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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(Mark One)
[X] Annual report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the Fiscal Year Ended DECEMBER 31, 1999 or
[ ] Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the transition period from
______________________ to _______________________
Commission File Number 0-21321
CYMER, INC.
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(Exact name of registrant as specified in its charter)
Nevada 33-0175463
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
16750 Via Del Campo Court, San Diego, Ca 92127
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number including area code: (858) 385-7300
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
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Name of each Exchange
Title of each class on which registered
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Common Stock, $.001 par value Nasdaq National Market
Preferred Share Purchase Rights Nasdaq National Market
</TABLE>
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
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Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained to the best
of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K. [ ]
The aggregate market value of the voting stock held by non-affiliates of the
registrant, based upon the closing price of $55 for shares of the
registrant's Common Stock on March 22, 2000 as reported on the Nasdaq
National Market, was approximately $1,529,853,875. In calculating such
aggregate market value, shares of Common Stock owned of record or
beneficially by officers, directors, and persons known to the registrant to
own more than five percent of the registrant's voting securities (other than
such persons of whom the Company became aware only through the filing of a
Schedule 13G filed with the Securities and Exchange Commission) were excluded
because such persons may be deemed to be affiliates. The registrant disclaims
the existence of control or any admission thereof for any other purpose.
Number of shares of Common Stock outstanding as of March 22, 2000:
28,968,828.
DOCUMENTS INCORPORATED BY REFERENCE
The following documents are incorporated by reference in Parts I, II,
III and IV of this Annual Report on Form 10-K: portions of registrant's proxy
statement for its annual meeting of stockholders to be held on May 18, 2000
(Part III).
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CYMER, INC.
1999 Annual Report on Form 10-K
TABLE OF CONTENTS
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<S> <C>
PART I...............................................................................................................1
Item 1. Business...........................................................................................1
Item 2. Properties.........................................................................................9
Item 3. Legal Proceedings..................................................................................9
Item 4. Submission of Matters to a Vote of Security-Holders...............................................10
PART II.............................................................................................................11
Item 5. Market for Registrant's Common Stock and Related Stockholder Matters..............................11
Item 6. Selected Financial Data...........................................................................11
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations.............13
Item 7A. Quantitative and Qualitative Disclosures About Market Risk........................................28
Item 8. Financial Statements and Supplementary Data.......................................................29
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure..............29
PART III............................................................................................................29
Item 10. Directors and Executive Officers of the Registrant................................................29
Item 11. Executive Compensation............................................................................29
Item 12. Security Ownership of Certain Beneficial Owners and Management....................................29
Item 13. Certain Relationships and Related Transactions....................................................29
PART IV.............................................................................................................30
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K..................................30
</TABLE>
CYMER is a registered trademark of Cymer, Inc.
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AN ASTERISK ("*") DENOTES A FORWARD-LOOKING STATEMENT REFLECTING
CURRENT EXPECTATIONS THAT INVOLVE RISKS AND UNCERTAINTIES. ACTUAL RESULTS MAY
DIFFER MATERIALLY FROM THOSE DISCUSSED IN SUCH FORWARD-LOOKING STATEMENTS, AND
STOCKHOLDERS OF CYMER, INC. (TOGETHER WITH ITS WHOLLY-OWNED AND MAJORITY-OWNED
SUBSIDIARIES COLLECTIVELY "CYMER") SHOULD CAREFULLY REVIEW THE CAUTIONARY
STATEMENTS SET FORTH IN THIS FORM 10-K, INCLUDING "RISK FACTORS" BEGINNING ON
PAGE 18 HEREOF. CYMER MAY FROM TIME TO TIME MAKE ADDITIONAL WRITTEN AND ORAL
FORWARD-LOOKING STATEMENTS, INCLUDING STATEMENTS CONTAINED IN CYMER'S FILINGS
WITH THE SECURITIES AND EXCHANGE COMMISSION AND IN ITS REPORTS TO STOCKHOLDERS.
CYMER DOES NOT UNDERTAKE TO UPDATE ANY FORWARD-LOOKING STATEMENT THAT MAY BE
MADE FROM TIME TO TIME BY OR ON BEHALF OF CYMER.
PART I
ITEM 1. BUSINESS
GENERAL
Cymer is the world's leading supplier of excimer laser illumination
sources, the essential light source for deep ultraviolet (DUV) photolithography
systems used in the manufacture of semiconductors. DUV lithography is a key
enabling technology that has allowed the semiconductor industry to meet the
exacting specifications and manufacturing requirements for volume production of
today's most advanced semiconductor devices. Cymer'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.
Cymer believes that its excimer lasers constitute a substantial majority of all
excimer lasers incorporated in DUV photolithography tools. Cymer's customers
include all five manufacturers of DUV photolithography systems: ASM Lithography,
Canon, Nikon, SVG Lithography and Ultratech Stepper. Photolithography systems
incorporating Cymer's excimer lasers have been purchased by each of the world's
20 largest semiconductor manufacturers: AMD, Fujitsu, Hitachi, Hyundai, IBM,
Infineon, Intel, Lucent, Matsushita, Micron, Mitsubishi, Motorola, NEC, Philips,
Rohm, Samsung, Sanyo, ST Microelectronics, Texas Instruments, and Toshiba.
PRODUCTS
Cymer's products consist of photolithography lasers, replacement parts
and service.
PHOTOLITHOGRAPHY LASER PRODUCTS
Cymer's photolithography lasers produce narrow bandwidth pulses of
short wavelength light. The lasers permit very fine feature resolution and high
throughput. Cymer has designed its lasers to be highly reliable, easy to install
and compatible with existing semiconductor manufacturing processes.
5000 SERIES - The 5000 Series lasers are 1000Hz solid state pulse power
krypton flouride (KrF) 248nm excimer lasers engineered using modular
construction. Enabling higher device yields by delivering improved energy
stability, they are designed specifically for use in manufacturing
semiconductors with 0.25um and smaller design rule features. This series
includes three models:
ELS-5000 - Providing 10W of output power, this KrF laser is
used with optical designs requiring bandwidths less than
0.8pm, in stepper and scanner applications.
EX-5000 - With 15W of output power, this model is used for
scanner applications with catadioptric lens designs.
ELS-5010 - Designed for the next generation of steppers and
scanners with numerical apertures as high as 0.7. The
ELS-5010 provides 10W of output power, controls bandwidth
to less than 2.0pm, 95% energy integral, and integrated
energy stability to less than +-0.6% in a 40 pulse window.
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6000 SERIES - The ELS-6000 is a 2000Hz repetition rate, KrF 248nm
excimer laser enabling 0.18um and below integrated circuit (IC) production.
This laser addresses next-generation lithography applications with 0.7
numerical aperture lens design. The ELS-6000 provides 20 watts of output
power, controls bandwidth to less than equal to 2.0pm, 95% energy integral,
and integrated energy stability to less than plus or minus 0.5% in a 32 pulse
window. The higher repetition provides better dose control in stepper
applications, and enables improved exposure uniformity in scanner
applications and significant improvement in wafer throughput for both stepper
and scanner lithography tools.
Cymer's lasers incorporate advanced software control and diagnostic
systems. The control system provides users with on-line monitoring of laser
operating conditions, with approximately 129 diagnostic readings (including flow
rate, temperatures, pressures and light quality), that are automatically
monitored by the photolithography tool's control system. Additionally,
approximately 262 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.
Cymer continues to develop, and offer for sale to its customers, its
next generation argon flouride (ArF) excimer laser. The ArF laser incorporates
the advanced technological features and modular design of the 5000 series lasers
providing power output of 5 watts of 193nm wavelength light. Cymer believes its
ArF laser will be capable of producing critical feature sizes below 0.10
microns.*
REPLACEMENT PARTS
Certain components and subassemblies included in Cymer's lasers require
replacement or refurbishment following continued operation. For example, the
discharge chamber of Cymer's lasers has an expected life of approximately one to
five billion pulses, depending on the model. Cymer estimates that a laser used
in a semiconductor production environment will require one to two replacement
chambers per year. Similarly, certain optical components of the laser
deteriorate with continued exposure to DUV light and require periodic
replacement. Cymer provides these and other spare and replacement parts for its
photolithography lasers as needed by its customers. On a limited basis, Cymer
also refurbishes and resells complete laser systems.
SERVICE
As Cymer's installed base of lasers in production at chipmakers exceeds
the original warranty periods, some chipmakers request service contracts from
Cymer. Additionally, Cymer provides service contracts directly to semiconductor
equipment manufacturers. These contracts require Cymer to maintain and/or
service these lasers either on an on-call or regular interval basis or both.
CUSTOMERS AND END USERS
Cymer sells its photolithography laser products to each of the five
manufacturers of DUV photolithography tools:
ASM Lithography Nikon Ultratech Stepper
Canon SVG Lithography
Cymer believes that maintaining and strengthening customer
relationships will play an important role in maintaining its leading position in
the photolithography market. Cymer works closely with its customers to integrate
Cymer's products into their photolithography tools and is collaborating with
certain of its customers on advanced technology developments under jointly
funded programs. Sales to ASM Lithography, Canon and Nikon accounted for 33%,
17% and 24%, respectively, of total revenue in 1999.
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End users of Cymer's lasers include the world's 20 largest
semiconductor manufacturers. The following semiconductor manufacturers have
purchased one or more DUV photolithography tools incorporating Cymer's lasers:
<TABLE>
<CAPTION>
UNITED STATES JAPAN TAIWAN/SOUTHEAST ASIA
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<S> <C> <C>
Advanced Micro Devices ASET Acer Semiconductor
Atmel Epson Chartered Semiconductor
Agilent Fujitsu ERSO
Conexant Systems Hitachi HNS
Cypress KTM Macronix
Dominion Semiconductor Matsushita Mosel
IBM Mitsubishi Electric Nan-Ya
Integrated Device Technology NEC ProMOS
Intel Nippon Foundry Tech Semiconductor
LSI Logic Corp. Oki Electric TSMC
Lucent/Cirent Rohm UMC Group
Maxim Integrated Products Sanyo Vanguard International
Micron Technology Sharp Winbond Group
Micrus Sony
Motorola ToHoku Semicon
National Semiconductor Toshiba
SEMATECH +
Texas Instruments
VLSI
White Oak
KOREA EUROPE
- ----- ------
Anam-TI C-NET
ETRI IMEC
Hyundai Infineon Technologies
Samsung LETI
Philips
ST Microelectronics
</TABLE>
BACKLOG
Cymer schedules production of lasers based upon order backlog and
informal customer forecasts. Cymer 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, Cymer's backlog as of any particular
date may not be a reliable indicator of actual sales for any succeeding period.
At December 31, 1999, Cymer had a backlog of approximately $102.7 million
compared with a backlog of $37.3 million at December 31, 1998.
MANUFACTURING
Cymer's manufacturing activities consist of material management,
assembly, integration and testing. These activities are performed in a 113,000
square foot facility in San Diego, California that includes approximately 31,000
square feet of class 1000 clean room manufacturing and test space. In order to
focus its own resources, capitalize on the expertise of its key suppliers and
respond more
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+ A semiconductor industry consortium.
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efficiently to customer demand, Cymer has outsourced many of its subassemblies.
Cymer's outsourcing strategy is exemplified by the modular design of Cymer's
5000 and 6000 series lasers, for which substantially all of the nonproprietary
subassemblies have been outsourced. Cymer believes that the highly outsourced
content and manufacturable design of the 5000 and 6000 series lasers allows for
reduced manufacturing cycle times and increased output per employee.
To meet current and anticipated demand for its products, Cymer must
continue to increase the rate by which it manufactures and tests modules, spares
and replacement parts for its photolithography laser systems. In order to
accomplish this objective, Cymer intends to continue to provide additional
training to manufacturing personnel, improve its assembly and test processes in
order to reduce cycle time, invest in additional manufacturing tooling and
further develop its supplier management and engineering capabilities.* Cymer 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 Cymer's manufacturing schedules. The failure by one or more of
these suppliers to supply Cymer on a timely basis with sufficient quantities of
components or subassemblies that perform to Cymer's specifications could affect
Cymer's ability to deliver completed lasers to its customers on schedule.
In addition to the manufacturing capacity at its facilities in San
Diego, California, Cymer has qualified Seiko Instruments, Inc. ("Seiko") of
Japan as a contract manufacturer of its photolithography excimer lasers. In
order to ensure uniformity of product for all customers, Cymer maintains control
of all work flow design, manufacturing processes, engineering changes and
component sourcing decisions. Cymer manufactures and seals all core technology
modules in San Diego. The contract manufacturing agreement expires in 2001, but
will automatically renew every two years thereafter, unless one year's notice to
terminate is given by either party. Seiko began production of lasers for Cymer
in the first quarter of 1997.
Certain of the components and subassemblies included in Cymer'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 Cymer's lasers. In addition, Cymer is increasingly outsourcing the
manufacture of various subassemblies. To date Cymer has been able to obtain
adequate supplies of the components and subassemblies used in the production of
Cymer's laser systems in a timely manner from existing sources. If in the future
Cymer is unable to obtain sufficient quantities of required materials,
components or subassemblies, or if such items do not meet Cymer's quality
standards, delays or reductions in product shipments could occur which could
have a material adverse effect on Cymer's business, financial condition and
results of operations.
SALES AND MARKETING
Cymer's sales and marketing efforts have been predominately focused on
DUV photolithography tool manufacturers. Cymer markets and sells its products
through its own worldwide direct sales force. Cymer is in the process of
developing product and applications engineering teams to support the account
managers and Cymer's customers. Cymer believes that to facilitate the sales
process it must work closely with and understand the requirements of
semiconductor manufacturers, the end users of Cymer's products. Cymer visits
major semiconductor manufacturers, and their representatives attend
Company-sponsored seminars on advanced excimer photolithography. In Japan, Cymer
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
Cymer believes its success in the semiconductor photolithography market
is highly dependent upon after-sales support of both the customer and the end
user. Cymer 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,
Cymer's support personnel
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typically assist the customer in site preparation and inspection and provide
customers with training at Cymer'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.
Cymer's field engineers and technical support specialists are based at
its San Diego headquarters, and at its field service offices in Santa Clara,
California, in Austin, Texas, and near Boston, Massachusetts. Support in Europe,
Japan, Korea, Singapore and Southeast Asia are provided by Cymer's subsidiaries
located within those regions. As part of its customer service, Cymer maintains
an inventory of spare parts at each of its service facilities. As Cymer's
installed base grows so does the demand for replacement parts to satisfy
worldwide support requirements for direct customers' support organizations, as
well as Cymer's own logistics organization. In order to meet this demand, Cymer
must continue to expand its production of component modules which are required
for new systems as well as for support and warranty requirements.
Cymer 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, Cymer believes it is essential to establish, through its own
personnel or through trained third party sources, a rapid response capability to
service its customers throughout the world. Accordingly, Cymer intends to
continue its expansion of the direct support infrastructure in Japan, Korea,
Taiwan and Southeast Asia, Singapore and Europe.* The establishment of these
activities will entail recruiting and training qualified personnel or
identifying qualified independent firms and building effective and highly
trained organizations that can provide service to customers in various countries
in their assigned regions. There can be no assurance that Cymer 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 Cymer's business,
financial condition and results of operations.
Cymer generally warrants its new laser products against defects in
design, materials and workmanship for the earlier to occur of between 17 and 25
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. Cymer believes that continued and
timely development and introduction of new and enhanced laser products are
essential for Cymer to maintain its competitive position. Cymer intends to
continue to develop its technology and innovative products to meet customer
demands.* Current projects include enhancements to Cymer's KrF and ArF lasers
and the development of the next generation of photolithography 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.
Cymer 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.* Research and development
expenses for 1997, 1998 and 1999 were approximately $25.0 million, $30.2 million
and $34.5 million, respectively.
In addition to funding its own research and development projects, Cymer
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 Cymer's core
technology. Revenues generated from research and development contracts amounted
to approximately $2.5 million, $313,000, and $399,000 during 1997, 1998, and
1999, respectively.
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INTELLECTUAL PROPERTY RIGHTS
Cymer 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 ability, than on patents,
copyrights, trade secrets and other intellectual property rights. Nevertheless,
the success of Cymer may depend in part on patents and as of December 31, 1999,
Cymer owned 61 United States patents covering certain aspects of technology
associated with excimer lasers which expire from January 2008 to October 2018
and had applied for 75 additional patents in the United States, 3 of which had
been allowed. As of December 31, 1999, Cymer also owned 37 foreign patents and
had filed 218 patent applications in various foreign countries. There can be no
assurance that Cymer'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 Cymer's ability to do business. In
this regard, due to cost constraints, Cymer 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 1993 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 Cymer will adequately protect Cymer's
proprietary information. Furthermore, there can be no assurance that others will
not independently develop similar products, duplicate Cymer's products or, if
patents are issued to Cymer, design around the patents issued to Cymer.
Others may have filed and in the future may file patent applications
that are similar or identical to those of Cymer. To determine the priority of
inventions, Cymer may have to participate in interference proceedings declared
by the United States Patent and Trademark Office that could result in
substantial cost to Cymer. No assurance can be given that any such patent
application will not have priority over patent applications filed by Cymer.
Cymer 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 Cymer's trade secrets or disclose such technology or that Cymer
can meaningfully protect its trade secrets.
Cymer 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 in connection with the
design and development of specific products. Although Cymer'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 Cymer, there can be no assurance that disputes over the ownership
or rights to use or market such intellectual property will not arise between
Cymer and such parties. Any such dispute could result in restrictions on Cymer's
ability to market its products and could have a material adverse effect on
Cymer's business, financial condition and results of operations.
Third parties have in the past notified, and may in the future notify,
Cymer that it may be infringing their intellectual property rights. Conversely,
Cymer has in the past notified, and may in the future notify, third parties that
they may be infringing on Cymer's intellectual property rights.
Specifically, Cymer has engaged in discussions with one of its
competitors, Komatsu, Ltd ("Komatsu") with respect to certain of Komatsu's
Japanese patents, in the course of which Komatsu has also identified to Cymer a
number of additional Japanese patents that Komatsu asserts may be infringed by
Cymer and Cymer's Japanese manufacturing partner, Seiko. Cymer, in consultation
with Japanese patent counsel, has initiated oppositions to certain Komatsu
Japanese patents and patent applications in the Japanese Patent Office. To date,
one of these oppositions has been dismissed. Litigation might ensue with respect
to the Komatsu Japanese patents. Also, Komatsu might assert infringement claims
under additional patents. Komatsu has notified Seiko that Komatsu intends to
enforce its rights under
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the Komatsu Japanese patents against Seiko if Seiko engages in manufacturing
activities for Cymer. In connection with its manufacturing agreement with Seiko,
Cymer has agreed to indemnify Seiko against such claims under certain
circumstances. Cymer and Seiko might not ultimately prevail in any such
litigation.
Cymer has also asserted certain of its U.S. patents against Komatsu
when informed that Komatsu lasers might be integrated into steppers intended
for shipment into the U.S. Cymer and Komatsu are currently engaged in
discussions with regard to each party's claims. Those discussions might not
be successful and litigation could result. Attorneys representing Komatsu are
currently challenging one of Cymer's U.S. patents in the U.S. Patent Office.
Any patent litigation, by or against Cymer, would, at a minimum, be
costly. Litigation could also divert the efforts and attention of Cymer's
management and technical personnel. Both could have a material adverse effect on
Cymer's business, financial condition and results of operations. Furthermore, in
the future other third parties might assert other infringement claims, and
customers and end users of Cymer's products might assert other claims for
indemnification resulting from infringement claims. Such assertions, if proven
to be true, might materially adversely affect Cymer's business, financial
condition and results of operations. If any such claims are asserted against
Cymer, Cymer may seek to obtain a license under the third party's intellectual
property rights. However, such a license might not be available on reasonable
terms or at all. Cymer 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 Cymer's
management and technical personnel, which would materially adversely affect
Cymer's business, financial condition and results of operations.
Effective August 1, 1989 and lasting until the expiration of the
licensed patents, Cymer entered into an agreement for a nonexclusive worldwide
license to use or sell certain patented laser technology with Patlex Corp., a
patent holding company ("Patlex"). Under the terms of the agreement, Cymer is
required to pay royalties ranging from 0.25% to 5.0% of gross sales and leases
of its lasers, subject to an annual cap of $100,000 per year. During 1997, 1998
and 1999, royalty fees totaled $49,000, $100,000, and $100,000, respectively.
Cymer has granted Seiko the exclusive right in Japan and the
non-exclusive right outside of Japan to manufacture and sell Cymer's industrial
high power laser and subsequent enhancements thereto. Cymer has also granted
Seiko a right of first refusal to fund Cymer's development of, and receive a
license to, new industrial laser technologies not developed with funding from
other parties. In exchange for these rights, Cymer received up-front license
fees of $3.0 million during 1992 and 1993. Cymer was also entitled to royalties
of 5% on related product sales through September 1999, after which the royalty
rate is subject to renegotiation. Through 1999, Cymer earned no royalties under
the agreement. The license agreement also provides that product sales between
Cymer and Seiko will be at a 15% discount from the respective companies' list
prices. The agreement terminates in August 2012.
COMPETITION
Cymer believes that the principal elements of competition in Cymer's
markets are the technical performance characteristics of the excimer laser
products and the operating efficiency of the system, which is based on
availability, performance efficiency and rate of quality. Cymer believes that it
competes favorably with respect to these factors.
Cymer currently has three competitors in the market for excimer laser
systems for photolithography applications, Lambda-Physik ("Lambda-Physik"), a
German-based subsidiary of Coherent, Inc., and Komatsu, Ltd. and Ushio, both
located in Japan. All of these companies are larger than Cymer, have access to
greater financial, technical and other resources and are located in closer
proximity to Cymer's customers. Cymer believes that Lambda-Physik and Komatsu
are aggressively seeking to gain larger positions in the market. Cymer believes
that its customers have each purchased products offered by these competitors and
that its customers have qualified these competitors' lasers for use with at
least some of their products. As competitors successfully qualify their lasers
for use with
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chipmakers, Cymer could lose market share and its growth could slow or even
decline. In the future, Cymer will likely experience competition from
post-optical technologies, such as EUV and scalpel processes. To remain
competitive, Cymer believes that it will be required to manufacture and deliver
products to customers on a timely basis and without significant defects and that
it will also be required to maintain a high level of investment in research and
development and sales and marketing. There can be no assurance that Cymer will
have sufficient resources to continue to make the investments necessary to
maintain its competitive position. 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 for
excimer lasers. There can be no assurance that Cymer will remain competitive.
A failure to remain competitive would have a material adverse effect on Cymer's
business, financial condition and results of operations. See "Risk
Factors--Competition."
EMPLOYEES
On December 31, 1999, Cymer employed 767 persons, including 71 in
Japan. No employees are currently covered by collective bargaining agreements or
are members of any labor organization as far as Cymer is aware. Cymer has not
experienced any work stoppages and believes that its employee relations are
good.
EXECUTIVE OFFICERS
Set forth below is certain information regarding the executive officers
of Cymer and their ages as of December 31, 1999.
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NAME AGE POSITION
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<S> <C> <C>
Robert P. Akins....................... 48 Chairman of the Board, Chief Executive Officer and President
William A. Angus, III................. 53 Senior Vice President, Chief Financial Officer and Secretary
Pascal Didier......................... 41 Senior Vice President, Worldwide Customer Operations
Edward "Ted" Holtaway................. 44 Senior Vice President, Process Quality
Wallace Breitman...................... 60 Vice President, Human Resources
</TABLE>
ROBERT P. AKINS, a co-founder of Cymer, has served as its President,
Chief Executive Officer and Chairman of the Board since its inception in January
1986. From 1980 to 1985, Mr. 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 compact excimer lasers for military communications
applications and an excimer laser trigger for the particle beam fusion
accelerator at Sandia National Laboratories. Mr. 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 as Secretary of Cymer 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.
PASCAL DIDIER has served as Senior Vice President, Worldwide Customer
Operations since October 1997. From July 1997 to October 1997, he served as Vice
President, Marketing and Sales. From June 1996 to July 1997, Mr. Didier was Vice
President of Worldwide Sales & Field Operations, and from June 1995 to June
1996, Vice President of Asia/Pacific of GaSonics International, a supplier of
capital equipment for photoresist removal and isotropic etching for the
semiconductor industry. From 1983 to 1995, Mr. Didier served in various
marketing and management positions at Megatest
8
<PAGE>
Corporation, a supplier of test equipment for the semiconductor industry. From
June 1993 to June 1995, he was Megatest's Vice President of International
Operations, from June 1990 to June 1993, Director of International Operations,
from July 1989 to June 1990, a Software Marketing Manager and from 1983 to 1989,
European Technical Manager. Mr. Didier received a Bacalaureate in Business and
Administration in 1978 from College de Paris and a Bacalaureate Superieur in
1979 from Electronique Institut Universitaire de Lyon.
EDWARD "TED" HOLTAWAY has served as Senior Vice President, Process
Quality since July 1998. He joined Cymer in April 1998 as Vice President of
Process Quality. Prior to that, Mr. Holtaway spent 13 years with San Diego-based
Brooktree Corp., a fabless semiconductor company acquired by Rockwell
Semiconductor Systems in September of 1996. During his tenure at Brooktree, Mr.
Holtaway's executive posts included: Vice President of Corporate Quality from
1989 to 1995; Vice President and Managing Director of Brooktree's Singapore
operations from 1995 to 1996; and most recently, Director of Rockwell's San
Diego operations from 1997 to 1998. Mr. Holtaway received a B.S. in Electrical
Engineering from the New Jersey Institute of Technology, an M.S. in Electrical
Engineering from the Polytechnic Institute of New York, and an M.B.A. from San
Diego State University.
WALLACE BREITMAN has served as Vice President of Human Resources and
Administration since April 1999. Prior to joining Cymer, Mr. Breitman was Vice
President, Human Resources from June 1995 to March 1999 for Walker, Inc., a
manufacturer of financial application software. From February 1994 to May 1995
and from October 1990 to September 1992, he was Director of Human Resources for
Megatest, Inc., now a division of Teradyne, a semiconductor capital equipment
company. From September 1992 to February 1994, Mr. Breitman was Director of
Human Resources for Wind River Systems, Inc. Mr. Breitman received a B.A and
M.A. from New York University in 1961 and 1963, respectively.
Executive officers serve at the discretion of the Board of Directors.
There are no family relationships between any of the directors and executive
officers of Cymer.
ITEM 2. PROPERTIES
Cymer's corporate headquarters, manufacturing, engineering and R&D
facilities are located in San Diego, California housed in multiple buildings
totaling approximately 250,815 square feet. All building facilities are leased
by Cymer under leases expiring between August 2002 and January 2010. In August
1999, Cymer began construction of a 135,000 square foot office and laboratory
facility on 5.98 acres of land that it purchased in February 1999 adjacent to
its current facilities. With the completion of this facility, which is expected
to occur in the fourth quarter of 2000, Cymer is planning to consolidate its San
Diego operations into three adjacent buildings totaling 293,145 square feet.*
For use as field service offices, Cymer also leases a 400 square foot facility
near Boston, Massachusetts under a lease expiring September 1, 2000, a 1,857
square foot facility in Santa Clara, California under a lease expiring September
2000, and a 1,627 square foot facility in Austin, Texas under a lease expiring
September 2000. For use as field service and sales offices, Cymer leases: 13,831
square feet of facilities in Ichikawa, Japan under a renewable two year lease
expiring in June 2000; 807 square feet in Osaka Japan under a lease expiring in
December 2000; 4,184 square feet in Pundang, Korea under a lease expiring August
2004; 4,821 square feet in Hsin Chu, Taiwan under a lease expiring June 2004;
1,866 square feet in United Square, Singapore under a lease expiring in May
2000; and 3,715 square feet in Maarssen, The Netherlands under a lease expiring
in May 2004. Cymer intends to add additional field service offices as necessary
to service and support its customers.
ITEM 3. LEGAL PROCEEDINGS
Cymer has been named as a defendant in several putative shareholder
class action lawsuits which were filed in September and October, 1998 in the
U.S. District Court for the Southern District of California. Certain executive
officers and directors of Cymer are also named as defendants. The plaintiffs
purport to represent a class of all persons who purchased Cymer's Common Stock
between
9
<PAGE>
April 24, 1997 and September 26, 1997 (the "Class Period"). The complaints
allege claims under the federal securities laws. The plaintiffs allege that
Cymer and the other defendants made various material misrepresentations and
omissions during the Class Period. The complaints do not specify the amount of
damages sought. The complaints have been consolidated into a single action and a
class representative has been appointed by the court. A consolidated amended
complaint was filed in early August, 1999. On November 5, 1999 Cymer and the
other defendants filed a motion to dismiss the consolidated amended claim for
failure to state a cause of action. No ruling on the motion has yet been made by
the court. Discovery has not yet commenced. Cymer believes that it has good
defenses to the claims alleged in the lawsuits and will defend itself vigorously
against these actions. The defense of these actions may cause some disruption in
Cymer's operations and may from time to time distract management from day-to-day
operations. The ultimate outcome of these actions cannot be presently
determined. Accordingly, no provision for any liability or loss that may result
from adjudication or settlement thereof has been made in the accompanying
consolidated financial statements.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY-HOLDERS
No matters were submitted to a vote of the security holders of Cymer
during the fourth quarter of the fiscal year ended December 31, 1999.
10
<PAGE>
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS
Cymer's Common Stock is publicly traded on the Nasdaq National Market
under the symbol "CYMI". The following table sets forth, for the periods
indicated, the high and low closing sales prices of Cymer's Common Stock as
reported by the Nasdaq National Market.
<TABLE>
<CAPTION>
Year ended December 31, 1998 HIGH LOW
------------------- ------------------
<S> <C> <C>
First quarter $22 9/16 $14 7/8
Second quarter $27 1/2 $14 7/8
Third quarter $18 5/8 $8 1/2
Fourth quarter $19 1/4 $6 1/2
Year ended December 31, 1999
First quarter $29 3/8 $16
Second quarter $25 $16 3/8
Third quarter $38 1/8 $24 9/16
Fourth quarter $47 11/16 $30 9/16
</TABLE>
The closing sales price of Cymer's Common Stock on the Nasdaq National Market
was $55 on March 22, 2000 and there were 332 registered holders of record as
of that date.
Cymer has never declared or paid cash dividends on its Common Stock and
currently does not anticipate paying cash dividends in the foreseeable future.*
ITEM 6. SELECTED FINANCIAL DATA
The following selected consolidated financial data should be read in
conjunction with Cymer'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 Annual Report on Form 10-K.
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
---------------------------------------------------------------
1995 1996 1997 1998 1999
----------- ----------- ----------- ----------- -----------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF INCOME DATA:
Revenues:
Product sales $15,576 $62,510 $201,191 $184,828 $220,051
Other 3,244 2,485 2,456 313 399
----------- ----------- ----------- ----------- -----------
Total revenues 18,820 64,995 203,647 185,141 220,450
----------- ----------- ----------- ----------- -----------
Costs and expenses:
Cost of product sales 8,786 35,583 123,654 125,713 143,105
Research and development 6,154 11,742 24,971 30,152 34,518
Sales and marketing 2,353 5,516 11,992 14,528 16,742
General and administrative 1,181 4,270 8,586 9,487 13,101
----------- ----------- ----------- ----------- -----------
Total costs and expenses 18,474 57,111 169,203 179,880 207,466
----------- ----------- ----------- ----------- -----------
Operating income 346 7,884 34,444 5,261 12,984
</TABLE>
11
<PAGE>
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------------------------------------------
1995 1996 1997 1998 1999
----------- ------------ ----------- ----------- ------------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
Other income (expense) - net (241) (183) 112 (3,568) (3,748)
----------- ------------ ----------- ----------- ------------
Income before income tax (provision) benefit
and minority interest 105 7,701 34,556 1,693 9,236
Income tax (provision) benefit (36) (1,191) (8,639) 1,250
Minority interest 141 (420) (663)
----------- ------------ ----------- ----------- ------------
Net income $69 $6,510 $26,058 $2,523 $8,573
=========== ============ =========== =========== ============
Basic earnings per share (1) (3) $0.33 $0.92 $0.09 $0.31
============ =========== =========== ============
Weighted average common shares outstanding (1) (3) 19,868 28,212 28,226 27,907
Diluted earnings per share (1) (3) $0.29 $0.86 $0.09 $0.29
============ =========== =========== ============
Weighted average common and potential
shares outstanding (1) (3) 22,420 30,267 29,566 29,640
============ =========== =========== ============
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------------------------------------------
1995 1996 1997 1998 1999
----------- ------------ ----------- ----------- ------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Cash and cash equivalents $2,015 $55,405 $51,903 $53,130 $75,765
Working capital 3,845 84,743 202,539 198,645 213,121
Total assets 15,619 129,467 386,119 364,318 426,821
Total debt (2) 4,164 2,217 176,066 175,924 175,771
Redeemable convertible preferred stock 28,409
Treasury stock (24,871) (24,871)
Stockholders' equity (deficit) (21,830) 98,820 125,779 106,531 126,893
</TABLE>
(1) See Note 1 of Notes to Consolidated Financial Statements for an explanation
of the determination of shares used in computing earnings per share.
(2) Total debt includes indebtedness for convertible subordinated notes, and
capital lease obligations.
(3) Earnings per share data has not been presented for 1995 as significant
business developments, including Cymer's initial public offering, occurred
subsequent to this year.
12
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
The following table sets forth certain items in Cymer's statements of
income as a percentage of total revenues for the periods indicated:
<TABLE>
<CAPTION>
1997 1998 1999
-------------- -------------- --------------
<S> <C> <C> <C>
Revenues:
Product sales 98.8 % 99.8 % 99.8 %
Other 1.2 .2 .2
-------------- -------------- --------------
Total revenues 100.0 100.0 100.0
Cost and expenses:
Cost of product sales 60.7 67.9 64.9
Research and development 12.3 16.3 15.7
Sales and marketing 5.9 7.9 7.6
General and administrative 4.2 5.1 5.9
-------------- -------------- --------------
Total costs and expenses 83.1 97.2 94.1
Operating income 16.9 2.8 5.9
Other income (expense) - net .1 (1.9) (1.7)
-------------- -------------- --------------
Income before income tax (provision) benefit
and minority interest 17.0 0.9 4.2
Income tax (provision) benefit (4.3) 0.7
Minority interest .1 (0.2) (0.3)
-------------- -------------- --------------
Net income 12.8 % 1.4 % 3.9 %
============== ============== ==============
Gross margin on product sales 38.5 % 32.0 % 35.0 %
============== ============== ==============
</TABLE>
YEARS ENDED DECEMBER 31, 1998 AND 1999
REVENUES. Cymer's total revenues consist of product sales, which
include sales of laser systems, spare parts, service and training. Other
revenues primarily include revenue 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 for costs to complete
the development project.
Product sales increased 19% from $184.8 million in 1998 to $220.1 million
in 1999, due to a 61% increase in the sale of replacement parts and service for
lasers in Cymer's installed chipmaker base as the semiconductor industry made a
major recovery during 1999. Additionally, higher average selling prices for new
systems and the sale of upgrade packages to the installed base also contributed
to revenue growth. A total of 341 laser systems were sold in 1998 compared to
302 laser systems in 1999. The decrease was primarily attributable to inventory
management by Cymer's direct customers as well
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<PAGE>
as market share gains of competitors. Funded development revenues increased from
$313,000 for 1998 to $399,000 for 1999, primarily due to the timing of the
completion of certain programs.
Cymer's sales are generated primarily by shipments to customers in Japan,
The Netherlands, and the United States. Approximately 88% and 85% of the
Company's sales in 1998 and 1999, respectively, were derived from customers
outside the United States. Cymer maintains a wholly-owned Japanese subsidiary
which sells to Cymer's Japanese customers. Revenues from Japanese customers,
generated primarily by this subsidiary, accounted for 48% and 37% of revenues in
1998 and 1999, respectively. The activities of Cymer'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 Cymer's products,
including costs of shipment to Japan, are recorded on the books of the parent
company. Cymer anticipates that international sales will continue to account for
a significant portion of its net sales.*
COST OF PRODUCT SALES. Cost of product sales includes direct material and
labor, warranty expenses, license fees, manufacturing and service overhead, and
foreign exchange gains and losses on foreign currency exchange contracts
associated with purchases of Cymer's products by the Japanese subsidiary for
resale under firm third-party sales commitments.
Cost of product sales rose 14% from $125.7 million in 1998 to $143.1
million in 1999 primarily in response to the increase in product sales. The
gross margin on these sales increased from 32.0% in 1998 to 35% in 1999
primarily due to the increased volume of shipments absorbing fixed costs of
production. Charges related to obsolete inventory remained consistent between
1998 and 1999.
Net gains or losses from foreign currency exchange contracts are included
in cost of product sales in the consolidated statements of income as the related
sales are recognized. Cymer recognized a net gain on such contracts of $4.5
million for the year ended December 31, 1998 and a $3.0 million net loss for the
year ended December 31, 1999.
RESEARCH AND DEVELOPMENT. Research and development expenses include costs
of internally-funded and externally-funded projects as well as continuing
research support expenses which primarily include employee and material costs,
depreciation of equipment and other engineering related costs. Research and
development expenses increased 14% from $30.2 million in 1998 to $34.5 million
in 1999, due primarily to increased product improvement efforts associated with
the release of Cymer's 6000 series lasers, and the continued development of new
laser products. As a percentage of total revenues, such expenses fell from 16.3%
to 15.7% in the respective periods due to the increase in Cymer's revenues as
well as the increase in development expenditures throughout 1999. Cymer expects
that research and development expenses will increase in absolute dollars but not
as a percentage of revenue in 2000 as Cymer continues to invest in the
development of new products and product enhancements.*
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 15% from $14.5 million in 1998 to $16.7
million in 1999, due primarily to increased product management and sales support
efforts and marketing infrastructure activities developed over the period. As a
percentage of total revenues, such expenses decreased slightly from 7.9% to 7.6%
as revenues increased from the prior year.
