<PAGE>
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2000
------------------------------
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
--------------- -----------------
Commission File Number 0-22248
--------------------------
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 identification number)
incorporation or organization)
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
-------------------------
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(Former name, former address and former fiscal year,
if changed since last report.)
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
Yes X No
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Indicate the number of shares of the issuer's class of common stock, as of
the latest practical date:
Class Outstanding as of May 8, 2000
- ------------------------------- ---------------------------------------------
common stock, $.001 par value 21,102,309
1
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ULTRATECH STEPPER, INC.
INDEX
<TABLE>
<CAPTION>
Page No.
--------
<S> <C> <C>
PART 1. FINANCIAL INFORMATION
ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Condensed Consolidated Balance Sheets as of March 31, 2000 and
December 31, 1999...................................................................... 3
Condensed Consolidated Statements of Operations for the three months
ended March 31, 2000 and 1999........................................................... 4
Condensed Consolidated Statements of Cash Flows for the three months ended
March 31, 2000 and 1999................................................................. 5
Notes to Condensed Consolidated Financial Statements.................................... 6
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS........................................... 10
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.............................. 24
PART 2. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS....................................................................... 25
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS............................................... 25
ITEM 3. DEFAULTS UPON SENIOR SECURITIES......................................................... 25
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS..................................... 25
ITEM 5. OTHER INFORMATION....................................................................... 25
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K........................................................ 25
SIGNATURES............................................................................................... 26
</TABLE>
2
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PART 1. FINANCIAL INFORMATION
ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
ULTRATECH STEPPER, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
Mar. 31, Dec. 31,
(in thousands) 2000 1999*
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<S> <C> <C>
ASSETS (Unaudited)
Current assets:
Cash, cash equivalents and
short-term investments $132,469 $143,544
Accounts receivable, net 18,179 19,993
Inventories 33,476 28,975
Current portion of leases receivable 680 1,354
Prepaid expenses and other
current assets 2,277 2,040
- --------------------------------------------------------------------------------
Total current assets 187,081 195,906
Equipment and leasehold
improvements, net 21,050 20,486
Restricted long-term investments 5,564 5,479
Leases receivable, net - 282
Intangible assets, net 8,422 8,940
Other assets 5,228 5,715
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Total assets $227,345 $236,808
================================================================================
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LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable $ 1,137 $ 490
Accounts payable 8,203 7,931
Deferred income 16,163 353
Other current liabilities 19,436 23,531
- --------------------------------------------------------------------------------
Total current liabilities 44,939 32,305
Other liabilities 276 289
Stockholders' equity:
Common stock 21 21
Additional paid-in capital 175,624 175,573
Accumulated other comprehensive loss, net (2,637) (2,408)
Retained earnings 9,122 31,028
- --------------------------------------------------------------------------------
Total stockholders' equity 182,130 204,214
- --------------------------------------------------------------------------------
Total liabilities and stockholders' equity $227,345 $236,808
================================================================================
</TABLE>
* The Balance Sheet as of December 31, 1999 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 OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
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Three Months Ended
--------------------
Mar. 31, Mar. 31,
(In thousands, except per share amounts) 2000 1999
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<S> <C> <C>
Net sales:
Products $25,727 $21,640
Services 4,173 4,139
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Total net sales 29,900 25,779
Cost of sales:
Cost of products sold 17,213 13,949
Cost of services 3,274 3,109
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Total cost of sales 20,487 17,058
- -------------------------------------------------------------------------------------
Gross profit 9,413 8,721
OPERATING EXPENSES:
Research, development, and
engineering 7,076 6,537
Amortization of goodwill 519 306
Selling, general, and
administrative 6,553 6,255
- -------------------------------------------------------------------------------------
Operating loss (4,735) (4,377)
Interest expense (71) (121)
Interest and other income, net 1,783 1,969
- -------------------------------------------------------------------------------------
Loss before cumulative effect of a change in accounting
principle (3,023) (2,529)
Cumulative effect on prior years of the application of SAB 101
"Revenue Recognition in Financial Statements" (18,883) --
- -------------------------------------------------------------------------------------
Net loss $(21,906) $(2,529)
=====================================================================================
EARNINGS PER SHARE-BASIC:
Loss before cumulative effect of a change in accounting
principle $(0.14) $(0.12)
Cumulative effect on prior years of the application of
SAB 101 "Revenue Recognition in Financial Statements" $(0.88) $0.00
Net loss $(1.02) $(0.12)
Number of shares used in
per share computations - basic 21,442 21,124
EARNINGS PER SHARE-DILUTED
Loss before cumulative effect of a change in accounting
principle $(0.14) $(0.12)
Cumulative effect on prior years of the application of
SAB 101 "Revenue Recognition in Financial Statements" $(0.88) $0.00
Net loss $(1.02) $(0.12)
Number of shares used in
per share computations - diluted 21,442 21,124
- -------------------------------------------------------------------------------------
</TABLE>
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>
Three Months Ended
--------------------
Mar. 31, Mar. 31,
(In thousands) 2000 1999
- -------------------------------------------------------------------------------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $(21,906) $(2,529)
Charges to income not affecting cash 3,205 2,603
Change in accounting principle - SAB 101 "Revenue Recognition
in Financial Statements" 18,883 --
Net effect of changes in operating assets
and liabilities (8,820) 779
- -------------------------------------------------------------------------------------
Net cash provided by (used in) operating activities (8,638) 853
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (2,686) (1,501)
Net reduction in available-for-sale securities 3,578 10,422
Segregation of restricted long-term investments (87) (86)
- -------------------------------------------------------------------------------------
Net cash provided by investing activities 805 8,835
CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds (repayment) from issuance of notes payable 647 (224)
Net proceeds from issuance of common stock
pursuant to employee stock plans 51 60
- -------------------------------------------------------------------------------------
Net cash provided by (used in) financing activities 698 (164)
Net increase (decrease) in cash and cash equivalents (7,135) 9,524
Cash and cash equivalents at beginning
of period 46,978 54,142
- -------------------------------------------------------------------------------------
Cash and cash equivalents at end of period $39,843 $63,666
=====================================================================================
</TABLE>
SEE ACCOMPANYING NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.
5
<PAGE>
ULTRATECH STEPPER, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
MARCH 31, 2000
(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 considered necessary for fair presentation have
been included.
COMPANY AND INDUSTRY INFORMATION - The Company operates in one business
segment, which is the manufacture and distribution of photolithography
equipment to manufacturers of integrated circuits, thin film heads and
micromachined components.
USE OF ESTIMATES - The preparation of the accompanying unaudited condensed
consolidated 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.
REVENUE RECOGNITION - Sales of the Company's products are recorded after the
contractual obligation for installation has been satisfied and customer
acceptance provisions have lapsed, provided collections of the related
accounts receivable are probable. The Company also sells service contracts
for which revenue is recognized ratably over the contract period.
From time to time, the Company leases its products to customers typically as
sales-type leases, in accordance with the provisions of the Statement of
Financial Accounting Statement No. 13, "Accounting for Leases." These leases
generally have a five-year term.
The Company previously recognized revenue from the sales of its products
generally upon shipment, which usually preceded installation and final
customer acceptance, provided that final customer acceptance and collection
of the related receivable were probable. Effective January 1, 2000, the
Company changed its method of accounting for product sales to recognize such
revenues when the contractual obligation for installation has been satisfied,
or when installation is substantially complete, and customer acceptance
provisions have lapsed, provided collections of the related receivable are
probable. The Company believes the change in accounting principle is
preferable based on guidance provided in SEC Staff Accounting Bulletin No.
101 (SAB 101), "Revenue Recognition in Financial Statements." The cumulative
effect of the change in accounting principle, $18,883,000 (or $.88 per share,
basic and diluted) was reported as a charge in the quarter ended March 31,
2000 in the accompanying statement of operations.
The cumulative effect of the change in accounting principle includes system
revenue, cost of sales and certain expenses, including warranty and
commission expenses, that will be recognized when both installation and
customer acceptance provisions are satisfied, subsequent to January 1, 2000.
During the quarter ended March 31, 2000, the Company substantially changed
its operations to implement SAB 101. Nearly all system revenue for the period
resulted from systems shipped prior to January 1, 2000 and accepted during
the quarter. This reflects the Company's traditional time frame for shipment,
installation and customer acceptance. The net result of shipments and
acceptances during the quarter was a reduction of approximately $5.0 million
in deferred income. The Company believes that estimate of its system revenue
under its prior method of accounting would not be indicative of results that
would have been achieved if the Company had not substantially changed its
operations to implement SAB 101.
RECLASSIFICATIONS - Certain condensed consolidated financial statement
amounts have been reclassified for consistent presentation.
6
<PAGE>
FISCAL PERIODS: The Company's first fiscal quarter in 2000 and 1999 ended on
April 1, 2000 and April 3, 1999, respectively. For convenience of
presentation, the Company's financial statements have been shown as having
ended on March 31, 2000 and March 31, 1999.
Operating results for the three-month period ended March 31, 2000 are not
necessarily indicative of the results that may be expected for the year
ending December 31, 2000, or any future period.
