<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JULY 18, 1996
REGISTRATION NO. 333-
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
CYMER, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C> <C>
NEVADA 3845 33-0175463
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (IRS EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NUMBER)
</TABLE>
16275 TECHNOLOGY DRIVE
SAN DIEGO, CALIFORNIA 92127
(619) 487-2442
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING
AREA CODE, OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
------------------------
DR. ROBERT P. AKINS
CHAIRMAN OF THE BOARD, CHIEF EXECUTIVE OFFICER AND PRESIDENT
CYMER, INC.
16275 TECHNOLOGY DRIVE
SAN DIEGO, CALIFORNIA 92127
(619) 487-2442
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF AGENT FOR SERVICE)
------------------------
COPIES TO:
<TABLE>
<S> <C>
HENRY P. MASSEY, JR., ESQ. JAY K. HACHIGIAN, ESQ.
DAVID C. DRUMMOND, ESQ. RALPH L. ARNHEIM III, ESQ.
GREGORY T. COX, ESQ. NANCY S. KIM, ESQ.
WILSON SONSINI GOODRICH & ROSATI GUNDERSON DETTMER STOUGH VILLENEUVE
PROFESSIONAL CORPORATION FRANKLIN & HACHIGIAN, LLP
650 PAGE MILL ROAD 600 HANSEN WAY, SECOND FLOOR
PALO ALTO, CALIFORNIA 94304-1050 PALO ALTO, CALIFORNIA 94304
(415) 493-9300 (415) 843-0500
</TABLE>
------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after the effective date of
this Registration Statement.
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration number of the earlier effective
registration statement for the same offering. / /
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration number of the earlier effect registration statement for the same
offering. / /
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. / /
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. /X/
------------------------
CALCULATION OF REGISTRATION FEE
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<S> <C> <C>
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</TABLE>
<TABLE>
<CAPTION>
PROPOSED
TITLE OF EACH CLASS OF MAXIMUM AGGREGATE AMOUNT OF
SECURITIES TO BE REGISTERED OFFERING PRICE(1) REGISTRATION FEE
<S> <C> <C>
- ----------------------------------------------------------------------------------------------------------
Common Stock, $0.001 par value................................ $34,500,000 $11,897
- ----------------------------------------------------------------------------------------------------------
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</TABLE>
(1) Estimated solely for purposes of calculating the registration fee pursuant
to Rule 457(o). In addition to the shares to be sold by the Underwriters,
this Registration Statement covers 142,918 shares to be offered on a
continuous basis by certain stockholders of the Company (including 12,992
shares underlying certain warrants held by such stockholders).
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
- --------------------------------------------------------------------------------
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<PAGE> 2
CYMER, INC.
CROSS REFERENCE SHEET
PURSUANT TO ITEM 501(B) OF REGULATION S-K
SHOWING LOCATION IN PROSPECTUS OF PART I ITEMS OF FORM S-1
<TABLE>
<CAPTION>
ITEM AND HEADING IN FORM S-1
REGISTRATION STATEMENT PROSPECTUS LOCATION IN PROSPECTUS
- ------------------------------------------------ --------------------------------------------
<C> <S> <C>
1. Forepart of the Registration Statement and
Outside Front Cover Page of Prospectus... Outside Front Cover Page
2. Inside Front and Outside Back Cover Pages
of Prospectus............................ Inside Front and Outside Back Cover Pages
3. Summary Information, Risk Factors and Ratio
of Earnings to Fixed Charges............. Prospectus Summary; The Company; Risk
Factors
4. Use of Proceeds............................ Prospectus Summary; Use of Proceeds
5. Determination of Offering Price............ Outside Front Cover Page; Underwriters
6. Dilution................................... Dilution
7. Selling Security Holders................... Principal and Selling Stockholders
8. Plan of Distribution....................... Outside and Inside Front Cover Pages;
Underwriters; Outside Back Cover Page
9. Description of Securities to be
Registered............................... Description of Capital Stock; Dividend
Policy
10. Interests of Named Experts and Counsel..... Legal Matters; Experts
11. Information with Respect to the
Registrant............................... Outside and Inside Front Cover Pages;
Prospectus Summary; The Company; Risk
Factors; Dividend Policy; Capitalization;
Dilution; Selected Consolidated Financial
Data; Management's Discussion and Analysis
of Financial Condition and Results of
Operations; Business; Management; Certain
Transactions; Principal and Selling
Stockholders; Description of Capital
Stock; Shares Eligible for Future Sale;
Consolidated Financial Statements; Outside
Back Cover Page
12. Disclosure of Commission Position on
Indemnification for Securities Act
Liabilities.............................. Not applicable
</TABLE>
<PAGE> 3
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR
MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT
BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR
THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE
SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE
UNLAWFUL PRIOR TO THE REGISTRATION OR QUALIFICATION UNDER THE SECURITIES
LAWS OF ANY SUCH STATE.
PROSPECTUS (Subject to Completion)
Issued July 18, 1996
Shares
LOGO
COMMON STOCK
------------------------
OF THE SHARES OF COMMON STOCK OFFERED HEREBY, SHARES ARE BEING
SOLD BY THE COMPANY AND SHARES ARE BEING SOLD BY THE SELLING
STOCKHOLDERS. SEE "PRINCIPAL AND SELLING STOCKHOLDERS." THE COMPANY WILL
NOT RECEIVE ANY OF THE PROCEEDS FROM THE SALE OF SHARES BY THE SELLING
STOCKHOLDERS. PRIOR TO THIS OFFERING, THERE HAS BEEN NO PUBLIC
MARKET FOR THE COMMON STOCK OF THE COMPANY. IT IS CURRENTLY
ESTIMATED THAT THE INITIAL PUBLIC OFFERING PRICE WILL BE
BETWEEN $ AND $ PER SHARE. SEE
"UNDERWRITERS" FOR A DISCUSSION OF THE FACTORS TO BE
CONSIDERED IN DETERMINING THE INITIAL PUBLIC
OFFERING PRICE.
------------------------
THIS OFFERING INVOLVES A HIGH DEGREE OF RISK. SEE "RISK FACTORS" COMMENCING ON
PAGE 5 HEREOF.
------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
------------------------
PRICE $ A SHARE
------------------------
<TABLE>
<S> <C> <C> <C> <C>
Underwriting Proceeds to
Price to Discounts and Proceeds to Selling
Public Commissions(1) Company(2) Stockholders
------------------------------------------------------------
Per Share............................ $ $ $ $
Total(3)............................. $ $ $ $
</TABLE>
- ------------
(1) The Company and the Selling Stockholders have agreed to indemnify the
Underwriters against certain liabilities, including liabilities under the
Securities Act of 1933, as amended.
(2) Before deducting expenses payable by the Company estimated at $ .
(3) The Company has granted to the Underwriters an option, exercisable within
30 days of the date hereof, to purchase up to an aggregate of
additional Shares at the price to public less underwriting discounts and
commissions for the purpose of covering over-allotments, if any. If the
Underwriters exercise such option in full, the total price to public,
underwriting discounts and commissions and proceeds to Company will be
$ , $ and $ , respectively. See "Underwriters."
------------------------
The Shares are offered, subject to prior sale, when, as and if accepted by
the Underwriters named herein and subject to the approval of certain legal
matters by Gunderson Dettmer Stough Villeneuve Franklin & Hachigian, LLP,
counsel for the Underwriters. It is expected that delivery of the Shares will be
made on or about , 1996, at the offices of Morgan Stanley & Co.
Incorporated, New York, New York, against payment therefor in immediately
available funds.
------------------------
MORGAN STANLEY & CO.
Incorporated
MONTGOMERY SECURITIES
NEEDHAM & COMPANY, INC.
, 1996
<PAGE> 4
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS IN CONNECTION WITH THIS OFFERING OTHER THAN THOSE CONTAINED IN
THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST
NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY, ANY SELLING
STOCKHOLDER OR ANY UNDERWRITER. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO
SELL, OR A SOLICITATION OF AN OFFER TO BUY, ANY SECURITIES OTHER THAN THE
REGISTERED SECURITIES TO WHICH IT RELATES OR AN OFFER TO, OR A SOLICITATION OF,
ANY PERSON IN ANY JURISDICTION WHERE SUCH AN OFFER OR SOLICITATION WOULD BE
UNLAWFUL. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER
SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS BEEN NO
CHANGE IN THE AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF OR THAT THE
INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE
HEREOF.
------------------------
UNTIL , 1996 (25 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL
DEALERS EFFECTING TRANSACTIONS IN THE REGISTERED SECURITIES, WHETHER OR NOT
PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS.
THIS DELIVERY REQUIREMENT IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER
A PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD
ALLOTMENTS OR SUBSCRIPTIONS.
------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
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<S> <C>
Prospectus Summary.................... 3
The Company........................... 4
Risk Factors.......................... 5
Use of Proceeds....................... 14
Dividend Policy....................... 14
Capitalization........................ 15
Dilution.............................. 16
Selected Consolidated Financial
Data................................ 17
Management's Discussion and Analysis
of Financial Condition and Results
of Operations....................... 18
Business.............................. 26
<CAPTION>
PAGE
----
<S> <C>
Management............................ 40
Certain Transactions.................. 47
Principal and Selling Stockholders.... 49
Description of Capital Stock.......... 51
Shares Eligible for Future Sale....... 53
Underwriters.......................... 56
Legal Matters......................... 57
Experts............................... 57
Additional Information................ 57
Index to Consolidated Financial
Statements.......................... F-1
</TABLE>
------------------------
The Company intends to furnish its stockholders annual reports containing
consolidated financial statements audited by its independent auditors, and
quarterly reports containing unaudited consolidated financial data for the first
three quarters of each fiscal year.
------------------------
Cymer and the Cymer logo are registered trademarks of the Company. All
other trademarks or trade names referred to in this Prospectus are the property
of their respective owners.
------------------------
Except as otherwise indicated, all information contained in this Prospectus
(i) reflects the reincorporation of the Company into Nevada to be effected prior
to completion of the offering and a change in the number of authorized shares of
Common Stock and Preferred Stock effected in connection therewith; (ii) assumes
no exercise of the Underwriters' over-allotment option, (iii) reflects the
conversion of all outstanding shares of Preferred Stock into 7,562,527 shares of
Common Stock upon the closing of this offering and (iv) assumes the issuance
simultaneously with the offering of shares of Common Stock upon the
anticipated exercise of outstanding warrants.
------------------------
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK OF
THE COMPANY AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN
MARKET. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
2
<PAGE> 5
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information and financial statements and notes thereto appearing elsewhere in
this Prospectus.
THE COMPANY
Cymer is the leading provider of excimer laser illumination sources for use
in deep ultraviolet ("DUV") photolithography systems targeted at the pilot and
volume production segments of the semiconductor manufacturing market. The
Company's lasers are incorporated into step-and-repeat and step-and-scan
photolithography systems for use in the manufacture of semiconductors with
critical feature sizes below 0.35 microns. The Company believes that its excimer
lasers comprise a substantial majority of all excimer lasers incorporated in DUV
photolithography tools. The Company's customers include all five manufacturers
of DUV photolithography systems: ASM Lithography, Canon, Integrated Solutions,
Nikon and SVG Lithography. Photolithography equipment incorporating the
Company's excimer laser has been purchased by each of the world's 10 largest
semiconductor manufacturers: Intel, NEC, Toshiba, Hitachi, Motorola, Samsung,
Texas Instruments, Mitsubishi, Fujitsu and Philips.
The Company believes its leading position in the excimer laser market is
attributable to its development of advanced technologies that address the needs
of its customers as well as semiconductor manufacturers. The performance
characteristics of the Company's excimer lasers include high pulse repetition
rate, narrow bandwidth, energy stability and reliability relative to competing
products. The Company also believes that it is currently the only volume
supplier of excimer laser systems for DUV photolithography applications. The
Company's krypton fluoride excimer lasers are currently capable of producing
critical features as small as 0.25 microns, and the Company believes its
technology is extendable to critical feature sizes as small as 0.10 microns by
using different gas combinations and advanced optical and photomask technology.
THE OFFERING
<TABLE>
<S> <C>
Common Stock offered................................... ________ shares, including
________ shares by the Company(1) and
________ shares by the Selling Stockholders
Common Stock to be outstanding after the offering...... ________ shares(1)(2)
Use of proceeds........................................ Repayment of indebtedness and general corporate
purposes, including working capital
Proposed Nasdaq National Market symbol................. CYMI
</TABLE>
SUMMARY CONSOLIDATED FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEARS ENDED DECEMBER 31, JUNE 30,
----------------------------------------------- -------------------------
1991 1992 1993 1994 1995 1995 1996
------- ------- ------- ------- ------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF OPERATIONS DATA:
Total revenues...................................... $ 4,480 $ 9,131 $ 5,699 $ 8,921 $18,820 $ 7,279 $19,182
Operating income (loss)............................. (3,181) (1,117) (2,696) (1,788) (150) (397) 876
Net income (loss)................................... (2,961) (1,268) (2,924) (2,045) 69 (383) 957
Pro forma earnings (loss) per share (3)............. $ 0.01 $ (0.06) $ 0.10
Pro forma weighted average common and common
equivalent shares (3)............................. 8,319 6,718 9,745
</TABLE>
<TABLE>
<CAPTION>
JUNE 30, 1996
--------------------------
ACTUAL AS ADJUSTED(4)
------- --------------
<S> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Cash and cash equivalents...................................................................... $ 1,981
Working capital................................................................................ 5,961
Total assets................................................................................... 31,376
Total debt (5)................................................................................. 9,497
Redeemable convertible preferred stock......................................................... 35,234
Stockholders' equity (deficit)................................................................. (21,991)
</TABLE>
- ---------------
(1) Assumes no exercise of the Underwriters' over-allotment option. See
"Underwriters."
(2) Based on the number of shares outstanding as of June 30, 1996. Assumes the
issuance simultaneously with the offering of shares of Common Stock
upon the anticipated exercise of outstanding warrants. Excludes 1,191,983
shares of Common Stock issuable upon exercise of options outstanding as of
June 30, 1996 at a weighted average exercise price of $1.83 per share. Also
excludes 100,000 shares reserved for issuance under the Company's 1996
Director Stock Option Plan and 250,000 shares of Common Stock reserved for
issuance under the Company's 1996 Employee Stock Purchase Plan. Also
excludes 377,225 shares of Common Stock issuable upon exercise of
outstanding warrants at a weighted average exercise price of $3.42 per
share. See "Management -- Employee Stock Plans" and Note 6 of Notes to
Consolidated Financial Statements.
(3) See Note 1 of Notes to Consolidated Financial Statements for an explanation
of the determination of shares used in computing pro forma earnings (loss)
per share.
(4) Adjusted to reflect the conversion of all outstanding shares of Preferred
Stock into 7,562,527 shares of Common Stock upon the closing of this
offering, the assumed issuance of shares of Common Stock upon the
exercise of certain outstanding warrants, the sale by the Company of
shares of Common Stock offered hereby at an assumed initial public
offering price of $ per share and after deducting underwriting
discounts and commissions and estimated offering expenses payable by the
Company, and the application of the estimated net proceeds therefrom. See
"Use of Proceeds" and "Capitalization."
(5) Total debt includes indebtedness for borrowed money and capital lease
obligations.
3
<PAGE> 6
THE COMPANY
Cymer is the leading provider of excimer laser illumination sources for use
in deep ultraviolet ("DUV") photolithography systems targeted at the pilot and
volume production segments of the semiconductor manufacturing market. The
Company's lasers are incorporated into step-and-repeat and step-and-scan
photolithography systems for use in the manufacture of semiconductors with
critical feature sizes below 0.35 microns. The Company believes that its excimer
lasers comprise a substantial majority of all excimer lasers incorporated in DUV
photolithography tools. The Company's customers include all five manufacturers
of DUV photolithography systems: ASM Lithography, Canon, Integrated Solutions,
Nikon and SVG Lithography. Photolithography equipment incorporating the
Company's excimer laser has been purchased by each of the world's 10 largest
semiconductor manufacturers: Intel, NEC, Toshiba, Hitachi, Motorola, Samsung,
Texas Instruments, Mitsubishi, Fujitsu and Philips.
To compete effectively, semiconductor manufacturers are continually seeking
to improve their process and design technologies to manufacture smaller, more
powerful, more complex devices at a lower cost per function. A major factor in
fabricating such devices is the ability to reduce circuit geometries, measured
in microns (a millionth of a meter, "m") and defined in terms of critical, or
smallest, feature size. Reduced circuit geometries permit semiconductor
manufacturers to increase the number of transistors per area of silicon. The
trend toward smaller critical feature sizes is expected to continue, with the
Semiconductor Industry Association's Technology Roadmap projecting production of
leading edge 0.25m devices by 1998 and 0.18m devices by 2001. The Company
believes that volume production of semiconductors with critical geometries below
0.35m generally requires DUV photolithography systems and that the excimer laser
is the optimal illumination source for such DUV systems.
The Company believes its leading position in the excimer laser market is
attributable to its development of advanced technologies that address the needs
of its customers as well as semiconductor manufacturers. The performance
characteristics of the Company's excimer lasers include high pulse repetition
rate, narrow bandwidth, energy stability and reliability relative to competing
products. The Company also believes that it is currently the only volume
supplier of excimer laser systems for DUV photolithography applications. The
Company's krypton fluoride ("KrF") excimer lasers are currently capable of
producing critical features as small as 0.25m, and the Company believes its
technology is extendable to critical feature sizes as small as 0.10m by using
different gas combinations and advanced optical and photomask technology.
The Company's objective is to maintain its position as the leading supplier
of DUV light sources to photolithography tool manufacturers. To accomplish this
objective, the Company expects to continue to make significant investments in
research and development to enhance its KrF lasers and develop its next
generation argon fluoride ("ArF") laser. As part of this effort, the Company is
collaborating with its customers on advanced technology development to better
anticipate technology trends in the semiconductor manufacturing industry. To
meet current and anticipated demand for its products, the Company is increasing
its manufacturing capability at its San Diego facility and has entered into a
contract manufacturing agreement with Seiko Instruments to manufacture excimer
lasers in Japan. In order to support its growing installed base, the Company is
expanding its field service and support operations in the United States, Japan,
Korea and Europe and is in the process of establishing a field service and
support presence in Taiwan and Southeast Asia.
The Company was incorporated in California in 1986 and will be
reincorporated in Nevada prior to the completion of this offering. The Company's
principal offices are located at 16275 Technology Drive, San Diego, California
92127-1815, and its telephone number at that location is (619) 487-2442. Unless
the context otherwise requires, the terms "Cymer" and the "Company" as used in
this Prospectus refer to Cymer, Inc., Cymer Laser Technologies (Cymer, Inc.'s
California predecessor) and Cymer, Inc.'s wholly-owned subsidiary, Cymer Japan,
Inc.
4
<PAGE> 7
RISK FACTORS
In addition to other information contained in this Prospectus, the
following risk factors should be considered carefully in evaluating the Company
and its business before purchasing shares of the Common Stock offered hereby.
This Prospectus contains forward-looking statements that involve risks and
uncertainties. The Company's actual results may differ materially from those
described in such forward-looking statements. Factors that might cause such a
difference include, but are not limited to, those discussed in the following
risk factors.
Likely Fluctuations in Quarterly Operating Results. The Company's
quarterly operating results have in the past fluctuated and are likely in the
future to fluctuate significantly depending upon a variety of factors. Such
factors may include: the demand for semiconductors in general and, in
particular, for leading edge devices with smaller circuit geometries;
cyclicality in the market for semiconductor manufacturing equipment; the timing
and size of orders from the Company's small base of customers; the ability of
the Company to manufacture, test and deliver laser systems in a timely and cost
effective manner; the ability of the Company's competitors to obtain orders from
the Company's customers; the timing of new product announcements and releases by
the Company and its competitors; the entry of new competitors into the market
for DUV photolithography illumination sources; the ability of the Company to
manage its costs as it begins to supply its products in volume; and the
Company's ability to manage effectively its exposure to foreign currency
exchange rate fluctuations, principally with respect to the yen (in which sales
by the Company's Japanese subsidiary are denominated).
The Company has historically derived a substantial portion of its quarterly
and annual revenues from the sale of a relatively small number of systems, which
are priced at up to $450,000. As a result, the precise timing of the recognition
of revenue from an order for one or a small number of systems can have a
significant impact on the Company's total revenues and operating results for a
particular period. The Company's operating results for a particular period could
be adversely affected if orders for a small number of systems, or even one
system, are canceled or rescheduled by customers or cannot be filled in time to
recognize revenue during that period due to, for example, unanticipated
manufacturing, testing, shipping or product acceptance delays. The Company had a
backlog of orders at June 30, 1996 of approximately $49.3 million for shipment
during the 12 months ending June 30, 1997. However, customers may cancel or
delay orders with little or no penalty, and because of the Company's limited
experience in producing lasers in volume, there can be no assurance that the
Company will recognize revenue on any significant portion of this backlog. The
Company's expense levels are based, in large part, on the Company's expectations
as to future revenues and are, therefore, relatively fixed in the short term. If
revenue levels fall below expectations, net income will be disproportionately
and adversely affected. The impact of these and other factors on the Company's
revenues and operating results in any future period cannot be forecast with any
degree of certainty. See "Business -- Backlog."
The Company believes that semiconductor manufacturers are currently
developing capability for pilot production of 0.25(LOGO)mm devices. The Company
also believes that demand for its excimer lasers for DUV photolithography tools
is currently being driven by the efforts to develop such capability. Once
semiconductor manufacturers have acquired such capability, the Company believes
that they will not invest in DUV photolithography tools to expand their capacity
to manufacture 0.25(LOGO)mm devices until such time as their sales forecasts
justify such investment. As a result, the Company believes that once current
demand is satisfied, the Company's revenues could flatten or even decline in
future periods before resuming growth in response to future demand, if any.
Accordingly, the Company currently expects that demand for its DUV excimer
lasers, and thus its revenues, may decrease in the second half of 1997, as
compared to the first half of 1997.
Recently, the Company has significantly increased the scale of its
operations and its manufacturing capacity, including hiring additional personnel
and substantially increasing the number of systems in production. This expansion
has resulted in higher materials and work-in-process inventory levels and
significantly higher operating expenses, and has required the Company to
implement a variety of new systems, procedures and controls. Based on its
backlog of orders at June 30, 1996, the Company expects to continue to increase
its inventories and operating expenses. If orders received by the Company do not
result in sales, or if
5
<PAGE> 8
the Company is unable to sustain its revenues at anticipated levels, the
Company's operating results will be materially adversely affected.
Due to the foregoing factors, as well as other unanticipated factors, it is
likely that in some future quarter the Company's operating results will be below
the expectations of public market analysts or investors. In such event, the
price of the Company's Common Stock would be materially adversely affected. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
History of Losses; Unpredictability of Future Operating Results. The
Company was founded in 1986 and shipped its first prototype laser system in
1988. Although the Company's revenues have increased over the last three years
and each of the last six quarters, the Company has incurred annual operating
losses since inception and incurred an operating loss in the quarter ended March
31, 1996. The Company had an accumulated deficit of approximately $21.9 million
at June 30, 1996. There can be no assurance that the Company's revenues will
grow or be sustained in future periods or that the Company will be profitable in
any future period. The Company's history of annual and quarterly operating
losses, its substantial expansion in manufacturing capacity, its limited
experience in supplying products in volume and the difficulty of predicting the
demand for its products, among other factors, make the prediction of future
operating results difficult if not impossible. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and
"Business -- Backlog."
Risk of Excessive Inventory Buildups by Photolithography Tool
Manufacturers. Substantially all of the Company's customers are
photolithography tool manufacturers, which in turn sell their systems to
semiconductor manufacturers. Over the past year, the Company's customers have
substantially increased their forecasted shipments of DUV photolithography
tools. The Company believes that it is possible that the increase in demand for
DUV photolithography tools coupled with the dependence of the manufacturers of
these tools on a limited number of laser suppliers may have caused a degree of
over-ordering of the Company's products. The Company is working with its
customers to better understand end user demand for DUV photolithography tools.
However, there can be no assurance that the Company will be successful in this
regard, or that its customers will not build excessive laser inventories.
Excessive customer laser inventories could result in a material decline in the
Company's revenues and operating results in future periods as such inventories
are brought into balance.
Risks Associated with Rapid and Substantial Manufacturing Expansion. To
meet current and anticipated demand for its products, the Company must
substantially increase the rate by which it manufactures and tests its
photolithography laser systems by the end of 1996. This increase would follow a
nearly four-fold increase in the manufacturing rate from December 1995 to June
1996. The Company has been unable to manufacture and test its photolithography
laser systems fast enough to fill orders and is behind on its delivery
schedules. While the Company is not aware of any order cancellations as a result
of these delays, such delays, if they continue or recur, increase the risk that
customers will cancel orders and seek to meet all or a portion of their needs
for illumination sources from the Company's competitors. The Company is also
increasingly relying on outside suppliers for the manufacture of various
components and subassemblies used in its products and is dependent upon these
suppliers to meet the Company's manufacturing schedules. The failure by one or
more of these suppliers to supply the Company on a timely basis with sufficient
quantities of components or subassemblies that perform to the Company's
specifications could affect the Company's ability to deliver completed lasers to
its customers on schedule. Additionally, the Company may underestimate the costs
required to increase its manufacturing capacity, which may materially adversely
affect the Company's results of operations.
In addition to increasing manufacturing capacity at its facilities in San
Diego, California, the Company is also seeking to qualify Seiko Instruments,
Inc. ("Seiko") of Japan as a contract manufacturer of its photolithography
lasers. While the Company is seeking to have Seiko begin limited production of
lasers for the Company in 1996, there can be no assurance that Seiko will be
successfully qualified and commence production on schedule. The failure of Seiko
to be so qualified or to commence production on schedule could have a material
adverse effect on the Company's business, financial condition and results of
operations. See "Business -- Manufacturing."
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<PAGE> 9
Dependence on Single Product Line. The Company's only product line is
excimer lasers, the primary market for which is for use in DUV photolithography
equipment for manufacturing deep-submicron semiconductor devices. Demand for the
Company's products will depend in part on the rate at which semiconductor
manufacturers adopt excimer lasers as the illumination source for their
photolithography tools. To the extent that such manufacturers are able to
produce semiconductors with smaller critical feature sizes by extending the
performance capabilities of mercury lamp illumination sources used in existing
i-line or DUV photolithography tools, the demand for the Company's products
would be materially reduced. Further, if the Company's customers experience
reduced demand for DUV photolithography tools, or if the Company's competitors
are successful in obtaining significant orders from such customers, the
Company's results of operations would be materially adversely affected.
Limited Production Use of Excimer Lasers. The Company first shipped its
lasers for photolithography applications in 1988. The Company is not aware of
any semiconductor manufacturer using the Company's lasers for volume production
of semiconductor devices. There can be no assurance that the Company's products
will meet production specifications when subjected to prolonged and intense use
in volume production in semiconductor manufacturing processes. If any
semiconductor manufacturer is not able to successfully achieve volume production
using the Company's lasers, the Company's reputation with semiconductor
manufacturers or the limited number of photolithography tool manufacturers could
be damaged, which would have a material adverse effect on the Company's
business, financial condition and results of operations.
Dependence on Small Number of Customers. The Company's primary customer
base is composed of a small number of manufacturers of DUV photolithography
tools. Four large firms, ASM Lithography, Canon, Nikon and SVG Lithography (a
subsidiary of Silicon Valley Group, Inc.), dominate the photolithography tool
business and collectively accounted for approximately 65% and 86% of the
Company's total revenues in 1995 and the six months ended June 30, 1996,
respectively. Sales to ASM Lithography, Canon, Nikon and SVG Lithography
accounted for approximately 18%, 19%, 27% and 1%, respectively, of total
revenues in 1995 and approximately 22%, 37%, 20% and 7%, respectively, of total
revenues in the six month period ended June 30, 1996. The Company expects that
sales of its systems to these customers will continue to account for
substantially all of its revenues in the foreseeable future. None of the
Company's customers has entered into a long-term agreement requiring it to
purchase the Company's products. Loss of any significant business from any one
of these customers or a significant reduction in orders from any one of these
customers, including reductions caused by changes in a customer's competitive
position, a decision to purchase illumination sources from other suppliers or
economic conditions in the semiconductor and photolithography tool industries,
would have a material adverse effect on the Company's business, financial
condition and results of operations. See "Management's Discussion and Analysis
of Financial Condition and Results of Operations," "Business -- Customers and
End Users" and "-- Backlog."
Need to Manage a Changing Business. The Company recently has dramatically
expanded the scope of its operations and the number of employees in most of its
functional areas. For example, the Company increased the number of its employees
from 136 to 240 between December 31, 1995 and June 30, 1996. The Company also
substantially increased its manufacturing capacity during that period and
installed a new management information system. If demand for the Company's
products continues to grow, the Company will be required to continue this
expansion. The management of such growth, if such growth occurs, will require
the Company to continue to improve and expand its management, operational and
financial systems, procedures and controls, including accounting and other
internal management systems, and its quality control, delivery and field service
and customer support capabilities. The Company will also be required to manage
effectively its expanding international operations, including the operations of
its Japanese subsidiary, its field service and support presence in Asia and
Europe and its qualification of Seiko as a manufacturer of its photolithography
lasers. There can be no assurance that the Company will be able to successfully
expand its operations, effect timely deliveries of its products or maintain the
product quality and reliability required by its customers. The Company has
experienced, and may continue to experience, delays in deliveries to customers
as a result of its inability to increase its manufacturing capacity fast enough
to meet demand. Any failure to manage the Company's growth, if such growth
occurs, would materially adversely effect the Company's financial condition and
results of operations.
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<PAGE> 10
Dependence on Semiconductor Industry. Substantially all of the Company's
revenues are derived from photolithography tool manufacturers that in turn
depend on the demand for their products from semiconductor manufacturers.
Semiconductor manufacturers correspondingly depend on the demand from
manufacturers of end-products or systems that use semiconductors. The
semiconductor industry is highly cyclical and has historically experienced
periodic and significant downturns, which often have had a severe effect on the
demand for semiconductor manufacturing equipment, including photolithography
tools. The Company believes that downturns in the semiconductor manufacturing
industry will occur in the future, and will result in decreased demand for
semiconductor manufacturing equipment. In addition, the Company believes that
its ability to reduce expenses in a future downturn will be constrained by the
need for continual investment in research and development, and the need to
maintain extensive ongoing customer service and support capability. Accordingly,
any downturn in the semiconductor industry could have a material adverse effect
on the Company's business, financial condition and results of operations.
Dependence on Key Suppliers. Certain of the components and subassemblies
included in the Company's products are obtained from a single supplier or a
limited group of suppliers. In particular, there are no alternative sources for
certain of the components and subassemblies, such as certain optical components
and the pre-ionizer tubes used in the Company's lasers. In addition, the Company
is increasingly outsourcing the manufacture of various subassemblies. Although
to date the Company has been able to obtain adequate supplies of its components
and subassemblies in a timely manner from existing sources, the Company has only
recently commenced volume production of its laser systems. If the Company is
unable to obtain sufficient quantities of components or subassemblies, or if
such items do not meet the Company's quality standards, delays or reductions in
product shipments could occur which would have a material adverse effect on the
Company's business, financial condition and results of operations. See
"Business -- Manufacturing."
Competition. The Company currently has two significant competitors in the
market for excimer laser systems for photolithography applications,
Lambda-Physik R&D ("Lambda-Physik"), a German-based subsidiary of Coherent, Inc.
("Coherent"), and Komatsu, Ltd. ("Komatsu"), located in Japan. Both of these
companies are larger than the Company, have access to greater financial,
technical and other resources than does the Company and are located in closer
proximity to the Company's customers than is the Company. The Company believes
that both companies are aggressively seeking to gain larger positions in the
market for excimer laser systems for photolithography applications. The Company
believes that its customers have each purchased one or more products offered by
these competitors and that its customers will consider further purchases, in
part as a result of delays in deliveries by the Company in recent months as the
Company has been seeking to expand its manufacturing capacity. The Company also
believes that its customers are actively seeking a second source for excimer
lasers. Furthermore, photolithography tool manufacturers may seek to develop or
acquire the capability to manufacture internally their own excimer lasers. In
the future, the Company will likely experience competition from other
technologies, such as x-ray, electron beam and ion projection processes. To
remain competitive, the Company believes that it will be required to manufacture
and deliver products to customers on a timely basis and without significant
defects and that it will also be required to maintain a high level of investment
in research and development and in sales and marketing. There can be no
assurance that the Company will have sufficient resources to continue to make
the investments necessary to maintain its competitive position. In addition, the
market for excimer lasers is still small and immature and there can be no
assurance that larger competitors with substantially greater financial
resources, including other manufacturers of industrial lasers, will not attempt
to enter the market. There can be no assurance that the Company will remain
competitive. A failure to remain competitive would have a material adverse
effect on the Company's business, financial condition and results of operations.
See "Business -- Competition."
Rapid Technological Change; New Product Introductions. Semiconductor
manufacturing equipment and processes are subject to rapid technological change.
The Company believes that its future success will depend in part upon its
ability to continue to enhance its excimer laser products and their process
capabilities and to develop and manufacture new products with improved
capabilities. In order to enhance and improve its products and develop new
products, among other things, the Company must work closely with its customers,
particularly in the product development stage, to integrate its lasers with its
customer's photolithography tools. There can be no assurance that future
technologies, such as X-ray, electron beam and ion projection processes,
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<PAGE> 11
will not render the Company's excimer laser products obsolete or that the
Company will be able to develop and introduce new products or enhancements to
its existing products and processes in a timely manner that satisfy customer
needs or achieve market acceptance. The failure to do so could materially
adversely affect the Company's business, financial condition and results of
operations.
Need to Expand Field Service and Support Organization. The Company
believes that the need to provide fast and responsive service to the
semiconductor manufacturers using its lasers is critical and that it will not be
able to depend solely on its customers to provide this specialized service.
Therefore, the Company believes it is essential to establish, through trained
third-party sources or through its own personnel, a rapid response capability to
service its lasers throughout the world. Accordingly, the Company intends to
expand its direct support infrastructure in Japan and Europe, expand its field
service and support in Korea through an independent firm, and establish a joint
service and support capability with an independent firm to serve Taiwan and
Southeast Asia. The establishment of these activities will entail recruiting and
training qualified personnel, identifying qualified independent firms and
building effective and highly trained organizations that can provide service to
customers in various countries in their assigned regions. There can be no
assurance that the Company will be able to attract qualified personnel to
establish these operations successfully or that the costs of such operations
will not be excessive. A failure to implement this plan effectively could have a
material adverse effect on the Company's business, financial condition and
results of operations. See "Business -- Service and Support."
Need for Additional Capital. The Company requires substantial working
capital to fund its business, particularly to finance inventories and accounts
receivable and for capital expenditures. The Company believes that the net
proceeds of this offering, together with anticipated cash provided by operations
and available lines of credit, will be adequate to meet its cash needs for at
least the next 12 months. The Company's future capital requirements will depend
on many factors, including the rate of the Company's manufacturing expansion,
the timing and extent of spending to support product development efforts and
expansion of sales and marketing and field service and support, the timing of
introductions of new products and enhancements to existing products, and market
acceptance of the Company's products. The Company expects that it may need to
raise additional equity or debt financing in the future. There can be no
assurance that additional equity or debt financing, if required, will be
available on acceptable terms or at all. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations -- Liquidity and
Capital Resources."
Risks Associated with Customer-Funded Research and Development. The
Company has in the past funded a significant portion of its research and
development expenses from research and development revenues received from
photolithography tool manufacturers and from SEMATECH, a semiconductor industry
consortium, in connection with the design and development of specific products.
The Company's staffing levels and other expenditures for research and
development are, in part, determined by the level of funding that the Company
expects to receive for specific projects. No assurance can be given that the
Company will continue to generate research and development revenues to offset a
sufficient portion of its product development costs. Any material cancellation
of this funding or a failure to secure research and development funding
commensurate with the Company's expectations could have a material adverse
effect on the Company's business, financial condition and results of operations.
In addition, the recognition of research and development revenues is dependent
on the Company accomplishing certain research and development milestones. If
such milestones are not achieved, the Company will not recognize the associated
research and development revenues, which could have a material adverse effect on
its business, financial condition and results of operations. Although the
Company anticipates that it will continue to receive research and development
revenues in the future, there can be no assurance that this level of support
will be maintained at past levels, and the Company believes that such revenues
will constitute a decreasing percentage of its overall revenues. As a result,
the Company may have to bear a greater proportion of the cost of design and
development of its products which could have a material adverse effect on the
Company's business, financial condition and results of operations.
While the Company's arrangements with photolithography tool manufacturers
and SEMATECH seek to clarify the ownership of the intellectual property arising
from research and development services performed by the Company, there can be no
assurance that disputes over the ownership or rights to use or market such
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<PAGE> 12
intellectual property will not arise between the Company and such parties. Any
such dispute could result in restrictions on the Company's ability to market its
products and could have a material adverse effect on the Company's business,
financial condition and results of operations. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations,"
"Business -- Research and Development" and "-- Intellectual Property Rights."
Uncertainty Regarding Patents and Protection of Proprietary
Technology. The Company believes that the success of its business depends more
on such factors as the technical expertise of its employees, as well as their
innovative skills and marketing and customer relations abilities, than on
patents, copyrights trade secrets and other intellectual property rights.
Nevertheless, the success of the Company may depend in part on patents, and the
Company owns 16 United States patents covering certain aspects of technology
associated with excimer lasers which expire from May 2008 to December 2011 and
has applied for 12 additional patents in the United States, two of which have
been allowed. The Company also has filed 21 patent applications in other
countries. There can be no assurance that the Company's pending patent
applications or any future applications will be approved, that any issued
patents will provide it with competitive advantages or will not be challenged by
third parties, or that the patents of others will not have an adverse effect on
the Company's ability to do business. In this regard, due to cost constraints,
the Company did not begin filing for patents in Japan or other countries with
respect to inventions covered by its United States patents and patent
applications until recently and has therefore lost the right to seek patent
protection in those countries for certain of its inventions. Additionally,
because foreign patents may afford less protection under foreign law than is
available under United States patent law, there can be no assurance that any
such patents issued to the Company will adequately protect the Company's
proprietary information. Furthermore, there can be no assurance that others will
not independently develop similar products, duplicate the Company's products or,
if patents are issued to the Company, design around the patents issued to the
Company.
Others may have filed and in the future may file patent applications that
are similar or identical to those of the Company. To determine the priority of
inventions, the Company may have to participate in interference proceedings
declared by the United States Patent and Trademark Office that could result in
substantial cost to the Company. No assurance can be given that any such patent
application will not have priority over patent applications filed by the
Company.
The Company also relies upon trade secret protection, employee and
third-party nondisclosure agreements and other intellectual property protection
methods to protect its confidential and proprietary information. Despite these
efforts, there can be no assurance that others will not independently develop
substantially equivalent proprietary information and techniques or otherwise
gain access to the Company's trade secrets or disclose such technology or that
the Company can meaningfully protect its trade secrets.
The Company has in the past been, and may in the future be, notified that
it may be infringing intellectual property rights possessed by third parties,
although there are no pending lawsuits involving any such claims. In November
1993 with respect to one patent and, following further correspondence between
the parties, in June 1996 with respect to a second patent, the Company was
notified by Coherent, the parent corporation of Lambda-Physik R & D, one of the
Company's competitors, that certain aspects of the Company's lasers might
infringe the two patents owned by Coherent and that the Company might wish to
procure a license with respect to these patents. The Company has been advised by
its patent counsel, Townsend and Townsend and Crew, LLP, that in the opinion of
such firm the Company's products do not infringe the patents that have been
asserted by Coherent to the Company or that the Company would have other
defenses to a claim of infringement of certain of these patents in the event of
litigation. However, there can be no assurance that, if it elects to do so, the
Company will be able to negotiate a license with respect to these patents at all
or on reasonable terms, that litigation will not ensue with respect to these
patents or that the Company would ultimately be successful in any such
litigation. Any such litigation would at a minimum be costly and would divert
the efforts and attention of the Company's management and technical personnel,
which would have a material adverse effect on the Company's business, financial
condition and results of operations. Furthermore, there can be no assurance that
other infringement claims by third parties or claims for indemnification by
customers or end users of the Company's products resulting from infringement
claims will not be asserted in the future or that such assertions, if proven to
be true, will not materially adversely
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<PAGE> 13
affect the Company's business, financial condition and results of operations. If
any such claims are asserted against the Company, the Company may seek to obtain
a license under the third party's intellectual property rights. There can be no
assurance, however, that a license will be available on reasonable terms or at
all. The Company could decide, in the alternative, to resort to litigation to
challenge such claims or to design around the patented technology. Such actions
could be costly and would divert the efforts and attention of the Company's
management and technical personnel, which would materially adversely affect the
Company's business, financial condition and results of operations.
The Company has registered the trademark CYMER in the United States and
certain other countries and is seeking additional registrations in certain
countries. In Japan, the Company's application for registration was rejected on
the grounds that it is similar to a trademark previously registered by a
Japanese company for a broad range of products. The Company is seeking a partial
nullification of the other registration with respect to laser devices and
related components and does not believe that the holder of the other trademark
is engaged in any business similar to that of the Company. For this reason, the
Company is continuing to use the trademark CYMER in Japan and believes that it
will ultimately be permitted to register such mark for use with its products and
that it is not infringing the other company's trademark. There can be no
assurance that the Company will ultimately succeed in its efforts to register
its trademark in Japan or that it will not be subjected to an action for
trademark infringement, which could be costly to defend and, if successful,
would require the Company to cease use of the mark and, potentially, to pay
damages. See "Business -- Intellectual Property Rights."
Dependence on Key Personnel. The Company is highly dependent on the
services of a number of key employees in various areas, including engineering,
research and development, sales and marketing and manufacturing. In particular,
there are a limited number of experts in excimer laser technology and
competition for such personnel is intense. The Company has in the past
experienced difficulty in hiring personnel, including experts in laser
technology. The Company believes that, to a large extent, its future success
will depend upon the continued service of its engineering, research and
development, sales and marketing and manufacturing personnel and on its ability
to attract and retain highly skilled personnel in each of these areas. The
Company does not have employment agreements with any of its employees, and there
is no assurance that the Company will be able to retain its key employees. The
failure of the Company to hire and retain such personnel could have a material
adverse effect on the Company's business, financial condition and results of
operation. See "Business -- Employees."
Risks of International Sales and Operations. Approximately 54%, 69% and
83% of the Company's revenues in 1994, 1995 and the six months ended June 30,
1996, respectively, were derived from customers located outside the United
States. Because a significant majority of the Company's principal customers are
located in other countries, the Company anticipates that international sales
will continue to account for a significant portion of its revenues. In order to
support its overseas customers, the Company maintains a subsidiary in Japan, is
expanding its field service and support operations in Japan and Europe, is
working with an independent firm to expand field service and support in Korea,
is seeking to establish with an independent firm a joint field service and
support capability to serve Taiwan and Southeast Asia, and is seeking to qualify
Seiko as a manufacturer of its products in Japan. There can be no assurance that
the Company will be able to manage these operations effectively or that the
Company's investment in these activities will enable it to compete successfully
in international markets or to meet the service and support needs of its
customers. Additionally, a significant portion of the Company's sales and
operations could be subject to certain risks, including tariffs and other
barriers, difficulties in staffing and managing foreign subsidiary and branch
operations, currency exchange risks and exchange controls, potentially adverse
tax consequences and the possibility of difficulty in accounts receivable
collection. Further, while the Company has experienced no difficulty to date in
complying with U.S. export controls, these rules could change in the future and
make it more difficult or impossible for the Company to export its products to
various countries. There can be no assurance that any of these factors will not
have a material adverse effect on the Company's business, financial condition
and results of operations. See "Business -- Service and Support."
The Company's results of operations are subject to fluctuations in the
value of the Japanese yen against the U.S. dollar due to sales by the Company to
its Japanese subsidiary being denominated in dollars, and sales
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<PAGE> 14
by the subsidiary to customers in Japan being denominated in yen. The Company's
subsidiary manages its exposure to such fluctuations by entering into foreign
currency exchange contracts to hedge its purchase commitments. While management
will continue to monitor the Company's exposure to currency fluctuations, and,
as deemed appropriate, use financial hedging techniques to minimize the effect
of these fluctuations, there can be no assurance that exchange rate fluctuations
will not have a material adverse effect on the Company's results of operations
or financial condition. In the future, the Company could be required to sell its
products in other currencies, which would make the management of currency
fluctuations more difficult and expose the Company to greater risks in this
regard. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations."
The Company's products are subject to numerous foreign government standards
and regulations that are continually being amended. Although the Company
endeavors to meet foreign technical and regulatory standards, there can be no
assurance that the Company's products will continue to comply with foreign
government standards and regulations, or changes thereto, or that it will be
cost effective for the Company to redesign its products to comply with such
standards and regulations. The inability of the Company to design or redesign
products to comply with foreign standards could have a material adverse effect
on the Company's business, financial condition and results of operations.
Environmental and Other Government Regulations. Federal, state and local
regulations impose various controls on the storage, handling, discharge and
disposal of substances used in the Company's manufacturing process and on the
facility leased by the Company. The Company believes that its activities conform
to present governmental regulations applicable to its operations and its current
facilities, including those related to environmental, land use, public utility
utilization and fire code matters. There can be no assurance that such
governmental regulations will not in the future impose the need for additional
capital equipment or other process requirements upon the Company or restrict the
Company's ability to expand its operations. The adoption of such measures or any
failure by the Company to comply with applicable environmental and land use
regulations or to restrict the discharge of hazardous substances could subject
the Company to future liability or could cause its manufacturing operations to
be curtailed or suspended.
Risk of Product Liability Claims. The Company faces a significant risk of
exposure to product liability claims in the event that the use of its products
results in personal injury or death, and there can be no assurance that the
Company will not experience material product liability losses in the future. The
Company maintains insurance against product liability claims in the amount of
$5.0 million per occurrence and $6.0 million in the aggregate, but there can be
no assurance that such coverage will continue to be available on terms
acceptable to the Company or that such coverage will be adequate for liabilities
actually incurred. Also, in the event that any of the Company's products prove
to be defective, the Company may be required to recall or redesign such
products. A successful claim brought against the Company in excess of available
insurance coverage, or any claim or product recall that results in significant
adverse publicity against the Company, could have a material adverse effect on
the Company's business, financial condition and results of operations.
Shares Eligible for Future Sale. Sales of a substantial number of shares
of Common Stock in the public market following this offering could adversely
affect the market price for the Company's Common Stock. The number of shares of
Common Stock available for sale in the public market is limited by restrictions
under the Securities Act of 1933, as amended (the "Securities Act"), and by
lock-up agreements under which the holders of such shares have agreed not to
sell or otherwise dispose of any of their shares for a period of 180 days after
the date of this Prospectus without the prior written consent of Morgan Stanley
& Co. Incorporated. However, Morgan Stanley & Co. Incorporated, in its capacity
as representative of the several Underwriters, may, in its sole discretion and
at any time without notice, release all or any portion of the securities subject
to lock-up agreements. As a result of these restrictions, based on shares,
options and warrants outstanding as of June 30, 1996, the following shares of
Common Stock will be eligible for future sale: on the date of this Prospectus,
shares in addition to the shares offered hereby will be
eligible for sale; an additional shares will be eligible for sale 90
days after the date of this Prospectus; an additional shares will be
eligible for sale 180 days after the date of this Prospectus; and an additional
shares will be eligible for sale thereafter upon expiration of their
respective two-year holding periods. In addition, the Company intends to
register on the effective date of this offering a total of 3,350,000 shares of
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<PAGE> 15
Common Stock subject to outstanding options or reserved for issuance under the
Company's 1996 Stock Plan, 100,000 shares reserved for issuance under the
Company's 1996 Director Stock Option Plan and 250,000 shares of Common Stock
reserved for issuance under its Employee Stock Purchase Plan. Further, upon
expiration of the lock-up agreements referred to above, holders of approximately
7,555,525 shares of Common Stock will be entitled to certain registration rights
with respect to such shares. If such holders, by exercising their registration
rights, cause a large number of shares to be registered and sold in the public
market, such sales could have a material adverse effect on the market price for
the Company's Common Stock. In addition, if the Company is required to include
in a Company-initiated registration shares held by such holders pursuant to the
exercise of their registration rights, the Company's ability to raise needed
capital may be adversely affected. See "Management -- Stock Plans," "Description
of Capital Stock -- Registration Rights," "Shares Eligible for Future Sale" and
"Underwriters."
No Prior Market; Possible Volatility of Stock Price; Dilution. Prior to
the offering contemplated by this Prospectus, there has been no public market
for the Common Stock of the Company, and there can be no assurance that an
active public market will develop or be sustained after the offering. The
initial public offering price will be determined by negotiations among the
Company and the representatives of the Underwriters based upon several factors.
The trading price of the Company's Common Stock could be subject to wide
fluctuations in response to quarterly variations in operating results,
announcements of technological innovations or new products by the Company or its
competitors, as well as other events or factors. In addition, the stock market
has from time to time experienced extreme price and volume fluctuations which
have particularly affected the market price of many high technology companies
and which often have been unrelated to the operating performance of these
companies. These broad market fluctuations may adversely affect the market price
of the Company's Common Stock. Furthermore, purchasers of the Common Stock
offered by this Prospectus will suffer an immediate and substantial dilution in
the net tangible book value per share of the Common Stock from the initial
public offering price. See "Dilution" and "Underwriters."
Anti-takeover Effect of Nevada Charter and Bylaw Provisions; Availability
of Preferred Stock for Issuance. The Company's Articles of Incorporation and
Bylaws contain provisions that could discourage a proxy contest or make more
difficult the acquisition of a substantial block of the Company's Common Stock.
In addition, the Board of Directors is authorized to issue, without stockholder
approval, up to 5,000,000 shares of Preferred Stock with voting, conversion and
other rights and preferences that may be superior to those of the Common Stock
and that could adversely affect the voting power or other rights of the holders
of Common Stock. The issuance of Preferred Stock or of rights to purchase
Preferred Stock could be used to discourage an unsolicited acquisition proposal.
See "Description of Capital Stock -- Anti-Takeover Measures" and "-- Preferred
Stock."
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USE OF PROCEEDS
The net proceeds to the Company from the sale of the shares of
Common Stock offered by the Company hereby are estimated to be $
million ($ million if the Underwriters' over-allotment option is
exercised in full), assuming an initial public offering price of $ per share
and after deducting estimated underwriting discounts and commissions and
estimated offering expenses payable by the Company. The Company expects to use
approximately $12.0 million of such proceeds to retire outstanding indebtedness,
which the Company anticipates will consist of the following:
(i) $11.0 million under line of credit agreements with a bank that
provide for the following facilities: (a) a $2.0 million bank loan which is
secured by the Company's assets, bears interest at a rate of prime plus
1.5% per annum, is due September 30, 1996 and was incurred to support the
expansion of the Company's manufacturing capacity; (b) a $1.0 million
revolving bank line of credit which is also secured by the Company's
assets, bears interest at a rate of prime plus 0.75% per annum, is due
March 5, 1997 and was incurred for general working capital purposes; and
(c) $8.0 million under lines of credit which are guaranteed by the U.S.
Export Import Bank, bear interest at a rate of prime plus 0.75% per annum,
are due March 5, 1997 and June 27, 1997 and were incurred to finance
inventory and receivables for export sales; and
(ii) a $1.0 million term loan from Mitsubishi International
Corporation which is due on the earlier of December 31, 1996 or the
completion of this offering and bears interest at a rate of prime plus
1.5%.
The Company also anticipates that approximately $4.0 million of the net
proceeds to the Company from this offering will be used for capital expenditures
through 1996, primarily for factory expansion and improvements, test equipment,
research tools and computer equipment. The remaining net proceeds to the Company
from this offering will be used primarily for general corporate purposes,
including working capital. A portion of the net proceeds to the Company from
this offering may also be used for the acquisition of businesses, products and
technologies that are complementary to those of the Company. The Company has no
present plans, agreements or commitments and is not currently engaged in any
negotiations with respect to any such transaction. Pending such uses, the net
proceeds to the Company from this offering will be invested in short-term,
investment grade, interest-bearing securities. The Company will not receive any
proceeds from the sale of shares of Common Stock by the Selling Stockholders.
DIVIDEND POLICY
The Company has never declared or paid cash dividends on its Common Stock
and does not anticipate paying cash dividends in the foreseeable future. In
addition, the Company's bank lines of credit prohibit the payment of cash
dividends without the bank's consent.
14
<PAGE> 17
CAPITALIZATION
The following table sets forth, as of June 30, 1996, (i) the actual
short-term obligations and capitalization of the Company, (ii) the short-term
obligations and capitalization of the Company on a pro forma basis after giving
effect to (a) the conversion of all outstanding shares of Preferred Stock into
Common Stock, which will occur upon the closing of this offering, (b) the
assumed issuance of shares of Common Stock upon the exercise of certain
outstanding warrants and (c) the reincorporation of the Company into Nevada and
the increase in the authorized number of shares of Common Stock and Preferred
Stock to be effected in connection therewith, and (iii) the pro forma short-term
obligations and capitalization of the Company as adjusted to give effect to the
receipt by the Company of the estimated net proceeds from the sale of the
shares of Common Stock offered by the Company at an assumed initial
public offering price of $ per share and after deducting estimated
underwriting discounts and commissions and estimated offering expenses and the
application of the net proceeds thereof.
<TABLE>
<CAPTION>
JUNE 30, 1996
--------------------------------------
ACTUAL PRO FORMA AS ADJUSTED
-------- --------- -----------
(IN THOUSANDS, EXCEPT SHARE DATA)
<S> <C> <C> <C>
Short-term obligations (including short-term indebtedness
for borrowed money and current portion of capital
leases)(1).............................................. $ 9,110 $ $--
======== ======== ========
Capital leases (excluding current portion)(1)............. $ 387 $-- $--
-------- -------- ---- ----
Redeemable convertible preferred stock, $0.01 par value:
actual -- 9,834,880 shares authorized, 7,527,000 shares
issued and outstanding; pro forma and as adjusted -- no
shares authorized, issued or outstanding................ 35,234 -- --
-------- -------- ---- ----
Stockholders' equity (deficit):
Preferred Stock, $0.001 par value: actual -- no shares
authorized, issued or outstanding; pro forma and as
adjusted -- 5,000,000 shares authorized, no shares
issued or outstanding................................ -- -- --
Common Stock: actual -- $0.01 par value, 15,000,000
shares authorized, 1,203,000 shares issued and
outstanding; pro forma and as adjusted -- $0.001 par
value, 25,000,000 shares authorized; pro
forma -- shares issued and outstanding; as
adjusted -- shares issued and
outstanding(2)....................................... 12
Additional paid-in capital................................ 241
Accumulated deficit....................................... (21,947)
Cumulative translation adjustment......................... (297)
-------- -------- ---- ----
Total stockholders' equity (deficit)................. (21,991)
-------- -------- ---- ----
Total capitalization................................. $ 13,630 $ $
======== ======== ========
</TABLE>
- ---------------
(1) See Notes 3 and 8 to Notes to Consolidated Financial Statements.
(2) Excludes 1,500,000 shares of Common Stock available for issuance pursuant to
the Company's 1987 Stock Option Plan, of which 1,191,983 shares were subject
to outstanding options at a weighted average exercise price of $1.83 per
share as of June 30, 1996. Also excludes 377,225 shares of Common Stock
issuable upon exercise of outstanding warrants at a weighted average
exercise price of $3.42 per share. Subsequent to June 30, 1996, the Company
adopted the 1996 Stock Plan to succeed the 1987 Stock Plan, and reserved
1,500,000 shares for issuance thereunder. In addition, subsequent to June
30, 1996, the Company (i) adopted the 1996 Employee Stock Purchase Plan and
reserved 250,000 shares of Common Stock for issuance thereunder and (ii)
adopted the 1996 Director Stock Option Plan and reserved 100,000 shares for
issuance thereunder. See "Management -- Stock Plans."
15
<PAGE> 18
DILUTION
The pro forma net tangible book value of the Company as of June 30, 1996
was $ , or approximately $ per share. Pro forma net tangible
book value per share represents the amount of total tangible assets less total
liabilities, divided by the number of shares of Common Stock outstanding after
giving effect to the conversion of all outstanding shares of Preferred Stock
into Common Stock and the assumed issuance of shares of Common Stock
as a result of the exercise of warrants upon completion of this offering. After
giving effect to the sale by the Company of shares of Common Stock in
this offering at an assumed initial public offering price of $ per
share (after deducting estimated underwriting discounts and commissions and
estimated offering expenses) the pro forma net tangible book value of the
Company at June 30, 1996 would have been $ , or $ per share.
This represents an immediate increase in pro forma net tangible book value of
$ per share to existing stockholders and an immediate dilution in pro
forma net tangible book value of $ per share to new investors
purchasing shares of Common Stock in this offering. The following table
illustrates the per share dilution:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share.................. $
Pro forma net tangible book value per share as of June 30,
1996........................................................ $
Increase in pro forma net tangible book value per share
attributable to new investors...............................
-------
Pro forma net tangible book value per share after the offering...
-------
Dilution per share to new investors.............................. $
=======
</TABLE>
The following table summarizes on a pro forma basis, as of June 30, 1996,
the difference between the existing stockholders and the purchasers of shares in
the offering with respect to the number of shares purchased from the Company,
the total consideration paid and the average price per share paid, assuming
conversion of all outstanding shares of Preferred Stock into Common Stock, the
assumed issuance of shares of Common Stock as a result of the exercise of
warrants upon completion of this offering and the sale of shares of
Common Stock at an initial public offering price of $ per share (before
deduction of estimated underwriting discounts and commissions and estimated
offering expenses):
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION AVERAGE
------------------- -------------------- PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
------- ------- -------- ------- ---------
<S> <C> <C> <C> <C> <C>
Existing stockholders(1)......... % $ % $
New investors....................
------- ----- -------- -----
Total.................. 100.0% $ 100.0%
======= ===== ======== =====
</TABLE>
- ---------------
(1) Sales by the Selling Stockholders in the offering will reduce the number of
shares held by existing stockholders to shares, or %
of the total number of shares outstanding after the offering, and will
increase the number of shares held by new investors to shares,
or % of the total number of shares outstanding after the offering.
See "Principal and Selling Stockholders."
The foregoing tables assume no exercise of outstanding options. As of June
30, 1996, 1,191,983 shares were subject to outstanding options under the
Company's 1987 Stock Plan at a weighted average exercise price of $1.83 per
share and 33,038 shares remained available for future grant. Subsequent to June
30, 1996, the Company adopted the 1996 Stock Plan to replace the 1987 Stock
Plan, and reserved 1,500,000 shares for issuance thereunder. In addition,
subsequent to June 30, 1996, the Company (i) adopted the Employee Stock Purchase
Plan and reserved 250,000 shares of Common Stock for issuance thereunder and
(ii) adopted the 1996 Director Stock Option Plan and reserved 100,000 shares for
issuance thereunder. To the extent outstanding options are exercised, or shares
reserved for future option grants or direct issuances are issued, there will be
further dilution to new investors. See "Management -- Stock Plans" and Note 6 of
Notes to Consolidated Financial Statements.
16
<PAGE> 19
SELECTED CONSOLIDATED FINANCIAL DATA
The following selected consolidated financial data should be read in
conjunction with the Company's consolidated financial statements and notes
thereto and with Management's Discussion and Analysis of Financial Condition and
Results of Operations, which are included elsewhere in this Prospectus. The
consolidated statement of operations data for the years ended December 31, 1993,
1994 and 1995 and the consolidated balance sheet data at December 31, 1994 and
1995 are derived from, and are qualified by reference to, the consolidated
financial statements included elsewhere in this Prospectus, which have been
audited by Deloitte & Touche LLP. The consolidated statement of operations data
for the years ended December 31, 1991 and 1992 and the consolidated balance
sheet data at December 31, 1991, 1992 and 1993 are derived from consolidated
financial statements not included in this Prospectus, which have also been
audited by Deloitte & Touche LLP. The consolidated statement of operations data
for the six months ended June 30, 1995 and 1996 and the consolidated balance
sheet data at June 30, 1996 are derived from unaudited financial statements
included elsewhere in this Prospectus that have been prepared on the same basis
as the audited financial statements and, in the opinion of management, contain
all adjustments, consisting only of normal recurring adjustments, necessary for
a fair presentation of the financial position and results of operations for such
periods. These historical results are not necessarily indicative of the results
to be expected in the future and results for interim periods are not necessarily
indicative of results for the entire year.
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEARS ENDED DECEMBER 31, JUNE 30,
----------------------------------------------- ----------------
1991 1992 1993 1994 1995 1995 1996
------- ------- ------- ------- ------- ------ -------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF OPERATIONS DATA:
Revenues:
Product sales............................ $ 4,480 $ 7,423 $ 3,393 $ 7,705 $15,576 $5,458 $17,768
Other.................................... -- 1,708 2,306 1,216 3,244 1,821 1,414
------- ------- ------- ------- ------- ------ -------
Total revenues.................... 4,480 9,131 5,699 8,921 18,820 7,279 19,182
------- ------- ------- ------- ------- ------ -------
Costs and expenses:
Cost of product sales.................... 3,275 4,404 2,726 4,797 9,282 3,243 10,929
Research and development................. 1,903 2,673 2,733 3,283 6,154 2,920 4,249
Sales and marketing...................... 1,710 2,182 2,154 1,780 2,353 1,011 1,825
General and administrative............... 773 989 782 849 1,181 502 1,303
------- ------- ------- ------- ------- ------ -------
Total costs and expenses.......... 7,661 10,248 8,395 10,709 18,970 7,676 18,306
------- ------- ------- ------- ------- ------ -------
Operating income (loss).................... (3,181) (1,117) (2,696) (1,788) (150) (397) 876
Other income (expense)..................... 220 (51) (7) (199) 255 50 267
------- ------- ------- ------- ------- ------ -------
Income (loss) before provision for income
taxes.................................... (2,961) (1,168) (2,703) (1,987) 105 (347) 1,143
Provision for income taxes................. -- 100 221 58 36 36 186
------- ------- ------- ------- ------- ------ -------
Net income (loss).......................... $(2,961) $(1,268) $(2,924) $(2,045) $ 69 $ (383) $ 957
======== ======== ======== ======== ======== ====== ========
Pro forma net income (loss) per share(1)... $ 0.01 $(0.06) $ 0.10
======== ====== ========
Pro forma weighted average common and
common equivalent shares(1).............. 8,319 6,718 9,745
======== ====== ========
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------------------------------- JUNE 30,
1991 1992 1993 1994 1995 1996
------- ------- -------- -------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Cash and cash equivalents...................... $ 557 $ 1,537 $ 715 $ 2,326 $ 2,015 $ 1,981
Working capital................................ 2,245 2,289 (122) (1,557) 3,845 5,961
Total assets................................... 6,046 6,265 5,805 9,172 15,619 31,376
Total debt(2).................................. 1,059 1,026 2,717 6,879 4,164 9,497
Redeemable convertible preferred stock......... 10,980 12,889 12,989 19,290 28,409 35,234
Stockholders' deficit.......................... (7,647) (8,947) (11,828) (19,752) (21,830) (21,991)
</TABLE>
- ---------------
(1) See Note 1 of Notes to Consolidated Financial Statements for an explanation
of the determination of pro forma net income (loss) per share.
