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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K405
(Mark One)
[ X ] Annual Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the fiscal year ended June 30, 1999
Or
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the transition period from to
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Commission file number 0-12944
ZYGO CORPORATION
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(Exact name of registrant as specified in its charter)
Delaware 06-0864500
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(State or other jurisdiction of (IRS Employer Identification Number)
incorporation or organization)
Laurel Brook Road, Middlefield, Connecticut 06455
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(Address of principal executive offices) (Zip Code)
(860) 347-8506
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(Registrant's telephone number, including area code:)
Securities registered pursuant to Section 12(b) of the Act:
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None
Securities registered pursuant to Section 12(g) of the Act:
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Common Stock, $.10 Par Value
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. YES [X] NO [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K405. [X]
State the aggregate market value of the voting stock held by non-affiliates of
the registrant. * The aggregate market value shall be computed by reference to
the price at which the stock was sold, or the average bid and asked prices of
such stock, as of a specified date within 60 days prior to the date of filing.
Aggregate market value at August 31, 1999, was $ 93,275,643
*Solely for purposes of this calculation affiliates of the registrant have been
deemed to include only Canon Inc., and the directors and executive officers of
the registrant, and members of their immediate families living in their homes.
Indicate the number of shares outstanding of each of the registrant's classes of
common stock, as of the latest practicable date.
11,460,722 Shares of Common Stock, $.10 Par Value, at August 31, 1999
Documents incorporated by reference: Specified portions of the registrant's
Proxy Statement related to the registrant's 1999 Annual Meeting of Stockholders,
to be filed pursuant to Regulation 14A of the Securities Exchange Act of 1934
with the Securities and Exchange Commission, are incorporated by reference into
Part III of this Report.
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FORWARD LOOKING STATEMENTS
All statements other than statements of historical fact included in this Annual
Report, including without limitation statements under "Risk Factors,"
"Management's Discussion and Analysis of Financial Condition and Results of
Operations," and "Business," regarding the Company's financial position,
business strategy, and plans and objectives of management of the Company for
future operations, are forward-looking statements. When used in this Annual
Report, words such as "anticipate," "believe," "estimate," "expect," "intend,"
and similar expressions, as they relate to the Company or its management,
identify forward-looking statements. Forward-looking statements are based on the
beliefs of the Company's management as well as assumptions made by and
information currently available to the Company's management. Actual results
could differ materially from those contemplated by the forward-looking
statements as a result of certain factors such as those disclosed under "Risk
Factors." Such statements reflect the current views of the Company with respect
to future events and are subject to these and other risks, uncertainties and
assumptions relating to the operations, results of operations, and growth
strategy of the Company.
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PART I
ITEM 1. BUSINESS
THE COMPANY
Zygo Corporation ("Zygo" or the "Company") is a world leader in metrology,
process control, and yield enhancement solutions for high precision
manufacturing industries. The Company's products are based on its core
competencies in high precision measurement, including interferometry, confocal
scanning optical microscopy, application specific vision metrology, atomic force
microscopy, systems integration, automated piece parts handling, and precision
optical components. Over the past five years, the Company has refocused its
mission and transformed itself from an off-line measurement and test instrument
supplier, primarily serving the research and development laboratory and quality
control laboratory markets, to an on-line process control company with the
mission of improving the yields of precision products manufactured by its
customers by offering application specific solutions. Zygo has been broadening
its ability to provide productivity enhancing solutions through in-house
development of leading-edge technological innovations, through strategic
partnering, and through synergistic add-on acquisitions.
The Company has a successful track record in commercializing its product
innovations. Since 1992, the Company has introduced over 15 new products and an
extensive number of customer-specific applications. The Company received R&D
Magazine's R&D 100 awards and Photonics Circle of Excellence awards for its
NewView 100, Pegasus 2000, ZMI 2000, and MESA product introductions in 1994,
1996, 1997, and 1998, respectively, and has expanded its product applications to
end industries which have not historically used noncontact metrology products
such as those which use machined parts extensively.
In addition to continued in-house product innovation, the Company has broadened
its yield enhancement capabilities through four synergistic acquisitions of
companies with complementary technologies in the last three years. In August,
1996, the Company acquired the proprietary products division of Technical
Instrument Company ("TIC"), a Sunnyvale, California-based company that designed,
manufactured, and marketed confocal microscope systems and other precision
optical instrument systems and components. In September 1996, the Company merged
with NexStar Automation, Inc. ("NexStar") of Longmont, Colorado, which developed
automated manufacturing systems for the data storage and semiconductor markets.
In August 1997, the Company merged with Sight Systems, Inc. ("SSI"), a Newbury
Park, California-based vision metrology company. SSI served the data storage
industry and the semiconductor industry with application-specific vision
systems, which are primarily used in or on the production line of customers. The
Company completed its acquisition of Syncotec Neue Technologien und Instrumente
GmbH ("Syncotec"), a company located in Asslar, Germany, in September 1997.
Syncotec was a small manufacturer of confocal modules and systems principally
for the European market. Syncotec had a long-term relationship with TIC and was
focused on designing solutions for local customers for their specific
measurement problems utilizing the TIC confocal scanning optical microscopy
components, as well as other locally designed hardware and software.
Each of these acquired companies is now fully integrated into Zygo with a
cohesive singular strategy. In January 1998, the Company reorganized its sales,
marketing and customer services organization from a product and operating unit
specific focus to an industry specific focus; and in March 1999 the Company
further strengthened these functions by moving to a regional organization with
all critical support resources closer to the customer. The Company further
integrated its operations with a comprehensive reorganization aimed at
centralized functional control of Research, Development and Engineering
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activities as well as all operations activities during fiscal 1999 and
eliminated manufacturing at certain locations.
The following chart illustrates the combined strengths of the current Zygo
structure and demonstrates the strategic thrust of the Company improving the
yields of its customers' manufacturing processes by providing application
specific solutions for customers' precision manufacturing needs.
INTEGRATED CORE COMPETENCIES
[GRAPHICAL REPRESENTATION OF CHART]
AUTOMATED
METROLOGY
SENSOR APPLICATION SPECIFIC ENGINEERING SOLUTIONS
========== ========== ========== ==================
HIGH PARTS YIELD
PRECISION + ANALYSIS + HANDLING = PRODUCTIVITY
METROLOGY SOFTWARE AUTOMATION ENHANCING SOLUTIONS
========== ========== ========== ====================
|__________________| |__________|
INTERFEROMETRY SYSTEMS INTEGRATION
CSOM
VISION
INDUSTRY OVERVIEW
Manufacturers in high precision industries are radically redesigning processes
in order to compete more effectively in an increasingly competitive marketplace.
These changes are being necessitated by (i) decreasing product geometries, (ii)
increasing complexity of manufacturing processes, (iii) shortened product life
cycles, (iv) declining product prices and (v) intensified global competition.
These pressures on manufacturers to improve productivity and quality have
required integration of high precision metrology and process control
technologies directly into the manufacturing process in order to increase yields
and quality control. High performance, noncontact metrology is an enabling
technology for the semiconductor, data storage, optical manufacturing, and other
high precision manufacturing industries.
Advancing technologies have required manufacturers in a variety of industries to
produce smaller products with more precise tolerances and increased complexity
of design geometries, not capable of adequately being measured by the devices
and systems historically utilized. For example, contact profilers and visual
qualitative inspection systems are inadequate for quantitative analysis of
critical dimensions such as semiconductor line widths, photomask surface
quality, and magnetic recording disks. Additionally, precision machined part
tolerances now required in high performance automotive engines are approaching
dimensions that require manufacturers to implement sophisticated metrology and
inspection tools.
The trend towards miniaturization and tighter tolerances creates new challenges
for manufacturers as they are forced to handle, measure, and test ever-smaller
components. As piece part dimensions and tolerances become smaller, "nano
technology scale" precision is necessitated and, to a greater extent than ever,
automated measurement and control is required. Disk drive manufacturers, for
example,
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continue to increase drive capacity while reducing the size of drives.
Recording heads are flying closer to the disk and the head itself is being made
smaller and to greater precision.
With on-line process control and yield improvement metrology solutions being
enabling factors for manufacturers of precision components, the growth for yield
enhancement solutions is expected to outpace the growth of the overall capital
equipment market. Shortened product lifecycles, increased competition, and
declining product prices in these industries, have forced these manufacturers to
no longer depend solely on sales growth to fuel financial performance
improvement, but rather to focus greater attention on the need to reduce
production defects and significantly increase production yields. While the
semiconductor industry is rather mature in its use of these types of tools, the
data storage and industrial markets' requirement for on-line automated metrology
solutions is at an early stage of penetration, since manufacturers are just
beginning to be required to measure critical dimensions and surface topography
of smaller parts to tighter tolerances.
STRATEGY
Zygo's objective is to expand its position as a leading worldwide supplier of
high performance, process control, and yield management improvement instruments,
systems and accessories that improve the performance, quality, reliability,
yield, and cost of automated manufacturing processes. Zygo dedicates substantial
resources to research and product development to enable it to compete
effectively in its market areas. Key elements of Zygo's strategy include:
o MAINTAIN ENHANCED LEADERSHIP THROUGH INNOVATIVE TECHNICAL SOLUTIONS
Zygo's core competencies in high precision measurement, including
interferometry, confocal scanning optical microscopy, application-specific
vision metrology, atomic force microscopy, systems integration, automated
piece parts handling, and precision optic components are directly applied
to meet the higher measurement precision, accuracy, resolution, data
acquisition and data analysis requirements in the most demanding
manufacturing processes of its customers. Throughout its history, Zygo has
met its customers' requirements through innovation and invention, with 83
United States patents and 14 foreign patents, and 18 United States patent
applications and 21 foreign patent applications pending.
o FOCUS ON NEW MARKETS SEGMENTS
Zygo is focused on expanding its presence in new high precision
manufacturing markets where yield improvement process control solutions are
enabling technologies. For example, the Company's MESA system has broadened
the capabilities of its large aperture products and now allows
manufacturers of precision machined parts to use interferometry to measure
the surface topography of their parts. Zygo's history of innovation is
across products and technologies, and the Company is integrating
nano-metrology products with expertise in application specific vision
systems and automated discrete parts handling. Examples include Zygo's
automated mask handling system, which incorporates motion control and
precision parts handling with optical components and robotics, and the
Company's reticle inspection system, which utilizes parts handling robotics
and optical microscopy. The combination of several of the Company's core
technologies results in automated precision metrology and process control
solutions that can be placed directly in the production line.
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o BROADEN CUSTOMER RELATIONSHIPS
One of Zygo's strategies is to form close technical and strategic
relationships with leading companies in its targeted end markets. This is
accomplished by working closely with its customers to provide high
precision metrology and process control solutions integrated directly into
the manufacturing process. Zygo has developed significant brand-name
recognition among leading users of microfabrication technology, and several
of its customers are repeat purchasers of multiple product families across
technological platforms. Zygo intends, by forming closer customer
alliances, to better understand the evolving needs of its customers and,
through the application of innovative technology, to provide high
performance, high quality, cost effective solutions to the production
improvement requirements in the shortest possible cycle time. Through this
solution-sales cycle, which further promotes a closer and longer term
partnership relationship between Zygo and its customers, Zygo strives to
attain a preferred position with major industry leaders.
o SUPPLY QUALITY SOLUTIONS RAPIDLY
Zygo seeks to deliver high quality and high reliability system solutions in
a minimal cycle time. To this end, Zygo has installed an enterprise-wide
total quality process where employee-led teams work to improve the
effectiveness and efficiency of its processes while searching out and
removing areas of poor quality and waste. Zygo's operations strategy
focuses on internally providing those manufacturing services that add value
in a rapidly changing customer needs environment.
o PROVIDE UNINTERRUPTED WORLDWIDE SERVICE AND SUPPORT
To support its customers' continuous manufacturing processes, Zygo intends
to ensure optimal operation and reliable performance of its production
control equipment through its worldwide customer support service group.
Through a worldwide network of service representatives, Zygo provides
24-hour on-demand maintenance services. Its service engineers have a unique
skill set, including optical and electrical component repair, software,
application and system integration diagnostic and problem solution
capabilities.
PRODUCTS AND APPLICATIONS
Zygo manufactures high performance, noncontact metrology instruments and systems
and accessories, and optical components to precise tolerances both for sale and
for use as key elements in its own products. The Company's products are based on
its core competencies: (i) interferometry, (ii) confocal scanning optical
microscopy, (iii) application specific vision metrology, (iv) atomic force
microscopy, (v) systems integration, (vi) automated piece parts handling, and
(vii) precision optical components.
Zygo's product strategy is to apply its high precision automated metrology
systems to its customers' production lines in order to improve yields and
increase productivity. The Company's products employ such features as automated
parts handling, auto-focus, and automated parts alignment, thereby removing the
operator from the measurement process and improving throughput and product
yields. The Company's instruments and systems utilize modular designs where
entire product families share several, if not all, of the same components,
modules, and software. Since 1992, Zygo has redesigned all of its instruments
and continues to upgrade its systems and their features, particularly their
software capabilities.
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Since its inception, Zygo has been broadening its ability to provide
productivity enhancing solutions through in-house development of leading-edge
technological innovations and through synergistic add-on acquisitions. The
Company has integrated all of these acquisitions, and has now augmented its
existing interferometry and optical expertise with a broad array of high
precision metrology capabilities. The Company now offers confocal scanning
microscopy expertise and its metrology tools hold a dominant position in the
photomask industry. The addition of vision metrology to its product line
provides the Company with additional growth potential because measurement in x
and y-axis complements its z-axis measurement tools. The addition of systems
integration and parts handling capabilities allows Zygo to integrate its core
metrology products into an automated system, which can be placed directly into a
customer's production line. Standalone automation opportunities in the photomask
and data storage markets are also a source of growth potential for Zygo.
All of Zygo's instrument products utilize powerful processors that facilitate
high-speed data acquisition and data analysis. Zygo's interferometric surface
analysis microscopes and large aperture surface measurement interferometers
utilize Zygo's proprietary MetroPro(R) software, which has a graphical user
interface that makes the product very user friendly. The MetroPro(R) software,
combined with super high-resolution graphics and pull-down menus, provides the
user with engineering solutions with on-line processing. The software allows the
user to record, print, and store measurement data locally as well as to
distribute the data through networks for process management and further
analysis. Zygo's proprietary software provides Zygo with a high speed, powerful
analysis capability based on proprietary algorithms, easily configurable
screens, powerful image analysis modules, and adaptability to new applications.
ZYGO'S PRODUCT OFFERINGS
<TABLE>
CORE COMPETENCIES MEASUREMENT/APPLICATION PRODUCT
- ------------------------ ------------------------------------------- --------------------------------------
<S> <C> <C>
Interferometry Surface Analysis Microscopy NewView Family
Large-Aperture Surface Analysis GPI family, MESA
Flying Height Test Pegasus 2000
Precision Distance/Angle/Motion Measurement ZMI family
Confocal Scanning Surface Analysis Microscopy AMS, KMS family
Optical Metrology Confocal Modules - OEM K-2, K-3, NCM, PCM
Vision Metrology Application Specific Vision Systems GAPii, ROBOii
Atomic Force Microscopy Surface Analysis/CD Measurement SXM family
Automatic Handling Application Specific Automation Systems Systems integration,
production line automation
Optical Components Optical Instruments; Zygo's own products Flats, Spheres, Waveplates,
Mirrors
</TABLE>
The following chart shows the relative contributions of instruments and systems
and modules and components to consolidated net sales for fiscal 1999:
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[PIE CHART]
INSTRUMENTS & SYSTEMS: NewView Family
MODULES AND COMPONENENTS GPI family, MESA
33% Pegasus 2000
AMS, KMS family
INSTRUMENTS AND SYSTEMS GAPii, ROBOii
67% Atomic Force Microscopy
Systems integration
Production line automation
MODULES & COMPONENTS: ZMI family
K-2, K-3, NCM, PCM
Optical Components
INTERFEROMETRY
Interferometry has certain inherent benefits over other forms of surface and
distance measurement as it provides noncontact, quantitative, full field of
view, ultra-high resolution surface analysis in three dimensions, which results
in higher analysis throughput and lower cost of ownership for the user.
Additionally, interferometric metrology is often an enabling technology as
dimensions and tolerances of many parts in high technology applications have
dimensions below 250 nanometers. In interferometry, a pattern of bright and dark
lines (fringes) results from an optical path difference between a reference and
a measurement beam. Incoming light is split inside an interferometer, one beam
going to an internal reference surface and the other to a sample. After
reflection, the beams recombine inside the interferometer, undergo constructive
and destructive interference, and produce the light and dark fringe pattern. The
number, shape, and position of the lines in the fringe patterns can be analyzed
to provide quantitative surface structure analysis. Zygo's products analyze the
patterns through a series of steps and generate quantitative three-dimensional
surface profiles, which are used to determine conformity to dimensional
specification and, increasingly, to analyze and enhance manufacturing processes.
Zygo's interferometric instruments and systems utilize highly sophisticated
subsystems, including: precision optical components such as beamsplitters,
reference optics, and transmission optics; stable and long-life laser or other
light sources; piece part positioning stages; high-powered workstations or PCs
for processing and analyzing fringe pattern data; and a variety of peripheral
components such as monitors and printers.
Surface Analysis Systems
The surface characteristics of many products in industries such as
semiconductor, data storage, optics, and medical implants, and with increased
applications in the precision machining, paper, printing plates, coatings, and
pharmaceuticals industries, controls the performance of the product. As a
result, surface structure analysis is fundamental to many facets of research and
industry. The Zygo family of NewView microscopes combine advanced techniques of
interferometry, microscopy, and precision analysis algorithms in an automated
package, to enable high precision surface analysis. Unlike visual microscopes,
Zygo's instruments provide measurement information as quantitative
three-dimensional images, two- and three-dimensional surface maps with colors
and shades representing relative heights of surface features, and quantitative
results.
The MaximoGP platform provides general purpose noncontact surface profiling
microscopy, providing low-cost area profiling and quantification of surface
details. It is based on phase shifting interferometry to provide very precise,
fast measurements of specular (mirror-like) or near specular surfaces.
Applications of the MaximoGP include measurements of pole-tip recession,
air-bearing-surface geometry, and disk surface texture in the data storage
industry as well as measurement of wafer texture
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and microroughness, depth characterization of laser ablation markings, and
surface topography of micromachined devices and sensors in the
semiconductor/microelectronic industry.
Based on the MaximoGP, the read/write head surface inspection systems developed
by the Company include production fixturing, five-axis computer-controlled stage
positioning, and high-speed image processing. These systems provide automated,
noncontact quantitative measurement and analysis of all critical parameters of
ABS geometry on magnetic read/write heads used in computer hard disk drives. On
the production line, these systems verify ABS design compliance with high-speed
quantitative measurement of all critical head parameters while real-time SPC
charts monitor process control.
The NewView microscopes use scanning white light interferometry to measure
nonspecular surfaces and build ultra-high Z axis resolution images. Patented
Frequency Domain Analysis and powerful workstations and PCs then combine for
next-generation 3D surface structure analysis, eliminating the trade-off between
range and resolution. The NewView 100 was introduced in 1994, while an enhanced
and automated version, the NewView 200, was introduced in 1997. In 1998, the
Company introduced the NewView 5000, which substantially increased the
measurement capabilities and the robustness of the system. In 1999, the Company
added several new systems to the family. These products have a wide array of
applications across a diverse group of industries including data storage,
semiconductor, automotive, medical, and materials sciences.
Large Aperture Surface Analysis Systems
Zygo's interferometers for large surface metrology are the Growth Potential
Interferometer ("GPI") and MESA families of upgradable instruments, which
consist of enlarged versions of the three-dimensional microscope, designed to
perform surface profile analysis on larger surface areas. Each member of the GPI
interferometer family is designed to address a specific level of measurement
needs. While all GPI models have essentially the same purpose--noncontact
measurement of flat or spherical surfaces and transmitted wavefront measurement
of optics--they differ widely in operational features and data analysis
capabilities. The GPI family of products is used extensively in the optics
industry to measure glass or plastic optical components like flats, lenses and
prisms, and more recently in a growing number of other situations, to measure
precision components such as hard disks, bearing and sealing surfaces, polished
ceramics, and contact lens molds.
Introduced in 1997, the MESA is the latest member of the large aperture systems
family, and is a patented, revolutionary, and fundamental advancement in
interferometry technology. The MESA utilizes defraction gradings to artificially
extend the equivalent wavelength of the instrument's light source to measure
surfaces that have roughness and departures 20 times greater than those surfaces
presently measurable by existing interferometer technology. It is designed to
provide Zygo's customers with the ability to measure rougher, nonspecular
surfaces, factors which in the past have prevented the Company from measuring a
great number of parts, such as those used in many precision machined parts
applications. The MESA accomplishes these revolutionary capabilities without
sacrificing any of the advantages of previous technology, including the ability
to utilize high-speed noncontact interferometry and to produce a full-field wide
aperture view. Additionally, the MESA is production-line robust as it is not
sensitive to vibrations and is capable of a wide range of working distances
allowing the customer flexibility in placement of the MESA system. The Company
commenced shipping the MESA in February 1998. Additionally, the Company
successfully combined the MESA with automation and began shipping an automated
disk flatness system to the data storage industry in June 1998, with over 10
units installed.
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Flying Height Testers
In September 1995, Zygo introduced the Pegasus 2000, a dynamic flying height
tester used to measure the height at which a read/write head flies ("flying
height") over the surface of a magnetic disk within the disk drive. The Pegasus
2000 offers several unique capabilities to the data storage industry. As flying
heights are reduced, manufacturers require measurement instruments, which can
measure at near-contact. Zygo's flying height tester actually increases in
accuracy the closer the read/write head flies over the surface of the disk.
Additionally, due to significant increases in disk storage requirements,
manufacturers require easy-to-use, high throughput testers. The Pegasus 2000 has
been designed as a production oriented tester capable of having a head loaded
while a second head is being tested. Also, the tester automatically calibrates
the sensor requirements (n&k) of each head rather than requiring operator
inputs. With the initial introduction of magneto resistive ("MR") and giant
magneto resistive ("GMR") heads, flying height actually increased while the new
processes were established, leading to a decline in demand for Zygo's and its
competitors' flying height testers. The Company believes flying heights are
beginning to approach the level where its technology will be required.
Precision Distance, Angle, and Motion Measurement Interferometers
Fast, precise control of machine motion is the primary challenge in many
production processes and for major equipment manufacturers. Industries as
diverse as semiconductor, flat panel display production, and optical component
manufacturing require systems to measure the position of a tool relative to a
part under fabrication. Zygo's ZMI family of laser interferometer systems
provides the measurements that control the position of some of the world's most
sophisticated machinery. Through the use of a directed laser beam reflecting
from the moving portion of the machine, the ZMI product line can tell the
machine's computer control systems about movements as small as 1.24 nanometers
(billionths of a meter). This level of accuracy can be compared to the finest
geometries of semiconductors, which are approximately 180 nanometers. Its design
also accommodates fast motions and maintains its precision at speeds in excess
of a meter per second. Applications for these interferometers include accurately
measuring and controlling, while they are in motion, the x, y, and theta stages
in photolithography equipment that is used in making semiconductors and
flat-panel video displays. Zygo sells the ZMI in a number of different
applications. A large number are sold on an OEM basis into the semiconductor
photolithography market. Additionally, the Company provides these sophisticated
motion control systems to manufacturers of memory repair systems, wafer sawing
systems, and photomask making systems.
CONFOCAL SCANNING OPTICAL MICROSCOPY
Confocal Scanning Optical Microscopy ("CSOM") is a key base technology employed
in Zygo's confocal systems. In a microscope utilizing white light CSOM imaging,
a high-intensity white light illuminates a section of a spinning disk containing
pinholes arranged in multiple spiral patterns. Acting as point illumination
sources, the pinholes direct light to points on the sample. The reflected light
from the sample returns through the same section of the disk. Only light from
points on the sample near the focal plane will pass through the pinholes for
imaging. The advantages of white light CSOM technology over other forms of
imaging systems offering sub-micron definition include high resolution in real
time with no delay for image processing, transverse resolution, and extremely
shallow depth of field. These provide precise imaging of sub-half micron
structures and lower cost of ownership, which is extremely important in
industries such as the photomask industry where Zygo is the dominant supplier.
CSOM imaging is used for both inspection and metrology measurement in Zygo's
systems. These systems utilize both white light and laser light sources.
Scanning white light technology was patented by Stanford University and TIC.
Additionally, Zygo manufactures laser confocal systems that employ a laser light
source, which causes a sample to fluorescence with the resulting light of a
shorter wavelength,
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which retraces its path to a pinhole. The fluorescent light is split into two
spectral ranges. After an x/y scan, the two channels are digitized and stored in
the computer as separate images that can be displayed individually or overlaid
to create a single color image. This results in high resolution and the ability
to display many layers of translucent samples as a live overlay of bright,
perfectly registered optical sections.
Surface Analysis Microscopes
The KMS and AMS product lines constitute the majority of Zygo's confocal
scanning microscopy sales, and they hold dominant market share of the photomask
metrology market. The KMS group of products is fully automated high-throughput
confocal scanning metrology systems, which provide measurement in three axes and
real-time observation in color. Nondestructive confocal white light imaging
permits measurements, which are impossible with other types of critical
dimension measurement instrumentation such as scanning electron microscopes.
Positioning, measurement, and data collection are easily custom-configured and
interface to most networks. The KMS and AMS products utilize powerful software,
which is menu and script-file driven to allow for ease in program generation.
