Manufacturing Capacity. The Company currently has
insufficient manufacturing capacity to meet multiple customer demands for
Micrascan products and is expanding its manufacturing capacity to meet current
demand levels. The Company believes that its ability to supply systems in volume
will be a major factor in customer decisions to commit to the Micrascan
technology. Accordingly, the Company must initiate facility and capital
improvements today to meet expected shipment volumes in 1997 and 1998. From time
to time, the Company has experienced difficulty in ramping up production or
effecting transitions to new products and, consequently, has suffered delays in
product deliveries. There can be no assurance that the Company will not
experience manufacturing problems as a result of capacity constraints or ramping
up production by upgrading or expanding existing operations. Based upon its
forecast of continued high growth for photolithography equipment, the Company
has developed plans to increase its production capacity under an extremely
aggressive expansion schedule. Successful execution of the Company's expansion
will require timely identification and acquisition of appropriate sites, receipt
of requisite approvals, construction and equipping of facilities, recruitment,
training and retention of a high quality workforce and achievement of
satisfactory manufacturing results on a scale greater than the Company's prior
expansions. See "Use of Proceeds." There can be no assurance the Company can
successfully manage this risk. This could result in product delivery delays and
a subsequent loss of future revenues. In particular, the Company believes that
protracted delays in delivering initial quantities of Micrascan products could
result in semiconductor manufacturers electing to install competitive equipment
in their advanced fabrication facilities, which could impede acceptance of the
Micrascan products on an industry-wide basis. In addition, the Company's
operating results could also be adversely affected by the increase in fixed
costs and operating expenses related to increases in production capacity if net
sales do not increase commensurately.
Dependence on New Products and Processes; Importance of Timely Product
Introductions and Enhancements. Semiconductor manufacturing equipment and
processes are subject to rapid technological change. The Company believes that
its future success will depend in part upon its ability to continue to enhance
its existing products and their process capabilities and to develop and
manufacture new products with improved process capabilities that enable
semiconductor manufacturers to fabricate semiconductors more efficiently.
Failure to introduce new products or enhancements in a timely manner could
result in loss of competitive position and reduced sales of existing products.
In particular, the Company believes that advanced logic devices and DRAMs will
require increasingly finer line widths. As a consequence, it is important to
develop and introduce a version of the Micrascan capable of exposing line widths
of 0.25 micron by mid-1996. In addition, new product introductions could
contribute to quarterly fluctuations in operating results as orders for new
products commence and increase the potential for a decline in orders of existing
products, particularly if new products are delayed. In the past, the Company has
experienced significant delays in the introduction of certain of its products
and product enhancements due to technical, manufacturing and other difficulties
and may experience similar delays in the future. These difficulties may be
exacerbated as the geometries of semiconductors continue to decrease.
Furthermore, the inability to produce such products or any failure to achieve
market acceptance could have a material adverse effect on the Company's business
and results of operations.
7
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Significant delays can occur between a product's introduction and the
commencement by the Company of volume production of such product. There can be
no assurance that the Company will be successful in the introduction and volume
production of new and enhanced products or that the Company will be able to
develop and introduce new and enhanced products and processes which satisfy a
broad range of customer needs and achieve market acceptance. See
"Business--Silicon Valley Group, Inc." and "-- Research and Development."
Research and Development Funding; Certain Capital Commitments. The Company
believes that in selecting a photolithography equipment manufacturer, customers
look for a long term product development strategy and the ability to fund that
development because photolithography exposure equipment can represent a
substantial portion of the equipment cost of a fabrication facility.
Semiconductor manufacturers may be unwilling to rely on a relatively small
supplier such as the Company for a critical element of the fabrication process
if the supplier does not have sufficient capital to implement its product
development strategy. The Company depends in part on external sources to fund
its photolithography development efforts and capital equipment expenditures.
SEMATECH has entered into agreements with the Company to provide a portion of
this funding, but there can be no assurance that the Company will be able to
attain the milestones required by the agreements for such incremental funding or
that SEMATECH will be capable of providing the agreed-upon funding, either of
which could have an unfavorable impact on future photolithography development.
If the Company achieves all milestones, the SEMATECH agreements provide for an
additional $22 million of such funding during fiscal 1995, 1996 and 1997, all of
which the Company expects would be an offset to its research and development
expenditures. Through June 30, 1995, the Company had recognized approximately
$7.7 million of this amount. Were the Company not to fulfill certain obligations
under its agreement with SEMATECH, the Company could be required to repay all
funds received under the agreements. In the event that the Company does not
receive SEMATECH funding for any reason, it would be required to either curtail
development of photolithography products or make up the shortfall from its own
funds or other sources. If the Company was required to make up these funds, its
research and development expenses would increase significantly and its operating
income would be reduced correspondingly. See "Business -- Research and
Development."
The Company anticipates that it will need to continue to make substantial
research and development expenditures, particularly in its photolithography
products, in order to remain competitive in the semiconductor equipment
industry. If the Company were not able to secure additional external funding or
increase its revenues to support such research and development expenditures, its
new product development and product enhancement efforts would be impaired, which
would have a material adverse effect on the Company's results of operations.
In part to address customer concerns about adequately capitalizing the
photolithography business, the Company is obligated under its agreements with
SEMATECH and with Intel Corporation, Motorola Inc. and Texas Instruments
Incorporated (the "Investors") to commit funds to the development and production
of Micrascan photolithography equipment, and a portion of the net proceeds of
this offering may be used to satisfy these requirements. Under the terms of its
agreement with SEMATECH, the Company is obligated to fund from its own resources
not less than 120%, up to a maximum of $36 million over a three year period, of
the total amount received from SEMATECH to further the development of Micrascan
technology, to increase the manufacturing capability and capacity for Micrascan
products and to fund related inventory costs. Under the terms of its agreements
with the Investors, the Company is obligated to use the $30 million from the
sale to the Investors of securities which have been converted into Common Stock,
as well as an additional $25 million of Company funds at any time over a five
year period, to fund increased Micrascan production capacity, increased research
and development of the Micrascan technology, the purchase of additional capital
equipment and to augment working capital for growth of the Micrascan
photolithography operations. No assurance can be given that the Company will be
able to obtain the necessary funding to meet its commitments under these
agreements. The Company is obligated to invest these funds, regardless of the
success of the project. As a result, the Company may be required to use its
financial resources to comply with these commitments even if it believes that
such resources would be better utilized in other areas. Were the
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Company to breach any of its obligations under its agreement with the Investors,
the Investors could cause the Company to repurchase their shares, which could
have a material adverse effect on the Company.
In connection with the Company's acquisition of SVGL in 1990, SVGL received
an equity investment and research and development funding commitments for
Micrascan from IBM and agreed to make future payments to IBM based on the
ongoing operating results of SVGL. As part of a subsequent agreement with the
Investors, IBM was also granted certain rights to purchase initial quantities of
future generations of the Company's Micrascan products. See
"Business -- Business Relationships."
Customer Concentration. The Company relies on a limited number of customers
for a substantial percentage of its net sales. In fiscal 1994, Intel, Motorola
and SGS-Thomson represented 20%, 19% and 11%, respectively, of sales and the
Company's largest five customers represented 58% of sales. For the first nine
months of 1995, Intel, Motorola and SGS-Thomson represented 18%, 20% and 14%,
respectively, of sales and the Company's largest five customers represented 64%
of sales. In fiscal 1994 and the first nine months of fiscal 1995, Intel
represented 45% and 38%, respectively, of Track sales. Track operations were
responsible for a substantial portion of the Company's profits in both periods.
The loss of a significant customer (and in particular the loss of Intel as a
Track customer), a delay in shipment due to customer rescheduling or any
substantial reduction in orders by a significant customer, including reductions
in orders due to market, economic or competitive conditions in the semiconductor
industry, could adversely affect the Company's business and results of
operations. See "Business -- Customers."