(2) INVENTORIES
Inventories consist of the following:
<TABLE>
<CAPTION>
Mar. 31, 2000 Dec. 31, 1999
------------- -------------
(In thousands) (Unaudited)
<S> <C> <C>
Raw materials......................................... $13,292 $12,589
Work-in-process....................................... 15,559 13,484
Finished products..................................... 4,625 2,902
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$33,476 $28,975
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</TABLE>
(3) OTHER CURRENT LIABILITIES
Other current liabilities consist of the following:
<TABLE>
<CAPTION>
Mar. 31, 2000 Dec. 31, 1999
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(In thousands) (Unaudited)
<S> <C> <C>
Salaries and benefits................................. $ 3,375 $ 3,369
Warranty reserves..................................... 4,325 3,997
Advance billings...................................... 3,463 4,845
Income taxes payable.................................. 4,973 5,081
Sales returns and allowances.......................... - 1,471
Reserve for losses on purchase order commitments...... 1,477 2,423
Other................................................. 1,823 2,345
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$19,436 $23,531
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</TABLE>
(4) COMPUTATION OF NET INCOME (LOSS) PER SHARE
The following sets forth the computation of basic and diluted net income
(loss) per share:
7
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<TABLE>
<CAPTION>
Three Months Ended
-------------------------------
Mar. 31, Mar. 31,
(Unaudited, in thousands, except per share amounts) 2000 1999
- -----------------------------------------------------------------------------------------
<S> <C> <C>
Numerator:
Loss before cumulative effect of a change in
accounting principle $ (3,023) $ (2,529)
Cumulative effect on prior years of the application
of SAB 101 "Revenue Recognition in Financial
Statement" (18,883) -
------------------------------
Net Loss (21,906) (2,529)
Denominator:
Denominator for basic net income (loss) per share 21,442 21,124
Effect of dilutive employee stock options - -
------------- --------------
Denominator for diluted net income (loss) per share 21,442 21,124
------------- --------------
EARNINGS PER SHARE - BASIC:
Loss before cumulative effect of a change in
accounting principle $ (0.14) $ (0.12)
============= ==============
Cumulative effect on prior years of the application
of SAB 101 "Revenue Recognition in Financial
Statement" $ (0.88) $ 0.00
============= ==============
Net loss $ (1.02) $ (0.12)
============= ==============
EARNINGS PER SHARE - DILUTED:
Loss before cumulative effect of a change in
accounting principle $ (0.14) $ (0.12)
============= ==============
Cumulative effect on prior years of the application
of SAB 101 "Revenue Recognition in Financial
Statement" $ (0.88) $ 0.00
============= ==============
Net loss $ (1.02) $ (0.12)
============= ==============
</TABLE>
For the three-month period ended March 31, 2000, options to purchase
3,251,000 shares of Common Stock at an average exercise price of $16.26 were
excluded from the computation of diluted net loss per share as the effect
would have been antidilutive. This compares to the exclusion of 3,004,000
options at an average exercise price of $16.88 for the three-month period
ended March 31, 1999. Options are anti-dilutive when the Company has a net
loss or when the exercise price of the stock option is greater than the
average market price of the Company's Common Stock.
(5) COMPREHENSIVE LOSS
The components of comprehensive loss are as follows:
8
<PAGE>
<TABLE>
<CAPTION>
Three Months Ended Mar. 31,
---------------------------
(Unaudited, in thousands) 2000 1999
- ---------------------------------------------------------------------------
<S> <C> <C>
Net loss..................................... $(21,906) $(2,529)
Accumulated other comprehensive loss.........
Unrealied holding loss on
available-for-sale securities.......... (231) (1,016)
Tax effect............................... - -
- ---------------------------------------------------------------------------
Comprehensive loss $(22,137) $(3,545)
</TABLE>
Accumulated other comprehensive loss presented in the accompanying condensed
consolidated balance sheets consists entirely of accumulated unrealized
holding loss on available-for-sale securities. The unrealized holding loss on
available-for-sale securities is not currently adjusted for income taxes as a
result of the Company's operating losses.
(6) ACCOUNTING FOR DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES.
In June 1999, the Financial Accounting Standards Board issued Statement No.
137 (FAS 137), "Accounting for Derivative Instruments and Hedging Activities
- - Deferral of the Effective Date of FASB Statement No. 133." FAS 137 amends
the Financial Accounting Standards Board issued Statement No. 133 (FAS 133),
"Accounting for Derivative Instruments and Hedging Activities" which was
issued in June 1998 and was to be effective for all fiscal quarters of fiscal
year beginning after June 15, 1999. FAS 137 defers the effective date of FAS
133 to be effective for all fiscal quarters of all fiscal years beginning
after June 15, 2000. Accordingly, the Company will adopt the provisions of
FAS 133 for its 2001 fiscal year. FAS 133 establishes accounting and
reporting standards for derivative instruments and requires recognition of
all derivatives as assets or liabilities in the statement of financial
position and measurement of those instruments at fair value. Because of the
Company's minimal use of derivatives, management does not anticipate that the
adoption of the new Statement will have a significant effect on earnings or
the financial position of the Company.
(7) SUBSEQUENT EVENTS
In April 2000, the Company's Board of Directors authorized the repurchase by
the Company of up to 2.0 million shares of its common stock in the open
market at prevailing market prices.
In April 2000, the Company reached a decision to restructure certain of its
operations. As a result of this decision, the Company will dispose of its
electron beam lithography assets and related workforce and will take a charge
against operations in the quarter ending June 30, 2000. There remains
significant uncertainty as to the amount of the charge. However, the Company
presently anticipates that the negative charge to operations in the quarter
ending June 30, 2000 will not exceed $11 million.
9
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
Certain of the statements contained in this report may be considered
forward-looking statements that may involve a number of risks and
uncertainties. In addition to the factors discussed herein, other factors
that could cause actual results to differ materially include the following:
cyclicality in the Company's served markets; highly competitive industry;
difficulties in assimilating acquired operations; international sales;
lengthy sales cycles; customer concentration; rapid technological change and
the importance of timely product introductions; future acquisitions;
expansion of the Company's current product lines; changes to financial
accounting standards, dependence on key personnel; sole or limited sources of
supply; intellectual property matters; environmental regulations; effects of
certain anti-takeover provisions; volatility of stock price; and the other
risk factors listed from time to time in the Company's SEC reports.
Due to these and additional factors, certain statements, historical results
and percentage relationships discussed below will not necessarily be
indicative of the results of operations for any future period.
Ultratech develops, manufactures and markets photolithography equipment
(steppers) designed to reduce the cost of manufacturing integrated circuits,
thin film heads for disk drives and micromachined components. The Company
supplies step-and-repeat systems based on one-to-one and reduction optical
technologies to customers located throughout North America, Europe, Japan and
the rest of Asia. These products range from low-cost systems for high-volume
manufacturing to advanced systems for cost-effective production of
leading-edge devices and for research and development applications.
In April 2000, the Company reached a decision to restructure certain of its
operations. As a result of this decision, the Company will dispose of its
electron beam lithography assets and related workforce and will take a charge
against operations in the quarter ending June 30, 2000. There remains
significant uncertainty as to the amount of the charge. However, the Company
presently anticipates that the negative charge to operations in the quarter
ending June 30, 2000 will not exceed $11 million. The Company determined that
two recent events transpired that required a change in its electron beam
technology efforts. The first event was the announced intention of a major
semiconductor equipment manufacturer to acquire the market share leader in
electron beam technology. The second event was the Company's decision to
ensure that its research and development spending was in line with the
current stage of the industry's economic cycle and the Company's stated
desire to increase stockholder value. As a result of these two events, and
the Company's inability to timely find a partner for sharing future
development funding or a buyer for the technology, the Company decided to
dispose of its electron beam technologies and related operations. The Company
had not recognized any revenue related to its electron beam technology during
1999 or the first quarter of 2000.
The following discussion should be read in conjunction with the Company's
1999 Annual Report on Form 10-K, which is available upon request.
RESULTS OF OPERATIONS
The Company's operating results have fluctuated significantly in the past and
will continue to fluctuate significantly in the future. Such variability
depends upon a variety of factors, including substantial cyclicality in the
Company's target markets; various competitive factors including price-based
competition and competition from vendors employing other technologies; the
timing and terms of significant orders; the timing of shipments and customer
acceptances; lengthy sales cycles for the Company's products; the mix of
products sold; inventory and open purchase commitment reserve positions;
changes to financial accounting standards; concentration of credit risk;
lengthy development cycles for new products; market acceptance of new
products and enhanced versions of the Company's products; delayed shipments
to customers due to customer configuration changes and other factors;
10
<PAGE>
acquisition activities requiring the devotion of substantial management
resources; lengthy manufacturing cycles for the Company's products; the
timing of new product announcements and releases by the Company or its
competitors; manufacturing inefficiencies associated with the startup of new
product introductions; 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 or suppliers; political and economic instability throughout the
world, in particular the Asia/Pacific region; natural disasters; regulatory
changes; and business interruptions related to the Company's occupation of
its facilities. 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 product discounts and increased competition in the Company's
targeted markets; the mix of products sold; inventory and open purchase
commitment reserve provisions; the rate of capacity utilization; nonlinearity
of shipments during the quarter; the introduction of new products, which
typically have higher manufacturing costs until manufacturing efficiencies
are realized and are typically discounted more than existing products until
the products gain market acceptance; the percentage of international sales,
which typically have lower gross margins than domestic sales principally due
to higher field service and support costs; and the implementation of
subcontracting arrangements.
The Company derives a substantial portion of its total net sales from sales
of a relatively small number of newly manufactured systems, which typically
range in price from $800,000 to $2.4 million for the Company's 1X steppers,
and $1.5 million to more than $6 million for the Company's reduction
steppers. As a result of these high sale prices, the timing of recognition of
revenue from a single transaction has had and will continue to have a
significant impact on the Company's net sales and operating results. The
Company's backlog at the beginning of a period typically does not include all
of the sales needed to achieve the Company's objectives for that period. In
addition, orders in backlog are subject to cancellation, shipment or customer
acceptance delays, and 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 will continue to be dependent upon the Company
obtaining orders for systems to be shipped and accepted 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 and
customer acceptance during the particular period. Furthermore, a substantial
portion of the Company's shipments has historically been realized near the
end of each quarter. Delays in installation and customer acceptance due, for
example, to the inability of the Company to successfully demonstrate the
agreed upon specifications or criteria at the customer's facility, or to the
failure of the customer to permit installation of the system in the agreed
upon time, may cause net sales in a particular period to fall significantly
below the Company's expectations, which may materially adversely affect the
Company's operating results for such period. Additionally, the failure to
receive anticipated orders or delays in shipments due, for example, to
reschedulings, delays, deferrals or cancellations by customers, additional
customer configuration requirements, or to unexpected manufacturing
difficulties or delays in deliveries by suppliers due to their long
production lead times or otherwise, has caused and may continue to cause net
sales in a particular period to fall significantly below the Company's
expectations, which has and could continue to materially adversely affect the
Company's operating results for such period. In particular, the long
manufacturing cycles of the Company's Saturn Wafer Stepper(R), and the
Company's reduction stepper producT offerings, 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.