The majority of these products are sold to mask manufacturers in the
semiconductor industry. As the demands for finer line width geometry's
increases, photomask manufacturers must utilize sophisticated metrology and
inspection tools as a way to improve their manufacturing yields. During 1999,
Zygo introduced an I-line (365 nanometer) mask metrology system, further
broadening its capabilities in this important market.
Confocal Modules
Zygo's confocal module products include the K-2 and K-3 Industrial modules, the
NCM module, and the PCM module. The K-2 and K-3 modules provide confocal
scanning capability to nearly any modern upright white-light microscope. These
products are fitted to the microscope as a replacement for the vertical
illuminator and attach to the microscope stand. The modules provide two confocal
modes and one brightfield imaging mode. Zygo also offers an optional confocal
software package with the K-2 and K-3 modules which makes it possible to
precisely layer several two-dimensional confocal images to create an accurate
three-dimensional image. The K-2 and K-3 modules are primarily sold to OEMs. The
NCM module is a confocal module, similar to the K-2 module. The NCM is
incorporated into a Nikon white light microscope. The PCM module was recently
developed for an OEM application in the biomedical field. The module utilizes
laser scanning confocal technology where fluorescence is used to analyze the
subject. This module was incorporated into an OEM product used in research work
for analyzing cell structures and DNA.
VISION METROLOGY
Zygo's application specific vision metrology systems measure the space between
points and/or lines in a two-dimensional x/y coordinate. The Company serves the
data storage industry and the semiconductor industry with application-specific
vision systems, which are primarily used in production by its customers. These
vision systems are configured from a vast collection of software and hardware
components into a system, which meets specific customer requirements. Examples
of such applications in the data storage industry where the Company has sold the
majority of its systems to date include: pole geometry measurements and gap
width on various types of read/write heads, straightness, flaw detection, and
measurements of read/write heads mounted on row bars in the manufacturing
process.
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ATOMIC FORCE MICROSCOPY
During Fiscal 1999, the Company added Atomic Force Microscope technology to its
product portfolio. The Atomic Force Microscope (AFM) is based on Scanning
Tunneling Microscopy technology invented by IBM and recognized by a Nobel Prize
in 1986. The system is a multimode scanning probe microscope designed for the
measurement of submicron features to angstrom level resolution for the most
challenging semiconductor, data storage, and other high technology applications.
The benchtop microscope, Cascade, is targeted for process development, failure
analysis, and yield improvement applications. The Company began to distribute an
additional Atomic Force Microscope line specifically targeted for automated
production line applications in January 1999. The SXM family, Sierra, Dolomite,
and Cascade, are designed for critical dimension measurements of height, width,
roughness, and sidewall angles for wafers of up to 300mm in diameter and
photomasks of up to 9 inches by 9 inches.
AUTOMATION SYSTEMS
Zygo's automated solutions integrate its own proprietary mechanical components
and applications software with mechanical, software, and robotics subsystems
produced by third parties. Zygo's automated solutions also enhance production
control to ensure consistent high quality. The Company manufactures advanced
automation systems to load and unload process equipment, enhance the operation
of quality inspection and metrology equipment, convey component parts throughout
the factory, and assemble complex products. It is usual for such systems to be
built to stringent environmental requirements such as cleanroom standards and
for resistance to corrosive conditions. The Company's sophisticated automation
products and equipment are utilized in many applications, including data storage
disk or media manufacturing, disk drive assembly, semiconductor and photomask
manufacturing, precision machining, and packaging and assembly applications.
During fiscal 1998, the automation system unit redirected its efforts to
incorporate Zygo metrology solutions and to fully automated yield improvement
solutions, such as the automated disk flatness system and its automated disk
thickness/sorting system. Additionally, the Company is focused on several
critical OEM opportunities in the semiconductor capital equipment market.
OPTICAL COMPONENTS
Zygo believes it is a world leader in the design and manufacture of highly
accurate "cosmetically excellent" surfaces and angles on plano components
ranging in size from small prisms to large mirrors, scanners, aerospace windows,
and laser amplifier disks. Zygo's precision machining capability is used to make
complex glass and ceramic parts such as stage chucks and mirrors and a large
variety of other optical structures. The Company receives ongoing business from
maintenance programs and commercial activities and it manufactures optics for
its own products. Zygo considers this point a strategic core competence and a
differentiating capability for its instruments. Operations at Zygo's
state-of-the-art optical components manufacturing facility include machining,
shaping, generating, grinding, polishing, and edging. The Company utilizes
technology that it has developed and incorporated into rotary polishing machines
designed and built by Zygo. The Company's thin film coating capability includes
metallic and high-efficiency dielectric coatings for transmissive or reflective
applications in the ultraviolet, visible, and infrared regions of the spectrum.
Zygo also applies polarization, beamsplitter, and anti-reflection coatings.
To ensure quality control of its products, Zygo maintains complete control over
every facet of manufacturing, from grinding and polishing to mating and
assembly. At each stage of production, opticians test and verify the components
using sophisticated interferometric measuring instruments
12
<PAGE>
designed and manufactured by Zygo. Zygo believes that the production of its
precision optical components gives Zygo a distinct competitive advantage over
most of its competitors.
During fiscal 1997, Zygo was selected by Lawrence Livermore National Laboratory
("LLNL") to be a primary supplier of large plano optical components for the
National Ignition Facility ("NIF"), a $1.2 billion Department of Energy project
at Livermore to produce the world's largest laser for nuclear fusion research.
The contract was another significant step in the NIF program for Zygo and
provided for the Company to design, manufacture, and equip a world-class optical
fabrication facility at its Middlefield, Connecticut, operations for a fixed
price of nearly $10 million over an 18-month time period. This facilitation
contract was completed in fiscal 1999. The Company is currently in the pilot
production phase of this program and expects additional contracts from LLNL for
production beginning at the conclusion of the pilot production contract.
PATENTS
Zygo relies on a combination of patent, copyright, trademark, and trade secret
laws and license agreements to establish and protect its proprietary rights in
its products. Zygo believes, however, that its success depends to a greater
extent upon innovation, technological expertise, and distribution strength. The
Company has been awarded 83 United States patents and 14 foreign patents since
the Company was founded, and has 18 United States patent applications and 21
foreign patent applications pending. Zygo, the Zygo logo, and Sight Systems are
registered trademarks of Zygo Corporation. The Company also holds several
nonregistered trade-marks including AAB System, AMS, GAPii, GapScope, GPI,
Growth Potential Interferometer, KMS, MaximoGP, MESA, NewView 100, New View 200,
NewView 5000, Pegasus 2000, ROBOii, SXM-Cascade, SXM-Dolomite, SXM-Sierra,
ZLF-1000, ZMI-510, ZMI-1000, and ZMI-2000.
RESEARCH AND DEVELOPMENT
Zygo operates in an industry that is subject to rapid technological change and
engineering innovation. The Company distinguishes its instrument products on the
basis of its electro-optical sensor technology, its software capability, and its
skill in systems integration. Zygo dedicates substantial resources to research
and development. At June 30, 1999, the Company employed 92 individuals within
its R&D and engineering operations, including 29 individuals with advanced
degrees, of which 8 individuals have earned doctoral degrees.
As an integral part of Zygo's product development strategy, it has formed
technical relationships with several customers. The Company's strategy is to
form close technical working relationships with the leading suppliers in its
markets and thereby develop products and systems which have the greatest
relevancy to the marketplace in general. In connection with its R&D operations,
Zygo also maintains a close working relationship with various research groups
and academic institutions in the United States as well as abroad. Zygo believes
that continued enhancement, development, and commercialization of new and
existing products and systems is essential to maintaining and improving its
leadership position.
CUSTOMERS AND MARKETS
The growing need for dimensional control to the subnanometer level has created a
growing need for Zygo's instruments and systems among both OEMs and end-users of
microfabrication technology. As the market demands for greater tolerance control
in the manufacturing process have increased, particularly in the data storage
and semiconductor markets, Zygo has been able to meet these demands with
on-the-production-line yield improvement instruments and systems as well as with
its off-line
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<PAGE>
quality control instruments. The Company's installed base of high precision
metrology systems exceeds 6,500.
Zygo operates in one segment, as a world leader in metrology, process control,
and yield solutions servicing the following high precision industries.
ZYGO'S REVENUES BY INDUSTRY
FISCAL 1999
[PIE CHART]
INDUSTRIAL/RESEARCH OPTICS (INCLUDING NIF)
SEMICONDUCTOR DATA STORAGE
Sales to the semiconductor industry in fiscal year 1999 constituted
approximately 35% of the Company's revenues. A large portion of sales to this
sector is motion control systems to OEMs for the photolithography process, wafer
repair, sawing systems, and mask making systems. The Company introduced two
fully automated photomask handling products in 1999 which are expected to add
incremental revenues in the coming years. As the semiconductor industry requires
300 mm wafers, it is expected to also require larger masks with smaller feature
sizes demanding more sophisticated and precise automated metrology equipment.
Sales to the data storage industry in fiscal year 1999 constituted approximately
24% of the Company's revenues. The demand for increasing disk drive areal
density dictates that flying heights are decreasing and that head designs and
tolerances are becoming more and more critical. As a result, the majority of
sales to the data storage industry are interferometric and vision metrology
microscopes and systems which provide complete measurement and analysis of all
critical head parameters. The remainder of data storage sales applies to the
manufacturing of disks and generally constitutes automation products, which are
beginning to be coupled with other metrology solutions, such as the Auto MESA
disk flatness measurement system introduced in June 1998. All sales to the data
storage industry are to end-users.
Approximately 27% of the Company's fiscal year 1999 sales are to industrial
companies and research institutions. The Company anticipates growth
opportunities in its sales to the industrial market, as products such as the
NewView, ZMI and GPI family, and new product introductions, such as the MESA,
expand Zygo's capability to sell to the precision machining and industrial
sectors. Specifically, the Company sees significant penetration of the Tier 1
suppliers to the automotive industry as performance engines require parts
machined to tighter and tighter tolerances. The Company also maintains close
working relationships with various research groups and academic institutions.
The remainder of the Company's sales is to precision optics manufacturers,
including NIF. Virtually all testing of optical components and systems is done
with Zygo's GPI family of interferometers which have a variety of applications
including aircraft windows, stages for high precision equipment, and optics for
Zygo's own equipment. The Company maintains key relationships with major optics
research organizations as evidenced by its relationship and significant contract
with NIF, referred to earlier.
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Several of Zygo's customers purchase multiple product family types and multiple
technology platforms and employ Zygo's solutions at multiple facilities
worldwide. The following is a representative list of end-users of Zygo's
products (* denotes an OEM customer and ** denotes both OEM and end-user.):
SELECTED ZYGO CUSTOMERS BY END MARKET
<TABLE>
Industrial Surfaces,
Semiconductor Data Storage Optics Machine Control, & Other
- -------------------------- --------------------- ------------------------ --------------------------------
<S> <C> <C> <C>
Canon** Applied Magnetics Bausch & Lomb Anorad
DuPont Photomasks HMT Berliner Glass Catepillar
ESI* Hitachi Canon Cummins Engine
ETEC** Iomega Corning Delphi Saginaw Steering
IBM Kobe Precision, Inc. Hughes Systems (GMC)
Intel Komag Laboratory for Dover Instruments*
Leica* Maxtor Laser Energetics General Motors
Motorola Quantum Lawrence Livermore Gerber Scientific
NEC Read-Rite National Laboratories Martin Marietta
Phototronics SAE Magnetics Melles Griot National Institute of
Seimens Seagate OCLI Standards & Technology
SVG** Sony Perkin Elmer Nikon*
Sematech TDK Schott Glass Olympus*
Taiwan Mask Co. Toshiba Vistakon Saint-Gobain/Norton
Taiwan Semicon. Mask Zeiss Sikorsky Aircraft
Texas Instruments Stanadyne
Toshiba 3M
Ultratech Stepper** TRW
United Microelectronics Co.
</TABLE>
In fiscal years 1999, 1998, and 1997, sales to Zygo's top customer, Canon Inc.,
accounted for approximately 22%, 18%, and 20%, respectively, of Zygo's net
sales. Sales to the Lawrence Livermore National Laboratories accounted for 6%
and 13% of the Company's sales in 1999 and 1998 including those related to the
facilitation contract. No other single customer accounted for more than 10% of
Zygo's sales in any of the 1999, 1998, or 1997 fiscal years.
Canon Inc. is both an important customer and a highly valued strategic partner.
Canon was one of the founding investors in Zygo and continues to own
approximately 11% of the Company. Sales to Canon include products that Canon
uses in its manufacturing facilities, such as Zygo's large aperture surface
measurement interferometers, which are used to quantitatively analyze the
surface of optics Canon produces for its photolithographic steppers, and Zygo's
motion measurement components which are incorporated into Canon's steppers for
controlling the x/y stage in that product. Zygo is Canon's primary source for
motion control systems. Sales to Canon also include optical components and
instruments, systems and accessories sold by Canon's semiconductor sales group
as a distributor for certain of the Company's products in Japan. In this
respect, the Company benefits from Canon's significant Japanese presence and
highly technical sales force.
BACKLOG
Backlog at June 30, 1999, was $28,941,000 compared to $24,410,000 at June 30,
1998, an increase of $4,531,000 (19%). The backlog of the Company's instruments
and systems at June 30, 1999, increased by $6,280,000 (47%) from that at June
30, 1998, principally as a result of increases in the automation
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<PAGE>
backlog. The backlog of the Company's modules and components decreased by
$1,749,000 (16%) from the year earlier.
MARKETING & SALES
The Company's core marketing strategy is to establish and solidify strategic
relationships with leading OEMs and end-users in targeted end-markets. The
selling process for Zygo's products is performed through Zygo's worldwide sales
organization and frequently involves participation by sales, marketing,
applications specialists, and engineering personnel. Zygo's marketing activities
also include participation in international standards organizations, trade
shows, publication of articles in trade journals, participation in industry
forums, and distribution of sales literature. In addition, Zygo's strategic
relationships with customers serve as highly visible references.
During 1999, the Company reorganized its sales activity to focus more resources
closer to the customer. The reorganization resulted in all Zygo sales being
conducted through six geographic regions - three in the US and three
international locations. Each region is responsible for sales, applications
support, and customer service for all Zygo products in that region.
Sales to the Company's OEM customers are usually through direct sales personnel.
Zygo's sales and marketing staff and engineers work closely with the OEM to
design high value-added subsystems to be integrated into the OEM's product.
These subsystems often contain multiple Zygo technologies, are highly
customized, and provide a differentiated advantage for the OEM. While these
sales generally take a long time to develop and deliver, the result is a
long-term relationship as a sole-source supplier.
Zygo's regional organization sells all Zygo products and services through a
combination of direct sales staff and independent distributors and sales
representatives. The Company's regional sales offices are headquartered in
Middlefield, Connecticut (Eastern USA Region); Chicago, Illinois (Central USA
Region); Sunnyvale, California (Western USA Region); Asslar, Germany (European
Region); Singapore (Pac Rim Region); and Tokyo, Japan (Japan Region).
Additionally, the Company maintains direct sales offices in Delray Beach,
Florida; Longmont, Colorado; Minneapolis, Minnesota; and Taiwan. At June 30,
1999 Zygo employed 85 sales, service, applications support, and marketing
personnel. Additionally, the Company employs more than 10 representatives and
distributors in international regions to support sales and service in over 20
countries including Japan, Singapore, Malaysia, Philippines, Taiwan, South
Korea, Germany, United Kingdom, France, and Italy. The combination of direct
sales and representatives allow the Company to be truly international in its
sales and customer support approach.
The following table sets forth the percentage of Zygo's total sales (including
sales delivered through distributors) during the past three years:
Year Ended June 30,
---------------------------------------
1999 1998 1997
------------- ------------- -----------
United States........................... 53.9 % 56.0 % 54.7 %
Japan................................... 23.3 % 22.8 % 24.9 %
Pacific Rim............................. 9.9 % 11.6 % 14.5 %
Other (primarily Europe)................ 12.9 % 9.6 % 5.9 %
All of Zygo's export sales are negotiated, invoiced, and paid in United States
dollars.
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CUSTOMER SUPPORT
Zygo believes that its strong commitment to service is essential, based on the
growing complexity of the equipment used in the manufacturing process by Zygo's
customers. As Zygo's products are on customer production lines, uptime of Zygo's
products is critical considering the effect on the customers' production
efficiency. In March 1999, Zygo established a Technical Support Center within
its Middlefield site. This center is staffed with individuals who are
knowledgeable of the Company's products and offer technical support via e-mail
or via an 800 number service (1-800-ZYGO-NOW). At June 30, 1999, Zygo's domestic
customer support and service staff consisted of 16 persons. Outside of the U.S.,
Zygo's distributors and sales representatives assist the direct service staff
allowing the Company to offer a worldwide network for customer support,
providing 24-hour-on-demand maintenance services. The service engineers are
skilled in optical and electrical component repair, software, application and
system integration, diagnostics, and problem solving capabilities.
Zygo offers its customers three main types of service programs including
priority support, extended warranty, and preventive maintenance, and also
customizes programs to meet specific customer needs. These service programs
include emergency service scheduling, software upgrades, preventative
maintenance visits, and charges for parts, labor, and travel. To minimize
downtime, the Company has available spare parts kits designed to ensure
availability and emergency delivery. Finally, the Company can supply customers
with upgrades for nearly all of its systems.
Zygo also offers testing services for a fee to customers, which require extra
precision, an alternative metrology resource, a third party
opinion/certification, or extended metrology capabilities. This service provides
an economical way for customers to measure and/or certify their samples with
Zygo's precision, noncontact, surface and optical measuring instruments. When
customers need the accuracy and NIST-traceability of Zygo precision surface and
optical measuring instruments, but do not have the volume to justify a purchase,
Zygo's Testing & Certification Services provides an excellent, cost-effective
solution. The Company's facility in Middlefield, Connecticut, has
state-of-the-art equipment for testing a customer' parts and providing the
customer with three-dimensional surface maps and supporting data necessary for
determining the quality of the parts.
Zygo also offers absolute calibration of spheres and flats, as well as large
aperture plano surfaces. To assist customers in establishing and maintaining a
routine calibration program, the Company often automatically notifies customers
when the next certification is due.
TRAINING AND SEMINARS
In addition to its customer support network, Zygo also offers training programs
and maintenance contracts for its customers for a fee. Zygo's Customer Education
and Training seminars offer training in the areas of interferometry, optical
testing, surface metrology, and 3D microscopy, and can be customized to suit the
attendees particular needs. Customer opticians, QC inspectors, technicians and
engineers, and managers generally attend the classes and receive the training
necessary to reduce the variability of measurements, solve chronic testing
problems due to issues such as alignment and environment, increase throughput of
production teams, automate systems setup and data recording, and prevent
bottlenecks in the QC department. Classes can be held at Zygo's Middlefield,
Connecticut, or Sunnyvale, California, locations or at the customer's location.
All Zygo training courses integrate lab sessions with the classroom content.
While the classes are not restricted to Zygo customers, attendees use Zygo
interferometers to set up and measure surfaces as well as explore many of the
features and functions of MetroPro(R). In this respect, classes also serve as a
sales tool as attendees experience the user-friendly setup and performance of
Zygo products.
17
<PAGE>
MANUFACTURING, RAW MATERIALS, AND SOURCES OF SUPPLY
Late in 1999, Zygo reorganized its operations, eliminating the manufacturing
activities of its Sunnyvale and Newbury Park, California, operations. Zygo's
principal manufacturing activities are conducted at its facilities in
Middlefield, Connecticut; Longmont, Colorado; and Asslar, Germany. Zygo
maintains a state-of-the-art optical components manufacturing facility in
Middlefield, specializing in the fabrication, polishing, and coating of plano
(flat) optics for sales to third parties, as well as the manufacturing of a wide
variety of optics that are used in Zygo's instrument products. Zygo's
manufacturing activities for its instruments and system products consist
primarily of assembling and testing components and sub assemblies, some of which
are supplied from within Zygo and others are supplied by third party vendors and
then integrated into Zygo's finished products. Many of the components and
subassemblies are standard products, although certain items are made to Company
specifications. Zygo also maintains Computer Numerical Control (CNC) metal
fabrication equipment for in-house production of strategic metal formed
components.
Certain components and subassemblies incorporated into Zygo's systems are
obtained from a single source or a limited group of suppliers. Management
routinely monitors single or limited source supply parts, and Zygo endeavors to
ensure that adequate inventory is available to maintain manufacturing schedules
should the supply of any part be interrupted. Although Zygo seeks to reduce its
dependence on sole and limited source suppliers, it has not qualified a second
source for various of these products and the partial or complete loss of certain
of these sources could have an adverse effect on Zygo's results of operations
and damage customer relationships. To date, the Company has not experienced a
significant production delay from a parts shortage or loss of a single-source
component.
At its Middlefield operations, Zygo also maintains a state-of-the-art fully
integrated management information system which includes all business modules
(capacity planning, materials requirements planning, order entry, financials,
etc.) necessary to manage Zygo's growing operations there. All of Zygo's
worldwide operations are connected by a wide area network which provides full
network services including shared databases, electronic mail, and the ability to
interchange files containing writing material software code and engineering
drawings. Zygo's Longmont, Colorado, operations are presently installing a fully
integrated state-of-the-art management information system. Additionally, to
facilitate effective communications, Zygo's Middlefield, Longmont, and Sunnyvale
operations have installed state-of-the-art video conferencing equipment. At June
30, 1999 the Company employed 187 personnel in its manufacturing operations.
The Company has built a significant Total Quality Management ("TQM") process,
which is headed by the Vice President of Corporate Quality. The TQM program is
characterized by a 7-step problem solving process whereby employees identify
areas of waste, establish teams, and apply the process to eliminate the root
cause of the problem. The TQM program, which is completely voluntary for
employees, was instrumental in the Company obtaining ISO 9001 certification at
its Middlefield facility where it was originally launched and enjoys a 60%
employee participation. At Zygo's Longmont, Colorado, facility the Company is
implementing Lean Manufacturing principles and design for manufacturability. The
Company intends to incorporate these principles into its Middlefield operations
during 2000.
EMPLOYEES
At June 30, 1999, Zygo employed 404 persons.
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<PAGE>
Zygo historically has had excellent employee relations and offers competitive
salaries and a comprehensive benefits program including companywide profit
sharing. None of the Company's employees are covered by collective bargaining
agreements. Zygo has never experienced a work stoppage and believes that its
relations with its employees are good.
ITEM 2. PROPERTIES
The Company maintains manufacturing facilities in Middlefield, Connecticut, and
Longmont, Colorado, and maintains its corporate headquarters on Laurel Brook
Road in Middlefield, Connecticut. The Middlefield facility consists of one
135,500-square-foot building on approximately 13 acres. In 1998, this facility
was expanded by 35,500 square feet to provide additional optical fabrication
capacity and a new office area for sales, service, R&D, and administrative
personnel. All other facilities are leased.
<TABLE>
<CAPTION>
SQUARE FEET
--------------------------------------- OWNED /
OPERATION/LOCATION MANUFACTURING TOTAL LEASE EXP.
- ---------------------------------------------- ------------------- ------------------ -----------------
<S> <C> <C> <C>
CORPORATE HEADQUARTERS 80,000 135,500 Owned
EASTERN REGIONAL SALES OFFICE,
INSTRUMENT MANUFACTURING,
AND OPTICS MANUFACTURING
Middlefield, Connecticut
AUTOMATION SYSTEMS MANUFACTURING 10,000 21,000 Leased
Longmont, Colorado 31-Mar-00
ZYGO - LASER TECHNOLOGY (R&D) 0 1,452 Leased
Watsonville, California 14-Apr-00
WESTERN REGIONAL SALES OFFICE 0 20,000 Leased
AND R&D CENTER 31-Oct-00
Sunnyvale, California
R&D CENTER 0 12,240 Leased
Newbury Park, California 2-Feb-03
EUROPEAN REGIONAL SALES OFFICE, 1,500 4,000 Leased
CONFOCAL MANUFACTURING 31-Aug-03
Asslar, Germany
ZYGO - PACIFIC RIM SALES OFFICE 0 2,350 Leased
Singapore 1-Mar-01
------------------- ------------------
Total 91,500 196,542
=================== ==================
</TABLE>
ITEM 3. LEGAL PROCEEDINGS
On June 29, 1988, Zygo filed suit in the U.S. District Court in Arizona against
WYKO Corporation for patent infringement based on the belief that the WYKO 6000
interferometer infringed certain patents owned by Zygo. On March 1, 1993, the
United States District Court (District of Arizona) rendered a Memorandum Opinion
and Findings of Fact and Conclusions of Law in the matter of the patent suit.