(2) Total debt includes indebtedness for borrowed money and capital lease
obligations.
17
<PAGE> 20
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion contains trend analysis and other forward-looking
statements that involve risks and uncertainties. The Company's actual results
may differ materially from those described in such forward-looking statements.
Factors that might cause such a difference include, but are not limited to,
those discussed below and elsewhere in this Prospectus, particularly under "Risk
Factors."
OVERVIEW
The Company was founded in 1986 to develop commercial applications for
excimer lasers. In 1987, the Company began to focus on applications for
semiconductor photolithography and, in 1988, shipped its first semiconductor
photolithography laser. In 1990, the Company shipped its second generation
photolithography laser, the ELS-4000, of which three successive versions were
introduced through 1994. From 1986 through 1994, the Company shipped a total of
78 laser systems, principally for use in semiconductor photolithography research
and development applications. During this period, revenues generated by lasers,
replacement parts and service were small and fluctuated widely, and the Company
funded its operations primarily through successive rounds of equity financing as
well as through government, industry and customer research and development
contracts. In 1992, the Company introduced a higher power, industrial laser, the
model HPL-100K series KrF laser. The Company licensed this complementary laser
technology to Seiko in 1992 for the Japanese market in exchange for up-front
license fees totaling $3.0 million over a two-year period. The Company expects
minimal revenues from industrial laser products in 1996. See
"Business -- Manufacturing, Assembly and Test."
In August 1994, the Company entered into a contract with SEMATECH to
develop a production-worthy laser illumination source for SVG Lithography's
Micrascan step-and-scan photolithography tool. SEMATECH paid the Company an
aggregate of $1.6 million over the term of the contract, which ended in December
1995. The Company obtained additional development contracts in early 1995 from
certain stepper manufacturers to develop a production-worthy, narrower bandwidth
version of its laser illumination source. These development efforts led directly
to the introduction of the ELS-4000F in the third quarter of 1995 and the 5000
series laser in the first quarter of 1996.
Beginning in 1995, as both photolithography tool and semiconductor
manufacturers began to anticipate the need for production-worthy DUV
photolithography equipment, the Company's order backlog for photolithography
lasers began to grow. The Company's twelve-month order backlog was $28.5 million
at December 31, 1995, and $49.3 million at June 30, 1996. The Company believes
that semiconductor manufacturers are currently developing capability for pilot
production of 0.25(LOGO)mm devices. The Company also believes that demand for
its excimer lasers for DUV photolithography tools is currently being driven by
the efforts to develop such capability. Once semiconductor manufacturers have
acquired such capability, the Company believes that they will not invest in DUV
photolithography tools to expand their capacity to manufacture 0.25(LOGO)mm
devices until such time as their sales forecasts justify such investment. As a
result, the Company believes that once current demand is satisfied, the
Company's revenues could flatten or even decline in future periods before
resuming growth in response to future demand, if any. Accordingly, the Company
currently expects that demand for its DUV excimer lasers, and thus its revenues,
may decrease in the second half of 1997, as compared to the first half of 1997.
See "Risk Factors -- Likely Fluctuations in Operating Results" and
"Business -- Backlog."
The Company's sales are generated primarily by shipments to customers in
Japan, the Netherlands, and the United States. Approximately 78%, 54%, 69% and
83% of the Company's sales in 1993, 1994, 1995 and the first six months of 1996,
respectively, were derived from customers outside of the United States. The
Company maintains a wholly-owned Japanese subsidiary which sells to the
Company's Japanese customers. Revenues from Japanese customers, generated
primarily by this subsidiary, accounted for 68%, 33%, 50% and 60% of revenues
for 1993, 1994, 1995 and the first six months of 1996, respectively. The Company
anticipates that international sales will continue to account for a significant
portion of its net sales.
18
<PAGE> 21
RESULTS OF OPERATIONS
The following table sets forth certain items in the Company's statements of
operations as a percentage of total revenues for the periods indicated:
<TABLE>
<CAPTION>
PERCENT OF TOTAL REVENUES
------------------------------------------------------
SIX MONTHS
YEARS ENDED DECEMBER 31, ENDED JUNE 30,
-------------------------------- -----------------
1993 1994 1995 1995 1996
-------- -------- ------ ------ ------
<S> <C> <C> <C> <C> <C>
Revenues:
Product sales......................... 59.5% 86.4% 82.8% 75.0% 92.6%
Other................................. 40.5 13.6 17.2 25.0 7.4
-------- -------- ------ ------ ------
Total revenues................ 100.0% 100.0% 100.0% 100.0% 100.0%
Costs and expenses:
Cost of product sales................. 47.8 53.8 49.3 44.6 57.0
Research and development.............. 48.0 36.8 32.7 40.1 22.1
Sales and marketing................... 37.8 20.0 12.5 13.9 9.5
General and administrative............ 13.7 9.5 6.3 6.9 6.8
-------- -------- ------ ------ ------
Total costs and expenses...... 147.3 120.1 100.8 105.5 95.4
-------- -------- ------ ------ ------
Operating income (loss)................. (47.3) (20.1) (0.8) (5.5) 4.6
Other income (expense).................. (.1) (2.2) 1.4 0.7 1.4
-------- -------- ------ ------ ------
Income (loss) before provision for (47.4) (22.3) 0.6 (4.8) 6.0
income taxes..........................
Provision for income taxes.............. 3.9 0.7 0.2 0.5 1.0
-------- -------- ------ ------ ------
Net income (loss)....................... (51.3)% (23.0)% 0.4% (5.3)% 5.0%
======== ======== ====== ====== ======
Gross margin on product sales........... 19.7% 37.7% 40.4% 40.6% 38.5%
======== ======== ====== ====== ======
</TABLE>
SIX MONTHS ENDED JUNE 30, 1995 AND 1996
Revenues. The Company's total revenues consist of product sales, which
include sales of laser systems and spare parts and service and training
revenues, and other revenues, which include license fees and revenues from
funded development activities performed for customers and for SEMATECH. Revenue
from product sales is generally recognized at the time of shipment unless
customer agreements contain inspection or other conditions, in which case
revenue is recognized at the time such conditions are satisfied. Funded
development contracts are accounted for on the percentage-of-completion method
based on the relationship of costs incurred to total estimated costs, after
giving effect to estimates of costs to complete the development project.
Product sales increased 226% from $5.5 million in the six months ended June
30, 1995 to $17.8 million in the six months ended June 30, 1996, primarily due
to increased sales of DUV photolithography laser systems. A total of 42 laser
systems (39 of which were DUV photolithography laser systems) were sold in the
first six months of 1996 compared to 11 laser systems (3 of which were DUV
photolithography laser systems) in the first six months of 1995. The decrease in
sales of industrial lasers reflects the Company's increasing focus on its
photolithography laser products. Funded development revenues decreased 22% from
$1.8 million for the six months ended June 30, 1995 to $1.4 million in the six
months ended June 30, 1996, primarily due to the completion in 1995 of a laser
research project sponsored by SEMATECH.
Cost of Product Sales. Cost of product sales includes direct material and
labor, warranty expenses, license fees and manufacturing and service overhead.
Cost of product sales rose 237% from $3.2 million for the six months ended June
30, 1995 to $10.9 million for the six months ended June 30, 1996. The gross
margin on
19
<PAGE> 22
these sales decreased to 38.5% for the six months ended June 30, 1996 from 40.6%
in the first six months of 1995 as the Company incurred increased costs
associated with expansion of its manufacturing capacity and service support
infrastructure.
Research and Development. Research and development expenses include costs
of internally funded and customer-funded projects as well as continuing product
support expenses which primarily include employee and material costs,
depreciation of equipment and other engineering related costs. Research and
development expenses increased 46% from $2.9 million in the six months ended
June 30, 1995 to $4.2 million in the six months ended June 30, 1996, due
primarily to increased product support efforts associated with the release of
the Company's 5000 series lasers and the hiring of additional technical
personnel. As a percentage of total revenues, such expenses declined from 40.1%
to 22.1% in the respective periods due to the growth in the Company's revenues.
Sales and Marketing. Sales and marketing expenses include the expenses of
the sales, marketing and customer support staffs and other marketing expenses.
Sales and marketing expenses increased 81% from $1.0 million for the six months
ended June 30, 1995 to $1.8 million in the six months ended June 30, 1996 due
primarily to increased sales commissions and increased sales support efforts and
marketing activities as more lasers were placed in the field. As a percentage of
total revenues, such expenses declined from 13.9% to 9.5% in the respective
periods due to the growth in the Company's revenues.
General and Administrative. General and administrative expenses consist
primarily of management and administrative personnel costs, professional
services and administrative operating costs. These expenses increased 160% from
$502,000 in the six months ended June 30, 1995 to $1.3 million in the six months
ended June 30, 1996 due to an increase in general and administrative support as
the Company's sales volume, manufacturing capacity and overall level of business
activity increased. As a percentage of total revenues, such expenses decreased
from 6.9% to 6.8% in the respective periods.
Other Income (Expense). Other income (expense) consists primarily of
interest income and expense and foreign currency exchange gains and losses
associated with fluctuations in the value of the Japanese yen against the U.S.
dollar. Other income increased from $50,000 for the six months ended June 30,
1995 to $267,000 for the six months ended June 30, 1996. Foreign currency
exchange gains totaled $167,000 and interest expense totaled $138,000 for the
six months ended June 30, 1995 compared to $388,000 and $148,000, respectively,
for the six months ended June 30, 1996.
The Company's results of operations are subject to fluctuations in the
value of the Japanese yen against the U.S. dollar due to the fact that sales by
the Company to its Japanese subsidiary are denominated in dollars, and sales by
the subsidiary to customers in Japan are denominated in yen. The Company's
subsidiary manages its exposure to such fluctuations by entering into foreign
currency exchange contracts to hedge its purchase commitments to the Company.
While management will continue to monitor the Company's exposure to currency
fluctuations, and, as deemed appropriate, use financial hedging techniques to
minimize the effect of these fluctuations, there can be no assurance that
exchange rate fluctuations will not have a material adverse effect on the
Company's results of operations or financial condition. In the future, the
Company could be required to sell its products in other currencies, which would
make the management of currency fluctuations more difficult and expose the
Company to greater risks in this regard.
Provision for Income Taxes. The provision for income taxes was
insignificant in the six months ended June 30, 1995 and primarily represented
taxes in Japan for research and development revenues generated from agreements
with Seiko. The tax provision of $186,000 for the six months ended June 30, 1996
was primarily attributable to income generated in the second quarter of 1996. At
June 30, 1996, the Company had $6.6 million in federal and state net operating
loss carryforwards which may be offset against future income.
YEARS ENDED DECEMBER 31, 1993, 1994 AND 1995
Revenues. Product sales increased 127%, from $3.4 million in 1993 to $7.7
million in 1994, and 102% to $15.6 million in 1995, reflecting significant
increases in sales of DUV photolithography laser systems and replacement parts
and, to a lesser extent, increases in sales of industrial laser systems. The
Company sold five, 10 and 26 DUV photolithography laser systems in 1993, 1994
and 1995, respectively, and sold two, seven and
20
<PAGE> 23
eight industrial laser systems during the same periods. In 1993, the Company
generated license fees of $2.0 million from Seiko for industrial laser
technology. See "Business--Proprietary Rights" and Note 10 of Notes to
Consolidated Financial Statements. Funded development revenues increased 297%,
from $306,000 in 1993 to $1.2 million in 1994, and 167% to $3.2 million in 1995.
These increases were primarily due to increased customer interest in the
development of production-worthy illumination sources. The Company expects that
funded development revenues will decrease as a percentage of total revenues as
the Company focuses on product sales.
Cost of Product Sales. Cost of product sales increased 76% from $2.7
million in 1993 to $4.8 million in 1994 and 94% to $9.3 million in 1995, as the
Company's product sales increased. Gross margin on product sales increased from
19.7% in 1993 to 37.7% in 1994 to 40.4% in 1995. These increases were primarily
due to economies of scale realized as the Company's sales volume increased.
Research and Development. Research and development expenses increased 20%,
from $2.7 million in 1993 to $3.3 million in 1994, and 87% to $6.2 million in
1995. The substantial increase in 1995 was primarily due to the Company's
research contract with SEMATECH for the EX-5000 series laser system and to
continuing product development and enhancements associated with the ELS-4000F
series laser system. As a percentage of revenues, research and development
expenses decreased from 48.0% to 36.8% and to 32.7% in 1993, 1994 and 1995 due
to the growth in the Company's revenues in those periods.
Sales and Marketing. Sales and marketing expenses decreased 17% from $2.2
million in 1993 to $1.8 million in 1994, due to the reclassification of certain
costs associated with the testing of lasers to customer specifications to cost
of product sales and, to a lesser extent, reduced depreciation on lasers used
for demonstrations and customer training. In 1995, as industry interest in DUV
photolithography accelerated, the Company's sales and marketing expenses,
including sales commissions, increased 32% to $2.4 million. As a percentage of
total revenues, these expenses declined from 37.8% to 20.0% to 12.5% in 1993,
1994, and 1995, respectively.
General and Administrative. General and administrative expenses increased
9%, from $782,000 in 1993 to $849,000 in 1994, and 39% to $1.2 million in 1995,
reflecting increases in general and administrative support as the Company's
sales volume increased and its scope of operations expanded. As a percentage of
total revenues, these expenses decreased from 13.7% to 9.5% and to 6.3% in 1993,
1994 and 1995, respectively, reflecting economies of scale as total revenues
increased.
Other Income (Expense). Other expense increased from $7,000 in 1993 to
$199,000 in 1994, primarily reflecting increased interest expense in 1994 on
bridge financing obtained from the Company's investors to support its expanding
operations. This debt financing was subsequently converted into equity by the
investors in February 1995. The Company generated other income of $255,000 in
1995 due to foreign exchange gains of $506,000 and interest income of $32,000,
which were partially offset by interest expense of $283,000.
Provision for Income Taxes. The Company's provision for income taxes,
which primarily represents taxes paid in Japan for license fees and research and
development revenues generated from agreements with Seiko, decreased from
$221,000 to $58,000 and to $36,000 in 1993, 1994 and 1995, respectively, as
revenues from these activities decreased over these periods.
To date, inflation has not had a significant effect on the Company or its
results of operations.
21
<PAGE> 24
SELECTED QUARTERLY INFORMATION
The following table sets forth consolidated statement of operations data
for each of the six quarters through the period ended June 30, 1996 and the
percentage of the Company's total revenues represented by each item of the
respective quarter. This unaudited quarterly information has been prepared on
the same basis as the audited consolidated financial statements presented
elsewhere in this Prospectus and, in management's opinion, includes all
adjustments (consisting only of normal recurring entries) necessary for a fair
presentation of the information for the quarters presented. The operating
results for any quarter are not necessarily indicative of results for any future
period.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
-----------------------------------------------------------------------
MARCH 31, JUNE 30, SEPT. 30, DEC. 31, MARCH 31, JUNE 30,
1995 1995 1995 1995 1996 1996
--------- -------- --------- -------- --------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF OPERATIONS DATA:
Revenues:
Product sales.................... $ 1,476 $3,982 $ 4,892 $5,226 $ 6,526 $ 11,242
Other............................ 802 1,019 827 596 634 780
------ ------ ------ ------ ------ -------
Total revenues................ 2,278 5,001 5,719 5,822 7,160 12,022
------ ------ ------ ------ ------ -------
Costs and expenses:
Cost of product sales............ 967 2,276 2,893 3,146 4,210 6,719
Research and development......... 1,347 1,573 1,773 1,461 1,958 2,291
Sales and marketing.............. 421 590 652 690 755 1,070
General and administrative....... 235 267 324 355 551 752
------ ------ ------ ------ ------ -------
Total costs and expenses...... 2,970 4,706 5,642 5,652 7,474 10,832
------ ------ ------ ------ ------ -------
Operating income (loss)............ (692) 295 77 170 (314) 1,190
Other income (expense)............. 90 (40) 11 194 64 203
------ ------ ------ ------ ------ -------
Income (loss) before provision for
income taxes..................... (602) 255 88 364 (250) 1,393
Provision for income taxes......... 9 27 -- -- 10 176
------ ------ ------ ------ ------ -------
Net income (loss).................. $ (611) $ 228 $ 88 $ 364 $ (260) $ 1,217
====== ====== ====== ====== ====== =======
</TABLE>
<TABLE>
<CAPTION>
AS A PERCENTAGE OF REVENUES
-----------------------------------------------------------------------
MARCH 31, JUNE 30, SEPT. 30, DEC. 31, MARCH 31, JUNE 30,
1995 1995 1995 1995 1996 1996
--------- -------- --------- -------- --------- --------
<S> <C> <C> <C> <C> <C> <C>
Revenues:
Product sales.................... 64.8% 79.6% 85.5% 89.8% 91.2% 93.5%
Other............................ 35.2 20.4 14.5 10.2 8.8 6.5
------ ------ ------ ------ ------ -------
Total revenues................ 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
------ ------ ------ ------ ------ -------
Costs and expenses:
Cost of product sales............ 42.4 45.5 50.6 54.1 58.8 55.9
Research and development......... 59.1 31.5 31.0 25.1 27.4 19.1
Sales and marketing.............. 18.5 11.8 11.4 11.9 10.5 8.9
General and administrative....... 10.3 5.3 5.7 6.1 7.7 6.3
------ ------ ------ ------ ------ -------
Total costs and expenses...... 130.3 94.1 98.7 97.2 104.4 90.2
------ ------ ------ ------ ------ -------
Operating income (loss)............ (30.3) 5.9 1.3 2.8 (4.4) 9.8
Other income (expense)............. 3.9 (0.8) 0.2 3.4 0.9 1.7
------ ------ ------ ------ ------ -------
Income (loss) before provision for
income taxes..................... (26.4) 5.1 1.5 6.2 (3.5) 11.5
Provision for income taxes......... 0.4 0.5 -- -- 0.1 1.5
------ ------ ------ ------ ------ -------
Net income (loss).................. (26.8)% 4.6% 1.5% 6.2% (3.6)% 10.0%
====== ====== ====== ====== ====== =======
Gross margin on product sales...... 34.5% 42.8% 40.9% 39.8% 35.5% 40.2%
====== ====== ====== ====== ====== =======
</TABLE>
The Company's total revenues have increased in each quarter since the first
quarter of 1995, primarily due to increased sales of DUV photolithography laser
systems. Of the three systems sold in the quarter ended
22
<PAGE> 25
March 31, 1995, one was a DUV photolithography laser system, and of the 27
systems sold in the quarter ended June 30, 1996, 26 were DUV photolithography
laser systems. The Company also generated modest other revenues in each of the
past six quarters from research and development activities performed for certain
of the Company's customers and for SEMATECH.
Cost of product sales also increased in absolute dollars in each of the
past six quarters as sales of laser systems and replacement parts increased.
Gross margins on product sales have ranged from a high of 42.8% in the second
quarter of 1995 to a low of 34.5% in the first quarter of 1995. The increase in
gross margin in the second quarter of 1995 was due to economies of scale
realized as unit sales increased. The decrease in gross margin in the third
quarter of 1995 was caused primarily by a relatively higher proportion of sales
of the Company's industrial laser product, which has a lower gross margin than
the Company's photolithography laser product, as well as replacement parts for
such product. The subsequent decrease in gross margin in the fourth quarter of
1995 was due primarily to the write off of inventory associated with the
Company's older lasers caused by the introduction of the ELS-4000F and 5000
series products. Gross margin declined in the first quarter of 1996 as the
Company began to experience increased manufacturing overhead costs as it
expanded capacity to meet its growing order backlog. The increase in gross
margin during the second quarter of 1996 was due to realization of economies of
scale associated with increased laser unit sales.
Operating expenses have generally increased in absolute dollars over the
quarters shown as the Company has increased staffing in research and
development, sales and marketing and administrative functions. Research and
development expenses increased through the first three quarters of 1995
reflecting the increased development activity under the SEMATECH contract and
material costs associated with the delivery of the first prototype unit in the
early part of the fourth quarter. Following such delivery, research and
development expenses decreased in the fourth quarter of 1995. Research and
development expenses rose rapidly in the first quarter of 1996 as the Company
expanded its product support capabilities in response to customer requirements.
As a percentage of total revenues, operating expenses have generally declined as
the Company's revenues have increased in the past four quarters, although
research and development and general and administrative expenses increased
somewhat as a percentage of revenues in the first quarter of 1996.
The Company achieved operating income and net income in the last three
quarters of 1995, but reported a loss for the first quarter of 1996 due to
delays in manufacturing, testing and shipping laser systems.
The Company's operating results have in the past fluctuated and are likely
in the future to fluctuate significantly depending upon a variety of factors.
Such factors may include: the demand for semiconductors in general and for
leading edge devices with smaller circuit geometries in particular; cyclicality
in the market for semiconductor manufacturing equipment; the timing and size of
orders from the Company's small base of customers; the ability of the Company to
manufacture, test and deliver systems in a timely and cost effective manner; the
ability of the Company's competitors to win orders from the Company's customers;
the timing of new product announcements and releases by the Company and its
competitors; the entry of new competitors into the market for DUV
photolithography illumination sources; the ability of the Company to manage its
costs as it begins to supply its products in volume; and the Company's ability
to manage effectively its exposure to foreign currency exchange rate
fluctuations, principally with respect to the yen (in which sales by the
Company's Japanese subsidiary are denominated).
The Company has historically derived a substantial portion of its quarterly
and annual revenues from the sale of a relatively small number of systems, which
are priced at up to $450,000. As a result, the precise timing of the recognition
of revenue from an order for one or a small number of systems can have a
significant impact on the Company's total revenues and operating results for a
particular period. The Company's operating results for a particular period could
be adversely affected if orders for a small number of systems, or even one
system, are canceled or rescheduled by customers or cannot be filled in time to
recognize revenue during that period due to, for example, unanticipated
manufacturing, testing, shipping or product acceptance delays. The Company had a
backlog of orders at June 30, 1996 of approximately $49.3 million for shipment
during the 12 months ending June 30, 1997. However, customers may cancel or
delay orders with little or no penalty, and because of the Company's limited
experience in producing lasers in volume, there can be no assurance that the
Company will recognize revenue on any significant portion of this backlog. The
Company's expense levels are
23
<PAGE> 26
based, in large part, on the Company's expectations as to future revenues and
are therefore relatively fixed in the short term. Therefore, if revenue levels
fall below expectations, net income will be disproportionately and adversely
affected. The impact of these and other factors on the Company's revenues and
operating results in any future period cannot be forecast with certainty. See
"Business -- Backlog."
Recently, the Company has significantly increased the scale of its
operations and its manufacturing capacity. This has included the hiring of
additional personnel and substantially increasing the number of systems in
production. This expansion has resulted in higher materials and work-in-process
inventory levels and significantly higher operating expenses, and has required
the Company to implement a variety of new systems, procedures and controls.
Based on its backlog of orders at June 30, 1996, the Company expects to continue
to increase its inventories and operating expenses. If orders received by the
Company do not result in sales, or if the Company is unable to sustain its
revenues at anticipated levels, the Company's operating results will be
materially adversely affected.
LIQUIDITY AND CAPITAL RESOURCES
Since inception, the Company has funded its operations primarily through
the private sale of equity securities, totaling approximately $27.1 million,
borrowings from its investors for bridge financing and bank borrowings. As of
June 30, 1996, the Company had approximately $2.0 million in cash and cash
equivalents, $6.0 million in working capital and $8.9 million in bank and other
debt.
Net cash used in operating activities was approximately $2.1 million, $2.2
million, $2.1 million and $5.7 million for 1993, 1994, 1995, and the six months
ended June 30, 1996, respectively. The relatively consistent use of cash in
operations during the three full years was primarily the result of improved
operating results which offset to a degree increasing working capital
requirements as the Company's business expanded during these periods. The
increase in cash used in operations in the six months ended June 30, 1996 was
primarily attributable to an increase in accounts receivable and inventory.
Net cash used for investing activities was approximately $410,000,
$549,000, $2.4 million and $5.1 million in 1993, 1994, 1995 and the six months
ended June 30, 1996. These expenditures were primarily for the purchase of
computer equipment, test equipment, research and development tools, a management
information system, and, particularly during the six months ended June 30, 1996,
manufacturing process machinery and tenant improvements in the manufacturing
area. The Company anticipates making additional capital expenditures of
approximately $4.0 million for the remainder of 1996, primarily for
manufacturing expansion and improvements, test equipment, research tools and
computer equipment.
The Company's financing activities provided net cash of approximately $1.7
million, $4.5 million, $4.3 million and $10.7 million in 1993, 1994, 1995 and
the six months ended June 30, 1996, respectively. In 1993, this consisted
primarily of borrowings of approximately $474,000 from investors and bank
borrowings of approximately $1.6 million, partially offset by a reduction in
advances against commercial drafts in Japan of $487,000. In 1994, the Company
borrowed approximately $3.2 million from investors, received approximately
$404,000 from the sale of Preferred Stock and received approximately $945,000 in
net advances against commercial drafts in Japan. In 1995, the Company sold
Preferred Stock for approximately $3.4 million, increased its bank borrowings by
$1.2 million and reduced advances against commercial drafts by $390,000. In the
six months ended June 30, 1996, the Company received net proceeds of
approximately $5.8 million from the sale of Preferred Stock and increased bank
borrowings by $4.5 million. During the same period, the Company received net
advances against commercial drafts in Japan of approximately $459,000.
The Company has available line of credit arrangements with a bank
permitting borrowings of up to $11.0 million. These borrowings are secured by
substantially all of the Company's assets, including its intellectual property,
and provide for the following facilities: (i) a $5.0 million revolving line of
credit expiring June 27, 1997, which is based on eligible accounts receivable of
the Company's Japanese subsidiary and eligible inventory of the Company and its
subsidiary and is partially guaranteed by the Export-Import Bank of the United
States; (ii) a $3.0 million revolving line of credit expiring March 5, 1997
based on eligible international accounts receivable and inventory (excluding
Japan) and partially guaranteed by the Export-Import Bank of the United States;
(iii) a $1.0 million domestic revolving loan facility expiring March 5, 1997
based on eligible
24
<PAGE> 27
domestic accounts receivable; and (iv) a $2.0 million bridge loan facility from
a bank which is due September 30, 1996. At June 30 1996, $6.3 million was
outstanding under these credit lines. The Company also has a $1 million loan
facility which is guaranteed by Mitsubishi International Corporation, is due on
the earlier December 31, 1996 or the completion of this offering and was fully
utilized at June 30, 1996. See Notes 3 and 13 of Notes to Consolidated Financial
Statements. The Company intends to repay all outstanding indebtedness under the
above facilities from the net proceeds of this offering. See "Use of Proceeds."
The Company also has the following credit arrangements through its subsidiary in
Japan: (i) a Y500 million credit facility for the discounting of customer
promissory notes, (ii) a $15.8 million foreign exchange line for the conversion
of yen to dollars and (iii) a $20.0 million dollar foreign exchange line for
conversion of yen to dollars. At June 30, 1996, the amounts outstanding under
such facilities were Y184 million, $9.9 million and $15.5 million respectively.
The Company anticipates that it will seek to expand its credit lines following
this offering.
The Company anticipates that the proceeds from this offering together with
anticipated cash provided by operations and available bank credit will be
adequate to meet its cash needs for at least the next 12 months. Thereafter, the
Company may require additional funds to support its working capital requirements
or for other purposes and may seek to raise such additional funds through public
or private equity financings or other sources. There can be no assurance that
additional financing will be available at all or that, if available, such
financing will be obtainable on terms favorable to the Company and would not be
dilutive. See "Risk Factors -- Need for Additional Capital."
25
<PAGE> 28
BUSINESS
Cymer is the leading provider of excimer laser illumination sources for use
in deep ultraviolet ("DUV") photolithography systems targeted at the pilot and
volume production segments of the semiconductor manufacturing market. The
Company's lasers are incorporated into step-and-repeat and step-and-scan
photolithography systems for use in the manufacture of semiconductors with
critical feature sizes below 0.35 microns. The Company believes that its excimer
lasers comprise a substantial majority of all excimer lasers incorporated in DUV
photolithography tools. The Company's customers include all five manufacturers
of DUV photolithography systems: ASM Lithography, Canon, Integrated Solutions,
Nikon and SVG Lithography. Photolithography equipment incorporating the
Company's excimer laser has been purchased by each of the world's 10 largest
semiconductor manufacturers: Intel, NEC, Toshiba, Hitachi, Motorola, Samsung,
Texas Instruments, Mitsubishi, Fujitsu and Philips.
INDUSTRY BACKGROUND
Semiconductor Industry
The worldwide market for semiconductors has grown from approximately $22
billion in 1985 to over $140 billion in 1995 as the use of semiconductors has
expanded beyond computer systems to a wide array of additional applications such
as telecommunications and data communications systems, automotive products,
consumer goods, medical products, household appliances and industrial automation
and control systems. To compete effectively in this market, semiconductor
manufacturers are continually seeking to improve their process and design
technologies to manufacture smaller, more powerful, more complex, more reliable
devices at a lower cost per function. A major factor in fabricating such devices
is the ability to reduce circuit geometries, measured in microns (millionth of a
meter or "m") and defined in terms of critical, or smallest, feature size.
Reduced circuit geometries permit semiconductor manufacturers to increase
transistor density or the number of transistors per area of silicon. On average,
the power and complexity (number of transistors) of semiconductor devices has
doubled every 18 months with proportionate decreases in cost. This phenomenon
was first articulated by Dr. Gordon Moore, a co-founder of Intel Corporation,
and has come to be known as "Moore's Law."
Recent advances in both memory circuits, such as DRAMs, and logic devices,
such as microprocessors, illustrate this continuing trend toward higher
complexity and smaller critical feature sizes. According to the Semiconductor
Industry Association's ("SIA") Technology Roadmap, critical feature sizes in
leading edge (first engineering samples) DRAM devices have decreased from 0.8m
in four megabit devices in 1989, to 0.5 m in 16 megabit devices in 1992, to
0.35m in 64 megabit devices in 1995. The SIA expects that this trend will
continue with the introduction of leading edge 256 megabit DRAMs with 0.25m
geometries in 1998. Critical feature sizes in microprocessors have also followed
a similar downward sloping curve. The following graph illustrates the reduction
in critical feature size in DRAM devices over time:
REDUCTION IN DRAM CRITICAL FEATURE SIZE OVER TIME
<TABLE>
<S> <C> <C> <C> <C>
1986 1.2
1989 .8
1992 .5
1995 .35
1998 .25
2001 .18
</TABLE>
26
<PAGE> 29
Semiconductor Photolithography Process
Integrated circuits ("ICs") are complex integrations of semiconductor
devices made up of multiple transistors fabricated on silicon wafers in a series
of process steps. During IC fabrication, thin films of material are deposited or
grown on the surface of a wafer. Following thin film deposition, IC features are
projected onto light-sensitive emulsion ("photoresist") on the surface of the
wafer with optical photolithography tools. Advanced ICs require 20 or more
deposition and photolithography steps. After photolithography, IC features are
formed with etch systems that selectively remove unwanted material as determined
by the patterning process. Ultimately, IC features are formed into functioning
electronic circuits.
Photolithography is one of the most critical and expensive steps in the IC
manufacturing process. This process requires either step-and-repeat
photolithography system ("stepper") or a step-and-scan photolithography system
that projects light through a photomask containing the master image of a
particular circuit layer onto a light sensitive photoresist coated on the wafer.
ICs are patterned through a series of such optical exposures until the full
three-dimensional structure of the circuit elements has been completed. The
critical feature size of a semiconductor device depends upon the resolution
capability of the stepper or step-and-scan photolithography system. Resolution
capability, in turn, is a function of the projected wavelength of the
illumination source and the numerical aperture of the lens, with a shorter
wavelength or higher numerical aperture enabling smaller feature sizes.
Historically, notwithstanding adjustments in numerical aperture and advancements
in optical and photomask technology, photolithography tools have had physical
resolution limits approximating the wavelength of their illumination source.
Accordingly, shorter wavelength illumination technology has been used to achieve
the higher resolution requirements for successive IC generations.
Mercury arc lamps have been the primary illumination source used for the
last decade. Initially, g-line emission from these lamps, with a wavelength of
436nm (0.436), was used to commercially produce critical feature sizes down to
0.6m. Subsequently, i-line emission from these lamps, with a wavelength of 365nm
(0.365m), has been used to commercially produce critical feature sizes of 0.6m
to 0.35m. The next generation of photolithography tools use DUV light with
wavelengths of 250nm (0.25m) and below. The graph below shows how the adoption
of the three principal illumination technologies corresponds to decreases in
critical feature sizes:
DRAM CRITICAL FEATURE SIZE AND LIGHT SOURCE TECHNOLOGY
<TABLE>
<S> <C> <C> <C> <C>
1986 1.2
1989 .8
1992 .5
1995 .375
1998 .225
2001 .2
</TABLE>
As critical feature sizes approached 0.6m, i-line systems began to be
widely deployed and g-line systems were used for applications requiring less
critical resolutions. The Company believes i-line systems were purchased in
volume by IC manufacturers in advance of reaching the physical resolution limits
of g-line systems for two principal reasons. First, by adopting i-line
technology early, IC manufacturers were able to
27
<PAGE> 30
perfect new process technology at geometries well above the practical limits of
i-line steppers. Second, because these systems had the capability to be used in
the production of multiple future IC generations, they were more extendable and
therefore more cost effective than the older g-line systems. Today's i-line
steppers are capable of producing resolutions as fine as 0.35m, and possibly
lower, when used in conjunction with photomask technologies such as phase shift
or optical proximity correction.
The SIA's Technology Roadmap projects production of leading edge 0.25m
devices by 1998 and 0.18m devices by 2001. The Company believes that volume
production of ICs with critical geometries below 0.35m generally requires DUV
steppers or step-and-scan systems. While the Company believes that semiconductor
manufacturers are no longer attempting to achieve sub-0.35m geometries with
i-line steppers employing mercury arc lamp light sources, successful process
development at 0.25m has been achieved with DUV step-and-scan systems using the
250nm emission of mercury arc lamps. However, mercury arc lamps are not optimal
for DUV step-and-scan systems for several reasons. First, mercury arc lamps emit
a wide spectrum of light. This wide band of wavelengths causes a degradation of
resolution for DUV photolithography which limits its effectiveness for critical
feature sizes below 0.30m. Second, because only a portion of the light emitted
by mercury arc lamps is of the appropriate wavelengths for DUV applications, the
relatively small amount of DUV light delivered to the wafer's surface
necessitates a longer exposure time which slows throughput. Third, recent
advances in step-and-scan optical system designs require narrower-band light
than the 250nm emission of mercury arc lamps. Consequently, at critical feature
sizes below 0.35m, the Company believes that mercury arc lamp technology will be
inadequate for volume production and that manufacturers of DUV photolithography
tools require alternative illumination sources for their DUV steppers and
step-and-scan systems.
THE CYMER SOLUTION -- EXCIMER LASERS
The Company believes that the excimer laser is the optimal illumination
source for volume production of semiconductors using DUV photolithography at
critical geometries below 0.35m. The excimer laser is a gas discharge laser that
produces pulses of powerful, narrow bandwidth and short wavelength light,
permitting very fine feature resolution. In addition, its high power allows for
shorter exposure times, thereby increasing throughput. Finally, the Company
believes that excimer laser technology is ultimately extendable to critical
feature sizes as small as 0.10m by using different gas combinations and advanced
optical and photomask technology.
Cymer is the leading provider of excimer laser illumination sources for use
in DUV photolithography systems targeted at the pilot and volume production
segments of the semiconductor market. The Company believes its position in the
photolithography excimer laser market is attributable to the Company's
development of advanced technologies that address the needs of its customers and
semiconductor manufacturers. The performance characteristics of the Company's
excimer laser include high pulse repetition rate, narrow bandwidth, energy
stability and reliability relative to competitive products. The Company's
krypton fluoride ("KrF") excimer lasers are currently capable of producing
critical features as small as 0.25m. When combined with advanced optical and
photomasking technology and advanced wafer processing techniques such as
chemical mechanical planarization, the Company's KrF systems are capable of
producing critical features as small as 0.20m. The Company believes that its
technological capabilities provide it with a competitive advantage for use in
both DUV steppers and DUV step-and-scan systems. The Company also believes that
it is currently the only volume supplier of excimer laser systems for
photolithography applications. The Company has sold its photolithography lasers
to all five DUV photolithography tool manufacturers: ASM Lithography, Canon,
Integrated Solutions, Nikon and SVG Lithography. In addition, photolithography
equipment which incorporates the Company's excimer laser has been purchased by
the world's 10 largest semiconductor manufacturers: Intel, NEC, Toshiba,
Hitachi, Motorola, Samsung, Texas Instruments, Mitsubishi, Fujitsu and Philips.
28
<PAGE> 31
STRATEGY
Cymer's objective is to maintain its position as the leading supplier of
DUV light sources to photolithography tool manufacturers. The principal elements
of the Company's strategy include:
Maintain Technology Leadership. Since entering the excimer laser
photolithography market in 1988, the Company has achieved a technology
leadership position in this market by investing heavily in research and
development, by developing higher performance products and by focusing on
satisfying the needs of both its photolithography customers and end user IC
manufacturers. The Company intends to continue to invest heavily in
research and development to enhance its KrF excimer laser and is working
with its customers on developing its next-generation argon fluoride ("ArF")
excimer laser in preparation for a transition to 0.18m and smaller critical
feature sizes. In addition, the Company intends to continue to invest in
other advanced technologies for photolithography and other applications of
excimer laser technology.
Deepen Customer Relationships. The Company maintains relationships
with all of the manufacturers that make DUV photolithography tools: ASM
Lithography, Canon, Integrated Solutions, Nikon and SVG Lithography and
believes that deepening these relationships will play an important role in
maintaining its leading position in the photolithography excimer laser
market. The Company is seeking to build and expand relationships with its
customers at multiple levels within their organizations. The Company is
collaborating with its customers on advanced technology development to
better anticipate technology trends in the semiconductor manufacturing
industry. Three of these companies, ASM Lithography, Canon and Nikon, have
made equity investments in the Company.
Increase Volume Manufacturing Capability. The Company is investing
heavily in its laser manufacturing facilities in response to increased
demand for its photolithography laser products and intends to increase
production capacity substantially to fulfill both backlog and anticipated
customer orders. During the first six months of 1996, the Company increased
its clean room manufacturing space to approximately 11,000 square feet from
approximately 6,000 square feet, increased the number of test bays to 15
from six, created an in-house manufacturing capability for its solid-state
pulse power modules, installed a new management information system,
outsourced the manufacturing of several major sub-assemblies and increased
its manufacturing headcount to 78 from 43. In addition, under a contract
manufacturing agreement with the Company, Seiko is establishing a
manufacturing capability to produce photolithography lasers for the Company
in Japan.
Enhance Worldwide Service and Support. The Company is expanding its
field service and support operations in the United States, Japan, Korea and
Europe and is in the process of establishing a presence in Taiwan and
Southeast Asia. The Company believes that this five-region presence, in
close proximity to both the photolithography tool manufacturers and major
semiconductor manufacturers, will enable it to enhance customer
productivity, provide a faster response time and receive continual feedback
on its excimer laser performance and desired technological and product
refinements.
Pursue Additional Applications for Excimer Laser Technology. The
Company believes that there is an opportunity to use excimer lasers in
areas of semiconductor manufacturing other than photolithography. For
example, the Company has recently manufactured and sold a laser system that
is being evaluated by the customer for use in photoresist stripping. In
addition, the Company believes that applications exist for the Company's
excimer laser outside of the semiconductor manufacturing industry. As the
Company satisfies demand for DUV photolithography lasers, the Company
intends to pursue new applications for its laser systems over the next
several years.
PRODUCTS
The Company's products consist of photolithography lasers, industrial high
power lasers and replacement parts.
29
<PAGE> 32
Photolithography Laser Products
The Company's photolithography lasers produce narrow bandwidth pulses of
short wavelength light. The lasers permit very fine feature resolution and high
throughput. The Company has designed its lasers to be highly reliable, easy to
install and compatible with existing semiconductor manufacturing processes.
Introduced in the third quarter of 1995, the Company's ELS-4000F KrF
excimer laser is designed to meet the requirements of photolithography tool and
semiconductor manufacturers. The laser operates at a 600Hz pulse repetition rate
and provides power output of 7.2 watts of 248 nm wavelength light. The ELS-4000F
incorporates advanced discharge chamber technology and solid state pulse power
technology to excite the laser gas efficiently, reducing the cost of ownership.
The ELS-4000F achieves high resolution and stable focus through proprietary
optical modules that perform line-narrowing and wavelength stabilization,
thereby optimizing the light emitted by the laser for the photolithography
application. The list price of the ELS-4000F is approximately $425,000.
The Company's 5000 series KrF excimer lasers, introduced in the first
quarter of 1996, are offered in both narrowband, ELS-5000, and broadband,
EX-5000, configurations. The 5000 series lasers incorporate the advanced
technological features of the Company's ELS-4000F laser but operate at a higher
pulse repetition rate and provide higher power outputs that shorten exposure
time and increase throughput, and in the case of the ELS-5000, a narrower
bandwidth. The 5000 series lasers incorporate the Company's proprietary line
narrowing and wavelength stabilization modules together with an atomic reference
for long-term accuracy of the wavemeter calibration. The 5000 series lasers
utilize a modular design that allows the Company to outsource many of the
system's subassemblies, thereby reducing manufacturing cycle times. The list
price of the 5000 series is approximately $450,000.
The Company's lasers incorporate advanced software control and diagnostic
systems. The control system provides users with on-line monitoring of laser
operating conditions, with approximately 75 diagnostic readings (including flow
rate, temperatures, pressures and light quality), that are automatically
monitored by the photolithography tool's control system. Additionally,
approximately 140 configurable parameters can be adjusted to optimize the
laser's performance for each customer's system. A portable computer attached to
the laser logs this data, automatically providing critical information about
performance and reliability. The lasers are also designed for easy
serviceability, with most major modules and components articulated for easy
swing-out or roll-out motion to facilitate inspection and replacement.
Certain specifications of the Company's photolithography lasers are set
forth below:
<TABLE>
<CAPTION>
PRODUCT SPECIFICATIONS COMPONENT LIFE
------------------------------------------------------------------------------------------------------------
---------------------------------
FREQUENCY AND BANDWIDTH AND
OUTPUT POWER STABILITY
--------------------- -------------------------
PULSE AVERAGE (BILLION PULSES) GAS CHARGE
REPETITION OUTPUT SPECTRAL ENERGY POWER LIFE
-----------------
POWER BANDWIDTH PULSES
------- ------------ STABILITY CHAMBER WINDOW SUPPLY --------- DAYS
RATE (WATTS) (PICOMETERS) --------- ------- ------ ------------ (MILLION) ----
----------
(HERTZ)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
NARROWBAND
ELS-5000........ 1000 10 <0.8 <P1% 3 1 10 100 5
ELS-4000F....... 600 7.2 <3.0 <P1% 2 1 10 50 3
BROADBAND
EX 5000......... 1000 15 100 <P1% 3 1 10 100 5
</TABLE>
Industrial High Power Laser Products
The Company's HPL-100K/110K series KrF excimer lasers are designed to meet
the rigors of high duty cycle industrial usage, such as microdrilling,
micromachining and annealing applications. The laser operates at a 200 to 250 Hz
pulse repetition rate and provides average power output of 100 watts for the
HPL-100K and 110 watts for the HPL-110K. The pulse repetition rate and high
power makes these lasers well suited for micro-fabrication processes. The
Company is currently focusing its development and marketing efforts on its
30
<PAGE> 33
photolithography laser products, and the Company expects minimal revenues from
industrial laser products in 1996. Sales of industrial lasers to Tamarack
Scientific Co., Inc., a supplier of equipment used by Hewlett-Packard to
manufacture InkJet print heads, accounted for 10% of the Company's total
revenues in 1995.
Replacement Parts
Certain components and subassemblies included in the Company's lasers
require replacement or refurbishment following continued operation. For example,
the discharge chamber of the Company's lasers has a component life of
approximately two to three billion pulses, depending on the model. The Company
estimates that a laser used in a semiconductor production environment will
require one to three replacement chambers per year. Similarly, certain optical
components of the laser will deteriorate with continued exposure to DUV light
and will require periodic replacement. The Company provides these and other
spare and replacement parts for its photolithography lasers as needed by its
customers. On a limited basis, the Company also refurbishes and resells complete
laser systems.
CUSTOMERS AND END USERS
The Company sells its photolithography laser products to each of the five
manufacturers of DUV photolithography tools:
<TABLE>
<S> <C>
ASM Lithography Nikon
Canon SVG Lithography
Integrated Solutions
</TABLE>
The Company believes that maintaining and strengthening these customer
relationships will play an important role in maintaining its leading position in
the photolithography market. The Company works closely with its customers to
integrate the Company's products into their photolithography tools and is
collaborating with certain of its customers on advanced technology developments
under jointly funded programs. See "-- Research and Development." The Company
has entered into OEM agreements with ASM Lithography, Canon and Nikon that set
the terms of product purchases but do not contain any minimum purchase
requirements. Sales to ASM Lithography, Canon and Nikon accounted for 18%, 19%
and 27%, respectively, of total revenue in 1995 and 22%, 37% and 20% in the six
months ended June 30, 1996. ASM Lithography, Canon and Nikon are stockholders of
the Company. See "Risk Factors -- Dependence on Small Number of Photolithography
Tool Manufacturers" and "Principal and Selling Stockholders."
End users of the Company's lasers include the world's 10 largest
semiconductor manufacturers. The following semiconductor manufacturers have
purchased one or more DUV photolithography tools incorporating the Company's
laser:
UNITED STATES
- ------------------------------------
Advanced Micro Devices
Digital Equipment Corporation
IBM
Integrated Device Technology
Intel Corporation
Micron Technology
Motorola
SEMATECH*
Texas Instruments
JAPAN
- ---------------------
Fujitsu
Hitachi
Mitsubishi Electric
NEC
NTT
Oki Electric
Sharp
Sony
Toshiba
KOREA
- ---------------------
Hyundai
Samsung
EUROPE
- ---------------------
C-Net
IMEC
LETI
Philips
- ---------------
* A semiconductor industry consortium.
BACKLOG
The Company schedules production of lasers based upon order backlog and
informal customer forecasts. The Company includes in backlog only those orders
to which a purchase order number has been assigned by the customer and for which
delivery has been specified within 12 months. Because customers may cancel or
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<PAGE> 34
delay orders with little or no penalty, the Company's backlog as of any
particular date may not be a reliable indicator of actual sales for any
succeeding period. At June 30, 1996, the Company had a backlog of approximately
$49.3 million, compared with a backlog of $28.5 million at December 31, 1995.
See "Risk Factors -- Potential Fluctuations in Operating Results," and "-- Risk
of Excessive Inventory Buildup by Photolithography Tool Manufacturers."
TECHNOLOGY
The word "excimer" derives from the combination of "excited" and "dimer." A
dimer is a molecule consisting of two atoms. Excimer lasers utilize a mixture of
a rare gas (krypton, argon, xenon) and a halogen gas (fluorine, chlorine,
bromine). Through electrical discharge, these two gases combine to form excited
dimers such as KrF or ArF molecules, which only exist in an excited state and
have a very short lifetime. In an avalanching process of stimulated emission,
the excimer de-excites and in the process releases energy in the form of DUV
light. The emitted light from an excimer laser consists of a band of colors, or
wavelengths, in the DUV spectrum. The KrF excimer laser produces a band of light
centered around 248 nanometers and the ArF excimer laser produces a band of
light centered around 193 nanometers. The Company believes that both of these
laser gases and wavelengths will be of importance in current and future
photolithography applications.
The excimer lasers' emissions are beyond the transmission capabilities of
optical materials traditionally used in photolithography applications, such as
borosilicate glass or flint glass. Materials exhibiting both good optical
transmissive properties in the DUV spectrum and the mechanical and thermal
stability necessary for precise optical performance are limited and include
fused silica (synthetic quartz) for KrF lasers and calcium fluoride for ArF
lasers. However, such single-material lenses cannot be designed to be
color-corrected to produce a sharply focused image on a particular plane over a
broad range of wavelengths. Instead, these projection lenses need to be operated
at very narrow and stable DUV wavelengths to produce sharp and stable images.
As a result of the foregoing, there are four separate technical challenges
the Company has had to overcome to produce excimer lasers for photolithography
applications:
- Devise a means to contain and electrically excite highly reactive
KrF gas mixtures in a minimally-reactive fashion to provide long gas
life and stable optical power;
- Adapt a technology that provides the high voltage electrical charge
required to excite gases in order to produce a laser beam with a
high pulse repetition rate while minimizing the naturally
destructive effects of the process on the discharge chamber;
- Develop a technology to "compress" the broadband, multi-color DUV
emission from an excimer laser into a very narrow wavelength band
suitable for sharp focus using single-material projection lenses;
and
- Devise a technique to precisely measure and stabilize the wavelength
of the resulting light, preventing any drift of this narrowed
emission to ensure stable focus at the wafer plane.
The Company has had to combine successfully the four core technologies
described above with the product engineering necessary to provide reliable,
production-caliber manufacturing equipment for the semiconductor industry.
Production-worthy lasers must be easy to operate and service and be capable of
meeting industry reliability requirements. Such lasers must be customized to
interface mechanically, optically and electrically with a variety of wafer
stepper and step-and-scan equipment. The control and self-diagnostic systems in
the laser must be electronically and software compatible with the control
systems residing inside the photolithography tool. Finally, production-worthy
laser equipment must meet the rigorous safety and facilities standards of the
semiconductor manufacturing industry.
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<PAGE> 35
A schematic diagram of the Company's photolithography excimer laser is
shown below.
SCHEMATIC DIAGRAM
33
<PAGE> 36
The Company has addressed the technical challenges described above by
developing the following subassemblies:
Laser Discharge Chamber. The Company's discharge chamber incorporates
an all-metal and ceramic design to present only extremely inert materials
to the reactive gases. Corona pre-ionization provides consistent, uniform
preseeding of the gas with charge carriers to enhance electrical discharge
uniformity and pulse-to-pulse energy stability. An electrostatic filtration
system prevents contaminants from adhering to laser window surfaces,
promoting a longer lifetime. A temperature stabilization system eliminates
warm-up periods and provides higher operating efficiency.
Solid State Pulse Power Module ("SSPPM"). The SSPPM utilizes a high
power silicon control rectifier switch that has been developed by a third
party to replace the thyratron vacuum tube technology traditionally used
for high power switching in lasers, radar and similar applications. Working
with the developers of this technology, Cymer adapted the technology for
excimer laser applications and is the exclusive licensee for such
applications. The expected lifetime of the SSPPM is approximately 10 times
that of a thyratron-based power source, reducing the cost of ownership of
the laser. When the SSPPM is used in conjunction with advanced chamber
designs, the discharge chamber lifetime can be significantly extended,
thereby further decreasing the laser's cost of ownership.
Line Narrowing Module. The broadband DUV emission from the laser is
compressed into a narrow band wavelength by the line narrowing module in
the laser's optical system. A one-dimensional beam expander illuminates a
highly dispersive reflection grating positioned to reflect back into the
discharge chamber only that wavelength desired by the photolithography
tool. This line narrowing system is "tunable" in two ways to optimize
performance. First, a unique grating distortion system matches the
curvature of the grating surface to the natural wavefront curvature,
minimizing the spectral bandwidth of the laser light. Second, a computer
controlled stepper motor automatically realigns the angle of the
diffraction grating to compensate, as necessary, for any wavelength drift.
Wavelength Stabilization Module. Prior to the narrowed light exiting
the laser enclosure, the wavelength stabilization module measures the
bandwidth and center wavelength stability of the laser light. These
measurements are made using a two channel etalon-based diagnostic system,
referenced to an ultra-stable optically contacted etalon reference. If any
wavelength drift is detected, a feedback control signal is directed to the
stepper motor in the line narrowing module to automatically compensate for
such drift. Periodically, the wavemeter can be automatically calibrated to
an atomic reference that is optional on the ELS-4000F laser and standard on
the 5000 series lasers.
MANUFACTURING
The Company's manufacturing activities consist of assembly, integration and
test. These activities are performed in a 22,800 square foot facility in San
Diego, California that includes approximately 11,000 square feet of class 1000
clean room manufacturing and test space. In order to focus on its core
technology, leverage the expertise of its key suppliers and respond more
efficiently to customer demand, the Company has outsourced many of its
subassemblies. The Company's outsourcing strategy is exemplified by the modular
design of the Company's 5000 series laser, for which substantially all of the
nonproprietary subassemblies have been outsourced. The Company believes that the
highly outsourced content and manufacturable design of the 5000 series laser
allows for reduced manufacturing cycle times and increased output per employee.
To meet current and anticipated demand for its products, the Company must
substantially increase the rate by which it manufactures and tests its
photolithography laser systems by the end of 1996. This increase would follow a
nearly four-fold increase in the manufacturing rate from December 1995 to June
1996. The Company has been unable to manufacture and test its photolithography
laser systems fast enough to fill orders and is behind on its delivery
schedules. While the Company is not aware of any order cancellations as a result
of these delays, such delays, if they continue or recur, increase the risk that
customers will cancel orders and seek to meet all or a portion of their needs
for illumination sources from the Company's competitors. The Company is also
increasingly relying on outside suppliers for the manufacture of various
components and subassemblies used in its products and is dependent upon these
suppliers to meet the Company's manufactur-
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<PAGE> 37
ing schedules. The failure by one or more of these suppliers to supply the
Company on a timely basis with sufficient quantities of components or
subassemblies that perform to the Company's specifications could affect the
Company's ability to deliver completed lasers to its customers on schedule.
Additionally, the Company may underestimate the costs required to increase its
manufacturing capacity, which may materially adversely affect the Company's
results of operations.
In addition to increasing manufacturing capacity at its San Diego facility,
the Company has entered into a contract manufacturing agreement with Seiko
Instruments under which Seiko has agreed to manufacture for the Company a
certain number of the Company's photolithography excimer lasers and subsequent
enhancements. In order to ensure uniformity of product for all customers, the
Company will maintain control of all work flow design, manufacturing process,
engineering changes and component sourcing decisions. The Company will
manufacture and seal all core technology modules in San Diego. The agreement
expires in 2001, but will automatically renew for two-year terms unless one
year's notice to terminate is given by either party. While the Company is
seeking to have Seiko begin limited production of lasers in 1996, there can be
no assurance that the Seiko factory will be successfully qualified and commence
production on schedule. See "-- Proprietary Rights" for a description of a
license granted to Seiko to manufacture and sell the Company's industrial laser
product.
Certain of the components and subassemblies included in the Company's
products are obtained from a single supplier or a limited number of suppliers.
In particular, there are no alternative sources for certain of the components
and subassemblies, such as certain optical components and the pre-ionizer tubes
used in the Company's lasers. In addition, the Company is increasingly
outsourcing the manufacture of various subassemblies. Although to date the
Company has been able to obtain adequate supplies of its components and
subassemblies in a timely manner from existing sources, the Company has only
recently commenced volume production of its laser systems. If the Company were
unable to obtain sufficient quantities of components or subassemblies, or if
such items do not meet the Company's quality standards, delays or reductions in
product shipments could occur which would have a material adverse effect on the
Company's business, financial condition and results of operations.
SALES AND MARKETING
The Company's sales and marketing efforts have been predominately focused
on DUV photolithography tool manufacturers. The Company markets and sells its
products through four account managers, two of whom are located in the United
States and two of whom are based in Japan. The Company is in the process of
developing product and applications engineering teams to support the account
managers and the Company's customers. The Company believes that to facilitate
the sales process it must work closely with and understand the requirements of
semiconductor manufacturers, the end users of the Company's products. The
Company visits major semiconductor manufacturers, and their representatives
attend Company-sponsored seminars on advanced excimer photolithography. In
Japan, the Company sponsors an annual seminar with Seiko in conjunction with
Semicon Japan. This seminar has attracted representatives of semiconductor
manufacturers from Japan, Korea, the United States and SEMATECH, as well as
photolithography tool manufacturers and other photolithography process
suppliers.
SERVICE AND SUPPORT
The Company believes its success in the semiconductor photolithography
market is highly dependent upon after-sales support of both the customer and the
end user. The Company supports its customers with field service, technical
service engineers and training programs, and in some cases provides ongoing
on-site technical support at the customer's manufacturing facility. Prior to
shipment, the Company's support personnel typically assist the customer in site
preparation and inspection and provide customers with training at the Company's
facilities or at the customer's location. Customers and end users are also
provided with a comprehensive set of manuals, including operations, maintenance,
service, diagnostic and safety manuals.
The Company's field engineers and technical support specialists are based
at its San Diego headquarters, its field service office near Boston and its
Japanese facility. Support in Korea is provided by EO Technics, a
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<PAGE> 38
contractor trained and supported by the Company. As part of its customer
service, the Company maintains an inventory of spare parts at each of its
service facilities.
The Company believes that the need to provide fast and responsive service
to the semiconductor manufacturers using its lasers is critical and that it will
not be able to depend solely on its customers to provide this specialized
service. Therefore, the Company believes it is essential to establish, through
trained third party sources or through its own personnel, a rapid response
capability to service its customers throughout the world. Accordingly, the
Company intends to expand its direct support infrastructure in Japan and Europe,
expand its field service and support in Korea through an independent firm, and
establish a joint service and support capability with an independent firm to
serve Taiwan and Southeast Asia. The establishment of these activities will
entail recruiting and training qualified personnel or identifying qualified
independent firms and building effective and highly trained organizations that
can provide service to customers in various countries in their assigned regions.
There can be no assurance that the Company will be able to attract qualified
personnel to establish these operations successfully or that the costs of such
operations will not be excessive. A failure to implement this plan effectively
could have a material adverse effect on the Company's business, financial
condition and results of operations.
The Company generally warrants its products against defects in design,
materials and workmanship for the earlier to occur of 17 months from the date of
shipment or 12 months after acceptance by the end user.
RESEARCH AND DEVELOPMENT
The semiconductor industry is subject to rapid technological change and new
product introductions and enhancements. The Company believes that continued and
timely development and introduction of new and enhanced laser products are
essential for the Company to maintain its competitive position. The Company
intends to continue to develop its technology and innovative products to meet
customer demands. Current projects include the development of the next
generation of photolithography lasers, including ArF lasers. Other research and
development efforts are currently focused on reducing manufacturing costs,
lowering the cost of laser operation, enhancing laser performance and developing
new features for existing lasers. See "Risk Factors -- Rapid Technological
Change; New Product Introductions."
The Company has historically devoted a significant portion of its financial
resources to research and development programs and expects to continue to
allocate significant resources to these efforts. As of June 30, 1996, the
Company had 64 employees engaged in research and development. Research and
development expenses for 1993, 1994, 1995 and the first six months of 1996 were
approximately $2.7 million, $3.3 million, $6.2 million and $4.2 million,
respectively.
In addition to funding its own research and development projects, the
Company has pursued a strategy of securing research and development contracts
from customers, government agencies and SEMATECH in order to develop advanced
technology for current and future laser systems based on the Company's core
technology. Revenues generated from research and development contracts amounted
to approximately $306,000, $1.2 million, $3.2 million and $1.4 million during
1993, 1994, 1995 and the first six months of 1996. See "Risk Factors -- Risks
Associated with Customer Funded Research and Development."
INTELLECTUAL PROPERTY RIGHTS
The Company believes that the success of its business depends more on such
factors as the technical expertise of its employees, as well as their innovative
skills and marketing and customer relations abilities, than on patents,
copyrights trade secrets and other intellectual property rights. Nevertheless,
the success of the Company may depend in part on patents, and the Company owns
16 United States patents covering certain aspects of technology associated with
excimer lasers which expire from May 2008 to December 2011 and has applied for
12 additional patents in the United States, two of which have been allowed. The
Company also has filed 21 patent applications in other countries. There can be
no assurance that the Company's pending patent applications or any future
applications will be approved, that any issued patents will provide it with
competitive advantages or will not be challenged by third parties, or that the
patents of others will not have an adverse effect on the Company's ability to do
business. In this regard, due to cost constraints, the Company
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<PAGE> 39
did not begin filing for patents in Japan or other countries with respect to
inventions covered by its United States patents and patent applications until
recently and has therefore lost the right to seek patent protection in those
countries for certain of its inventions. Additionally, because foreign patents
may afford less protection under foreign law than is available under United
States patent law, there can be no assurance that any such patents issued to the
Company will adequately protect the Company's proprietary information.
Furthermore, there can be no assurance that others will not independently
develop similar products, duplicate the Company's products or, if patents are
issued to the Company, design around the patents issued to the Company.
Others may have filed and in the future may file patent applications that
are similar or identical to those of the Company. To determine the priority of
inventions, the Company may have to participate in interference proceedings
declared by the United States Patent and Trademark Office that could result in
substantial cost to the Company. No assurance can be given that any such patent
application will not have priority over patent applications filed by the
Company.
The Company also relies upon trade secret protection, employee and
third-party nondisclosure agreements and other intellectual property protection
methods to protect its confidential and proprietary information. Despite these
efforts, there can be no assurance that others will not independently develop
substantially equivalent proprietary information and techniques or otherwise
gain access to the Company's trade secrets or disclose such technology or that
the Company can meaningfully protect its trade secrets.
The Company has in the past been, and may in the future be, notified that
it may be infringing intellectual property rights possessed by third parties,
although there are no pending lawsuits involving any such claims. In November
1993 with respect to one patent and, following further correspondence between
the parties, in June 1996 with respect to a second patent, the Company was
notified by Coherent, the parent corporation of Lambda-Physik R & D, one of the
Company's competitors, that certain aspects of the Company's lasers might
infringe the two patents owned by Coherent and that the Company might wish to
procure a license with respect to these patents. The Company has been advised by
its patent counsel, Townsend and Townsend and Crew, LLP, that in the opinion of
such firm the Company's products do not infringe the patents that have been
asserted by Coherent to the Company or that the Company would have other
defenses to a claim of infringement of certain of these patents in the event of
litigation. However, there can be no assurance that, if it elects to do so, the
Company will be able to negotiate a license with respect to these patents at all
or on reasonable terms, that litigation will not ensue with respect to these
patents or that the Company would ultimately be successful in any such
litigation. Any such litigation would at a minimum be costly and would divert
the efforts and attention of the Company's management and technical personnel,
which would have a material adverse effect on the Company's business, financial
condition and results of operations. Furthermore, there can be no assurance that
other infringement claims by third parties or claims for indemnification by
customers or end users of the Company's products resulting from infringement
claims will not be asserted in the future or that such assertions, if proven to
be true, will not materially adversely affect the Company's business, financial
condition and results of operations. If any such claims are asserted against the
Company, the Company may seek to obtain a license under the third party's
intellectual property rights. There can be no assurance, however, that a license
will be available on reasonable terms or at all. The Company could decide, in
the alternative, to resort to litigation to challenge such claims or to design
around the patented technology. Such actions could be costly and would divert
the efforts and attention of the Company's management and technical personnel,
which would materially adversely affect the Company's business, financial
condition and results of operations.
