<PAGE>
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1996
----------------------------
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
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Commission File Number 0-22248
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ULTRATECH STEPPER, INC.
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(Exact name of registrant as specified in its charter)
DELAWARE 94-3169580
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(State or other jurisdiction of (I.R.S. employer
incorporation or organization) identification number)
3050 Zanker Road, San Jose, California 95134
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (408) 321-8835
------------------------
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 re-
quired 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 the number of shares of the issuer's class of common stock, as of the
latest practical date:
Class Outstanding as of October 28, 1996
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Common Stock, $.001 par value 20,228,637
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ULTRATECH STEPPER, INC.
INDEX
Page No.
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PART 1. FINANCIAL INFORMATION
ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS. . . . . . . . . .
Condensed Consolidated Balance Sheets as of
September 30, 1996 and December 31, 1995 . . . . . . . . . . . 3
Condensed Consolidated Statements of Income for the
three months ended September 30, 1996 and 1995 and
the nine months ended September 30, 1996 and 1995. . . . . . . 4
Condensed Consolidated Statement of Cash Flows for the
nine months ended September 30, 1996 and 1995. . . . . . . . . 5
Notes to Condensed Consolidated Financial Statements . . . . . 6
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS. . . . . . . . . 7
PART 2. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS. . . . . . . . . . . . . . . . . . . . . . . 19
ITEM 2. CHANGES IN SECURITIES. . . . . . . . . . . . . . . . . . . . . 19
ITEM 3. DEFAULTS UPON SENIOR SECURITIES. . . . . . . . . . . . . . . . 19
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. . . . . . 19
ITEM 5. OTHER INFORMATION. . . . . . . . . . . . . . . . . . . . . . . 19
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K . . . . . . . . . . . . . . . 19
SIGNATURES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
2
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Part 1. Financial Information
Item 1. Condensed Consolidated Financial Statements
ULTRATECH STEPPER, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
Sept. 30, Dec. 31,
(In thousands) 1996 1995 *
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ASSETS (Unaudited)
<S> <C> <C>
Current assets:
Cash, cash equivalents and
short-term investments $158,017 $161,356
Accounts receivable, net 47,667 23,917
Inventories 35,708 27,387
Prepaid expenses and other
current assets 1,931 1,332
Deferred income taxes 9,639 6,883
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Total current assets 252,962 220,875
Equipment and leasehold
improvements, net 19,197 16,352
Restricted investments 5,028 4,996
Other assets 4,608 3,205
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Total assets $281,795 $245,428
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LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $16,483 $12,925
Other current liabilities 34,692 31,376
Current portion of long-term debt - 400
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Total current liabilities 51,175 44,701
Other liabilities 877 1,069
Stockholders' equity 229,743 199,658
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Total liabilities and stockholders' equity $281,795 $245,428
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</TABLE>
* The Balance Sheet as of December 31, 1995 has been derived from the audited
financial statements at that date.
SEE ACCOMPANYING NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.
3
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ULTRATECH STEPPER, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
<TABLE>
<CAPTION>
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Three Months Ended Nine Months Ended
-------------------------- ----------------------------
Sept. 30, Sept. 30, Sept. 30, Sept. 30,
(In thousands, except per share amounts) 1996 1995 1996 1995
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<S> <C> <C> <C> <C>
Net sales $46,502 $42,205 $150,008 $110,535
Cost of sales 21,159 20,083 68,909 53,476
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Gross profit 25,343 22,122 81,099 57,059
OPERATING EXPENSES:
Research, development, and
engineering 6,421 6,044 21,121 16,015
Selling, general, and
administrative 7,300 7,385 24,298 19,728
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Operating income 11,622 8,693 35,680 21,316
Other income, net 1,460 1,478 4,549 2,849
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Income before income taxes 13,082 10,171 40,229 24,165
Income taxes 4,247 3,356 13,477 7,974
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Net income $8,835 $6,815 $26,752 $16,191
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Net income per share $0.42 $0.32 $1.26 $0.82
Number of shares used in
per share computations 21,204 21,355 21,311 19,757
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</TABLE>
Note:
All Share and per share data have been retroactively restated to reflect a
two-for-one stock split distributed in the form of a 100-percent dividend on
May 10, 1995.
The Company's third fiscal quarter ended on September 28, 1996 and September 30,
1995. For convenience of presentation, the Company's financial statements have
been shown as ending on September 30, 1996 and September 30, 1995.
SEE ACCOMPANYING NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.
4
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ULTRATECH STEPPER, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
Nine Months Ended
---------------------------------
(In thousands) Sept. 30, 1996 Sept. 30, 1995
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<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $26,752 $16,191
Charges to income not affecting cash 1,817 1,365
Net effect of changes in operating assets
and liabilities (26,044) 5,358
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Net cash provided by operating activities 2,525 22,914
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (6,422) (9,056)
Net reduction (investment) in available-for-sale securities 12,482 (83,518)
Segregation of restricted investments (32) -
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Net cash provided by (used in) investing activities 6,028 (92,574)
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayment of long-term debt (400) (400)
Proceeds from issuance of short-term debt 7,500 3,000
Repayment of short-term debt (7,500) (3,000)
Net proceeds from issuance of common stock 1,994 89,009
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Net cash provided by financing activities 1,594 88,609
Net increase in cash and cash
equivalents 10,147 18,949
Cash and cash equivalents at beginning
of period 30,361 14,455
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Cash and cash equivalents at end of period $40,508 $33,404
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</TABLE>
SEE ACCOMPANYING NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.
5
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ULTRATECH STEPPER, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
SEPTEMBER 30, 1996
(1) BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements have been
prepared by the Company in accordance with generally accepted accounting
principles for interim financial information and with the instructions to Form
10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of
the information and footnotes required by generally accepted accounting
principles for complete financial statements. In the opinion of management, all
adjustments (consisting of normal recurring adjustments) considered necessary
for fair presentation have been included.
On May 10, 1995, the Company paid a 100 percent stock dividend to holders of
record of the Company's common stock. All share and per share data have been
retroactively restated to reflect this stock dividend.
The Company's third fiscal quarter ended on September 28, 1996 and September
30, 1995. For convenience of presentation, the Company's financial statements
have been shown as ending on September 30, 1996 and September 30, 1995.
Operating results for the three month and nine month periods ended September
30, 1996 are not necessarily indicative of the results that may be expected for
the year ending December 31, 1996, or any future period.
USE OF ESTIMATES - The preparation of the accompanying unaudited consolidated
condensed financial statements in conformity with generally accepted accounting
principles requires management to make estimates and assumptions that affect the
amounts reported in the financial statements and accompanying notes. Actual
results could differ from those estimates.
(2) INVENTORIES:
Inventories consist of the following:
Sept. 30, 1996 Dec. 31, 1995
-------------- -------------
(In thousands) (Unaudited)
Raw materials. . . . . . . . . . . . . . . . . . $17,065 $12,201
Work-in-process. . . . . . . . . . . . . . . . . 14,805 12,426
Finished products. . . . . . . . . . . . . . . . 3,838 2,760
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$35,708 $27,387
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-------------- -------------
(3) OTHER CURRENT LIABILITIES
Other current liabilities consist of the following:
Sept. 30, 1996 Dec. 31, 1995
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(In thousands) (Unaudited)
Salaries and benefits. . . . . . . . . . . . . . $7,393 $6,916
Warranty reserves. . . . . . . . . . . . . . . . 10,462 9,328
Advance billings . . . . . . . . . . . . . . . . 691 4,071
Income taxes payable . . . . . . . . . . . . . . 8,805 4,088
Other. . . . . . . . . . . . . . . . . . . . . . 7,341 6,973
-------------- -------------
$34,692 $31,376
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-------------- -------------
6
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
OVERVIEW
Ultratech develops, manufactures and markets photolithography equipment
designed to reduce the cost of ownership for manufacturers of integrated
circuits and thin film head magnetic recording devices. The Company supplies
step-and-repeat systems based on one-to-one optical technology to customers
located throughout the United States, Europe, Japan, and the Far East.
The following Management's Discussion and Analysis of Financial Condition
and Results of Operations may contain forward-looking statements which involve
uncertainties. The Company's actual results could differ materially from those
anticipated in any such forward-looking statements as a result of certain
factors, including those set forth under "Additional Risk Factors," and
elsewhere in this report. Additionally, historical results and percentage
relationships discussed below will not necessarily be indicative of the results
of operations for any future period.
The following discussion should be read in conjunction with the Company's
1995 Annual Report on Form 10-K, available upon request.
RESULTS OF OPERATIONS
The Company's operating results have fluctuated significantly in the past
and will fluctuate significantly in the future depending upon a variety of
factors, including cyclicality in the Company's target markets; the mix of
products sold; the timing of new product announcements and releases by the
Company or its competitors; market acceptance of new products and enhanced
versions of the Company's products; the timing of significant orders;
manufacturing inefficiencies associated with the start up of new product
introductions; lengthy sales cycles for the Company's systems; customer
concentration; ability to volume produce systems and meet customer requirements;
patterns of capital spending by customers; product discounts; changes in pricing
by the Company, its competitors, customers or suppliers; political and economic
instability; natural disasters; regulatory changes; business interruptions
related to the Company's occupation of its facilities; and various competitive
factors including price-based competition and competition from vendors employing
other technologies. The Company's gross profit as a percentage of sales has been
and will continue to be significantly affected by a variety of factors,
including the percentage of international sales, which typically have lower
gross margins than domestic sales principally due to higher field service and
support costs; the introduction of new products, which typically have higher
manufacturing costs until manufacturing efficiencies are realized and are
discounted more than existing products until the products gain market
acceptance; non-linearity of shipments during the quarter; increased competition
in the Company's targeted markets; the mix of products sold; the rate of
capacity utilization; and the implementation of subcontracting arrangements. As
a result of its distribution agreement with Innotech Corporation, its Japanese
distributor, gross profit as a percentage of total net sales may be adversely
impacted in any particular period by significant system shipments to the
Japanese market.
The Company derives a substantial portion of its total net sales from the
sale of a relatively small number of new systems which typically range in price
from $800,000 to $2.1 million. As a result, the timing of recognition of revenue
from a single transaction could have a significant impact on the Company's net
sales and operating results. The Company's backlog at the beginning of a period
may not include all of the stepper sales needed to achieve the Company's
objectives for that period. In addition, orders in backlog are subject to
cancellation, delay, deferral or rescheduling by a customer with limited or no
penalties. Consequently, the Company's net sales and operating results for a
period have been and continue to depend upon the Company obtaining orders for
systems to be shipped in the same period in which the order is received. The
Company's business and financial results for a particular period could be
materially adversely affected if an anticipated order for even one system is not
received in time to permit shipment during the particular period. Furthermore, a
substantial portion of the Company's net sales has historically been realized
near the end of
7
<PAGE>
each quarter. Accordingly, the failure to receive anticipated orders or delays
in shipments near the end of a particular quarter, due, for example, to
unanticipated shipment reschedulings, cancellations, delays or deferrals by
customers or to unexpected manufacturing difficulties or delays in deliveries by
suppliers due to their long production lead times or otherwise, may cause net
sales in a particular quarter to fall significantly below the Company's
expectations, which would materially adversely affect the Company's operating
results for such quarter. In particular, the significantly long manufacturing
cycles of the Company's linear motor-based steppers, which include the Model
2244i stepper, Model 4700 stepper, Titan Wafer Stepper-TM- and Saturn Wafer
Stepper-TM-, and the long lead time for lenses and other materials, could cause
shipments of such products to be delayed from one quarter to the next, which
could materially adversely affect the Company's financial condition and results
of operations for a particular quarter. Furthermore, announcements by the
Company or its competitors of new products and technologies could cause
customers to defer or cancel purchases of the Company's existing systems, which
would also materially adversely affect the Company's business, financial
condition and results of operations.
The impact of these and other factors on the Company's sales and operating
results in any future period cannot be forecast with certainty. The Company's
business has in prior years been subject to seasonality, although the Company
believes such seasonality has been masked in recent years by its growth. In
addition, the need for continued expenditures for research and development,
capital equipment purchases, and ongoing training and customer service and
support worldwide, among other factors, will make it difficult for the Company
to reduce its significant operating expenses in a particular period if the
Company's net sales goals for the period are not met. The Company has
significantly increased its expense levels to support its recent growth, and
there can be no assurance that the Company will maintain or exceed its current
level of net sales or rate of growth for any period in the future. Accordingly,
there can be no assurance that the Company will be able to remain profitable or
that it will not sustain losses in future periods.
NET SALES
Net sales consist of revenue from system sales, spare parts sales, and
service. Net sales for the quarter ended September 30, 1996 were $46.5 million,
an increase of 10% as compared with net sales of $42.2 million for the
comparable period in 1995. This increase in net sales, as compared to the year-
ago quarter, was primarily attributed to higher unit volumes, custom features
and average selling prices for the Model 1700 series steppers, which address the
market for back-end processing of thin film heads; and higher average selling
prices of certain of the Company's mix-and-match systems, partially offset by
lower net sales of the Model 1500 series steppers, which address the markets for
scanner replacement and high volume/low cost semiconductor fabrication; and
lower net sales of the Company's Model 2244i stepper, which addresses the mix-
and-match market. Net sales for the nine months ended September 30, 1996 were
$150.0 million, an increase of 36% as compared with net sales of $110.5 million
for the comparable period in 1995. This increase, relative to the comparable
nine month period in 1995, was primarily attributed to higher unit sales, custom
features and average selling prices of the Model 1700 series steppers; higher
average selling prices of the Company's Model 1500 series steppers; commencement
of shipment of the Company's Model 4700 stepper, which is designed to meet the
needs of leading-edge thin film head manufacturers; higher unit sales of the
Company's Titan Wafer Stepper, which addresses the market for photosensitive
polyimide applications as well as the markets for scanner replacement and high
volume/low cost semiconductor fabrication; and higher net sales from spare parts
and service; partially offset by lower unit shipments of the Company's Model
2700 and Model 2244i steppers. Overall, the Company's system shipments for the
quarter remained constant, relative to the comparable period in 1995, while the
weighted average selling price of all systems sold increased 9%. For the nine
months ended September 30, 1996, the Company's system shipments increased 21%,
relative to the comparable period in 1995, while the weighted average selling
price of all systems sold increased 11%. Net sales from spare parts and service
in the third quarter of 1996 increased 4% over the comparable period in 1995.
For the nine months ended September 30, 1996, net sales from spare parts and
service increased 45% over the comparable period in 1995. Both the current
quarter and year-to-date increases are primarily attributed to system upgrades
and higher service and spares sales resulting from a larger installed base of
the Company's systems.
8
<PAGE>
International net sales for the quarter ended September 30, 1996 were $27.4
million, as compared with $19.0 million for the comparable period in 1995.
International net sales represented 59% of total net sales for the quarter ended
September 30, 1996, as compared with 45% for the comparable period in 1995. For
the nine months ended September 30, 1996, international net sales were $75.9
million, as compared with $57.5 million for the comparable period in 1995.