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 cyclical trends within the semiconductor and thin film head
industries. In addition, the need for continued expenditures for research and
development, capital equipment, ongoing training and worldwide customer
service and support, among other factors, will make it difficult for the
Company to reduce its operating expenses in a particular period if the
Company fails to achieve its net sales goals for the period. Additionally,
the Company continues to operate at less than optimal capacity utilization,
resulting in manufacturing inefficiencies that adversely
11
<PAGE>
affect the Company's gross margins and results of operations. The Company
presently anticipates that this trend will continue for at least the next few
quarters.
The Company presently expects that net sales for the three-month period
ending June 30, 2000 may be flat to higher than net sales in the comparable
period in 1999. However, due to lack of order visibility and uncertainty as
to the timing of shipments and customer acceptances, the Company can give no
assurance that it will be able to achieve or maintain its current sales
levels. The Company presently expects to recognize an operating loss for the
quarter ending June 30, 2000, exclusive of the charge to dispose of the
Company's electron beam assets and related workforce, and may recognize a net
loss. These losses may extend to future quarters due, in part, to the
significant level of planned research, development and engineering spending,
relative to sales; the current low rate of capacity utilization; and the
current backlog and order levels for the Company's products.
NET SALES
Net sales consist of revenue from system sales, spare parts sales, and
service. For the quarter ended March 31, 2000, net sales were $29.9 million,
an increase of 16% as compared with net sales of $25.8 million for the
comparable period in 1999. The increase, relative to the 1999 period, was
primarily attributed to improved conditions within the semiconductor
industry, which has resulted in higher capital spending levels, partially
offset by lower equipment sales to the thin film head industry. Substantially
all system revenue for the quarter ended March 31, 2000 resulted from systems
shipped in 1999 (see discussion of SAB 101, below). Overall, unit sales for
the three-month period ended March 31, 2000 increased 50% from the comparable
period in 1999, while the weighted-average selling price of all units sold
decreased by approximately 6% in the 2000 period, relative to the comparable
period in 1999. Service revenue for the three-month period ended March 31,
2000 increased slightly.
The Company previously recognized revenue from the sales of its products
generally upon shipment, which usually preceded installation and final
customer acceptance, provided that final customer acceptance and collection
of the related receivable were probable. Effective January 1, 2000, the
Company changed its method of accounting for product sales to recognize such
revenues when the contractual obligation for installation has been satisfied,
or when installation is substantially complete, and customer acceptance
provisions have lapsed, provided collections of the related receivable are
probable. The Company believes the change in accounting principle is
preferable based on guidance provided in SEC Staff Accounting Bulletin No.
101 (SAB 101), "Revenue Recognition in Financial Statements."
During the quarter ended March 31, 2000, the Company substantially changed
its operations to implement SAB 101. Nearly all system revenue for the period
resulted from systems shipped prior to January 1, 2000 and accepted during
the quarter. This reflects the Company's traditional time frame for shipment,
installation and customer acceptance. The net result of shipments and
acceptances during the quarter was a reduction of approximately $5.0 million
in deferred income. The Company believes that estimate of its system revenue
under its prior method of accounting would not be indicative of results that
would have been achieved if the Company had not substantially changed its
operations to implement SAB 101.
For the quarter ended March 31, 2000, international net sales were $14.4
million, as compared with $11.6 million for the comparable period in 1999.
International net sales represented 48% of total net sales for the quarter
ended March 31, 2000, as compared with 45% for the comparable period in 1999.
The increase in international sales, both in terms of absolute dollars and as
a percentage of total net sales, was primarily attributed to higher sales to
Japan. The Company's operations in foreign countries are not generally
subject to significant exchange rate fluctuations, principally because sales
contracts for the Company's systems are generally denominated in U.S.
dollars. In Japan, however, orders are typically denominated in Japanese yen.
This may subject the Company to a higher degree of risk from currency
fluctuations. The Company attempts to mitigate this exposure through the use
of foreign
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exchange contracts; however, there can be no assurance of the success of
any such efforts. International sales expose the Company to a number of
additional risks, 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").
In prior years, the Company experienced significant shipment delays and
purchase order restructuring by several of its customers, and also
experienced purchase order cancellations. There can be no assurance that this
trend will not occur in the future. Accordingly, the Company can give no
assurance that it will be able to achieve or maintain its current or prior
level of sales. Additionally, the thin film head industry is presently in a
state of over capacity. This has resulted, and may continue to result, in
reduced order levels from this important market, which could continue to
materially adversely effect the Company's results of operations. The Company
presently expects that net sales for the three-month period ending June 30,
2000 may be flat to higher than net sales in the comparable period in 1999.
However, due to lack of order visibility and uncertainty as to the timing of
shipments and customer acceptances, the Company can give no assurance that it
will be able to achieve or maintain its current sales levels.
Because the Company's net sales are subject to a number of risks, including
intense competition in the capital equipment industry and the timing and
market acceptance of the Company's products, there can be no assurance that
the Company will exceed or maintain its current level of net sales for any
period in the future. Additionally, the Company believes that the market
acceptance and volume production of its Saturn Spectrum III, XLS advanced
reduction stepper and its 1000 series family of wafer steppers, are of
critical importance to its future financial results. To the extent that these
products do not achieve significant sales due to difficulties involving
manufacturing or engineering, the inability to reduce the current long
manufacturing cycles for such products, competition, excess capacity in the
semiconductor of thin film industry, or any other reason, the Company's
business, financial condition and results of operations would be materially
adversely affected.
GROSS PROFIT
The Company's gross profit as a percentage of net sales, or gross margin, was
31.5% for the quarter ended March 31, 2000, as compared with a gross margin
of 33.8% for the comparable period in 1999. On a comparative basis, gross
margins for the quarter ended March 31, 2000 were adversely impacted by
competitive pressure on selling prices, high rates of underutilized service
capacity and lower gross margins on service revenues.
The Company believes that gross margins for the quarter ending June 30, 2000
may be lower than gross margins achieved during the comparable period a year
ago, primarily as a result of anticipated product sales mix and continued
pricing pressure from orders presently in backlog. Intense competition in the
markets the Company serves, and continued low levels of capacity utilization
may make it difficult for the Company to increase or maintain its current
gross margin percentages in the near term. The Company is presently
increasing inventory purchases based on current and forecasted demand for its
Saturn Spectrum III wafer stepper. The purchase of such additional
inventories will result in a significantly higher risk of obsolescence, which
may require inventory write-offs, which negatively impact gross margins.
Additionally, new products generally have lower gross margins until there is
widespread market acceptance and until production and after-sales
efficiencies can be achieved. Should the Saturn Spectrum III, and the
Company's reduction stepper offerings, fail to develop or generate
significant market demand, the Company's business, financial condition and
results of operations would be materially adversely affected.
RESEARCH, DEVELOPMENT AND ENGINEERING EXPENSES
The Company's research, development and engineering expenses were $7.1
million for the quarter ended March 31, 2000, as compared with $6.5 million
for the comparable period in 1999. As a
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percentage of total net sales, research, development and engineering
expenses were 23.7% for the quarter ended March 31, 2000, as compared with
25.3% for the comparable period in 1999. The dollar increase, as compared to
the comparable period in 1999, was primarily related to higher spending on
the Company's electron beam technology.
The Company continues to invest significant resources in the development and
enhancement of its Verdant rapid thermal annealing/laser doping systems and
technologies, together with continuing expenditures for its 1X and reduction
optical products and technologies. The Company presently expects that the
absolute dollar amount of research, development and engineering expenses for
the quarter ending June 30, 2000 will decrease, relative to the comparable
period a year ago, as a result of the discontinuance of the Company's
electron beam technology efforts.
AMORTIZATION OF GOODWILL
Amortization of goodwill was $519,000 for the quarter ended March 31, 2000,
as compared with $306,000 for the comparable period in 1999. The additional
amortization expense was directly related to intangible assets purchased in
December 1999.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative expenses were $6.6 million for the
quarter ended March 31, 2000, as compared with $6.3 million for the
comparable period in 1999. As a percentage of net sales, selling, general and
administrative expenses declined to 21.9% for the quarter ended March 31,
2000, as compared to 24.3% of net sales for the comparable period in 1999.
The increase in absolute dollars, as compared with the comparable periods in
1999, was primarily due to higher sales, service and support expenses
typically associated with an increase in sales. The Company presently
anticipates that selling, general and administrative expenses for the
three-month period ending June 30, 2000 will decrease, relative to the
comparable period in 1999, due primarily to the discontinuance of the
Company's electron beam technology efforts.
INTEREST AND OTHER INCOME, NET
Interest and other income, net, which consists primarily of interest income,
was $1.8 million for the quarter ended March 31, 2000, as compared with $2.0
million for the comparable period in 1999. This decrease in interest and
other income, net, was primarily related to lower invested balances.
INCOME TAX EXPENSE
The Company did not recognize an income tax benefit on its pre-tax loss for
the quarters ended March 31, 2000 and 1999, due to uncertainty related to the
utilization of its net operating loss carry-forward.