Competition. The semiconductor processing equipment industry is highly
competitive. The Company faces substantial competition both in the United States
and in other countries for all of its products. The trend toward consolidation
in the semiconductor processing equipment industry has made it increasingly
important to have the financial resources necessary to compete effectively
across a broad range of product offerings, to fund customer service and support
on a worldwide basis and to invest in both product and process research and
development. Significant competitive factors include product performance, price
and reliability, familiarity with each particular manufacturer's products,
established relationships between suppliers and customers, particulate
contamination control and product availability. While the Company believes that
outside Japan and the Pacific Rim it competes favorably with respect to most of
these factors, it has on occasion been subject to intense price competition with
respect to particular orders and has had difficulty establishing new
relationships with certain customers who have long-standing relationships with
other suppliers. Certain of the Company's existing and potential competitors
have substantially greater name recognition, financial, engineering,
manufacturing and marketing resources and customer service and support
capabilities than the Company. In addition, Nikon, and to a lesser extent Canon,
have long established relationships as suppliers of photolithography equipment
to most of the semiconductor manufacturers. Although the Company has supplied
Track and Thermco equipment to many of these customers, it has not previously
sold Micrascan photolithography equipment to them. Due to the Company's position
in the photolithography market, an announcement of a new product by any of these
large competitors may cause customers to delay purchases until the new product
is introduced. See "-- Dependence on New Products and Processes; Importance of
Timely Product Introductions and Enhancements" and "Business -- Competition."
The Company believes that its competitors will continue to improve the design
and performance of their current products and processes, and to introduce new
products and processes with improved price and performance characteristics. For
example, both Nikon and Canon have announced photolithography products using
step and scan technology and a Deep UV illumination source, and Nikon has
indicated that it expects to deliver production units in mid-1996. In addition,
the Company believes that other potential competitors, including ASM
Lithography, are developing step and scan technologies. There can be no
assurance that the Company will be able to compete effectively in the future.
Currency Fluctuations. Substantially all of the Company's manufacturing
costs currently are incurred in the U.S., while a number of the Company's
principal competitors' manufacturing costs are incurred in Japan. As a result, a
substantial increase in the value of the U.S. dollar relative to the Japanese
yen would put the Company at a competitive disadvantage, and would materially
and adversely affect the Company's business and results of operations.
9
<PAGE> 10
Importance of the Japanese and Pacific Rim Market. The Japanese and Pacific
Rim market (including fabrication facilities operated outside these areas by
Japanese and Pacific Rim semiconductor manufacturers) represent a substantial
portion of the overall market for semiconductor equipment. To date, the Company
has not been successful in securing an adequate share of these markets. The
Company believes that the Japanese companies with which it competes have a
competitive advantage because their dominance of the Japanese and Pacific Rim
semiconductor equipment market provides them with the sales and technology base
to compete more effectively throughout the rest of the world. The Company is not
engaged in any collaborative effort with any Japanese or Pacific Rim
semiconductor manufacturer regarding process and equipment development. As a
result, the Company may be at a competitive disadvantage to the Japanese
equipment suppliers which are engaged in such collaborative efforts with
Japanese and Pacific Rim semiconductor manufacturers. There can be no assurance
that the Company will be able to compete successfully in the future in Japan,
the Pacific Rim or elsewhere in the world or that competitive pressures will not
adversely affect the Company's results of operations. See
"Business -- Competition."
Termination of Canon Letter of Intent. In April 1993, the Company entered
into a letter of intent with Canon, Inc. ("Canon"), a major Japanese company,
for the purpose of establishing a worldwide strategic alliance based on SVGL's
Micrascan technology. The Company and Canon were unable to reach agreement and
the letter of intent expired on November 30, 1994. Although Canon is
contractually prohibited until April 2003 from manufacturing a specifically
defined step and scan photolithography machine or disclosing related
information, Canon could introduce a product that includes certain step and scan
technology without violating this prohibition. As a result of the expiration of
the letter of intent, the Company believes that Canon has accelerated its
previously suspended development of a step and scan photolithography product
which will compete with Micrascan. See " -- Uncertain Development of Market for
Micrascan Products," and "Business -- Competition."
Patents and Licenses. As is typical in the semiconductor equipment
industry, the Company has from time to time received, and may in the future
receive, communications from third parties asserting patents or copyrights on
certain of the Company's products and technologies. At least one of the
Company's customers has put the Company on notice that it has received a notice
of infringement from Jerome H. Lemelson, alleging that equipment used in the
manufacture of electronic devices infringes patents issued to Mr. Lemelson
relating to "machine vision" or "barcode reader" technologies. The customer has
put the Company on notice it intends to seek indemnification from the Company
for any damages and expenses resulting from this matter if found liable or if
the customer settles the claim. The Company cannot predict the outcome of this
or any similar claim or its effect upon the Company, and there can be no
assurance that any such litigation or claim would not have a material adverse
effect upon the Company's financial condition or results of operations.
Dependence on Key Employees. The Company's future success is dependent upon
its ability to attract and retain qualified management, technical, sales and
support personnel. The competition for such personnel is intense. The loss of
certain key people or the Company's inability to attract and retain new key
employees could materially adversely affect the Company's business and results
of operations.
Dependence on Sole or Limited Source Suppliers. Certain of the raw
materials, components and subassemblies included in the Company's products are
obtained from single sources or a limited group of suppliers. Although the
Company seeks to reduce its dependence on these sole and limited source
suppliers, disruption or termination of certain of these sources could occur and
such disruptions could have at least a temporary adverse effect on the Company's
business and results of operations. Moreover, a prolonged inability to obtain
certain components could have a material adverse effect on the Company's
business and results of operations and could result in damage to customer
relationships.
Volatility of Stock Price. The public offering price of the Common Stock
offered hereby may not be indicative of prices that will prevail in the trading
market for the Common Stock. The stock market has from time to time experienced
significant price and volume fluctuations that are unrelated to the operating
performance of particular companies. In addition, the market price of the
Company's Common Stock has been and is likely to be highly volatile. Factors
such as fluctuations in the Company's operating results, shortfalls in revenue
or earnings from levels expected by securities analysts, announcements of
technological
10
<PAGE> 11
innovations or new products by the Company or its competitors, governmental
regulation, developments with respect to patents or proprietary rights and
litigation relating thereto and general market conditions may have a significant
adverse effect on the market price of the Common Stock. See "Price Range of
Common Stock."
Shares Eligible for Future Sale. After completion of this offering, the
Company will have approximately 28,720,921 shares of Common Stock outstanding,
of which 27,085,440 shares will be freely tradeable without restriction. The
Company's executive officers and directors beneficially own 448,075 shares of
Common Stock, which includes 306,894 shares issuable upon exercise of options.
Such shares will be restricted from sales until 90 days after this offering
pursuant to agreements with the Underwriters. Thereafter, such shares can be
sold in the public market subject to certain volume and other resale
restrictions of Rule 144 under the Securities Act. In addition, SEMATECH holds a
warrant, expiring on September 30, 1998, to purchase 1,750,000 shares at $13.625
per share. The warrant is subject to a net exercise provision which permits the
holder of the warrant to make a cashless exercise of the warrant based on the
closing price of the Common Stock. Such cashless exercise would result in the
issuance to SEMATECH of 1,043,518 shares of the Company's Common Stock based on
the per share closing price of the Company's Common Stock on the date of this
Prospectus. In connection with the exercise of certain registration rights held
by SEMATECH, the Company will, prior to November 24, 1995, register such shares.
SEMATECH has agreed that it will not, without the prior written consent of
Morgan Stanley & Co. Incorporated, sell or otherwise dispose of these shares
from the date of the offering until February 19, 1996. After February 19, 1996,
SEMATECH could sell that number of shares freely in the open market.
The Company has registered for resale the 1,494,300 shares of Common Stock
issued upon conversion of the Series B Preferred Stock held by the Investors.
The Investors have agreed that they will not, without the prior written consent
of Morgan Stanley & Co. Incorporated, sell or otherwise dispose of these shares
from the date of the offering until February 19, 1996. After February 19, 1996,
the Investors could sell the 1,494,300 shares freely in the market.
Sales of a substantial number of shares in the public market could
adversely affect the market price of the Common Stock and the Company's ability
to raise additional capital at a price favorable to the Company. See
"Underwriters."
USE OF PROCEEDS
The net proceeds to be received by the Company from the sale of the
3,500,000 shares of Common Stock offered by the Company hereby are estimated to
be $109,690,000 ($126,196,000 if the Underwriters' over-allotment option is
exercised in full).