International net sales represented 51% of total net sales for the nine month
period ended September 30, 1996, as compared with 52% for the comparable period
in 1995. Both the current quarter and year-to-date increases, in absolute
dollars, were primarily attributed to increased system sales of the Company's
Model 1700 series steppers to thin film head manufacturers in Southeast Asia.
The Company's operations in foreign countries are not currently subject to
significant exchange rate fluctuations, principally because sales contracts for
the Company's systems are generally denominated in U.S. dollars. However,
international sales expose the Company to a number of additional risk factors,
including fluctuations in the value of local currencies relative to the U.S.
dollar, which, in turn, impact the relative cost of ownership of the Company's
products. See "Additional Risk Factors: International Sales; Japanese Market;
Dependence on Local Distributor."
Although the thin film head segment of the magnetic recording head
industry has recently experienced significant growth, the Company expects
that this industry may not sustain such a growth rate in the future.
Additionally, the semiconductor industry has experienced a cyclical downturn,
as evidenced by recent results of the industry's book-to-bill ratio as
published by the Semiconductor Industry Association. More recently, the
semiconductor equipment industry's book-to-bill ratio, as published by
Semiconductor Equipment and Materials International (an industry
association), has shown a dramatic decline in new equipment orders for the
capital equipment industry relative to current sales levels, indicating a
pronounced cyclical downturn. Additional evidence of an existing industry
downturn is exhibited by recent announcements by several semiconductor
manufacturers of delays or cancellations of previously planned capacity
additions. The Company has recently experienced cancellation of purchase
orders, shipment delays and purchase order restructurings by several of its
customers and anticipates that this trend will continue for some time.
Accordingly, the Company can give no assurance that it will be able to
achieve or maintain its current level of sales. Additionally, based on
present market conditions, the Company presently expects that future
quarterly comparisons, through at least the second quarter of 1997, will
indicate a period-over-comparable period decline in the Company's net sales.
GROSS PROFIT
Gross profit margin for the quarter ended September 30, 1996 was 54.5%, as
compared with 52.4% for the comparable period in 1995. The improvement in gross
margins can be primarily attributed to a favorable product mix, higher weighted
average selling prices for the Company's systems, increased after-sales
efficiencies, and lower required provisions for the Company's profit sharing and
executive incentive plans. There can be no assurance that these positive factors
will continue. These positive factors were partially offset by the impact of
manufacturing inefficiencies caused by changes in the Company's shipment
schedule, under-utilization of manufacturing capacity, and an unusually high
degree of non-linearity of shipments during the quarter, which resulted in a
significant portion of the Company's shipments for the quarter occurring during
the final month. For the nine months ended September 30, 1996, gross margin was
54.1%, as compared with 51.6% for the comparable period in 1995. The year-to-
date improvement in gross margins can be primarily attributed to a favorable
product mix, higher weighted average selling prices for the Company's systems,
improved gross margins from spare parts and service, and increased after-sales
efficiencies. These positive factors were partially offset by the impact of
manufacturing inefficiencies experienced in the quarters ended September 30,
1996 and June 30, 1996, primarily as a result of changes in the Company's
shipment schedule, under-utilization of manufacturing capacity, and an unusually
high degree of non-linearity of shipments during those quarters.
RESEARCH, DEVELOPMENT, AND ENGINEERING
The Company's research, development, and engineering expenses, net of third
party funding, were $6.4 million for the quarter ended September 30, 1996, an
increase of 6% as compared with $6.0 million for the comparable period in 1995.
For the nine months ended September 30, 1996, research, development, and
engineering expenses, net of third party funding, were $21.1 million, an
increase of 32% as compared with
9
<PAGE>
$16.0 million for the comparable period in 1995. There can be no assurance that
future research, development, and engineering expenses will not increase
significantly in the future. Both the current quarter and year-to-date increases
were primarily attributed to the continued development, enhancement,
manufacturing support and sales demonstration support of the Company's Model
2244i stepper, Model 4700 stepper, Titan Wafer Stepper and Saturn Wafer Stepper,
expenditures related to the enhancement of features and functionality of the
Company's Model 1500 and Model 1700 series steppers, and certain advanced
research projects. These factors were partially offset by lower required
provisions for the Company's profit sharing and executive incentive plans. The
Company intends to continue to invest significant resources in the development
of new products and enhancements of existing semiconductor and thin film head
lithography systems. Due to these and other factors, research, development and
engineering expenses may increase significantly in the future. Additionally, the
Company intends to expand its development and application capabilities to
certain foreign locations. The Company currently anticipates that a significant
portion of these expenditures may take place during 1997.
SELLING, GENERAL, AND ADMINISTRATIVE
The Company's selling, general, and administrative expenses were $7.3
million for the quarter ended September 30, 1996, a decline of 1% as compared
with $7.4 million for the comparable period in 1995. As a percentage of net
sales, selling, general, and administrative expenses declined to 15.7% for
the quarter ended September 30, 1996, as compared with 17.5% for the
comparable period in 1995. The significant reduction in selling, general, and
administrative expenses, as a percentage of net sales, can be primarily
attributed to cost containment measures implemented earlier in the year,
lower required provisions for the Company's profit sharing and executive
incentive plans, and lower commission expense resulting from higher direct
sales relative to total net sales for the quarter. These factors were
partially offset by expenses associated with the Company's estimated future
non-utilization of certain of its leased properties. For the nine months
ended September 30, 1996, selling, general, and administrative expenses were
$24.3 million, as compared with $19.7 million for the comparable period in
1995. As a percentage of net sales, selling, general, and administrative
expenses declined to 16.2% for the nine months ended September 30, 1996, as
compared with 17.8% for the comparable period in 1995. The significant dollar
increase in the first nine months of 1996, relative to the comparable period
in 1995, reflects the Company's increases in sales, service and support
expenses typically associated with an increase in sales and provisions taken
during the quarter ended September 30, 1996 for the estimated future
non-utilization of leased properties. The significant reduction in selling,
general and administrative expenses for the first nine months of 1996, as a
percentage of net sales, can be primarily attributed to cost containment
measures implemented earlier in the year, lower commission expense resulting
from higher direct sales relative to total net sales, and lower required
provisions for the Company's profit sharing and executive incentive plans.
The Company currently anticipates that it will add several additional service
centers in the Far East during the remainder of 1996 and the first half of
1997 as a result of recent sales activity and in an attempt to expand market
opportunities in that region. Due to these and other factors, selling,
general, and administrative expenses may increase significantly in the future.
OTHER INCOME, NET
Other income, net, which consists primarily of interest income, was $1.5
million for the quarter ended September 30, 1996, as compared with $1.5 million
for the comparable period in 1995. For the nine months ended September 30, 1996,
other income, net, was $4.5 million, as compared with $2.8 million for the
comparable period in 1995. The improvement in the year-to-date total, relative
to the comparable period in 1995, was attributed to income generated from
increased investments in cash equivalents and short-term investments.
INCOME TAXES
Income taxes represented 32.5% of income before income taxes for the
quarter ended September 30, 1996, as compared to 33% for the comparable period
in 1995. For the nine month period ended September 30,
10
<PAGE>
1996, income taxes represented 33.5% of income before income taxes, as compared
to 33% for the comparable period in 1995. The current quarter's effective tax
rate reflects the accounting for various tax benefits, including benefits
related to state and Federal investment tax credits. The Company presently
anticipates that its effective tax rate for the remainder of the year will not
exceed the year-to-date effective tax rate of 33.5%. However, this rate may be
impacted further by tax legislation and other factors.
LIQUIDITY AND CAPITAL RESOURCES
Net cash provided by operating activities was $2.5 million for the nine
month period ended September 30, 1996, as compared with net cash generated by
operating activities of $22.9 million for the comparable period in 1995.
Positive cash flows from operating activities during the first nine months of
1996 were primarily attributed to net income of $26.8 million, charges to income
not affecting cash of $1.8 million, and a $6.9 million increase in accounts
payable and other current liabilities, partially offset by a $23.8 million
increase in accounts receivable and a $8.3 million increase in inventory. The
increase in accounts receivable was primarily attributed to a significant
percentage of sales recognized near the end of the quarter and longer customer
payment cycles. The increase in inventories was primarily attributed to a shift
in product mix and the sequential decline in the Company's net sales from the
levels achieved during the June 30, 1996 quarter. The Company believes that
because of the relatively long manufacturing cycle of certain of its systems,
particularly newer products, and the current uncertainty in the semiconductor
industry, the Company's investment in inventories will continue to represent a
significant portion of working capital. Additionally, a significant portion of
inventories consist of materials and subassemblies for the Company's mix-and-
match family of steppers. The Company has recently experienced a downturn in
orders for its mix-and-match products. See "Additional Risk Factors: Importance
of Mix-and-Match Strategy." As a result of such investment in inventories, the
Company may be subject to an increased risk of inventory obsolescence and other
factors, which could materially adversely affect the Company's operating
results.
At September 30, 1996, the Company had working capital of $201.6 million.
The Company's principal sources of liquidity at September 30, 1996 consisted of
$158.0 million in cash, cash equivalents and short-term investments and a $25
million unsecured line of credit, which expires in June 1999. As of September
30, 1996, no amounts were outstanding under such facility. The Company's $25
million unsecured credit facility provides for borrowings at contractual rates
including, but not limited to, the Wells Fargo Bank's prime reference rate and
requires compliance with many covenants, including covenants relating to
profitability on a calendar year basis, minimum levels of tangible net worth,
limitations on additional debt and liens and various financial ratios. At
September 30, 1996, the Company was in compliance with each of its debt
instruments.
Net cash provided by financing activities was $1.6 million for the nine
months ended September 30, 1996, principally as a result of the issuance of
common stock pursuant to the exercise of employee stock options and the
Company's Employee Stock Purchase Plan, partially offset by the repayment of the
Company's outstanding note payable. Net investment activities provided a net
$6.0 million in cash, as capital expenditures of $6.4 million were offset by a
net $12.5 million reduction in the Company's available-for-sale securities.
The development and manufacture of new lithography systems and enhancements
are highly capital intensive. In order to be competitive, the Company must
continue to make significant expenditures for capital equipment, sales, service,
training and support capabilities, investments in systems, procedures and
controls, expansion of operations and research and development, among many
items. The Company expects that anticipated cash flow from operations, its
cash, cash equivalents and short-term investments and funds available under its
line of credit will be sufficient to meet the Company's cash requirements for
the next twelve months. Beyond the next twelve months, the Company may require
additional equity or debt financing to address its working capital or capital
equipment needs. Additionally, the Company may in the future pursue acquisitions
of complementary product lines, technologies, or businesses. Future acquisitions
by the Company may result in potentially dilutive issuances of equity
securities, the incurrence of debt and contingent liabilities, and amortization
expenses related to goodwill and other intangible assets, which could
11
<PAGE>
materially adversely affect any Company profitability. In addition, acquisitions
involve numerous risks, including difficulties in the assimilation of the
operations, technologies and products of the acquired companies; the diversion
of management's attention from other business concerns; risks of entering
markets in which the Company has no or limited direct prior experience; and the
potential loss of key employees of the acquired company. In the event that such
an acquisition does occur, there can be no assurance as to the effect thereof on
the Company's business or operating results. Additionally, in 1996, the Company
formed a wholly-owned subsidiary for the purpose of financing customer
purchases. If successful, this strategy may result in the formation of
significant long-term receivables and would require the use of substantial
amounts of working capital. To the extent that the Company's financial resources
are insufficient to fund the Company's activities, additional funds will be
required. There can be no assurance that additional financing will be available
on reasonable terms or at all.
ADDITIONAL RISK FACTORS
CYCLICALITY OF SEMICONDUCTOR AND MAGNETIC RECORDING HEAD INDUSTRIES
The Company's business depends in significant part upon capital
expenditures by manufacturers of semiconductors and thin film head magnetic
recording devices, which in turn depend upon the current and anticipated
market demand for such devices and products utilizing such devices. The
semiconductor industry is highly cyclical and historically has experienced
recurring periods of oversupply, resulting in significantly reduced demand
for capital equipment including the systems manufactured and marketed by the
Company. The Company believes that markets for new generations of
semiconductors will also be subject to similar fluctuations. In recent years,
the semiconductor industry has experienced significant growth which, in turn,
has caused significant growth in the capital equipment industry. However, the
semiconductor industry is currently experiencing a cyclical downturn, as
evidenced by recent results of the industry's book-to-bill ratio as published
by the Semiconductor Industry Association. More recently, the semiconductor
equipment industry's book-to-bill ratio, as published by Semiconductor
Equipment and Materials International (an industry association) has shown a
dramatic decline in new equipment orders for the capital equipment industry
relative to current sales levels, indicating a pronounced cyclical downturn.
Additional evidence of an existing industry downturn is exhibited by recent
announcements by several semiconductor manufacturers of delays or
cancellations of previously planned capacity additions. The Company has
recently experienced cancellation of purchase orders, shipment delays and
purchase order restructurings by several of its customers and anticipates
that this trend will continue for some time. Accordingly, the Company can
give no assurance that it will be able to achieve or maintain its current
level of sales. Additionally, based on present market conditions, the Company
presently expects that future quarterly comparisons, through at least the
second quarter of 1997, will indicate a period-over-comparable period decline
in the Company's net sales.
During 1994, 1995, and the first nine months of 1996, approximately 35%, 25% and
40%, respectively, of the Company's net sales were derived from sales to thin
film head manufacturers and related applications. Although the thin film head
segment of the magnetic recording head industry has recently experienced
significant growth, the Company expects that the thin film head market segment
may not sustain such a growth rate in the future. Accordingly, sales of its
steppers to thin film head manufacturers may decrease in the future. The
Company's business and operating results would be materially adversely affected
by downturns or slowdowns in the semiconductor or thin film head market. The
Company attempts to mitigate the risk of cyclicality by participating in both
the semiconductor and magnetic recording head markets. Nevertheless, there can
be no assurance that the Company's net sales and operating results will not be
materially adversely affected if downturns or slowdowns in either market occur
in the future. Such effects are likely to be particularly severe if both markets
experience a downturn or slowdown at the same time.
IMPORTANCE OF MIX-AND-MATCH STRATEGY
A principal element of the Company's strategy is to sell its systems to
advanced semiconductor fabrication facilities for mix-and-match applications.
