<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON DECEMBER 3, 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 3559 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. BRETT A. PLETCHER, ESQ.
WILSON SONSINI GOODRICH & ROSATI GUNDERSON DETTMER STOUGH VILLENEUVE
PROFESSIONAL CORPORATION FRANKLIN & HACHIGIAN, LLP
650 PAGE MILL ROAD 155 CONSTITUTION DRIVE
PALO ALTO, CALIFORNIA 94304-1050 MENLO PARK, CALIFORNIA 94025
(415) 493-9300 (415) 321-2400
</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. [ ]
------------------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<S> <C> <C> <C> <C>
- ----------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------
TITLE OF EACH CLASS OF PROPOSED MAXIMUM PROPOSED MAXIMUM AMOUNT OF
SECURITIES TO BE AMOUNT TO BE OFFERING PRICE AGGREGATE OFFERING REGISTRATION
REGISTERED REGISTERED(1) PER SHARE(2) PRICE(1)(2) FEE
- ----------------------------------------------------------------------------------------------------------
Common Stock,
$0.001 par value........ 1,955,000 $35.25 $68,913,750 $20,883
- ----------------------------------------------------------------------------------------------------------
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</TABLE>
(1) Includes up to 255,000 shares of Common Stock which may be purchased by the
Underwriters to cover overallotments, if any.
(2) Estimated pursuant to Rule 457(c) solely for the purpose of calculating the
registration fee, based on the average of the high and low trading prices
for the Common Stock as reported by the Nasdaq National Market on November
27, 1996.
------------------------
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.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<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
6. Dilution................................... Not applicable
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; Price Range of
Common Stock Capitalization; 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 REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS
OF ANY SUCH STATE.
PROSPECTUS (Subject to Completion)
Issued December 3, 1996
1,700,000 Shares
LOGO
COMMON STOCK
------------------------
OF THE 1,700,000 SHARES OF COMMON STOCK OFFERED HEREBY, 1,000,000 SHARES ARE
BEING SOLD BY THE COMPANY AND 700,000 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. THE COMPANY'S COMMON STOCK IS LISTED ON THE NASDAQ
NATIONAL MARKET UNDER THE SYMBOL "CYMI." ON DECEMBER 2, 1996, THE
REPORTED LAST SALE PRICE OF THE COMMON STOCK ON THE NASDAQ
NATIONAL MARKET WAS $37 PER SHARE. SEE "PRICE RANGE OF COMMON
STOCK."
------------------------
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 $400,000.
(3) Certain Selling Stockholders have granted to the Underwriters an option,
exercisable within 30 days of the date hereof, to purchase up to an
aggregate of 255,000 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 Selling Stockholders 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 December , 1996, at the offices of Morgan Stanley & Co.
Incorporated, New York, N.Y., 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.
------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary.................................................................... 3
The Company........................................................................... 4
Risk Factors.......................................................................... 5
Use of Proceeds....................................................................... 15
Dividend Policy....................................................................... 15
Price Range of Common Stock........................................................... 15
Capitalization........................................................................ 16
Selected Consolidated Financial Data.................................................. 17
Management's Discussion and Analysis of Financial Condition and Results of
Operations.......................................................................... 18
Business.............................................................................. 26
Management............................................................................ 40
Certain Transactions.................................................................. 47
Principal and Selling Stockholders.................................................... 49
Description of Capital Stock.......................................................... 52
Shares Eligible for Future Sale....................................................... 54
Underwriters.......................................................................... 56
Legal Matters......................................................................... 57
Experts............................................................................... 57
Additional Information................................................................ 58
Index to Consolidated Financial Statements............................................ F-1
</TABLE>
------------------------
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.
------------------------
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.
------------------------
IN CONNECTION WITH THIS OFFERING, CERTAIN UNDERWRITERS MAY ENGAGE IN
PASSIVE MARKET MAKING TRANSACTIONS IN THE COMMON STOCK OF THE COMPANY ON THE
NASDAQ NATIONAL MARKET IN ACCORDANCE WITH RULE 10B-6A UNDER THE SECURITIES
EXCHANGE ACT OF 1934. SEE "UNDERWRITERS."
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 constitute 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 systems
incorporating the Company's excimer lasers have 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 extendible 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................................... 1,700,000 shares, including
1,000,000 shares by the Company and
700,000 shares by the Selling Stockholders(1)
Common Stock to be outstanding after the offering...... 13,419,456 shares(2)
Use of proceeds........................................ Expansion of manufacturing capacity and general
corporate purposes, including working capital
Nasdaq National Market symbol.......................... CYMI
</TABLE>
SUMMARY CONSOLIDATED FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEARS ENDED DECEMBER 31, SEPTEMBER 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 $12,998 $37,428
Operating income (loss)............................. (3,181) (1,117) (2,696) (1,788) (150) (320) 3,219
Net income (loss)................................... (2,961) (1,268) (2,924) (2,045) 69 (295) 2,963
Earnings (loss) per share(3)........................ $ 0.01 $ (0.04) $ 0.29
Weighted average common and common equivalent shares
outstanding(3).................................... 7,571 6,937 10,055
</TABLE>
<TABLE>
<CAPTION>
SEPTEMBER 30, 1996
--------------------------
ACTUAL AS ADJUSTED(4)
------- --------------
<S> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Cash and cash equivalents...................................................................... $21,048 $ 55,521
Working capital................................................................................ 36,500 70,973
Total assets................................................................................... 63,129 97,602
Total debt (5)................................................................................. 5,834 5,834
Stockholders' equity........................................................................... 45,154 79,627
</TABLE>
- ---------------
(1) Assumes no exercise of the Underwriters' over-allotment option. See
"Underwriters."
(2) Based on the number of shares outstanding as of September 30, 1996. Assumes
the issuance simultaneously with the offering of 145,404 shares of Common
Stock upon the anticipated exercise of outstanding warrants. Excludes (i)
1,391,538 shares of Common Stock issuable upon exercise of options
outstanding as of September 30, 1996 at a weighted average exercise price of
$3.04 per share, (ii) 1,307,950 shares reserved for issuance under the
Company's 1996 Stock Option Plan, (iii) 100,000 shares reserved for issuance
under the Company's 1996 Director Stock Option Plan and (iv) 250,000 shares
of Common Stock reserved for issuance under the Company's 1996 Employee
Stock Purchase Plan. Also excludes 339,930 shares of Common Stock issuable
upon exercise of outstanding warrants at an exercise price of $3.50 per
share. See "Management -- Stock Plans" and Note 6 of Notes to Consolidated
Financial Statements and Note 5 of Notes to Unaudited Consolidated Financial
Statements.
(3) Earnings (loss) per share are presented on a pro forma basis for 1995 and
the nine months ended September 30, 1995. See Note 1 of Notes to
Consolidated Financial Statements and Note 1 of Notes to Unaudited
Consolidated Financial Statements for an explanation of the determination of
shares used in computing pro forma earnings (loss) per share and earnings
per share.
(4) Adjusted to reflect the sale by the Company of 1,000,000 shares of Common
Stock offered hereby at an assumed public offering price of $37 per share,
after deducting underwriting discounts and commissions and estimated
offering expenses payable by the Company. 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 constitute 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 systems
incorporating the Company's excimer lasers have 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, "mm") 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 0.25mm devices by 1998 and 0.18mm devices by 2001. The Company
believes that volume production of semiconductors with critical geometries below
0.35mm 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 0.25mm, and the Company believes its
technology is extendible to critical feature sizes as small as 0.10mm 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 illumination 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 reincorporated in
Nevada in August 1996. 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
This Prospectus contains forward-looking statements that involve risks and
uncertainties. The statements contained in this Prospectus that are not purely
historical are forward-looking statements within the meaning of Section 27A of
the Securities Act of 1933 and Section 21E of the Securities Exchange Act of
1934, including without limitation statements regarding the Company's
expectations, beliefs, intentions or strategies regarding the future. All
forward-looking statements included in this document are based on information
available to the Company on the date hereof, and the Company assumes no
obligation to update any such forward-looking statements. The Company's actual
results could differ materially from those anticipated in these forward-looking
statements as a result of certain factors, including those set forth in the
following risk factors and elsewhere in this Prospectus. In evaluating the
Company's business, prospective investors should consider carefully the
following factors in addition to the other information set forth in this
Prospectus.
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 September 30, 1996 of approximately $52.1 million for
shipment during the 12 months ending September 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 0.25mm 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 0.25mm 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
5
<PAGE> 8
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 September 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 would 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 seven quarters, the Company has incurred annual operating
losses since inception. The Company had an accumulated deficit of approximately
$11.0 million at September 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 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 continue
to increase the rate by which it manufactures and tests its photolithography
laser systems. This increase would follow a nearly seven-fold increase in the
manufacturing rate from December 1995 to September 1996. The Company is
currently 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 volume production on schedule. The failure
of Seiko to be so qualified or to commence volume production on schedule
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could have a material adverse effect on the Company's business, financial
condition and results of operations. See "Business -- Manufacturing."
Seiko has been advised by Komatsu, Ltd. ("Komatsu"), a competitor of the
Company, that certain aspects of the Company's lasers might infringe a patent
that has been issued to Komatsu in Japan and that Komatsu intends to enforce its
rights under that patent against Seiko if Seiko engages in manufacturing
activities for the Company. Cymer has been advised by its patent counsel in this
matter, Wilson Sonsini Goodrich & Rosati, Professional Corporation, which is
relying in part on the opinion of the Company's Japanese patent counsel, that in
the opinion of such firm the Company's products do not infringe any valid claims
included in the Komatsu patent. In the event that, notwithstanding its
manufacturing agreement with the Company, Seiko should determine not to continue
manufacturing the Company's products until resolution of the matter with
Komatsu, or be barred from such activities, the Company's ability to meet the
anticipated demand for its products could be materially adversely affected. See
"-- Uncertainty Regarding Patents and Protection of Proprietary Technology" and
"Business -- Intellectual Property Rights."
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, including certain optical
components and 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. The
Company believes that its recent manufacturing expansion has significantly
strained the production capacity of certain key suppliers, including suppliers
of optical components and pre-ionizer tubes. 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."
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. Impediments to such adoption include a shortage of
engineers with experience implementing, utilizing and maintaining DUV
photolithography systems that incorporate excimer laser illumination sources,
instability of photoresists used in DUV photolithography and a shortage of
specialized glass used in DUV optics. There can be no assurance that such
impediments can or will be overcome, and, in any event, such impediments may
materially reduce the demand for the Company's products. In addition, 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 also 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
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<PAGE> 10
business and collectively accounted for approximately 65% and 91% of the
Company's total revenues in 1995 and the nine months ended September 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 25%, 31%, 24% and 11%, respectively, of total
revenues in the nine month period ended September 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 is obligated to purchase a minimum number of 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 285 between December 31, 1995 and September 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.
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.
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, 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. Although the Company believes that
these competitors are not yet supplying excimer lasers in volume for
photolithography applications, the Company believes that both companies are
aggressively seeking to gain larger positions in this market. 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
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<PAGE> 11
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" and
"-- Intellectual Property Rights."
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, 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 presently believes that the net
proceeds of this offering, together with anticipated cash provided by
operations, existing cash, cash investments balances and available lines of
credit, will be adequate to meet its cash needs for at least the next 12 months.
However, the Company requires substantial working capital to fund its business,
particularly to finance inventories and accounts receivable and for capital
expenditures. 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. Accordingly, 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."
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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.
Although 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 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, three of which have
been allowed. The Company also has filed 34 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.
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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. In
July 1996, the Company's prospective Japanese manufacturing partner, Seiko, was
notified by Komatsu, one of the Company's competitors, that certain aspects of
the Company's lasers might infringe certain claims furnished by Komatsu to Seiko
that Komatsu advised Seiko were included in a patent application filed by
Komatsu in Japan (the "Patent Claims"). Seiko in turn notified the Company of
this claim. In connection with its manufacturing agreement with Seiko, the
Company has agreed to indemnify Seiko against such claims under certain
circumstances. A patent has now been issued to Komatsu by the Japanese Patent
Office covering the Patent Claims, and Komatsu has advised Seiko of its
intention to enforce its rights under that patent against Seiko if Seiko engages
in manufacturing activities for the Company. The Company has been advised by its
patent counsel in this matter, Wilson Sonsini Goodrich & Rosati, Professional
Corporation, which is relying in part on the opinion of the Company's Japanese
patent counsel, that in the opinion of such firm the Company's products do not
infringe any valid Patent Claims. However, there can be no assurance that
litigation will not ensue with respect to these claims, that the Company and
Seiko would ultimately prevail in any such litigation, that Komatsu will not
assert infringement claims under additional patents or that Seiko will continue
to manufacture lasers under the threat of potential litigation.
Any patent litigation would at a minimum be costly and could divert the
efforts and attention of the Company's management and technical personnel, which
could 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 other 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 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 services of its engineering, research and
development, sales and
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<PAGE> 14
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 operations. See
"Business -- Employees."
Risks of International Sales and Operations. Approximately 54%, 69% and
82% of the Company's revenues in 1994, 1995 and the nine months ended September
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 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. Although
management will continue to monitor the Company's exposure to currency
fluctuations, and, when 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
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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.
Risks 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.
Unallocated Proceeds of the Offering. The Company currently has no
specific plans for use of the net proceeds of this offering. Accordingly,
management of the Company will have broad discretion with respect to the use of
these funds. In particular, the Company could use a portion of these funds for
the acquisition of complementary businesses, products and technologies, although
it has no present plans, agreements or commitments with respect to any such
transaction. Acquisitions involve numerous risks, including difficulties
assimilating new operations and products, the need to manage geographically
remote business units and the diversion of management attention from other
business concerns. There can be no assurance that any acquisition would result
in long-term benefits to the Company or that management would be able to manage
effectively the resulting business. See "Use of Proceeds."
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"), by lock-up
agreements with the Company entered into in connection with the purchase of such
shares pursuant to which certain holders of such shares have agreed not to sell
or otherwise dispose of any of their shares for 120 days without the prior
written consent of the Company, and by lock-up agreements with Morgan Stanley &
Company, Incorporated entered into in connection with the Company's initial
public offering pursuant to which certain holders of such shares have agreed not
to sell or otherwise dispose of any of their shares for 180 days without the
prior written consent of Morgan Stanley & Co. Incorporated. The Company has
agreed not to release any of the shares subject to such lock-up agreements
entered into with the Company without the prior written consent of Morgan
Stanley & Co. Incorporated. Morgan Stanley & Co. Incorporated, in its capacity
as Representative of the several Underwriters, may, however, 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 September 30, 1996, the
following shares of Common Stock will be eligible for future sale in the public
market. On the date of this Prospectus, 5,739,565 shares, including the
1,700,000 shares offered hereby and 3,841,000 shares sold in the Company's
initial public offering, will be eligible for sale. Beginning on January 17,
1997 and March 18, 1997, an additional 68,531 and 5,824,170 shares,
respectively, will be eligible for sale in the public market upon expiration of
lock-up agreements. In addition, at various times beginning on March 18, 1997,
an additional 1,787,190 shares will be eligible for sale thereafter upon
expiration of their respective two-year holding periods. In addition, the
Company has registered for sale not earlier than March 18, 1997 a total of
3,041,753 shares of Common Stock subject to outstanding options or reserved for
issuance under the Company's 1987 Stock Option Plan, 1996 Stock Option Plan,
1996 Director Stock Option Plan and Employee Stock Purchase Plan. In addition,
the Company, pursuant to agreements with certain stockholders, included in the
Registration Statement covering its initial public offering, 142,918 shares of
Common Stock to be offered on a continuous basis by such stockholders beginning
on March 18, 1997. Further, upon expiration of the lock-up agreements referred
to above, holders of approximately 6,891,747 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
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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."