The conclusions of the court were that Zygo's patent is valid, the WYKO Model
6000 interferometer infringes the Zygo patent, that WYKO Corporation is liable
to Zygo for any damages suffered as a result of WYKO's infringement of Zygo's
patents by making, selling, and using the WYKO Model 6000 interferometer, and
that the amount of the monetary judgment and other relief shall be determined
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<PAGE>
following a trial on the issue of damages. The damage phase of the trial was
held from November 29, 1993 through December 6, 1993. The Court rendered its
judgment on June 2, 1994, awarding Zygo approximately $2.7 million plus recovery
of certain costs to be awarded by the Court which were incurred by Zygo in
connection with the conduct of the trial and entered a permanent injunction
prohibiting further sales of the WYKO Model 6000 interferometers found to
infringe. An appeal of the District Court's decision was filed by WYKO on August
9, 1994 with the Court of Appeals for the Federal Circuit located in Washington,
D.C. The oral argument of the appeal was heard by the Court of Appeals on March
9, 1995. On April 1, 1996, the Court of Appeals rendered an Opinion Announcing
Judgment of the Court. The appellate court affirmed-in-part and reversed-in-part
the District Court's earlier findings and remanded the case to the District
Court for a redetermination of the damage award. In its Opinion, the appellate
court reversed the District Court's opinion that certain WYKO units infringed
the Zygo patent on the basis of the doctrine of equivalents, upheld the validity
of Zygo's patent, and affirmed the District Court's opinion that the original
WYKO model 6000 infringed Zygo's patent. Zygo has not recorded any gain from the
District Court's earlier ruling and will not until a final determination of the
award is made.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
EXECUTIVE OFFICERS OF THE REGISTRANT
GARY K. WILLIS - AGE 54 - CHAIRMAN AND CHIEF EXECUTIVE OFFICER
Mr. Willis has served as Chairman and Chief Executive Officer of the Company
since November 1998. Mr. Willis also served as President and Chief Executive
Officer from August 1993 to November 1998. From February 1992 to August 1993,
Mr. Willis served as President and Chief Operating Officer of the Company.
Previously, Mr. Willis spent 15 years with The Foxboro Company, most recently as
President, Chairman and CEO.
Mr. Willis has served as an executive officer of the Company since February 1992
and is a director of the Company.
J. BRUCE ROBINSON - AGE 57 - PRESIDENT
Mr. Robinson served as President since February 1999. Previously, Mr. Robinson
spent 25 years with The Foxboro Company, his most recent positions were Vice
President Business Development from December 1998 to February 1999, President
Worldwide Operations from November 1996 to December 1998, and President of
Europe from 1990 to 1996.
Mr. Robinson has served as an executive officer of the Company since February
1999 and is a director of the Company.
AHMAD AKRAMI - AGE 40 - VICE PRESIDENT MARKETING, SALES AND CUSTOMER SERVICE
Mr. Akrami served as Vice President Marketing, Sales and Customer Service of the
Company from June 1998 until his resignation as an officer from the Company in
September 1999. Mr. Akrami continues to serve as a part-time employee on a
limited basis. Mr. Akrami served as Vice President and General Manager Zygo
Automation Systems (formerly NexStar Automation) from August 1997 to June 1998.
From January 1993 to August 1997, Mr. Akrami was President of NexStar
Automation, which merged with Zygo in September 1996.
Mr. Akrami served as an executive officer of the Company from August 1997 Until
September 1999.
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WILLIAM H. BACON - AGE 49 - VICE PRESIDENT CORPORATE QUALITY
Mr. Bacon has served as Vice President, Corporate Quality of the Company since
January 1996. From November 1993 to January 1996, Mr. Bacon was Director of
Total Quality of the Company and also served as Manager of Instrument
Manufacturing Engineering of the Company from June 1987 to November 1993.
Mr. Bacon has served as an executive officer of the Company since January 1996.
MARK J. BONNEY - AGE 45 - VICE PRESIDENT OPERATIONS
Mr. Bonney served as Vice President of Operations from June 1998 until his
resignation as an officer from the Company in August 1999. Mr. Bonney continues
to serve as a part-time employee on a limited basis to cover transitional
matters. Previously, Mr. Bonney served as Vice President, Finance and
Administration and Chief Financial Officer of the Company from March 1993 and
Treasurer of the Company from November 1993 until June 1998. Additionally, Mr.
Bonney served as General Manager of the Company's Advanced Metrology Systems
operation from January 1998 until June 1998.
Mr. Bonney served as an executive officer of the Company from March 1993 until
August 1999.
DAVID GRANT - AGE 36 - VICE PRESIDENT
Mr. Grant served as Vice President of the Company from August 1998 until his
resignation in August 1999. Mr. Grant served as General Manager of Zygo Vision
Systems (formerly Sight Systems, Inc.) since its merger with Zygo in August 1997
through June 1999. Mr. Grant previously served as President of Sight Systems,
Inc. since its founding in 1990.
Mr. Grant served as an executive officer of the Company from August 1998 until
August 1999.
FRANCIS E. LUNDY - AGE 61 - VICE PRESIDENT BUSINESS DEVELOPMENT
Mr. Lundy has served as Vice President Business Development since June 1998.
Previously Mr. Lundy served as Vice President and General Manager of Zygo
Advanced Imaging Systems (formerly Technical Instrument Company) since August
1997 and President of Technical Instrument Company from January 1985 to August
1996.
Mr. Lundy has served as an executive officer of the Company since August 1997.
KEVIN M. MCGUANE - AGE 43 - VICE PRESIDENT FINANCE, CFO AND TREASURER
Mr. McGuane has served as Vice President, Chief Financial Officer, and Treasurer
since June 1998. Mr. McGuane served as Corporate Controller of the Company from
February 1997 until June 1998. Previously, Mr. McGuane spent six years with
Dexter Corporation as Director of Operations Accounting.
Mr. McGuane has served as an executive officer of the Corporation since June
1998.
DAVID J. PERSON - AGE 51 - VICE PRESIDENT HUMAN RESOURCES
Mr. Person has served as Vice President Human Resources since September 1998.
Previously Mr. Person served in a number of senior human resource management
positions with Digital Equipment Corporation from 1972 to September 1998.
Mr. Person has served as an executive officer of the Company since September
1998.
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ROBERT A. SMYTHE - AGE 48 - VICE PRESIDENT PRODUCT DEVELOPMENT AND ENGINEERING
Mr. Smythe has served as Vice President Product Development and Engineering
since June 1998. Previously, he served as Vice President, Sales and Marketing of
the Company from January 1996 to June 1998. From June 1993 to January 1996, Mr.
Smythe was Director of Sales and Marketing of the Company and from April 1992 to
June 1993 served as Manager, Industry Marketing of the Company.
Mr. Smythe has served as an executive officer of the Company since January 1996.
CARL A. ZANONI - AGE 58 - VICE PRESIDENT TECHNOLOGY
Dr. Zanoni has served as Vice President Technology since June 1998. Previously,
he served as Vice President, Research, Development and Engineering of the
Company from April 1992 to June 1998. Dr. Zanoni is one of the original founders
of the Company and has served as an executive officer since its inception in
1970. He is also a director of the Company.
Of the above executive officers, Mr. Willis, Mr. Robinson and Mr. Zanoni are
directors of the Company. Under the By-laws, executive officers serve for a term
of one year and until their successors are chosen and qualified unless earlier
removed.
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
The Company's common shares are traded over-the-counter and are quoted on the
NASDAQ/National Market under the symbol "ZIGO". Market price data for 1999 and
1998, is as follows:
Fiscal Year Ended June 30, 1999 Fiscal Year Ended June 30, 1998
------------------------------- -------------------------------
High Low High Low
------- ------ ------- --------
First quarter $15 3/8 $6 3/8 $38 1/2 $28 1/2
Second quarter $12 3/4 $5 $33 1/16 $14 3/4
Third quarter $15 3/4 $8 1/2 $21 1/2 $13 7/8
Fourth quarter $13 1/8 $7 1/4 $22 1/8 $12 7/16
The number of stockholders of record at June 30, 1999, were 540.
22
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ITEM 6. SELECTED FINANCIAL DATA
(Thousands, except per share amounts)
<TABLE>
<CAPTION>
Fiscal Year Ended June 30,
------------------------------------------------------------------
1999 (1) 1998 (1) 1997 (1) 1996 1995
-------- -------- -------- ---- ----
<S> <C> <C> <C> <C> <C>
Net Sales ............................................... $ 60,838 $ 97,871 $ 87,220 $57,374 $32,233
Gross Profit ............................................ $ 21,507 $ 41,142 $ 41,825 $25,866 $14,231
% of sales ........................................ 35% 42% 48% 45% 44%
Earnings before taxes and nonrecurring charges .......... $ (7,063) $13,003(2) $21,121(2) $11,558 $ 3,956
% of sales ........................................ (12%) 13% 24% 20% 12%
Earnings before nonrecurring charges .................... $ (3,989) $ 9,034(2) $13,960(2) $ 7,799 $ 2,749
% of sales ........................................ (6.5%) 9% 16% 14% 9%
Earnings per share before nonrecurring charges (4)
Basic ............................................. $ (.36) $ 0.83(2) $ 1.34(2) $ 0.84 $ 0.35
Diluted ........................................... $ (.36) $ 0.74(2) $ 1.16(2) $ 0.72 $ 0.32
Earnings per share before nonrecurring charges
growth rate .......................................... (149)% (36)% 62% 121% 181%
Net earnings ............................................ $ (3,989) $ 7,114 $ 2,877 $ 7,799 $ 2,749
Net earnings per common share: (4)
Basic (3) ............................................ $(.36) $ 0.65 $ 0.28 $ 0.84 $ 0.35
Diluted (3) .......................................... $(.36) $ 0.58 $ 0.24 $ 0.72 $ 0.32
Weighted average number of shares:
Basic ................................................ 11,148 10,890 10,403 9,323 7,801
Diluted .............................................. 11,148 12,235 11,998 10,878 8,484
Research and development ................................ $9,186 $ 9,844 $ 7,151 $ 5,538 $ 3,967
Capital expenditures .................................... $10,165 $ 9,016 $ 4,723 $ 2,864 $ 1,631
Depreciation and amortization ........................... $4,420 $ 3,408 $ 2,612 $ 1,477 $ 1,248
June 30,
-----------------------------------------------------------------
1999(1) 1998(1) 1997(1) 1996 1995
------- ------- ------- ---- ----
Working capital ......................................... $43,581 $ 50,085 $47,633 $47,148 $17,072
Current ratio ........................................... 5.2 4.2 4.6 5.2 3.6
Total assets ............................................ $81,086 $ 91,005 $78,799 $65,895 $29,666
Long-term debt (excluding current portion) .............. -- -- -- -- --
Stockholders' equity .................................... $68,374 $ 72,166 $62,408 $54,087 $22,333
Price-earnings ratio .................................... N/A 20.0 26.5 30.4 35.2
Number of employees at year end ......................... 413 441 399 287 210
Sales per employee--average ............................. $ 147 $ 225 $ 231 $ 224 $ 173
Book value per common share ............................. $ 6.00 $ 6.55 $ 5.91 $ 5.34 $ 2.84
Market price at year-end ................................ $11.438 $ 14.813 $30.750 $21.875 $11.250
</TABLE>
(1) The results of Sight Systems, Inc ("SSI"), which is being accounted for
as an immaterial pooling-of-interests, are included from July 1, 1997;
the results of Syncotec Neue Technologien und Instrumente GmbH
("Syncotec") are included from September 1, 1997 when the acquisition
of the remaining 50% of Syncotec was completed; and the results of
Technical Instrument Company ("TIC") are included in the consolidated
results of the Company from August 8, 1996 when that acquisition was
effective. Both of Syncotec and TIC were accounted for as purchases.
(2) Nonrecurring charges include acquisition-related charges of $1,585,000
and $11,083,000 in the first quarter ended September 30, 1997 and 1996,
respectively; and failed merger costs of $335,000 in the first quarter
ended September 30, 1997.
(3) The difference between basic shares outstanding and diluted shares
outstanding is the assumed conversion of common stock equivalents
(stock options) in the amounts of 0, 1,345,000, 1,595,000, 1,555,000
and 683,000 in the year ended June 30, 1999, 1998, 1997, 1996 and 1995
respectively.
(4) The net earnings per share have been restated as a result of the
adoption of Statement of Financial Accounting Standards No. 128,
Earnings Per Share.
23
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
RESULTS OF OPERATIONS
FISCAL 1999 COMPARED TO FISCAL 1998
Net sales of $60,838,000 for fiscal 1999 decreased by $37,033,000 or 37.8% from
fiscal 1998 net sales of $97,871,000. The Company's sales were adversely
impacted by market conditions, which began with poor conditions in the Asian
economic environment, leading to weak conditions in the semiconductor and data
storage markets. These forces impacted net sales of the Company's instruments
and systems, which decreased by 35.3% to $41,020,000. Net sales of modules and
components decreased by 42.5% to $19,818,000. The decrease in modules and
components was principally the result of reductions in revenue associated with
the Lawrence Livermore National Laboratory National Ignition Facility Project as
1998 results included $8,887,000 of revenue associated with the facilitation of
the Company's Middlefield, Connecticut plant and to a lesser extent motion and
optical component sales to OEM customers.
The Company's sales outside of the United States amounted to $28,029,000 in
fiscal 1999 a decrease of $14,990,000 or 34.8% from fiscal 1998 levels of
$43,019,000. Sales in Japan during fiscal 1999 amounted to $14,143,000 a
decrease of $8,141,000 or 36.5% from fiscal 1998 levels. Shortfalls were caused
by lower demand from Japanese customers due to market conditions, including
lower sales of motion control components to Canon Inc. for incorporation into
Canon's photolithography "steppers" used in the production of semiconductors.
Additional reductions occurred in mask metrology systems where macroeconomic
factors impacted sales levels. Sales in the Pacific Rim and Europe amounted to
$5,310,000 and $1,539,000, respectively, representing 46.7% and 16.4% reductions
from 1998 sales levels. Substantially all of the Company's sales and costs are
negotiated and paid in U.S. dollars. Significant changes in the values of
foreign currencies relative to the value of the U.S. dollar can impact the sales
of the Company's products in its export markets as would changes in the general
economic conditions in those markets. The impact of such changes in foreign
currency values on the Company's sales cannot be measured.
Gross profit in fiscal 1999 amounted to $21,507,000, a decrease of $19,635,000
or 47.7% from gross profit of $41,142,000 in fiscal 1998. As a percentage of net
sales, gross profit in fiscal 1999 was 35.4%, as compared to 42.0% in fiscal
1998. The decrease in gross profit and gross profit as a percentage of sales
were primarily due to volume shortfalls and the associated underutilization of
the Company's manufacturing facilities as wells as costs, which were essentially
one time in nature, incurred as the Company realigned its manufacturing
operations in response to lower demand. These actions led to the elimination of
manufacturing in the Company's Newbury Park and Sunnyvale, California
facilities.
Selling, general and administrative expenses in fiscal 1999 amounted to
$18,966,000 an increase of $612,000 or 3.3% over fiscal 1998. During fiscal
1999, the Company initiated substantial cost reduction efforts as well as
efforts associated with creating additional sales and support infrastructure.
1999 results were also impacted by bad debt expenses, most notably with
contracts associated with StorMedia, Inc. Additional costs have been incurred
for the creation of sales infrastructure and the addition of Atomic Force
Microscopy technology to the Company's product portfolio. As a percentage of net
sales, selling, general, and administrative expenses increased in fiscal 1999 to
31.2 % as compared to 18.8% in fiscal 1998, as a result of such increased
expenses and lower sales volume levels.
Research, development and engineering expenses ("R&D") in fiscal 1999 totaled
$9,185,000 and decreased by $659,000 from fiscal 1998. During the third and
fourth quarters, consolidations and cost reduction efforts were targeted in this
functional area. Particular emphasis was given to the vision and
24
<PAGE>
confocal product lines where the completion of certain R&D programs and the
resulting introduction of new products enabled these cost savings actions to
move forward. The Company's management continues to pursue projects which will
enhance the Company's product offering and provide long term strategic and
financial benefits. R&D costs as a percentage of net sales amounted to 15.1%,
which compares with 10.1% of net sales in 1998.
The Company recorded nonrecurring charges in the amount of $1,920,000 in fiscal
1998, all which were incurred in the three months ended September 30, 1997. The
nonrecurring charges related to $707,000 of expenses incurred to complete the
Company's merger with SSI, recorded as a pooling-of-interest, the write-off of
$878,000 of in-process research and development costs in conjunction with the
Company's acquisition of Syncotec, and failed merger costs of $335,000 relating
to the Company's failed efforts to merge with Digital Instruments, Inc. The
Company did not record any nonrecurring charges in fiscal 1999.
Amortization expense of $1,258,000 for fiscal 1999 increased by $465,000 or
58.7% from fiscal 1998 levels of $793,000. Substantially all of the increase is
associated with the amortization expense recorded on the Atomic Force Microscope
line of business.
The Company's operating losses in fiscal 1999 was $7,902,000 as compared to
operating profits of $10,231,000 in fiscal 1998.
Income tax benefits in fiscal 1999 totaled $3,074,000 or 43% of pretax losses
which compares with income tax expense of $3,969,000 or 36% of pretax income in
fiscal 1998.
The Company recorded a net loss for fiscal year 1999 of $3,989,000 or $(.36) per
share, as compared to net earnings of $7,114,000 and $.58 per share during
fiscal 1998.
Backlog at June 30, 1999 was $28,941,000 compared to $24,410,000 at June 30,
1998, an increase of $4,531,000. The Company's instruments and systems at June
30, 1999 increased $6,280,000 largely due to increases in the automation
backlog. The components backlog fell by $1,749,000.
FISCAL 1998 COMPARED TO FISCAL 1997
Net sales of $97,871,000 for fiscal 1998 increased by $10,651,000 or 12.2% from
fiscal 1997 net sales of $87,220,000. This increase was principally the result
of revenues of $8,887,000 received under a contract with LLNL, whereby the
Company is the primary supplier of large plano optical components for the
National Ignition Facility, and to a lesser extent the Company's acquisition of
Syncotec Neue Technologien und Instrumente GmbH ("Syncotec") and merger with
Sight Systems, Inc. ("SSI"), partially offset by a 2.6% decrease in net sales of
the Company's instruments and systems to $63,416,000, resulting from lower
demand from data storage and semiconductor industries. Net sales of modules and
components increased by 55.9% to $34,451,000, in fiscal 1998, primarily due to
NIF as stated above.
The Company's sales outside the United States amounted to $43,019,000 in fiscal
1998, an increase of $3,494,000 or 8.1% from fiscal 1997. Sales in Japan during
fiscal 1998 amounted to $22,284,000, an increase of $554,000 over fiscal 1997
despite flat sales for the Company's motion control components to Canon Inc. for
incorporation into Canon's photolithography "steppers" used in production of
semiconductors. Sales to other geographic markets outside the U.S. amounted to
$20,735,000 in fiscal 1998, an increase of $2,940,000 or 16.5% from fiscal 1997.
Decreases in the Pacific Rim of $1,302,000, principally due to the macro
economic environment there, were offset by increased sales of the Company's
products in Europe due to the Company's acquisition of Syncotec and improved
market
25
<PAGE>
conditions. Substantially all of the Company's sales and costs are negotiated
and paid in U.S. dollars. Significant changes in the values of foreign
currencies relative to the value of the U.S. dollar can impact the sales of the
Company's products in its export markets as would changes in the general
economic conditions in those markets. The impact of such changes in foreign
currency values on the Company's sales cannot be measured.
Gross profit in fiscal 1998 amounted to $41,142,000, a decrease of $683,000 or
1.6% from gross profit of $41,825,000 in fiscal 1997. As a percentage of net
sales, gross profit in fiscal 1998 was 42.0%, as compared to 48.0% in fiscal
1997. Increase in gross profit dollars from the NIF facility project with its
lower margins than the Company's products, were offset by volume decreases in
the automation facility and reductions in higher margin confocal mask metrology
systems. Additionally, under absorption of certain manufacturing costs primarily
in the Company's automation facility and increased inventory reserves negatively
impacted fiscal 1998 results.
Selling, general and administrative expenses in fiscal 1998 amounted to
$18,354,000 and increased by $4,524,000 or 32.7% from fiscal 1997. The increase
was primarily attributable to the settlement of a commercial dispute, the
addition of Syncotec and SSI, and the investment in Sales, Service and Marketing
infrastructure with a number of initiatives, including the introduction of
several new products, most notably, the MESA interferometer, the addition of
sales and service personnel, and the restructuring of the sales organization
into a single worldwide organization selling all Zygo products. The Company also
incurred incremental expenses for the office opened in Singapore. As a
percentage of net sales, selling, general and administrative expenses increased
in fiscal 1998 to 18.8%, as compared to 15.9% in fiscal 1997. In the fourth
quarter ended June 30, 1998, the Company took several actions due to the
declining order rates and resulting under absorption including curtailing all
discretionary spending, freezing all salaries, reducing the workforce, and
realigning management.
Research, development and engineering expenses ("R&D") in fiscal 1998 totaled
$9,844,000 and increased by $2,693,000 or 37.7% from fiscal 1997. The increase
in R&D expenses includes principally expenses from the Company's acquisitions of
SSI and Syncotec, expenses relating to the consolidation of the Company's Flying
Height Test Division and Vision Systems operations into one facility, and to a
lesser extent, expenses associated with additional expenditures for manpower and
materials to support new product development. Research and Development cost as a
percentage of net sales amounted to 10.1% which compares with 8.2% of net sales
in 1997.
The Company recorded nonrecurring charges in the amount of $1,920,000 in fiscal
1998 as compared with nonrecurring acquisition-related charges in the amount of
$11,083,000 in fiscal 1997. The fiscal 1998 nonrecurring charges, all of which
were incurred in the three months ended September 30, 1997, related to $707,000
of expenses incurred to complete the Company's merger with SSI, recorded as a
pooling-of-interest, the write-off of $878,000 of in-process research and
development costs in conjunction with the Company's acquisition of Syncotec, and
failed merger costs of $335,000 relating to the Company's failed efforts to
merge with Digital Instruments, Inc. The fiscal 1997 nonrecurring charges, all
of which were incurred in the three months ended September 30, 1996, related to
$999,000 of expenses incurred to complete the Company's merger with NexStar and
the write off of $10,084,000 of in-process research and development costs in
conjunction with the Company's acquisition of TIC.
Excluding the nonrecurring charges, the Company's operating profit in fiscal
1998 was $12,151,000, a decrease of $8,135,000 or 40.1% from operating profit in
fiscal 1997. Operating profit in fiscal 1998, including the nonrecurring
acquisition-related charges, amounted to $10,231,000 as compared to $9,203,000
in fiscal 1997.
26
<PAGE>
Income tax expense in fiscal 1998 totaled $3,969,000 on earnings before income
taxes of $11,083,000 as compared to $7,161,000 of income taxes in fiscal 1997 on
earnings before income taxes of $10,038,000. The lower tax expense as a
percentage of earnings before taxes in fiscal 1998 compared to fiscal 1997 was
principally a result of the incurrence of less non-tax deductible acquisition
charges to earnings in fiscal 1998 than were incurred in the prior fiscal year.
Backlog at June 30, 1998, was $24,410,000 compared to $38,688,000 at June 30,
1997, a decrease of $14,278,000 or 36.9%. The backlog of the Company's
instruments and systems at June 30, 1998 decreased by $8,481,000 or 39.0% from
that at June 30, 1997, principally as a result of a weak demand from customers
in the data storage and semiconductor industries. The backlog of the Company's
modules and components decreased by $5,797,000 or 35.0% from the year earlier
primarily as a result of the Company's progress in its NIF facilitation contract
which accounted for $8,887,000 of revenue in 1998.
Net earnings and diluted earnings per share for fiscal 1998 amounted to
$7,114,000 and $.58 as compared to $2,877,000 and $.24, respectively, for fiscal
1997. Excluding nonrecurring charges, net income for fiscal 1998 totaled
$9,034,000, a decrease of $4,926,000 or 35.3% from fiscal 1997. Earnings per
share excluding the nonrecurring charges, were $.74 in fiscal 1998, down 36.2%
from $1.16 in fiscal 1997.
LIQUIDITY AND CAPITAL RESOURCES
At June 30, 1999, working capital was $43,581,000, a decrease of $6,504,000 from
the amount at June 30, 1998, and the Company had cash and cash equivalents of
$13,020,000 and marketable securities amounting to $8,351,000 for a total of
$21,371,000. The $8,916,000 decrease in cash, cash equivalents, and marketable
securities from the amount at June 30, 1998 came primarily from net losses of
$3,989,000 and investing activities totaling $7,320,000. Additions to property,
plant, and equipment account for $4,362,000 and AFM intangible purchases
requiring cash payments of $2,250,000 were the major utilizers of cash. Lower
business activity led to accounts payable and accrued expense decreases of
$5,249,000, which were largely offset by accounts receivable reductions of
$4,461,000. Management expects fiscal 2000 capital expenditures to approximate
fiscal 1999 capital spending levels. At fiscal year end, the Company had
$1,410,000 in inventory and purchase commitments of approximately $7,324,000
under its distribution agreement relating to the AFM technology and product
line. As of June 30, 1999, there were no borrowings outstanding under the
Company's $3,000,000 bank line of credit. Stockholders equity at June 30, 1999
decreased by $3,792,000 from the year earlier to $68,374,000, largely as a
result of net losses of $3,989,000.