This strategy depends, in significant part, upon the recognition by
semiconductor manufacturers that costs can be reduced by using the Company's
systems to perform exposure
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<PAGE>
on semiconductor process layers requiring feature sizes of 0.65 microns or
greater and the willingness of such manufacturers to implement processes to
lower manufacturing costs. Many semiconductor fabrication facilities have
limited or no experience with integrating lithography tools in the manner
necessary for full implementation and acceptance of a mix-and-match
manufacturing strategy, and there can be no assurance that semiconductor
manufacturers will adopt such a strategy. The Company has designed certain of
its systems to operate in a compatible manner with its competitors' reduction
steppers, which are used to process layers with feature sizes below 0.65
microns. The successful implementation of the Company's strategy, however,
will result in a loss of sales by manufacturers of reduction steppers and
will cause these competitors to respond with lower prices, productivity
improvements or new technical designs for their systems that eliminate the
need for the Company's steppers or make it difficult for Ultratech's systems
to attain compatibility with such systems. Also, certain of the Company's
competitors which also manufacture widefield systems, including Nikon, Inc.
("Nikon") and Canon, Inc. ("Canon") are shipping their own widefield
mix-and-match lithography systems. The introduction, development and sales of
such competitive systems could materially adversely affect the Company's
business, financial condition and results of operations.
To facilitate its mix-and-match strategy, the Company has developed and
is continuing to develop a family of products. The Company shipped its first
Model 2244i stepper during 1993, and commenced volume production in 1994. In
1995, the Company commenced shipment and volume production of the Titan Wafer
Stepper and commenced shipment of the Saturn Wafer Stepper. As is typical
with newly introduced systems in the capital equipment industry, the Company
has experienced and may continue to experience technical or other
difficulties with its mix-and-match family of products. The Company believes
that the market acceptance and process verification combined with volume
production of the mix-and-match family of products is of critical importance
to the successful implementation of its mix-and-match strategy and its future
financial results. Recently, this market segment of the Company's business
has experienced a pronounced downturn due, in part, to the recent cyclical
downturn in the semiconductor industry. To the extent that the mix-and-match
family of products does not achieve or maintain significant sales due to a
cyclical downturn in the semiconductor industry; technical, manufacturing or
other difficulties associated with these products; lack of customer
acceptance; an inability to reduce the significantly long manufacturing cycle
of these products; an inability to increase capacity for the production of
the mix-and-match family of products; direct competition from other widefield
mix-and-match systems from Nikon and Canon; or any other reason, the
Company's business, financial condition and results of operations would be
materially adversely affected. In addition, the increase in mix-and-match
stepper production has resulted and will continue to result in higher
inventory levels and operating expenses. Failure to achieve or maintain
significant sales of these steppers could lead, among other things, to an
increase in inventory obsolescence and an increase in expenses without
corresponding sales, either of which could materially adversely affect the
Company's business, financial condition and results of operations.
EXPANSION OF OPERATIONS; MANAGEMENT OF GROWTH
In recent years, the Company has significantly increased the scale of its
operations to support increased levels of net sales. The increase has included
the hiring of additional personnel, increasing the number of steppers scheduled
for production, and commencing independent operations in Japan. This increase
has resulted in higher inventory levels and higher expenses and has required the
Company to implement a variety of systems, procedures and controls. If the
Company is unable to achieve significantly increased net sales or its sales fall
below expectations, the Company's operating results will be materially adversely
affected until, among other factors, inventory levels and expenses can be
reduced. The Company's expansion has caused and may continue to cause a
significant strain on the Company's management, financial and other resources.
There can be no assurance that net sales will increase or remain at recent
levels or that the Company's systems, procedures and controls will be adequate
to support the Company's operations. The Company's financial results depend in
significant part on its ability to continue to implement, improve and expand its
systems, procedures and controls. Any failure to implement, improve and expand
such systems, procedures and controls in an efficient manner at a pace
consistent with the Company's business could have a material adverse effect on
the Company's business, financial condition and results of operations.
13
<PAGE>
CUSTOMER CONCENTRATION; LENGTHY SALES CYCLE
Historically, Ultratech has sold a substantial portion of its systems to a
limited number of customers. In 1995, sales to Motorola, Inc. ("Motorola")
accounted for approximately 12% of the Company's net sales. In 1994, sales to
Motorola accounted for approximately 20% of the Company's net sales. In 1993,
sales to Motorola and Seagate Technology, Inc. ("Seagate") accounted for
approximately 17% and 12%, respectively, of the Company's net sales. The Company
expects that sales to relatively few customers, particularly Read-Rite
Corporation, Seagate, and International Business Machines Corporation, will
continue to account for a high percentage of its net sales in the foreseeable
future and believes that the Company's financial results depend in significant
part upon the success of these companies. The Company's business in 1996 has
been adversely impacted by a decline in orders from Motorola. Recent public
announcements by Motorola have indicated that they are currently taking a
conservative approach toward their capital expenditures. The Company's six-month
backlog at September 30, 1996 contained a significant concentration of system
orders from several thin film head manufacturers for a relatively new
application. See "Additional Risk Factors: Rapid Technological Change;
Importance of Timely Product Introduction." Although the composition of the
group comprising the Company's largest customers may vary from period to period,
the loss of a significant customer or any reduction in orders by any significant
customer, including reductions due to market, economic or competitive conditions
in the semiconductor or magnetic recording head industries or in the industries
that manufacture products utilizing integrated circuits or thin film heads, may
have a material adverse effect on the Company's business, financial condition
and results of operations. The Company's ability to maintain or increase its
sales in the future will depend in part upon its ability to obtain orders from
new customers as well as the financial condition and success of its customers
and the general economy, of which there can be no assurance.
Sales of the Company's systems depend, in significant part, upon the
decision of a prospective customer to increase manufacturing capacity or to
restructure current manufacturing facilities, either of which typically involve
a significant commitment of capital. In view of the significant investment
involved in a system purchase, the Company has experienced and may continue to
experience delays following initial qualification of the Company's systems as a
result of delays in a customer's approval process. For this and other reasons,
the Company's systems typically have a lengthy sales cycle during which the
Company may expend substantial funds and management effort in securing a sale.
Lengthy sales cycles subject the Company to a number of significant risks,
including inventory obsolescence and fluctuations in operating results, over
which the Company has little or no control.
HIGHLY COMPETITIVE INDUSTRY
The capital equipment industry in which the Company competes is
intensely competitive. A substantial investment is required to install and
integrate capital equipment into a semiconductor or thin film head production
line. The Company believes that once a device manufacturer has selected a
particular vendor's capital equipment, the manufacturer generally relies upon
that equipment for the specific production line application and, to the
extent possible, subsequent generations of similar products. Accordingly, it
is difficult to achieve significant sales to a particular customer once
another vendor's capital equipment has been selected. The Company experiences
intense competition worldwide from a number of leading foreign and domestic
manufacturers, such as Nikon, Canon, ASM Lithography, Ltd. ("ASML"), and
Silicon Valley Group, Inc., all of which have substantially greater
financial, marketing, technical and other resources than the Company. Nikon
supplies a 1X stepper for use in the manufacture of liquid crystal displays
and offers a reduction stepper for thin film head fabrication. In addition,
Nikon and Canon are shipping their own widefield mix-and-match lithography
systems. The Company believes that the high cost of developing new
lithography tools has caused its competitors to collaborate with customers
and other parties in various areas such as research and development,
manufacturing and marketing. Many companies in the semiconductor capital
equipment market, including photolithography equipment companies such as GCA,
formerly a reduction stepper division of General Signal Corporation, whose
assets were purchased by Integrated Solutions, Inc. ("ISI"), had
experienced significant declines or had withdrawn from this market. ISI now
supplies the former GCA products, and enhancements, to the semiconductor
industry. Although the systems offered by the Company do not address the
technical requirements of semiconductor manufacturers in the most advanced
applications, the Company believes that it currently competes favorably with
its competitors in the markets it addresses based on the cost of ownership
advantages offered by its 1X steppers. However, Ultratech expects its
competitors to continue to improve the performance of their current products.
In addition, these competitors have stated that they will introduce new
products
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<PAGE>
with improved price and performance characteristics that will compete directly
with the Company's products. This could cause a decline in sales or loss of
market acceptance of the Company's steppers, and thereby materially adversely
affect the Company's future financial performance. There can be no assurance
that enhancements to, or future generations of, competitive products will not be
developed that offer superior cost of ownership and technical performance
features. The Company believes that to be competitive, it will require
significant financial resources in order to continue to invest in new product
development, features and enhancements, to introduce next generation stepper
systems on a timely basis, and to maintain customer service and support centers
worldwide. In marketing its products, the Company will also face competition
from vendors employing other technologies, such as excimer lasers and phase-
shift mask technology, which may extend the capabilities of competitive products
beyond their current limits or increase their productivity. In addition,
increased competitive pressure could lead to intensified price-based
competition, resulting in lower prices and margins, which would materially
adversely affect the Company's business, financial condition and operating
results. There can be no assurance that the Company will be able to compete
successfully in the future.
RAPID TECHNOLOGICAL CHANGE; IMPORTANCE OF TIMELY PRODUCT INTRODUCTION
The semiconductor and magnetic recording head manufacturing industries are
subject to rapid technological change and new product introductions and
enhancements. The Company's ability to be competitive in these and other markets
will depend in part upon its ability to develop new and enhanced systems and
related software tools and to introduce these systems and related software tools
at competitive prices and on a timely and cost-effective basis to enable
customers to integrate them into their operations either prior to or as they
begin volume product manufacturing. The Company will also be required to enhance
the performance of its existing systems and related software tools. Any success
of the Company in developing new and enhanced systems and related software tools
depends upon a variety of factors, including product selection, timely and
efficient completion of product design, timely and efficient implementation of
manufacturing and assembly processes, product performance in the field and
effective sales and marketing. In particular, the Company has not yet fully
defined the markets and applications for the Titan Wafer Stepper and the Saturn
Wafer Stepper. Additionally, the Company has recently commenced shipment, and
has a significant customer backlog, of the Model 1700 stepper for back-end thin
film head processing. See "Additional Risk Factors: Customer Concentration;
Lengthy Sales Cycle." This is a relatively new application for the Company's
systems. Should the Company experience difficulty with this new process, due to
product limitations or the inability of customers to fully implement this new
technology, among other factors, the Company's financial condition and results
of operations would be materially adversely impacted, especially in light of the
current downturn in the semiconductor industry. Because new product development
commitments must be made well in advance of sales, new product decisions must
anticipate both future demand and the technology that will be available to
supply that demand. There can be no assurance that the Company will be
successful in selecting, developing, manufacturing and marketing new products
and related software tools or enhancing its existing products and related
software tools. Any such failure would materially adversely affect the Company's
business, financial condition and results of operations.
Because of the large number of components in the Company's systems,
significant delays can occur between a system's introduction and the
commencement by the Company of volume production of such systems. Ultratech has
experienced delays from time to time in the introduction of, and technical and
manufacturing difficulties with, certain of its systems and enhancements and
related software tools and may experience delays and technical and manufacturing
difficulties in future introductions or volume production of new systems or
enhancements and related software tools. There can be no assurance that the
Company will not encounter technical, manufacturing or other difficulties that
could delay future introductions or volume production of systems or
enhancements. The Company's inability to complete the development or meet the
technical specifications of any of its systems or enhancements and related
software tools or to manufacture and ship these systems or enhancements and
related software tools, such as the Model 4700 stepper, the Titan Wafer Stepper
and the Saturn Wafer Stepper, in volume and in time to meet the requirements for
manufacturing the future generation of semiconductor or thin film head devices
would materially adversely affect the Company's business, financial condition
and results of operations. In addition, the Company may incur substantial
unanticipated costs to ensure the functionality and reliability of its steppers
early in the products' life cycles. If new products have reliability or quality
problems, reduced orders or higher
15
<PAGE>
manufacturing costs, delays in collecting accounts receivable and additional
service and warranty expenses may result. Any of such events may materially
adversely affect the Company's business, financial condition and results of
operations.
DEPENDENCE ON KEY PERSONNEL
The Company's future operating results depend in significant part upon
the continued contributions of its Chairman and Chief Executive Officer,
Arthur W. Zafiropoulo, as well as other members of the Board of Directors,
officers and other key personnel, many of whom would be difficult to replace.
None of such persons has an employment or noncompetition agreement with the
Company. The Company does not maintain any life insurance on any of its key
persons. Additionally, if Proposition 211 in California is passed in the
November, 1996 election, it may make it more difficult to retain current
officers and directors of the Company and may make it more difficult to
attract new officers and directors. Accordingly, there is an increased risk
to the Company that the composition of its officers and/or Board of Directors
may change. Any failure to maintain a sufficient number of disinterested
directors could cause the Company to be dislisted from the Nasdaq National
Market, which could prevent the Company's Common Stock from being traded on
such Exchange. The loss of Mr. Zafiropoulo or other key personnel would have
a material adverse effect on the business, financial condition and results of
operations of the Company. In addition, the Company's future operating
results depend in significant part upon its ability to attract and retain
other qualified management, manufacturing, technical, sales and support
personnel for its operations. There may be only a limited number of persons
with the requisite skills to serve in these positions and it may become
increasingly difficult for the Company to hire such personnel over time.
Competition for such personnel is intense, and there can be no assurance that
the Company will be successful in attracting or retaining such personnel. The
failure to attract or retain such persons would materially adversely affect
the Company's business, financial condition and results of operations.
INTERNATIONAL SALES; JAPANESE MARKET; DEPENDENCE ON LOCAL DISTRIBUTOR
International sales accounted for approximately 56%, 52% and 51% of total
net sales in 1994, 1995 and during the first nine months of 1996, respectively.
The Company anticipates that international sales, which typically have lower
gross margins than domestic sales, principally due to higher field service and
support costs, will continue to account for a majority of total net sales. As a
result, a significant portion of the Company's sales will be subject to certain
risks, including unexpected changes in regulatory requirements, difficulty in
satisfying existing regulatory requirements, exchange rates, tariffs and other
barriers, political and economic instability, difficulties in accounts
receivable collections, natural disasters, difficulties in staffing and managing
foreign subsidiary and branch operations and potentially adverse tax
consequences. The Company is also subject to the risks associated with the
imposition of legislation and regulations relating to the import or export of
semiconductors and magnetic recording head products. The Company cannot predict
whether quotas, duties, taxes or other charges or restrictions will be
implemented by the United States, Japan or any other country upon the
importation or exportation of the Company's products in the future. There can
be no assurance that any of these factors or the adoption of restrictive
policies will not have a material adverse effect on the Company's business,
financial condition and results of operations.
Although the Company has sold a number of its systems to Japanese thin film
head manufacturers, to date, the Company has made limited sales of its systems
to Japanese semiconductor manufacturers. The Japanese semiconductor market
segment is large, represents a substantial percentage of the worldwide
semiconductor manufacturing capacity, and is difficult for foreign companies to
penetrate. The Company is at a competitive disadvantage with respect to Japanese
semiconductor capital equipment suppliers that have been engaged for some time
in collaborative efforts with Japanese semiconductor manufacturers. The Company
believes that the Japanese companies with which it competes have a competitive
advantage because of their dominance of the Japanese market segment. The Company
believes that increased penetration of the Japanese market is critical to its
financial results and intends to continue to invest significant resources in
Japan in order to meet this objective. As part of its strategy to penetrate the
Japanese market, in 1993, the Company entered into a distribution agreement with
Innotech Corporation, a local distributor of products. The Company believes
that Innotech is an important element of its strategy to increase its presence
in Japan. Such agreement can be terminated upon notice of termination by either
party. If Innotech is not successful in selling such systems or such agreement
is terminated, the Company's strategy to increase product sales into the
Japanese market would be adversely affected. In addition, recently, Japanese
semiconductor manufacturers substantially reduced their levels of capital
spending on new fabrication facilities and equipment, thereby increasing
competitive pressures in the Japanese market segment. There can be no
assurance, however, that the Company will be able to achieve significant sales
to, or will be able to compete successfully in, the Japanese semiconductor
market segment.