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 38% from $9.5 million in 1998 to $13.1 million in 1999. This was due
to ongoing process quality development efforts and costs, primarily outside
consultant compensation, to support an overall increase in Cymer's business
activities during the current year. As a percentage of total revenues, such
expenses increased from 5.1% to 5.9% in the respective periods.
OTHER INCOME (EXPENSE)- NET. Net other income (expense) consists primarily
of interest income and expense and foreign currency exchange gains and losses
associated with the fluctuations in the value of
14
<PAGE>
the Japanese yen against the United States dollar. Net other expense of $3.6
million in 1998 remained consistent with net other expense of $3.7 million in
1999 given comparable investment and debt balance between the years.
Cymer's results of operations are subject to fluctuations in the value of
the Japanese yen against the United States dollar. Sales by Cymer to its
Japanese subsidiary are denominated in dollars, and sales by the subsidiary to
customers in Japan are denominated in yen. Cymer's Japanese subsidiary manages
its exposure to such fluctuations by entering into foreign currency exchange
contracts to hedge its purchase commitments to Cymer. The gains or losses from
these contracts are recorded as a component of cost of product sales, while the
remaining foreign currency exposure is recorded as other income (expense) in the
consolidated statements of income. Gains and losses resulting from foreign
currency translation are accumulated as a separate component of consolidated
stockholders' equity.
PROVISION FOR INCOME TAXES. The tax benefit of $1.3 million reported in
1998 was primarily attributed to tax credits and permanent differences between
taxable income and book income which resulted in a negative effective tax rate
for the year. For 1999 the effective tax rate was zero, primarily due to the tax
benefits received from Cymer's foreign sales corporation and U.S. tax credits.
YEARS ENDED DECEMBER 31, 1997 AND 1998
REVENUES. Product sales decreased 8% from $201.2 million in 1997 to $184.8
million in 1998, primarily due to lower sales of DUV photolithography laser
systems. A total of 460 laser systems were sold in 1997 compared to 341 laser
systems in 1998. The decrease was primarily attributable to the overall market
decline in the semiconductor industry during 1998. Funded development revenues
declined from $2.5 million for 1997 to $313,000 for 1998, primarily due to
completion of larger laser research projects sponsored by SEMATECH.
Cymer's sales are generated primarily by shipments to customers in Japan,
The Netherlands, and the United States. Approximately 89% and 88% of the
Company's sales in 1997 and 1998, respectively, were derived from customers
outside the United States. Cymer maintains a wholly-owned Japanese subsidiary
which sells to Cymer's Japanese customers. Revenues from Japanese customers,
generated primarily by this subsidiary, accounted for 65% and 48% of revenues in
1997 and 1998, respectively. The activities of Cymer'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 Cymer's products,
including costs of shipment to Japan, are recorded on the books of the parent
company.
COST OF PRODUCT SALES. Cost of product sales rose 2% from $123.7 million in
1997 to $125.7 million in 1998 primarily due to additional inventory
obsolescence reserves recognized during the fourth quarter of 1998 offset by
lower sales volume in 1998. The gross margin on these sales decreased from 38.5%
in 1997 to 32.0% in 1998 primarily due to a $5.8 million obsolete inventory
reserve associated with the accelerated customer acceptance of the 5010 series
lasers over the 5000 series lasers, and an increase in foreign field support
overhead costs as Cymer continued to build its worldwide field support
infrastructure in Japan, Singapore, Europe, Korea and Southeast Asia in order to
provide fast and responsive service to the semiconductor manufacturers.
Net gains or losses from foreign currency exchange contracts are included
in cost of product sales in the consolidated statements of income as the related
sales are recognized. Cymer recognized net gains on such contracts of $5.8
million and $4.5 million for the years ended December 31, 1997 and 1998,
respectively.
RESEARCH AND DEVELOPMENT. Research and development expenses increased 21%
from $25.0 million in 1997 to $30.2 million in 1998, due primarily to increased
product improvement efforts associated with the release of Cymer's 5010 series
lasers, the ongoing development of the 6000 series laser, and the continued
development of new laser products. As a percentage of total revenues, such
15
<PAGE>
expenses rose from 12.3% to 16.3% in the respective periods due to the decline
in Cymer's revenues as well as the increase in development expenditures
throughout 1998.
SALES AND MARKETING. Sales and marketing expenses increased 21% from $12.0
million in 1997 to $14.5 million in 1998, due primarily to increased product
management and sales support efforts and marketing infrastructure activities
developed over the period. As a percentage of total revenues, such expenses rose
from 5.9% to 7.9% in the respective periods due to a decrease in overall
revenues from period to period as well as an increased focus on building a
worldwide sales and marketing team in 1998 and beyond.
GENERAL AND ADMINISTRATIVE. General and administrative expenses increased
10% from $8.6 million in 1997 to $9.5 million in 1998, due to ongoing process
quality development costs and an increase in general and administrative support
as Cymer's overall level of business activity increased. As a percentage of
total revenues, such expenses increased from 4.2% to 5.1% in the respective
periods.
OTHER INCOME (EXPENSE)- NET. Net other income (expense) decreased from
$112,000 of net other income for 1997 to $3.6 million of net other expense for
1998, primarily due to the increase in interest income associated with the
investment of excess cash and a foreign exchange gain in 1998 versus a net loss
in 1997, offset by a full year of interest expense associated with the
convertible subordinated notes in 1998. Foreign currency exchange loss totaled
$359,000, interest income totaled $5.3 million, and interest expense totaled
$4.8 million for 1997, compared to a foreign exchange gain of $692,000, interest
income of $7.4 million and interest expense of $11.6 million for 1998.
PROVISION FOR INCOME TAXES. The tax provision of $8.6 million in 1997 was
primarily attributable to the substantial growth in Cymer's pretax income
partially offset by the reduction of the deferred tax asset valuation allowance
carried over from 1996. The tax benefit of $1.3 million reported in 1998 was
primarily attributed to tax credits and permanent differences between taxable
income and book income which resulted in a negative effective tax rate for the
year.
LIQUIDITY AND CAPITAL RESOURCES
Since its initial public offering and a second public offering, both in
1996, Cymer has funded its operations primarily through a convertible
subordinated note offering on August 6, 1997, which generated $167.3 million in
net proceeds, bank borrowings, cash flow from operations and the proceeds from
employee stock option exercises. As of December 31, 1999, Cymer had
approximately $75.8 million in cash and cash equivalents, $97.6 million in
short-term investments, $19.8 million in long-term investments, $213.1 million
in working capital and $18.4 million in bank debt.
Net cash used for operating activities was approximately $17.3 million for
1997, whereas cash provided by operating activities was $23.2 million for 1998
and $46.8 for 1999, respectively. Cash used for operations in 1997 was primarily
attributable to increases in accounts receivable and inventory as the working
capital requirements of Cymer continued to increase due to the expansion of the
business during this period. Cash provided by operations in 1998 was primarily
due to increases in depreciation associated with the prior year's expansion
efforts, offset by decreases in accounts receivable. Cash provided by operations
in 1999 resulted from sustained depreciation and significant reductions in
current liabilities and an increase in net income offset by increases in
accounts receivable.
Net cash used for investing activities was approximately $153.6 million,
$5.7 million and $30.9 million in 1997, 1998 and 1999. Cash used for investing
activities during the periods ended December 31, 1997, 1998, and 1999 primarily
reflects the investment activity of funds received through the convertible
subordinated note offering in 1997 as well as the purchase of computer
equipment, test equipment, research and development tools, manufacturing process
machinery and tenant improvements for the field support organizations and
manufacturing facility in order to accommodate business expansion throughout the
periods.
16
<PAGE>
Cymer's financing activities provided net cash of approximately $167.3
million for 1997. In 1997, Cymer issued $172.5 million in convertible
subordinated notes with net costs of $5.2 million and, in addition, received
$2.1 million in net proceeds for the issuance of common stock and reduced bank
debt by $1.8 million. In 1998, Cymer's financing activities used net cash of
approximately $13.5 million primarily due to the $24.9 million repurchase of
treasury stock offset by $10.1 million in bank loans for the period. In 1999,
financing activities generated $12.9 million of net cash primarily from the
exercise of employee stock options as well as an increase in net borrowings
under a revolving loan and security agreement.
Cymer has available credit arrangements with a bank permitting borrowings
of up to $30 million. These borrowings are unsecured and provide for a $15
million optional currency revolving line of credit and a foreign currency
exchange facility. These arrangements were amended February 4, 2000 to increase
available borrowings to $40 million. Cymer had forward foreign exchange
contracts at December 31, 1999 to buy $56.0 million for 6.0 billion yen. The
total unrecorded deferred loss and premium on these contracts as of December 31,
1999 was approximately $1.3 million and $919,000, respectively.
On January 29, 1998, Cymer announced a program to repurchase up to $50.0
million of Cymer's common stock. As of December 31, 1998 Cymer had purchased 2
million shares at a total cost of $24.9 million. No stock was repurchased during
1999.
Cymer requires substantial working capital to fund its business,
particularly to finance inventories and accounts receivable and for capital
expenditures. Cymer's future capital requirements will depend on many factors,
including the rate of Cymer'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 the market acceptance of
Cymer's products. Cymer believes that it has sufficient working capital and
available bank credit to sustain operations and provide for the future expansion
of its business during 2000.*
RECENT ACCOUNTING PRONOUNCEMENTS
During June 1999, the FASB issued SFAS No. 137, "Accounting for Derivative
Instruments and Hedging Activities-Deferral of the Effective Date of FASB
Statement 133." The Statement defers the effective date of SFAS No. 133 to all
fiscal quarters of fiscal years beginning after June 15, 2000. SFAS No. 133
establishes accounting and reporting standards for derivative instruments and
hedging activities. SFAS No. 133 will become effective for Cymer beginning
January 1, 2001. Management has not yet assessed the effect of this standard on
Cymer's current reporting and disclosures.
YEAR 2000 READINESS ISSUE
To date, the Company has not incurred material costs associated with Year
2000 compliance nor any disruption with vendors or operations. Furthermore, the
Company believes that any future costs associated with Year 2000 compliance
efforts will not be material.
17
<PAGE>
RISK FACTORS
LIKELY FLUCTUATIONS IN OPERATING RESULTS
CERTAIN FACTORS CAUSING FLUCTUATIONS
Cymer's operating results have in the past fluctuated and are likely in
the future to fluctuate significantly. These fluctuations depend on a variety of
factors which may include:
- the demand for semiconductors in general and, in particular,
for leading edge devices with smaller circuit geometries;
- the rate at which semiconductor manufacturers take delivery of
photolithography tools from Cymer's customers;
- cyclicality in the market for semiconductor manufacturing
equipment;
- the timing and size of orders from Cymer's small base of
customers;
- the ability of Cymer to manufacture, test and deliver laser
systems in a timely and cost effective manner; - the mix of
laser models, replacement parts and service revenues;
- the ability of Cymer's competitors to obtain orders from
Cymer's customers;
- the entry of new competitors into the market for DUV
photolithography illumination sources;
- the ability of Cymer to manage its costs as it supplies its
products in higher volumes; and
- Cymer's ability to effectively manage its exposure to foreign
currency exchange rate fluctuations, principally with respect
to the Japanese yen (in which sales by Cymer's Japanese
subsidiary are denominated).
In addition, as customers become more efficient at integrating Cymer's lasers
into their photolithography tools, reductions in customer laser inventories may
affect Cymer's operating results.
TIMING OF REVENUE RECOGNITION
Cymer has historically derived a substantial portion of its quarterly
and annual revenues from the sale of a relatively small number of systems. As a
result, the precise timing of the recognition of revenue from an order for a
small number of systems can have a significant impact on Cymer's total revenues
and operating results for a particular period. If customers cancel or reschedule
orders for a small number of systems or if Cymer cannot fill orders in time to
recognize revenue during a particular period, this could adversely affect
Cymer's operating results for that period. For example, unanticipated
manufacturing, testing, shipping or product acceptance delays could cause such
cancellations, rescheduling or inability to fill orders promptly.
FIXED EXPENSES
Cymer's expense levels are based, in large part, on Cymer's
expectations as to future revenues. Therefore, Cymer's expenses are relatively
fixed in the short term. If revenue levels fall below expectations, this would
disproportionately and adversely affect net income. Cymer cannot forecast the
impact of these and other factors on its revenues and operating results in any
future period with any degree of certainty.
SEMICONDUCTOR MANUFACTURER DEMAND
Cymer believes that semiconductor manufacturers are currently
developing capability for production and pilot production of 0.25um, 0.18um and
below devices. Cymer also believes that the efforts to develop such capability
are driving present demand for its laser systems for DUV photolithography tools.
Once semiconductor manufacturers have acquired such capability, their demand for
Cymer's DUV photolithography tools will depend on whether they want to expand
their capacity to manufacture such devices. This will in turn depend on whether
their sales forecasts and manufacturing
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process yields justify such an investment. Cymer currently expects that demand
for its DUV laser systems will depend on such demand and process development
constraints of the semiconductor manufacturers.
INDUSTRY CONDITIONS
Cymer has expanded some aspects of its operations in response to
improvements in industry conditions. Should continued improvements not
materialize, the planned increases in spending may negatively impact profitable
operations.
Due to the foregoing, as well as other unanticipated factors, Cymer's
operating results will likely fall below the expectations of public market
analysts or investors in some future quarter or quarters. Such failure to meet
operating result expectations would materially adversely affect the price of
Cymer's Common Stock.
DEPENDENCE ON SEMICONDUCTOR INDUSTRY
Cymer derives substantially all of its revenues from photolithography
tool manufacturers. Photolithography tool manufacturers depend in turn on the
demand for their products from semiconductor manufacturers. Semiconductor
manufacturers 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. These downturns
have often had a severe effect on the demand for semiconductor manufacturing
equipment, including photolithography tools. Cymer believes that downturns in
the semiconductor manufacturing industry will periodically occur, resulting in
periodic decreases in demand for semiconductor manufacturing equipment. In
addition, Cymer believes that in a future downturn Cymer's need to continue
investment in research and development, and to maintain extensive ongoing
customer service and support capability will constrain its ability to reduce
expenses. Accordingly, downturns in the semiconductor industry could have a
material adverse effect on Cymer's business, financial condition and results of
operations.
DEPENDENCE ON SMALL NUMBER OF CUSTOMERS
A small number of manufacturers of DUV photolithography tools
constitute Cymer's primary customer base. Four large firms, ASM Lithography,
Canon, Nikon and SVG Lithography (a subsidiary of Silicon Valley Group, Inc.),
dominate the photolithography tool business. Collectively, they accounted for
approximately 94%, 94% and 79% of Cymer's total revenues in 1997, 1998, and
1999, respectively. Individually, sales to ASM Lithography, Canon, Nikon and SVG
Lithography accounted for approximately 37%, 20%, 31% and 6%, respectively, of
total revenues in 1998 and 33%, 17%, 24% and 5%, respectively, of total revenues
in 1999. Cymer expects that sales of its systems to these customers will
continue to account for a substantial majority of its revenues in the
foreseeable future. None of Cymer's customers are obligated to purchase a
minimum number of Cymer's products. The loss of any significant business from
any one of these customers or a significant reduction in orders from any one of
these customers, would have a material adverse effect on Cymer's business,
financial condition and results of operations. 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, could all cause such a loss of business or
reduction in orders.
NEED TO MANAGE A CHANGING BUSINESS
In recent years, Cymer has sharply expanded and contracted the scope of
its operations and the number of employees in most of its functional areas. For
example, Cymer increased the number of its employees from 336 at December 31,
1996 to 809 at December 31, 1997 and then decreased that number to 703 at
December 31, 1998. As of December 31, 1999, Cymer had 767 employees. Cymer has
substantially expanded its facilities and manufacturing capacity. For example,
since December 31,
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1996 Cymer has occupied three additional buildings covering approximately
187,000 square feet. In a cyclical environment of dramatic growth or
contraction, Cymer will need:
- to continue close management of these areas, and
- to improve its management, operational and financial systems,
including
- accounting and other internal management systems,
- quality control,
- delivery and
- field service and customer support capabilities.
Cymer must also effectively manage its inventory levels, including assessing and
managing excess and obsolete inventories associated with the changing
environment and new product introductions. Cymer will need to attract, train,
retain and manage key technical personnel in order to support Cymer's growth
and/or contraction. Cymer will also need to manage effectively its international
operations, including:
- the operations of its subsidiaries in Japan, Korea, Taiwan,
Singapore and The Netherlands,
- its field service and support presence in Asia and Europe and
- its relationship with Seiko as a manufacturer of its
photolithography lasers.
Cymer must also effect timely deliveries of its products and maintain the
product quality and reliability required by its customers. Any failure to
effectively manage Cymer's growth or contraction would materially adversely
affect Cymer's financial condition and results of operations.
RISKS ASSOCIATED WITH IMPLEMENTING A NEW ENTERPRISE RESOURCE PLANNING SYSTEM
Cymer is in the initial stages of implementing a new corporate wide
enterprise resource planning ("ERP") system to replace its current ERP system.
Cymer has scheduled implementation of the new ERP system and training of
personnel to use the system to be completed during the year 2000. The
implementation of a new ERP system requires full commitment of management and
the dedication and utilization of significant internal as well as external
resources in managing the project, process redesigns, system integration and
employee training. Historically, many companies have experienced difficulties in
implementing ERP systems. These difficulties range from cost overruns, push-outs
of implementation deadlines, process and operations gridlock, failure to execute
operating plans, including inability to ship products for revenue, and
abandonment of the effort altogether. Cymer must effectively manage its planning
and execution of the implementation of the system and the training of personnel
throughout the Company. Any failure to effectively manage Cymer's efforts or
process and operations designs would materially adversely affect Cymer's
financial condition and results of operations.
RAPID TECHNOLOGICAL CHANGE; NEW PRODUCT INTRODUCTIONS
Semiconductor manufacturing equipment and processes are subject to
rapid technological change. Cymer 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
- develop and manufacture new products with improved
capabilities.
In order to enhance and improve its products and develop new products, among
other things, Cymer must work closely with its customers, particularly in the
product development stage, to integrate its lasers with its customers'
photolithography tools. Future technologies, such as EUV and scalpel processes,
might render Cymer's excimer laser products obsolete. Further, Cymer might not
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
Cymer's business, financial condition and results of operations.
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COMPETITION
LAMBDA-PHYSIK, KOMATSU AND USHIO
Cymer currently has three significant competitors in the market for
excimer laser systems for photolithography applications:
- Lambda-Physik,
- Komatsu, Ltd. and
- Ushio.
All of these companies:
- are larger than Cymer,
- have access to greater financial, technical and other
resources than does Cymer, and
- are located in closer proximity to Cymer's customers than is
Cymer.
Cymer believes that Lambda-Physik and Komatsu are aggressively seeking to gain
larger positions in this market. Cymer believes that its customers have each
purchased products offered by these competitors and that its customers have
qualified competitors' lasers for use with their products. Cymer believes that
Komatsu in particular has been qualified for production use by chipmakers in
Japan and elsewhere. Cymer also believes that Lambda-Physik has been qualified
for production use by chipmakers in the U.S. Cymer could lose market share and
its growth could slow or even decline as competitors gain market acceptance.
OTHER TECHNOLOGIES
In the future, Cymer will likely experience competition from other
technologies, such as EUV and scalpel processes. To remain competitive, Cymer
believes that it will need to:
- manufacture and deliver products to customers on a timely
basis and without significant defects, and
- maintain a high level of investment in research and
development and in sales and marketing.
Cymer might not have sufficient resources to continue to make the investments
necessary to maintain its competitive position.
SMALL AND IMMATURE MARKET FOR EXCIMER LASERS
In addition, the market for excimer lasers is still small and immature.
Larger competitors with substantially greater financial resources, including
other manufacturers of industrial lasers, might attempt to enter the market.
Cymer might not remain competitive. A failure to remain competitive
would have a material adverse effect on Cymer's business, financial condition
and results of operations.
DEPENDENCE ON SINGLE PRODUCT LINE
Cymer's only product line is excimer lasers ("KrF, ArF and F2 laser
systems"). The primary market for excimer lasers is for use in DUV
photolithography equipment for manufacturing deep-submicron semiconductor
devices. Demand for Cymer's products will depend in part on the rate at which
semiconductor manufacturers adopt excimer lasers as the illumination source for
their photolithography tools.
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Impediments to such adoption include:
- instability of photoresists used in advanced DUV
photolithography and
- potential shortages of specialized materials used in DUV
optics.
There can be no assurance that such impediments can or will be overcome. In any
event, such impediments may materially reduce the demand for Cymer's products.
Further, if Cymer's customers experience reduced demand for DUV photolithography
tools, or if Cymer's competitors are successful in obtaining significant orders
from such customers, Cymer's financial condition and results of operations would
be materially adversely affected.
RISK OF EXCESSIVE INVENTORY BUILDUPS BY PHOTOLITHOGRAPHY TOOL MANUFACTURERS
Photolithography tool manufacturers constitute substantially all of
Cymer's customers. Photolithography tool manufacturers sell their systems in
turn to semiconductor manufacturers. Market conditions in the industry can cause
Cymer's customers to expand or reduce their orders for new laser systems as they
try to manage their inventories to appropriate levels which better reflect their
expected sales forecasts. Cymer is working with its customers to better
understand end user demand for DUV photolithography tools. However, there can be
no assurance that Cymer 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 Cymer's revenues and operating results in
future periods as such inventories are brought into balance.
DEPENDENCE ON KEY SUPPLIERS
Cymer obtains certain of the components and subassemblies included in
its products from a single supplier or a limited group of suppliers. In
particular, there are no alternative sources for certain of such components and
subassemblies, including certain optical components used in Cymer's lasers. In
addition, Cymer is increasingly outsourcing the manufacture of various
subassemblies. To date Cymer has been able to obtain adequate supplies of the
components and subassemblies in a timely manner from existing sources. However,
due to the nature of Cymer's product development requirements, key suppliers
often need to rapidly advance their own technologies in order to support Cymer's
new product introduction schedule. These suppliers may or may not be able to
satisfy Cymer's schedule requirements in providing new modules and subassemblies
to Cymer. If Cymer cannot obtain sufficient quantities of such materials,
components or subassemblies, or if such items do not meet Cymer's quality
standards, delays or reductions in product shipments could have a material
adverse effect on Cymer's business, financial condition and results of
operations.
PRODUCTION USE OF EXCIMER LASERS
Cymer's products might not meet production specifications or cost of
operation requirements over time when subjected to prolonged and intense use in
volume production in semiconductor manufacturing processes. If any semiconductor
manufacturer cannot successfully achieve or sustain volume production using
Cymer's lasers, Cymer's reputation with semiconductor manufacturers or the
limited number of photolithography tool manufacturers could be damaged. This
would have a material adverse effect on Cymer's business, financial condition
and results of operations.
DEVELOPMENT OF FIELD SERVICE AND SUPPORT ORGANIZATION
Cymer believes that the need to provide fast and responsive service to
the semiconductor manufacturers using its lasers is critical. Cymer cannot
depend solely on its direct customers to provide this specialized service.
Therefore, Cymer believes it is essential to establish through its own
personnel, a rapid response capability to service its lasers throughout the
world. Accordingly, Cymer has an ongoing effort to develop its direct support
infrastructure in the United States, Japan, Europe, Korea, Singapore, Taiwan and
Southeast Asia. This development entails recruiting and training qualified field
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service personnel and building effective and highly trained organizations that
can provide service to customers in various countries in their assigned regions.
Cymer has historically experienced difficulties in effectively training field
service personnel. Cymer might not be able to attract and train qualified
personnel to establish these operations successfully. Further, the costs of such
operations might be excessive. A failure to implement this plan effectively
could have a material adverse effect on Cymer's business, financial condition
and results of operations.
DEPENDENCE ON KEY PERSONNEL
Cymer 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. There is intense competition for such personnel, as well as for the
highly-skilled hardware and software engineers Cymer requires. Cymer has in the
past experienced, and continues to experience, difficulty in hiring personnel,
including experts in excimer laser technology. Cymer believes that, to a large
extent, its future success will depend upon:
- the continued services of its engineering, research and
development, sales and marketing and manufacturing and service
personnel, and
- its ability to attract, train and retain highly skilled
personnel in each of these areas.
Cymer does not have employment agreements with most of its employees, and Cymer
might not be able to retain its key employees. The failure of Cymer to hire,
train and retain such personnel could have a material adverse effect on Cymer's
business, financial condition and results of operations.
UNCERTAINTY REGARDING PATENTS AND PROTECTION OF PROPRIETARY TECHNOLOGY
CYMER PATENTS
Cymer 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 ability, than on patents,
copyrights, trade secrets and other intellectual property rights. Nevertheless,
the success of Cymer may depend in part on patents. As of December 31, 1999,
Cymer owned 61 United States patents covering certain aspects of technology
associated with excimer lasers. Such patents will expire at various times during
the period from January 2008 to October 2018. As of December 31, 1999, Cymer had
also applied for 75 additional patents in the United States, 3 of which have
been allowed. As of December 31, 1999, Cymer owned 37 foreign patents and had
filed 218 patent applications pending in various foreign countries.
Cymer's pending patent applications and any future applications might
not be approved. Cymer's patents might not provide Cymer with competitive
advantages. Third parties might challenge Cymer's patents. In addition, third
parties' patents might have an adverse effect on Cymer's ability to do business.
In this regard, due to cost constraints, Cymer 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 1993. Therefore, Cymer has 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, any such
patents issued to Cymer might not adequately protect Cymer's technology in a
given foreign jurisdiction. Furthermore, third parties might independently
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develop similar products, duplicate Cymer's products or, to the extent patents
are issued to Cymer, design around the patents issued to Cymer.
COMPETITIVE PATENTS
Others may have filed and in the future may file patent applications
that are similar or identical to those of Cymer. To determine the priority of
inventions, Cymer may have to participate in interference proceedings declared
by the United States Patent and Trademark Office. Such interference proceedings
could result in substantial cost to Cymer. Such third party patent applications
might have priority over patent applications filed by Cymer.
OTHER FORMS OF PROTECTION
Cymer also relies upon:
- trade secret protection,
- employee nondisclosure agreements,
- third-party nondisclosure agreements, and
- other intellectual property protection methods
to protect its confidential and proprietary information. Despite these efforts,
third parties might:
- independently develop substantially equivalent proprietary
information and techniques,
- otherwise gain access to Cymer's trade secrets, or
- disclose such technology.
Cymer might not be able to meaningfully protect its trade secrets.
POSSIBLE CLAIMS TO OWNERSHIP OF CYMER'S INTELLECTUAL PROPERTY
Cymer has in the past funded a significant portion of its research and
development expenses from outside research and development revenues. Cymer has
received such revenues from photolithography tool manufacturers and from
SEMATECH, a semiconductor industry consortium, in connection with the design and
development of specific products. Cymer currently funds a small portion of its
development expenses through SEMATECH. Although Cymer'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 Cymer, disputes over the ownership or rights to use or market such
intellectual property might arise between Cymer and such parties. Any such
dispute could result in restrictions on Cymer's ability to market its products
and could have a material adverse effect on Cymer's business, financial
condition and results of operations.
PATENT INFRINGEMENT
Third parties have in the past notified, and may in the future notify,
Cymer that it may be infringing their intellectual property rights. Conversely,
Cymer has in the past notified, and may in the future notify, third parties that
they may be infringing on Cymer's intellectual property rights.
Specifically, Cymer has engaged in discussions with one of its
competitors, Komatsu, with respect to certain of Komatsu's Japanese patents, in
the course of which Komatsu has also identified to Cymer a number of additional
Japanese patents that Komatsu asserts may be infringed by Cymer and Cymer's
Japanese manufacturing partner, Seiko. Cymer, in consultation with Japanese
patent counsel, has initiated oppositions to certain Komatsu Japanese patents
and patent applications in the Japanese Patent Office. To date, one of these
oppositions has been dismissed. Litigation might ensue with respect to the
Komatsu Japanese patents. Also, Komatsu might assert infringement claims under
additional patents. Komatsu has notified Seiko that Komatsu intends to enforce
its rights under the
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Komatsu Japanese patents against Seiko if Seiko engages in manufacturing
activities for Cymer. In connection with its manufacturing agreement with Seiko,
Cymer has agreed to indemnify Seiko against such claims under certain
circumstances. Cymer and Seiko might not ultimately prevail in any such
litigation.
Cymer has also asserted certain of its U.S. patents against Komatsu
when informed that Komatsu lasers might be integrated into steppers intended
for shipment into the U.S. Cymer and Komatsu are currently engaged in
discussions with regard to each party's claims. Those discussions might not
be successful and litigation could result. Attorneys representing Komatsu are
currently challenging one of Cymer's U.S. patents in the U.S. Patent Office.
Any patent litigation, by or against Cymer, would, at a minimum, be
costly. Litigation could also divert the efforts and attention of Cymer's
management and technical personnel. Both could have a material adverse effect on
Cymer's business, financial condition and results of operations. Furthermore, in
the future other third parties might assert other infringement claims, and
customers and end users of Cymer's products might assert other claims for
indemnification resulting from infringement claims. Such assertions, if proven
to be true, might materially adversely affect Cymer's business, financial
condition and results of operations. If any such claims are asserted against
Cymer, Cymer may seek to obtain a license under the third party's intellectual
property rights. However, such a license might not be available on reasonable
terms or at all. Cymer 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 Cymer's
management and technical personnel, which would materially adversely affect
Cymer's business, financial condition and results of operations.
TRADEMARK
Cymer has registered the incontestable trademark CYMER in the United
States and certain other countries and is seeking additional registrations of
other trademarks including "Insist on Cymer" in the United States and in certain
other countries. Cymer uses these and a variety of other marks in its
advertisements and other business activities around the world. Based on the use
of these marks, Cymer might be subjected to actions for trademark infringement,
which could be costly to defend. If a challenge to a mark were to be successful,
Cymer might be required to cease use of the mark and, potentially, to pay
damages.
RISKS ASSOCIATED WITH MANUFACTURING IN JAPAN
Cymer has qualified Seiko of Japan as a contract manufacturer of its
photolithography lasers. Komatsu, a competitor of Cymer, has advised Seiko that
certain aspects of Cymer's lasers might infringe certain patents that have been
issued to Komatsu in Japan. Komatsu has advised Seiko it intends to enforce its
rights under such patents against Seiko if Seiko engages in manufacturing
activities for Cymer. In the event that, notwithstanding its manufacturing
agreement with Cymer, Seiko should determine not to continue manufacturing
Cymer's products until resolution of the matter with Komatsu, Cymer's ability to
meet any heavy demand for its products could be materially adversely affected.
See -- "Uncertainty Regarding Patents and Protection of Proprietary Technology."
RISKS OF INTERNATIONAL SALES AND OPERATIONS
SIGNIFICANT INTERNATIONAL TRADE
Cymer derived approximately 89%, 88% and 85% of its revenues in 1997,
1998 and 1999, respectively, from customers located outside the United States.
Because a significant majority of Cymer's principal customers are located in
other countries, particularly Asia, Cymer anticipates that international sales
will continue to account for a significant portion of its revenues.* In order to
support its overseas customers, Cymer:
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- maintains subsidiaries in Japan, Korea, Taiwan, Singapore and
the Netherlands,
- is further developing its field service and support operations
worldwide, and
- will continue to work with Seiko as a manufacturer of its
products in Japan.*
Cymer might not be able to manage these operations effectively. Cymer's
investment in these activities might not enable it to compete successfully in
international markets or to meet the service and support needs of its customers.
Additionally, a significant portion of Cymer'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, o potentially
adverse tax consequences, and
- the possibility of difficulty in accounts receivable
collection.
Because many of Cymer's principal customers, as well as many of the end-users of
Cymer's laser systems, are located in Asia, the recent economic problems and
currency fluctuations affecting that region could intensify Cymer's
international risk. Further, while Cymer has experienced no difficulty to date
in complying with United States export controls, these rules could change in the
future and make it more difficult or impossible for Cymer to export its products
to various countries. These factors could have a material adverse effect on
Cymer's business, financial condition and results of operations.
CURRENCY FLUCTUATIONS
Sales by Cymer to its Japanese subsidiary are denominated in dollars,
while sales by the subsidiary to customers in Japan are denominated in yen. This
means that Cymer's results of operations show some fluctuation based on the
value of the Japanese yen against the U.S. dollar. Cymer's Japanese subsidiary
manages its exposure to such fluctuations by entering into foreign currency
exchange contracts to hedge its purchase commitments. Management will continue
to monitor Cymer's exposure to currency fluctuations, and, when appropriate, use
financial hedging techniques to minimize the effect of these fluctuations.
However, exchange rate fluctuations might have a material adverse effect on
Cymer's results of operations or financial condition. In the future, Cymer might
need to sell its products in other currencies, which would make the management
of currency fluctuations more difficult and expose Cymer to greater risks in
this regard.
FOREIGN REGULATIONS
Numerous foreign government standards and regulations apply to Cymer's
products. These standards and regulations are continually being amended.
Although Cymer endeavors to meet foreign technical and regulatory standards,
Cymer's products might not continue to comply with foreign government standards
and regulations, or changes thereto. It might not be cost effective for Cymer to
redesign its products to comply with such standards and regulations. The
inability of Cymer to design or redesign products to comply with foreign
standards could have a material adverse effect on Cymer'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 Cymer's
manufacturing process and on the facility leased by Cymer. Cymer believes
that its activities conform to present governmental regulations applicable to
its operations and its current facilities. These regulations include those
related to environmental, land use, public utility utilization and fire code
matters. Such governmental regulations might in the future impose the need
for additional capital equipment or other process requirements upon Cymer.
They might also restrict Cymer's ability to expand its operations. The
adoption of such measures, or the failure by Cymer to comply with applicable
environmental and land use regulations or to restrict the discharge of
hazardous
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substances, could subject Cymer to future liability or could cause its
manufacturing operations to be curtailed or suspended.
RISKS OF PRODUCT LIABILITY CLAIMS
Cymer 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.
Cymer might experience material product liability losses in the future. Cymer
maintains insurance against product liability claims. However, such coverage
might not continue to be available on terms acceptable to Cymer. Such coverage
also might not be adequate for liabilities actually incurred. Further, in the
event that any of Cymer's products prove to be defective, Cymer may need to
recall or redesign such products. A successful claim brought against Cymer in
excess of available insurance coverage, or any claim or product recall that
results in significant adverse publicity against Cymer, could have a material
adverse effect on Cymer's business, financial condition and results of
operations.
POSSIBLE PRICE VOLATILITY OF COMMON STOCK
The following factors may significantly affect the market price of
Cymer's Common Stock:
- actual or anticipated fluctuations in Cymer's operating
results,
- announcements of technological innovations,
- new products or new contracts by Cymer or its competitors,
- developments with respect to patents or proprietary rights,
- conditions and trends in the laser device and other technology
industries,
- changes in financial estimates by securities analysts,
- general market conditions, and
- other factors.
In addition, the stock market has experienced extreme price and volume
fluctuations that have particularly affected the market price for many high
technology companies. Such fluctuations have in some cases been unrelated to the
operating performance of these companies. Severe price fluctuations in a
company's stock have frequently been followed by securities litigation. Cymer is
currently in the process of defending such an action (see - Legal Matters). Such
litigation can result in substantial costs and a diversion of management's
attention and resources.
LEGAL MATTERS
Cymer has been named as a defendant in several putative shareholder
class action lawsuits which were filed in September and October, 1998 in the
U.S. District Court for the Southern District of California. Certain executive
officers and directors of Cymer are also named as defendants. The plaintiffs
purport to represent a class of all persons who purchased Cymer's Common Stock
between April 24, 1997 and September 26, 1997 (the "Class Period"). The
complaints allege claims under the federal securities laws. The plaintiffs
allege that Cymer and the other defendants made various material
misrepresentations and omissions during the Class Period. The complaints do not
specify the amount of damages sought. The complaints have been consolidated into
a single action and a class representative has been appointed by the court. A
consolidated amended complaint was filed in early August, 1999. On November 5,
1999 Cymer and the other defendants filed a motion to dismiss the consolidated
amended claim for failure to state a cause of action. No ruling on the motion
has yet been made by the court. Discovery has not yet commenced. Cymer believes
that it has good defenses to the claims alleged in the lawsuits and will defend
itself vigorously against these actions. The defense of these actions may cause
some disruption in Cymer's operations and may from time to time distract
management from day-to-day operations. The ultimate outcome of these actions
cannot be presently determined. Accordingly, no provision for any liability or
loss that may result from adjudication or settlement thereof has been made in
the accompanying consolidated financial statements.
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ANTI-TAKEOVER EFFECT OF NEVADA LAW AND CHARTER AND BYLAW PROVISIONS;
AVAILABILITY OF PREFERRED STOCK FOR ISSUANCE
Nevada law as well as Cymer's charter and other documents contain
provisions that could discourage a proxy contest or make more difficult the
acquisition of a substantial block of Cymer's Common Stock, including Cymer's
Articles of Incorporation and Bylaws and Cymer's Preferred Shares Rights
Agreement ("poison pill") dated February 13, 1998. In addition, the Board of
Directors is authorized to issue, without shareholder approval, up to 5,000,000
shares of Preferred Stock. Such shares of Preferred Stock may have 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 Board of Directors could use the issuance of
Preferred Stock or of rights to purchase Preferred Stock to discourage an
unsolicited acquisition proposal.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
FOREIGN CURRENCY RISK
Cymer conducts business in several international currencies through its
worldwide operations. Due to the large volume of business Cymer manages in
Japan, the Japanese operation poses the greatest foreign currency risk. Cymer
uses financial instruments, principally forward exchange contracts, in Japan to
manage its foreign currency exposures. Cymer does not enter into forward
exchange contracts for trading purposes.