Possible Volatility of Stock Price. The market price for the Company's
Common Stock has been, and is likely to continue to be, subject to wide
fluctuations in response to actual or anticipated fluctuations in the Company's
operating results, announcements of technological innovations or new products by
the Company or its competitors, changes in earnings estimates or recommendations
by securities analysts, developments with respect to patents and proprietary
rights, general market conditions and other factors. In addition, the equity
markets have 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. See "Underwriters."
Anti-Takeover Effect of Nevada Law and Charter and Bylaw Provisions;
Availability of Preferred Stock for Issuance. Nevada law and 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 -- Preferred Stock" and
"-- Nevada Anti-Takeover Statutes."
14
<PAGE> 17
USE OF PROCEEDS
The net proceeds to the Company from the sale of the 1,000,000 shares of
Common Stock offered by the Company hereby are estimated to be $34.5 million,
assuming a public offering price of $37 per share and after deducting
underwriting discounts and commissions and estimated offering expenses payable
by the Company.
The principal purpose of this offering is to obtain additional capital to
fund the Company's expanding operations. The Company anticipates that the net
proceeds to the Company from this offering will be used for increased capital
expenditures through 1997 (presently estimated at approximately $17.0 million),
primarily for factory expansion and improvements, test equipment, research tools
and computer equipment, and 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.
PRICE RANGE OF COMMON STOCK
The Company's Common Stock has traded publicly on the Nasdaq National
Market under the symbol "CYMI" since September 19, 1996. The Company's initial
public offering price was $9.50 per share. The following table lists the high
and low closing sale prices for the Company's Common Stock for the periods
indicated during 1996 as reported by the Nasdaq National Market:
<TABLE>
<CAPTION>
HIGH LOW
---- ----
<S> <C> <C>
Third Quarter (beginning September 19, 1996)........................... $17 3/4 $13 5/8
Fourth Quarter (through December 2, 1996).............................. 37 15 3/4
</TABLE>
On December 2, 1996, the last reported sale price of the Company's Common
Stock on the Nasdaq National Market was $37 per share. As of November 29, 1996,
there were approximately 181 holders of record of the Company's Common Stock.
15
<PAGE> 18
CAPITALIZATION
The following table sets forth the capitalization of the Company as of
September 30, 1996 and as adjusted to give effect to the sale of the 1,000,000
shares of Common Stock offered by the Company hereby at an assumed public
offering price of $37 per share, after deducting underwriting discounts and
commissions and estimated offering expenses payable by the Company.
<TABLE>
<CAPTION>
SEPTEMBER 30, 1996
----------------------------
ACTUAL AS ADJUSTED
-------- -----------
(IN THOUSANDS, EXCEPT SHARE
DATA)
<S> <C> <C>
Capital lease obligations (excluding current portion)............. $ 352 $ 352
-------- --------
Stockholders' equity (deficit):
Preferred Stock, $0.001 par value: actual -- no shares
authorized,
issued or outstanding; as adjusted -- 5,000,000 shares
authorized,
no shares issued or outstanding.............................. -- --
Common Stock: actual -- $0.001 par value, 25,000,000 shares
authorized; 12,419,456 shares issued and outstanding; as
adjusted -- 13,419,456 shares issued and outstanding(1)...... 12 13
Additional paid-in capital........................................ 56,503 90,975
Accumulated deficit............................................... (10,968) (10,968)
Cumulative translation adjustment................................. (393) (393)
-------- --------
Total stockholders' equity................................... 45,154 79,627
-------- --------
Total capitalization......................................... $ 45,506 $ 79,979
======== ========
</TABLE>
- ---------------
(1) Excludes (i) 1,391,538 shares of Common Stock issuable upon exercise of
options outstanding as of September 30, 1996 at a weighted average exercise
price of $3.04 per share, (ii) 1,307,950 shares reserved for issuance under
the Company's 1996 Stock Option Plan, (iii) 250,000 shares reserved for
issuance under the Company's 1996 Employee Stock Purchase Plan and (iv)
100,000 shares reserved for issuance under the Company's 1996 Director Stock
Option Plan. Also excludes 339,930 shares of Common Stock issuable upon
exercise of outstanding warrants at an exercise price of $3.50 per share.
See "Management -- Stock Plans."
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 nine months ended September 30, 1995 and September 30, 1996 and the
consolidated balance sheet data at September 30, 1996 are derived from the
unaudited consolidated financial statements included elsewhere in this
Prospectus that have been prepared on the same basis as the audited consolidated
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>
NINE MONTHS ENDED
YEARS ENDED DECEMBER 31, SEPTEMBER 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 $10,350 $35,553
Other................................. -- 1,708 2,306 1,216 3,244 2,648 1,875
------- ------- ------- ------- ------- ------- -------
Total revenues................. 4,480 9,131 5,699 8,921 18,820 12,998 37,428
------- ------- ------- ------- ------- ------- -------
Costs and expenses:
Cost of product sales................. 3,275 4,404 2,726 4,797 9,282 6,135 20,961
Research and development.............. 1,903 2,673 2,733 3,283 6,154 4,693 7,478
Sales and marketing................... 1,710 2,182 2,154 1,780 2,353 1,663 3,503
General and administrative............ 773 989 782 849 1,181 827 2,267
------- ------- ------- ------- ------- ------- -------
Total costs and expenses....... 7,661 10,248 8,395 10,709 18,970 13,318 34,209
------- ------- ------- ------- ------- ------- -------
Operating income (loss)................. (3,181) (1,117) (2,696) (1,788) (150) (320) 3,219
Other income (expense).................. 220 (51) (7) (199) 255 61 312
------- ------- ------- ------- ------- ------- -------
Income (loss) before provision for
income taxes.......................... (2,961) (1,168) (2,703) (1,987) 105 (259) 3,531
Provision for income taxes.............. -- 100 221 58 36 36 568
------- ------- ------- ------- ------- ------- -------
Net income (loss)....................... $(2,961) $(1,268) $(2,924) $(2,045) $ 69 $ (295) $ 2,963
======== ======== ======== ======== ======== ======== ========
Earnings (loss) per share(1)............ $ 0.01 $ (0.04) $ 0.29
======== ======== ========
Weighted average common and common
equivalent shares outstanding(1)...... 7,571 6,937 10,055
======== ======== ========
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------------------------------- SEPTEMBER 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 $21,048
Working capital............................. 2,245 2,289 (122) (1,557) 3,845 36,500
Total assets................................ 6,046 6,265 5,805 9,172 15,619 63,129
Total debt(2)............................... 1,059 1,026 2,717 6,879 4,164 5,834
Redeemable convertible preferred stock...... 10,980 12,889 12,989 19,290 28,409 --
Stockholders' equity (deficit).............. (7,647) (8,947) (11,828) (19,752) (21,830) 45,154
</TABLE>
- ---------------
(1) Earnings (loss) per share are presented on a pro forma basis for 1995 and
the nine months ended September 30, 1995. See Note 1 of Notes to
Consolidated Financial Statements and Note 1 of Notes to Unaudited
Consolidated Financial Statements for an explanation of the determination of
shares used in computing pro forma earnings (loss) per share and earnings
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
This Prospectus contains forward-looking statements that involve risks and
uncertainties. The statements contained in this Prospectus that are not purely
historical are forward-looking statements within the meaning of Section 27A of
the Securities Act of 1933 and Section 21E of the Securities Exchange Act of
1934, including without limitation statements regarding the Company's
expectations, beliefs, intentions or strategies regarding the future. All
forward-looking statements included in this document are based on information
available to the Company on the date hereof, and the Company assumes no
obligation to update any such forward-looking statements. The Company's actual
results could differ materially from those anticipated in these forward-looking
statements as a result of certain factors, including those set forth below,
under "Risk Factors" and elsewhere in this Prospectus.
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 $52.1 million at September 30, 1996. The Company
believes that semiconductor manufacturers are currently developing capability
for pilot production of 0.25(LOGO)m 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)m 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
82% of the Company's sales in 1993, 1994, 1995 and the
18
<PAGE> 21
first nine 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 57% of revenues for 1993, 1994, 1995 and the first nine months of 1996,
respectively. The activities of the Company's Japanese subsidiary are limited to
sales and service of products purchased by the subsidiary from the parent
corporation. All costs of development and production of the Company's products,
including costs of shipment to Japan, are recorded on the books of the parent
company. The Company anticipates that international sales will continue to
account for a significant portion of its net sales. See Notes 1 and 11 of Notes
to Consolidated Financial Statements.
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
------------------------------------------------------
NINE MONTHS
ENDED SEPTEMBER
YEARS ENDED DECEMBER 31, 30,
-------------------------------- -----------------
1993 1994 1995 1995 1996
-------- -------- ------ ------ ------
<S> <C> <C> <C> <C> <C>
Revenues:
Product sales......................... 59.5% 86.4% 82.8% 79.6% 95.0%
Other................................. 40.5 13.6 17.2 20.4 5.0
-------- -------- ------ ------ ------
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 47.2 56.0
Research and development.............. 48.0 36.8 32.7 36.1 20.0
Sales and marketing................... 37.8 20.0 12.5 12.8 9.4
General and administrative............ 13.7 9.5 6.3 6.4 6.0
-------- -------- ------ ------ ------
Total costs and expenses...... 147.3 120.1 100.8 102.5 91.4
-------- -------- ------ ------ ------
Operating income (loss)................. (47.3) (20.1) (0.8) (2.5) 8.6
Other income (expense).................. (0.1) (2.2) 1.4 0.5 0.8
-------- -------- ------ ------ ------
Income (loss) before provision for (47.4) (22.3) 0.6 (2.0) 9.4
income taxes..........................
Provision for income taxes.............. 3.9 0.7 0.2 0.3 1.5
-------- -------- ------ ------ ------
Net income (loss)....................... (51.3)% (23.0)% 0.4% (2.3)% 7.9%
======== ======== ====== ====== ======
Gross margin on product sales........... 19.7% 37.7% 40.4% 40.7% 41.0%
======== ======== ====== ====== ======
</TABLE>
NINE MONTHS ENDED SEPTEMBER 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 primarily include 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 244% from $10.4 million in the nine months ended
September 30, 1995 to $35.6 million in the nine months ended September 30, 1996,
primarily due to increased sales of DUV photolithography laser systems. A total
of 83 laser systems were sold in the nine month period ended September 30, 1996
compared to 23 laser systems in the nine month period ended September 30, 1995.
Funded development revenues decreased 29% from $2.6 million for the nine months
ended September 30, 1995 to $1.9 million in the nine months ended September 30,
1996, primarily due to the completion in 1995 of a laser research project
sponsored by SEMATECH.
19
<PAGE> 22
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 242% from $6.1 million for the nine months ended
September 30, 1995 to $21.0 million for the nine months ended September 30,
1996. The gross margin on product sales increased only slightly from the nine
months ended September 30, 1996 to the nine months ended September 30, 1995.
Although product sales increased substantially during the latter period,
economies of scale were offset by costs related to the Company's rapid
manufacturing expansion.
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 59% from $4.7 million in the nine months ended
September 30, 1995 to $7.5 million in the nine months ended September 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, research and development expenses
declined from 36.1% in the nine months ended September 30, 1995 to 20.0% in the
nine months ended September 30, 1996 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 111% from $1.7 million in the nine months
ended September 30, 1995 to $3.5 million in the nine months ended September 30,
1996 due primarily to increased sales commissions and increased sales support
efforts and marketing activities associated with the increase in laser sales. As
a percentage of total revenues, such expenses declined from 12.8% to 9.4% 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. General and administrative expenses
increased 174% from $827,000 in the nine months ended September 30, 1995 to $2.3
million in the nine months ended September 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 6.4% to 6.0% in the respective
periods due to the growth in the Company's revenues.
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 $61,000 in the nine months ended September
30, 1995 to $312,000 in the nine months ended September 30, 1996. Foreign
currency exchange gains totaled $240,000 and interest expense totaled $206,000
in the nine months ended September 30, 1995 compared to $644,000 and $375,000,
respectively, in the nine months ended September 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 nine months ended September 30, 1995 and primarily
represented taxes in Japan for research and development revenues generated from
agreements with Seiko. The tax provision of $568,000 for the nine months ended
September 30, 1996 was primarily attributable to income generated in the second
and third quarters of 1996. At September 30, 1996, the Company had $2.7 million
in federal and state net operating loss carryforwards which may be offset
against future income.
20
<PAGE> 23
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 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 9 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,
respectively, 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 seven quarters through the period ended September 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, SEPT. 30,
1995 1995 1995 1995 1996 1996 1996
--------- -------- --------- -------- --------- -------- ---------
(IN THOUSANDS)
<S> <C> <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 $ 17,785
Other.................... 802 1,019 827 596 634 780 461
------ ------ ------ ------ ------ ------- -------
Total revenues........ 2,278 5,001 5,719 5,822 7,160 12,022 18,246
------ ------ ------ ------ ------ ------- -------
Costs and expenses:
Cost of product sales.... 967 2,276 2,893 3,146 4,210 6,719 10,032
Research and
development........... 1,347 1,573 1,773 1,461 1,958 2,291 3,229
Sales and marketing...... 421 590 652 690 755 1,070 1,678
General and
administrative........ 235 267 324 355 551 752 964
------ ------ ------ ------ ------ ------- -------
Total costs and
expenses............ 2,970 4,706 5,642 5,652 7,474 10,832 15,903
------ ------ ------ ------ ------ ------- -------
Operating income (loss).... (692) 295 77 170 (314) 1,190 2,343
Other income (expense)..... 90 (40) 11 194 64 203 45
------ ------ ------ ------ ------ ------- -------
Income (loss) before
provision for income
taxes.................... (602) 255 88 364 (250) 1,393 2,388
Provision for income
taxes.. 9 27 -- -- 10 176 382
------ ------ ------ ------ ------ ------- -------
Net income (loss).......... $ (611) $ 228 $ 88 $ 364 $ (260) $ 1,217 $ 2,006
====== ====== ====== ====== ====== ======= =======
</TABLE>
<TABLE>
<CAPTION>
AS A PERCENTAGE OF REVENUES
------------------------------------------------------------------------------------
MARCH 31, JUNE 30, SEPT. 30, DEC. 31, MARCH 31, JUNE 30, SEPT. 30,
1995 1995 1995 1995 1996 1996 1996
--------- -------- --------- -------- --------- -------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Revenues:
Product sales............ 64.8% 79.6% 85.5% 89.8% 91.2% 93.5% 97.5%
Other.................... 35.2 20.4 14.5 10.2 8.8 6.5 2.5
------ ------ ------ ------ ------ ------- -------
Total revenues........ 100.0% 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 55.0
Research and
development........... 59.1 31.5 31.0 25.1 27.4 19.1 17.7
Sales and marketing...... 18.5 11.8 11.4 11.9 10.5 8.9 9.2
General and
administrative........ 10.3 5.3 5.7 6.1 7.7 6.3 5.3
------ ------ ------ ------ ------ ------- -------
Total costs and
expenses............ 130.3 94.1 98.7 97.2 104.4 90.2 87.2
------ ------ ------ ------ ------ ------- -------
Operating income (loss).... (30.3) 5.9 1.3 2.8 (4.4) 9.8 12.8
Other income (expense)..... 3.9 (0.8) 0.2 3.4 0.9 1.7 0.2
------ ------ ------ ------ ------ ------- -------
Income (loss) before
provision for income
taxes.................... (26.4) 5.1 1.5 6.2 (3.5) 11.5 13.1
Provision for income
taxes.................... 0.4 0.5 -- -- 0.1 1.5 2.1
------ ------ ------ ------ ------ ------- -------
Net income (loss).......... (26.8)% 4.6% 1.5% 6.2% (3.6)% 10.0% 11.0%
====== ====== ====== ====== ====== ======= =======
Gross margin on product
sales.................... 34.5% 42.8% 40.9% 39.8% 35.5% 40.2% 43.6%
====== ====== ====== ====== ====== ======= =======
</TABLE>
22
<PAGE> 25
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 March 31, 1995, one was
a DUV photolithography laser system, and all of the 41 systems sold in the
quarter ended September 30, 1996 were DUV photolithography laser systems. The
Company also generated modest other revenues in each of the past seven 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 seven quarters as sales of laser systems and replacement parts increased.