The Company has registered the trademark CYMER in the United States and
certain other countries and is seeking additional registrations in certain
countries. In Japan, the Company's application for registration was rejected on
the grounds that it is similar to a trademark previously registered by a
Japanese company for a broad range of products. The Company is seeking a partial
nullification of the other registration with respect to laser devices and
related components and does not believe that the holder of the other trademark
is engaged in any business similar to that of the Company. For this reason, the
Company is continuing to use the trademark CYMER in Japan and believes that it
will ultimately be permitted to register such mark for use with its products and
that it is not infringing the other company's trademark. There can be no
assurance that the
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Company will ultimately succeed in its efforts to register its trademark in
Japan or that it will not be subjected to an action for trademark infringement,
which could be costly to defend and, if successful, would require the Company to
cease use of the mark and, potentially, to pay damages.
Effective August 1, 1989 and lasting until the expiration of the licensed
patents, the Company entered into a Patent License Agreement for a nonexclusive
worldwide license to certain patented laser technology with Patlex Corp., a
patent holding company ("Patlex"). Under the terms of the agreement, the Company
is required to pay royalties ranging from 0.25% to 5% of gross sales and leases,
as defined, depending on total revenues earned. During 1995 and the first six
months of 1996, royalty fees totaled $63,630 and $66,150, respectively.
The Company has granted to Seiko the exclusive right in Japan and the
non-exclusive right outside of Japan to manufacture and sell the Company's
industrial high power laser and subsequent enhancements thereto. The Company has
also granted Seiko a right of first refusal to fund the Company's development
of, and receive a license to, new industrial laser technologies not developed
with funding from other parties. In exchange for these rights, the Company
received upfront license fees of $3.0 million. The Company is also entitled to
royalties of 5% on related product sales through September 1999, after which the
royalty rate is subject to renegotiation. The license agreement also provides
that product sales between the Company and Seiko will be at a 15% discount from
the respective companies' list prices. The agreement terminates in August 2012.
See "Risk Factors -- Dependence on Patents and Intellectual Property."
COMPETITION
The Company believes that the principal elements of competition in the
Company's markets are the technical performance characteristics of the excimer
laser products; the cost of ownership of the system, which is based on price,
operating cost and productivity; customer service and support; and product
availability. The Company believes that it competes favorably with respect to
these factors.
The Company also believes that the development of the next generation of
excimer lasers will be an important element of competition. The Company believes
that its competitors are emphasizing development of ArF lasers as the next
generation of excimer lasers. The Company is engaging in its own research and
development with respect to ArF lasers. There can be no assurance, however, that
the Company will emerge as the technological or market leader with respect to
ArF lasers, even if it maintains its leadership position in the KrF laser
market.
The Company currently has two significant competitors in the market for
photolithography laser systems, Lambda-Physik R&D a German-based subsidiary of
Coherent and Komatsu located in Japan. Both of these companies are larger than
the Company, have access to greater financial, technical and other resources
than the Company and are located in closer proximity to certain of the Company's
customers than is the Company. The Company believes that both companies are
aggressively seeking to gain larger positions in the market for excimer laser
photolithography systems. The Company believes that its customers have each
purchased one or more products offered by these competitors and that its
customers may consider further purchases, in part as a result of delays in
deliveries by the Company in recent months as the Company has been seeking to
expand its manufacturing capacity. The Company also believes that its customers
are actively seeking a second source for excimer lasers. Furthermore,
photolithography tool manufacturers may seek to develop or acquire the
capability to manufacture internally their own excimer lasers. In the future,
the Company will likely experience competition from other technologies, such as
X-ray, electron beam and ion projection processes. To remain competitive, the
Company believes that it will be required to manufacture and deliver products to
customers on a timely basis and without significant defects and that it will
also be required to maintain a high level of investment in research and
development and sales and marketing. There can be no assurance that the Company
will have sufficient resources to continue to make the investments necessary to
maintain its competitive position. In addition, the market for excimer lasers is
still relatively small and immature and there can be no assurance that larger
competitors with substantially greater financial resources, including other
manufacturers of industrial lasers, will not attempt to enter the market. There
can be no assurance that the
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Company will remain competitive. A failure to remain competitive would have a
material adverse effect on the Company's business, financial condition and
results of operations.
EMPLOYEES
As of June 30, 1996, the Company employed 240 people on a full-time basis,
including 12 in Japan. The Company believes that its relations with its
employees are good. None of the employees is covered by a collective bargaining
agreement or employment agreements. See "Risk Factors -- Dependence on Key
Personnel."
FACILITIES
Cymer's headquarters and manufacturing facility is housed in a 65,775
square foot building located in San Diego, California which the Company leases
under a lease expiring in January 1, 2010. For use as a field service office,
the Company also leases a 400 square foot facility near Boston, Massachusetts
under a lease expiring on August 31, 1998 and, for use as a field service and
sales office, the Company leases 268 square meters of facilities in Ichikawa,
Japan under four renewable one and two year leases expiring at various times but
cancelable upon three months notice. The Company intends to add additional field
service offices as necessary to service its customers. The Company is currently
seeking to expand its San Diego facility by leasing approximately 30,000 square
feet of additional space and believes that it will be able to secure such space
on commercially reasonable terms.
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MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
The executive officers and directors of the Company, and their ages as of
June 30, 1996, are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ----------------------------- --- -------------------------------------------------------
<S> <C> <C>
Dr. Robert P. Akins.......... 44 Chairman of the Board, Chief Executive Officer and
President
William A. Angus, III........ 49 Senior Vice President, Chief Financial Officer and
Secretary
Kurt J. Lightfoot............ 49 Senior Vice President of Market Operations
G. Scott Scholler............ 45 Senior Vice President of Operations
Thomas C. Dannemiller........ 36 Vice President of Manufacturing
Dr. Richard L. Sandstrom..... 45 Vice President of Advanced Research
Nancy J. Baker............... 34 Controller
Richard P. Abraham(1)........ 66 Director
Kenneth M. Deemer(1)......... 44 Director
Peter J. Simone(2)........... 49 Director
F. Duwaine Townsen(2)........ 63 Director
</TABLE>
- ---------------
(1) Member of Compensation Committee
(2) Member of Audit Committee
DR. ROBERT P. AKINS, a co-founder of the Company, has served as its
President, Chief Executive Officer and Chairman of the Board since its inception
in January 1986. From 1980 to 1985, Dr. Akins was a Senior Program Manager for
HLX, Inc., a manufacturer of laser and defense systems, where he was responsible
for managing the development of a compact excimer laser for military
communications applications and an excimer laser trigger for the particle beam
fusion accelerator at Sandia National Laboratories. Dr. Akins received a B.S. in
Physics and a B.A. in Literature in 1974, and a Ph.D. in Applied Physics in
1983, from the University of California, San Diego.
WILLIAM A. ANGUS, III has served as Senior Vice President and Chief
Financial Officer since February 1996 and Secretary of the Company since July
1990. From July 1990 to February 1996, Mr. Angus served as Vice President of
Finance and Administration. From April 1988 to June 1990, Mr. Angus was
Executive Vice President and Chief Operating Officer, and from May 1985 to April
1988, Chief Financial Officer, of Avant-Garde Computing Inc., a manufacturer of
data communications network management systems. Mr. Angus graduated from the
Wharton School of the University of Pennsylvania with a B.S. in Economics in
1968.
KURT J. LIGHTFOOT has served as Senior Vice President of Market Operations
of the Company since August 1995. From May 1995 to August 1995, Mr. Lightfoot
served as Vice President of Sales and Marketing for Gregory Associates, a
specialty contract manufacturer. From April 1993 to April 1995, he served as
Director of Marketing for the Semiconductor Equipment Group of Watkins-Johnson
Company, a maker of semiconductor equipment and electronic products for wireless
communications and defense. From June 1989 to June 1991, Mr. Lightfoot was
Division Vice President of Sales for the Reticle and Photomask Inspection
Division, and from June 1991 to October 1992, Division Vice President of
Marketing, for the Automated Test Systems Division at KLA Instruments
Corporation ("KLA"), a maker of inspection and metrology systems for the
semiconductor manufacturing industry. Mr. Lightfoot received a B.S. in
Automotive Technology from Western Michigan University in 1970.
G. SCOTT SCHOLLER has served as Senior Vice President of Operations of the
Company since March 1996. From June 1995 to February 1996, Mr. Scholler served
as a consultant in product development and program management for Electro
Scientific Industries, a manufacturer of semiconductor capital equipment. From
March 1994 until October 1995, Mr. Scholler was a co-founder and President of
Black Rose Ltd., a developer of computer telephony software for automated
commerce applications. From August 1992 to September 1994, he was Senior Vice
President of Operations for Whittaker Communications, Inc., a wholly-owned
subsidiary of Whittaker Corporation, and a manufacturer of high-performance
multimedia servers. From October 1988 to August 1992, Mr. Scholler served as
Vice President of Operations for Etec Systems, Inc., a manufacturer of
semiconductor capital equipment and as General Manager of its Laser Lithography
subsidiary. From 1986 to
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1988, Mr. Scholler was Director of Engineering, and from 1983 to 1986, Director
of Manufacturing, of the Etch Products Division of Applied Materials Inc., a
supplier of equipment to the semiconductor industry. Mr. Scholler received a
B.S. in Nuclear Engineering from the United States Military Academy at West
Point in 1972 and an M.S. in Research and Development Management in 1978 from
the University of Southern California.
DR. RICHARD L. SANDSTROM, a co-founder of the Company, has served as its
Vice President of Advanced Research since June 1994. From February 1986 to June
1994, Dr. Sandstrom served as Vice President of Technology for the Company. Dr.
Sandstrom received a B.A. in Physics in 1972 and a Ph.D. in Engineering Physics
in 1979 from the University of California, San Diego.
THOMAS C. DANNEMILLER has served as Vice President of Manufacturing of the
Company since July 1995. From May 1991 to July 1995, Mr. Dannemiller served as
Director of Logistics at A.G. Associates, Inc., a manufacturer of rapid thermal
processing equipment for the semiconductor industry. From September 1988 to
February 1991, he was Director of Operations for KLA. From 1986 to 1988, Mr.
Dannemiller served as Manufacturing Manager for Applied Materials, Inc., a
supplier of equipment to the semiconductor industry. Mr. Dannemiller graduated
from the DeVry Institute of Technology with a B.S. in Electronics Engineering
Technology in 1982.
NANCY J. BAKER has served as Controller of the Company since August 1992.
From March 1987 to April 1992, Ms. Baker was Accounting Manager at International
Totalizator Systems, Inc., a designer, manufacturer and distributor of lottery
and racetrack wagering systems. Ms. Baker graduated from the University of Texas
with a B.B.A. in Accounting in 1985.
RICHARD P. ABRAHAM has served as a Director of the Company since October
1987. From October 1994 to the present, Mr. Abraham has served as Chairman and
President of BTR, Inc., which licenses various technologies to the semiconductor
industry. From October 1993 to the present, he has served as Chairman and
President of Advantage Logic, Inc., which also licenses various technologies to
the semiconductor industry. From 1987 to the present, Mr. Abraham has served as
a general partner of Weeden Capital Partners. From 1980 to the present, Mr.
Abraham has served as President of Pacific Associates, a consulting firm for the
semiconductor industry. From 1988 to the present, Mr. Abraham has served as a
director of Rainbow Technology, a maker of software protection devices for the
computer industry and encryption chips for the satellite communications
industry. Mr. Abraham received a B.S. in Electrical Engineering in 1951, and an
M.S. in Electrical Engineering in 1954, from Stanford University.
KENNETH M. DEEMER has served as a Director of the Company since June 1988.
Since 1985, Mr. Deemer has been a Vice President of InterVen Partners, Inc., a
venture capital firm and an affiliate of InterVen II, L.P., and InterVen
Ventures 1987. From January 1982 to June 1985, Mr. Deemer served as a Vice
President at First Interstate Capital, a venture capital firm. Mr. Deemer
received a B.S. in Physics and a B.S. in Electrical Engineering in 1975 from
Massachusetts Institute of Technology and an M.B.A. from Carnegie Mellon
University in 1979.
PETER J. SIMONE has served as a Director of the Company since July 1993.
Since December 1992, he has served as Group Vice President of Simplex Time
Recorder Company, a manufacturer of time, attendance, building life safety and
security systems. From May 1987 to December 1992, he was President and a
director of GCA Corporation, a manufacturer of wafer stepper photolithography
equipment. Mr. Simone received a B.S. in Accounting from Bentley College in 1970
and an M.B.A. from Babson College in 1974.
F. DUWAINE TOWNSEN has served as a Director of the Company since October
1987. Since June 1983, he has been a managing partner of Ventana Growth Fund,
L.P., a venture capital firm and investor in the Company. Mr. Townsen received a
B.S. in Business Administration and Accounting from San Diego State University
in 1962.
All directors are elected annually and serve until the next annual meeting
of stockholders or until the election and qualification of their successors. All
executive officers serve at the discretion of the Board of Directors. There are
no family relationships between any of the directors or executive officers of
the Company.
The Company's articles of incorporation currently provide that holders of
the Company's Common Stock elect two members of the Board of Directors, holders
of Series A Preferred Stock elect two members, holders
41
<PAGE> 44
of Series B Preferred Stock elect one member and that the holders of Preferred
Stock voting as a class elect any remaining directors. The Board of Director
currently consists of five members. Four founders of the Company who are holders
of Common Stock, including Robert Akins, President, and Richard Sandstrom, Vice
President of Advanced Research, and the holders of the Company's Series A and
Series B Preferred Stock have agreed that they will vote their shares of the
Company's capital stock so as to elect (i) two of such four founding
stockholders as the two directors representing the Common Stock, (ii) one
representative of Weeden Capital Partners, L.P. and one representative of
Interven II, L.P. as the two directors representing the Series A Preferred Stock
and (iii) one representative of Ventana Growth Fund II, L.P. as the director
representing the Series B Preferred Stock. Currently, Mr. Akins and Mr. Simone
serve as the directors elected by holders of the Common Stock, Mr. Abraham and
Mr. Deemer serve as the directors elected by holders of the Series A Preferred
Stock and Mr. Townsen serves as the director elected by holders of the Series B
Preferred Stock. Both the special voting provisions in the articles of
incorporation and the contractual voting provisions will terminate upon the
completion of this offering.
DIRECTOR COMPENSATION
With the exception of Mr. Simone who receives $1,000 per meeting, members
of the Company's Board of Directors do not receive compensation for their
services as directors. The Company's 1996 Director Option Plan provides that
options will be granted to non-employee directors pursuant to an automatic
nondiscretionary grant program. See "-- 1996 Director Option Plan."
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Compensation Committee of the Board of Directors was formed in June
1996 and consists of Richard P. Abraham and Kenneth M. Deemer. Neither of these
individuals was at any time during 1995, or at any other time, an officer or
employee of the Company. No executive officer of the Company serves as a member
of the board of directors or compensation committee of any entity that has one
or more executive officers serving as a member of the Company's Board of
Directors or Compensation Committee.
EXECUTIVE COMPENSATION
The following table sets forth in summary form information concerning the
compensation awarded to, earned by, or paid for services rendered to the Company
in all capacities during the year ended December 31, 1995, by (i) the Company's
Chief Executive Officer and (ii) the Company's most highly compensated executive
officers whose salary and bonus for such year exceeded $100,000 (the "Named
Executive Officers").
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
AWARDS
FISCAL 1995 -------------
ANNUAL COMPENSATION SECURITIES
----------------------- UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITION SALARY(1) BONUS($)(2) OPTIONS(#)(3) COMPENSATION(4)
- -------------------------------------------- --------- ----------- ------------- ---------------
<S> <C> <C> <C> <C>
Robert P. Akins............................. $ 147,611 -- 147,300 $ 1,830
Chairman of the Board, Chief Executive
Officer and President
William A. Angus, III....................... 105,809 -- 75,000 3,524
Chief Financial Officer, Senior Vice
President and Secretary
</TABLE>
- ---------------
(1) Messrs. Lightfoot, Dannemiller and Scholler, who are currently being
compensated at an annual rate in excess of $100,000, recently joined the
Company.
(2) The Company did not have a bonus plan in fiscal 1995 but has adopted an
incentive bonus plan for fiscal 1996.
42
<PAGE> 45
(3) Consists of health insurance premiums paid by the Company as follows: Dr.
Akins: $1,830; Mr. Angus: $3,524.
STOCK OPTION INFORMATION
The following table sets forth certain information with respect to stock
option grants in 1995 to the Named Executive Officers:
OPTION GRANTS IN FISCAL 1995
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
INDIVIDUAL GRANTS VALUE AT ASSUMED
---------------------------------------------------- ANNUAL RATES OF
NUMBER OF % OF STOCK PRICE
SECURITIES TOTAL OPTIONS APPRECIATION
UNDERLYING GRANTED TO EXERCISE FOR OPTION TERM(1)
OPTIONS EMPLOYEES IN PRICE PER EXPIRATION ---------------------
NAME GRANTED FISCAL YEAR SHARE(2)(3) DATE(4) 5% 10%
- ------------------------------------ --------- ------------- ----------- ---------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Robert P. Akins..................... 147,300 15.05% $0.50 4/20/05 $20,348 $44,964
William A. Angus, III............... 75,000 7.66% $0.50 4/20/05 $10,361 $22,894
</TABLE>
- ---------------
(1) Potential realizable value is based on the assumption that the Common Stock
of the Company appreciates at the annual rate shown (compounded annually)
from the date of grant until the expiration of the 5-year option term. These
numbers are calculated based on Securities and Exchange Commission
requirements and do not reflect the Company's estimate of future stock price
growth.
(2) Options were granted at an exercise price equal to the fair market value of
the Company's Common Stock, as determined by the Board of Directors on the
date of grant.
(3) Exercise price may be paid in cash, check, promissory note, by delivery of
already-owned shares of the Company's Common Stock subject to certain
conditions, or any combination of the foregoing methods of payment or such
other consideration or method of payment to the extent permitted under
applicable law.
(4) Options become exercisable as to 25% of the option shares on the first
anniversary of the vesting commencement date and as to 6.25% of the option
shares at the end of each three-month period thereafter, with full vesting
occurring on the fourth anniversary of the date of the vesting commencement
date.
43
<PAGE> 46
The following table sets forth certain information regarding the value of
stock options held by the Named Executive Officers on December 31, 1995. There
were no stock option exercises by the Named Executive Officers in 1995.
YEAR END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING UNEXERCISED VALUE OF UNEXERCISED
OPTIONS AT IN-THE-MONEY OPTIONS AT
DECEMBER 31, 1995 DECEMBER 31, 1995(1)
----------------------------- -----------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- --------------------------------------------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Robert P. Akins.............................. -- 147,300 $ -- $ 368,250
William A. Angus, III........................ -- 75,000 $ -- $ 187,500
</TABLE>
- ---------------
(1) Fair market value of the Common Stock as of December 31, 1995 ($3.00 per
share), as determined by the Company's Board of Directors, minus the
exercise price.
STOCK PLANS
1987 Stock Option Plan
The Company's 1987 Stock Plan (the "1987 Stock Plan"), which originally
provided for the grant of 450,000 shares of Common Stock, was approved by the
Company's Board of Directors and stockholders in 1987. Subsequent amendments
have increased the number of shares subject to the 1987 Stock Plan to 1,500,000
shares. The 1987 Stock Plan provides for the granting to employees (including
officers) of qualified "incentive stock options" within the meaning of Section
422 of the Internal Revenue Code of 1986, as amended (the "Code"), and for the
granting to employees (including officers), consultants and directors of
nonqualified stock options. As of June 30, 1996, options to purchase an
aggregate of 1,191,753 shares of Common Stock were outstanding under the 1987
Stock Plan, 33,268 shares remained available for future grants and options to
purchase 274,979 shares had been exercised.
The 1987 Stock Plan is administered by the Board of Directors or a
committee appointed by the Board. Options generally become exercisable at a rate
of 25% of the shares subject to the option on the first anniversary of the
vesting commencement date and 6.25% of the shares subject to the option at the
end of each three month period thereafter, and generally expire five years from
the date of grant. The 1987 Stock Plan permits employees to pay for the shares
issuable upon exercise of stock options with promissory notes.
The exercise price of incentive stock options granted under the 1987 Stock
Plan must be at least equal to the fair market value of the Company's Common
Stock on the date of grant, and the exercise price of nonstatutory stock options
must equal at least 85% of the fair market value of the Common Stock on the date
of grant. The exercise price of options granted to an optionee who owns more
than 10% of the Company's outstanding voting securities must equal at least 110%
of the fair market value of the Common Stock on the date of grant. Options have
been granted at exercise prices ranging from $0.25 to $6.00. The 1987 Stock Plan
will terminate in October 1997.
In the event of a merger of the Company with or into another corporation,
the options will terminate upon the consummation of the merger, unless assumed
or substituted by such successor corporation. Notwithstanding the foregoing, if
the options were granted prior to June 3, 1992, the Board has the discretion to
accelerate the vesting of the options upon the consummation of a merger (unless
assumed or substituted by the successor corporation) so that such options become
fully vested and exercisable.
1996 Stock Option Plan
The Company's 1996 Stock Option Plan (the "1996 Stock Plan") was adopted by
the Board of Directors and approved by the stockholders of the Company in July
1996. A total of 1,500,000 shares of Common Stock have been reserved for
issuance under the 1996 Stock Plan. No options have been granted under this
Plan. The 1996 Stock Plan provides for the grant of "incentive" stock options
within the meaning of Section 422 of
44
<PAGE> 47
the Internal Revenue Code of 1986, as amended (the "Code"), and nonqualified
stock options to employees, directors and consultants of the Company. Incentive
stock options may be granted only to employees. The 1996 Stock Plan is
administered by the Board of Directors or by a committee appointed by the Board
of Directors, which determines the terms of options granted, including the
exercise price and the number of shares subject to the option. The exercise
price of incentive stock options granted under the 1996 Stock Plan must be at
least equal to the fair market value of the Company's Common Stock on the date
of grant and the exercise price of nonqualified stock options must be at least
equal to 85% of the fair market value of the Company's Common Stock on the date
of grant. The maximum term of options granted under the 1996 Stock Plan is ten
years.
In the event of a merger of the Company with or into another corporation,
all outstanding options may be assumed or an equivalent option substituted by
the successor corporation. If the successor corporation does not assume or
substitute equivalent options for the outstanding options, the exercisability of
shares subject to such options will accelerate and become fully vested and
exercisable. In such event, the Company shall notify the holders of outstanding
options that such options are fully exercisable, and all options not exercised
will then terminate 15 days after the date of such notice.
1996 Employee Stock Purchase Plan
The Company's 1996 Employee Stock Purchase Plan (the "Purchase Plan") was
adopted by the Company's Board of Directors and approved by the Company's
stockholders in July 1996. The Purchase Plan is intended to qualify under
Section 423 of the Code. The Company has reserved 250,000 shares of Common Stock
for issuance under the Purchase Plan. Under the Purchase Plan, an eligible
employee may purchase shares of Common Stock from the Company through payroll
deductions of up to 10.0% of his or her base compensation (excluding bonuses,
overtime and sales commissions), at a price per share equal to 85.0% of the
lower of (i) the fair market value of the Company's Common Stock as of the first
day of each six-month offering period under the Purchase Plan or (ii) the fair
market value of the Common Stock at the end of the offering period. Each
offering period will commence the first day on which the national stock
exchanges and the Nasdaq National Market are open for trading, on or after
January 1 and July 1 of each year, with the first offering period beginning on
the date of this offering. In the event of a merger or asset sale, the offering
period then in progress will be shortened so that each participant's options
will be exercised before the date of the merger or sale. Any employee who is
customarily employed for at least 20 hours per week and more than five months
per calendar year and who has been so employed for at least three consecutive
months on or before the commencement date of an offering period is eligible to
participate in the Purchase Plan.
1996 Director Option Plan
The Company's 1996 Director Option Plan (the "Director Option Plan") was
adopted by the Board of Directors and approved by the stockholders of the
Company in July 1996. The Director Option Plan will go into effect upon this
offering. Under the Director Option Plan, the Company reserved 100,000 shares of
Common Stock for issuance to non-employee directors of the Company pursuant to
nonstatutory stock options. Each director who is elected or appointed to the
Board of Directors subsequent to the adoption of the Director Option Plan and
who is not an employee of the Company will automatically receive a nonstatutory
option to purchase 10,000 shares of Common Stock of the Company on the date such
person becomes a director. In addition, each non-employee director shall receive
an option to acquire 2,500 shares of the Company's Common Stock upon such
director's reelection at each Annual Meeting of Stockholders, provided that on
such date such director shall have served on the Board of Directors for at least
six months. Each option granted under the Director Option Plan shall be
exercisable at 100% of the fair market value of the Company's Common Stock on
the date such option was granted. Of the options granted under the Director
Option Plan, 6.25% shall vest three months after their dates of grant, with an
additional 6.25% vesting at the end of each subsequent three month period. The
Plan shall be in effect for a term of ten years unless sooner terminated by the
Board.
In the event of a merger of the Company with or into another corporation,
all outstanding options may be assumed or an equivalent option substituted by
the successor corporation. Following such assumption or
45
<PAGE> 48
substitution, if the director's service terminates other than a voluntary
resignation by the optionee, the option will become fully exercisable. If the
successor corporation does not assume an outstanding option or substitute an
equivalent option for such outstanding option, such option will become fully
vested and exercisable. In such event, the Board will notify the optionee that
such optionee has 30 days from the date of notice to exercise the fully vested
option and the option will terminate at the end of the 30-day period.
INDEMNIFICATION OF DIRECTORS AND OFFICERS AND RELATED MATTERS
The Company's Articles of Incorporation limit, to the maximum extent
permitted by Section 78.751 of Nevada General Corporation Law, the personal
liability of directors and officers for monetary damages for breach of their
fiduciary duties as directors and officers (other than liabilities arising from
acts or omissions which involve intentional misconduct, fraud or knowing
violations of law or the payment of distributions in violation of Nevada General
Corporation Law). The Articles of Incorporation provide further that the Company
shall indemnify to the fullest extent permitted by Nevada General Corporation
Law any person made a party to an action or proceeding by reason of the fact
such person was a director, officer, employee or agent or the Company. Subject
to the Company's Articles of Incorporation, the Bylaws provide that the Company
shall indemnify directors and officers for all costs reasonably incurred in
connection with any action, suit or proceeding in which such director or officer
is made a party by virtue of his being an officer or director of the Company
except where such director or officer is finally adjudged to have been derelict
in the performance of his duties as such director or officer. The Company has
entered into indemnification agreements with its officers and directors
containing provisions which may require the Company, among other things, to
indemnify the officers and directors against certain liabilities that may arise
by reason of their status or service as directors or officers (other than
liabilities arising from willful misconduct of a culpable nature), and to
advance their expenses incurred as a result of any proceeding against them as to
which they could be indemnified.
At the present time, there is no pending material litigation or proceeding
involving a director, officer, employee or other agent of the Company in which
indemnification would be required or permitted. The Company is not aware of any
threatened material litigation or proceeding which may result in a claim for
such indemnification.
46
<PAGE> 49
CERTAIN TRANSACTIONS
Beginning in October 1993, the Company conducted a series of interim debt
and warrant financings with its existing stockholders to finance the Company
until it could complete an additional equity financing. In October 1993, the
Company issued and sold at par and for cash $474,010 principal amount of 8%
promissory notes due June 30, 1994 and 5-year warrants to purchase 13,941 shares
of Series E or Series F Preferred Stock with an exercise price of $3.40 per
share to four investors (the "First Bridge Financing"). In June 1994, the
Company issued and sold, to these same four investors in exchange for the
securities they had purchased in the First Bridge Financing, and to them and to
several other stockholders of the Company at par and for cash, a total of
$1,625,010 principal amount of 8% promissory notes due December 31, 1994, and
5-year warrants to purchase 252,914 shares of Series E or Series F Preferred
Stock with an exercise price of $3.40 per share (the "Second Bridge Financing").
In November and December 1994, the Company issued and sold at par and for cash
approximately $2,000,000 principal amount of 8% promissory notes due December
31, 1994 and 5-year warrants to purchase 146,989 shares of Series F Preferred
Stock with an exercise price of $3.40 per share (the "Third Bridge Financing").
On December 31, 1994, the maturity dates of all of the notes issued in these
financings were extended until February 28, 1995. The purchasers of these
securities included the following holders of more than five percent of the
Company's voting securities and other entities affiliated with directors of the
Company:
<TABLE>
<CAPTION>
SECOND BRIDGE
FIRST BRIDGE FINANCING FINANCING THIRD BRIDGE FINANCING
---------------------- ---------------------- ----------------------
SERIES F SERIES F SERIES F
NOTE PREFERRED NOTE PREFERRED NOTE PREFERRED
PRINCIPAL WARRANT PRINCIPAL WARRANT PRINCIPAL WARRANT
INVESTORS AMOUNT SHARES AMOUNT SHARES AMOUNT SHARES
- -------------------------------- --------- ---------- --------- ---------- --------- ----------
<S> <C> <C> <C> <C> <C> <C>
Ventana Growth Fund II,
L.P.(1)....................... $118,878 3,496 $118,878 17,482 $150,000 11,029
InterVen II, L.P.(2)............ $ -- -- $200,000 29,412 $199,000 14,632
Clearwater Ventures............. $200,000 5,882 $830,000 122,059 $468,000 34,412
Allsop Venture Partners III,
L.P. ......................... $ -- -- $100,000 14,706 -- --
</TABLE>
- ---------------
(1) F. Duwaine Townsen, a director of the Company, is a managing partner of
Ventana Growth Fund II, L.P.
(2) Kenneth Deemer, a director of the Company, is a general partner of InterVen
II Partners, L.P., which is the general partner of InterVen II, L.P. Mr.
Deemer is also a general partner of InterVen Ventures 1987. InterVen
Ventures 1987 also participated in the Second and Third Bridge Financings.
In February and March 1995, the Company issued and sold a total of
1,900,000 shares of its Series F Preferred Stock (the "Series F Preferred Stock
Financing"). The following holders of more than five percent of the Company's
voting securities and other entities affiliated with a director of the Company
purchased shares of the Company's Series F Preferred Stock, convertible on a
one-to-one basis into the Company's Common Stock, at a purchase price of $3.50
per share:
<TABLE>
<CAPTION>
SERIES F
INVESTORS PREFERRED STOCK PURCHASE PRICE(1)
- -------------------------------------------------------------- --------------- -----------------
<S> <C> <C>
Ventana Growth Fund II, L.P................................... 35,990 $ 125,965
InterVen II, L.P.............................................. 118,465 414,627
Clearwater Ventures........................................... 446,218 1,561,763
Allsop Venture Partners III, L.P.............................. 30,274 105,959
</TABLE>
- ---------------
(1) Consisted of principal and interest from the promissory note issued to the
investor in the Second Bridge Financing, except that Clearwater Ventures
also paid a portion of the purchase price in cash.
Weeden & Co., L.P., which served as the placement agent for the Series F
Preferred Stock Financing (the "Placement Agent"), is an affiliate of Weeden
Capital Partners, L.P., which beneficially owns more than 5% of the Common Stock
of the Company. In lieu of a cash commission, the Placement Agent was granted
five-year warrants to purchase an aggregate of 443,624 shares of Series F
Preferred Stock at an exercise price of $3.50 per share (the "Placement Agent
Warrants"). The Placement Agent also was granted the right to co-manage any
future initial public offering for the Company's Common Stock.
47
<PAGE> 50
In October 1995, as an inducement for holders of its Series F Preferred
Stock warrants to exercise their warrants, the Company offered one new 5-year
warrant to purchase Common Stock with an exercise price of $3.40 per share for
each 10 Series F Preferred Stock warrants exercised. Among the warrantholders
accepting this offer, Clearwater Ventures exercised warrants to purchase 161,618
shares of Series F Preferred Stock for total proceeds of $549,501 and was issued
new warrants to purchase an aggregate of 16,161 shares of Common Stock.
In May 1996, a similar offer was extended to the holders of the Placement
Agent Warrants, which had by then been distributed to various employees and
affiliates of the Placement Agent. Three employees of the Placement Agent
exercised Placement Agent Warrants for 43,395, 69,770 and 16,761 shares of
Series F Preferred Stock for total proceeds of $454,741 and also received
warrants to purchase 4,339, 6,977 and 1,676 shares of Common Stock,
respectively. In connection with this offer, the Placement Agent relinquished
its right to manage the Company's initial public offering and the warrantholders
who exercised their Placement Agent warrants were granted certain registration
rights with respect to the underlying shares. See "Shares Eligible for Future
Sale -- Registration Rights."
INDEMNIFICATION AGREEMENTS
The Company has entered into indemnification agreements with each of its
directors and executive officers pursuant to which the Company is obligated to
indemnify such individuals to the fullest extent permitted by law including
certain liabilities and claims arising under the Securities Act.
48
<PAGE> 51
PRINCIPAL AND SELLING STOCKHOLDERS
The following table sets forth certain information with respect to the
beneficial ownership of the Common Stock as of June 30, 1996 and as adjusted to
reflect the sale of the shares of Common Stock offered hereby, (i) by
each person or entity who is known by the Company to own beneficially more than
5% of the Common Stock, (ii) by ASM Lithography, Canon and Nikon, (iii) by each
of the Named Executive Officers, (iv) by each of the directors of the Company,
(v) by each Selling Stockholder and (vi) by all directors and executive officers
of the Company as a group. Except as otherwise noted, the stockholders named in
the table have sole voting and investment power with respect to all shares of
Common Stock shown as beneficially owned by them, subject to applicable
community property laws.
<TABLE>
<CAPTION>
SHARES SHARES
BENEFICIALLY BENEFICIALLY
OWNED PRIOR TO NUMBER OF OWNED AFTER
OFFERING(1) SHARES OFFERING
5% STOCKHOLDERS, NAMED EXECUTIVE OFFICERS AND ----------------- BEING -----------------
DIRECTORS NUMBER PERCENT OFFERED NUMBER PERCENT
- --------------------------------------------------- ------- ------- --------- ------- -------
<S> <C> <C> <C> <C> <C>
Allsop Venture Partners III, L.P. ................. 459,832 5.2% -- 459,832
7400 College Boulevard
Overland Park, KS 66210
Clearwater Ventures................................ 806,840 9.1% 2,925 803,915
c/o Weeden & Co., L.P.
145 Mason Street
Greenwich, CT 06830
Entities affiliated with Interven II Partners,
L.P.(2)
2401 Pine Avenue
Manhattan Beach, CA 90266........................ 802,741 9.0% 802,741
K-Sun, Inc. ....................................... 478,826 5.4% -- 478,826
6-1 Ohtemachi, 2-chome
Chiyoda-ku
Tokyo, Japan
Entities affiliated with Weeden Securities
Corporation(3)................................... 649,657 7.25% -- 649,657
145 Mason Street
Greenwich, CT 06830
ASM Lithography Holding N.V. ...................... 403,726 4.6% -- 403,726
Canon, Inc. ....................................... 403,725 4.6% -- 403,725
Nikon Corporation.................................. 403,725 4.6% -- 403,725
Robert P. Akins(4)................................. 302,231 3.4% -- 302,231
William A. Angus, III(5)........................... 33,438 * -- 33,438
Richard Abraham.................................... 27,900 * -- 27,900
Kenneth M. Deemer(6)............................... 802,741 9.0% -- 802,741
Peter Simone(7).................................... 10,000 * -- 10,000
F. Duwaine Townsen(8).............................. 423,668 4.8% -- 423,668
All directors and executive officers as a group
(11 persons)..................................... 697,195 7.8% --
OTHER SELLING STOCKHOLDERS
Herman Alswanger................................... 3,000 * 500 2,500
Anglo-American Partnership......................... 29,412 * 14,000 15,412
Controlfida B.V.I. ................................ 436,205 4.9% 130,000 306,205
Samuel X. Difeo IRA................................ 14,285 * 14,285 --
Angelo M. Gregos................................... 15,000 * 15,000 --
John D. Lium....................................... 7,142 * 2,500 4,642
U.S. Clearing Corp., Custodian for Joseph Mitolo
IRA Rollover Trust............................... 7,141 * 5,000 2,141
Ellsworth R. Roston................................ 23,438 * 4,000 19,438
Charles Schwartz................................... 7,812 * 1,500 6,312
Uday Sengupta...................................... 286,000 3.2% 20,000 266,000
Joel and Gail Sheriff.............................. 6,000 * 6,000 --
Savas C. Tsivicos.................................. 15,000 * 15,000 --
Xerox Corporation(9)............................... 443,535 4.9% 107,258 336,277
</TABLE>
- ---------------
* Less than 1%
49
<PAGE> 52
(1) Applicable percentage of ownership is based on 8,851,740 shares of Common
Stock outstanding as of June 30, 1996 together with applicable options for
such stockholder. Beneficial ownership is determined in accordance with the
rules of the Securities and Exchange Commission, and includes voting and
investment power with respect to shares. Shares of Common Stock subject to
options or warrants currently exercisable or exercisable within 60 days
after June 30, 1996 are deemed outstanding for purposes of computing the
percentage ownership of the person holding such options or warrants, but are
not deemed outstanding for computing the percentage of any other
stockholder.
(2) Includes 770,269 shares held by Interven II, L.P. and 3,259 shares held by
InterVen Ventures 1987. Interven II, L.P. and Interven Ventures 1987 also
hold warrants to purchase 29,068 shares and 145 shares, respectively.
(3) Includes 527,925 shares held by Weeden Capital Partners, L.P., 12,500 shares
held by Weeden Securities Corporation Pension Plan and Trust DTD 1/1/88,
89,232 shares purchasable upon exercise of a warrant held by Weeden & Co.,
L.P. and 20,000 shares purchasable upon exercise of a warrant held by Weeden
Investors Profit Sharing & Trust.
(4) Includes 46,031 shares issuable upon exercise of options that are currently
exercisable or exercisable within 60 days of June 30, 1996.
(5) Includes 23,438 shares issuable upon exercise of options that are currently
exercisable or exercisable within 60 days of June 30, 1996.
(6) Includes 770,269 shares held by InterVen II, L.P. and 3,259 shares held by
InterVen Ventures 1987. Also includes 29,068 shares purchasable upon
exercise of a warrant held by InterVen II, L.P. and 145 shares purchasable
upon exercise of a warrant held by InterVen Ventures 1987. Mr. Deemer is a
general partner of InterVen II Partners, L.P., which is the general partner
of InterVen II, L.P. Mr. Deemer is also a general partner of InterVen
Ventures 1987. Mr. Deemer disclaims beneficial ownership of the shares
except to the extent of his proportionate partnership interest.
(7) Includes 10,000 shares issuable upon exercise of options that are currently
exercisable or exercisable within 60 days of June 30, 1996.
(8) Includes 409,823 shares held by Ventana Growth Fund II, L.P. and 13,845
shares exercisable under a warrant held by Ventana Growth Fund II, L.P., of
which Mr. Townsen is a managing general partner.
(9) Includes 42,159 shares issuable upon exercise of warrants that are currently
exercisable or exercisable within 60 days of June 30, 1996.
50
<PAGE> 53
DESCRIPTION OF CAPITAL STOCK
Upon the closing of this offering, the authorized capital stock of the
Company will consist of 25,000,000 shares of Common Stock, $.001 par value, and
5,000,000 shares of Preferred Stock, $.001 par value, after giving effect to the
reincorporation of the Company into Nevada and the amendment and restatement of
the Company's Articles of Incorporation to change the number of shares of
authorized Common and Preferred Stock and to delete references to Series A
through Series G Preferred Stock following conversion of such Preferred Stock
into Common Stock upon the closing of the offering.
The following summary of certain provisions of the Common Stock and
Preferred Stock does not purport to be complete and is subject to, and qualified
in its entirety by, the provisions of the Company's Articles of Incorporation,
which is included as an exhibit to the Registration Statement of which this
Prospectus is a part and by the provisions of applicable law.
COMMON STOCK
The holders of Common Stock are entitled to one vote per share on all
matters to be voted upon by the stockholders. Subject to preferences that may be
applicable to any outstanding Preferred Stock, the holders of Common Stock are
entitled to receive ratably such dividends, if any, as may be declared from time
to time by the Board of Directors out of funds legally available therefor. See
"Dividend Policy." In the event of a liquidation, dissolution or winding up of
the Company, the holders of Common Stock are entitled to share ratably in all
assets remaining after payment of liabilities, subject to prior rights of
Preferred Stock, if any, then outstanding. The Common Stock has no preemptive or
conversion rights or other subscription rights. There are no redemption or
sinking fund provisions available to the Common Stock. All outstanding shares of
Common Stock are fully paid and non-assessable, and the shares of Common Stock
to be issued upon completion of this offering will be fully paid and
non-assessable.
At June 30, 1996, 1,202,792 shares of Common Stock were outstanding and
held of record by 67 stockholders, and options to purchase an aggregate of
1,191,753 shares of Common Stock were also outstanding. See
"Management -- Employee Stock Plans."
PREFERRED STOCK
Pursuant to the Company's Articles of Incorporation, the Board of Directors
has the authority, without further action by the stockholders, to issue up to
5,000,000 shares of Preferred Stock in one or more series and to fix the
designations, powers, preferences, privileges, and relative participation,
optional or special rights and the qualifications, limitations or restrictions
thereof, including dividend rights, conversion rights, voting rights, terms of
redemption and liquidation preferences, any or all of which may be greater than
the rights of the Common Stock. The Board of Directors, without stockholder
approval, can issue Preferred Stock with voting, conversion or other rights that
could adversely affect the voting power and other rights of the holders of
Common Stock. Preferred Stock could thus be issued quickly with terms calculated
to delay or prevent a change in control of the Company or make removal of
management more difficult . Additionally, the issuance of Preferred Stock may
have the effect of decreasing the market price of the Common Stock. Upon the
completion of this offering, there will be no shares of Preferred Stock
outstanding. The Company has no plans to issue any of the Preferred Stock. See
"Risk Factors -- Anti-takeover Effect of Charter and Bylaw Provisions;
Availability of Preferred Stock for Issuance."
WARRANTS
As of June 30, 1996 (assuming the conversion of all outstanding shares of
Preferred Stock into Common Stock and the net exercise of certain warrants
immediately prior to the closing of this offering), warrants to purchase an
aggregate of 377,225 shares of the Company's Common at a weighted average
exercise price of $3.42 per share. Generally, the Company's warrants terminate
five years after issuance and provide for certain anti-dilution adjustments.
Certain of the Company's warrants may be exercised pursuant to a "cashless
exercise" procedure in which the warrant holder may, in lieu of paying the
exercise price in cash, exchange the
51
<PAGE> 54
warrant for a number of shares of Preferred Stock determined in accordance with
a formula based on the market value of the Company's stock at the time of
exercise.
NEVADA BUSINESS COMBINATIONS STATUE
The Company is subject to the provisions of Sections 78.411 through 78.444
of the General Corporation Law of Nevada. In general, this statute prohibits a
publicly-held Nevada corporation from engaging in a "business combination" with
an "interested stockholder" for a period of three years after the date of the
transaction in which the person becomes an interested stockholder, unless the
business combination is approved in a prescribed manner. An "interested
stockholder" is a person who, directly or indirectly, owns (or within the prior
three years did own) 10% or more of the corporation's voting stock.
TRANSFER AGENT AND REGISTRAR
The Transfer Agent and Registrar for the Common Stock is .
52
<PAGE> 55
SHARES ELIGIBLE FOR FUTURE SALE
Prior to this offering, there has been no public market for the Common
Stock of the Company and no predictions can be made of the effect, if any, that
the sale or availability for sale of shares of additional Common Stock will have
on the market price of the Common Stock. Nevertheless, sales of substantial
amounts of such shares in the public market, or the perception that such sales
could occur, could adversely affect the market price of the Common Stock and
could impair the Company's future ability to raise capital through an offering
of its equity securities.
Upon completion of this offering, the Company will have shares of
Common Stock outstanding assuming the conversion of all outstanding shares of
Preferred Stock into Common Stock, no exercise of the Underwriters overallotment
option, no exercise of options after June 30, 1996, and no exercise of
outstanding warrants (other than the exercise of warrants to purchase
shares simultaneously with the closing of this offering). Of these shares, the
shares sold in this offering will be freely tradable without restriction
or registration under the Securities Act, except that any shares purchased by
"affiliates" of the Company, as that term is defined under the Securities Act
("Affiliates"), may generally only be sold in compliance with the limitations of
Rule 144 described below.
In addition, the Company has, pursuant to agreements with certain
stockholders, included in the Registration Statement of which this Prospectus is
a part 142,918 shares (the "Registered Shares") of Common Stock, to be offered
on a continuous basis by such stockholders beginning 180 days following this
offering.
The remaining shares of outstanding Common Stock are deemed
"Restricted Shares" under Rule 144. The number of shares of Common Stock
available for sale in the public market is limited by restrictions under the
Securities Act and lock-up agreements under which the holders of such shares
have agreed not to sell or otherwise dispose of any of their shares for a period
of 180 days after the date of this Prospectus without the prior written consent
of Morgan Stanley & Co. Incorporated on behalf of the Underwriters. Restricted
Shares may be sold in the public market only if registered or if they qualify
for an exemption from Registration under Rules 144, 144(k) or 701 promulgated
under the Securities Act.
As a result of contractual restrictions described below and the provisions
of Rules 144, 144(k) and 701, Registered Shares and Restricted Shares will be
available for sale in the public market in the Public market as follows: (i)
shares will be available for immediate sale in the public market on the
date of this Prospectus, (ii) shares will be eligible for sale 90 days
from the date of this Prospectus; (iii) shares will be eligible for sale
upon expiration of the lock-up agreements 180 days after the date of this
Prospectus and (iv) shares will be eligible for sale thereafter upon
expiration of their respective two-year holding periods.
Upon completion of this offering, the holders of 7,555,525 shares of Common
Stock, or their transferees, will be entitled to certain rights with respect to
the registration of such shares under the Securities Act. See "Description of
Capital Stock -- Registration Rights." Registration of such shares under the
Securities Act would result in such shares becoming freely tradeable without
restriction under the Securities Act (except for shares purchased by Affiliates)
immediately upon the effectiveness of such registration.
In general, under Rule 144 of the Securities Act as currently in effect,
beginning 90 days after this offering, a person (or persons whose shares are
aggregated) who has beneficially owned "restricted" shares for at least two
years, including a person who may be deemed an Affiliate, is entitled to sell
within any three-month period a number of shares of Common Stock that does not
exceed the greater of 1% of the then outstanding shares of Common Stock of the
Company (approximately shares after giving effect to this offering) and
the average weekly trading volume of the Common Stock on the Nasdaq National
Market during the four calendar weeks preceding such sale. Sales under Rule 144
of the Securities Act are subject to certain restrictions relating to manner of
sale, notice, and the availability of current public information about the
Company. A person who is not an Affiliate at any time during the 90 days
preceding a sale, and who has beneficially owned shares for at least three
years, would be entitled to sell such shares immediately following
53
<PAGE> 56
this offering without regard to the volume limitations, manner of sale
provisions, or notice or other requirements of Rule 144 of the Securities Act.
Any employee of the Company who purchased his or her shares of Common Stock
pursuant to a written compensation plan or contract may be entitled to rely on
the resale provisions of rule 701 under the Securities Act, which permits
nonaffiliates to sell their Rule 701 shares without having to comply with the
current public information, holding period, volume limitation or notice
provision of Rule 144 and permits affiliates to sell their Rule 701 shares
without having to comply with Rule 144's holding period restrictions.
Notwithstanding the foregoing, in connection with the offering, the
Company, its executive officers and directors and certain existing stockholders
of the Company, who will own an aggregate of approximately Registered
Shares and Restricted Shares after the offering, have agreed that, without the
prior written consent of the Morgan Stanley & Co. Incorporated on behalf of the
Underwriters, they will not (a) offer, pledge, sell, contract to sell, sell any
option or contract to purchase, purchase any option or contract to sell, grant
any option, right or warrant to purchase, or otherwise transfer or dispose of,
directly or indirectly, any share of Common Stock or any securities convertible
into or exercisable or exchangeable for Common Stock (whether such shares or any
such securities are then owned by such person or are thereafter acquired
directly from the Company), or (b) enter into any swap or similar agreement that
transfers, in whole or in part, any of the economic consequences of ownership of
the Common Stock, whether any such transaction described in clause (a) or (b) of
this paragraph is to be settled by delivery of such Common Stock or such other
securities, in case or otherwise, for a period of 180 days after the date of
this Prospectus, other than (i) the sale to the Underwriters of the shares of
Common Stock under the Underwriting Agreement, (ii) the issuance of the Company
of shares of Common stock upon the exercise of an option sold or granted
pursuant to existing benefit plans of the company and outstanding on the date of
this prospectus, (iii) the transfer of shares of Common Stock in a bona fide
charitable donation or in any estate planning disposition provided that the
transferee in any such transaction agrees to be bound by the terms of the
"lock-up" agreement or (iv) the transfer of shares of Common Stock due to the
death or disability of a stockholder provided that such transferee agrees to be
bound by the terms of the "lock-up" agreement.
In addition, the holders of shares of Common Stock have agreed not
to sell, make any short sale of, loan, grant any option for the purchase of, or
otherwise dispose of any shares of Common Stock without the prior written
consent of the Representatives of the Underwriters.
In connection with the offering, the Company intends to file a registration
statement under the Securities Act covering approximately shares of
Common Stock subject to outstanding options or reserved for the issuance under
the 1987 Stock Option Plan and the 1996 Stock Plan, 100,000 shares reserved for
issuance under the Director Stock Option Plan and 250,000 shares of Common Stock
reserved for issuance under the Purchase Plan. See "Management -- Employee Stock
Plans." Accordingly, shares registered under such registration statement will,
subject to Rule 144 volume limitations applicable to Affiliates and the lapsing
of the Company's repurchase options, be available for sale in the open market,
except to the extent that such shares are subject to vesting restrictions with
the Company or the contractual restrictions described above.
REGISTRATION RIGHTS
The holders of an aggregate of shares of Common Stock, assuming the
exercise of warrants to purchase shares of preferred stock and the
automatic conversion thereof immediately following this offering, will be
entitled to certain rights with respect to the registration of such shares under
the Securities Act. Under the terms of certain registration rights agreements,
if the Company proposes to register any of its securities under the Securities
Act, either for its own account or for the account of other securityholders
exercising registration rights, such holders are entitled to notice of such
registration and are entitled to include such shares of Common Stock in the
registration. The rights are subject to certain conditions and limitations,
among them the right of the underwriters of an offering subject to the
registration to limit the number of shares included in such registration.
Holders of Common Stock benefiting from these rights may also require the
Company to file a registration statement under the Securities Act at its expense
with respect to their shares of Common Stock, and the Company is required to use
its best efforts to effect such registration,
54
<PAGE> 57
subject to certain conditions and limitations. Furthermore, such holders may
require the Company to file additional registration statements on Form S-3
subject to certain conditions and limitations.
No predictions can be made as to the effect, if any, that future sales of
shares, or the availability of shares for future sale, will have on the
prevailing market price for the Common Stock. Sales of substantial amounts of
Common Stock, or the perception that such sales might occur, could adversely
affect prevailing market prices for the Common Stock and could impair the
Company's future ability to obtain capital through an offering of equity
securities.
55
<PAGE> 58
UNDERWRITERS
Under the terms and subject to the conditions contained in an Underwriting
Agreement, the Underwriters named below, for whom Morgan Stanley & Co.
Incorporated, Montgomery Securities and Needham & Company, Inc. are serving as
Representatives, have severally agreed to purchase, and the Company and the
Selling Stockholders have agreed to sell to the Underwriters, the respective
number of shares of Common Stock set forth opposite their names below:
<TABLE>
<CAPTION>
NUMBER
NAME OF SHARES
------------------------------------------------------------------- ---------
<S> <C>
Morgan Stanley & Co. Incorporated..................................
Montgomery Securities..............................................
Needham & Company, Inc. ...........................................
-------
Total....................................................
=======
</TABLE>
The Underwriting Agreement provides that the obligations of the several
Underwriters to pay for and accept delivery of the shares of Common Stock
offered hereby are subject to the approval of certain legal matters by counsel
and to certain other conditions. The Underwriters are obligated to take and pay
for all of the shares of Common Stock offered hereby (other than the shares
covered by the over-allotment option described below) if any are taken.
The Underwriters initially propose to offer part of the shares of Common
Stock offered hereby directly to the public at the initial public offering price
set forth on the cover page hereof and part to certain dealers at a price that
represents a concession not in excess of $ per share under the initial
public offering price. Any Underwriter may allow, and such dealers may reallow,
a concession not in excess of $ per share to other Underwriters or to
certain other dealers.
The Company has granted to the Underwriters an option, exercisable for 30
days from the date of this Prospectus, to purchase up to additional
shares of Common Stock at the initial public offering price set forth on the
cover page hereof, less underwriting discounts and commissions. The Underwriters
may exercise such option to purchase solely for the purpose of covering
over-allotments, if any, incurred in the sale of the shares of Common Stock
offered hereby.
The Representatives of the Underwriters have informed the Company that the
Underwriters do not intend sales to discretionary accounts to exceed five
percent of the total number of shares of Common Stock offered by them.
The Company, the Selling Stockholders and the Underwriters have agreed to
indemnify each other against certain liabilities, including liabilities under
the Securities Act.
Subject to certain limited exceptions, the Company has agreed not to offer,
pledge, sell, contract to sell, sell any option or contract to purchase,
purchase any option or contract to sell, grant any option, right or warrant to
purchase, or otherwise transfer or dispose of, directly or indirectly, any
shares of Common Stock, or any securities convertible into or exercisable or
exchangeable for Common Stock, or enter into any swap or similar agreement that
transfers in whole or in part, the economic risk of ownership of the Common
Stock for a period of 180 days after the date of this Prospectus without the
prior written consent of Morgan Stanley & Co. Incorporated. See "Shares Eligible
for Future Sale" for a description of certain arrangements by which all Selling
Stockholders, officers and directors and substantially all other stockholders
and optionholders have agreed not to sell or otherwise dispose of the Common
Stock or convertible securities of the Company held by them for a period of 180
days after the date of this Prospectus, without the prior written consent of
Morgan Stanley & Co. Incorporated.
56
<PAGE> 59
PRICING OF THE OFFERING
Prior to this offering, there has been no public market for the Common
Stock of the Company. The initial public offering price will be determined by
negotiations among the Company, the Selling Stockholders and the Representatives
of the Underwriters. Among the factors to be considered in determining the
initial public offering price will be the future prospects of the Company and
its industry in general, sales, earnings and certain other financial and
operating information of the Company in recent periods, and the price-earnings
ratios, price-sales ratios, market prices of securities and certain financial
and operating information of companies engaged in activities similar to those of
the Company. The estimated initial public offering price range set forth on the
cover page of this Preliminary Prospectus is subject to change as a result of
market conditions and other factors.
LEGAL MATTERS
The validity of the Common Stock offered hereby will be passed upon for the
Company by Wilson, Sonsini, Goodrich & Rosati, Professional Corporation, Palo
Alto, California. As of June 30, 1996, two members of Wilson, Sonsini, Goodrich
& Rosati, Professional Corporation, and investment partnerships principally
comprised of members of that firm, beneficially owned 22,499 shares of the
Company's Common Stock. Certain legal matters relating to the offering will be
passed upon for the Underwriters by Gunderson Dettmer Stough Villeneuve Franklin
& Hachigian, LLP, Palo Alto, California.
EXPERTS
The consolidated financial statements as of December 31, 1994 and 1995 and
for each of the three years in the period ended December 31, 1995 included in
this Prospectus have been audited by Deloitte & Touche LLP, independent
auditors, as stated in their report appearing herein, and have been so included
in reliance upon the report of such firm given upon their authority as experts
in accounting and auditing.
The statements in this Prospectus in the fourth paragraph under the caption
"Risk Factors -- Uncertainty Regarding Patents and Protection of Proprietary
Technology" and in the fourth paragraph under the caption
"Business -- Intellectual Property Rights" as such relate to matters referred to
in the correspondence between the Company and Coherent, Inc. described therein
have been reviewed and approved by Townsend and Townsend and Crew, LLP, special
patent counsel for the Company, as experts in such matters, and are included
herein in reliance upon such review and approval.
ADDITIONAL INFORMATION
The Company has filed with the Securities and Exchange Commission (the
"Commission"), a Registration Statement on Form S-1, including amendments
thereto, under the Securities Act with respect to the shares of Common Stock
offered hereby. This Prospectus omits certain information contained in the
Registration Statement, and reference is made to the Registration Statement and
the exhibits and schedules thereto for further information with respect to the
Company and the Common Stock offered hereby. Statements contained herein
concerning the provisions of any documents are not necessarily complete, and in
each instance reference is made to the copy of such document filed as an exhibit
to the Registration Statement. Each such statement is qualified in its entirety
by such reference. The Registration Statement, including exhibits and schedules
filed therewith, may be inspected without charge at the public reference
facilities maintained by the Commission at Room 1024, Judiciary Plaza, 450 Fifth
Street, N.W., Washington, D.C. 20549 and copies of all or any part thereof may
be obtained from such office upon payment of the prescribed fees.
57
<PAGE> 60
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Independent Auditors' Report.......................................................... F-2
Consolidated Balance Sheets as of December 31, 1994 and 1995 and June 30, 1996
(unaudited)......................................................................... F-3
Consolidated Statements of Operations for the years ended December 31, 1993, 1994 and
1995 and for the six months ended June 30, 1995 and 1996 (unaudited)................ F-4
Consolidated Statements of Stockholders' Deficit for the years ended December 31,
1993, 1994 and 1995 and for the six months ended June 30, 1996 (unaudited).......... F-5
Consolidated Statements of Cash Flows for the years ended December 31, 1993, 1994 and
1995 and for the six months ended June 30, 1995 and 1996 (unaudited)................ F-6
Notes to Consolidated Financial Statements............................................ F-7
</TABLE>
F-1
<PAGE> 61
The accompanying consolidated financial statements reflect an increase in
the number of authorized shares of common and preferred stock to 25,000,000 and
5,000,000, respectively, which is to be effected prior to the closing of the
Company's initial public offering. The following opinion is in the form that
will be signed by Deloitte & Touche LLP upon consummation of the above event,
which is described in the second paragraph of Note 1 of Notes to Consolidated
Financial Statements, and assuming that, from March 22, 1996 to the date of such
event, no other events shall have occurred that would affect the accompanying
consolidated financial statements and notes thereto.
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders of
Cymer, Inc.:
We have audited the accompanying consolidated balance sheets of Cymer, Inc.
(successor to Cymer Laser Technologies) and its subsidiary (collectively the
"Company") as of December 31, 1994 and 1995, and the related consolidated
statements of operations, stockholders' deficit, and cash flows for each of the
three years in the period ended December 31, 1995. These financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in
all material respects, the financial position of the Company as of December 31,
1994 and 1995, and the results of its operations and its cash flows for each of
the three years in the period ended December 31, 1995 in conformity with
generally accepted accounting principles.
As discussed in Note 10 to the financial statements, during 1994 the
Company changed its method of accounting for the accretion of the 8% per annum
redemption provision on the Company's Redeemable Convertible Preferred Stock.
San Diego, California
March 22, 1996 ( , 1996 as to the
second paragraph in Note 1 and Note 12)
F-2
<PAGE> 62
CYMER INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
--------------------- -------------------------
1994 1995 1996
-------- -------- -------------------------
<S> <C> <C> <C> <C>
ACTUAL
-----------
(UNAUDITED)
ASSETS
Current Assets:
Cash and cash equivalents........................... $ 2,326 $ 2,015 $ 1,981
Accounts receivable................................. 2,451 4,832 9,213
Inventories......................................... 2,526 5,315 11,334
Prepaid expenses and other assets................... 447 306 769
-------- -------- -----------
Total current assets......................... 7,750 12,468 23,297
Property -- net....................................... 1,346 3,053 7,850
Other Assets.......................................... 76 98 229
-------- -------- -----------
TOTAL ASSETS................................. $ 9,172 $ 15,619 $ 31,376
========= ========= ===========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current Liabilities:
Revolving loan and security agreements.............. $ 1,546 $ 2,786 $ 7,250
Advances against commercial drafts.................. 1,709 1,305 1,675
Accounts payable.................................... 935 2,369 5,099
Accrued liabilities................................. 1,015 1,187 2,243
Deferred revenue.................................... 478 951 712
Current portion of capital lease obligations........ 25 185
Income taxes payable................................ 172
Subordinated promissory notes....................... 3,624
-------- -------- -----------
Total current liabilities.................... 9,307 8,623 17,336
-------- -------- -----------
Deferred Rent......................................... 327 369 410
-------- -------- -----------
Capital Lease Obligations............................. 48 387
-------- -----------
Commitments and Contingencies (Note 8)................ PRO FORMA
(NOTE 1)
---------
Redeemable Convertible Preferred Stock, authorized --
9,834,880 shares; $.01 stated par value, issued and
outstanding 4,325,000, 6,496,000 and 7,527,000 19,290 28,409 35,234 --
shares (liquidation preference -- $35,234)..........
-------- -------- ----------- ---------
Stockholders' Equity (Deficit):
Preferred Stock:
-- authorized -- 5,000,000 shares; $0.001 par
value, no shares issued or outstanding.......... -- -- -- --
Common Stock:
-- authorized -- 15,000,000 shares; $.01 stated
par value, issued and outstanding 1,091,000,
1,160,000 and 1,203,000 shares.................. 11 12 12 --
-- authorized -- 25,000,000 shares; $0.001 par
value, issued and outstanding shares...... -- -- --
Paid-in capital..................................... 164 195 241
Accumulated deficit................................. (19,898) (21,832) (21,947)
Cumulative translation adjustment................... (29) (205) (297)
-------- -------- ----------- ---------
Total stockholders' equity (deficit)......... (19,752) (21,830) (21,991) $ --
-------- -------- -----------
==========
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY... $ 9,172 $ 15,619 $ 31,376
========= ========= ===========
</TABLE>
See Notes to Consolidated Financial Statements.