16
<PAGE>
SOLE OR LIMITED SOURCES OF SUPPLY
The Company is relying increasingly on outside vendors to manufacture
certain components. In addition, certain critical components, subassemblies and
services necessary for the manufacture of the Company's steppers are obtained
from a single supplier or a limited group of suppliers in order to ensure
overall quality and timeliness of delivery. The Company's reliance on sole or a
limited group of suppliers and the Company's increasing reliance on
subcontractors involve several risks, including a potential inability to obtain
an adequate supply of required components and reduced control over pricing and
timely delivery of components. Although the timeliness, yield and quality of
deliveries to date from the Company's subcontractors have been acceptable,
manufacture of certain of these components and subassemblies is an extremely
complex process, and long lead-times are required. Any inability to obtain
adequate deliveries or any other circumstance that would require the Company to
seek alternative sources of supply or to manufacture such components internally
could delay the Company's ability to ship its products, which could damage
relationships with current and prospective customers and therefore would have a
material adverse effect on the Company's business, financial condition and
results of operations.
INTELLECTUAL PROPERTY MATTERS
Although the Company attempts to protect its intellectual property rights
through patents, copyrights, trade secrets and other measures, it believes that
any success will depend more upon the innovation, technological expertise and
marketing abilities of its employees. Nevertheless, the Company has a policy of
seeking patents when appropriate on inventions resulting from its ongoing
research and development and manufacturing activities. The Company also relies
upon trade secret protection for its confidentiality and proprietary
information. There can be no assurance that the Company will be able to protect
its technology adequately or that competitors will not be able to develop
similar technology independently. There can be no assurance that any of the
Company's pending patent applications will be issued or that foreign
intellectual property laws will protect the Company's intellectual property
rights. In addition, litigation may be necessary to enforce the Company's
patents, copyrights or other intellectual property rights, to protect the
Company's trade secrets, to determine the validity and scope of the proprietary
rights of others or to defend against claims of infringement. Such litigation
could result in substantial costs and diversion of resources and could have a
material adverse effect on the Company's business and results of operations,
regardless of the outcome of the litigation. There can be no assurance that any
patent issued to the Company will not be challenged, invalidated or circumvented
or that the rights granted thereunder will provide competitive advantages to the
Company. Furthermore, there can be no assurance that others will not
independently develop similar products, duplicate the Company's products or, if
patents are issued to the Company, design around the patents issued to the
Company.
Although there are no pending lawsuits against the Company regarding
infringement claims with respect to any existing patents or any other
intellectual property rights, the Company has at times been notified of
claims that it may be infringing intellectual property rights possessed by
third parties. Certain of the Company's customers have received notices of
infringement from Technivision Corporation and Jerome Lemelson alleging that
the manufacture of semiconductor products and/or the equipment used to
manufacture semiconductor products infringes certain issued patents. The
Company has been notified by certain of such customers that the Company may
be obligated to defend or settle claims that the Company's products infringe
any of such patents, and, in the event it is subsequently determined that the
customer infringes any of such patents, they intend to seek reimbursement
from the Company for damages and other expenses resulting from this matter.
Therefore, there can be no assurance that infringement claims by third
parties or claims for indemnification resulting from infringement claims in
the future will not be asserted, or that such assertions, if proven to be
true, will not materially adversely affect the Company's business, financial
condition and results of operations, regardless of the outcome of any
litigation. With respect to existing or new claims, the Company may seek to
obtain a license under the third party's intellectual property rights. There
can be no assurance, however, that a license will be available on reasonable
terms or at all. The Company could decide, in the alternative, to resort to
litigation to challenge such claims. Such challenges could be extremely
expensive and time consuming and could materially adversely affect the
Company's business, financial condition and results of operations, regardless
of the outcome of any litigation.
ENVIRONMENTAL REGULATIONS
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The Company is subject to a variety of governmental regulations relating to
the use, storage, discharge, handling, emission, generation, manufacture or
disposal of toxic or other hazardous substances used to manufacture the
Company's systems. The Company believes that it is currently in compliance in
all material respects with such regulations and that it has obtained all
necessary environmental permits to conduct its business. Nevertheless, the
failure to comply with current or future regulations could result in substantial
fines being imposed on the Company, suspension of production, alteration of the
manufacturing process or cessation of operations. Such regulations could
require the Company to acquire expensive remediation equipment or to incur
substantial expenses to comply with environmental regulations. Any failure by
the Company to control the use, disposal or storage of, or adequately restrict
the discharge of, hazardous or toxic substances could subject the Company to
significant liabilities.
EFFECTS OF CERTAIN ANTI-TAKEOVER PROVISIONS
Certain provisions of the Company's Certificate of Incorporation, equity
incentive plans, Bylaws and Delaware law may discourage certain transactions
involving a change in control of the Company. In addition to the foregoing, the
Company's classified board of directors, the shareholdings of the Company's
officers, directors and persons or entities that may be deemed affiliates and
the ability of the Board of Directors to issue "blank check" preferred stock
without further stockholder approval could have the effect of delaying,
deferring or preventing a change in control of the Company and may adversely
affect the voting and other rights of holders of Common Stock.
VOLATILITY OF STOCK PRICE
The Company believes that factors such as announcements of developments
related to the Company's business, fluctuations in the Company's operating
results, sales of securities of the Company into the marketplace, general
conditions in the semiconductor and magnetic recording head industries or the
worldwide economy, an outbreak of hostilities, a shortfall in revenue or
earnings or other financial results, changes in analysts' expectations,
announcements of technological innovations or new products or enhancements by
the Company or its competitors, developments in patents or other intellectual
property rights and developments in the Company's relationships with its
customers and suppliers could cause the price of the Company's Common Stock to
fluctuate, perhaps substantially. In addition, in recent years the stock market
in general, and the market for shares of small capitalization stocks in
particular, including the Company's, have experienced extreme price
fluctuations, which have often been unrelated to the operating performance of
affected companies. Many companies in the semiconductor equipment industry,
including the Company, have experienced historical highs in the market price of
their common stock, followed by a significant reduction in those market prices.
There can be no assurance that the market price of the Company's Common Stock
will not continue to experience significant fluctuations in the future,
including fluctuations that are unrelated to the Company's performance.
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PART 2: OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS. None.
ITEM 2. CHANGES IN SECURITIES. None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES. None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. None
ITEM 5. OTHER INFORMATION. None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(A) EXHIBITS
Exhibit 10.11 1993 Stock Option/Stock Issuance Plan, as
Amended and Restated March 21, 1996
Exhibit 11.1 Statement of Computation of Net Income Per
Share.
Exhibit 27 Financial Data Schedule
(B) REPORTS ON FORM 8-K
The Company did not file any reports on Form 8-K during the three
months ended September 30, 1996.
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SIGNATURES
Pursuant to the requirements 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.
ULTRATECH STEPPER, INC.
- - --------------------------------------------------------------------------------
(Registrant)
Date: October 31, 1996 By: /s/William G. Leunis, III
------------------------- -------------------------------
William G. Leunis, III
Vice President Finance and Chief
Financial Officer
(Duly Authorized Officer and
Principal Financial and
Accounting Officer)
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EXHIBIT 10.11
ULTRATECH STEPPER, INC.
1993 STOCK OPTION/STOCK ISSUANCE PLAN
-------------------------------------
(Amended and Restated March 21, 1996)
ARTICLE ONE
GENERAL
-------
I. PURPOSE OF THE PLAN
A. This 1993 Stock Option/Stock Issuance Plan ("Plan") is intended to
promote the interests of Ultratech Stepper, Inc., a Delaware corporation (the
"Corporation"), by providing (i) key employees (including officers) of the
Corporation (or its parent or subsidiary corporations) who are responsible for
the management, growth and financial success of the Corporation (or its parent
or subsidiary corporations), (ii) the non-employee members of the Corporation's
Board of Directors and (iii) independent consultants and other advisors who
provide valuable services to the Corporation (or its parent or subsidiary
corporations) with the opportunity to acquire a proprietary interest, or
otherwise increase their proprietary interest, in the Corporation as an
incentive for them to remain in the service of the Corporation (or its parent or
subsidiary corporations).
B. The Plan became effective on September 29, 1993, the date on which the
shares of the Corporation's Common Stock were registered under Section 12(g) of
the Securities Exchange Act of 1934, as amended (the "1934 Act"). Such date is
hereby designated as the Effective Date for the Plan.
C. This Plan shall serve as the successor to the Corporation's existing
1993 Stock Option and 1993 Stock Issuance Plans (the "Predecessor Plans"), and
no further option grants or share issuances shall be made under the Predecessor
Plans from and after the Effective Date of this Plan. All outstanding stock
options and unvested share issuances under the Predecessor Plans on the
Effective Date are hereby incorporated into this Plan and shall accordingly be
treated as outstanding stock options and unvested share issuances under this
Plan. However, each outstanding option grant and unvested share issuance so
incorporated shall continue to be governed solely by the express terms and
conditions of the instrument evidencing such grant or issuance, and no provision
of this Plan shall be deemed to affect or otherwise modify the rights or
obligations of the holders of such incorporated options with respect to their
acquisition of shares of Common Stock thereunder. All unvested shares of Common
Stock outstanding under the Predecessor Plans on the Effective Date shall
continue to be governed solely by the express terms and conditions of the
instruments evidencing such issuances, and no provision of this Plan shall be
deemed to affect or modify the rights or obligations of the holders of such
unvested shares.
II. DEFINITIONS
A. For purposes of the Plan, the following definitions shall be in
effect:
BOARD: the Corporation's Board of Directors.
CODE: the Internal Revenue Code of 1986, as amended.
COMMITTEE: the committee of two (2) or more non-employee Board members
appointed by the Board to administer the Plan.
COMMON STOCK: shares of the Corporation's common stock.
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CHANGE IN CONTROL: a change in ownership or control of the Corporation
effected through either of the following transactions:
a. any person or related group of persons (other than the Corporation or
a person that directly or indirectly controls, is controlled by, or is under
common control with, the Corporation) directly or indirectly acquires beneficial
ownership (within the meaning of Rule 13d-3 of the 1934 Act) of securities
possessing more than fifty percent (50%) of the total combined voting power of
the Corporation's outstanding securities pursuant to a tender or exchange offer
made directly to the Corporation's stockholders which the Board does not
recommend such stockholders to accept; or
b. there is a change in the composition of the Board over a period of
thirty-six (36) consecutive months or less such that a majority of the Board
members ceases, by reason of one or more proxy contests for the election of
Board members, to be comprised of individuals who either (A) have been Board
members continuously since the beginning of such period or (B) have been elected
or nominated for election as Board members during such period by at least a
majority of the Board members described in clause (A) who were still in office
at the time such election or nomination was approved by the Board.
CORPORATE TRANSACTION: any of the following stockholder-approved
transactions to which the Corporation is a party:
a. a merger or consolidation in which the Corporation is not the
surviving entity, except for a transaction the principal purpose of which is to
change the State in which the Corporation is incorporated,
b. the sale, transfer or other disposition of all or substantially all of
the assets of the Corporation in complete liquidation or dissolution of the
Corporation, or
c. any reverse merger in which the Corporation is the surviving entity
but in which securities possessing more than fifty percent (50%) of the total
combined voting power of the Corporation's outstanding securities are
transferred to person or persons different from the persons holding those
securities immediately prior to such merger.
EMPLOYEE: an individual who performs services while in the employ of the
Corporation or one or more parent or subsidiary corporations, subject to the
control and direction of the employer entity not only as to the work to be
performed but also as to the manner and method of performance.
FAIR MARKET VALUE: the Fair Market Value per share of Common Stock
determined in accordance with the following provisions:
a. If the Common Stock is not at the time listed or admitted to trading
on any national stock exchange but is traded on the Nasdaq National Market, the
Fair Market Value shall be the closing selling price per share on the date in
question, as such price is reported by the National Association of Securities
Dealers on the Nasdaq National Market or any successor system. If there is no
reported closing selling price for the Common Stock on the date in question,
then the closing selling price on the last preceding date for which such
quotation exists shall be determinative of Fair Market Value.
b. If the Common Stock is at the time listed or admitted to trading on
any national stock exchange, then the Fair Market Value shall be the closing
selling price per share on the date in question on the exchange determined by
the Plan Administrator to be the primary market for the Common Stock, as such
price is officially quoted in the composite tape of transactions on such
exchange. If there is no reported sale of Common Stock on such exchange on the
date in question, then the Fair Market Value shall be the closing selling price
on the exchange on the last preceding date for which such quotation exists.
HOSTILE TAKE-OVER: a change in ownership of the Corporation effected
through the following transaction:
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a. any person or related group of persons (other than the Corporation or
a person that directly or indirectly controls, is controlled by, or is under
common control with, the Corporation) directly or indirectly acquires beneficial
ownership (within the meaning of Rule 13d-3 of the 1934 Act) of securities
possessing more than fifty percent (50%) of the total combined voting power of
the Corporation's outstanding securities pursuant to a tender or exchange offer
made directly to the Corporation's stockholders which the Board does not
recommend such stockholders to accept, AND
b. more than fifty percent (50%) of the securities acquired in such
tender or exchange offer are accepted from holders other than the Corporation's
officers and directors subject to the short-swing profit restrictions of Section
16 of the 1934 Act.
OPTIONEE: any person to whom an option is granted under the Discretionary
Option Grant or Automatic Option Grant Program in effect under the Plan.
PARTICIPANT: any person who receives a direct issuance of Common Stock
under the Stock Issuance Program in effect under the Plan.
PLAN ADMINISTRATOR: the Committee in its capacity as the administrator of
the Plan.
PERMANENT DISABILITY OR PERMANENTLY DISABLED: the inability of the
Optionee or the Participant to engage in any substantial gainful activity by
reason of any medically determinable physical or mental impairment expected to
result in death or to be of continuous duration of twelve (12) months or more.
SERVICE: the performance of services on a periodic basis to the
Corporation (or any parent or subsidiary corporation) in the capacity of an
Employee, a non-employee member of the board of directors or an independent
consultant or advisor, except to the extent otherwise specifically provided in
the applicable stock option or stock issuance agreement.