Gross margins on product sales have ranged from a low of 34.5% in the first
quarter of 1995 to a high of 43.6% in the third quarter of 1996. 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 again 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 and third quarters 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 1996 as the Company expanded its product
support capabilities in response to customer requirements and commenced
additional funded research and development projects under the SEMATECH contract.
As a percentage of total revenues, operating expenses have generally declined as
the Company's revenues have increased in the past five quarters, although
research and development and general and administrative expenses increased
somewhat as a percentage of revenues in the first quarter of 1996, and sales and
marketing increased slightly as a percentage of revenues in the third 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
23
<PAGE> 26
Company had a backlog of orders at September 30, 1996 of approximately $52.1
million for shipment during the 12 months ending September 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. 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 September 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 over the Company's ten year history
totaling approximately $27.1 million, borrowings from certain of its investors
for bridge financing, bank borrowings and, most recently, through its initial
public offering, which resulted in net proceeds to the Company of approximately
$30.0 million. As of September 30, 1996, the Company had approximately $21.0
million in cash and cash equivalents, $36.5 million in working capital and $5.8
million in bank and other debt.
Net cash used in operating activities was approximately $2.1 million, $2.2
million, $2.1 million and $11.1 million for 1993, 1994, 1995, and the nine
months ended September 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 nine months ended September 30, 1996
was primarily attributable to an increase in accounts receivable and inventory
as the working capital requirements of the Company increased due to the
expansion of the business during this period.
Net cash used for investing activities was approximately $410,000,
$549,000, $2.4 million and $7.1 million in 1993, 1994, 1995 and the nine months
ended September 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 nine months ended September 30,
1996, manufacturing process machinery and tenant improvements in the
manufacturing area in order to accommodate the business expansion for the
period. The Company anticipates making additional capital expenditures for the
remainder of 1996 and throughout 1997 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 $37.1 million in 1993, 1994, 1995 and
the nine months ended September 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 Redeemable Convertible Preferred Stock and received
approximately $945,000 in net advances against commercial drafts in Japan. In
1995, the Company sold Redeemable Convertible 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 nine months ended September 30,
1996, the Company received net proceeds of approximately $30.0 million from its
initial public offering, received net proceeds of approximately $5.8 million
from the sale of Redeemable Convertible Preferred Stock and decreased bank
24
<PAGE> 27
borrowings by $786,000. During the same period, the Company received net
advances against commercial drafts in Japan of approximately $2.2 million.
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 domestic accounts receivable; and (iv) a $2.0 million term
loan facility from a bank which is payable in eight quarterly installments
commencing on December 31, 1996. At September 30, 1996, the Company had
outstanding indebtedness for borrowed money of $2.0 million. See Notes 3 and 9
of Notes to Consolidated Financial Statements and Note 3 of Notes to Unaudited
Consolidated Financial Statements. The Company also has through its subsidiary
in Japan a Y2,100 million credit facility for the discounting of customer
promissory notes, under which Y369 million ($3.3 million) was outstanding as of
September 30, 1996. The Company also has two foreign currency exchange
facilities. See Note 1 of Notes to Consolidated Financial Statements. The
Company anticipates that it will seek to expand its credit lines following this
offering.
The Company presently anticipates that the proceeds from this offering
together with anticipated cash provided by operations, existing cash, cash
investments balances and available bank credit will be adequate to meet its cash
needs for at least the next 12 months. However, the Company requires substantial
working capital to fund its business, particularly to finance inventories and
accounts receivable and for capital expenditures. 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. Accordingly,
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 constitute 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 systems
incorporating the Company's excimer lasers have 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 (a millionth of
a meter, "mm") 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 0.8mm
in four megabit devices in 1989, to 0.5mm in 16 megabit devices in 1992, to
0.35mm in 64 megabit devices in 1995. The SIA expects that this trend will
continue with the introduction of leading edge 256 megabit DRAMs with 0.25mm
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 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 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 a 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 of 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 (0.436mm), was used to commercially produce critical feature sizes down to
0.6mm. Subsequently, i-line emission from these lamps, with a wavelength of
365nm (0.365mm), has been used to commercially produce critical feature sizes of
0.6mm to 0.35mm. The next generation of photolithography tools use DUV light
with wavelengths of 250nm (0.25mm) and below. The graph below shows how the
adoption of the three principal illumination technologies corresponds to
decreases in critical feature sizes:
CRITICAL FEATURE SIZE AND ILLUMINATION TECHNOLOGIES
LOGO
As critical feature sizes approached 0.6mm, 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 0.35mm, 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 0.25mm
devices by 1998 and 0.18mm devices by 2001. The Company believes that volume
production of ICs with critical geometries below 0.35mm will require DUV
steppers or step-and-scan systems. While the Company believes that semiconductor
manufacturers are no longer attempting to achieve sub-0.35mm geometries with
i-line steppers employing mercury arc lamp light sources, successful process
development at 0.25mm 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 0.30mm. Second, because only a portion of the light emitted
by mercury arc lamps is of the appropriate wavelength 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 0.35mm, 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 0.35mm. 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 extendible to critical
feature sizes as small as 0.10mm 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 that its leadership
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 0.25mm. When combined with advanced
optical and photomask 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 0.20mm. The Company believes that its
technological capabilities provide it with a competitive advantage in supplying
excimer lasers for 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 systems that incorporate the Company's excimer lasers
have 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 illumination 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 0.18mm 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 nine 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 122 from 43. The Company intends
to continue to increase its manufacturing capability by hiring and training
additional manufacturing and test personnel, improving its assembly and
test processes in order to reduce cycle time, investing in additional
manufacturing tooling and implementing a multi-shift testing schedule. 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 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.
29
<PAGE> 32
PRODUCTS
The Company's products consist of photolithography lasers, industrial high
power lasers and replacement parts.
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 248nm 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>
30
<PAGE> 33
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 250Hz
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
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." Sales to ASM
Lithography, Canon and Nikon accounted for 18%, 19% and 27%, respectively, of
total revenue in 1995 and 25%, 31% and 24% in the nine-months ended September
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.
31
<PAGE> 34
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
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 September 30, 1996, the Company had a backlog of
approximately $52.1 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 principal 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.
LOGO
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.
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<PAGE> 36
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. In order to accomplish this objective, the
Company intends to continue to hire and train additional manufacturing
personnel, improve its assembly and test processes in order to reduce cycle
time, invest in additional manufacturing tooling and implement a multi-shift
testing schedule. This increase would follow a nearly seven-fold increase in the
manufacturing rate from December 1995 to September 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 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
volume production on schedule. See "-- Intellectual Property Rights" for a
description of a license granted to Seiko to manufacture and sell
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<PAGE> 37
the Company's industrial laser product and a notice of alleged patent
infringement received by Seiko from one of the Company's competitors. See "Risk
Factors -- Risks Associated with Rapid and Substantial Manufacturing Expansion."
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, including 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. The Company believes
that its recent manufacturing expansion has significantly strained the
production capacity of certain key suppliers, including suppliers of optical
components and pre-ionizer tubes. 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 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
35
<PAGE> 38
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 September 30, 1996, the
Company had 85 employees engaged in research and development. Research and
development expenses for 1993, 1994, 1995 and the first nine months of 1996 were
approximately $2.7 million, $3.3 million, $6.2 million and $7.5 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 $1.9 million during
1993, 1994, 1995 and the first nine months of 1996, respectively. 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, three of which have been allowed.
The Company also has filed 34 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
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<PAGE> 39
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. In
November 1993, the Company was notified by Coherent, the parent corporation of
Lambda Physik, one of the Company's competitors, that certain aspects of the
Company's products might infringe upon a patent owned by Coherent. In June 1996,
the Company was notified by Coherent that certain aspects of its products might
infringe a second patent owned by Coherent. In September 1996, Coherent and
Lambda-Physik commenced a patent infringement action against the Company with
respect to the first patent in the United States District Court for the Northern
District of California. On November 1, 1996, the Company entered into a
settlement agreement with Coherent and Lambda Physik. Under the terms of the
settlement, Coherent and Lambda Physik agreed to (i) dismiss the patent
infringement action with prejudice and (ii) release the Company from any claims
either may have with respect to the two disputed patents. In return, the Company
agreed to make annual payments to Coherent over a 13-year period. Such annual
payments are not material to the Company's financial position or results of
operations.
In July 1996, the Company's prospective Japanese manufacturing partner,
Seiko, was notified by Komatsu, one of the Company's competitors, that certain
aspects of the Company's lasers might infringe certain claims furnished by
Komatsu to Seiko that Komatsu advised Seiko were included in a patent
application filed by Komatsu in Japan (the "Patent Claims"). Seiko in turn
notified the Company of this claim. In connection with its manufacturing
agreement with Seiko, the Company has agreed to indemnify Seiko against such
claims under certain circumstances. A patent has now been issued by the Japanese
Patent Office, covering the Patent Claims, and Komatsu has advised Seiko of its
intention to enforce its rights under that patent against Seiko if Seiko engages
in manufacturing activities for the Company. The Company has been advised by its
patent counsel in this matter, Wilson Sonsini Goodrich & Rosati, Professional
Corporation, which is relying in part on the opinion of the Company's Japanese
patent counsel, that in the opinion of such firm the Company's products do not
infringe any valid Patent Claims. However, there can be no assurance that
litigation will not ensue with respect to these claims, that the Company and
Seiko would ultimately prevail in any such litigation, that Komatsu will not
assert infringement claims under additional patents or that Seiko will continue
to manufacture lasers under the threat of potential litigation. See "Risk
Factors -- Risks Associated with Rapid and Substantial Manufacturing Expansion."
Any patent litigation would, at a minimum be costly and could divert the
efforts and attention of the Company's management and technical personnel, which
could 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 other 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
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<PAGE> 40
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.
Effective August 1, 1989 and lasting until the expiration of the licensed
patents, the Company entered into an 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 of its lasers,
as defined, based on total revenues earned. During 1995 and the first nine
months of 1996, royalty fees totaled $64,000 and $130,000, 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 -- Uncertainty Regarding Patents and Protection of Proprietary
Technology."
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, 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. Although the Company believes that these
competitors are not yet supplying excimer lasers in volume, the Company believes
that both companies are aggressively seeking to gain larger positions in the
market for photolithography applications. 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
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<PAGE> 41
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 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 "Risk
Factors -- Competition."
EMPLOYEES
As of September 30, 1996, the Company employed 285 people on a full-time
basis, including 15 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 404 square meters of facilities in Ichikawa,
Japan under four renewable one and two year leases expiring at various times but
cancelable by the Company upon three months notice. The Company intends to add
additional field service offices as necessary to service its customers. The
Company is currently in negotiations to lease approximately 137,000 square feet
of additional facilities in San Diego and expects to complete such negotiations
in December 1996.
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<PAGE> 42
MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
The executive officers and directors of the Company, and their ages as of
September 30, 1996, are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ----------------------------- --- -------------------------------------------------------
<S> <C> <C>
Dr. Robert P. Akins.......... 45 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............ 46 Senior Vice President of Operations
Dr. Richard L. Sandstrom..... 45 Vice President of Advanced Research
Thomas C. Dannemiller........ 36 Vice President of Manufacturing
Robert B. MacKnight, III..... 47 Vice President and General Manager, After Market
Operations
Robert G. Ozarski............ 49 Vice President of Engineering
Louis A. Kaplan.............. 54 Vice President, Human Resources
Nancy J. Baker............... 34 Director, Corporate Finance and Treasurer
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
40
<PAGE> 43
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 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.
ROBERT B. MACKNIGHT, III joined the Company in September 1996 as Vice
President and General Manager, After Market Operations. From June 1995 to May
1996, Mr. MacKnight was Senior Vice President, Worldwide Business Development,
and from September 1994 to June 1995, General Manager of Flat Panel Operations,
of Watkins-Johnson Company, a maker of semiconductor equipment and electronic
products for wireless communications and defense. From January 1990 to September
1994, Mr. MacKnight was the founder and President of Aktis Corporation, a
developer and manufacturer of advanced thermal processing technology and
equipment for the flat panel display industry. From 1984 to 1989, Mr. MacKnight
was a co-founder and Executive Vice President of Peak Systems Inc., a
manufacturer of semiconductor capital equipment specializing in rapid thermal
processing technology. Mr. MacKnight received a B.S. in Business Administration
in 1971, and an M.B.A. in 1973, from the University of Massachusetts.
ROBERT G. OZARSKI joined the Company in September 1996 as Vice President of
Engineering. From August 1992 to September 1996, Mr. Ozarski served in various
engineering management positions at Applied Materials, Inc., a supplier of
equipment to the semiconductor industry. From March 1995 to September 1996, Mr.
Ozarski was Director of Engineering and Production for its Silicon Etch
Division, from August 1994 to March 1995, Director of Engineering for its MCVD
Division, from September 1993 to August 1994, Director of Manufacturing
Engineering for its CVD Division, and from August 1992 to September 1993,
Director of Engineering for its ACET Division. From October 1991 to August 1992,
Mr. Ozarski served as Director of Engineering for Etec Systems, Inc., a
manufacturer of semiconductor capital equipment. From September 1989 to October
1991, Mr. Ozarski served as Director of Engineering of Airco Coating Technology,
Inc., a manufacturer of sputtering equipment for architectural glass coatings
and of electron-beam evaporation systems principally used for semiconductor
coating applications. From 1985 to 1989, Mr. Ozarski was Director of Engineering
for General Signal Thinfilm Co., a maker of semiconductor capital equipment for
thin film deposition and metrology. Mr. Ozarski received a B.S. in 1970, and an
M.S. in 1972, in Electrical Engineering from Wayne State University.
LOUIS A. KAPLAN joined the Company in December 1996 as Vice President,
Human Resources. From July 1995 to November 1996, Mr. Kaplan served as Director,
Human Resources and Organizational Development for Advanced Micro Devices, a
manufacturer of integrated circuits for the personal and networked computer and
communications markets. From June 1986 to July 1995, he was a principal in
Consulting About
41
<PAGE> 44
Management, a consulting firm primarily oriented toward turnaround situations in
the high technology, health care and printing industries. From 1981 to 1986, Mr.
Kaplan served as Vice President, Administration and Human Resources for North
Star Computers, a manufacturer of micro computers. Mr. Kaplan received a B.S. in
Vocational Rehabilitation Counseling from Pennsylvania State University in 1963
and an M.S. in Industrial Relations in 1977 from Loyola University, Chicago.
NANCY J. BAKER has served as Director, Corporate Finance and Treasurer
since October 1996. From August 1992 to October 1996, she served as Controller
of the Company. 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.