Cymer enters into foreign currency exchange contracts in order to
reduce the impact of currency fluctuations related to purchases of Cymer's
inventories by Cymer Japan for resale under firm third-party sales commitments.
Net gains or losses are recorded on the date the inventories are received by
Cymer Japan (the transaction date) and are included in cost of product sales in
the consolidated statements of income as the related sale is consummated.
Amounts due from/to the bank on contracts not settled as of the transaction date
are recorded as foreign exchange contracts receivable/payable in the
consolidated balance sheets.
At December 31, 1999, Cymer had outstanding forward foreign exchange
contracts to buy US$56.0 million for 6.0 billion yen under foreign currency
exchange facilities with contract rates ranging from 100.37 yen to 120.50 yen
per US$ and various expiration dates through October, 2000. (See Notes 1 and 4
to Consolidated Financial Statements). The total unrecorded deferred loss and
premium on these contracts at December 31, 1999 was US$1.3 million and $919,000,
respectively.
INVESTMENT AND DEBT RISK
Cymer maintains an investment portfolio consisting primarily of
government and corporate fixed income securities and commercial paper. While it
is Cymer's general intent to hold such securities until maturity, management
will occasionally sell particular securities for cash flow purposes. Therefore,
Cymer's investments are classified as available-for-sale and are carried on the
balance sheet at fair value. Due to the conservative nature of the investment
portfolio, a sudden change in interest rates would not have a material effect on
the value of the portfolio.
In August 1997, Cymer issued $172.5 million aggregate principal amount
of Step-Up Convertible Subordinated Notes due August 6, 2004, with interest
payable semi-annually February 6 and August 6, commencing February 6, 1998.
Interest on the notes is stated at 3 1/2% per annum from August 6, 1997 through
August 5, 2000 and at 7 1/4% per annum from August 6, 2000 to maturity or
earlier redemption, representing a yield to maturity accrued at approximately
5.47%. The Notes are convertible at the option of the holder into shares of
Common Stock of Cymer at any time on or after November 5, 1997 and prior to
redemption or maturity, at a conversion rate of 21.2766 shares per $1,000
principal amount of Notes, subject to adjustment under certain conditions. Cymer
cannot redeem the Notes prior to August 9, 2000. Thereafter, Cymer can redeem
the Notes from time to time, in whole or in part, at specified
28
<PAGE>
redemption prices. The Notes are unsecured and subordinated to all existing and
future senior indebtedness of Cymer. The indenture governing the Notes does not
restrict the incurrence of senior indebtedness or other indebtedness by Cymer.
These Notes are recorded at face value on the balance sheets. The fair value of
such debt, based on quoted market prices at December 31, 1999 was $205.1
million. As of December 31, 1998 and 1999, $172.5 million in Convertible
Subordinated Notes was outstanding.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The information required by this Item is included in Part IV Item
14(a)(1) and (2).
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
The information regarding the identification and business experience of
Cymer's directors under the caption "Nominees" under the main caption "Proposal
One - Election of Directors" in Cymer's definitive Proxy Statement for the
annual meeting of stockholders to be held, to be filed with the Securities and
Exchange Commission within 120 days after the end of Cymer's fiscal year ended
December 31, 1999, is incorporated herein by this reference. For information
regarding the identification and business experience of Cymer's executive
officers, see "Executive Officers" at the end of Item 1 in Part I of this Annual
Report on Form 10-K. Information concerning filing requirements applicable to
Cymer's executive officers and directors under the caption "Compliance With
Section 16(a) of the Exchange Act" in Cymer's Proxy Statement is incorporated
herein by this reference.
ITEM 11. EXECUTIVE COMPENSATION
The information under the captions "Executive Compensation" and
"Compensation of Directors" in Cymer's Proxy Statement is incorporated herein by
reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information under the caption "Security Ownership of Principal
Stockholders and Management" under the main caption "Additional Information" in
Cymer's Proxy Statement is incorporated herein by this reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information under the caption "Certain Transactions" in Cymer's
Proxy Statement is incorporated herein by this reference.
With the exception of the information specifically incorporated by
reference from Cymer's Proxy Statement in Part III of this Annual Report on Form
10-K, Cymer's Proxy Statement shall not be deemed to be filed as part of this
Report. Without limiting the foregoing, the information under the captions
"Report of the Compensation Committee of the Board of Directors" and "Company's
Stock Performance" under the main caption "Additional Information" in Cymer's
Proxy Statement is not incorporated by reference in this Annual Report on Form
10-K.
29
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) The following documents are filed as part of, or incorporated by
reference into, this Annual Report on Form 10-K:
(1) FINANCIAL STATEMENTS. The following Consolidated Financial
Statements of Cymer, Inc. and Independent Auditors' Report are included in a
separate section of this Report beginning on page F-1:
<TABLE>
<CAPTION>
Description Page Number
<S> <C>
Independent Auditors' Report....................................................... F-1
Consolidated Balance Sheets as of December 31, 1998 and 1999....................... F-2
Consolidated Statements of Income for the Years Ended
December 31, 1997, 1998 and 1999.......................................... F-3
Consolidated Statements of Stockholders' Equity for the Years
Ended December 31, 1997, 1998 and 1999.................................... F-4
Consolidated Statements of Cash Flows for the Years Ended
December 31, 1997, 1998 and 1999.......................................... F-6
Notes to Consolidated Financial Statements......................................... F-8
</TABLE>
(2) FINANCIAL STATEMENT SCHEDULES. All financial statement
schedules have been omitted because the required information is not
applicable or not present in amounts sufficient to require submission
of the schedule, or because the information required is included in the
consolidated financial statements or the notes thereto.
(3) EXHIBITS. The exhibits listed under Item 14(c) hereof are
filed with, or incorporated by reference into, this Annual Report on
Form 10-K.
(b) REPORTS ON FORM 8-K. No reports on Form 8-K were filed by
Registrant during the fourth quarter of the fiscal year ended December 31, 1999.
(c) EXHIBITS. The following exhibits are filed as part of, or
incorporated by reference into, this Annual Report on Form 10-K:
3.1 Amended and Restated Articles of Incorporation of
Cymer (incorporated herein by reference to Exhibit
3.1 to Cymer's Registration Statement on Form S-1 (as
amended), Reg. No. 333-08383).
3.2 Certificate of Designations of Rights, Preferences
and Privileges of Series A Participating Preferred
Stock of Cymer (incorporated herein by reference to
Exhibit 1 to Cymer's Form 8-A, dated February 20,
1998).
3.3 Bylaws of Cymer, as amended and restated.
4.1 Preferred Shares Rights Agreement, dated as of
February 13, 1998 between Cymer and ChaseMellon
Shareholder Services, L.L.C. (incorporated herein by
reference to Exhibit 1 to Cymer's Form 8-A, dated
February 20, 1998).
4.2 Indenture, dated as of August 6, 1997, by and among
Cymer and State Street Bank and Trust Company of
California, N.A., as trustee thereunder (incorporated
herein by reference to Exhibit 4.1 to Cymer's Form
8-K, dated August 6, 1997.)
30
<PAGE>
10.1 Form of Indemnification Agreement with Directors and
Officers (incorporated herein by reference to Exhibit
10.1 to Cymer's Registration Statement on Form S-1
(as amended), Reg. No. 333-08383).
10.2 Standard Industrial Lease - Multi-Tenant, dated
August 19, 1991, by and between Lepercq Corporate
Income Fund L.P. and Cymer (originally between
Frankris Corporation and Cymer) (incorporated herein
by reference to Exhibit 10.15 to Cymer's Registration
Statement on Form S-1 (as amended), Reg. No.
333-08383).
10.3 Single-Tenant Industrial Lease, dated December 19,
1996, by and between AEW/LBA Acquisition Co. II, LLC
and Cymer (incorporated herein by reference to
Exhibit 10.20 to Cymer's Annual Report on Form 10-K
filed for the year ended December 31, 1996).
10.4 Patent License Agreement, dated October 13, 1989, by
and between Cymer and Patlex Corporation
(incorporated herein by reference to Exhibit 10.13 to
Cymer's Registration Statement on Form S-1 (as
amended), Reg. No. 333-08383).
10.5 Contract Manufacturing Agreement -- Lithography
Laser, dated August 28, 1992, by and between Cymer
and Seiko Instruments Inc. (the "Seiko Agreement")
(incorporated herein by reference to Exhibit 10.16 to
Cymer's Registration Statement on Form S-1 (as
amended), Reg. No. 333-08383).
Addendum No. 2 to the Seiko Agreement, dated February
21, 2000.
10.6 Loan Agreement, dated as of December 8, 1997, by and
among Silicon Valley Bank and Bank of Hawaii, as
co-lenders, and Cymer and Cymer Japan, Inc., as
borrowers (the "Loan Agreement") (incorporated herein
by reference to Exhibit 10.10 to Cymer's Annual
Report on Form 10-K/A filed for the year ended
December 31, 1997).
Amendment to the Loan Agreement, dated as of February
4, 1999.
Amendment to the Loan Agreement, dated as of
September 22, 1999.
Amendment to the Loan Agreement, dated as of February
4, 2000.
Corporate Guaranty, dated December 8, 1997, from
Cymer to Silicon Valley Bank and Bank of Hawaii, as
co-lenders (incorporated herein by reference to
Exhibit 10.12 to Cymer's Annual Report on Form 10-K/A
filed for the year ended December 31, 1997).
10.7 1996 Stock Option Plan, as amended and restated.
10.8 1996 Employee Stock Purchase Plan (incorporated
herein by reference to Exhibit 10.4 to Cymer's
Registration Statement on Form S-1 (as amended), Reg.
No. 333-08383).
10.9 1996 Director Option Plan (incorporated herein by
reference to Exhibit 10.5 to Cymer's Registration
Statement on Form S-1 (as amended), Reg. No.
333-08383).
31
<PAGE>
10.10 Employment Agreement, dated November 26, 1997, by and
between Robert P. Akins and Cymer (incorporated
herein by reference to Exhibit 10.16 to Cymer's
Annual Report on form 10-K/A filed for the year ended
December 31, 1997).
10.11 Employment Agreement, dated November 26, 1997, by and
between William A. Angus, III and Cymer (incorporated
herein by reference to Exhibit 10.17 to Cymer's
Annual Report on form 10-K/A filed for the year ended
December 31, 1997).
10.12 Employment Agreement, dated November 26, 1997, by and
between Pascal Didier and Cymer (incorporated herein
by reference to Exhibit 10.18 to Cymer's Annual
Report on form 10-K/A filed for the year ended
December 31, 1997).
10.13 Employment Agreement, dated October 21, 1998, by and
between Edward P. Holtaway and Cymer (incorporated
herein by reference to Exhibit 10.20 to Cymer's
Annual Report on form 10-K filed for the year ended
December 31, 1998).
10.14 Employment Agreement, dated March 1, 2000, by and
between Wallace Breitman and Cymer.
10.15 Description of Cymer Management Incentive Plan.
10.16 Cymer Deferred Compensation Plan.
21.1 Subsidiaries of Registrant
23.1 Independent Auditors' Consent
27.1 Financial Data Schedule for the year ended December
31, 1999
(d) FINANCIAL STATEMENT SCHEDULES. See item 14, paragraph (a) (2),
above.
32
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
CYMER, INC.
Dated: March 24, 2000 By: /s/ ROBERT P. AKINS
-------------------------------
Robert P. Akins, President
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the date indicated.
<TABLE>
<S> <C> <C>
/s/ ROBERT P. AKINS President, Chief Executive Officer,
----------------------- and Chairman of the Board March 24, 2000
Robert P. Akins (Principal Executive Officer)
/s/ WILLIAM A. ANGUS, III Senior Vice President, Chief
------------------------- Financial Officer and Secretary March 24, 2000
William A. Angus, III (Principal Financial Officer)
/s/ NANCY J. BAKER Vice President, Finance,
----------------------- Treasurer and Chief Accounting
Nancy J. Baker Officer March 24, 2000
(Principal Accounting Officer)
/s/ RICHARD P. ABRAHAM Director March 24, 2000
-----------------------
Richard P. Abraham
/s/ KENNETH M. DEEMER Director
-----------------------
Kenneth M. Deemer March 24, 2000
/s/ PETER J. SIMONE Director
-----------------------
Peter J. Simone March 24, 2000
/s/ JON D. TOMPKINS Director
-----------------------
Jon D. Tompkins March 24, 2000
</TABLE>
33
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders of Cymer, Inc.:
We have audited the accompanying consolidated balance sheets of Cymer, Inc. and
subsidiaries (collectively, the "Company") as of December 31, 1998 and 1999, and
the related consolidated statements of income, stockholders' equity, and cash
flows for each of the three years in the period ended December 31, 1999. 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 auditing standards generally accepted
in the United States of America. 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, 1998
and 1999, and the results of its operations and its cash flows for each of the
three years in the period ended December 31, 1999 in conformity with accounting
principles generally accepted in the United States of America.
/s/ DELOITTE & TOUCHE LLP
San Diego, California
January 28, 2000
F-1
<PAGE>
CYMER, INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------------
ASSETS 1998 1999
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $53,130 $75,765
Short-term investments 85,558 97,564
Accounts receivable - net 50,909 69,251
Foreign exchange contracts receivable 22,145 21,706
Inventories 50,786 51,409
Deferred income taxes 12,824 16,360
Prepaid expenses and other 3,706 3,110
-------------- ---------------
Total current assets 279,058 335,165
PROPERTY - net 51,937 56,921
LONG-TERM INVESTMENTS 23,480 19,760
DEFERRED TAXES - NON-CURRENT 2,533 8,562
OTHER ASSETS 7,310 6,413
-------------- ---------------
TOTAL ASSETS $364,318 $426,821
============== ===============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $8,581 $20,599
Accrued and other liabilities 33,204 52,292
Foreign exchange contracts payable 24,873 24,276
Income taxes payable 2,146 6,482
Revolving loan 11,609 18,395
-------------- ---------------
Total current liabilities 80,413 122,044
-------------- ---------------
LONG-TERM LIABILITIES:
Convertible Subordinated Notes 172,500 172,500
Other Liabilities 3,424 3,271
MINORITY INTEREST 1,450 2,113
COMMITMENTS AND CONTINGENCIES (NOTES 4, 5, 6, 8, 9 and 10)
STOCKHOLDERS' EQUITY:
Preferred stock - authorized 5,000,000 shares; $.001 par value,
no shares issued or outstanding
Common stock - authorized 50,000,000 shares; $.001 par value,
issued and outstanding 27,174,000 and 28,435,000 shares 27 28
Paid-in capital 111,842 125,623
Treasury stock at cost (2,000,000 common shares) (24,871) ( 24,871)
Accumulated other comprehensive loss (1,627) (3,620)
Retained earnings 21,160 29,733
-------------- ---------------
Total stockholders' equity 106,531 126,893
-------------- ---------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $364,318 $426,821
============== ===============
</TABLE>
See Notes to Consolidated Financial Statements.
F-2
<PAGE>
CYMER, INC.
CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS, EXCEPT PER SHARE DATA)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------------
1997 1998 1999
<S> <C> <C> <C>
REVENUES:
Product sales $201,191 $184,828 $220,051
Other 2,456 313 399
-------------- ------------- -------------
Total revenues 203,647 185,141 220,450
-------------- ------------- -------------
COSTS AND EXPENSES:
Cost of product sales 123,654 125,713 143,105
Research and development 24,971 30,152 34,518
Sales and marketing 11,992 14,528 16,742
General and administrative 8,586 9,487 13,101
-------------- ------------- -------------
Total costs and expenses 169,203 179,880 207,466
-------------- ------------- -------------
OPERATING INCOME 34,444 5,261 12,984
-------------- ------------- -------------
OTHER INCOME (EXPENSE):
Foreign currency exchange gain (loss) - net (359) 692 643
Interest and other income 5,318 7,384 7,327
Interest and other expense (4,847) (11,644) (11,718)
-------------- ------------- -------------
Total other income (expense) - net 112 (3,568) (3,748)
-------------- ------------- -------------
INCOME BEFORE INCOME TAX (PROVISION) BENEFIT AND
MINORITY INTEREST 34,556 1,693 9,236
-------------- ------------- -------------
INCOME TAX (PROVISION) BENEFIT (8,639) 1,250
MINORITY INTEREST 141 (420) (663)
-------------- ------------- -------------
NET INCOME $26,058 $2,523 $8,573
============== ============= =============
EARNINGS PER SHARE:
Basic:
Earnings per share $0.92 $0.09 $0.31
============== ============= =============
Weighted average common shares outstanding 28,212 28,226 27,907
============== ============= =============
Diluted:
Earnings per share $0.86 $0.09 $0.29
============== ============= =============
Weighted average common and potential common shares
outstanding 30,267 29,566 29,640
============== ============= =============
</TABLE>
See Notes to Consolidated Financial Statements.
F-3
<PAGE>
CYMER, INC.
- --------------------------------------------------------------------------------
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
(IN THOUSANDS)
ACCUMULATED
COMMON STOCK OTHER
--------------------- PAID-IN TREASURY COMPREHENSIVE
SHARES AMOUNT CAPITAL STOCK LOSS
--------- ---------- ----------- ---------- ----------------
<S> <C> <C> <C> <C> <C>
BALANCE, JANUARY 1, 1997 27,560 $28 $106,658 ($445)
Exercise of common stock options and warrants 1,045 1 473
Issuance of employee stock purchase plan shares 119 852
Income tax benefit from stock options exercised 1,802
Deferred issuance costs, secondary public offering (418)
Net income
Other comprehensive income:
Translation adjustment, net of tax (1,858)
Net unrealized gain on available-for-sale investments,
net of tax 49
Total comprehensive income
--------- ---------- ----------- ---------- ----------------
BALANCE, DECEMBER 31, 1997 28,724 29 109,367 (2,254)
Exercise of common stock options and warrants 365 638
Issuance of employee stock purchase plan shares 85 1,236
Stock repurchase of treasury stock (2,000) (2) (24,871)
Income tax benefit from stock options exercised 601
Net income
Other comprehensive income:
Translation adjustment, net of tax 441
Net unrealized gain on available-for-sale investments,
net of tax 186
Total comprehensive income
--------- ---------- ----------- ---------- ----------------
<CAPTION>
TOTAL
RETAINED STOCKHOLDERS' COMPREHENSIVE
EARNINGS EQUITY INCOME
--------------- --------------- ------------------
<S> <C> <C> <C>
BALANCE, JANUARY 1, 1997 ($7,421) $98,820
Exercise of common stock options and warrants 474
Issuance of employee stock purchase plan shares 852
Income tax benefit from stock options exercised 1,802
Deferred issuance costs, secondary public offering (418)
Net income 26,058 26,058 26,058
Other comprehensive income:
Translation adjustment, net of tax (1,858) (1,858)
Net unrealized gain on available-for-sale investments,
net of tax 49 49
------------------
Total comprehensive income $24,249
--------------- --------------- ==================
BALANCE, DECEMBER 31, 1997 18,637 125,779
Exercise of common stock options and warrants 638
Issuance of employee stock purchase plan shares 1,236
Stock repurchase of treasury stock (24,873)
Income tax benefit from stock options exercised 601
Net income 2,523 2,523 2,523
Other comprehensive income:
Translation adjustment, net of tax 441 441
Net unrealized gain on available-for-sale investments,
net of tax 186 186
------------------
Total comprehensive income $3,150
--------------- --------------- ==================
</TABLE>
F-4
<PAGE>
<TABLE>
<CAPTION>
(IN THOUSANDS)
ACCUMULATED
COMMON STOCK OTHER
--------------------- PAID-IN TREASURY COMPREHENSIVE
SHARES AMOUNT CAPITAL STOCK LOSS
--------- ---------- ----------- ---------- ----------------
<S> <C> <C> <C> <C> <C>
BALANCE, DECEMBER 31, 1998 27,174 $27 $111,842 ($24,871) ($1,627)
Exercise of common stock options and warrants 1,169 1 7,350
Issuance of employee stock purchase plan shares 92 1,183
Income tax benefit from stock options exercised 5,248
Net income
Other comprehensive income:
Translation adjustment, net of tax (1,719)
Net unrealized loss on available-for-sale investments,
net of tax (274)
Total comprehensive income
--------- ---------- ----------- ---------- ----------------
BALANCE, DECEMBER 31, 1999 28,435 $28 $125,623 ($24,871) ($3,620)
========= ========== =========== ========== ================
</TABLE>
<TABLE>
<CAPTION>
TOTAL
RETAINED STOCKHOLDERS' COMPREHENSIVE
EARNINGS EQUITY INCOME
--------------- --------------- ----------------
<S> <C> <C> <C>
BALANCE, DECEMBER 31, 1998 $21,160 $106,531
Exercise of common stock options and warrants 7,351
Issuance of employee stock purchase plan shares 1,183
Income tax benefit from stock options exercised 5,248
Net income 8,573 8,573 $8,573
Other comprehensive income:
Translation adjustment, net of tax (1,719) (1,719)
Net unrealized gain on available-for-sale investments,
net of tax (274) (274)
----------------
Total comprehensive income $6,580
-------------- --------------- ================
$29,733 $126,893
BALANCE, DECEMBER 31, 1999 ============== ===============
</TABLE>
See Notes to Consolidated Financial Statements. (concluded)
F-5
<PAGE>
CYMER, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------------------
1997 1998 1999
<S> <C> <C> <C>
OPERATING ACTIVITIES:
Net income $26,058 $2,523 $8,573
Adjustments to reconcile net income to net cash provided by
(used for) operating activities:
Depreciation and amortization 7,606 16,001 18,463
Minority interest (141) 420 663
Deferred income taxes (11,295) (1,683) (2,899)
Loss on disposal of property 436 411
Change in assets and liabilities:
Accounts receivable (43,467) 12,865 (14,446)
Foreign exchange contracts receivable (24,819) 12,022 2,601
Inventories (32,288) (2,110) 636
Prepaid expenses and other assets (1,029) (331) 616
Accounts payable 15,684 (12,815) 11,890
Accrued and other liabilities 18,602 5,344 19,044
Foreign exchange contracts payable 21,397 (5,664) (3,014)
Income taxes payable 6,166 (3,789) 4,234
Other 194
---------------- ---------------- ----------------
Net cash provided by (used for) operating activities (17,332) 23,219 46,772
---------------- ---------------- ----------------
INVESTING ACTIVITIES:
Acquisition of property (42,209) (19,621) (22,195)
Disposal of property 147
Purchases of investments (140,939) (74,604) (126,980)
Proceeds from sold or matured investments 29,370 88,571 118,228
---------------- ---------------- ----------------
Net cash used for investing activities (153,631) (5,654) (30,947)
---------------- ---------------- ----------------
FINANCING ACTIVITIES:
Net borrowings (payments) under revolving loan and
security agreements (1,750) 10,083 4,938
Proceeds from issuance of convertible subordinated notes 172,500
Debt issue costs (5,228)
Proceeds from issuance of common stock 2,125 1,874 8,534
Purchase of treasury stock (24,871)
Payments on capital lease obligations (395) (579) (586)
---------------- ---------------- ----------------
Net cash provided by (used for) financing activities 167,252 (13,493) 12,886
---------------- ---------------- ----------------
EFFECT OF EXCHANGE RATE CHANGES ON CASH AND
CASH EQUIVALENTS 209 (2,845) (6,076)
---------------- ---------------- ----------------
</TABLE>
(continued)
F-6
<PAGE>
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------------------
1997 1998 1999
<S> <C> <C> <C>
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS (3,502) 1,227 22,635
CASH AND CASH EQUIVALENTS AT BEGINNING OF
YEAR 55,405 51,903 53,130
---------------- ---------------- -----------------
CASH AND CASH EQUIVALENTS AT END OF YEAR $51,903 $53,130 $75,765
================ ================ =================
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION:
Interest paid $671 $6,617 $6,744
================ ================ =================
Income taxes paid $11,991 $4,205 $2,368
================ ================ =================
SUPPLEMENTAL DISCLOSURE OF NONCASH INVESTING
AND FINANCING ACTIVITIES:
Capital lease obligations incurred for furniture and equipment $1,950 $102
================ ================
</TABLE>
See Notes to Consolidated Financial Statements.
(concluded)
F-7
<PAGE>
CYMER, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
NATURE OF OPERATIONS - Cymer, Inc., its wholly-owned and majority-owned
subsidiaries, (collectively, "Cymer") is engaged primarily in the
development, manufacturing and marketing of excimer lasers for sale to
manufacturers of photolithography tools in the semiconductor equipment
industry. Cymer sells its product to customers primarily in Japan, The
Netherlands and the United States.
PRINCIPLES OF CONSOLIDATION - The consolidated financial statements
include the accounts of Cymer, Inc., its wholly-owned subsidiaries, Cymer
Japan, Inc. (Cymer Japan), Cymer Singapore, Pte Ltd. (Cymer Singapore) and
Cymer B.V. in The Netherlands (Cymer B.V.), and its majority-owned
subsidiaries, Cymer Korea, Inc. (Cymer Korea) and Cymer Southeast Asia,
Inc. (Cymer SEA). Cymer, Inc. owns 70% of Cymer Korea and 75% of Cymer
SEA. Cymer sells its excimer lasers in Japan primarily through Cymer
Japan. Cymer Korea, Cymer SEA, Cymer Singapore and Cymer B.V. are field
service offices for customers in those regions. 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.
RECENT ACCOUNTING PRONOUNCEMENTS - During June 1999, the Financial
Accounting Standards Board ("FASB") issued Statement of Financial
Accounting Standards ("SFAS") No. 137, ACCOUNTING FOR DERIVATIVE
INSTRUMENTS AND HEDGING ACTIVITIES-DEFERRAL OF THE EFFECTIVE DATE OF FASB
STATEMENT 133. The Statement defers the effective date of SFAS No. 133 to
all fiscal quarters of fiscal years beginning after June 15, 2000. SFAS
No. 133 establishes accounting and reporting standards for derivative
instruments and hedging activities. SFAS No. 133 will become effective for
Cymer beginning January 1, 2001. Management has not yet assessed the
effect of this standard on Cymer's current reporting and disclosures.
CASH EQUIVALENTS - Cash equivalents consist of money market instruments,
commercial paper and other highly liquid investments purchased with an
original maturity of three months or less.
INVESTMENTS - Cymer's investments are composed primarily of government and
corporate fixed income securities and commercial paper. While it is
Cymer's general intent to hold such securities until maturity, management
will occasionally sell particular securities for cash flow purposes.
Therefore, Cymer's investments are classified as available-for-sale and
are carried at fair value. Net unrealized holding gains were $235,000 at
December 31, 1998 and net unrealized holding losses were $230,000 at
December 31, 1999. These net unrealized holding gains (losses), net of
taxes, are included in stockholders' equity as accumulated other
comprehensive income (loss). See Note 3.
INVENTORIES - Inventories are carried at the lower of cost (first-in,
first-out) or market. Cost includes material, labor and manufacturing
overhead costs.
F-8
<PAGE>
PROPERTY - Property is stated at cost. Depreciation is provided using the
straight-line method 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.
IMPAIRMENT OF LONG-LIVED ASSETS - In accordance with SFAS No. 121,
ACCOUNTING FOR THE IMPAIRMENT OF LONG-LIVED ASSETS AND FOR LONG-LIVED
ASSETS TO BE DISPOSED OF, long-lived assets are reviewed for impairment
and written down to fair value whenever events or changes in circumstances
indicate that the carrying value may not be recoverable. Under the
provisions of SFAS No. 121, impairment losses are recognized when expected
future nondiscounted cash flows are less than the assets' carrying values.
No such losses occurred in 1997, 1998, or 1999.
FAIR VALUE OF FINANCIAL INSTRUMENTS - The following methods and
assumptions were used to estimate the fair value of each class of
financial instruments for which it is practicable to estimate that value:
Cash and Cash Equivalents - The carrying amount reported in the
consolidated balance sheets for cash and cash equivalents approximates
fair value because of the short maturity of those instruments.
Investments - Investments consist primarily of government and corporate
fixed income securities and commercial paper (see "Investments" above
in Note 1 and Note 3). Such assets are carried at fair value which is
based on quoted market prices for such securities.
Foreign Exchange Contracts - The fair value of foreign exchange
contracts is determined using the quoted exchange rate (see "Foreign
Exchange Contracts" below in Note 1).
Convertible Subordinated Notes - Convertible Subordinated Notes are
recorded at face value of $172.5 million (see Note 5). The fair value
of such debt, based on quoted market prices at December 31, 1998 and
1999 was $134.9 milion and $205.1 million, respectively.
COMPREHENSIVE INCOME - Comprehensive income includes such items as foreign
currency translation adjustments and unrealized holding gains and losses
on available for sale securities that are currently being presented by
Cymer as a component of stockholders' equity
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 include 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.
Research and development revenues totaled $2,456,000, $313,000 and
$399,000 for the years ended December 31, 1997, 1998 and 1999,
respectively.
WARRANTY EXPENSE - Cymer generally warrants its products against defects
for the earlier of 17 to 25 months from the date of shipment or 12 months
after acceptance by the end-user. Cymer accrues a provision for warranty
expense for all products sold which is included in cost of product sales
in the consolidated statements of income. The amount of the provision is
based on actual
F-9
<PAGE>
historical expenses incurred and estimated probable future expenses
related to current sales. Warranty costs incurred are charged against the
provision.
STOCK-BASED COMPENSATION - Cymer has elected to account for stock-based
compensation using the intrinsic value method prescribed in Accounting
Principles Board ("APB") 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 Cymer's stock at the date of the grant over the amount an
employee must pay to acquire the stock. Pro forma disclosures required
under SFAS No. 123, ACCOUNTING FOR STOCK-BASED COMPENSATION, which
prescribes the recognition of compensation expense based on the fair value
of options on the grant date, have been provided. See Note 6.
FOREIGN CURRENCY TRANSLATION - Gains and losses resulting from foreign
currency translation are accumulated as a separate component of
consolidated stockholders' equity as accumulated other comprehensive
income (loss). Gains and losses resulting from foreign currency
transactions are included in the consolidated statements of income.
FOREIGN EXCHANGE CONTRACTS - Cymer enters into foreign currency exchange
contracts in order to reduce the impact of currency fluctuations related
to purchases of Cymer's inventories by Cymer Japan for resale under firm
third-party sales commitments. Net gains or losses are recorded on the
date the inventories are received by Cymer Japan (the transaction date)
and are included in cost of product sales in the consolidated statements
of income as the related sale is consummated. Amounts due from/to the bank
on contracts not settled as of the transaction date are recorded as
foreign exchange contracts receivable/payable in the consolidated balance
sheets.
Cymer recognized net gains from the above foreign currency exchange
contracts of $5,758,000 and $4,547,000 for the years ended December 31,
1997 and 1998, respectively, and a net loss of $2,991,000 for the year
ended December 31, 1999.
The face amount of the underlying contracts was $88,339,000, $83,006,000
and $54,123,000 at December 31, 1997, 1998 and 1999, respectively. Cymer
had outstanding forward foreign exchange contracts at December 31, 1999 to
buy $56.0 million for 6.0 billion yen under foreign currency exchange
facilities with banks in Japan and the United States (see Note 4). The
total unrecorded deferred loss and premium on these contracts as of
December 31, 1999 was approximately $1.3 million and $919,000,
respectively. Such contracts expire on various dates through October 2000.
CONCENTRATION OF CREDIT RISK - Cymer invests its excess cash in an effort
to preserve capital, provide liquidity, maintain diversification and
generate returns relative to Cymer's corporate investment policy and
prevailing market conditions. Cymer has not experienced any material
losses on its cash and investment accounts. Cymer has a small number of
significant customers and maintains a reserve for potential credit losses
and such losses, to date, have been minimal (see "Major Customers and
Related Parties").
MAJOR CUSTOMERS AND RELATED PARTIES - Revenues from major customers are
detailed as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------------------------
1997 1998 1999
CUSTOMER (IN THOUSANDS)
<S> <C> <C> <C>
A $80,156 $57,900 $53,201
B 51,480 36,916 38,200
C 49,441 67,729 72,828
D 11,697 10,833 11,794
</TABLE>
F-10
<PAGE>
Receivables from these customers totaled $42,320,000 and $47,682,000 at
December 31, 1998 and 1999, respectively.
Revenues from Japanese customers, generated primarily by Cymer Japan,
accounted for 65%, 48% and 37% of revenues for the years ended December
31, 1997, 1998 and 1999, respectively. Revenues from a customer in The
Netherlands accounted for 24%, 37% and 33% of revenues for the years ended
December 31, 1997, 1998 and 1999, respectively.
Revenues from stockholders totaled $131,636,000, $94,816,000 and
$91,401,000 for the years ended December 31, 1997, 1998 and 1999,
respectively.
EARNINGS PER SHARE - Earnings per share ("EPS") have been computed in
accordance with SFAS No. 128, EARNINGS PER SHARE. SFAS No. 128 requires
dual presentation of "Basic" and "Diluted" EPS by entities with complex
capital structures, replacing "Primary" and "Fully Diluted" EPS under APB
Opinion No. 15, EARNINGS PER SHARE. Basic EPS excludes dilution and is
computed by dividing net income or loss attributable to common
stockholders by the weighted-average of common shares outstanding for the
period. Diluted EPS reflects the potential dilution that could occur if
securities or other contracts to issue common stock (convertible preferred
stock, warrants to purchase common stock and common stock options using
the treasury stock method) were exercised or converted into common stock.
Potential common shares in the diluted EPS computation are excluded in net
loss periods as their effect would be antidilutive. Basic and diluted EPS
were calculated as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------------------------
1997 1998 1999
(IN THOUSANDS, EXCEPT
PER SHARE AMOUNTS)
<S> <C> <C> <C>
Net income $26,058 $2,523 $8,573
============ ============= ============
Basic earnings per share $0.92 $0.09 $0.31
============ ============= ============
Basic weighted average common shares outstanding
28,212 28,226 27,907
Effect of dilutive securities:
Warrants 121 111 36
Options 1,934 1,229 1,697
------------ ------------- ------------
Diluted weighted average common and potential
common shares outstanding 30,267 29,566 29,640
============ ============= ============
Diluted earnings per share $0.86 $0.09 $0.29
============ ============= ============
</TABLE>
Weighted average options to purchase 412,000, 2,364,000 and 168,000 shares
of common stock, which expire at various dates through 2009 were
outstanding for the years ended December 31, 1997, 1998 and 1999,
respectively, and were not included in the computation of diluted earnings
per share as the options' exercise prices were greater than the average
market prices of the common shares. In addition, for the years ended
December 31, 1997, 1998 and 1999, potential common shares attributable to
Convertible Subordinated Notes of 1,529,000, 3,670,213, and 3,670,213, and
related interest expense of $4,249,000, $9,732,000 and $9,732,000,
respectively, were not included in the diluted earnings per share
computation as they were also anti-dilutive.
F-11
<PAGE>
STOCK SPLIT - On August 7, 1997, Cymer declared a 2-for-1 stock split of
its common stock effective August 21, 1997. The par value of the common
stock of $.001 per share remained unchanged. All common share amounts and
earnings per share for all periods presented have been adjusted to give
effect to this stock split.
RECLASSIFICATIONS - Certain amounts in the prior years' financial
statements have been reclassified to conform to current period
presentation.
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------------
2. BALANCE SHEET DETAILS 1998 1999
(IN THOUSANDS)
<S> <C> <C>
ACCOUNTS RECEIVABLE:
Trade $49,052 $67,399
Other 2,629 2,579
-------------- --------------
51,681 69,978
Less allowance for doubtful accounts (772) (727)
============== ==============
Total $50,909 $69,251
============== ==============
INVENTORIES:
Raw materials $29,063 $16,199
Work-in-progress 14,091 18,661
Finished goods 17,332 28,849
-------------- --------------
60,486 63,709
Reserve for excess and obsolete (9,700) (12,300)
============== ==============
Total $50,786 $51,409
============== ==============
PROPERTY - at cost:
Furniture and equipment $38,465 $46,069
Capitalized lasers 15,960 19,558
Leasehold improvements 21,695 24,121
Land 4,123
Construction in process 3,309 7,657
-------------- --------------
79,429 101,528
Less accumulated depreciation and amortization (27,492) (44,607)
============== ==============
Total $51,937 $56,921
============== ==============
ACCRUED AND OTHER LIABILITIES:
Warranty and installation reserves $19,000 $24,600
Payroll and payroll related 3,622 11,952
Interest 7,651 11,371
Other 2,931 4,369
============== ==============
Total $33,204 $52,292
============== ==============
</TABLE>
F-12
<PAGE>
3. INVESTMENTS
Investments consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------------------
1998 1999
(IN THOUSANDS)
<S> <C> <C>
Short-term:
Municipal Bonds $50,053 $25,091
Corporate Bonds 21,143 23,204
Commercial Paper 7,863 28,005
U.S. Government Agencies 4,999 19,464
Other 1,500 1,800
--------------- ----------------
Total $85,558 $97,564
=============== ================
Long-term:
Municipal Bonds $16,426 $14,900
Corporate Bonds 7,054 4,860
--------------- ----------------
Total $23,480 $19,760
=============== ================
</TABLE>
Investments are recorded at fair value. Short-term investments mature
within one year and long-term investments mature in one year to 18 months.