TAKE-OVER PRICE: the GREATER of (a) the Fair Market Value per share of
Common Stock on the date the option is surrendered to the Corporation in
connection with a Hostile Take-Over or (b) the highest reported price per share
of Common Stock paid by the tender offeror in effecting such Hostile Take-Over.
However, if the surrendered option is an Incentive Option, the Take-Over Price
shall not exceed the clause (a) price per share.
B. The following provisions shall be applicable in determining the parent
and subsidiary corporations of the Corporation:
Any corporation (other than the Corporation) in an unbroken chain of
corporations ending with the Corporation shall be considered to be a PARENT of
the Corporation, provided each such corporation in the unbroken chain (other
than the Corporation) owns, at the time of the determination, stock possessing
fifty percent (50%) or more of the total combined voting power of all classes of
stock in one of the other corporations in such chain.
Each corporation (other than the Corporation) in an unbroken chain of
corporations which begins with the Corporation shall be considered to be a
SUBSIDIARY of the Corporation, provided each such corporation (other than the
last corporation) in the unbroken chain owns, at the time of the determination,
stock possessing fifty percent (50%) or more of the total combined voting power
of all classes of stock in one of the other corporations in such chain.
III. STRUCTURE OF THE PLAN
A. STOCK PROGRAMS. The Plan shall be divided into three separate
components: the Discretionary Option Grant Program specified in Article Two, the
Automatic Option Grant Program specified in Article Three and the Stock Issuance
Program specified in Article Four. Under the Discretionary Option Grant
Program, eligible individuals
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may, at the discretion of the Plan Administrator, be granted options to purchase
shares of Common Stock in accordance with the provisions of Article Two. Under
the Automatic Option Grant Program, non-employee Board members will receive a
series of automatic option grants over their period of continued Board service
to purchase shares of Common Stock in accordance with the provisions of Article
Three. Under the Stock Issuance Program, eligible individuals may be issued
shares of Common Stock directly, either through the immediate purchase of such
shares at Fair Market Value at the time of issuance or as a bonus tied to the
performance of services or the Corporation's attainment of financial objectives,
without any cash payment required of the recipient.
B. GENERAL PROVISIONS. Unless the context clearly indicates otherwise,
the provisions of Articles One and Five shall apply to the Discretionary Option
Grant Program, the Automatic Option Grant Program and the Stock Issuance Program
and shall accordingly govern the interests of all individuals under the Plan.
IV. ADMINISTRATION OF THE PLAN
A. Both the Discretionary Option Grant Program and the Stock Issuance
Program shall be administered by a committee ("Committee") of two or more non-
employee Board members. No non-employee Board member shall be eligible to serve
on the Committee if such individual has, within the relevant period designated
below, received an option grant or direct stock issuance under this Plan or any
other stock plan of the Corporation (or any parent or subsidiary corporation),
other than pursuant to the Automatic Option Grant Program:
- for each of the initial members of the Committee, the
period commencing with the Effective Date of the Plan and
ending with the date of his or her appointment to the
Committee, or
- for any successor or substitute member, the twelve
(12)-month period immediately preceding the date of his or
her appointment to the Committee or (if shorter) the period
commencing with the Effective Date of the Plan and ending
with the date of appointment to the Committee.
Members of the Committee shall serve for such period of time as the Board
may determine and shall be subject to removal by the Board at any time.
B. The Committee as Plan Administrator shall have full power and
authority (subject to the express provisions of the Plan) to establish rules and
regulations for the proper administration of the Discretionary Option Grant and
Stock Issuance Programs and to make such determinations under, and issue such
interpretations of, the provisions of such programs and any outstanding option
grants or stock issuances thereunder as it may deem necessary or advisable.
Decisions of the Plan Administrator shall be final and binding on all parties
who have an interest in the Discretionary Option Grant or Stock Issuance Program
or any outstanding option or share issuance thereunder.
C. Administration of the Automatic Option Grant Program shall be self-
executing in accordance with the express terms and conditions of Article Three,
and the Committee as Plan Administrator shall exercise no discretionary
functions with respect to option grants made pursuant to that program.
V. OPTION GRANTS AND STOCK ISSUANCES
A. The persons eligible to participate in the Discretionary Option Grant
Program under Article Two or the Stock Issuance Program under Article Four shall
be limited to the following:
(1) officers and other key employees of the
Corporation (or its parent or subsidiary corporations) who
render services which contribute to the management, growth
and financial success of the Corporation (or its parent or
subsidiary corporations);
(2) individuals who commenced service as non-employee Board
members prior to the Effective Date of the Automatic Option Grant
Program; and
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(3) those independent consultants or other advisors who
provide valuable services to the Corporation (or its parent or
subsidiary corporations).
B. Non-employee Board members who serve as Plan Administrator shall
NOT, during their period of such service, be eligible to participate in the
Discretionary Option Grant and Stock Issuance Programs or in any other stock
option, stock purchase, stock bonus or other stock plan of the Corporation (or
its parent or subsidiary corporations), other than the Automatic Option Grant
Program.
C. Individuals who first join the Board as non-employee directors on
or after the Effective Date shall NOT be eligible to participate in the
Discretionary Option Grant and Stock Issuance Programs or in any other stock
option, stock purchase, stock bonus or other stock plan of the Corporation (or
its parent or subsidiary corporations). Such individuals shall, however, be
eligible to receive automatic option grants pursuant to the provisions of
Article Three.
D. The Plan Administrator shall have full authority to determine,
(I) with respect to the option grants made under the Discretionary Option Grant
Program, which eligible individuals are to receive option grants, the time or
time when such grants are to be made, the number of shares to be covered by each
such grant, the status of the granted option as either an incentive stock option
("Incentive Option") which satisfies the requirements of Section 422 of the Code
or a non-statutory option not intended to meet such requirements, the time or
times at which each granted option is to become exercisable and the maximum term
for which the option may remain outstanding and (II), with respect to stock
issuances under the Stock Issuance Program, the number of shares to be issued to
each Participant, the vesting schedule (if any) to be applicable to the issued
shares, and the consideration to be paid by the individual for such shares.
VI. STOCK SUBJECT TO THE PLAN
A. Shares of Common Stock shall be available for issuance under the Plan
and shall be drawn from either the Corporation's authorized but unissued shares
of Common Stock or from reacquired shares of Common Stock, including shares
repurchased by the Corporation on the open market. The maximum number of shares
of Common Stock reserved for issuance over the term of the Plan shall be limited
to 4,505,905 shares*, including the 600,000-share increase authorized by the
Board on March 21, 1996, and approved by the stockholders at the 1996 Annual
Stockholders Meeting, and the 277,239-share automatic increase effective on
January 2, 1996. Such share reserve shall automatically increase, on the first
trading day in each of the next four (4) fiscal years, beginning with the 1997
fiscal year and continuing to fiscal year 2000, by an amount equal to 1.4% of
the total number of shares of Common Stock outstanding on the last trading day
of the fiscal year immediately preceding the fiscal year of each such increase.
The share reserve in effect from time to time under the Plan shall be subject to
periodic adjustment in accordance with the provisions of this Section VI. To
the extent one or more outstanding options under the Predecessor Plans which
have been incorporated into this Plan are subsequently exercised, the number of
shares issued with respect to each such option shall reduce, on a share-for-
share basis, the number of shares available for issuance under this Plan.
B. No further Incentive Options may be granted under the Plan once
the total number of shares of Common Stock issued under the Plan, whether as
vested or unvested shares, exceeds (i) 3,780,000 shares plus (ii) a series of
four (4) successive 277,000-share annual increases to become effective on the
first trading day in each of the next four (4) fiscal years, beginning with the
1997 fiscal year and continuing to fiscal year 2000. Such share limitation
shall also be subject to adjustment from time to time in accordance with the
provisions of this Section VI.
C. In no event may the aggregate number of shares of Common Stock
for which any one individual participating in the Plan may be granted stock
options, separately-exercisable stock appreciation rights and direct stock
issuances exceed 400,000 shares per fiscal year, beginning with the 1995 fiscal
year. However, for the fiscal year in which an individual receives his or her
initial stock option grant or direct stock issuance under the Plan, the
- - ----------------------------
* All figures have been adjusted to reflect the 2:1 stock split the Corporation
effected May 10, 1995.
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limit shall be increased to 600,000 shares. Such limitations shall be subject
to adjustment from time to time in accordance with the provisions of this
Section VI.
D. Should one or more outstanding options under this Plan (including
outstanding options under the Predecessor Plans incorporated into this Plan)
expire or terminate for any reason prior to exercise in full (including any
option canceled in accordance with the cancellation-regrant provisions of
Section IV of Article Two of the Plan), then the shares subject to the portion
of each option not so exercised shall be available for subsequent issuance under
the Plan. Shares subject to any option or portion thereof surrendered or
canceled in accordance with Section V of Article Two and all share issuances
under the Plan, whether or not the shares are subsequently repurchased by the
Corporation pursuant to its repurchase rights under the Plan, shall reduce on a
share-for-share basis the number of shares of Common Stock available for
subsequent issuance under the Plan. In addition, should the exercise price of
an outstanding option under the Plan (including any option incorporated from the
Predecessor Plans) be paid with shares of Common Stock or should shares of
Common Stock otherwise issuable under the Plan be withheld by the Corporation in
satisfaction of the withholding taxes incurred in connection with the exercise
of an outstanding option under the Plan or the vesting of a direct share
issuance made under the Plan, then the number of shares of Common Stock
available for issuance under the Plan shall be reduced by the gross number of
shares for which the option is exercised or which vest under the share issuance,
and not by the net number of shares of Common Stock actually issued to the
holder of such option or share issuance.
E. Should any change be made to the Common Stock issuable under the Plan
by reason of any stock split, stock dividend, recapitalization, combination of
shares, exchange of shares or other change affecting the outstanding Common
Stock as a class without the Corporation's receipt of consideration, then
appropriate adjustments shall be made to (i) the maximum number and/or class of
securities issuable under the Plan, (ii) the maximum number and/or class of
securities for which any one person may be granted stock options, separately
exercisable stock appreciation rights and direct stock issuances under this Plan
per calendar year, (iii) the maximum number and/or class of securities which may
be issued under the Plan prior to the required cessation of further Incentive
Option grants, (iv) the number and/or class of securities for which automatic
option grants are to be subsequently made per eligible non-employee Board member
under the Automatic Option Grant Program, (v) the number and/or class of
securities and price per share in effect under each option outstanding under
either the Discretionary Option Grant or Automatic Option Grant Program and (vi)
the number and/or class of securities and price per share in effect under each
outstanding option incorporated into this Plan from the Predecessor Plans. Such
adjustments to the outstanding options are to be effected in a manner which
shall preclude the enlargement or dilution of rights and benefits under such
options. The adjustments determined by the Plan Administrator shall be final,
binding and conclusive.
ARTICLE TWO
DISCRETIONARY OPTION GRANT PROGRAM
I. TERMS AND CONDITIONS OF OPTIONS
Options granted pursuant to the Discretionary Option Grant Program shall be
authorized by action of the Plan Administrator and may, at the Plan
Administrator's discretion, be either Incentive Options or non-statutory
options. Individuals who are not Employees of the Corporation or its parent or
subsidiary corporations may only be granted non-statutory options. Each granted
option shall be evidenced by one or more instruments in the form approved by the
Plan Administrator; PROVIDED, however, that each such instrument shall comply
with the terms and conditions specified below. Each instrument evidencing an
Incentive Option shall, in addition, be subject to the applicable provisions of
Section II of this Article Two.
A. OPTION PRICE.
(1) The option price per share shall be fixed by the Plan Administrator
and shall in no event be less than one hundred percent (100%) of the fair market
value of such Common Stock on the grant date.
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(2) The option price shall become immediately due upon exercise of the
option and, subject to the provisions of Section I of Article Four and the
instrument evidencing the grant, shall be payable in one of the following
alternative forms specified below:
- full payment in cash or check drawn to the Corporation's order;
or
- full payment in shares of Common Stock held for the requisite
period necessary to avoid a charge to the Corporation's earnings
for financial reporting purposes and valued at Fair Market Value
on the Exercise Date (as such term is defined below); or
- full payment in a combination of shares of Common Stock held for
the requisite period necessary to avoid a charge to the
Corporation's earnings for financial reporting purposes and
valued at Fair Market Value on the Exercise Date and cash or
check drawn to the Corporation's order; or
- full payment through a broker-dealer sale and remittance
procedure pursuant to which the Optionee (I) shall provide
irrevocable written instructions to a Corporation-designated
brokerage firm to effect the immediate sale of the purchased
shares and remit to the Corporation, out of the sale proceeds
available on the settlement date, sufficient funds to cover the
aggregate option price payable for the purchased shares plus all
applicable Federal and State income and employment taxes required
to be withheld by the Corporation in connection with such
purchase and (II) shall provide written directives to the
Corporation to deliver the certificates for the purchased shares
directly to such brokerage firm in order to complete the sale
transaction.
For purposes of this subparagraph (2), the Exercise Date shall be the date
on which written notice of the option exercise is delivered to the Corporation.
Except to the extent the sale and remittance procedure is utilized in connection
with the exercise of the option, payment of the option price for the purchased
shares must accompany such notice.
B. TERM AND EXERCISE OF OPTIONS. Each option granted under this
Discretionary Option Grant Program shall be exercisable at such time or times
and during such period as is determined by the Plan Administrator and set forth
in the instrument evidencing the grant. No such option, however, shall have a
maximum term in excess of ten (10) years from the grant date. During the
lifetime of the Optionee, the option, together with any stock appreciation
rights pertaining to such option, shall be exercisable only by the Optionee and
shall not be assignable or transferable by the Optionee except for a transfer of
the option effected by will or by the laws of descent and distribution following
the Optionee's death.
C. TERMINATION OF SERVICE.
(1) The following provisions shall govern the exercise period
applicable to any outstanding options held by the Optionee at the time of
cessation of Service or death.
- Should an Optionee cease Service for any reason
(including death or Permanent Disability) while holding one
or more outstanding options under this Article Two, then
none of those options shall (except to the extent otherwise
provided pursuant to subparagraph C.(3) below) remain
exercisable for more than a thirty-six (36)-month period (or
such shorter period determined by the Plan Administrator and
set forth in the instrument evidencing the grant) measured
from the date of such cessation of Service.
- Any option held by the Optionee under this Article
Two and exercisable in whole or in part on the date of his
or her death may be subsequently exercised by the personal
representative of the Optionee's estate or by the person or
persons to whom the option is transferred pursuant to the
Optionee's will or in accordance with the laws of descent
and distribution. Such exercise, however, must occur prior
to the EARLIER of (i) the first anniversary of the date of
the Optionee's
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death or (ii) the specified expiration date of the option term. Upon
the occurrence of the earlier event, the option shall terminate.
- Under no circumstances shall any such option be
exercisable after the specified expiration date of the
option term.