From December 1992 to November 1996, Mr. Simone 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.
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
42
<PAGE> 45
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(#) COMPENSATION(3)
- -------------------------------------------- --------- ----------- ------------- ---------------
<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) Certain other executive officers who joined the Company in 1995 or 1996 are
currently being compensated at annual rates in excess of $100,000.
(2) The Company did not have a bonus plan in fiscal 1995 but has adopted an
incentive bonus plan for fiscal 1996.
(3) Consists of health insurance premiums paid by the Company.
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 4/20/00 $20,348 $44,964
William A. Angus, III............... 75,000 7.66 0.50 4/20/00 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.
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<PAGE> 46
(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.
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 September 30, 1996, options to purchase an
aggregate of 1,199,488 shares of Common Stock were outstanding under the 1987
Stock Plan and options to purchase 297,294 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 $8.00. 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
44
<PAGE> 47
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. As of September 30, 1996, options to
purchase an aggregate of 192,250 shares of Common Stock were outstanding under
the 1996 Stock Plan. The 1996 Stock Plan provides for the grant of "incentive"
stock options within the meaning of Section 422 of 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 May 1
and November 1 of each year. 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
45
<PAGE> 48
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 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.
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 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 of 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.
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 September 30, 1996 and as
adjusted to reflect the sale of the 1,700,000 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(2)
5% STOCKHOLDERS, NAMED EXECUTIVE OFFICERS AND ----------------- BEING -----------------
DIRECTORS NUMBER PERCENT OFFERED NUMBER PERCENT
- ---------------------------------------------------- ------- ------- --------- ------- -------
<S> <C> <C> <C> <C> <C>
Clearwater Ventures, L.L.C.(3)...................... 804,166 6.5 213,990 590,176 4.4
c/o Weeden & Co., L.P.
145 Mason Street
Greenwich, CT 06830
Entities affiliated with InterVen II Partners,
L.P.(4)........................................... 801,949 6.4 27,292 774,657 6.2
2401 Pine Avenue
Manhattan Beach, CA 90266
Entities affiliated with Weeden Securities
Corporation(5).................................... 649,657 5.2 173,614 476,043 3.5
145 Mason Street
Greenwich, CT 06830
ASM Lithography Holding N.V. ....................... 403,726 3.3 -- 403,726 3.0
Canon, Inc. ........................................ 403,725 3.3 -- 403,725 3.0
Nikon Corporation................................... 403,725 3.3 -- 403,725 3.0
Robert P. Akins(6).................................. 263,031 2.1 20,000 243,031 1.8
William A. Angus, III(7)............................ 33,438 * -- 33,438 *
Richard Abraham..................................... 27,900 * -- 27,900 *
Kenneth M. Deemer(8)................................ 801,949 6.4 27,292 774,657 6.2
Peter Simone(9)..................................... 10,000 * --
F. Duwaine Townsen(10).............................. 423,292 3.4 13,578 409,714 3.1
All directors and executive officers as a group
(14 persons)...................................... 657,995 5.2 35,000 622,995 5.0
OTHER SELLING STOCKHOLDERS
Dion Albanese....................................... 369
Herman Alswanger.................................... 2,500 * 272 2,228 *
Anglo American Partnership.......................... 15,412 * 4,185 11,227 *
Philip and Julia Akins.............................. 2,000 * 543 1,457 *
Bruno Bruce......................................... 18,750 * 5,043 13,527 *
Matthew Brust....................................... 7,300 * 1,982 5,318 *
U.S. Clearing Corp. Custodian for Robert Cervoni
IRA............................................... 7,143 * 1,940 5,203 *
Robert Cervoni...................................... 10,659 * 1,229 9,430 *
C&F Investment Club................................. 5,715 * 1,552 4,163 *
U.S. Clearing Corp. Custodian for Paolino Cervoni
IRA............................................... 4,000 * 1,086 2,914 *
CFNA Corp........................................... 2,857 * 543 2,314 *
Controlfida BVI..................................... 298,852 2.4 40,598 258,254 2.0
Steven Danz......................................... 10,000 * 543 9,457 *
Robert & June DeMichele............................. 15,000 * 4,073 10,927 *
Paul Ehflich........................................ 8,572 * 2,328 6,244 *
Donald S. Ershow.................................... 4,285 * 272 4,013 *
U.S. Clearing Corp. Custodian for Claudio Fabrizi
IRA............................................... 3,857 * 1,047 2,810 *
U.S. Clearing Corp. Custodian for Rita Fabrizi
IRA............................................... 3,000 * 815 2,185 *
</TABLE>
49
<PAGE> 52
<TABLE>
<CAPTION>
SHARES SHARES
BENEFICIALLY BENEFICIALLY
OWNED PRIOR TO NUMBER OF OWNED AFTER
OFFERING(1) SHARES OFFERING(2)
----------------- BEING -----------------
OTHER SELLING STOCKHOLDERS NUMBER PERCENT OFFERED NUMBER PERCENT
- ---------------------------------------------------- ------- ------- --------- ------- -------
<S> <C> <C> <C> <C> <C>
Claudio Fabrizi..................................... 5,715 * 1,552 4,163 *
Joel Florin......................................... 7,142 * 1,939 5,203 *
Andrew Fisch........................................ 4,498 * 1,221 3,277 *
Emmanuel Geronimos.................................. 20,000 * 5,431 14,569 *
Ralph Giorgio....................................... 25,143 * 6,828 18,315 *
David Heiss......................................... 1,358 * 369 989 *
Donald Larson....................................... 90,000 * 1,222 88,778 *
Steven Leuthold..................................... 4,527 * 1,229 3,298 *
John Lium........................................... 4,642 * 1,261 3,381 *
Midgard Ltd......................................... 7,002 * 1,901 5,101 *
William C. Mattison, Jr., IRA Rollover, Bear Stearns
Securities Corp. Custodian........................ 15,000 * 4,073 10,927 *
Timothy J. McDonald................................. 9,054 * 2,459 6,595 *
U.S. Clearing Corp. Custodian for Timothy McDonald
IRA............................................... 5,106 * 1,387 3,719 *
U.S. Clearing Corp. Custodian for Joseph J. Mitolo
IRA Rollover Trust................................ 7,141 * 272 6,869 *
David Meyrowitz..................................... 3,000 * 407 2,593 *
Dennis McGrath...................................... 14,286 * 78 14,208 *
Piedmont Harbor-Piedmost Associates, Ltd............ 115,000 * 31,229 83,771 *
Nordiska Fondkommission AB.......................... 3,292 * 679 2,613 *
Arthur J. Radin..................................... 7,143 * 272 6,871 *
Fredrik C. Schreuder................................ 30,000 * 8,147 21,853 *
Sustainable Growth Trust............................ 59,400 * 1,901 57,499 *
Richard Sandstrom................................... 270,375 2.2 15,000 255,375 1.9
Silicon Valley Bank................................. 14,270 * 3,875 10,395 *
Richard Sharp....................................... 27,552 * 7,482 20,070 *
Barry James Small................................... 9,506 * 2,581 6,925 *
U.S. Clearing Corp. Custodian for Barry James Small
IRA............................................... 7,143 * 1,940 5,203 *
U.S. Clearing Corp. Custodian for Gerard Smith
IRA............................................... 20,001 * 1,358 18,643 *
Stein, Zauderar, Ellanhorn, Fischer & Sharp Sal Ret
Plan DTD 1/1/85 Tat Sub Acc't Richard Sharp....... 7,150 * 1,942 5,208 *
David Tennenbaum.................................... 2,857 * 407 2,450 *
Felix Tennenbaum.................................... 2,857 * 407 2,450 *
Elisabeth L. Timmons................................ 1,000 * 272 728 *
Robert Turchyn...................................... 14,527 * 3,945 10,582 *
U.S. Clearing Corp. Custodian For Donald E. Weeden
IRA............................................... 30,000 * 8,147 21,853 *
Norman Weisberg..................................... 7,641 * 2,075 5,566 *
Robert E. Weeden.................................... 3,000 * 136 2,864 *
Neil & Nina Winter.................................. 11,244 * 2,055 9,189 *
Xerox Corporation................................... 321,187 2.6 57,332 263,855 2.0
Charles D. Zender................................... 1,086 * 295 791 *
</TABLE>
- ---------------
* Less than 1%
50
<PAGE> 53
(1) Applicable percentage of ownership is based on 12,419,456 shares of Common
Stock outstanding as of September 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) Assumes no exercise of the Underwriters' over-allotment option. If the
over-allotment option is exercised in full, all selling stockholders except
Mr. Akins and Mr. Sandstrom will sell in the aggregate 255,000 additional
shares of Common Stock and individually a portion of such additional shares
as calculated based upon such selling stockholder's pro rata portion of the
665,000 firm shares of Common Stock offered hereby by such selling
stockholders.
(3) Includes 16,161 shares issuable upon exercise of currently exercisable
warrants. Does not include 649,657 shares held by the Entities affiliated
with Weeden Securities Corporation. Don Weeden is the managing member of
Clearwater Ventures, L.L.C. and is also the sole shareholder and chairman
of the board of directors of Weeden Securities Corporation. Clearwater
Ventures, L.L.C. disclaims beneficial ownership of 649,657 shares held by
the Entities affiliated with Weeden Securities Corporation.
(4) 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 currently exercisable warrants to purchase 28,280 shares and 141
shares, respectively. InterVen II Partners, L.P. is the general partner of
InterVen II, L.P. InterVen II Partners, L.P. has the following five general
partners: Kenneth M. Deemer, David B. Jones, Jonathan E. Funk, Wayne B.
Kingsley and Keith P. Larson. Each of these general partners shares voting
and investment power over the shares held by InterVen II, L.P. InterVen
Ventures 1987 is a general partnership, of which Messrs. Deemer, Jones,
Funk, Kingsley and Larson are general partners and share voting and
investment power over the shares held by InterVen Ventures 1987. Each of
Messrs. Deemer, Jones, Funk, Kingsley and Larson disclaims beneficial
ownership of the shares except to the extent of his proportionate
partnership interest.
(5) 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 issuable upon exercise of a currently exercisable
warrant held by Weeden & Co., L.P. and 20,000 shares issuable upon exercise
of a currently exercisable warrant held by Weeden Investors Profit Sharing
& Trust. Weeden Capital Management, L.P. is the general partner of Weeden
Capital Partners, L.P. Weeden Capital Management, L.P. has the following
three general partners: Weeden Capital Management, Inc., Richard Abraham
and Tom Flaherty. Each of these general partners shares voting and
investment power over the shares held by Weeden Capital Partners, L.P. Each
of Weeden Capital Management, Inc. and Messrs. Abraham and Flaherty
disclaims beneficial ownership of the shares except to the extent of its or
his proportionate partnership interest. Don Weeden is the Trustee for
Weeden Securities Corporation Pension Plan and Trust. Weeden Securities
Corporation, of which Don Weeden is the sole shareholder, is the general
partner of Weeden & Co., L.P. Robert Cervoni, Don Weeden and Barry Small
are the trustees for Weeden Investors Profit Sharing and Trust. Does not
include 803,902 shares held by Clearwater Ventures, L.L.C. Don Weeden is
the sole shareholder and chairman of the board of directors of Weeden
Securities Corporation and is also the managing member of Clearwater
Ventures, L.L.C. Weeden Securities Corporation disclaims beneficial
ownership of 803,902 shares held by Clearwater Ventures, L.L.C.
(6) Includes 46,031 shares issuable upon exercise of options that are currently
exercisable or exercisable within 60 days of September 30, 1996.
(7) Includes 23,438 shares issuable upon exercise of options that are currently
exercisable or exercisable within 60 days of September 30, 1996.
(8) Includes 770,269 shares held by InterVen II, L.P. and 3,259 shares held by
InterVen Ventures 1987. Also includes 28,280 shares issuable upon exercise
of currently exercisable warrants held by InterVen II, L.P. and 141 shares
issuable upon exercise of currently exercisable warrants 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.
(9) Includes 10,000 shares issuable upon exercise of options that are currently
exercisable or exercisable within 60 days of September 30, 1996.
(10) Includes 409,823 shares held by Ventana Growth Fund II, L.P. and 13,469
shares issuable upon exercise of currently exercisable warrants held by
Ventana Growth Fund II, L.P., of which Mr. Townsen is a managing general
partner.
51
<PAGE> 54
DESCRIPTION OF CAPITAL STOCK
The authorized capital stock of the Company consists of 25,000,000 shares
of Common Stock, $.001 par value, and 5,000,000 shares of Preferred Stock, $.001
par value.
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 September 30, 1996, 12,419,456 shares of Common Stock were outstanding,
and options to purchase an aggregate of 1,391,538 shares of Common Stock were
also outstanding. See "Management -- Stock Plans."
As of September 30, 1996, warrants to purchase an aggregate of 339,930
shares of the Company's Common Stock at an exercise price of $3.50 per share
were outstanding. 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 warrant for a number of shares of Common Stock determined in
accordance with a formula based on the market value of the Company's stock at
the time of exercise.
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 Nevada Law and Charter and Bylaw
Provisions; Availability of Preferred Stock for Issuance."
REGISTRATION RIGHTS
The holders of an aggregate of 6,891,747 shares of Common Stock will be
entitled to certain rights with respect to the registration of such shares under
the Securities Act. Kenneth M. Deemer and F. Duwaine Townsen, directors of the
Company, are entitled to such registration rights with respect to the shares of
52
<PAGE> 55
Common Stock indicated as owned by each of them in "Principal and Selling
Stockholders." 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, 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.
NEVADA ANTI-TAKEOVER STATUTES
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.
Nevada has also adopted a "control shares" statute which limits the
acquisition of a "controlling interest" in the corporation, as defined in the
statute. This statute is designed to prevent an "acquiring person" from gaining
voting control of the corporation without the approval of the corporation's
stockholders. It provides that an acquiring person obtains only such voting
rights in the control shares as are conferred by a resolution of the
stockholders. Nevada's control shares statute applies to any issuing corporation
which has 200 or more stockholders, at least 100 of whom are stockholders of
record and residents of Nevada. The Company did not meet this requirement prior
to this offering.
TRANSFER AGENT AND REGISTRAR
The Transfer Agent and Registrar for the Common Stock is ChaseMellon
Shareholder Services.
53
<PAGE> 56
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of this offering, the Company will have 13,419,456 shares
of Common Stock outstanding assuming no exercise of options after September 30,
1996, and no exercise of outstanding warrants. Of these shares, the 1,700,000
shares sold in this offering and the 3,841,000 shares sold in the Company's
initial public 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, pursuant to agreements with certain stockholders,
included in the Registration Statement covering its initial public offering of
142,918 shares of Common Stock, to be offered on a continuous basis by such
stockholders beginning on March 18, 1997.
The remaining 7,878,456 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 prior to
January 16, 1997 in certain cases, and March 18, 1997 in other cases, 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, Restricted Shares will be available for sale in
the public market in the Public market as follows: (i) 198,565 shares will be
available for immediate sale in the public market on the date of this
Prospectus; (ii) 68,531 shares will be eligible for sale beginning on January
16, 1997; (iii) 5,824,170 shares will be eligible for sale beginning on March
18, 1997 and (iv) 1,787,190 shares will be eligible for sale thereafter upon
expiration of their respective two-year holding periods.
Upon expiration of the lock-up agreements described below, the holders of
6,891,747 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 135,400 shares after giving effect to this offering) or
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 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 the holding period restrictions of Rule 144.