F-3
<PAGE> 63
CYMER, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
------------------------------- ------------------
1993 1994 1995 1995 1996
------- ------- ------- ------ -------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
REVENUES:
Product sales........................... $ 3,393 $ 7,705 $15,576 $5,458 $17,768
Other................................... 2,306 1,216 3,244 1,821 1,414
------- ------- ------- ------ -------
Total revenues.................. 5,699 8,921 18,820 7,279 19,182
------- ------- ------- ------ -------
COSTS AND EXPENSES:
Cost of product sales................... 2,726 4,797 9,282 3,243 10,929
Research and development................ 2,733 3,283 6,154 2,920 4,249
Sales and marketing..................... 2,154 1,780 2,353 1,011 1,825
General and administrative.............. 782 849 1,181 502 1,303
------- ------- ------- ------ -------
Total costs and expenses........ 8,395 10,709 18,970 7,676 18,306
------- ------- ------- ------ -------
OPERATING INCOME (LOSS)................... (2,696) (1,788) (150) (397) 876
------- ------- ------- ------ -------
OTHER INCOME (EXPENSE):
Foreign currency exchange gain -- net... 18 65 506 167 388
Interest and other income............... 27 17 32 21 27
Interest and other expense.............. (52) (281) (283) (138) (148)
------- ------- ------- ------ -------
Total other income
(expense) -- net.............. (7) (199) 255 50 267
------- ------- ------- ------ -------
Income (Loss) Before Provision for Income
Taxes................................... (2,703) (1,987) 105 (347) 1,143
Provision for Income Taxes................ 221 58 36 36 186
------- ------- ------- ------ -------
NET INCOME (LOSS)......................... $(2,924) $(2,045) $ 69 $ (383) $ 957
======= ======= ======= ====== =======
PRO FORMA EARNINGS (LOSS) PER SHARE DATA
(Note 1):
Pro forma earnings (loss) per share..... $ 0.01 $(0.06) $ 0.10
======= ====== =======
Pro forma weighted average common and
common equivalent shares
outstanding.......................... 8,319 6,718 9,745
======= ====== =======
</TABLE>
See Notes to Consolidated Financial Statements.
F-4
<PAGE> 64
CYMER, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' DEFICIT
(IN THOUSANDS)
<TABLE>
<CAPTION>
COMMON STOCK CUMULATIVE
--------------- PAID-IN ACCUMULATED TRANSLATION
SHARES AMOUNT CAPITAL DEFICIT ADJUSTMENT TOTAL
------ ------ -------- ----------- ---------- --------
<S> <C> <C> <C> <C> <C> <C>
BALANCE, JANUARY 1, 1993................ 1,057 $ 11 $146 $ (9,032) $ (72) $ (8,947)
Exercise of common stock options...... 6 3 3
Net loss.............................. (2,924) (2,924)
Translation adjustment................ 40 40
----- --- ---- -------- ----- --------
BALANCE, DECEMBER 31, 1993.............. 1,063 11 149 (11,956) (32) (11,828)
Exercise of common stock options...... 28 15 15
Net loss.............................. (2,045) (2,045)
Accretion of redemption -- preferred
stock (Note 10).................... (5,897) (5,897)
Translation adjustment................ 3 3
----- --- ---- -------- ----- --------
BALANCE, DECEMBER 31, 1994.............. 1,091 11 164 (19,898) (29) (19,752)
Exercise of common stock options...... 69 1 31 32
Net income............................ 69 69
Accretion of redemption -- preferred
stock.............................. (2,003) (2,003)
Translation adjustment................ (176) (176)
----- --- ---- -------- ----- --------
BALANCE, DECEMBER 31, 1995.............. 1,160 12 195 (21,832) (205) (21,830)
Unaudited:
Exercise of common stock options...... 43 46 46
Net income............................ 957 957
Accretion of redemption -- preferred
stock.............................. (1,072) (1,072)
Translation adjustment................ (92) (92)
----- --- ---- -------- ----- --------
BALANCE, JUNE 30, 1996 (unaudited)...... 1,203 $ 12 $241 $ (21,947) $ (297) $(21,991)
===== === ==== ======== ===== ========
</TABLE>
See Notes to Consolidated Financial Statements.
F-5
<PAGE> 65
CYMER, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
--------------------------- -------------------
1993 1994 1995 1995 1996
------- ------- ------- ------- -------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
OPERATING ACTIVITIES:
Net income (loss)...................................... $(2,924) $(2,045) $ 69 $ (383) $ 957
Adjustments to reconcile net income (loss) to net cash
used for operating activities:
Depreciation and amortization........................ 826 677 820 410 753
Change in assets and liabilities:
Accounts receivable................................ (653) (207) (2,574) (557) (4,599)
Inventories........................................ 153 (1,205) (2,813) (1,726) (6,059)
Prepaid expenses and other assets.................. (73) (233) 99 52 (535)
Accounts payable................................... 220 424 1,404 513 2,646
Accrued liabilities................................ 125 397 337 (53) 1,173
Income taxes payable............................... 172
Deferred revenue................................... 186 (17) 502 341 (230)
Deferred rent...................................... 80 10 42 (12) 41
------- ------- ------- ------- -------
Net cash used for operating activities.......... (2,060) (2,199) (2,114) (1,415) (5,681)
------- ------- ------- ------- -------
INVESTING ACTIVITIES:
Acquisition of property................................ (536) (640) (2,653) (1,105) (5,121)
Disposal of property................................... 126 91 226 150 2
------- ------- ------- ------- -------
Net cash used for investing activities.......... (410) (549) (2,427) (955) (5,119)
------- ------- ------- ------- -------
FINANCING ACTIVITIES:
Net (payments) borrowings under revolving loan and
security agreements.................................. 1,588 (42) 1,240 (46) 4,464
Proceeds from issuance of redeemable convertible
preferred stock...................................... 100 404 3,407 2,611 5,752
Proceeds from issuance of common stock................. 3 15 32 35 46
Net advances against (discounting of) commercial
drafts............................................... (487) 945 (390) (1,460) 459
Payments on capital lease obligations.................. (27) (5) (25)
Net proceeds from issuance of subordinated promissory
notes................................................ 474 3,150
------- ------- ------- ------- -------
Net cash provided by financing activities....... 1,678 4,472 4,262 1,135 10,696
------- ------- ------- ------- -------
EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH
EQUIVALENTS............................................ (30) (113) (32) (207) 70
------- ------- ------- ------- -------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS..... (822) 1,611 (311) (1,442) (34)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD......... 1,537 715 2,326 2,326 2,015
------- ------- ------- ------- -------
CASH AND CASH EQUIVALENTS AT END OF PERIOD............... $ 715 $ 2,326 $ 2,015 $ 884 $ 1,981
======= ======= ======= ======= =======
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Interest paid.......................................... $ 27 $ 162 $ 219 $ 65 $ 125
======= ======= ======= ======= =======
Income taxes paid...................................... $ 221 $ 58 $ 36 $ 28 $ 11
======= ======= ======= ======= =======
SUPPLEMENTAL DISCLOSURE OF NONCASH INVESTING AND
FINANCING ACTIVITIES:
Net book value of property transferred to inventory for
resale............................................... $ 125 $ 39 $ 177 $ 150
======= ======= ======= =======
Capital lease obligations incurred for furniture and
equipment............................................ $ 46 $ 526
======= =======
Conversion of subordinated promissory notes and related
interest payable to redeemable convertible preferred
stock................................................ $ 3,755 $ 3,755
======= =======
</TABLE>
See Notes to Consolidated Financial Statements.
F-6
<PAGE> 66
CYMER, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(INFORMATION AS OF JUNE 30, 1996 AND FOR THE SIX MONTHS ENDED
JUNE 30, 1995 AND 1996 IS UNAUDITED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nature of Operations -- Cymer, Inc. (successor to Cymer Laser Technologies)
and its subsidiary (collectively the "Company") is engaged primarily in the
development, manufacturing and marketing of excimer lasers for sale to
manufacturers of photolithography tools in the semiconductor equipment industry.
The Company sells its product to customers primarily in Japan, the Netherlands
and the United States.
On July 15, 1996, the Company's Board of Directors approved a
recapitalization to become effective prior to the closing of the Company's
planned initial public offering. Under the recapitalization, the Company
reincorporated in the State of Nevada as Cymer, Inc. and increased the number of
authorized shares of common and preferred stock to 25,000,000 and 5,000,000,
respectively. Consolidated stockholders' equity as of December 31, 1995 has been
shown on a pro forma basis, assuming conversion of 7,527,000 shares of
redeemable convertible preferred stock then outstanding into 7,563,000 shares of
common stock, the issuance of shares of common stock upon the exercise
of certain outstanding warrants, and the reincorporation of the Company in the
State of Nevada at $0.001 par value per common and preferred share (Note 12).
Principles of Consolidation -- The consolidated financial statements
include the accounts of Cymer, Inc. (successor to Cymer Laser Technologies) and
its wholly-owned subsidiary, Cymer Japan, Inc., (collectively, the "Company").
The Company primarily sells its excimer lasers in Japan through Cymer Japan,
Inc. All significant intercompany balances have been eliminated in
consolidation.
Accounting Estimates -- The preparation of financial statements in
conformity with generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results may differ from those estimates.
Cash Equivalents -- Cash equivalents consist of money market instruments
purchased with an original maturity of three months or less.
Inventories -- Inventories are carried at the lower of cost (first-in,
first-out) or market.
Property -- Property is stated at cost. Depreciation is provided using the
straight-line or declining balance methods over the estimated useful lives of
the assets (generally three to five years). Leasehold improvements are
amortized, using the straight-line method, over the shorter of the life of the
improvement or the remaining lease term. Lasers built for internal use are
capitalized and depreciated using the straight-line method over three years.
Revenue Recognition -- Revenue from product sales is generally recognized
at the time of shipment unless customer agreements contain inspection or other
conditions, in which case revenue is recognized at the time such conditions are
satisfied. Product sales includes sales of lasers, replacement parts, and
product service contracts. Other revenue primarily represents revenue earned
from funded development activities and license fees. Such revenue is recognized
on a basis consistent with the performance requirement of the agreements.
Payments received in advance of performance are recorded as deferred revenue.
Long-term contracts are accounted for on the percentage-of-completion method
based upon the relationship of costs incurred to total estimated costs, after
giving effect to estimates of costs to complete.
License fees totaled $2,000,000 for the year ended December 31, 1993.
Research and development revenues totaled $306,000, $1,216,000 and $3,244,000
for the years ended December 31, 1993, 1994 and 1995, respectively, and
$1,821,000 and $1,414,000 for the six months ended June 30, 1995 and 1996,
respectively.
F-7
<PAGE> 67
CYMER, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Warranty Expense -- The Company generally warrants its products against
defects for the earliar to occur of 17 months from the date of shipment or 12
months after acceptance by the end-user. The Company accrues a provision for
warranty expense for all products sold. The amount of the provision is based on
actual historical expenses incurred and estimated probable future expenses
related to current sales. Warranty costs incurred are charged against the
provision.
Stock-Based Compensation -- Statement of Financial Accounting Standards No.
123, "Accounting for Stock-Based Compensation," encourages, but does not require
companies to record compensation cost for stock-based employee compensation
plans at fair value. The Company has chosen to continue to account for
stock-based compensation using the intrinsic value method prescribed in
Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to
Employees," and related Interpretations. Accordingly, compensation cost for
stock options is measured as the excess, if any, of the quoted market price of
the Company's stock at the date of the grant over the amount an employee must
pay to acquire the stock.
Foreign Currency Translation -- Gains and losses resulting from foreign
currency translation are accumulated as a separate component of stockholders'
equity (deficit). Gains and losses resulting from foreign currency transactions
are included in the statements of operations.
Foreign Exchange Contracts -- The Company enters into foreign currency
exchange contracts to hedge purchase commitments by Cymer Japan, Inc. Net
realized gains or losses are recorded on the contract settlement date and are
included in the statement of operations.
The Company recognized net gains from the above foreign currency exchange
contracts of $480,000, $0 and $552,000 for the year ended December 31, 1995 and
the six months ended June 30, 1995 and 1996, respectively. The face amount of
the underlying contracts was $4,048,000, $500,000 and $7,351,000, respectively.
The Company also had forward foreign exchange contracts at June 30, 1996 to buy
$25.4 million for Y2.6 billion. Such contracts expire on various dates through
February 1997.
Concentration of Credit Risk -- The Company invests its excess cash in
money market accounts. The Company has not experienced any losses on its cash
accounts. The Company has a small number of significant customers (see "Major
Customers and Related Parties"). The Company does not expect any credit losses
and therefore, no provision for credit losses has been made.
Major Customers and Related Parties -- Two customers individually accounted
for 40% and 27%, respectively, of 1993 revenues, four customers individually
accounted for 24%, 17%, 15% and 14%, respectively, of 1994 revenues, four
customers individually accounted for 27%, 19%, 18% and 10%, respectively, of
1995 revenues, and four customers individually accounted for 22%, 37%, 20% and
7%, respectively, of the six months ended June 30, 1996 revenues. Receivables
from these customers totaled $218,000, $2,576,000 and $5,254,000 at December 31,
1994 and 1995 and June 30, 1996, respectively.
Revenues from Japanese customers, generated primarily by the Company's
subsidiary, accounted for 68%, 33%, and 50% of revenues for the years ended
December 31, 1993, 1994, and 1995, respectively, and 47% and 60% for the six
months ended June 30, 1995 and 1996, respectively. Revenues from a customer in
the Netherlands accounted for 8%, 17% and 18% of revenues for the years ended
December 31, 1993, 1994, and 1995, respectively, and 8% and 22% for the six
months ended June 30, 1995 and 1996, respectively.
Revenues from stockholders totaled $3,857,000, $2,917,000 and $9,085,000
for the years ended December 31, 1993, 1994 and 1995, respectively, and
$3,961,000 and $15,908,000 for the six months ended June 30, 1995 and 1996,
respectively.
Pro Forma Earnings Per Share -- Pro forma earnings (loss) per share is
computed based on the weighted average number of common and common equivalent
shares outstanding during the year using the treasury stock method and assumes
conversion of all outstanding redeemable convertible preferred stock and the
exercise of all outstanding warrants. Stock options, redeemable convertible
preferred stock and warrants are considered to be common stock equivalents,
except for the six months ended June 30, 1995, where the stock options are not
assumed converted as such conversion would be antidilutive. All shares of common
stock
F-8
<PAGE> 68
CYMER, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
and common stock equivalents issued within twelve months of an initial public
offering at a price per share less than the estimated offering price are
considered to be outstanding for all periods presented in the same manner as a
stock split. Accordingly, all shares of common stock and common stock
equivalents issued subsequent to August 1995 at a price per share below the
estimated offering price are considered to be outstanding for all periods
presented.
Unaudited Interim Financial Data -- The interim financial data relating to
June 30, 1996 and the six months ended June 30, 1995 and 1996 are unaudited;
however, in the opinion of the Company's management, the interim data includes
all adjustments, consisting of only normal recurring accruals, necessary for a
fair presentation of the financial position and results of operations for such
periods. The results for the six months ended June 30, 1996 are not necessarily
indicative of the results to be expected for the full year or for any other
interim period.
Reclassifications -- Certain amounts in the prior year's financial
statements have been reclassified to conform to current period presentation.
2. BALANCE SHEET DETAILS
<TABLE>
<CAPTION>
DECEMBER 31, JUNE
------------------- 30,
1994 1995 1996
------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C>
INVENTORIES:
Raw materials....................................... $ 773 $ 2,114 $ 4,438
Work-in-progress.................................... 1,171 2,232 5,633
Finished goods...................................... 582 969 1,263
------- ------- -------
Total....................................... $ 2,526 $ 5,315 $11,334
======= ======= =======
PROPERTY -- at cost:
Furniture and equipment............................. $ 2,753 $ 4,113 $ 6,962
Capitalized lasers.................................. 1,423 1,788 2,338
Leasehold improvements.............................. 151 245 1,671
Construction in process............................. 24 587 1,091
------- ------- -------
4,351 6,733 12,062
Less accumulated depreciation and amortization...... (3,005) (3,680) (4,212)
------- ------- -------
Total....................................... $ 1,346 $ 3,053 $ 7,850
======= ======= =======
</TABLE>
3. BORROWING FACILITIES
Revolving Loan Facility -- At December 31, 1995 and June 30, 1996, the
Company had a revolving loan facility ("Loan Facility") providing for borrowings
of up to $1,000,000. Borrowings under the facility bear interest at prime plus
1.0% and 1.5% at December 31, 1995 and June 30, 1996, respectively (9.5% and
9.75% at December 31, 1995 and June 30, 1996, respectively), payable quarterly,
and are guaranteed by a preferred stockholder of the Company (Note 9). In
connection with the guarantee, the Company has granted the preferred stockholder
a security interest in the Company's lasers located in Japan. At December 31,
1995 and June 30, 1996, $1,000,000 was borrowed against the Loan Facility.
Loan and Security Agreement -- On September 27, 1995, the Company amended
its Loan and Security Agreement (the "Agreement") originally dated in October
1993. The Agreement provides for three revolving loan agreements with a bank to
provide for combined borrowings of up to a maximum of $2,666,000 with interest
on outstanding borrowings at prime plus 1.25% (9.75% at December 31, 1995). The
Agreement is
F-9
<PAGE> 69
CYMER, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
secured by substantially all the Company's assets and provides for the
following: (i) borrowings up to $500,000 against eligible accounts receivable
(expires September 27, 1996), (ii) borrowings up to $1,666,000 (secured by
foreign accounts receivable, is partially guaranteed by the California Export
Finance Office and expired April 5, 1996), and (iii) borrowings up to $500,000
(secured by foreign account receivable, is partially guaranteed by the U.S.
Export-Import Bank and expires September 27, 1996). The agreements require the
Company to maintain certain financial statement ratios including, among other
items, limitation on additional debt, total liabilities to tangible net worth of
not more than 1.75 to 1 and minimum tangible net worth of not less than
$4,750,000 plus 50% of the Company's net income after taxes beginning with the
quarter ended September 30, 1995. As of December 31, 1995, the Company was in
compliance with all such covenants. There was $1,786,000 outstanding under the
Agreement at December 31, 1995.
On May 1 and June 14, 1996, the Company again amended its Loan and Security
Agreement (the "Agreement") originally dated in October 1993. The Agreement
provides for three revolving loan agreements and a loan with a bank to provide
for combined borrowings of up to a maximum of $11,000,000 with interest on
outstanding borrowings ranging from prime plus 0.75% to prime plus 1.5% (9.0%
and 9.75%, respectively, at June 30, 1996). The Agreement is secured by
substantially all the Company's assets and provides for the following: (i)
$2,000,000 bank loan which is secured by the Company's assets, bears interest at
a rate of prime plus 1.5% per annum, is due September 30, 1996, (ii) a
$1,000,000 revolving bank line of credit which is also secured by the Company's
assets, bears interest at a rate of prime plus 0.75% per annum, is due March 5,
1997 and (iii) $8,000,000 under lines of credit secured by the Companys foreign
receivables and inventory and guaranteed by the U.S. Export-Import Bank, which
bear interest at a rate of prime plus 0.75% per annum, and are due March 5, 1997
and June 27, 1997. There was $6,250,000 outstanding under the Agreement at June
30, 1996.
In connection with the original Agreement, the Company issued the bank a
five-year warrant to purchase 15,000 shares of the Company's Series D Redeemable
Convertible Preferred Stock at $8.50 per share. In February 1995, warrants to
purchase 16,000 shares of the Company's Series E Redeemable Convertible
Preferred Stock at $4.00 per share were exchanged for the 15,000 Series D
warrants (Note 5).
Foreign Exchange Contract Facility -- In addition to the three revolving
loan agreements, a Foreign Exchange Contract facility was put into place in
1995. The Agreement provides up to $3,500,000 to be utilized for spot and future
foreign exchange contracts. The total gross amount to be settled within 2
business days is not to exceed $1,000,000 (settlement limit) at any one time.
The settlement limit may be increased against the revolving credit line
availability or advance payment arranged prior to delivery of the foreign
currency overseas. There were no foreign exchange contracts outstanding under
the Agreement at December 31, 1995 and June 30, 1996.
Advances Against Commercial Drafts -- Advances against commercial drafts
represent funds advanced by a Japanese bank in connection with the discounting
of certain commercial drafts received from customers as payment for the purchase
of merchandise. The commercial drafts are discounted at the bill discount rate
plus 1.0% (1.875% at December 31, 1995 and June 30, 1996) and generally mature
within 120 days. The bank reserves the right to call for repayment on demand.
4. CONVERSION OF SUBORDINATED PROMISSORY NOTES -- STOCKHOLDERS
During 1995, principal totalling $3,622,000 plus accrued interest of
$133,000 relating to loans obtained from certain stockholders in 1994 were
converted into 1,073,000 fully-paid and non-assessable shares of Series F
Redeemable Convertible Preferred Stock of the Company at $3.50 per share. In
connection with the original loan, the Company also issued warrants to purchase
shares of Series F Redeemable Convertible Preferred Stock (Note 5).
F-10
<PAGE> 70
CYMER, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
5. REDEEMABLE CONVERTIBLE PREFERRED STOCK
The Redeemable Convertible Preferred Stock ("Preferred Stock") will
automatically convert to the Company's common stock upon completion of the
Company's planned initial public offering and is summarized as follows (in
thousands, except per share data):
<TABLE>
<CAPTION>
SHARES ISSUED AND OUTSTANDING AT REDEMPTION/
-------------------------------- LIQUIDATION
PREFERENCE AT
DECEMBER 31, JUNE 30, 1996
SHARES --------------------- JUNE 30, -------------------
SERIES AUTHORIZED 1993 1994 1995 1996 PER SHARE TOTAL*
------------------------------ ---------- ----- ----- ----- -------- --------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
Series A...................... 2,269 2,264 2,269 2,269 2,269 $1.60 $ 6,002
Series B...................... 1,310 1,296 1,310 1,310 1,310 $3.40 6,952
Series C...................... 200 200 200 200 200 $7.00 4,934
Series D...................... 486 470 470 470 470 $8.50 2,615
Series E...................... 1,670 76 76 76 $5.00 449
Series F...................... 3,000 2,171 2,284 $3.50 8,711
Series G...................... 900 900 $6.00 5,571
----- ----- ----- ----- ----- -------
Total............... 9,835 4,230 4,325 6,496 7,509 $35,234
===== ===== ===== ===== ===== =======
</TABLE>
- ---------------
* Includes accretion of 8% cumulative from issuance, less previously paid
dividends.
Conversion -- The Preferred Stock is convertible by the holder at any time
into common stock and is automatically convertible into common stock in the
event of a firm commitment public offering of the Company's common stock with
gross proceeds of at least $10 million and a price of at least $6 per share of
common stock. The conversion of the Preferred Stock to common stock is generally
on a 1 for 1 basis, subject to adjustments for stock splits, stock dividends and
other items, except for the Series E Preferred Stock that is converted on an
approximate 1 for 1.5 basis. Upon the conversion of the Preferred Stock, the
dividends and other rights discussed below cease.
Dividends -- The holders of Preferred Stock are entitled to receive
dividends in preference to common stock at the rate of 8% per annum when, if and
as declared by the Company's Board of Directors. If the Board of Directors shall
elect to pay additional dividends, such dividends shall be distributed to the
holders of common stock and Preferred Stock as if the Preferred Stock had been
converted to Common Stock prior to the payment of the additional dividends.
Dividends on the Preferred Stock are not cumulative. Upon liquidation,
dissolution, merger or sale of substantially all of the assets of the
corporation, the holders of the Preferred Stock shall be entitled to receive in
preference to the holders of common stock the per share liquidation preference
indicated in the table above, plus 8% per annum of the liquidation value from
date of original issue less any dividends paid.
Voting Rights -- The holders of Preferred Stock are entitled to notice of
any shareholders meeting in accordance with the bylaws of the Company. The
holders of shares of Series A Preferred Stock, voting separately as a class,
shall elect two members of the Board of Directors and the holders of shares of
Series B Preferred Stock, voting separately as a class, shall elect one member
of the Board of Directors. Any additional directors shall be elected by the
holders of Preferred Stock and common stock voting together as a single class.
Registration Rights -- The holders of outstanding shares of Preferred Stock
and warrants to purchase Preferred Stock (the "Holders") are entitled to certain
rights with respect to the registration of the common stock issuable upon
conversion of their shares of Preferred Stock ("Conversion Stock") under the
Securities Act.
F-11
<PAGE> 71
CYMER, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Redemption Rights -- Certain redemption and sinking fund provisions are
applicable to the Preferred Stock. On each of March 15, 1997, March 15, 1998 and
March 15, 1999, the Company is required to offer to redeem one-third of the
outstanding shares of each series of Preferred Stock which are outstanding as of
March 15, 1997 for an amount equal to the redemption preference indicated in the
table above, plus 8% per annum of such amount from the date of the first
issuance of each such series less any dividends actually paid on such shares to
the date of redemption. The Company is required to deposit a sum equal to the
aggregate redemption price due on a redemption date, as set forth above, with a
bank or trust company on or prior to each redemption date. The Company has the
right to redeem all or any portion of any series of its Preferred Stock provided
that it shall have received the prior written consent of holders of at least
two-thirds of the outstanding shares of each series of Preferred Stock, with
each series voting separately as a class.
Preferred Stock Warrants -- At June 30, 1996, the Company had warrants
outstanding to purchase 21,514, 130,951, and 305,590 shares of Series E, Series
F and Series F Preferred Stock, respectively, at a price of $4.00, $3.40 and
$3.50 per share, respectively, expiring in 1999. In lieu of exercise, certain
warrants may be surrendered for stock based upon a formula. The number and
exercise price of the warrants is subject to adjustment as defined in the
warrants. The $3.40 Series F warrants must be exercised prior to an initial
public offering of the Company's stock. The other warrants convert to common
stock warrants upon such an offering.
6. STOCKHOLDERS' EQUITY (DEFICIT)
Common Stock -- Holders of common stock are entitled to one vote. They are
subject to prior rights of the preferred stockholders (Note 5).
Common Stock Warrants -- At June 30, 1996, the Company had warrants
outstanding to purchase 39,997 shares of its common stock at a price of $3.40
per share. The warrants expire in 2000 and 2001.
Stock Option Plan -- The Company's 1987 Stock Plan, as amended through June
1995, (the Plan) provides that incentive and nonstatutory options to purchase up
to 1,500,000 shares of common stock may be granted to employees and consultants
at prices that are not less than 100% (85% for nonstatutory options) of fair
market value on the date the options are granted. The Plan also provides for
various restrictions regarding option terms, prices, transferability and other
matters. Options issued under the Plan expire five to ten years after the
options are granted and generally become exercisable ratably over a four-year
period following the date of grant. Stock option transactions are summarized as
follows (in thousands, except per share data):
<TABLE>
<CAPTION>
NUMBER OF
SHARES PRICE PER SHARE
--------- ---------------
<S> <C> <C>
Outstanding, January 1, 1993............................... 490 $ 0.50 - $0.85
Granted.................................................. 64 $ 0.85 - $1.00
Exercised................................................ (6) $ 0.50 - $0.85
Terminated............................................... (56) $ 0.50 - $0.85
---------
Outstanding, December 31, 1993............................. 492 $ 0.50 - $1.00
Granted.................................................. 67 $ 0.50
Exercised................................................ (28) $ 0.50 - $1.00
Terminated............................................... (107) $ 0.50 - $0.85
---------
Outstanding, December 31, 1994............................. 424 $ 0.50 - $1.00
Granted.................................................. 979 $ 0.50 - $3.00
Exercised................................................ (59) $ 0.50 - $1.00
Terminated............................................... (383) $ 0.50 - $0.85
---------
</TABLE>
F-12
<PAGE> 72
CYMER, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
<CAPTION>
NUMBER OF
SHARES PRICE PER SHARE
--------- ---------------
<S> <C> <C>
Outstanding, December 31, 1995............................. 961 $ 0.50 - $3.00
Granted.................................................. 305 $ 4.00 - $6.00
Exercised................................................ (43) $ 0.50 - $1.00
Terminated............................................... (31) $ 0.50 - $5.00
---------
Outstanding, June 30, 1996................................. 1,192 $ 0.50 - $6.00
========
Exercisable, June 30, 1996................................. 198 $ 0.50 - $5.00
========
</TABLE>
The Company applies Accounting Principles Board Opinion No. 25, "Accounting
for Stock Issued to Employees", and related interpretations in accounting for
its plan. Accordingly, no compensation expense has been recognized for its
stock-based compensation plan. Had compensation cost been determined based upon
the fair value at the grant date for awards under the plan consistent with the
methodology prescribed under Statement of Financial Accounting Standards No.
123, "Accounting for Stock-Based Compensation", the Company's net income and
earnings per share for the six month period ended June 30, 1996 would have been
reduced by approximately $ , or $ per share. The fair value of
the options granted during 1996 is estimated as $ on the date of grant
using the Black-Scholes option-pricing model with the following assumptions:
dividend yield , volatility of , risk-free interest rate of
, assumed forfeiture rate of %, and an expected life of years.
The following table summarizes information as of June 30, 1996 concerning
currently outstanding and exercisable options:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
-------------------------------------------------------- ------------------------------------
WEIGHTED AVERAGE NUMBER
RANGE OF REMAINING WEIGHTED AVERAGE EXERCISABLE WEIGHTED AVERAGE
EXERCISE PRICES CONTRACTUAL LIFE EXERCISE PRICE --------------- EXERCISE PRICE
- --------------- ---------------- ---------------- (IN THOUSANDS) ----------------
NUMBER (YEARS)
OUTSTANDING
--------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
$ 0.25 - $1.00 774 3.65 $ 0.60 197 $ 0.60
$ 1.00 - $3.00 114 4.19 $ 1.55 0 $ 0.00
$ 3.00 - $6.00 304 4.66 $ 5.06 1 $ 5.00
------ ---
1,192 198
=========== ===========
</TABLE>
Common Shares Reserved -- As of June 30, 1996, the Company had reserved the
following number of shares of common stock for issuance:
<TABLE>
<CAPTION>
JUNE 30, 1996
--------------
(IN THOUSANDS)
<S> <C>
Conversion of outstanding preferred stock to common stock.............. 7,563
Issuance under stock plan.............................................. 33
Exercise of common stock purchase warrants............................. 40
Exercise of preferred stock purchase warrants.......................... 458
------
Total.................................................................. 8,094
===========
</TABLE>
Pro Forma Stockholders' Equity -- See the second paragraph of Note 1.
F-13
<PAGE> 73
CYMER, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
7. INCOME TAXES
The Company adopted Statement of Financial Accounting Standards (SFAS) No.
109, "Accounting for Income Taxes," effective January 1, 1993. This Statement
supersedes Accounting Principles Board Opinion No. 11, which had been in use by
the Company. There was no cumulative effect of adopting SFAS No. 109.
Income taxes in the statement of operations for each of the three years in
the period ended December 31, 1995 primarily represent taxes paid in Japan for
research and development revenues generated from agreements with Japanese
companies (Note 9).
The components of the provision for income taxes are summarized as follows
for the six month period ended June 30, 1996 (in thousands):
<TABLE>
<S> <C>
Current income taxes:
Federal.................................................................... $ 183
Foreign.................................................................... 3
-----
Total.............................................................. 186
-----
Deferred income taxes:
Federal.................................................................... 288
State...................................................................... 211
Foreign.................................................................... (38)
-----
Total.............................................................. 461
-----
Reduction in valuation allowance............................................. (461)
-----
Provision for income taxes................................................... $ 186
=====
</TABLE>
The provision for income taxes is different from that which would be
obtained by applying the statutory Federal income tax rate (34%) to income
before provision for income taxes. The items causing this difference for the six
month period ended June 30, 1996 are as follows:
<TABLE>
<S> <C>
Provision at statutory rate................................................ 34.0%
Foreign provision in excess of Federal statutory rate...................... 3.7
State income taxes, net of Federal benefit................................. 4.8
Reduction in valuation allowance........................................... (26.5)
-----
Provision at effective rate................................................ 16.0%
=====
</TABLE>
F-14
<PAGE> 74
CYMER, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. Significant components of
the Company's net deferred tax assets are as follows:
<TABLE>
<CAPTION>
DECEMBER 31, JUNE
------------------- 30,
1994 1995 1996
------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C>
Net operating loss carryforwards...................... $ 3,608 $ 3,195 $ 2,279
Tax credit carryforwards.............................. 1,241 1,829 1,570
Capitalized research and development costs............ 298 359 307
Reserves and accruals not currently deductible........ 254 339 170
Differences between book and tax basis of inventory
and
fixed assets........................................ 242 450 1,294
Unearned revenues..................................... 199 307 308
Deferred rent......................................... 141 159 177
State taxes........................................... (351) (427) (355)
------- ------- -------
Net deferred tax assets............................... 5,632 6,211 5,750
Valuation allowance for net deferred tax assets....... (5,632) (6,211) (5,750)
------- ------- -------
Total....................................... $ 0 $ 0 $ 0
======= ======= =======
</TABLE>
The Company has provided a valuation allowance equal to the net deferred
tax assets recorded due to uncertainties as to their ultimate realization.
The Company's net operating loss and credit carryforwards expire at various
dates through 2010. The Tax Reform Act of 1986 and the California Conformity Act
of 1987 impose substantial restrictions on the utilization of net operating
losses in the event of an "ownership change" as defined by Section 382 of the
Internal Revenue Code of 1986. There may have been, and there may be in the
future, ownership changes, such as the issuance of the Company's preferred and
common stock, which may significantly limit the Company's ability to immediately
utilize the stated net operating loss carryforwards.
8. COMMITMENTS AND CONTINGENCIES
Leases -- The Company leases its primary facilities under non-cancelable
operating leases. The lease term is through January 1, 2010. The leases also
provide for certain rent abatements and minimum annual increases. The Company
also leases certain other facilities and equipment under capital and short-term
operating lease agreements. The capital leases expire on various dates through
2000.
Rent expense under operating leases, including common area maintenance
charges, is recognized on a straight-line basis over the life of the related
leases and totaled approximately $530,000, $555,000, and $736,000 for the years
ended December 31, 1993, 1994 and 1995, respectively, and $301,000 and $487,000
for the six months ended June 30, 1995 and 1996, respectively.
The net book value of assets under capital leases at December 31, 1995 and
June 30, 1996 was approximately $85,000 and $613,000 net of accumulated
amortization of approximately $16,000 and $61,000, respectively.
F-15
<PAGE> 75
CYMER, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Total future minimum lease commitments under operating leases, including
common area maintenance charges, and capital leases, are as follows (in
thousands):
<TABLE>
<CAPTION>
YEAR ENDING DECEMBER 31, OPERATING CAPITAL
------------------------------------------ --------- -------
<S> <C> <C>
1996 (six months)......................... $ 368 $ 128
1997...................................... 748 183
1998...................................... 755 152
1999...................................... 777 148
2000...................................... 793 93
Thereafter................................ 8,099
-------
Total................................... $11,540 $ 704
=======
Less amount representing interest......... 132
Present value of minimum lease payments... 572
Less current portion...................... 185
Long-term obligations under capital
leases.................................. $ 387
</TABLE>
Patent License Agreement -- The Company has a patent license agreement for
a non-exclusive worldwide license to certain patented laser technology. Under
the terms of the agreement, the Company is required to pay royalties as a
percentage of gross sales and leases as defined depending on the total amounts
attained. Royalty fees totaled $13,000, $30,000 and $64,000 for the years ended
December 31, 1993, 1994 and 1995, respectively, and $63,630 and $66,150 for the
six months ended June 30, 1995 and 1996, respectively.
Employee Savings Plan -- The Company has a 401(k) plan that allows
participating employees to contribute 1% to 20% of their salary, subject to
annual limits. The Company is not required to make contributions and through
June 30, 1996, no contributions have been made.
Contingency -- The Company has been notified of an alleged infringement of
a patent in their manufacture and sale of laser systems. The Company has
reviewed the matter and concluded there is no basis for the allegation. The
Company has received proposed licensing terms and is considering the proposal.
9. RELATED PARTY TRANSACTIONS
COLLABORATIVE ARRANGEMENT -- The Company has a collaborative arrangement
with a Japanese company that is also a stockholder of the Company. Pursuant to
such arrangement entered into in August 1992, the stockholder and the Company
entered into a (i) stock purchase agreement, (ii) research and development
agreement, (iii) product license agreement, and (iv) contract manufacturing
agreement. The general provisions of these agreements are as follows:
Stock Purchase Agreement -- The stockholder purchased 235,295 shares of the
Company's Series D Redeemable Convertible Preferred Stock at $8.50 per share and
net proceeds to the Company of $1,909,000.
Research and Development Agreement -- The stockholder will reimburse the
Company 50% of the Company's total research and development expenses under
annual sub-agreements, as defined, to a maximum of $500,000 per year.
Reimbursements of $375,000, $375,000 and $250,000 were received under the
Agreement for the years ended December 31, 1993, 1994 and 1995, respectively. Of
the total received, $195,000, $47,000 and $0 was recorded as deferred revenue at
December 31, 1993, 1994 and 1995, respectively. This agreement expired in June
1995.
Product License Agreement -- The Company granted to the stockholder the
exclusive right in Japan and the non-exclusive right outside Japan to
manufacture and sell one of the Company's products and subsequent enhancements
thereto. The Company also granted the stockholder the right of first refusal to
license and fund
F-16
<PAGE> 76
CYMER, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
the development of new technologies not developed with funding from other
parties. In exchange for these rights, the Company received up-front license
fees of $2,000,000 in 1993. The Company is also entitled to royalties of 5% on
related product sales through September 1999, after which the royalty rate is
subject to renegotiation. The license agreement also provides that product sales
between the Company and the stockholder will be at a 15% discount from the
respective companies' list price. The agreement terminates in August 2012.
Contract Manufacturing Agreement -- The stockholder has agreed to
manufacture for the Company another of its products. The Company will be
required to purchase a specified percentage of its total annual product, as
defined. The agreement expires in August 2001, and will automatically renew for
two-year terms unless one year's notice is given by either party. No purchases
were made under the agreement during 1993, 1994, 1995 and 1996.
DESIGN AND DEVELOPMENT AGREEMENTS -- During 1995, the Company entered into
design and development agreements with certain of its major customers who are
also stockholders. Such agreements generally provide, among other things,
discounts to these customers on future sales of the related lasers. Revenues
from such agreements in 1996 are a not material component of revenues.
SERVICE AGREEMENT -- The Company has a service agreement with a Japanese
company who is also a preferred stockholder of the Company. The general
provisions of the service agreement are as follows:
Sales and Marketing -- The Japanese company is to assist the Company in
establishing sales, marketing, manufacturing, and maintenance capabilities in
exchange for consideration equal to a percentage of net sales of certain
products in Japan. The agreement initially expired in March 1996 and
automatically extends until the total consideration paid under the agreement
aggregates $2,000,000. Under certain conditions, if the agreement is terminated,
the Company may be required to pay liquidated damages equal to $2,000,000 less
the aggregate of previous consideration plus other eligible consideration paid
to the Japanese company as defined in the agreement. Consideration expensed
under the agreement for the years ended December 31, 1993, 1994 and 1995,
totaled $52,000, $67,000 and $211,000, respectively, and $53,000 and $350,000,
for the six months ended June 30, 1995 and 1996, respectively.
Business Strategy -- In addition, the Japanese company has agreed to assist
the Company in establishing a business strategy for the Japanese market,
evaluating third party contractors, preparing and negotiating the terms and
conditions of a license proposal with third party contractors, and finding new
investors. In exchange for such assistance, the Company agreed to pay the
Japanese company a percentage of any: (i) up-front license fees, (ii) royalties
received on certain sales, and (iii) funding received from new investors.
Payments made under the agreement for the year ended December 31, 1993 totaled
$100,000.
Royalties -- The Company has also agreed to pay the Japanese company
additional royalties on net sales of certain products manufactured by the third
party contractor as well as a fee for each laser chamber refurbished by the
third party contractor. Such royalties are applicable only for the period
subsequent to the expiration of the original agreement.
10. ACCOUNTING CHANGE
In 1994, the Company changed its method of accounting for the accretion of
the 8% per annum redemption on the redeemable convertible preferred stock (Note
5). The impact of that change was to increase the balance of redeemable
convertible preferred stock by $5,897,000 with a respective increase in the
accumulated deficit in stockholders' deficit as of December 31, 1994.
F-17
<PAGE> 77
CYMER, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
11. GEOGRAPHIC INFORMATION
Sales and operating income (loss), and identifiable assets, classified by
geographic area, were as follows :
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
------------------------------- -------------------
1993 1994 1995 1995 1996
------- ------- ------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Sales:
United States.......................... $ 4,114 $ 6,661 $11,303 $ 4,693 $ 9,431
Asia................................... 1,585 2,260 7,517 2,586 9,751
------- ------- ------- ------- -------
Total.......................... $ 5,699 $ 8,921 $18,820 $ 7,279 $19,182
======= ======= ======= ======= =======
Income (loss) from operations:
United States.......................... $(2,838) $(2,312) $(3,425) $(1,465) $(4,064)
Asia................................... 142 524 3,275 1,068 4,940
------- ------- ------- ------- -------
Total.......................... $(2,696) $(1,788) $ (150) $ (397) $ 876
======= ======= ======= ======= =======
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
------------------------------- -------------------
1993 1994 1995 1995 1996
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Identifiable assets:
United States.......................... $ 3,706 $ 6,414 $10,876 $ 7,956 $24,875
Asia................................... 2,100 2,758 4,743 2,996 6,501
------ ------ ------- ------- -------
Total.......................... $ 5,806 $ 9,172 $15,619 $10,952 $31,376
====== ====== ======= ======= =======
</TABLE>
12. SUBSEQUENT EVENTS
Sale of Preferred Stock -- During January and February of 1996, the Company
completed a financing which included the sale of 900,000 shares of Series G
Redeemable Convertible Preferred Stock for net proceeds of $5,342,000. The pro
forma effect on the December 31, 1995 consolidated balance sheet was to increase
Redeemable Convertible Preferred Stock outstanding to 7,396,000 shares and the
following:
<TABLE>
<CAPTION>
DECEMBER 31, 1995
-----------------------------------
PRO FORMA
AS
CONSOLIDATED BALANCE SHEET DATA ACTUAL PRO FORMA ADJUSTED
---------------------------------------------------- ------- --------- ---------
(IN THOUSANDS)
<S> <C> <C> <C>
Working capital..................................... $ 3,845 $ 5,342 $ 9,187
Total assets........................................ $15,619 $ 5,342 $20,961
Redeemable convertible preferred stock.............. $28,409 $ 5,342 $33,751
</TABLE>
Recapitalization -- The Company's Board of Directors approved a
recapitalization which is anticipated to become effective prior to the closing
of the Company's planned initial public offering. See the second paragraph in
Note 1. In addition, the Company obtained consents to convert automatically all
outstanding shares of redeemable convertible preferred stock upon the
satisfaction of certain conditions, including the closing of a firm commitment
public offering of the Company's common stock at a minimum offering price of $6
per share of common stock with net proceeds to the Company of not less than
$10,000,000.
Employee Stock Plans -- Subsequent to June 30, 1996, the Company's Board of
Directors adopted the 1996 Stock Plan to succeed the 1987 Stock Plan and adopted
the 1996 Employee Stock Purchase Plan and the
F-18
<PAGE> 78
CYMER, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
1996 Director Option Plan. These plans are subject to stockholder approval. The
Company has reserved 1,500,000, 250,000, and 100,000 shares of common stock for
issuance under the respective plans.
* * * * * *
F-19
<PAGE> 79
APPENDIX -- (DESCRIPTION OF GRAPHICS)
GATEFOLD FOLLOWING INSIDE FRONT COVER
[Graphic: The graphic depicts in the top panel certain subassemblies of the
Company's photolithography laser.]
GRAPHIC CAPTION: TOP PANEL:
A. State of the art solid state pulse power utilizes advanced proprietary
switching technology to significantly extend the lifetime of the module,
reducing cost of ownership.
B. The system gas flow has been engineered for high pulse repetition rate and
high power.
C. The gas life of the laser discharge chamber has been extended to 100 million
pulses and the time between servicing of the chamber window has been
extended to 1 billion pulses, reducing maintenance costs.
[Graphic: The graphic depicts in the bottom panel an exterior view of the
Company's photolithography laser connected to a photolithography tool.]
GRAPHIC CAPTION: BOTTOM PANEL, LEFT SIDE OF PAGE:
Excimer Laser Illumination Sources for Use in Deep Ultraviolet Photolithography
Systems for the Manufacture of Advanced Semiconductor Systems.
GRAPHIC CAPTION: BOTTOM PANEL, RIGHT SIDE OF PAGE:
- -- The 5000 Series combines high pulse repetition rate, high power and stability
for higher throughput and improved process yields.
- -- Cymer has successfully combined gas chamber, power source and wavelength
compression technology to provide reliable production-caliber manufacturing
equipment for the semiconductor industry.
PAGE 26
[Graphic: This graph illustrates the reduction in critical feature sizes in
DRAMs over time. The vertical axis depicts microns (from 0.0 microns to 1.2
microns); the horizontal axis depicts time (from 1986 to 2001). A downward
sloping curve connects six points in the graph, each of which depicts the
critical feature sizes of DRAM devices at three year intervals.]
[Grahpic caption: Reduction in critical feature size over time.]
PAGE 27
[Graphic: The graph on page 26 is reproduced here, with three added horizontal
lines representing the adoption of new illumination technologies with decreases
in critical feature sizes. The first line, at 0.436 microns on the vertical
axis, runs from 1986 to approximately 1990, and is labeled "g-line (436 nm)."
The second line, at 0.365 microns on the vertical axis, runs from approximately
1988 to approximately 1995, and is labeled "i-line (365 nm)." The third line, at
0.248 microns on the vertical axis, runs from approximately 1994 to 2001.]
GRAPHIC CAPTION: DRAM CRITICAL FEATURE SIZE AND LIGHT SOURCE TECHNOLOGY.
PAGE 33
[Graphic: This diagram depicts one of the Company's photolithography lasers,
with arrows labelling certain subassemblies.]
<PAGE> 80
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the costs and expenses, other than
underwriting discounts and commissions, payable by the Company in connection
with the sale of Common Stock being registered. All amounts are estimates except
the registration fee and the NASD filing fee.
<TABLE>
<CAPTION>
AMOUNT
TO BE
PAID
-------
<S> <C>
Registration Fee........................................................... $11,897
NASD Filing Fee............................................................ 4,350
Nasdaq National Market Listing fee.........................................
Printing...................................................................
Legal Fees and Expenses....................................................
Accounting Fees and Expenses...............................................
Blue Sky Fees and Expenses.................................................
Transfer Agent Fees........................................................
Director and Officer Insurance.............................................
Miscellaneous..............................................................
Total............................................................
-------
$
=======
</TABLE>
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 78.751 of the Nevada General Corporation Law authorizes a court to
award, or a corporation's Board of Directors to grant, indemnity to directors
and officers in terms sufficiently broad to permit such indemnification under
certain circumstances for liabilities (including reimbursement for expenses
incurred) arising under the Securities Act of 1933, as amended (the "Securities
Act"). The Registrant's Bylaws provide that the Registrant shall indemnify its
directors and officers to the fullest extent permitted by Nevada law, including
circumstances in which indemnification is otherwise discretionary under Nevada
law. The Registrant has entered into indemnification agreements with its
directors and officers containing provisions which are in some respects broader
than the specific indemnification provisions contained in the Nevada General
Corporation Law. The indemnification agreements may require the Registrant,
among other things, to indemnify its directors and officers against certain
liabilities that may arise by reason of their status or service as directors or
officers (other than liabilities arising from willful misconduct of a culpable
nature), to advance their expenses incurred as a result of any proceeding
against them as to which they could be indemnified, and to obtain directors' and
officers' insurance if available on reasonable terms. Article [ ] of the
Registrant's Restated Articles of Incorporation (Exhibit [ ] hereto)
provides for indemnification of its directors and officers to the maximum extent
permitted by the Nevada General Corporation Law and Section [ ] of the
Registrant's Amended and Restated Bylaws (Exhibit [ ] hereto) provides for
indemnification of its directors, officers, employees and other agents to the
maximum extent permitted by the Nevada General Corporation Law. Reference is
also made to Section [ ] of the Underwriting Agreement contained in Exhibit
[ ] hereto, which contains provisions with respect to the indemnification of
the officers and directors of the Registrant against certain liabilities.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
(1) In October 1993, the Company issued and sold 8% promissory notes in
the aggregate principal amount of $474,010 and warrants for the purchase of
13,941 shares of Series E or F Preferred Stock at an exercise price of $3.40 per
share to two venture funds, one corporation and one individual. Each of the
II-1
<PAGE> 81
investors was an existing security holder of the Company, with the exception of
the individual, who was an accredited investor.
(2) In February 1994, the Company sold 75,600 shares of its Series E
Preferred Stock, $.01 par value, to two Japanese companies, each of which was an
existing security holder and customer of the Company, for aggregate
consideration of $378,000.
(3) In June 1994, the Company exchanged the 8% promissory notes and
warrants described in note (1) above into a subsequent bridge loan financing
whereby the Company issued and sold convertible promissory notes in the
aggregate principal amount of $1,625,010 and warrants for the purchase of
252,914 shares of the Company's Series E or F Preferred Stock at an exercise
price of $3.40 per share to five venture funds, four individuals and one
corporation. All of the investors were existing security holders of the Company,
with the exception of three of the individuals, who were each accredited
investors.
(4) In November and December 1994, the Company sold additional convertible
promissory notes in the aggregate principal amount of $1,999,052 and warrants
for the purchase of 146,989 shares of the Company's Series E or F Preferred
Stock at an exercise price of $3.40 per share to four venture funds and one
domestic and one foreign corporation, all of which were existing security
holders of the Company.
(5) In February 1995, the Company exchanged a warrant for the purchase of
15,000 shares of Series D Preferred Stock at an exercise price of $8.50 per
share, which had been issued in May 1992 to a financial institution in
connection with a loan and security agreement, for warrants for the purchase of
16,000 shares of Series E Preferred Stock at an exercise price of $4.00 per
share.
(6) In February and March 1995, the Company issued and sold a total of
1,900,000 shares of its Series F Preferred Stock for aggregate consideration of
$6,650,000, of which $2,895,092 was in cash and $3,754,908 was the principal and
interest from the conversion of the promissory notes described in (3) and (4)
above, to eight venture funds, two foreign corporations, one domestic
corporation, forty-five individuals, four trusts and one investment club. Of
these investors, twelve were existing security holders of the Company and the
remainder were all accredited investors. In connection with this financing, the
Company issued to Weeden & Co., L.P., an existing security holder of the
Company, as Placement Agent, in lieu of a cash commission, five-year warrants to
purchase 443,624 shares of Series F Preferred Stock at a per share exercise
price of $3.50.
(7) In December 1995, the Company issued warrants for the purchase of
27,005 shares of Common Stock, at an exercise price of $3.40 per share, to one
venture fund, one foreign corporation and three individuals, all existing
security holders of the Company which had concurrently exercised warrants for
the purchase of 270,074 shares of Series F Preferred Stock at an exercise price
of $3.40 per share.
(8) In January and February 1996, the Company issued and sold a total of
900,000 shares of its Series G Preferred Stock to three of its customers two of
which were existing security holders of the Company and one of which was an
accredited investor for an aggregate consideration of $5,400,000.
(9) In May and June 1996, the Company issued warrants for the purchase of
12,992 shares of Common Stock, at an exercise price of $3.40 per share, to three
individuals affiliated with the Placement Agent who had concurrently exercised
warrants for the purchase of 129,926 shares of Series F Preferred Stock at an
exercise price of $3.50 per share.
(10) Since June 1993, the Company has issued and sold shares of Common
Stock to employees at prices ranging from $.50 to $1.00, upon exercise of stock
options pursuant to the Company's 1987 Stock Plan.
The sales of the above securities were deemed to be exempt from
registration under the Securities Act in reliance on Section 4(2) of the
Securities Act, or Regulation D promulgated thereunder, or Rule 701 promulgated
under Section 3(b) of the Securities Act as transactions by an issuer not
involving a public offering or transactions pursuant to the compensatory benefit
plans and contracts relating to compensation as provided under such Rule 701.
The recipients of securities in each such transaction represented their
intention to acquire the securities for investment only and not with a view to
or for sale in connection with any
II-2
<PAGE> 82
distribution thereof and appropriate legends were attached to the share
certificates issued in such transactions. All recipients had adequate access to
information about the Registrant.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(A) EXHIBITS
<TABLE>
<C> <S>
1.1 Form of Underwriting Agreement
3.1 Articles of Incorporation of Registrant
*3.2 Bylaws of Registrant
4.1 Form of Lock-Up Agreement
*5.1 Opinion of Wilson, Sonsini, Goodrich & Rosati, P.C.
*10.1 Form of Indemnification Agreement with Directors and Officers
10.2 1987 Stock Option Plan
10.3 1996 Stock Option Plan
10.4 1996 Employee Stock Purchase Plan
10.5 1996 Director Option Plan
*10.6 Series A Preferred Stock Purchase Agreement
*10.7 Series B Preferred Stock Purchase Agreement
*10.8 Series C Preferred Stock Purchase Agreement
*10.9 Series D Preferred Stock Purchase Agreement
*10.10 Series E Preferred Stock Purchase Agreement
*10.11 Series F Preferred Stock Purchase Agreement
*10.12 Series G Preferred Stock Purchase Agreement
*10.13 Patent License Agreement, by and between the Company and Patlex Corporation
*10.14 Loan Agreement, by and between Mitsubishi International Corporation and the Company
*10.15 Standard Industrial Lease -- Multi-Tenant, by and between Frankris Corporation and
the Company
*10.16 Contract Manufacturing Agreement -- Lithography Laser, by and between the Company
and Seiko Instruments Inc.
*10.17 Product License and Manufacturing Agreement -- High Power Laser, by and between the
Company and Seiko Instruments Inc.
*10.18 Amendments to Loan Agreement between Silicon Valley Bank and Cymer Laser
Technologies
*10.19 Agreement between the Company and EO Technics Co., Ltd.
*10.20 Master Lease Agreement between Tokai Financial Services and the Company
21.1 Subsidiaries of the Registrant
23.1 Form of Independent Auditors' Consent
*23.2 Consent of Counsel (included in Exhibit 5.1)
23.3 Consent of Townsend and Townsend and Crew
24.1 Power of Attorney (see page II-5)
</TABLE>
- ---------------
* To be supplied by amendment.
(B) FINANCIAL STATEMENT SCHEDULES
Schedules not listed above have been omitted because the information
required to be set forth therein is not applicable or is shown in the financial
statements or notes thereto.
ITEM 17. UNDERTAKINGS
The undersigned Registrant hereby undertakes to provide to the Underwriters
at the closing specified in the Underwriting Agreement, certificates in such
denominations and registered in such names as required by the Underwriters to
permit prompt delivery to each purchaser.
II-3
<PAGE> 83
Insofar as indemnification by the Registrant for liabilities arising under
the Securities Act may be permitted to directors, officers and controlling
persons of the Registrant pursuant to the provisions referenced in Item 14 of
this Registration Statement or otherwise, the Registrant has been advised that
in the opinion of the Securities and Exchange Commission such indemnification is
against public policy as expressed in the Securities Act, and is, therefore,
unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by the Registrant of expenses incurred or
paid by a director, officer, or controlling person of the Registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered hereunder, the Registrant will, unless in the opinion of its counsel
the matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question of whether such indemnification by it is
against public policy as expressed in the Securities Act and will be governed by
the final adjudication of such issue.
The undersigned registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities
Act, the information omitted from the form of Prospectus filed as part of
this Registration Statement in reliance upon Rule 430A and contained in a
form of Prospectus filed by the Registrant pursuant to Rule 424(b)(1) or
(4) or 497(h) under the Securities Act shall be deemed to be part of this
Registration Statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities
Act, each post-effective amendment that contains a form of Prospectus shall
be deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
II-4
<PAGE> 84
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant, Cymer, Inc., a corporation organized and existing under the laws of
the State of Nevada, has duly caused this Registration Statement on Form S-1 to
be signed on its behalf by the undersigned, thereunto duly authorized, in the
City of San Diego, State of California, on this day of July 1996.
CYMER, INC.
By:
------------------------------------
Robert P. Akins
President, Chief Executive Officer
and
Chairman of the Board
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature
appears below hereby constitutes and appoints, jointly and severally, Dr. Robert
P. Akins and William A. Angus, III, and each of them acting individually, as his
attorney-in-fact, each with full power of substitution, for him in any and all
capacities, to sign any and all amendments to this Registration Statement
(including post-effective amendments), and any and all Registration Statements
to be filed pursuant to Rule 462 under the Securities Act of 1933, as amended,
in connection with or related to the offering contemplated by this Registration
Statement, if any, and to file the same, with exhibits thereto and other
documents in connection therewith, with the Securities and Exchange Commission,
hereby ratifying and confirming our signatures as they may be signed by our said
attorney to any and all amendments to said Registration Statement.
Pursuant to the requirements of the Securities Act of 1933, as amended,
this Registration Statement has been signed by the following persons in the
capacities and on the dates indicated:
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------------------ ------------------------------ -------------------
<C> <S> <C>
President, Chief Executive , 1996
- ------------------------------------------ Officer and Chairman of the
Robert P. Akins Board
Senior Vice President and , 1996
- ------------------------------------------ Chief Financial Officer
William A. Angus, III
Controller, Chief Accounting , 1996
- ------------------------------------------ Officer
Nancy J. Baker
Director , 1996
- ------------------------------------------
Richard P. Abraham
Director , 1996
- ------------------------------------------
Kenneth M. Deemer
Director ,1996
- ------------------------------------------
Peter J. Simone
Director ,1996
- ------------------------------------------
F. Duwaine Townsen
</TABLE>
II-5
<PAGE> 85
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER EXHIBITS PAGE
- -------- ------------------------------------------------------------------------------
<C> <S> <C>
1.1 Form of Underwriting Agreement
3.1 Articles of Incorporation of Registrant
*3.2 Bylaws of Registrant
4.1 Form of Lock-Up Agreement
*5.1 Opinion of Wilson, Sonsini, Goodrich & Rosati, P.C.
*10.1 Form of Indemnification Agreement with Directors and Officers
10.2 1987 Stock Option Plan
10.3 1996 Stock Option Plan
10.4 1996 Employee Stock Purchase Plan
10.5 1996 Director Option Plan
*10.6 Series A Preferred Stock Purchase Agreement
*10.7 Series B Preferred Stock Purchase Agreement
*10.8 Series C Preferred Stock Purchase Agreement
*10.9 Series D Preferred Stock Purchase Agreement
*10.10 Series E Preferred Stock Purchase Agreement
*10.11 Series F Preferred Stock Purchase Agreement
*10.12 Series G Preferred Stock Purchase Agreement
*10.13 Patent License Agreement, by and between the Company and Patlex Corporation
*10.14 Loan Agreement, by and between Mitsubishi International Corporation and the
Company
*10.15 Standard Industrial Lease -- Multi-Tenant, by and between Frankris Corporation
and the Company
*10.16 Contract Manufacturing Agreement -- Lithography Laser, by and between the
Company and Seiko Instruments Inc.
*10.17 Product License and Manufacturing Agreement -- High Power Laser, by and
between the Company and Seiko Instruments Inc.
*10.18 Amendments to Loan Agreement between Silicon Valley Bank and Cymer Laser
Technologies
*10.19 Agreement between the Company and EO Technics Co., Ltd.
*10.20 Master Lease Agreement between Tokai Financial Services and the Company
21.1 Subsidiaries of the Registrant
23.1 Form of Independent Auditors' Consent
*23.2 Consent of Counsel (included in Exhibit 5.1)
23.3 Consent of Townsend and Townsend and Crew
24.1 Power of Attorney (see page II-5)
</TABLE>
- ---------------
* To be supplied by amendment.
<PAGE> 1
Exhibit 1.1
Shares
CYMER LASER TECHNOLOGIES
COMMON STOCK (NO PAR VALUE PER SHARE)
UNDERWRITING AGREEMENT
September , 1996
<PAGE> 2
September , 1996
Morgan Stanley & Co. Incorporated
Montgomery Securities
Needham & Company, Inc.
c/o Morgan Stanley & Co. Incorporated
1585 Broadway
New York, New York 10036
Ladies and Gentlemen:
Cymer Laser Technologies, a California corporation (the
"Company"), proposes to issue and sell to the several Underwriters named in
Schedule II hereto (the "Underwriters"), and certain shareholders of the Company
(the "Selling Shareholders") named in Schedule I hereto severally propose to
sell to the several Underwriters, an aggregate of shares of the
Common Stock (no par value per share) of the Company (the "Firm Shares"), of
which shares are to be issued and sold by the Company and
shares are to be sold by the Selling Shareholders, each Selling
Shareholder selling the amount set forth opposite such Selling Shareholders'
name in Schedule I hereto.
The Company also proposes to issue and sell to the several
Underwriters not more than an additional shares of its Common
Stock (no par value per share) (the "Additional Shares") if and to the extent
that you, as Managers of the offering, shall have determined to exercise, on
behalf of the Underwriters, the right to purchase such shares of common stock
granted to the Underwriters in Section 3 hereof. The Firm Shares and the
Additional Shares are hereinafter collectively referred to as the "Shares." The
shares of Common Stock (no par value per share) of the Company to be outstanding
after giving effect to the sales contemplated hereby are hereinafter referred to
as the "Common Stock." The Company and the Selling Shareholders are hereinafter
sometimes collectively referred to as the "Sellers."
The Company has filed with the Securities and Exchange
Commission (the "Commission") a registration statement, including a prospectus,
relating to the Shares. The registration statement as amended at the time it
becomes effective, including the information (if any) deemed to be part of the
registration statement at the time of effectiveness pursuant to Rule 430A under
the Securities Act of 1933, as amended (the "Securities Act"), is hereinafter
referred to as the "Registration Statement," the prospectus in the form first
used to confirm sales of Shares is hereinafter referred to as the "Prospectus."
If the Company has filed an abbreviated registration statement to register
additional shares of Common Stock pursuant to Rule 462(b) under the Securities
Act (the "Rule 462 Registration Statement"), then any reference herein to the
term "Registration Statement' shall be deemed to include such Rule 462
Registration Statement.
1. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The
Company represents and warrants to and agrees with each of the Underwriters
that:
(a) The Registration Statement has become effective; no stop
order suspending the effectiveness of the Registration Statement is in
effect, and no proceedings for such purpose are pending before or
threatened by the Commission.
(b) (i) Each part of the Registration Statement, when it
became effective, did not contain and each such part, as amended or
supplemented, if applicable, will not contain any untrue statement of a
material fact or omit to state a material fact required to be stated
therein or necessary to make the statements therein not misleading,
(ii) the Registration Statement and the Prospectus comply and, as
amended or supplemented, if applicable, will comply in all material
respects with the Securities Act and the applicable rules and
regulations of the Commission thereunder and (iii) the Prospectus does
not contain and, as amended or supplemented, if applicable, will not
contain any untrue statement of a material fact or omit to state a
material fact necessary to make the statements therein, in the light of
the circumstances under which they were made, not misleading, except
that the representations and warranties set forth in this
1
<PAGE> 3
paragraph 1(b) do not apply to statements or omissions in the
Registration Statement or the Prospectus based upon information
relating to any Underwriter furnished to the Company in writing by such
Underwriter through you expressly for use therein.