- During the applicable post-Service exercise
period, the option may not be exercised in the aggregate for
more than the number of shares (if any) in which the
Optionee is vested at the time of his or her cessation of
Service. Upon the expiration of the limited post-Service
exercise period or (if earlier) upon the specified
expiration date of the option term, each such option shall
terminate and cease to be outstanding with respect to any
vested shares for which the option has not otherwise been
exercised. However, each outstanding option shall,
immediately upon the Optionee's cessation of Service for any
reason, terminate and cease to be outstanding with respect
to any shares for which the option is not otherwise at that
time exercisable or in which the Optionee is not otherwise
at that time vested.
- Should (i) the Optionee's Service be terminated
for misconduct (including, but not limited to, any act of
dishonesty, willful misconduct, fraud or embezzlement) or
(ii) the Optionee make any unauthorized use or disclosure of
confidential information or trade secrets of the Corporation
or its parent or subsidiary corporations, then in any such
event all outstanding options held by the Optionee under
this Article Two shall terminate immediately and cease to be
outstanding.
(2) The Plan Administrator shall have complete discretion, exercisable
either at the time the option is granted or at any time while the option remains
outstanding, to permit one or more options held by the Optionee under this
Article Two to be exercised, during the limited post-Service exercise period
applicable under subparagraph (1) above, not only with respect to the number of
vested shares of Common Stock for which each such option is exercisable at the
time of the Optionee's cessation of Service but also with respect to one or more
subsequent installments of the option shares in which the Optionee would have
otherwise vested had such cessation of Service not occurred.
(3) The Plan Administrator shall also have full power and authority to
extend the period of time for which the option is to remain exercisable
following the Optionee's cessation of Service or death from the limited period
in effect under subparagraph (1) above to such greater period of time as the
Plan Administrator shall deem appropriate. In no event, however, shall such
option be exercisable after the specified expiration date of the option term.
D. STOCKHOLDER RIGHTS.
An Optionee shall have no stockholder rights with respect to any
shares covered by the option until such individual shall have exercised the
option and paid the option price for the purchased shares.
E. REPURCHASE RIGHTS.
The shares of Common Stock acquired upon the exercise of any Article
Two option grant may be subject to repurchase by the Corporation in accordance
with the following provisions:
(a) The Plan Administrator shall have the discretion to authorize the
issuance of unvested shares of Common Stock under this Article Two. Should the
Optionee cease Service while holding such unvested shares, the Corporation shall
have the right to repurchase any or all of those unvested shares at the option
price paid per share. The terms and conditions upon which such repurchase right
shall be exercisable (including the period and procedure for exercise and the
appropriate vesting schedule for the purchased shares) shall be established by
the Plan Administrator and set forth in the instrument evidencing such
repurchase right.
(b) All of the Corporation's outstanding repurchase rights under this
Article Two shall automatically terminate, and all shares subject to such
terminated rights shall immediately vest in full, upon the occurrence of a
Corporate Transaction, except to the extent: (i) any such repurchase right is
expressly assigned to the successor
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corporation (or parent thereof) in connection with the Corporate Transaction or
(ii) such accelerated vesting is precluded by other limitations imposed by the
Plan Administrator at the time the repurchase right is issued.
(c) The Plan Administrator shall have the discretionary authority,
exercisable either before or after the Optionee's cessation of Service, to
cancel the Corporation's outstanding repurchase rights with respect to one or
more shares purchased or purchasable by the Optionee under this Option Grant
Program and thereby accelerate the vesting of such shares in whole or in part at
any time.
II. INCENTIVE OPTIONS
The terms and conditions specified below shall be applicable to all
Incentive Options granted under this Article Two. Incentive Options may only be
granted to individuals who are Employees of the Corporation. Options which are
specifically designated as "non-statutory" options when issued under the Plan
shall NOT be subject to such terms and conditions.
A. DOLLAR LIMITATION. The aggregate fair market value (determined as of
the respective date or dates of grant) of the Common Stock for which one or more
options granted to any Employee after December 31, 1986 under this Plan (or any
other option plan of the Corporation or its parent or subsidiary corporations)
may for the first time become exercisable as incentive stock options under the
Federal tax laws during any one calendar year shall not exceed the sum of One
Hundred Thousand Dollars ($100,000). To the extent the Employee holds two (2)
or more such options which become exercisable for the first time in the same
calendar year, the foregoing limitation on the exercisability of such options as
incentive stock options under the Federal tax laws shall be applied on the basis
of the order in which such options are granted. Should the number of shares of
Common Stock for which any Incentive Option first becomes exercisable in any
calendar year exceed the applicable One Hundred Thousand Dollar ($100,000)
limitation, then that option may nevertheless be exercised in that calendar year
for the excess number of shares as a non-statutory option under the Federal tax
laws.
B. 10% STOCKHOLDER. If any individual to whom an Incentive Option is
granted is the owner of stock (as determined under Section 424(d) of the Code)
possessing ten percent (10%) or more of the total combined voting power of all
classes of stock of the Corporation or any one of its parent or subsidiary
corporations, then the option price per share shall not be less than one hundred
and ten percent (110%) of the fair market value per share of Common Stock on the
grant date, and the option term shall not exceed five (5) years, measured from
the grant date.
Except as modified by the preceding provisions of this Section II, the
provisions of Articles One, Two and Five of the Plan shall apply to all
Incentive Options granted hereunder.
III. CORPORATE TRANSACTIONS/CHANGES IN CONTROL
A. In the event of any Corporate Transaction, each option which is
at the time outstanding under this Article Two shall automatically accelerate so
that each such option shall, immediately prior to the specified effective date
for the Corporate Transaction, become fully exercisable with respect to the
total number of shares of Common Stock at the time subject to such option and
may be exercised for all or any portion of such shares as fully-vested shares.
However, an outstanding option under this Article Two shall NOT so accelerate if
and to the extent: (i) such option is, in connection with the Corporate
Transaction, either to be assumed by the successor corporation or parent thereof
or to be replaced with a comparable option to purchase shares of the capital
stock of the successor corporation or parent thereof, (ii) such option is to be
replaced with a cash incentive program of the successor corporation which
preserves the option spread existing at the time of the Corporate Transaction
and provides for subsequent payout in accordance with the same vesting schedule
applicable to such option, or (iii) the acceleration of such option is subject
to other limitations imposed by the Plan Administrator at the time of the option
grant. The determination of option comparability under clause (i) above shall
be made by the Plan Administrator, and its determination shall be final, binding
and conclusive.
B. Immediately following the consummation of the Corporate
Transaction, all outstanding options under this Article Two shall terminate and
cease to be outstanding, except to the extent assumed by the successor
corporation or its parent company.
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C. Each outstanding option under this Article Two which is assumed in
connection with the Corporate Transaction or is otherwise to continue in effect
shall be appropriately adjusted, immediately after such Corporate Transaction,
to apply and pertain to the number and class of securities which would have been
issued to the option holder, in consummation of such Corporate Transaction, had
such person exercised the option immediately prior to such Corporate
Transaction. Appropriate adjustments shall also be made to the option price
payable per share, PROVIDED the aggregate option price payable for such
securities shall remain the same. In addition, appropriate adjustments to
reflect the Corporate Transaction shall be made to (i) the class and number of
securities available for issuance over the remaining term of the Plan, (ii) the
maximum number and/or class of securities for which any one person may be
granted stock options, separately exercisable stock appreciation rights and
direct stock issuances under this Plan per calendar year and (iii) the maximum
number and/or class of securities which may be issued pursuant to Incentive
Options granted under the Plan.
D. The Plan Administrator shall have the discretion, exercisable either
at the time the option is granted or at any time while the option remains
outstanding, to provide (upon such terms as it may deem appropriate) for the
automatic acceleration of one or more outstanding options which are assumed or
replaced in the Corporate Transaction and do not otherwise accelerate at that
time, in the event the Optionee's Service should subsequently terminate within a
designated period following the effective date of such Corporate Transaction.
E. The grant of options under this Article Two shall in no way affect the
right of the Corporation to adjust, reclassify, reorganize or otherwise change
its capital or business structure or to merge, consolidate, dissolve, liquidate
or sell or transfer all or any part of its business or assets.
F. The Plan Administrator shall have the discretionary authority,
exercisable either at the time the option is granted or at any time while the
option remains outstanding, to provide for the automatic acceleration of one or
more outstanding options under this Article Two (and the termination of one or
more of the Corporation's outstanding repurchase rights under this Article Two)
upon the occurrence of any Change in Control. The Plan Administrator shall also
have full power and authority to condition any such option acceleration (and the
termination of any outstanding repurchase rights) upon the subsequent
termination of the Optionee's Service within a specified period following the
Change in Control.
G. Any options accelerated in connection with the Change in Control shall
remain fully exercisable until the expiration or sooner termination of the
option term.
H. The exercisability as incentive stock options under the Federal tax
laws of any options accelerated under this Section III in connection with a
Corporate Transaction or Change in Control shall remain subject to the dollar
limitation of Section II of this Article Two. To the extent such dollar
limitation is exceeded, the accelerated option shall be exercisable as a non-
statutory option under the Federal tax laws.
IV. CANCELLATION AND REGRANT OF OPTIONS
The Plan Administrator shall have the authority to effect, at any time and
from time to time, with the consent of the affected optionees, the cancellation
of any or all outstanding options under this Article Two (including outstanding
options under the Predecessor Plans incorporated into this Plan) and to grant in
substitution new options under the Plan covering the same or different numbers
of shares of Common Stock but with an option price per share not less than the
Fair Market Value of the Common Stock on the new grant date.
V. STOCK APPRECIATION RIGHTS
A. Provided and only if the Plan Administrator determines in its
discretion to implement the stock appreciation right provisions of this Section
V, one or more Optionees may be granted the right, exercisable upon such terms
and conditions as the Plan Administrator may establish, to surrender all or part
of an unexercised option under this Article Two in exchange for a distribution
from the Corporation in an amount equal to the excess of (i) the Fair Market
Value (on the option surrender date) of the number of shares in which the
Optionee is at the time vested
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under the surrendered option (or surrendered portion thereof) over (ii) the
aggregate option price payable for such vested shares.
B. No surrender of an option shall be effective hereunder unless it is
approved by the Plan Administrator. If the surrender is so approved, then the
distribution to which the Optionee shall accordingly become entitled under this
Section V may be made in shares of Common Stock valued at Fair Market Value on
the option surrender date, in cash, or partly in shares and partly in cash, as
the Plan Administrator shall in its sole discretion deem appropriate.
C. If the surrender of an option is rejected by the Plan Administrator,
then the Optionee shall retain whatever rights the Optionee had under the
surrendered option (or surrendered portion thereof) on the option surrender date
and may exercise such rights at any time prior to the LATER of (i) five (5)
business days after the receipt of the rejection notice or (ii) the last day on
which the option is otherwise exercisable in accordance with the terms of the
instrument evidencing such option, but in no event may such rights be exercised
more than ten (10) years after the date of the option grant.
D. One or more officers of the Corporation subject to the short-swing
profit restrictions of the Federal securities laws may, in the Plan
Administrator's sole discretion, be granted limited stock appreciation rights in
tandem with their outstanding options under the Plan. Upon the occurrence of a
Hostile Take-Over effected at any time when the Corporation's outstanding Common
Stock is registered under Section 12(g) of the 1934 Act, the officer shall have
a thirty (30)-day period in which he or she may surrender any outstanding option
with such a limited stock appreciation right in effect for at least six (6)
months to the Corporation, to the extent such option is at the time exercisable
for fully-vested shares of Common Stock. The officer shall in return be
entitled to a cash distribution from the Corporation in an amount equal to the
excess of (i) the Take-Over Price of the vested shares of Common Stock at the
time subject to each surrendered option (or surrendered portion of such option)
over (ii) the aggregate exercise price payable for such shares. The cash
distribution payable upon such option surrender shall be made within five (5)
days following the consummation of the Hostile Take-Over. Neither the approval
of the Plan Administrator nor the consent of the Board shall be required in
connection with such option surrender and cash distribution. Any unsurrendered
portion of the option shall continue to remain outstanding and become
exercisable in accordance with the terms of the instrument evidencing such
grant.
E. The shares of Common Stock subject to any option surrendered for an
appreciation distribution pursuant to this Section V shall NOT be available for
subsequent issuance under the Plan.
ARTICLE THREE
AUTOMATIC OPTION GRANT PROGRAM
I. ELIGIBILITY
A. ELIGIBLE DIRECTORS. The provisions of the Automatic Option Grant
Program have been revised, effective March 1, 1996, to eliminate the special
one-time option grant for 28,800 shares of Common Stock to each newly-elected or
newly-appointed non-employee Board member and to implement a new program of
periodic option grants to all eligible non-employee Board members. Under the
revised Automatic Option Grant Program, the following individuals shall be
eligible to receive automatic option grants over their period of Board service:
(i) those individuals who are serving as non-employee Board members on the date
of the 1996 Annual Stockholders Meeting but who first joined the Board after
September 29, 1993, (ii) those individuals who first join the Board as non-
employee Board members after the date of the 1996 Annual Stockholders Meeting
and (iii) those individuals who first joined the Board prior to September 30,
1993 and continue to serve as non-employee Board members through one or more
Annual Stockholders Meetings, beginning with the 1996 Annual Meeting. However,
a non-employee Board member who has previously been in the employ of the
Corporation (or any Parent or Subsidiary) shall not be eligible to receive a
12,000-share option grant at the time of his or her initial election or
appointment to the Board, but such individual shall be eligible to receive one
or more 4,000-share annual option grants over his or her period
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of continued Board service. Each non-employee Board member eligible to
participate in the Automatic Option Grant Program pursuant to the foregoing
criteria shall be designated an Eligible Director for purposes of the Plan.
B. LIMITATION. Except for the option grants to be made pursuant to the
provisions of this revised Automatic Option Grant Program, Eligible Directors
who first join the Board after September 29, 1993 shall NOT be eligible to
receive any additional option grants or stock issuances under this Plan or any
other stock plan of the Corporation (or its parent or subsidiaries).
II. TERMS AND CONDITIONS OF AUTOMATIC OPTION GRANTS
A. GRANT DATE.
1. Each individual serving as a non-employee Board member on the
date of the 1996 Annual Stockholders Meeting shall be granted on that date a
non-statutory stock option to purchase 12,000 shares of Common Stock upon the
terms and conditions of this Article Three, provided such individual (i) has not
previously been in the employ of the Corporation (or any Parent or Subsidiary)
and (ii) did not join the Board prior to September 30, 1993. If any such
individual previously received an automatic option grant for 28,800 shares of
Common Stock at the time of his or her initial election or appointment to the
Board, then that option shall automatically be canceled upon stockholder
approval of the revised Automatic Option Grant Program at the 1996 Annual
Meeting.
2. Each individual who is first elected or appointed as a non-
employee Board member after the date of the 1996 Annual Stockholders Meeting
shall automatically be granted, on the date of such initial election or
appointment, a non-statutory stock option to purchase 12,000 shares of Common
Stock upon the terms and conditions of this Article Three, provided such
individual has not previously been in the employ of the Corporation (or any
Parent or Subsidiary).