54
<PAGE> 57
Notwithstanding the foregoing, in connection with the offering, the
Company, its executive officers and directors and certain existing stockholders
of the Company, 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 cash or otherwise, prior to March 18, 1997, other than (i) the
sale to the Underwriters of the shares of Common Stock under the Underwriting
Agreement or (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 or reserved for issuance on the date of this prospectus.
In addition, certain stockholders of the Company 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 prior to January 17, 1997, without the
prior written consent of the Company. The Company has agreed not to release any
of the shares subject to such lock-up agreements without the prior written
consent of Morgan Stanley & Co. Incorporated.
The Company has filed a registration statement under the Securities Act
covering approximately 3,041,753 shares of Common Stock subject to outstanding
options or reserved for the issuance under the 1987 Stock Option Plan and the
1996 Stock Option 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 Employee Stock Purchase Plan, in each case, for the sale of such shares not
earlier than March 18, 1997. See "Management -- 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.
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 OF
NAME SHARES
------------------------------------------------------------------ ---------
<S> <C>
Morgan Stanley & Co. Incorporated.................................
Montgomery Securities.............................................
Needham & Company, Inc. ..........................................
-------
Total................................................... 1,700,000
=======
</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 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 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.
Certain Selling Stockholders have granted to the Underwriters an option,
exercisable for 30 days from the date of this Prospectus, to purchase up to
255,000 additional shares of Common Stock at the 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 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 until March 18, 1997 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
56
<PAGE> 59
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 certain periods without the prior
written consent of Morgan Stanley & Co. Incorporated.
Morgan Stanley & Co. Incorporated, Montgomery Securities and Needham &
Company, Inc. were the representatives of the several underwriters in the
Company's initial public offering of 3,841,000 shares of Common Stock in
September 1996, for which they received customary underwriting discounts and
commissions.
In connection with the offering, certain Underwriters and selling group
members (if any) or their respective affiliates who are qualified registered
market makers on the Nasdaq National Market, may engage in passive market making
transactions in the Common Stock of the Company on the Nasdaq National Market in
accordance with Rule 10b-6A under the Securities Exchange Act of 1934, as
amended, during the two business day period before commencement of offers or
sales of the Common Stock. The passive market making transactions must comply
with applicable price and volume limits and be identified as such. In general, a
passive market maker may display its bid at a price not in excess of the highest
independent bid for the securities. If all independent bids are lowered below
the passive market maker's bid, however, such bid of the passive market maker
must then be lowered when certain purchase limits are exceeded. Net purchases by
a passive market maker on each day are generally limited to a specified
percentage of the passive market maker's average daily trading volume in the
Common Stock during a price period and must be discontinued when such limit is
reached. Passive market making may stabilize the market price of the Common
Stock at a level above that which might otherwise prevail and, if commenced, may
be discontinued at any time.
LEGAL MATTERS
Certain legal matters relating to the offering will be passed upon for the
Company by Wilson, Sonsini, Goodrich & Rosati, Professional Corporation, Palo
Alto, California. As of September 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. The validity of the Common Stock offered hereby
will be passed upon for the Company by Allison, MacKenzie, Hartman, Soumbeniotis
& Russell, Ltd., Carson City, Nevada. Certain legal matters relating to the
offering will be passed upon for the Underwriters by Gunderson Dettmer Stough
Villeneuve Franklin & Hachigian, LLP, Menlo Park, California.
EXPERTS
The consolidated financial statements as of December 31, 1994 and 1995 and
June 30, 1996 and for each of the three years in the period ended December 31,
1995 and the six months ended June 30, 1996 included in this Prospectus have
been audited by Deloitte & Touche LLP, independent auditors, as stated in their
report (which report contains an explanatory paragraph that describes a change
during 1994 in the Company's method of accounting for the accretion on the
Company's redeemable convertible preferred stock) 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 fifth paragraph under the caption
"Business -- Intellectual Property Rights" have been reviewed and approved by
Wilson, Sonsini, Goodrich & Rosati, Professional Corporation, special patent
counsel for the Company, as experts in such matters, and are included herein in
reliance upon such review and approval.
57
<PAGE> 60
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. The Commission
maintains a World Wide Web site that contains reports, proxy and information
statements and other information regarding registrants that file electronically
with the Commission. The address of the site is http://www.sec.gov.
58
<PAGE> 61
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........ 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 (unaudited) and 1996................ 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...................... 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 (unaudited) and 1996................ F-6
Notes to Consolidated Financial Statements............................................ F-7
Unaudited Consolidated Balance Sheets as of December 31, 1995 and September 30,
1996................................................................................ F-20
Unaudited Consolidated Statements of Operations for the three and nine months ended
September 30, 1995 and 1996......................................................... F-21
Unaudited Consolidated Statements of Cash Flows for the nine months ended September
30, 1995 and 1996................................................................... F-22
Notes to Unaudited Consolidated Financial Statements.................................. F-23
</TABLE>
F-1
<PAGE> 62
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 June 30, 1996, 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 and for the six
months ended June 30, 1996. 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 June 30, 1996, and the results of its operations and its cash
flows for each of the three years in the period ended December 31, 1995 and for
the six months ended June 30, 1996 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.
DELOITTE & TOUCHE LLP
San Diego, California
August 9, 1996 (August 21, 1996 as to the
second paragraph in Note 1 and Note 12)
F-2
<PAGE> 63
CYMER, INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
UNAUDITED
PRO FORMA
STOCKHOLDERS'
EQUITY
JUNE 30,
-------------
1996
-------------
DECEMBER 31, JUNE 30,
--------------------- -----------
1994 1995 1996
-------- -------- -----------
<S> <C> <C> <C> <C>
ACTUAL
-----------
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' 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)...............
Redeemable Convertible Preferred Stock: actual --
authorized 9,834,880 shares; $.01 stated par value,
issued and outstanding 4,325,000, 6,496,000 and
7,527,000 shares (liquidation preference -- $35,234
at June 30, 1996); pro forma -- no shares
authorized, issued or outstanding.................. 19,290 28,409 35,234 $ --
-------- -------- ----------- -------------
Stockholders' Equity (Deficit):
Preferred Stock: actual -- no shares authorized,
issued or outstanding; pro forma -- authorized
5,000,000 shares; $0.001 par value, no shares
issued or outstanding............................ --
Common Stock: actual -- authorized 15,000,000
shares; $.01 stated par value, issued and
outstanding 1,091,000, 1,160,000 and 1,203,000
shares; pro forma -- authorized 25,000,000
shares; $0.001 par value, issued and outstanding
8,849,000 shares................................. 11 12 12 9
Paid-in capital.................................... 164 195 241 27,471
Accumulated deficit................................ (19,898) (21,832) (21,947) (13,940)
Cumulative translation adjustment.................. (29) (205) (297) (297)
-------- -------- ----------- -------------
Total stockholders' equity (deficit)........ (19,752) (21,830) (21,991) $ 13,243
-------- -------- -----------
============
TOTAL LIABILITIES AND STOCKHOLDERS'
DEFICIT................................... $ 9,172 $ 15,619 $ 31,376
========= ========= ===========
</TABLE>
See Notes to Consolidated Financial Statements.
F-3
<PAGE> 64
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 1996
------- ------- ------- 1995 -------
-----------
(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....................... 7,571 6,692 9,666
======= ====== =======
</TABLE>
See Notes to Consolidated Financial Statements.
F-4
<PAGE> 65
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)
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.................. 1,203 $ 12 $241 $ (21,947) $ (297) $(21,991)
===== === ==== ======== ===== ========
</TABLE>
See Notes to Consolidated Financial Statements.
F-5
<PAGE> 66
CYMER, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
----------------------------- ----------------------
1993 1994 1995 1996
------- ------- ------- 1995 -------
-----------
(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 (614)
Accounts payable............................... 220 424 1,404 513 2,646
Accrued liabilities............................ 125 397 337 (53) 1,172
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) (5,761)
------- ------- ------- ------- -------
INVESTING ACTIVITIES:
Acquisition of property............................ (536) (640) (2,653) (1,105) (5,031)
Disposal of property............................... 126 91 226 150 16
------- ------- ------- ------- -------
Net cash used for investing activities...... (410) (549) (2,427) (955) (5,015)
------- ------- ------- ------- -------
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) (49)
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 10,672
------- ------- ------- ------- -------
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:
Capital lease obligations incurred for furniture
and equipment.................................... $ 100 $ 46 $ 573
======= ======= =======
Net book value of property transferred to inventory
for resale....................................... $ 125 $ 39 $ 177 $ 150
======= ======= ======= =======
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> 67
CYMER, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(INFORMATION FOR THE SIX MONTHS ENDED JUNE 30, 1995 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
reincorporation into the State of Nevada that became effective on August 21,
1996 following approval by the Company's stockholders. In connection with the
reincorporation, the Company increased its authorized common stock to 25,000,000
shares. The Board of Directors and stockholders have also approved the creation
of a new class of 5,000,000 shares of undesignated preferred stock which will
become authorized on the closing of the Company's planned initial public
offering. Consolidated stockholders' equity as of June 30, 1996 has been shown
on an unaudited 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 84,000 shares of common stock upon the exercise of
certain outstanding warrants, and the reincorporation of the Company into 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> 68
CYMER, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Warranty Expense -- The Company generally warrants its products against
defects for the earlier 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 consolidated
stockholders' deficit. Gains and losses resulting from foreign currency
transactions are included in the consolidated 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 consolidated statements 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 under foreign currency exchange facilities with a
Japanese bank. Such contracts expire on various dates through February 1997. As
of June 30, 1996, there were $799,000 of deferred foreign currency gains under
such contracts.
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 -- Revenues from major customers are
detailed as follows:
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
---------------------------------------- -------------------------
CUSTOMER 1993 1994 1995 1995 1996
--------------------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
A................. $1,563,000 $2,134,000 $5,035,000 $2,112,000 $3,910,000
B................. 3,557,000 1,148,000 7,009,000
C................. 1,472,000 3,395,000 4,304,000
D................. 1,293,000
E................. 2,271,000
F................. 1,320,000 1,954,000 1,630,000
G................. 1,231,000 709,000
</TABLE>
Receivables from these customers totaled $218,000, $2,576,000 and
$5,575,000 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
F-8
<PAGE> 69
CYMER, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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 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
the six months ended June 30, 1995 is 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 results
of operations for such period. The audited 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 years' 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>
F-9
<PAGE> 70
CYMER, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
3. BORROWING FACILITIES
Revolving Loan Facility -- At 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 1.5% (9.75%), payable
quarterly, due on the earlier of March 31, 1997 or the completion of the
Company's planned initial public offering, 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 June 30, 1996, $1,000,000 was borrowed
against the Loan Facility.
Loan and Security Agreement -- The Loan and Security Agreement (the
"Agreement") provides for three revolving loan facilities 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). Borrowings under the
Agreement are secured by substantially all the Company's assets. The Agreement
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 Company's 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 (as to $3,000,000) and June 27, 1997 (as to
$5,000,000). The Agreement requires the Company to maintain compliance with
certain financial statement and other covenants including, among other items,
limitation on additional debt, total liabilities to tangible net worth and
minimum tangible net worth. As of June 30, 1996, the Company was in compliance
with all such covenants. 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).
In addition to the loan facilities, in 1995, the Agreement was modified to
include a foreign exchange contract facility. The facility 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 advances against commercial drafts are for a maximum of Y500
million (approximately $4,500,000 at June 30, 1996), are discounted at the bill
discount rate plus 1.0% (1.875% at 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> 71
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 2,086
Series D...................... 486 470 470 470 470 $8.50 5,463
Series E...................... 1,670 76 76 76 $5.00 449
Series F...................... 3,000 2,171 2,302 $3.50 8,711
Series G...................... 900 900 $6.00 5,571
----- ----- ----- ----- ----- -------
Total............... 9,835 4,230 4,325 6,496 7,527 $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. Based on such conversion ratios, the 7,527,000
shares of Preferred Stock outstanding as of June 30, 1996 will convert to
7,563,000 shares of common stock upon the completion of the Company's planned
initial public offering. 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 are entitled to certain rights with
respect to the registration of the common stock issuable upon conversion of
their shares of Preferred Stock under the Securities Act.
F-11
<PAGE> 72
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 22,000, 131,000, and 306,000 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 conversion of such warrants
simultaneously with the Company's planned initial public offering will result in
the issuance of 84,000 shares of common 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 40,000 shares of its common stock at a price of $3.40
per share. The warrants expire in 2000 and 2001. These warrants and the Series E
and $3.50 Series F Preferred Stock warrants discussed in Note 5, have a weighted
average exercise price of $3.42 per share and are issuable into 385,000 shares
of common stock, assuming completion of the Company's planned initial public
offering.
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
---------
</TABLE>
F-12
<PAGE> 73
CYMER, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
<CAPTION>
NUMBER OF
SHARES PRICE PER SHARE
--------- ---------------
<S> <C> <C>
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
---------
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 pro
forma earnings per share for the six month period ended June 30, 1996 would have
been reduced by approximately $111,000, or $0.01 per share. The fair value of
the options granted during 1996 is estimated as $375,000 on the date of grant
using the Black-Scholes option-pricing model with the following assumptions: no
dividend yield or volatility, risk-free interest rate of 5.33% to 7.54%, assumed
forfeiture rate of 3.0%, and an expected life of five 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 3.68 $ 0.60 197 $ 0.60
$ 1.50 - $3.00 114 4.19 $ 1.55 0 $ 0.00
$ 4.00 - $6.00 304 4.68 $ 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.......................... 459
------
Total.................................................................. 8,095
===========
</TABLE>
Unaudited Pro Forma Stockholders' Equity as of June 30, 1996 -- See Note 1.
F-13
<PAGE> 74
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 and for the six months ended June 30, 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> 75
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 before valuation allowance.... 5,632 6,211 5,750
Valuation allowance................................... (5,632) (6,211) (5,750)
------- ------- -------
Total....................................... $ -- $ -- $ --
======= ======= =======
</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 carryforwards of $6,592,000 and credit
carryforwards of $1,570,000 as of June 30, 1996 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 $507,000
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> 76
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)......................... $ 384 $ 128
1997...................................... 776 183
1998...................................... 777 152
1999...................................... 784 148
2000...................................... 793 93
Thereafter................................ 8,099
-------
Total................................... $11,613 704
=======
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 ranging
from 0.25% to 5% 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 $24,000 and
$66,000 for the six months ended June 30, 1995 and 1996, respectively.
Employee Savings Plan -- The Company has a 401(k) plan that allows
participating United States 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.
Retirement Plan -- During the six months ended June 30, 1996, Cymer Japan,
Inc. adopted a retirement benefit plan for all Cymer Japan, Inc. employees and
Japanese directors. The plan consists of a multi-employer retirement plan
covering all employees and life insurance policies covering all employees and
Japanese directors. The multi-employer retirement plan was established under the
Small and Medium-Size Enterprise Retirement Benefits Cooperative Law.
The multi-employer retirement plan pays each employee a defined benefit of
$45,000 upon mandatory retirement at age 60. The employee has the option to
receive the payment in installments. In the case of termination of employment
prior to age 60, benefits are paid in the amounts predetermined by the plan.
Total expense for the six months ended June 30, 1996 amounted to $1,000.
The insurance policies pay each employee $91,000 and the Japanese directors
from $255,000 to $319,000 at death or upon mandatory retirement at age 60 for
employees and age 65 for the Japanese directors. In the case of termination of
employment prior to age 60, the policy's cash surrender value is to be paid to
each participant. Total expense for the six months ended June 30, 1996 amounted
to $13,000.