LIQUIDITY AND CAPITAL RESOURCES
Cash used in operating activities was $8.6 million for the quarter ended
March 31, 2000, as compared with net cash provided by operating activities of
$0.9 million during the comparable period in 1999. Cash used in operating
activities was primarily attributed to the net loss of $21.9 million and a
net change in operating assets and liabilities of $8.8 million, partially
offset by the non-cash cumulative adjustment from a change in accounting
principal of $18.9 million and other non-cash charges to income of $3.2
million. The primary components of the $8.6 million change in operating
assets and liabilities were a decrease in deferred income of $5.0 million, an
increase in inventories of $4.5 million as a result of increased purchases of
reduction stepper parts and assemblies, and a decrease in other current
liabilities of $4.1 million, partially offset by a decrease in accounts
receivable of $3.7 million and a decrease in leases receivable of $1.0
million.
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The Company sells certain of its accounts receivable in order to mitigate its
credit risk and to enhance cash flow. Sales of accounts receivable typically
precede final customer acceptance of the system. Among other terms and
conditions, the agreements include provisions that require the Company to
repurchase receivables if certain conditions are present including, but not
limited to, disputes with the customer regarding suitability of the product,
and from time-to-time the Company has repurchased certain accounts and leases
receivable in accordance with these terms. At March 31, 2000, $5.1 million of
sold accounts receivable were outstanding to third party financial
institutions. The Company may continue to attempt to mitigate the impact of
extended payment terms and non-linear shipments by selling a substantial
portion of its accounts receivable in the future. There can be no assurance
that this financing will be available on reasonable terms, or at all.
The Company believes that because of the relatively long manufacturing cycle
of certain of its systems, particularly newer products, the Company's
inventories will continue to represent a significant portion of working
capital. In particular, the Company is increasing its purchases of inventory
for its Saturn Spectrum III wafer stepper. Higher inventory levels may
increase the risk of inventory obsolescence, which may adversely impact the
Company results of operations.
In April 2000, the Company reached a decision to restructure certain of its
operations. As a result of this decision, the Company will dispose of its
electron beam lithography assets and related workforce and will take a charge
against operations in the quarter ending June 30, 2000. There remains
significant uncertainty as to the amount of the charge. However, the Company
presently anticipates that the negative charge to operations in the quarter
ending June 30, 2000 will not exceed $11 million. Cash expenditures relative
to the restructuring are not anticipated to exceed $3 million.
During the quarter ended March 31, 2000, the Company generated cash flows
from investing activities of $0.8 million, as net cash generated from a
reduction in available-for-sale securities of $3.6 million was partially
offset by capital expenditures of $2.7 million.
In April 2000, the Company announced that it had signed a letter of intent to
sell a 6.34 acre undeveloped lot adjacent to its headquarters facility in San
Jose. The Company presently leases this lot, with an option to purchase. The
Company presently anticipates that this transaction will close in the quarter
ending September 30, 2000. Although the terms of the agreement have not been
disclosed, the transaction is anticipated to result in a non-operating gain
that would be recognized in the quarter ending September 30, 2000. This
transaction would also eliminate the present requirement of approximately
$5.5 of the Company's investments used as collateral to secure obligations of
the lessor.
Cash provided by financing activities was $0.7 million during the three-month
period ended March 31, 2000, primarily as a result of borrowings under the
Company's unsecured line of credit.
In April 2000, the Company's Board of Directors authorized the repurchase by
the Company of up to 2.0 million shares of its common stock in the open
market at prevailing market prices. The Company intends to finance the
repurchase of its shares from its existing cash, cash equivalents and short
term investments.
At March 31, 2000, the Company had working capital of $142.1 million. The
Company's principal source of liquidity at March 31, 2000 consisted of $132.5
million in cash, cash equivalents and short-term investments.
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 and expansion of operations and research and
development, among many other items. The Company expects that anticipated
cash flows from operations and its cash, cash equivalents and short-term
investments will be sufficient to meet the Company's cash requirements for
the next twelve
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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 additional
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 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 experience; and the potential loss of key employees of the
acquired company. In the event the Company acquires product lines,
technologies or businesses which do not complement the Company's business, or
which otherwise do not enhance the Company's sales or operating results, the
Company may incur substantial write-offs and higher recurring operating
costs, which could have a material adverse effect on the Company's business,
financial condition and results of operations. In the event that any such
acquisition does occur, there can be no assurance as to the effect thereof on
the Company's business or operating results. Additionally, the Company may
experience renewed interest in its equipment leasing program and this may
result in the further formation of significant long-term receivables, which,
in turn, would require the use of substantial amounts of working capital. The
formation of significant long-term receivables and the granting of extended
customer payment terms exposes the Company to additional risks, including
potentially higher customer concentration and higher potential operating
expenses relating to customer defaults. If reserves on lease receivables were
required in the future, the Company's business, financial condition and
results of operations could be materially adversely affected. 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.
YEAR 2000 DISCLOSURE:
As of the Company's fiscal month ended April 29, 2000 the Company has not
experienced any significant negative impact related to the Year 2000 problem
in any of its business-critical functions.
ADOPTION OF THE EURO
The introduction of a European single currency, the Euro, was initially
implemented as of January 1, 1999, and the transition period will continue
through Jan 1, 2002. As of March 31, 2000, the adoption of the Euro has not
had a material effect on the Company's foreign exchange and hedging
activities or the Company's use of derivative instruments. While the Company
will continue to evaluate the impact of the Euro introduction over time,
based on currently available information, management does not believe that
the introduction of the Euro currency will have a material adverse impact on
the Company's financial condition or overall trends in results of operations.
ADDITIONAL RISK FACTORS
CYCLICALITY OF SEMICONDUCTOR AND THIN FILM 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. This has, from time to time, resulted 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.
Accordingly, the Company can give no assurance that it will be able to
achieve or maintain its current level of sales.
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The Company attempts to mitigate the risk of cyclicality by participating in
both the semiconductor and thin film head markets, as well as diversifying
into new markets such as photolithography for micromachining. Despite such
efforts, when one or more of such markets experiences a downturn or slowdown,
such as is currently occurring in the thin film head market, the Company's
net sales and operating results are materially adversely affected. The
Company presently expects that net sales for the three-month period ending
June 30, 2000 may be flat to higher than net sales in the comparable period
in 1999. However, due to lack of order visibility and uncertainty as to the
timing of shipments and customer acceptances, the Company can give no
assurance that it will be able to achieve or maintain its current sales
levels. . The Company presently expects to recognize an operating loss for
the quarter ending June 30, 2000, exclusive of the charge to dispose of the
Company's electron beam assets and related workforce, and may recognize a net
loss. These losses may extend to future quarters due, in part, to the
significant level of planned research, development and engineering spending,
relative to sales; the current low rate of capacity utilization; and the
current backlog and order levels for the Company's products.
During 1999 and 1998, approximately 30% and 50%, respectively, of the
Company's net sales were derived from sales to thin film head manufacturers
and micromachining customers. For the first three months of 2000, sales to
thin film head manufacturers and micromachining customers accounted for
approximately 15% of total net sales. The Company believes the TFH market is
currently in a state of over-capacity and expects this situation to last for
at least the next several quarters. This has and will continue to result in
lower sales and delays or deferrals of customer orders from these industries,
which will continue to materially adversely affect the Company's business,
financial condition and results of operations in the near term. Additionally,
the Company is experiencing increased competition in this market from Nikon,
Canon and ASML. The Company's business and operating results would be
materially adversely affected by continued downturns or slowdowns in the thin
film head market or by loss of market share.
HIGHLY COMPETITIVE INDUSTRY The capital equipment industry in which the
Company operates 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 stepper manufacturers, such as Nikon Inc.
("Nikon"), Canon Inc. ("Canon"), ASM Lithography, Ltd. ("ASML") and Silicon
Valley Group ("SVG"), Inc.'s Micralign products, all of which have
substantially greater financial, marketing and other resources than the
Company. Nikon supplies a 1X stepper for use in the manufacture of liquid
crystal displays and Canon, Nikon and ASML offer reduction steppers for thin
film head fabrication. Additionally, the Company's XLS reduction stepper
product line competes directly with advanced reduction steppers offered by
Canon, Nikon and ASML. Current thin film head front-end production involves
manufacturing steps that require critical feature sizes. Although the
reduction stepper product lines address critical feature sizes, additional
development of these product lines may be necessary to fully address the
unique requirements of thin film head manufacturing. Additionally, ASML has
entered the low-cost lithography market. ASML and Nikon have each introduced
an i-line step-and-scan system as a lower cost alternative to the DUV
step-and-scan system for use on the less critical layers. These systems
compete with widefield steppers, such as the Company's Saturn and Titan
steppers, for advanced mix-and-match applications. In addition, the Company
believes that the high cost of developing new lithography tools has
increasingly caused its competitors to collaborate with customers and other
parties in various areas such as research and development, manufacturing and
marketing, or to acquire other competitors, thereby resulting in a combined
competitive threat with significantly enhanced financial, technical and other
resources. The Company expects its competitors to continue to improve the
performance of their current products. These competitors have stated that
they will introduce new products with improved price and performance
characteristics that will compete directly
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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 business, financial condition and results of operations.
There can be no assurance that enhancements to, or future generations of,
competing 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 may also face competition from vendors employing other
technologies. In addition, increased competitive pressure has led to
intensified price-based competition, resulting in lower prices and margins.
Should these competitive trends continue, the Company's business, financial
condition and operating results would continue to be materially adversely
affected. There can be no assurance that the Company will be able to compete
successfully in the future.
Foreign IC manufacturers have a significant share of the worldwide market for
certain types of ICs for which the Company's systems are used. The Japanese
stepper manufacturers are well established in the Japanese stepper market,
and it is extremely difficult for non-Japanese lithography equipment
companies to penetrate the Japanese stepper market. To date, the Company has
not established itself as a major competitor in the Japanese equipment market
and there can be no assurance that the Company will be able to achieve
significant sales to Japanese manufacturers in the future. (See
"International Sales; Japanese Market").