(c) The Company has been duly incorporated, is validly
existing as a corporation in good standing under the laws of the
jurisdiction of its incorporation, has the corporate power and
authority to own its property and to conduct its business as described
in the Prospectus and is duly qualified to transact business and is in
good standing in each jurisdiction in which the conduct of its business
or its ownership or leasing of property requires such qualification,
except to the extent that the failure to be so qualified or be in good
standing would not have a material adverse effect on the Company and
its subsidiaries, taken as a whole.
(d) Each subsidiary of the Company has been duly
incorporated, is validly existing as a corporation in good standing
under the laws of the jurisdiction of its incorporation, has the
corporate power and authority to own its property and to conduct its
business as described in the Prospectus and is duly qualified to
transact business and is in good standing in each jurisdiction in which
the conduct of its business or its ownership or leasing of property
requires such qualification, except to the extent that the failure to
be so qualified or be in good standing would not have a material
adverse effect on the Company and its subsidiaries, taken as a whole.
All of the issued shares of capital stock of each subsidiary of the
Company have been duly and validly authorized and issued, are fully
paid and non-assessable, and owned directly by the Company, free and
clear of all liens, encumbrances, equities or claims.
(e) Neither the Company nor any of its subsidiaries owns any
real properties. The Company and its subsidiaries have good and
marketable title to all personal property owned by them, in each case
free and clear of all liens, encumbrances and defects except such as
are described in the Prospectus or such as do not materially affect the
value of such property and do not interfere with the use made and
proposed to be made of such property by the Company and its
subsidiaries; and any real property and building held under lease by
the Company and its subsidiaries are held by them under valid,
subsisting and enforceable leases in each case except as described in
or contemplated by the Prospectus.
(f) This Agreement has been duly authorized, executed and
delivered by the Company.
(g) The authorized capital stock of the Company conforms as
to legal matters to the description thereof contained in the
Prospectus.
(h) The shares of Common Stock (including the Shares to be
sold by the Selling Shareholders) outstanding prior to the issuance of
the Shares to be sold by the Company have been duly authorized and are
validly issued, fully paid and non-assessable. Except as set forth in
the Prospectus and other than options granted to employees after June
30, 1996 pursuant to the Company's 1987 Stock Plan (the "1987 Plan") as
described in the Prospectus, neither the Company nor any subsidiary has
outstanding any options to purchase, or any preemptive rights or other
rights to subscribe for or to purchase, any securities or obligations
convertible into, or any contracts or commitments to issue or sell,
shares of its capital stock or any such options, rights, convertible
securities or obligations. All outstanding shares of capital stock and
options and other rights to acquire capital stock have been issued in
compliance with the registration and qualification provisions of all
applicable securities laws and were not issued in violation of any
preemptive rights, rights of first refusal and other similar rights.
(i) The Shares to be sold by the Company and the Selling
Shareholders have been duly authorized, and the Shares to be sold by
the Selling Shareholders are, and the Shares to be sold by the Company,
when issued and delivered in accordance with the terms of this
Agreement, will be validly issued, fully paid and non-assessable, and
the issuance of such Shares will not be subject to any preemptive or
similar rights.
2
<PAGE> 4
(j) The execution and delivery by the Company of, and the
performance by the Company of its obligations under, this Agreement
will not contravene any provision of applicable law or the certificate
of incorporation or by-laws of the Company or any agreement or other
instrument binding upon the Company or any of its subsidiaries that is
material to the Company and its subsidiaries, taken as a whole, or any
judgment, order or decree of any governmental body, agency or court
having jurisdiction over the Company or any subsidiary, and no consent,
approval, authorization or order of, or qualification with, any
governmental body or agency is required for the performance by the
Company of its obligations under this Agreement, except such as may be
required by the securities or Blue Sky laws of the various states in
connection with the offer and sale of the Shares.
(k) There has not occurred any material adverse change, or
any development involving a prospective material adverse change, in the
condition, financial or otherwise, or in the earnings, business or
operations of the Company and its subsidiaries, taken as a whole, from
that set forth in the Prospectus.
(l) Subsequent to the respective dates as of which
information is given in the Registration Statement and the Prospectus,
(i) the Company and its subsidiaries have not incurred any material
liability or obligation, direct or contingent, nor entered into any
material transaction not in the ordinary course of business; (ii) the
Company has not purchased any of its outstanding capital stock, nor
declared, paid or otherwise made any dividend or distribution of any
kind on its capital stock other than ordinary and customary dividends;
and (iii) there has not been any material change in the capital stock,
short-term debt or long-term debt of the Company and its consolidated
subsidiaries, except in each case as described in or contemplated by
the Prospectus.
(m) There are no legal or governmental proceedings pending
or threatened to which the Company or any of its subsidiaries is a
party or to which any of the properties of the Company or any of its
subsidiaries is subject that are required to be described in the
Registration Statement or the Prospectus and are not so described or
any statutes, regulations, contracts or other documents that are
required to be described in the Registration Statement or the
Prospectus or to be filed as exhibits to the Registration Statement
that are not described or filed as required.
(n) Each preliminary prospectus filed as part of the
registration statement as originally filed or as part of any amendment
thereto, or filed pursuant to Rule 424 or Rule 462 under the Securities
Act, complied when so filed in all material respects with the
Securities Act and the applicable rules and regulations of the
Commission thereunder.
(o) The Company is not and, after giving effect to the
offering and sale of the shares and the application of the proceeds
thereof as described in the Prospectus, will not be an "investment
company" as such term is defined in the Investment Company Act of 1940,
as amended.
(p) There is no owner of any securities of the Company who
has any right, not effectively satisfied or waived, to require
registration of any shares of capital stock of the Company in
connection with the filing of the Registration Statement or the sale of
any shares thereunder.
(q) The Company and each of its subsidiaries are insured by
insurers of recognized financial responsibility against such losses and
risks and in such amounts as are prudent and customary in the
businesses in which they are engaged; neither the Company nor any such
subsidiary has been refused any insurance coverage sought or applied
for; and neither the Company nor any such subsidiary has any reason to
believe that it will not be able to renew its existing insurance
coverage as and when such coverage expires or to obtain similar
coverage from similar insurers as may be necessary to continue its
business at a cost that would not materially and adversely affect the
condition, financial or otherwise, or the earnings, business or
operations of the Company and its subsidiaries, taken as a whole,
except as described in or contemplated by the Prospectus.
3
<PAGE> 5
(r) The Company and its subsidiaries (i) are in compliance
with any and all applicable foreign, federal, state and local laws and
regulations relating to the protection of human health and safety, the
environment or hazardous or toxic substances or wastes, pollutants or
contaminants ("Environmental Laws"), (ii) have received all permits,
licenses or other approvals required of them under applicable
Environmental Laws to conduct their respective businesses and (iii) are
in compliance with all terms and conditions of any such permit, license
or approval, except where such noncompliance with Environmental Laws,
failure to receive required permits, licenses or other approvals or
failure to comply with the terms and conditions of such permits,
licenses or approvals would not, singly or in the aggregate, have a
material adverse effect on the Company and its subsidiaries, taken as a
whole.
(s) In the ordinary course of its business, the Company
conducts a periodic review of the effect of Environmental Laws on the
business, operations and properties of the Company and its
subsidiaries, in the course of which it identifies and evaluates
associated costs and liabilities (including, without limitation, any
capital or operating expenditures required for clean-up, closure of
properties or compliance with Environmental Laws or any permit, license
or approval, any related constraints on operating activities and any
potential liabilities to third parties). On the basis of such review,
the Company has reasonably concluded that such associated costs and
liabilities would not, singly or in the aggregate, have a material
adverse effect on the Company and its subsidiaries, taken as a whole.
(t) There are no contracts, agreements or understandings
between the Company and any person granting such person the right to
require the Company to file a registration statement under the
Securities Act with respect to any securities of the Company or to
require the Company to include such securities with the Shares
registered pursuant to the Registration Statement.
(u) The Company has complied with all provisions of Section
517.075, Florida Statutes relating to doing business with the
Government of Cuba or with any person or affiliate located in Cuba.
(v) The Company and each of its subsidiaries owns or
possesses adequate licenses or other rights to use all patents,
copyrights, trademarks, service marks, trade names, technology and
know-how necessary to conduct its business in the manner described in
the Prospectus and, except as disclosed in the Prospectus, neither the
Company nor any of its subsidiaries has received any notice of
infringement or conflict with asserted rights of others with respect to
any patents, copyrights, trademarks, service marks, trade names,
technology or know-how that could result in any material adverse effect
upon the Company and its subsidiaries, taken as a whole; and, except as
described in the Prospectus, the discoveries, inventions, products or
processes of the Company and its subsidiaries referred to in the
Prospectus do not, infringe or conflict with any right or patent of any
third party, or any discovery, invention, product or process that is
the subject of a patent application filed by any third party, known to
the Company or any of its subsidiaries that could have a material
adverse effect on the Company and its subsidiaries, taken as a whole.
(w) The Company and its subsidiaries possess all consents,
approvals, orders, certificates, authorizations and permits issued by,
and has made all declarations and filings with, all appropriate
federal, state or foreign governmental and self-regulatory authorities
and all courts and other tribunals necessary to conduct their
respective businesses and to own, lease, license and use their
properties in the manner described in the Prospectus and neither the
Company nor any such subsidiary has received any notice of proceedings
related to the revocation or modification of any such consent,
approval, order, certificate, authorization or permit that, singly or
in the aggregate, if the subject of any unfavorable decision, ruling or
finding, or failure to obtain or file, would result in a material
adverse change in the condition, financial or otherwise, or in the
earnings, business or operations of the Company and its subsidiaries,
taken as a whole, except as described in the Prospectus.
(x) The Company and each of its subsidiaries maintain a
system of internal accounting controls sufficient to provide reasonable
assurance that (i) transactions are executed in accordance with
management's general or specific authorizations; (ii) transactions are
recorded as necessary to permit
4
<PAGE> 6
preparation of financial statements in conformity with generally
accepted accounting principals of the United States and to maintain
asset accountability; (iii) access to assets is permitted only in
accordance with management's general or specific authorization; and
(iv) the recorded accountability for assets is compared with the
existing assets at reasonable intervals and appropriate action is taken
with respect to any differences.
(y) No material labor dispute with employees of the Company
or any of its subsidiaries exists or to the knowledge of the Company is
imminent; and the Company is not aware of any existing, threatened or
imminent labor disturbance by the employees of any of its principal
suppliers, manufacturers or contractors that could result in any
material adverse change in the condition, financial or otherwise, the
earnings, the business or operations of the Company and its
subsidiaries, taken as a whole.
(z) All outstanding shares of Common Stock, and all
securities convertible into or exerciseable or exchangeable for Common
Stock, are subject to valid, binding and enforceable agreements
(collectively, the "Lock-Up Agreements") that restrict the holders
thereof from selling, making any short sale of, granting any option for
the purchase of, or otherwise transferring or disposing of, any of such
shares of Common Stock, or any such securities convertible or
exerciseable or exchangeable for Common Stock, for a period of 180 days
after the date of the Prospectus without the prior written consent of
Morgan Stanley & Co. Incorporated.
(aa) The Company has notified each holder of a currently
outstanding option issued under the 1987 Plan and each person who has
acquired share so Common Stock pursuant to the exercise of any option
granted under the 1987 Plan, none of such options or shares may be sold
or otherwise transferred or disposed of for a period of 180 days after
the date of the initial public offering of the Shares and (ii) has
imposed a stop-transfer instruction with the Company's transfer agent
in order to enforce the foregoing lock-up provision imposed pursuant to
the 1987 Plan.
(bb) As of the date the Registration Statement became
effective, the Common Stock was authorized for quotation on the Nasdaq
National Market upon official notice of issuance.
2. REPRESENTATIONS AND WARRANTIES OF THE SELLING
SHAREHOLDER. Each of the Selling Shareholders represents and warrants to and
agrees with each of the Underwriters that:
(a) This Agreement has been duly authorized, executed and
delivered by or on behalf of such Selling Shareholder and constitutes a
valid and binding obligation upon such Selling Shareholder.
(b) The execution and delivery by such Selling Shareholder
of, and the performance by such Selling Shareholder of its obligations
under, this Agreement, the Custody Agreement signed by such Selling
Shareholder and , as Custodian, relating to the deposit
of the Shares to be sold by such Selling Shareholder (the "Custody
Agreement") and the Power of Attorney appointing certain individuals as
such Selling Shareholder's attorneys-in-fact to the extent set forth
therein, relating to the transactions contemplated hereby and by the
Registration Statement (the "Power of Attorney') will not contravene
any provision of applicable law, or the certificate of incorporation or
by-laws of such Selling Shareholder (if such Selling Shareholder is a
corporation), or any agreement or other instrument binding upon such
Selling Shareholder or any judgment, order or decree of any
governmental body, agency or court having jurisdiction over such
Selling Shareholder, and no consent, approval, authorization or order
of, or qualification with, any governmental body or agency is required
for the performance by such Selling Shareholder of its obligations
under this Agreement or the Custody Agreement or Power of Attorney of
such Selling Shareholder, except such as may be required by the
securities or Blue Sky laws of the various states in connection with
the offer and sale of the Shares.
(c) Such Selling Shareholder has, and on the Closing Date
will have, valid title to the Shares to be sold by such Selling
Shareholder and the legal right and power, and all authorization and
approval
5
<PAGE> 7
required by law, to enter into this Agreement, the Custody Agreement
and the Power of Attorney and to sell, transfer and deliver the Shares
to be sold by such Selling Shareholder.
(d) The Shares to be sold by such Selling Shareholder
pursuant to this Agreement have been duly authorized and are validly
issued, fully paid and non-assessable.
(e) The Custody Agreement and the Power of Attorney have
been duly authorized, executed and delivered by such Selling
Shareholder and are valid and binding agreements of such Selling
Shareholder.
(f) Delivery of the Shares to be sold by such Selling
Shareholder pursuant to this Agreement will pass title to such Shares
free and clear of any security interests, claims, liens, equities and
other encumbrances.
(g) All information furnished in writing by or on behalf of
such Selling Shareholder for use in the Registration Statement is, and
on the Closing Date will be, true, correct and complete, and does not,
and on the Closing Date will not, contain any untrue statement of a
material fact or omit to state any material fact necessary to make such
information not misleading, and all information furnished in writing by
or on behalf of such Selling Shareholder for use in the Prospectus is,
and on the Closing Date will be, true, correct and complete, and does
not, and on the Closing Date will not, contain any untrue statement of
a material fact or omit to state any material fact necessary to make
such information not misleading in the light of the circumstances under
which they were made.
(h) The sale of the Shares by such Selling Shareholder is
not prompted by any adverse information concerning the Company or any
of its subsidiaries that is not set forth in the Prospectus.
(i) (i) Each part of the Registration Statement, when such
part became effective, did not contain and each such part, as amended
or supplemented, if applicable, will not contain any untrue statement
of a material fact or omit to state a material fact required to be
stated therein or necessary to make the statements therein not
misleading, (ii) the Registration Statement and the Prospectus comply
and, as amended or supplemented, if applicable, will comply in all
material respects with the Securities Act and the applicable rules and
regulations of the Commission thereunder and (iii) the Prospectus does
not contain and, as amended or supplemented, if applicable, will not
contain any untrue statement of a material fact or omit to state a
material fact necessary to make the statements therein, in the light of
the circumstances under which they were made, not misleading, except
that the representations and warranties set forth in this paragraph
2(i) do not apply to statements or omissions in the Registration
Statement or the Prospectus based upon information relating to any
Underwriter furnished to the Company in writing by such Underwriter
through you expressly for use therein.
3. AGREEMENTS TO SELL AND PURCHASE. Each Seller, severally
and not jointly, hereby agrees to sell to the several Underwriters, and each
Underwriter, upon the basis of the representations and warranties herein
contained, but subject to the conditions hereinafter stated, agrees, severally
and not jointly, to purchase from such Seller at $ _ a share (the "Purchase
Price") the number of Firm Shares (subject to such adjustments to eliminate
fractional shares as you may determine) that bears the same proportion to the
number of Firm Shares to be sold by such Seller as the number of Firm Shares set
forth in Schedule II hereto opposite the name of such Underwriter bears to the
total number of Firm Shares.
On the basis of the representations and warranties contained
in this Agreement, and subject to its terms and conditions, the Company agrees
to sell to the Underwriters the Additional Shares, and the Underwriters shall
have a one-time right to purchase, severally and not jointly, up to
Additional Shares at the Purchase Price. If you, on behalf of the
Underwriters, elect to exercise such option, you shall so notify the Company in
writing not later than 30 days after the date of this Agreement, which notice
shall specify the number of Additional Shares to be purchased by the
Underwriters and the date on which such shares are to be purchased. Such date
may be the same as the Closing Date (as defined below) but not earlier than the
Closing Date nor later than ten
6
<PAGE> 8
business days after the date of such notice. Additional Shares may be purchased
as provided in Section 5 hereof solely for the purpose of covering
over-allotments made in connection with the offering of the Firm Shares. If any
Additional Shares are to be purchased, each Underwriter agrees, severally and
not jointly, to purchase the number of Additional Shares (subject to such
adjustments to eliminate fractional shares as you may determine) that bears the
same proportion to the total number of Additional Shares to be purchased as the
number of Firm Shares set forth in Schedule II hereto opposite the name of such
Underwriter bears to the total number of Firm Shares.
Each Seller hereby agrees that, without the prior written
consent of Morgan Stanley & Co. Incorporated on behalf of the Underwriters, it
will not, during the period ending 180 days after the date of the Prospectus,
(i) offer, pledge, sell, contract to sell, sell any option or contract to
purchase, purchase any option or contract to sell, grant any option, right or
warrant to purchase or otherwise transfer or dispose of, directly or indirectly,
any shares of Common Stock or any securities convertible into or exercisable or
exchangeable for Common Stock or (ii) enter into any swap or other arrangement
that transfers to another, in whole or in part, any of the economic consequences
of ownership of the Common Stock, whether any such transaction described in
clause (i) or (ii) above is to be settled by delivery of Common Stock or such
other securities, in cash or otherwise. The foregoing sentence shall not apply
to (A) the Shares to be sold hereunder or (B) the issuance by the Company of
shares of Common Stock upon the exercise of an option or warrant or the
conversion of a security outstanding on the date hereof of which the
Underwriters have been advised in writing. In addition, each Selling
Shareholder, agrees that, without the prior written consent of Morgan Stanley &
Co. Incorporated on behalf of the Underwriters, it will not, during the period
ending 180 days after the date of the Prospectus, make any demand for, or
exercise any right with respect to, the registration of any shares of Common
Stock or any security convertible into or exercisable or exchangeable for Common
Stock.
4. TERMS OF PUBLIC OFFERING. The Sellers are advised by you
that the Underwriters propose to make a public offering of their respective
portions of the Shares as soon after the Registration Statement and this
Agreement have become effective as in your judgment is advisable. The Sellers
are further advised by you that the Shares are to be offered to the public
initially at $ a share (the "Public Offering Price") and to certain
dealers selected by you at a price that represents a concession not in excess of
$ a share under the Public Offering Price, and that any Underwriter
may allow, and such dealers may reallow, a concession, not in excess of
$ a share, to any Underwriter or to certain other dealers.
5. PAYMENT AND DELIVERY. Payment for the Firm Shares to be
sold by each Seller shall be made by certified or official bank check or checks
payable to the order of such Seller in same day funds at the office of Wilson
Sonsini Goodrich & Rosati at 10:00 A.M., local time, on , 1996 or
at such other time on the same or such other date, not later than ,
1996, as shall be designated in writing by you. The time and date of such
payment are hereinafter referred to as the `"Closing Date."
Payment for any Additional Shares shall be made by certified
or official bank check or checks payable to the order of the Company in same day
funds at the office of Wilson Sonsini Goodrich & Rosati at 10:00 A.M., local
time, on the date specified in the notice described in Section 3 or on such
other date, in any event not later than , 1996 as shall be
designated in writing by you. The time and date of such payment are hereinafter
referred to as the "Option Closing Date."
Certificates for the Firm Shares and Additional Shares shall
be in definitive form and registered in such names and in such denominations as
you shall request in writing not later than one full business day prior to the
Closing Date or the Option Closing Date, as the case may be. The certificates
evidencing the Firm Shares and Additional Shares shall be delivered to you on
the Closing Date or the Option Closing Date, as the case may be, for the
respective accounts of the several Underwriters, with any transfer taxes payable
in connection with the transfer of the Shares to the Underwriters duly paid,
against payment of the Purchase Price therefor.
6. CONDITIONS TO THE UNDERWRITER' OBLIGATIONS. The
obligations of the Sellers to sell the Shares to the Underwriters and the
several obligations of the Underwriters to purchase and pay for the Shares on
the Closing Date are subject to the condition that the Registration Statement
shall have become effective not later than (New York time) on the
date hereof.
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<PAGE> 9
The several obligations of the Underwriters are subject to the
following further conditions:
(a) Subsequent to the execution and delivery of this
Agreement and prior to the Closing Date:
(i) there shall not have occurred any downgrading,
nor shall any notice have been given of any intended or
potential downgrading or of any review for a possible change
that does not indicate the direction of the possible change,
in the rating accorded any of the Company's securities by any
"nationally recognized statistical rating organization," as
such term is defined for purposes of Rule 436(g)(2) under the
Securities Act; and
(ii) there shall not have occurred any change, or any
development involving a prospective change, in the condition,
financial or otherwise, or in the earnings, business or
operations of the Company and its subsidiaries, taken as a
whole, from that set forth in the Prospectus (exclusive of any
amendments or supplements thereto subsequent to the date of
this Agreement) that, in your judgment, is material and
adverse and that makes it, in your judgment, impracticable to
market the Shares on the terms and in the manner contemplated
in the Prospectus.
(b) The Underwriters shall have received on the Closing Date
a certificate, dated the Closing Date and signed by an executive
officer of the Company, to the effect set forth in clause (a)(i) above
and to the effect that the representations and warranties of the
Company contained in this Agreement are true and correct as of the
Closing Date and that the Company has complied with all of the
agreements and satisfied all of the conditions on its part to be
performed or satisfied hereunder on or before the Closing Date.
The officer signing and delivering such certificate may rely
upon his or her knowledge as to proceedings threatened.
(c) The Underwriters shall have received on the Closing Date
an opinion of Wilson Sonsini Goodrich & Rosati, outside counsel for the
Company, dated the Closing Date, to the effect that:
(i) the Company has been duly incorporated, is
validly existing as a corporation in good standing under the
laws of the jurisdiction of its incorporation, has the
corporate power and authority to own its property and to
conduct its business as described in the Prospectus and is
duly qualified to transact business and is in good standing in
each jurisdiction in which the conduct of its business or its
ownership or leasing of property requires such qualification;
(ii) each subsidiary of the Company has been duly
incorporated, is validly existing as a corporation in good
standing under the laws of the jurisdiction of its
incorporation, has the corporate power and authority to own
its property and to conduct its business as described in the
Prospectus and is duly qualified to transact business and is
in good standing in each jurisdiction in which the conduct of
its business or its ownership or leasing of property requires
such qualification;
(iii) the authorized capital stock of the Company
conforms as to legal matters to the description thereof
contained in the Prospectus;
(iv) the shares of Common Stock (including the Shares
to be sold by the Selling Shareholders) outstanding prior to
the issuance of the Shares to be sold by the Company have been
duly authorized and are validly issued, fully paid and
non-assessable;
(v) the Shares to be sold by the Company have been
duly authorized and, when issued and delivered in accordance
with the terms of this Agreement, will be validly issued,
fully paid and non-assessable, and the issuance of such Shares
will not be subject to any preemptive or similar rights;
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<PAGE> 10
(vi) no shares of Common Stock are required pursuant
to any agreement or other right to be registered under the
Registration Statement, and no person or entity has any right
to cause Common Stock to be registered under the Registration
Statement, which rights have not been validly waived;
(vii) the Company has corporate power and authority
to enter into this Agreement and to issue, sell and deliver to
the Underwriters the Shares to be issued and sold by the
Company. This Agreement has been duly authorized, executed and
delivered by the Company;
(viii) the execution and delivery by the Company of,
and the performance by the Company of its obligations under,
this Agreement will not contravene any provision of applicable
law or the certificate of incorporation or by-laws of the
Company or, to such counsel's knowledge, any agreement or
other instrument binding upon the Company or any of its
subsidiaries that is material to the Company and its
subsidiaries, taken as a whole, or, to such counsel's
knowledge, any judgment, order or decree of any governmental
body, agency or court having jurisdiction over the Company or
any subsidiary, and no consent, approval, authorization or
order of, or qualification with, any governmental body or
agency is required for the performance by the Company of its
obligations under this Agreement, except such as may be
required by the securities or Blue Sky laws of the various
states in connection with the offer and sale of the Shares;
(ix) (I) the Registration Statement has become
effective under the Securities Act, no stop order proceedings
with respect thereto have been instituted or are pending or
threatened under the Securities Act, and (II) any required
filing of the Prospectus and any supplement thereto pursuant
to Rule 424(b) under the Securities Act has been made in the
manner and within the time period required by such Rule
424(b);
(x) the Shares to be sold under this Agreement to
the Underwriters by the Company and the Selling Shareholders
are duly authorized for quotation on the Nasdaq National
Market;
(xi) the statements (A) in the Prospectus under the
captions "Management--1987 Stock Option Plan,"
"Management--1996 Stock Option Plan," "Management--1996
Employee Stock Purchase Plan," "Management--1996 Director
Option Plan," "Management--Limitations on Liability and
Indemnification Matters," "Certain Transactions," "Description
of Capital Stock," "Shares Eligible for Future Sale" and
"Underwriters" and (B) in the Registration Statement in Items
14 and 15, in each case insofar as such statements constitute
summaries of the legal matters, documents or proceedings
referred to therein, fairly present the information called for
with respect to such legal matters, documents and proceedings
and fairly summarize the matters referred to therein;
(xii) such counsel does not know of any legal or
governmental proceedings pending or threatened to which the
Company or any of its subsidiaries is a party or to which any
of the properties of the Company or any of its subsidiaries is
subject that are required to be described in the Registration
Statement or the Prospectus and are not so described or of any
statutes, regulations, contracts or other documents that are
required to be described in the Registration Statement or the
Prospectus or to be filed as exhibits to the Registration
Statement that are not described or filed as required;
(xiii) the Company is not and, after giving effect to
the offering and sale of the Shares and the application of the
proceeds thereof as described in the Prospectus, will not be
an "investment company" as such term is defined in the
Investment Company Act of 1940, as amended;
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<PAGE> 11
(xiv) the Company and its subsidiaries (A) are in
compliance with any and all applicable Environmental Laws, (B)
have received all permits, licenses or other approvals
required of them under applicable Environmental Laws to
conduct their respective businesses and (C) are in compliance
with all terms and conditions of any such permit, license or
approval, except where such noncompliance with Environmental
Laws, failure to receive required permits, licenses or other
approvals or failure to comply with the terms and conditions
of such permits, licenses or approvals would not, singly or in
the aggregate, have a material adverse effect on the Company
and its subsidiaries, taken as a whole; and
(xv) such counsel (A) is of the opinion that the
Registration Statement and Prospectus (except for financial
statements and schedules and other financial data included
therein as to which such counsel need not express any opinion)
comply as to form in all material respects with the Securities
Act and the applicable rules and regulations of the Commission
thereunder, (B) has no reason to believe that (except for
financial statements and schedules and other financial data as
to which such counsel need not express any belief) the
Registration Statement and the prospectus included therein at
the time the Registration Statement became effective contained
any untrue statement of a material fact or omitted to state a
material fact required to be stated therein or necessary to
make the statements therein not misleading and (C) has no
reason to believe that (except for financial statements and
schedules and other financial data as to which such counsel
need not express any belief) the Prospectus contains any
untrue statement of a material fact or omits to state a
material fact necessary in order to make the statements
therein, in the light of the circumstances under which they
were made, not misleading.
(d) The Underwriters shall have received on the Closing Date
an opinion of [Wilson Sonsini Goodrich & Rosati], counsel for the
Selling Shareholders, dated the Closing Date, to the effect that:
(i) this Agreement has been duly authorized,
executed and delivered by or on behalf of each of the Selling
Shareholders;
(ii) the execution and delivery by each Selling
Shareholder of, and the performance by such Selling
Shareholder of its obligations under, this Agreement and the
Custody Agreement and Powers of Attorney of such Selling
Shareholder will not contravene any provision of applicable
law, or the certificate of incorporation or by-laws of such
Selling Shareholder (if such Selling Shareholder is a
corporation), or, to such counsel's knowledge, any agreement
or other instrument binding upon such Selling Shareholder or,
to such counsel's knowledge, any judgment, order or decree of
any governmental body, agency or court having jurisdiction
over such Selling Shareholder, and no consent, approval,
authorization or order of, or qualification with, any
governmental body or agency is required for the performance by
such Selling Shareholder of its obligations under this
Agreement or the Custody Agreement or Power of Attorney of
such Selling Shareholder, except such as may be required by
the securities or Blue Sky laws of the various states in
connection with offer and sale of the Shares;
(iii) each of the Selling Shareholders has valid
title to the Shares to be sold by such Selling Shareholder and
the legal right and power, and all authorization and approval
required by law, to enter into this Agreement and the Custody
Agreement and Power of Attorney of such Selling Shareholder
and to sell, transfer and deliver the Shares to be sold by
such Selling Shareholder;
(iv) the Custody Agreement and the Power of Attorney
of each Selling Shareholder have been duly authorized,
executed and delivered by such Selling Shareholder and are
valid and binding agreements of such Selling Shareholder;
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<PAGE> 12
(v) delivery of the Shares to be sold by each
Selling Shareholder pursuant to this Agreement will pass title
to such Shares free and clear of any security interests,
claims, liens, equities and other encumbrances; and
(vi) such counsel (A) is of the opinion that the
Registration Statement and Prospectus (except for financial
statements and schedules and other financial data included
therein as to which such counsel need not express any opinion)
comply as to form in all material respects with the Securities
Act and the applicable rules and regulations of the Commission
thereunder, (B) has no reason to believe that (except for
financial statements and schedules and other financial data as
to which such counsel need not express any belief) the
Registration Statement and the prospectus included therein at
the time the Registration Statement became effective contained
any untrue statement of a material fact or omitted to state a
material fact required to be stated therein or necessary to
make the statements therein not misleading and (C) has no
reason to believe that (except for financial statements and
schedules and other financial data as to which such counsel
need not express any belief) the Prospectus contains any
untrue statement of a material fact or omits to state a
material fact necessary in order to make the statements
therein, in the light of the circumstances under which they
were made, not misleading.
(e) You shall have received on the Closing Date the opinion
of [Townsend & Townsend & Crew, LLC], intellectual property counsel for
the Company, dated the Closing Date, to the effect that:
(i) such counsel represents the Company in certain
matters relating to intellectual property, including patents,
trade secrets and certain trademark matters;
(ii) such counsel is familiar with the technology
used by the Company in its business and the manner of its use
and has read the portions of the Registration Statement and
the Prospectus entitled "Risk Factor--Patents and Proprietary
Rights" and "Business--Patents and Proprietary Technology"
(collectively, the "Intellectual Property Portion");
(iii) the Intellectual Property Portion contains
accurate descriptions of the Company's patent applications,
issued and allowed patents, and patents licensed to the
Company and fairly summarizes the legal matters, documents and
proceedings relating thereto;
(iv) such counsel has reviewed the Company's patent
applications filed in the U.S. and outside the U.S. (the
"Applications"), which Applications are described in the
Intellectual Property Portion, and based upon such review, a
review of the prior art references made known to counsel and
discussions with Company scientific personnel, such counsel is
aware of no valid United States or foreign patent that is or
would be infringed by the activities of the Company in the
manufacture, licensing, use or sale of any proposed product or
process, as described in the Registration Statement or the
Prospectus or made or used according to the Applications;
(v) the Applications have been properly prepared and
filed on behalf of the Company, and are being diligently
pursued by the Company; the inventions described in the
Applications are assigned or licensed to the Company; to such
counsel's knowledge, except for patents where the Company has
obtained a field of use license, no other entity or individual
has any right or claim in any of the inventions, Applications,
or any patent to be issued therefrom, and in such counsel's
opinion each of the Applications discloses patentable subject
matter;
(vi) such counsel is aware of no pending or
threatened judicial or governmental proceeding relating to
patents to which the Company is a party or of which any
property of the Company is subject and such counsel is not
aware of any pending or threatened action, suit or claim by
others that the Company is infringing or otherwise violating
any patent rights of others, nor is such counsel aware of any
rights of third parties to any of the company's inventions
described in the Applications, issued, approved or licensed
patents which could reasonably be
11
<PAGE> 13
expected to materially affect the ability of the Company to
conduct its business as described in the Registration
Statement and the Prospectus; and
(vii) such counsel has no reason to believe that the
information contained in the Intellectual Property Portion of
the Registration Statement or the Prospectus at the time it
became effective contained any untrue statement of a material
fact or omitted to state any material fact necessary to make
the statements therein not misleading or that, at the Closing
Date, the information contained in the Intellectual Property
Portion of the Prospectus contains any untrue statement of a
material fact or omits to state a material fact necessary in
order to make the statements therein, in the light of the
circumstances under which they were made, not misleading.
(f) The Underwriters shall have received on the Closing Date
an opinion of , Japanese counsel for Cymer
Japan, Inc., dated the Closing Date, to the effect that:
(i) Cymer Japan, Inc. has been duly incorporated, is
validly existing as a corporation in good standing under the
laws of the jurisdiction of its incorporation, has the
corporate power and authority to own its property and to
conduct its business as described in the Prospectus and is
duly qualified to transact business and is in good standing in
each jurisdiction in which the conduct of its business or its
ownership or leasing of property requires such qualification;
(ii) all of the issued shares of capital stock of
Cymer Japan, Inc. have been duly and validly authorized and
issued, are fully paid and non-assessable, and owned directly
by the Company, free and clear of all liens, encumbrances,
equities or claims;
(iii) the execution and delivery by the Company of,
and the performance by the Company of its obligations under,
this Agreement will not contravene any provision of applicable
law or the [certificate of incorporation or by-laws] of Cymer
Japan, Inc. or, to such counsel's knowledge, any agreement or
other instrument binding upon Cymer Japan, Inc. that is
material to the Company and its subsidiaries, taken as a
whole, or, to such counsel's knowledge, any judgment, order or
decree of any governmental body, agency or court having
jurisdiction over the Company or any subsidiary, and no
consent, approval, authorization or order of, or qualification
with, any governmental body or agency is required for the
performance by the Company of its obligations under this
Agreement, except such as may be required by the securities or
Blue Sky laws of the various states in connection with the
offer and sale of the Shares;
(iv) such counsel does not know of any legal or
governmental proceedings pending or threatened to which Cymer
Japan, Inc. is a party or to which any of the properties of
Cymer Japan, Inc. is subject; and
(v) Cymer Japan, Inc. (A) is in compliance with any
and all applicable Environmental Laws, (B) have received all
permits, licenses or other approvals required of them under
applicable Environmental Laws to conduct their respective
businesses and (C) are in compliance with all terms and
conditions of any such permit, license or approval, except
where such noncompliance with Environmental Laws, failure to
receive required permits, licenses or other approvals or
failure to comply with the terms and conditions of such
permits, licenses or approvals would not, singly or in the
aggregate, have a material adverse effect on the Company and
its subsidiaries, taken as a whole.
(g) The Underwriters shall have received on the Closing Date
an opinion of Gunderson Dettmer Stough Villeneuve Franklin & Hachigian,
LLP, counsel for the Underwriters, dated the Closing Date, covering the
matters referred to in subparagraphs (v), (vii) (but only with respect
to the statement in
12
<PAGE> 14
the second sentence therein), (xi) (but only as to the statements in
the Prospectus under "Description of Capital Stock" and "Underwriters")
and (xv)(A) of paragraph (c) above.
With respect to subparagraph (xv) of paragraph (c) above,
Wilson Sonsini Goodrich & Rosati and Gunderson Dettmer Stough Villeneuve
Franklin & Hachigian, LLP, may state that their opinion and belief are based
upon their participation in the preparation of the Registration Statement and
Prospectus and any amendments or supplements thereto and review and discussion
of the contents thereof, but are without independent check or verification,
except as specified. With respect to paragraph (d) above, Wilson Sonsini
Goodrich & Rosati may rely upon an opinion or opinions of counsel for any
Selling Shareholders and, with respect to factual matters and to the extent such
counsel deems appropriate, upon the representations of each Selling Shareholder
contained herein and in the Custody Agreement and Power of Attorney of such
Selling Shareholder and in other documents and instruments; provided that (A)
each such counsel for the Selling Shareholders is satisfactory to your counsel,
(B) a copy of each opinion so relied upon is delivered to you and is in form and
substance satisfactory to your counsel, (C) copies of such Custody Agreements
and Powers of Attorney and of any such other documents and instruments shall be
delivered to you and shall be in form and substance satisfactory to your counsel
and (D) Wilson Sonsini Goodrich & Rosati shall state in their opinion that they
are justified in relying on each such other opinion.
The opinions of Wilson Sonsini Goodrich & Rosati described in
paragraphs (c) and (d) above (and any opinions of counsel for any Selling
Shareholder referred to in the immediately preceding paragraph) shall be
rendered to the Underwriters at the request of the Company or one or more of the
Selling Shareholders, as the case may be, and shall so state therein.
(h) The Underwriters shall have received, on each of the
date hereof and the Closing Date, a letter dated the date hereof or the
Closing Date, as the case may be, in form and substance satisfactory to
the Underwriters, from Deloitte & Touche LLP independent public
accountants, containing statements and information of the type
ordinarily included in accountants' "comfort letters" to underwriters
with respect to the financial statements and certain financial
information contained in the Registration Statement and the Prospectus;
provided that the letter delivered on the Closing Date shall use a
"cut-off date" not earlier than the date hereof.
(i) The "lock-up" agreements, each substantially in the form
of Exhibit A hereto, between you and certain shareholders, officers and
directors of the Company relating to sales and certain other
dispositions of shares of Common Stock or certain other securities,
delivered to you on or before the date hereof, shall be in full force
and effect on the Closing Date.
The several obligations of the Underwriters to purchase
Additional Shares hereunder are subject to the delivery to you on the Option
Closing Date of such documents as you may reasonably request with respect to the
good standing of the Company, the due authorization and issuance of the
Additional Shares and other matters related to the issuance of the Additional
Shares.
7. COVENANTS OF THE COMPANY. In further consideration of
the agreements of the Underwriters herein contained, the Company covenants with
each Underwriter as follows:
(a) To furnish to you, without charge, four (4) signed
copies of the Registration Statement (including exhibits thereto) and
for delivery to each other Underwriter a conformed copy of the
Registration Statement (without exhibits thereto) and to furnish to you
in New York City, without charge, prior to 10:00 A.M. local time on the
business day next succeeding the date of this Agreement and during the
period mentioned in paragraph (c) below, as many copies of the
Prospectus and any supplements and amendments thereto or to the
Registration Statement as you may reasonably request.
(b) Before amending or supplementing the Registration
Statement or the Prospectus, to furnish to you a copy of each such
proposed amendment or supplement and not to file any such proposed
amendment or supplement to which you reasonably object, and to file
with the Commission within the
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<PAGE> 15
applicable period specified in Rule 424(b) under the Securities Act any
prospectus required to be filed pursuant to such Rule.
(c) If, during such period after the first date of the
public offering of the Shares as in the opinion of counsel for the
Underwriters the Prospectus is required by law to be delivered in
connection with sales by an Underwriter or dealer, any event shall
occur or condition exist as a result of which it is necessary to amend
or supplement the Prospectus in order to make the statements therein,
in the light of the circumstances when the Prospectus is delivered to a
purchaser, not misleading, or if, in the opinion of counsel for the
Underwriters, it is necessary to amend or supplement the Prospectus to
comply with applicable law, forthwith to prepare, file with the
Commission and furnish, at its own expense, to the Underwriters and to
the dealers (whose names and addresses you will furnish to the Company)
to which Shares may have been sold by you on behalf of the Underwriters
and to any other dealers upon request, either amendments or supplements
to the Prospectus so that the statements in the Prospectus as so
amended or supplemented will not, in the light of the circumstances
when the Prospectus is delivered to a purchaser, be misleading or so
that the Prospectus, as amended or supplemented, will comply with law.
(d) To endeavor to qualify the Shares for offer and sale
under the securities or Blue Sky laws of such jurisdictions as you
shall reasonably request.
(e) To make generally available to the Company's security
holders and to you as soon as practicable an earnings statement
covering the twelve-month period ending December 31, 1997 that
satisfies the provisions of Section 11(a) of the Securities Act and the
rules and regulations of the Commission thereunder.
(f) Whether or not the transactions contemplated in this
Agreement are consummated or this Agreement is terminated, to pay or
cause to be paid all expenses incident to the performance of its
obligations under this Agreement, including: (i) the fees,
disbursements and expenses of the Company's counsel and the Company's
accountants in connection with the registration and delivery of the
Shares under the Securities Act and all other fees or expenses in
connection with the preparation and filing of the Registration
Statement, any preliminary prospectus, the Prospectus and amendments
and supplements to any of the foregoing, including all printing costs
associated therewith, and the mailing and delivering of copies thereof
to the Underwriters and dealers, in the quantities hereinabove
specified, (ii) all costs and expenses related to the transfer and
delivery of the Shares to the Underwriters, including any transfer or
other taxes payable thereon, (iii) the cost of printing or producing
any Blue Sky or Legal Investment memorandum in connection with the
offer and sale of the Shares under state securities laws and all
expenses in connection with the qualification of the Shares for offer
and sale under state securities laws as provided in Section 7(d)
hereof, including filing fees and the reasonable fees and disbursements
of counsel for the Underwriters in connection with such qualification
and in connection with the Blue Sky or Legal Investment memorandum,
(iv) all filing fees and disbursements of counsel to the Underwriters
incurred in connection with the review and qualification of the
offering of the Shares by the National Association of Securities
Dealers, Inc., (v) all fees and expenses in connection with the
preparation and filing of the registration statement on Form 8-A
relating to the Common Stock and all costs and expenses incident to
listing the Shares on the Nasdaq National Market, (vi) the cost of
printing certificates representing the Shares, (vii) the costs and
charges of any transfer agent, registrar or depositary, (viii) the
costs and expenses of the Company relating to investor presentations on
any "road show" undertaken in connection with the marketing of the
offering of the Shares, including, without limitation, expenses
associated with the production of road show slides and graphics, fees
and expenses of any consultants engaged in connection with the road
show presentations with the prior approval of the Company, travel and
lodging expenses of the representatives and officers of the Company and
any such consultants, and the cost of any aircraft chartered in
connection with the road show, and (ix) all other costs and expenses
incident to the performance of the obligations of the Company hereunder
for which provision is not otherwise made in this Section. It is
understood, however, that except as provided in this Section, Section 9
entitled "Indemnity and Contribution", and the last paragraph of
Section 11 below, the Underwriters will pay all of their costs
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<PAGE> 16
and expenses, including fees and disbursements of their counsel, stock
transfer taxes payable on resale of any of the Shares by them and any
advertising expenses connected with any offers they may make.
8. EXPENSES OF SELLING SHAREHOLDERS. Each Selling
Shareholder, severally and not jointly, agrees to pay or cause to be paid (i)
all taxes, if any, on the transfer and sale of the Shares being sold by such
Selling Shareholder and (ii) such Selling Shareholder's pro rata share
(determined by dividing the number of Shares sold by such Selling Shareholder by
the total number of Shares sold by all Sellers) of all costs and expenses
incident to the performance of the obligations of the Selling Shareholders and
the Company under this Agreement, including, but not limited to, all expenses
enumerated in Section 7(f) above and the fees, disbursements and expenses of
counsel for the Selling Shareholders.
9. INDEMNITY AND CONTRIBUTION.
(a) The Company agrees to indemnify and hold harmless each
Underwriter and each person, if any, who controls any Underwriter
within the meaning of either Section 15 of the Securities Act or
Section 20 of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), from and against any and all losses, claims, damages
and liabilities (including, without limitation, any legal or other
expenses reasonably incurred in connection with defending or
investigating any such action or claim) caused by any untrue statement
or alleged untrue statement of a material fact contained in the
Registration Statement or any amendment thereof, any preliminary
prospectus or the Prospectus (as amended or supplemented if the Company
shall have furnished any amendments or supplements thereto), or caused
by any omission or alleged omission to state therein a material fact
required to be stated therein or necessary to make the statements
therein not misleading, except insofar as such losses, claims, damages
or liabilities are caused by any such untrue statement or omission or
alleged untrue statement or omission based upon information relating to
any Underwriter furnished to the Company in writing by such Underwriter
through you expressly for use therein.
(b) Each Selling Shareholder agrees, severally and not
jointly, to indemnify and hold harmless the Company, its directors, its
officers who sign the Registration Statement and each person, if any,
who controls the Company within the meaning of either Section 15 of the
Securities Act or Section 20 of the Exchange Act, from and against any
and all losses, claims, damages and liabilities (including, without
limitation, any legal or other expenses reasonably incurred in
connection with defending or investigating any such action or claim)
caused by any untrue statement or alleged untrue statement of a
material fact contained in the Registration Statement or any amendment
thereof, any preliminary prospectus or the Prospectus (as amended or
supplemented if the Company shall have furnished any amendments or
supplements thereto), or caused by any omission or alleged omission to
state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading, but only with
reference to information relating to such Selling Shareholder furnished
in writing by or on behalf of such Selling Shareholder expressly for
use in the Registration Statement, any preliminary prospectus, the
Prospectus or any amendments or supplements thereto. The liability of
each Selling Shareholder under the indemnity agreement contained in
this paragraph shall be limited to an amount equal to the net proceeds
received by such Selling shareholder (before deducting expenses) from
the offering of the Shares sold by such Selling Shareholder.
(c) Each Underwriter agrees, severally and not jointly, to
indemnify and hold harmless the Company, the Selling Shareholders, the
directors of the Company, the officers of the Company who sign the
Registration Statement and each person, if any, who controls the
Company or any Selling Shareholder within the meaning of either Section
15 of the Securities Act or Section 20 of the Exchange Act from and
against any and all losses, claims, damages and liabilities (including,
without limitation, any legal or other expenses reasonably incurred in
connection with defending or investigating any such action or claim)
caused by any untrue statement or alleged untrue statement of a
material fact contained in the Registration Statement or any amendment
thereof, any preliminary prospectus or the Prospectus (as amended or
supplemented if the Company shall have furnished any amendments or
supplements thereto), or caused by any omission or alleged omission to
state therein a material fact required to be stated therein or
necessary
15
<PAGE> 17
to make the statements therein not misleading, but only with reference
to information relating to such Underwriter furnished to the Company in
writing by such Underwriter through you expressly for use in the
Registration Statement, any preliminary prospectus, the Prospectus or
any amendments or supplements thereto.
(d) In case any proceeding (including any governmental
investigation) shall be instituted involving any person in respect of
which indemnity may be sought pursuant to paragraph (a), (b) or (c) of
this Section 9, such person (the "indemnified party") shall promptly
notify the person against whom such indemnity may be sought (the
"indemnifying party") in writing and the indemnifying party, upon
request of the indemnified party, shall retain counsel reasonably
satisfactory to the indemnified party to represent the indemnified
party and any others the indemnifying party may designate in such
proceeding and shall pay the fees and disbursements of such counsel
related to such proceeding. In any such proceeding, any indemnified
party shall have the right to retain its own counsel, but the fees and
expenses of such counsel shall be at the expense of such indemnified
party unless (i) the indemnifying party and the indemnified party shall
have mutually agreed to the retention of such counsel or (ii) the named
parties to any such proceeding (including any impleaded parties)
include both the indemnifying party and the indemnified party and
representation of both parties by the same counsel would be
inappropriate due to actual or potential differing interests between
them. It is understood that the indemnifying party shall not, in
respect of the legal expenses of any indemnified party in connection
with any proceeding or related proceedings in the same jurisdiction, be
liable for the fees and expenses of more than one separate firm (in
addition to any local counsel) for (i) all Underwriters and all
persons, if any, who control any Underwriter within the meaning of
either Section 15 of the Securities Act or Section 20 of the Exchange
Act, (ii) the Company, its directors, its officers who sign the
Registration Statement and each person, if any, who controls the
Company within the meaning of either such Section and (iii) all Selling
Shareholders and all persons, if any, who control any Selling
Shareholder within the meaning of either such Section, and that all
such fees and expenses shall be reimbursed as they are incurred. In the
case of any such separate firm for the Underwriters and such control
persons of the Underwriters, such firm shall be designated in writing
by Morgan Stanley & Co. Incorporated. In the case of any such separate
firm for the Company, and such directors, officers and control persons
of the Company, such firm shall be designated in writing by the
Company. In the case of any such separate firm for the Selling
Shareholders and such controlling persons of the Selling Shareholders,
such firm shall be designated in writing by the persons named as
attorneys-in-fact for the Selling Shareholders under the Powers of
Attorney. The indemnifying party shall not be liable for any settlement
of any proceeding effected without its written consent, but if settled
with such consent or if there be a final judgment for the plaintiff,
the indemnifying party agrees to indemnify the indemnified party from
and against any loss or liability by reason of such settlement or
judgment. Notwithstanding the foregoing sentence, if at any time an
indemnified party shall have requested an indemnifying party to
reimburse the indemnified party for fees and expenses of counsel as
contemplated by the second and third sentences of this paragraph, the
indemnifying party agrees that it shall be liable for any settlement of
any proceeding effected without its written consent if (i) such
settlement is entered into more than 30 days after receipt by such
indemnifying party of the aforesaid request and (ii) such indemnifying
party shall not have reimbursed the indemnified party in accordance
with such request prior to the date of such settlement. No indemnifying
party shall, without the prior written consent of the indemnified
party, effect any settlement of any pending or threatened proceeding in
respect of which any indemnified party is or could have been a party
and indemnity could have been sought hereunder by such indemnified
party, unless such settlement includes an unconditional release of such
indemnified party from all liability on claims that are the subject
matter of such proceeding.
(e) To the extent the indemnification provided for in
paragraph (a), (b) or (c) of this Section 9 is unavailable to an
indemnified party or insufficient in respect of any losses, claims,
damages or liabilities referred to therein, then each indemnifying
party under such paragraph, in lieu of indemnifying such indemnified
party thereunder, shall contribute to the amount paid or payable by
such indemnified party as a result of such losses, claims, damages or
liabilities (i) in such proportion as is appropriate to reflect the
relative benefits received by the indemnifying party or parties on the
one hand and the indemnified party or parties on the other hand from
the offering of the Shares or (ii) if the allocation
16
<PAGE> 18
provided by clause (i) above is not permitted by applicable law, in
such proportion as is appropriate to reflect not only the relative
benefits referred to in clause (i) above but also the relative fault of
the indemnifying party or parties on the one hand and of the
indemnified party or parties on the other hand in connection with the
statements or omissions that resulted in such losses, claims, damages
or liabilities, as well as any other relevant equitable considerations.
The relative benefits received by the Sellers on the one hand and the
Underwriters on the other hand in connection with the offering of the
Shares shall be deemed to be in the same respective proportions as the
net proceeds from the offering of the Shares (before deducting
expenses) received by each Seller and the total underwriting discounts
and commissions received by the Underwriters, in each case as set forth
in the table on the cover of the Prospectus, bear to the aggregate
Public Offering Price of the Shares. The relative fault of the Sellers
on the one hand and the Underwriters on the other hand shall be
determined by reference to, among other things, whether the untrue or
alleged untrue statement of a material fact or the omission or alleged
omission to state a material fact relates to information supplied by
the Sellers or by the Underwriters and the parties' relative intent,
knowledge, access to information and opportunity to correct or prevent
such statement or omission. The Underwriters' respective obligations to
contribute pursuant to this Section 9 are several in proportion to the
respective number of Shares they have purchased hereunder, and not
joint.
(f) The Sellers and the Underwriters agree that it would not
be just or equitable if contribution pursuant to this Section 9 were
determined by pro rata allocation (even if the Underwriters were
treated as one entity for such purpose) or by any other method of
allocation that does not take account of the equitable considerations
referred to in paragraph (e) of this Section 9. The amount paid or
payable by an indemnified party as a result of the losses, claims,
damages and liabilities referred to in the immediately preceding
paragraph shall be deemed to include, subject to the limitations set
forth above, any legal or other expenses reasonably incurred by such
indemnified party in connection with investigating or defending any
such action or claim. Notwithstanding the provisions of this Section 9,
no Underwriter shall be required to contribute any amount in excess of
the amount by which the total price at which the Shares underwritten by
it and distributed to the public were offered to the public exceeds the
amount of any damages that such Underwriter has otherwise been required
to pay by reason of such untrue or alleged untrue statement or omission
or alleged omission. No person guilty of fraudulent misrepresentation
(within the meaning of Section 11(f) of the Securities Act) shall be
entitled to contribution from any person who was not guilty of such
fraudulent misrepresentation. The remedies provided for in this Section
9 are not exclusive and shall not limit any rights or remedies which
may otherwise be available to any indemnified party at law or in
equity.
(g) The indemnity and contribution provisions contained in
this Section 9 and the representations, warranties and other statements
of the Company and the Selling Shareholders contained in this Agreement
shall remain operative and in full force and effect regardless of (i)
any termination of this Agreement, (ii) any investigation made by or on
behalf of any Underwriter or any person controlling any Underwriter,
any Selling Shareholder or any person controlling any Selling
Shareholder, or the Company, its officers or directors or any person
controlling the Company and (iii) acceptance of and payment for any of
the Shares.
10. TERMINATION. This Agreement shall be subject to
termination by notice given by you to the Company, if (a) after the execution
and delivery of this Agreement and prior to the Closing Date (i) trading
generally shall have been suspended or materially limited on or by, as the case
may be, any of the New York Stock Exchange, the American Stock Exchange, the
National Association of Securities Dealers, Inc., the Chicago Board of Options
Exchange, the Chicago Mercantile Exchange or the Chicago Board of Trade, (ii)
trading of any securities of the Company shall have been suspended on any
exchange or in any over-the-counter market, (iii) a general moratorium on
commercial banking activities in New York shall have been declared by either
Federal or New York State authorities or (iv) there shall have occurred any
outbreak or escalation of hostilities or any change in financial markets or any
calamity or crisis that, in your judgment, is material and adverse and (b) in
the case of any of the events specified in clauses (a) (i) through (iv), such
event, singly or together with any other such event, makes it, in your judgment,
impracticable to market the Shares on the terms and in the manner contemplated
in the Prospectus.
17
<PAGE> 19
11. EFFECTIVENESS: DEFAULTING UNDERWRITERS. This
Agreement shall become effective upon the execution and delivery hereof by the
parties hereto.
If, on the Closing Date or the Option Closing Date, as the
case may be, any one or more of the Underwriters shall fail or refuse to
purchase Shares that it has or they have agreed to purchase hereunder on such
date, and the aggregate number of Shares which such defaulting Underwriter or
Underwriters agreed but failed or refused to purchase is not more than one-tenth
of the aggregate number of the Shares to be purchased on such date, the other
Underwriters shall be obligated severally in the proportions that the number of
Firm Shares set forth opposite their respective names in Schedule II bears to
the aggregate number of Firm Shares set forth opposite the names of all such
non-defaulting Underwriters, or in such other proportions as you may specify, to
purchase the Shares which such defaulting Underwriter or Underwriters agreed but
failed or refused to purchase on such date; provided that in no event shall the
number of Shares that any Underwriter has agreed to purchase pursuant to this
Agreement be increased pursuant to this Section 11 by an amount in excess of
one-ninth of such number of Shares without the written consent of such
Underwriter. If, on the Closing Date, any Underwriter or Underwriters shall fail
or refuse to purchase Firm Shares and the aggregate number of Firm Shares with
respect to which such default occurs is more than one-tenth of the aggregate
number of Firm Shares to be purchased, and arrangements satisfactory to you, the
Company and the Selling Shareholders for the purchase of such Firm Shares are
not made within 36 hours after such default, this Agreement shall terminate
without liability on the part of any non-defaulting Underwriter, the Company or
the Selling Shareholders. In any such case either you or the relevant Sellers
shall have the right to postpone the Closing Date, but in no event for longer
than seven days, in order that the required changes, if any, in the Registration
Statement and in the Prospectus or in any other documents or arrangements may be
effected. If, on the Option Closing Date, any Underwriter or Underwriters shall
fail or refuse to purchase Additional Shares and the aggregate number of
Additional Shares with respect to which such default occurs is more than
one-tenth of the aggregate number of Additional Shares to be purchased, the
non-defaulting Underwriters shall have the option to (i) terminate their
obligation hereunder to purchase Additional Shares or (ii) purchase not less
than the number of Additional Shares that such non-defaulting Underwriters would
have been obligated to purchase in the absence of such default. Any action taken
under this paragraph shall not relieve any defaulting Underwriter from liability
in respect of any default of such Underwriter under this Agreement.
If this Agreement shall be terminated by the Underwriters, or
any of them, because of any failure or refusal on the part of any Seller to
comply with the terms or to fulfill any of the conditions of this Agreement, or
if for any reason any Seller shall be unable to perform its obligations under
this Agreement, the Sellers will reimburse the Underwriters or such Underwriters
as have so terminated this Agreement with respect to themselves, severally, for
all out-of-pocket expenses (including the fees and disbursements of their
counsel) reasonably incurred by such Underwriters in connection with this
Agreement or the offering contemplated hereunder.
12. COUNTERPARTS. This Agreement may be signed in two or
more counterparts, each of which shall be an original, with the same effect as
if the signatures thereto and hereto were upon the same instrument.
13. APPLICABLE LAW. This Agreement shall be governed by
and construed in accordance with the internal laws of the State of New York.
14. HEADINGS. The headings of the sections of this
Agreement have been inserted for convenience of reference only and shall not be
deemed a part of this Agreement.
18
<PAGE> 20
Very truly yours,
CYMER LASER TECHNOLOGIES
By:
---------------------------------
Name:
Title:
The Selling Shareholders
named in Schedule I hereto,
acting severally
By:
---------------------------------
Attorney-in-Fact
Accepted as of the date hereof
Morgan Stanley & Co. Incorporated
Montgomery Securities
Needham & Company, Inc.
Acting severally on behalf
of themselves and the
several underwriters named
herein.
By Morgan Stanley & Co.
Incorporated
By
------------------------
Name:
Title:
<PAGE> 21
SCHEDULE I
<TABLE>
<CAPTION>
Number of
Firm Shares
Selling Shareholder To Be Sold
- ------------------- -----------
<S> <C>
To come
--------------------------------
Total....................
================================
</TABLE>
<PAGE> 22
SCHEDULE II
<TABLE>
<CAPTION>
Number of
Firm Shares
Underwriter To Be Purchased
- ----------- ----------------
<S> <C>
Morgan Stanley & Co. Incorporated
Montgomery Securities
Needham & Company, Inc.
-------------------------------
Total.....................
===============================
</TABLE>
<PAGE> 23
[FORM OF LOCK-UP LETTER]
, 1996
Morgan Stanley & Co. Incorporated
Montgomery Securities
Needham & Company, Inc.
c/o Morgan Stanley & Co. Incorporated
1585 Broadway
New York, NY 10036
Dear Sirs:
The undersigned understands that you, as representatives (the
"Representatives") of the several underwriters (the "Underwriters"), propose to
enter into an Underwriting Agreement with Cymer Laser Technologies (the
"Company") providing for the public offering (the "Public Offering") by the
several Underwriters, including yourselves, of common stock of the Company (the
"Common Stock").
To induce the Underwriters that may participate in the Public Offering
to continue their efforts in connection with the Public Offering, the
undersigned hereby agrees that, without the prior written consent of Morgan
Stanley & Co. Incorporated on behalf of the Underwriters, it will not, during
the period commencing on the date hereof and ending 180 days after the date of
the final prospectus relating to the Public Offering (the "Prospectus"), (1)
offer, pledge, sell contract to sell, sell any option or contract to purchase,
purchase any option or contract to sell, grant any option, right or warrant to
purchase, or otherwise transfer or dispose of, directly or indirectly, any
shares of Common Stock or any securities convertible into or exercisable or
exchangeable for Common Stock (whether such shares or any such securities are
now owned by the undersigned or are hereafter acquired), or (2) enter into any
swap or other arrangement that transfers to another, in whole or in part, any of
the economic consequences of ownership of the Common Stock, whether any such
transaction described in clause (1) or (2) above is to be settled by delivery of
Common Stock or such other securities, in cash or otherwise. The foregoing
sentence shall not apply to the sale of any Shares to the Underwriters pursuant
to the Underwriting Agreement. In addition, the undersigned agrees that, without
the prior written consent of Morgan Stanley & Co. Incorporated on behalf of the
Underwriters, it will not, during the period commencing on the date hereof and
ending 180 days after the date of the Prospectus, make any demand for or
exercise any right with respect to, the registration of any shares of Common
Stock or any security convertible into or exercisable or exchangeable for Common
Stock.
Whether or not the Public Offering actually occurs depends on a number
of factors, including market conditions. Any Public Offering will only be made
pursuant to an Underwriting Agreement, the terms of which are subject to
agreement between the Company and the Underwriters.
Very truly yours,
-----------------------------------------
(Name)
-----------------------------------------
(Address)
<PAGE> 1
ARTICLES OF INCORPORATION
OF
CYMER, INC.
1. Name of Corporation. The name of the corporation is Cymer, Inc.
2. Resident Agent. The address of the corporation's registered office
in the State of Nevada is 402 N. Division Street, Carson City, Nevada 89703.
The name of its registered agent at such address is Roy L. Farrow.
3. Shares. The Company is authorized to issue two classes of stock to
be designated, respectively, "Common Stock" and "Preferred Stock." The total
number of Common Stock authorized to be issued is Twenty-Five Million
(25,000,000), $.01 par value per share. The total number of shares of Preferred
Stock authorized to be issued is Nine Million Eight Hundred Thirty-Four
Thousand Eight Hundred Eighty (9,834,880), $.01 par value per share.
4. Governing Board. The members of this corporation's governing board
shall be styled as directors. The number of directors from time to time shall
be determined as set forth in the bylaws. The first Board of Directors shall
consist of five (5) members and the names and addresses are as follows:
<TABLE>
<CAPTION>
Name Address
- ------------- ------------------------------------
<S> <C>
Richard P. Abraham Weeden Capital Partners, L.P.
12833 La Vida Real
Los Altos Hills, CA 94022
Robert P. Akins Cymer Laser Technologies
16275 Technology Drive
San Diego, CA 92127
Kenneth M. Deemer Interven Partners
2401 Pine Avenue
Manhattan Beach, CA 90266
Peter J. Simone Simplex Time Recorder Co.
Group Vice President
Simplex Plaza
Gardner, MA 01441
</TABLE>
<PAGE> 2
F. Duwaine Townsen Ventana Growth Fund
Rio Vista Towers
Suite 500
8880 Rio San Diego Drive
San Diego, CA 92108
5. Personal Liability.
(a) To the fullest extent permitted by the Nevada General
Corporation Law as the same exists or as may hereafter be amended, a director
or officer of the corporation shall not be personally liable to the corporation
or its stockholders for damages for breach of fiduciary duty; provided,
however, that this provision shall not eliminate or limit the liability of a
director or officer for acts or omissions involving intentional misconduct,
fraud or a knowing violation of law, or for the payment of distributions in
violation of Nevada Revised Statutes Section 78.300.