Contingency -- The Company has been notified of alleged infringements of
certain patents related to its manufacture and sale of laser systems. The
Company believes, based upon the advice of counsel, that the Company's products
do not infringe any valid claim of the asserted patents.
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
F-16
<PAGE> 77
CYMER, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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 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 $3,000,000, of which the Company received $1,000,000 in 1992 and
$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 are a not material component of 1996 revenues.
Service Agreement -- The Company has a service agreement with another
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.
F-17
<PAGE> 78
CYMER, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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 8% per annum
accretion of the redemption price for the Company's redeemable convertible
preferred stock (Note 5). Prior to 1994, the Company did not record the
accretion, as it was not probable that funds would be available for redemption.
However, in 1994, the Company's prospects improved, justifying the change in
method in accounting for the accretion. The impact of the 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.
11. GEOGRAPHIC INFORMATION
Presented below is information regarding sales, income (loss) from
operations, and identifiable assets, classified by operations located in the
United States and Japan. The Company sells its excimer lasers in Japan through
Cymer Japan, Inc. All significant intercompany balances are eliminated in
consolidation. The majority of consolidated costs and expenses are incurred in
the United States and are reflected in the operating income (loss) from the
United States operations.
<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
Japan.................................. 1,585 2,260 7,517 2,586 9,751
------- ------- ------- ------- -------
Total.......................... $ 5,699 $ 8,921 $18,820 $ 7,279 $19,182
======= ======= ======= ======= =======
Operating income (loss):
United States.......................... $(2,838) $(2,312) $(3,425) $(1,465) $(4,064)
Japan.................................. 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
Japan.................................. 2,099 2,758 4,743 2,996 6,501
------ ------ ------- ------- -------
Total.......................... $ 5,805 $ 9,172 $15,619 $10,952 $31,376
====== ====== ======= ======= =======
</TABLE>
12. SUBSEQUENT EVENTS
Recapitalization -- The Company's Board of Directors and stockholders
approved a reincorporation of the Company that became effective on August 21,
1996. In addition, all outstanding shares of redeemable convertible preferred
stock will automatically convert to the Company's common 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. See Note 1.
F-18
<PAGE> 79
CYMER, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Employee Stock Plans -- Subsequent to June 30, 1996, the Company's Board of
Directors adopted the 1996 Stock Plan, the 1996 Employee Stock Purchase Plan and
the 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> 80
CYMER, INC.
UNAUDITED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
SEPTEMBER 30,
1996
DECEMBER 31, -------------
1995
-------------
(AUDITED)
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents......................................... $ 2,015 $ 21,048
Accounts receivable............................................... 4,832 16,581
Inventories....................................................... 5,315 15,156
Prepaid expenses and other assets................................. 306 920
-------- --------
Total current assets...................................... 12,468 53,705
Property -- net..................................................... 3,053 9,224
Other Assets........................................................ 98 200
-------- --------
TOTAL ASSETS.............................................. $ 15,619 $ 63,129
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current Liabilities:
Revolving loan and security agreements............................ $ 2,786 $ 2,000
Advances against commercial drafts................................ 1,305 3,311
Accounts payable.................................................. 2,369 6,806
Accrued liabilities............................................... 1,187 4,108
Deferred revenue.................................................. 951 255
Current portion of capital lease obligations...................... 25 171
Income taxes payable.............................................. 554
-------- --------
Total current liabilities................................. 8,623 17,205
-------- --------
Deferred Rent....................................................... 369 418
-------- --------
Capital Lease Obligations........................................... 48 352
-------- --------
Commitments and Contingencies (Note 6)
Redeemable Convertible Preferred Stock -- authorized 9,834,880
shares; $.01 stated par value; issued and outstanding 6,496,000
and 0 shares (liquidation preference - $28,409 at December 31,
1995)............................................................. 28,409
Stockholders' Equity (Deficit):
Preferred Stock -- authorized 5,000,000 shares; $0.001 par value,
no shares issued or outstanding
Common Stock -- authorized 25,000,000 shares; $0.001 par value,
issued and outstanding 12,374,000 shares....................... 12
Common Stock -- authorized 15,000,000 shares; $0.01 stated par
value, issued and outstanding 1,160,000 shares................. 12
Paid-in capital................................................... 195 56,503
Accumulated deficit............................................... (21,832) (10,968)
Cumulative translation adjustment................................. (205) (393)
-------- --------
Total stockholders' equity (deficit)...................... (21,830) 45,154
-------- --------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)...... $ 15,619 $ 63,129
======== ========
</TABLE>
See Notes to Unaudited Consolidated Financial Statements
F-20
<PAGE> 81
CYMER, INC.
UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
FOR THE THREE MONTHS FOR THE NINE MONTHS
ENDED SEPTEMBER 30, ENDED SEPTEMBER 30,
------------------------- -------------------------
1995 1996 1995 1996
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
REVENUES:
Product sales................................... $ 4,892 $17,785 $10,350 $35,553
Other........................................... 827 461 2,648 1,875
------ ------- ------- -------
Total revenues.......................... 5,719 18,246 12,998 37,428
------ ------- ------- -------
COSTS AND EXPENSES:
Cost of product sales........................... 2,893 10,032 6,135 20,961
Research and development........................ 1,773 3,229 4,693 7,478
Sales and marketing............................. 652 1,678 1,663 3,503
General and administrative...................... 324 964 827 2,267
------ ------- ------- -------
Total costs and expenses................ 5,642 15,903 13,318 34,209
------ ------- ------- -------
OPERATING INCOME (LOSS)........................... 77 2,343 (320) 3,219
------ ------- ------- -------
OTHER INCOME (EXPENSE):
Foreign currency exchange gain -- net........... 73 256 240 644
Interest and other income....................... 6 16 27 43
Interest and other expense...................... (68) (227) (206) (375)
------ ------- ------- -------
Total other income (expense) -- net..... 11 45 61 312
------ ------- ------- -------
Income (Loss) Before Provision for Income Taxes... 88 2,388 (259) 3,531
Provision for Income Taxes........................ 382 36 568
------ ------- ------- -------
NET INCOME (LOSS)................................. $ 88 $ 2,006 $ (295) $ 2,963
====== ======= ======= =======
EARNINGS (LOSS) PER SHARE:
Earnings per share.............................. $ 0.20 $ 0.29
========= =========
Weighted average common and common equivalent
shares outstanding........................... 10,055 10,055
========= =========
Pro forma earnings (loss) per share............. $ 0.01 $ (0.04)
========= =========
Pro forma weighted average common and common
equivalent shares outstanding................ 6,937 6,937
========= =========
</TABLE>
See Notes to Unaudited Consolidated Financial Statements
F-21
<PAGE> 82
CYMER, INC.
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
FOR THE NINE MONTHS
ENDED SEPTEMBER 30,
---------------------------
1995 1996
----------- -----------
<S> <C> <C>
OPERATING ACTIVITIES:
Net income (loss).................................................. $ (295) $ 2,963
Adjustments to reconcile net income (loss) to net cash used for
operating activities:
Depreciation and amortization................................... 645 1,405
Change in assets and liabilities:
Accounts receivable........................................... (2,285) (12,180)
Inventories................................................... (2,284) (9,914)
Prepaid expenses and other assets............................. (405) (757)
Accounts payable.............................................. 614 4,079
Accrued liabilities........................................... 293 3,341
Income taxes payable.......................................... 554
Deferred revenue.............................................. 337 (684)
Deferred rent................................................. 20 49
-------- -------
Net cash used for operating activities..................... (3,360) (11,144)
-------- -------
INVESTING ACTIVITIES:
Acquisition of property............................................ (1,242) (7,070)
Disposal of property............................................... 150 16
-------- -------
Net cash used for investing activities..................... (1,092) (7,054)
-------- -------
FINANCING ACTIVITIES:
Net (payments) borrowings under revolving loan and security
agreements...................................................... 1,420 (786)
Proceeds from issuance of redeemable convertible preferred stock... 2,607 5,833
Proceeds from issuance of common stock............................. (18) 29,981
Net advances against (discounting of) commercial drafts............ (947) 2,177
Payments on capital lease obligations.............................. (12) (105)
-------- -------
Net cash provided by financing activities.................. 3,050 37,100
-------- -------
EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS......... (30) 131
-------- -------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS................. (1,432) 19,033
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD..................... 2,326 2,015
-------- -------
CASH AND CASH EQUIVALENTS AT END OF PERIOD........................... $ 894 $ 21,048
======== =======
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Interest paid...................................................... $ 105 $ 340
======== =======
Income taxes paid.................................................. $ 28 $ 11
======== =======
SUPPLEMENTAL DISCLOSURE OF NONCASH INVESTING AND FINANCING
ACTIVITIES:
Capital lease obligations incurred for furniture and equipment..... $ 46 $ 573
======== =======
Net book value of property transferred to inventory for resale..... $ 150
========
Conversion of subordinated promissory notes and related interest
payable to redeemable convertible preferred stock............... $ 3,755
========
</TABLE>
See Notes to Unaudited Consolidated Financial Statements
F-22
<PAGE> 83
CYMER, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
The accompanying consolidated financial information has been prepared by
Cymer, Inc. and its wholly-owned subsidiary, Cymer Japan, Inc., (collectively
the "Company"), without audit, in accordance with the instructions to Form 10-Q
and therefore does not include all information and footnotes necessary for a
fair presentation of financial position, results of operations and cash flows in
accordance with generally accepted accounting principles.
Reincorporation and Recapitalization -- The Company's Board of Directors
and stockholders approved a reincorporation into the State of Nevada that became
effective on August 21, 1996. In connection with the reincorporation, the
Company increased its authorized common stock to 25,000,000 shares. The Board of
Directors and stockholders also approved the creation of a new class of
5,000,000 shares of undesignated preferred stock which was authorized on the
closing of the Company's initial public offering.
The Company completed its initial public offering of 3,508,532 shares of
common stock on September 18, 1996, resulting in net proceeds to the Company of
approximately $30.0 million. Upon the offering, all outstanding redeemable
convertible preferred stock, including that stock which was purchasable upon
exercise of then outstanding stock warrants, was converted into common stock
(Note 4).
Principles of Consolidation -- The consolidated financial statements
include the accounts of Cymer, Inc. 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.
Earnings Per Share -- Earnings per share is computed based on the weighted
average number of common and common equivalent shares outstanding during each
period using the treasury stock method, in which any shares that could have been
purchased on the open market with the funds received from the exercise of
options or warrants are to be considered additional outstanding stock and have
no dilutive effect on earnings per share. Stock options and warrants are
considered to be common stock equivalents. Primary earnings per share is not
significantly different from fully diluted earnings per share for any of the
periods indicated.
Pro Forma Earnings (Loss) 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 period 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 where the stock options are not assumed converted as such conversion
would be antidilutive. All shares of common stock 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 -- In the opinion of management, the
unaudited consolidated financial statements for the interim periods presented
reflect all adjustments, consisting of only normal recurring accruals, necessary
for a fair presentation of the financial position and results of operations as
of and for such
F-23
<PAGE> 84
CYMER, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
periods indicated. These consolidated financial statements and notes thereto
should be read in conjunction with the consolidated financial statements and
notes thereto included elsewhere in this Prospectus for the period ended June
30, 1996. Results for the interim periods presented herein are not necessarily
indicative of results which may be reported for any other interim period or for
the entire fiscal year.
2. BALANCE SHEET DETAILS
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
1995 1996
------------- -------------
<S> <C> <C>
INVENTORIES:
Raw Materials........................................... $ 2,114 $ 6,236
Work-in-progress........................................ 2,232 7,028
Finished goods.......................................... 969 1,892
------- -------
Total........................................... $ 5,315 $15,156
======= =======
PROPERTY -- at cost:
Furniture and equipment................................. $ 4,113 $ 8,267
Capitalized lasers...................................... 1,788 3,108
Leasehold improvements.................................. 245 1,718
Construction in process................................. 587 988
------- -------
Less accumulated depreciation and amortization.......... (3,680) (4,857)
------- -------
Total........................................... $ 3,053 $ 9,224
======= =======
</TABLE>
3. BORROWING FACILITIES
Revolving Loan Facility -- The Company had a revolving loan facility ("Loan
Facility") providing for borrowings of up to $1,000,000 and guaranteed by a
preferred stockholder of the Company. Interest was payable quarterly and the
balance was due on the earlier of March 31, 1997 or the completion of the
Company's initial public offering. The $1,000,000 balance owed plus accrued
interest due against the Loan Facility was paid upon completion of the Company's
initial public offering in September 1996.
Loan and Security Agreement -- The Loan and Security Agreement (the
"Agreement") provides for three revolving loan facilities 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 to prime plus .25% (8.25%
and 8.50%, respectively, at September 30, 1996). Borrowings under the Agreement
are secured by substantially all the Company's assets. The Agreement 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 .25% per annum, is payable in
eight quarterly installments to begin December 31, 1996 through September 30,
1998; (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 per annum, is due March
5, 1997 and (iii) $8,000,000 under lines of credit secured by the Company's
foreign receivables and inventory and guaranteed by the U.S. Export-Import Bank,
which bear interest at a rate of prime per annum, and are due March 5, 1997 (as
to $3,000,000) and June 27, 1997 (as to $5,000,000). The Agreement requires the
Company to maintain compliance with certain financial statement and other
covenants including, among other items, limitation on additional debt, total
liabilities to tangible net worth and minimum tangible net worth. As of
September 30, 1996, the Company was in compliance with all such covenants. There
was $2,000,000 outstanding under the Agreement at September 30, 1996.
F-24
<PAGE> 85
CYMER, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
4. CONVERSION OF REDEEMABLE CONVERTIBLE PREFERRED STOCK
Upon the Company's initial public offering, all redeemable convertible
preferred stock (approximately 7.6 million shares) was automatically converted
into common stock. The conversion of the redeemable convertible preferred stock
to common stock was on a 1 for 1 basis, except for the Series E redeemable
convertible preferred stock, each share of which was converted into
approximately 1.5 shares of common stock. Upon conversion of the redeemable
convertible preferred stock, all preferred stock dividends and other rights
previously assigned ceased.
5. STOCK PLANS
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. A total of 192,250 options had been granted
under this plan as of September 30, 1996. The 1996 Stock Plan provides for the
grant of "incentive" stock options within the meaning of Section 422 of 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 so 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% of the lower
of (i) the fair market value of the Company's Common Stock as of the first day
of each offering period under the Purchase Plan or (ii) the fair market value of
the Common Stock at the end of the offering period. Each six-month 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 May 1 and November 1 of
each year, except that the first offering period began on the date of the
Company's initial public offering and will end on April 30, 1997. 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.
F-25
<PAGE> 86
CYMER, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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 went into effect upon the
completion of the Company's initial public 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 automatically receives 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 is exercisable at 100% of the fair market
value of the Company's Common Stock on the date such option is 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 is 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 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.
6. COMMITMENTS AND CONTINGENCIES
On November 1, 1996, the Company entered into a settlement agreement for
the dismissal of a patent infringement complaint filed against the Company in
September, 1996. Under the terms of the settlement, the plaintiffs agreed to (i)
release the Company from any claims they may have with respect to the disputed
patent and (ii) dismiss the patent infringement action with prejudice. In
return, the Company agreed to make annual payments to the plaintiffs over a 13
year period. Such annual payments and the related expense are not material to
the Company's financial position, results of operations or cash flows.
In addition, the Company's Japanese manufacturing partner has been notified
that its manufacture of the Company's laser systems may infringe a Japanese
patent held by another Japanese company. The Company has indemnified its
Japanese manufacturing partner against patent infringement claims under certain
circumstances. The Company believes, based upon the advice of counsel, that the
Company's products do not infringe any valid claim of the asserted patent.