At June 30, 1998 working capital was $50,085,000, an increase of $2,452,000 from
the amount at June 30, 1997, and the Company had cash and cash equivalents of
$22,023,000 and marketable securities amounting to $8,264,000 for a total of
$30,287,000. The $6,540,000 increase in cash and cash equivalents and marketable
securities from the amount at June 30, 1997 was largely due to receivable
reductions. Trade accounts receivable decreased by $4,175,000, principally as a
result of lower fourth quarter net sales combined with focused collection
activities. As a result of the addition of SSI and Syncotec and lower fourth
quarter shipments, inventory increased by $2,774,000 at June 30, 1998 compared
to the year earlier. Accounts payable and accrued expenses increased by
$2,630,000 in fiscal 1998 to $15,535,000 due to normal business activities. The
Company's expenditures for property, plant and equipment totaled $9,016,000 in
fiscal 1998, which was $4,293,000 more than the prior fiscal year. Fiscal 1998
expenditures included $5.1 million spent on the completion of certain building
additions, principally the expansion of the Middlefield, Connecticut, facilities
by 35,500 square feet to accommodate the space required for the NIF facility and
to provide additional office facilities. These expenditures were funded by
operating cash flows. As of June 30, 1998, there were no borrowings
27
<PAGE>
outstanding under the Company's $3,000,000 bank line of credit. Stockholders'
equity at June 30, 1998 increased by $9,758,000 from the year earlier to
$72,166,000 as a result of net income of $7,114,000, and increases in the
Company's common stock and paid-in capital accounts resulting from the Company's
acquisition of SSI and the exercise of employee stock options.
RISK FACTORS THAT MAY IMPACT FUTURE RESULTS
Industry Concentration and Cyclicality. Zygo's business is significantly
dependent on capital expenditures by manufacturers of components for the
computer disk drive industry and of semiconductors. These industries are
cyclical and have historically experienced periods of oversupply, resulting in
significantly reduced demand for capital equipment, including the products
manufactured and marketed by Zygo. For the foreseeable future, Zygo's operations
will continue to be dependent on the capital expenditures in these industries
which, in turn, is largely dependent on the market demand for hard disk drives
and products containing integrated circuits. Zygo's net sales and results of
operations may be materially adversely affected if downturns or slowdowns in the
computer disk drive or semiconductor markets significantly extend into the
future.
Risks Associated with Acquisitions. Zygo's growth strategy involves growth
through acquisitions and internal development and, as a result, Zygo is subject
to various risks associated with this growth strategy. The successful
integration of acquired businesses is important to Zygo's future financial
performance. In addition, while there are currently no commitments with respect
to any future acquisitions, Zygo's business strategy includes the expansion of
its products and services, which may be effected through further acquisitions.
Zygo regularly reviews various acquisition prospects of businesses, technologies
or products complementary to Zygo's business and periodically engages in
discussions regarding such possible acquisitions. Acquisitions involve numerous
risks, including difficulties in the assimilation of the operations and products
of the acquired companies, the ability to manage effectively geographically
remote units, the diversion of management's attention from the day-to-day
business operations of the Company and its other business concerns, risks of
entering markets in which Zygo has limited or no direct experience, integrating
personnel with disparate business backgrounds, combining different corporate
cultures, and the potential loss of key employees of the acquired companies.
There can be no assurance that there will not be substantial costs associated
with such activities or that there will not be other material adverse effects of
those integrating efforts. Further, there can be no assurance that management's
efforts to integrate the operations of Zygo and newly acquired companies will be
successful or that the anticipated benefits of the recent acquisitions will be
fully realized.
In addition, acquisitions may result in dilutive issuances of equity securities,
the incurrence of debt, reduction of existing cash balances, amortization
expenses related to goodwill and other intangible assets, and other charges to
operations that may materially adversely affect Zygo's business, financial
condition or results of operations. Although management expects to carefully
analyze any such opportunity before committing Zygo's resources, there can be no
assurance that any acquisition will result in long-term benefits to Zygo or that
Zygo's management will be able to manage effectively the resulting businesses.
Customer Concentration; Relationship with Canon. During fiscal 1999 and 1998,
sales to Canon Inc. and Canon Sales Co., Inc. (collectively, "Canon"), Zygo's
largest customer in those periods, accounted for approximately 22% and 18%,
respectively, of Zygo's net sales. Zygo expects that sales to Canon, an original
investor in Zygo which owns approximately 11% of Zygo's outstanding shares of
Common Stock and is a distributor of certain Zygo products in the Japanese
market, will continue to represent a significant percentage of Zygo's net sales
for the foreseeable future. During fiscal 1998, sales to Zygo's second largest
customer, LLNL, accounted for approximately 13% of Zygo's net sales. Zygo's
28
<PAGE>
customers generally do not enter into long-term agreements obligating them to
purchase Zygo's products. A reduction or delay in orders from either of these
two customers, including reductions or delays due to market, economic, or
competitive conditions in the semiconductor or computer disk drive industries,
could have a material adverse effect upon Zygo's results of operations.
Technological Change and New Product Development. The market for Zygo's products
is characterized by rapidly changing technology. Zygo's future success will
continue to depend upon its ability to enhance its current products and to
develop and introduce new products that keep pace with technological
developments and evolving industry standards, respond to changes in customer
requirements, and achieve market acceptance. Zygo expends significant financial
and personnel resources to continually redesign and enhance its instruments,
systems and components and upgrade its proprietary software technology
incorporated in its products. Any failure by Zygo to anticipate or respond
adequately to technological developments and customer requirements, or any
significant delays in product development or introduction, could have a material
adverse effect on Zygo's business, and the results of close relationships with
its customers and their willingness to share proprietary information about their
requirements and participate in collaborative efforts with Zygo. There can be no
assurance that Zygo's customers will continue to provide the Company with timely
access to such information or that Zygo will be successful in developing and
marketing new products and services or product and service enhancements on a
timely basis and respond effectively to technological changes or new product
announcements by others. In addition, there can be no assurance the new products
and services or product enhancements, if any, developed by Zygo will achieve
market acceptance.
Dependence on Key Personnel. Zygo's success depends in large part upon the
continued services of many of its high skilled personnel involved in management,
research, development and engineering, and sales and marketing and upon its
ability to attract and retain additional highly qualified employees. Zygo's
employees may voluntarily terminate their employment with Zygo at any time.
Competition for such personnel is intense, and there can be no assurance that
Zygo will be successful in retaining its existing personnel or attracting and
retaining additional personnel. In August 1999, the Company's Vice President
Operations resigned from the Company.
Quarterly Fluctuations. Zygo has experienced quarterly fluctuations in results
of operations and anticipates that these fluctuations may continue. These
fluctuations have been caused by various factors, including the capital
procurement practices of its customers and the industries into which its
products are sold generally, the timing and acceptance of new product
introductions and enhancements, and the timing of product shipments and
marketing. Future results of operations may fluctuate as a result of these and
other factors, including Zygo's ability to continue to develop innovative
products, the announcement or introduction of new products by Zygo's
competitors, Zygo's product and customer mix, the level of competition and
overall trends in the United States and various economies.
Possible Volatility of Stock Price. Zygo believes that factors such as the
announcement of new products or technologies by Zygo or its competitors, market
conditions in the precision measurement, data storage, and semiconductor
industries generally and quarterly fluctuations in financial results are
expected to cause the market price of the Common Stock to vary substantially.
Further, Zygo's net sales or results of operations in future quarters may be
below the expectations of public market securities analysts and investors. In
such event, the price of the Common Stock would likely decline, perhaps
substantially. In addition, in recent years the stock market has experienced
price and volume fluctuations that have particularly affected the market prices
for many high technology companies and which often have been unrelated to the
operating performance of such companies. The market volatility may adversely
affect the market price of the shares of Zygo's Common Stock.
29
<PAGE>
Competition. Zygo faces competition from a number of companies in all its
markets, some of which have greater manufacturing and marketing capabilities,
and greater financial, technological, and personnel resources. In addition, Zygo
competes with the internal development efforts of its current and prospective
customers, certain of which may attempt to become vertically integrated. Zygo's
competitors can be expected to continue to improve the design and performance of
their products and to introduce new products with competitive price/performance
characteristics. Competitive pressures may necessitate price reductions, which
can adversely affect results of operations. Although Zygo believes that it has
certain technical and other advantages over certain of its competitors,
maintaining such advantages will require a continued high level of investment by
Zygo in research and development and sales, marketing and service. There can be
no assurance that Zygo will have sufficient resources to continue to make such
investment or that Zygo will be able to make the technological advances
necessary to maintain such competitive advantages. In addition, there can be no
assurance that the bases of competition in the industries in which Zygo competes
will not shift.
Dependence on Proprietary Technology. Zygo's success is heavily dependent upon
its proprietary technology. There can be no assurance that the steps taken by
Zygo to protect its proprietary technology will be adequate to prevent
misappropriation of its technology by third parties or will be adequate under
the laws of some foreign countries, which may not protect Zygo's proprietary
rights to the same extent as do laws of the United States. In addition, there
remains the possibility that others will "reverse engineer" Zygo's products in
order to determine their method of operation and introduce competing products or
that others will develop competing technology independently. Any such adverse
circumstances could have a material adverse effect on Zygo's results of
operations. Further, some of the markets in which Zygo competes are
characterized by the existence of a large number of patents and frequent
litigation for financial gain that is based on patents with broad, and often
questionable, application. As the number of its products increase, the markets
in which its products are sold expands, and the functionality of those products
grows and overlaps with products offered by competitors, Zygo believes that it
may become increasingly subject to infringement claims. Although Zygo does not
believe any of its products or proprietary rights infringe the rights of third
parties, there can be no assurance that infringement claims will not be asserted
against Zygo in the future or that any such claim will not result in costly
litigation or require Zygo to enter into royalty arrangements, which may not be
available to the Company on commercially acceptable terms if at all.
Dependence on Third-Party Suppliers. Certain of the components and subassemblies
included in Zygo's systems are obtained from a single source or a limited group
of suppliers. Although Zygo seeks to reduce dependence on sole and limited
source suppliers in some cases, the partial or complete loss of certain of these
sources could have an adverse effect on Zygo's results of operations and damage
customer relationships.
Revenues Derived From International Sales and Foreign Operations. Zygo's
products are sold internationally by Zygo primarily to customers in Japan and
throughout the Pacific Rim. Net sales to customers outside the United Stated
accounted for 46% and 44% of Zygo's net sales in the fiscal years ended June 30,
1999 and 1998, respectively, and are expected to continue to account for a
substantial percentage of Zygo's net sales. International sales and foreign
operations are subject to inherent risks, including the economic conditions in
these various foreign countries and their trading partners, political
instability, longer payment cycles, greater difficulty in accounts receivable
collection, compliance with foreign laws, changes in regulatory requirements,
tariffs or other barriers, difficulties in obtaining export licenses and in
staffing and managing foreign operations, exposure to currency exchange
fluctuations, transportation delays, and potentially adverse tax consequences.
Substantially all Zygo's sales and costs are negotiated and paid in U.S.
dollars. However, changes in the values of foreign currencies relative to the
value of the U.S. dollar can render Zygo's products comparatively more expensive
to the extent locally produced alternative products are available. Such
conditions could negatively impact
30
<PAGE>
international sales of Zygo's products and Zygo's foreign operations, as would
changes in the general economic conditions in those markets. There can be no
assurance that risks inherent in international sales and foreign operations will
not have a material adverse effect on Zygo in the future.
Reliance on Middlefield Manufacturing Facility. The Company manufactures all of
its optical components at its facility in Middlefield, Connecticut. Any extended
interruption of optical component production at the Middlefield manufacturing
facility could have a material adverse effect on the business of the Company.
Control of Company. The Company's executive officers and directors, through
their affiliation with certain stockholders and their stock option holdings, may
be deemed to beneficially own approximately 34% of the outstanding shares of
Common Stock. As a result, these individuals may have the ability to control the
Company and direct its affairs and business, including the election of all the
directors.
Dividend Policy. The Company has never declared or paid cash dividends on its
capital stock. The Company currently intends to retain all its earnings to
finance the expansion and development of its business and, therefore, does not
anticipate paying any cash dividends in the foreseeable future.
Year 2000 State of Readiness, Costs and Risk Assessments. The Company is
continuing to work at each of its sites to reduce the impact of the Year 2000
software anomaly on the processing of date sensitive information by the
Company's computerized information systems, as well as supplier and customer
date-sensitive information transferred to or by the Company.
The work has addressed the Company's products, product design tools,
manufacturing tools, information systems, business infrastructure, material and
service suppliers, and customers.
Products:
The Company's products only use the date function of the underlying computer
system to date-stamp data files collected during the measurement process.
Representative systems have been tested using a test scenario published by an
industry trade organization that many of Zygo's customers support. The Company's
current products pass these tests. Older products may have underlying computers
that are not listed as Y2K compliant by their manufacturers. After installing
patches or upgrading as recommended by Zygo or the computer's manufacturer (as
listed on the Company's Y2K web site), these products appear to be Y2K ready
when tested with the trade organization's test scenario. The costs of assisting
Zygo's customers to ensure that products will continue to operate in the 21st
century have been insignificant and are not anticipated to become significant.
Product design tools:
This equipment and associated software have been inventoried and were
investigated through contact with the manufacturer or by testing, and were found
to be Y2K ready, contain no date functions or are not essential for the
continued operation of the business. Costs to conduct this investigation were
insignificant, and no significant additional expense is anticipated.
Manufacturing Tools:
This equipment and associated software have been inventoried and were
investigated through contact with the manufacturer or by testing, and were found
to be Y2K ready, have been upgraded to be Y2K ready, contain no date functions
or are not essential for the continued operation of the business. Costs to
conduct this investigation were insignificant, and no significant additional
expense is anticipated.
31
<PAGE>
Information Systems:
Information Systems at all sites have been inventoried and were investigated
through contact with the manufacturer or by testing, and were found to be Y2K
ready. The main information system software at each site is also certified by
the software's manufacturer to be Year 2000 compliant. The software used to run
the Company's headquarters in Middlefield was upgraded to a version certified as
compliant by the supplier, and is operational. Costs to procure the updated
version of software were included in the maintenance agreement signed when the
software was first installed five years ago. Testing and implementation costs
are not broken out separately as they are part of the normal costs incurred when
installing upgraded software. Upgrades to this software have been tested and
installed in the past with no significant costs incurred, and did not cause
significant additional expenses this time.
Desktop computers have been inventoried. They have been upgraded to run the
current operating system version and office suite, which are reported to be
compliant with minor issues by their manufacturer. The manufacturer's patches to
these systems have either been applied, orare expected to be applied before the
end of September 1999. Older systems are being retired or upgraded as a normal
course of business. Continued operation of the business is not dependent on the
applications running on these desktop systems. Costs to conduct the
investigation were insignificant. Upgrading and replacement costs were not
significantly different from prior year levels. No significant additional
expense is anticipated.
Business Infrastructure:
Business Infrastructure items, including the Company's phone systems, network
equipment, servers, fax machines, copiers, HVAC, security systems and elevators
have been inventoried and investigated through contact with the manufacturer or
by testing, and were found to be Y2K ready or contain no date functions. Costs
to conduct this investigation were insignificant, and no additional expense is
anticipated.
Suppliers:
Material and service suppliers have been surveyed at all sites. Included are the
suppliers of all materials, financial services, benefits providers and
utilities. As of September 1999, more than 83% have responded and none currently
indicate that they expect their products or businesses to be adversely impacted
by the Year 2000 issue. Less than 1% indicate that they have no Year 2000 plan.
Zygo's purchasing function has reviewed the suppliers for criticality to the
business and does not anticipate that there will be a significant impact on the
Company's ability to provide products and services to its customers.
Of most concern to the Company are the suppliers of utilities such as power,
phone lines, water and sewage. Outages could prevent normal operation of the
business. Latest investigations of these utility's Year 2000 efforts indicate
that while they cannot guarantee there will be no outages of service, they do
not expect the outages to be prolonged and are making plans to provide rapid
restoration of service.
Customers:
Zygo's most significant customers have active Year 2000 programs and have also
asked the Company for information regarding the Year 2000 program as part of
their supplier assessment process. Reviewing their public reports indicates that
they expect to be able to continue to satisfy their customer's needs in the 21st
century. However, it is not possible for the Company to predict all of the
impacts that the Year 2000 may have on its customers' businesses.
Company's Contingency Plans:
The Company believes that the largest risk to its customers may be the inability
to deliver products or services in a timely manner in early January 2000 due to
delays in receipt of material or the Company's
32
<PAGE>
inability to process the material because of the outage of a critical utility
supplier. Of less concern is the failure of the Company's internal business
systems or manufacturing equipment.
To minimize the material risks, items required for products scheduled for
shipment in early January 2000 have been requested to be delivered to the
Company during late 1999. On a case by case basis, products may be assembled and
tested during late 1999 for delivery in early 2000.
The risk posed by our utility suppliers is reduced by the fact that January 1,
2000 falls on a Saturday and is a Holiday, when most operations of the business
will be suspended. Normal operations are scheduled to resume on Monday, January
3. It is anticipated that this will allow time for any utility outages to be
restored. Plans are being formulated to detect any unanticipated Year 2000
issues internal to the Company, and that they are corrected in time for the
return of the workforce on January 3, 2000.
Our internal business systems are required for efficient operation of the
business. Failure of the software would, however, not suspend operations.
Transactions could be recorded manually. This process has been used on occasions
when the systems have been unavailable for use due to equipment failure,
software bugs or upgrading.
Summary:
Achieving Year 2000 readiness is dependent on many factors, some of which are
not completely within the Company's control. There can be no assurance that the
Company will be able to identify all aspects of its business that are subject to
Year 2000 problems of customers, suppliers or internal systems that affect the
Company's business. There also can be no assurance that the Company's software
suppliers are correct in their assertions that the software is Year 2000
compliant, or that the Company's estimate of the costs relating to the Year 2000
issue will ultimately prove to be accurate. Should either the Company's internal
systems or those of critical suppliers fail to achieve Year 2000 readiness, or
the Company's estimate of the costs relating to the Year 2000 issue prove to be
materially inaccurate, the Company's business and its results could be adversely
affected.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS
We are subject to interest rate risk on our investment portfolio.
A move in interest rates of 10% of our weighted-average worldwide interest rate
in 1999 affecting our financial investments as of June 30, 1999 would have an
insignificant effect on our pretax earnings. In 1998, the same move in interest
rates affecting our interest sensitive investments would have had an
insignificant effect on our financial position, results of operations and cash
flows.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Financial statements and supplementary data required pursuant to this Item begin
on Page F-1 of this Report.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
33
<PAGE>
Except for the information concerning executive officers which is set forth in
Part I of this report, information required by this item will be included under
the captions "Election of Board of Directors" and "Other Agreements and Other
Matters" in the Proxy Statement to be filed pursuant to Regulation 14A for use
in connection with the Registrant's 1999 Annual Meeting of Stockholders ("the
Proxy Statement") and is herein incorporated by reference.
ITEM 11. EXECUTIVE COMPENSATION
Information required by this item will be included in the Proxy Statement under
the caption "Executive Compensation" and is herein incorporated by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Information required by this item will be included in the Proxy Statement under
the captions "Election of Board of Directors" and "Principal Stockholders" and
is herein incorporated by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information required by this item will be included in the Proxy Statement under
the caption "Certain Relationships and Related Transactions" and is herein
incorporated by reference.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) The following documents are filed as part of this report:
1. and 2. Financial Statements and Financial Statement Schedules:
An index to the financial statements and financial statement
schedules filed is located on page F-1.
3. EXHIBITS
3.(i) Restated Certificate of Incorporation of the Company and
amendments thereto (Exhibit 3.(i) to the Company's Annual
Report on Form 10-K for its year ended June 30, 1993)*
3.(ii) Certificate of Amendment of Certificate of Incorporation, filed
June 3, 1996 (Exhibit 3.(ii) to the Company's Annual Report on
Form 10-K 405 for its year ended June 30, 1996)*
3.(iii) By-laws of the Company (Exhibit (3)(b) to Registration No.
2-87253 on Form S-1 hereinafter "Registration No. 2-87253")*
4.1 Shareholders Agreement dated October 17, 1983, between Canon
Inc., Wesleyan University, Paul F. Forman, Carl A. Zanoni, and
Sol F. Laufer (Exhibit (4)(a) to Registration 2-87253)*
10.1 Confidentiality and Non-Competition Agreement dated October 25,
1983, between the Company and Carl A. Zanoni (Exhibit (10)(b)
to Registration No. 2-87253)*
34
<PAGE>
10.2 Agreement dated May 27, 1975, between the Company and Canon
U.S.A., Inc., regarding information sharing and marketing
(Exhibit (10)(x) to Registration No. 2-87253)*
10.3 Agreement dated November 20, 1980, between the Company and
Canon Inc. regarding exchange of information (Exhibit (10)(y)
to Registration No. 2-87253)*
10.4 Zygo Corporation Profit Sharing Plan, as amended effective June
30, 1985 (Exhibit 10.35 to the Company's Annual Report on Form
10-K for its year ended June 30, 1985)*
10.5 First Amendment to the Zygo Corporation Profit Sharing Plan
(Exhibit 10.28 to the Company's Annual Report on Form 10-K for
its year ended June 30, 1989)*
10.6 Second Amendment to the Zygo Corporation Profit Sharing Plan
(Exhibit 10.29 to the Company's Annual Report on Form 10-K for
its year ended June 30, 1989)*
10.7 Third Amendment to the Zygo Corporation Profit Sharing Plan
(Exhibit 10.30 to the Company's Annual Report on Form 10-K for
its year ended June 30, 1989)*
10.8 Fourth Amendment to the Zygo Corporation Profit Sharing Plan
(Exhibit 10.31 to the Company's Annual Report on Form 10-K for
its year ended June 30, 1989)*
10.9 Amended and Restated Zygo Corporation Profit Sharing Plan
(Exhibit 10.15 to the Company's Annual Report on Form 10-K405
for its year ended June 30, 1995)*
10.10 Canon/Zygo Confidentiality Agreement dated March 7, 1990,
between the Company and Canon Inc. regarding confidential
technical information received from each other (Exhibit 10.42
to the Company's Annual Report on Form 10-K for its year ended
June 30, 1991)*
10.11 Employment Agreement dated February 13, 1992, relating to the
employment of Gary K. Willis by the Company (Exhibit 10.38 to
the Company's Annual Report on Form 10-K for its year ended
June 30, 1992)*
10.12 Amendment, dated August 26, 1993, to the Employment Agreement
dated February 13, 1992, between Gary K. Willis and the Company
(Exhibit 10.22 to the Company's Annual Report on Form 10-K for
its year ended June 30, 1993)*
10.13 Second Amendment, dated March 10, 1995, to the Employment
Agreement dated February 13, 1992, between Gary K. Willis and
the Company (Exhibit 10.19 to the Company's Annual Report on
Form 10-K405 for its year ended June 30, 1996)*
10.14 Stock Purchase Agreement dated March 4, 1992, relating to the
purchase of Company Common Stock by Gary K. Willis from
Wesleyan University (Exhibit 10.39 to the Company's Annual
Report on Form 10-K for its year ended June 30, 1992)*
10.15 Services Agreement dated August 26, 1993, between the Company
and Paul F. Forman (Exhibit 10.26 to the Company's Annual
Report on Form 10-K for its year ended June 30, 1993)*
10.16 Amendment Agreement dated as of December 31, 1996, between the
Company and Paul F. Forman.
35
<PAGE>
10.17 Non-Competition Agreement dated August 26, 1993, between the
Company and Paul F. Forman (Exhibit 10.27 to the Company's
Annual Report on Form 10-K for its year ended June 30, 1993)*
10.18 Zygo Corporation Amended and Restated Non-Qualified Stock
Option Plan ratified and approved by the Company's Stockholders
on November 19, 1992 (Exhibit 10.30 to the Company's Annual
Report on Form 10-K for its year ended June 30, 1993)*
10.19 Employment Agreement dated March 1, 1993, between Mark J.
Bonney and the Company (Exhibit 10.31 to the Company's Annual
Report on Form 10-K for its year ended June 30, 1993)*
10.20 Amendment, dated March 12, 1996, to the Employment Agreement
dated March 1, 1993, between Mark J. Bonney and the Company
(Exhibit 10.21 to the Company's Annual Report on Form 10-K 405
for its year ended June 30, 1996)*
10.21 Termination Agreement dated November 30, 1993, covering the
termination of the Shareholders' Agreement between Canon Inc.,
Wesleyan University, Paul F. Forman, Carl A. Zanoni, and Sol F.
Laufer dated October 17, 1983 (Exhibit 10.33 to the Company's
Annual Report on Form 10-K for its year ended June 30, 1994)*
10.22 Registration Rights Agreement dated November 30, 1993, between
Canon Inc., Wesleyan University, Paul F. Forman, Carl A.
Zanoni, Sol F. Laufer, and the Company (Exhibit 10.34 to the
Company's Annual Report on Form 10-K for its year ended June
30, 1994)*
10.23 Renewal of Line of Credit dated June 3, 1997, between the
Company and Fleet Bank Connecticut, N.A.*
10.24 Zygo Corporation Non-Employee Director Stock Option Plan
ratified and approved by the Company's stockholders on November
17, 1994 (Exhibit 10.30 to the Company's Annual Report on Form
10-K405 for its year ended June 30, 1996)*
10.25 Agreement and Plan of Merger, dated as of August 7, 1996, by
and among the Company, Technical Instrument Company, Zygo
Acquisition Corporation, Francis E. Lundy, the Lundy 1996
Charitable Trust, The Sherman Family Living Trust, Frank J.