See also "Investments" in Note 1.
4. CREDIT FACILITIES
REVOLVING LOAN AGREEMENTS - During 1998 and 1999, respectively, Cymer
maintained a Loan Agreement (the "Agreement") which provided for an
unsecured optional currency revolving loan facility with two banks to
provide for combined borrowings of up to a maximum of $25 million in 1998
and $30 million in 1999. Under the Agreement, interest accrues on
outstanding borrowings at TIBOR plus 1.40% in 1998 and at TIBOR plus 2.00%
in 1999. As of December 31, 1998 and 1999, there was $11.6 million and
$18.4 million outstanding under this Agreement, at interest rates of 2.13%
and 2.11%, respectively.
The Agreement requires Cymer to maintain compliance with certain financial
statement and other covenants, including tangible net worth, quick ratio
and profitability requirements. As of December 31, 1999 Cymer was in
compliance with all such covenants.
FOREIGN EXCHANGE FACILITIES - Cymer has foreign exchange facilities with a
bank in Japan and a bank in the United States. The first facility with a
bank in Japan provided up to 14.3 billion yen in 1998 to be utilized for
forward contracts for periods of up to one year. As of December 31, 1998,
1.1 billion yen ($8.9 million) was being utilized under the foreign
exchange facility (see "Foreign Exchange Contracts" in Note 1). This
facility was discontinued in 1999.
The foreign exchange facility with the United States bank provides up to
$100 million in 1998 and up to $57.5 million in 1999 to be utilized for
spot and future foreign exchange contracts for periods of up to one year.
$24.3 million and $56.0 million was being utilized under the foreign
exchange facility as of December 31, 1998 and 1999, respectively. This
facility is part of the Revolving Loan Agreements discussed above and is
subject to the same covenants.
F-13
<PAGE>
5. CONVERTIBLE SUBORDINATED NOTES
In the third quarter of 1997, Cymer issued $172.5 million aggregate
principal amount of Step-Up Convertible Subordinated Notes (the "Notes")
due August 6, 2004 with interest payable semi-annually February 6 and
August 6, commencing February 6, 1998. Interest on the Notes is stated at
3 1/2% per annum from August 6, 1997 through August 5, 2000 and at 7 1/4%
per annum from August 6, 2000 to maturity or earlier redemption,
representing a yield to maturity accrued at approximately 5.47%. The Notes
are convertible at the option of the holder into shares of Common Stock of
Cymer at any time on or after November 5, 1997 and prior to redemption or
maturity, at a conversion rate of 21.2766 shares per $1,000 principal
amount of Notes, subject to adjustment under certain conditions. Cymer
cannot redeem the Notes prior to August 9, 2000. Thereafter, Cymer can
redeem the Notes from time to time, in whole or in part, at specified
redemption prices. The Notes are unsecured and subordinated to all
existing and future senior indebtedness of Cymer. The indenture governing
the Notes does not restrict the incurrence of senior indebtedness or other
indebtedness by Cymer. As of December 31, 1998 and 1999, $172.5 million in
Convertible Subordinated Notes was outstanding.
6. STOCKHOLDERS' EQUITY
PREFERRED STOCK - Pursuant to Cymer'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.
COMMON STOCK WARRANTS - At December 31, 1999, Cymer had warrants
outstanding to purchase 44,000 shares of its common stock at a weighted
average purchase price of $1.58 per share. The warrants expire in 2000 and
2001.
STOCK OPTION AND PURCHASE PLANS - Cymer has three plans as follows:
<TABLE>
<CAPTION>
COMMON SHARES
DESIGNATED FOR
ISSUANCE
<S> <C>
(i) 1987 Stock Plan 3,000,000
(ii) 1996 Stock Option Plan 5,500,000
(iii) 1996 Employee Stock Purchase Plan 500,000
---------------------
Total 9,000,000
=====================
</TABLE>
(i) 1987 STOCK OPTION PLAN (THE "1987 PLAN") - The 1987 Plan provides that
incentive and nonstatutory options to purchase shares of common stock may
be granted to employees and consultants at prices that are not less than
100% (85% for nonstatutory options) of the fair market value of Cymer's
common stock on the date the options are granted. The 1987 Plan also
provides for various restrictions regarding option terms, prices,
transferability and other matters. Options issued under the 1987 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.
F-14
<PAGE>
F-15
(ii) 1996 STOCK OPTION PLAN (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
Cymer. 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
Cymer'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 Cymer's common stock on the date of grant. Options issued
under the 1996 Stock 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. This plan was amended in 1998 by the
shareholders to increase the plan shares issuable from 3,000,000 to
4,250,000, and again in 1999 to increase the shares issuable to 5,500,000.
(iii) 1996 EMPLOYEE STOCK PURCHASE PLAN (THE "ESPP") - The ESPP is
intended to qualify under Section 423 of the Code. Under the ESPP, an
eligible employee may purchase shares of common stock from Cymer through
payroll deductions of up to 10% 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 Cymer's common stock as
of the first day of each offering period under the ESPP or (ii) the fair
market value of the common stock at the end of the offering period.
In 1996 Cymer had adopted a 1996 DIRECTOR OPTION PLAN (THE "DIRECTOR
OPTION PLAN") whereby 200,000 shares were reserved for Board of Director
option grants. There were 80,000 options issued under the Director Option
Plan in 1997. The plan was dissolved in October 1997 by the Board of
Directors.
Stock option transactions are summarized as follows (in thousands, except
per share data):
<TABLE>
<CAPTION>
WEIGHTED AVERAGE
NUMBER OF EXERCISE PRICE
SHARES PER SHARE
<S> <C> <C>
Outstanding, January 1, 1997 3,034 $ 3.48
Granted 1,838 $ 27.20
Exercised (608) $ 0.78
Terminated (217) $ 8.93
------------
Outstanding, December 31, 1997 4,047 $ 14.39
Granted 1,731 $ 20.31
Exercised (359) $ 1.74
Terminated (1,351) $ 25.90
------------
Outstanding, December 31, 1998 4,068 $ 14.21
Granted 2,006 $ 27.95
Exercised (1,089) $ 6.74
Terminated (216) $ 18.95
------------
Outstanding, December 31, 1999 4,769 $ 21.47
============
Exercisable, December 31, 1997 846 $ 3.73
============
Exercisable, December 31, 1998 1,447 $ 8.26
============
Exercisable, December 31, 1999 1,665 $ 14.93
============
</TABLE>
F-15
<PAGE>
Cymer applies APB Opinion No. 25 and related Interpretations in accounting
for its employee stock option and stock purchase plans. Accordingly, no
compensation expense has been recognized for its stock-based compensation
plan, as the options are granted at the fair market value of Cymer's
common stock on the date of grant.
The following table summarizes the impact 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 SFAS No. 123:
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31,
------------------------------------------------------------
1997 1998 1999
------------------ -------------------- ----------------
<S> <C> <C> <C>
Impact on net income ($7,600,000) ($15,228,000) ($18,246,000)
Impact on earnings per share:
basic ($0.27) ($0.54) ($0.65)
diluted ($0.25) ($0.52) ($0.62)
Estimated weighted average fair market value
of options granted or shares purchased
using the Black-Scholes pricing model:
Options $17.36 $11.57 $21.71
ESPP $9.00 $5.71
Weighted average assumptions:
dividend yield None None None
volatility rate 88% 85% 80%
risk free interest rates 5.37% to 6.83% 4.07% to 5.66% 4.56% to 6.27%
assumed forfeiture rate 5% 5 % 5%
expected life - Options 5 years 5 years 7 years
ESPP N/A .5 years .5 years
</TABLE>
The following table summarizes information as of December 31, 1999
concerning currently outstanding and exercisable options:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
- -------------------------------------------------------------------------------- ---------------------------------
WEIGHTED AVERAGE WEIGHTED WEIGHTED
RANGE OF NUMBER REMAINING AVERAGE NUMBER AVERAGE
EXERCISE PRICES OUTSTANDING CONTRACTUAL LIFE EXERCISE PRICE EXERCISABLE EXERCISE PRICE
(YEARS)
<S> <C> <C> <C> <C> <C>
$0.25 - $2.50 448,405 .81 $ 1.92 415,856 $ 1.87
$3.00 - $19.34 893,121 6.85 $14.32 406,852 $12.48
$20.00 - $21.03 1,675,269 7.65 $20.70 446,922 $20.65
$21.84 - $27.38 838,461 7.43 $23.23 342,834 $23.31
$33.75 - $34.94 176,321 8.69 $33.84 52,882 $33.75
$35.69 - $45.88 737,205 9.85 $38.80
--------------- --------------------- ----------------- ---------------- ---------------
4,768,782 6.94 $21.47 1,665,346 $14.93
</TABLE>
F-16
<PAGE>
COMMON SHARES RESERVED - As of December 31, 1999, Cymer had reserved the
following number of shares of common stock for issuance (in thousands):
<TABLE>
<S> <C>
Issuance under stock option and purchase plans 1,030
Exercise of common stock purchase warrants 44
-------------
Total 1,074
=============
</TABLE>
TREASURY STOCK - On January 28, 1998, Cymer's Board of Directors authorized
Cymer to repurchase up to $50.0 million of Cymer's common stock from time to
time on the open market or in privately negotiated transactions. During 1998,
Cymer repurchased 2,000,000 shares at a cost of $24.9 million.
No shares were repurchased during 1999.
OPTION REPRICING - On January 28, 1998, Cymer's Board of Directors authorized an
incentive stock option repricing effective March 2, 1998 at a new option price
of $22.56 per share. The repricing took effect on 839,020 options with original
prices ranging from $21.03 to $33.75 per share granted from December 1996
through October 1997. The four year vesting period of the repriced options also
began on March 2, 1998 and the term of such options was set at ten years. Cymer
did not incur any compensation expense as a result of this repricing for the
year ended December 31, 1998.
STOCKHOLDER RIGHTS PLAN - On February 13, 1998, Cymer's Board of Directors
adopted a Stockholder Rights Plan. Under the terms of the Plan, rights were
distributed as a dividend at a rate of one preferred share purchase right on
each outstanding share of Cymer's common stock held by stockholders of record as
of the close of business on March 2, 1998. All additional shares of common stock
issued prior to February 13, 2008, the expiration date for all rights, are to
receive the dividend at the same rate. The exercise price for each
one-thousandth of a preferred share issuable pursuant to the exercise of a right
shall initially be $100.00, subject to adjustment under the Plan. Such rights
are exercisable only upon certain change of ownership events as defined in the
Plan. The rights are designed to assure that all Cymer stockholders receive fair
and equal treatment in the event of any proposed takeover of Cymer and to guard
against partial tender offers and other abusive tactics to gain control of Cymer
without paying all stockholders the fair value of their shares, including a
control premium.
7. INCOME TAXES
The components of the provision for income taxes are summarized as
follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------------------------
1997 1998 1999
(IN THOUSANDS)
<S> <C> <C> <C>
Current income taxes:
Federal $16,174 ($751) $4,961
State 1,127 10 829
Foreign 2,700 1,213 2,404
-------------- -------------- --------------
Total 20,001 472 8,194
-------------- -------------- --------------
Deferred income taxes:
Federal (5,103) (2,029) (5,979)
State (360) (552) (2,199)
Foreign (611) 859 (16)
-------------- -------------- --------------
Total (6,074) (1,722) (8,194)
Reduction in valuation allowance (5,288)
-------------- -------------- --------------
Income tax provision (benefit) $8,639 ($1,250) $ -
============== ============== ==============
</TABLE>
F-17
<PAGE>
The income tax provision (benefit) is different from that which would be
obtained by applying the statutory Federal income tax rate (35%) to income
before income tax expense (benefit). The items causing this difference for
the period are as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------------------
1997 1998 1999
(IN THOUSANDS)
<S> <C> <C> <C>
Provision at statutory rate $12,095 $592 $3,233
Foreign provision in excess of Federal statutory rate 1,659 2,504 932
State income taxes, net of Federal benefit 484 (152) (891)
Foreign sales corporation benefit, net of Federal tax (449) (3,270) (709)
Federal tax credits (587) (499) (2,389)
Japanese imported product credits (622)
Tax exempt interest, net of disallowed expenses (563) (66)
Miscellaneous/other items 968 138 (110)
Reduction in valuation allowance (4,909)
----------- ----------- -----------
Provision (benefit) at effective tax rate $8,639 ($1,250) $ -
=========== =========== ===========
</TABLE>
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 Cymer's net deferred tax assets are as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------------------
1998 1999
(IN THOUSANDS)
<S> <C> <C>
Reserves and accruals not currently deductible $12,699 $17,496
Accrued Japanese enterprise tax 296 386
State taxes (756) (1,526)
Tax credit carryforwards 1,577 4,393
Difference between book and tax basis of
inventory and fixed assets (91) 1,371
Tax effect of foreign currency translation
adjustments 945 2,205
Other 687 597
----------------- ---------------
Net deferred tax assets 15,357 24,922
Less: current portion (12,824) (16,360)
----------------- ---------------
Net non-current deferred tax assets $2,533 $8,562
================= ===============
</TABLE>
Cymer eliminated its valuation allowance in 1997 due to management's
belief that current year activity made realization of such benefit more
likely than not.
8. COMMITMENTS AND CONTINGENCIES
LEASES - Cymer leases its primary facilities under non-cancelable
operating leases. The lease terms are through January 1, 2010 and provide
for certain rent abatements and minimum annual increases and options to
extend the terms. Cymer also leases certain other facilities and equipment
under capital and short-term operating lease agreements. The capital
leases expire on various dates through 2003.
F-18
<PAGE>
Under the terms of an operating lease for an office building entered into
in December 1996, Cymer had deposited approximately $2,224,000 in an
escrow account in lieu of a security deposit for the premises. During 1999
the requirement to hold the deposit in escrow terminated and the funds
were released to the general cash account.
Rent expense under operating leases is recognized on a straight-line basis
over the life of the related leases and totaled approximately $2,863,000,
$4,043,000 and $4,752,000 for the years ended December 31, 1997, 1998 and
1999, respectively.
The net book value of assets under capital leases at December 31, 1998 and
1999 was approximately $1,651,000 and $1,108,000, net of accumulated
depreciation of approximately $915,000 and $1,457,000, respectively.
Total future minimum lease commitments under operating and capital leases
are as follows (in thousands):
<TABLE>
<CAPTION>
YEAR ENDING DECEMBER 31, OPERATING CAPITAL
<S> <C> <C>
2000 $2,959 $731
2001 3,004 383
2002 2,892 27
2003 2,724 7
2004 2,797
Thereafter 15,235
---------------- ----------------
Total $29,611 1,148
================
Less amount representing interest 204
----------------
Present value of minimum lease payments 944
Less current portion 495
----------------
Long term obligations under capital leases $449
================
</TABLE>
PATENT LICENSE AGREEMENT - Cymer has a patent license agreement for a
non-exclusive worldwide license to certain patented laser technology.
Under the terms of the agreement, Cymer is required to pay royalties
ranging from 0.25% to 5.0% of gross sales and leases as defined depending
on the total amounts attained. Royalty fees totaled $49,000, $100,000 and
$100,000 for the years ended December 31, 1997, 1998 and 1999,
respectively.
EMPLOYEE SAVINGS PLAN - Cymer has a 401(k) plan that allows participating
employees to contribute a percentage of their salary, subject to annual
limits. The Plan is available to substantially all full-time United States
employees. Effective January 1, 1997, Cymer matched 100% of each eligible
employee's contributions, up to $500 per year. Cymer contributed $187,000,
$221,000, and $199,000 for the years ended December 31, 1997, 1998, and
1999, respectively.
RETIREMENT PLAN - During 1996, Cymer Japan adopted a retirement benefit
plan for all Cymer Japan 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. In December
1998, Cymer Japan adopted a Retirement Allowance and Pension Plan
accounted for using the book reserve method. Expense under these plans
totaled $172,000, $379,000, and $298,000 for the years ended December 31,
1997, 1998 and 1999, respectively.
F-19
<PAGE>
CONTINGENCY - Cymer's Japanese manufacturing partner has been notified
that its manufacture of Cymer's laser systems in Japan may infringe a
Japanese patent held by another Japanese company. Cymer has agreed to
indemnify its Japanese manufacturing partner against patent infringement
claims under certain circumstances. Cymer believes, based upon the advice
of counsel, that Cymer's products do not infringe any valid claim of the
asserted patent.
9. CLASS ACTION LAWSUITS
Cymer has been named as a defendant in several putative shareholder
class action lawsuits which were filed in September and October, 1998 in
the U.S. District Court for the Southern District of California. Certain
executive officers and directors of Cymer are also named as defendants.
The plaintiffs purport to represent a class of all persons who purchased
Cymer's Common Stock between April 24, 1997 and September 26, 1997 (the
"Class Period"). The complaints allege claims under the federal securities
laws. The plaintiffs allege that Cymer and the other defendants made
various material misrepresentations and omissions during the Class Period.
The complaints do not specify the amount of damages sought. The complaints
have been consolidated into a single action and a class representative has
been appointed by the court. A consolidated amended complaint was filed in
early August, 1999. On November 5, 1999 Cymer and the other defendants
filed a motion to dismiss the consolidated amended claim for failure to
state a cause of action. No ruling on the motion has yet been made by the
court. Discovery has not yet commenced. Cymer believes that it has good
defenses to the claims alleged in the lawsuits and will defend itself
vigorously against these actions. The defense of these actions may cause
some disruption in Cymer's operations and may from time to time distract
management from day-to-day operations. The ultimate outcome of these
actions cannot be presently determined. Accordingly, no provision for any
liability or loss that may result from adjudication or settlement thereof
has been made in the accompanying consolidated financial statements.
10. RELATED PARTY TRANSACTIONS
COLLABORATIVE ARRANGEMENT - Cymer has a collaborative arrangement with a
Japanese company that was also a stockholder of Cymer. The arrangement,
entered into in August 1992, includes a (i) stock purchase agreement, (ii)
research and development agreement, (iii) product license agreement, and
(iv) contract manufacturing agreement. The general provisions of these
agreements are as follows:
STOCK PURCHASE AGREEMENT - The stockholder purchased 470,590 shares
of Cymer's Series D Redeemable Convertible Preferred Stock at $4.25
per share with net proceeds to Cymer of $1,909,000. Such stock was
converted to common stock in 1996 and was sold in 1999.
PRODUCT LICENSE AGREEMENT - Cymer granted to the stockholder the
exclusive right in Japan and the non-exclusive right outside Japan
to manufacture and sell one of Cymer's products and subsequent
enhancements thereto. Cymer 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, Cymer received up-front license fees and
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 Cymer and the stockholder will be at a 15% discount
from the respective companies' list price. The agreement terminates
in August 2012. There was no activity under this agreement in 1997,
1998 and 1999.
CONTRACT MANUFACTURING AGREEMENT - The stockholder has agreed to
manufacture for Cymer another of its products. Cymer will be
required to purchase a specified percentage of its total
F-20
<PAGE>
annual product, as defined, from the stockholder. The agreement
expires in August 2001, and will automatically renew for two-year
terms unless one year's notice is given by either party. Cymer made
$14.1 million, $13.9 million and $10.9 million in purchases under
this agreement in 1997, 1998 and 1999, respectively.
SERVICE AGREEMENT - Cymer has a service agreement with another Japanese
company who was also a stockholder of Cymer. The general provisions of the
service agreement are as follows:
SALES AND MARKETING - The Japanese company is to assist Cymer 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 extended until the total
consideration paid under the agreement aggregated $2,000,000. Under
certain conditions, if the agreement is terminated, Cymer 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 year
ended December 31, 1997 totaled $150,000. The aggregate $2,000,000
consideration was met in January, 1997.
ROYALTIES - Cymer 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 and shall continue as long as products are
manufactured by the third party contractor. Consideration expensed
under the agreement for the years ended December 31, 1997, 1998, and
1999 was $252,000, $293,000, and $308,000 respectively.
11. SEGMENT INFORMATION
Cymer designs, manufactures and sells excimer laser systems, replacement
parts, and support services for use in photolithography systems used in
the manufacture of semiconductors with critical features sizes. In
accordance with SFAS No. 131, Cymer currently considers its business to
consist of one reportable operating segment.
GEOGRAPHIC INFORMATION
Presented below is information regarding sales, income from operations,
and identifiable assets, classified by operations located in the United
States, Japan, Korea, Taiwan, Singapore and The Netherlands. Cymer sells
its excimer lasers in Japan through Cymer Japan. Intercompany sales to the
subsidiaries are primarily priced between 85% to 90% of the price of
products sold to outside customers. 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 loss from the United States operations.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------------------------
1997 1998 1999
<S> <C> <C> <C>
Sales from:
United States $75,432 $93,144 $125,297
Japan 128,075 88,571 81,445
Korea, Taiwan, Singapore, and Netherlands 140 3,426 13,708
---------------- ----------------- -----------------
Total $203,647 $185,141 $220,450
================ ================= =================
</TABLE>
F-21
<PAGE>
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------------------------
1997 1998 1999
<S> <C> <C> <C>
Operating income (loss) :
United States ($30,186) ($44,117) ($30,958)
Japan 65,786 47,359 36,068
Korea, Taiwan, Singapore, and Netherlands (1,156) 2,019 7,874
---------------- ----------------- -----------------
Total $34,444 $5,261 $12,984
================ ================= =================
Identifiable assets:
United States $310,019 $287,871 $334,192
Japan 72,427 67,792 76,235
Korea, Taiwan, Singapore, and Netherlands 3,673 8,655 16,394
---------------- ----------------- -----------------
Total $386,119 $364,318 $426,821
================ ================= =================
</TABLE>
12. SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
<TABLE>
<CAPTION>
QUARTERLY RESULTS OF OPERATIONS
(IN THOUSANDS EXCEPT FOR PER SHARE DATA)
YEAR ENDED DECEMBER 31, 1998
-------------------------------------------------------
1ST 2ND 3RD 4TH
<S> <C> <C> <C> <C>
Revenues $49,679 $53,022 $44,448 $37,992
Gross profit $18,998 $18,792 $15,557 $5,768
Operating income (loss) $4,854 $3,991 $3,090 ($6,674)
Net income (loss) $2,703 $1,689 $1,453 ($3,322)
Basic earnings (loss) per share $0.09 $0.06 $0.05 ($0.12)
Diluted earnings (loss) per share $0.09 $0.06 $0.05 ($0.12)
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1999
-------------------------------------------------------
1ST 2ND 3RD 4TH
<S> <C> <C> <C> <C>
Revenues $40,092 $43,409 $58,934 $78,015
Gross profit $11,707 $14,983 $22,031 $28,224
Operating income (loss) ($1,802) $514 $4,714 $9,557
Net income (loss) ($2,298) ($1,489) $3,450 $8,910
Basic earnings (loss) per share ($0.08) ($0.05) $0.12 $0.31
Diluted earnings (loss) per share ($0.08) ($0.05) $0.12 $0.29
</TABLE>
F-22
<PAGE>
EXHIBIT 3.3
BYLAWS
OF
CYMER, INC.
AS
AMENDED AND RESTATED
THROUGH DECEMBER 10, 1999
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
Article 1 Corporate Offices..........................................................................................1
1.1 Principal Office.....................................................................................1
1.2 Other Offices........................................................................................1
Article 2 Stockholders' Meetings.....................................................................................1
Article 3 Annual Meetings............................................................................................1
Article 4 Special Meetings...........................................................................................2
Article 5 Notice.....................................................................................................2
5.1 Notice of Stockholders' Meetings.....................................................................2
5.2 Advance Notice of Stockholder Nominees...............................................................2
5.3 Advance Notice of Stockholder Business...............................................................3
Article 6 Waiver; Consent; Ratification..............................................................................4
6.1 Waiver of Notice.....................................................................................4
6.2 No Consent of Stockholders In Lieu of Meeting........................................................4
6.3 Ratification and Approval of Actions at Special Meetings.............................................4
Article 7 Quorum of Stockholders.....................................................................................5
Article 8 Proxy and Voting...........................................................................................5
Article 9 Board of Directors.........................................................................................5
Article 10 Powers of Directors........................................................................................6
Article 11 Meetings and Consents......................................................................................6
11.1 Meetings.............................................................................................6
11.2 Telephonic/Electronic Meetings.......................................................................6
11.3 Consent to Action....................................................................................7
Article 12 Quorum of Directors........................................................................................7
Article 13 Limitations of Power.......................................................................................7
Article 14 Committees.................................................................................................7
14.1 Committees of Directors..............................................................................7
14.2 Committee Minutes....................................................................................8
14.3 Meetings and Action of Committees....................................................................8
</TABLE>
-i-
<PAGE>
TABLE OF CONTENTS
(CONTINUED)
<TABLE>
<CAPTION>
PAGE
<S> <C>
Article 15 Officers...................................................................................................9
Article 16 Eligibility of Officers....................................................................................9
Article 17 Additional Officers and Agents.............................................................................9
Article 18 Chief Executive Officer....................................................................................9
Article 19 Chief Financial Officer...................................................................................10
Article 20 Secretary.................................................................................................10
Article 21 Treasurer.................................................................................................10
Article 22 Resignations and Removals.................................................................................11
Article 23 Vacancies.................................................................................................11
Article 24 Certificates of Stock.....................................................................................11
Article 25 Transfer of Stock.........................................................................................11
Article 26 Indemnity.................................................................................................12
26.1 Indemnification of Officers and Directors in Advance................................................12
26.2 Indemnification of Employees and Agents.............................................................12
26.3 Indemnity Not Exclusive.............................................................................13
26.4 Indemnification for Successful Defense..............................................................13
26.5 Continuing Right to Indemnification.................................................................13
26.6 Insurance and Other Financial Arrangements..........................................................13
Article 27 Transfer Books and Record Dates...........................................................................14
27.1 Record Date for Notice and Voting...................................................................14
27.2 Record Date for Purposes Other Than Notice and Voting...............................................14
Article 28 Loss of Certificates......................................................................................15
Article 29 Corporate Authority.......................................................................................15
29.1 Checks; Drafts; Evidences of Indebtedness...........................................................15
29.2 Corporate Contracts and Instruments; How Executed..................................................15
Article 30 Amendments................................................................................................15
</TABLE>
-ii-
<PAGE>
BYLAWS
OF
CYMER, INC.,
A NEVADA CORPORATION
ARTICLE 1
CORPORATE OFFICES
1.1 PRINCIPAL OFFICE
The principal office of the corporation shall be located at 16275
Technology Drive, San Diego, California 92127, unless and until otherwise
decided by the Board of Directors, who may fix the location of the principal
office of the corporation at any place within or outside the State of Nevada. If
the principal office is located outside the State of Nevada and the corporation
has one or more business offices in the State of Nevada, then the board of
directors shall fix and designate a principal business office in the State of
Nevada.
1.2 OTHER OFFICES
The board of directors may at any time establish branch or subordinate
offices at any place or places where the corporation is qualified to do
business.
ARTICLE 2
STOCKHOLDERS' MEETINGS
All meetings of stockholders shall be held either at the principal office
of the corporation or at any other place within or without the State of Nevada
or the United States as the Board of Directors or any person authorized to call
such meeting or meetings may designate.
ARTICLE 3
ANNUAL MEETINGS
The annual meeting of the stockholders of the corporation shall be held on
the first Friday of May in each year at 2:00 p.m., or at such other date and
time designated by the Board of Directors. In the event that such annual meeting
is omitted by oversight or otherwise on the date herein provided for, the
directors shall cause a meeting in lieu thereof to be held as soon thereafter as
<PAGE>
conveniently may be, and any business transacted or elections held at such
meeting shall be as valid as if transacted or held at the annual meeting. Such
subsequent meeting shall be called in the same manner as provided for the annual
stockholders' meeting.
ARTICLE 4
SPECIAL MEETINGS
Except as otherwise provided by law, special meetings of the stockholders
of this corporation shall be held whenever called by the president or by a
majority of the Board of Directors or whenever one or more stockholders who are
entitled to vote and who hold at least ten percent (10%) of the capital stock
issued and outstanding shall make written application therefor to the secretary
stating the time, place, and purpose of the meeting called for.
ARTICLE 5
NOTICE
5.1 NOTICE OF STOCKHOLDERS' MEETINGS
Notice of all stockholders' meetings stating the time and the place, and
the objects for which such meetings are called, shall be given by the president
or secretary or by any one or more stockholders entitled to call a special
meeting of the stockholders or any such other person or persons as the Board may
designate, by mail not less than ten (10), nor more than sixty (60) days prior
to the date of the meeting, to each stockholder of record at his or her address
as it appears on the stock books of the corporation, unless he or she shall have
filed with the secretary of the corporation a written request that notice
intended for him or her be mailed to some other address, in which case it shall
be mailed to the address designated in such request. The person giving such
notice shall make an affidavit in relation thereto.
Any meeting of which all stockholders shall at any time waive or have
waived notice in writing shall be a legal meeting for the transaction of
business, notwithstanding that notice has not been given as hereinbefore
provided.
5.2 ADVANCE NOTICE OF STOCKHOLDER NOMINEES
Nominations of persons for election to the Board of Directors of the
corporation may be made at a meeting of stockholders by or at the discretion of
the Board of Directors or by any stockholder of the corporation entitled to vote
in the election of directors at the meeting who complies with the notice
procedures set forth in this Section. Such nominations, other than those made by
or at the direction of the Board of Directors, shall be made pursuant to timely
notice in writing to the secretary of the corporation. To be timely, a
stockholder's notice must be delivered to or mailed and received at the
principal executive offices of the corporation not less than forty-five (45)
days prior to the date on which the corporation first mailed proxy materials for
the prior years
<PAGE>
annual meeting; provided, however, that if the corporation's annual meeting of
stockholders occurs on a date more than thirty (30) days earlier or later than
the corporation's prior year's annual meeting, then the corporation's board of
directors shall determine a date a reasonable period prior to the corporation's
annual meeting of stockholders by which date the stockholder's notice must be
delivered and shall publicize such date in a filing pursuant to the Securities
Exchange Act of 1934, as amended, or via press release. Such publication shall
occur at least ten (10) days prior to the deadline date for stockholder
nominations set by the Board of Directors. Such stockholder's notice shall set
forth (a) as to each person, if any, whom the stockholder proposes to nominate
for election or re-election as a director: (i) the name, age, business address
and residence address of such person, (ii) the principal occupation or
employment of such person, (iii) the class and number of shares of the
corporation which are beneficially owned by such person, (iv) any other
information relating to such person that is required by law to be disclosed in
solicitations of proxies for election of directors, and (v) such person's
written consent to being named as a nominee and to serving as a director if
elected; and (b) as to the stockholder giving the notice: (i) the name and
address, as they appear on the corporation's books, of such stockholder, and
(ii) the class and number of shares of the corporation which are beneficially
owned by such stockholder, and (iii) a description of all arrangements or
understandings between such stockholder and each nominee and any other person or
persons (naming such person or persons) relating to the nomination. At the
request of the Board of Directors any person nominated by the Board for election
as a director shall furnish to the secretary of the corporation that information
required to be set forth in the stockholder's notice of nomination which
pertains to the nominee. No person shall be eligible for election as a director
of the corporation unless nominated in accordance with the procedures set forth
in this Section. The chairman of the meeting shall, if the facts warrant,
determine and declare at the meeting that a nomination was not made in
accordance with the procedures prescribed by these Bylaws, and if he or she
should so determine, he or she shall so declare at the meeting and the defective
nomination shall be disregarded.
5.3 ADVANCE NOTICE OF STOCKHOLDER BUSINESS
At the annual meeting of the stockholders, only such business shall be
conducted as shall have been properly brought before the meeting. To be properly
brought before an annual meeting, business must be: (a) as specified in the
notice of meeting (or any supplement thereto) given by or at the direction of
the Board of Directors, (b) otherwise properly brought before the meeting by or
at the direction of the Board of Directors, or (c) otherwise properly brought
before the meeting by a stockholder. Business to be brought before an annual
meeting by a stockholder shall not be considered properly brought if the
stockholder has not given timely notice thereof in writing to the secretary of
the corporation. To be timely, a stockholder's notice must be delivered to or
mailed and received at the principal executive offices of the corporation not
less than forty-five (45) days prior to the date on which the corporation first
mailed proxy materials for the prior year's annual meeting; provided, however,
that if the corporation's annual meeting of stockholders occurs on a date more
than thirty (30) days earlier or later than the corporation's prior year's
annual meeting, then the corporation's board of directors shall determine a date
a reasonable period prior to the corporation's annual meeting of stockholders by
which date the stockholder's notice must be delivered and shall
<PAGE>
publicize such date in a filing pursuant to the Securities Exchange Act of 1934,
as amended, or via press release. Such publication shall occur at least ten (10)
days prior to the deadline date for stockholder nominations set by the Board of
Directors. A stockholder's notice to the secretary shall set forth as to each
matter the stockholder proposes to bring before the annual meeting: (i) a brief
description of the business desired to be brought before the annual meeting and
the reasons for conducting such business at the annual meeting, (ii) the name
and address of the stockholder proposing such business, (iii) the class and
number of shares of the corporation, which are beneficially owned by the
stockholder, (iv) any material interest of the stockholder in such business, and
(v) any other information that is required by law to be provided by the
stockholder in his or her capacity as a proponent of a stockholder proposal.
Notwithstanding anything in these Bylaws to the contrary, no business shall be
conducted at any annual meeting except in accordance with the procedures set
forth in this Section. The chairman of the annual meeting shall, if the facts
warrant, determine and declare at the meeting that business was not properly
brought before the meeting and in accordance with the provisions of this
Section, and, if he or she should so determine, he or she shall so declare at
the meeting that any such business not properly brought before the meeting shall
not be transacted.
ARTICLE 6
WAIVER; CONSENT; RATIFICATION
6.1 WAIVER OF NOTICE
Whenever any notice whatsoever is required to be given by these Bylaws, or
the Articles of Incorporation of this corporation, or any of the corporation
laws of the State of Nevada, a waiver thereof in writing, signed by the person
or persons entitled to such notice, whether before or after the time stated
therein, shall be deemed equivalent thereto.
6.2 NO CONSENT OF STOCKHOLDERS IN LIEU OF MEETING
No action which may be taken by the vote of stockholders at a meeting may
be taken without a meeting by the written consent of stockholders.
6.3 RATIFICATION AND APPROVAL OF ACTIONS AT SPECIAL MEETINGS
Whenever all persons entitled to vote at any meeting, whether of directors
or stockholders, consent, either by a writing on the record of the meeting or
filed with the secretary, or presence at such meeting and oral consent entered
on the minutes, or taking part in the deliberations at such meeting without
objection, the doings of such meeting shall be valid as if such meeting was
regularly called and noticed. At such meeting any business may be transacted
which is not excepted from the written consent or to the consideration of which
no objection for want of notice is made at the time.
If any meeting be irregular for want of notice or of consent, provided a
quorum was present at such meeting, the proceedings of the meeting may be
ratified and approved and rendered likewise
<PAGE>
valid and the irregularity or defect therein waived by a writing signed by all
parties having the right to vote at such meeting. Such consent or approval of
stockholders or creditors may be by proxy or attorney, but all such proxies and
powers of attorney must be in writing.
ARTICLE 7
QUORUM OF STOCKHOLDERS
Except as hereinafter provided or otherwise provided by the Articles of
Incorporation or by law, at any meeting of the stockholders, the holders of a
majority of the stock issued, outstanding and entitled to vote thereat,
represented by stockholders in person or by proxy, shall constitute a quorum.
When a quorum is present at any meeting, a majority vote of the shares present
shall decide any question brought before such meeting, unless the question is
one upon which by express provision of law or of the Articles of Incorporation
or of these bylaws a larger or different vote is required, in which case such
express provision shall govern and control the decision of such question.
ARTICLE 8
PROXY AND VOTING
Stockholders of record may vote at any meeting either in person or by
proxy or proxies appointed by a signed and executed instrument in writing, or by
telegram, cablegram, or other means of electronic transmission or copy thereof,
provided that the validity of such transmission can be determined by reference
to information set forth thereon. Such instrument or transmission shall be filed
with the secretary of the meeting before being voted. In the event that any such
instrument or transmission shall designate two or more persons to act as
proxies, a majority of such persons present at the meeting, or, if only one
shall be present, then that one, shall have and may exercise all of the powers
conferred by such instrument or transmission upon all of the persons so
designated unless such instrument or transmission shall otherwise provide.
No proxy shall be valid after the expiration of six (6) months from the
date of its execution unless coupled with an interest, or unless the person
executing it specifies therein the length of time for which it is to continue in
force, which in no case shall exceed seven (7) years from the date of its
execution. Subject to the above, any proxy duly executed is not revoked and
continues in full force and effect until an instrument revoking it or a duly
executed proxy bearing a later date is filed with the secretary of the
corporation.
ARTICLE 9
BOARD OF DIRECTORS
The Board of Directors shall be chosen by ballot at the annual meeting of
the stockholders or at any meeting held in place thereof as provided by law. The
authorized number of directors of this
<PAGE>
corporation shall be five (5). Subject to any limitation set forth in the
provisions of the Articles of Incorporation, the Board of Directors may, by
resolution adopted, increase or decrease the number of the directors of this
corporation, provided that no such reduction of the authorized number of
directors shall have the effect of removing any director before that director's
term of office expires.
Each director shall serve until the next annual meeting of the
stockholders and until his or her successor is duly elected and qualified.
Directors need not be stockholders in the corporation. Directors shall be over
the age of eighteen (18).