3. On the date of each Annual Stockholders Meeting, beginning with
the 1996 Annual Stockholders Meeting, each individual who is to continue to
serve as a non-employee Board member, whether or not he or she is standing for
re-election to the Board at that particular Annual Meeting, shall automatically
be granted a Non-Statutory Option to purchase 4,000 shares of Common Stock,
provided such individual did not receive any other option grants under this
Automatic Option Grant Program within the preceding six (6) months. There shall
be no limit on the number of such 4,000-share option grants any one Eligible
Director may receive over his or her period of Board service, and individuals
who have previously been in the employ of the Corporation (or any Parent or
Subsidiary) shall be eligible to receive such annual option grants over their
period of continued Board service.
B. EXERCISE PRICE. The exercise price per share of Common Stock subject
to each automatic option grant made under this Article Three shall be equal to
one hundred percent (100%) of the Fair Market Value per share of Common Stock on
the automatic grant date.
C. PAYMENT.
The exercise price shall be payable in one of the alternative forms
specified below:
(i) full payment in cash or check made payable to
the Corporation's order; or
(ii) full payment in shares of Common Stock held
for the requisite period necessary to avoid a charge to the
Corporation's reported earnings and valued at Fair Market Value on the
Exercise Date (as such term is defined below); or
(iii) full payment in a combination of shares of
Common Stock held for the requisite period necessary to avoid a charge
to the Corporation's reported earnings and valued at Fair Market Value
on the Exercise Date and cash or check payable to the Corporation's
order; or
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(iv) to the extent the option is
exercised for vested shares, full payment through a sale and
remittance procedure pursuant to which the non-employee
Board member (I) shall provide irrevocable written
instructions to a Corporation-designated brokerage firm to
effect the immediate sale of the purchased shares and remit
to the Corporation, out of the sale proceeds available on
the settlement date, sufficient funds to cover the aggregate
exercise price payable for the purchased shares and shall
(II) concurrently provide written directives to the
Corporation to deliver the certificates for the purchased
shares directly to such brokerage firm in order to complete
the sale transaction.
For purposes of this subparagraph C, the Exercise Date shall be the date on
which written notice of the option exercise is delivered to the Corporation.
Except to the extent the sale and remittance procedure specified above is
utilized in connection with the exercise of the option for vested shares,
payment of the option price for the purchased shares must accompany the exercise
notice. However, if the option is exercised for any unvested shares, then the
optionee must also execute and deliver to the Corporation a stock purchase
agreement for those unvested shares which provides the Corporation with the
right to repurchase, at the exercise price paid per share, any unvested shares
held by the optionee at the time of cessation of Board service and which
precludes the sale, transfer or other disposition of any shares purchased under
the option, to the extent those shares are subject to the Corporation's
repurchase right.
D. OPTION TERM. Each automatic grant under this Article Three shall have
a maximum term of ten (10) years measured from the automatic grant date.
E. EXERCISABILITY/VESTING. Each automatic grant shall be immediately
exercisable for any or all of the option shares. However, any shares purchased
under the option shall be subject to repurchase by the Corporation, at the
exercise price paid per share, upon the Optionee's cessation of Board service
prior to vesting in those shares. The shares subject to each 12,000-share
initial automatic option grant shall vest as follows: (i) fifty percent (50%)
of the shares shall vest upon the optionee's completion of one (1) year of Board
service measured from the grant date, and (ii) the remaining shares shall vest
in three (3) successive equal annual installments upon the optionee's completion
of each of the next three (3) years of Board service thereafter. The shares
subject to each 4,000-share annual automatic option grant shall vest upon the
optionee's completion of one (1) year of Board service measured from the grant
date. Vesting of the option shares shall be subject to acceleration as provided
in Section II.G and Section III of this Article Three.
F. NON-TRANSFERABILITY. During the lifetime of the Optionee, each
automatic option grant, together with the limited stock appreciation right
pertaining to such option, shall be exercisable only by the Optionee and shall
not be assignable or transferable by the Optionee other than a transfer of the
option effected by will or by the laws of descent and distribution following
Optionee's death.
G. EFFECT OF TERMINATION OF BOARD SERVICE.
1. Should the Optionee cease to serve as a Board member for any
reason (other than death or Permanent Disability) while holding an automatic
option grant under this Article Three, then such individual shall have a
six (6)-month period following the date of such cessation of Board service in
which to exercise such option for any or all of the option shares in which the
Optionee is vested at the time of such cessation of Board service. The option
shall immediately terminate and cease to be outstanding, at the time of such
cessation of Board service, with respect to any option shares in which the
Optionee is not otherwise at that time vested.
2. Should the Optionee die within six (6) months after cessation of
Board service, then any automatic option grant held by the Optionee at the time
of death may subsequently be exercised, for any or all of the option shares in
which the Optionee is vested at the time of his or her cessation of Board
service (less any vested option shares subsequently purchased by the Optionee
prior to death), by the personal representative of the Optionee's estate or by
the person or persons to whom the option is transferred pursuant to the
Optionee's will or in accordance with the laws of descent and distribution. Any
such exercise must occur within twelve (12) months after the date of the
Optionee's death.
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3. Should the Optionee die or become Permanent Disabled while
serving as a Board member, then the shares of Common Stock at the time subject
to each automatic option grant held by such Optionee under this Article Three
shall immediately vest in full, and the Optionee (or the representative of the
Optionee's estate or the person or persons to whom the option is transferred
upon the Optionee's death) shall have a twelve (12)-month period following the
date of the Optionee's cessation of Board service in which to exercise such
option for any or all of those vested shares of Common Stock.
4. In no event shall any automatic grant under this Article Three
remain exercisable after the expiration date of the ten (10)-year option term.
Upon the expiration of the applicable post-service exercise period under
subparagraph 1, 2 or 3 above or (if earlier) upon the expiration of the ten
(10)-year option term, the automatic grant shall terminate and cease to be
outstanding for any option shares in which the Optionee was vested at the time
of his or her cessation of Board service but which were not otherwise purchased
thereunder.
H. STOCKHOLDER RIGHTS. The holder of an automatic option grant
under this Article Three shall have none of the rights of a stockholder with
respect to any shares subject to such option until such individual shall have
exercised the option and paid the exercise price for the purchased shares.
I. REMAINING TERMS. The remaining terms and conditions of each
automatic option grant shall be as set forth in the form Non-statutory Stock
Option Agreement attached as Exhibit A.
III. CORPORATE TRANSACTION/CHANGE IN CONTROL/HOSTILE TAKE-OVER
A. In the event of any Corporate Transaction, the shares of Common Stock
at the time subject to each outstanding option under this Article Three but not
otherwise vested shall automatically vest in full so that each such option
shall, immediately prior to the specified effective date for the Corporate
Transaction, become fully exercisable for all of the shares of Common Stock at
the time subject to that option and may be exercised for all or any portion of
such shares as fully-vested shares of Common Stock. Immediately following the
consummation of the Corporate Transaction, all automatic option grants under
this Article Three shall terminate and cease to be outstanding, unless assumed
by the successor corporation or its parent company.
B. In connection with any Change in Control of the Corporation, the
shares of Common Stock at the time subject to each outstanding option under this
Article Three but not otherwise vested shall automatically vest in full so that
each such option shall, immediately prior to the specified effective date for
the Change in Control, become fully exercisable for all of the shares of Common
Stock at the time subject to that option and may be exercised for all or any
portion of such shares as fully-vested shares of Common Stock. Each such option
shall remain fully exercisable for the option shares which vest in connection
with the Change in Control until the expiration or sooner termination of the
option term.
C. Upon the occurrence of a Hostile Take-Over, the Optionee shall have a
thirty (30)-day period in which to surrender each option held by him or her
under this Article Three to the Corporation, to the extent such option has been
outstanding for a period of at least six (6) months to the Corporation. The
Optionee shall in return be entitled to a cash distribution from the Corporation
in an amount equal to the excess of (i) the Take-Over Price of the shares of
Common Stock at the time subject to the surrendered option (whether or not the
Optionee is otherwise at the time vested in those shares) over (ii) the
aggregate exercise price payable for such shares. Such cash distribution shall
be paid within five (5) days following the consummation of the Hostile Take-
Over. Neither the approval of the Plan Administrator nor the consent of the
Board shall be required in connection with such option surrender and cash
distribution.
D. The shares of Common Stock subject to each option surrendered in
connection with the Hostile Take-Over shall NOT be available for subsequent
issuance under this Plan.
E. The automatic option grants outstanding under this Article Three shall
in no way affect the right of the Corporation to adjust, reclassify, reorganize
or otherwise change its capital or business structure or to merge, consolidate,
dissolve, liquidate or sell or transfer all or any part of its business or
assets.
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IV. AMENDMENT OF THE AUTOMATIC GRANT PROVISIONS
A. LIMITED AMENDMENTS. The provisions of this Automatic Option Grant
Program, together with the automatic option grants outstanding under this
Article Three, may not be amended at intervals more frequently than once every
six (6) months, other than to the extent necessary to comply with applicable
Federal income tax laws and regulations.
ARTICLE FOUR
STOCK ISSUANCE PROGRAM
I. TERMS AND CONDITIONS OF STOCK ISSUANCES
Shares may be issued under the Stock Issuance Program through direct and
immediate purchases without any intervening stock option grants. The issued
shares shall be evidenced by a Stock Issuance Agreement ("Issuance Agreement")
that complies with the terms and conditions of this Article Four.
A. CONSIDERATION.
1. Shares of Common Stock drawn from the Corporation's authorized
but unissued shares of Common Stock ("Newly Issued Shares") shall be issued
under the Stock Issuance Program for one or more of the following items of
consideration which the Plan Administrator may deem appropriate in each
individual instance:
(i) cash or cash equivalents (such as a
personal check or bank draft) paid the Corporation;
(ii) a promissory note payable to the
Corporation's order in one or more installments, which may
be subject to cancellation in whole or in part upon terms
and conditions established by the Plan Administrator; or
(iii) past services rendered to the
Corporation or any parent or subsidiary corporation.
2. The consideration for any Newly Issued Shares issued under this
Stock Issuance Program shall have a value determined by the Plan Administrator
to be not less than one-hundred percent (100%) of the Fair Market Value of those
shares at the time of issuance.
3. Shares of Common Stock reacquired by the Corporation and held as
treasury shares ("Treasury Shares") may be issued under the Stock Issuance
Program for such consideration (including one or more of the items of
consideration specified in subparagraph 1. above) as the Plan Administrator may
deem appropriate, whether such consideration is in an amount less than, equal
to, or greater than the Fair Market Value of the Treasury Shares at the time of
issuance. Treasury Shares may, in lieu of any cash consideration, be issued
subject to such vesting requirements tied to the Participant's period of future
Service or the Corporation's attainment of specified performance objectives as
the Plan Administrator may establish at the time of issuance.
B. VESTING PROVISIONS.
1. Shares of Common Stock issued under the Stock Issuance Program may, in
the absolute discretion of the Plan Administrator, be fully and immediately
vested upon issuance or may vest in one or more installments over the
Participant's period of Service. The elements of the vesting schedule
applicable to any unvested shares of Common Stock issued under the Stock
Issuance Program, namely:
(i) the Service period to be completed by
the Participant or the performance objectives to be achieved
by the Corporation,
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(ii) the number of installments in which the
shares are to vest,
(iii) the interval or intervals (if any)
which are to lapse between installments, and
(iv) the effect which death, Permanent
Disability or other event designated by the Plan
Administrator is to have upon the vesting schedule,
shall be determined by the Plan Administrator and incorporated into the Issuance
Agreement executed by the Corporation and the Participant at the time such
unvested shares are issued.
2. The Participant shall have full stockholder rights with respect to any
shares of Common Stock issued to him or her under the Plan, whether or not his
or her interest in those shares is vested. Accordingly, the Participant shall
have the right to vote such shares and to receive any regular cash dividends
paid on such shares. Any new, additional or different shares of stock or other
property (including money paid other than as a regular cash dividend) which the
Participant may have the right to receive with respect to his or her unvested
shares by reason of any stock dividend, stock split, reclassification of Common
Stock or other similar change in the Corporation's capital structure or by
reason of any Corporate Transaction shall be issued, subject to (i) the same
vesting requirements applicable to his or her unvested shares and (ii) such
escrow arrangements as the Plan Administrator shall deem appropriate.
3. Should the Participant cease to remain in Service while holding one or
more unvested shares of Common Stock under the Plan, then those shares shall be
immediately surrendered to the Corporation for cancellation, and the Participant
shall have no further stockholder rights with respect to those shares. To the
extent the surrendered shares were previously issued to the Participant for
consideration paid in cash or cash equivalent (including the Participant's
purchase-money promissory note), the Corporation shall repay to the Participant
the cash consideration paid for the surrendered shares and shall cancel the
unpaid principal balance of any outstanding purchase-money note of the
Participant attributable to such surrendered shares. The surrendered shares
may, at the Plan Administrator's discretion, be retained by the Corporation as
Treasury Shares or may be retired to authorized but unissued share status.
4. The Plan Administrator may in its discretion elect to waive the
surrender and cancellation of one or more unvested shares of Common Stock (or
other assets attributable thereto) which would otherwise occur upon the non-
completion of the vesting schedule applicable to such shares. Such waiver shall
result in the immediate vesting of the Participant's interest in the shares of
Common Stock as to which the waiver applies. Such waiver may be effected at any
time, whether before or after the Participant's cessation of Service or the
attainment or non-attainment of the applicable performance objectives.
II. CORPORATE TRANSACTIONS/CHANGE IN CONTROL
A. Upon the occurrence of any Corporate Transaction, all unvested shares
of Common Stock at the time outstanding under the Stock Issuance Program shall
immediately vest in full, except to the extent the Plan Administrator imposes
limitations in the Issuance Agreement which preclude such accelerated vesting in
whole or in part.
B. The Plan Administrator shall have the discretionary authority,
exercisable either in advance of any actually-anticipated Change in Control or
at the time of an actual Change in Control, to provide for the immediate and
automatic vesting of one or more unvested shares outstanding under the Stock
Issuance Program at the time of such Change in Control. The Plan Administrator
shall also have full power and authority to condition any such accelerated
vesting upon the subsequent termination of the Participant's Service within a
specified period following the Change in Control.