The Company intends to use the proceeds of this offering to purchase
capital equipment, expand manufacturing facilities and to finance its working
capital requirements and research and development activities, primarily in its
lithography business to meet actual and anticipated demand for its Micrascan
products. A portion of the net proceeds will be used for general corporate
purposes and a portion may also be used for future acquisitions of complementary
businesses or product lines as such opportunities may arise, although no such
acquisitions are currently pending or in negotiation. Pending such applications,
the net proceeds from this offering will be invested in bank deposits and
short-term and medium-term investment grade, interest bearing securities.
11
<PAGE> 12
PRICE RANGE OF COMMON STOCK
The following table sets forth the range of high and low sales prices of
the Company's Common Stock for the indicated periods, as reported by The Nasdaq
National Market. On October 5, 1995, the last reported sale price for the Common
Stock on The Nasdaq National Market was $33.75 per share. As of June 30, 1995,
there were approximately 599 holders of record of the Common Stock.
<TABLE>
<CAPTION>
HIGH LOW
---- ----
<S> <C> <C>
Fiscal year ended September 30, 1993:
First Quarter........................................... $7 1/4 $4 1/2
Second Quarter.......................................... 8 5/8 6
Third Quarter........................................... 11 1/8 6 1/8
Fourth Quarter.......................................... 12 7/8 9 3/8
Fiscal year ended September 30, 1994:
First Quarter........................................... 12 1/8 9 1/4
Second Quarter.......................................... 13 3/8 9 1/2
Third Quarter........................................... 12 3/8 9 1/4
Fourth Quarter.......................................... 14 7/8 11 3/8
Fiscal year ended September 30, 1995:
First Quarter........................................... 21 1/4 14
Second Quarter.......................................... 30 3/4 18 3/8
Third Quarter........................................... 37 1/8 24 7/8
Fourth Quarter.......................................... 49 3/8 32 5/8
Fiscal year ending September 30, 1996:
First Quarter (through October 5, 1995)................. 39 5/8 33 1/4
</TABLE>
DIVIDEND POLICY
To date the Company has not declared or paid cash dividends on its Common
Stock. The Board of Directors of the Company presently intends to retain all
earnings for use in the Company's business and therefore does not anticipate
declaring or paying any cash dividends on its Common Stock in the foreseeable
future. The Company's revolving credit facility prohibits the payment of cash
dividends of more than an aggregate of $5,000,000 per year on Common Stock.
12
<PAGE> 13
CAPITALIZATION
The following table sets forth, on an unaudited basis, the actual
short-term debt and capitalization of the Company at June 30, 1995 and as
adjusted to give effect to the sale by the Company of the 3,500,000 shares of
Common Stock offered hereby.
<TABLE>
<CAPTION>
AS OF JUNE 30, 1995
------------------------
ACTUAL AS ADJUSTED
-------- -----------
(IN THOUSANDS,
EXCEPT SHARE AMOUNTS)
<S> <C> <C>
Short-term debt and current portion of long-term debt................. $ 877 $ 877
======== =========
Long-term debt and capital leases..................................... $ 874 $ 874
Minority interest in SVGL............................................. 3,805 3,805
Stockholders' equity:
Common Stock, $0.01 par value, 40,000,000 shares authorized;
25,071,565 shares outstanding actual; 28,571,565 shares
outstanding
as adjusted(1)................................................... 244,134 353,824
Retained earnings................................................... 86,561 86,561
-------- -----------
Total stockholders' equity..................................... 330,695 440,385
-------- -----------
Total capitalization........................................ $335,374 $ 445,064
======== =========
</TABLE>
- ---------------
(1) Excludes (i) as of August 31, 1995, 1,534,750 shares issuable upon exercise
of outstanding options at an average exercise price of $16.82 per share and
(ii) 1,750,000 shares issuable upon exercise of a warrant with an exercise
price of $13.625 per share.
13
<PAGE> 14
SELECTED CONSOLIDATED FINANCIAL DATA
The selected consolidated financial data presented below as of September
30, 1993 and 1994 and for each of the years in the three year period ended
September 30, 1994 have been derived from the consolidated financial statements
of the Company, which have been audited by Deloitte & Touche LLP, independent
auditors, which financial statements are incorporated by reference herein. The
selected consolidated financial data as of September 30, 1990, 1991 and 1992 and
for each of the years in the two-year period ended September 30, 1991 have also
been derived from audited consolidated financial statements of the Company but
which are not incorporated by reference herein. The selected consolidated
financial data presented below as of June 30, 1995, and for the nine-month
periods ended June 30, 1994 and 1995, and for each of the seven quarters in the
period ended June 30, 1995, have been derived from unaudited consolidated
financial statements of the Company. In the opinion of the Company's management,
such unaudited consolidated financial data include all adjustments, consisting
of only normal recurring adjustments, necessary to fairly state the information
set forth therein. The following consolidated financial data should be read in
conjunction with the consolidated financial statements, related notes and other
financial information incorporated by reference herein. See "Incorporation of
Certain Documents by Reference."
<TABLE>
<CAPTION>
NINE MONTHS ENDED
FISCAL YEAR ENDED SEPTEMBER 30, JUNE 30,
-------------------------------------------------------- --------------------
1990(1) 1991 1992 1993 1994 1994 1995
-------- -------- -------- -------- -------- -------- --------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
CONSOLIDATED INCOME STATEMENT DATA:
Net sales............................... $184,289 $234,798 $192,457 $240,633 $319,922 $237,942 $323,073
Cost of sales........................... 110,441 149,337 115,296 147,207 195,511 145,726 196,177
-------- -------- -------- -------- -------- -------- --------
Gross profit............................ 73,848 85,461 77,161 93,426 124,411 92,216 126,896
Research, development and related
engineering........................... 25,292 30,004 27,009 26,332 30,443 22,675 28,189
Marketing, general and administrative... 40,287 50,661 48,544 59,710 67,517 50,303 64,523
-------- -------- -------- -------- -------- -------- --------
Operating income........................ 8,269 4,796 1,608 7,384 26,451 19,238 34,184
Interest and other income (expense),
net................................... (342) (1,458) (44) (464) 369 (50) 4,698
-------- -------- -------- -------- -------- -------- --------
Income before income taxes and minority
interest.............................. 7,927 3,338 1,564 6,920 26,820 19,188 38,882
Provision (credit) for income taxes..... 3,106 (781) 1,089 2,076 10,191 7,675 13,998
Minority interest....................... 372 2,478 767 359 (135) (267) 23
-------- -------- -------- -------- -------- -------- --------
Net income (loss)....................... $ 4,449 $ 1,641 $ (292) $ 4,485 $ 16,764 $ 11,780 $ 24,861
======== ======== ======== ======== ======== ======== ========
Preferred Stock dividend................ -- -- $ 209 $ 1,190 $ 1,190 $ 893 $ 537
======== ======== ======== ======== ======== ======== ========
Net income (loss) per common share...... $ 0.42 $ 0.12 $ (0.03) $ 0.22 $ 0.84 $ 0.60 $ 1.04
======== ======== ======== ======== ======== ======== ========
Shares used in per share computations... 10,708 13,166 14,754 15,277 18,538 18,212 23,973
======== ======== ======== ======== ======== ======== ========
</TABLE>
<TABLE>
<CAPTION>
AS OF JUNE
AS OF SEPTEMBER 30, 30,
-------------------------------------------------------- ------------
1990 1991 1992 1993 1994 1995
-------- -------- -------- -------- -------- ------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Cash and equivalents........................... $ 30,699 $ 34,070 $ 32,743 $ 17,617 $ 87,829 $194,472
Working capital................................ 60,403 84,959 93,084 110,512 173,303 312,068
Property and equipment, net.................... 33,686 28,994 26,861 18,664 13,313 19,638
Total assets................................... 183,423 192,317 180,777 212,284 271,674 471,702
Short-term debt and current portion of
long-term debt............................... 4,367 2,043 4,407 14,971 828 877
Long-term debt and capital leases.............. 26,533 8,200 1,652 2,338 1,510 874
Retained earnings.............................. 42,927 44,568 43,651 46,946 62,237 86,561
Stockholders' equity........................... 70,234 103,800 121,116 126,997 185,215 330,695
</TABLE>
- ---------------
(1) Includes the results of operations of SVGL from May 1, 1990.