F-26
<PAGE> 87
LOGO
<PAGE> 88
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......................................................... $ 20,883
NASD Filing Fee.......................................................... 6,536
Nasdaq National Market Listing fee....................................... 17,500
Printing................................................................. 130,000
Legal Fees and Expenses.................................................. 75,000
Accounting Fees and Expenses............................................. 50,000
Blue Sky Fees and Expenses............................................... 7,500
Transfer Agent Fees...................................................... 2,500
Miscellaneous............................................................ 90,081
-------
Total.......................................................... $ 400,000
=======
</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 5 of the
Registrant's Restated Articles of Incorporation (Exhibit 3.1 hereto) provides
for indemnification of its directors and officers to the maximum extent
permitted by the Nevada General Corporation Law and Article 26 of the
Registrant's Amended and Restated Bylaws (Exhibit 3.3 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 9 of the Underwriting Agreement contained in Exhibit 1.1
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
investors was an existing security holder of the Company, with the exception of
the individual, who was an accredited investor.
II-1
<PAGE> 89
(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 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.
II-2
<PAGE> 90
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(A) EXHIBITS
<TABLE>
<C> <S>
1.1 Form of Underwriting Agreement
3.1 * Amended and Restated Articles of Incorporation of Registrant
3.2 ** Bylaws of Registrant
5.1 * Opinion of Allison, MacKenzie, Hartman, Soumbeniotis & Russell, Ltd.
10.1 ** Form of Indemnification Agreement with Directors and Officers
10.6 ** Series A Preferred Stock Purchase Agreement, dated May 3, 1988
10.7 ** Series B Preferred Stock Purchase Agreement, dated June 28, 1989
10.8 ** Series C Preferred Stock Purchase Agreement, dated April 16, 1990
10.9 ** Series D Preferred Stock Purchase Agreement, dated March 15, 1991
10.10** Series E Preferred Stock Purchase Agreement, dated February 25, 1994
10.11** Series F Preferred Stock Purchase Agreement, dated February 28, 1995
10.12** Series G Preferred Stock Purchase Agreement, dated January 30, 1996
10.13** Patent License Agreement, dated October 13, 1989, by and between the Company and
Patlex Corporation
10.14** Loan Agreement, dated August 15, 1991, by and between Mitsubishi International
Corporation and the Company
10.15** Standard Industrial Lease -- Multi-Tenant, dated August 19, 1991, by and between
Frankris Corporation and the Company
10.16** Contract Manufacturing Agreement -- Lithography Laser, dated August 28, 1992, by
and between the Company and Seiko Instruments Inc.
10.17** Product License and Manufacturing Agreement -- High Power Laser, dated August 28,
1992, by and between the Company and Seiko Instruments Inc.
10.18** Agreement, dated December 14, 1994, between the Company and EO Technics Co., Ltd.
10.19** Master Lease Agreement, dated April 23, 1996, between Tokai Financial Services
and the Company
11.1 Calculation of earnings (loss) per share of Common Stock
23.1 Independent Auditors' Consent
23.2 Consent of Counsel (included in Exhibit 5.1)
23.3 Consent of Wilson Sonsini Goodrich & Rosati, P.C.
24.1 Power of Attorney (see page II-5)
</TABLE>
- ---------------
* To be filed by amendment
** Incorporated by reference to the corresponding exhibit to the Company's
Registration Statement on Form S-1 (No. 333-08383).
(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.
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
II-3
<PAGE> 91
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.
(3) To file, during any period in which offers or sales are being
made, a post-effective amendment to this registration statement:
(i) To include any prospectus required by section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after
the effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth
in the registration statement. Notwithstanding the foregoing, any
increase or decrease in volume of securities offered (if the total
dollar value of securities offered would not exceed that which was
registered) and any deviation from the low or high end of the estimated
maximum offering range may be reflected in the form of prospectus filed
with the Commission pursuant to Rule 424(b) if, in the aggregate, the
changes in volume and price represent no more than a 20% change in the
maximum aggregate offering price set forth in the "Calculation of
Registration Fee" table in the effective registration statement.
(iii) To include any material information with respect to the plan
of distribution not previously disclosed in the registration statement
or any material change to such information in the registration
statement.
(4) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment 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.
(5) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.
II-4
<PAGE> 92
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 2nd day of December 1996.
CYMER, INC.
By: /s/ WILLIAM A. ANGUS, III
------------------------------------
William A. Angus, III
Senior Vice President,
Chief Financial Officer and
Secretary
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature
appears below hereby constitutes and appoints Robert P. Akins and William A.
Angus, III and each of them, his or her true and lawful agent, proxy and
attorney-in-fact, with full power of substitution and resubstitution, for him or
her and in his or her name, place and stead, in any and all capacities, to (i)
act on, sign and file with the Securities and Exchange Commission any and all
amendments (including post-effective amendments) to this registration statement
together with all schedules and exhibits thereto and any subsequent registration
statement filed pursuant to Rule 462(b) under the Securities Act of 1933, as
amended, together with all schedules and exhibits thereto, (ii) act on, sign and
file such certificates, instruments, agreements and other documents as may be
necessary or appropriate in connection therewith, (iii) act on and file any
supplement to any prospectus included in this registration statement or any such
amendment or any subsequent registration statement filed pursuant to Rule 462(b)
under the Securities Act of 1933, as amended, and (iv) take any and all actions
which may be necessary or appropriate to be done, as fully for all intents and
purposes as he or she might or could do in person, hereby approving, ratifying
and confirming all that such agent, proxy and attorney-in-fact or any of his
substitutes may lawfully do or cause to be done by virtue thereof.
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 December 2, 1996
/s/ ROBERT P. AKINS Officer and Chairman of the
- ---------------------------------------- Board
Robert P. Akins
Senior Vice President, Chief December 2, 1996
/s/ WILLIAM A. ANGUS, III Financial Officer and
- ---------------------------------------- Secretary
William A. Angus, III
Director, Corporate Finance, December 2, 1996
/s/ NANCY J. BAKER Treasurer and Chief
- ---------------------------------------- Accounting Officer
Nancy J. Baker
/s/ RICHARD P. ABRAHAM Director December 2, 1996
- ----------------------------------------
Richard P. Abraham
/s/ KENNETH M. DEEMER Director December 2, 1996
- ----------------------------------------
Kenneth M. Deemer
/s/ PETER J. SIMONE Director December 2, 1996
- ----------------------------------------
Peter J. Simone
/s/ F. DUWAINE TOWNSEN Director December 2, 1996
- ----------------------------------------
F. Duwaine Townsen
</TABLE>
II-5
<PAGE> 93
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER EXHIBITS PAGE
-------- --------------------------------------------------------------------- ------------
<S> <C> <C>
1.1 Form of Underwriting Agreement
3.1* Amended and Restated Articles of Incorporation of Registrant
3.2** Bylaws of Registrant
5.1* Opinion of Allison, MacKenzie, Hartman, Soumbeniotis & Russell, Ltd.
10.1** Form of Indemnification Agreement with Directors and Officers
10.6** Series A Preferred Stock Purchase Agreement, dated May 3, 1988
10.7** Series B Preferred Stock Purchase Agreement, dated June 28, 1989
10.8** Series C Preferred Stock Purchase Agreement, dated April 16, 1990
10.9** Series D Preferred Stock Purchase Agreement, dated March 15, 1991
10.10** Series E Preferred Stock Purchase Agreement, dated February 25, 1994
10.11** Series F Preferred Stock Purchase Agreement, dated February 28, 1995
10.12** Series G Preferred Stock Purchase Agreement, dated January 30, 1996
10.13** Patent License Agreement, dated October 13, 1989, by and between the
Company and Patlex Corporation
10.14** Loan Agreement, dated August 15, 1991, by and between Mitsubishi
International Corporation and the Company
10.15** Standard Industrial Lease -- Multi-Tenant, dated August 19, 1991, by
and between Frankris Corporation and the Company
10.16** Contract Manufacturing Agreement -- Lithography Laser, dated August
28, 1992, by and between the Company and Seiko Instruments Inc.
10.17** Product License and Manufacturing Agreement -- High Power Laser,
dated August 28, 1992, by and between the Company and Seiko
Instruments Inc.
10.18** Agreement, dated December 14, 1994, between the Company and EO
Technics Co., Ltd.
10.19** Master Lease Agreement, dated April 23, 1996, between Tokai Financial
Services and the Company
11.1 Calculation of earnings (loss) per share of Common Stock
23.1 Independent Auditors' Consent
23.2 Consent of Counsel (included in Exhibit 5.1)
23.3 Consent of Wilson Sonsini Goodrich & Rosati
24.1 Power of Attorney (see page II-5)
</TABLE>
- ---------------
* To be filed by amendment
** Incorporated by reference to the corresponding exhibit to the Company's
Registration Statement on Form S-1 (No. 333-08383).
<PAGE> 1
Exhibit 1.1
1,700,000 Shares
CYMER, INC.
COMMON STOCK (PAR VALUE $0.001 PER SHARE)
UNDERWRITING AGREEMENT
December ___, 1996
<PAGE> 2
December ___, 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, Inc., a Nevada corporation (the "Company"), proposes to
issue and sell to the several Underwriters named in Schedule II hereto (the
"Underwriters"), and certain stockholders of the Company (the "Selling
Stockholders") named in Schedule I hereto severally propose to sell to the
several Underwriters, an aggregate of 1,700,000 shares of the Common Stock (par
value $0.001 per share) of the Company (the "Firm Shares"), of which 1,000,000
shares are to be issued and sold by the Company and 700,000 shares are to be
sold by the Selling Stockholders, each Selling Stockholder selling the amount
set forth opposite such Selling Stockholders' name in Schedule I hereto.
Certain Selling Stockholders also severally propose to issue
and sell to the several Underwriters not more than an aggregate of an additional
255,000 shares of its Common Stock (par value $0.001 per share) in the amounts
set forth opposite such Selling Shareholders' names on Schedule I hereto (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 (par value $0.001 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 Stockholders 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
1
<PAGE> 3
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 l(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 Subsidiary (as defined below), taken as a whole.
(d) Other than Cymer Japan, Inc., a Japanese corporation
("Cymer Japan" or the "Subsidiary"), the Company has no subsidiaries.
Cymer Japan has been duly incorporated, is validly existing as a
corporation in good standing under the laws of Japan, 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 the Subsidiary, taken as a whole. All of the issued shares
of capital stock of Cymer Japan 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 its Subsidiary owns any real
properties. The Company and its Subsidiary 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 Subsidiary;
and any real property and buildings held under lease by the Company and
its Subsidiary are held by them under valid, subsisting and enforceable
leases except with such exceptions as are not material and do not
interfere with the current and proposed use of such property and
buildings by the Company and its Subsidiary, 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 Stockholders) 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
September 30, 1996 pursuant to the Company's 1987 Stock Plan (the "1987
Plan") as described in the Prospectus, neither the Company nor its
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
2
<PAGE> 4
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 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.
(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 its Subsidiary that is material
to the Company and its Subsidiary, taken as a whole, or any judgment,
order or decree of any governmental body, agency or court having
jurisdiction over the Company or its 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 Subsidiary, 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 Subsidiary 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 Subsidiary,
taken as a whole, except in each case as described in or contemplated
by the Prospectus.
(m) There are no legal or governmental proceedings pending or,
to the best of the Company's knowledge, threatened to which the Company
or its Subsidiary is a party or to which any of the properties of the
Company or its Subsidiary 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 its Subsidiary 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 its Subsidiary has been
refused any insurance coverage sought or applied for; and neither the
Company nor its Subsidiary has any reason to
3
<PAGE> 5
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 Subsidiary, taken as a whole, except
as described in or contemplated by the Prospectus.
(r) The Company and its Subsidiary(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 Subsidiary, taken as a
whole.
(s) The costs and liabilities, if any, associated with the
effect of Environmental Laws on the business, operations and properties
of the Company and its Subsidiary (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) would not, singly or in the
aggregate, have a material adverse effect on the Company and its
Subsidiary, taken as a whole.
(t) The Company has complied with all provisions of Section
517.075, Florida Statutes (Chapter 92-198, Laws of Florida) relating to
doing business with the Government of Cuba or with any person or
affiliate located in Cuba.
(u) The Company and its Subsidiary 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 its
Subsidiary 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
Subsidiary, taken as a whole; and, except as described in the
Prospectus, the discoveries, inventions, products or processes of the
Company and its Subsidiary referred to in the Prospectus do not, to the
best knowledge of the Company, 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 its Subsidiary that could have a
material adverse effect on the Company and its Subsidiary, taken as a
whole.
(v) The Company and its Subsidiary 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, except to the
extent that the failure to obtain or file would not have a material
adverse effect on the Company and its Subsidiary, taken as a whole, and
neither the Company nor its 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 Subsidiary,
taken as a whole, except as described in the Prospectus.
(w) The Company and its Subsidiary maintain a system of
internal accounting controls sufficient to provide reasonable assurance
that (i) transactions are executed in accordance with
4
<PAGE> 6
management's general or specific authorizations; (ii) transactions are
recorded as necessary to permit 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.
(x) No material labor dispute with employees of the Company or
its Subsidiary exists or to the knowledge of the Company is imminent,
and, without conducting any independent investigation, 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 Subsidiary, taken as a whole.
(y) 110,057 and 8,221,904 outstanding shares of the Common
Stock and securities convertible into or exercisable 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 exercisable or exchangeable for Common Stock, for a period of 120
and 180 days, respectively, after September 18, 1996, the date of the
final prospectus for the Company's initial public offering.
(z) 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 Company's initial public offering and 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.
(aa) 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 STOCKHOLDER.
Each of the Selling Stockholders, severally and not jointly, 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 Stockholder and constitutes a
valid and binding obligation upon such Selling Stockholder.
(b) The execution and delivery by such Selling Stockholder of,
and the performance by such Selling Stockholder of its obligations
under, this Agreement, the Custody Agreement signed by such Selling
Stockholder and Chase Mellon Stockholder Services, as Custodian,
relating to the deposit of the Shares to be sold by such Selling
Stockholder (the "Custody Agreement") and the Power of Attorney
appointing certain individuals as such Selling Stockholder'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
Stockholder (if such Selling Stockholder is a corporation), or any
agreement or other instrument binding upon such Selling Stockholder or
any judgment, order or decree of any governmental body, agency or court
having jurisdiction over such Selling Stockholder, and no consent,
approval, authorization or order of, or qualification with, any
governmental body or agency is required for the performance by such
Selling Stockholder of its obligations under this Agreement or the
Custody Agreement or Power of Attorney of such Selling Stockholder,
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.
5
<PAGE> 7
(c) Such Selling Stockholder has, and on the Closing Date will
have, valid title to the Shares to be sold by such Selling Stockholder
and the legal right and power, and all authorization and approval
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 Stockholder.
(d) The Shares to be sold by such Selling Stockholder 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 Stockholder and
are valid and binding agreements of such Selling Stockholder.
(f) Assuming the Underwriters purchase the shares to be sold
by each Stockholder for value, in good faith and without notice of any
adverse claim within the meaning of Article VII of the Uniform
Commercial Code, delivery of the Shares to be sold by such Selling
Stockholder pursuant to this Agreement will pass marketable 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 Stockholder 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 Stockholder 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.