(b) The corporation shall indemnify to the fullest extent
permitted by law any person who was or is a party or is threatened to be made a
party to any threatened, pending or completed action, suit or proceeding,
whether criminal, civil, administrative or investigative, by reason of the fact
that he, his testator or intestate is or was a director or officer of the
corporation or any predecessor of the corporation or serves or served at any
other enterprise as a director, officer, employee or agent at the request of
the corporation or any predecessor to the corporation. To the fullest extent
permitted by law, the corporation shall pay all expenses of directors and
officers as they are incurred and in advance of the final disposition of the
action, suit or proceeding, upon receipt of an undertaking by or on behalf of
such director or officer to repay the amount if it is ultimately determined by
a court that such director or officer is not entitled to be indemnified.
(c) Neither any amendment nor repeal of this Article 5, nor
the adoption of any provision of this corporation's articles of incorporation
inconsistent with this Article 5, shall eliminate or reduce the effect of this
Article 5 in respect of any matter occurring, or any action or proceeding
accruing or arising or that, but for this Article 5, would accrue or arise,
prior to such amendment, repeal or adoption of an inconsistent provision.
6. INCORPORATOR. The name and address of the sole incorporator of this
corporation is as follows:
Name Address
-------------------- ----------------------------------------
Henry P. Massey, Jr. Wilson, Sonsini, Goodrich & Rosati, P.C.
650 Page Mill Road
Palo Alto, CA 94304-1050
<PAGE> 3
THE UNDERSIGNED, being the sole incorporator for the purpose of forming
a corporation under the General Corporation Law of Nevada, does make and file
this certificate, hereby declaring and certifying that the facts herein stated
are true.
/s/ Henry P. Massey, Jr.
__________________________________
Henry P. Massey, Jr., Incorporator
STATE OF CALIFORNIA )
)
County of Santa Clara )
On this 11th day of July, before me, Victoria Plock, a Notary Public,
State of California, duly commissioned and sworn, personally appeared Henry P.
Massey, Jr., personally known to me to be the person whose name is subscribed
to this instrument, and acknowledged that he executed it.
IN WITNESS WHEREOF, I have hereunto set my hand and affixed my official
seal in the Santa Clara County of California on the date set forth above on
this certificate.
/s/ Victoria Plock
___________________________________
Notary Public, State of California
My commission expires _____________
See Attached All-Purpose Acknowledgment.
<PAGE> 1
EXHIBIT 4.1
CYMER LASER TECHNOLOGIES
LOCK-UP LETTER
__________________, 1996
Morgan Stanley & Co. Incorporated
Montgomery Securities
Needham & Company, Inc.
c/o Morgan Stanley & Co. Incorporated
1585 Broadway
New York, NY 10036
Ladies and Gentlemen:
The undersigned understands that you, as representatives (the
"Representatives") of the several underwriters (the "Underwriters"), propose to
enter into an Underwriting Agreement with Cymer Laser Technologies (the
"Company") providing for the public offering (the "Public Offering") by the
several Underwriters, including yourselves, of common stock of the Company (the
"Common Stock").
To induce the Underwriters that may participate in the Public Offering
to continue their efforts in connection with the Public Offering, the
undersigned hereby agrees that, without the prior written consent of Morgan
Stanley & Co. Incorporated on behalf of the Underwriters, it will not, during
the period commencing on the date hereof and ending 180 days after the date of
the final prospectus relating to the Public Offering (the "Prospectus"), (1)
offer, pledge, sell contract to sell, sell any option or contract to purchase,
purchase any option or contract to sell, grant any option, right or warrant to
purchase, or otherwise transfer or dispose of, directly or indirectly, any
shares of Common Stock or any securities convertible into or exercisable or
exchangeable for Common Stock (whether such shares or any such securities are
now owned by the undersigned or are hereafter acquired), or (2) enter into any
swap or other arrangement that transfers to another, in whole or in part, any of
the economic consequences of ownership of the Common Stock, whether any such
transaction described in clause (1) or (2) above is to be settled by delivery of
Common Stock or such other securities, in cash or otherwise. The foregoing
sentence shall not apply to the sale of any Shares to the Underwriters pursuant
to the Underwriting Agreement. In addition, the undersigned agrees that, without
the prior written consent of Morgan Stanley & Co. Incorporated on behalf of the
Underwriters, it will not, during the period commencing on the date hereof and
ending 180 days after the date of the Prospectus, make any demand for or
exercise any right with respect to, the registration of any shares of Common
Stock or any security convertible into or exercisable or exchangeable for Common
Stock.
Whether or not the Public Offering actually occurs depends on a number
of factors, including market conditions. Any Public Offering will only be made
pursuant to an Underwriting
<PAGE> 2
Morgan Stanley & Co. Incorporated
Montgomery Securities
Needham & Company, Inc.
- -------------- ---, 1996
Page 2
Agreement, the terms of which are subject to agreement between the
Company and the Underwriters.
Very truly yours,
---------------------------------
(Signature)
---------------------------------
(Print Name)
Address:
---------------------------------
---------------------------------
<PAGE> 1
Exhibit 10.2
CYMER LASER TECHNOLOGIES
1987 STOCK OPTION PLAN
1. Purposes of the Plan. The purposes of this Stock Option Plan
are to attract and retain the best available personnel for positions of
substantial responsibility, to provide additional incentive to the Employees and
Consultants of the Company and to promote the success of the Company's business.
Options granted hereunder may be either Incentive Stock
Options or Nonstatutory Stock Options, at the discretion of the Board and as
reflected in the terms of the written option agreement.
2. Definitions. As used herein, the following definitions shall
apply:
(a) "Board" shall mean the Committee, if one has been
appointed, or the Board of Directors of the Company, if no Committee is
appointed.
(b) "Code" shall mean the Internal Revenue Code of 1986,
as amended.
(c) "Common Stock" shall mean the Common Stock of the
Company.
(d) "Company" shall mean CYMER Laser Technologies, a
California corporation.
(e) "Committee" shall mean the Committee appointed by
the Board of Directors in accordance with paragraph (a) of Section 4 of the
Plan, if one is appointed.
(f) "Consultant" shall mean any person who is engaged by
the Company or any subsidiary to render consulting services and is compensated
for such consulting services, and any director of the Company whether
compensated for such services or not; provided that if and in the event the
Company registers any class of any equity security pursuant to Section 12 of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), the term
Consultant shall thereafter not include directors who are not compensated for
their services or are paid only a director's fee by the Company.
(g) "Continuous Status as an Employee or Consultant"
shall mean the absence of any interruption or termination of service as an
Employee or Consultant. Continuous Status as an Employee or Consultant shall
not be considered interrupted in the
-1-
<PAGE> 2
case of sick leave, military leave, or any other leave of absence approved by
the Board; provided that such leave is for a period of not more than 90 days or
reemployment upon the expiration of such leave is guaranteed by contract or
statute.
(h) "Employee" shall mean any person, including officers
and directors, employed by the Company or any Parent or Subsidiary of the
Company. The payment of a director's fee by the Company shall not be sufficient
to constitute "employment" by the Company.
(i) "Incentive Stock Option" shall mean an Option
intended to qualify as an incentive stock option within the meaning of Section
422A of the Code.
(j) "Nonstatutory Stock Option" shall mean an Option not
intended to qualify as an Incentive Stock Option.
(k) "Option" shall mean a stock option granted pursuant
to the Plan.
(l) "Optioned Stock" shall mean the Common Stock subject
to an Option.
(m) "Optionee" shall mean an Employee or Consultant who
receives an Option.
(n) "Parent" shall mean a "parent corporation", whether
now or hereafter existing, as defined in Section 425(e) of the Code.
(o) "Plan" shall mean this 1987 Stock Option Plan.
(p) "Share" shall mean a share of the Common Stock, as
adjusted in accordance with Section 11 of the Plan.
(q) "Subsidiary" shall mean a "subsidiary corporation",
whether now or hereafter existing, as defined in Section 425(f) of the Code.
3. Stock Subject to the Plan. Subject to the provisions of
Section 11 of the Plan, the maximum aggregate number of shares which may be
optioned and sold under the Plan is 1,500,000 shares of Common Stock. The Shares
may be authorized, but unissued, or reacquired Common Stock.
If an Option should expire or become unexercisable for any
reason without having been exercised in full, the unpurchased
-2-
<PAGE> 3
Shares which were subject thereto shall, unless the Plan shall have been
terminated, become available for future grant under the Plan. Notwithstanding
any other provision of the Plan, shares issued under the Plan and later
repurchased by the Company shall not become available for future grant or sale
under the Plan.
4. Administration of the Plan.
(a) Procedure. The Plan shall be administered by the
Board of Directors of the Company.
(i) Subject to subparagraph (ii), the Board of
Directors may appoint a Committee consisting of not less than two members of the
Board of Directors to administer the Plan on behalf of the Board of Directors,
subject to such terms and conditions as the Board of Directors may prescribe.
Once appointed, the Committee shall continue to serve until otherwise directed
by the Board of Directors. Members of the Board who are either eligible for
Options or have been granted Options may vote on any matters affecting the
administration of the Plan or the grant of any Options pursuant to the Plan,
except that no such member shall act upon the granting of an Option to himself,
but any such member may be counted in determining the existence of a quorum at
any meeting of the Board during which action is taken with respect to the
granting of Options to him.
(ii) Notwithstanding the foregoing subparagraph
(i), if and in any event the Company registers any class of any equity security
pursuant to Section 12 of the Exchange Act, from the effective date of such
registration (the "Effective Date") until six months after the termination of
such registration (the "Termination Date"), any grants of options to officers or
directors shall only be made by the Board of Directors; provided, however, that
if a majority of the Board of Directors is eligible to participate in this Plan
or any other stock option or other stock plan of the Company or any of its
affiliates, or has been eligible at any time within the preceding year, any
grants of options to directors must be made by, or only in accordance with the
recommendation of, a Committee consisting of three or more persons, who may but
need not be directors or employees of the Company, appointed by the Board of
Directors and having full authority to act in the matter, none of whom is
eligible to participate in this Plan or any other stock option or other stock
plan of the Company or any of its affiliates, or has been eligible at any time
within the preceding year. Any Committee administering the Plan with
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<PAGE> 4
respect to grants to officers who are not also directors shall conform to the
requirements of the preceding sentence. Once appointed, the Committee shall
continue to serve until otherwise directed by the Board of Directors.
(iii) Subject to the foregoing subparagraphs (i)
and (ii), from time to time the Board of Directors may increase the size of the
Committee and appoint additional members thereof, remove members (with or
without cause) and appoint new members in substitution therefor, fill vacancies
however caused, or remove all members of the Committee and thereafter directly
administer the Plan.
(b) Powers of the Board. Subject to the provisions of the
Plan, the Board shall have the authority, in its discretion: (i) to grant
Incentive Stock Options or Nonstatutory Stock Options; (ii) to determine, upon
review of relevant information and in accordance with Section 8(b) of the Plan,
the fair market value of the Common Stock; (iii) to determine the exercise price
per share of Options to be granted, which exercise price shall be determined in
accordance with Section 8(a) of the Plan; (iv) to determine the Employees or
Consultants to whom, and the time or times at which, Options shall be granted
and the number of shares to be represented by each Option; (v) to interpret the
Plan; (vi) to prescribe, amend and rescind rules and regulations relating to the
Plan; (vii) to determine the terms and provisions of each Option granted (which
need not be identical) and, with the consent of the holder thereof, modify or
amend each Option; (viii) to accelerate the exercise date of any Option granted
prior to June 3, 1992, consistent with the provisions of Section 11 of the Plan;
(ix) to authorize any person to execute on behalf of the Company any instrument
required to effectuate the grant of an Option previously granted by the Board;
and (x) to make all other determinations deemed necessary or advisable for the
administration of the Plan.
(c) Effect of Board's Decision. All decisions,
determinations and interpretations of the Board shall be final and binding on
all Optionees and any other holders of any Options granted under the Plan.
5. Eligibility.
(a) Options may be granted only to Employees and
Consultants. Incentive Stock Options may be granted only to Employees. An
Employee or Consultant who has been granted an Option may, if he is otherwise
eligible, be granted an additional Option or Options.
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<PAGE> 5
(b) No Incentive Stock Option may be granted to an
Employee which, when aggregated with all other incentive stock options granted
to such Employee by the Company or any Parent or Subsidiary, would result in
Shares having an aggregate fair market value (determined for each Share as of
the date of grant of the Option covering such Share) in excess of $100,000
becoming first available for purchase upon exercise of one or more incentive
stock options during any calendar year.
(c) Section 5(b) of the Plan shall apply only to an
Incentive Stock Option evidenced by an "Incentive Stock Option Agreement" which
sets forth the intention of the Company and the Optionee that such Option shall
qualify as an incentive stock option. Section 5(b) of the Plan shall not apply
to any Option evidenced by a "Nonstatutory Stock Option Agreement" which sets
forth the intention of the Company and the Optionee that such Option shall be a
Nonstatutory Stock Option.
(d) The Plan shall not confer upon any Optionee any right
with respect to continuation of employment or consulting relationship with the
Company, nor shall it interfere in any way with his right or the Company's right
to terminate his employment or consulting relationship at any time.
6. Term of Plan. The Plan shall become effective upon the earlier
to occur of its adoption by the Board of Directors or its approval by the
shareholders of the Company as described in Section 17 of the Plan. It shall
continue in effect for a term of ten (10) years unless sooner terminated under
Section 13 of the Plan.
7. Term of Option. The term of each Incentive Stock Option shall
be ten (10) years from the date of grant thereof or such shorter term as may be
provided in the Incentive Stock Option Agreement. The term of each Option that
is not an Incentive Stock Option shall be ten (10) years and one (1) day from
the date of grant thereof or such shorter term as may be provided in the
Nonstatutory Stock Option Agreement. However, in the case of an Option granted
to an Optionee who, at the time the Option is granted, owns stock representing
more than ten percent (10%) of the voting power of all classes of stock of the
Company or any Parent or Subsidiary, (a) if the Option is an Incentive Stock
Option, the term of the Option shall be five (5) years from the date of grant
thereof or such shorter time as may be provided in the Incentive Stock Option
Agreement, or (b) if the Option is not an Incentive Stock Option, the term of
the Option shall be five (5) years and one (1) day from the date of grant
thereof or such shorter term as may be provided in the Nonstatutory Stock Option
Agreement.
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<PAGE> 6
8. Exercise Price and Consideration.
(a) Exercise Price. The per Share exercise price for the
Shares to be issued pursuant to exercise of an Option shall be such price as is
determined by the Board, but shall be subject to the following:
(i) In the case of an Incentive Stock Option
(A) granted to an Employee who, at the
time of the grant of such Incentive Stock Option, owns stock representing more
than ten percent (10%) of the voting power of all classes of stock of the
Company or any Parent or Subsidiary, the per Share exercise price shall be no
less than 110% of the fair market value per Share on the date of grant.
(B) granted to any Employee, the per
Share exercise price shall be no less than 100% of the fair market value per
Share on the date of grant.
(ii) In the case of a nonstatutory stock option
(A) granted to a person who at the time
of the grant of such Option, owns stock representing more than ten percent (10%)
of the voting power of all classes of stock of the Company or any Parent or
Subsidiary, the per Share exercise price shall be no less than 110% of the fair
market value per Share on the date of the grant.
(B) granted to any person, the per Share
exercise price shall be no less than 85% of the fair market value per Share on
the date of grant.
(iii) In the case of an Option granted on or after
the effective date of registration of any class of equity security of the
Company pursuant to Section 12 of the Exchange Act and prior to six months after
the termination of such registration, the per Share exercise price shall be no
less than 100% of the fair market value per Share on the date of grant.
(b) Fair Market Value. The fair market value shall be
determined by the Board in its discretion; provided, however, that where there
is a public market for the Common Stock, the fair market value per Share shall
be the mean of the bid and asked prices (or the closing price per share if the
Common Stock is listed on the National Association of Securities Dealers
Automated Quotation ("NASDAQ") National Market System) of the Common Stock for
the date of grant, as reported in the Wall Street Journal (or,
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<PAGE> 7
if not so reported, as otherwise reported by the NASDAQ System) or, in the event
the Common Stock is listed on a stock exchange, the fair market value per Share
shall be the closing price on such exchange on the date of grant of the Option,
as reported in the Wall Street Journal.
(c) Form of Consideration. The consideration to be paid
for the Shares to be issued upon exercise of an Option, including the method of
payment, shall be determined by the Board and may consist entirely of cash,
check, promissory note, other Shares of Common Stock having a fair market value
on the date of surrender equal to the aggregate exercise price of the Shares as
to which said option shall be exercised, or any combination of such methods of
payment, or such other consideration and method of payment for he issuance of
Shares to the extent permitted under Sections 408 and 409 of the California
General Corporation Law. In making its determination as to the type of
consideration to accept, the Board shall consider if acceptance of such
consideration may be reasonably expected to benefit the Company (Section 315(b)
of the California General Corporation Law).
9. Exercise of Option.
(a) Procedure for Exercise; Rights as a Shareholder. Any
Option granted hereunder shall be exercisable at such times and under such
conditions as determined by the Board, including performance criteria with
respect to the Company and/or the Optionee, and as shall be permissible under
the terms of the Plan; provided, however, that an Incentive Stock Option granted
prior to January 1, 1987 (the "Sequential Option") shall not be exercisable
while there is outstanding any Incentive Stock Option which was granted, before
the granting of the Sequential Option, to the same Optionee to purchase stock of
the Company, any Parent or Subsidiary, or any predecessor corporation of such
corporations. For purposes of this provision, an Incentive Stock Option shall be
treated as outstanding until such option is exercised in full or expires by
reason of lapse of time.
An Option may not be exercised for a fraction of a Share.
An Option shall be deemed to be exercised when written notice
of such exercise in the form attached as an exhibit to the Nonstatutory or
Incentive Stock Option Agreement has been given to the Company in accordance
with the terms of the Option by the person entitled to exercise the Option and
full payment for the Shares with respect to which the Option is exercised has
been received by the Company. Full payment may, as authorized by the Board,
consist of any consideration and method of payment allowable
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<PAGE> 8
under Section 8(c) of the Plan. Until the issuance (as evidenced by the
appropriate entry on the books of the Company or of a duly authorized transfer
agent of the Company) of the stock certificate evidencing such Shares, no right
to vote or receive dividends or any other rights as a shareholder shall exist
with respect to the Optioned Stock, notwithstanding the exercise of the Option.
The Company shall issue (or cause to be issued) such stock certificate promptly
upon exercise of the Option. No adjustment will be made for a dividend or other
right for which the record date is prior to the date the stock certificate is
issued, except as provided in Section 11 of the Plan.
Exercise of an Option in any manner shall result in a decrease
in the number of Shares which thereafter may be available, both for purposes of
the Plan and for sale under the Option, by the number of Shares as to which the
Option is exercised.
(b) Termination of Status as an Employee or Consultant.
In the event of termination of an Optionee's Continuous Status as an Employee or
Consultant (as the case may be), such Optionee may, but only within thirty (30)
days (or such other period of time not exceeding three (3) months in the case of
an Incentive Stock Option or six (6) months in the case of a Nonstatutory Stock
Option, as is determined by the Board, with such determination in the case of an
Incentive Stock Option being made at the time of grant of the Option), after the
date of expiration of the term of such Option as set forth in the Option
Agreement), exercise his Option to the extent that he was entitled to exercise
it at the date of such termination. To the extent that he was not entitled to
exercise the Option at the date of such termination, or if he does not exercise
such Option (which he was entitled to exercise) within the time specified
herein, the Option shall terminate.
(c) Disability of Optionee. Notwithstanding the
provisions of Section 9(b) above, in the event of termination of an Optionee's
Continuous Status as an Employee or Consultant as a result of his disability, he
may, but only within six (6) months (or such other period of time not exceeding
twelve (12) months as is determined by the Board, with such determination in the
case of an Incentive Stock Option being made at the time of grant of the Option)
from the date of termination (but in no event later than the date of expiration
of the term of such Option as set forth in the Option Agreement), exercise his
Option to the extent he was entitled to exercise it at the date of such
termination, provided, however, that if such disability is not a "disability" as
such term is defined in Section 22(e)(3) of the Code, in the case of an
Incentive Stock Option such Incentive Stock Option shall automatically convert
to a Nonstatutory Stock Option on the day
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<PAGE> 9
three months and one day folowing such termination. To the extent that he was
not entitled to exercise the Option at the date of termination, or if he does
not exercise such Option (which he was entitled to exercise) within the time
specified herein, the Option shall terminate, and the shares covered thereby
shall revert to the Plan.
(d) Death of Optionee. In the event of the death of an
Optionee:
(i) during the term of the Option who is at the
time of his death an Employee or Consultant of the Company and
who shall have been in Continuous Status as an Employee or
Consultant since the date of grant of the Option, the Option
may be exercised, at any time within six (6) months following
the date of death (but in no event later than the date of
expiration of the term of such Option as set forth in the
Option Agreement), by the Optionee's estate or by a person who
acquired the right to exercise the Option by bequest or
inheritance, but only to the extent of the right to exercise
that would have accrued had the Optionee continued living and
remained in Continuous Status as an Employee or Consultant six
(6) months after the date of death, subject to the limitation
set forth in Section 5(b); or
(ii) within thirty (30) days (or such other
period of time not exceeding three (3) months as is determined
by the Board, with such determination in the case of an
Incentive Stock Option being made at the time of grant of the
Option) after the termination of Continuous Status as an
Employee or Consultant, the Option may be exercised, at any
time within six (6) months following the date of death (but in
no event later than the date of expiration of the term of such
Option as set forth in the Option Agreement), by the
Optionee's estate or by a person who acquired the right to
exercise the Option by bequest or inheritance, but only to the
extent of the right to exercise that had accrued at the date
of termination.
10. Non-Transferability of Options. The Option may not be sold,
pledged, assigned, hypothecated, transferred, or disposed of in any manner other
than by will or by the laws of descent or distribution and may be exercised,
during the lifetime of the Optionee, only by the Optionee.
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<PAGE> 10
11. Adjustments Upon Changes in Capitalization or Merger. Subject
to any required action by the shareholders of the Company, the number of shares
of Common Stock covered by each outstanding Option, and the number of shares of
Common Stock which have been authorized for issuance under the Plan but as to
which no Options have yet been granted or which have been returned to the Plan
upon cancellation or expiration of an Option, as well as the price per share of
Common Stock covered by each such outstanding Option, shall be proportionately
adjusted for any increase or decrease in the number of issued shares of Common
Stock resulting from a stock split, reverse stock split, stock dividend,
combination or reclassification of the Common Stock, or any other increase or
decrease in the number of issued shares of Common Stock effected without receipt
of consideration by the Company; provided, however, that conversion of any
convertible securities of the Company shall not be deemed to have been "effected
without receipt of consideration." Such adjustment shall be made by the Board,
whose determination in that respect shall be final, binding and conclusive.
Except as expressly provided herein, no issuance by the Company of shares of
stock of any class, or securities convertible into shares of stock of any class,
shall affect, and no adjustment by reason thereof shall be made with respect to,
the number or price of shares of Common Stock subject to an Option.
In the event of the proposed dissolution or liquidation of the
Company, the Board shall notify the Optionee at least fifteen (15) day prior to
such proposed action. To the extent it has not been previously exercised, the
Option will terminate immediately prior to the consummation of such proposed
action. In the event of a merger of the Company with or into another
corporation, the Option shall be assumed or an equivalent option shall be
substituted by such successor corporation or a parent or subsidiary of such
successor corporation. In the event that such successor corporation refuses to
assume such Option or to substitute an equivalent option, such Option shall
terminate upon the consummation of the merger unless the option was granted
prior to June 3, 1992, in which event the Board shall, provide for the Optionee
to have the right to exercise the Option as to all of the Optioned Stock,
including Shares as to which the Option would not otherwise be exercisable. If
the Board makes an Option fully exercisable in the event of a merger, the Board
shall notify the Optionee that the Option shall be fully exercisable for a
period of thirty (30) days from the date of such notice, and the Option will
terminate upon the expiration of such period.
12. Time of Granting Options. The date of grant of an Option
shall, for all purposes, be the date on which the Board makes the determination
granting such Option. Notice of the determination
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<PAGE> 11
shall be given to each Employee or Consultant to whom an Option is so granted
within a reasonable time after the date of such grant.
13. Amendment and Termination of the Plan.
(a) Amendment and Termination. The Board may amend or
terminate the Plan from time to time in such respects as the Board may deem
advisable; provided that, the following revisions or amendments shall require
approval of the shareholders of the Company in the manner described in Section
17 of the Plan:
(i) any increase in the number of Shares subject
to the Plan, other than in connection with an adjustment under
Section 11 of the Plan;
(ii) any change in the designation of the class
of persons eligible to be granted Options; or
(iii) if the Company has a class of equity
securities registered under Section 12 of the Exchange Act at
the time of such revision or amendment, any material increase
in the benefits accruing to participants under the Plan.
(b) Shareholder Approval. If any amendment requiring
shareholder approval under Section 13(a) of the Plan is made subsequent to the
first registration of any class of equity securities by the Company under
Section 12 of the Exchange Act, such shareholder approval shall be solicited as
described in Section 17 of the Plan.
(c) Effect of Amendment or Termination. Any such
amendment or termination of the Plan shall not affect Options already granted
and such Options shall remain in full force and effect as if this Plan had not
been amended or terminated, unless mutually agreed otherwise between the
Optionee and the Board, which agreement must be in writing and signed by the
Optionee and the Company.
14. Conditions Upon Issuance of Shares. Shares shall not be issued
pursuant to the exercise of an Option unless the exercise of such Option and the
issuance and delivery of such Shares pursuant thereto shall comply with all
relevant provisions of law, including, without limitation, the Securities Act of
1933, as amended, the Exchange Act, the rules and regulations promulgated
thereunder, and the requirements of any stock exchange upon which the Shares may
then be listed, and shall be further subject to the approval of counsel for the
Company with respect to such compliance.
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<PAGE> 12
As a condition to the exercise of an Option, the Company may
require the person exercising such Option to represent and warrant at the time
of any such exercise that the Shares are being purchased only for investment and
without any present intention to sell or distribute such Shares if, in the
opinion of counsel for the Company, such a representation is required by any of
the aforementioned relevant provisions of law.
15. Company's Right of First Refusal. Before any Shares
registered in the name of Optionee may be sold or transferred (including
transfer by operation of law), such Shares shall first be offered to the
Company.
(i) The Optionee shall deliver a notice
("Notice") to the Company stating (a) his bona fide intention
to sell or transfer such Shares, (b) the number of such shares
to be sold or transferred, (c) the price for which he proposes
to sell or transfer such Shares, and (d) the name of the
proposed purchaser or transferee.
(ii) Within thirty (30) days after receipt of the
Notice, the Company or its assignee may elect to purchase all
or none of the Shares to which the Notice refers, at the price
per share specified in the Notice.
(iii) If all of the Shares to which the Notice
refers are not elected to be purchased, as provided in Section
2(ii) hereof, the Optionee may sell the Shares to any person
named in the Notice at the price specified in the Notice or at
a higher price, provided, that such sale or transfer is
consummated within 60 days of the date of said Notice to the
Company, and provided, further, that any such sale is in
accordance with all the terms and conditions hereof.
The provisions of this Section 2 shall terminate on the
effective date of a registration statement filed by the Company under the
Securities Act of 1933, as amended (the "Act"), with respect to an underwritten
public offering of Common Stock of the Company. The provisions of Sections 2(i),
2(ii) and 2(iii) shall not apply to a transfer of any Shares by Optionee, either
during his lifetime or on death by will or intestacy to his other ancestors,
descendants or spouse, or any custodian or trustee for the account of Optionee
or Optionee's ancestors, descendants or spouse; provided, in each case a
transferee shall receive and hold such Shares subject to the provisions on this
Section 2 and there shall be no further transfer of such Shares except in
accordance herewith.
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<PAGE> 13
The Company shall not be required (i) to transfer on its books
any Shares which shall have been sold or transferred in violation of any of the
provisions set forth in this Agreement, or (ii) to treat as owner of such Shares
or to accord the right to vote as such owner or to pay dividends to any
transferee to whom such Shares shall have been so transferred.
16. Reservation of Shares. The Company, during the term of this
Plan, will at all times reserve and keep available such number of Shares as
shall be sufficient to satisfy the requirements of the Plan.
The inability of the Company to obtain authority from any
regulatory body having jurisdiction, which authority is deemed by the Company's
counsel to be necessary to the lawful issuance and sale of any Shares hereunder,
shall relieve the Company of any liability in respect of the failure to issue or
sell such Shares as to which such requisite authority shall not have been
obtained.
17. Option Agreement. Options shall be evidenced by written
option agreements in such form as the Board shall approve.
18. Shareholder Approval.
(a) Continuance of the Plan shall be subject to approval
by the shareholders of the Company within twelve (12) months before or after the
date the Plan is adopted. If such shareholder approval is obtained at a duly
held shareholders' meeting, it must be obtained by the affirmative vote of the
holders of a majority of the outstanding shares of the Company, or if such
shareholder approval is obtained by written consent, it must be obtained by the
unanimous written consent of all shareholders of the Company; provided, however,
that approval at a meeting or by written consent may be obtained by a lesser
degree of shareholder approval if the Board determines, in its discretion after
consultation with the Company's legal counsel, that such a lesser degree of
shareholder approval will comply with all applicable laws and will not adversely
affect the qualification of the Plan under Section 422A of the Code.
(b) If and in the event that the Company registers any
class of equity securities pursuant to Section 12 of the Exchange Act, any
required approval of the shareholders of the Company obtained after such
registration shall be solicited substantially in accordance with Section 14(a)
of the Exchange Act and the rules and regulations promulgated thereunder.
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<PAGE> 14
(c) If any required approval by the shareholders of the
Plan itself or of any amendment thereto is solicited at any time otherwise than
in the manner described in Section 17(b) hereof, then the Company shall, at or
prior to the first annual meeting of shareholders held subsequent to the later
of (1) the first registration of any class of equity securities of the Company
under Section 12 of the Exchange Act or (2) the granting of an Option hereunder
to an officer or director after such registration, do the following:
(i) furnish in writing to the holders entitled
to vote for the Plan substantially the same information which would be required
(if proxies to be voted with respect to approval or disapproval of the Plan or
amendment were then being solicited) by the rules and regulations in effect
under Section 14(a) of the Exchange Act at the time such information is
furnished; and
(ii) file with, or mail for filing to, the
Securities and Exchange Commission four copies of the written information
referred to in subsection (i) hereof not later than the date on which such
information is first sent or given to shareholders.
19. Information to Optionees. The Company shall provide to each
Optionee, during the period for which such Optionee has one or more Options
outstanding, and to each individual who acquired the shares pursuant to the
exercise of an Option, during the period such individual holds one or more
Shares copies of all annual financial statements and other information. The
Company shall not be required to provide such information if the issuance of
Options under the Plan is limited to key employees whose duties in connection
with the Company assure their access to equivalent information.
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<PAGE> 15
CYMER LASER TECHNOLOGIES
INCENTIVE STOCK OPTION AGREEMENT
CYMER LASER TECHNOLOGIES, a California corporation (the "Company"), has
granted to 1 (the "Optionee"), an option (the "Option") to purchase a total of 2
shares of Common Stock (the "Shares"), at the price determined as provided
herein, and in all respects subject to the terms, definitions and provisions of
the 1987 Stock Option Plan (the "Plan") adopted by the Company which is
incorporated herein by reference. Unless otherwise defined herein, the terms
defined in the Plan shall have the same defined meanings herein. The date of
grant of the Option is 3.
1. Nature of the Option. This Option is intended to qualify as an
Incentive Stock Option as defined in Section 422 of the Code.
2. Exercise Price. The exercise price is $4 for each share of Common
Stock, which price is not less than the fair market value per share of the
Common Stock on the date of grant.
3. Exercise of Option. This Option shall be exercisable during its term
in accordance with the provisions of Section 9 of the Plan as follows:
(i) Right to Exercise.
(a) Subject to subsections 3(i)(b), (c), (d) and (e) below, this
Option shall vest cumulatively from 5 (the "Vesting Commencement Date"), as
follows: 25% of the Shares subject to the Option shall become exercisable on the
first anniversary of the Vesting Commencement Date; thereafter, 6.25% of the
Shares subject to the Option shall become exercisable at the end of each
three-month period.
(b) This Option may not be exercised for a fraction of a share.
(c) In the event of Optionee's death, disability or other
termination of employment, the exercisability of the Option is governed by
Sections 7, 8 and 9 below, subject to the limitations contained in subsections
3(i)(d) and (e).
(d) In no event may this Option be exercised after the date of
expiration of the term of this Option as set forth in Section 11 below.
(e) In no event may this Option become exercisable at a time or
times which, when this Option is aggregated with all
<PAGE> 16
other incentive stock options granted to Optionee by the Company or any Parent
or Subsidiary, would result in Shares having an aggregate fair market value
(determined for each Share as of the date of grant of the option covering such
Share) in excess of $100,000 becoming first available for purchase upon exercise
of one or more incentive stock options during any calendar year.
(ii) Method of Exercise. This Option shall be exercisable by written
notice in the form attached hereto as Exhibit A. Such written notice shall be
signed by the Optionee and shall be delivered in person or by certified mail to
the Secretary of the Company. The written notice shall be accompanied by payment
of the exercise price. This Option shall be deemed to be exercised upon receipt
by the Company of such written notice accompanied by the exercise price.
No Shares will be issued pursuant to the exercise of an Option unless
such issuance and such exercise shall comply with all relevant provisions of
law and the requirements of any stock exchange upon which the Shares may then be
listed. Assuming such compliance, for income tax purposes the Shares shall be
considered transferred to the Optionee on the date on which the Option is
exercised with respect to such Shares.
4. Optionee's Representations. In the event the Shares purchasable
pursuant to the exercise of this Option have not been registered under the
Securities Act of 1933, as amended, at the time this Option is exercised,
Optionee shall, concurrently with the exercise of all or any portion of this
Option, deliver to the Company his Investment Representation Statement in the
form attached hereto as Exhibit B, and shall read the applicable rules of the
Commissioner of Corporations attached to such Investment Representation
Statement.
5. Method of Payment. Payment of the exercise price shall be by cash or
check made payable to the Company, or at the election of the Board, by delivery
of a promissory note (the "Note") of Optionee in the amount of the exercise
price, together with the execution and delivery by the Optionee of a security
agreement (the "Security Agreement") securing the amount of the Note by a pledge
of the Shares purchased by the Note; the Note shall be in the form attached
hereto as Exhibit D, shall contain the terms and be pay able as set forth
therein, and shall bear interest at a rate (compounded semiannually) not less
than the rate required to insure that there will be no "unstated interest" with
respect to the purchase of shares under this Option, pursuant to the applicable
provisions of the Code and the regulations in effect thereunder at the time of
such purchase; the Security Agreement shall be in the form attached hereto as
Exhibit C.
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<PAGE> 17
6. Restrictions on Exercise. This Option may not be exercised until
such time as the Plan has been approved by the shareholders of the Company, or
if the issuance of such Shares upon such exercise or the method of payment of
consideration for such shares would constitute a violation of any applicable
federal or state securities or other law or regulation, including any rule under
Part 207 of Title 12 of the Code of Federal Regulations ("Regulation G") as
promulgated by the Federal Reserve Board. As a condition to the exercise of this
Option, the Company may require Optionee to make any representation and warranty
to the Company as may be required by any applicable law or regulation.
7. Termination of Status as an Employee. In the event of termination of
Optionee's Continuous Status as an Employee, he may, but only within three (3)
months after the date of such termination (but in no event later than the date
of expiration of the term of this Option as set forth in Section 11 below),
exercise this Option to the extent that he was entitled to exercise it at the
date of such termination. To the extent that he was not entitled to exercise
this Option at the date of such termination, or if he does not exercise this
Option within the time specified herein, the Option shall terminate.
8. Disability of Optionee. Notwithstanding the provisions of Section 7
above, in the event of termination of Optionee's Continuous Status as an
Employee as a result of his total and permanent disability (as defined in
Section 22(e)(3) of the Code), he may, but only within six (6) months from the
date of termination of employment (but in no event later than the date of
expiration of the term of this Option as set forth in Section 11 below),
exercise his Option to the extent he was entitled to exercise it at the date of
such termination. To the extent that he was not entitled to exercise the Option
at the date of termination, or if he does not exercise such Option (which he was
entitled to exercise) within the time specified herein, the Option shall
terminate.
9. Death of Optionee. In the event of the death of Optionee:
(i) during the term of this Option and while an Employee of the
Company and having been in Continuous Status as an Employee since the date of
grant of the Option, the Option may be exercised, at any time within six (6)
months following the date of death (but in no event later than the date of
expiration of the term of this Option as set forth in Section 11 below), by
Optionee's estate or by a person who acquired the right to exercise the Option
by bequest or inheritance, but only to the extent of the right to exercise that
would have accrued had the Optionee continued living and remained in Continuous
Status as an Employee six (6) months
-3-
<PAGE> 18
after the date of death, subject to the limitations contained in Section 3(i)(e)
above; or
(ii) within thirty (30) days after the termination of Optionee's
Continuous Status as an Employee, the Option may be exercised, at any time
within six (6) months following the date of death (but in no event later than
the date of expiration of the term of this Option as set forth in Section 11
below), by Optionee's estate or by a person who acquired the right to exercise
the Option by bequest or inheritance, but only to the extent of the right to
exercise that had accrued at the date of termination.
10. Non-Transferability of Option. This Option may not be transferred in
any manner otherwise than by will or by the laws of descent or distribution and
may be exercised during the lifetime of Optionee only by him. The terms of this
Option shall be binding upon the executors, administrators, heirs, successors
and assigns of the Optionee.
11. Term of Option. This Option may not be exercised more than five (5)
years from the date of grant of this Option, and may be exercised during such
term only in accordance with the Plan and the terms of this Option.
12. Early Disposition of Stock. Optionee understands that if he disposes
of any Shares received under this Option within two (2) years after the date of
this Agreement or within one (1) year after such Shares were transferred to him,
he will be treated for federal income tax purposes as having received ordinary
income at the time of such disposition in an amount generally measured by the
difference between the price paid for the Shares and the lower of the fair
market value of the Shares at the date of the exercise or the fair market value
of the Shares at the date of disposition. The amount of such ordinary income may
be measured differently if Optionee is an officer, director or 10% shareholder
of the Company, or if the Shares were subject to a substantial risk of
forfeiture at the time they were transferred to Optionee. Optionee hereby agrees
to notify the Company in writing within 30 days after the date of any such
disposition. Optionee understands that if he disposes of such Shares at any time
after the expiration of such two-year and one-year holding periods, any gain on
such sale will be taxed as long-term capital gain.
-4-
<PAGE> 19
13. No Employment Rights. This Option shall not confer upon Optionee any
right with respect to continuation of employment by the Company or its
subsidiaries, nor shall it interfere in any way with the right of Optionee or
the Company, or any of its subsidiaries, to terminate Optionee's employment at
any time.
CYMER LASER TECHNOLOGIES,
a California corporation
By:
---------------------------------
Its:
--------------------------------
-5-
<PAGE> 20
Optionee acknowledges: (a) receipt of a copy of Section 260.141.11 of
Title 11 of the California Administrative Code; (b) receipt of a copy of the
foregoing Option and attachments referenced therein; and understands that all
rights and liabilities with respect to this Option are set forth in the Option
and the Plan, a copy of which is annexed hereto, and represents that he is
familiar with the terms and provisions of the Plan, and hereby accepts this
Option subject to all of the terms and provisions of the Plan; and (c) that as
of the date of grant of this Option, it sets forth the entire understanding
between the undersigned Optionee and the Company and its affiliates regarding
the acquisition of stock in the Company and supersedes all prior oral and
written agreements on that subject.
Optionee hereby agrees to accept as binding, conclusive and final all
decisions or interpretations of the Board upon any questions arising under the
Plan.
Dated:
---------------
---------------------------
1, Optionee
Address:
---------------------------
---------------------------
-6-
<PAGE> 21
EXHIBIT A
1987 STOCK OPTION PLAN
EXERCISE NOTICE
CYMER Laser Technologies
16275 Technology Drive
San Diego, CA 92127-1815
Attention: Chief Financial Officer
1. Exercise of Option. Effective as of today, __________, 19__, the
undersigned ("Optionee") hereby elects to exercise Optionee's option to purchase
________ shares of the Common Stock (the "Shares") of CYMER Laser Technologies
(the "Company") under and pursuant to the 1987 Stock Option Plan, as amended
(the "Plan") and the [ ] Incentive [ ] Nonstatutory Stock Option Agreement dated
3 (the "Option Agreement").
2. Representations of Optionee. Optionee acknowledges that Optionee has
received, read and understood the Plan and the Option Agreement and agrees to
abide by and be bound by their terms and conditions.
3. Rights as Shareholder. Until the stock certificate evidencing such
Shares is issued (as evidenced by the appropriate entry on the books of the
Company or of a duly authorized transfer agent of the Company), no right to vote
or receive dividends or any other rights as a shareholder shall exist with
respect to the optioned Stock, notwithstanding the exercise of the Option. The
Company shall issue (or cause to be issued) such stock certificate promptly
after the Option is exercised. No adjustment will be made for a dividend or
other right for which the record date is prior to the date the stock certificate
is issued, except as provided in Section 11 of the Plan.
Optionee shall enjoy rights as a shareholder until such time as
Optionee disposes of the Shares or the Company and/or its assignee(s) exercises
the Right of First Refusal hereunder. Upon such exercise, Optionee shall have no
further rights as a holder of the Shares so purchased except the right to
receive payment for the Shares so purchased in accordance with the provisions of
this Agreement, and Optionee shall forthwith cause the certificate(s) evidencing
the Shares so purchased to be surrendered to the Company for transfer or
cancellation.
<PAGE> 22
4. Company's Right of First Refusal. Before any Shares held by Optionee
or any transferee (either being sometimes referred to herein as the "Holder")
may be sold or otherwise transferred (including transfer by gift or operation of
law), the Company or its assignee(s) shall have a right of first refusal to
purchase the Shares on the terms and conditions set forth in this Section (the
"Right or First Refusal").
(a) Notice of Proposed Transfer. The Holder of the Shares shall
deliver to the Company a written notice (the "Notice") stating: (i) the Holder's
bona fide intention to sell or otherwise transfer such Shares; (ii) the name of
each proposed purchaser or other transferee ("Proposed Transferee"); (iii) the
number of Shares to be transferred to each Proposed Transferee; and (iv) the
bona fide cash price or other consideration for which the Holder proposes to
transfer the Shares (the "Offered Price"), and the Holder shall offer the Shares
at the Offered Price to the Company or its assignee(s).
(b) Exercise of Right of First Refusal. At any time within thirty
(30) days after receipt of the Notice, the Company and/or its assignee(s) may,
by giving written notice to the Holder, elect to purchase all, but not less than
all, of the Shares pro posed to be transferred to any one or more of the
Proposed Transferees, at the purchase price determined in accordance with
subsection (c) below.
(c) Purchase Price. The purchase price ("Purchase Price") for the
Shares purchased by the Company or its assignee(s) under this Section shall be
the Offered Price. If the Offered Price includes consideration other than cash,
the cash equivalent value of the non-cash consideration shall be determined by
the Board of Directors of the Company in good faith.
(d) Payment. Payment of the Purchase Price shall be made, at the
option of the Company or its assignee(s), in cash (by check), by cancellation of
all or a portion of any outstanding indebtedness of the Holder to the Company
(or, in the case of repurchase by an assignee, to the assignee), or by any
combination thereof within 30 days after receipt of the Notice or in the manner
and at the times set forth in the Notice.
(e) Holder's Right to Transfer. If all of the Shares proposed in the
Notice to be transferred to a given Proposed Transferee are not purchased by the
Company and/or its assignee(s) as provided in this Section, then the Holder may
sell or otherwise transfer such Shares to that Proposed Transferee at the
Offered Price or at a higher price, provided that such sale or other transfer is
consummated within 120 days after the date of the Notice and
-2-
<PAGE> 23
provided further that any such sale or other transfer is effected in accordance
with any applicable securities laws and the Proposed Transferee agrees in
writing that the provisions of this Section shall continue to apply to the
Shares in the hands of such Proposed Transferee. If the Shares described in the
Notice are not transferred to the Proposed Transferee within such period, a new
Notice shall be given to the Company, and the Company and/or its assignees shall
again be offered the Right of First Refusal before any Shares held by the Holder
may be sold or otherwise transferred.
(f) Exception for Certain Family Transfers. Anything to the contrary
contained in this Section notwithstanding, the transfer of any or all of the
Shares during the Optionee's lifetime or on the Optionee's death by will or
intestacy to the Optionee's immediate family or a trust for the benefit of the
Optionee's immediate family shall be exempt from the provisions of this Section.
"Immediate Family" as used herein shall mean spouse, lineal descendant or
antecedent, father, mother, brother or sister. In such case, the transferee or
other recipient shall receive and hold the Shares so transferred subject to the
provisions of this Section, and there shall be no further transfer of such
Shares except in accordance with the terms of this Section.
(g) Termination of Right of First Refusal. The Right of First Refusal
shall terminate as to any Shares 90 days after the first sale of Common Stock of
the Company to the general public pursuant to a registration statement filed
with and declared effective by the Securities and Exchange Commission under the
1933 Act.
5. Tax Consultation. Optionee understands that Optionee may suffer
adverse tax consequences as a result of Optionee's purchase or disposition of
the Shares. Optionee represents that Optionee has consulted with any tax
consultants Optionee deems advisable in connection with the purchase or
disposition of the Shares and that Optionee is not relying on the Company for
any tax advice.
6. Restrictive Legends and Stop-Transfer Orders.
(a) Legends. Optionee understands and agrees that the Company shall
cause the legends set forth below or legends substantially equivalent thereto,
to be placed upon any certificate(s) evidencing ownership of the Shares together
with any other legends that may be required by state or federal securities laws:
THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933 (THE "ACT") AND MAY NOT BE OFFERED, SOLD OR
OTHERWISE TRANSFERRED, PLEDGED OR HYPOTHECATED UNLESS AND
-3-
<PAGE> 24
UNTIL REGISTERED UNDER THE ACT OR, IN THE OPINION OF COUNSEL IN FORM
AND SUBSTANCE SATISFACTORY TO THE ISSUER OF THESE SECURITIES, SUCH
OFFER, SALE OR TRANSFER, PLEDGE OR HYPOTHECATION IS IN COMPLIANCE
THEREWITH.
THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO CERTAIN
RESTRICTIONS ON TRANSFER AND RIGHT OF FIRST REFUSAL OPTIONS HELD BY
THE ISSUER OR ITS ASSIGNEE(S) AS SET FORTH IN THE EXERCISE NOTICE
BETWEEN THE ISSUER AND THE ORIGINAL HOLDER OF THESE SHARES, A COPY OF
WHICH MAY BE OBTAINED AT THE PRINCIPAL OFFICE OF THE ISSUER. SUCH
TRANSFER RESTRICTIONS AND RIGHT OF FIRST REFUSAL ARE BINDING ON
TRANSFEREES OF THESE SHARES.
IT IS UNLAWFUL TO CONSUMMATE A SALE OR TRANSFER OF THIS SECURITY, OR
ANY INTEREST THEREIN, OR TO RECEIVE ANY CONSIDERATION THEREFOR,
WITHOUT THE PRIOR WRITTEN CONSENT OF THE COMMISSIONER OF CORPORATIONS
OF THE STATE OF CALIFORNIA, EXCEPT AS PERMITTED IN THE COMMISSIONER'S
RULES.
Optionee understands that transfer of the Shares may be restricted by
Section 260.141.11 of the Rules of the California Corporations Commissioner, a
copy of which is attached to Exhibit B, the Investment Representation Statement.
(b) Stop-Transfer Notices. Optionee agrees that, in order to ensure
compliance with the restrictions referred to herein, the Company may issue
appropriate "stop transfer" instructions to its transfer agent, if any, and
that, if the Company transfers its own securities, it may make appropriate
notations to the same effect in its own records.
(c) Refusal to Transfer. The Company shall not be required (i) to
transfer on its books any Shares that have been sold or otherwise transferred in
violation of any of the provisions of this Agreement or (ii) to treat as owner
of such Shares or to accord the right to vote or pay dividends to any purchaser
or other transferee to whom such Shares shall have been so transferred.
7. Successors and Assigns. The Company may assign any of its rights
under this Agreement to single or multiple assignees, and this Agreement shall
inure to the benefit of the successors and assigns of the Company. Subject to
the restrictions on transfer herein set forth, this Agreement shall be binding
upon Optionee and his or her heirs, executors, administrators, successors and
assigns.
-4-
<PAGE> 25
8. Interpretation. Any dispute regarding the interpretation of this
Agreement shall be submitted by Optionee or by the Company forthwith to the
Company's Board of Directors or the committee thereof that administers the Plan,
which shall review such dispute at its next regular meeting. The resolution of
such a dispute by the Board or committee shall be final and binding on the
Company and on Optionee.
9. Governing Severability. This Agreement shall be governed by and
construed in accordance with the laws of the State of California excluding that
body of law pertaining to conflicts of law. Should any provision of this
Agreement be determined by a court of law to be illegal or unenforceable, the
other provisions shall nevertheless remain effective and shall remain
enforceable.
10. Notices. Any notice required or permitted hereunder shall be given
in writing and shall be deemed effectively given upon personal delivery or upon
deposit in the United States mail by certified mail, with postage and fees
prepaid, addressed to the other party at its address as shown below beneath its
signature, or to such other address as such party may designate in writing from
time to time to the other party.
11. Further Instruments. The parties agree to execute such further
instruments and to take such further action as may be reasonably necessary to
carry out the purposes and intent of this Agreement.
12. Delivery of Payment. Optionee herewith delivers to the Company the
full Exercise Price for the Shares.
-5-
<PAGE> 26
13. Entire Agreement. The Plan and Notice of Grant/Option Agreement are
incorporated herein by reference. This Agreement, the Plan, the Option Agreement
and the Investment Representation Statement constitute the entire agreement of
the parties and supersede in their entirety all prior undertakings and
agreements of the Company and Optionee with respect to the subject matter
hereof, and is governed by California law except for that body of law pertaining
to conflict of laws.
Submitted by: Accepted by:
OPTIONEE: CYMER LASER TECHNOLOGIES
By:
------------------------------
Its:
-----------------------------
- -----------------------------
(Signature)
Address: Address:
16275 Technology Drive
- ----------------------------- San Diego, CA 92127-1815
- -----------------------------
-6-
<PAGE> 27
EXHIBIT B
INVESTMENT REPRESENTATION STATEMENT
OPTIONEE :
COMPANY : CYMER LASER TECHNOLOGIES
SECURITY : COMMON STOCK
AMOUNT :
DATE :
In connection with the purchase of the above-listed Securities, the
undersigned Optionee represents to the Company the following:
(a) Optionee is aware of the company's business affairs and financial
condition and has acquired sufficient information about the Company to reach an
informed and knowledgeable decision to acquire the securities. Optionee is
acquiring these securities for investment for Optionee's own account only and
not with a view to, or for resale in connection with, any "distribution" thereof
within the meaning of the Securities Act of 1933, as amended (the "Securities
Act").
(b) Optionee acknowledges and understands that the securities
constitute "restricted securities" under the Securities Act and have not been
registered under the Securities Act in reliance upon a specific exemption
therefrom, which exemption depends upon, among other things, the bona fide
nature of Optionee's investment intent as expressed herein. In this connection,
Optionee understands that, in the view of the Securities and Exchange
commission, the statutory basis for such exemption may be unavailable if
Optionee's representation was predicated solely upon a present intention to hold
these Securities for the minimum capital gains period specified under tax
statutes, for a deferred sale, for or until an increase or decrease in the
market price of the Securities, or for a period of one year or any other fixed
period in the future. Optionee further understands that the Securities must be
held indefinitely unless they are subsequently registered under the Securities
Act or an exemption from such registration is available. Optionee further
acknowledges and understands that the Company is under no obligation to register
the securities. Optionee understands that the certificate evidencing the
securities will be imprinted with a legend which prohibits the transfer of the
Securities unless they are registered or such
<PAGE> 28
registration is not required in the opinion of counsel satisfactory to the
Company , a legend prohibiting their transfer without the consent of the
Commissioner of Corporations of the State of California, and any other legend
required under applicable state securities laws.
(c) Optionee is familiar with the provisions of Rule 701 and Rule
144, each promulgated under the Securities Act, which, in substance, permit
limited public resale of "restricted securities" acquired, directly or
indirectly from the issuer thereof, in a nonpublic offering subject to the
satisfaction of certain conditions. Rule 701 provides that if the issuer
qualifies under Rule 701 at the time of the grant of the Option to the Optionee,
the exercise will be exempt from registration under the Securities Act. In the
event the Company becomes subject to the reporting requirements of Section 13 or
15(d) of the Securities Exchange Act of 1934, ninety (90) days thereafter (or
such longer period as any market stand-off agreement may require) the securities
exempt under Rule 701 may be resold, subject to the satisfaction of certain of
the conditions specified by Rule 144, including: (1) the resale being made
through a broker in an unsolicited "broker's transaction" or in transactions
directly with a market maker (as said term is defined under the Securities
Exchange Act of 1934); and, in the case of an affiliate, (2) the availability of
certain public information about the Company, (3) the amount of securities being
sold during any three month period not exceeding the limitations specified in
Rule 144(e), and (4) the timely filing of a Form 144, if applicable.
In the event that the Company does not qualify under Rule 701 at the
time of grant of the Option, then the securities may be resold in certain
limited circumstances subject to the provisions of Rule 144, which requires the
resale to occur not less than two years after the party has purchased, and made
full payment for, within the meaning of Rule 144, the securities to be sold;
and, in the case Of an affiliate, or of a non-affiliate who has held the
securities less than three years, the satisfaction of the conditions set forth
in sections (1), (2), (3) and (4) of the paragraph immediately above.
(d) Optionee hereby agrees that if so requested by the Company or any
representative of the underwriters in connection with any registration of the
offering of any securities of the Company under the 1933 Act, Optionee shall not
sell or otherwise transfer any Shares or other securities of the Company during
the 180-day period following the effective date of a registration statement of
the Company filed under the 1933 Act; provided, how ever, that such restriction
shall only apply to the first registration statement of the Company to become
effective under the 1933
-2-
<PAGE> 29
Act which include securities to be sold on behalf of the Company to the public
in an underwritten public offering under the 1933 Act. The Company may impose
stop-transfer instructions with respect to securities subject to the foregoing
restrictions until the end of such 180-day period.
(e) Optionee further understands that in the event all of the
applicable requirements of Rule 701 or 144 are not satisfied, registration under
the Securities Act, compliance with Regulation A, or some other registration
exemption will be required; and that, notwithstanding the fact that Rules 144
and 701 are not exclusive, the Staff of the Securities and Exchange Commission
has expressed its opinion that persons proposing to sell private placement
securities other than in a registered offering and otherwise than pursuant to
Rules 144 or 701 will have a substantial burden of proof in establishing that an
exemption from registration is available for such offers or sales, and that such
persons and their respective brokers who participate in such transactions do so
at their own risk. Optionee understands that no assurances can be given that any
such other registration exemption will be available in such event.
(f) Optionee understands that the certificate evidencing the
Securities will be imprinted with a legend which prohibits the transfer of the
Securities without the consent of the Commissioner of Corporations of
California. Optionee has read the applicable Commissioner's Rules with respect
to such restriction, a copy of which is attached.
Signature of Optionee:
---------------------------
Date: , 19
---------- ----
-3-
<PAGE> 30
ATTACHMENT 1
STATE OF CALIFORNIA - CALIFORNIA ADMINISTRATIVE CODE
Title 10. Investment - Chapter 3. Commissioner of Corporations
260.141.11: Restriction on Transfer. (a) The issuer of any security
upon which a restriction on transfer has been imposed pursuant to Sections
260.102.6, 260.141.10 or 260.534 shall cause a copy of this section to be
delivered to each issuee or transferee of such security at the time the
certificate evidencing the security is delivered to the issuee or transferee.
(b) It is unlawful for the holder of any such security to consummate a
sale or transfer of such security, or any interest therein, without the prior
written consent of the Commissioner (until this condition is removed pursuant to
Section 260.141.12 of these rules), except:
(1) to the issuer;
(2) pursuant to the order or process of any court;
(3) to any person described in Subdivision (i) of Section
25102 of the Code or Section 260.105.14 of these rules;
(4) to the transferror's ancestors, descendants or spouse, or
any custodian or trustee for the account of the transferrer or the transferror's
ancestors, descendants, or spouse; or to a transferee by a trustee or custodian
for the account of the transferee or the transferee's ancestors, descendants or
spouse;
(5) to holders of securities of the same class of the same
issuer;
(6) by way of gift or donation intervivos or on death;
(7) by or through a broker-dealer licensed under the Code
(either acting as such or as a finder) to a resident of a foreign state,
territory or country who is neither domiciled in this state to the knowledge of
the broker-dealer, nor actually present in this state if the sale of such
securities is not in violation of any securities law of the foreign state,
territory or country concerned;
(8) to a broker-dealer licensed under the Code in a principal
transaction, or as an underwriter or member of an underwriting syndicate or
selling group;
(9) if the interest sold or transferred is a pledge or other
lien given by the purchaser to the seller upon a sale of the security for which
the Commissioner's written consent is obtained or under this rule not required;
(10) by way of a sale qualified under Sections 25111, 25112,
25113 or 25121 of the Code, of the securities to be transferred, provided that
no order under Section 25140 or subdivision (a) of Section 25143 is in effect
with respect to such qualification;
(11) by a corporation to a wholly owned subsidiary of such
corporation, or by a wholly owned subsidiary of a corporation to such
corporation;
(12) by way of an exchange qualified under Section 25111,
25112 or 25113 of the Code, provided that no order under Section 25140 or
subdivision (a) of Section 25143 is in effect with respect to such
qualification;
(13) between residents of foreign states, territories or
countries who are neither domiciled nor actually present in this state;
(14) to the State Controller pursuant to the Unclaimed
Property Law or to the administrator of the unclaimed property law of another
state; or
(15) by the State Controller pursuant to the Unclaimed
Property Law or by the Administrator of the unclaimed property law of another
state if, in either such case, such person (i) discloses to potential purchasers
at the sale that transfer of the securities is restricted under this rule, (ii)
delivers to each purchaser a copy of this rule, and (iii) advises the
Commissioner of the name of each purchaser;
(16) by a trustee to a successor trustee when such transfer
does not involve a change in the beneficial ownership of the securities;
(17) by way of an offer and sale of outstanding securities in
an issuer transaction that is subject to the qualification requirement of
Section 25110 of the Code but exempt from the qualification requirement by
subdivision (f) of Section 25102;
provided that any such transfer is on the condition that any certificate
evidencing the security issued to such transferee shall contain the legend
required by this section.
(c) The certificates representing all such securities subject to
such a restriction on transfer, whether upon initial issuance or upon any
transfer thereof, shall bear on their face a legend, prominently stamped or
printed thereon in capital letters of not less than 10-point size, reading as
follows:
"IT IS UNLAWFUL TO CONSUMMATE A SALE OR TRANSFER OF THIS
SECURITY, OR ANY INTEREST THEREIN, OR TO RECEIVE ANY
CONSIDERATION THEREFOR, WITHOUT THE PRIOR WRITTEN CONSENT OF
THE COMMISSIONER OF CORPORATIONS OF THE STATE OF CALIFORNIA,
EXCEPT AS PERMITTED IN THE COMMISSIONER'S RULES."
<PAGE> 31
EXHIBIT C
SECURITY AGREEMENT
This Security Agreement is made as of _________, 19__ between CYMER
LASER TECHNOLOGIES, a California corporation ("Pledgee"), and 1 ("Pledgor").
Recitals
Pursuant to Pledgor's election to purchase Shares under the Stock
Option Agreement dated 3 (the "Option Agreement"), between Pledgor and Pledgee
under Pledgee's 1987 Stock Option Plan, and Pledgor's election under the terms
of the Option Agreement to pay for such Shares with his promissory note (the
"Note"), Pledgor has purchased __________ Shares at a price of $_____ per share,
for a total purchase price of $______. The Note and the obligations hereunder
are as set forth in Exhibit E to the Option Agreement. Unless otherwise defined
herein, the terms defined in the Option Agreement shall have the same defined
meanings herein.
NOW, THEREFORE, it is agreed as follows:
1. Creation and Description of Security Interest. In consideration of
the transfer of the Shares to Pledgor under the Option Agreement, Pledgor,
pursuant to the Commercial Code of the State of California, hereby pledges all
of such Shares (herein sometimes referred to as the "Collateral") represented by
certificate number ______, duly endorsed in blank or with executed stock
powers, and herewith delivers said certificate to the Secretary of Pledgee, or
such other person designated by the Pledgee ("Pledge holder"), who shall hold
said certificate subject to the terms and conditions of this Security Agreement.
The pledged stock (together with an executed blank stock assignment for
use in transferring all or a portion of the Shares to Pledgee if, as and when
required pursuant to this Security Agreement) shall be held by the Pledgeholder
as security for the repayment of the Note, and any extensions or renewals
thereof, to be executed by Pledgor pursuant to the terms of the Option
Agreement, and the Pledgeholder shall not encumber or dispose of such Shares
except in accordance with the provisions of this Security Agreement.
2. Pledgor's Representations and Covenants. To induce Pledgee to enter
into this Security Agreement, Pledgor represents and covenants to Pledgee, its
successors and assigns, as follows:
<PAGE> 32
(a) Payment of Indebtedness. Pledgor will pay the principal sum of
the Note secured hereby, together with interest thereon, at the time and in the
manner provided in the Note.
(b) Encumbrances. The Shares are free of all other encumbrances,
defenses and liens, and Pledgor will not further encumber the Shares without the
prior written consent of Pledgee.
(c) Margin Regulations. In the event that Pledgee's Common Stock
becomes margin-listed by the Federal Reserve Board subsequent to the execution
of this Security Agreement, and Pledgee is classified as a "lender" within the
meaning of the regulations under Part 207 of Title 12 of the Code of Federal
Regulations ("Regulation G"), Pledgor agrees to cooperate with Pledgee in making
any amendments to the Note or providing any additional collateral as may be
necessary to comply with such regulations.
3. Voting Rights. During the term of this pledge and so long as all
payments of principal and interest are made as they become due under the terms
of the Note, Pledgor shall have the right to vote all of the Shares pledged
hereunder.
4. Stock Adjustments. In the event that during the term of the pledge
any stock dividend, reclassification, readjustment or other changes declared or
made in the capital structure of Pledgee, all new, substituted and additional
shares or other securities issued by reason of any such change shall be
delivered to and held by the Pledgee under the terms of this Security Agreement
in the same manner as the Shares originally pledged hereunder. In the event of
substitution of such securities, Pledgor, Pledgee and Pledgeholder shall
cooperate and execute such documents as are reasonable so as to provide for the
substitution of such Collateral and, upon such substitution, references to
"Shares" in this Security Agreement shall include the substituted shares of
capital stock of Pledgor as a result thereof.