DEVELOPMENT OF NEW PRODUCT LINES; EXPANSION OF OPERATIONS Currently, the
Company is devoting significant resources to the development, introduction
and commercialization of new products and technologies that are outside the
Company's core businesses. During the remainder of 2000, the Company will
continue to develop these products and will continue to incur significant
operating expenses in the areas of research, development and engineering and
general and administrative costs in order to further develop and support
these new products. Additionally, gross profit margins and inventory levels
may be further adversely impacted in the future by costs associated with the
initial production of these new product lines. These costs include, but are
not limited to, additional manufacturing overhead, additional inventory
write-offs, costs associated with managing multiple sites and the
establishment of additional after-sales support organizations. Additionally,
there can be no assurance that operating expenses will not increase, relative
to sales, as a result of adding additional marketing and administrative
personnel, among other costs, to support the Company's new products. 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, costs and expenses can be
reduced.
LENGTHY SALES CYCLE 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 involves 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.
CUSTOMER CONCENTRATION Historically, the Company has sold a substantial
portion of its systems to a limited number of customers. In 1999, no single
customer accounted for 10% or more of the Company's net sales. However, sales
to one customer accounted for approximately 25% in 1998. The Company expects
that sales to a relatively few customers 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
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significant part upon the success of these major customers, and the
Company's ability to meet their future capital equipment needs. 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, the semiconductor
and thin film head industries and the economy in general, of which there can
be no assurance. (See "Additional Risk Factors: Cyclicality of Semiconductor
and Thin Film Head Industries").
In addition to the business risks associated with the dependence on these
major customers, these significant customer concentrations have in the past
resulted in significant concentrations of accounts receivable and leases
receivable. The formation of significant and concentrated receivables exposes
the Company to additional risks, including the risk of default by one or more
customers representing a significant portion of the Company's total
receivables. If additional lease and accounts receivable reserves were to be
required, the Company's business, financial condition and results of
operations would be materially adversely affected.
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. 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. The Company
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 additional
technical, manufacturing or other difficulties that could further 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 its inability to manufacture and ship these systems or enhancements
and related software tools 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 products early in the products' life cycles. If new products have
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reliability or quality problems, reduced orders or higher 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.
INTERNATIONAL SALES; JAPANESE MARKET International sales accounted for
approximately 53% and 47% of total net sales for the years 1999 and 1998,
respectively. During the three-month period ended March 31, 2000,
international sales accounted for approximately 48% of total net sales, as
compared to 45% for the comparable period in 1999. The Company anticipates
that international sales, which typically have lower gross margins than
domestic sales, principally due to increased competition and higher field
service and support costs, will continue to account for a significant portion
of total net sales. As a result, a significant portion of the Company's net
sales will continue to be subject to certain risks, including unexpected
changes in regulatory requirements, difficulty in satisfying existing
regulatory requirements, exchange rate fluctuations, 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. Although the Company generally transacts its international
sales in U.S. dollars, 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 and may further impact the
purchasing ability of its international customers. In Japan, however, the
Company has commenced direct sales operations and orders are typically
denominated in Japanese yen. This may subject the Company to a higher degree
of risk from currency fluctuations. The Company attempts to mitigate this
exposure through the use of foreign exchange contracts. 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,
and currently dominate the Japanese stepper market. 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
INTELLECTUAL PROPERTY RIGHTS 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 owns various United States and foreign
patents, which expire on dates ranging from July 2000 to December 2018, and
has various United States and foreign patent applications pending. The
Company also has various registered trademarks and copyright registrations
covering mainly software programs used in the operation of its stepper
systems. The Company also relies upon trade secret protection for its
confidential 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
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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, financial condition 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 patent or any other
intellectual property right, the Company has from time to time 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 the Lemelson Medical,
Education and Research Foundation, Limited Partnership alleging that the
manufacture of certain semiconductor products and/or the equipment used to
manufacture those 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.
Although there are no pending lawsuits against the Company regarding
infringement claims with respect to any existing patents or any other
intellectual property rights, 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 any such future 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.
SOLE OR LIMITED SOURCES OF SUPPLY The Company procures certain of its
critical systems' components, subassemblies and services from a single
supplier or a limited group of suppliers in order to ensure overall quality
and timeliness of delivery. To date, the Company has been able to obtain
adequate services and supplies of components and subassemblies for its
systems in a timely manner. However, disruption or termination of certain of
these sources could have a material adverse effect on the Company's business,
financial condition and results of operations. The Company is relying on
outside vendors to manufacture certain components of its products. 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 due
to the suppliers' failure or inability to provide such components in a timely
manner, or at all, 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.
21
<PAGE>
DEPENDENCE ON KEY PERSONNEL The Company's future operating results depend,
in significant part, upon the continued contributions of 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. The loss of key personnel could
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, and technical, sales and
support personnel for its operations. There are 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.
CHANGES TO FINANCIAL ACCOUNTING STANDARDS MAY AFFECT THE COMPANY'S REPORTED
RESULTS OF OPERATIONS The Company prepares its financial statements to
conform with generally accepted accounting principles, or GAAP. GAAP are
subject to interpretation by the American Institute of Certified Public
Accountants, the SEC and various bodies formed to interpret and create
appropriate accounting policies. A change in those policies can have a
significant effect on the Company's reported results and may even affect its
reporting of transactions completed before a change is announced.
In December 1999, the Securities and Exchange Commission issued Staff
Accounting Bulletin No. 101 (SAB 101), entitled "Revenue Recognition in
Financial Statements." The Company implemented the provisions of SAB 101
effective January 1, 2000. The Company previously recognized revenue from the
sales of its products generally upon shipment, which usually preceded
installation and final customer acceptance, provided that final customer
acceptance and collection of the related receivable were probable. Effective
January 1, 2000, the Company changed its method of accounting for product
sales to recognize such revenues when the contractual obligation for
installation has been satisfied, or when installation is substantially
complete, and customer acceptance provisions have lapsed, provided collection
of the related receivable are probable. The Company believes the change in
accounting principle is preferable based on guidance provided in SAB 101. The
cumulative effect of the change in accounting principle, $18,883,000 (or $.88
per share, basic and diluted) was reported as a charge in the quarter ended
March 31, 2000 in the accompanying statement of operations.
The cumulative effect of the change in accounting principle includes system
revenue, cost of sales and certain expenses, including warranty and
commission expenses, that will be recognized when both installation and
customer acceptance provisions lare satisfied, subsequent to January 1, 2000.
During the quarter ended March 31, 2000, the Company substantially changed
its operations to implement SAB 101. Nearly all system revenue for the period
resulted from systems shipped prior to January 1, 2000 and accepted during
the quarter. This reflects the Company's traditional time frame for shipment,
installation and customer acceptance. The net result of shipments and
acceptances during the quarter was a reduction of approximately $5.0 million
in deferred income. The Company believes that estimate of its system revenue
under its prior method of accounting would not be indicative of results that
would have been achieved if the Company had not substantially changed its
operations to implement SAB 101.
Accounting policies affecting many other aspects of our business, including
rules relating to purchase and pooling-of-interests accounting for business
combinations, revenue recognition, in-process research and development
charges, employee stock purchase plans and stock option grants, have recently
been revised or are under review. Changes to those rules or the questioning
of current practices may have a material adverse effect on the Company's
reported financial results or on the way it conducts business. In addition,
the Company's preparation of financial statements in accordance with GAAP
requires that it make estimates and assumptions that affect the recorded
amounts of assets and liabilities, disclosure of those assets and liabilities
at the date of the financial statements and the recorded amounts of
22
<PAGE>
expenses during the reporting period. A change in the facts and
circumstances surrounding those estimates could result in a change to the
Company's estimates and could impact its future operating results.
EFFECTS OF CERTAIN ANTI-TAKEOVER PROVISIONS Certain provisions of the
Company's Certificate of Incorporation, equity incentive plans, Shareholder
Rights Plan, 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 or regional economies, an outbreak
of hostilities, a shortfall in revenue or earnings from, or 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. 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 may be unrelated to the Company's performance.
23
<PAGE>
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Reference is made to Part II, Item 7A, "Quantitative and Qualitative
Disclosures About Market Risk" in the Company's Annual Report on Form 10-K
for the year ended December 31, 1999 and to the subheading "Derivative
Instruments and Hedging" in Item 8, "Financial Statements and Supplementary
Data", under the heading "Notes to Consolidated Financial Statement" of the
Company's Annual Report on Form 10-K for the year ended December 31, 1999.
24
<PAGE>
<TABLE>
<S> <C> <C>
PART 2: OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS. None.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS. None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES. None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. None
ITEM 5. OTHER INFORMATION.
</TABLE>
On April 3, 2000, the Company announced it had signed a Letter
of Intent to sell a 6.34 acre undeveloped lot adjacent to its
headquarter facility in San Jose. The Company presently leases
this lot, with an option to purchase. The Company presently
anticipates that this transaction will close in the quarter
ending September 30, 2000.
On April 18, 2000, the Board of Directors authorized the
Company to repurchase up to 2.0 million shares of its common
stock in the open market at prevailing market prices. The
actual number of shares purchased and the timing of such
repurchases will be based on a number of factors, including
the market price of the stock and market conditions.
On April 18, 2000 Mr. Larry Carter, whose term of office
expires at the Annual Meeting, indicated that he will not
serve on the Board of Directors after his current term, which
expires at the 2000 Annual Meeting.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(A) EXHIBITS
Exhibit 10.3.2 1993 Stock Option/Stock Issuance Plan
(Amended and Restated as of January 3, 2000)
Exhibit 10.12.1 Supplemental Stock Option/Stock Issuance
Plan as amended and restated effective
October 19, 1999
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 March 31, 2000.
25
<PAGE>
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: May 11, 2000 By: /s/ Bruce R. Wright
----------------------- -----------------------------------
Bruce R. Wright
Senior Vice President, Finance and Chief
Financial Officer (Duly Authorized Officer
and Principal Financial and Accounting
Officer)
26
<PAGE>
EXHIBIT 10.3.2
ULTRATECH STEPPER, INC.