Scheufele Trust, David Lytle, and Inspectron Development
Partners L.P., a California Limited Partnership (Exhibit 2 to
the Company's Current Report on Form 8-K dated August 19,
1996)*
10.26 Employment Agreement, dated August 7, 1996, between Technical
Instrument Company and Francis E. Lundy (Exhibit 10.27 to the
Company's Annual Report on Form 10-K 405 for its year ended
June 30, 1996)*
10.27 Acquisition Agreement, dated August 12, 1996, among the
Company, NX Acquisition Corporation, and NexStar Automation,
Incorporated (Exhibit 2 to the Company's Current Report on Form
8-K dated September 27, 1996)*
10.28 Employment Agreement, dated September 12, 1996, between NexStar
Corporation and Ahmad Akrami (Exhibit 10.29 to the Company's
Annual Report on Form 10-K 405 for its year ended June 30,
1996)*
36
<PAGE>
10.29 Acquisition Agreement dated August 19, 1997, by and among Zygo
Corporation, Sight Systems, Inc., and the Shareholders of Sight
Systems, Inc.*
10.30 Stock Purchase Agreement dated September 1, 1997, between
Technical Instrument Company and Syncotec Neue Technologien und
Instrumente GmbH*
10.31 Subcontract B335188 between The Regents of The University of
California Lawrence Livermore National Laboratory and Zygo
Corporation dated May 9, 1997*
10.32 Agreement between Zygo Corporation and Dacon Corporation
covering an addition to the Company's Middlefield, Connecticut,
facilities (Project 1774) and the N.I.F. Manufacturing
Renovation (Project 1842) dated April 7, 1997*
10.33 Employment Agreement dated August 19, 1997, between Sight
Systems, Inc. and David Grant*
10.34 Employment agreement dated January 15, 1999, between Zygo
Corporation and J. Bruce Robinson.
21. Subsidiaries of Registrant
23. Accountants' Consent
24. Power of Attorney
27. Financial Data Schedule
(b) Reports on Form 8-K
No reports on Form 8-K have been filed during the last quarter of the period
covered by this report.
*Incorporated herein by reference.
37
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
ZYGO CORPORATION
- -----------------------------------------
Registrant
By /s/ KEVIN M. MCGUANE Date: September 18, 1999
- -----------------------------------------
Kevin M. McGuane
Vice President Finance
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the registrant and
in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title
--------- -----
<S> <C> <C>
/s/ Gary K. Willis Chairman, Chief Executive Officer Date: September 18, 1999
- ------------------------------------ and Director
Gary K. Willis
/s/ J. BRUCE ROBINSON President and Director Date: September 18, 1999
- ------------------------------------
J. Bruce Robinson
/s/ KEVIN M. MCGUANE Vice President Finance, Chief Date: September 18, 1999
- ------------------------------------ Financial Officer and Treasurer
Kevin M. McGuane
/s/ CARL A. ZANONI Vice President Technology Date: September 18, 1999
- ------------------------------------ and Director
Carl A. Zanoni
PAUL F. FORMAN* Director
- ------------------------------------
(Paul F. Forman)
MICHAEL R. CORBOY* Director
- ------------------------------------
(Michael R. Corboy)
SEYMOUR E. LIEBMAN* Director
- ------------------------------------
(Seymour E. Liebman)
ROBERT G. MCKELVEY* Director
- ------------------------------------
(Robert G. McKelvey)
PAUL W. MURRILL* Director
- ------------------------------------
(Paul W. Murrill)
JOHN R. ROCKWELL* Director
- ------------------------------------
John R. Rockwell)
ROBERT B. TAYLOR* Director
- ------------------------------------
(Robert B. Taylor)
*By /s/ KEVIN M. MCGUANE Date: September 18, 1999
- ------------------------------------
Kevin M. McGuane
Attorney-in-Fact
</TABLE>
38
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
ZYGO CORPORATION
- ------------------------------------------
Registrant
By Date: September 18, 1999
- ------------------------------------------
Kevin M. McGuane
Vice President Finance
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the registrant and
in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title
--------- ------
<S> <C> <C>
Chairman, Chief Executive Officer Date: September 18, 1999
- --------------------------------- and Director
Gary K. Willis President and Director
Date: September 18, 1999
- ---------------------------------
J. Bruce Robinson
- ---------------------------------- Vice President Finance, Chief Date: September 18, 1999
Kevin M. McGuane Financial Officer and Treasurer
Vice President Technology Date: September 18, 1999
- ---------------------------------- and Director
Carl A. Zanoni
PAUL F. FORMAN* Director
- ----------------------------------
(Paul F. Forman)
MICHAEL R. CORBOY* Director
- ----------------------------------
(Michael R. Corboy)
SEYMOUR E. LIEBMAN* Director
- ----------------------------------
(Seymour E. Liebman)
ROBERT G. MCKELVEY* Director
- ----------------------------------
(Robert G. McKelvey)
PAUL W. MURRILL* Director
- ----------------------------------
(Paul W. Murrill)
JOHN R. ROCKWELL* Director
- ----------------------------------
(John R. Rockwell)
ROBERT B. TAYLOR* Director
- ----------------------------------
(Robert B. Taylor)
*By Date: September 18, 1999
- ----------------------------------
Kevin M. McGuane
Attorney-in-Fact
</TABLE>
39
<PAGE>
ZYGO CORPORATION AND CONSOLIDATED SUBSIDIARY
INDEX TO FINANCIAL STATEMENTS AND SCHEDULE
Page
F-2 Report of Management
F-3 Independent Auditors' Report
F-4 Consolidated balance sheets at June 30, 1999 and 1998
F-5 Consolidated statements of earnings for the years ended June 30,
1999, 1998, and 1997
F-6 Consolidated statements of stockholders' equity for the years
ended June 30, 1999, 1998, and 1997
F-7 Consolidated statements of cash flows for the years ended June 30,
1999, 1998, and 1997
F-8 to F-21 Notes to consolidated financial statements
F-22 Selected consolidated quarterly financial data for the years ended
June 30, 1999 and 1998
Consolidated Schedules
----------------------
S-1 Independent Auditors' Report on Schedule
S-2 II -Valuation and qualifying accounts
All other schedules have been omitted since the required information is
not present or not present in amounts sufficient to require submission
of the schedules or the information required is included in the
consolidated financial statements or notes thereto.
F-1
<PAGE>
REPORT OF MANAGEMENT
Management is responsible for preparing the Company's financial statements and
related information that appears in this report on Form 10-K405. Management
believes that the financial statements fairly reflect the form and substance of
transactions and reasonably present the Company's financial condition and
results of operations in conformity with generally accepted accounting
principles. Management has included in the Company's financial statements
amounts that are based on estimates and judgments which it believes are
reasonable under the circumstances.
The Company maintains a system of internal accounting policies, procedures, and
controls intended to provide reasonable assurance, at appropriate cost, that
transactions are executed in accordance with Company authorization and are
properly recorded and reported in the financial statements, and that assets are
adequately safeguarded.
KPMG LLP audits the Company's financial statements in accordance with generally
accepted auditing standards and provides an objective, independent review of the
fairness of reported financial condition and results of operations.
The Board of Directors of the Company has an Audit Committee composed of
nonmanagement directors. The Committee meets with financial management and the
independent auditors to review internal accounting controls and accounting,
auditing, and financial reporting matters.
Kevin M. McGuane
Vice President of Finance,
Treasurer, and Chief Financial Officer
F-2
<PAGE>
REPORT OF INDEPENDENT AUDITORS
THE BOARD OF DIRECTORS AND STOCKHOLDERS OF ZYGO CORPORATION:
We have audited the accompanying consolidated balance sheets of Zygo Corporation
and subsidiaries as of June 30, 1999 and 1998, and the related consolidated
statements of earnings, stockholders' equity and cash flows for each of the
years in the three-year period ended June 30, 1999. These consolidated financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Zygo Corporation and
subsidiaries as of June 30, 1999 and 1998, and the results of their operations
and their cash flows for each of the years in the three-year period ended June
30, 1999, in conformity with generally accepted accounting principles.
KPMG LLP
Hartford, Connecticut
August 6, 1999
F-3
<PAGE>
CONSOLIDATED BALANCE SHEETS
(Thousands, except share and per share amounts)
<TABLE>
<CAPTION>
JUNE 30, June 30,
1999 1998
-------- ---------
ASSETS
CURRENT ASSETS:
<S> <C> <C>
Cash and cash equivalents ............................... $ 13,020 $ 22,023
Marketable securities (note 3) .......................... 8,351 8,264
Receivables (note 4) .................................... 12,094 16,555
Inventories (note 5) .................................... 15,473 14,430
Costs in excess of billings (note 6) .................... 660 1,182
Income taxes receivable ................................. 741 --
Prepaid expenses and taxes .............................. 799 829
Deferred income taxes (note 17) ......................... 3,683 2,680
-------- --------
Total current assets ................................. 54,821 65,963
-------- --------
Property, plant and equipment, net (notes 7 and 11) ........... 16,248 15,689
Goodwill and other intangibles, net (note 8) .................. 9,939 8,524
Other assets .................................................. 819 829
-------- --------
TOTAL ASSETS .................................................. $ 81,827 $ 91,005
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable ........................................... $ 4,989 $ 5,993
Customer progress payments ................................. 735 417
Accrued salaries and wages ................................. 1,741 4,214
Other accrued expenses ..................................... 3,775 4,911
Income taxes payable ....................................... -- 343
-------- --------
Total current liabilities ............................... 11,240 15,878
-------- --------
Deferred income taxes (note 17) ............................... 2,213 2,961
STOCKHOLDERS' EQUITY (notes 13, 14, 15, and 16):
Common stock, $ .10 par value per share:
15,000,000 shares authorized; 11,402,422
shares issued (11,217,942 in 1998) ...................... 1,140 1,122
Additional paid-in capital ................................. 42,587 42,267
Retained earnings .......................................... 25,074 29,063
Accumulated other comprehensive income:
Currency translation effects ............................... (57) 1
Net unrealized gain (loss) on marketable securities
(note 3) ................................................ (69) 14
-------- --------
68,675 72,467
Less treasury stock, at cost; 207,600 common shares ........ 301 301
-------- --------
Total stockholders' equity .............................. 68,374 72,166
-------- --------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY .................... $ 81,827 $ 91,005
======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE>
CONSOLIDATED STATEMENTS OF EARNINGS
(Thousands, except per share amounts)
<TABLE>
<CAPTION>
Fiscal Year Ended June 30,
----------------------------------
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Net sales (notes 18 and 19) ...................... $ 60,838 $ 97,871 $ 87,220
Cost of goods sold ............................... 39,331 56,729 45,395
------- -------- --------
Gross profit ............................... 21,507 41,142 41,825
Selling, general and administrative expenses ..... 18,966 18,354 13,830
Research and development ......................... 9,185 9,844 7,151
Failed merger costs .............................. -- 335 --
Nonrecurring acquisition-related charges ......... -- 1,585 11,083
Amortization of goodwill and other intangibles ... 1,258 793 558
------- -------- --------
Operating profit (loss) .................... (7,902) 10,231 9,203
------- -------- --------
Other income (expense):
Interest income ............................ 1,147 1,100 883
Miscellaneous expense, net ................. (308) (248) (48)
------- ------- --------
Total other income ...................... 839 852 835
------- ------- --------
Earnings (loss) before income taxes ..... (7,063) 11,083 10,038
Income tax expense (benefit) (note 17) ........... (3,074) 3,969 7,161
------- ------- --------
Net earnings (loss) .............................. (3,989) $ 7,114 $ 2,877
======= ======== ========
Earnings (loss) per common and common equivalent
share (note 14):
Basic ...................................... $ (.36) $ 0.65 $ 0.28
======== ======== ========
Diluted .................................... $ (.36) $ 0.58 $ 0.24
======== ======== ========
Weighted average common shares and common dilutive
equivalents outstanding (note 14):
Basic ...................................... 11,148 10,890 10,403
======== ======== ========
Diluted .................................... 11,148 12,235 11,998
======== ======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE>
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(Thousands of dollars)
<TABLE>
<CAPTION>
Accum.
Other
Comp. Retained Comp. Common Treasury Paid-In
Total Income Earnings Income Stock Stock Capital
-------- ---------- -------- --------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at June 30,1996 ..................... $54,087 $19,060 $(35) $517 $(301) $34,846
Comprehensive Income
Net earnings .............................. 2,877 2,877 2,877
Other comprehensive income, net of tax
Unrealized gain on marketable
Securities ............................ 52 52
Foreign currency translation effect ..... -- --
------
Other comprehensive income ................ 52 52
------
Comprehensive income ........................ 2,929
======
Shares issued for TIC (note 2) .............. 3,000 10 2,990
Exercise of employee stock options
and related tax effect .................... 2,392 18 2,374
Stock split (note 14) ....................... -- (532) 532
------------------------------------------------------------------------------
Balance at June 30, 1997 .................... 62,408 21,405 17 1,077 (301) 40,210
Comprehensive Income
Net earnings .............................. 7,114 7,114 7,114
------
Other comprehensive loss, net of tax
Unrealized gain on marketable
securities ............................ (3) (3)
Foreign currency translation effect ..... 1 1
------
Other comprehensive loss, net of tax ...... (2) (2)
------
Comprehensive income ........................ 7,112
======
Shares issued for Syncotec (note 2) ......... 623 2 621
Shares issued for Sight Systems (note 2) .... 555 544 29 (18)
Exercise of employee stock options
and related tax effect .................... 1,468 14 1,454
------------------------------------------------------------------------------
Balance at June 30, 1998 .................... 72,166 29,063 15 1,122 (301) 42,267
Comprehensive loss
Net loss .................................. (3,989) (3,989) (3,989)
------
Other comprehensive loss, net of tax
Unrealized gain on marketable
securities ............................ (83) (83)
------
Foreign currency translation effect ..... (58) (58)
------
Other comprehensive loss .................. (141) (141)
------
Comprehensive loss .......................... (4,130)
======
Exercise of employee stock options
And related tax effect .................... 338 18 320
------------------------------------------------------------------------------
Balance at June 30, 1999 .................... $68,374 $25,074 $(126) $1,140 $(301) $42,587
</TABLE>
See accompanying notes to consolidated financial statements.
F-6
<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Thousands of dollars)
<TABLE>
Fiscal Year Ended June 30,
---------------------------------
1999 1998 1997
-------- -------- --------
CASH PROVIDED BY (USED FOR) OPERATING ACTIVITIES:
<S> <C> <C> <C>
Net earnings (loss) $ (3,989) $ 7,114 $ 2,877
Adjustments to reconcile net earnings to cash provided by
operating activities:
Depreciation and amortization 4,420 3,408 2,612
Deferred income taxes (1,540) (1,103) (255)
(Gain) loss on disposal of assets 662 (63) 298
Nonrecurring acquisition-related IPR&D charges (note 2) -- 878 10,084
Gain on sale of marketable securities (38) (70) (49)
Changes in operating accounts:
Receivables 4,461 5,002 (7,682)
Costs in excess of billings 522 900 (1,830)
Inventories (1,043) (2,295) (764)
Prepaid expenses and taxes 30 (234) 20
Accounts payable and accrued expenses (5,307) 972 (1,244)
-------- -------- --------
Net cash provided by (used for)operating activities (1,822) 14,509 4,067
-------- -------- --------
CASH PROVIDED BY (USED FOR) INVESTING ACTIVITIES:
Additions to property, plant and equipment (4,362) (9,016) (4,723)
Investment in marketable securities (11,860) (4,479) (3,772)
Investments in other assets (2,958) (626) (154)
Acquisition of business -- (1,268) (11,699)
Cash acquired from business -- 2,059 --
Proceeds from the sale of marketable securities 8,616 4,605 6,098
Proceeds from maturity of marketable securities 3,045 4,368 4,860
Proceeds from sale of assets -- 230 18
-------- -------- --------
Net cash used for investing activities (7,519) (4,127) (9,372)
-------- -------- --------
CASH PROVIDED BY (USED FOR) FINANCING ACTIVITIES:
Repayments of long-term debt -- -- (2,662)
Exercise of employee stock options 338 660 499
-------- -------- --------
Net cash provided by (used for) financing activities 338 660 (2,163)
-------- -------- --------
Net increase (decrease) in cash and cash equivalents (9,003) 11,042 (7,468)
Cash and cash equivalents, beginning of year 22,023 10,981 18,449
-------- -------- --------
Cash and cash equivalents, end of year $ 13,020 $ 22,023 $ 10,981
======== ======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
F-7
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 1999, 1998, and 1997
NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION
The accompanying consolidated financial statements include the accounts of Zygo
Corporation and its subsidiaries ("Zygo" or the "Company"). All material
transactions and accounts with the subsidiaries have been eliminated from the
consolidated financial statements. As discussed in Note 2, all the outstanding
shares of Sight Systems, Inc. ("SSI") were acquired by the Company on August 19,
1997, in a transaction accounted for as a pooling-of-interests. The operating
results for SSI were not material to the combined results of the companies for
all prior periods. The Company, via its wholly owned subsidiary, Technical
Instrument Company, completed the acquisition of Syncotec Neue Technologien und
Instrumente GmbH ("Syncotec"), a German-based company, effective September 1,
1997. Zygo, prior to this acquisition, completed all necessary legal
requirements allowing for appropriate transfer and registration of its original
50 percent ownership of Syncotec on June 30, 1997.
CASH AND CASH EQUIVALENTS
The Company considers cash and cash investments with maturities at the date of
purchase of three months or less to be cash and cash equivalents.
MARKETABLE SECURITIES
The Company considers investments in securities with maturities at the date of
purchase in excess of three months as marketable securities. Marketable
securities primarily consist of corporate bonds. All securities held by the
Company at June 30, 1999 and 1998, were classified as available-for-sale and
recorded at fair value or held to maturity and recorded at cost. Unrealized
holding gains and losses, net of the related tax effect, on available-for-sale
securities are excluded from earnings and are reported as a separate component
of stockholders' equity until realized.
INVENTORIES
Inventories are stated at the lower of cost (determined on a first-in, first-out
basis) or market.
DEPRECIATION
Depreciation rates are based on the estimated useful lives of the various
classes of assets and are computed using the straight-line method. See note 7
and 8.
IMPAIRMENT OF LONG-LIVED ASSETS
As required by Statement of Financial Accounting Standards No. 121, Accounting
for the Impairment of Long-Lived Assets for Long-Lived Assets to Be Disposed Of,
the Company evaluates the carrying value of intangible assets at each balance
sheet date to determine if impairment exists based upon estimated undiscounted
future cash flows. The impairment, if any, is measured by the difference between
carrying value and estimated fair value and charged to expense in the period
identified. The remaining amortization periods are periodically evaluated and
would be revised if considered necessary.
REVENUE RECOGNITION
Revenues, other than revenue under the National Ignition Facility ("NIF")
contract (note 20) and revenue from certain automation contracts (note 6), are
recognized when units are shipped. Revenues related to NIF and automation
contracts are recognized under the percentage-of-completion method of
accounting.
F-8
<PAGE>
EARNINGS PER SHARE
In 1997 the Financial Accounting Standards Board ("FASB") issued Statement No.
128, Earnings Per Share. Statement No. 128 replaced the calculation of primary
and fully diluted earnings per share with basic and diluted earnings per share.
Unlike primary earnings per share, basic earnings per share excludes any
dilutive effects of options, warrants and convertible securities. Diluted
earnings per share are very similar to the previously reported fully diluted
earnings per share. All earnings per share amounts for all periods have been
presented, and where appropriate, restated to conform to the Statement No. 128
requirements.
The following table sets forth the reconciliation of weighted average shares
outstanding and diluted weighted average shares outstanding:
- --------------------------------------------------------------------------------
JUNE 30, June 30, June 30,
1999 1998 1997
- --------------------------------------------------------------------------------
Weighted average shares
outstanding 11,148,000 10,890,000 10,403,000
Dilutive effect of stock
options -- 1,345,000 1,595,000
---------- ---------- ----------
Diluted weighted average
shares outstanding 11,148,000 12,235,000 11,998,000
- --------------------------------------------------------------------------------
During 1999, the Company recorded a loss and all options were excluded from the
computation because of the anti-dilutive effect on earnings per share.
GAIN CONTINGENCY
The Company was awarded $2,668,710 plus recovery of certain costs in a judgment
rendered by the United States District Court (District of Arizona) on June 2,
1994. The Court's decision was appealed to the Court of Appeals for the Federal
Circuit located in Washington, D.C. by the defendant and oral arguments of the
appeal were heard by the Court on March 9, 1995. On April 1, 1996, the United
States Court of Appeals for the Federal Circuit rendered an Opinion Announcing
Judgment of the Court. The appellate court affirmed-in-part and reversed-in-part
the District Court's earlier findings and remanded the case to the District
Court for a redetermination of the damage award. The Company has not recorded
any gain from the District Court's earlier ruling and will not until a final
determination of the award is made.
STOCK SPLIT
The Board of Directors of the Company declared a 2-for-1 split of the Company's
common shares, effected in the form of a 100% stock dividend which was paid on
February 27, 1997, to shareholders of record as of the close of business on
February 3, 1997. All presentations involving numbers of shares and amounts per
share in 1997 and prior years have been restated to reflect the stock split.
STOCK BASED COMPENSATION
Stock-based compensation awards to employees under the Company's stock plans are
accounted for using the intrinsic value method prescribed in Accounting
Principals Board Opinion ("APB") No. 25, "Accounting for Stock Issued to
Employees" and related interpretations. The Company has adopted the disclosure
requirements of Statement of Financial Accounting Standards No. 123, "Accounting
for Stock-Based Compensation.
F-9
<PAGE>
The Company follows the practice of recording amounts received upon the exercise
of options by crediting common stock and additional capital. No charges are
reflected in the consolidated statements of operations as a result of the grant
or exercise of stock options, which are granted with an exercise price at
fair-market value on the date of grant. The Company realizes an income tax
benefit from the exercise or early disposition of certain stock options. This
benefit results in a decrease in current income taxes payable and an increase in
additional capital.
FAIR VALUE OF FINANCIAL INSTRUMENTS
Statement of Financial Accounting Standards No. 107, Disclosures about Fair
Value of Financial Instruments, requires that reporting entities provide, to the
extent practicable, the fair value of financial instruments, both assets and
liabilities. The carrying amounts of cash, accounts receivable, accounts
payable, and accrued expenses approximate fair value because of the short
maturity of these items.
USE OF ESTIMATES
Management of the Company has made a number of estimates and assumptions
relating to the reporting of assets, liabilities, revenues and expenses and the
disclosure of contingent assets and liabilities to prepare these consolidated
financial statements in conformity with generally accepted accounting
principles. Actual results could differ from those estimates.
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
As of July 1, 1998, the Company adopted Statement of Financial Accounting
Standards No. 130, Reporting Comprehensive Income ("Statement 130"). Statement
130 establishes new rules for the reporting and display of comprehensive income
and its components; however, the adoption of this statement had no impact on the
Company's reported net income or stockholders' equity. Comprehensive income
(loss) is defined as net income plus nonstockholder direct adjustments to
stockholders' equity which consist of foreign currency translation adjustments
and adjustments for the net unrealized gains (losses) related to the Company's
marketable equity securities.
Statement of Financial Accounting Standards No. 131, Disclosures about Segments
of an Enterprise and Related Information ("Statement 131"), was issued in 1997
and is effective for financial statements for both interim and annual periods
beginning after December 15, 1997. Statement 131 was issued to establish
standards for the way public business enterprises are to report information
about operating segments in annual financial statements and requires those
enterprises to report selected information about operating segments in interim
financial reports issued to shareholders. It also establishes standards for
related disclosures about products and services, geographic areas, and major
customers. Adoption of this statement did not impact the Company's results of
operation or financial position. Upon review of the criteria, management
believes that the Company continues to operate as one segment. See note 18 for
appropriate disclosure.
Statement of Financial Accounting Standard No. 132, Employers' Disclosures about
Pensions and Other Postretirement Benefits ("Statement 132"), was issued in
1997, and is effective for fiscal years beginning after December 15, 1997. This
statement revises employers' disclosures about pension and other postretirement
benefit plans. It does not change the measurement or recognition of those plans.
Adoption of this statement did not impact the Company's results of operation,
financial position or disclosure.
Statement of Financial Accounting Standard No. 133, Accounting for Derivative
Instruments and Hedging Activities ("Statement 133"), was issued in 1998 and is
effective for all fiscal quarters of fiscal years beginning after June 15, 1999.
This statement establishes accounting and reporting standards for derivative
instruments, including certain derivative instruments embedded in other
contracts and for hedging activities. In 1999, Statement of Financial Accounting
Standard No. 137, Accounting for
F-10
<PAGE>
Derivative Instruments and Hedging Activities-Deferral of the effective date of
FASB Statement 133, was issued which delays the required adoption of Statement
133 to the Company's fiscal year 2001. This statement is not expected to have an
impact as the Company does not currently utilize derivatives or hedges.
NOTE 2: MERGERS AND ACQUISITIONS
On August 19, 1997, the Company issued 287,400 shares of common stock in
exchange for all the outstanding shares of Sight Systems, Inc. ("SSI"). The
acquisition has been accounted for as a pooling-of-interests. The operating
results for SSI were not material; therefore, results for the prior periods were
not restated. In connection with the acquisition, $707,000 of
acquisition-related costs were incurred and have been charged to nonrecurring
acquisition expense in the first quarter of fiscal 1998. These costs consist of
legal, investment banking, and accounting fees.
On September 1, 1997, the Company, through its Technical Instruments subsidiary
completed the purchase of the remaining 50% of Syncotec Neue Technologien und
Instrumente GmbH ("Syncotec") it did not already own. The Company paid
$2,262,000 and issued 19,432 shares of common stock, $.10 par value, valued at
$623,000. The transaction was accounted for as a purchase. The net purchase
price was allocated to the fair value net assets acquired. This allocation
resulted in a charge of $878,000 of in-process research and development costs.