ARTICLE 10
POWERS OF DIRECTORS
In the management and control of the property, business, and affairs of
the corporation, the Board of Directors is hereby vested with all the powers
possessed by the corporation itself, so far as this delegation of authority is
not inconsistent with the Nevada General Corporation Law, with the Articles of
Incorporation of the corporation, or with these Bylaws. The Board of Directors
may fix the compensation of directors for services in any capacity.
ARTICLE 11
MEETINGS AND CONSENTS
11.1 MEETINGS
Regular meetings of the Board of Directors shall be held at such places
and at such times as the Board by vote may determine, and if so determined no
notice thereof need be given. Special meetings of the Board of Directors may be
held at any time or place, whenever called by the president, a vice-president,
the treasurer, the secretary, an assistant secretary or two directors, notice
thereof being given to each director by the secretary or an assistant secretary
or an officer calling the meeting, or at any time without formal notice provided
all the directors are present or those not present shall waive or have waived
notice thereof. Notice of special meetings, stating the time and place thereof,
shall be given by mailing the same to each director at his or her residence or
business address at least four (4) days before the meeting, or by delivering the
same to him or her personally or telegraphing the same to him or her at his or
her residence or business address not later than forty-eight (48) hours before
the time at which the meeting is to be held, unless, in case of emergency, the
chairman of the Board of Directors or the president shall prescribe a shorter
notice to be given personally or by telegraphing each director at his or her
residence or business address.
11.2 TELEPHONIC/ELECTRONIC MEETINGS
Members of the Board of Directors or the governing body of the
corporation, or of any committee designated by such Board or body, may
participate in a meeting of such Board, body, or committee by means of a
conference telephone network, or a similar communications method by
<PAGE>
which all persons participating in the meeting can hear each other.
Participation in a meeting pursuant to this subsection constitutes presence in
person at such meeting.
11.3 CONSENT TO ACTION
Any action required or permitted to be taken at any meeting of the Board,
body or committee may be taken without a meeting if, before or after such
action, a written consent thereto is signed by all members of the Board, body,
or committee. Such written consent shall be filed with the minutes of the
proceedings of the Board, body, or committee.
ARTICLE 12
QUORUM OF DIRECTORS
Unless the Articles of Incorporation or these Bylaws provide for a
different proportion, a majority of members of the Board of Directors of the
corporation, at a meeting duly assembled, shall constitute a quorum for the
transaction of business. When a quorum is present at any meeting, the act of
directors holding a majority of the voting power of the directors present shall
be the act of the Board of Directors.
ARTICLE 13
LIMITATIONS OF POWER
The enumeration of the powers and duties of the directors in these Bylaws
shall not be construed to exclude all or any powers and duties, except insofar
as the same are expressly prohibited or restricted by the provisions of these
Bylaws or the Articles of Incorporation. The directors may exercise all other
powers and perform all such duties as may be granted by the Nevada General
Corporation Law and as do not conflict with the provisions of these Bylaws or
the Articles of Incorporation.
ARTICLE 14
COMMITTEES
14.1 COMMITTEES OF DIRECTORS
The Board of Directors may, by resolution passed by a majority of the
whole Board, designate one or more committees, and each committee shall have as
a member at least one (1) director and such other natural persons as the Board
of Directors may select. The Board may designate one or more directors as
alternate members of any committee, who may replace any absent or disqualified
member at any meeting of the committee. In the absence or disqualification of a
member of a committee, the member or members thereof present at any meeting and
not disqualified from voting, whether or not he, she or they constitute a
quorum, may unanimously appoint another
<PAGE>
member of the Board of Directors to act at the meeting in the place of any such
absent or disqualified member. Any such committee, to the extent provided in the
resolution of the Board of Directors or in these Bylaws of the corporation,
shall have and may exercise all the powers and authority of the Board of
Directors in the management of the business and affairs of the corporation, and
may authorize the seal of the corporation to be affixed to all papers that may
require it; but no such committee shall have the power or authority to (i) amend
the Articles of Incorporation (except that a committee may, to the extent
authorized in the resolution or resolutions providing for the issuance of shares
of stock adopted by the Board of Directors as provided in Section 78.195 of the
Nevada General Corporation Law, fix the designations and any of the preferences
or rights of such shares relating to dividends, redemption, dissolution, any
distribution of assets of the corporation or the conversion into, or the
exchange of such shares for, shares of any other class or classes or any other
series of the same or any other class or classes of stock of the corporation or
fix the number of shares of any series of stock or authorize the increase or
decrease of the shares of any series), (ii) adopt an agreement or plan of
merger, consolidation or share exchange under the Nevada General Corporation
Law, (iii) recommend to the stockholders the sale, lease or exchange of all or
substantially all of the corporation's property and assets, (iv) recommend to
the stockholders a dissolution of the corporation or a revocation of a
dissolution, or (v) amend the Bylaws of the corporation; and, unless the Board
resolution establishing the committee, the Bylaws or the Articles of
Incorporation expressly so provide, no such committee shall have the power or
authority to declare a dividend, or to authorize the issuance of stock.
14.2 COMMITTEE MINUTES
Each committee shall keep regular minutes of its meetings and report the
same to the Board of Directors when required.
14.3 MEETINGS AND ACTION OF COMMITTEES
Meetings and actions of committees shall be governed by, and held and
taken in accordance with, the provisions of these Bylaws applicable to the full
Board of Directors, with such changes in the context of those Bylaws as are
necessary to substitute the committee and its members for the Board of Directors
and its members; provided, however, that (i) the time of regular meetings of
committees may be determined either by resolution of the Board of Directors or
by resolution of the committee, and (ii) special meetings of committees may also
be called by resolution of the Board of Directors and that notice of special
meetings of committees shall also be given to all alternate members, who shall
have the right to attend all meetings of the committee. The Board of Directors
may adopt rules not inconsistent with the provisions of these Bylaws for the
government of any committee.
<PAGE>
ARTICLE 15
OFFICERS
The officers of this corporation shall include, without limitation, a
president, a secretary, and a treasurer. The Board of Directors, in its
discretion, may elect a chairman of the Board of Directors, who, when present,
shall preside at all meetings of the Board of Directors, and who shall have such
other powers as the Board shall prescribe.
The officers of the corporation shall be elected by the Board of Directors
after its election by the stockholders, and a meeting may be held without notice
for this purpose immediately after the annual meeting of the stockholders and at
the same place. Any person may hold two or more offices at once.
ARTICLE 16
ELIGIBILITY OF OFFICERS
The chairman of the Board of Directors need not be a stockholder. The
president, secretary, treasurer, and such other officers as may be elected or
appointed need not be stockholders or directors of the corporation. Any person
may hold more than one office, provided the duties thereof can be consistently
performed by the same person.
ARTICLE 17
ADDITIONAL OFFICERS AND AGENTS
The Board of Directors, at its discretion, may appoint one or more vice
presidents, assistant secretaries, assistant treasurers, and such other officers
or agents as it may deem advisable, and prescribe the duties thereof.
ARTICLE 18
CHIEF EXECUTIVE OFFICER
The chief executive officer shall be the president of the corporation and,
when present, shall preside at all meetings of the stockholders and, unless a
chairman of the Board of Directors has been elected and is present, shall
preside at meetings of the Board of Directors. The president, unless some other
person is specifically authorized by vote of the Board of Directors, shall sign
all certificates of stock, bonds, deeds, mortgages, extension agreements,
modification of mortgage agreements, leases, and contracts of the corporation.
He or she shall perform all of the duties commonly incident to his or her office
and shall perform such other duties as the Board of Directors shall designate.
<PAGE>
ARTICLE 19
CHIEF FINANCIAL OFFICER
The chief financial officer shall keep and maintain, or cause to be kept
and maintained, adequate and correct books and records of accounts of the
properties and business transactions of the corporation, including accounts of
its assets, liabilities, receipts, disbursements, gains, losses, capital,
retained earnings, and shares. He or she shall perform all of the duties
commonly incident to his or her office and such other duties as the Board of
Directors shall designate. The books of account shall at all reasonable times be
open to inspection by any director.
ARTICLE 20
SECRETARY
The secretary shall keep accurate minutes of all meetings of the
stockholders and the Board of Directors, and shall perform all the duties
commonly incident to his or her office, and shall perform such other duties and
have such other powers as the Board of Directors shall designate. The secretary
shall have power, together with the president, to sign certificates of stock of
the corporation. In his or her absence at the meeting an assistant secretary or
a secretary pro tempore shall perform his or her duties.
ARTICLE 21
TREASURER
The treasurer, subject to the order of the Board of Directors, shall have
the care and custody of the money, funds, valuable papers, and documents of the
corporation (other than his or her own bond, if any, which shall be in the
custody of the president), and shall have and exercise, under the supervision of
the Board of Directors, all the powers and duties commonly incident to his or
her office, and shall give bond in such form and with such sureties as shall be
required by the Board of Directors. He or she shall deposit all funds of the
corporation in such bank or banks, trust company or trust companies, or with
such firm or firms, doing a banking business, as the directors shall designate.
He or she may endorse for deposit or collection all checks and notes payable to
the corporation or to its order, may accept drafts on behalf of the corporation,
and together with the president may sign certificates of stock. He or she shall
keep accurate books of account of the corporation's transactions which shall be
the property of the corporation, and, together with all property in his or her
possession, shall be subject at all times to the inspection and control of the
Board of Directors.
All checks, drafts, notes, or other obligations for the payment of money
shall be signed by such officer or officers or agent or agents as the Board of
Directors shall by general or special resolution direct. The Board of Directors
may also in its discretion require, by general or special
<PAGE>
resolutions, that checks, drafts, notes, and other obligations for the payment
of money shall be countersigned or registered as a condition to their validity
by such officer or officers or agent or agents as shall be directed in such
resolution.
ARTICLE 22
RESIGNATIONS AND REMOVALS
Any director or officer of the corporation may resign at any time by
giving written notice to the corporation, to the Board of Directors, or to the
chairman of the Board, or to the president, or to the secretary of the
corporation. Any such resignation shall take effect at the time specified
therein, or, if the time be not specified therein, upon its acceptance by the
Board of Directors.
Any director may be removed from office by the vote of stockholders
representing not less than two-thirds (2/3) of the issued and outstanding
capital stock entitled to voting power.
ARTICLE 23
VACANCIES
Vacancies in the Board of Directors, including those caused by an increase
in the number of directors, may be filled by a majority of the remaining
directors, though less than a quorum. Vacancies in the Board of Directors may be
filled for the unexpired term by the stockholders at a meeting called for that
purpose, unless such vacancy shall have been filled by the directors. Vacancies
resulting from an increase in the number of directors may be filled in the same
manner.
ARTICLE 24
CERTIFICATES OF STOCK
Every stockholder shall be entitled to a certificate or certificates of
the capital stock of the corporation in such form as may be prescribed by the
Board of Directors, duly numbered and sealed with the corporate seal of the
corporation and setting forth the number and kind of shares. Such certificates
shall be signed by the president and by the treasurer or an assistant treasurer
or the secretary or an assistant secretary.
ARTICLE 25
TRANSFER OF STOCK
Unless further limited by the Articles of Incorporation, shares of stock
may be transferred by delivery of the certificate accompanied either by an
assignment in writing on the back of the certificate or by a written power of
attorney to sell, assign, and transfer the same on the books of the corporation,
signed by the person appearing by the certificate to be the owner of the shares
<PAGE>
represented thereby, together with all necessary federal and state transfer tax
stamps affixed and shall be transferable on the books of the corporation upon
surrender thereof so assigned or endorsed. The person registered on the books of
the corporation as the owner of any shares of stock shall be entitled to all the
rights of ownership with respect to such shares. It shall be the duty of every
stockholder to notify the corporation of his or her post office address.
ARTICLE 26
INDEMNITY
26.1 INDEMNIFICATION OF OFFICERS AND DIRECTORS IN ADVANCE
The corporation shall, to the maximum extent and in the manner permitted
by Section 78.751 of the Nevada General Corporation Law, indemnify each of its
directors and officers against expenses, including attorneys' fees, judgments,
fines and amounts paid in settlement actually and reasonably incurred in
connection with any threatened, pending or completed action, suit or proceeding,
whether civil, criminal, administrative or investigative, except an action by or
in the right of the corporation. For purposes of this Article, an "officer" or
"director" of the corporation includes any person (i) who is or was a director
or officer of the corporation, (ii) is or was serving at the request of the
corporation as a director or officer of another corporation, partnership, joint
venture, trust or other enterprise, or (iii) was a director or officer of a
corporation which was a predecessor corporation of the corporation or of another
enterprise at the request of such predecessor corporation.
The corporation shall, to the maximum extent permitted by Section 78.751
of the Nevada General Corporation Law, indemnify any person who was or is a
party or is threatened to be made a party to any threatened, pending or
completed action or suit by or in the right of the corporation to procure a
judgment in its favor by reason of the fact that he is or was a director or
officer of the corporation, or is or was serving at the request of the
corporation as a director or officer of another corporation, partnership, joint
venture, trust or other enterprise, or was a director or officer of a
corporation which was a predecessor corporation of the corporation or of another
enterprise at the request of such predecessor corporation against expenses,
including amounts paid in settlement and attorneys' fees.
The corporation shall pay the expenses of officers and directors incurred
in defending a civil or criminal action, suit or proceeding as they are incurred
and in advance of the final disposition of the action, suit or proceeding, upon
receipt of an undertaking by or on behalf of the director or officer to repay
the amount if it is ultimately determined by a court of competent jurisdiction
that he or she is not entitled to be indemnified by the corporation.
26.2 INDEMNIFICATION OF EMPLOYEES AND AGENTS
The corporation shall have the power, to the maximum extent and in the
manner permitted by Section 78.751 of the Nevada General Corporation Law, to
indemnify each of its employees and
<PAGE>
agents against expenses, including attorneys' fees, judgments, fines and amounts
paid in settlement actually and reasonably incurred in connection with any
threatened, pending or completed action, suit or proceeding, whether civil,
criminal, administrative or investigative, except an action by or in the right
of the corporation. For purposes of this Article, an "employee" or "agent" of
the corporation includes any person (i) who is or was an employee or agent of
the corporation, (ii) is or was serving at the request of the corporation as an
employee or agent of another corporation, partnership, joint venture, trust or
other enterprise, or (iii) was an employee or agent of a corporation which was a
predecessor corporation of the corporation or of another enterprise at the
request of such predecessor corporation.
The corporation shall have the power, to the maximum extent and in the
manner permitted by Section 78.751 of the Nevada General Corporation Law, to
indemnify any person who was or is a party or is threatened to be made a party
to any threatened, pending or completed action or suit by or in the right of the
corporation to procure a judgment in its favor by reason of the fact that he is
or was an employee or agent of the corporation, or is or was serving at the
request of the corporation as an employee or agent of another corporation,
partnership, joint venture, trust or other enterprise, or was an employee or
agent of a corporation which was a predecessor corporation of the corporation or
of another enterprise at the request of such predecessor corporation against
expenses, including amounts paid in settlement and attorneys' fees.
26.3 INDEMNITY NOT EXCLUSIVE
The indemnification provided by this Article shall not be deemed exclusive
of any other rights to which those seeking indemnification may be entitled under
the Articles of Incorporation, any Bylaw, agreement, vote of stockholders or
disinterested directors or otherwise, both as to action in an official capacity
and as to action in another capacity while holding such office.
26.4 INDEMNIFICATION FOR SUCCESSFUL DEFENSE
To the extent that a director, officer, employee or agent of the
corporation has been successful on the merits or otherwise in defense of any
action, suit or proceeding referred to in subsections 1 and 2 of Section 78.751
of the Nevada General Corporation Law, or in defense of any claim, issue or
matter therein, he or she must be indemnified by the corporation against
expenses, including attorneys' fees, actually and reasonably incurred by him or
her in connection with the defense.
26.5 CONTINUING RIGHT TO INDEMNIFICATION
The indemnification and advancement of expenses authorized in or ordered
by a court pursuant to Section 78.751 of the Nevada General Corporation Law
continues for a person who has ceased to be a director, officer, employee or
agent and inures to the benefit of the heirs, executors and administrators of
such a person.
26.6 INSURANCE AND OTHER FINANCIAL ARRANGEMENTS
<PAGE>
The corporation shall have the power, to the maximum extent and in the
manner permitted by Section 78.752 of the Nevada General Corporation Law, to
purchase and maintain insurance or make other financial arrangements on behalf
of any person who is or was a director, officer, employee or agent of the
corporation, or is or was serving at the request of the corporation as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise, or was a director, officer, employee or
agent of a corporation which was a predecessor corporation of the corporation or
of another enterprise at the request of such predecessor corporation for any
liability asserted against him and liability and expenses incurred by him in his
capacity as a director, officer, employee or agent, or arising out of his status
as such, whether or not the corporation has the authority to indemnify him
against such liability and expenses.
ARTICLE 27
TRANSFER BOOKS AND RECORD DATES
27.1 RECORD DATE FOR NOTICE AND VOTING
The Board of Directors may prescribe a period not exceeding sixty (60)
days before any meeting of the stockholders during which no transfer of stock on
the books of the corporation may be made, or may fix a day not more than sixty
(60) days before the holding of any such meeting as the day as of which
stockholders entitled to notice of and to vote at such meetings must be
determined. Only stockholders of record on that day are entitled to notice or to
vote at such meeting.
If the Board of Directors does not so fix a record date:
(1) the record date for determining stockholders entitled to
notice of or to vote at a meeting of stockholders shall be at the close of
business on the business day next preceding the day on which notice is given or,
if notice is waived, at the close of business on the business day next preceding
the day on which the meeting is held; and
(2) the record date for determining stockholders entitled to give
consent to corporate action in writing without a meeting, (i) when no prior
action by the board has been taken, shall be the day on which the first written
consent is given, or (ii) when prior action by the board has been taken, shall
be at the close of business on the day on which the board adopts the resolution
relating to that action, or the sixtieth (60th) day before the date of such
other action, whichever is later.
27.2 RECORD DATE FOR PURPOSES OTHER THAN NOTICE AND VOTING
For purposes of determining the stockholders entitled to receive payment
of any dividend or other distribution or allotment of any rights or the
stockholders entitled to exercise any rights in respect of any other lawful
action (other than action by stockholders by written consent without a meeting),
the Board of Directors may fix, in advance, a record date, which shall not be
more than sixty (60) days before any such action. In that case, only
stockholders of record at the close of
<PAGE>
business on the date so fixed are entitled to receive the dividend, distribution
or allotment of rights, or to exercise such rights, as the case may be,
notwithstanding any transfer of any shares on the books of the corporation after
the record date so fixed, except as otherwise provided in the Nevada General
Corporation Law. If the Board of Directors does not so fix a record date, then
the record date for determining stockholders for any such purpose shall be at
the close of business on the day on which the board adopts the applicable
resolution or the sixtieth (60th) day before the date of that action, whichever
is later.
ARTICLE 28
LOSS OF CERTIFICATES
In case of loss, mutilation, or destruction of a certificate of stock, a
duplicate certificate may be issued upon such terms as the Board of Directors
shall prescribe.
ARTICLE 29
CORPORATE AUTHORITY
29.1 CHECKS; DRAFTS; EVIDENCES OF INDEBTEDNESS
From time to time, the board of directors shall determine by resolution
which person or persons may sign or endorse all checks, drafts, other orders for
payment of money, notes or other evidences of indebtedness that are issued in
the name of or payable to the corporation, and only the persons so authorized
shall sign or endorse those instruments.
29.2 CORPORATE CONTRACTS AND INSTRUMENTS; HOW EXECUTED
The board of directors, except as otherwise provided in these Bylaws, may
authorize any officer or officers, or agent or agents, to enter into any
contract or execute any instrument in the name of and on behalf of the
corporation; such authority may be general or confined to specific instances.
Unless so authorized or ratified by the board of directors or within the agency
power of an officer, no officer, agent or employee shall have any power or
authority to bind the corporation by any contract or engagement or to pledge its
credit or to render it liable for any purpose or for any amount.
ARTICLE 30
AMENDMENTS
The Bylaws of the corporation, regardless of whether made by the
stockholders or by the Board of Directors, may be amended, added to, or repealed
by the stockholders of the issued and outstanding capital stock of this
corporation, at any meeting of the stockholders, provided notice of the proposed
change is given in the notice of meeting, or notice thereof is waived in
writing.
<PAGE>
Subject to the Bylaws, if any, adopted by the stockholders of the issued
and outstanding capital stock of this corporation, the Board of Directors may
amend, add to, or repeal the Bylaws of the corporation.
<PAGE>
EXHIBIT 10.5
ADDENDUM NO. 2
CONTRACT MANUFACTURING AGREEMENT - LITHOGRAPHY LASER
This Addendum No. 2 to the Contract Manufacturing Agreement is entered
into as of February 21, 2000, by and between Cymer, Inc., a Nevada corporation
("CYMER USA"), with offices at 16275 Technology Drive, San Diego, CA 92127-1815,
Cymer Japan, Inc., a Japanese corporation and a wholly-owned subsidiary of CYMER
USA ("CJI") with offices at 4-17-8 Minamiyawata, Ichikawa, Chiba 272-0023 Japan,
and Seiko Instruments Inc., a Japanese corporation ("SII"), with offices at 8,
Nakase 1-chome, Mihama-ku, Chiba-shi, Chiba 261-8507 Japan.
WHEREAS, CYMER USA and SII entered into a Contract Manufacturing Agreement
(the "Agreement") as of August 28, 1992 for the manufacture, by SII, of certain
products designed by CYMER and the sale of such products, by SII, to CYMER only;
WHEREAS, CYMER USA and SII entered into Addendum No. 1 ("Addendum No. 1")
to the Agreement on February 1, 1996 to clarify the rights and obligations of
the parties in view of changes which have occurred since the Contract
Manufacturing Agreement was first executed; and
WHEREAS, CYMER USA, CJI and SII desire to enter into this Addendum No. 2
which further amends and modifies the Agreement to provide that CJI will provide
certain materials to SII and SII will, for a fee to be paid by CJI, manufacture,
test and deliver certain products pursuant to the terms and conditions set forth
in this Agreement.
NOW, THEREFORE, it is hereby agreed to amend and modify the terms of the
Agreement as follows:
1.5 The first sentence of Section 1.5 shall be deleted in its entirety and
restated to read as follows:
1.5 "MANUFACTURE AND TEST" shall mean the restricted use of CYMER
Patents and Technical Information by SII to allow SII to perform only the
following tasks: (a) perform only the final assembly of the Products; and (b)
using Test Equipment, perform only the necessary Tests to ensure the proper
operation of the assembled Products in accordance with CYMER's Specifications as
defined hereunder.
1.7 Section 1.7 shall be added to the Agreement and shall read as follows:
1.7 "CYMER" shall, unless otherwise stated, mean CYMER USA and/or CJI,
as appropriate.
2. The heading to Section 2 of the Agreement shall be deleted in its entirety
and restated to read as follows:
AGREEMENT TO MANUFACTURE, TEST AND DELIVER PRODUCTS
<PAGE>
2.1 The subheading and first sentence to Section 2.1 of the Agreement shall be
deleted in its entirety and restated to read as follows:
2.1 MANUFACTURE, TEST AND DELIVER. CYMER permits SII to use CYMER
Technical Information and to perform tasks under CYMER Patents only to the
extent necessary to allow SII to Manufacture and Test Products exclusively for
CJI and to deliver Products exclusively to parties designated by CJI and CJI
agrees to compensate SII for such Manufacture and Testing and delivery pursuant
to the terms and conditions set forth herein. At all times ownership of Products
shall remain with CJI and not with SII.
2.2 The last sentence of Section 2.2 shall be deleted in its entirety and
restated to read as follows:
This Section notwithstanding, SII shall have the right to continue the
manufacture and sale of HP (High Power) lasers pursuant to the terms of the
Product License and Manufacturing Agreement for HP (High Power) Lasers between
SII and CYMER USA dated August 28, 1992.
4.1 The first sentence of Section 4.1 shall be deleted in its entirety and
restated to read as follows:
After training of SII personnel and process qualification as described in
Section 3 above, SII shall perform the final assembly and testing of the Product
as ordered by CJI pursuant to Section 5 below.
4.2 The first sentence of Section 4.2 shall be deleted in its entirety and
restated to read as follows:
CJI shall provide free of charge to SII Proprietary Modules, as well as
subcomponents and parts which constitute the Product, as defined in Section 1.1,
for Manufacture and Test by SII.
4.4 Section 4.4 shall be deleted in its entirety and restated to read as
follows:
4.4 PRODUCTION CONTROL REPORTING. In accordance with the CYMER/Seiko
Procedures Manual, the requirements and terms of which are included as part of
this Agreement, SII shall send CYMER USA and CJI monthly updates reporting the
status of all Products previously ordered by CJI and currently in progress.
4.6 The first, second, third, fifth, sixth and seventh sentences in Section
4.6 shall be deleted in their entirety.
5. The heading for Section 5 of the Agreement shall be deleted in its
entirety and restated to read as follows:
MANUFACTURING FEE AND FORECASTS
-2-
<PAGE>
5.1 The first paragraph of Section 5.1 shall be deleted in its entirety and
restated to read as follows:
5.1 MANUFACTURING FEE. The manufacturing fee for all Products from the
date of this Agreement until April 1, 2001, shall be those prices calculated in
Attachment A and shall be paid to SII in Japanese Yen. CJI's orders for Products
Manufactured and Tested by SII shall be requested through a CJI manufacturing
order, a copy of which is provided as part of Attachment B, and whose terms
shall be incorporated as part of this Agreement. After April 1, 2001, the
Parties shall use their best efforts to negotiate the manufacturing fee for
Products for the subsequent year. The Parties shall use their best efforts to
determine the Product manufacturing fee for the subsequent year by December 31
of the preceding year (i.e., December 31, 2000 shall be the deadline for
determining Product manufacturing fees for the annual period April 1, 2001 to
March 31, 2002).
5.1 The first sentence of the second paragraph of Section 5.1 shall be deleted
in its entirety and restated to read as follows:
Quarterly adjustments may be made to Product manufacturing fees during any
period based upon CYMER's cycle time adjustments which are substantiated by the
joint CYMER/SII quarterly review process.
5.2 The second paragraph of Section 5.2 shall be deleted in its entirety and
restated to read as follows:
Subject to orders for Product permanently residing in Japan, the
production orders to SII will be a minimum of (i) thirty percent (30%) of the
combined CYMER and SII production during SII's first year of production, (ii)
forty percent (40%) of the combined CYMER and SII production during SII's second
year of production, and (iii) fifty percent (50%) of the combined CYMER and SII
production thereafter; provided, however, that in all events SII's production,
shall not exceed the aggregate sales during the respective period for Product
permanently residing in Japan. Upon thirty (30) days notice to CYMER, SII shall
have the right to inspect the sales and manufacturing records of CYMER during
normal business hours for the purpose of verifying CYMER's compliance with
minimum order requirements.
5.3 The subheading of Section 5.3 shall be deleted in its entirety and
restated to read as follows:
FORECASTS AND MANUFACTURING OBLIGATIONS.
5.3 All references to CYMER in Section 5.3 shall be deleted and replaced with
CJI.
5.4 Section 5.4 shall be deleted in its entirety and restated to read as
follows:
5.4 SUPPLY. During the term of this Agreement, SII will use its best
efforts to accept and fulfill all CJI manufacturing orders for Products up to
the quantities as set forth in CJI's current forecast, with a timeliness
substantially equivalent to CJI's then current response time for customer orders
and shall also use its best efforts to fulfill CJI's orders for additional
Products.
-3-
<PAGE>
5.5 Section 5.5 shall be deleted in its entirety and restated to read as
follows:
5.5 ORDER AND ACCEPTANCE. All orders for Products shall be initiated by
written manufacturing orders sent by CJI to SII by facsimile or courier and
requesting a delivery date during the term of this Agreement which is not
earlier than ninety (90) days after the date of the order. All orders shall be
confirmed or rejected in writing by SII within five (5) SII business days after
receipt by SII. Orders shall be made by manufacturing orders, which shall set
forth the requested model number, delivery date, quantity, manufacturing fee and
delivery destinations of the ordered Products. Except for such items, the terms
and conditions of such manufacturing orders will be of no force or effect.
5.6 Section 5.6 shall be deleted in its entirety and restated to read as
follows:
5.6 TRANSPORTATION AND RISK OF LOSS. All shipments of materials and/or
Products between the Parties shall be at the expense of CYMER, and risk of loss
or damage to materials and/or Products shall be borne by CYMER at all times.
6. Section 6 shall be deleted in its entirety and restated to read as
follows:
MANUFACTURING TERMS AND CONDITIONS
6.1 MANUFACTURING ORDERS. Any manufacturing orders placed by CJI
pursuant to this Agreement that are accepted by SII shall be subject to this
following terms: (i) payment to SII by CJI net sixty (60) days after delivery of
Products to third parties designated exclusively by CJI; and (ii) payment by CJI
of sales, use, excise or other similar tax applicable to the sale of Product.
The form of payment shall be a 90 day draft by CJI.
7.2 The first paragraph of Section 7.2 shall be deleted in its entirety and
restated to read as follows:
7.2 WARRANTY. SII shall warrant that each Product delivered to third
parties designated exclusively by CJI meets, and shall have been manufactured in
accordance with the Specifications. Additionally, SII shall warrant for the
period set forth below that the Product shall be free from defects in material
and workmanship ("Defects"), except for defects arising from SII's compliance
with the Specifications, or any materials or equipment supplied by CYMER. The
warranty period shall be one year after delivery to a third-party designated
exclusively by CJI. The parties shall enter into good faith negotiations to
amend the warranty period upon the reasonable request of one party. To the
extent that a customer of CYMER's agrees to a shorter warranty period from
CYMER, CYMER shall reduce the required warranty period from SII for the
respective customer by the same amount of time. All at SII's expense, CYMER
shall be entitled, within forty-five (45) days after expiration of the Warranty
Period, to return to SII any Product which has Defects directly traceable to SII
and not defects arising from SII's compliance with the specifications or
materials or equipment supplied by CYMER, and to require SII to provide, at
CYMER's option, either a refund, credit or replacement Product within forty-five
(45) days. Any Product returned for replacement in accordance with this Section
shall be refurbished and delivered as instructed by CJI in accordance
-4-
<PAGE>
with this Agreement. Should the Parties mutually agree to have the assembly of
certain Level 3 Proprietary Modules included as part of the definition of
Manufacture and Test, the warranty terms for such assembly shall be included in
the written addendum evidencing the Parties agreement to extend the definition
to include the aforementioned assembly work. Under no circumstances shall title
to any returned Product be deemed to pass to SII. All returned Products shall
continue to be construed and interpreted as "Products" as defined in this
Agreement.
8. Section 8 shall be deleted in its entirety and restated to read as
follows:
CYMER USA shall retain ownership of all designs, process technology, trade
secrets, patents, copyrights, software, masked works, tooling, product and
testing information, Technical Information, and Specifications, as well as all
other information, data and materials related to the Product, including
Proprietary Modules and all other subcomponents and parts which constitute the
Product, which are provided by CYMER to SII for the purposes of the Manufacture
and Testing by SII, including all improvements, modifications, enhancements and
refinements to the Product ("Product Improvements"), which shall be deemed under
this Agreement to be proprietary information and shall be considered CYMER USA's
confidential information (as defined below).
SII has covenanted that it will not attempt to reverse-engineer,
disassemble, de-compile, or take any other action to determine the structure,
design, or method of operation of the component parts, devices, Proprietary
Modules, hardware, firmware or software (either separate or embedded and made a
part of a component part, device or module) supplied to SII for final assembly
of the Product, or contained in or used with the Test Equipment used for final
testing of the Product. If SII discovers an improvement in the Manufacture and
Test process, SII will notify CYMER by submitting an ECO describing the proposed
improvement. CYMER shall review the ECO and determine if the proposed change is
to be included in the Product. If CYMER authorizes the ECO, SII shall grant
CYMER USA and CJI the nonexclusive, perpetual, world-wide, irrevocable right to
make, have made, use, and/or sell the improvement in all of CYMER's product line
listed in Exhibit "A". If CYMER and SII agree, by a mutually executed addendum,
to extend the definition of Manufacture and Test to include the assembly by SII
of certain (Level 3) Proprietary Modules, the addendum shall provide to SII the
right to request additional information and design details related to said
Modules, necessary to enable SII to perform the assembly work.
If SII determines that certain improvements could be made to the Level
3 Modules ("Product Improvement" or "Product Improvements" or "Process and
Product Improvements"), SII will immediately notify CYMER by submitting an ECO
describing the proposed Product Improvement. CYMER shall review the ECO and
determine the feasibility of utilizing the proposed change in the Product. If
CYMER determines that the Product Improvement is of value, CYMER and SII shall
enter into a separate joint development agreement to allow the Parties to test
the viability of the proposed Product Improvement. The rights to any such
Product Improvement to any Level 3 Modules shall be dependent upon the specific
module assembled by SII, and shall be negotiated between the Parties prior to
SII commencing any assembly work incorporating the change into the Product.
Under any such joint development agreement, CYMER USA and CJI shall be granted
at
-5-
<PAGE>
least the exclusive perpetual, world-wide, irrevocable right to make, have made,
use, and/or sell the Product Improvement in all CYMER Products in the field of
excimer laser systems.
Likewise, CYMER shall inform SII of any product improvements it may
incorporate into the Product, to the extent necessary to allow SII to complete
the manufacture and test of the Product as provided in this Agreement.
Process and Product Improvements proposed by SII for ECO implementation by
CYMER remain the property of SII subject to license to CYMER as stated in this
Agreement.
11.3 Section 11.3 shall be deleted in its entirety and shall be restated to
read as follows:
11.3 TERMINATION FOR INSOLVENCY. This Agreement shall terminate upon
written notice by the other party in the event of (i) the institution by or
against SII or CYMER USA of insolvency, receivership or bankruptcy proceedings
or any other proceedings for the settlement of SII's or CYMER USA's debts, (ii)
upon SII's or CYMER USA's making an assignment for the benefit of creditors, or
(iii) upon SII's or CYMER USA's dissolution or ceasing to do business. All the
rights and obligations of CJI under this Agreement shall automatically be
assumed by CYMER USA in the event of (i) the institution by or against CJI of
insolvency, receivership or bankruptcy proceedings or any other proceedings for
the settlement of CJI's debts, (ii) upon CJI's making an assignment for the
benefit of creditors, or (iii) upon CJI's dissolution or ceasing to do business.
19. The last two sentences of Section 19 shall be deleted in their entirety
and restated to read as follows:
The facsimile number for notices to SII shall be 043-211-8724. The
facsimile number for notices to CYMER shall be (858) 385-7100.
20. The first sentence of Section 20 shall be deleted in its entirety and
restated to read as follows:
With the exception of the relationship between CYMER USA and CJI, the
relationship of the parties to this Agreement is that of arms-length
negotiators, and the parties expressly agree that neither party is the agent of
the other and that neither party has any express or implied authority to act on
behalf of or make any representations whatsoever on behalf of each other.
21. The second to last sentence of Section 21 shall be deleted in its entirety
and restated to read as follows:
No modification or waiver of any provision of this Agreement shall be
effective unless it is in writing and signed by each party.
-6-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this ADDENDUM NO. 2 to
the CONTRACT MANUFACTURE AGREEMENT - LITHOGRAPHY LASER to be executed by their
authorized representatives.
CYMER, INC. SEIKO INSTRUMENTS INC.
a Nevada corporation Scientific Instruments Division,
a Japanese corporation
By: /s/ William A. Angus, III By: /s/ Yoshihiko Teramoto
-------------------------------- --------------------------------
Name: William A. Angus, III Name: Yoshihiko Teramoto
Title: Senior Vice President, Title: Division Manager
Chief Financial Officer
CYMER JAPAN, INC.:
a Japanese corporation
By: /s/ Pascal Didier
--------------------------------
Name: Pascal Didier
Title: President
<PAGE>
SEIKO INSTRUMENTS CONTRACT MANUFACTURING AGREEMENT
MANUFACTURING FEE COMPUTATION
DECEMBER, 1999
The annual manufacturing fee per unit ("P") shall be determined based on
Fig. A, below.
FIG. A
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------
FISCAL YEAR (APRIL TO MARCH) ORDERS TO SII: $ FEE EXHCHANGE P= * FEE
N=NUMBER OF UNITS ORDERED BY CYMER per UNIT RATE per UNIT
- ------------------------------------------------- ---------------- --------------- ----------------
<S> <C> <C> <C>
N LESS THAN 60 $ 59,847 110 JPY 6,583,170
60 LESS THAN OR EQUAL TO N LESS THAN 80 $ 55,000 110 JPY 6,050,000
80 LESS THAN OR EQUAL TO N LESS THAN 100 $ 45,000 110 JPY 4,950,000
100 UNITS LESS THAN=N $ 40,000 110 JPY 4,400,000
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
The manufacturing fee per unit for the first three Quarters of any year
(April to December) shall be determined based on the cumulative year-to-date
total number of units through that Quarter, in accordance with Fig. B, below.
The unit price in the final Quarter of any year (January to March) shall be
determined according to the following explanation: First computing the annual
manufacturing fee "P" based on cumulative year-to-date units (Fig. A, above).
The fee so computed is then to be reduced by all fees paid for the prior
three Quarters, and then divided by actual Q4 units to determine the Q4 unit
manufacturing fee "P4".