III. TRANSFER RESTRICTIONS/SHARE ESCROW
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A. Unvested shares may, in the Plan Administrator's discretion, be held
in escrow by the Corporation until the Participant's interest in such shares
vests or may be issued directly to the Participant with restrictive legends on
the certificates evidencing such unvested shares. To the extent an escrow
arrangement is utilized, the unvested shares and any securities or other assets
issued with respect to such shares (other than regular cash dividends) shall be
delivered in escrow to the Corporation to be held until the Participant's
interest in such shares (or other securities or assets) vests. Alternatively,
if the unvested shares are issued directly to the Participant, the restrictive
legend on the certificates for such shares shall read substantially as follows:
"THE SHARES REPRESENTED BY THIS CERTIFICATE ARE UNVESTED AND ARE
ACCORDINGLY SUBJECT TO (I) CERTAIN TRANSFER RESTRICTIONS AND (II)
CANCELLATION OR REPURCHASE IN THE EVENT THE REGISTERED HOLDER (OR
HIS/HER PREDECESSOR IN INTEREST) CEASES TO REMAIN IN THE
CORPORATION'S SERVICE. SUCH TRANSFER RESTRICTIONS AND THE TERMS
AND CONDITIONS OF SUCH CANCELLATION OR REPURCHASE ARE SET FORTH
IN A STOCK ISSUANCE AGREEMENT BETWEEN THE CORPORATION AND THE
REGISTERED HOLDER (OR HIS/HER PREDECESSOR IN INTEREST) DATED
_________, 199__, A COPY OF WHICH IS ON FILE AT THE PRINCIPAL
OFFICE OF THE CORPORATION."
B. The Participant shall have no right to transfer any unvested shares of
Common Stock issued to him or her under the Stock Issuance Program. For
purposes of this restriction, the term "transfer" shall include (without
limitation) any sale, pledge, assignment, encumbrance, gift, or other
disposition of such shares, whether voluntary or involuntary. Upon any such
attempted transfer, the unvested shares shall immediately be canceled, and
neither the Participant nor the proposed transferee shall have any rights with
respect to those shares. However, the Participant shall have the right to make
a gift of unvested shares acquired under the Stock Issuance Program to his or
her spouse or issue, including adopted children, or to a trust established for
such spouse or issue, provided the donee of such shares delivers to the
Corporation a written agreement to be bound by all the provisions of the Stock
Issuance Program and the Issuance Agreement applicable to the gifted shares.
ARTICLE FIVE
MISCELLANEOUS
I. LOANS OR INSTALLMENT PAYMENTS
A. The Plan Administrator may, in its discretion, assist any Optionee or
Participant (including an Optionee or Participant who is an officer of the
Corporation) in the exercise of one or more options granted to such Optionee
under the Discretionary Option Grant Program or the purchase of one or more
shares issued to such Participant under the Stock Issuance Program, including
the satisfaction of any Federal and State income and employment tax obligations
arising therefrom, by (i) authorizing the extension of a loan from the
Corporation to such Optionee or Participant or (ii) permitting the Optionee or
Participant to pay the option price or purchase price for the purchased Common
Stock in installments over a period of years. The terms of any loan or
installment method of payment (including the interest rate and terms of
repayment) shall be upon such terms as the Plan Administrator specifies in the
applicable option or issuance agreement or otherwise deems appropriate under the
circumstances. Loans or installment payments may be authorized with or without
security or collateral. However, the maximum credit available to the Optionee
or Participant may not exceed the option or purchase price of the acquired
shares (less the par value of such shares) plus any Federal and State income and
employment tax liability incurred by the Optionee or Participant in connection
with the acquisition of such shares.
B. The Plan Administrator may, in its absolute discretion, determine that
one or more loans extended under this financial assistance program shall be
subject to forgiveness by the Corporation in whole or in part upon such terms
and conditions as the Plan Administrator may deem appropriate.
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II. AMENDMENT OF THE PLAN AND AWARDS
A. The Board has complete and exclusive power and authority to amend or
modify the Plan (or any component thereof) in any or all respects whatsoever.
However, (i) no such amendment or modification shall adversely affect rights and
obligations with respect to options at the time outstanding under the Plan, nor
adversely affect the rights of any Participant with respect to Common Stock
issued under the Stock Issuance Program prior to such action, unless the
Optionee or Participant consents to such amendment, and (ii) any amendment made
to the Automatic Option Grant Program (or any options outstanding thereunder)
shall be in compliance with the limitation of Section IV of Article Three. In
addition, the Board may not, without the approval of the Corporation's
stockholders, amend the Plan to (i) materially increase the maximum number of
shares issuable under the Plan, increase the maximum number of shares for which
any one person may be granted stock options, separately exercisable stock
appreciation right and direct stock issuances in the aggregate under this Plan
during any one calendar year, or increase the maximum number of shares which may
be issued under the Plan prior to the required cessation of further Incentive
Option grants, except for permissible adjustments under Section V.C. of Article
One, (ii) materially modify the eligibility requirements for plan participation
or (iii) materially increase the benefits accruing to plan participants.
B. (i) Options to purchase shares of Common Stock may be granted under
the Discretionary Option Grant Program and (ii) shares of Common Stock may be
issued under the Stock Issuance Program, which are in both instances in excess
of the number of shares then available for issuance under the Plan, provided any
excess shares actually issued under the Discretionary Option Grant Program or
the Stock Issuance Program are held in escrow until stockholder approval is
obtained for a sufficient increase in the number of shares available for
issuance under the Plan. If such stockholder approval is not obtained within
twelve (12) months after the date the first such excess option grants or excess
share issuances are made, then (I) any unexercised excess options shall
terminate and cease to be exercisable and (II) the Corporation shall promptly
refund the purchase price paid for any excess shares actually issued under the
Plan and held in escrow, together with interest (at the applicable Short Term
Federal Rate) for the period the shares were held in escrow.
III. TAX WITHHOLDING
The Corporation's obligation to deliver shares of Common Stock upon the
exercise of stock options for such shares or the vesting of such shares under
the Plan shall be subject to the satisfaction of all applicable Federal, State
and local income tax and employment tax withholding requirements.
The Plan Administrator may, in its discretion and in accordance with the
provisions of this Section III of Article Five and such supplemental rules as
the Plan Administrator may from time to time adopt (including the applicable
safe-harbor provisions of SEC Rule 16b-3), provide any or all holders of non-
statutory options (other than the automatic grants made pursuant to Article
Three of the Plan) or unvested shares under the Plan with the right to use
shares of Common Stock in satisfaction of all or part of the Federal, State and
local income and employment tax liabilities incurred by such holders in
connection with the exercise of their options or the vesting of their shares
(the "Taxes"). Such right may be provided to any such holder in either or both
of the following formats:
(a) STOCK WITHHOLDING: The holder of the non-statutory option or unvested
shares may be provided with the election to have the Corporation withhold, from
the shares of Common Stock otherwise issuable upon the exercise of such non-
statutory option or the vesting of such shares, a portion of those shares with
an aggregate Fair Market Value equal to the percentage of the applicable Taxes
(not to exceed one hundred percent (100%)) designated by the holder.
(b) STOCK DELIVERY: The Plan Administrator may, in its discretion,
provide the holder of the non-statutory option or the unvested shares with the
election to deliver to the Corporation, at the time the non-statutory option is
exercised or the shares vest, one or more shares of Common Stock previously
acquired by such individual (other than in connection with the option exercise
or share vesting triggering the Taxes) with an aggregate Fair Market Value equal
to the percentage of the Taxes incurred in connection with such option exercise
or share vesting (not to exceed one hundred percent (100%)) designated by the
holder.
39
<PAGE>
IV. EFFECTIVE DATE AND TERM OF PLAN
A. The Plan was adopted by the Board on July 23, 1993, and was approved
by the stockholders on the same date. The Plan became effective on September
29, 1993, the date on which the shares of the Corporation's Common Stock were
first registered under the 1934 Act. No further option grants or stock
issuances shall be made under the Predecessor Plans from and after the Effective
Date.
B. Each stock option grant outstanding under the Predecessor Plans
immediately prior to the Effective Date of the Discretionary Option Grant
Program shall be incorporated into this Plan and treated as an outstanding
option under this Plan, but each such option shall continue to be governed
solely by the terms and conditions of the instrument evidencing such grant, and
nothing in this Plan shall be deemed to affect or otherwise modify the rights or
obligations of the holders of such options with respect to their acquisition of
shares of Common Stock thereunder. Each unvested share of Common Stock
outstanding under the Predecessor Plans on the Effective Date of the Stock
Issuance Program shall continue to be governed solely by the terms and
conditions of the instrument evidencing such share issuance, and nothing in this
Plan shall be deemed to affect or otherwise modify the rights or obligations of
the holder of such unvested shares.
C. The option/vesting acceleration provisions of Section III of Article
Two and Section II of Article Four relating to Corporate Transactions and
Changes in Control may, in the Plan Administrator's discretion, be extended to
one or more stock options or unvested share issuances which are outstanding
under the Predecessor Plans on the Effective Date of the Discretionary Option
Grant and Stock Issuance Programs but which do not otherwise provide for such
acceleration.
D. On March 16, 1995, the Board adopted an amendment to the Plan which
(i) increased the number of shares of Common Stock available for issuance under
the Plan by an additional 600,000 shares (as adjusted for the May 1995 stock
split), (ii) provided for an automatic annual increase to the existing share
reserve on the first trading day in each of the next five (5) fiscal years,
beginning with the 1996 fiscal year and continuing through fiscal year 2000,
equal to 1.4% of the total number of shares of Common Stock outstanding on the
last trading day of the fiscal year immediately preceding the fiscal year of
each such share increase and (iii) imposed certain limitations required under
applicable Federal tax laws with respect to Incentive Option grants. The
amendment was approved by the stockholders at the 1995 Annual Meeting on May 17,
1995. On March 21, 1996, the Board adopted an amendment to the Plan which (i)
increased the number of shares of Common Stock available for issuance under the
Plan by an additional 600,000 shares, (ii) increased the limit on the maximum
number of shares of Common Stock issuable under the 1993 Plan prior to the
required cessation of further Incentive Option grants to 3,780,000 shares plus
an additional increase of 277,000 shares per fiscal year over each of the next
four (4) fiscal years, beginning with the 1997 fiscal year, (iii) revised the
Automatic Option Grant Program to eliminate the special one-time option grant
for 28,800 shares of Common Stock to each newly-elected or newly-appointed non-
employee Board member and implement a new option grant program pursuant to which
all eligible non-employee Board members will receive a series of automatic
option grants over their period of continued Board service. The amendment was
approved by the stockholders at the 1996 Annual Meeting.
E. The Plan shall terminate upon the EARLIER of (i) June 30, 2003 or (ii)
the date on which all shares available for issuance under the Plan shall have
been issued or canceled pursuant to the exercise, surrender or cash-out of the
options granted under the Plan or the issuance of shares (whether vested or
unvested) under the Stock Issuance Program. If the date of the plan termination
is determined under clause (i) above, then all option grants and unvested share
issuances outstanding on such date shall thereafter continue to have force and
effect in accordance with the provisions of the instruments evidencing such
grants or issuances.
V. USE OF PROCEEDS
Any cash proceeds received by the Corporation from the sale of shares
pursuant to option grants or share issuances under the Plan shall be used for
general corporate purposes.
VI. REGULATORY APPROVALS
40
<PAGE>
A. The implementation of the Plan, the granting of any option under the
Plan, the issuance of any shares under the Stock Issuance Program, and the
issuance of Common Stock upon the exercise or surrender of the option grants
made hereunder shall be subject to the Corporation's procurement of all
approvals and permits required by regulatory authorities having jurisdiction
over the Plan, the options granted under it, and the Common Stock issued
pursuant to it.
B. No shares of Common Stock or other assets shall be issued or delivered
under this Plan unless and until there shall have been compliance with all
applicable requirements of Federal and State securities laws, including the
filing and effectiveness of the Form S-8 registration statement for the shares
of Common Stock issuable under the Plan, and all applicable listing requirements
of any securities exchange (or the Nasdaq National Market, if applicable) on
which shares of the Common Stock are then listed for trading.
VII. NO EMPLOYMENT/SERVICE RIGHTS
Neither the action of the Corporation in establishing the Plan, nor any
action taken by the Plan Administrator hereunder, nor any provision of the Plan
shall be construed so as to grant any individual the right to remain in the
employ or service of the Corporation (or any parent or subsidiary corporation)
for any period of specific duration, and the Corporation (or any parent or
subsidiary corporation retaining the services of such individual) may terminate
such individual's employment or service at any time and for any reason, with or
without cause.
VIII. MISCELLANEOUS PROVISIONS
A. The right to acquire Common Stock or other assets under the Plan
may not be assigned, encumbered or otherwise transferred by any Optionee or
Participant.
B. The provisions of the Plan relating to the exercise of options
and the vesting of shares shall be governed by the laws of the State of
California, as such laws are applied to contracts entered into and performed in
such State.
C. The provisions of the Plan shall inure to the benefit of, and be
binding upon, the Corporation and its successors or assigns, whether by
Corporate Transaction or otherwise, and the Participants and Optionees and the
legal representatives, heirs or legatees of their respective estates.
41
<PAGE>
ULTRATECH STEPPER, INC.
EXHIBIT 11.1
STATEMENT OF COMPUTATION OF NET INCOME PER COMMON SHARE
Shares used in the net income per common share computation are the weighted
average number of common shares outstanding plus dilutive common share
equivalents.
Shares used in the per share computation are as follows:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
-------------------------- --------------------------
Sept., 30 Sept., 30 Sept., 30 Sept., 30
(in thousands, except per share amounts) 1996 1995 1996 1995
- - ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Weighted average common shares outstanding 20,198 19,577 20,088 17,990
Common share equivalents from stock options granted
(using the treasury stock method) 1,006 1,778 1,223 1,767
---------- ---------- ---------- ----------
Number of shares used in per share calculation 21,204 21,355 21,311 19,757
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
Net income $8,835 $6,815 $26,752 $16,191
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
Net income per share $0.42 $0.32 $1.26 $0.82
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
</TABLE>
* All share and per share data have been retroactively restated to reflect a
two-for-one stock split distributed on May 10, 1995.
21
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM ULTRATECH
STEPPER INC., FORM 10-Q AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JUL-01-1996
<PERIOD-END> SEP-30-1996
<CASH> 40,508
<SECURITIES> 117,509
<RECEIVABLES> 48,891
<ALLOWANCES> 1,224
<INVENTORY> 35,708
<CURRENT-ASSETS> 252,962
<PP&E> 27,527
<DEPRECIATION> 8,330
<TOTAL-ASSETS> 281,795
<CURRENT-LIABILITIES> 51,175
<BONDS> 0
0
0
<COMMON> 20
<OTHER-SE> 229,723
<TOTAL-LIABILITY-AND-EQUITY> 281,795
<SALES> 44,462
<TOTAL-REVENUES> 46,502
<CGS> 19,463
<TOTAL-COSTS> 21,159
<OTHER-EXPENSES> 6,421
<LOSS-PROVISION> 87
<INTEREST-EXPENSE> 61
<INCOME-PRETAX> 13,082
<INCOME-TAX> 4,247
<INCOME-CONTINUING> 8,835
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 8,835
<EPS-PRIMARY> 0.417
<EPS-DILUTED> 0.417
</TABLE>