14
<PAGE> 15
The following table presents unaudited quarterly results in dollar amounts
and as a percentage of net sales for the last seven quarters.
<TABLE>
<CAPTION>
FISCAL 1994 FISCAL 1995
----------------------------------------- -------------------------------
DEC. 31 MAR. 31 JUNE 30 SEPT. 30 DEC. 31 MAR. 31 JUNE 30
------- ------- ------- -------- ------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
CONSOLIDATED INCOME STATEMENT DATA:
Net sales....................................... $70,917 $85,300 $81,725 $81,980 $85,971 $109,380 $127,722
Cost of sales................................... 43,859 52,876 48,991 49,785 52,769 67,849 75,559
------- ------- ------- -------- ------- -------- --------
Gross profit.................................... 27,058 32,424 32,734 32,195 33,202 41,531 52,163
Research, development and related engineering... 6,546 7,675 8,454 7,768 8,278 9,816 10,095
Marketing, general and administrative........... 15,836 16,951 17,516 17,214 17,622 21,088 25,813
------- ------- ------- -------- ------- -------- --------
Operating income................................ 4,676 7,798 6,764 7,213 7,302 10,627 16,255
Interest and other income (expense), net........ (252 ) 36 166 419 1,053 996 2,649
------- ------- ------- -------- ------- -------- --------
Income before income taxes and minority
interest...................................... 4,424 7,834 6,930 7,632 8,355 11,623 18,904
Provision for income taxes...................... 1,770 3,132 2,773 2,516 3,008 4,184 6,806
Minority interest............................... (65 ) (40 ) (162 ) 132 17 (48) 54
------- ------- ------- -------- ------- -------- --------
Net income...................................... $2,719 $4,742 $4,319 $ 4,984 $5,330 $ 7,487 $ 12,044
======= ======= ======= ======= ======= ======== ========
Preferred Stock dividend........................ $ 298 $ 297 $ 298 $ 297 $ 298 $ 239 $ --
======= ======= ======= ======= ======= ======== ========
Net income per common share..................... $ 0.15 $ 0.23 $ 0.21 $ 0.24 $ 0.25 $ 0.33 $ 0.45
======= ======= ======= ======= ======= ======== ========
Shares used in per share computations........... 16,400 19,032 19,205 19,515 20,322 22,811 26,968
======= ======= ======= ======= ======= ======== ========
</TABLE>
<TABLE>
<CAPTION>
AS A PERCENTAGE OF NET SALES
----------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Net sales....................................... 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of sales................................... 61.8 62.0 59.9 60.7 61.4 62.0 59.2
------- ------- ------- -------- ------- -------- --------
Gross profit.................................... 38.2 38.0 40.1 39.3 38.6 38.0 40.8
Research, development and related engineering... 9.2 9.0 10.3 9.5 9.6 9.0 7.9
Marketing, general and administrative........... 22.3 19.9 21.4 21.0 20.5 19.3 20.2
------- ------- ------- -------- ------- -------- --------
Operating income................................ 6.6 9.1 8.3 8.8 8.5 9.7 12.7
Interest and other income (expense), net........ (0.4 ) -- 0.2 0.5 1.2 0.9 2.1
------- ------- ------- -------- ------- -------- --------
Income before income taxes and minority
interest...................................... 6.2 9.2 8.5 9.3 9.7 10.6 14.8
Provision for income taxes...................... 2.5 3.7 3.4 3.1 3.5 3.8 5.3
Minority interest............................... (0.1 ) -- (0.2 ) 0.2 -- -- --
------- ------- ------- -------- ------- -------- --------
Net income...................................... 3.8% 5.6% 5.3% 6.1% 6.2% 6.8% 9.4%
======= ======= ======= ======= ======= ======== ========
</TABLE>
15
<PAGE> 16
BUSINESS
SVG designs, manufactures, markets and services semiconductor fabrication
equipment for the worldwide semiconductor industry. The Company has three
principal product groups which focus primarily on photolithography, photoresist
processing, and deposition for oxidation/diffusion and LPCVD. The Company's
products incorporate proprietary technologies and unique processes, and focus on
providing process and product technologies and productivity enhancements to its
customers. The Company believes that its Micrascan step and scan
photolithography exposure system, which utilizes a Deep UV light source allowing
line widths of 0.35 micron and below, is the most technologically advanced
machine currently being shipped in quantity to global semiconductor
manufacturers. SVG supports its reliable, cost-effective products through a
network of worldwide service and technical support organizations. The Company's
customers consist of leading semiconductor manufacturers including Analog
Devices, Cypress Semiconductor, Hewlett-Packard, Intel, IBM, LG Semicon, Loral,
Motorola, Philips Semiconductor, SGS-Thomson, Samsung, Siemens, Symbios Logic
and Texas Instruments.
INDUSTRY BACKGROUND
Continuous improvements in semiconductor process and design technologies
have led to the production of smaller, more complex and more reliable devices at
a lower cost per function. As performance has increased and size and cost have
decreased, the demand for semiconductors has expanded beyond the primary market
in computer systems to include applications in telecommunications systems,
automotive products, consumer goods and industrial automation and control
systems. Semiconductor content as a percentage of system cost has also
increased. In addition, the demand for electronic systems has expanded
geographically with the emergence of new markets, particularly in the Pacific
Rim. Consequently, semiconductor sales have increased significantly over the
long term (growing at a compound rate of approximately 16% from 1983 to 1993)
but have experienced significant variation in growth rates. The Company believes
that these long-term trends will continue and will be accompanied by a growing
demand for semiconductor production equipment that can produce advanced
integrated circuits in high volumes at the lowest cost of ownership.
The rapid development of advanced semiconductor applications requires
semiconductor manufacturers to continually improve their core technology and
manufacturing capabilities to remain competitive within the industry. As a
consequence, semiconductor manufacturers demand increasingly sophisticated, cost
effective processing equipment from semiconductor equipment suppliers. The
increasing diversity and complexity of semiconductor products, the demands of
technological change and the costs associated with keeping pace with industry
developments have contributed to the emergence of cooperative development and
manufacturing alliances with semiconductor equipment suppliers. The Company
believes it is essential to have customer alliances to provide access to
valuable product and process technologies. These factors result in customers
concentrating their business with a small number of key suppliers.
SILICON VALLEY GROUP, INC.
SVG designs and manufactures sophisticated semiconductor manufacturing
systems for advanced fabrication facilities. The Company has three principal
product groups which focus on photolithography, photoresist processing and
deposition for oxidation/diffusion and LPCVD. SVG believes that its Micrascan
step and scan photolithography exposure system, which utilizes a Deep UV light
source allowing line widths of 0.35 micron and below, is the most
technologically advanced machine currently being shipped in quantity to global
semiconductor manufacturers. The Company's products incorporate proprietary
technologies and unique processes, and focus on providing process and product
technologies and productivity enhancements to customers. SVG's products are
based on proprietary technologies in photolithography, control software, optics,
and particulate control.
The Company's objective is to strengthen its position as a leading
worldwide semiconductor equipment supplier by offering a broad line of
technologically advanced products and expending substantial resources on
research and development to create new, innovative products and processes. The
Company has close working relationships with leading semiconductor manufacturers
so that it may design its products in conjunction with
16
<PAGE> 17
the development of the semiconductor manufacturers' advanced processes. SVG
works closely with its existing and potential customers, industry consortia and
research institutions to improve current products and processes and to define
new product development opportunities. These efforts enable the Company to
participate in the development of new technologies, to influence the design of
new fabrication processes and to position itself as a principal supplier for
volume equipment orders. The Company supports its reliable, cost-effective
products through a network of worldwide service and technical support
organizations. SVG believes that these strategies, together with its current
market position and product portfolio, will enable the Company to enhance its
position as a leading global semiconductor equipment supplier.
SVG's business is organized into three principal product groups. The
Company manufactures and markets its photolithography exposure products through
SVGL, its photoresist processing products through Track and its
oxidation/diffusion and LPCVD products through Thermco.
SVG LITHOGRAPHY SYSTEMS, INC.
SVGL designs, manufactures, markets and services advanced photolithography
exposure systems. Photolithography is one of the most critical and expensive
steps in integrated circuit fabrication, representing approximately one-third of
the fabrication cost. Consequently, integrated circuit manufacturers focus on
obtaining photolithography equipment to help them produce increasingly complex
devices reliably, efficiently and cost-effectively.