In October 1997, the Company terminated merger talks with Digital Instruments,
Inc. resulting in a charge for failed merger costs of $335,000.
On August 8, 1996, the Company acquired and accounted for as a purchase, the
proprietary products division of Technical Instrument Company ("TIC"), a
privately held California-based entity that designed, manufactured, marketed and
sold microscope systems and other precision optical instrument systems and
components. The Company paid $11,699,000 and issued unregistered shares of its
common stock, $.10 par value, valued at $3.0 million in exchange for all the
outstanding capital stock of TIC. The net purchase price was allocated to the
net assets acquired, less a write-off of $10,084,000 of in-process research and
development costs, as follows:
(Thousands of dollars)
Working capital $ 867
Property, plant and equipment 135
Other assets 573
Goodwill and other intangibles 7,580
Debt assumed (2,662)
Deferred tax liability, net (1,878)
-------
$ 4,615
=======
Results of operations after the acquisition date are included in the 1997
Consolidated Statements of Earnings. Fiscal 1997 sales would have been increased
by $1,727,000 for the July 1, 1996 to August 8, 1996 time frame with no material
impact on earnings.
On September 12, 1996, the Company issued 500,000 shares of its common stock,
effected for the 2-for-1 stock split, in exchange for all of the outstanding
shares of NexStar Automation, Inc. ("NexStar"). The acquisition has been
accounted for as a pooling of interests and, accordingly, the Company's
consolidated financial statements for fiscal 1996 had been restated to include
the accounts and operations of NexStar. In connection with the acquisition,
$999,000 of acquisition-related costs were incurred and have been charged to
nonrecurring acquisition expense in the first quarter of fiscal 1997. The
acquisition costs consisted of legal, investment banking, and accounting fees.
F-11
<PAGE>
NOTE 3: MARKETABLE SECURITIES
Marketable securities at June 30, 1999 consist primarily of corporate bonds
while marketable securities at June 30, 1998 consisted of tax exempt bonds
issued by various state and municipal agencies. Marketable securities at June
30, 1999 and June 30, 1998 are reported either at fair value or at cost
depending on their classification. The unrealized loss on marketable securities
of $117,000 (gross) is shown net of its related tax effect of $69,000 as a
separate component of stockholders' equity.
Dividend and interest income is recognized when earned. Realized gains and
losses are included in earnings and are derived using the specific
identification method for determining the cost of securities sold.
The cost, gross unrealized holding gains, gross unrealized holding losses, and
fair value for available-for-sale securities at June 30, 1999 and 1998 were as
follows:
Gross Gross
Unrealized Unrealized
Holding Holding Fair
(Thousands of dollars) Cost Gains Losses Value
- ---------------------- ---- ----- ------ -----
AT JUNE 30, 1999
CORPORATE BONDS $5,954 $ -- $ (117) $5,837
------ ------ ------ ------
At June 30, 1998
State and local
municipal bonds $3,645 $ 23 $ -- $3,668
------ ------ ------ ------
The Company recorded gross realized gains on the maturity of investment
securities of $38,000 and $70,000 in 1999 and 1998, respectively. There were no
gross realized losses recorded in 1999 or 1998.
Maturities of investment securities classified as available-for-sale were as
follows at June 30, 1999:
Fair
(Thousands of dollars) Cost Value
------ ------
Due within one year $ -- $ --
Due after one year through five years 5,954 5,838
------ ------
$5,954 $5,838
====== ======
Maturities of investment securities classified as held-to-maturity were as
follows at June 30, 1999:
Fair
(Thousands of dollars) Cost Value
------ ------
Due within one year $2,513 $2,513
Due after one year through five years -- --
------ ------
$2,513 $2,513
====== ======
NOTE 4: ACCOUNTS RECEIVABLE
At June 30, 1999 and 1998, accounts receivable, net of allowances, were as
follows:
JUNE 30, June 30,
(Thousands of dollars) 1999 1998
-------- --------
Trade (note 19) $ 12,956 $ 16,890
Other 462 419
-------- --------
$ 13,418 17,309
Allowance (1,324) (754)
-------- --------
$ 12,094 $ 16,555
======== ========
F-12
<PAGE>
NOTE 5: INVENTORIES
Inventories at June 30, 1999 and 1998 were as follows:
JUNE 30, June 30,
(Thousands of dollars) 1999 1998
------- --------
Raw materials and manufactured parts $ 7,866 $ 9,763
Work in process 4,622 3,723
Finished goods 2,985 944
------- --------
$15,473 $14,430
======= =======
NOTE 6: COSTS IN EXCESS OF BILLINGS
Revenues from automation projects are accounted for under the
percentage-of-completion method, using total project costs incurred to date in
relation to estimated total costs of the contracts to measure the stage of
completion. The cumulative effects of revisions of estimated total contract
costs and revenues are recorded in the period in which the facts become known.
When a loss is anticipated on a contract, the full amount of the loss is
provided for currently. The differences between amounts billed and revenue
recognized is shown as costs in excess of billings on the accompanying balance
sheets.
Totals of revenue earned and billings issued on contracts were as follows:
JUNE 30, June 30,
(Thousands of dollars) 1999 1998
-------- --------
Revenue recognized to date $25,239 $20,110
Billings to date 24,579 18,928
------- -------
$ 660 $ 1,182
======= =======
NOTE 7: PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment are stated at cost. Costs of replacements and
improvements are capitalized and depreciated over a range of 3-40 years.
Maintenance and repairs are charged to expense as incurred. At June 30, 1999 and
1998, property, plant and equipment, at cost, were as follows:
JUNE 30, June 30,
(Thousands of dollars) 1999 1998
------- -------
Land $ 897 $ 814
Building 9,115 9,215
Machinery, equipment and office furniture 21,705 18,472
Leasehold improvements 431 326
Construction in progress 1,560 1,863
------- -------
33,708 30,690
Less accumulated depreciation 17,460 15,001
------- -------
$16,248 $15,689
======= =======
NOTE 8: GOODWILL AND OTHER INTANGIBLES
The cost of intangible assets is amortized on a straight-line basis, which
ranges from 4 to 20 years. During fiscal 1999, goodwill and other intangibles
increased primarily due to the Company's purchase agreement with IBM relating to
the AFM technology and additional investments in patents. These investments were
partially offset by $473,000 of amortization expense. Management evaluates, on
an ongoing basis, the carrying value of its intangible assets and makes
adjustments, when impairments are identified. Goodwill and other intangibles,
net, at June 30, 1999 and 1998 were as follows:
F-13
<PAGE>
JUNE 30, June 30,
(Thousands of dollars) 1999 1998
------- -------
Goodwill and other intangibles $12,778 $10,094
Accumulated amortization 2,839 1,570
------- -------
$ 9,939 $ 8,524
======= =======
NOTE 9: BANK LINE OF CREDIT
The Company has a $3,000,000 unsecured bank line of credit with interest at
LIBOR plus 60 basis points (approximately 5.8% at June 30, 1999). The line of
credit is available through November 24, 1999. At June 30, 1999 and 1998, no
amounts were outstanding under the bank line of credit.
NOTE 10: LONG-TERM DEBT
As of June 30, 1999, the Company has no long-term debt obligations.
As part of the acquisition of TIC, the Company assumed outstanding debt totaling
$2,662,000. The Company repaid this debt immediately after the acquisition.
Interest payments were $0 in fiscal 1999, 1998, and 1997.
NOTE 11: LEASES
The Company leases certain manufacturing equipment and facilities under
operating leases, some of which include cost escalation clauses, expiring on
various dates through 2003. Total rental expense charged to operations was
$666,070 in 1999, $569,000 in 1998, and $509,000 in 1997. At June 30, 1999 the
minimum future rental commitments under noncancellable leases payable over the
remaining lives of the leases were:
Minimum
Future Rental
(Thousands of dollars) Commitments
---------------
2000 $ 693
2001 381
2002 166
2003 76
======
$1,316
======
NOTE 12: PROFIT-SHARING PLAN
The Company maintains a deferred profit-sharing plan under which substantially
all full-time employees of the Company are eligible to participate.
Profit-sharing expense for the years ended June 30, 1999, 1998, and 1997
amounted to $0, $1,370,700, and $2,007,600, respectively. Profit-sharing
contributions are determined annually at the discretion of the Board of
Directors.
Effective June 30, 1985, the existing profit-sharing plan was revised and
amended to incorporate a 401(k) tax deferred payroll deduction program and an
Employee Stock Ownership Program. Under the 401(k) program, employees may
contribute a tax-deferred amount of up to 15% of their compensation, as defined.
The Company may contribute to the 401(k) program, an amount determined annually
at the
F-14
<PAGE>
discretion of the Board of Directors. The 401(k)-contribution expense for the
years ended June 30, 1999, 1998, and 1997 amounted to $607,600, $603,600, and
$468,700, respectively.
Under the Employee Stock Ownership Program, the Company may, at the discretion
of the Board of Directors, contribute its own stock or cash to purchase its own
stock. The purchased stock's fair market value can not exceed the maximum amount
of employee stock ownership credit as determined under Section 416 of the
Internal Revenue Code. There were no purchases and no contributions made under
this program for the years ended June 30, 1999, 1998, and 1997.
NOTE 13: STOCKHOLDERS' AGREEMENTS
A registration rights agreement was entered into by Canon Inc., Wesleyan
University, Paul F. Forman, Carl A. Zanoni, Sol F. Laufer, and the Company in
November 1993, granting to each of these stockholders the right, until November
30, 1998, to have his or its shares of Common Stock included in any registered
public offering of the Company's securities.
NOTE 14: STOCKHOLDERS' EQUITY
On January 23, 1997, the Board of Directors declared a 2-for-1 split effected in
the form of a 100% stock dividend payable on February 27, 1997, to shareholders
of record on February 3, 1997. This transaction resulted in the issuance of
approximately 5,320,000 additional shares of Common Stock. Stockholders' Equity
had been adjusted to recognize the effect of the stock split by reclassifying
from retained earnings to paid-in capital the par value of the additional shares
arising from the split. In addition, all references in the financial statements
to numbers of shares, per share amounts, stock option data, and market prices of
the Company's Common Stock have been restated to give retroactive recognition to
the stock split.
NOTE 15: STOCK COMPENSATION PLANS
As of June 30, 1999, Zygo Corporation has two stock based compensation plans,
which are described below (see note 16). The Company applies APB Opinion No. 25,
Accounting for Stock Issued to Employees, and related interpretations in
accounting for its plans. Since all options were granted with an exercise price
equal to the fair-market value on the date of the grant, no compensation cost
has been recognized for its fixed option plans. Pro forma information regarding
net income and earnings per share is required by SFAS No. 123 "Accounting for
Stock-Based Compensation", which requires that the information be determined as
if the Company has accounted for its stock options granted in fiscal years
beginning after December 15, 1994 under the fair value method of the statement.
The fair value of options at date of grant was estimated using the Black-Scholes
model. The Company's pro forma information is as follows:
JUNE 30, June 30, June 30,
(In thousands, except per share amounts) 1999 1998 1997
----------- ----------- ----------
Pro forma net (loss) income $(4,817) $ 5,623 $ 423
Pro forma (loss) earnings per share $ (.43) $ .46 $ .04
The fair value of these options at the date of grant was estimated with the
following weighted average assumptions of 1999 and 1998:
F-15
<PAGE>
JUNE 30, June 30, June 30,
1999 1998 1997
---------- ----------- ----------
Risk free rate of interest 4.8% 5.8% 6.8%
Dividend yield 0.0% 0.0% 0.0%
Volatility factor 58% 68% 69%
Expected life of option 5.7 YEARS 6.2 years 6.6 years
The above pro forma information is based on historical activity and may not
represent future trends.
NOTE 16: STOCK OPTION PLANS
1987 STOCK OPTION PLAN AND DATA
The Zygo Corporation 1987 Amended and Restated Stock Option Plan permits the
granting of non-qualified options to purchase a total of 3,350,000 shares
(adjusted for splits) of common stock at prices not less than the fair-market
value on the date of grant. The Board of Directors approved a repricing of
nonqualified options greater than $30.00 per share at the August 1998 board
meeting. The average price of 112,000 shares went from $35.12 to $10.81. Options
generally become exercisable at the rate of 25% of the shares each year
commencing one year after the date of grant. The Plan as amended will expire on
September 3, 2002.
JUNE 30, 1999
----------------------------
WEIGHTED
AVERAGE
SHARES EXERCISE PRICE
--------- --------------
Outstanding at beginning of year 1,416,779 $ 7.2866
Granted 228,000 $ 10.5957
Exercised (184,480) $ 1.8362
Expired or canceled (215,000) $ 26.6993
---------
Outstanding at end of year 1,245,299 $ 7.2277
=========
JUNE 30, 1998
----------------------------
WEIGHTED
AVERAGE
SHARES EXERCISE PRICE
--------- --------------
Outstanding at beginning of year 1,393,324 $ 5.6865
Granted 280,500 $ 32.9166
Exercised (145,170) $ 4.5445
Expired or canceled (111,875) $ 11.5510
---------
Outstanding at end of year 1,416,779 $ 7.2866
=========
JUNE 30, 1997
----------------------------
WEIGHTED
AVERAGE
SHARES EXERCISE PRICE
--------- --------------
Outstanding at beginning of year 1,304,674 $ 2.1982
Granted 322,500 $ 17.9720
Exercised (232,950) $ 2.1436
Expired or canceled (900) $ 1.6650
---------
Outstanding at end of year 1,393,324 $ 5.6865
=========
1994 NON-EMPLOYEE DIRECTOR STOCK OPTION PLAN AND DATA
The Zygo Corporation 1994 Non-Employee Director Stock Option Plan permits the
granting of non-qualified options to purchase a total of 620,000 shares
(adjusted for splits) of common stock at prices
F-16
<PAGE>
not less than the fair-market value on the date of grant. Options become
exercisable at the rate of 20% of the shares each year commencing one year after
the date of grant. The Plan, as amended, will expire on August 25, 2004.
JUNE 30, 1999
----------------------------
WEIGHTED
AVERAGE
SHARES EXERCISE PRICE
--------- --------------
Outstanding at beginning of year 450,000 $ 6.2292
Granted -- $ --
Exercised -- $ --
Expired or canceled -- $ --
-------
Outstanding at end of year 450,000 $ 6.2292
=======
JUNE 30, 1998
----------------------------
WEIGHTED
AVERAGE
SHARES EXERCISE PRICE
--------- --------------
Outstanding at beginning of year 450,000 $ 6.2292
Granted -- $ --
Exercised -- $ --
Expired or canceled -- $ --
-------
Outstanding at end of year 450,000 $ 6.2292
=======
JUNE 30, 1997
----------------------------
WEIGHTED
AVERAGE
SHARES EXERCISE PRICE
--------- --------------
Outstanding at beginning of year 450,000 $ 6.2292
Granted -- $ --
Exercised -- $ --
Expired or canceled -- $ --
-------
Outstanding at end of year 450,000 $ 6.2292
=======
The following table summarizes information about all fixed stock options
outstanding at June 30, 1999:
Options Outstanding
- --------------------------------------------------------------------------------
Number Weighted Average
Range of Outstanding Remaining Weighted
Exercise as of Contractual Average
Prices June 30, 1999 Life Exercise Price
------ ------------- ---- --------------
$ 1.25 - $ 1.92 160,300 2.50 $ 1.7012
$ 2.00 - $ 2.00 795,749 4.91 $ 2.0000
$ 2.29 - $10.81 345,000 6.93 $ 7.8818
$10.88 - $20.00 307,750 7.72 $15.8842
$20.13 - $25.75 11,500 7.84 $24.2509
$27.38 - $27.38 75,000 6.92 $27.3750
- --------------- --------- ---- --------
$ 1.25 - $27.38 1,695,299 5.71 $ 6.9627
F-17
<PAGE>
Options Exercisable
- -------------------------------------------------------------------------
Range of Number Weighted
Exercise Exercisable as of Average
Prices June 30, 1999 Exercise Price
------ ------------- --------------
$ 1.25 - $ 1.92 160,300 $ 1.7012
$ 2.00 - $ 2.00 720,749 $ 2.0000
$ 2.29 - $10.81 138,750 $ 4.0844
$10.88 - $20.00 130,500 $17.2048
$20.13 - $25.75 5,250 $24.6433
$27.38 - $27.38 45,000 $27.3750
--------------- --------- --------
$ 1.25 - $27.38 1,200,549 $ 4.9039
NOTE 17: INCOME TAXES
The components of income tax expense (benefit) for each year are as follows:
Fiscal Year Ended June 30,
--------------------------------
(Thousands of dollars) 1999 1998 1997
------ ------ -------
Currently payable:
Federal $(1,413) $ 3,664 $ 5,614
State 84 907 1,494
Foreign 101 285 --
-------------------------------
$(1,228) $ 4,856 $ 7,108
===============================
Deferred:
Federal $(1,040) $ (688) $ 38
State (757) (146) 15
Foreign (49) (53) --
-------------------------------
$(1,846) $ (887) $ 53
-------------------------------
Total income tax (benefit) expense $(3,074) $3,969 $7,161
===============================
Income taxes paid (refunded) amounted to $(847,500) (including net refunds of
$(938,100) and $90,600 of prior year overpayments applied to fiscal 1999),
$4,660,200 (including cash payments of $3,426,000 and $1,234,200 of prior year
overpayments applied to fiscal 1998), and $6,068,000 (including cash payments of
$5,432,500 and $635,500 of prior year overpayments applied to fiscal 1997), in
fiscal 1999, 1998, and 1997, respectively.
The total income tax expense differs from the amount computed by applying the
applicable U.S. federal income tax rate of 35% in each of the fiscal years 1999,
1998, and 1997 to earnings before income taxes for the following reasons:
Fiscal Year Ended June 30,
--------------------------------
(Thousands of dollars) 1999 1998 1997
---- ---- ----
Computed "expected" tax expense $(2,472) $ 3,879 $ 3,516
Increases (reductions) in taxes
resulting from:
Nondeductible acquisition-
related charges -- 458 3,634
State taxes, net of federal
income tax benefit (438) 495 989
Tax exempt interest income (131) (179) (170)
FSC benefit -- (637) (724)
Other, net (33) (47) (84)
-----------------------------------
$(3,074) $ 3,969 $ 7,161
===================================
F-18
<PAGE>
The tax effects of temporary differences that give rise to significant portions
of the deferred tax assets and deferred tax liabilities as of June 30, 1999 and
1998, are presented below:
JUNE 30, June 30,
(Thousands of dollars) 1999 1998
Deferred tax assets: -------- ---------
Accounts receivable, principally due to
the allowance for doubtful accounts $ 501 $ 302
Accrued expenses 605 18
Warranty costs 253 413
Vacation costs 54 106
Medical insurance costs -- 103
Inventory valuation 1,978 2,003
State NOL and credits 380 --
Other 52 62
---------------------
3,823 3,007
Less valuation allowance -- --
---------------------
Deferred tax asset 3,823 3,007
Deferred tax liabilities:
Prepaid expenses (52) (118)
Plant and equipment, principally due
to differences in depreciation expense (280) (669)
Intangibles (1,892) (2,491)
Unrealized gain on marketable securities (9) (10)
Other (26) --
---------------------
Deferred tax liability (2,259) (3,288)
---------------------
Net deferred tax asset (liability) $ 1,564 $ (281)
=====================
The net current deferred tax assets and net non-current deferred tax liabilities
as recorded on the balance sheet as of June 30, 1999 and 1998 are as follows:
JUNE 30, June 30,
(Thousands of dollars) 1999 1998
----------- -----------
Net current deferred tax asset $ 3,686 $ 2,680
Net noncurrent deferred tax liability (2,122) (2,961)
----------- -----------
Net deferred tax asset (liability) $ 1,564 $ (281)
A valuation allowance has not been recorded because the Company believes that
the deferred tax assets will, more likely than not, be realized. This
determination is based largely upon the Company's historical earnings trend as
well as its ability to carryback reversing items and recover taxes paid in the
carryback period. In addition, the Company has the ability to offset deferred
tax assets against deferred tax liabilities associated with such items as
depreciation and amortization.
The Company has state net operating loss carryforwards of approximately
$8,077,000 which are available to reduce state taxable income, if any, through
2012.
NOTE 18: SEGMENT REPORTING
The Company has adopted FASB Statement No. 131, Disclosures about Segments of an
Enterprise and Related Information ("Statement 131"). Statement 131 establishes
standards, using a management approach, for reporting information regarding
operating segments in annual financial statements. The management approach
designates the internal reporting that is used by the chief operating decision
maker when making operating decisions and assessing performance, as the source
of the Company's reportable segments. The Company's president has been
determined to be its chief operating decision-maker, as defined under Statement
131. The Company is managed as a single operating
F-19
<PAGE>
segment with a centrally managed sales force selling Zygo's products in regional
offices located in the USA, Japan, Europe, and Asia.
The Company has viewed its operations as one segment, providing sales and
services in metrology, process control, and yield enhancement solutions for high
precision manufacturing industries. Substantially all of the Company's operating
results, assets, depreciation, and amortization are U.S. based. The Company's
export sales are noted below.
The Company is headquartered in Middlefield, Connecticut, and also has
facilities in Asslar, Germany; Longmont, Colorado; and in Newbury Park and
Sunnyvale, California.
Sales to Canon Inc. and to Canon Sales Co., Inc., accounted for more than 18% of
total Company sales for each of the years ended June 30, 1999, 1998 and 1997.
(See note 19.) The Company recorded 6% and 13% of total Company sales with the
University of California's Lawrence Livermore National Laboratories for the
years ended June 30, 1999 and 1998, respectively (see note 20.) No other
individual customer accounted for more than 10% of total Company sales for any
year presented in the accompanying consolidated financial statements.
Export sales by geographic area were as follows:
Fiscal Year Ended June 30,
(Thousands of dollars) 1999 1998 1997
------------------------------
Far East:
Japan $14,143 $22,284 $21,730
Pacific Rim 6,038 11,348 12,650
------- ------- -------
Total Far East $20,181 $33,632 $34,380
Europe and other 7,848 9,387 5,145
------------------------------
Total $28,029 $43,019 $39,525
==============================
NOTE 19: RELATED PARTY TRANSACTIONS
Sales to Canon Inc., a stockholder, and to Canon Sales Co., Inc., a distributor
for certain of the Company's products in Japan and a subsidiary of Canon Inc.,
amounted to approximately $13,375,000 (22% of net sales), $17,626,000 (18% of
net sales), and $17,564,000 (20% of net sales), for the years ended June 30,
1999, 1998, and 1997, respectively.
Selling prices of products sold to Canon Inc. and Canon Sales Co., Inc. are
based, generally, on the normal terms given to distributors. At June 30, 1999
and 1998, there was approximately, in the aggregate, $1,547,500 and $1,288,200,
respectively, of trade accounts receivable from Canon Inc. and Canon Sales Co.,
Inc.
Purchases from Technical Instruments - San Francisco, a company controlled by
Francis Lundy, an officer of the Company, amounted to approximately $163,600,
and $789,800 during the years ended June 30, 1999 and 1998, respectively. Prices
for products purchased are based on normal terms and conditions.
NOTE 20: MATERIAL CONTRACTS
During fiscal year 1999, the Company entered into an agreement with IBM, which
allows for marketing and servicing rights for its Atomic Force Microscope line
of business for a four year period. The Company paid $2,250,000 to secure this
relationship which is being amortized over a one to four-year
F-20
<PAGE>
period of time. At June 30, 1999, Zygo's outstanding purchase commitment under
the agreement totals approximately $7,324,000.
On May 9, 1997, the Company announced it had entered into a contract with the
University of California's Lawrence Livermore National Laboratory ("LLNL"),
whereby the Company will be a primary supplier of large plano optical components
for the National Ignition Facility ("NIF"), a $1.2 billion Department of Energy
project at LLNL to produce the world's largest laser for nuclear fusion
research. The contract provided for the Company to design, manufacture, and
equip a world-class optical fabrication facility at its Middlefield,
Connecticut, operations for a fixed price of nearly $10 million over an 18-month
time period. Revenues recognized on this contract in fiscal 1999 and 1998
amounted to $900,000 and $8,887,000, respectively. To accommodate the space
required for the NIF facility and provide additional office facilities, the
Company has built a 35,500-square-foot building addition at its Middlefield,
Connecticut, site.
NOTE 21: SUBSEQUENT EVENTS
On July 8, 1999, Zygo entered into an agreement with a former employee of the
Company which enables it to outsource assembly, integration, testing and
packaging of certain confocal microscope systems. As part of the agreement, the
Company received a 2 year, $3.3 million note for the book value of inventory
sold.