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 255,000
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 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 March 17, 1997, (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
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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 (C)
options issued under 1996 Stock Plan and the shares issuable upon exercise
thereof, (D) options issued under Director Option Plan and the shares issuable
upon exercise thereof and (E) shares issued under 1996 Employee Stock Purchase
Plan. In addition, each Selling Stockholder, agrees that, without the prior
written consent of Morgan Stanley & Co. Incorporated on behalf of the
Underwriters, it will not, during the period ending March 17, 1997, 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, Professional Corporation at 10:00 A.M., local time,
on December __, 1996 or at such other time on the same or such other date, not
later than January ___, 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, Professional
Corporation at 10:00 A.M., local time, on the date specified in the notice
described in Section 3 or on such other date 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 5:30 p.m. (New York time) on the date
hereof.
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
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<PAGE> 9
(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 Subsidiary, 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, Professional
Corporation, 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
except to the extent that the failure to be so qualified would
not have a material adverse effect on the Company and its
Subsidiary, taken as a whole;
(ii) to such counsel's knowledge, the Company does
not own any equity or capital interests in any corporation,
partnership, joint venture, association or other entity, other
than the Subsidiary;
(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 Stockholders) outstanding prior to
the issuance of the Shares to be sold by the Company have been
duly authorized and are validly issued and non-assessable and,
to such counsel's knowledge, fully paid;
(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, to such counsel's
knowledge, similar rights;
(vi) to the knowledge of such counsel, there is no
legal or beneficial owner of any securities of the Company who
has any rights, 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;
(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;
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<PAGE> 10
(viii) This Agreement has been duly authorized,
executed and delivered by the Company;
(ix) 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 its Subsidiary
that is material to the Company and its Subsidiary, 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 its 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;
(x) to the best of such counsel's knowledge: (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);
(xi) the Shares to be sold under this Agreement to
the Underwriters by the Company and the Selling Stockholders
are duly authorized for quotation on the Nasdaq National
Market;
(xii) 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"
(to the extent of the description of this Agreement) 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;
(xiii) such counsel does not know of any legal or
governmental proceedings pending or threatened to which the
Company or its Subsidiary is a party or to which any of the
properties of the Company or its Subsidiary 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, or to such counsel's knowledge, 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;
(xiv) 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;
(xv) the description of the Company's patent
portfolio contained in the Prospectus contains accurate
descriptions of the number and expiration dates of the
Company's issued and allowed patents and of the number of the
Company's currently pending U.S. and foreign patent
applications, including those U.S. patent applications which
have been allowed;
(xvi) such counsel has listed and provided to the
Underwriters an accurate list of all issued and allowed United
States patents of the Company and of all currently pending
United
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States patent applications filed by the Company. Such counsel
has no actual knowledge of any fact or circumstance which
would render any of the issued United States patents so listed
invalid;
(xvii) such counsel has scheduled and provided to the
Underwriters an accurate list of all currently pending foreign
patent applications which are being prosecuted for the
Company. Such counsel has no actual knowledge of any fact or
circumstance which would render any of the issued foreign
patents so listed invalid. The Company's foreign patent
applications so listed properly claimed priority based on the
corresponding United States patent applications;
(xviii) the Company's pending United States patent
applications have been properly filed and, to the best of such
counsel's knowledge, properly prepared and diligently pursued
on behalf of the Company, and the inventions described in the
Patents and Applications have been assigned to the Company.
Such counsel has no actual knowledge of any fact or
circumstance which would render any pending foreign patent
application so listed defective. Except for the claims made by
or which may be made by Coherent, Inc., such counsel has no
actual knowledge of any other entity or individual having
asserted any ownership right or claim in any of the Patents
and Applications, other than the Company;
(xix) such counsel has no actual knowledge of any
fact or circumstance which would give any other entity or
individual any right or claim in any of the issued patents or
applications; and
(xx) other than governmental examination proceedings
related to the prosecution of the Patents and Applications,
such counsel has no actual knowledge of any pending or
threatened judicial or governmental proceedings relating to
such Patents or Patent Applications to which the Company is a
party, or of which any property of the Company is subject, and
except for the claims made by or to be made by Coherent, Inc.,
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.
In addition, such counsel shall state that in addition to
rendering legal advice and assistance to the Company in the course of the
preparation of the Registration Statement and the Prospectus, involving, among
other things, discussions and inquiries concerning various legal matters and the
review of certain corporate records, documents and proceedings, such counsel
also participated in conferences with certain officers and other representatives
of the Company, including its independent certified public accountants and with
the Underwriters and their counsel, at which the contents of the Registration
Statement and the Prospectus and related matters were discussed; provided, such
counsel may state that they have not independently verified the accuracy,
completeness or fairness of the information contained in the Registration
Statement and Prospectus.
Such counsel shall also state that based upon its
participations as described in the preceding paragraph, (i) they believe that
the Registration Statement and the Prospectus (except for financial statements
and schedules and other financial data derived therefrom as to which they need
express no belief) complied as to form in all material respects with the
requirements of the Act and the rules and regulations of the Commission
thereunder and (ii) nothing has come to the attention of such counsel that leads
counsel to believe that (except for financial statements and schedules and other
financial data derived therefrom as to which they need express no belief) the
Registration Statement, as of its effective date, 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 or that
(except for financial statements and schedules and other financial data derived
therefrom as to which they need express no belief) the Prospectus, on the
effective date and such date or dates as such opinion is delivered, contains any
untrue statement of a material fact or omits to state a material fact necessary
in order to make the statements therein, in light of the circumstances under
which they were made, not misleading.
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<PAGE> 12
(d) The Underwriters shall have received on the Closing Date
an opinion of Wilson Sonsini Goodrich & Rosati, Professional
Corporation, counsel for the Selling Stockholders, 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
Stockholders;
(ii) the execution and delivery by each Selling
Stockholder of, and the performance by such Selling
Stockholder of its obligations under, this Agreement and the
Custody Agreement and Powers of Attorney of such Selling
Stockholder will not contravene any provision of applicable
law, or the certificate of incorporation or by-laws of such
Selling Stockholder (if such Selling Stockholder is a
corporation), or, to such counsel's knowledge, any agreement
or other instrument binding upon such Selling Stockholder or,
to such counsel's knowledge, any judgment, order or decree of
any governmental body, agency or court having jurisdiction
over such Selling Stockholder, and no consent, approval,
authorization or order of, or qualification with, any
governmental body or agency is required for the performance by
such Selling Stockholder of its obligations under this
Agreement or the Custody Agreement or Power of Attorney of
such Selling Stockholder, 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 Stockholders has valid
marketable title to the Shares to be sold by such Selling
Stockholder and the legal right and power, and all
authorization and approval required by law or contract, to
enter into this Agreement and the Custody Agreement and Power
of Attorney of such Selling Stockholder and to sell, transfer
and deliver the Shares to be sold by such Selling Stockholder;
(iv) the Custody Agreement and the Power of Attorney
of each Selling Stockholder have been duly authorized,
executed and delivered by such Selling Stockholder and are
valid and binding agreements of such Selling Stockholder;
(v) assuming the Underwriters purchase the Shares to
be sold by each Selling Stockholder for value, in good faith
and without notice of any adverse claim within the meaning of
Article VII of the Uniform Commercial Code, delivery of the
Shares to be sold by each Selling Stockholder pursuant to this
Agreement will pass title to such Shares free and clear of any
security interests, claims, liens, equities and other
encumbrances; and
(e) The Underwriters shall have received on the Closing Date
an opinion of Law Offices of Miyaki and Yamazaki, Japanese counsel for
Cymer Japan, dated the Closing Date, to the effect that:
(i) Cymer Japan 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 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 charter documents of Cymer Japan or, to such
counsel's knowledge, any agreement or other instrument binding
upon Cymer Japan that is material to the Company and its
Subsidiary, taken as a whole, or, to such counsel's knowledge,
any judgment, order or decree of any
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<PAGE> 13
governmental body, agency or court having jurisdiction over
the Company or its 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 is a party or to which any of the properties of Cymer
Japan is subject; and
(f) 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 the first clause of subparagraph (c)(i), in
subparagraphs (c)(v), (c)(vii), (c)(viii), (c)(x) (but only as to the
opinion in clause (I) thereof) and (c)(xii) (but only as to the
statements in the Prospectus under "Description of Capital Stock" and
"Underwriters") and the second paragraph following the enumberated
opinions in paragraph (c) above. Such opinion shall also cover the
matters referred to in subparagraph (d)(i).
With respect to the opinion in the opinion in the second
paragraph following the enumerated opinions in paragraph (c) above, Wilson
Sonsini Goodrich & Rosati, Professional Corporation 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, Professional Corporation may rely upon an opinion or
opinions of counsel for any Selling Stockholders and, with respect to factual
matters and to the extent such counsel deems appropriate, upon the
representations of each Selling Stockholder contained herein and in the Custody
Agreement and Power of Attorney of such Selling Stockholder and in other
documents and instruments; provided that (A) each such counsel for the Selling
Stockholders 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, Professional Corporation shall state in their opinion that
they are justified in relying on each such other opinion.
The opinions of Wilson Sonsini Goodrich & Rosati, Professional
Corporation described in paragraphs (c) and (d) above (and any opinions of
counsel for any Selling Stockholder 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 Stockholders, as the case may be, and shall so
state therein.
(g) 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.
(h) The "lock-up" agreements between you and certain
stockholders, 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
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<PAGE> 14
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 5:00 P.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 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) 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
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<PAGE> 15
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 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.
(g) To not release any shares of Common Stock from any
restrictions imposed upon such shares by the Lock-Up Agreements without
the prior written consent of Morgan Stanley & Co. Incorporated.
8. EXPENSES OF SELLING STOCKHOLDERS. Each Selling Stockholder,
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
Stockholder and (ii) such Selling Stockholder's pro rata share (determined by
dividing the number of Shares sold by such Selling Stockholder by the total
number of Shares sold by all Sellers) of all expenses of counsel for the Selling
Stockholders.
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; provided, however, that the
foregoing indemnity agreement with respect to any preliminary
prospectus shall not inure to the benefit of any Underwriter, or any
person controlling such Underwriter, from whom the person asserting any
such losses, claims, damages or liabilities purchased Shares, if a copy
of the Prospectus (as then amended or supplemented if the Company shall
have furnished any amendments or supplements thereto) was not sent or
given by or on behalf of such Underwriter to such person, if required
by law so to have been delivered, at or prior to the written
confirmation of the sale of the Shares to such person, and if the
Prospectus (as so amended or supplemented) would have cured the defect
giving rise to such loss, claim, damage or liability.
(b) Each Selling Stockholder 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,
14
<PAGE> 16
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 Stockholder furnished
in writing by or on behalf of such Selling Stockholder expressly for
use in the Registration Statement, any preliminary prospectus, the
Prospectus or any amendments or supplements thereto. The liability of
each Selling Stockholder under the indemnity agreement contained in
this paragraph shall be limited to an amount equal to the net proceeds
received by such Selling Stockholder (before deducting expenses) from
the offering of the Shares sold by such Selling Stockholder; provided,
however, that the foregoing indemnity agreement with respect to any
preliminary prospectus shall not inure to the benefit of any
Underwriter, or any person controlling such Underwriter, from whom the
person asserting any such losses, claims, damages or liabilities
purchased Shares, if a copy of the Prospectus (as then amended or
supplemented if the Company shall have furnished any amendments or
supplements thereto) was not sent or given by or on behalf of such
Underwriter to such person, if required by law so to have been
delivered, at or prior to the written confirmation of the sale of the
Shares to such person, and if the Prospectus (as so amended or
supplemented) would have cured the defect giving rise to such loss,
claim, damage or liability.
(c) Each Underwriter agrees, severally and not jointly, to
indemnify and hold harmless the Company, the Selling Stockholders, 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 Stockholder 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 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
Stockholders and all persons, if
15
<PAGE> 17
any, who control any Selling Stockholder 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 Stockholders and such controlling persons of the
Selling Stockholders, such firm shall be designated in writing by the
persons named as attorneys-in-fact for the Selling Stockholders 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 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
16
<PAGE> 18
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 Stockholders 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 Stockholder or any person controlling any Selling
Stockholder, 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.
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 Stockholders 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 Stockholders. 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
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<PAGE> 19
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, INC.
By: ____________________________________
Name:
Title:
THE SELLING STOCKHOLDERS 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 in Schedule II hereto.
By: Morgan Stanley & Co. Incorporated
By:__________________________________
<PAGE> 21
SCHEDULE I
<TABLE>
<CAPTION>
Number of Number of
Firm Shares Additional Shares
Selling Stockholder To Be Sold To Be Sold
<S> <C> <C>
------- --------
Total......................... 700,000 255,000
======= =======
</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.............................. 1,700,000
==================================
</TABLE>
<PAGE> 1
EXHIBIT 11.1
CYMER, INC.
CALCULATION OF EARNINGS (LOSS) PER SHARE OF COMMON STOCK
<TABLE>
<CAPTION>
SIX MONTHS SIX MONTHS NINE MONTHS NINE MONTHS
YEAR ENDED ENDED ENDED ENDED ENDED
DECEMBER 31, JUNE 30, JUNE 30, SEPTEMBER 30, SEPTEMBER 30,
1995 1995 1996 1995 1996
------------ ---------- ---------- ------------- -------------
<S> <C> <C> <C> <C> <C>
Net income (loss) applicable to
earnings (loss) per share........ $ 69,000 $ (383,000) $ 957,000 $ (295,000) $ 2,963,000
========== ========== ========== ========== ===========
Common stock and common stock
equivalents:
Weighted average shares of common
stock outstanding during the
period........................ 7,330,640 6,691,916 8,765,319 6,936,769 9,015,522
Common stock equivalents (stock
options and warrants)............ 240,630 -- 900,361 -- 1,039,590
---------- ---------- ---------- ---------- -----------
Total common stock and
common stock
equivalents............ 7,571,270 6,691,916 9,665,680 6,936,769 10,055,112
========== ========== ========== ========== ===========
Earnings (loss) per common share... $ 0.01 $ (0.06) $ 0.10 $ (0.04) $ 0.29
</TABLE>
Note: Earnings (loss) per share of common stock for the periods ended December
31, 1995, June 30, 1995, September 30, 1995 and June 30, 1996 is presented on a
pro forma basis, see explanation at Note 1 to Notes to Consolidated Financial
Statements and Note 1 to Notes to Unaudited Consolidated Financial Statements.
Based on the Company's capital structure, there is no difference between prime
and fully diluted earnings (loss) per share of common stock. Common stock
equivalents are not included for the six months ended June 30, 1995 and the nine
months ended September 30, 1995, as they are antidilutive.
<PAGE> 1
EXHIBIT 23.1
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 August 9, 1996
(August 21, 1996 as to the second paragraph in Note 1 and Note 12; which report
contains an explanatory paragraph that describes a change during 1994 in the
Company's method of accounting for the accretion on the Company's Redeemable
Convertible Preferred Stock), appearing in the Prospectus, which is part of such
Registration Statement, and to the reference to us under the headings "Selected
Consolidated Financial Data" and "Experts" in such Prospectus.
DELOITTE & TOUCHE LLP
San Diego, California
December 3, 1996
<PAGE> 1
EXHIBIT 23.3
CONSENT OF WILSON SONSINI GOODRICH & ROSATI
PALO ALTO, CALIFORNIA
We hereby consent to the reference to our firm under the captions "Risk
Factors -- Risks Associated with Rapid and Substantial Manufacturing Expansion"
"-- 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. for the registration
of its Common Stock.
WILSON SONSINI GOODRICH & ROSATI
By:
Palo Alto, California
December 3, 1996