In the photolithography step of the fabrication process, the integrated
circuit patterns are projected through masks, or reticles, onto the silicon
wafers. As semiconductors have become more complex, the patterns have become
finer, with line widths as narrow as 0.35 micron (approximately 15 millionths of
an inch) in many of today's more advanced integrated circuits. As the patterns
become finer, photolithography exposure systems must be capable of projecting
the patterns through the masks with ever finer resolution. The resolution
capability of a photolithography exposure system is a function of its depth of
focus, numerical aperture (a measure of its light gathering characteristics) and
the wavelength of the light used in pattern projections.
Historically, there have been two major approaches to photolithographic
exposure systems: full field scanners and conventional refractive systems. The
full field scanners project a full scale mask image onto full wafers while the
refractive systems (steppers) sequentially expose small sections of a wafer in a
stepped sequence of exposures, but do so by reducing the size of a mask image by
several fold (typically 5 times). Thus, scanners offer large exposure fields
while steppers offer masks that are easier to make and have a lower cost. These
strengths are combined in the step and scan system.
Other trends are the reduction in wavelength from G-line (436 nanometer) to
I-line (365 nanometer) to Deep UV (248-193 nanometer) and the increase in
numerical aperture from 0.2 to 0.6.
Micrascan. The Company believes that its Micrascan photolithography
exposure system provides the greater resolution required for the next generation
of complex, fine geometry integrated circuits through its use of a Deep UV light
source and overcomes the throughput, yield and line-width limitations of
steppers by combining the elements of both steppers and scanners into the
Micrascan's "step and scan" technology.
The Micrascan combines advantages of scanning projection aligners and
steppers by scanning only a portion of the wafer, then "stepping" to another
portion of the wafer and repeating the process as necessary. Each scan has the
capability to expose a larger segment of the wafer, or "field," than a stepper
can expose in a single step. The large exposure field enables Micrascan to
fabricate larger devices in a single scan than steppers, thus avoiding the
necessity of "stitching" a circuit together through two different exposures. In
addition, Micrascan continuously modifies the position of the wafer surface
during the scan to keep the wafer in the optimal focal plane, thereby providing
Micrascan a larger usable depth of focus field than steppers. The larger the
usable depth of focus field is, the more tolerant of variations in the wafer
surface the equipment will be. The Company believes Micrascan's greater
tolerance of wafer surface variations can reduce the number of defective devices
on a wafer, thereby contributing to higher yields. Scanning across the field
instead of exposing the entire field at one time also enables Micrascan to
achieve greater uniformity of resolution across the entire exposure field and
contributes to higher yields.
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<PAGE> 18
The Company believes that SVGL has substantial technological expertise and
process knowledge in developing Deep UV step and scan photolithography systems.
SVGL has developed internal capability to design and fabricate optical lenses,
mirrors and coatings. This includes its own proprietary optical metrology using
phase measuring interferometry to precisely measure and test the optical
elements it produces. Micrascan incorporates both mirrors and lenses in its
optical system, which the Company believes allows for a higher power optical
projection system, is less sensitive to environmental variants and accommodates
the use of light sources with broader spectral bandwidth (than refractive
optics) with the benefits of reduced running cost and increased reliability.
In addition to the optical system technology described above, SVGL has
developed certain proprietary mechanical systems incorporated in the Micrascan
to control the alignment of the wafer and the reticles prior to and during the
wafer exposure step. These alignment systems contribute to the Micrascan's
ability to scan the exposure field at speeds of 50mm per second or greater with
no significant loss of resolution, thereby increasing the throughput capability
of the machine.
The Company believes that many of the more complex semiconductor devices
currently under development, such as the most advanced microprocessors and
DRAMs, fit within the larger exposure field scanned by the Micrascan but do not
fit within the exposure field of the most advanced steppers currently in
widespread production use. In addition, these more complex devices feature
increasingly narrow line widths, which require greater resolution in exposing
the photoresist. The Company believes that, as these larger and more complex
logic and memory devices move from development to production, the technical
advantages of Deep UV step and scan systems over existing I-Line steppers will
provide a greater incentive to semiconductor manufacturers to purchase step and
scan systems rather than steppers in order to achieve higher yields, faster
throughput and more precise line-width control. The Company believes, however,
that these devices will not be produced in volume until late 1996 or 1997. The
Micrascan systems which the Company is now shipping in volume sell for up to
approximately $4,500,000, depending upon configuration.
Micralign. SVGL also sells a family of scanning projection aligners known
as "Micralign." The most advanced product in this family, the Micralign 700, is
used primarily in the production of semiconductor devices with minimum feature
sizes above 1.25 microns, or in the fabrication of less critical layers within
more sophisticated semiconductor devices. Micralign products, which have
historically accounted for a significant portion of the revenues of SVGL, are a
mature product family. Sales of Micralign products have declined in recent years
as steppers have supplanted projection aligners. Even with the current upturn in
the semiconductor industry and the resulting expansion of existing facilities,
the Company anticipates that such a decline in sales will continue. A large
installed base of Micralign systems exists throughout the world and a majority
of SVGL's Micralign related revenues is derived from servicing that installed
base and the sales of spare parts and refurbished systems. The list price of the
Micralign 700 is approximately $995,000 and refurbished Micralign systems sell
for lesser amounts.
TRACK SYSTEMS DIVISION
Track designs, manufactures, markets and services photoresist processing
equipment which performs all the steps necessary to process semiconductor wafers
prior to photolithography exposure, including cleaning, adhesion promotion and
photoresist coating, and which performs all the steps required to treat wafers
after photolithography exposure prior to etching, including developing and
baking. As photoresist processing technology has evolved, SVG has developed
increasingly advanced product lines for this market, which are capable of
handling integrated circuits with line widths as narrow as 0.35 micron. Each
product line includes the principal processing capabilities described above and
is generally sold in customer-specified configurations that can include
specially engineered features and capabilities. All of the Track products are
available in fully automated cassette-to-cassette configurations either as
stand-alone processing stations or as in-line integrated manufacturing systems.
The equipment is modular in design to allow configuration to customer
requirements. Each semiconductor manufacturer may require certain of the
processing stations to effect its proprietary or specialized processes. SVG
believes it is the only manufacturer to offer a cluster which integrates its
photolithography and photoresist products. In addition, Track products are
designed to interface with all stepper products in the industry.
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<PAGE> 19
Track offers three product lines, each corresponding to the development of
successive generations of wafer processing technologies. In general, it has been
the Company's experience that introduction of new Track products has been
followed by lower order levels for older products.
90 Series. The 90 Series photoresist processing system is designed for use
in advanced fabrication processes for integrated circuits with line widths as
narrow as 0.35 micron, such as is required for 64 and 256 megabit DRAMs. The 90
Series incorporates a proprietary wafer transfer system to increase throughput,
features substantially improved contamination control specifications as compared
to the Company's previous products and provides features allowing it to
interface with factory automation systems, such as those using automated guided
vehicles. The 90 Series can process wafers up to eight inches in diameter. In
June 1992, an additional model of the 90 Series, the 90-S, was introduced. The
90-S requires less floor space and, in certain applications, may provide greater
productivity than a conventional 90 Series system. Prices of the 90 Series range
from approximately $650,000 to $1,500,000.
8800 Series. The 8800 Series is designed to meet market needs for
photoresist contamination control and photoresist processing down to 0.8 micron
line widths. The 8800 Series incorporates such automation features as beltless
wafer handling, compatibility with low contamination wafer storage and movement
techniques, advanced software and communications capabilities and certain
process control improvements. The 8800 Series can process wafers from three to
six inches in diameter. Prices of the 8800 Series range from approximately
$350,000 to $750,000.
8600 Series. The 8600 Series is a belt-based wafer transport system capable
of processing wafers with diameters of three to six inches and of supporting the
needs of photoresist processing down to 1.0 micron line widths. The 8600 Series
is typically purchased for expansion of current fabrication capacity. Prices of
the 8600 Series range from approximately $200,000 to $400,000.