5. Warrants and Rights. In the event that, during the term of this
pledge, subscription warrants or other rights or options shall be issued in
connection with the pledged Shares, such rights, warrants and options shall be
the property of Pledgor and, if exercised by Pledgor, all new stock or other
securities so acquired by Pledgor as it relates to the pledged Shares then held
by Pledge holder shall be immediately delivered to Pledgeholder, to be held
under the terms of this Security Agreement in the same manner as the Shares
pledged.
6. Default. Pledgor shall be deemed to be in default of the Note and of
this Security Agreement in the event:
-2-
<PAGE> 33
(a) Payment of principal or interest on the Note shall be delinquent
for a period of 10 days or more; or
(b) Pledgor fails to perform any of the covenants set forth in the
Option Agreement or contained in this Security Agreement for a period of 10 days
after written notice thereof from Pledgee.
In the case of an event of Default, as set forth above, Pledgee shall
have the right to accelerate payment of the Note upon notice to Pledgor, and
Pledgee shall thereafter be entitled to pursue his remedies under the California
Commercial Code.
7. Release of Collateral. Subject to any applicable contrary rules
under Regulation G, there shall be released from this pledge a portion of the
pledged Shares held by Pledgeholder hereunder upon payments of the principal of
the Note. The number of the pledged Shares which shall be released shall be that
number of full Shares which bears the same proportion to the initial number of
Shares pledged hereunder as the payment of principal bears to the initial full
principal amount of the Note.
8. Withdrawal or Substitution of Collateral. Pledgor shall not sell,
withdraw, pledge, substitute or otherwise dispose of all or any part of the
Collateral without the prior written consent of Pledgee.
9. Term. The within pledge of Shares shall continue until the payment
of all indebtedness secured hereby, at which time the remaining pledged stock
shall be promptly delivered to Pledgor, subject to the provisions for prior
release of a portion of the Collateral as provided in paragraph 7 above.
10. Insolvency. Pledgor agrees that if a bankruptcy or insolvency
proceeding is instituted by or against it, or if a receiver is appointed for the
property of Pledgor, or if Pledgor makes an assignment for the benefit of
creditors, the entire amount unpaid on the Note shall become immediately due and
payable, and Pledgee may proceed as provided in the case of default.
11. Pledgeholder Liability. In the absence of willful or gross
negligence, Pledgeholder shall not be liable to any party for any of his acts,
or omissions to act, as Pledgeholder.
12. Invalidity of Particular Provisions. Pledgor and Pledgee agree that
the enforceability or invalidity of any provision or provisions of this Security
Agreement shall not render any other provision or provisions herein contained
unenforceable or invalid.
-3-
<PAGE> 34
13. Successors or Assigns. Pledgor and Pledgee agree that all of the
terms of this Security Agreement shall be binding on their respective successors
and assigns, and that the term "Pledgor" and the term "Pledgee" as used herein
shall be deemed to include, for all purposes, the respective designees,
successors, assigns, heirs, executors and administrators.
14. Governing Law. This Security Agreement shall be interpreted and
governed under the laws of the State of California.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the day and year first above written.
"PLEDGOR" --------------------------------------------
(Signature)
Name: 1
Address:
--------------------------------------------
--------------------------------------------
"PLEDGEE" CYMER Laser Technologies
a California corporation
By:
------------------------------------------
Its:
-----------------------------------------
"PLEDGEHOLDER"
-----------------------------------------
-4-
<PAGE> 35
EXHIBIT D
INSTALLMENT NOTE
$______.00 _________________, California
_____________, 19__
FOR VALUE RECEIVED, 1 promises to pay to CYMER LASER TECHNOLOGIES, a
California corporation (the "Company"), or order, the principal sum of
____________________________ Dollars ($________), together with interest on the
unpaid principal hereof from the date hereof at the rate of ____ percent (____%)
per annum, compounded semiannually.
Principal and interest shall be due and payable as follows:
________________________________________________________________________________
________________________________________________________________________________
_______________________. Should the undersigned fail to make full payment of any
installment of principal or interest for a period of 10 days or more after the
due date thereof, or should the undersigned's employment or, if applicable,
consulting relationship with the Company be terminated for any reason (or for no
reason), the whole unpaid balance on this Note of principal and interest shall
become immediately due at the option of the holder of this Note. Payments of
principal and interest shall be made in lawful money of the United States of
America.
The undersigned may at any time prepay all or any portion of the
principal or interest owing hereunder.
This Note is subject to the terms of a Stock Option Agreement, dated as
of 3. This Note is secured by a pledge of the Company's Common Stock under the
terms of a Security Agreement of even date herewith and is subject to all the
provisions thereof.
Should any action be instituted for the collection of this Note, the
reasonable costs and attorneys' fees therein of the holder shall be paid by the
undersigned.
The holder of this Note shall have full recourse against the maker, and
shall not be required to proceed against the collateral securing this Note in
the event of default.
The undersigned understands that the two-year holding period under Rule
144 of the Securities Act of 1933 generally will not begin to run until this
Note has been paid in full.
----------------------------------
1
<PAGE> 36
CYMER LASER TECHNOLOGIES
NONSTATUTORY STOCK OPTION AGREEMENT
CYMER Laser Technologies, a California corporation (the "Company"), has
granted to 1 (the "Optionee"), an option (the "Option") to purchase a total of 2
shares of Common Stock (the "Shares"), at the price determined as provided
herein, and in all respects subject to the terms, definitions and provisions of
the 1987 Stock Option Plan (the "Plan") adopted by the Company which is
incorporated herein by reference. Unless otherwise defined herein, the terms
defined in the Plan shall have the same defined meanings herein.
1. Nature of the Option. This Option is intended by the Company and the
Optionee to be a Nonstatutory Stock Option, and does not qualify for any special
tax benefits to the Optionee. This Option is not an Incentive Stock Option and
is not subject to Section 5(b) of the Plan.
2. Exercise Price. The exercise price is $3 for each share of Common
Stock.
3. Exercise of Option. This Option shall be exercisable during its term
in accordance with the provisions of Section 9 of the Plan as follows:
(i) Right to Exercise.
(a) Subject to subsections 3(i)(b) (c) and (d) below, this
Option shall vest cumulatively from 4 (the "Vesting Commencement Date"), as
follows: 25% of the Shares subject to the Option shall become exercisable on the
first anniversary of the Vesting Commencement Date; thereafter, 6.25% of the
Shares subject to the Option shall become exercisable at the end of each
three-month period.
(b) This Option may not be exercised for a fraction of a share.
(c) In the event of Optionee's death, disability or other
termination of employment or consulting relationship, the exercisability of the
Option is governed by Sections 7, 8 and 9 below.
(d) In no event may this Option be exercised after the date of
expiration of the term of this Option as set forth in Section 11 below.
(ii) Method of Exercise. This Option shall be exercisable by written
notice in the form attached hereto as Exhibit A. Such written notice shall be
signed by the Optionee and
<PAGE> 37
shall be delivered in person or by certified mail to the Secretary of the
Company. The written notice shall be accompanied by payment of the exercise
price. This Option shall be deemed exercised upon receipt by the Company of such
written notice accompanied by the exercise price.
No Shares will be issued pursuant to the exercise of an Option unless
such issuance and such exercise shall comply with all relevant provisions of law
and the requirements of any stock exchange upon which the Shares may then be
listed. Assuming such compliance, for income tax purposes the Shares shall be
considered transferred to the Optionee on the date on which the Option is
exercised with respect to such Shares.
4. Optionee's Representations. In the event the Shares purchasable
pursuant to the exercise of this Option have not been registered under the
Securities Act of 1933, as amended, at the time this Option is exercised,
Optionee shall, concurrently with the exercise of all or any portion of this
Option, deliver to the Company his Investment Representation Statement in the
form attached hereto as Exhibit B, and shall read the applicable rules of the
Commissioner of Corporations attached to such Investment Representation
Statement.
5. Method of Payment. Payment of the exercise price shall be by cash or
check made payable to the Company, or, at the election of the Board, by delivery
of a promissory note (the "Note") of Optionee in the amount of the exercise
price, together with the execution and delivery by the Optionee of a security
agreement (the "Security Agreement") securing the amount of the Note by a pledge
of the Shares purchased by the Note; the Note shall be in the form attached
hereto as Exhibit D, shall contain the terms and be payable as set forth
therein, and shall bear interest at a rate (compounded semiannually) not less
than the rate required to insure that there will be no "unstated interest" with
respect to the purchase of shares under this Option, pursuant to the applicable
provisions of the Code and the regulations in effect thereunder at the time of
such purchase; the Security Agreement shall be in the form attached hereto as
Exhibit C.
6. Restrictions on Exercise. This Option may not be exercised until
such time as the Plan has been approved by the shareholders of the Company, or
if the issuance of such Shares upon such exercise or the method of payment of
consideration for such shares would constitute a violation of any applicable
federal or state securities or other law or regulation, including any rule under
Part 207 of Title 12 of the Code of Federal Regulations ("Regulation G") as
promulgated by the Federal Reserve Board. As a condition to the exercise of this
Option, the Company may require Optionee to make any representation and warranty
to the Company as may be required by any applicable law or regulation.
-2-
<PAGE> 38
7. Termination of Status as an Employee or Consultant. If Optionee
ceases to serve as an Employee or Consultant, he may, but only within three (3)
months after the date he ceases to be an Employee or Consultant of the Company,
(but in no event later than the date of expiration of the term of this Option as
set forth in Section 11 below) exercise this Option to the extent that he was
entitled to exercise it at the date of such termination. To the extent that he
was not entitled to exercise this Option at the date of such termination, or if
he does not exercise this Option within the time specified herein, the Option
shall terminate.
8. Disability of Optionee. Notwithstanding the provisions of Section 7
above, if Optionee is unable to continue his employment or consulting
relationship with the Company as a result of his total and permanent disability
(as defined in Section 22(e)(3) of the Code), he may, but only within six (6)
months from the date of termination of employment or consulting relationship,
(but in no event later than the date of expiration of the term of this Option as
set forth in Section 11 below), exercise his Option to the extent he was
entitled to exercise it at the date of such termination. To the extent that he
was not entitled to exercise the Option at the date of termination, or if he
does not exercise such Option (which he was entitled to exercise) within the
time specified herein, the Option shall terminate.
9. Death of Optionee. In the event of the death of Optionee:
(i) during the term of this Option and while an Employee or
Consultant of the Company and having been in Continuous Status as an Employee or
Consultant since the date of grant of the Option, the Option may be exercised,
at any time within six (6) months following the date of death, (but in no event
later than the date of expiration of the term of this Option as set forth in
Section 11 below), by Optionee's estate or by a person who acquired the right to
exercise the Option by bequest or inheritance, but only to the extent of the
right to exercise that would have accrued had Optionee continued living and
remained in Continuous Status as an Employee or Consultant six (6) months after
the date of death; or
(ii) within thirty (30) days after the termination of Optionee's
Continuous Status as an Employee or Consultant, the Option may be exercised, at
any time within six (6) months following the date of death (but in no event
later than the date of expiration of the term of this Option as set forth in
Section 11 below), by Optionee's estate or by a person who acquired the right to
exercise the Option by bequest or inheritance, but only to the extent of the
right to exercise that had accrued at the date of termination.
-3-
<PAGE> 39
10. Non-Transferability of Option. This Option may not be transferred
in any manner otherwise than by will or by the laws of descent or distribution
and may be exercised during the lifetime of Optionee only by him. The terms of
this Option shall be binding upon the executors, administrators, heirs,
successors and assigns of the Optionee.
11. Term of Option. This Option may not be exercised more than five (5)
years from the date of grant of this Option, and may be exercised during such
term only in accordance with the Plan and the terms of this Option.
12. Taxation Upon Exercise of Option. Optionee understands that, upon
exercise of this Option, he will recognize income for tax purposes in an amount
equal to the excess of the then fair market value of the shares over the
exercise price. The Company will be required to withhold tax from Optionee's
current compensation with respect to such income; to the extent that Optionee's
current compensation is insufficient to satisfy the withholding tax liability,
the Company may require the Optionee to make a cash payment to cover such
liability as a condition of exercise of this Option. Upon a resale of such
shares by the Optionee, any difference between the sale price and the fair
market value of the shares on the date of exercise of the Option will be treated
as capital gain or loss.
13. No Right to Continue as Employee or Consultant. This Option shall
not confer upon Optionee any right with respect to continuation as an employee
or consultant of the Company or its subsidiaries, nor shall this Option
interfere in any way with the right of Optionee or the Company, or any of its
subsidiaries, to terminate Optionee's status as an employee or consultant at any
time.
Date of Grant: 5
CYMER LASER TECHNOLOGIES,
a California corporation
By:
-------------------------
-4-
<PAGE> 40
Optionee acknowledges: (a) receipt of a copy of Section 260.141.11 of
Title 11 of the California Administrative Code; (b) receipt of a copy of the
foregoing Option and attachments referenced therein; and understands that all
rights and liabilities with respect to this Option are set forth in the Option
and the Plan, a copy of which is annexed hereto, and represents that he is
familiar with the terms and provisions of the Plan, and hereby accepts this
Option subject to all of the terms and provisions of the Plan; and (c) that as
of the date of grant of this Option, it sets forth the entire understanding
between the undersigned Optionee and the Company and its affiliates regarding
the acquisition of stock in the Company and supersedes all prior oral and
written agreements on that subject.
Optionee hereby agrees to accept as binding, conclusive and final all
decisions or interpretations of the Board upon any questions arising under the
Plan.
Dated:
----------------
---------------------------------
Optionee
-5-
<PAGE> 41
EXHIBIT A
1987 STOCK OPTION PLAN
EXERCISE NOTICE
CYMER Laser Technologies
16275 Technology Drive
San Diego, CA 92127-1815
Attention: Chief Financial Officer
1. Exercise of Option. Effective as of today, __________, 19__, the
undersigned ("Optionee") hereby elects to exercise Optionee's option to purchase
________ shares of the Common Stock (the "Shares") of CYMER Laser Technologies
(the "Company") under and pursuant to the 1987 Stock Option Plan, as amended
(the "Plan") and the [ ] Incentive [ ] Nonstatutory Stock Option Agreement dated
5 (the "Option Agreement").
2. Representations of Optionee. Optionee acknowledges that Optionee has
received, read and understood the Plan and the Option Agreement and agrees to
abide by and be bound by their terms and conditions.
3. Rights as Shareholder. Until the stock certificate evidencing such
Shares is issued (as evidenced by the appropriate entry on the books of the
Company or of a duly authorized transfer agent of the Company), no right to vote
or receive dividends or any other rights as a shareholder shall exist with
respect to the optioned Stock, notwithstanding the exercise of the Option. The
Company shall issue (or cause to be issued) such stock certificate promptly
after the Option is exercised. No adjustment will be made for a dividend or
other right for which the record date is prior to the date the stock certificate
is issued, except as provided in Section 11 of the Plan.
Optionee shall enjoy rights as a shareholder until such time as
Optionee disposes of the Shares or the Company and/or its assignee(s) exercises
the Right of First Refusal hereunder. Upon such exercise, Optionee shall have no
further rights as a holder of the Shares so purchased except the right to
receive payment for the Shares so purchased in accordance with the provisions of
this Agreement, and Optionee shall forthwith cause the certificate(s) evidencing
the Shares so purchased to be surrendered to the Company for transfer or
cancellation.
4. Company's Right of First Refusal. Before any Shares held by Optionee
or any transferee (either being sometimes referred to herein as the "Holder")
may be sold or otherwise transferred (including transfer by gift or operation of
law), the Company or its assignee(s) shall have a right of first refusal to
purchase the
<PAGE> 42
Shares on the terms and conditions set forth in this Section (the "Right or
First Refusal").
(a) Notice of Proposed Transfer. The Holder of the Shares
shall deliver to the Company a written notice (the "Notice") stating: (i) the
Holder's bona fide intention to sell or otherwise transfer such Shares; (ii) the
name of each proposed purchaser or other transferee ("Proposed Transferee");
(iii) the number of Shares to be transferred to each Proposed Transferee; and
(iv) the bona fide cash price or other consideration for which the Holder
proposes to transfer the Shares (the "Offered Price"), and the Holder shall
offer the Shares at the Offered Price to the Company or its assignee(s).
(b) Exercise of Right of First Refusal. At any time within
thirty (30) days after receipt of the Notice, the Company and/or its assignee(s)
may, by giving written notice to the Holder, elect to purchase all, but not less
than all, of the Shares pro posed to be transferred to any one or more of the
Proposed Transferees, at the purchase price determined in accordance with
subsection (c) below.
(c) Purchase Price. The purchase price ("Purchase Price") for
the Shares purchased by the Company or its assignee(s) under this Section shall
be the Offered Price. If the Offered Price includes consideration other than
cash, the cash equivalent value of the non-cash consideration shall be
determined by the Board of Directors of the Company in good faith.
(d) Payment. Payment of the Purchase Price shall be made, at
the option of the Company or its assignee(s), in cash (by check), by
cancellation of all or a portion of any outstanding indebtedness of the Holder
to the Company (or, in the case of repurchase by an assignee, to the assignee),
or by any combination thereof within 30 days after receipt of the Notice or in
the manner and at the times set forth in the Notice.
(e) Holder's Right to Transfer. If all of the Shares proposed
in the Notice to be transferred to a given Proposed Transferee are not
purchased by the Company and/or its assignee(s) as provided in this Section,
then the Holder may sell or otherwise transfer such Shares to that Proposed
Transferee at the Offered Price or at a higher price, provided that such sale or
other transfer is consummated within 120 days after the date of the Notice and
provided further that any such sale or other transfer is effected in accordance
with any applicable securities laws and the Proposed Transferee agrees in
writing that the provisions of this Section shall continue to apply to the
Shares in the hands of such Proposed Transferee. If the Shares described in the
Notice are not transferred to the Proposed Transferee within such period, a new
Notice shall be given to the Company, and the Company and/or its assignees
-2-
<PAGE> 43
shall again be offered the Right of First Refusal before any Shares held by the
Holder may be sold or otherwise transferred.
(f) Exception for Certain Family Transfers. Anything to the contrary
contained in this Section notwithstanding, the transfer of any or all of the
Shares during the Optionee's lifetime or on the Optionee's death by will or
intestacy to the Optionee's immediate family or a trust for the benefit of the
Optionee's immediate family shall be exempt from the provisions of this Section.
"Immediate Family" as used herein shall mean spouse, lineal descendant or
antecedent, father, mother, brother or sister. In such case, the transferee or
other recipient shall receive and hold the Shares so transferred subject to the
provisions of this Section, and there shall be no further transfer of such
Shares except in accordance with the terms of this Section.
(g) Termination of Right of First Refusal. The Right of First
Refusal shall terminate as to any Shares 90 days after the first sale of Common
Stock of the Company to the general public pursuant to a registration statement
filed with and declared effective by the Securities and Exchange Commission
under the 1933 Act.
5. Tax Consultation. Optionee understands that Optionee may suffer
adverse tax consequences as a result of Optionee's purchase or disposition of
the Shares. Optionee represents that Optionee has consulted with any tax
consultants Optionee deems advisable in connection with the purchase or
disposition of the Shares and that Optionee is not relying on the Company for
any tax advice.
6. Restrictive Legends and Stop-Transfer Orders.
(a) Legends. Optionee understands and agrees that the Company shall
cause the legends set forth below or legends substantially equivalent thereto,
to be placed upon any certificate(s) evidencing ownership of the Shares together
with any other legends that may be required by state or federal securities laws:
THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933 (THE "ACT") AND MAY NOT BE OFFERED, SOLD OR
OTHERWISE TRANSFERRED, PLEDGED OR HYPOTHECATED UNLESS AND UNTIL
REGISTERED UNDER THE ACT OR, IN THE OPINION OF COUNSEL IN FORM AND
SUBSTANCE SATISFACTORY TO THE ISSUER OF THESE SECURITIES, SUCH
OFFER, SALE OR TRANSFER, PLEDGE OR HYPOTHECATION IS IN COMPLIANCE
THEREWITH.
THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO CERTAIN
RESTRICTIONS ON TRANSFER AND RIGHT OF FIRST REFUSAL OPTIONS HELD BY
THE ISSUER OR
-3-
<PAGE> 44
ITS ASSIGNEE(S) AS SET FORTH IN THE EXERCISE NOTICE BETWEEN THE
ISSUER AND THE ORIGINAL HOLDER OF THESE SHARES, A COPY OF WHICH MAY
BE OBTAINED AT THE PRINCIPAL OFFICE OF THE ISSUER. SUCH TRANSFER
RESTRICTIONS AND RIGHT OF FIRST REFUSAL ARE BINDING ON TRANSFEREES
OF THESE SHARES.
IT IS UNLAWFUL TO CONSUMMATE A SALE OR TRANSFER OF THIS SECURITY, OR
ANY INTEREST THEREIN, OR TO RECEIVE ANY CONSIDERATION THEREFOR,
WITHOUT THE PRIOR WRITTEN CONSENT OF THE COMMISSIONER OF
CORPORATIONS OF THE STATE OF CALIFORNIA, EXCEPT AS PERMITTED IN THE
COMMISSIONER'S RULES.
Optionee understands that transfer of the Shares may be restricted
by Section 260.141.11 of the Rules of the California Corporations Commissioner,
a copy of which is attached to Exhibit B, the Investment Representation
Statement.
(b) Stop-Transfer Notices. Optionee agrees that, in order to ensure
compliance with the restrictions referred to herein, the Company may issue
appropriate "stop transfer" instructions to its transfer agent, if any, and
that, if the Company transfers its own securities, it may make appropriate
notations to the same effect in its own records.
(c) Refusal to Transfer. The Company shall not be required (i) to
transfer on its books any Shares that have been sold or otherwise transferred in
violation of any of the provisions of this Agreement or (ii) to treat as owner
of such Shares or to accord the right to vote or pay dividends to any purchaser
or other transferee to whom such Shares shall have been so transferred.
7. Successors and Assigns. The Company may assign any of its rights
under this Agreement to single or multiple assignees, and this Agreement shall
inure to the benefit of the successors and assigns of the Company. Subject to
the restrictions on transfer herein set forth, this Agreement shall be binding
upon Optionee and his or her heirs, executors, administrators, successors and
assigns.
8. Interpretation. Any dispute regarding the interpretation of this
Agreement shall be submitted by Optionee or by the Company forthwith to the
Company's Board of Directors or the committee thereof that administers the Plan,
which shall review such dispute at its next regular meeting. The resolution of
such a dispute by the Board or committee shall be final and binding on the
Company and on Optionee.
9. Governing Severability. This Agreement shall be governed by and
construed in accordance with the laws of the State of
-4-
<PAGE> 45
California excluding that body of law pertaining to conflicts of law. Should any
provision of this Agreement be determined by a court of law to be illegal or
unenforceable, the other provisions shall nevertheless remain effective and
shall remain enforceable.
10. Notices. Any notice required or permitted hereunder shall be given
in writing and shall be deemed effectively given upon personal delivery or upon
deposit in the United States mail by certified mail, with postage and fees
prepaid, addressed to the other party at its address as shown below beneath its
signature, or to such other address as such party may designate in writing from
time to time to the other party.
11. Further Instruments. The parties agree to execute such further
instruments and to take such further action as may be reasonably necessary to
carry out the purposes and intent of this Agreement.
12. Delivery of Payment. Optionee herewith delivers to the Company the
full Exercise Price for the Shares.
13. Entire Agreement. The Plan and Notice of Grant/Option Agreement are
incorporated herein by reference. This Agreement, the Plan, the Option Agreement
and the Investment Representation Statement constitute the entire agreement of
the parties and supersede in their entirety all prior undertakings and
agreements of the Company and Optionee with respect to the subject matter
hereof, and is governed by California law except for that body of law pertaining
to conflict of laws.
Submitted by: Accepted by:
OPTIONEE: CYMER LASER TECHNOLOGIES
By:
-----------------------------
Its:
----------------------------
- --------------------------------------
(Signature)
Address: Address:
- -------------------------------------- 16275 Technology Drive
- -------------------------------------- San Diego, CA 92127-1815
-5-
<PAGE> 46
EXHIBIT B
INVESTMENT REPRESENTATION STATEMENT
OPTIONEE : 1
COMPANY : CYMER LASER TECHNOLOGIES
SECURITY : COMMON STOCK
AMOUNT :
DATE :
In connection with the purchase of the above-listed Securities, the
undersigned Optionee represents to the Company the following:
(a) Optionee is aware of the company's business affairs and
financial condition and has acquired sufficient information about the Company to
reach an informed and knowledgeable decision to acquire the securities. Optionee
is acquiring these securities for investment for Optionee's own account only and
not with a view to, or for resale in connection with, any "distribution" thereof
within the meaning of the Securities Act of 1933, as amended (the "Securities
Act").
(b) Optionee acknowledges and understands that the securities
constitute "restricted securities" under the Securities Act and have not been
registered under the Securities Act in reliance upon a specific exemption
therefrom, which exemption depends upon, among other things, the bona fide
nature of Optionee's investment intent as expressed herein. In this connection,
Optionee understands that, in the view of the Securities and Exchange
commission, the statutory basis for such exemption may be unavailable if
Optionee's representation was predicated solely upon a present intention to hold
these Securities for the minimum capital gains period specified under tax
statutes, for a deferred sale, for or until an increase or decrease in the
market price of the Securities, or for a period of one year or any other fixed
period in the future. Optionee further understands that the Securities must be
held indefinitely unless they are subsequently registered under the Securities
Act or an exemption from such registration is available. Optionee further
acknowledges and understands that the Company is under no obligation to register
the securities. Optionee understands that the certificate evidencing the
securities will be imprinted with a legend which prohibits the transfer of the
Securities unless they are registered or such registration is not required in
the opinion of counsel satisfactory to the Company , a legend prohibiting their
transfer without the consent of the Commissioner of Corporations of the State of
<PAGE> 47
California, and any other legend required under applicable state securities
laws.
(c) Optionee is familiar with the provisions of Rule 701 and
Rule 144, each promulgated under the Securities Act, which, in substance, permit
limited public resale of "restricted securities" acquired, directly or
indirectly from the issuer thereof, in a nonpublic offering subject to the
satisfaction of certain conditions. Rule 701 provides that if the issuer
qualifies under Rule 701 at the time of the grant of the Option to the Optionee,
the exercise will be exempt from registration under the Securities Act. In the
event the Company becomes subject to the reporting requirements of Section 13
or 15(d) of the Securities Exchange Act of 1934, ninety (90) days thereafter (or
such longer period as any market stand-off agreement may require) the securities
exempt under Rule 701 may be resold, subject to the satisfaction of certain of
the conditions specified by Rule 144, including: (1) the resale being made
through a broker in an unsolicited "broker's transaction" or in transactions
directly with a market maker (as said term is defined under the Securities
Exchange Act of 1934); and, in the case of an affiliate, (2) the availability of
certain public information about the Company, (3) the amount of securities
being sold during any three month period not exceeding the limitations speci-
fied in Rule 144(e), and (4) the timely filing of a Form 144, if applicable.
In the event that the Company does not qualify under Rule 701 at the
time of grant of the Option, then the securities may be resold in certain
limited circumstances subject to the provisions of Rule 144, which requires the
resale to occur not less than two years after the party has purchased, and made
full payment for, within the meaning of Rule 144, the securities to be sold;
and, in the case Of an affiliate, or of a non-affiliate who has held the
securities less than three years, the satisfaction of the conditions set forth
in sections (1), (2), (3) and (4) of the paragraph immediately above.
(d) Optionee hereby agrees that if so requested by the Company
or any representative of the underwriters in connection with any registration of
the offering of any securities of the Company under the 1933 Act, Optionee shall
not sell or otherwise transfer any Shares or other securities of the Company
during the 180-day period following the effective date of a registration
statement of the Company filed under the 1933 Act; provided, how ever, that such
restriction shall only apply to the first registration statement of the Company
to become effective under the 1933 Act which include securities to be sold on
behalf of the Company to the public in an underwritten public offering under the
1933 Act. The Company may impose stop-transfer instructions with respect to
securities subject to the foregoing restrictions until the end of such 180-day
period.
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<PAGE> 48
(e) Optionee further understands that in the event all of the
applicable requirements of Rule 701 or 144 are not satisfied, registration under
the Securities Act, compliance with Regulation A, or some other registration
exemption will be required; and that, notwithstanding the fact that Rules 144
and 701 are not exclusive, the Staff of the Securities and Exchange Commission
has expressed its opinion that persons proposing to sell private placement
securities other than in a registered offering and otherwise than pursuant to
Rules 144 or 701 will have a substantial burden of proof in establishing that an
exemption from registration is available for such offers or sales, and that such
persons and their respective brokers who participate in such transactions do so
at their own risk. Optionee understands that no assurances can be given that any
such other registration exemption will be available in such event.
(f) Optionee understands that the certificate evidencing the
Securities will be imprinted with a legend which prohibits the transfer of the
Securities without the consent of the Commissioner of Corporations of
California. Optionee has read the applicable Commissioner's Rules with respect
to such restriction, a copy of which is attached.
Signature of Optionee:
---------------------------
Date: , 19
--------- -----
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<PAGE> 49
EXHIBIT C
SECURITY AGREEMENT
This Security Agreement is made as of _________, 199_ between CYMER
Laser Technologies, a California corporation ("Pledgee"), and
___________________________________________ ("Pledgor").
Recitals
Pursuant to Pledgor's election to purchase Shares under the Stock
Option Agreement dated _____________, 199__ (the "Option Agreement"), between
Pledgor and Pledgee under Pledgee's 1987 Stock Option Plan, and Pledgor's
election under the terms of the Option Agreement to pay for such Shares with his
promissory note (the "Note"), Pledgor has purchased __________ Shares at a price
of $_____ per share, for a total purchase price of $______. The Note and the
obligations hereunder are as set forth in Exhibit E to the Option Agreement.
Unless otherwise defined herein, the terms defined in the Option Agreement shall
have the same defined meanings herein.
NOW, THEREFORE, it is agreed as follows:
1. Creation and Description of Security Interest. In consideration of
the transfer of the Shares to Pledgor under the Option Agreement, Pledgor,
pursuant to the Commercial Code of the State of California, hereby pledges all
of such Shares (herein sometimes referred to as the "Collateral") represented by
certificate number ______, duly endorsed in blank or with executed stock
powers, and herewith delivers said certificate to the Secretary of Pledgee, or
such other person designated by the Pledgee ("Pledgeholder"), who shall hold
said certificate subject to the terms and conditions of this Security Agreement.
The pledged stock (together with an executed blank stock assignment for
use in transferring all or a portion of the Shares to Pledgee if, as and when
required pursuant to this Security Agreement) shall be held by the Pledgeholder
as security for the repayment of the Note, and any extensions or renewals
thereof, to be executed by Pledgor pursuant to the terms of the Option Agree-
ment, and the Pledgeholder shall not encumber or dispose of such Shares except
in accordance with the provisions of this Security Agreement.
2. Pledgor's Representations and Covenants. To induce Pledgee to enter
into this Security Agreement, Pledgor represents and covenants to Pledgee, its
successors and assigns, as follows:
<PAGE> 50
(a) Payment of Indebtedness. Pledgor will pay the principal
sum of the Note secured hereby, together with interest thereon, at the time and
in the manner provided in the Note.
(b) Encumbrances. The Shares are free of all other
encumbrances, defenses and liens, and Pledgor will not further encumber the
Shares without the prior written consent of Pledgee.
(c) Margin Regulations. In the event that Pledgee's Common
Stock becomes margin-listed by the Federal Reserve Board subsequent to the
execution of this Security Agreement, and Pledgee is classified as a "lender"
within the meaning of the regulations under Part 207 of Title 12 of the Code of
Federal Regulations ("Regulation G"), Pledgor agrees to cooperate with Pledgee
in making any amendments to the Note or providing any additional collateral as
may be necessary to comply with such regulations.
3. Voting Rights. During the term of this pledge and so long as all
payments of principal and interest are made as they become due under the terms
of the Note, Pledgor shall have the right to vote all of the Shares pledged
hereunder.
4. Stock Adjustments. In the event that during the term of the pledge
any stock dividend, reclassification, readjustment or other changes declared or
made in the capital structure of Pledgee, all new, substituted and additional
shares or other securities issued by reason of any such change shall be
delivered to and held by the Pledgee under the terms of this Security Agreement
in the same manner as the Shares originally pledged hereunder. In the event of
substitution of such securities, Pledgor, Pledgee and Pledgeholder shall
cooperate and execute such documents as are reasonable so as to provide for the
substitution of such Collateral and, upon such substitution, references to
"Shares" in this Security Agreement shall include the substituted shares of
capital stock of Pledgor as a result thereof.
5. Warrants and Rights. In the event that, during the term of this
pledge, subscription warrants or other rights or options shall be issued in
connection with the pledged Shares, such rights, warrants and options shall be
the property of Pledgor and, if exercised by Pledgor, all new stock or other
securities so acquired by Pledgor as it relates to the pledged Shares then held
by Pledge holder shall be immediately delivered to Pledgeholder, to be held
under the terms of this Security Agreement in the same manner as the Shares
pledged.
6. Default. Pledgor shall be deemed to be in default of the Note and of
this Security Agreement in the event:
(a) Payment of principal or interest on the Note shall be
delinquent for a period of 10 days or more; or
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<PAGE> 51
(b) Pledgor fails to perform any of the covenants set forth in
the Option Agreement or contained in this Security Agree ment for a period of 10
days after written notice thereof from Pledgee.
In the case of an event of Default, as set forth above, Pledgee shall
have the right to accelerate payment of the Note upon notice to Pledgor, and
Pledgee shall thereafter be entitled to pursue his remedies under the California
Commercial Code.
7. Release of Collateral. Subject to any applicable contrary rules
under Regulation G, there shall be released from this pledge a portion of the
pledged Shares held by Pledgeholder hereunder upon payments of the principal of
the Note. The number of the pledged Shares which shall be released shall be that
number of full Shares which bears the same proportion to the initial number of
Shares pledged hereunder as the payment of principal bears to the initial full
principal amount of the Note.
8. Withdrawal or Substitution of Collateral. Pledgor shall not sell,
withdraw, pledge, substitute or otherwise dispose of all or any part of the
Collateral without the prior written consent of Pledgee.
9. Term. The within pledge of Shares shall continue until the payment
of all indebtedness secured hereby, at which time the remaining pledged stock
shall be promptly delivered to Pledgor, subject to the provisions for prior
release of a portion of the Collateral as provided in paragraph 7 above.
10. Insolvency. Pledgor agrees that if a bankruptcy or insolvency
proceeding is instituted by or against it, or if a receiver is appointed for the
property of Pledgor, or if Pledgor makes an assignment for the benefit of
creditors, the entire amount unpaid on the Note shall become immediately due and
payable, and Pledgee may proceed as provided in the case of default.
11. Pledgeholder Liability. In the absence of willful or gross
negligence, Pledgeholder shall not be liable to any party for any of his acts,
or omissions to act, as Pledgeholder.
12. Invalidity of Particular Provisions. Pledgor and Pledgee agree that
the enforceability or invalidity of any provision or provisions of this Security
Agreement shall not render any other provision or provisions herein contained
unenforceable or invalid.
13. Successors or Assigns. Pledgor and Pledgee agree that all of the
terms of this Security Agreement shall be binding on their respective successors
and assigns, and that the term
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<PAGE> 52
"Pledgor" and the term "Pledgee" as used herein shall be deemed to include, for
all purposes, the respective designees, successors, assigns, heirs, executors
and administrators.
14. Governing Law. This Security Agreement shall be interpreted and
governed under the laws of the State of California.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the day and year first above written.
"PLEDGOR"
--------------------------
(Signature)
Name:
--------------------------
Address:
--------------------------
--------------------------
"PLEDGEE" CYMER Laser Technologies
a California corporation
By:
----------------------
Title:
-------------------
"PLEDGEHOLDER"
--------------------------
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<PAGE> 53
EXHIBIT D
INSTALLMENT NOTE
$_________________, California
_____________, 19__
FOR VALUE RECEIVED, __________________________ promises to pay to
CYMER Laser Technologies, a California corporation (the "Company"), or order,
the principal sum of ____________________________ Dollars ($________), together
with interest on the unpaid principal hereof from the date hereof at the rate of
____ percent (____%) per annum, compounded semiannually.
Principal and interest shall be due and payable as follows:
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
_______________ Should the undersigned fail to make full payment of any
installment of principal or interest for a period of 10 days or more after the
due date thereof, or should the undersigned's employment or, if applicable,
consulting relationship with the Company be terminated for any reason (or for no
reason), the whole unpaid balance on this Note of principal and interest shall
become immediately due at the option of the holder of this Note. Payments of
principal and interest shall be made in lawful money of the United States of
America.
The undersigned may at any time prepay all or any portion of the
principal or interest owing hereunder.
This Note is subject to the terms of a Stock Option Agreement, dated
as of ______________, 199_. This Note is secured by a pledge of the Company's
Common Stock under the terms of a Security Agree ment of even date herewith and
is subject to all the provisions thereof.
Should any action be instituted for the collection of this Note, the
reasonable costs and attorneys' fees therein of the holder shall be paid by the
undersigned.
The holder of this Note shall have full recourse against the maker,
and shall not be required to proceed against the collateral securing this Note
in the event of default.
The undersigned understands that the two-year holding period under
Rule 144 of the Securities Act of 1933 generally will not begin to run until
this Note has been paid in full.
<PAGE> 1
EXHIBIT 10.3
CYMER, INC.
1996 STOCK OPTION PLAN
1. Purposes of the Plan. The purposes of this Stock Plan are:
- to attract and retain the best available personnel for
positions of substantial responsibility,
- to provide additional incentive to Employees, Directors and
Consultants, and
- to promote the success of the Company's business.
Options granted under the Plan may be Incentive Stock Options or
Nonstatutory Stock Options, as determined by the Administrator at the time of
grant.
2. Definitions. As used herein, the following definitions shall
apply:
(a) "Administrator" means the Board or any of its Committees as
shall be administering the Plan, in accordance with Section 4 of the Plan.
(b) "Applicable Laws" means the requirements relating to the
administration of stock option plans under U. S. state corporate laws, U.S.
federal and state securities laws, the Code, any stock exchange or quotation
system on which the Common Stock is listed or quoted and the applicable laws of
any foreign country or jurisdiction where Options or are, or will be, granted
under the Plan.
(c) "Board" means the Board of Directors of the Company.
(d) "Code" means the Internal Revenue Code of 1986, as amended.
(e) "Committee" means a committee of Directors appointed by the
Board in accordance with Section 4 of the Plan.
(f) "Common Stock" means the Common Stock of the Company.
(g) "Company" means Cymer, Inc., a Nevada corporation.
(h) "Consultant" means any person, including an advisor, engaged
by the Company or a Parent or Subsidiary to render services and who is
compensated for such services.
(i) "Director" means a member of the Board.
<PAGE> 2
(j) "Disability" means total and permanent disability as defined
in Section 22(e)(3) of the Code.
(k) "Employee" means any person, including Officers and
Directors, employed by the Company or any Parent or Subsidiary of the Company. A
Service Provider shall not cease to be an Employee in the case of (i) any leave
of absence approved by the Company or (ii) transfers between locations of the
Company or between the Company, its Parent, any Subsidiary, or any successor.
For purposes of Incentive Stock Options, no such leave may exceed ninety days,
unless reemployment upon expiration of such leave is guaranteed by statute or
contract. If reemployment upon expiration of a leave of absence approved by the
Company is not so guaranteed, on the 181st day of such leave any Incentive Stock
Option held by the Optionee shall cease to be treated as an Incentive Stock
Option and shall be treated for tax purposes as a Nonstatutory Stock Option.
Neither service as a Director nor payment of a director's fee by the Company
shall be sufficient to constitute "employment" by the Company.
(l) "Exchange Act" means the Securities Exchange Act of 1934, as
amended.
(m) "Fair Market Value" means, as of any date, the value of
Common Stock determined as follows:
(i) If the Common Stock is listed on any established stock
exchange or a national market system, including without limitation the Nasdaq
National Market or The Nasdaq SmallCap Market of The Nasdaq Stock Market, its
Fair Market Value shall be the closing sales price for such stock (or the
closing bid, if no sales were reported) as quoted on such exchange or system for
the last market trading day prior to the time of determination, as reported in
The Wall Street Journal or such other source as the Administrator deems
reliable;
(ii) If the Common Stock is regularly quoted by a recognized
securities dealer but selling prices are not reported, the Fair Market Value of
a Share of Common Stock shall be the mean between the high bid and low asked
prices for the Common Stock on the last market trading day prior to the day of
determination, as reported in The Wall Street Journal or such other source as
the Administrator deems reliable;
(iii) In the absence of an established market for the Common
Stock, the Fair Market Value shall be determined in good faith by the
Administrator.
(n) "Incentive Stock Option" means an Option intended to qualify
as an incentive stock option within the meaning of Section 422 of the Code and
the regulations promulgated thereunder.
(o) "Nonstatutory Stock Option" means an Option not intended to
qualify as an Incentive Stock Option.
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<PAGE> 3
(p) "Notice of Grant" means a written or electronic notice
evidencing certain terms and conditions of an individual Option grant. The
Notice of Grant is part of the Option Agreement.
(q) "Officer" means a person who is an officer of the Company
within the meaning of Section 16 of the Exchange Act and the rules and
regulations promulgated thereunder.
(r) "Option" means a stock option granted pursuant to the Plan.
(s) "Option Agreement" means an agreement between the Company and
an Optionee evidencing the terms and conditions of an individual Option grant.
The Option Agreement is subject to the terms and conditions of the Plan.
(t) "Option Exchange Program" means a program whereby outstanding
options are surrendered in exchange for options with a lower exercise price.
(u) "Optioned Stock" means the Common Stock subject to an Option.
(v) "Optionee" means the holder of an outstanding Option granted
under the Plan.
(w) "Parent" means a "parent corporation," whether now or
hereafter existing, as defined in Section 424(e) of the Code.
(x) "Plan" means this 1996 Stock Option Plan.
(y) "Rule 16b-3" means Rule 16b-3 of the Exchange Act or any
successor to Rule 16b-3, as in effect when discretion is being exercised with
respect to the Plan.
(z) "Section 16(b)" means Section 16(b) of the Securities
Exchange Act of 1934, as amended.
(aa) "Service Provider" means an Employee, Director or Consultant.
(bb) "Share" means a share of the Common Stock, as adjusted in
accordance with Section 12 of the Plan.
(cc) "Subsidiary" means a "subsidiary corporation", whether now or
hereafter existing, as defined in Section 424(f) of the Code.
3. Stock Subject to the Plan. Subject to the provisions of Section 12
of the Plan, the maximum aggregate number of Shares which may be optioned and
sold under the Plan is 1,500,000 Shares. The Shares may be authorized, but
unissued, or reacquired Common Stock.
-3-
<PAGE> 4
If an Option expires or becomes unexercisable without having been
exercised in full, or is surrendered pursuant to an Option Exchange Program, the
unpurchased Shares which were subject thereto shall become available for future
grant or sale under the Plan (unless the Plan has terminated); provided,
however, that Shares that have actually been issued under the Plan, whether upon
exercise of an Option, shall not be returned to the Plan and shall not become
available for future distribution under the Plan, except that if Shares of
Restricted Stock are repurchased by the Company at their original purchase
price, such Shares shall become available for future grant under the Plan.
4. Administration of the Plan.
(a) Procedure.
(i) Multiple Administrative Bodies. The Plan may be
administered by different Committees with respect to different groups of Service
Providers.
(ii) Section 162(m). To the extent that the Administrator
determines it to be desirable to qualify Options granted hereunder as
"performance-based compensation" within the meaning of Section 162(m) of the
Code, the Plan shall be administered by a Committee of two or more "outside
directors" within the meaning of Section 162(m) of the Code.
(iii) Rule 16b-3. To the extent desirable to qualify
transactions hereunder as exempt under Rule 16b-3, the Plan shall be
administered by the Board or a Committee of two or more "non-employee directors"
within the meaning of Rule 16b-3.
(iv) Other Administration. Other than as provided above, the
Plan shall be administered by (A) the Board or (B) a Committee, which committee
shall be constituted to satisfy Applicable Laws.
(b) Powers of the Administrator. Subject to the provisions of the
Plan, and in the case of a Committee, subject to the specific duties delegated
by the Board to such Committee, the Administrator shall have the authority, in
its discretion:
(i) to determine the Fair Market Value;
(ii) to select the Service Providers to whom Options and may
be granted hereunder;
(iii) to determine the number of shares of Common Stock to be
covered by each Option granted hereunder;
(iv) to approve forms of agreement for use under the Plan;
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<PAGE> 5
(v) to determine the terms and conditions, not
inconsistent with the terms of the Plan, of any Option granted hereunder. Such
terms and conditions include, but are not limited to, the exercise price, the
time or times when Options may be exercised (which may be based on performance
criteria), any vesting acceleration or waiver of forfeiture restrictions, and
any restriction or limitation regarding any Option or the shares of Common Stock
relating thereto, based in each case on such factors as the Administrator, in
its sole discretion, shall determine;
(vi) to reduce the exercise price of any Option to the then
current Fair Market Value if the Fair Market Value of the Common Stock covered
by such Option shall have declined since the date the Option was granted;
(vii) to institute an Option Exchange Program;
(viii) to construe and interpret the terms of the Plan and
awards granted pursuant to the Plan;
(ix) to prescribe, amend and rescind rules and regulations
relating to the Plan, including rules and regulations relating to sub-plans
established for the purpose of qualifying for preferred tax treatment under
foreign tax laws;
(x) to modify or amend each Option subject to Section
14(c) of the Plan), including the discretionary authority to extend the
post-termination exercisability period of Options longer than is otherwise
provided for in the Plan;
(xi) to allow Optionees to satisfy withholding tax
obligations by electing to have the Company withhold from the Shares to be
issued upon exercise of an Option that number of Shares having a Fair Market
Value equal to the amount required to be withheld. The Fair Market Value of the
Shares to be withheld shall be determined on the date that the amount of tax to
be withheld is to be determined. All elections by an Optionee to have Shares
withheld for this purpose shall be made in such form and under such conditions
as the Administrator may deem necessary or advisable;
(xii) to authorize any person to execute on behalf of the
Company any instrument required to effect the grant of an Option or previously
granted by the Administrator;
(xiii) to make all other determinations deemed necessary or
advisable for administering the Plan.
(c) Effect of Administrator's Decision. The Administrator's
decisions, determinations and interpretations shall be final and binding on all
Optionees and any other holders of Options.
5. Eligibility. Nonstatutory Stock Options may be granted to Service
Providers. Incentive Stock Options may be granted only to Employees.
-5-
<PAGE> 6
6. Limitations.
(a) Each Option shall be designated in the Option Agreement as
either an Incentive Stock Option or a Nonstatutory Stock Option. However,
notwithstanding such designation, to the extent that the aggregate Fair Market
Value of the Shares with respect to which Incentive Stock Options are
exercisable for the first time by the Optionee during any calendar year (under
all plans of the Company and any Parent or Subsidiary) exceeds $100,000, such
Options shall be treated as Nonstatutory Stock Options. For purposes of this
Section 6(a), Incentive Stock Options shall be taken into account in the order
in which they were granted. The Fair Market Value of the Shares shall be
determined as of the time the Option with respect to such Shares is granted.
(b) Neither the Plan nor any Option shall confer upon an Optionee
any right with respect to continuing the Optionee's relationship as a Service
Provider with the Company, nor shall they interfere in any way with the
Optionee's right or the Company's right to terminate such relationship at any
time, with or without cause.
(c) The following limitations shall apply to grants of Options:
(i) No Service Provider shall be granted, in any fiscal year
of the Company, Options to purchase more than 500,000 Shares.
(ii) In connection with his or her initial service, a
Service Provider may be granted Options to purchase up to an additional 500,000
Shares which shall not count against the limit set forth in subsection (i)
above.
(iii) The foregoing limitations shall be adjusted
proportionately in connection with any change in the Company's capitalization as
described in Section 12.
(iv) If an Option is canceled in the same fiscal year of the
Company in which it was granted (other than in connection with a transaction
described in Section 12), the canceled Option will be counted against the limits
set forth in subsections (i) and (ii) above. For this purpose, if the exercise
price of an Option is reduced, the transaction will be treated as a cancellation
of the Option and the grant of a new Option.
7. Term of Plan. Subject to Section 18 of the Plan, the Plan shall
become effective upon its adoption by the Board. It shall continue in effect for
a term of ten (10) years unless terminated earlier under Section 14 of the Plan.
8. Term of Option. The term of each Option shall be stated in the
Option Agreement. In the case of an Incentive Stock Option, the term shall be
ten (10) years from the date of grant or such shorter term as may be provided in
the Option Agreement. Moreover, in the case of an Incentive Stock Option granted
to an Optionee who, at the time the Incentive Stock Option is granted, owns
stock representing more than ten percent (10%) of the voting power of all
classes of stock of the
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<PAGE> 7
Company or any Parent or Subsidiary, the term of the Incentive Stock Option
shall be five (5) years from the date of grant or such shorter term as may be
provided in the Option Agreement.
9. Option Exercise Price and Consideration.
(a) Exercise Price. The per share exercise price for the Shares
to be issued pursuant to exercise of an Option shall be determined by the
Administrator, subject to the following:
(i) In the case of an Incentive Stock Option
(A) granted to an Employee who, at the time the
Incentive Stock Option is granted, owns stock representing more than ten percent
(10%) of the voting power of all classes of stock of the Company or any Parent
or Subsidiary, the per Share exercise price shall be no less than 110% of the
Fair Market Value per Share on the date of grant.
(B) granted to any Employee other than an Employee
described in paragraph (A) immediately above, the per Share exercise price shall
be no less than 100% of the Fair Market Value per Share on the date of grant.
(ii) In the case of a Nonstatutory Stock Option, the per
Share exercise price shall not be less than 85% of the Fair Market Value per
Share on the date of grant. In the case of a Nonstatutory Stock Option intended
to qualify as "performance-based compensation" within the meaning of Section
162(m) of the Code, the per Share exercise price shall be no less than 100% of
the Fair Market Value per Share on the date of grant.
(iii) Notwithstanding the foregoing, Options may be granted
with a per Share exercise price of less than 100% of the Fair Market Value per
Share on the date of grant pursuant to a merger or other corporate transaction.
(b) Waiting Period and Exercise Dates. At the time an Option is
granted, the Administrator shall fix the period within which the Option may be
exercised and shall determine any conditions which must be satisfied before the
Option may be exercised.
(c) Form of Consideration. The Administrator shall determine the
acceptable form of consideration for exercising an Option, including the method
of payment. In the case of an Incentive Stock Option, the Administrator shall
determine the acceptable form of consideration at the time of grant. Such
consideration may consist entirely of:
(i) cash;
(ii) check;
(iii) promissory note;
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<PAGE> 8
(iv) other Shares which (A) in the case of Shares acquired
upon exercise of an option, have been owned by the Optionee for more than six
months on the date of surrender, and (B) have a Fair Market Value on the date of
surrender equal to the aggregate exercise price of the Shares as to which said
Option shall be exercised;
(v) consideration received by the Company under a formal
cashless exercise program adopted by the Company in connection with the Plan;
(vi) a reduction in the amount of any Company liability to
the Optionee, including any liability attributable to the Optionee's
participation in any Company-sponsored deferred compensation program or
arrangement;
(vii) any combination of the foregoing methods of payment;
or
(viii) such other consideration and method of payment for the
issuance of Shares to the extent permitted by Applicable Laws.
10. Exercise of Option.
(a) Procedure for Exercise; Rights as a Shareholder. Any Option
granted hereunder shall be exercisable according to the terms of the Plan and at
such times and under such conditions as determined by the Administrator and set
forth in the Option Agreement. Unless the Administrator provides otherwise,
vesting of Options granted hereunder shall be tolled during any unpaid leave of
absence. An Option may not be exercised for a fraction of a Share.
An Option shall be deemed exercised when the Company
receives: (i) written or electronic notice of exercise (in accordance with the
Option Agreement) from the person entitled to exercise the Option, and (ii) full
payment for the Shares with respect to which the Option is exercised. Full
payment may consist of any consideration and method of payment authorized by the
Administrator and permitted by the Option Agreement and the Plan. Shares issued
upon exercise of an Option shall be issued in the name of the Optionee or, if
requested by the Optionee, in the name of the Optionee and his or her spouse.
Until the Shares are issued (as evidenced by the appropriate entry on the books
of the Company or of a duly authorized transfer agent of the Company), no right
to vote or receive dividends or any other rights as a shareholder shall exist
with respect to the Optioned Stock, notwithstanding the exercise of the Option.
The Company shall issue (or cause to be issued) such Shares promptly after the
Option is exercised. No adjustment will be made for a dividend or other right
for which the record date is prior to the date the Shares are issued, except as
provided in Section 12 of the Plan.
Exercising an Option in any manner shall decrease the number
of Shares thereafter available, both for purposes of the Plan and for sale under
the Option, by the number of Shares as to which the Option is exercised.
-8-
<PAGE> 9
(b) Termination of Relationship as a Service Provider. If an
Optionee ceases to be a Service Provider, other than upon the Optionee's death
or Disability, the Optionee may exercise his or her Option within such period of
time as is specified in the Option Agreement to the extent that he or she is
entitled to exercise it on the date of termination (but in no event later than
the expiration of the term of such Option as set forth in the Option Agreement).
In the absence of a specified time in the Option Agreement, the Option shall
remain exercisable for three (3) months following the Optionee's termination.
If, on the date of termination, the Optionee is not entitled to exercise his or
her entire Option, the Shares covered by the unexercisable portion of the Option
shall revert to the Plan. If, after termination, the Optionee does not exercise
his or her Option within the time specified by the Administrator, the Option
shall terminate, and the Shares covered by such Option shall revert to the Plan.
(c) Disability of Optionee. If an Optionee ceases to be a Service
Provider as a result of the Optionee's Disability, the Optionee may exercise his
or her Option at any time within twelve (12) months from the date of
termination, but only to the extent that the Optionee is entitled to exercise it
on the date of termination (and in no event later than the expiration of the
term of the Option as set forth in the Option Agreement). If, on the date of
termination, the Optionee is not entitled to exercise his or her entire Option,
the Shares covered by the unexercisable portion of the Option shall revert to
the Plan. If, after termination, the Optionee does not exercise his or her
Option within the time specified herein, the Option shall terminate, and the
Shares covered by such Option shall revert to the Plan.
(d) Death of Optionee. If an Optionee dies while a Service
Provider, the Option may be exercised at any time within twelve (12) months
following the date of death (but in no event later than the expiration of the
term of such Option as set forth in the Notice of Grant), by the Optionee's
estate or by a person who acquires the right to exercise the Option by bequest
or inheritance, but only to the extent that the Optionee would have been
entitled to exercise the Option on the date of death. If, at the time of death,
the Optionee is not entitled to exercise his or her entire Option, the Shares
covered by the unexercisable portion of the Option shall immediately revert to
the Plan. The Option may be exercised by the executor or administrator of the
Optionee's estate or, if none, by the person(s) entitled to exercise the Option
under the Optionee's will or the laws of descent or distribution. If the Option
is not so exercised within the time specified herein, the Option shall
terminate, and the Shares covered by such Option shall revert to the Plan.
(e) Buyout Provisions. The Administrator may at any time offer to
buy out for a payment in cash or Shares, an Option previously granted based on
such terms and conditions as the Administrator shall establish and communicate
to the Optionee at the time that such offer is made.
11. Non-Transferability of Options. Unless determined otherwise by
the Administrator, an Option may not be sold, pledged, assigned, hypothecated,
transferred, or disposed of in any manner other than by will or by the laws of
descent or distribution and may be exercised, during the lifetime
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<PAGE> 10
of the Optionee, only by the Optionee. If the Administrator makes an Option
transferable, such Option shall contain such additional terms and conditions as
the Administrator deems appropriate.
12. Adjustments Upon Changes in Capitalization, Dissolution, Merger
or Asset Sale.
(a) Changes in Capitalization. Subject to any required action by
the shareholders of the Company, the number of shares of Common Stock covered by
each outstanding Option, and the number of shares of Common Stock which have
been authorized for issuance under the Plan but as to which no Options have yet
been granted or which have been returned to the Plan upon cancellation or
expiration of an Option, as well as the price per share of Common Stock covered
by each such outstanding Option, shall be proportionately adjusted for any
increase or decrease in the number of issued shares of Common Stock resulting
from a stock split, reverse stock split, stock dividend, combination or
reclassification of the Common Stock, or any other increase or decrease in the
number of issued shares of Common Stock effected without receipt of
consideration by the Company; provided, however, that conversion of any
convertible securities of the Company shall not be deemed to have been "effected
without receipt of consideration." Such adjustment shall be made by the Board,
whose determination in that respect shall be final, binding and conclusive.
Except as expressly provided herein, no issuance by the Company of shares of
stock of any class, or securities convertible into shares of stock of any class,
shall affect, and no adjustment by reason thereof shall be made with respect to,
the number or price of shares of Common Stock subject to an Option.
(b) Dissolution or Liquidation. In the event of the proposed
dissolution or liquidation of the Company, the Administrator shall notify each
Optionee as soon as practicable prior to the effective date of such proposed
transaction. The Administrator in its discretion may provide for an Optionee to
have the right to exercise his or her Option until ten (10) days prior to such
transaction as to all of the Optioned Stock covered thereby, including Shares as
to which the Option would not otherwise be exercisable. In addition, the
Administrator may provide that any Company repurchase option applicable to any
Shares purchased upon exercise of an Option shall lapse as to all such Shares,
provided the proposed dissolution or liquidation takes place at the time and in
the manner contemplated. To the extent it has not been previously exercised, an
Option will terminate immediately prior to the consummation of such proposed
action.
(c) Merger or Asset Sale. In the event of a merger of the Company
with or into another corporation, or the sale of substantially all of the assets
of the Company, each outstanding Option shall be assumed or an equivalent option
substituted by the successor corporation or a Parent or Subsidiary of the
successor corporation. In the event that the successor corporation refuses to
assume or substitute for the Option, the Optionee shall fully vest in and have
the right to exercise the Option as to all of the Optioned Stock, including
Shares as to which it would not otherwise be vested or exercisable. If an Option
becomes fully vested and exercisable in lieu of assumption or substitution in
the event of a merger or sale of assets, the Administrator shall notify the
Optionee in writing or electronically that the Option shall be fully vested and
exercisable for a period of fifteen (15) days from the date of such notice, and
the Option shall terminate upon the expiration of such period. For the purposes
of this paragraph, the Option shall be considered assumed if, following the
merger or
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<PAGE> 11
sale of assets, the option confers the right to purchase or receive, for each
Share of Optioned Stock subject to the Option immediately prior to the merger or
sale of assets, the consideration (whether stock, cash, or other securities or
property) received in the merger or sale of assets by holders of Common Stock
for each Share held on the effective date of the transaction (and if holders
were offered a choice of consideration, the type of consideration chosen by the
holders of a majority of the outstanding Shares); provided, however, that if
such consideration received in the merger or sale of assets is not solely common
stock of the successor corporation or its Parent, the Administrator may, with
the consent of the successor corporation, provide for the consideration to be
received upon the exercise of the Option, for each Share of Optioned Stock
subject to the Option, to be solely common stock of the successor corporation or
its Parent equal in fair market value to the per share consideration received by
holders of Common Stock in the merger or sale of assets.
13. Date of Grant. The date of grant of an Option shall be, for all
purposes, the date on which the Administrator makes the determination granting
such Option, or such other later date as is determined by the Administrator.
Notice of the determination shall be provided to each Optionee within a
reasonable time after the date of such grant.
14. Amendment and Termination of the Plan.
(a) Amendment and Termination. The Board may at any time amend,
alter, suspend or terminate the Plan.
(b) Shareholder Approval. The Company shall obtain shareholder
approval of any Plan amendment to the extent necessary and desirable to comply
with Applicable Laws.
(c) Effect of Amendment or Termination. No amendment, alteration,
suspension or termination of the Plan shall impair the rights of any Optionee,
unless mutually agreed otherwise between the Optionee and the Administrator,
which agreement must be in writing and signed by the Optionee and the Company.
15. Conditions Upon Issuance of Shares.
(a) Legal Compliance. Shares shall not be issued pursuant to the
exercise of an Option unless the exercise of such Option and the issuance and
delivery of such Shares shall comply with Applicable Laws and shall be further
subject to the approval of counsel for the Company with respect to such
compliance.
(b) Investment Representations. As a condition to the exercise of
an Option, the Company may require the person exercising such Option to
represent and warrant at the time of any such exercise that the Shares are being
purchased only for investment and without any present intention to sell or
distribute such Shares if, in the opinion of counsel for the Company, such a
representation is required.
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<PAGE> 12
16. Inability to Obtain Authority. The inability of the Company to
obtain authority from any regulatory body having jurisdiction, which authority
is deemed by the Company's counsel to be necessary to the lawful issuance and
sale of any Shares hereunder, shall relieve the Company of any liability in
respect of the failure to issue or sell such Shares as to which such requisite
authority shall not have been obtained.
17. Reservation of Shares. The Company, during the term of this Plan,
will at all times reserve and keep available such number of Shares as shall be
sufficient to satisfy the requirements of the Plan.
18. Shareholder Approval. The Plan shall be subject to approval by the
shareholders of the Company within twelve (12) months after the date the Plan is
adopted. Such shareholder approval shall be obtained in the manner and to the
degree required under Applicable Laws.
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<PAGE> 13
1996 STOCK OPTION PLAN
STOCK OPTION AGREEMENT
Unless otherwise defined herein, the terms defined in the Plan shall
have the same defined meanings in this Option Agreement.
I. NOTICE OF STOCK OPTION GRANT
[Optionee's Name and Address]
You have been granted an option to purchase Common Stock of the Company,
subject to the terms and conditions of the Plan and this Option Agreement, as
follows:
Grant Number _________________________
Date of Grant _________________________
Vesting Commencement Date _________________________
Exercise Price per Share $________________________
Total Number of Shares Granted _________________________
Total Exercise Price $_________________________
Type of Option: ___ Incentive Stock Option
___ Nonstatutory Stock Option
Term/Expiration Date: _________________________
Vesting Schedule:
This Option may be exercised, in whole or in part, in accordance with
the following schedule:
[25% of the Shares subject to the Option shall vest twelve months after
the Vesting Commencement Date, and 1/48 of the Shares subject to the Option
shall vest each month thereafter, subject to the Optionee continuing to be a
Service Provider on such dates].
<PAGE> 14
Termination Period:
This Option may be exercised for _____ [days/months] after Optionee
ceases to be a Service Provider. Upon the death or Disability of the Optionee,
this Option may be exercised for such longer period as provided in the Plan. In
no event shall this Option be exercised later than the Term/Expiration Date as
provided above.