1993 STOCK OPTION/STOCK ISSUANCE PLAN
-------------------------------------
(Amended and Restated as of January 3, 2000)
ARTICLE ONE
I. PURPOSE OF THE PLAN
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).
A. 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.
B. 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.
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; 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
<PAGE>
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: the acquisition, directly or indirectly, by 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) of 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.
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.
<PAGE>
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 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. 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:
<PAGE>
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. non-employee members of the Board; and
3. those independent consultants or other advisors who provide
valuable services to the Corporation (or its parent or subsidiary
corporations).
B. 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 6,126,229 shares(1). Such share reserve includes (i) the
initial number of shares incorporated into this Plan from the Predecessor
Plans on the Effective Date, (ii) an additional 600,000-share increase
authorized by the Board on March 21, 1996 and approved by the stockholders at
the 1996 Annual Stockholders Meeting, (iii) an additional 277,239 shares
attributable to the automatic annual share increase for fiscal 1996 which was
effected on January 2, 1996, (iv) an additional 284,346 shares attributable
to the automatic annual share increase for fiscal 1997 which was effected on
January 2, 1997, (v) an additional 450,000 shares authorized by the Board on
March 18, 1997 and approved by the stockholders at the 1997 Annual Meeting,
(vi) an additional 291,008 shares attributable to the automatic annual share
increase for fiscal 1998 which was effected on January 2, 1998, (vii) an
additional 295,480 shares attributable to the automatic annual share increase
for fiscal 1999 which was effected on January 4, 1999, and (viii) an
additional 299,490 shares attributable to the automatic annual share increase
for fiscal 2000 which was effected on January 3, 2000. 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. 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 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.
C. 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 cancelled 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. Unvested shares issued under the Plan and subsequently repurchased by
the Corporation, at the original exercise or issue price paid per share,
pursuant to the Corporation's repurchase rights under the Plan shall be added
back to the number of shares of Common Stock reserved for issuance under the
Plan and shall accordingly be available for reissuance through one or more
subsequent option grants or direct stock issuances under the Plan. Shares
subject to any option or portion thereof surrendered or cancelled in accordance
with Section V of Article Two 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
<PAGE>
(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.
D. 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 appreciations rights and direct stock issuances under this
Plan per calendar year, (iii) 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, (iv) 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 (v) 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 deter-mined by the Plan Administrator shall
be final, binding and conclusive.
- -----------------------
(1) All figures have been adjusted to reflect the 2:1 stock split the
Corporation effected May 10, 1995.
<PAGE>
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.
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
<PAGE>
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.
C. LIMITED TRANSFERABILITY. During the lifetime of the Optionee,
Incentive Options shall be exercisable only by the Optionee and shall not be
assignable or transferable other than by will or by the laws of descent and
distribution following the Optionee's death. However, non-statutory options may,
in connection with the Optionee's estate plan, be assigned in whole or in part
during the Optionee's lifetime to one or more members of the Optionee's
immediate family or to a trust established exclusively for one or more such
family members. The assigned portion may only be exercised by the person or
persons who acquire a proprietary interest in the option pursuant to the
assignment. The terms applicable to the assigned portion shall be the same as
those in effect for the option immediately prior to such assignment and shall be
set forth in such documents issued to the assignee as the Plan Administrator may
deem appropriate.
D. 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
D.(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 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.
<PAGE>
- 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.
E. 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.
F. 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 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.
I. 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
<PAGE>
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.
II. 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.
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.
<PAGE>
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 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 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
<PAGE>
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. The Plan Administrator shall pre-approve, at the time the
limited stock appreciation right is granted, the subsequent exercise of that
right in accordance with the terms of the grant and the provisions of this
Section V.D. No additional approval of the Plan Administrator or the Board shall
be required at the time of the actual option surrender and 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.
<PAGE>
ARTICLE THREE
AUTOMATIC OPTION GRANT PROGRAM
------------------------------
I. ELIGIBILITY
The provisions of the Automatic Option Grant Program were
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 were 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 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.
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 was automatically cancelled 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
<PAGE>
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
(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. LIMITED TRANSFERABILITY. Each option granted under this
Automatic Option Grant Program prior to the 1997 Annual Stockholders Meeting
shall, during the lifetime of the optionee, be exercisable only by the optionee
and shall not be assignable or transferable by the optionee otherwise than by
will or the by the laws of descent and distribution following the optionee's
death. However, each option granted under this Automatic Option Grant Program on
or after the 1997 Annual Stockholders Meeting shall be assignable in whole or in
part by the optionee during his or her lifetime, but only to the extent such
<PAGE>
assignment is made in connection with the optionee's estate plan to one or more
members of the optionee's immediate family or to a trust established exclusively
for one or more such family members. The assigned portion may only be exercised
by the person or persons who acquire a proprietary interest in the option
pursuant to the assignment. The terms applicable to the assigned portion shall
be the same as those in effect for the option immediately prior to such
assignment and shall be set forth in such documents issued to the assignee as
the Plan Administrator may deem appropriate.
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.
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.
5. 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.
6. 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
<PAGE>
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. 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. Stockholder approval of
this March 1997 restatement of the Plan shall constitute pre-approval of each
option subsequently granted with a surrender provision and the subsequent
surrender of that option in accordance with the terms and provisions of this
Section III.C. No additional approval of the Plan Administrator or the Board
shall be required at the time of the actual option cancellation 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.
<PAGE>
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.
<PAGE>
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,
(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.
<PAGE>
II. TRANSFER RESTRICTIONS/SHARE ESCROW
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 cancelled, 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.
<PAGE>
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.
II. AMENDMENT OF THE PLAN AND AWARDS
I. 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, no such amendment or modification shall adversely affect
rights and obligations with respect to options at the time outstanding under the
<PAGE>
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. In addition, certain
amendments may require stockholder approval pursuant to applicable laws or
regulations.
II. (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 withholding taxes to which such
holders may become subject in connection with the exercise of their options or
the vesting of their shares (the "Withholding 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 Withholding 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 Withholding Taxes) with
an aggregate Fair Market Value equal to the percentage of the Withholding Taxes
incurred in connection with such option exercise or share vesting (not to exceed
one hundred percent (100%)) designated by the holder.
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
<PAGE>
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.
E. 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.
F. On March 18, 1997, the Board adopted a series of amendments
to the Plan which (i) increased the number of shares of Common Stock reserved
for issuance over the term of the Plan by an additional 450,000 shares, (ii)
rendered all non-employee Board members eligible to receive option grants and
direct stock issuances under the Discretionary Option Grant and Stock Issuance
Programs, (iii) allowed unvested shares issued under the Plan and subsequently
repurchased by the Corporation at the option exercise price or direct issue
price paid per share to be reissued under the Plan, (iv) eliminated the plan
limitation which precluded the grant of additional Incentive Options once the
number of shares of Common Stock issued under the Plan, whether as vested or
unvested shares, exceeded a certain level, (v) removed certain restrictions on
the eligibility of non-employee Board members to serve as Plan Administrator,
and (vi) effected a series of additional changes to the provisions of the Plan
(including the stockholder approval requirements) in order to take advantage of
the recent amendments to Rule 16b-3 of the 1934 Act which exempts certain
officer and director transactions under the Plan from the short-swing liability
provisions of the federal securities laws. The March 18, 1997 amendments were
approved by the stockholders at the 1997 Annual Meeting.
G. 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 as vested shares or cancelled pursuant to the exercise of
stock appreciation or other cash-out rights granted under the Plan. 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
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
<PAGE>
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.
<PAGE>
EXHIBIT 10.12.1
ULTRATECH STEPPER, INC.
SUPPLEMENTAL STOCK OPTION/STOCK ISSUANCE PLAN
AS AMENDED AND RESTATED EFFECTIVE OCTOBER 19, 1999
ARTICLE ONE
GENERAL
A. This Supplemental Stock Option/Stock Issuance Plan is
intended to promote the interests of Ultratech Stepper, Inc., a Delaware
corporation, by authorizing an additional reserve of shares of the
Corporation's common stock for issuance through long-term option grants or
direct stock issuances to individuals in the employ of the Corporation (or
any Parent or Subsidiary) who are NOT: (i) officers of the Corporation, (ii)
employees with the title of Vice President, General Manager or (iii) members
of the Board.
B. The Plan became effective immediately upon adoption by
the Board on October 20, 1998.
C. The Plan shall supplement the authorized share reserve
under the Corporation's 1993 Stock Option/Stock Issuance Plan, and share
issuances under this Plan shall not reduce or otherwise affect the number of
shares of the Corporation's common stock available for issuance under the
1993 Stock Option/Stock Issuance Plan. In addition, share issuances under the
1993 Stock Option/Stock Issuance Plan shall not reduce or otherwise affect
the number of shares of the Corporation's common stock available for issuance
under this Plan.
Capitalized terms shall have the meanings assigned to such
terms in the attached Appendix.
I. STRUCTURE OF THE PLAN
A. The Plan shall be divided into two (2) separate equity
programs:
(i) the Option Grant Program under which
eligible persons may, at the discretion of the Plan Administrator, be
granted options to purchase shares of Common Stock, and
(ii) the Stock Issuance Program under which
eligible persons may, at the discretion of the Plan Administrator, be
issued shares of Common Stock directly, either through the immediate
purchase of such shares or as
<PAGE>
a bonus for services rendered the Corporation (or any Parent or
Subsidiary) or the attainment of designated performance goals.
II. ADMINISTRATION OF THE PLAN
A. The Plan Administrator shall have full power and
discretion (subject to the express provisions of the Plan) to establish such
rules and regulations as it may deem appropriate for the proper
administration of the Plan and to make such determinations under, and issue
such interpretations of, the provisions of the Plan and any outstanding
option grants or unvested 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 Plan or any outstanding stock
option or stock issuance thereunder.