THERMCO SYSTEMS DIVISION
Thermco designs, manufactures, markets and services large batch thermal
products which address the oxidation/diffusion and LPCVD steps of the
semiconductor fabrication process. Thermco products are used for a broad range
of processing applications required in the fabrication of most semiconductor
devices, including growing insulating layers on the wafers, diffusing dopants
into the silicon structure and depositing insulating or conducting films on the
wafer surface. Thermco's products incorporate proprietary technology it has
developed in the areas of thermal control, gas handling, particle control and
automated wafer handling.
There are two major configurations of thermal processing equipment,
commonly referred to as vertical and horizontal, corresponding to the
orientation of their reaction chamber(s). Vertical processing systems represent
an increasing portion of the market for oxidation/diffusion and LPCVD processing
equipment. Vertical reactors generally consist of a single, fully automated
cylindrical reaction chamber, individually controlled by a dedicated computer
control system. Vertical systems generally provide greater process uniformity
and lower particle contamination than do horizontal systems, due to improved
thermal control and an increased ability to maintain environmental integrity,
thereby achieving higher yields in wafer processing. Additionally, vertical
systems provide more flexibility in manufacturing configurations. Horizontal
thermal processing systems, which are typically much larger and less automated
than vertical reactors, were the standard of the semiconductor processing
equipment industry and are still used for a broad range of processes.
Series 8000 Advanced Vertical Processor ("AVP"). Initially shipped in
September 1992, the AVP is a vertical furnace designed to meet the eight inch
wafer requirements of sub-half micron processing. The Series 8000 single tube
systems include advanced process control, data acquisition software, advanced
automation, a proprietary process chamber design and an option for atmospheric
control within the wafer handling area. SVG has incorporated design improvements
to address shortcomings of the initial production units. Although the Company
recently began shipping units to customers that it believes satisfy these
shortcomings, no assurance can be given that these improved products will be
successful in meeting customer requirements. The typical price range of an AVP
system is $700,000 to $1,000,000 depending on process configuration.
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Vertical Thermal Reactor ("VTR"). Thermco's VTR processes wafers from 100mm
to 200mm in diameter. It operates under computer control, providing specialized
process recipe introduction, cassette-to-cassette automation, monitoring of
critical system functions and automated loading of wafers into the reaction
chamber. In general, the VTR offers comparable reliability, lower contamination
and better process uniformity than horizontal reactors. The VTR can be installed
through-the-wall in a customer's clean room facility and is compatible with
industry standard software interfaces. During fiscal 1994, SVG began shipping an
enhanced version of VTR 7000PLUS. The enhanced VTR 7000PLUS offers improved
process control, uniformity, reduced particle levels, higher throughput,
internal storage capabilities and the industry's standard mechanical interface
(SMIF). The typical price for the Company's VTR products is approximately
$500,000 to $900,000.
Horizontal Processing Systems. The typical horizontal system consists of
four separately controlled cylindrical reaction chambers which are mounted
horizontally, one directly above the other. Horizontal systems are a mature
product family. Sales of these systems have been declining in recent years, as
semiconductor manufacturers have increasingly installed vertical reactors in
their newer fabrication facilities. Thermco expects this decline to continue
despite the current capacity expansion being undertaken by semiconductor
manufacturers. However, manufacturers of less complex devices will continue to
have some need for horizontal processing systems for the foreseeable future. In
addition, a large installed base of horizontal processing systems enables the
Company to generate revenues through the sale of spare parts, upgrades and
retrofits to the installed customer base. Prices for horizontal systems range
from approximately $400,000 to $900,000.
CUSTOMERS
By working closely with its established customer base, SVG is able to
identify new product development opportunities. Repeat sales to existing
customers represent a significant portion of the Company's processing equipment
sales. The Company believes that its installed customer base represents a
significant competitive advantage. SVG's major semiconductor customers during
the first nine months of fiscal 1995 included the following:
<TABLE>
<S> <C> <C>
Analog Devices LG Semicon Samsung
Cypress Semiconductor Loral Siemens
Hewlett-Packard Motorola Symbios Logic
Intel Philips Semiconductor Texas Instruments
IBM SGS-Thomson
</TABLE>
The Company relies on a limited number of customers for a substantial
percentage of its net sales. See "Risk Factors -- Customer Concentration." In
fiscal 1994 and for the first nine months of fiscal 1995 Intel, Motorola and
SGS-Thomson represented 20%, 19% and 11%, respectively, and 18%, 20% and 14%,
respectively, of sales. The Company's top five customers represented 58% and 64%
of the sales for fiscal 1994 and the first nine months of fiscal 1995,
respectively. In fiscal 1993, 1994 and the first nine months of fiscal 1995
Intel represented 39%, 45% and 38%, respectively, of Track sales. Track
operations were responsible for a substantial portion of SVG's profits in all
three periods.
BUSINESS RELATIONSHIPS
In connection with its acquisition of SVGL in 1990, the Company entered
into agreements with IBM pursuant to which IBM made a $3 million equity
investment in SVGL and has funded approximately $17 million of ongoing research
and development for the Company's Micrascan product line. The agreements with
IBM require the Company to make future payments to IBM based on ongoing
operating results of SVGL. Additionally, in connection with its agreements with
the Investors, the Company agreed to provide IBM with certain rights to purchase
initial quantities of future generations of the Company's Micrascan product. In
1994, the Company entered into an agreement with SEMATECH pursuant to which
SEMATECH made an $8 million equity investment in the Company and agreed to
provide up to $22 million of additional funding for SVGL development efforts and
capital equipment expenditures. As part of its continuing commitment to work
closely with its existing and potential customers, in February 1995 the Company
entered into agreements with the Investors, pursuant to which these investors
purchased, in equal
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<PAGE> 21
amounts, an aggregate of $30 million of the Company's capital stock and received
certain rights to purchase initial quantities of future generations of the
Company's Micrascan products. The Company has used the proceeds of these
investments, together with additional Company funds, to increase Micrascan
production, to further Micrascan research and development, to purchase
additional capital equipment for SVGL and to augment working capital for growth
of the Company's Micrascan photolithography operations.
SALES, SERVICE AND SUPPORT
Because of the highly technical nature of its products, SVG markets its
products primarily through a direct sales force with sales, service and spare
parts offices worldwide. The Company believes that its field service and process
support capabilities are an important major factor in its selection as an
equipment supplier. Increasingly, semiconductor manufacturers are requiring
seven-day, around the clock, on site or on call support. To meet this need, SVG
is expanding its field service organization, increasing its technical and
process support personnel, enhancing its training programs and increasing spare
part inventories deployed at both customer sites and regional field depots.
Service personnel are based in field offices throughout the United States,
Western Europe, Japan and the Pacific Rim and increasingly on site at
particularly large customer locations. In addition, each customer has a single
designated service account manager for all its support needs.
BACKLOG
At June 30, 1995, the Company had a backlog of approximately $348,000,000,
which included 26 Micrascan units from seven customers. Backlog increased from
approximately $146,000,000 at September 30, 1993 to approximately $209,000,000
at September 30, 1994 as a result of substantial increases in orders for SVGL
and Thermco products. The Company includes in backlog only those orders to which
a purchase order number has been assigned by the customer and for which delivery
has been specified within 12 months. Such orders are subject to cancellation by
the customer with limited charges. Because of the possibility of customer
changes in delivery schedules, cancellation of orders and potential delays in
product shipments, the Company's backlog as of any particular date may not be
representative of actual sales for any succeeding period.
RESEARCH AND DEVELOPMENT
The market served by the Company is characterized by rapid technological
change. Accordingly, the Company's product and process development programs are
devoted to the development of new systems and processes, including new
generations of products for existing markets, enhancements and extensions of
existing products and custom engineering for specific customers. The Company
believes that its future success will depend, in part, upon its ability to
successfully introduce and manufacture new and enhanced, cost effective
products, which satisfy a broad range of customer needs and achieve market
acceptance. Accordingly, the Company works closely with semiconductor
manufacturers, industry consortia, and research institutions to respond to the
industry's evolving product and process requirements. The Company's research
staff collaborates with key customers in order to evaluate designs,
specifications and prototypes of the Company's new products.