II. AGREEMENT
1. Grant of Option. The Plan Administrator of the Company hereby
grants to the Optionee named in the Notice of Grant attached as Part I of this
Agreement (the "Optionee") an option (the "Option") to purchase the number of
Shares, as set forth in the Notice of Grant, at the exercise price per share set
forth in the Notice of Grant (the "Exercise Price"), subject to the terms and
conditions of the Plan, which is incorporated herein by reference. Subject to
Section 14(c) of the Plan, in the event of a conflict between the terms and
conditions of the Plan and the terms and conditions of this Option Agreement,
the terms and conditions of the Plan shall prevail.
If designated in the Notice of Grant as an Incentive Stock Option
("ISO"), this Option is intended to qualify as an Incentive Stock Option under
Section 422 of the Code. However, if this Option is intended to be an Incentive
Stock Option, to the extent that it exceeds the $100,000 rule of Code Section
422(d) it shall be treated as a Nonstatutory Stock Option ("NSO").
2. Exercise of Option.
(a) Right to Exercise. This Option is exercisable during its term
in accordance with the Vesting Schedule set out in the Notice of Grant and the
applicable provisions of the Plan and this Option Agreement.
(b) Method of Exercise. This Option is exercisable by delivery of
an exercise notice, in the form attached as Exhibit A (the "Exercise Notice"),
which shall state the election to exercise the Option, the number of Shares in
respect of which the Option is being exercised (the "Exercised Shares"), and
such other representations and agreements as may be required by the Company
pursuant to the provisions of the Plan. The Exercise Notice shall be completed
by the Optionee and delivered to the stock option administrator of the Company.
The Exercise Notice shall be accompanied by payment of the aggregate Exercise
Price as to all Exercised Shares. This Option shall be deemed to be exercised
upon receipt by the Company of such fully executed Exercise Notice accompanied
by such aggregate Exercise Price.
No Shares shall be issued pursuant to the exercise of this Option
unless such issuance and exercise complies with Applicable Laws. Assuming such
compliance, for income tax purposes the Exercised Shares shall be considered
transferred to the Optionee on the date the Option is exercised with respect to
such Exercised Shares.
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<PAGE> 15
3. Method of Payment. Payment of the aggregate Exercise Price shall
be by any of the following, or a combination thereof, at the election of the
Optionee:
(a) cash;
(b) check;
(c) consideration received by the Company under a formal cashless
exercise program adopted by the Company in connection with the Plan;
(d) surrender of other Shares which (i) in the case of Shares
acquired upon exercise of an option, have been owned by the Optionee for more
than six (6) months on the date of surrender, and (ii) have a Fair Market Value
on the date of surrender equal to the aggregate Exercise Price of the Exercised
Shares; or
(e) with the Administrator's consent, delivery of Optionee's
promissory note (the "Note") in the form attached hereto as Exhibit C, in the
amount of the aggregate Exercise Price of the Exercised Shares together with the
execution and delivery by the Optionee of the Security Agreement attached hereto
as Exhibit B. The Note shall bear interest at the "applicable federal rate"
prescribed under the Code and its regulations at time of purchase, and shall be
secured by a pledge of the Shares purchased by the Note pursuant to the Security
Agreement.
4. Non-Transferability of Option. This Option may not be transferred
in any manner otherwise than by will or by the laws of descent or distribution
and may be exercised during the lifetime of Optionee only by the Optionee. The
terms of the Plan and this Option Agreement shall be binding upon the executors,
administrators, heirs, successors and assigns of the Optionee.
5. Term of Option. This Option may be exercised only within the term
set out in the Notice of Grant, and may be exercised during such term only in
accordance with the Plan and the terms of this Option Agreement.
6. Tax Consequences. Some of the federal tax consequences relating
to this Option, as of the date of this Option, are set forth below. THIS SUMMARY
IS NECESSARILY INCOMPLETE, AND THE TAX LAWS AND REGULATIONS ARE SUBJECT TO
CHANGE. THE OPTIONEE SHOULD CONSULT A TAX ADVISER BEFORE EXERCISING THIS OPTION
OR DISPOSING OF THE SHARES.
(a) Exercising the Option.
(i) Nonstatutory Stock Option. The Optionee may incur
regular federal income tax liability upon exercise of a NSO. The Optionee will
be treated as having received compensation income (taxable at ordinary income
tax rates) equal to the excess, if any, of the Fair Market Value of the
Exercised Shares on the date of exercise over their aggregate Exercise Price. If
the Optionee is
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<PAGE> 16
an Employee or a former Employee, the Company will be required to withhold from
his or her compensation or collect from Optionee and pay to the applicable
taxing authorities an amount in cash equal to a percentage of this compensation
income at the time of exercise, and may refuse to honor the exercise and refuse
to deliver Shares if such withholding amounts are not delivered at the time of
exercise.
(ii) Incentive Stock Option. If this Option qualifies as an
ISO, the Optionee will have no regular federal income tax liability upon its
exercise, although the excess, if any, of the Fair Market Value of the Exercised
Shares on the date of exercise over their aggregate Exercise Price will be
treated as an adjustment to alternative minimum taxable income for federal tax
purposes and may subject the Optionee to alternative minimum tax in the year of
exercise. In the event that the Optionee ceases to be an Employee but remains a
Service Provider, any Incentive Stock Option of the Optionee that remains
unexercised shall cease to qualify as an Incentive Stock Option and will be
treated for tax purposes as a Nonstatutory Stock Option on the date three (3)
months and one (1) day following such change of status.
(b) Disposition of Shares.
(i) NSO. If the Optionee holds NSO Shares for at least one
year, any gain realized on disposition of the Shares will be treated as
long-term capital gain for federal income tax purposes.
(ii) ISO. If the Optionee holds ISO Shares for at least one
year after exercise and two years after the grant date, any gain realized on
disposition of the Shares will be treated as long-term capital gain for federal
income tax purposes. If the Optionee disposes of ISO Shares within one year
after exercise or two years after the grant date, any gain realized on such
disposition will be treated as compensation income (taxable at ordinary income
rates) to the extent of the excess, if any, of the lesser of (A) the difference
between the Fair Market Value of the Shares acquired on the date of exercise and
the aggregate Exercise Price, or (B) the difference between the sale price of
such Shares and the aggregate Exercise Price. Any additional gain will be taxed
as capital gain, short-term or long-term depending on the period that the ISO
Shares were held.
(c) Notice of Disqualifying Disposition of ISO Shares. If the
Optionee sells or otherwise disposes of any of the Shares acquired pursuant to
an ISO on or before the later of (i) two years after the grant date, or (ii) one
year after the exercise date, the Optionee shall immediately notify the Company
in writing of such disposition. The Optionee agrees that he or she may be
subject to income tax withholding by the Company on the compensation income
recognized from such early disposition of ISO Shares by payment in cash or out
of the current earnings paid to the Optionee.
7. Entire Agreement; Governing Law. The Plan is incorporated herein
by reference. The Plan and this Option Agreement constitute the entire agreement
of the parties with respect to the subject matter hereof and supersede in their
entirety all prior undertakings and agreements of the Company and Optionee with
respect to the subject matter hereof, and may not be modified adversely
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<PAGE> 17
to the Optionee's interest except by means of a writing signed by the Company
and Optionee. This agreement is governed by the internal substantive laws, but
not the choice of law rules, of California.
8. NO GUARANTEE OF CONTINUED SERVICE. OPTIONEE ACKNOWLEDGES AND
AGREES THAT THE VESTING OF SHARES PURSUANT TO THE VESTING SCHEDULE HEREOF IS
EARNED ONLY BY CONTINUING AS A SERVICE PROVIDER AT THE WILL OF THE COMPANY (AND
NOT THROUGH THE ACT OF BEING HIRED, BEING GRANTED AN OPTION OR PURCHASING SHARES
HEREUNDER). OPTIONEE FURTHER ACKNOWLEDGES AND AGREES THAT THIS AGREEMENT, THE
TRANSACTIONS CONTEMPLATED HEREUNDER AND THE VESTING SCHEDULE SET FORTH HEREIN DO
NOT CONSTITUTE AN EXPRESS OR IMPLIED PROMISE OF CONTINUED ENGAGEMENT AS A
SERVICE PROVIDER FOR THE VESTING PERIOD, FOR ANY PERIOD, OR AT ALL, AND SHALL
NOT INTERFERE WITH OPTIONEE'S RIGHT OR THE COMPANY'S RIGHT TO TERMINATE
OPTIONEE'S RELATIONSHIP AS A SERVICE PROVIDER AT ANY TIME, WITH OR WITHOUT
CAUSE.
By your signature and the signature of the Company's representative
below, you and the Company agree that this Option is granted under and governed
by the terms and conditions of the Plan and this Option Agreement. Optionee has
reviewed the Plan and this Option Agreement in their entirety, has had an
opportunity to obtain the advice of counsel prior to executing this Option
Agreement and fully understands all provisions of the Plan and Option Agreement.
Optionee hereby agrees to accept as binding, conclusive and final all decisions
or interpretations of the Administrator upon any questions relating to the Plan
and Option Agreement. Optionee further agrees to notify the Company upon any
change in the residence address indicated below.
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<PAGE> 18
OPTIONEE: CYMER, INC.
- ----------------------------------- ------------------------------------
Signature By
- ------------------------------------ ------------------------------------
Print Name Title
- ------------------------------------
Residence Address
- ------------------------------------
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<PAGE> 19
CONSENT OF SPOUSE
The undersigned spouse of Optionee has read and hereby approves the
terms and conditions of the Plan and this Option Agreement. In consideration of
the Company's granting his or her spouse the right to purchase Shares as set
forth in the Plan and this Option Agreement, the undersigned hereby agrees to be
irrevocably bound by the terms and conditions of the Plan and this Option
Agreement and further agrees that any community property interest shall be
similarly bound. The undersigned hereby appoints the undersigned's spouse as
attorney-in-fact for the undersigned with respect to any amendment or exercise
of rights under the Plan or this Option Agreement.
------------------------------------
Spouse of Optionee
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<PAGE> 20
EXHIBIT A
1996 STOCK OPTION PLAN
EXERCISE NOTICE
Cymer, Inc.
16275 Technology Drive
San Diego, CA 92127-1815
Attention: Corporate Secretary
1. Exercise of Option. Effective as of today, ________________,
199__, the undersigned ("Purchaser") hereby elects to purchase ______________
shares (the "Shares") of the Common Stock of Cymer, Inc. (the "Company") under
and pursuant to the 1996 Stock Option Plan (the "Plan") and the Stock Option
Agreement dated , 19___ (the "Option Agreement"). The purchase price for the
Shares shall be $ , as required by the Option Agreement.
2. Delivery of Payment. Purchaser herewith delivers to the Company
the full purchase price for the Shares.
3. Representations of Purchaser. Purchaser acknowledges that
Purchaser has received, read and understood the Plan and the Option Agreement
and agrees to abide by and be bound by their terms and conditions.
4. Rights as Shareholder. Until the issuance (as evidenced by the
appropriate entry on the books of the Company or of a duly authorized transfer
agent of the Company) of the Shares, no right to vote or receive dividends or
any other rights as a shareholder shall exist with respect to the Optioned
Stock, notwithstanding the exercise of the Option. The Shares so acquired shall
be issued to the Optionee as soon as practicable after exercise of the Option.
No adjustment will be made for a dividend or other right for which the record
date is prior to the date of issuance, except as provided in Section 12 of the
Plan.
5. Tax Consultation. Purchaser understands that Purchaser may suffer
adverse tax consequences as a result of Purchaser's purchase or disposition of
the Shares. Purchaser represents that Purchaser has consulted with any tax
consultants Purchaser deems advisable in connection with the purchase or
disposition of the Shares and that Purchaser is not relying on the Company for
any tax advice.
6. Entire Agreement; Governing Law. The Plan and Option Agreement are
incorporated herein by reference. This Agreement, the Plan and the Option
Agreement constitute the entire agreement of the parties with respect to the
subject matter hereof and supersede in their entirety all prior undertakings and
agreements of the Company and Purchaser with respect to the subject matter
hereof, and may not be modified adversely to the Purchaser's interest except by
means of a writing
<PAGE> 21
signed by the Company and Purchaser. This agreement is governed by the internal
substantive laws, but not the choice of law rules, of California.
Submitted by: Accepted by:
PURCHASER: CYMER, INC.
__________________________________ By:_________________________________
Signature
__________________________________ ____________________________________
Print Name Its
Address: Address:
_________________________________ 16275 Technology Drive
San Diego, CA 92127-1815
_________________________________
____________________________________
Date Received
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<PAGE> 1
EXHIBIT 10.4
CYMER, INC.
1996 EMPLOYEE STOCK PURCHASE PLAN
The following constitute the provisions of the 1996 Employee Stock
Purchase Plan of Cymer, Inc.
1. Purpose. The purpose of the Plan is to provide employees of the
Company and its Designated Subsidiaries with an opportunity to purchase Common
Stock of the Company through accumulated payroll deductions. It is the intention
of the Company to have the Plan qualify as an "Employee Stock Purchase Plan"
under Section 423 of the Internal Revenue Code of 1986, as amended. The
provisions of the Plan, accordingly, shall be construed so as to extend and
limit participation in a manner consistent with the requirements of that section
of the Code.
2. Definitions.
(a) "Board" shall mean the Board of Directors of the Company.
(b) "Code" shall mean the Internal Revenue Code of 1986, as
amended.
(c) "Common Stock" shall mean the Common Stock of the Company.
(d) "Company" shall mean Cymer, Inc. and any Designated
Subsidiary of the Company.
(e) "Compensation" shall mean all base straight time gross
earnings and commissions, exclusive of payments for overtime, shift premium,
incentive compensation, incentive payments, bonuses and other compensation.
(f) "Designated Subsidiaries" shall mean the Subsidiaries which
have been designated by the Board from time to time in its sole discretion as
eligible to participate in the Plan.
(g) "Employee" shall mean any individual who is an Employee of
the Company for tax purposes whose customary employment with the Company is at
least twenty (20) hours per week and more than five (5) months in any calendar
year. For purposes of the Plan, the employment relationship shall be treated as
continuing intact while the individual is on sick leave or other leave of
absence approved by the Company. Where the period of leave exceeds 90 days and
the individual's right to reemployment is not guaranteed either by statute or by
contract, the employment relationship shall be deemed to have terminated on the
91st day of such leave.
(h) "Enrollment Date" shall mean the first day of each Offering
Period.
(i) "Exercise Date" shall mean the last day of each Offering
Period.
<PAGE> 2
(j) "Fair Market Value" shall mean, as of any date, the value of
Common Stock determined as follows:
(1) If the Common Stock is listed on any established stock
exchange or a national market system, including without limitation the Nasdaq
National Market or The Nasdaq SmallCap Market of The Nasdaq Stock Market, its
Fair Market Value shall be the closing sales price for such stock (or the
closing bid, if no sales were reported) as quoted on such exchange or system for
the last market trading day prior to the time of determination, as reported in
The Wall Street Journal or such other source as the Administrator deems
reliable, or;
(2) If the Common Stock is regularly quoted by a recognized
securities dealer but selling prices are not reported, its Fair Market Value
shall be the mean of the closing bid and asked prices for the Common Stock on
the date of such determination, as reported in The Wall Street Journal or such
other source as the Board deems reliable, or;
(3) For purposes of the Enrollment Date of the first
Offering Period under the Plan, the Fair Market Value of the Common Stock shall
be the price to the public as set forth in the S-1 filed with the Securities and
Exchange Commission for the initial public offering of the Common Stock;
(4) In the absence of an established market for the Common
Stock, the Fair Market Value thereof shall be determined in good faith by the
Board.
(k) "Offering Period" shall mean a period of approximately six
(6) months, commencing on the first Trading Day on or after January 1 and
terminating on the last Trading Day in the period ending the following June 30,
or commencing on the first Trading Day on or after July 1 and terminating on the
last Trading Day in the period ending the following December 31, during which an
option granted pursuant to the Plan may be exercised. The first Offering Period
shall commence on the date on which the Company's registration statement on Form
S-1 is declared effective by the Securities and Exchange Commission (the "IPO
Date") and shall terminate on the last Trading Day on or before December 31,
1996. The duration of Offering Periods may be changed pursuant to Section 4 of
this Plan.
(l) "Plan" shall mean this Employee Stock Purchase Plan.
(m) "Purchase Price" shall mean an amount equal to 85% of the
Fair Market Value of a share of Common Stock on the Enrollment Date or on the
Exercise Date, whichever is lower.
(n) "Reserves" shall mean the number of shares of Common Stock
covered by each option under the Plan which have not yet been exercised and the
number of shares of Common Stock which have been authorized for issuance under
the Plan but not yet placed under option.
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<PAGE> 3
(o) "Subsidiary" shall mean a corporation, domestic or foreign,
of which not less than 50% of the voting shares are held by the Company or a
Subsidiary, whether or not such corporation now exists or is hereafter organized
or acquired by the Company or a Subsidiary.
(p) "Trading Day" shall mean a day on which national stock
exchanges and the Nasdaq System are open for trading.
3. Eligibility.
(a) Any Employee (as defined in Section 2(g)) who shall be
employed by the Company for at least three (3) months prior to a given
Enrollment Date shall be eligible to participate in the Plan.
(b) Any provisions of the Plan to the contrary notwithstanding,
no Employee shall be granted an option under the Plan (i) to the extent that,
immediately after the grant, such Employee (or any other person whose stock
would be attributed to such Employee pursuant to Section 424(d) of the Code)
would own capital stock of the Company and/or hold outstanding options to
purchase such stock possessing five percent (5%) or more of the total combined
voting power or value of all classes of the capital stock of the Company or of
any Subsidiary, or (ii) to the extent that his or her rights to purchase stock
under all employee stock purchase plans of the Company and its subsidiaries
accrues at a rate which exceeds Twenty-Five Thousand Dollars ($25,000) worth of
stock (determined at the fair market value of the shares at the time such option
is granted) for each calendar year in which such option is outstanding at any
time.
4. Offering Periods. The Plan shall be implemented by consecutive
Offering Periods with a new Offering Period commencing on the first Trading Day
on or after January 1 and July 1 each year, or on such other date as the Board
shall determine, and continuing thereafter until terminated in accordance with
Section 19 hereof. The first Offering Period shall commence on the IPO Date and
shall terminate on the last Trading Day on or before December 31, 1996. The
Board shall have the power to change the duration of Offering Periods (including
the commencement dates thereof) with respect to future offerings without
stockholder approval if such change is announced at least five (5) days prior to
the scheduled beginning of the first Offering Period to be affected thereafter.
5. Participation.
(a) An eligible Employee may become a participant in the Plan by
completing a subscription agreement authorizing payroll deductions in the form
of Exhibit A to this Plan and filing it with the Company's payroll office prior
to the applicable Enrollment Date.
(b) Payroll deductions for a participant shall commence on the
first payroll following the Enrollment Date and shall end on the last payroll in
the Offering Period to which
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<PAGE> 4
such authorization is applicable, unless sooner terminated by the participant as
provided in Section 10 hereof.
6. Payroll Deductions.
(a) At the time a participant files his or her subscription
agreement, he or she shall elect to have payroll deductions made on each pay day
during the Offering Period in an amount not exceeding ten percent (10%) of the
Compensation which he or she receives on each pay day during the Offering
Period.
(b) All payroll deductions made for a participant shall be
credited to his or her account under the Plan and shall be withheld in whole
percentages only. A participant may not make any additional payments into such
account.
(c) A participant may discontinue his or her participation in the
Plan as provided in Section 10 hereof, or may increase or decrease the rate of
his or her payroll deductions during the Offering Period by completing or filing
with the Company a new subscription agreement authorizing a change in payroll
deduction rate. The Board may, in its discretion, limit the number of
participation rate changes during any Offering Period. The change in rate shall
be effective with the first full payroll period following five (5) business days
after the Company's receipt of the new subscription agreement unless the Company
elects to process a given change in participation more quickly. A participant's
subscription agreement shall remain in effect for successive Offering Periods
unless terminated as provided in Section 10 hereof.
(d) Notwithstanding the foregoing, to the extent necessary to
comply with Section 423(b)(8) of the Code and Section 3(b) hereof, a
participant's payroll deductions may be decreased to zero percent (0%) at such
time during any Offering Period which is scheduled to end during the current
calendar year (the "Current Offering Period") that the aggregate of all payroll
deductions which were previously used to purchase stock under the Plan in a
prior Offering Period which ended during that calendar year plus all payroll
deductions accumulated with respect to the Current Offering Period equal
$21,250. Payroll deductions shall recommence at the rate provided in such
participant's subscription agreement at the beginning of the first Offering
Period which is scheduled to end in the following calendar year, unless
terminated by the participant as provided in Section 10 hereof.
(e) At the time the option is exercised, in whole or in part, or
at the time some or all of the Company's Common Stock issued under the Plan is
disposed of, the participant must make adequate provision for the Company's
federal, state, or other tax withholding obligations, if any, which arise upon
the exercise of the option or the disposition of the Common Stock. At any time,
the Company may, but shall not be obligated to, withhold from the participant's
compensation the amount necessary for the Company to meet applicable withholding
obligations, including any withholding required to make available to the Company
any tax deductions or benefits attributable to sale or early disposition of
Common Stock by the Employee.
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<PAGE> 5
7. Grant of Option. On the Enrollment Date of each Offering Period,
each eligible Employee participating in such Offering Period shall be granted an
option to purchase on the Exercise Date of such Offering Period (at the
applicable Purchase Price) up to a number of shares of the Company's Common
Stock determined by dividing such Employee's payroll deductions accumulated
prior to such Exercise Date and retained in the Participant's account as of the
Exercise Date by the applicable Purchase Price; provided that in no event shall
an Employee be permitted to purchase during each Offering Period more than 7500
shares, and provided further that such purchase shall be subject to the
limitations set forth in Sections 3(b) and 12 hereof. Exercise of the option
shall occur as provided in Section 8 hereof, unless the participant has
withdrawn pursuant to Section 10 hereof. The Option shall expire on the last day
of the Offering Period.
8. Exercise of Option. Unless a participant withdraws from the Plan
as provided in Section 10 hereof, his or her option for the purchase of shares
shall be exercised automatically on the Exercise Date, and the maximum number of
full shares subject to option shall be purchased for such participant at the
applicable Purchase Price with the accumulated payroll deductions in his or her
account. No fractional shares shall be purchased; any payroll deductions
accumulated in a participant's account which are not sufficient to purchase a
full share shall be retained in the participant's account for the subsequent
Offering Period, subject to earlier withdrawal by the participant as provided in
Section 10 hereof. Any other monies left over in a participant's account after
the Exercise Date shall be returned to the participant. During a participant's
lifetime, a participant's option to purchase shares hereunder is exercisable
only by him or her.
9. Delivery. As promptly as practicable after each Exercise Date
on which a purchase of shares occurs, the Company shall arrange the delivery to
each participant, as appropriate, of a certificate representing the shares
purchased upon exercise of his or her option.
10. Withdrawal; Termination of Employment.
(a) A participant may withdraw all but not less than all the
payroll deductions credited to his or her account and not yet used to exercise
his or her option under the Plan at any time by giving written notice to the
Company in the form of Exhibit B to this Plan. All of the participant's payroll
deductions credited to his or her account shall be paid to such participant
promptly after receipt of notice of withdrawal and such participant's option for
the Offering Period shall be automatically terminated, and no further payroll
deductions for the purchase of shares shall be made for such Offering Period. If
a participant withdraws from an Offering Period, payroll deductions shall not
resume at the beginning of the succeeding Offering Period unless the participant
delivers to the Company a new subscription agreement.
(b) Upon a participant's ceasing to be an Employee (as defined in
Section 2(g) hereof) for any reason, he or she shall be deemed to have elected
to withdraw from the Plan and the payroll deductions credited to such
participant's account during the Offering Period but not yet used to exercise
the option shall be returned to such participant or, in the case of his or her
death,
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<PAGE> 6
to the person or persons entitled thereto under Section 14 hereof, and such
participant's option shall be automatically terminated. The preceding sentence
notwithstanding, a participant who receives payment in lieu of notice of
termination of employment shall be treated as continuing to be an Employee for
the participant's customary number of hours per week of employment during the
period in which the participant is subject to such payment in lieu of notice.
(c) A participant's withdrawal from an Offering Period shall not
have any effect upon his or her eligibility to participate in any similar plan
which may hereafter be adopted by the Company or in succeeding Offering Periods
which commence after the termination of the Offering Period from which the
participant withdraws.
11. Interest. No interest shall accrue on the payroll deductions of
a participant in the Plan.
12. Stock.
(a) The maximum number of shares of the Company's Common Stock
which shall be made available for sale under the Plan shall be two hundred fifty
thousand (250,000) shares, subject to adjustment upon changes in capitalization
of the Company as provided in Section 18 hereof. If, on a given Exercise Date,
the number of shares with respect to which options are to be exercised exceeds
the number of shares then available under the Plan, the Company shall make a pro
rata allocation of the shares remaining available for purchase in as uniform a
manner as shall be practicable and as it shall determine to be equitable.
(b) The participant shall have no interest or voting right in
shares covered by his option until such option has been exercised.
(c) Shares to be delivered to a participant under the Plan shall
be registered in the name of the participant or in the name of the participant
and his or her spouse.
13. Administration.
(a) Administrative Body. The Plan shall be administered by the
Board or a committee of members of the Board appointed by the Board. The Board
or its committee shall have full and exclusive discretionary authority to
construe, interpret and apply the terms of the Plan, to determine eligibility
and to adjudicate all disputed claims filed under the Plan. Every finding,
decision and determination made by the Board or its committee shall, to the full
extent permitted by law, be final and binding upon all parties.
(b) Rule 16b-3 Limitations. Notwithstanding the provisions of
Subsection (a) of this Section 13, in the event that Rule 16b-3 promulgated
under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), or
any successor provision ("Rule 16b-3") provides specific requirements for the
administrators of plans of this type, the Plan shall be administered
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<PAGE> 7
only by such a body and in such a manner as shall comply with the applicable
requirements of Rule 16b-3. Unless permitted by Rule 16b-3, no discretion
concerning decisions regarding the Plan shall be afforded to any committee or
person that is not "disinterested" as that term is used in Rule 16b-3.
14. Designation of Beneficiary.
(a) A participant may file a written designation of a beneficiary
who is to receive any shares and cash, if any, from the participant's account
under the Plan in the event of such participant's death subsequent to an
Exercise Date on which the option is exercised but prior to delivery to such
participant of such shares and cash. In addition, a participant may file a
written designation of a beneficiary who is to receive any cash from the
participant's account under the Plan in the event of such participant's death
prior to exercise of the option. If a participant is married and the designated
beneficiary is not the spouse, spousal consent shall be required for such
designation to be effective.
(b) Such designation of beneficiary may be changed by the
participant at any time by written notice. In the event of the death of a
participant and in the absence of a beneficiary validly designated under the
Plan who is living at the time of such participant's death, the Company shall
deliver such shares and/or cash to the executor or administrator of the estate
of the participant, or if no such executor or administrator has been appointed
(to the knowledge of the Company), the Company, in its discretion, may deliver
such shares and/or cash to the spouse or to any one or more dependents or
relatives of the participant, or if no spouse, dependent or relative is known to
the Company, then to such other person as the Company may designate.
15. Transferability. Neither payroll deductions credited to a
participant's account nor any rights with regard to the exercise of an option or
to receive shares under the Plan may be assigned, transferred, pledged or
otherwise disposed of in any way (other than by will, the laws of descent and
distribution or as provided in Section 14 hereof) by the participant. Any such
attempt at assignment, transfer, pledge or other disposition shall be without
effect, except that the Company may treat such act as an election to withdraw
funds from an Offering Period in accordance with Section 10 hereof.
16. Use of Funds. All payroll deductions received or held by the
Company under the Plan may be used by the Company for any corporate purpose, and
the Company shall not be obligated to segregate such payroll deductions.
17. Reports. Individual accounts shall be maintained for each
participant in the Plan. Statements of account shall be given to participating
Employees at least annually, which statements shall set forth the amounts of
payroll deductions, the Purchase Price, the number of shares purchased and the
remaining cash balance, if any.
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<PAGE> 8
18. Adjustments Upon Changes in Capitalization, Dissolution,
Liquidation, Merger or Asset Sale.
(a) Changes in Capitalization. Subject to any required action by
the stockholders of the Company, the Reserves, as well as the price per share
and the number of shares of Common Stock covered by each option under the Plan
which has not yet been exercised, shall be proportionately adjusted for any
increase or decrease in the number of issued shares of Common Stock resulting
from a stock split, reverse stock split, stock dividend, combination or
reclassification of the Common Stock, or any other increase or decrease in the
number of shares of Common Stock effected without receipt of consideration by
the Company; provided, however, that conversion of any convertible securities of
the Company shall not be deemed to have been "effected without receipt of
consideration". Such adjustment shall be made by the Board, whose determination
in that respect shall be final, binding and conclusive. Except as expressly
provided herein, no issuance by the Company of shares of stock of any class, or
securities convertible into shares of stock of any class, shall affect, and no
adjustment by reason thereof shall be made with respect to, the number or price
of shares of Common Stock subject to an option.
(b) Dissolution or Liquidation. In the event of the proposed
dissolution or liquidation of the Company, the Offering Period shall terminate
immediately prior to the consummation of such proposed action, unless otherwise
provided by the Board.
(c) Merger or Asset Sale. In the event of a proposed sale of all
or substantially all of the assets of the Company, or the merger of the Company
with or into another corporation, the Offering Period then in progress shall be
shortened by setting a new Exercise Date (the "New Exercise Date"). The New
Exercise Date shall be before the date of the Company's proposed sale or merger.
The Board shall notify each participant in writing, at least ten (10) business
days prior to the New Exercise Date, that the Exercise Date for the
participant's option has been changed to the New Exercise Date and that the
participant's option shall be exercised automatically on the New Exercise Date,
unless prior to such date the participant has withdrawn from the Offering Period
as provided in Section 10 hereof.
19. Amendment or Termination.
(a) The Board of Directors of the Company may at any time and for
any reason terminate or amend the Plan. Except as provided in Section 18 hereof,
no such termination can affect options previously granted, provided that an
Offering Period may be terminated by the Board of Directors on any Exercise Date
if the Board determines that the termination of the Plan is in the best
interests of the Company and its stockholders. Except as provided in Section 18
hereof, no amendment may make any change in any option theretofore granted which
adversely affects the rights of any participant. To the extent necessary to
comply with Rule 16b-3 or under Section 423 of the Code (or any successor rule
or provision or any other applicable law or regulation), the Company shall
obtain stockholder approval in such a manner and to such a degree as required.
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<PAGE> 9
(b) Without stockholder consent and without regard to whether any
participant rights may be considered to have been "adversely affected," the
Board (or its committee) shall be entitled to change the Offering Periods, limit
the frequency and/or number of changes in the amount withheld during an Offering
Period, establish the exchange ratio applicable to amounts withheld in a
currency other than U.S. dollars, permit payroll withholding in excess of the
amount designated by a participant in order to adjust for delays or mistakes in
the Company's processing of properly completed withholding elections, establish
reasonable waiting and adjustment periods and/or accounting and crediting
procedures to ensure that amounts applied toward the purchase of Common Stock
for each participant properly correspond with amounts withheld from the
participant's Compensation, and establish such other limitations or procedures
as the Board (or its committee) determines in its sole discretion advisable
which are consistent with the Plan.
20. Notices. All notices or other communications by a participant to
the Company under or in connection with the Plan shall be deemed to have been
duly given when received in the form specified by the Company at the location,
or by the person, designated by the Company for the receipt thereof.
21. Conditions Upon Issuance of Shares. Shares shall not be issued
with respect to an option unless the exercise of such option and the issuance
and delivery of such shares pursuant thereto shall comply with all applicable
provisions of law, domestic or foreign, including, without limitation, the
Securities Act of 1933, as amended, the Securities Exchange Act of 1934, as
amended, the rules and regulations promulgated thereunder, and the requirements
of any stock exchange upon which the shares may then be listed, and shall be
further subject to the approval of counsel for the Company with respect to such
compliance.
As a condition to the exercise of an option, the Company may require
the person exercising such option to represent and warrant at the time of any
such exercise that the shares are being purchased only for investment and
without any present intention to sell or distribute such shares if, in the
opinion of counsel for the Company, such a representation is required by any of
the aforementioned applicable provisions of law.
22. Term of Plan. The Plan shall become effective upon the earlier
to occur of its adoption by the Board of Directors or its approval by the
stockholders of the Company. It shall continue in effect for a term of ten (10)
years unless sooner terminated under Section 19 hereof.
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<PAGE> 10
EXHIBIT A
CYMER, INC.
1996 EMPLOYEE STOCK PURCHASE PLAN
SUBSCRIPTION AGREEMENT
_____ Original Application Enrollment Date: __________
_____ Change in Payroll Deduction Rate
_____ Change of Beneficiary(ies)
1. _____________________________________ hereby elects to participate in
the Cymer, Inc. 1996 Employee Stock Purchase Plan (the "Employee Stock
Purchase Plan") and subscribes to purchase shares of the Company's
Common Stock in accordance with this Subscription Agreement and the
Employee Stock Purchase Plan.
2. I hereby authorize payroll deductions from each paycheck in the amount
of ____% of my Compensation on each payday (from 1 to 10%) during the
Offering Period in accordance with the Employee Stock Purchase Plan.
(Please note that no fractional percentages are permitted.)
3. I understand that said payroll deductions shall be accumulated for the
purchase of shares of Common Stock at the applicable Purchase Price
determined in accordance with the Employee Stock Purchase Plan. I
understand that if I do not withdraw from an Offering Period, any
accumulated payroll deductions will be used to automatically exercise
my option.
4. I have received a copy of the complete Employee Stock Purchase Plan. I
understand that my participation in the Employee Stock Purchase Plan is
in all respects subject to the terms of the Plan. I understand that my
ability to exercise the option under this Subscription Agreement is
subject to stockholder approval of the Employee Stock Purchase Plan.
5. Shares purchased for me under the Employee Stock Purchase Plan should
be issued in the name(s) of (Employee or Employee and Spouse only): .
6. I understand that if I dispose of any shares received by me pursuant to
the Plan within 2 years after the Enrollment Date (the first day of the
Offering Period during which I purchased such shares), I will be
treated for federal income tax purposes as having received ordinary
income at the time of such disposition in an amount equal to the excess
of the fair market value of the shares at the time such shares were
purchased by me over the price which I paid for the shares. I hereby
agree to notify the Company in writing within 30
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<PAGE> 11
days after the date of any disposition of shares and I will make
adequate provision for Federal, state or other tax withholding
obligations, if any, which arise upon the disposition of the Common
Stock. The Company may, but will not be obligated to, withhold from my
compensation the amount necessary to meet any applicable withholding
obligation including any withholding necessary to make available to the
Company any tax deductions or benefits attributable to sale or early
disposition of Common Stock by me. If I dispose of such shares at any
time after the expiration of the 2-year holding period, I understand
that I will be treated for federal income tax purposes as having
received income only at the time of such disposition, and that such
income will be taxed as ordinary income only to the extent of an amount
equal to the lesser of (1) the excess of the fair market value of the
shares at the time of such disposition over the purchase price which I
paid for the shares, or (2) 15% of the fair market value of the shares
on the first day of the Offering Period. The remainder of the gain, if
any, recognized on such disposition will be taxed as capital gain.
7. I hereby agree to be bound by the terms of the Employee Stock Purchase
Plan. The effectiveness of this Subscription Agreement is dependent
upon my eligibility to participate in the Employee Stock Purchase Plan.
8. In the event of my death, I hereby designate the following as my
beneficiary(ies) to receive all payments and shares due me under the
Employee Stock Purchase Plan:
NAME: (Please print) _______________________________________________________
(First) (Middle) (Last)
________________________ ________________________________________________
Relationship
________________________________________________
(Address)
Employee's Social
Security Number: ________________________________________________
Employee's Address: ________________________________________________
________________________________________________
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<PAGE> 12
I UNDERSTAND THAT THIS SUBSCRIPTION AGREEMENT SHALL REMAIN IN EFFECT THROUGHOUT
SUCCESSIVE OFFERING PERIODS UNLESS TERMINATED BY ME.
Dated: _______________ _____________________________________________________
Signature of Employee
_____________________________________________________
Spouse's Signature (If beneficiary other than spouse)
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<PAGE> 13
EXHIBIT B
CYMER, INC.
1996 EMPLOYEE STOCK PURCHASE PLAN
NOTICE OF WITHDRAWAL
The undersigned participant in the Offering Period of the Cymer, Inc.
1996 Employee Stock Purchase Plan which began on ___________ 19____ (the
"Enrollment Date") hereby notifies the Company that he or she hereby withdraws
from the Offering Period. He or she hereby directs the Company to pay to the
undersigned as promptly as practicable all the payroll deductions credited to
his or her account with respect to such Offering Period. The undersigned
understands and agrees that his or her option for such Offering Period will be
automatically terminated. The undersigned understands further that no further
payroll deductions will be made for the purchase of shares in the current
Offering Period and the undersigned shall be eligible to participate in
succeeding Offering Periods only by delivering to the Company a new Subscription
Agreement.
Name and Address of Participant:
____________________________________
____________________________________
____________________________________
Signature:
____________________________________
Date: ______________________________
<PAGE> 1
Exhibit 10.5
CYMER, INC.
1996 DIRECTOR OPTION PLAN
1. Purposes of the Plan. The purposes of this 1996 Director Option Plan
are to attract and retain the best available personnel for service as Outside
Directors (as defined herein) of the Company, to provide additional incentive to
the Outside Directors of the Company to serve as Directors, and to encourage
their continued service on the Board.
All options granted hereunder shall be nonstatutory stock
options.
2. Definitions. As used herein, the following definitions shall
apply:
(a) "Board" means the Board of Directors of the Company.
(b) "Code" means the Internal Revenue Code of 1986, as
amended.
(c) "Common Stock" means the Common Stock of the Company.
(d) "Company" means Cymer, Inc., a Nevada corporation.
(e) "Director" means a member of the Board.
(f) "Employee" means any person, including officers and
Directors, employed by the Company or any Parent or Subsidiary of the Company.
The payment of a Director's fee by the Company shall not be sufficient in and of
itself to constitute "employment" by the Company.
(g) "Exchange Act" means the Securities Exchange Act of
1934, as amended.
(h) "Fair Market Value" means, as of any date, the value
of Common Stock determined as follows:
(i) If the Common Stock is listed on any established
stock exchange or a national market system, including without limitation the
Nasdaq National Market or The Nasdaq SmallCap Market of The Nasdaq Stock Market,
its Fair Market Value shall be the closing sales price for such stock (or the
closing bid, if no sales were reported) as quoted on such exchange or system for
the last market trading day prior to the time of determination, as reported in
The Wall Street Journal or such other source as the Administrator deems
reliable;
(ii) If the Common Stock is regularly quoted by
a recognized securities dealer but selling prices are not reported, the Fair
Market Value of a Share of Common Stock shall be the mean between the high bid
and low asked prices for the Common Stock on the date of determination, as
reported in The Wall Street Journal or such other source as the Board deems
reliable, or;
<PAGE> 2
(iii) In the absence of an established market for
the Common Stock, the Fair Market Value thereof shall be determined in good
faith by the Board.
(i) "Inside Director" means a Director who is an
Employee.
(j) "Option" means a stock option granted pursuant to the
Plan.
(k) "Optioned Stock" means the Common Stock subject to
an Option.
(l) "Optionee" means a Director who holds an Option.
(m) "Outside Director" means a Director who is not an
Employee.
(n) "Parent" means a "parent corporation," whether now or
hereafter existing, as defined in Section 424(e) of the Code.
(o) "Plan" means this 1996 Director Option Plan.
(p) "Share" means a share of the Common Stock, as
adjusted in accordance with Section 10 of the Plan.
(q) "Subsidiary" means a "subsidiary corporation," whether now
or hereafter existing, as defined in Section 424(f) of the Internal Revenue Code
of 1986.
3. Stock Subject to the Plan. Subject to the provisions of
Section 10 of the Plan, the maximum aggregate number of Shares which may be
optioned and sold under the Plan is 100,000 Shares of Common Stock (the "Pool").
The Shares may be authorized, but unissued, or reacquired Common Stock.
If an Option expires or becomes unexercisable without having
been exercised in full, the unpurchased Shares which were subject thereto shall
become available for future grant or sale under the Plan (unless the Plan has
terminated). Shares that have actually been issued under the Plan shall not be
returned to the Plan and shall not become available for future distribution
under the Plan.
4. Administration and Grants of Options under the Plan.
(a) Procedure for Grants. The provisions set forth in this
Section 4(a) shall not be amended more than once every six months, other than to
comport with changes in the Code, the Employee Retirement Income Security Act of
1974, as amended, or the rules thereunder. All grants of Options to Outside
Directors under this Plan shall be automatic and nondiscretionary and shall be
made strictly in accordance with the following provisions:
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<PAGE> 3
(i) No person shall have any discretion to
select which Outside Directors shall be granted Options or to determine the
number of Shares to be covered by Options granted to Outside Directors.
(ii) Each Outside Director who is elected or
appointed to the Board subsequent to the adoption of this Plan shall be
automatically granted an Option to purchase 10,000 Shares (the "First Option")
on the date on which such person first becomes an Outside Director; provided,
however, that an Inside Director who ceases to be an Inside Director but who
remains a Director shall not receive a First Option.
(iii) Each Outside Director shall be automatically
granted an Option to purchase 2,500 Shares (a "Subsequent Option") upon such
Director's reelection at the Annual Meeting of the Stockholders of the Company
if, as of such date, he or she shall have served on the Board for at least the
preceding six (6) months.
(iv) Notwithstanding the provisions of
subsections (ii) and (iii) hereof, any exercise of an Option granted before the
Company has obtained shareholder approval of the Plan in accordance with Section
16 hereof shall be conditioned upon obtaining such shareholder approval of the
Plan in accordance with Section 16 hereof.
(v) The terms of a First Option granted
hereunder shall be as follows:
(A) the term of the First Option shall be
ten (10) years.
(B) the First Option shall be
exercisable only while the Outside Director remains a Director of the Company,
except as set forth in Sections 8 and 10 hereof.
(C) the exercise price per Share shall
be 100% of the Fair Market Value per Share on the date of grant of the First
Option. In the event that the date of grant of the First Option is not a trading
day, the exercise price per Share shall be the Fair Market Value on the next
trading day immediately following the date of grant of the First Option.
(D) subject to Section 10 hereof, the
First Option shall become exercisable as to 6 1/4 percent of the Shares subject
to the First Option three months after its date of grant, and as to an
additional 6 1/4 percent at the end of each three-month period thereafter,
provided that the Optionee continues to serve as a Director on such dates.
(vi) The terms of a Subsequent Option granted
hereunder shall be as follows:
(A) the term of the Subsequent Option shall
be ten (10) years.
(B) the Subsequent Option shall be
exercisable only while the Outside Director remains a Director of the Company,
except as set forth in Sections 8 and 10 hereof.
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<PAGE> 4
(C) the exercise price per Share shall
be 100% of the Fair Market Value per Share on the date of grant of the
Subsequent Option. In the event that the date of grant of the Subsequent Option
is not a trading day, the exercise price per Share shall be the Fair Market
Value on the next trading day immediately following the date of grant of the
Subsequent Option.
(D) subject to Section 10 hereof, the
Subsequent Option shall become exercisable as to 6 1/4 percent of the Shares
subject to the Subsequent Option three months after its date of grant, and as to
an additional 6 1/4 percent at the end of each three-month period thereafter,
provided that the Optionee continues to serve as a Director on such dates.
(vii) In the event that any Option granted under
the Plan would cause the number of Shares subject to outstanding Options plus
the number of Shares previously purchased under Options to exceed the Pool, then
the remaining Shares available for Option grant shall be granted under Options
to the Outside Directors on a pro rata basis. No further grants shall be made
until such time, if any, as additional Shares become available for grant under
the Plan through action of the Board or the shareholders to increase the number
of Shares which may be issued under the Plan or through cancellation or
expiration of Options previously granted hereunder.
5. Eligibility. Options may be granted only to Outside
Directors. All Options shall be automatically granted in accordance with the
terms set forth in Section 4 hereof.
The Plan shall not confer upon any Optionee any right with
respect to continuation of service as a Director or nomination to serve as a
Director, nor shall it interfere in any way with any rights which the Director
or the Company may have to terminate the Director's relationship with the
Company at any time.
6. Term of Plan. The Plan shall become effective upon the earlier
to occur of its adoption by the Board or its approval by the shareholders of the
Company as described in Section 16 of the Plan. It shall continue in effect for
a term of ten (10) years unless sooner terminated under Section 11 of the Plan.
7. Form of Consideration. The consideration to be paid for the
Shares to be issued upon exercise of an Option, including the method of payment,
shall consist of (i) cash, (ii) check, (iii) other shares which (x) in the case
of Shares acquired upon exercise of an Option, have been owned by the Optionee
for more than six (6) months on the date of surrender, and (y) have a Fair
Market Value on the date of surrender equal to the aggregate exercise price of
the Shares as to which said Option shall be exercised, (iv) delivery of a
properly executed exercise notice together with such other documentation as the
Company and the broker, if applicable, shall require to effect an exercise of
the Option and delivery to the Company of the sale or loan proceeds required to
pay the exercise price, or (v) any combination of the foregoing methods of
payment.
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<PAGE> 5
8. Exercise of Option.
(a) Procedure for Exercise; Rights as a Shareholder. Any
Option granted hereunder shall be exercisable at such times as are set forth in
Section 4 hereof; provided, however, that no Options shall be exercisable until
shareholder approval of the Plan in accordance with Section 16 hereof has been
obtained.
An Option may not be exercised for a fraction of a Share.
An Option shall be deemed to be exercised when written notice
of such exercise has been given to the Company in accordance with the terms of
the Option by the person entitled to exercise the Option and full payment for
the Shares with respect to which the Option is exercised has been received by
the Company. Full payment may consist of any consideration and method of payment
allowable under Section 7 of the Plan. Until the issuance (as evidenced by the
appropriate entry on the books of the Company or of a duly authorized transfer
agent of the Company) of the stock certificate evidencing such Shares, no right
to vote or receive dividends or any other rights as a shareholder shall exist
with respect to the Optioned Stock, notwithstanding the exercise of the Option.
A share certificate for the number of Shares so acquired shall be issued to the
Optionee as soon as practicable after exercise of the Option. No adjustment
shall be made for a dividend or other right for which the record date is prior
to the date the stock certificate is issued, except as provided in Section 10 of
the Plan.
Exercise of an Option in any manner shall result in a decrease
in the number of Shares which thereafter may be available, both for purposes of
the Plan and for sale under the Option, by the number of Shares as to which the
Option is exercised.
(b) Rule 16b-3. Options granted to Outside Directors must
comply with the applicable provisions of Rule 16b-3 promulgated under the
Exchange Act or any successor thereto and shall contain such additional
conditions or restrictions as may be required thereunder to qualify Plan
transactions, and other transactions by Outside Directors that otherwise could
be matched with Plan transactions, for the maximum exemption from Section 16 of
the Exchange Act.
(c) Termination of Continuous Status as a Director. Subject to
Section 10 hereof, in the event an Optionee's status as a Director terminates
(other than upon the Optionee's death or total and permanent disability (as
defined in Section 22(e)(3) of the Code)), the Optionee may exercise his or her
Option, but only within three (3) months following the date of such termination,
and only to the extent that the Optionee was entitled to exercise it on the date
of such termination (but in no event later than the expiration of its ten (10)
year term). To the extent that the Optionee was not entitled to exercise an
Option on the date of such termination, and to the extent that the Optionee does
not exercise such Option (to the extent otherwise so entitled) within the time
specified herein, the Option shall terminate.
(d) Disability of Optionee. In the event Optionee's status
as a Director terminates as a result of total and permanent disability (as
defined in Section 22(e)(3) of the Code), the Optionee
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<PAGE> 6
may exercise his or her Option, but only within twelve (12) months following the
date of such termination, and only to the extent that the Optionee was entitled
to exercise it on the date of such termination (but in no event later than the
expiration of its ten (10) year term). To the extent that the Optionee was not
entitled to exercise an Option on the date of termination, or if he or she does
not exercise such Option (to the extent otherwise so entitled) within the time
specified herein, the Option shall terminate.
(e) Death of Optionee. In the event of an Optionee's death,
the Optionee's estate or a person who acquired the right to exercise the Option
by bequest or inheritance may exercise the Option, but only within twelve (12)
months following the date of death, and only to the extent that the Optionee was
entitled to exercise it on the date of death (but in no event later than the
expiration of its ten (10) year term). To the extent that the Optionee was not
entitled to exercise an Option on the date of death, and to the extent that the
Optionee's estate or a person who acquired the right to exercise such Option
does not exercise such Option (to the extent otherwise so entitled) within the
time specified herein, the Option shall terminate.
9. Non-Transferability of Options. The Option may not be sold,
pledged, assigned, hypothecated, transferred, or disposed of in any manner other
than by will or by the laws of descent or distribution and may be exercised,
during the lifetime of the Optionee, only by the Optionee.
10. Adjustments Upon Changes in Capitalization, Dissolution,
Merger or Asset Sale.
(a) Changes in Capitalization. Subject to any required action
by the shareholders of the Company, the number of Shares covered by each
outstanding Option, the number of Shares which have been authorized for issuance
under the Plan but as to which no Options have yet been granted or which have
been returned to the Plan upon cancellation or expiration of an Option, as well
as the price per Share covered by each such outstanding Option, and the number
of Shares issuable pursuant to the automatic grant provisions of Section 4
hereof shall be proportionately adjusted for any increase or decrease in the
number of issued Shares resulting from a stock split, reverse stock split, stock
dividend, combination or reclassification of the Common Stock, or any other
increase or decrease in the number of issued Shares effected without receipt of
consideration by the Company; provided, however, that conversion of any
convertible securities of the Company shall not be deemed to have been "effected
without receipt of consideration." Except as expressly provided herein, no
issuance by the Company of shares of stock of any class, or securities
convertible into shares of stock of any class, shall affect, and no adjustment
by reason thereof shall be made with respect to, the number or price of Shares
subject to an Option.
(b) Dissolution or Liquidation. In the event of the proposed
dissolution or liquidation of the Company, to the extent that an Option has not
been previously exercised, it shall terminate immediately prior to the
consummation of such proposed action.
(c) Merger or Asset Sale. In the event of a merger of the
Company with or into another corporation or the sale of substantially all of the
assets of the Company, outstanding Options may be assumed or equivalent options
may be substituted by the successor corporation or a Parent or
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<PAGE> 7
Subsidiary thereof (the "Successor Corporation"). If an Option is assumed or
substituted for, the Option or equivalent option shall continue to be
exercisable as provided in Section 4 hereof for so long as the Optionee serves
as a Director or a director of the Successor Corporation. Following such
assumption or substitution, if the Optionee's status as a Director or director
of the Successor Corporation, as applicable, is terminated other than upon a
voluntary resignation by the Optionee, the Option or option shall become fully
exercisable, including as to Shares for which it would not otherwise be
exercisable. Thereafter, the Option or option shall remain exercisable in
accordance with Sections 8(c) through (e) above.
If the Successor Corporation does not assume an outstanding Option or
substitute for it an equivalent option, the Option shall become fully vested and
exercisable, including as to Shares for which it would not otherwise be
exercisable. In such event the Board shall notify the Optionee that the Option
shall be fully exercisable for a period of thirty (30) days from the date of
such notice, and upon the expiration of such period the Option shall terminate.
For the purposes of this Section 10(c), an Option shall be considered
assumed if, following the merger or sale of assets, the Option confers the right
to purchase or receive, for each Share of Optioned Stock subject to the Option
immediately prior to the merger or sale of assets, the consideration (whether
stock, cash, or other securities or property) received in the merger or sale of
assets by holders of Common Stock for each Share held on the effective date of
the transaction (and if holders were offered a choice of consideration, the type
of consideration chosen by the holders of a majority of the outstanding Shares).
If such consideration received in the merger or sale of assets is not solely
common stock of the successor corporation or its Parent, the Administrator may,
with the consent of the successor corporation, provide for the consideration to
be received upon the exercise of the Option, for each Share of Optioned Stock
subject to the Option, to be solely common stock of the successor corporation or
its Parent equal in fair market value to the per share consideration received by
holders of Common Stock in the merger or sale of assets.
11. Amendment and Termination of the Plan.
(a) Amendment and Termination. Except as set forth in Section
4, the Board may at any time amend, alter, suspend, or discontinue the Plan, but
no amendment, alteration, suspension, or discontinuation shall be made which
would impair the rights of any Optionee under any grant theretofore made,
without his or her consent. In addition, to the extent necessary and desirable
to comply with Rule 16b-3 under the Exchange Act (or any other applicable law or
regulation), the Company shall obtain shareholder approval of any Plan amendment
in such a manner and to such a degree as required.
(b) Effect of Amendment or Termination. Any such amendment or
termination of the Plan shall not affect Options already granted and such
Options shall remain in full force and effect as if this Plan had not been
amended or terminated.
12. Time of Granting Options. The date of grant of an Option
shall, for all purposes, be the date determined in accordance with Section 4
hereof.
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<PAGE> 8
13. Conditions Upon Issuance of Shares. Shares shall not be issued
pursuant to the exercise of an Option unless the exercise of such Option and the
issuance and delivery of such Shares pursuant thereto shall comply with all
relevant provisions of law, including, without limitation, the Securities Act of
1933, as amended, the Exchange Act, the rules and regulations promulgated there
under, state securities laws, and the requirements of any stock exchange upon
which the Shares may then be listed, and shall be further subject to the
approval of counsel for the Company with respect to such compliance.
As a condition to the exercise of an Option, the Company may
require the person exercising such Option to represent and warrant at the time
of any such exercise that the Shares are being purchased only for investment and
without any present intention to sell or distribute such Shares, if, in the
opinion of counsel for the Company, such a representation is required by any of
the aforementioned relevant provisions of law.
Inability of the Company to obtain authority from any
regulatory body having jurisdiction, which authority is deemed by the Company's
counsel to be necessary to the lawful issuance and sale of any Shares hereunder,
shall relieve the Company of any liability in respect of the failure to issue or
sell such Shares as to which such requisite authority shall not have been
obtained.
14. Reservation of Shares. The Company, during the term of this Plan,
will at all times reserve and keep available such number of Shares as shall be
sufficient to satisfy the requirements of the Plan.
15. Option Agreement. Options shall be evidenced by written option
agreements in such form as the Board shall approve.
16. Shareholder Approval. Continuance of the Plan shall be subject to
approval by the shareholders of the Company at or prior to the first annual
meeting of shareholders held subsequent to the granting of an Option hereunder.
Such shareholder approval shall be obtained in the degree and manner required
under applicable state and federal law.
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<PAGE> 9
CYMER, INC.
DIRECTOR OPTION AGREEMENT
Cymer, Inc., a Nevada corporation (the "Company"), hereby grants to
______________________________________ (the "Optionee"), an option to purchase a
total of __________________ (_________) shares of the Company's Common Stock
(the "Optioned Stock"), at the price determined as provided herein, and in all
respects subject to the terms, definitions and provisions of the Company's 1996
Director Option Plan (the "Plan") adopted by the Company which is incorporated
herein by reference. The terms defined in the Plan shall have the same defined
meanings herein.
1. Nature of the Option. This Option is a nonstatutory option and is
not intended to qualify for any special tax benefits to the Optionee.
2. Exercise Price. The exercise price is $_______ for each share of
Common Stock.
3. Exercise of Option. This Option shall be exercisable during its
term in accordance with the provisions of Section 8 of the Plan as follows:
(i) Right to Exercise.
(a) This Option shall become exercisable in installments
cumulatively with respect to six and one quarter percent (6 1/4%) of the
Optioned Stock three months after the date of grant, and as to an additional six
and one quarter percent (6 1/4%) of the Optioned Stock at the end of each
three-month period thereafter, so that one hundred percent (100%) of the
Optioned Stock shall be exercisable four years after the date of grant.
(b) This Option may not be exercised for a fraction of a
share.
(c) In the event of Optionee's death, disability or other
termination of service as a Director, the exercisability of the Option is
governed by Section 8 of the Plan.
(ii) Method of Exercise. This Option shall be exercisable by written
notice which shall state the election to exercise the Option and the number of
Shares in respect of which the Option is being exercised. Such written notice,
in the form attached hereto as Exhibit A, shall be signed by the Optionee and
shall be delivered in person or by certified mail to the Secretary of the
Company. The written notice shall be accompanied by payment of the exercise
price.
4. Method of Payment. Payment of the exercise price shall be by any of
the following, or a combination thereof, at the election of the Optionee:
(i) cash;
<PAGE> 10
(ii) check;
(iii) surrender of other shares which (x) in the case of Shares
acquired upon exercise of an Option, have been owned by the Optionee for more
than six (6) months on the date of surrender, and (y) have a Fair Market Value
on the date of surrender equal to the aggregate exercise price of the Shares as
to which said Option shall be exercised; or
(iv) delivery of a properly executed exercise notice together with
such other documentation as the Company and the broker, if applicable, shall
require to effect an exercise of the Option and delivery to the Company of the
sale or loan proceeds required to pay the exercise price.
5. Restrictions on Exercise. This Option may not be exercised if the
issuance of such Shares upon such exercise or the method of payment of
consideration for such shares would constitute a violation of any applicable
federal or state securities or other law or regulations, or if such issuance
would not comply with the requirements of any stock exchange upon which the
Shares may then be listed. As a condition to the exercise of this Option, the
Company may require Optionee to make any representation and warranty to the
Company as may be required by any applicable law or regulation.
6. Non-Transferability of Option. This Option may not be transferred in
any manner otherwise than by will or by the laws of descent or distribution and
may be exercised during the lifetime of Optionee only by the Optionee. The terms
of this Option shall be binding upon the executors, administrators, heirs,
successors and assigns of the Optionee.
7. Term of Option. This Option may not be exercised more than ten (10)
years from the date of grant of this Option, and may be exercised during such
period only in accordance with the Plan and the terms of this Option.
8. Taxation Upon Exercise of Option. Optionee understands that, upon
exercise of this Option, he or she will recognize income for tax purposes in an
amount equal to the excess of the then Fair Market Value of the Shares purchased
over the exercise price paid for such Shares. Since the Optionee is subject to
Section 16(b) of the Securities Exchange Act of 1934, as amended, under certain
limited circumstances the measurement and timing of such income (and the
commencement of any capital gain holding period) may be deferred, and the
Optionee is advised to contact a tax advisor concerning the application of
Section 83 in general and the availability a Section 83(b) election in
particular in connection with the exercise of the Option. Upon a resale of such
Shares by the Optionee, any difference between the sale price and the Fair
Market Value of the Shares on the date
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<PAGE> 11
of exercise of the Option, to the extent not included in income as described
above, will be treated as capital gain or loss.
DATE OF GRANT: ______________ CYMER, INC.
a Nevada corporation
By: __________________________
Optionee acknowledges receipt of a copy of the Plan, a copy of which is
attached hereto, and represents that he or she is familiar with the terms and
provisions thereof, and hereby accepts this Option subject to all of the terms
and provisions thereof. Optionee hereby agrees to accept as binding, conclusive
and final all decisions or interpretations of the Board upon any questions
arising under the Plan.
Dated: _________________ ______________________________
Optionee
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<PAGE> 12
EXHIBIT A
DIRECTOR OPTION EXERCISE NOTICE
Cymer, Inc.
16275 Technology Drive
San Diego, CA 92127-1815
Attention: Corporate Secretary
1. Exercise of Option. The undersigned ("Optionee") hereby elects to
exercise Optionee's option to purchase ______ shares of the Common Stock (the
"Shares") of Cymer, Inc. (the "Company") under and pursuant to the Company's
1996 Director Option Plan and the Director Option Agreement dated
_______________ (the "Agreement").
2. Representations of Optionee. Optionee acknowledges that Optionee has
received, read and understood the Agreement.
3. Federal Restrictions on Transfer. Optionee understands that the Shares
must be held indefinitely unless they are registered under the Securities Act of
1933, as amended (the "1933 Act"), or unless an exemption from such registration
is available, and that the certificate(s) representing the Shares may bear a
legend to that effect. Optionee understands that the Company is under no
obligation to register the Shares and that an exemption may not be available or
may not permit Optionee to transfer Shares in the amounts or at the times
proposed by Optionee.
4. Tax Consequences. Optionee understands that Optionee may suffer adverse
tax consequences as a result of Optionee's purchase or disposition of the
Shares. Optionee represents that Optionee has consulted with any tax
consultant(s) Optionee deems advisable in connection with the purchase or
disposition of the Shares and that Optionee is not relying on the Company for
any tax advice.
5. Delivery of Payment. Optionee herewith delivers to the Company the
aggregate purchase price for the Shares that Optionee has elected to purchase
and has made provision for the payment of any federal or state withholding taxes
required to be paid or withheld by the Company.
6. Entire Agreement. The Agreement is incorporated herein by reference.
This Exercise Notice and the Agreement constitute the entire agreement of the
parties and supersede in their entirety all prior undertakings and agreements of
the Company and Optionee with respect to the
<PAGE> 13
subject matter hereof. This Exercise Notice and the Agreement are governed by
California law except for that body of law pertaining to conflict of laws.
Submitted by: Accepted by:
OPTIONEE: CYMER, INC.
By:
- ---------------------------- ---------------------------------
Its:
---------------------------------
Address:
Dated: Dated:
--------------------- -------------------------------
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<PAGE> 1
Exhibit 21.1
Subsidiaries of the Registrant
Cymer Japan, Inc.
<PAGE> 1
EXHIBIT 23.1
The following Independent Auditors' Consent is in the form that will be signed
by Deloitte & Touche LLP upon consummation of the event, which is described in
the second paragraph of Note 1 of Notes to Consolidated Financial Statements,
and assuming that, from March 22, 1996 to the date of such event, no other
events shall have occurred that would affect the accompanying consolidated
financial statements and notes thereto.
INDEPENDENT AUDITORS' CONSENT
We consent to the use in this Registration Statement of Cymer, Inc. (successor
to Cymer Laser Technologies) on Form S-1 of our report dated March 22, 1996
(__________, 1996 as to the second paragraph of Note 1 and Note 12), appearing
in the Prospectus, which is part of this Registration Statement and to the
reference to us under the headings "Selected Financial Data" and "Experts" in
such Prospectus.
San Diego, California
________, 1996
<PAGE> 1
EXHIBIT 23.3
CONSENT OF TOWNSEND AND TOWNSEND AND CREW
PALO ALTO, CALIFORNIA
We hereby consent to the reference to our firm under the captions "Risk
Factors -- Uncertainty Regarding Patents and Protection of Proprietary
Technology," "Business -- Intellectual Property Rights" and "Experts" in the
Registration Statement on Form S-1 and related Prospectus of Cymer, Inc. (File
No. 333- ) for the registration of its Common Stock.
TOWNSEND AND TOWNSEND AND CREW
By:
Palo Alto, California
July 17, 1996