B. The individuals serving as Plan Administrator shall
serve for such period as the Board may determine and shall be subject to
removal by the Board at any time.
C. Service as Plan Administrator shall constitute service
as a Board member, and each Board member serving as Plan Administrator shall
accordingly be entitled to full indemnification and reimbursement as a Board
member for such service. No individual serving as Plan Administrator shall be
liable for any act or omission made in good faith with respect to the Plan or
any option grant or stock issuance made under the Plan.
III. ELIGIBILITY
A. The persons eligible to participate in the Plan shall be
limited to those Employees who are NOT: (i) officers of the Corporation, (ii)
Employees with the title of Vice President, General Manager or (iii) members
of the Board.
B. The Plan Administrator shall have full authority to
determine (i) with respect to the Option Grant Program, which eligible
Employees are to receive option grants under the Plan, the time or times when
the grants are to be made, the number of shares subject to each such grant,
the time or times when 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, which eligible
persons are to receive stock issuances, the time or times when such issuances
are to be made, the number of shares to be issued to each Participant, the
vesting schedule (if any) applicable to the issued shares and the
consideration for such shares. All options granted under the Plan shall be
Non-Statutory Options.
2.
<PAGE>
IV. 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 800,000 shares, subject to adjustment
from time to time in accordance with the provisions of Section IV.C. Such
share reserve consists of (i) the 400,000 shares of Common Stock initially
reserved for issuance under the Plan plus (ii) the 400,000-share increase
authorized by the Board effective October 19, 1999.
B. Should one or more outstanding options under this Plan
expire or terminate for any reason prior to exercise in full, then the shares
subject to the portion of each option not so exercised shall be available for
subsequent issuance under the Plan. Unvested shares issued under the Plan and
subsequently cancelled or repurchased by the Corporation, at the original
issue price paid per share, pursuant to the Corporation's repurchase rights
under the Plan shall be added back to the number of shares of Common Stock
reserved for issuance under the Plan and shall accordingly be available for
reissuance through one or more subsequent option grants or direct stock
issuances under the Plan. Should the exercise price of an outstanding option
under the Plan be paid with shares of Common Stock, 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, and not by the net
number of shares of Common Stock actually issued to the holder of such option.
C. 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, and
(ii) the number and/or class of securities and price per share in effect
under each option outstanding under the Plan. Such adjustments to the
outstanding securities 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.
3.
<PAGE>
ARTICLE TWO
OPTION GRANT PROGRAM
I. OPTION TERMS
Options granted under the Plan shall be authorized by
action of the Plan Administrator and 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. All such granted options shall be Non-Statutory Options.
A. EXERCISE PRICE.
1. The exercise price per share shall be fixed by
the Plan Administrator but shall not be less than one hundred percent (100%)
of the Fair Market Value per share of Common Stock on the grant date.
2. Full payment of the exercise price shall become
immediately due upon exercise of the option and shall be payable in one or
more of the forms specified below:
(i) cash or check made payable to the
Corporation,
(ii) 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, or
(iii) through a special sale and remittance
procedure pursuant to which the Optionee shall concurrently provide
irrevocable instructions (a) 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 plus all applicable Federal, state and local income
and employment taxes required to be withheld by the Corporation in
connection with such purchase and (b) to the Corporation to deliver the
certificates for the purchased shares directly to such brokerage firm
in order to complete the sale transaction.
Except to the extent such sale and remittance procedure is
utilized, payment of the exercise price for the purchased shares must be made
on the Exercise Date.
4.
<PAGE>
B. EXERCISE AND TERM OF OPTIONS. Each option shall be
exercisable at such time or times, during such period and for such number of
shares as shall be determined by the Plan Administrator and set forth in the
documents evidencing such option. No option shall have a maximum term in
excess of ten (10) years measured from the option grant date.
C. LIMITED TRANSFERABILITY. Each option granted under the
Plan may, in connection with the Optionee's estate plan, be assigned in whole
or in part during the Optionee's lifetime to one or more members of the
Optionee's immediate family or to a trust established exclusively for one or
more such family members. The assigned portion may only be exercised by the
person or persons who acquire a proprietary interest in the option pursuant
to the assignment. The terms applicable to the assigned portion shall be the
same as those in effect for the option immediately prior to such assignment
and shall be set forth in such documents issued to the assignee as the Plan
Administrator may deem appropriate.
D. EFFECT OF TERMINATION OF SERVICE.
1. The following provisions shall govern the
exercise of any options held by the Optionee at the time of cessation of
Service or death:
(i) Any option outstanding at the time of the
Optionee's cessation of Service for any reason shall remain exercisable
for such period of time thereafter as shall be determined by the Plan
Administrator and set forth in the documents evidencing the option, but
no such option shall be exercisable after the expiration of the option
term.
(ii) Any option exercisable in whole or in part
by the Optionee at the time of 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.
(iii) Should the Optionee's Service be
terminated for Misconduct, then all outstanding options held by the
Optionee shall terminate immediately and cease to be outstanding.
(iv) During the applicable post-Service exercise
period, the option may not be exercised in the aggregate for more than
the number of shares for which the option is exercisable on the date of
Optionee's cessation of Service. Upon the expiration of such
post-Service exercise period or (if earlier) upon the expiration of the
option term, the option shall terminate and cease to be outstanding for
any otherwise exercisable shares for which the option has not been
exercised.
5.
<PAGE>
However, the option shall, immediately upon Optionee's cessation of
Service for any reason, terminate and cease to be outstanding with
respect to any and all option shares for which the option is not
otherwise at the time exercisable.
2. The Plan Administrator shall have the discretion,
exercisable either at the time an option is granted or at any time while the
option remains outstanding, to:
(i) extend the period of time for which the
option is to remain exercisable following Optionee's cessation of
Service or death from the limited period otherwise in effect for that
option to such greater period of time as the Plan Administrator shall
deem appropriate, but in no event beyond the expiration of the option
term, and/or
(ii) permit the option to be exercised, during
the applicable post-Service exercise period, not only with respect to
the number of shares of Common Stock for which such option is
exercisable at the time of the Optionee's cessation of Service but also
with respect to one or more additional installments for which the
option would have become exercisable had the Optionee continued in
Service.
C. STOCKHOLDER RIGHTS. No Optionee shall have any stockholder
rights with respect to any option shares until such person shall have exercised
the option and paid the exercise price for the purchased shares.
D. REPURCHASE RIGHTS.
1. The Plan Administrator shall have 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 exercise 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 rights.
2. The Plan Administrator shall have the
discretionary authority, exercisable at any time while the Corporation's
repurchase right remains outstanding, to cancel that repurchase right with
respect to one or more shares purchased or purchasable by the Optionee under
this Article Two and thereby accelerate the vesting of those shares in whole
or in part at any time.
6.
<PAGE>
II. CORPORATE TRANSACTION/CHANGE IN CONTROL
A. Each option outstanding under the Plan at the time of a
Corporate Transaction 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 that option and may be
exercised for all or any portion of those shares as fully-vested shares.
However, an outstanding option under the Plan shall NOT become exercisable on
such an accelerated basis 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 on the shares for which the
option is not otherwise at that time exercisable 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. All of the Corporation's outstanding repurchase rights
under this Article Two shall automatically terminate, and the shares subject
to those terminated rights shall immediately vest in full, upon the
occurrence of a Corporate Transaction, except to the extent (i) any such
repurchase right is to be assigned to the successor 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 granted.
C. 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 (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 (and the termination
of any outstanding repurchase rights), in the event the Optionee's Service
should subsequently terminate within a designated period following the
effective date of such Corporate Transaction.
D. Immediately following the consummation of the Corporate
Transaction, all outstanding options under the Plan shall terminate and cease
to remain outstanding, except to the extent assumed by the successor
corporation or its parent company.
E. Each outstanding option which is assumed in connection
with the Corporate Transaction 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 Optionee, in
consummation of the Corporate Transaction, had such person exercised the
option immediately
7.
<PAGE>
prior to the Corporate Transaction. Appropriate adjustments shall also be
made to the exercise price payable per share, PROVIDED the aggregate exercise
price payable for such securities shall remain the same. In addition, the
class and number of securities available for issuance under the Plan
following the consummation of the Corporate Transaction shall be
appropriately adjusted.
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 the Plan (and the
termination of one or more of the Corporation's outstanding repurchase
rights) 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. Any options accelerated in connection
with the Change in Control shall remain fully exercisable until the
expiration or sooner termination of the option term.
G. The grant of options under the Plan 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.
III. 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 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
exercise price per share not less than the Fair Market Value of the Common
Stock on the new grant date.
8.
<PAGE>
ARTICLE THREE
STOCK ISSUANCE PROGRAM
I. STOCK ISSUANCE TERMS
Shares of Common Stock may be issued under the Stock
Issuance Program through direct and immediate issuances without any
intervening option grants. Each such stock issuance shall be evidenced by a
Stock Issuance Agreement which complies with the terms specified below.
Shares of Common Stock may also be issued under the Stock Issuance Program
pursuant to share right awards which entitle the recipients to receive those
shares upon the attainment of designated performance goals.
A. PURCHASE PRICE.
1. The purchase price per share of Common Stock
subject to direct issuance shall be fixed by the Plan Administrator, but
shall not be less than one hundred percent (100%) of the Fair Market Value
per share of Common Stock on the issuance date.
2. Shares of Common Stock may be issued under the
Stock Issuance Program for any of the following items of consideration which
the Plan Administrator may deem appropriate in each individual instance:
(i) cash or check made payable to the
Corporation, or
(ii) past services rendered to the Corporation
(or any Parent or Subsidiary).
B. VESTING/ISSUANCE PROVISIONS.
1. Shares of Common Stock issued under the Stock
Issuance Program may, in the 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 or upon attainment of specified
performance objectives. Alternatively, the Plan Administrator may issue share
right awards under the Stock Issuance Program which shall entitle the
recipient to receive a specified number of shares of Common Stock upon the
attainment of one or more performance goals established by the Plan
Administrator. Upon the attainment of such performance goals, fully-vested
shares of Common Stock shall be issued in satisfaction of those share right
awards.