On September 30, 1994, SEMATECH, as part of an overall funding agreement,
purchased warrants for $8,204,000 under which SEMATECH has the right to purchase
1,750,000 shares at $13.625 per share. The warrant is subject to a net exercise
provision which permits the holder of the warrant to make a cashless exercise of
the warrant based on the closing price of the Common Stock. Such a cashless
exercise would result in the issuance to SEMATECH of 1,043,518 shares of the
Company's Common Stock based on the per share closing price of the Company's
Common Stock on the date of this Prospectus. The proceeds from the sale of the
warrants were received in October 1994 and were utilized to increase SVGL's
manufacturing capacity to satisfy anticipated demand for the current and future
versions of the Micrascan product. Additionally, over a three-year period,
SEMATECH agreed to fund, upon SVGL's completion of certain milestones,
approximately $22,000,000 for the future development of Micrascan technology and
the increased manufacturing capacity to build the Micrascan product. During the
term of the agreement the Company
is obligated to fund, from its own resources, not less than 120% of the total
amount received from
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SEMATECH (including the proceeds of the sale of the warrants) up to a maximum of
$36,000,000. To fulfill the Company's obligations, such amounts must be incurred
to further the development of Micrascan technology, to increase manufacturing
capability and capacity for Micrascan products and to fund related inventory
costs.
The Company has historically devoted a significant portion of its personnel
and financial resources to research and development programs. For fiscal years
1993, 1994 and the first nine months of 1995, total gross research and
development expenditures were approximately $34,000,000, $32,000,000 and
$37,000,000, respectively, of which approximately $8,000,000, $1,500,000 and
$8,600,000, respectively, was funded primarily by IBM and SEMATECH for Micrascan
technologies and offset against research and development expenses.
COMPETITION
The semiconductor equipment industry is intensely competitive. The Company
faces substantial competition both in the United States and other countries in
all of its products. The trend toward consolidation in the semiconductor
processing equipment industry has made it increasingly important to have the
financial resources necessary to compete effectively across a broad range of
product offerings, to fund customer service and support on a worldwide basis and
to invest in both product and process research and development. Significant
competitive factors include product performance, price and reliability,
familiarity with particular manufacturers' products, established relationships
between suppliers and customers, particulate contamination control and product
availability. While the Company believes that outside Japan and the Pacific Rim
it competes favorably with respect to most of these factors, it has occasionally
been subject to intense price competition with respect to particular orders and
has had difficulty establishing new relationships with certain customers who
have long-standing relationships with other suppliers. Certain of the Company's
existing and potential competitors have substantially greater name recognition,
financial, engineering, manufacturing and marketing resources and customer
service and support capabilities than the Company. Due to the Company's position
in the photolithography market, an announcement of a new product by any of these
large competitors may cause customers to delay purchases until the new product
is introduced.
The Company's competitors can be expected to continue to improve the design
and performance of their current products and processes and to introduce new
products and processes with improved price/performance characteristics. There
can be no assurance that the Company will be able to compete effectively in the
future. The Company faces substantial foreign and domestic competition,
including that from Tokyo Electron, Ltd. ("TEL") and DaiNippon Screen Mfg. Co.,
Ltd. in photoresist processing equipment and TEL and Kokusai Electric Co., Ltd.
in oxidation/diffusion and LPCVD equipment. SVGL competes with other suppliers
of photolithography exposure equipment, including manufacturers of steppers and
projection aligners. SVGL's Micralign products are generally not competitive
with steppers for fabrication of semiconductor devices with line widths smaller
than 1.25 micron. In marketing Micrascan systems, SVGL faces competition from
suppliers employing other technologies, principally I-Line steppers, including
Nikon Corp., Canon and ASM Lithography. Certain stepper manufacturers have
utilized techniques, such as the use of off-axis illumination and phase shift
mask technology, to extend the capabilities of steppers beyond their previously
estimated limits. Although the Company believes that its step and scan system
will compete favorably with steppers employing these techniques, the status of
the development of such techniques is uncertain and the Company expects the
competition from such stepper manufacturers to be intense. Additionally, both
Nikon and Canon have announced photolithography products using step and scan
technology and a Deep UV light source and Nikon has indicated that it expects to
deliver initial 0.25 micron production units in mid-1996. Nikon, and to a lesser
extent Canon, have long-established relationships as suppliers of
photolithography equipment to most of the semiconductor manufacturers. While the
Company has supplied Track and Thermco equipment to many of these customers, it
has not previously sold Micrascan photolithography equipment to them. In
addition, the Company believes that other potential competitors, including ASM
Lithography, are developing step and scan technologies.
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<PAGE> 23
UNDERWRITERS
Under the terms and subject to the conditions contained in an Underwriting
Agreement dated the date hereof, the U.S. Underwriters named below have
severally agreed to purchase, and the Company has agreed to sell to them, and
the International Underwriters named below have severally agreed to purchase and
the Company has agreed to sell to them, the respective number of shares of
Common Stock set forth opposite their respective names below:
<TABLE>
<CAPTION>
NUMBER
NAME OF SHARES
- ---------------------------------------------------------------------------------- ---------
<S> <C>
U.S. Underwriters:
Morgan Stanley & Co. Incorporated............................................... 933,400
Prudential Securities Incorporated.............................................. 933,300
Cowen & Company................................................................. 933,300
---------
Subtotal..................................................................... 2,800,000
---------
International Underwriters:
Morgan Stanley & Co. International Limited...................................... 233,400
Prudential-Bache Securities (U.K.) Inc.......................................... 233,300
Cowen & Company................................................................. 233,300
---------
Subtotal..................................................................... 700,000
---------
Total................................................................... 3,500,000
========
</TABLE>
The U.S. Underwriters and International Underwriters are collectively
referred to as the "Underwriters." The Underwriting Agreement provides that the
obligations of the several Underwriters to pay for and accept delivery of the
shares of Common Stock offered hereby are subject to the approval of certain
legal matters by their counsel and to certain other conditions. The Underwriters
are obligated to take and pay for all of the shares of Common Stock offered
hereby (other than those covered by the over-allotment option described below)
if any such shares are taken.
Pursuant to the Agreement Between U.S. and International Underwriters, each
U.S. Underwriter has represented and agreed that, with certain exceptions set
forth below, (a) it is not purchasing any U.S. Shares (as defined below) for the
account of anyone other than a United States or Canadian Person (as defined
below) and (b) it has not offered or sold, and will not offer or sell, directly
or indirectly, any U.S. Shares or distribute this Prospectus outside the United
States or Canada or to anyone other than a United States or Canadian Person.
Pursuant to the Agreement Between U.S. and International Underwriters, each
International Underwriter has represented and agreed that, with certain
exceptions set forth below, (a) it is not purchasing any International Shares
(as defined below) for the account of any United States or Canadian Person and
(b) it has not offered or sold, and will not offer or sell, directly or
indirectly, any International Shares or distribute this Prospectus within the
United States or Canada or to any United States or Canadian Person. The
foregoing limitations do not apply to stabilization transactions or to certain
other transactions specified in the Agreement Between U.S. and International
Underwriters. With respect to Cowen & Company, the foregoing representations or
agreements (i) made by it in its capacity as a U.S. Underwriter shall apply only
to shares of Common Stock purchased by it in its capacity as a U.S. Underwriter,
(ii) made by it in its capacity as an International Underwriter shall apply only
to shares of Common Stock purchased by it in its capacity as an International
Underwriter and (iii) shall not restrict its ability to distribute this
Prospectus to any person. As used herein, "United States or Canadian Person"
means any national or resident of the United States or Canada or any
corporation, pension, profit-sharing or other trust or other entity organized
under the laws of the United States or Canada or of any political subdivision
thereof (other than a branch located outside of the United States and Canada of
any United States or Canadian Person) and includes any United States or Canadian
branch of a person who is not otherwise a United States or Canadian Person, and
"United States" means the United States of America, its territories, its
possessions and all areas subject to its jurisdiction. All shares of Common
Stock to be offered by the U.S.
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<PAGE> 24
Underwriters and International Underwriters under the Underwriting Agreement are
referred to herein as the "U.S. Shares" and the "International Shares,"
respectively.
Pursuant to the Agreement Between U.S. and International Underwriters,
sales may be made between the U.S. Underwriters and the International
Underwriters of any number of shares of Common Stock to be purchased pursuant to
the Underwriting Agreement as may be mutually agreed. The per share price and
currency settlement of any shares of Common Stock so sold shall be the public
offering price set forth on the cover page hereof, in United States dollars,
less an amount not greater than the per share amount of the concession to
dealers set forth below.