FIG. B
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------------
Q1 (Apr-Jun) P1 Q2 (Jul-Sep) P2 Q3 (Oct-Dec) P3 Q4 (Jan-Mar) P4
- ------------ ------------ ------------ ---------- ------------ ----------- ---------------
<S> <C> <C> <C> <C> <C>
NTD LESS THAN 15 6,583,170 NTD LESS THAN 30 6,583,170 NTD LESS THAN 45 6,583,170 Based on
15 LESS THAN OR EQUAL 30 LESS THAN OR EQUAL 45 LESS THAN OR EQUAL Fig. A. and the
TO NTD LESS THAN 20 6,050,000 TO NTD LESS THAN 40 6,050,000 TO NTD LESS THAN 60 6,050,000
20 LESS THAN OR EQUAL 40 LESS THAN OR EQUAL 60 LESS THAN OR EQUAL explanation
TO NTD LESS THAN 25 4,950,000 TO NTD LESS THAN 50 4,950,000 TO NTD LESS THAN 75 4,950,000 above
25 LESS THAN OR EQUAL 4,400,000 50 LESS THAN OR 4,400,000 75 LESS THAN OR 4,4000,000
TO NTD EQUAL TO NTD EQUAL TO NTD
- ---------------------------------- -------------------------------- -------------------------------- ---------------
- -------------------------------------------------------------------------------------------------------------------------------
</TABLE>
* Where NTD = Cumulative year-to-date units ordered by CJI, "Q1" "Q2" "Q3"
and "Q4" refer to fiscal Quarters, N and NTD include ELS-5000 and ELS-6000.
P1 = Manufacturing fee per unit for Quarter 1, P2 = Manufacturing fee per unit
for Quarter 2.
P3 = Manufacturing fee per unit for Quarter 3, and P4 = Manufacturing fee per
unit for Quarter 4.
The annual manufacturing fee per unit ("P") and the quarter manufacturing fee
per unit ("P1""P2""P3") of ELS-6000 shall be calculated by each "P","P1","P2"
or "P3" for ELS-5000 (Fig. A and Fig. B above) times the Multiplication
Factor. The Multiplication Factor shall be mutually agreed by the start of
manufacture of ELS-6000 units at SII.
Attachment "A"
<PAGE>
EXHIBIT 10.6
---------------------------------------------
AMENDMENT TO LOAN AGREEMENT
BORROWERS: CYMER, INC. AND CYMER JAPAN, INC.
DATED AS OF: FEBRUARY 4, 1999
THIS AMENDMENT TO LOAN AGREEMENT is entered into between SILICON VALLEY
BANK ("Silicon") and BANK OF HAWAII ("BOH"), on the one side, Cymer, Inc.
("Cymer") and Cymer Japan, Inc. ("Cymer Japan") on the other side.
The Parties agree to amend the Loan Agreement between them, dated
December 8, 1997, as amended from time to time (the "Loan Agreement"), as
follows, effective as of the date hereof, unless otherwise stated below.
(Capitalized terms used but not defined in this Amendment shall have the
meanings set forth in the Loan Agreement.)
1. REVISED DEFINITIONS. Section 1.1 of the Loan Agreement is hereby
amended by replacing the definitions of "Committed Revolving Line," "Optional
Currency Rate," "LIBOR Based Rate" and "Revolving Maturity Date" with the
following definitions, respectively, PROVIDED that the date of effectiveness
of the amendment to Optional Currency Rate shall be as of February 9, 1999:
"COMMITTED REVOLVING LINE" means Thirty Million Dollars ($30,000,000).
"OPTIONAL CURRENCY RATE" means, with respect to any Interest Period
regarding the Optional Currency Advance, 200 basis points PLUS the
rate per annum equal to the Euro Yen Tokyo Inter-bank Offered Rate
as announced by the Federation of Bankers Association of Japan two
(2) Business Days before the first day of such Interest Period for
a period approximately equal to such Interest Period and in an
amount approximately equal to such Advance, or, in the absence
thereof, the rate per annum determined by the Servicing Agent to be
the per annum rate or interest at which deposits in Japanese Yen
are offered to the Servicing Agent in the Tokyo inter-bank market
in which the Servicing Agent customarily participates at 11:00 A.M.
(local time in such interbank market) two (2) Business Days before
the first day of such Interest Period for a period approximately
equal to such Interest Period and in an amount approximately equal
to the amount of such Advance.
"LIBOR BASED RATE" means the LIBOR Interest Rate for an identified
Interest Period plus 200 basis points.
"REVOLVING MATURITY DATE" means February 3, 2000, as such date may
from time to time be extended by lenders in their sole discretion
pursuant to this agreement."
2. NEW DEFINITION. Section 1.1 of the Loan Agreement is hereby
amended by adding the definition of "February 1999 Amendment" thereto:
"FEBRUARY 1999 AMENDMENT" means the Amendment to Loan Agreement
dated February 4, 1999 between Silicon and BOH, on the one side,
and Cymer and Cymer Japan, on the other side."
3. SECTION 2.1.1A. Section 2.1.1A of the Loan Agreement is hereby to
read as follows:
-1-
<PAGE>
SILICON VALLEY BANK AMENDMENT TO LOAN AGREEMENT
-----------------------------------------------------------------
"2.1.1.A OPTIONAL CURRENCY ADVANCE.
Substantially concurrently with the execution and delivery of the
April 1998 Amendment, an Optional Currency Advance in the Dollar
Equivalent of Fifteen Million Dollars ($15,000,000) shall be made
to Cymer Japan, PROVIDED, HOWEVER, that it is understood the Dollar
Equivalent of the principal amount of such Optional Currency
Advance will fluctuate over time due to currency variations,
PROVIDED, FURTHER, in connection with the February 1999 Amendment
it is the intention of the Lenders to have increased the
availability of the Dollar Equivalent of the Optional Currency
Advance by $5,000,000 to the above-referenced $15,000,000 amount,
even though, due to the currency fluctuations, the Dollar
Equivalent of the Optional Currency Advance in effect prior to the
February 1999 Amendment was in excess of the then stated credit
limit amount of the Optional Currency Advance. Accordingly, the
parties hereto hereby agree that if the Dollar Equivalent of the
principal amount of such Optional Currency Advance exceeds Fifteen
Million Dollars ($15,000,000) at any time, including, without
limitation, upon the making of the incremental $5,000,000 Optional
Currency Advance in connection with the February 1999 Amendment,
such an occurrence shall not constitute an Event of Default nor
prevent the making of such incremental advance as contemplated in
the previous sentence, as long as the aggregate principal amount of
all Revolving Advances together with the Dollar Equivalent of the
aggregate principal amount of the Optional Currency Advance does
not exceed Twenty Million Dollars ($20,000,000) after the making of
any and all Advances. The Optional Currency Advance shall be made
by each of the Lenders in an amount up to its respective Commitment
Percentage of Revolving Advances, and BOH shall be the agent for
both Lenders in connection with the making of such Advance.
Repayments of the Optional Currency Advance made in such Optional
Currency shall be made only at the branch of BOH in the country of
such Optional Currency."
4. FOREIGN EXCHANGE RESERVE MODIFICATION. The "Foreign Exchange
Reserve" is hereby amended to be the following amounts on any given day (the
"Determination Date"); on all outstanding Exchange Contracts on which
delivery is to be effected or settlement allowed, 20% of the gross amount of
the Exchange Contracts. Further, the "Contract Limit" as set forth in Section
2.1.3(a) of the Loan Agreement is hereby amended to be $50,000,000.
5. NO UNUSED LINE FEE. Section 2.5.4 of the Loan Agreement regarding
an unused line fee payable by the Borrower is hereby deleted in its entirety.
6. MODIFICATION FEE. Borrower shall to the Lenders a fee of $12,500
in connection herewith, which shall be addition to interest and to all other
amounts payable under the Loan Agreement and which shall not be refundable.
7. FINANCIAL COVENANTS. Section 6.8 of the Loan Agreement is hereby
amended, respectively, to read as follows:
"6.8 TANGIBLE NET WORTH. Cymer, Inc. shall maintain, on a
consolidated basis, as of the last day of each calendar quarter
a Tangible Net Worth of not less than Two Hundred Sixty Million
Dollars ($260,000,000) PLUS Fifty Percent (50%) of Borrower's
quarterly net income (after taxes) (with no subtraction for losses)
LESS the amount of the Borrower's treasury shares up to $25,000,000
for such shares that are purchased on and after December 31, 1998."
8. QUICK RATIO. The Loan Agreement is hereby amended to add a new
section entitled "6.9A Quick Ratio" that replaces Section 6.9 of the Loan
Agreement, and which shall read as follows:
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<PAGE>
SILICON VALLEY BANK AMENDMENT TO LOAN AGREEMENT
-----------------------------------------------------------------
"6.9A QUICK RATIO. Cymer, Inc. shall maintain, on a consolidated
basis, as of the last day of each calendar quarter, a ratio of
Quick Assets to Current Liabilities of at least 2.00 to 1.0. For
purposes of the foregoing, however, Current Liabilities shall not
include deferred revenues. "Quick Assets" means, as of any
applicable date, the consolidated cash, cash equivalents, accounts
receivable and long term marketable securities of Borrower
determined in accordance with GAAP. "Current Liabilities" means, as
of any applicable date, all amounts that should, in accordance with
GAAP, be included as current liabilities on the consolidated
balance sheet of Borrower and its Subsidiaries, as at such date,
plus, to the extent not already included therein, all outstanding
credit extensions made under this Agreement, including all
Indebtedness that is payable upon demand or within one year from
the date of determination thereof unless such Indebtedness is
renewable or extendable at the option of Borrower or any Subsidiary
to a date more than one year from the date of determination, but
excluding Subordinated Debt." In connection with the calculation of
the Quick Ratio, the assets and liabilities of Borrower associated
with the Foreign Exchange Contracts shall be included therein on a
Net Basis.
9. PROFITABILITY. The Loan Agreement is hereby amended to add a new
section entitled "6.9B Profitability" that immediately follows Section 6.9A
of the Loan Agreement, and which shall read as follows:
6.9B PROFITABILITY. Other than as stated below, Borrower shall not
incur a loss (after taxes) in any fiscal quarter in excess of
$5,000,000, PROVIDED, HOWEVER, regardless of the foregoing, Borrower
shall not incur cumulative losses (after taxes) during the period of
Borrower's 1999 fiscal year in excess of $12,500,000. Further, for the
fiscal quarter ending December 31, 1999 and in each fiscal quarter
thereafter, Borrower shall not incur any losses (after taxes).
10. SECTION 8.2.1 MODIFICATION. Section 3.2.1 of the Loan Agreement is
hereby amended in its entirety to read as follows:
"8.2.1 If such Borrower fails to perform any obligation under Sections
6.7, 6.8, 6.9A, 6.9B, 6.10, 6.11 or 6.12 or violates any of the
covenants contained in Article 7 of this Agreement, or"
[text continues on the following page]
-3-
<PAGE>
SILICON VALLEY BANK AMENDMENT TO LOAN AGREEMENT
-----------------------------------------------------------------------
11. SCHEDULE TO LOAN AGREEMENT. The Schedule to the Loan Agreement is
hereby amended to read as follows:
"SCHEDULE
TO
LOAN AND SECURITY AGREEMENT
COMMITMENTS"
COMMITTED REVOLVING LINE;
<TABLE>
<CAPTION>
LENDER COMMITMENT COMMITMENT PERCENTAGE
<S> <C> <C>
SILICON VALLEY BANK $15,000,000 50%
BANK OF HAWAII $15,000,000 50%
</TABLE>
12. REPRESENTATIONS TRUE. Borrower represents and warrants to Bank that
all representations and warranties set forth in the Loan Agreement are true
and correct.
13. GENERAL PROVISIONS. This Amendment, the Loan Agreement, any prior
written amendments to the Loan Agreement signed by Bank and the Borrower, and
the other written documents and agreements between Bank and the Borrower set
forth in full all of the representations and agreements of the parties with
respect to the subject matter hereof and supersede all prior discussions,
representations, agreements and understandings between the parties with
respect to the subject hereof. Except as herein expressly amended, all of the
terms and provisions of the Loan Agreement, and all other documents and
agreements between Bank and the Borrower shall continue in full force and
effect and the same are hereby ratified and
-4-
<PAGE>
SILICON VALLEY BANK AMENDMENT TO LOAN AGREEMENT
-----------------------------------------------------------------------
confirmed. This Agreement and Consent may be executed in any number of
counterparts, which when taken together shall constitute one and the same
agreement.
CYMER, INC. SILICON VALLEY BANK
BY /s/ Robert P. Akins BY /s/ John W. Otterson
-------------------------------- ------------------------------------
PRESIDENT OR VICE PRESIDENT TITLE SENIOR VICE PRESIDENT
---------------------------------
CYMER JAPAN, INC. BANK OF HAWAII
BY /s/ William A. Angus, III BY
-------------------------------- ------------------------------------
PRESIDENT OR VICE PRESIDENT TITLE
---------------------------------
-5-
<PAGE>
---------------------------------------------
AMENDMENT TO LOAN AGREEMENT
BORROWERS: CYMER, INC.
CYMER JAPAN, INC.
DATED AS OF: SEPTEMBER 22, 1999
THIS AMENDMENT TO LOAN AGREEMENT is entered into between SILICON VALLEY
BANK ("Silicon") and BANK OF HAWAII ("BOH"), on the one side, Cymer, Inc.
("Cymer") and Cymer Japan, Inc. ("Cymer Japan") on the other side.
The Parties agree to amend the Loan Agreement between them, dated
December 8, 1997, as amended from time to time (the "Loan Agreement"), as
follows, effective as of the date hereof, unless otherwise stated below.
(Capitalized terms used but not defined in this Amendment shall have the
meanings set forth in the Loan Agreement.)
1. MODIFICATION of Section 2.1.1 sECTION 2.1.1 of the Loan Agreement is
hereby in its entirety to read as follows:
"2.1.1 THE REVOLVING ADVANCES. Subject to and upon the terms and
conditions hereof, and in reliance upon the representations and
warranties of the Borrowers set forth herein, each Lender severally
agrees to make its Commitment Percentage of Revolving Advances to Cymer
up to the aggregate amount of $3,500,000 for both Lenders from time to
time until the close of business on the Revolving Maturity Date, in such
sums as Cymer may request, PROVIDED that the aggregate principal amount
of all Revolving Advances and the Dollar Equivalent of the Optional
Currency Advances at any one time outstanding shall not exceed the
Committed Revolving Time minus the Foreign Exchange Reserve. Subject to
the terms and conditions of this Agreement and in reliance upon the
representations and warranties set forth herein, amounts borrowed
pursuant to this Section 2.1.1 may be repaid and reborrowed at any time
during the term of this Agreement. The minimum amount of a Prime Based
Rate Revolving Advance is $25,000. The minimum amount of a LIBOR Based
Rate Revolving Advance is $500,000, and loan amounts greater than such
sum are required to be in integral multiples of $50,000 in excess
thereof.
Cymer promises to pay to Servicing Agent for the account of each
Lender, in lawful money of the United States of America, the aggregate
unpaid principal amount of all Revolving Advances made by Servicing
Agent and Lenders to Borrower. Borrower shall also pay interest on the
aggregate unpaid principal amount of such Advances at the rates and in
accordance with the terms hereof.
The Committed Revolving Line shall terminate on the Revolving
Maturity Date, at which time all Revolving Advances under this Section
2.1.1, all Optional Currency Advances, and other amounts due under this
Agreement (except as otherwise expressly specified herein) shall be
immediately due and payable."
2. MODIFICATION OF FOREIGN EXCHANGE CONTRACT LIMIT. The "Contract
Limit", as set forth in Section 2.1.3(a) of the Loan Agreement, is hereby
amended to be $57,500,000.
-1-
<PAGE>
Silicon Valley Bank Amendment to Loan Agreement
---------------------------------------------------------------
3. REPRESENTATIONS TRUE. Borrower represents and warrants to Bank
that all representations and warranties set forth in the Loan Agreement are
true and correct.
4. GENERAL PROVISIONS. This Amendment, the Loan Agreement, any prior
written amendents to the Loan Agreement signed by Bank and the Borrower, and
the other written documents and agreements between Bank and the Borrower set
forth in full all of the representations and agreements of the parties with
respect to the subject matter hereof and supersede all prior discussions,
representation, agreements and understandings between the parties with repect
to the subject hereof. Except as herein expressly amended, all of the terms
and provisions of the Loan Agreement, and all other documents and agreements
between Bank and Borrower shall continue in full force and effect and the
same are hereby ratified and confirmed. This Agreement and Consent may be
executed in any number of counterparts, which when taken together shall
constitute one and the same agreement.
CYMER, INC. SILICON VALLEY BANK
By /s/ Robert P. Akins By /s/ John W. Otterson
--------------------------- -----------------------------
President or Vice President Title Senior Vice President
-----------------------------
CYMER JAPAN, INC. BANK OF HAWAII
By /s/ William A. Angus, III By /s/ Scott R. Nahme
---------------------------- ------------------------------
President or Vice President Title Vice President
------------------------------
-2-
<PAGE>
---------------------------------------------------------
AMENDMENT TO LOAN AGREEMENT
BORROWERS: CYMER, INC. AND CYMER JAPAN, INC.
DATED AS OF: FEBRUARY 4, 2000
THIS AMENDMENT TO LOAN AGREEMENT is entered into between SILICON VALLEY
BANK ("Silicon") and BANK OF HAWAII ("BOH"), on the one side, Cymer, Inc.
("Cymer") and Cymer Japan, Inc. ("Cymer Japan"), on the other side.
The Parties agree to amend the Loan Agreement between them, dated
December 8, 1997, as amended from time to time (the "Loan Agreement"), as
follows, effective as of the date hereof, (Capitalized terms used but not
defined in this Amendment, shall have the meanings set forth in the Loan
Agreement.)
1. REVISED DEFINITIONS. Section 1.1 of the Loan Agreement is hereby
amended by replacing the definitions of "Committed Revolving Line" and
"Revolving Maturity Date" with the following definitions, respectively:
"COMMITTED REVOLVING LINE" means Forty Million Dollars ($40,000,000).
"REVOLVING MATURITY DATE" means February 3, 2001, as such date may
from time to time be extended by lenders in their sole discretion
pursuant to this agreement."
2. MODIFICATION OF SECTION 2.1.1. Section 2.1.1 of the Loan
Agreement is hereby deleted in its entirety and replaced with the following:
"2.1.1 OPTIONAL CURRENCY REVOLVING ADVANCES. Subject to and
upon the terms and conditions hereof, and in reliance upon the
representations and warranties of the Borrowers set forth herein,
each Lender severally agrees to make its Commitment Percentage of
Revolving Advances consisting of Optional Currency Advances to
Cymer up to the aggregate amount of the Dollar Equivalent of
$20,000,000 for both Lenders from time to time until the close of
business on the Revolving Maturity Date, in such sums as Cymer may
request, PROVIDED, FURTHER, that the aggregate principal amount of
the Dollar Equivalent of the Optional Currency Advances at any one
time outstanding shall not exceed the Committed Revolving Line
minus the Foreign Exchange Reserve.
Each Optional Currency Advance shall be made by each of the Lenders
in an amount up to its respective Commitment Percentage of
Revolving Advances, and BOH shall be the agent for both Lenders in
connection with the making of such Advance. Repayments of the
Optional Currency Advance are to made in such Optional Currency and
shall be made only at the branch of BOH in the country of such
Optional Currency.
All Optional Currency Advances shall bear interest on the average
Daily Balance thereof at the Optional Currency Rate. All interest
relating to the Optional Currency Rate chargeable under the Loan
Documents shall be computed on the basis of a three hundred
-1-
<PAGE>
SILICON VALLEY BANK AMENDMENT TO LOAN AGREEMENT
-----------------------------------------------------------------
sixty (360) day year for the actual number of days elapsed, except
where the law or commercial custom in the country of the Optional
Currency requires otherwise.
The Committed Revolving Line shall terminate on the Revolving
Maturity Date, at which time all Optional Currency Advances, and
all other amounts due under this Agreement (except as otherwise
expressly specified herein) shall be immediately due and payable."
3. SECTION 2.1.1A. Section 2.1.1A of the Loan Agreement is hereby
deleted on its entirety and shall be amended to read as follows:
"2.1.1.A [Reserved]
4. REVISED SECTION 2.1.3(a) Subsection (a) of 2.1.3 of the Loan
Agreement is hereby amended to read as follows:
"(a) Subject to the terms of this Agreement, either Borrower,
on a joint basis, may enter into foreign exchange contracts (the
"Exchange Contracts") not to exceed an aggregate Dollar Equivalent
amount of $100,000,000 (the "Contract Limit"), pursuant to which
Lenders shall sell to or purchase from Borrower foreign currency on
a spot or future basis. A Borrower shall not request any Exchange
Contracts at any time a Default or an Event of Default has occurred
and is continuing. All Exchange Contracts must provide for delivery
of settlement on or before 365 days past the then applicable
Revolving Maturity Date. The amount available under the Committed
Revolving Line at any time shall be reduced by the following amounts
(the "Foreign Exchange Reserve") on any given day (the "Determination
Date"); on all outstanding Exchange Contracts on which delivery is to be
effected or settlement allowed, 20% of the gross amount of the
Exchange Contracts. If on the Revolving Maturity Date, or on any
earlier effective date of termination, there are any outstanding
Exchange Contracts, then on such date Borrower shall provide cash
collateral in an amount equal to the Foreign Exchange Reserve, to
secure all of the Obligations relating to said Exchange Contracts
on the Lenders' standard form cash pledge agreement."
5. TANGIBLE NET WORTH FINANCIAL COVENANT. Section 6.8 of the Loan
Agreement is hereby amended to read as follows:
"6.8 TANGIBLE NET WORTH. Cymer, Inc. shall maintain, on a
consolidated basis, as of the last day of each calendar quarter, a
Tangible Net Worth of not less than Two Hundred Seventy-Five
Million Dollars ($275,000,000) PLUS Fifty Percent (50%) of
Borrower's quarterly net income (after taxes) (with no subtraction
for losses) LESS the amount of the Borrower's treasury shares up to
$25,000,000 for such shares that are purchased on and after
December 31, 1998."
6. PROFITABILITY. Section 6.9B of the Loan Agreement is hereby
amended to read as follows:
"6.9B PROFITABILITY. Borrower shall not incur a loss (after
taxes) in any fiscal quarter.
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SILICON VALLEY BANK AMENDMENT TO LOAN AGREEMENT
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[text continues on the next page]
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SILICON VALLEY BANK AMENDMENT TO LOAN AGREEMENT
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7. SCHEDULE TO LOAN AGREEMENT. The Schedule to the Loan Agreement is
hereby amended to read as follows:
"SCHEDULE
TO
LOAN AND SECURITY AGREEMENT
COMMITMENTS"
COMMITTED REVOLVING LINE:
<TABLE>
<CAPTION>
LENDER COMMITMENT COMMITMENT PERCENTAGE
<S> <C> <C>
SILICON VALLEY BANK $20,000,000 50%
BANK OF HAWAII $20,000,000 50%
</TABLE>
8. MODIFICATION FEE. Borrower shall to the Lenders a fee of $100,000
in connection herewith, which shall be in addition to interest and to all
other amounts payable under the Loan Agreement and which shall not be
refundable.
9. REPRESENTATIONS TRUE. Borrower represents and warrants to Bank
that all representations and warranties set forth in the Loan Agreement are
true and correct.
10. GENERAL PROVISIONS. This Amendment, the Loan Agreement, any
prior written amendments to the Loan Agreement signed by Bank and Borrower,
and the other written documents and agreements between Bank and Borrower set
forth in full all of the representations and agreements of the parties with
respect to the subject matter hereof and supersede all prior discussions,
representations, agreements and understandings between the parties with
respect to the subject hereof. Except as herein expressly amended, all of the
terms and provisions of the Loan Agreement, and all other documents and
agreements between Bank
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SILICON VALLEY BANK AMENDMENT TO LOAN AGREEMENT
-----------------------------------------------------------------------
and the Borrower shall continue in full force and effect and the same are
hereby ratified and confirmed. This Agreement and Consent may be executed in
any number of counterparts, which when taken together shall constitute one
and the same agreement.
CYMER, INC. SILICON VALLEY BANK
BY /s/ Robert P. Akins BY /s/ Raquel Cunningham
-------------------------------- ------------------------------------
PRESIDENT OR VICE PRESIDENT TITLE VICE PRESIDENT
---------------------------------
CYMER JAPAN, INC. BANK OF HAWAII
BY /s/ William A. Angus, III BY /s/ Scott R. Nahme
-------------------------------- ------------------------------------
PRESIDENT OR VICE PRESIDENT TITLE VICE PRESIDENT
---------------------------------
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EXHIBIT 10.7
CYMER, INC.
1996 STOCK OPTION PLAN
(AS AMENDED THROUGH FEBRUARY 24, 2000)
1. PURPOSES OF THE PLAN. The purposes of this Stock Plan are:
/ / to attract and retain the best available personnel for positions
of substantial responsibility,
/ / to provide additional incentive to Employees, Directors and
Consultants, and
/ / to promote the success of the Company's business.
Options granted under the Plan may be Incentive Stock Options or
Nonstatutory Stock Options, as determined by the Administrator at the time of
grant.
2. DEFINITIONS. As used herein, the following definitions shall apply:
(a) "ADMINISTRATOR" means the Board or any of its Committees as shall
be administering the Plan, in accordance with Section 4 of the Plan.
(b) "APPLICABLE LAWS" means the requirements relating to the
administration of stock option plans under U. S. state corporate laws, U.S.
federal and state securities laws, the Code, any stock exchange or quotation
system on which the Common Stock is listed or quoted and the applicable laws of
any foreign country or jurisdiction where Options are, or will be, granted under
the Plan.
(c) "BOARD" means the Board of Directors of the Company.
(d) "CODE" means the Internal Revenue Code of 1986, as amended.
(e) "COMMITTEE" means a committee of Directors appointed by the Board
in accordance with Section 4 of the Plan.
(f) "COMMON STOCK" means the Common Stock of the Company.
(g) "COMPANY" means Cymer, Inc., a Nevada corporation.
(h) "CONSULTANT" means any person, including an advisor, engaged by
the Company or a Parent or Subsidiary to render services and who is compensated
for such services.
(i) "DIRECTOR" means a member of the Board.
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(j) "DISABILITY" means total and permanent disability as defined in
Section 22(e)(3) of the Code.
(k) "EMPLOYEE" means any person, including Officers and Directors,
employed by the Company or any Parent or Subsidiary of the Company. A Service
Provider shall not cease to be an Employee in the case of (i) any leave of
absence approved by the Company or (ii) transfers between locations of the
Company or between the Company, its Parent, any Subsidiary, or any successor.
For purposes of Incentive Stock Options, no such leave may exceed ninety days,
unless reemployment upon expiration of such leave is guaranteed by statute or
contract. If reemployment upon expiration of a leave of absence approved by the
Company is not so guaranteed, on the 181st day of such leave any Incentive Stock
Option held by the Optionee shall cease to be treated as an Incentive Stock
Option and shall be treated for tax purposes as a Nonstatutory Stock Option.
Neither service as a Director nor payment of a director's fee by the Company
shall be sufficient to constitute "employment" by the Company.
(l) "EXCHANGE ACT" means the Securities Exchange Act of 1934, as
amended.
(m) "FAIR MARKET VALUE" means, as of any date, the value of Common
Stock determined as follows:
(i) If the Common Stock is listed on any established stock
exchange or a national market system, including without limitation the Nasdaq
National Market or The Nasdaq SmallCap Market of The Nasdaq Stock Market, its
Fair Market Value shall be the closing sales price for such stock (or the
closing bid, if no sales were reported) as quoted on such exchange or system for
the last market trading day prior to the time of determination, as reported in
THE WALL STREET JOURNAL or such other source as the Administrator deems
reliable;
(ii) If the Common Stock is regularly quoted by a recognized
securities dealer but selling prices are not reported, the Fair Market Value of
a Share of Common Stock shall be the mean between the high bid and low asked
prices for the Common Stock on the last market trading day prior to the day of
determination, as reported in THE WALL STREET JOURNAL or such other source as
the Administrator deems reliable;
(iii) In the absence of an established market for the Common
Stock, the Fair Market Value shall be determined in good faith by the
Administrator.
(n) "INCENTIVE STOCK OPTION" means an Option intended to qualify as
an incentive stock option within the meaning of Section 422 of the Code and the
regulations promulgated thereunder.
(o) "NONSTATUTORY STOCK OPTION" means an Option not intended to
qualify as an Incentive Stock Option.
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(p) "NOTICE OF GRANT" means a written or electronic notice evidencing
certain terms and conditions of an individual Option grant. The Notice of Grant
is part of the Option Agreement.
(q) "OFFICER" means a person who is an officer of the Company within
the meaning of Section 16 of the Exchange Act and the rules and regulations
promulgated thereunder.
(r) "OPTION" means a stock option granted pursuant to the Plan.
(s) "OPTION AGREEMENT" means an agreement between the Company and an
Optionee evidencing the terms and conditions of an individual Option grant. The
Option Agreement is subject to the terms and conditions of the Plan.
(t) "OPTIONED STOCK" means the Common Stock subject to an Option.
(u) "OPTIONEE" means the holder of an outstanding Option granted
under the Plan.
(v) "PARENT" means a "parent corporation," whether now or hereafter
existing, as defined in Section 424(e) of the Code.
(w) "PLAN" means this 1996 Stock Option Plan.
(x) "RULE 16b-3" means Rule 16b-3 of the Exchange Act or any
successor to Rule 16b-3, as in effect when discretion is being exercised with
respect to the Plan.
(y) "SECTION 16(b)" means Section 16(b) of the Securities Exchange
Act of 1934, as amended.
(t) "SERVICE PROVIDER" means an Employee, Director or Consultant.
(u) "SHARE" means a share of the Common Stock, as adjusted in
accordance with Section 12 of the Plan.
(v) "SUBSIDIARY" means a "subsidiary corporation", whether now or
hereafter existing, as defined in Section 424(f) of the Code.
3. STOCK SUBJECT TO THE PLAN. Subject to the provisions of Section 12 of
the Plan, the maximum aggregate number of Shares which may be optioned and sold
under the Plan is 7,000,000 Shares. The Shares may be authorized, but unissued,
or reacquired Common Stock.
If an Option expires or becomes unexercisable without having been
exercised in full, the unpurchased Shares which were subject thereto shall
become available for future grant or sale under the Plan (unless the Plan has
terminated); PROVIDED, however, that Shares that have actually been
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issued under the Plan, whether upon exercise of an Option, shall not be returned
to the Plan and shall not become available for future distribution under the
Plan, except that if Shares of Restricted Stock are repurchased by the Company
at their original purchase price, such Shares shall become available for future
grant under the Plan.
4. ADMINISTRATION OF THE PLAN.
(a) PROCEDURE.
(i) MULTIPLE ADMINISTRATIVE BODIES. The Plan may be administered
by different Committees with respect to different groups of Service Providers.
(ii) SECTION 162(m). To the extent that the Administrator
determines it to be desirable to qualify Options granted hereunder as
"performance-based compensation" within the meaning of Section 162(m) of the
Code, the Plan shall be administered by a Committee of two or more "outside
directors" within the meaning of Section 162(m) of the Code.
(iii) RULE 16b-3. To the extent desirable to qualify transactions
hereunder as exempt under Rule 16b-3, the Plan shall be administered by the
Board or a Committee of two or more "non-employee directors" within the meaning
of Rule 16b-3.
(iv) OTHER ADMINISTRATION. Other than as provided above, the Plan
shall be administered by (A) the Board or (B) a Committee, which committee shall
be constituted to satisfy Applicable Laws.
(b) POWERS OF THE ADMINISTRATOR. Subject to the provisions of the
Plan, and in the case of a Committee, subject to the specific duties delegated
by the Board to such Committee, the Administrator shall have the authority, in
its discretion:
(i) to determine the Fair Market Value;
(ii) to select the Service Providers to whom Options may be
granted hereunder;
(iii) to determine the number of shares of Common Stock to be
covered by each Option granted hereunder;
(iv) to approve forms of agreement for use under the Plan;
(v) to determine the terms and conditions, not inconsistent with
the terms of the Plan, of any Option granted hereunder. Such terms and
conditions include, but are not limited to, the exercise price, the time or
times when Options may be exercised (which may be based on performance
criteria), any vesting acceleration or waiver of forfeiture restrictions, and
any restriction
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<PAGE>
or limitation regarding any Option or the shares of Common Stock relating
thereto, based in each case on such factors as the Administrator, in its sole
discretion, shall determine;
(vi) to construe and interpret the terms of the Plan and awards
granted pursuant to the Plan;
(vii) to prescribe, amend and rescind rules and regulations
relating to the Plan, including rules and regulations relating to sub-plans
established for the purpose of qualifying for preferred tax treatment under
foreign tax laws;
(viii) to modify or amend each Option subject to Section 14(c) of
the Plan), including the discretionary authority to extend the post-termination
exercisability period of Options longer than is otherwise provided for in the
Plan;
(ix) to allow Optionees to satisfy withholding tax obligations by
electing to have the Company withhold from the Shares to be issued upon exercise
of an Option that number of Shares having a Fair Market Value equal to the
amount required to be withheld. The Fair Market Value of the Shares to be
withheld shall be determined on the date that the amount of tax to be withheld
is to be determined. All elections by an Optionee to have Shares withheld for
this purpose shall be made in such form and under such conditions as the
Administrator may deem necessary or advisable;
(x) to authorize any person to execute on behalf of the Company
any instrument required to effect the grant of an Option previously granted by
the Administrator;
(xi) to make all other determinations deemed necessary or
advisable for administering the Plan.
(c) EFFECT OF ADMINISTRATOR'S DECISION. The Administrator's
decisions, determinations and interpretations shall be final and binding on all
Optionees and any other holders of Options.
5. ELIGIBILITY. Nonstatutory Stock Options may be granted to Service
Providers. Incentive Stock Options may be granted only to Employees.
6. LIMITATIONS.
(a) Each Option shall be designated in the Option Agreement as
either an Incentive Stock Option or a Nonstatutory Stock Option. However,
notwithstanding such designation, to the extent that the aggregate Fair
Market Value of the Shares with respect to which Incentive Stock Options are
exercisable for the first time by the Optionee during any calendar year
(under all plans of the Company and any Parent or Subsidiary) exceeds
$100,000, such Options shall be treated as Nonstatutory Stock Options. For
purposes of this Section 6(a), Incentive Stock Options shall be
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taken into account in the order in which they were granted. The Fair Market
Value of the Shares shall be determined as of the time the Option with
respect to such Shares is granted.
(b) Neither the Plan nor any Option shall confer upon an Optionee any
right with respect to continuing the Optionee's relationship as a Service
Provider with the Company, nor shall they interfere in any way with the
Optionee's right or the Company's right to terminate such relationship at any
time, with or without cause.
(c) The following limitations shall apply to grants of Options:
(i) No Service Provider shall be granted, in any fiscal year of
the Company, Options to purchase more than 500,000 Shares.
(ii) In connection with his or her initial service, a Service
Provider may be granted Options to purchase up to an additional 500,000 Shares
which shall not count against the limit set forth in subsection (i) above.
(iii) The foregoing limitations shall be adjusted proportionately
in connection with any change in the Company's capitalization as described in
Section 12.
7. TERM OF PLAN. Subject to Section 18 of the Plan, the Plan shall become
effective upon its adoption by the Board. It shall continue in effect for a term
of ten (10) years unless terminated earlier under Section 14 of the Plan.
8. TERM OF OPTION. The term of each Option shall be stated in the Option
Agreement. In the case of an Incentive Stock Option, the term shall be ten (10)
years from the date of grant or such shorter term as may be provided in the
Option Agreement. Moreover, in the case of an Incentive Stock Option granted to
an Optionee who, at the time the Incentive Stock Option is granted, owns stock
representing more than ten percent (10%) of the voting power of all classes of
stock of the Company or any Parent or Subsidiary, the term of the Incentive
Stock Option shall be five (5) years from the date of grant or such shorter term
as may be provided in the Option Agreement.
9. OPTION EXERCISE PRICE AND CONSIDERATION.
(a) EXERCISE PRICE. The per share exercise price for the Shares to be
issued pursuant to exercise of an Option shall be determined by the
Administrator, subject to the following:
(i) In the case of an Incentive Stock Option
(A) granted to an Employee who, at the time the Incentive
Stock Option is granted, owns stock representing more than ten percent (10%) of
the voting power of all classes of stock of the Company or any Parent or
Subsidiary, the per Share exercise price shall be no less than 110% of the Fair
Market Value per Share on the date of grant.
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(B) granted to any Employee other than an Employee
described in paragraph (A) immediately above, the per Share exercise price shall
be no less than 100% of the Fair Market Value per Share on the date of grant.
(ii) In the case of a Nonstatutory Stock Option, the per Share
exercise price shall not be less than 100% of the Fair Market Value per Share on
the date of grant.
(iii) Notwithstanding the foregoing, Options may be granted with
a per Share exercise price of less than 100% of the Fair Market Value per Share
on the date of grant pursuant to a merger or other corporate transaction.
(b) WAITING PERIOD AND EXERCISE DATES. At the time an Option is
granted, the Administrator shall fix the period within which the Option may be
exercised and shall determine any conditions which must be satisfied before the
Option may be exercised.