F-21
<PAGE>
SELECTED CONSOLIDATED QUARTERLY FINANCIAL DATA (UNAUDITED)
(Thousands, except per share amounts)
<TABLE>
<CAPTION>
FOR THE FISCAL YEAR ENDED JUNE 30, 1999 (1)
-------------------------------------------------------------
SEPTEMBER 30 DECEMBER 31 MARCH 31 JUNE 30
------------ ----------- -------- -------
<S> <C> <C> <C> <C>
Net sales $ 15,438 $ 15,979 $ 13,056 $16,365
Earnings (loss) before taxes $ (1,534) $ (412) $ (5,587) $ 470
Income taxes (463) (76) (1,789) (746)
-------- -------- -------- -------
Net earnings (loss) $ (1,071) $ (336) $ (3,798) $ 1,216
======== ======== ======== =======
Net earnings (loss) per share:
Basic (2) $ (0.10)(3) $ (0.03)(3) $ (0.34)(3) $ 0.11
======== ======== ======== =======
Diluted (2) $ (0.10)(3) $ (0.03)(3) $ (0.34)(3) $ 0.10
======== ======== ======== =======
</TABLE>
<TABLE>
<CAPTION>
For the Fiscal Year Ended June 30, 1998 (1)
-----------------------------------------------------------
September 30(4) December 31 March 31 June 30
--------------- ----------- -------- ----------
<S> <C> <C> <C> <C>
Net sales $ 24,316 $ 27,277 $ 26,901 $ 19,377
Earnings (loss) before taxes and nonrecurring charges $ 5,214 $ 5,400 $ 5,115 $ (2,726)
Income taxes 1,596 1,711 1,579 (917)
-------- -------- -------- --------
Earnings (loss) before nonrecurring charges $ 3,618 $ 3,689 $ 3,536 $ (1,809)
======== ======== ======== ========
Earnings (loss) per share before nonrecurring charges:
Basic $ 0.34 $ 0.34 $ 0.32 $ (0.16)(3)
======== ======== ======== ========
Diluted $ 0.30 $ 0.30 $ 0.29 $ (0.16)(3)
======== ======== ======== ========
Net earnings (loss) $ 1,698 $ 3,689 $ 3,536 $ (1,809)
======== ======== ======== ========
Net earnings (loss) share:
Basic $ 0.16 $ 0.34 $ 0.32 $ (0.16)(3)
======== ======== ======== ========
Diluted $ 0.14 $ 0.30 $ 0.29 $ (0.16)(3)
======== ======== ======== ========
</TABLE>
(1) The results of Sight Systems, Inc. ("SSI"), which is being accounted for as
an immaterial pooling-of-interests, are included from July 1, 1997; the
results of Syncotec Neue Technologien und Instrumente GmbH ("Syncotec") are
included from September 1, 1997 when the acquisition of the remaining 50%
of Syncotec, not then owned by Zygo, was completed.
(2) The difference between basic shares outstanding and diluted shares
outstanding is the assumed conversion of common stock equivalents (stock
options) in the amounts of 0, 0, 0 and 944,000 for the fiscal 1999 quarters
ended September 30, December 31, March 31, and June 30, respectively. The
amounts for fiscal 1998 quarters ended September 30, December 31, March 31,
and June 30 are 1,503,200, 1,416,300, 1,253,200, and 1,584,000,
respectively.
(3) Generally accepted accounting principles requires the computation of the
net loss per share to be based on the weighted average basic shares
outstanding.
(4) Nonrecurring charges include acquisition-related charges of $1,585,000 and
failed merger costs of $335,000 in the first quarter ended September 30,
1997.
F-22
<PAGE>
INDEPENDENT AUDITORS' REPORT ON SCHEDULE
The Board of Directors
Zygo Corporation
Under date of August 6, 1999, we reported on the consolidated balance sheets of
Zygo Corporation and subsidiaries as of June 30, 1999 and 1998, and the related
consolidated statements of earnings, stockholders' equity and cash flows for
each of the years in the three-year period ended June 30, 1999 as contained in
the 1999 annual report to stockholders. In the connection with our audits of the
aforementioned consolidated financial statements, we also audited the related
consolidated financial statement schedule listed in the accompanying index. This
financial statement schedule is the responsibility of the Company's management.
Our responsibility is to express an opinion on this financial statement schedule
based on our audits.
In our opinion, this financial statement schedule, when considered in relation
to the basic consolidated financial statements taken as a whole, presents
fairly, in all material respects, the information set forth therein.
KPMG LLP
Hartford, Connecticut
August 6, 1999
S-1
<PAGE>
ZYGO CORPORATION AND CONSOLIDATED SUBSIDIARY
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
YEARS ENDED JUNE 30, 1999, 1998, AND 1997
<TABLE>
<CAPTION>
Balance Balance
at Beginning at End
Description of Period Provision Write-Offs of Period
- ----------- --------- --------- ---------- ---------
<S> <C> <C> <C> <C>
YEAR ENDED JUNE 30, 1999:
ALLOWANCE FOR DOUBTFUL
ACCOUNTS $ 753,600 $1,286,600 $ 715,900 $1,324,300
- -----------------------------------------------------------------------------------------------------------------
INVENTORY RESERVE $2,423,500 $2,679,000 $ 589,200 $4,513,300
- -----------------------------------------------------------------------------------------------------------------
Year Ended June 30, 1998*:
Allowance for Doubtful
Accounts $ 814,700 $ 131,300 $ 192,400 $ 753,600
- -----------------------------------------------------------------------------------------------------------------
Inventory Reserve $1,477,450 $1,421,700 $ 475,650 $2,423,500
- -----------------------------------------------------------------------------------------------------------------
Year Ended June 30, 1997**:
Allowance for Doubtful
Accounts $ 733,000 $ 15,146 $ 20,146 $ 728,000
- -----------------------------------------------------------------------------------------------------------------
Inventory Reserve $1,321,850 $ 395,500 $ 239,900 $1,477,450
</TABLE>
*Includes opening balances of SSI
Allowance for Doubtful Accounts $ 86,700
**Includes opening balances of TIC purchased August 8, 1996
- --------------------------------------------------------------------------------
Allowance for Doubtful Accounts $466,000
Inventory Reserves $406,800
S-2
<PAGE>
EXHIBIT INDEX
EXHIBIT
TABLE FORM 10K-405
NUMBER PAGE NUMBER
------ -----------
10.34 J. Bruce Robinson's Employment Contract
13. Annual Report
21. Subsidiaries of Registrant
23. Accountants' Consent
24. Power of Attorney
27. Financial Data Schedule
EMPLOYMENT AGREEMENT
AGREEMENT made as of January 15, 1999, between ZYGO CORPORATION, a
Delaware corporation with an office at Laurel Brook Road, Middlefield,
Connecticut 06455 (the "Company"), and J. BRUCE ROBINSON, residing at 21
Phillips Pond Road, South Natick, Massachusetts 01760 (the "Executive").
WITNESSETH:
WHEREAS, The Company desires Executive be employed to serve in a senior
executive capacity with the Company, and Executive desires to be so employed by
the Company upon the terms and conditions herein set forth.
NOW, THEREFORE, in consideration of the premises and of the mutual promises,
representations and covenants herein contained, the parties hereto agree as
follows:
1. EMPLOYMENT
The Company hereby employs Executive and Executive hereby
accepts such employment, subject to the terms and conditions herein set
forth. Executive shall hold the office of President and Chief Operating
Officer, reporting to the Chairman and Chief Executive Officer of the
Company. The Company shall nominate Executive for election as a
director of the Company for all periods when Executive holds the office
of President and Chief Operating Officer of the Company.
2. TERM
The initial term of employment under this Agreement shall
begin on the day of receipt of the appropriate H-1B visa and such other
appropriate regulatory approvals necessary for Executive's employment
by the Company (collectively the "Approvals") (the "Employment Date"),
and shall continue for a period of one (1) year from that date (or, if
earlier, the date that Executive shall lose any necessary Approval),
subject to prior termination in accordance with the terms hereof.
Thereafter, this Agreement shall automatically be renewed for a
successive one year terms (or, if earlier, the date that Executive
shall lose any necessary Approval), subject to prior termination in
accordance with the terms hereof, unless either party shall give the
other thirty (30) days prior written notice of its or his intent not to
renew this Agreement. The initial one-year term together with all such
additional one-year period(s) of employment, if any, are collectively
referred to herein as the "term" of this Agreement.
If for any reason receipt of the Approvals is not received
within ninety (90) days, this Agreement shall be null and void and
neither party to this Agreement shall have any liability to the other.
<PAGE>
3. COMPENSATION
As compensation for the employment services to be rendered by
Executive hereunder, including all services as an officer director of
the Company and any of its subsidiaries, the Company agrees to pay, or
cause to be paid, to Executive, and Executive agrees to accept, payable
in equal installments in accordance with Company practice, an annual
salary which shall in no event be less than $250,000, or such higher
amount as the Board of Directors may determine from time to time. In
addition, Executive shall be entitled to additional contingent
compensation from time to time in accordance with the terms of the
Company's "Proposed Contingent Compensation Plan for Officers," as the
same may be amended from time to time by the Compensation Committee of
the Board. (The Company presently has two bonus programs for which
Executive is eligible: an annual bonus program providing for contingent
target compensation of 30% of base salary, assuming target goals are
met, and midterm bonus program providing for a contingent target
compensation of up to 10% of base salary).
4. EXPENSES
The Company shall pay or reimburse Executive, upon presentment
of suitable vouchers, for all reasonable business and travel expenses
which may be incurred or paid by Executive in connection with his
employment hereunder. Executive shall comply with such restrictions and
shall keep such records as the Company may deem necessary to meet the
requirements of the Internal Revenue Code of 1986, as amended from time
to time, and regulations promulgated thereunder.
5. AUTOMOBILE
The Company shall during the term of Executive's employment
hereunder, provide Executive with a monthly allowance for an automobile
in the amount of $900 in lieu of any expense reimbursement for Company
use of an automobile.
6. INSURANCE AND OTHER BENEFITS
Executive shall be entitled to such vacations and to
participate in and receive any other benefits customarily provided by
the Company (including any profit sharing, pension, health insurance,
dental coverage, key man life insurance, AD&D and short and long-term
disability in accordance with the terms of such plans) and including
stock option and/or stock purchase plans, all as determined from time
to time by the Board of Directors of the Company. Unused annual
vacations may be carried over to the extent permitted by the Company
policy.
7. STOCK OPTIONS
The Company and Executive will enter into a Non-Qualified
Stock Option Agreement dated the Employment Date, providing for the
purchase of 50,000 shares of ten (10) year stock options, at the market
price on date of grant, with 25% of the shares
<PAGE>
vesting at the end of each of the first four years. In addition,
Executive may receive additional options, from time to time, at the
discretion of the Compensation Committee of the Board. The form of
Stock Option Agreement is attached hereto as Exhibit A.
8. RELOCATION SUPPORT AND LOAN
Executive shall receive reimbursement for (I) reasonable
moving expenses, (ii) real estate commissions on the sale of existing
house in an amount up to $30,000, and (iii) temporary living expenses
for up to six months in an amount not to exceed 12,000. All
reimbursement for relocation support will be based upon actual expenses
incurred. Any portion of such relocation expense reimbursement that is
taxable to Executive will be "grossed up" to cover all federal and
state taxes payable by Executive.
9. CHANGE IN CONTROL
(a) Definition. A "Change in Control" shall mean the
occurrence of any of the following events:
(i) The Company is merged with or consolidated with another
corporation in a transaction in which (x) the Company
is not the surviving corporation, and (y) the Company's
stockholders immediately prior to such transaction do
not own at least 70% of the outstanding voting
securities of the surviving corporation immediately
following the transaction; or
(ii) Any person or entity or affiliated group of persons or
entities becomes the holder of more than 51% of the
Company's outstanding shares of Common Stock.
(b) Payments. If a Change in Control occurs during the term of
the Executive's Employment pursuant to this Agreement then, (i) all
stock options to purchase shares of the Company's stock, provided for
in this Agreement, shall automatically be deemed fully vested, and (ii)
if Executive resigns for any reason within ninety (90) days after the
Change in Control, the Company shall (a) continue existing health
insurance, dental coverage, key man life insurance, AD&D and long-term
disability coverage in effect for Executive at the time of his
resignation for a period of the lesser of one year or until covered by
another plan, and (b) continue the Executive's salary for a one year
period; provided, however, that during the applicable period in which
benefits are being paid by the Company, Executive agrees to maintain a
consulting relationship with the Company which shall not interfere with
other obligations of the Executive.
10. DUTIES
(a) Executive shall perform such duties and functions as the
Chairman and Chief Executive Officer and Board of Directors of the
Company shall from time to time
<PAGE>
determine and Executive shall comply in the performance of his duties
with the policies of, and be subject to, the direction of the Chairman
and Chief Executive Officer and the Board of Directors.
(b) Executive agrees to devote substantially all his working
time, attention and energies to the performance of the business of the
Company and of any of its subsidiaries by which he may be employed; and
Executive shall not, directly or indirectly, alone or as a member of
any partnership or other organization, or as an officer, director or
employee of any other corporation, partnership or other organization,
be actively engaged in or concerned with any other duties or pursuits
which interfere with the performance of his duties hereunder, or which,
even if non-interfering, may be inimical, or contrary, to the best
interests of the Company, except those duties or pursuits specifically
authorized by the Board of Directors.
(c) All fees, compensation or commissions for personal
services (excluding existing fees, if any, that Executive is receiving
from present Board of Director positions) received by Executive during
the term of this Agreement shall be paid to the Company when received
by Executive, except those fees that the Board of Directors determines
may be kept by Executive. Executive will obtain Board of Director
approval before accepting any director positions. This provision shall
not be construed to prevent Executive from investing or trading in
non-conflicting investments as he sees fit for his own account,
including real estate, stocks, bonds, securities, commodities or other
forms of investments.
11. TERMINATION OF EMPLOYMENT; EFFECT OF TERMINATION
(a) Executive's employment hereunder may be terminated at any
time upon written notice from the Company to Executive,
(i) upon the determination by the Board of Directors
that Executive's performance of his duties has not been fully
satisfactory for any reason which would not constitute
"justifiable cause" (as hereinafter defined) upon five (5)
days' prior written notice to Executive.
(b) Executive's employment shall terminate upon:
(i) the death of the Executive;
(ii) the "disability" of Executive (as hereinafter
defined pursuant to subsection (c) herein); and
(ii) the determination by the Board of Directors that
"justifiable cause" exists therefor.
<PAGE>
(c) For the purposes of this Agreement, the term "disability" shall mean the
inability of Executive, due to illness, accident or any other physical or
mental incapacity, to perform his duties in a normal manner for a period
of three (3) consecutive months or for a total of six (6) months (whether
or not consecutive) in any twelve (12) month period during the term of
this Agreement.
(d) For the purposes hereof, the term "justifiable cause" shall mean and be
limited to: any willful breach by Executive of the performance of any of
his duties pursuant to this Agreement; Executive's conviction (which,
through lapse of time or otherwise, is not subject to appeal) of any crime
or offense involving money or other property of the Company or its
subsidiaries or which constitutes a felony in the jurisdiction involved;
Executive's performance of any act or his failure to act, for which if he
were prosecuted and convicted, a crime or offense involving money or
property of the Company or its subsidiaries, or which constitutes a felony
in the jurisdiction involved, would have occurred; any disclosure by
Executive to any person, firm or corporation other than the Company, its
subsidiaries and its and their directors, officers and employees, of any
confidential information or trade secret of the Company or any of its
subsidiaries; any attempt by Executive to secure any personal profit in
connection with the business of the Company or any of its subsidiaries;
and the engaging by Executive in any business other than the business of
the Company and its subsidiaries which interferes with the performance of
his duties hereunder.
(e) If Executive shall die during the term of his employment hereunder, this
Agreement shall terminate immediately. In such event, the estate of
Executive shall thereupon be entitled to receive such portion of
Executive's annual salary as has been accrued but remains unpaid through
the date of his death.
(f) Upon Executive's "disability", the Company shall have the right terminate
Executive's employment. Notwithstanding any inability to perform his
duties, Executive shall be entitled to receive his compensation as
provided herein until the termination of his employment for disability.
Any termination pursuant to this subsection (f) shall be effective on the
date 30 days after which Executive shall have received written notice of
the Company's rightful election to terminate.
(g) Notwithstanding any provision to the contrary contained herein, in the
event that Executive's employment is terminated by the Company at any time
for any reason other than justifiable cause, disability or death, the
Company shall (I) pay Executive's salary (payable in such amount and in
such manner as set forth in Section 3 herein) from and after the date of
such termination through a period ending one (1) year after the date of
<PAGE>
termination which amount shall be in lieu of any and all payments due and
owing to Executive under the terms of this Agreement (other than any
payments contemplated by Section 11 (e)).
(h) Upon the termination of Executive's employment hereunder for "justifiable
cause", this Agreement shall terminate immediately.
12. REPRESENTATIONS AND AGREEMENTS OF EXECUTIVE
(a) Executive represents and warrants that he is free to enter
into this Agreement and to perform the duties required hereunder, and
that there are no employment contracts or understandings, restrictive
covenants or other restrictions, whether written or oral, preventing
the performance of his duties hereunder. Executive further represents
and warrants that he is in full compliance with all existing
agreements, if any, between himself and the Company.
(b) Executive agrees to submit to a medical examination and to
cooperate and supply such other information and documents as may be
required by any insurance company in connection with the Company's
obtaining life insurance on the life of Executive, and any other type
of insurance or fringe benefit as the Company shall determine from time
to time to obtain.
13. NON-COMPETITION
(a) Executive agrees that during his employment by the Company
(which shall be deemed to include the period in which Executive is
receiving any severance payments set forth in Section 11 (g) hereto),
and for a period of one (1) year after (I) the final severance payment,
or (ii) termination of Executive's employment hereunder, as the case
may be (the "Non-Competitive Period"), Executive shall not, directly or
indirectly, as owner, partner, joint venture, stockholder, employee,
broker, agent, principal, trustee, corporate officer, director,
licensor, or in any capacity whatsoever engage in, become financially
interested in, be employed by, render any consultation or business
advice with respect to, or have any connection with, any business
engaged in the research, development, testing, design, manufacture,
sale, lease, marketing, utilization or exploitation of any products or
services which are designed for the same purpose as, are similar to, or
otherwise competitive with, products or services of the Company or any
of its subsidiaries, in any geographic area where, at the time of the
termination of his employment hereunder, the business of the Company or
any of its subsidiaries was being conducted or was proposed to be
conducted in any manner whatsoever; provided, however, that Executive
may own any securities of any corporation which is engaged in such
business and is publicly owned and traded but in an amount not to
exceed at any one time one percent (1%) of any class of stock or
securities of such corporation. In addition, Executive shall not,
directly or indirectly, during the Non-Competitive Period, request or
cause contracting parties, suppliers or customers with whom the Company
or any of its subsidiaries has a business relationship to cancel or
terminate any such business
<PAGE>
relationship with the Company or any of its subsidiaries or solicit,
interfere with or entice from the Company any employee (or former
employee) of the Company.
(b) If any portion of the restrictions set forth in this
Section 13 should, for any reason whatsoever, be declared invalid by a
court of competent jurisdiction, the validity or enforceability of the
remainder of such restrictions shall not thereby be adversely affected.
(c ) Executive acknowledges that the Company conducts business
on a world-wide basis, that its sales and marketing prospects are for
continued expansion into world markets and that, therefore, the
territorial and time limitations set forth in this Section 13 are
reasonable and properly required for the adequate protection of the
business of the Company and its subsidiaries. In the event any such
territorial or time limitation is deemed to be unreasonable by a court
of competent jurisdiction, Executive agrees to the reduction of the
territorial or time limitation to the area or period such court deems
reasonable.
14. NON-DISCLOSURE AND INVENTIONS AND DISCOVERIES AGREEMENT
Executive will execute the form of "Zygo Corporation
Non-Disclosure Agreement" in the form of Exhibit B hereto.
15. RIGHT TO INJUNCTION
Executive recognizes that the services to be rendered by him
hereunder are of a special, unique, unusual, extraordinary and
intellectual character involving skill of the highest order and giving
them peculiar value the loss of which cannot be adequately compensated
for in damages. In the event of a breach of this Agreement by
Executive, the Company shall be entitled to injunctive relief or any
other legal or equitable remedies. Executive agrees that the Company
may recover by appropriate action the amount of actual damage caused
the Company by any failure, refusal or neglect of Executive to perform
his agreements, representations and warranties herein contained. The
remedies provided in this Agreement shall be deemed cumulative and the
exercise of one shall not preclude the exercise of any other remedy at
law or in equity for the same event or any other event.
16. AMENDMENT OR ALTERATION
No amendment or alteration of the terms of this Agreement
shall be valid unless made in writing and signed by both of the parties
hereto.
17. GOVERNING LAW
This Agreement shall be governed by the laws of the State of
Connecticut applicable to agreements made and to be performed therein.
<PAGE>
18. SEVERABILITY
The holding of any provision of this Agreement to be invalid
or unenforceable by a court of competent jurisdiction shall not affect
any other provision of this Agreement, which shall remain in full force
and effect.
19. NOTICES
Any notices required or permitted to be given hereunder shall
be sufficient if in writing, and if delivered by hand, or sent by
certified mail, return receipt requested, to the addresses set forth
above or such other address as either party may from time to time
designate in writing to the other, and shall be deemed given as of the
date of the delivery or mailing.
20. WAIVER OR BREACH
It is agreed that a waiver by either party of breach of any
provision of this Agreement shall not operate, or be construed, as a
waiver of any subsequent breach by that same party.
21. ENTIRE AGREEMENT AND BINDING EFFECT
This Agreement contains the entire agreement of the parties
with respect to the subject matter hereof and shall be binding upon and
inure to the benefit of the parties hereto and their respective legal
representatives, heirs, distributors, successors, and assigns.
Notwithstanding the foregoing, all prior agreements, if any, between
Executive and the Company relating to the confidentiality of
information, trade secrets and patents shall not be affected by this
Agreement.
22. SURVIVAL
The termination of Executive's employment hereunder shall not
affect the enforceability of Sections 7,9,11,13,14 and 15 hereof.
23. FURTHER ASSURANCES
The parties agree to execute and deliver all such further
documents, agreements and instruments and take such other and further
action as may be necessary or appropriate to carry out the purposes and
intent of this Agreement.
24. HEADINGS
The section headings appearing in this Agreement are for the
purposes of easy reference and shall not be considered a part of this
Agreement or in any way modify, demand or affect its provisions.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this
Agreement as of the date and year first above written.
ZYGO CORPORATION
By: /s/ Gary Willis
---------------------------------------
Gary Willis, Chief Executive Officer
EXECUTIVE:
/s/ J. Bruce Robinson
---------------------------------------
J. Bruce Robinson
<TABLE>
CONSOLIDATED FINANCIAL HIGHLIGHTS
- ----------------------------------
(Thousands except per share amounts)
<CAPTION>
Fiscal Year Ended June 30, Percentage Change
--------------------------------- ---------------------------
1999(1) 1998(1) 1997(1) 1998 T0 1999 1997 TO 1998
--------------------------------- ---------------------------
<S> <C> <C> <C> <C> <C>
Net Sales .......................... $ 60,838 $ 97,871 $ 87,220 (38)% 12%
Net earnings before nonrecurring
charges (4) ....................... $ (3,989) $ 9,034 $ 13,960 (144) (35)
Net earnings per share before
nonrecurring charges(4)
Basic (2) ..................... $ (.36)(3) $ .08 $ 1.34 (98) (38)
Diluted (2) ................... $ (.36)(3) $ 0.74 $ 1.16 (149) (36)
Net earnings ....................... $ (3,989) $ 7,114 $ 2,877 (156) 147
Net earnings per common share
Basic (2) ..................... $ (.36)(3) $ 0.65 $ 0.28 (155) 132
Diluted (2) ................... $ (.36)(3) $ 0.58 $ 0.24 (162) 142
Weighted average numbers of shares
Basic (2) ..................... 11,148 10,890 10,403 2 5
Diluted (2) ................... 11,148 12,235 11,998 (9) 2
Fiscal Year Ended June 30, Percentage Change
---------------------------------- ---------------------------
1999 1998 1997 1998 TO 1999 1997 TO 1998
---------------------------------- ---------------------------
Working capital ................... $ 43,581 $50,085 $ 47,633 (13)% 5%
Stockholders' equity .............. $ 68,374 $72,166 $ 62,408 (5) 16
---------------------------------- ---------------------------
</TABLE>
(1) The results of Slight Systems, Inc. ("551"), which is being accounted for
as an immaterial pooling-of-interests, are included from July 1, 1997; the
results of Syncotec Neue Technologien und Instrumente CmbH ("Syncotec")
are included from September 1, 1997 when the acquisition of the remaining
50% of Syncotec was completed; and the results of Technical Instrument
Company ("TIC") are included in the consolldated results of the Company
from August 8, 1996 when that acquisition was effective. Both Syncotec and
TIC were accounted for as purchases.
(2) The difference between basic shares outstanding and diluted shares
outstanding is the assumed conversion of common stock equivalents (stock
options) in the amounts of 0, 1,345,000, and 1,595,000 in the years ended
June 30, 1999, 1998 and 1997, respectively.
(3) As per generally accepted accounting principles, the computation of the
net loss per share is based on the weighted average basic shares
outstanding.
(4) Nonrecurring charges include acquisition-related charges of $1,585,000 and
$11,083,000 in the first quarter ended September 30, 1997 and 1996,
respectively, and failed merger costs of $335,000 in the first quarter
ended September 30, 1997.
- --------------------------------------------------------------------------(LIFT)
ZYGO CORPORATION is a customer-focused technology leader well known for
developing yield-enhancement solutions for precision manufacturing
industries. Zygo solutions employ process measuring instruments,
automation technology, and precision components to benefit a wide variety
of industries, including: semiconductor capital equipment and components,
data storage, automotive, optical, and R&D.
Some key applications for Zygo solutions include: semiconductor mask
defect analysis, characterization of disks and heads used in hard disk
drives, ultra-precise measurement of semiconductor stepper stage
position, fabrication of optical components for laser fusion research, and
automation for disk drive manufacturing processes.