Pursuant to the Agreement Between U.S. and International Underwriters, each
U.S. Underwriter has represented that it has not offered or sold, and has agreed
not to offer or sell, any shares of Common Stock, directly or indirectly, in
Canada in contravention of the securities laws of Canada or any province or
territory thereof and has represented that any offer of such shares in Canada
will be made only pursuant to an exemption from the requirement to file a
prospectus in the province or territory of Canada in which such offer is made.
Each U.S. Underwriter has further agreed to send to any dealer who purchases
from it any shares of Common Stock a notice stating in substance that, by
purchasing such shares, such dealer represents and agrees that it has not
offered or sold, and will not offer or sell, directly or indirectly, any of such
shares in Canada in contravention of the securities laws of Canada or any
province or territory thereof and that any offer of shares of Common Stock in
Canada will be made only pursuant to an exemption from the requirement to file a
prospectus in the province or territory of Canada in which such offer is made,
and that such dealer will deliver to any other dealer to whom it sells any of
such shares a notice to the foregoing effect.
Pursuant to the Agreement Between U.S. and International Underwriters, each
International Underwriter has represented that (i) it has not offered or sold
and will not offer or sell any shares of Common Stock to persons in the United
Kingdom except to persons whose ordinary activities involve them in acquiring,
holding, managing or disposing of investments (as principal or agent) for the
purposes of their businesses or otherwise in circumstances which have not
resulted and will not result in an offer to the public in the United Kingdom
within the meaning of the Public Offers of Securities Regulations 1995 (the
"Regulations"), (ii) it has complied and will comply with all applicable
provisions of the Financial Services Act 1986 and the Regulations with respect
to anything done by it in relation to such shares in, from or otherwise
involving the United Kingdom, and (iii) it has only issued or passed on and will
only issue or pass on to any person in the United Kingdom any document received
by it in connection with the issue of such shares of Common Stock, if that
person is of a kind described in Article 11(3) of the Financial Services Act
1986 (Investment Advertisements) (Exemptions) Order 1995, or is a person to whom
such document may otherwise lawfully be issued or passed on.
Pursuant to the Agreement Between U.S. and International Underwriters, each
International Underwriter has represented and agreed that it has not offered or
sold, and will not offer or sell, directly or indirectly, in Japan or to or for
the account of any resident thereof, any shares of Common Stock acquired in
connection with this offering, except for offers or sales to Japanese
International Underwriters or dealers and except pursuant to any exemption from
the registration requirements of the Securities and Exchange Law of Japan. Each
International Underwriter has further agreed to send to any dealer who purchases
from it any of such shares of Common Stock a notice stating in substance that
such dealer may not offer or sell any of such shares, directly or indirectly, in
Japan or to or for the account of any resident thereof, except pursuant to any
exemption from the registration requirements of the Securities and Exchange Law
of Japan, and that such dealer will send to any other dealer to whom it sells
any of such shares a notice to the foregoing effect.
The Underwriters initially propose to offer part of the shares directly to
the public at the public offering price set forth on the cover page hereof and
part to certain dealers at a price that represents a concession not in excess of
$0.79 per share under the public offering price.
The Company has granted to the U.S. Underwriters an option, exercisable for
30 days from the date of this Prospectus, to purchase up to an additional
525,000 shares of Common Stock at the public offering price set forth on the
cover page hereof, less underwriting discounts and commissions. The U.S.
Underwriters may exercise such option solely for the purpose of covering
over-allotments, if any, made in connection with this
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<PAGE> 25
offering. To the extent such option is exercised, each U.S. Underwriter will
become obligated, subject to certain conditions, to purchase approximately the
same percentage of such additional shares as the number set forth next to such
U.S. Underwriter's name in the preceding table bears to the total number of U.S.
Shares offered hereby.
The Company and the Underwriters have agreed to indemnify each other
against certain liabilities, including liabilities under the Securities Act of
1933, as amended (the "Securities Act").
See "Risk Factors -- Shares Eligible for Future Sale" for a description of
certain arrangements pursuant to which all officers and directors of the Company
have agreed that they will not, without the prior written consent of Morgan
Stanley & Co. Incorporated, sell or otherwise dispose of Common Stock of the
Company for 90 days after the date of this Prospectus. In addition, the
Investors and SEMATECH have agreed that they will not, without the prior written
consent of Morgan Stanley & Co. Incorporated, sell or otherwise dispose of
Common Stock of the Company until February 19, 1996. The Company has agreed in
the Underwriting Agreement that it will not, without the prior written consent
of Morgan Stanley & Co. Incorporated, offer, sell, contract to sell or otherwise
dispose of any shares of Common Stock or any securities convertible into or
exchangeable for Common Stock for a period of 90 days after the date of this
Prospectus, except pursuant to existing employee benefit plans and existing
warrants.
In connection with this offering, certain Underwriters and selling group
members (if any) or their respective affiliates who are qualified registered
market makers on The Nasdaq National Market, may engage in passive market making
transactions in the Common Stock on The Nasdaq National Market in accordance
with Rule 10b-6A under the Exchange Act during the two business day period
before commencement of offers or sales of the Common Stock. The passive market
making transactions must comply with applicable volume and price limits and be
identified as such. In general, a passive market maker may display its bid at a
price not in excess of the highest independent bid for the security; if all
independent bids are lowered below the passive market maker's bid, however, such
bid must then be lowered when certain purchase limits are exceeded.
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<PAGE> 26
LEGAL MATTERS
Wilson Sonsini Goodrich & Rosati, P.C., Palo Alto, California, counsel to
the Company, will render an opinion that the shares offered hereby will be duly
authorized, validly issued, fully paid and nonassessable. Larry W. Sonsini, a
member of such firm, is a director of and Secretary of the Company and holds
options to purchase 19,500 shares of Common Stock. Certain legal matters in
connection with the Offering, will be passed upon for the Underwriters by
Morrison & Foerster, Palo Alto, California.
EXPERTS
The consolidated financial statements and related financial statement
schedule of the Company as of September 30, 1993 and 1994 and for each of the
three years in the period ended September 30, 1994 incorporated in this
Prospectus by reference from the Company's Annual Report on Form 10-K for the
year ended September 30, 1994 have been audited by Deloitte & Touche LLP,
independent auditors, as stated in their reports which are incorporated herein
by reference, and have been so incorporated in reliance upon the reports of such
firm given upon their authority as experts in accounting and auditing.
AVAILABLE INFORMATION
The Company has filed with the Commission a Registration Statement on Form
S-3 (referred to herein, together with all amendments and exhibits, as the
"Registration Statement") under the Securities Act, with respect to the
securities offered by this Prospectus. This Prospectus does not contain all of
the information set forth in the Registration Statement, certain parts of which
have been omitted in accordance with the rules and regulations of the
Commission. For further information with respect to the Company and the
securities offered hereby, reference is made to the Registration Statement.
Statements made in this Prospectus as to the contents of any contract or other
document referred to herein are not necessarily complete and, in each instance
in which a copy of such contract is filed as an exhibit to the Registration
Statement, reference is made to such copy and each such statement shall be
deemed qualified in all respects by such reference. Copies of the Registration
Statement may be inspected, without charge, at the offices of the Commission, or
obtained at prescribed rates from the Public Reference Section of the Commission
at the address set forth below.
The Company is subject to the informational requirements of the Exchange
Act, and in accordance therewith files reports, proxy statements and other
information with the Commission. Such reports, proxy statements and other
information filed by the Company can be inspected and copied at the public
reference facilities of the Commission located at 450 Fifth Street, N.W.,
Washington, D.C. 20549 and at the Commission's regional offices at Seven World
Trade Center, New York, New York 10048 and Northwestern Atrium Center, 500 West
Madison Street, Suite 1400, Chicago, Illinois 60661. Copies of such material
also can be obtained from the Public Reference Section of the Commission at 450
Fifth Street, N.W., Washington, D.C. 20549, at prescribed rates. The Company's
Common Stock is quoted for trading on The Nasdaq National Market and reports,
proxy statements and other information concerning the Company may be inspected
at the offices of the National Association of Securities Dealers, Inc., 9513 Key
West Avenue, Rockville, Maryland 20850.
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