(c) FORM OF CONSIDERATION. The Administrator shall determine the
acceptable form of consideration for exercising an Option, including the method
of payment. In the case of an Incentive Stock Option, the Administrator shall
determine the acceptable form of consideration at the time of grant. Such
consideration may consist entirely of:
(i) cash;
(ii) check;
(iii) promissory note;
(iv) other Shares which (A) in the case of Shares acquired upon
exercise of an option, have been owned by the Optionee for more than six months
on the date of surrender, and (B) have a Fair Market Value on the date of
surrender equal to the aggregate exercise price of the Shares as to which said
Option shall be exercised;
(v) consideration received by the Company under a formal
cashless exercise program adoptedby the Company in connection with the Plan;
(vi) a reduction in the amount of any Company liability to the
Optionee, including any liability attributable to the Optionee's participation
in any Company-sponsored deferred compensation program or arrangement;
(vii) any combination of the foregoing methods of payment; or
(viii) such other consideration and method of payment for the
issuance of Shares to the extent permitted by Applicable Laws.
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10. EXERCISE OF OPTION.
(a) PROCEDURE FOR EXERCISE; RIGHTS AS A SHAREHOLDER. Any Option
granted hereunder shall be exercisable according to the terms of the Plan and at
such times and under such conditions as determined by the Administrator and set
forth in the Option Agreement. Unless the Administrator provides otherwise,
vesting of Options granted hereunder shall be tolled during any unpaid leave of
absence. An Option may not be exercised for a fraction of a Share.
An Option shall be deemed exercised when the Company receives:
(i) written or electronic notice of exercise (in accordance with the Option
Agreement) from the person entitled to exercise the Option, and (ii) full
payment for the Shares with respect to which the Option is exercised. Full
payment may consist of any consideration and method of payment authorized by the
Administrator and permitted by the Option Agreement and the Plan. Shares issued
upon exercise of an Option shall be issued in the name of the Optionee or, if
requested by the Optionee, in the name of the Optionee and his or her spouse.
Until the Shares are issued (as evidenced by the appropriate entry on the books
of the Company or of a duly authorized transfer agent of the Company), no right
to vote or receive dividends or any other rights as a shareholder shall exist
with respect to the Optioned Stock, notwithstanding the exercise of the Option.
The Company shall issue (or cause to be issued) such Shares promptly after the
Option is exercised. No adjustment will be made for a dividend or other right
for which the record date is prior to the date the Shares are issued, except as
provided in Section 12 of the Plan.
Exercising an Option in any manner shall decrease the number of
Shares thereafter available, both for purposes of the Plan and for sale under
the Option, by the number of Shares as to which the Option is exercised.
(b) TERMINATION OF RELATIONSHIP AS A SERVICE PROVIDER. If an Optionee
ceases to be a Service Provider, other than upon the Optionee's death or
Disability, the Optionee may exercise his or her Option within such period of
time as is specified in the Option Agreement to the extent that he or she is
entitled to exercise it on the date of termination (but in no event later than
the expiration of the term of such Option as set forth in the Option Agreement).
In the absence of a specified time in the Option Agreement, the Option shall
remain exercisable for three (3) months following the Optionee's termination.
If, on the date of termination, the Optionee is not entitled to exercise his or
her entire Option, the Shares covered by the unexercisable portion of the Option
shall revert to the Plan. If, after termination, the Optionee does not exercise
his or her Option within the time specified by the Administrator, the Option
shall terminate, and the Shares covered by such Option shall revert to the Plan.
(c) DISABILITY OF OPTIONEE. If an Optionee ceases to be a Service
Provider as a result of the Optionee's Disability, the Optionee may exercise his
or her Option at any time within twelve (12) months from the date of
termination, but only to the extent that the Optionee is entitled to exercise it
on the date of termination (and in no event later than the expiration of the
term of the Option as set forth in the Option Agreement). If, on the date of
termination, the Optionee is not
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entitled to exercise his or her entire Option, the Shares covered by the
unexercisable portion of the Option shall revert to the Plan. If, after
termination, the Optionee does not exercise his or her Option within the time
specified herein, the Option shall terminate, and the Shares covered by such
Option shall revert to the Plan.
(d) DEATH OF OPTIONEE. If an Optionee dies while a Service Provider,
the Option may be exercised at any time within twelve (12) months following the
date of death (but in no event later than the expiration of the term of such
Option as set forth in the Notice of Grant), by the Optionee's estate or by a
person who acquires the right to exercise the Option by bequest or inheritance,
but only to the extent that the Optionee would have been entitled to exercise
the Option on the date of death. If, at the time of death, the Optionee is not
entitled to exercise his or her entire Option, the Shares covered by the
unexercisable portion of the Option shall immediately revert to the Plan. The
Option may be exercised by the executor or administrator of the Optionee's
estate or, if none, by the person(s) entitled to exercise the Option under the
Optionee's will or the laws of descent or distribution. If the Option is not so
exercised within the time specified herein, the Option shall terminate, and the
Shares covered by such Option shall revert to the Plan.
(e) BUYOUT PROVISIONS. The Administrator may at any time offer to buy
out for a payment in cash or Shares, an Option previously granted based on such
terms and conditions as the Administrator shall establish and communicate to the
Optionee at the time that such offer is made.
11. NON-TRANSFERABILITY OF OPTIONS. Unless determined otherwise by the
Administrator, an Option may not be sold, pledged, assigned, hypothecated,
transferred, or disposed of in any manner other than by will or by the laws of
descent or distribution and may be exercised, during the lifetime of the
Optionee, only by the Optionee. If the Administrator makes an Option
transferable, such Option shall contain such additional terms and conditions as
the Administrator deems appropriate.
12. ADJUSTMENTS UPON CHANGES IN CAPITALIZATION, DISSOLUTION, MERGER OR
ASSET SALE.
(a) CHANGES IN CAPITALIZATION. Subject to any required action by the
shareholders of the Company, the number of shares of Common Stock covered by
each outstanding Option, and the number of shares of Common Stock which have
been authorized for issuance under the Plan but as to which no Options have yet
been granted or which have been returned to the Plan upon cancellation or
expiration of an Option, as well as the price per share of Common Stock covered
by each such outstanding Option, shall be proportionately adjusted for any
increase or decrease in the number of issued shares of Common Stock resulting
from a stock split, reverse stock split, stock dividend, combination or
reclassification of the Common Stock, or any other increase or decrease in the
number of issued shares of Common Stock effected without receipt of
consideration by the Company; provided, however, that conversion of any
convertible securities of the Company shall not be deemed to have been "effected
without receipt of consideration." Such adjustment shall be made by the Board,
whose determination in that respect shall be final, binding and conclusive.
Except as expressly provided herein, no issuance by the Company of shares of
stock of any class, or securities
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convertible into shares of stock of any class, shall affect, and no adjustment
by reason thereof shall be made with respect to, the number or price of shares
of Common Stock subject to an Option.
(b) DISSOLUTION OR LIQUIDATION. In the event of the proposed
dissolution or liquidation of the Company, the Administrator shall notify each
Optionee as soon as practicable prior to the effective date of such proposed
transaction. The Administrator in its discretion may provide for an Optionee to
have the right to exercise his or her Option until ten (10) days prior to such
transaction as to all of the Optioned Stock covered thereby, including Shares as
to which the Option would not otherwise be exercisable. In addition, the
Administrator may provide that any Company repurchase option applicable to any
Shares purchased upon exercise of an Option shall lapse as to all such Shares,
provided the proposed dissolution or liquidation takes place at the time and in
the manner contemplated. To the extent it has not been previously exercised, an
Option will terminate immediately prior to the consummation of such proposed
action.
(c) MERGER OR ASSET SALE. In the event of a merger of the Company
with or into another corporation, or the sale of substantially all of the assets
of the Company, each outstanding Option shall be assumed or an equivalent option
substituted by the successor corporation or a Parent or Subsidiary of the
successor corporation. In the event that the successor corporation refuses to
assume or substitute for the Option, the Optionee shall fully vest in and have
the right to exercise the Option as to all of the Optioned Stock, including
Shares as to which it would not otherwise be vested or exercisable. If an Option
becomes fully vested and exercisable in lieu of assumption or substitution in
the event of a merger or sale of assets, the Administrator shall notify the
Optionee in writing or electronically that the Option shall be fully vested and
exercisable for a period of fifteen (15) days from the date of such notice, and
the Option shall terminate upon the expiration of such period. For the purposes
of this paragraph, the Option shall be considered assumed if, following the
merger or sale of assets, the option confers the right to purchase or receive,
for each Share of Optioned Stock subject to the Option immediately prior to the
merger or sale of assets, the consideration (whether stock, cash, or other
securities or property) received in the merger or sale of assets by holders of
Common Stock for each Share held on the effective date of the transaction (and
if holders were offered a choice of consideration, the type of consideration
chosen by the holders of a majority of the outstanding Shares); provided,
however, that if such consideration received in the merger or sale of assets is
not solely common stock of the successor corporation or its Parent, the
Administrator may, with the consent of the successor corporation, provide for
the consideration to be received upon the exercise of the Option, for each Share
of Optioned Stock subject to the Option, to be solely common stock of the
successor corporation or its Parent equal in fair market value to the per share
consideration received by holders of Common Stock in the merger or sale of
assets.
13. DATE OF GRANT. The date of grant of an Option shall be, for all
purposes, the date on which the Administrator makes the determination granting
such Option, or such other later date as is determined by the Administrator.
Notice of the determination shall be provided to each Optionee within a
reasonable time after the date of such grant.
14. AMENDMENT AND TERMINATION OF THE PLAN.
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(a) AMENDMENT AND TERMINATION. The Board may at any time amend,
alter, suspend or terminate the Plan.
(b) SHAREHOLDER APPROVAL. The Company shall obtain shareholder
approval of any Plan amendment to the extent necessary and desirable to comply
with Applicable Laws.
(c) EFFECT OF AMENDMENT OR TERMINATION. No amendment, alteration,
suspension or termination of the Plan shall impair the rights of any Optionee,
unless mutually agreed otherwise between the Optionee and the Administrator,
which agreement must be in writing and signed by the Optionee and the Company.
15. CONDITIONS UPON ISSUANCE OF SHARES.
(a) LEGAL COMPLIANCE. Shares shall not be issued pursuant to the
exercise of an Option unless the exercise of such Option and the issuance and
delivery of such Shares shall comply with Applicable Laws and shall be further
subject to the approval of counsel for the Company with respect to such
compliance.
(b) INVESTMENT REPRESENTATIONS. As a condition to the exercise of an
Option, the Company may require the person exercising such Option to represent
and warrant at the time of any such exercise that the Shares are being purchased
only for investment and without any present intention to sell or distribute such
Shares if, in the opinion of counsel for the Company, such a representation is
required.
16. INABILITY TO OBTAIN AUTHORITY. The inability of the Company to obtain
authority from any regulatory body having jurisdiction, which authority is
deemed by the Company's counsel to be necessary to the lawful issuance and sale
of any Shares hereunder, shall relieve the Company of any liability in respect
of the failure to issue or sell such Shares as to which such requisite authority
shall not have been obtained.
17. RESERVATION OF SHARES. The Company, during the term of this Plan, will
at all times reserve and keep available such number of Shares as shall be
sufficient to satisfy the requirements of the Plan.
18. SHAREHOLDER APPROVAL. The Plan shall be subject to approval by the
shareholders of the Company within twelve (12) months after the date the Plan is
adopted. Such shareholder approval shall be obtained in the manner and to the
degree required under Applicable Laws.
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<PAGE>
1996 STOCK OPTION PLAN
STOCK OPTION AGREEMENT
Unless otherwise defined herein, the terms defined in the Plan shall have
the same defined meanings in this Option Agreement.
I. NOTICE OF STOCK OPTION GRANT
[Optionee's Name and Address]
You have been granted an option to purchase Common Stock of the Company,
subject to the terms and conditions of the Plan and this Option Agreement, as
follows:
Grant Number _________________________
Date of Grant _________________________
Vesting Commencement Date _________________________
Exercise Price per Share $________________________
Total Number of Shares Granted _________________________
Total Exercise Price $_________________________
Type of Option: ___ Incentive Stock Option
___ Nonstatutory Stock Option
Term/Expiration Date: _________________________
VESTING SCHEDULE:
This Option may be exercised, in whole or in part, in accordance with the
following schedule:
[25% of the Shares subject to the Option shall vest twelve months after the
Vesting Commencement Date, and 1/48 of the Shares subject to the Option shall
vest each month thereafter, subject to the Optionee continuing to be a Service
Provider on such dates].
<PAGE>
TERMINATION PERIOD:
This Option may be exercised for _____ [days/months] after Optionee ceases
to be a Service Provider. Upon the death or Disability of the Optionee, this
Option may be exercised for such longer period as provided in the Plan. In no
event shall this Option be exercised later than the Term/Expiration Date as
provided above.
II. AGREEMENT
1. GRANT OF OPTION. The Plan Administrator of the Company hereby grants
to the Optionee named in the Notice of Grant attached as Part I of this
Agreement (the "Optionee") an option (the "Option") to purchase the number of
Shares, as set forth in the Notice of Grant, at the exercise price per share set
forth in the Notice of Grant (the "Exercise Price"), subject to the terms and
conditions of the Plan, which is incorporated herein by reference. Subject to
Section 14(c) of the Plan, in the event of a conflict between the terms and
conditions of the Plan and the terms and conditions of this Option Agreement,
the terms and conditions of the Plan shall prevail.
If designated in the Notice of Grant as an Incentive Stock Option
("ISO"), this Option is intended to qualify as an Incentive Stock Option under
Section 422 of the Code. However, if this Option is intended to be an Incentive
Stock Option, to the extent that it exceeds the $100,000 rule of Code Section
422(d) it shall be treated as a Nonstatutory Stock Option ("NSO").
2. EXERCISE OF OPTION.
(a) RIGHT TO EXERCISE. This Option is exercisable during its term in
accordance with the Vesting Schedule set out in the Notice of Grant and the
applicable provisions of the Plan and this Option Agreement.
(b) METHOD OF EXERCISE. This Option is exercisable by delivery of an
exercise notice, in the form attached as Exhibit A (the "Exercise Notice"),
which shall state the election to exercise the Option, the number of Shares in
respect of which the Option is being exercised (the "Exercised Shares"), and
such other representations and agreements as may be required by the Company
pursuant to the provisions of the Plan. The Exercise Notice shall be completed
by the Optionee and delivered to the stock option administrator of the Company.
The Exercise Notice shall be accompanied by payment of the aggregate Exercise
Price as to all Exercised Shares. This Option shall be deemed to be exercised
upon receipt by the Company of such fully executed Exercise Notice accompanied
by such aggregate Exercise Price.
No Shares shall be issued pursuant to the exercise of this Option
unless such issuance and exercise complies with Applicable Laws. Assuming such
compliance, for income tax purposes the Exercised Shares shall be considered
transferred to the Optionee on the date the Option is exercised with respect to
such Exercised Shares.
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<PAGE>
3. METHOD OF PAYMENT. Payment of the aggregate Exercise Price shall be by
any of the following, or a combination thereof, at the election of the Optionee:
(a) cash;
(b) check;
(c) consideration received by the Company under a formal cashless
exercise program adopted by the Company in connection with the Plan;
(d) surrender of other Shares which (i) in the case of Shares
acquired upon exercise of an option, have been owned by the Optionee for more
than six (6) months on the date of surrender, AND (ii) have a Fair Market Value
on the date of surrender equal to the aggregate Exercise Price of the Exercised
Shares; or
(e) with the Administrator's consent, delivery of Optionee's
promissory note (the "Note") in the form attached hereto as Exhibit C, in the
amount of the aggregate Exercise Price of the Exercised Shares together with the
execution and delivery by the Optionee of the Security Agreement attached hereto
as Exhibit B. The Note shall bear interest at the "applicable federal rate"
prescribed under the Code and its regulations at time of purchase, and shall be
secured by a pledge of the Shares purchased by the Note pursuant to the Security
Agreement.
4. NON-TRANSFERABILITY OF OPTION. This Option may not be transferred in
any manner otherwise than by will or by the laws of descent or distribution and
may be exercised during the lifetime of Optionee only by the Optionee. The terms
of the Plan and this Option Agreement shall be binding upon the executors,
administrators, heirs, successors and assigns of the Optionee.
5. TERM OF OPTION. This Option may be exercised only within the term set
out in the Notice of Grant, and may be exercised during such term only in
accordance with the Plan and the terms of this Option Agreement.
6. TAX CONSEQUENCES. Some of the federal tax consequences relating to
this Option, as of the date of this Option, are set forth below. THIS SUMMARY IS
NECESSARILY INCOMPLETE, AND THE TAX LAWS AND REGULATIONS ARE SUBJECT TO CHANGE.
THE OPTIONEE SHOULD CONSULT A TAX ADVISER BEFORE EXERCISING THIS OPTION OR
DISPOSING OF THE SHARES.
(a) EXERCISING THE OPTION.
(i) NONSTATUTORY STOCK OPTION. The Optionee may incur regular
federal income tax liability upon exercise of a NSO. The Optionee will be
treated as having received compensation income (taxable at ordinary income tax
rates) equal to the excess, if any, of the Fair Market Value of the Exercised
Shares on the date of exercise over their aggregate Exercise Price. If
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<PAGE>
the Optionee is an Employee or a former Employee, the Company will be required
to withhold from his or her compensation or collect from Optionee and pay to the
applicable taxing authorities an amount in cash equal to a percentage of this
compensation income at the time of exercise, and may refuse to honor the
exercise and refuse to deliver Shares if such withholding amounts are not
delivered at the time of exercise.
(ii) INCENTIVE STOCK OPTION. If this Option qualifies as an ISO,
the Optionee will have no regular federal income tax liability upon its
exercise, although the excess, if any, of the Fair Market Value of the Exercised
Shares on the date of exercise over their aggregate Exercise Price will be
treated as an adjustment to alternative minimum taxable income for federal tax
purposes and may subject the Optionee to alternative minimum tax in the year of
exercise. In the event that the Optionee ceases to be an Employee but remains a
Service Provider, any Incentive Stock Option of the Optionee that remains
unexercised shall cease to qualify as an Incentive Stock Option and will be
treated for tax purposes as a Nonstatutory Stock Option on the date three (3)
months and one (1) day following such change of status.
(b) DISPOSITION OF SHARES.
(i) NSO. If the Optionee holds NSO Shares for at least one year,
any gain realized on disposition of the Shares will be treated as long-term
capital gain for federal income tax purposes.
(ii) ISO. If the Optionee holds ISO Shares for at least one year
after exercise and two years after the grant date, any gain realized on
disposition of the Shares will be treated as long-term capital gain for federal
income tax purposes. If the Optionee disposes of ISO Shares within one year
after exercise or two years after the grant date, any gain realized on such
disposition will be treated as compensation income (taxable at ordinary income
rates) to the extent of the excess, if any, of the lesser of (A) the difference
between the Fair Market Value of the Shares acquired on the date of exercise and
the aggregate Exercise Price, or (B) the difference between the sale price of
such Shares and the aggregate Exercise Price. Any additional gain will be taxed
as capital gain, short-term or long-term depending on the period that the ISO
Shares were held.
(c) NOTICE OF DISQUALIFYING DISPOSITION OF ISO SHARES. If the
Optionee sells or otherwise disposes of any of the Shares acquired pursuant to
an ISO on or before the later of (i) two years after the grant date, or (ii) one
year after the exercise date, the Optionee shall immediately notify the Company
in writing of such disposition. The Optionee agrees that he or she may be
subject to income tax withholding by the Company on the compensation income
recognized from such early disposition of ISO Shares by payment in cash or out
of the current earnings paid to the Optionee.
7. ENTIRE AGREEMENT; GOVERNING LAW. The Plan is incorporated herein by
reference. The Plan and this Option Agreement constitute the entire agreement of
the parties with respect to the subject matter hereof and supersede in their
entirety all prior undertakings and agreements of the
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<PAGE>
Company and Optionee with respect to the subject matter hereof, and may not be
modified adversely to the Optionee's interest except by means of a writing
signed by the Company and Optionee. This agreement is governed by the internal
substantive laws, but not the choice of law rules, of California.
8. NO GUARANTEE OF CONTINUED SERVICE. OPTIONEE ACKNOWLEDGES AND AGREES
THAT THE VESTING OF SHARES PURSUANT TO THE VESTING SCHEDULE HEREOF IS EARNED
ONLY BY CONTINUING AS A SERVICE PROVIDER AT THE WILL OF THE COMPANY (AND NOT
THROUGH THE ACT OF BEING HIRED, BEING GRANTED AN OPTION OR PURCHASING SHARES
HEREUNDER). OPTIONEE FURTHER ACKNOWLEDGES AND AGREES THAT THIS AGREEMENT, THE
TRANSACTIONS CONTEMPLATED HEREUNDER AND THE VESTING SCHEDULE SET FORTH HEREIN DO
NOT CONSTITUTE AN EXPRESS OR IMPLIED PROMISE OF CONTINUED ENGAGEMENT AS A
SERVICE PROVIDER FOR THE VESTING PERIOD, FOR ANY PERIOD, OR AT ALL, AND SHALL
NOT INTERFERE WITH OPTIONEE'S RIGHT OR THE COMPANY'S RIGHT TO TERMINATE
OPTIONEE'S RELATIONSHIP AS A SERVICE PROVIDER AT ANY TIME, WITH OR WITHOUT
CAUSE.
By your signature and the signature of the Company's representative below,
you and the Company agree that this Option is granted under and governed by the
terms and conditions of the Plan and this Option Agreement. Optionee has
reviewed the Plan and this Option Agreement in their entirety, has had an
opportunity to obtain the advice of counsel prior to executing this Option
Agreement and fully understands all provisions of the Plan and Option Agreement.
Optionee hereby agrees to accept as binding, conclusive and final all decisions
or interpretations of the Administrator upon any questions relating to the Plan
and Option Agreement. Optionee further agrees to notify the Company upon any
change in the residence address indicated below.
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<PAGE>
OPTIONEE: CYMER, INC.
- ----------------------------------- -----------------------------------
Signature By
- ------------------------------------ -----------------------------------
Print Name Title
- ------------------------------------
Residence Address
- ------------------------------------
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<PAGE>
CONSENT OF SPOUSE
The undersigned spouse of Optionee has read and hereby approves the terms
and conditions of the Plan and this Option Agreement. In consideration of the
Company's granting his or her spouse the right to purchase Shares as set forth
in the Plan and this Option Agreement, the undersigned hereby agrees to be
irrevocably bound by the terms and conditions of the Plan and this Option
Agreement and further agrees that any community property interest shall be
similarly bound. The undersigned hereby appoints the undersigned's spouse as
attorney-in-fact for the undersigned with respect to any amendment or exercise
of rights under the Plan or this Option Agreement.
---------------------------------------
Spouse of Optionee
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<PAGE>
EXHIBIT A
1996 STOCK OPTION PLAN
EXERCISE NOTICE
Cymer, Inc.
16275 Technology Drive
San Diego, CA 92127-1815
Attention: Corporate Secretary
1 EXERCISE OF OPTION. Effective as of today, ________________, 200__,
the undersigned ("Purchaser") hereby elects to purchase ______________ shares
(the "Shares") of the Common Stock of Cymer, Inc. (the "Company") under and
pursuant to the 1996 Stock Option Plan (the "Plan") and the Stock Option
Agreement dated ___________, ___ (the "Option Agreement"). The purchase price
for the Shares shall be $______ , as required by the Option Agreement.
2 DELIVERY OF PAYMENT. Purchaser herewith delivers to the Company the
full purchase price for the Shares.
3 REPRESENTATIONS OF PURCHASER. Purchaser acknowledges that Purchaser
has received, read and understood the Plan and the Option Agreement and agrees
to abide by and be bound by their terms and conditions.
4 RIGHTS AS SHAREHOLDER. Until the issuance (as evidenced by the
appropriate entry on the books of the Company or of a duly authorized transfer
agent of the Company) of the Shares, no right to vote or receive dividends or
any other rights as a shareholder shall exist with respect to the Optioned
Stock, notwithstanding the exercise of the Option. The Shares so acquired shall
be issued to the Optionee as soon as practicable after exercise of the Option.
No adjustment will be made for a dividend or other right for which the record
date is prior to the date of issuance, except as provided in Section 12 of the
Plan.
5 TAX CONSULTATION. Purchaser understands that Purchaser may suffer
adverse tax consequences as a result of Purchaser's purchase or disposition of
the Shares. Purchaser represents that Purchaser has consulted with any tax
consultants Purchaser deems advisable in connection with the purchase or
disposition of the Shares and that Purchaser is not relying on the Company for
any tax advice.
<PAGE>
6 ENTIRE AGREEMENT; GOVERNING LAW. The Plan and Option Agreement are
incorporated herein by reference. This Agreement, the Plan and the Option
Agreement constitute the entire agreement of the parties with respect to the
subject matter hereof and supersede in their entirety all prior undertakings and
agreements of the Company and Purchaser with respect to the subject matter
hereof, and may not be modified adversely to the Purchaser's interest except by
means of a writing signed by the Company and Purchaser. This agreement is
governed by the internal substantive laws, but not the choice of law rules, of
California.
Submitted by: Accepted by:
PURCHASER: CYMER, INC.
By:
- ----------------------------------- --------------------------------
Signature
- ----------------------------------- -----------------------------------
Print Name Its
ADDRESS: ADDRESS:
- ----------------------------------- 16275 Technology Drive
San Diego, CA 92127-1815
- -----------------------------------
-----------------------------------
Date Received
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<PAGE>
EXHIBIT 10.14
EMPLOYMENT AGREEMENT
This Employment Agreement (the "Agreement") is made and entered into
effective as of March 1, 2000, by and between Wallace E. Breitman
(the "Employee") and Cymer, Inc. a Nevada corporation (the "Company").
RECITALS
A. The Company may from time to time need to address the possibility of
an aquisition transaction or change of control event. The Board of
Directors of the Company (the "Board") recognizes that such events can be a
distraction to the Employee and can cause the Employee to consider
alternative employment opportunities. The Board has determined that it is in
the best interests of the Company and its shareholders to assure that the
Company will have the continued dedication and objectivity of the Employee,
notwithstanding the possibility, threat or occurrence of a Change of Control
(as defined below) of the Company, although no such Change is now
contemplated.
B. The Board believes that it is in the best interests of the Company
and its stockholders to provide the Employee with an incentive to continue
his employment and to motivate the Employee to maximize the value of the
Company upon a Change of Control for the benefit of its stockholders.
C. The Board believes that it is imperative to provide the Employee
with certain benefits upon a Change of Control and, under certain
circumstances, upon termination of the Employee's employment in connection
with a Change of Control, which benefits are intended to provide the Employee
with financial security and provide sufficient incentive and recognition to
the Employee to remain with the Company notwithstanding the possibility of a
Change of Control.
D. To accomplish the foregoing objectives, the Board has directed the
Company, upon execution of this Agreement by the Employee, to agree to the
terms provided herein.
E. Certain capitalized terms used in this Agreement are defined in
Section 7 below.
AGREEMENT
In consideration of the mutual covenants herein contained, and in
consideration of the continuing employment of the Employee by the Company,
the parties agree as follows:
1. DUTIES AND SCOPE OF EMPLOYMENT. The Company shall employ the
Employee in the position of Vice President, Human Resources and
Administration, as such position has been defined in terms of
responsibilities and compensation as of the effective date of this Agreement;
provided, however, that the Board shall have the right, at any time prior to
the occurrence of a Change of Control, to revise such responsibilities and
compensation as the Board in its discretion may deem necessary or
appropriate. The Employee shall comply with and be bound by the Company's
operating policies, procedures and practices from time to time in effect
during his employment. During the term of the Employee's employment with the
Company, the Employee shall continue to devote his full time, skill and
attention to his duties and responsibilities, and shall perform them
faithfully, diligently and competently, and the Employee shall use his best
efforts to further the business of the Company and the affiliated entities.
2. BASE COMPENSATION. The Company shall pay the Employee as
compensation for her services a base salary at the annualized rate of
$180,000.00 Such salary shall be paid periodically in accordance with normal
Company payroll practices. The Board or the Compensation Committee of the
Board shall review the base salary of the Employee according to normal
Company practice, but no less frequently than annually, and may in its
discretion increase but not decrease the base salary below the amount
specified in this agreement.
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<PAGE>
3. ANNUAL INCENTIVE. Beginning with the Company's current fiscal year
and for each fiscal year thereafter during the term of this Agreement, the
Employee shall be eligible to receive an annual bonus under the Company's
annual incentive plan (the "Annual Incentive") based upon performance targets
approved by the Compensation Committees of the Board (the "Target Incentive").
The Annual Incentive payable hereunder shall be payable in accordance with
the Company's normal practices and policies.
4. EMPLOYEE BENEFITS. The Employee shall be eligible to participate in
the employee benefit plans and executive compensation program maintained by
the Company applicable to other key executives of the Company, including
(without limitation) retirement plans, savings or profit-sharing plans, stock
option, incentive or other bonus plans, life, disability, health, accident
and other insurance programs, paid vacations, and similar plans or programs,
subject in each case to the generally applicable terms and conditions of the
applicable plan or program in question and to the sole determination of the
Board of any committee administering such plan or program.
5. EMPLOYMENT RELATIONSHIP. The Company and the Employee acknowledge
that the Employee's employment is and shall continue to be at-will, as
defined under applicable law. If the Employee's employment terminates for any
reason, the Employee shall not be entitled to any payments, benefits,
damages, awards or compensation other than as provided by this Agreement, or
as may otherwise be available in accordance with the Company's established
employee plans and policies at the time of termination.
6. TERMINATION BENEFITS. Subject to Section 8 and 9 below, in the event
the Employee's employment terminates as a result of an Involuntary
Termination other than for Cause upon or within 18 months after a Change of
Control, then the Employee shall be entitled to receive severance and other
benefits as follows:
(a) PAY CONTINUATION. The Employee shall be entitled to monthly
payments equal to the Employee's monthly Base Compensation as in
effect immediately prior to the Change of Control plus one-twelfth
(1/12) of the average of the annual bonus amount paid to the Employee
with respect to the three previous calendar years. Such monthly
amounts shall be paid according to the normal payroll practice of
the Company for 9 months following the date of termination (the
"Termination Period").
(b) ANNUAL INCENTIVE. The Employee shall be entitled to receive a
percentage of the Employee's Target Incentive for the calendar year
in which such termination occurs. Such percentage shall equal a
fraction, the numerator of which shall be the number of days in
such calendar year up to and including the date of such termination
and the denominator of which shall be the number of days in such
calendar year. Such amount shall be payable according to the normal
practice of the Company with respect to the payment of bonuses.
(c) OPTIONS. The unvested portion of any stock option(s) held
by the Employee under the Company's stock option plans shall vest
and become exercisable in full upon the date of such termination.
(d) MEDICAL BENEFITS. The Company shall reimburse the Employee
for the cost of the Employee's group health, vision and dental plan
coverage in effect until the end of the Termination Period. The
Employee may use this payment as well as any other payment made
under this Section 6, for such continuation coverage or for any
other purpose. To the extent the Employee pays the cost of such
coverage and the cost of such coverage is not deductible as a medical
expense by the Employee, the Company shall "gross up" the amount of
such reimbursement for all taxes payable by the Employee on the
amount of such reimbursement and the amount of each gross up.
7. DEFINITION OF TERMS. The following terms referred to in this
Agreement shall have the following meanings:
(a) CAUSE "Cause" shall mean (1) any act of personal dishonesty
taken by the Employee in connection with his responsibilities as an
employee and intended to result in substantial personal enrichment
of the Employee, (ii) conviction of a felony that is injurious to
the Company, (iii) a willful act by the Employee which constitutes
gross misconduct and which is injurious to the Company, and (iv)
continued violations by the Employee of the Employee's obligations
under Section 1 of this Agreement that
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<PAGE>
are demonstrably willful and deliberate on the Employee's part after there
has been delivered to the Employee a written demand for performance from the
Company which describes the basis for the Company's belief that the Employee
has not substantially performed his duties.
(b) CHANGE OF CONTROL. "Change of Control" shall mean the occurrence of
any of the following events:
(i) The acquisition by any "person" (as such term is
used in Sections 13(d) and 14(d) of the Exchange Act)
(other than the Company or a person that directly or
indirectly controls, is controlled by, or is under common
control with, the Company) of the "beneficial ownership" (as
defined in Rule 13d-3 under said Act), directly or
indirectly, of securities of the Company representing fifty
percent (50%) or more of the total voting power represented
by the Company's then outstanding voting securities; or
(ii) A change in the composition of the Board of
Directors of the Company occurring within a two-year period,
as a result of which fewer than a majority of the directors
are Incumbent Directors "Incumbent Directors" shall mean
directors who either (A) are directors of the Company as of
the date hereof or (B) are elected, or nominated for
election, to the Board of Directors of the Company with the
affirmative votes of at least a majority of the Incumbent
Directors at the time of such election or nomination (but
shall not include an individual not otherwise an Incumbent
Director whose election or nomination is in connection with
an actual or threatened proxy contest relating to the
election of directors to the Company); or
(iii) A merger or consolidation of the Company with any
other corporation, other than a merger or consolidation
which would result in the voting securities of the Company
outstanding immediately prior thereto continuing to
represent (either by remaining outstanding or by being
converted into voting securities of the surviving entity) at
least fifty percent (50%) of the total voting power
represented by the voting securities of the Company or such
surviving entity outstanding immediately after such merger or
consolidation, or the approval by the stockholders of the
Company of a plan of complete liquidation of the Company or of
an agreement for the sale or disposition by the Company of all
or substantially all the Company's assets.
(c) DISABILITY. "Disability" shall mean that the Employee has been
unable to substantially perform his duties under this Agreement as
the result of his incapacity due to physical or mental illness, and
such inability, at least 26 weeks after its commencement, is
determined to be total and permanent by a physician selected by the
Company or its insurers and acceptable to the Employee or the
Employee's legal representative (such agreement as to acceptability
not to be unreasonably withheld).
(d) EXCHANGE ACT. "Exchange Act" shall mean the Securities
Exchange Act of 1934, as amended.
(e) INVOLUNTARY TERMINATION. "Involuntary Termination" shall mean
(i) without the Employee's express written consent, the significant
reduction of the Employee's duties or responsibilities relative to
the Employee's duties or responsibilities in effect immediately
prior to such reduction; provided, however, that a reduction in
duties or responsibilities solely by the virtue of the Company being
acquired and made part of a larger entity (as, for example, when the
Chief Financial Officer of Company remains as such following a
Change of Control and is not made the Chief Financial Officer of the
acquiring corporation) shall not constitute an "Involuntary
Termination", (ii) without the Employee's express written consent,
a substantial reduction, without good business reasons, of the
facilities and perquisites (including office space and location)
available to the Employee immediately prior to such reduction; (iii)
without the Employee's express written consent, a material reduction
by the Company in the Base Compensation or Target Incentive of the
Employee as in effect immediately prior to such reduction, or the
ineligibility of the Employee to continue to participate in any
long-term incentive plan of the Company;(iv) a material reduction by
the Company in the kind or level of employee benefits to which the
Employee is entitled immediately prior to such reduction with the
result that the Employee's overall benefits package is significantly
reduced; (v) the relocation of the Employee to a facility or a
location more than 50 miles from the Employee's then present
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<PAGE>
location, without the Employee's express written consent, (vi) any
purported termination of the Employee by the Company which is not
affected for death or Disability or for Cause, or any purported
termination for which the grounds relied upon are not valid; or (vii)
the failure of the Company to obtain the assumption of this agreement
by any successors in Section 10 below.
8. LIMITATION ON PAYMENTS.
(a) in the event that the severance and other benefits provided for in
this Agreement or otherwise payable to the Employee (i) constitute
"parachute payments" within the meaning of Section 280G of the Internal
Revenue Code of 1986, as amended (the "Code") and (ii) but for this
Section 8 would be subject to the excise tax imposed by Section 4999 of
the Code, then the Employee's severance benefits under Section 6 shall
be payable either (i) in full, or (ii) as to such lesser amount which
would result in no portion of such severance benefits being subject to
excise tax under Section 4999 of the Code, whichever of the foregoing
amounts, taking into account the applicable federal, state and local
income taxes and the excise tax imposed by Section 4999, results in the
receipt by the Employee on an after-tax basis, of the greatest amount
of severance benefits under this Agreement, notwithstanding that all or
some portion of such severance benefits may be taxable under Section
4999 of the Code.
(b) If a reduction in the payments and benefits that would otherwise be
paid or provided to the Employee under the terms of this Agreement is
necessary to comply with the provisions of Section 8(a), the Employee
shall be entitled to select which payments or benefits will be reduced
and the manner and method of any such reduction of such payments or
benefits (including but not limited to the number of options that would
vest under Section 6(b) subject to reasonable limitations (including,
for example, express provisions under the Company's benefit plans) (so
long as the requirements of Section 8(a) are met). Within thirty (30)
days after the amount of any required reduction in payments and
benefits is finally determined in accordance with the provisions of
Section 8(c), the Employee shall notify the Company in writing
regarding which payments or benefits are to be reduced. If no
notification is given by the Employee, the Company will determine which
amounts to reduce. If, as a result of any reduction required by Section
8(a), amounts previously paid to the Employee exceed the amount to
which the Employee is entitled, the Employee will promptly return the
excess amount to the Company.
(c) Unless the Company and the Employee otherwise agree in writing, any
determination required under this Section 8 shall be made in writing by
the Company's independent public accountants (the "Accountants"), whose
determination shall be conclusive and binding upon the Employee and the
Company for all purposes. For purposes of making the calculations
required by this Section 8, the Accountants may make reasonable
assumptions and approximations concerning applicable taxes and may rely
on reasonable, good faith interpretations concerning the application of
Sections 280G and 4999 of the Code. The Company and the Employee shall
furnish to the Accountants such information and documents as the
Accountants may reasonably request in order to make a determination
under this Section. The Company shall bear all costs the Accountants
may reasonably incur in connection with any calculations contemplated
by this Section 8.