Founded 1970, Zygo is publicly-owned company with shares traded on the
NASDAQ market. The company is headquartered in a 135,000-square foot
facility in Middlefield, Connecticut, with manufacturing, regional sales,
service, and technology centers in Connecticut, California, Colorado,
Illinois, Singapore and Germany, and distributors/agents worldwide
providing local customer support.
COVER "ZYGO's automated metrology capabilities have allowed Kobe Precision to
provide our customers with comprehensive measurement data on the more than
10 million aluminum substrate disks we measure each month. Our investment
in Zygo's systems have helped to improve our quality, yield, and ability
to meet customer demands."
Mark Lazatin, Vice President Disk Operations, Kobe Precision, Inc.
<PAGE>
TO OUR SHAREOWNERS
(photo)
The automatic reticle inspection and handling station offers micro and macro
inspection, reticle cleaning, metrology options, and stepper cassette loading
in a self-contained class 1 environment.
After six years of year-over-year revenue increases, fiscal 1999 resulted in a
year of revenue and financial performance contraction. As we closed fiscal 1998
and began fiscal 1999, our revenue rates were negatively impacted by the
sustained downturn in the semiconductor and data storage industries and the
sluggish economic conditions continuing in the Far East and Japan. Although
market conditions began to improve, as evidenced by an increased order intake in
our third and fourth quarters, the industry downturn significantly impacted our
shipments through-out the entire fiscal year. Fiscal 1999 concluded with
slightly in excess of $60 million in net sales and a loss of $.36 per share;
however, we were able to return to profitability in our fourth quarter. Even
with the difficult market environment during the fiscal year, we finished 1999
with the Company continuing to be in a strong financial position. We are debt
free with cash and cash equivalents of $21 million and with working capital at
the close of the fiscal year totaling $44 million. We also enter fiscal 2000
with a healthy backlog of some $28.9 million, up $4.5 million from the
beginning year backlog.
Although fiscal 1999 can only be characterized as a difficult and challenging
year for your company, a number of accomplishments were made to strengthen the
Company's position and its ability to provide productivity enhancing and yield
improvement solutions to our customers.
MARKET POSITION STRENGTHENED
During the year, we established Zygo as a leading supplier of mask/reticle
handling and metrology equipment to the semiconductor industry. A large
multi-unit contract was secured with a major semiconductor production equipment
supplier for the integration of Zygo equipment into their next family of
systems; a major capital project agreement was secured with a leading global
semiconductor device manufacturer standardizing on Zygo's reticle handling and
inspection solution for their fabrication process; and an initial design
contract was secured with a large semiconductor capital equipment supplier for
the design and integration of Zygo's reticle handling equipment into their next
family of products. These contracts are expected to not only provide short-term
revenue, but have the potential to result in a large ongoing stream of revenue
in the future.
NEW PRODUCTS INTRODUCED
We introduced our ZMI 510 family of lower-priced micropositioning equipment with
many new applications in the high technology sector where, previously,
interferometric-based micropositioning systems were commercially uncompetitive.
We also began shipping our first Industrial MESA systems to tier-one automotive
parts suppliers, initiating the penetration in a thus far untapped large
potential market area for us.
J. Bruce Robinson, President (left)
and Gary K. Willis, Chairman and
Chief Executive Officer.
<PAGE>
(photo)
The Zygo Customer Support Center staff provides friendly, accurate, and timely
response to all of our customer's needs.
YIELD ENHANCEMENT SYSTEMS DELIVERED
We successfully commissioned the fully automated disc manufacturing line
referenced in our cover photo - an outstanding example of the integration of
Zygo's precision measurement capability - with the parts handling, automation
and application-specific engineering to deliver a productivity enhancing
integrated solution to our customer. There is no clearer example of the
strategic vision we have been implementing these last few years than this
installation.
ORGANIZATION STRENGTHENED
In addition to these accomplishments, we significantly strengthened the
operating management of our company and realigned our organization to better
facilitate the delivery of our high value-added yield improvement solutions.
Bruce Robinson joined our company at the close of our fiscal third quarter as
president and chief operating officer. Bruce is a seasoned executive with the
proven tract record of revenue growth and financial performance. Throughout his
career, he has been a customer- and market-focused executive, whose skills and
experience are already being felt within our organization. Soon after joining
us, Bruce realigned our operations into six geographic regions-placing our
application engineering, service, and customer support resources closer to the
customer to provide optimal response to their yield improvements needs. As a
result of this organizational refocus, we were able to consolidate our
manufacturing capabilities to significantly improve our productivity and
efficiencies. Bruce also stregthened his management team with the addition of
Brian Monti as Vice President of Worldwide Sales and Marketing; John Clark,
General Manager of our automation business unit, and Peter Mumola, General
Manager of our optics business unit. Each of these three gentlemen brings
significant experience and expertise to their new Zygo assignments.
(photo)
The industrial MESA system is on the factory floor helping one of the world's
largest suppliers of automotive power steering pumps to control their
manufacturing process and meet their stringent quality commitments.
As we noted earlier, we finished the fiscal year by returning the Company to
profitability and recording our strongest order entry quarter for the year.
Although one cannot predict with any degree of confidence the economic
conditions that will exist during fiscal 2000, Zygo's management team has set
some aggressive growth targets for this fiscal year. To whatever greater demand
exists for our goods and services, you can count on that team to exert their
very best efforts during fiscal 2000 to return the Company to its previous
performance levels. As always, we appreciate your continued interest in and
support of your company.
Sincerely,
/s/ GARY K. WILLIS
- -------------------------------------
Gary K. Willis, Chairman and
Chief Executive Officer
/s/ J. BRUCE ROBINSON
- ---------------------------------
J. Bruce Robinson, President
<PAGE>
DIRECTORS
- ---------
MICHAEL R. CORBOY
Chairman and President
Corboy Investment Company
PAUL F. FORMAN
Chairman Emeritus
SEYMOUR E. LIEBMAN
Executive Vice President
and General Counsel
Canon U.S.A., Inc.
ROBERT G. MCKELVEY
Chairman and President
George McKelvey Co., Inc.
PAUL W. MURRILL
Professional Engineer
J. BRUCE ROBINSON
Zygo Corporation
JOHN R. ROCKWELL
Retired Senior Executive
ROBERT B. TAYLOR
Vice President and Treasurer
Wesleyan University
GARY K. WILLIS
Zygo Corporation
CARL A. ZANONI
Zygo Corporation
OFFICERS
- --------
GARY K. WILLIS
Chairman and
Chief Executive Officer
J. BRUCE ROBINSON
President and
Chief Operating Officer
WILIAM H. BACON
Vice President,
Corporate Quality
FRANCIS E. LUNDY
Vice President
KEVIN M. MCGUANE
Vice President, Finance,
Chief Financial Officer
and Treasurer
BRIAN J. MONTI
Vice President, Worldwide
Sales and Marketing
DAVID J. PERSON
Vice President,
Human Resources
ROBERT A. SMYTHE
Vice President, Engineering
CARL A. ZANONI
Vice President, Technology
PAUL JACOBS
Secretary
STOCKHOLDER
INFORMATION
- ------------
ANNUAL MEETING
November 17, 1999, at 10 a.m.
Intercontinental Hotel
111 East 48th Street
New York, New York 10017
CORPORATE HEADQUARTERS
Laurel Brook Road
Middlefield, Connecticut 06455
Web Site: www.zygo.com
E-mail: [email protected]
AUDITORS
KPMG L.L.P.
City Place II
Hartford, Connecticut 06103
LEGAL COUNSEL
Fulbright & Jaworski L.L.P.
666 Fifth Avenue
New York, New York 10103
TRANSFER AGENT AND REGISTRAR
Continental Stock Transfer
and Trust Company
2 Broadway
New York, New York 10004
DIVIDENDS
The Company has not declared or paid cash dividends since becoming a
public company.
Zygo, and the Zygo logo, are registered
trademarks of Zygo Corporation.
<PAGE>
ZYGO (LOGO)
- ------------
ZYGO CORPORATION
Laurel Brook Road
Middlefield, CT 06455
Voice: 860 347-8506
Fax: 860 347-8372
http://www.zygo.com
E-mail: [email protected]
EXHIBIT 21
SUBSIDIARIES OF ZYGO CORPORATION (DELAWARE)
Zygo Credit Corporation (Delaware)
100% owned by Registrant
Zygo International Sales Corporation (U.S. Virgin Islands)
100% owned by Registrant
Technical Instrument Company (California)
100% owned by Registrant (effective as of August 8, 1996)
Syncotec Neue Technologien und Instrumente GmbH
100% owned by Technical Instrument Company (effective as of September 1, 1997)
NexStar Corporation (Colorado)
100% owned by Registrant (effective as of September 12, 1996)
TechniStar Corporation (Delaware)
25% owned by NexStar Corporation
Sight Systems, Inc. (California)
100% owned by Registrant (effective as of August 19, 1997)
Zygo PTE LTD (Singapore)
100% owned by Registrant (effective as of January 9, 1998)
Six Brookside Drive Corporation (Connecticut)
100% owned by Registrant (effective as of January 26, 1998)
EXHIBIT 23
ACCOUNTANTS' CONSENT
The Board of Directors
Zygo Corporation:
We consent to incorporation by reference in Registration Statements No.
333-4433, No. 33-62087, No. 33-57060, No. 33-20880, and No. 33-34619 on Forms
S-8 of Zygo Corporation of our reports dated August 6, 1999, with respect to the
consolidated balance sheets of Zygo Corporation and subsidiaries as of June 30,
1999, and 1998 and the related consolidated statements of earnings,
stockholders' equity, and cash flows and related schedule for each of the years
in the three-year period ended June 30, 1999, which reports appear in or are
incorporated by reference into the June 30, 1999 Annual Report on Form 10-K405
of Zygo Corporation.
KPMG LLP
Hartford, Connecticut
September 23, 1999
EXHIBIT 24
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, which are intended to constitute a
General Power of Attorney pursuant to Article V, Title 15 of the New York
General Obligations Law, that I, Michael R. Corboy, 8111 Preston Road, Suite
712, Dallas, Texas 75225, do hereby appoint Kevin M. McGuane, vice president,
finance, Zygo Corporation, Laurel Brook Road, Middlefield, Connecticut 06455, my
attorney-in-fact to act in my name, place, and stead in any way which I myself
could do, if I were personally present, with respect to the following matter to
the extent that I am permitted by law to act through an agent: the signing of an
Annual Report on Form 10-K for the fiscal year ended June 30, 1999, and any
amendments thereto, to be filed by Zygo Corporation under Section 13 of the
Securities Exchange Act of 1934, as amended, with the Securities and Exchange
Commission and grant full and unqualified authority to my attorney-in-fact to
delegate the foregoing power to any person or persons whom my attorney-in-fact
shall select.
This power of attorney shall not be affected by the subsequent
disability or incompetence of the principal.
To induce any third party to act hereunder, I hereby agree that any
third party receiving a duly executed copy or facsimile of the instrument may
act hereunder, and that revocation or termination hereof shall be ineffective as
to such third party unless and until actual notice or knowledge of such
revocation or termination shall have been received by such third party, and I,
for myself and for my heirs, executors, legal representatives, and assigns,
hereby agree to indemnify and hold harmless any such third party from and
against any and all claims that may arise against such third party by reason of
such third party having relied on the provisions of this instrument.
IN WITNESS WHEREOF, I have hereunto signed my name this 22nd day of July 1999.
/s/ Michael Corboy
----------------------
Michael R. Corboy
STATE OF TEXAS, COUNTY OF DALLAS ss.:
On the 22nd day of July 1999, before me personally came Michael R.
Corboy to me known, and known to me to be the individual described in, and who
executed the foregoing instrument, and he acknowledged to me that he executed
the same.
/s/ Edith Jones
---------------------
Notary Public
EDITH JONES
My commission expires
November 30, 2000
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, which are intended to constitute a
General Power of Attorney pursuant to Article V, Title 15 of the New York
General Obligations Law, that I, Paul F. Forman, 15 Flying Point Road, Stony
Creek, Connecticut 06405, do hereby appoint Kevin M. McGuane, vice president,
finance, Zygo Corporation, Laurel Brook Road, Middlefield, Connecticut 06455, my
attorney-in-fact to act in my name, place, and stead in any way which I myself
could do, if I were personally present, with respect to the following matter to
the extent that I am permitted by law to act through an agent: the signing of an
Annual Report on Form 10-K for the fiscal year ended June 30, 1999, and any
amendments thereto, to be filed by Zygo Corporation under Section 13 of the
Securities Exchange Act of 1934, as amended, with the Securities and Exchange
Commission and grant full and unqualified authority to my attorney-in-fact to
delegate the foregoing power to any person or persons whom my attorney-in-fact
shall select.
This power of attorney shall not be affected by the subsequent
disability or incompetence of the principal.
To induce any third party to act hereunder, I hereby agree that any
third party receiving a duly executed copy or facsimile of the instrument may
act hereunder, and that revocation or termination hereof shall be ineffective as
to such third party unless and until actual notice or knowledge of such
revocation or termination shall have been received by such third party, and I,
for myself and for my heirs, executors, legal representatives, and assigns,
hereby agree to indemnify and hold harmless any such third party from and
against any and all claims that may arise against such third party by reason of
such third party having relied on the provisions of this instrument.
IN WITNESS WHEREOF, I have hereunto signed my name this 23rd day of
July 1999.
/s/ PAUL FORMAN
-------------------
Paul F. Forman
STATE OF CONNECTICUT, COUNTY OF NEW HAVEN ss.:
On the 23rd day of July 1999, before me personally came Paul F. Forman
to me known, and known to me to be the individual described in, and who executed
the foregoing instrument, and he acknowledged to me that he executed the same.
/s/ JOYCE A.GOLDBERG
--------------------
Notary Public
Joyce A. Goldberg
Notary Public, State of Connecticut
My commission expires Dec. 31, 2001
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, which are intended to constitute a
General Power of Attorney pursuant to Article V, Title 15 of the New York
General Obligations Law, that I, Seymour E. Liebman, Canon U.S.A., One Canon
Plaza, Lake Success, New York 11042, do hereby appoint Kevin M. McGuane, vice
president, finance, Zygo Corporation, Laurel Brook Road, Middlefield,
Connecticut 06455, my attorney-in-fact to act in my name, place, and stead in
any way which I myself could do, if I were personally present, with respect to
the following matter to the extent that I am permitted by law to act through an
agent: the signing of an Annual Report on Form 10-K for the fiscal year ended
June 30, 1999, and any amendments thereto, to be filed by Zygo Corporation under
Section 13 of the Securities Exchange Act of 1934, as amended, with the
Securities and Exchange Commission and grant full and unqualified authority to
my attorney-in-fact to delegate the foregoing power to any person or persons
whom my attorney-in-fact shall select.
This power of attorney shall not be affected by the subsequent
disability or incompetence of the principal.
To induce any third party to act hereunder, I hereby agree that any
third party receiving a duly executed copy or facsimile of the instrument may
act hereunder, and that revocation or termination hereof shall be ineffective as
to such third party unless and until actual notice or knowledge of such
revocation or termination shall have been received by such third party, and I,
for myself and for my heirs, executors, legal representatives, and assigns,
hereby agree to indemnify and hold harmless any such third party from and
against any and all claims that may arise against such third party by reason of
such third party having relied on the provisions of this instrument.
IN WITNESS WHEREOF, I have hereunto signed my name this 4th day of
August 1999.
/s/ SEYMOUR E. LIEBMAN
----------------------------
Seymour E. Liebman
STATE OF NEW YORK, COUNTY OF NASSAU ss.:
On the 4th day of August 1999, before me personally came Seymour E.
Liebman to me known, and known to me to be the individual described in, and who
executed the foregoing instrument, and he acknowledged to me that he executed
the same.
/s/ RUTH WEINSTEIN
------------------------------
Notary Public
RUTH WEINSTEIN
Notary Public, State of New York
No. 01WE4734936
Qualified in Nassau County
Commission expires Jan. 31, 2000
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, which are intended to constitute a
General Power of Attorney pursuant to Article V, Title 15 of the New York
General Obligations Law, that I, Robert G. McKelvey, George McKelvey Co., Inc.,
529 Washington Boulevard, Sea Girt, New Jersey 08759, do hereby appoint Kevin M.
McGuane, vice president, finance and administration, Zygo Corporation, Laurel
Brook Road, Middlefield, Connecticut 06455, my attorney-in-fact to act in my
name, place, and stead in any way which I myself could do, if I were personally
present, with respect to the following matter to the extent that I am permitted
by law to act through an agent: the signing of an Annual Report on Form 10-K for
the fiscal year ended June 30, 1999, and any amendments thereto, to be filed by
Zygo Corporation under Section 13 of the Securities Exchange Act of 1934, as
amended, with the Securities and Exchange Commission and grant full and
unqualified authority to my attorney-in-fact to delegate the foregoing power to
any person or persons whom my attorney-in-fact shall select.
This power of attorney shall not be affected by the subsequent
disability or incompetence of the principal.
To induce any third party to act hereunder, I hereby agree that any
third party receiving a duly executed copy or facsimile of the instrument may
act hereunder, and that revocation or termination hereof shall be ineffective as
to such third party unless and until actual notice or knowledge of such
revocation or termination shall have been received by such third party, and I,
for myself and for my heirs, executors, legal representatives, and assigns,
hereby agree to indemnify and hold harmless any such third party from and
against any and all claims that may arise against such third party by reason of
such third party having relied on the provisions of this instrument.
IN WITNESS WHEREOF, I have hereunto signed my name this 26th day of
July 1999.
/s/ ROBERT G. McKELVEY
-------------------------
Robert G. McKelvey
STATE OF NEW JERSEY, COUNTY OF MONMOUTH ss.:
On the 26th day of July 1999, before me personally came Robert G.
McKelvey to me known, and known to me to be the individual described in, and who
executed the foregoing instrument, and he acknowledged to me that he executed
the same.
/s/ MARGARET CAMPBELL
------------------------
Notary Public
Margaret Campbell
Notary Public of New Jersey
Commission Expires March 19, 2001
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, which are intended to constitute a
General Power of Attorney pursuant to Article V, Title 15 of the New York
General Obligations Law, that I, Paul W. Murrill, 206 Sunset Boulevard, Baton
Rouge, Louisiana 70808, do hereby appoint Kevin M. McGuane, vice president,
finance, Zygo Corporation, Laurel Brook Road, Middlefield, Connecticut 06455, my
attorney-in-fact to act in my name, place, and stead in any way which I myself
could do, if I were personally present, with respect to the following matter to
the extent that I am permitted by law to act through an agent: the signing of an
Annual Report on Form 10-K for the fiscal year ended June 30, 1999, and any
amendments thereto, to be filed by Zygo Corporation under Section 13 of the
Securities Exchange Act of 1934, as amended, with the Securities and Exchange
Commission and grant full and unqualified authority to my attorney-in-fact to
delegate the foregoing power to any person or persons whom my attorney-in-fact
shall select.
This power of attorney shall not be affected by the subsequent
disability or incompetence of the principal.
To induce any third party to act hereunder, I hereby agree that any
third party receiving a duly executed copy or facsimile of the instrument may
act hereunder, and that revocation or termination hereof shall be ineffective as
to such third party unless and until actual notice or knowledge of such
revocation or termination shall have been received by such third party, and I,
for myself and for my heirs, executors, legal representatives, and assigns,
hereby agree to indemnify and hold harmless any such third party from and
against any and all claims that may arise against such third party by reason of
such third party having relied on the provisions of this instrument.
IN WITNESS WHEREOF, I have hereunto signed my name this 26th day of
July 1999.
/s/ PAUL W. MURRILL
------------------------
Paul W. Murrill
STATE OF LOUISIANA, PARISH OF E BATON ROUGE ss.:
On the 2nd day of August 1999, before me personally came Paul W.
Murrill to me known, and known to me to be the individual described in, and who
executed the foregoing instrument, and he acknowledged to me that he executed
the same.
/s/ SHARON M. TAYLOR
--------------------------
Notary Public,
SHARON M. TAYLOR
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, which are intended to constitute a
General Power of Attorney pursuant to Article V, Title 15 of the New York
General Obligations Law, that I, John R. Rockwell, Harbour Ridge, 12790 Mariner
Court, Palm City, Florida 34990, do hereby appoint Kevin M. McGuane, vice
president, finance, Zygo Corporation, Laurel Brook Road, Middlefield,
Connecticut 06455, my attorney-in-fact to act in my name, place, and stead in
any way which I myself could do, if I were personally present, with respect to
the following matter to the extent that I am permitted by law to act through an
agent: the signing of an Annual Report on Form 10-K for the fiscal year ended
June 30, 1999, and any amendments thereto, to be filed by Zygo Corporation under
Section 13 of the Securities Exchange Act of 1934, as amended, with the
Securities and Exchange Commission and grant full and unqualified authority to
my attorney-in-fact to delegate the foregoing power to any person or persons
whom my attorney-in-fact shall select.
This power of attorney shall not be affected by the subsequent
disability or incompetence of the principal.
To induce any third party to act hereunder, I hereby agree that any
third party receiving a duly executed copy or facsimile of the instrument may
act hereunder, and that revocation or termination hereof shall be ineffective as
to such third party unless and until actual notice or knowledge of such
revocation or termination shall have been received by such third party, and I,
for myself and for my heirs, executors, legal representatives, and assigns,
hereby agree to indemnify and hold harmless any such third party from and
against any and all claims that may arise against such third party by reason of
such third party having relied on the provisions of this instrument.
IN WITNESS WHEREOF, I have hereunto signed my name this 26thday of July
1999.
/s/ JOHN R. ROCKWELL
-------------------------
John R. Rockwell
STATE OF MAINE, COUNTY OF YORK ss.:
On the 26th day of July 1999, before me personally came John R.
Rockwell to me known, and known to me to be the individual described in, and who
executed the foregoing instrument, and he acknowledged to me that he executed
the same.
/s/ TERRY RONDEAU
---------------------------
Notary Public
TERRY RONDEAU
NOTARY PUBLIC, STATE OF MAINE
My Commission Expires April 20, 2003
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, which are intended to constitute a
General Power of Attorney pursuant to Article V, Title 15 of the New York
General Obligations Law, that I, Robert B. Taylor, North College, Wesleyan
University, Middletown, Connecticut 06459, do hereby appoint Kevin M. McGuane,
vice president, finance, Zygo Corporation, Laurel Brook Road, Middlefield,
Connecticut 06455, my attorney-in-fact to act in my name, place, and stead in
any way which I myself could do, if I were personally present, with respect to
the following matter to the extent that I am permitted by law to act through an
agent: the signing of an Annual Report on Form 10-K for the fiscal year ended
June 30, 1999, and any amendments thereto, to be filed by Zygo Corporation under
Section 13 of the Securities Exchange Act of 1934, as amended, with the
Securities and Exchange Commission and grant full and unqualified authority to
my attorney-in-fact to delegate the foregoing power to any person or persons
whom my attorney-in-fact shall select.
This power of attorney shall not be affected by the subsequent
disability or incompetence of the principal.
To induce any third party to act hereunder, I hereby agree that any
third party receiving a duly executed copy or facsimile of the instrument may
act hereunder, and that revocation or termination hereof shall be ineffective as
to such third party unless and until actual notice or knowledge of such
revocation or termination shall have been received by such third party, and I,
for myself and for my heirs, executors, legal representatives, and assigns,
hereby agree to indemnify and hold harmless any such third party from and
against any and all claims that may arise against such third party by reason of
such third party having relied on the provisions of this instrument.
IN WITNESS WHEREOF, I have hereunto signed my name this 20th day of
July 1999.
/s/ ROBERT B. TAYLOR
-----------------------------
Robert B. Taylor
STATE OF CONNECTICUT, COUNTY OF MIDDLESEX ss.:
On the 21st day of July 1999, before me personally came Robert B.
Taylor to me known, and known to me to be the individual described in, and who
executed the foregoing instrument, and he acknowledged to me that he executed
the same.
/s/ EVA M. BRYANT
---------------------------
Notary Public
EVA M. BRYANT
MY COMMISSION EXP.
6/30/2003
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
EXHIBIT 27
Article 5 - Financial Data Schedule for Form 10-K405
Fiscal Year Ended June 30, 1999
(Thousands, except per share amounts)
This schedule contains summary financial information extracted from the
consolidated balance sheet and the consolidated statement of earnings and is
qualified in its entirety by reference to such financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JUN-30-1999
<PERIOD-END> JUN-30-1998
<CASH> 13,020
<SECURITIES> 8,467
<RECEIVABLES> 12,956
<ALLOWANCES> 1,324
<INVENTORY> 15,473
<CURRENT-ASSETS> 54,081
<PP&E> 33,708
<DEPRECIATION> 17,460
<TOTAL-ASSETS> 81,827
<CURRENT-LIABILITIES> 11,240
<BONDS> 0
1,140
0
<COMMON> 0
<OTHER-SE> 68,374
<TOTAL-LIABILITY-AND-EQUITY> 81,827
<SALES> 60,838
<TOTAL-REVENUES> 60,838
<CGS> 39,331
<TOTAL-COSTS> 68,740
<OTHER-EXPENSES> 530
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (7,063)
<INCOME-TAX> (3,074)
<INCOME-CONTINUING> (3,989)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (3,989)
<EPS-BASIC> (.36)
<EPS-DILUTED> (.36)
</TABLE>