9. CERTAIN BUSINESS COMBINATIONS. In the event it is determined by the Board,
upon receipt of a written opinion of the Company's independent public
accountants, that the enforcement of any Section or subsection of this
Agreement, including, but not limited to, Section 6(b) hereof, which allows
for the acceleration of vesting of options to purchase shares of the
Company's common stock upon a termination in connection with a Change of
Control, would preclude accounting for any proposed business combination of
the Company involving a Change of Control as a pooling of interests, and the
Board otherwise desires to approve such a proposed business transaction which
requires as a condition to the closing of such transaction that it be
accounted for as a pooling of interests, then any such Section of this
Agreement shall be null and void, but only if the absence of enforcement of
such Section would preserve the pooling treatment. For purposes of this
Section 9, the Board's determination shall require this unanimous approval of
the disinterested Board members.
10. SUCCESSORS.
(a) COMPANY'S SUCCESSORS. Any successor to the Company (whether direct
or indirect and whether by purchase, lease, merger, consolidation,
liquidation or otherwise) to all or substantially all of the
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Company's business and assets shall assume the obligations under
this Agreement and agree expressly to perform the obligations under
this Agreement in the same manner and to the same extent as the
Company would be required to perform such obligations in the absence of
a succession. For all purposes under this Agreement, the term "Company"
shall include any successor to the Company's business and assets which
executes and delivers the assumption agreement described in this
Section 10(a) or which becomes bound by the terms of this Agreement by
operation of law.
(b) EMPLOYEE'S SUCCESSORS. The terms of this Agreement and all
rights of the Employee hereunder shall inure to the benefit of, and be
enforceable by, the Employee's personal or legal representatives,
executors, administrators, successors, heirs, divisees and legatees.
11. NOTICE. Notices and all other communications contemplated by this
Agreement shall be in writing and shall be deemed to have been duly
given when personally delivered or when mailed by U.S. registered or
certified mail, return receipt requested and postage prepaid. In the
case of the Employee, mailed notices shall be addressed to him at the
home address which he most recently communicated to the Company in
writing. In the case of the Company mailed notices shall be addressed
to its corporate headquarters, and all notices shall be directed to
the attention of its Secretary.
12. MISCELLANEOUS PROVISIONS.
(a) WAIVER. No provision of this Agreement shall be modified,
waived or discharged unless the modification, waiver or discharge is
agreed to in writing and signed by the Employee and by an authorized
officer of the Company (other than the Employee). No waiver by either
party of any breach of, or of compliance with any condition or
provision of this Agreement by the other party shall be considered a
waiver of any other condition or provision or of the same condition or
provision at another time.
(b) WHOLE AGREEMENT. No agreements, representations or
understandings (whether oral or written and whether express or
implied) which are not expressly set forth in this Agreement have been
make or entered into by either party with respect to the subject
matter hereof.
(c) CHOICE OF LAW. The validity, interpretation, construction and
performance of this Agreement shall be governed by the laws of the
State of California.
(d) SEVERABILITY. The invalidity or unenforceability of any
provision or provisions of this Agreement shall not affect the
validity or enforceability of any other provision hereof, which shall
remain in full force and effect.
(e) ARBITRATION. Any dispute or controversy arising out of,
relating to or in connection with this Agreement shall be settled
exclusively by binding arbitration in San Diego, California, in
accordance with the National Rules for the Resolution of Employment
Disputes of the American Arbitration Association then in effect.
Judgement may be entered on the arbitrator's award in any court
having jurisdiction. The Company and the Employee shall each pay
one-half of the costs and expenses of such arbitration, and each
shall separately pay its counsel fees and expenses. Punitive
damages shall not be awarded.
(f) NO ASSIGNMENT OF BENEFITS. The rights of any person to
payments or benefits under this Agreement shall not be made subject
to option or assignment, either by voluntary or involuntary assignment
or by operation of law, including (without limitation) bankruptcy,
garnishment, attachment or other creditor's process, and any action in
violation of this Section 12(g) shall be void.
(g) ASSIGNMENT BY COMPANY. The Company may assign its rights
under this Agreement to an affiliate, and an affiliate may assign its
rights under this Agreement to another affiliate of the Company or to
the Company; provided, however, that no assignment shall be made if
the net worth of the assignee is less than the net worth of the
Company at the time of assignment. In the case of any such assignment,
the term "Company" when used in a section of this Agreement shall mean
the corporation that actually employs the Employee.
-5-
<PAGE>
(h) COUNTERPARTS. This Agreement may be executed in counterparts,
each of which shall be deemed an original, but all of which
together will constitute one and the same instrument.
IN WITNESS WHEREOF, each of the parties has executed this Agreement, in the
case of the Company by its duly authorized officer, as of the day and year
first above written.
COMPANY: CYMER, INC.
By: Robert P. Akins
Title: Chairman of the Board,
Chief Executive Officer and President
/s/ Robert P. Akins
---------------------------------
EMPLOYEE: /s/ Wallace E. Breitman
---------------------------------
Wallace E. Breitman
-6-
<PAGE>
EXHIBIT 10.15
SUMMARY DESCRIPTION OF CYMER PROFIT SHARING PROGRAM AND
CYMER INCENTIVE BONUS PROGRAM
MARCH 2000
CYMER PROFIT SHARING PROGRAM
- - Every employee in the Company is eligible to receive Profit Sharing.
- - 5.0% Profit Sharing paid if the Company achieves its BOD approved Annual
Operating Plan Operating Income target.
- - Threshold of the Plan is achievement of 80% of AOP Operating Income Target.
At 80% Plan attainment, Profit Sharing is 0%.
- - From 80% attainment to 100% attainment, payout is made on a linear curve. 80%
= 0% payout; 90% attainment = 2.5% payout; 100% attainment = 5.0% payout. Plan
is capped at a 5% payout.
- - Payout is based on an employee's base salary payroll for the Profit Sharing
period. For 1999, payout was annual; for 2000, Profit Sharing will be paid
quarterly, based on quarterly year-to-date progress against AOP.
- - Based on achievement of 1999 AOP, a full 5% Profit Sharing was paid to each
Cymer employee in March 2000.
CYMER INCENTIVE BONUS PROGRAM
- Members of the Executive Committee, members of management, and selected
individual contributors are eligible to participate in the Cymer Incentive
Bonus Program.
- For 1999, the Bonus criteria were:
EXECUTIVE COMMITTEE MEMBERS
33.33% based on achievement of AOP Revenue Target
33.33% based on achievement of AOP Net Profit Target,
expressed as a dollar amount.
33.33% based on achievement of individual MBOs
NON-EXECUTIVE COMMITTEE MEMBERS
25.0% based on achievement of AOP Revenue Target
25.0% based on achievement of AOP Operating Profit Target,
expressed as a percentage of revenue
50.0% based on
achievement of individual MBOs
<PAGE>
CYMER INCENTIVE BONUS PROGRAM (CONT'D)
- For 2000, the only change in the above criteria is that for
Non-Executive Committee Members, the 25.0% based on achievement of AOP
Operating Profit Target is expressed as a dollar amount, instead of a
percentage of revenue.
- The Bonus threshold for payout is achievement of 80% of the Annual
Operating Profit target. Below 80% achievement, no bonuses will be
paid. For the MBO portion of the bonus plan, threshold for receiving
any bonus is 60% accomplishment of MBO for any bonus to be paid. Above
60% accomplishment, bonus is paid on a linear basis with 60%
achievement = 60% payment of MBO portion, 70% achievement equaling 70%
payment; 100% achievement = 100% payment, etc.
- For the two financial measures, from 80% achievement to 100%
achievement, payment is made on a linear curve, with 80% = "0" payout,
and 100% = 100% payout; thus 90% achievement = 50% payout, etc. Above a
100% achievement of each financial parameter, a 2.5x multiplier effect
occurs, such that at 120% achievement, there is a 150% payout of the
parameter.
- Bonus payments for revenue are uncapped; payments for profit
achievement are capped at 200%.
- Bonus payments are made annually, after completion of the annual audit.
- For 1999, bonuses were paid to all eligible participants because the
company exceeded its revenue and profit goals, as follows:
EXECUTIVE COMMITTEE: Revenue: 107.5%
Net Profit expressed
as a dollar amount: 200%
NON-EXECUTIVE COMMITTEE: Revenue: 107.5%
Operating Profit expressed
as a percentage: 145%
- 1999 Bonuses were paid to eligible participants in March 2000.
<PAGE>
EXHIBIT 10.16
CYMER INC.
EXECUTIVE DEFERRED COMPENSATION PLAN
1. STATEMENT OF PURPOSE
The purpose of the Cymer Inc. Executive Deferred Compensation Plan (the
"Plan") is to aid Cymer Inc. and its subsidiaries in attracting and
retaining key employees by providing a non-qualified compensation
deferral vehicle.
2. DEFINITIONS
2.01 BENEFICIARY -- "Beneficiary" means the person or persons
designated as such in accordance with Section 8.
2.02 BOARD OF DIRECTORS -- "Board of Directors" means the Board of
Directors of Cymer Inc.
2.03 CALENDAR QUARTER -- "Calendar Quarter" means any of the four
calendar quarters in a full calendar year (e.g. January, February
& March comprise the first calendar quarter).
2.04 COMMITTEE -- "Committee" means a Committee of two or more
directors of the Company appointed by the Board of Directors of
Cymer Inc. that will administer the Plan pursuant to the provisions
of Section 3 of the Plan.
2.05 COMPANY -- "Company" means Cymer Inc. and, for purposes of
Section 2.24 and such other purposes as determined by the Committee,
shall include any subsidiary of Cymer Inc.
2.06 COMPENSATION -- "Compensation" means the Participant's Executive
Incentive Plan (EIP) annual incentive bonus, or other items deemed
Compensation by the Committee for purposes of this Plan.
2.07 CYCLE -- "Cycle" means the twelve month pay-in period for each
deferral. The first Cycle shall begin on January 1, 2000 and end on
December 31, 2000. The following Cycles shall begin on January 1 of
each year and end on December 31 of such year.
December 1999 -1-
<PAGE>
_______________________________________________________________________________
CYMER INC. EXECUTIVE DEFERRED COMPENSATION PLAN
2.08 DEFERRAL AMOUNT -- "Deferral Amount" means the total amount of
Elective Deferred Compensation and/or Non-Elective Deferred
Compensation with respect to a Participant.
2.09 DEFERRED COMPENSATION ACCOUNT -- "Deferred Compensation Account"
means the account maintained on the books of account of the
Company for a Participant pursuant to Section 6.
2.10 DISABILITY -- "Disability" means the Participant is eligible to
receive benefits under a long term disability plan maintained by
the Company.
2.11 DISTRIBUTION DATE -- "Distribution Date" means the date on which
the Company makes distributions from the Participant's Deferred
Compensation Account(s).
2.12 EFFECTIVE DATE -- "Effective Date" means the date on which this
Plan is effective, December 20, 1999.
2.13 ELECTION FORM -- "Election Form" means the form or forms attached
to this Plan and filed with the Committee by the Participant in
order to participate in the Plan. The terms and conditions
specified in the Election Form(s) are incorporated by reference
herein and form a part of the Plan.
2.14 ELECTIVE DEFERRED COMPENSATION -- "Elective Deferred
Compensation" means the total amount elected to be deferred by an
Eligible Employee on his/her Election Form, subject to approval
by the Committee.
2.15 ELIGIBLE EMPLOYEE -- "Eligible Employee" means any employee of
the Company who is an officer, or such other key executives of
the Company as may be designated by the Chief Executive Officer
of Cymer Inc.
2.16 INVESTMENT ALLOCATION CHANGE FORM -- "Investment Allocation
Change Form" means a form filed with the Committee by the
Participant in order to request a change in the allocation of the
Participant's Deferred Compensation Account(s) among the
investment choices offered under the Plan. The terms and
conditions specified in the Investment Allocation Change Form are
incorporated by reference herein and form a part of the Plan.
December 1999 -2-
<PAGE>
_______________________________________________________________________________
CYMER INC. EXECUTIVE DEFERRED COMPENSATION PLAN
2.17 INVESTMENT FUNDS -- "Investment Funds" means those mutual funds,
investment indexes or other measures of performance identified by
the Committee, which shall by used to determine the returns on the
Participant's Deferred Compensation Accounts. The initial
investment fund shall be the Prime Rate Account. The Investment
Funds may be changed by the Committee from time to time, at the
sole discretion of the Committee.
2.18 NON-ELECTIVE DEFERRED COMPENSATION -- "Non-Elective Deferred
Compensation" means the amount awarded to a Participant by the
Committee pursuant to Section 4.02.
2.19 PARTICIPANT -- "Participant" means an Eligible Employee
participating in the Plan in accordance with the provisions of
Section 4.
2.20 PLAN YEAR -- "Plan Year" means the twelve month period beginning
on the first day of the first Cycle in which the Eligible
Employee elects to participate in the Plan. The initial Plan Year
will commence on January 1, 2000 and end on December 31, 2000.
Each later Plan Year will begin on January 1 and end on December
31.
2.21 PRIME RATE ACCOUNT -- "Prime Rate Account" means an investment
option providing for a return based on the hypothetical
investment of the Deferral Amount, or a portion thereof, earning
the Prime Rate as reported in the Wall Street Journal as of the
last business day of each calendar quarter which rate shall be
credited for the following calendar quarter.
2.22 RELATED EMPLOYMENT -- "Related Employment" means the employment
of a Participant by an employer that is not the Company provided
(i) such employment is undertaken by the Participant at the
request of the Company; (ii) immediately prior to undertaking
such employment, the Participant was an employee of the Company,
or was engaged in Related Employment as herein defined; and (iii)
such employment is recognized by the Committee, in its sole
discretion, as Related Employment.
2.23 SUBSTANTIALLY EQUAL INSTALLMENTS -- "Substantially Equal
Installments" means a series of annual payments, such that equal
payments over the remaining payment period would exactly amortize
the Participant's
December 1999 -3-
<PAGE>
_______________________________________________________________________________
CYMER INC. EXECUTIVE DEFERRED COMPENSATION PLAN
Deferred Compensation Account balance in the Prime Rate Account
as of the Distribution Date if the investment return remained
constant at the return credited as of the Valuation Date
immediately preceding the Distribution Date for the remainder of
the payment period.
2.24 TERMINATION OF EMPLOYMENT -- "Termination of Employment" means
the end of a Participant's employment with the Company for any
reason other than Disability, Related Employment, or the
termination of a Participant's Related Employment if the
Participant returns to the Company.
2.25 VALUATION DATE -- "Valuation Date" means the date on which the
value of a Participant's Deferred Compensation Account is
determined for each Calendar Quarter as provided in Section 6
hereof. Unless and until changed by the Committee, the Valuation
dates within each Cycle shall be the last day of each of the four
Calendar Quarters of the calendar year. If a Participant
requests a Liquidating Distribution under Section 7.06, then, for
such Participant's Deferred Compensation Account, the Valuation
Date for the Plan Year in which the Liquidating Distribution is
requested shall be the last day of the Calendar Quarter in which
the Participant submits the request.
2.26 VESTED PARTICIPANT -- "Vested Participant" means a Participant
who would be eligible immediately for normal or early retirement
under the qualified pension plan maintained by the Company.
3. ADMINISTRATION OF THE PLAN
3.01 PLAN ADMINISTRATOR. The Committee, subject to Section 3.02, shall
be the sole administrator of the Plan, and will administer the
Plan. The Committee shall have the power to formulate additional
details and regulations for carrying out this Plan. The committee
also shall be empowered to make any and all determinations not
authorized specifically herein that may be necessary or
desirable for the effective administration of the Plan. The
Committee is authorized to engage such accountants, consultants
and other service providers necessary to assist in the
administration of the Plan. Any decision or interpretation of any
provision of this Plan adopted by the Committee shall be final
and conclusive.
December 1999 -4-
<PAGE>
_______________________________________________________________________________
CYMER INC. EXECUTIVE DEFERRED COMPENSATION PLAN
3.02 DELEGATION OF DUTIES. The Committee may delegate any or all of
its duties as to the administration of this Plan to other
individuals or groups of individuals within the Company, as it
deems appropriate.
4. PARTICIPATION
4.01 ELECTIVE PARTICIPATION
a. Any Eligible Employee may elect to participate in the Plan
for a given Cycle by filing a completed Election Form for the
Cycle with the Vice-President of Human Resources. With regard
to an election to participate:
i. The Election Form must be filed with the Vice-President
of Human Resources prior to the commencement of the
Cycle to which the Election Form pertains, or at such
earlier time as determined by the Committee. Provided,
however, with respect to a deferral of salary, the
Committee may allow an Election Form for a Cycle to be
filed after the commencement of the Cycle with respect
to salary to be paid after the Election Form is filed.
ii. In the event that an Eligible Employee first becomes
eligible to participate in the Plan during any given
year, such Eligible Employee shall as soon as
practicable be so notified in writing by the Company
and provided with an Election Form; provided,
however, that such Employee may only make an election
to defer with respect to that portion of his or her
Compensation for such year which is to be paid after
the date of filing of the deferral election.
iii. The minimum deferral for a Cycle shall be $5,000.
iv. A Participant may elect to receive payment of amounts
deferred during a Cycle upon Termination of
Employment, or in a specified year which shall be no
earlier than in the third Plan Year following the Plan
Year in which such amounts are deferred. Further, a
Participant may elect to receive
December 1999 -5-
<PAGE>
_______________________________________________________________________________
CYMER INC. EXECUTIVE DEFERRED COMPENSATION PLAN
payment in a lump sum or in up to fifteen (15) annual
installments.
b. A Participant's election to defer future Compensation is
irrevocable upon the filing of his/her Election Form with
the Vice-President of Human Resources provided, however,
that an election to defer salary may be terminated with
respect to amounts not yet earned by mutual agreement in
writing between the Participant and the Committee. Such
termination, if approved, shall be effective immediately.
4.02 NON-ELECTIVE PARTICIPATION. The Committee can, in its discretion,
award to an Eligible Employee Non-Elective Deferred Compensation.
Unless otherwise specified by the Committee, the Participant
shall determine the timing and form of payment of any Non-Elective
Deferred Compensation at the time it is awarded, provided that
the Participant may not elect to receive payment in a specific
year which is prior to the third Plan Year following the Plan
Year during which the amount is awarded.
5. VESTING OF DEFERRED COMPENSATION ACCOUNT
A Participant's interest in his/her Deferred Compensation Account shall
vest immediately.
6. ACCOUNTS AND VALUATIONS
6.01 DEFERRED COMPENSATION ACCOUNTS. A separate Deferred Compensation
Account shall be established and maintained for each Participant
for each Cycle. Deferred amounts will be credited to a
Participant's account on the first day of the month following the
time at which the amount would otherwise have been paid. Any
Non-Elective Deferred Compensation awarded to a Participant shall
be credited to the Participant's Deferred Compensation Account on
such date as specified by the Committee.
6.02 INVESTMENT ALLOCATION OF DEFERRED COMPENSATION ACCOUNT. The
Participant's Deferral Amount shall be deemed to be invested in
the Investment Funds in accordance with the Participant's
election.
December 1999 -6-
<PAGE>
_______________________________________________________________________________
CYMER INC. EXECUTIVE DEFERRED COMPENSATION PLAN
6.03 INVESTMENT RETURN CREDITED. The Participant's Deferred
Compensation Account shall be credited quarterly with an
investment return based on the investment return (gain or loss)
of the fund or funds in which the Deferral Amount is deemed to be
hypothetically invested.
6.04 TIMING OF CREDITING OF INVESTMENT RETURN. That portion of the
Participant's Deferred Compensation Account in the Prime Rate
Account shall be revalued and credited with investment return as
of each Valuation Date. As of each Valuation Date, the value of
that portion of the Participant's Deferred Compensation Account
in any such account shall consist of the balance of such account
as of the immediately preceding Valuation Date, plus the amount
of any transfers from another account since the preceding
Valuation Date, minus the amount of all distributions and
transfers to another account, if any, made from such account
since the preceding Valuation Date. As of each Valuation Date,
investment return shall be credited on that portion of the
Participant's Deferred Compensation Account in the Prime Rate
account since the immediately preceding Valuation Date after
adjustment for any transfers thereto or distributions or
transfers therefrom. With respect to any Elective Deferred
Compensation or Non-Elective Deferred Compensation deferred and
credited to a Participant's account since the immediately
preceding Valuation Date, investment return (or loss) credited on
the Valuation Date shall be credited from the time the amount is
credited to the Participant's account pursuant to Section 6.01
6.05 CHANGE OF INVESTMENT ALLOCATION BY A PARTICIPANT. If the Plan
offers more than one Investment Fund, a Participant may make
different investment allocations for each Cycle, and may change a
Cycle's investment allocation once a year. Any change will be
effective as of April 1 of the next year if the Participant
submits an Investment Allocation Change Form to the
Vice-President, Human Resources by December 1 of any Plan year.
6.06 CHANGE OF INVESTMENT FUNDS BY COMMITTEE. The Committee may change
the Investment Funds from time to time. In the event of any such
change, all Participants shall be given notice of the change at
least thirty (30) days before the change is to be effective. In
addition, each
December 1999 -7-
<PAGE>
_______________________________________________________________________________
CYMER INC. EXECUTIVE DEFERRED COMPENSATION PLAN
Participant shall be given the opportunity to change his or her
allocation of Investment Funds for his or her Deferred Compensation
Account as of the effective date for the change; this change shall
be in addition to any change permitted under 6.05.
The Committee's decision to change the Investment Funds shall not
in any manner alter the returns on the Participant's Deferred
Compensation Accounts prior to the effective date of the change.
6.07 NATURE OF ACCOUNT ENTRIES. The establishment and maintenance of
Participants' Deferred Compensation Accounts and the crediting of
gains and losses pursuant to this Section 6, shall be merely
bookkeeping entries and shall not be construed as giving any
person any interest in any specific assets of the Company or of
any subsidiary of the Company or any trust created by the
Company, including any mutual funds or other investment funds
owned by the Company or any such subsidiary or trust. The
hypothetical investment of the Participant's Deferred
Compensation Accounts in the Investment Funds shall be for
bookkeeping purposes only, and shall not require the
establishment of actual corresponding funds by the Committee or
the Company. Benefits accrued under this Plan shall constitute an
unsecured general obligation of the Company.
7. BENEFITS
7.01 NORMAL BENEFIT
a. A Participant's Deferred Compensation Account shall be paid
to the Participant in accordance with the terms of the
Participant's Election Form, subject to the terms and
conditions specified in the Election Form. If a Participant
elects to receive payment of that portion of his/her
Deferred Compensation Account in the Prime Rate Account in
installments, subject to a maximum of fifteen (15)
installments, payments shall be made in Substantially Equal
Installments.
b. Notwithstanding the provisions of Section 7.01a, and
notwithstanding any contrary election made by the
Participant on his/her Election Form, if a Participant has a
Termination of
December 1999 -8-
<PAGE>
_______________________________________________________________________________
CYMER INC. EXECUTIVE DEFERRED COMPENSATION PLAN
Employment, and if the Participant does not qualify as a
Vested Participant at the time of his/her Termination of
Employment, the Participant's Deferred Compensation Account
balance will be paid to the Participant in a lump sum in the
year following the Participant's Termination of Employment.
However, upon the written request of the Participant, the
Committee, in its sole discretion, may allow payments to be
made to the Participant in up to five (5) annual installments.
c. In the event of a Participant's death prior to receiving any
payments with respect to a Deferral Amount for a Cycle, the
Participant's designated Beneficiary will receive an amount
equal to the Participant's Deferred Compensation Account for
such Cycle, and such amount shall be paid in a single sum or
annual installments (not to exceed 10) in accordance with
the Participant's election. However, the Committee may,
in its sole discretion, pay the Participant's remaining
account balance in a single sum if so requested by the
Participant's Beneficiary. If the Participant's designated
Beneficiary survives the Participant but dies before
receiving a complete distribution of the Participant's
account, the remaining account balance shall be paid to the
estate of such Beneficiary in a lump sum.
d. If a Participant dies after beginning to receive payments
with respect to a Deferral Amount for a Cycle, the
Participant's designated Beneficiary will receive an amount
equal to the Participant's remaining account balance for
such Cycle. Such remaining account balance shall continue to
be paid in accordance with the Participant's election.
However, the Committee may, in its sole discretion, pay the
Participant's remaining account balance in a single sum if
so requested by the Participant's Beneficiary. If the
Participant's designated Beneficiary survives the
Participant but dies before receiving a complete
distribution of the Participant's account, the remaining
account balance shall be paid to the estate of such
Beneficiary in a lump sum.
December 1999 -9-
<PAGE>
_______________________________________________________________________________
CYMER INC. EXECUTIVE DEFERRED COMPENSATION PLAN
7.02 HARDSHIP BENEFIT. In the event that the Committee, upon written
petition of the Participant, determines in its sole discretion,
that the Participant has suffered an unforeseeable financial
emergency, the Company may pay to the Participant, as soon as is
practicable following such determination, an amount necessary to
meet the emergency, not in excess of the Deferred Compensation
Account credited to the Participant. The Deferred Compensation
Account of the Participant thereafter shall be reduced to reflect
the payment of a Hardship Benefit.
7.03 REQUEST TO COMMITTEE FOR DELAY IN PAYMENT. A Participant shall
have no right to modify in any way the schedule for the
distribution of amounts from his/her Deferred Compensation
Account that the Participant has specified in his/her Election
Form. However, upon a written request submitted by the Participant
to the Committee, the Committee may, in its sole discretion, with
respect to the Deferred Compensation Account for each Cycle:
a. Postpone one time the date on which payment shall commence;
and
b. Increase one time the number of installments to a number not
to exceed fifteen (15).
Any such request(s) must be made at least ninety (90) days prior
to the earlier of (1) the beginning of the Plan Year in which the
Participant has elected for distributions to commence, or (2)
the Participant's Termination of Employment.
7.04 TAXES; WITHHOLDING. To the extent required by law, the Company
shall withhold from payments made hereunder an amount equal to
at least the minimum taxes required to be withheld by the
federal, or any state or local, government.
December 1999 -10-
<PAGE>
_______________________________________________________________________________
CYMER INC. EXECUTIVE DEFERRED COMPENSATION PLAN
7.05 DATE OF PAYMENTS. Except as otherwise provided in this Plan,
payments under this Plan shall be made (or begin in the case of
installments) on or before the fifteenth (15th) day of February
of the calendar year following receipt of notice by the Committee
of an event that entitled a Participant (or Beneficiary) to
payments under the Plan, or at such other date as may be
determined by the Committee. Amounts that become payable to the
estate of a Beneficiary under Sections 7.01c or 7.01d or
pursuant to Section 7.02 or Section 7.06 shall be paid within
fifteen (15) days following the end of the calendar quarter
in which a determination is made that an amount is payable, or at
such other date as may be determined by the Committee.
7.06 LIQUIDATING DISTRIBUTION. Notwithstanding any provisions of the
Plan or the Participant's Election Form to the contrary,
following the receipt of a written request from a Participant for
a Liquidating Distribution, the Company shall pay to the
Participant the Participant's Liquidating Distribution Account
Balance in a lump sum. "Liquidating Distribution" shall mean a
distribution requested by the Participant in writing directed to
the Committee and specifically referencing this section.
"Liquidating Distribution Account Balance" shall mean all of the
Deferred Compensation Accounts under the Plan in which the
Participant has an undistributed balance, decreased by a
forfeiture penalty equal to ten percent (10%) of the value of the
Participant's Deferred Compensation Account(s). A Liquidating
Distribution shall be paid to a Participant on or before the
fifteenth (15th) day of the month following the end of the
calendar quarter during which the Participant requests the
Liquidating Distribution.
Notwithstanding any provisions of the Plan or the Participant's
Election Form to the contrary, if the Participant requesting the
Liquidating Distribution is, at the time of the request, an
active employee of the Company, then the Participant, for a
period of one (1) Plan Year following the Plan Year during which
the request for the Liquidating Distribution is made, shall be
ineligible to participate in the Plan with respect to any
Compensation not yet deferred.
December 1999 -11-
<PAGE>
_______________________________________________________________________________
CYMER INC. EXECUTIVE DEFERRED COMPENSATION PLAN
7.07 ALLOCATION OF DISTRIBUTIONS. If a distribution of a portion of an
account for a Cycle is made to a Participant or Beneficiary, and
the amounts for such Cycle are invested in more than one
Investment Fund, then a portion of such distribution shall be
deemed to have been made from each Investment Fund on a prorata
basis, based on the values of the Investment Funds as of the
Valuation Date immediately preceding the distribution.
8. BENEFICIARY DESIGNATION
At any time prior to complete distribution of the benefits due to a
Participant under the Plan, he/she shall have the right to designate,
change, and/or cancel, any person(s) or entity as his/her Beneficiary
(either primary or contingent) to whom payment under this Plan shall be
made in the event of his/her death. Each Beneficiary designation shall
become effective only when filed in writing with the Committee during the
Participant's lifetime on a form provided by the Committee. The filing
of a new beneficiary designation form will cancel all previously filed
beneficiary designations relating to such Cycle or Cycles. Further, any
finalized divorce of a Participant subsequent to the date of filing of a
beneficiary designation form in favor of Participant's spouse shall
revoke such designation.
If a Participant fails to designate a Beneficiary as provided above, or
if his/her beneficiary designation is revoked by divorce or otherwise
without execution of a new designation, or if all designated
Beneficiaries predecease the Participant, then the distribution of such
benefits shall be made to the Participant's estate in a lump sum. If the
Participant's designated Beneficiary survives the Participant but dies
before receiving a complete distribution of the Participant's account,
the remaining account balance shall be paid to the estate of such
Beneficiary in a lump-sum.
9. AMENDMENT AND TERMINATION OF PLAN
9.01 AMENDMENT. The Board of Directors may amend the Plan at any time
in whole or in part, provided, however, that, except as provided
in 9.02, no amendment shall be effective to decrease the benefits
under the Plan payable to any Participant or Beneficiary with
respect to any Elective or Non-Elective Deferred Compensation
deferred prior to the date of the
December 1999 -12-
<PAGE>
_______________________________________________________________________________
CYMER INC. EXECUTIVE DEFERRED COMPENSATION PLAN
amendment. Written notice of any amendments shall be given to
each Participant in the Plan.
9.02 TERMINATION OF PLAN
a. COMPANY'S RIGHT TO TERMINATE. The Board of Directors may
terminate the Plan at any time.
b. PAYMENTS UPON TERMINATION. Upon any termination of the Plan
under this section, Compensation shall cease to be deferred
prospectively, and, with respect to Compensation deferred
previously, the Company will pay to the Participant (or the
Participant's Beneficiary, if after the Participant's death),
in a lump-sum, the value of his/her Deferred Compensation
Account.
10. MISCELLANEOUS
10.01 UNSECURED GENERAL CREDITOR. Participants and their beneficiaries,
heirs, successors and assignees shall have no legal or equitable
rights, interests, or other claims in any property or assets of
the Company, nor shall they be beneficiaries of, or have any
rights, claims, or interests in any life insurance policies,
annuity contracts, or the policies therefrom owned or that may be
acquired by the Company ("policies"). Such policies or other
assets of the Company shall not be held in any way as collateral
security for the fulfilling of the obligations of the Company
under this Plan. Any and all of the Company's assets and policies
shall be and will remain general, unpledged, unrestricted assets
of the Company. The Company's obligation under the Plan shall be
that of an unfunded and unsecured promise of the Company to pay
money in the future.
10.02 GRANTOR TRUST. Although the Company is responsible for the
payment of all benefits under the Plan, the Company, in its sole
discretion, may contribute funds as it deems appropriate to a
grantor trust for the purpose of paying benefits under this Plan.
Such trust may be irrevocable, but assets of the trust shall be
subject to the claims of creditors of the Company. To the extent
any benefits provided under the Plan actually are paid from the
trust, the Company shall have no further obligation with respect
thereto, but to the extent not so paid, such benefits shall remain
December 1999 -13-
<PAGE>
_______________________________________________________________________________
CYMER INC. EXECUTIVE DEFERRED COMPENSATION PLAN
the obligation of, and shall be paid by, the Company. Participants
shall have the status of unsecured creditors on any legal claim
for benefits under the Plan, and shall have no security interest
in any such grantor trust.
10.03 SUCCESSORS AND MERGERS, CONSOLIDATIONS OR CHANGE IN CONTROL. The
terms and conditions of this Plan shall inure to the benefit of
the Participants and shall bind the Company, its successors,
assignees, and personal representatives. If substantially all of
the stock or assets of the Company are acquired by another entity,
or if the Company is merged into, or consolidated with, another
entity, then the obligations created hereunder shall be
obligations of the acquirer or successor entity.
10.04 NON-ASSIGNABILITY. Neither a Participant, nor any other person,
shall have any right to commute, sell, assign, transfer, pledge,
anticipate, mortgage or otherwise encumber, transfer,
hypothecate, or convey in advance of the actual receipt, any
amounts payable hereunder, or any part thereof. All rights to
payments expressly are declared to be unassignable and
nontransferable. No part of the amounts payable, prior to actual
payment, shall be subject to seizure or sequestration for the
payment of any debts, judgments, alimony or separate maintenance
owed by a Participant, or any other person, nor shall they be
transferable by operation of law in the event of a Participant's,
or any other person's, bankruptcy or insolvency.
10.05 EMPLOYMENT OR FUTURE ELIGIBILITY TO PARTICIPATE NOT GUARANTEED.
Nothing contained in this Plan, nor any action taken hereunder,
shall be construed as a contract of employment, or as giving any
Eligible Employee any right to be retained in the employ of the
Company. Designation as an Eligible Employee may be revoked at
any time by the Board of Directors with respect to any
Compensation not yet deferred.
10.06 PROTECTIVE PROVISIONS. A Participant will cooperate with the
Company by furnishing any and all information requested by the
Company in order to facilitate the payment of benefits hereunder,
including taking such physical examinations as the Company
reasonably may deem necessary and taking such other relevant
action as may be requested by the
December 1999 -14-
<PAGE>
_______________________________________________________________________________
CYMER INC. EXECUTIVE DEFERRED COMPENSATION PLAN
Company. If a Participant refuses to cooperate, the Participant's
election to defer any Compensation which has not yet been
deferred shall become null and void, and the Participant shall
not be eligible to make any further deferral elections under the
Plan.
10.07 GENDER, SINGULAR AND PLURAL. All pronouns, and any variations
thereof, shall be deemed to refer to the masculine, feminine, or
neuter, as the identity of the person(s) or entity(s) may
require. As the context may require, the singular may be read as
the plural and the plural as the singular.
10.08 CAPTIONS. The captions to the articles, sections, and paragraphs
of this Plan are for convenience only and shall not control or
affect the meaning or construction of any of its provisions.
10.09 APPLICABLE LAW. This Plan shall be governed and construed in
accordance with the laws of the State of California.
10.10 VALIDITY. In the event any provision of the Plan is found to be
invalid, void, or unenforceable, the same shall not affect, in
any respect whatsoever, the validity of any other provision of
this Plan.
10.11 NOTICE. Any notice or filing required or permitted to be given to
the Committee shall be sufficient if in writing and hand
delivered, or sent by registered or certified mail, to the
principal office of the Company at 16750 Via Del Campo Court, San
Diego, CA 92127, directed to the attention of the Vice-President,
Human Resources. Such notice shall be deemed given as of the date
of delivery or, if delivery is made by mail, as of the date shown
on the postmark on the receipt for registration or certification.
Any notice to the Participant shall be addressed to the
Participant at the Participant's residence address as maintained
in the Company's records. Any party may change the address for
such party here set forth by giving notice of such change to the
other parties pursuant to this Section.
December 1999 -15-
<PAGE>
EXHIBIT 21.1
<TABLE>
<CAPTION>
JURISDICTION OF
SUBSIDIARIES OF REGISTRANT INCORPORATION
<S> <C>
Cymer (Barbados) Ltd. Barbados
Cymer B.V. Netherlands
Cymer International, Ltd. Barbados
Cymer Japan, Inc. Japan
Cymer Korea, Inc. Korea
Cymer Services, Inc. Nevada
Cymer Singapore Pte Ltd. Singapore
Cymer Southeast Asia, Ltd. Taiwan
</TABLE>
<PAGE>
Exhibit 23.1
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in Registration Statement Nos.
333-16559 and 333-67491 on Form S-8 and Registration Statement No. 333-39101 on
Form S-3 of our report dated January 28, 2000, appearing in this Annual Report
on Form 10-K of Cymer, Inc., for the year ended December 31, 1999.
San Diego, California
March 27, 2000
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> DEC-31-1999
<EXCHANGE-RATE> 1
<CASH> 75,765
<SECURITIES> 97,564
<RECEIVABLES> 67,783
<ALLOWANCES> (727)
<INVENTORY> 51,409
<CURRENT-ASSETS> 335,165
<PP&E> 101,528
<DEPRECIATION> 44,607
<TOTAL-ASSETS> 426,821
<CURRENT-LIABILITIES> 122,044
<BONDS> 172,500
0
0
<COMMON> 28
<OTHER-SE> 126,865
<TOTAL-LIABILITY-AND-EQUITY> 426,821
<SALES> 220,051
<TOTAL-REVENUES> 220,450
<CGS> 143,105
<TOTAL-COSTS> 143,914
<OTHER-EXPENSES> 63,552
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 11,718
<INCOME-PRETAX> 9,236
<INCOME-TAX> 0
<INCOME-CONTINUING> 8,573
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 8,573
<EPS-BASIC> .31
<EPS-DILUTED> .29
</TABLE>