9.
<PAGE>
2. Any new, substituted or additional securities
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 of Common Stock by reason of any stock dividend,
stock split, 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 shall be issued subject to (i) the
same vesting requirements applicable to the Participant's unvested shares of
Common Stock and (ii) such escrow arrangements as the Plan Administrator
shall deem appropriate.
3. The Participant shall have full stockholder
rights with respect to any shares of Common Stock issued to the Participant
under the Stock Issuance Program, whether or not the Participant's 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.
4. Should the Participant cease to remain in
Service while holding one or more unvested shares of Common Stock issued
under the Stock Issuance Program or should the performance objectives not be
attained with respect to one or more such unvested shares of Common Stock,
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 cash consideration, the Corporation
shall repay that consideration to the Participant at the time the shares are
surrendered.
5. The Plan Administrator may in its discretion
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 cessation of the Participant's Service or the non-attainment of the
performance objectives applicable to those 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.
6. Outstanding share right awards under the Stock
Issuance Program shall automatically terminate, and no shares of Common Stock
shall actually be issued in satisfaction of those awards, if the performance
goals established for such awards are not attained. The Plan Administrator,
however, shall have the discretionary authority to issue shares of Common
Stock under one or more outstanding share right awards as to which the
designated performance goals have not been attained.
10.
<PAGE>
II. CORPORATE TRANSACTION/CHANGE IN CONTROL
A. In the event of any Corporate Transaction, all of the
Corporation's outstanding repurchase rights under the Stock Issuance Program
shall terminate automatically and all the shares of Common Stock subject to
those terminated rights shall immediately vest in full, except to the extent
(i) those repurchase rights are to be assigned to the successor corporation
(or parent thereof) in connection with such Corporate Transaction or (ii) the
Plan Administrator imposes other 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 at the time the unvested shares are issued or
any time while the Corporation's repurchase rights remain outstanding under
the Stock Issuance Program, to provide that those rights shall automatically
terminate in whole or in part, and the shares of Common Stock subject to
those terminated rights shall immediately vest, upon the Participant's
termination of Service within a designated period following the effective
date of any Corporate Transaction in which those repurchase rights are
assigned to the successor corporation (or parent thereof).
C. The Plan Administrator shall have the discretionary
authority, exercisable either at the time the unvested shares are issued or
any time while the Corporation's repurchase rights remain outstanding under
the Stock Issuance Program, to provide that those rights shall automatically
terminate in whole or in part, and the shares of Common Stock subject to
those terminated rights shall immediately vest, upon the occurrence of a
Change in Control. Alternatively, the Plan Administrator may condition such
accelerated vesting upon the Participant's termination of Service within a
designated period following the effective date of any Change in Control.
III. SHARE ESCROW/LEGENDS
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 those unvested shares.
11.
<PAGE>
ARTICLE FOUR
MISCELLANEOUS
I. EFFECTIVE DATE AND TERM OF PLAN
A. This Plan became effective upon approval by the Board on
October 20, 1998 and shall not be subject to stockholder approval. The Plan
was amended by the Board on October 19, 1999 to increase the number of shares
of Common Stock reserved for issuance under the Plan from 400,000 shares to
800,000 shares. Such amendment is effective immediately and is not subject to
stockholder approval.
B. The Plan shall terminate upon the EARLIER of (i) October
19, 2008 or (ii) the date on which all shares available for issuance under
the Plan shall have been issued as fully-vested shares pursuant to option
exercises or direct stock issuances under the Plan or (iii) the termination
of all outstanding options in connection with a Corporate Transaction. If the
date of termination is determined under clause (i) above, then all option
grants or unvested stock issuances outstanding on such date shall thereafter
continue to have force and effect in accordance with the provisions of the
instruments evidencing those grants or issuances.
II. AMENDMENT OF THE PLAN
The Board has complete and exclusive power and authority to
amend or modify the Plan in any or all respects whatsoever. However, no such
amendment or modification shall adversely affect rights and obligations with
respect to stock options or unvested stock issuances at the time outstanding
under the Plan, unless the affected Optionees or Participants consent to such
amendment.
III. USE OF PROCEEDS
Any cash proceeds received by the Corporation from the sale
of shares pursuant to option grants or direct stock issuances under the Plan
shall be used for general corporate purposes.
IV. REGULATORY APPROVALS
A. The implementation of the Plan, the granting of any
option under the Plan, and the issuance of Common Stock either upon the
exercise of the stock options granted hereunder or pursuant to the Stock
Issuance Program shall be subject to the Corporation's procurement of all
approvals and permits required by regulatory authorities having jurisdiction
over the Plan, the stock options granted under it and the Common Stock issued
pursuant to it.
12.
<PAGE>
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 stock exchange (or the Nasdaq National
Market, if applicable) on which the Common Stock is then listed for trading.
V. TAX WITHHOLDING
The Corporation's obligation to deliver shares of Common
Stock upon the exercise of stock options for such shares or the direct
issuance or vesting of such shares under the Plan shall be subject to the
satisfaction of all applicable federal, state and local income and employment
tax withholding requirements.
VI. 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 Service for any period of specific duration, and the
Corporation (or any Parent or Subsidiary employing such individual) may
terminate such individual's Service at any time and for any reason, with or
without cause.
VII. 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, except as expressly provided herein
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 insure to the benefit
of, and shall be binding upon, the Corporation and its successors and
assigns, whether by Corporate Transaction or otherwise, and the Participants
and Optionees and the legal representatives, heirs or legatees of their
respective estates.
13.
<PAGE>
APPENDIX
The following definitions shall be in effect under the Plan:
A. BOARD shall mean the Corporation's Board of Directors.
B. CHANGE IN CONTROL shall mean a change in ownership or control of
the Corporation effected through either of the following transactions:
(i) the acquisition, directly or indirectly by
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), of 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, or
(ii) 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
contested elections for Board membership, 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 the Board approved such election or nomination.
C. CODE shall mean the Internal Revenue Code of 1986, as amended.
D. COMMON STOCK shall mean the Corporation's common stock.
E. CORPORATE TRANSACTION shall mean any of the following
stockholder-approved transactions to which the Corporation is a party:
(i) 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,
(ii) 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
A-1
<PAGE>
(iii) 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.
F. CORPORATION shall mean Ultratech Stepper, Inc., a Delaware
corporation, and its successors.
G. EMPLOYEE shall mean an individual who is in the employ of the
Corporation (or any Parent or Subsidiary), subject to the control and
direction of the employer entity as to both the work to be performed and the
manner and method of performance.
H. EXERCISE DATE shall mean the date on which the Corporation shall
have received written notice of the option exercise.
I. FAIR MARKET VALUE per share of Common Stock on any relevant date
shall be determined in accordance with the following provisions:
- If the Common Stock is at the time traded on the Nasdaq
National Market, then the Fair Market Value shall be the closing
selling price per share of Common Stock on the date in question, as
such price is reported on the Nasdaq National Market. If there is no
closing selling price for the Common Stock on the date in question,
then the Fair Market Value shall be the closing selling price on the
last preceding date for which such quotation exists.
- If the Common Stock is at the time listed on any Stock
Exchange, then the Fair Market Value shall be the closing selling price
per share of Common Stock on the date in question on that Stock
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 closing
selling price for the Common Stock on the date in question, then the
Fair Market Value shall be the closing selling price on the last
preceding date for which such quotation exists.
J. MISCONDUCT shall mean the commission of any act of fraud,
embezzlement or dishonesty by the Optionee or Participant, any unauthorized
use or disclosure by such person of confidential information or trade secrets
of the Corporation (or any Parent or Subsidiary), or any other intentional
misconduct by such person adversely affecting the business or affairs of the
Corporation (or any Parent or Subsidiary) in a material manner. The foregoing
definition shall not be deemed to be inclusive of all the acts or omissions
which the Corporation (or any Parent or Subsidiary) may consider as grounds
for the dismissal or discharge of any Optionee, Participant or other person
in the Service of the Corporation (or any Parent or Subsidiary).
A-2
<PAGE>
K. 1934 ACT shall mean the Securities Exchange Act of 1934, as
amended.
L. NON-STATUTORY OPTION shall mean an option not intended to satisfy
the requirements of Code Section 422.
M. OPTION GRANT PROGRAM shall mean the option grant program in
effect under the Plan.
N. OPTIONEE shall mean any person to whom an option is granted under
the Plan.
O. PARENT shall mean any corporation (other than the Corporation) in
an unbroken chain of corporations ending with the Corporation, provided each
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.
P. PARTICIPANT shall mean any person who is issued shares of Common
Stock under the Stock Issuance Program.
Q. PERMANENT DISABILITY OR PERMANENTLY DISABLED shall mean the
inability of an individual 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.
R. PLAN shall mean the Corporation's Supplemental Stock Option/Stock
Issuance Plan, as set forth in this document.
S. PLAN ADMINISTRATOR shall mean the committee comprised of one or
more Board members appointed by the Board to administer the Plan.
T. SERVICE shall mean the provision of services on a periodic basis
to the Corporation (or any Parent or Subsidiary) in the capacity of an
Employee or an independent consultant or advisor, except to the extent
otherwise specifically provided in the applicable stock option agreement.
U. STOCK EXCHANGE shall mean either the American Stock Exchange or
the New York Stock Exchange.
V. STOCK ISSUANCE AGREEMENT shall mean the agreement entered into by
the Corporation and the Participant at the time of issuance of shares of
Common Stock under the Stock Issuance Program.
W. STOCK ISSUANCE PROGRAM shall mean the stock issuance program in
effect under the Plan.
A-3
<PAGE>
X. SUBSIDIARY shall mean any corporation (other than the
Corporation) in an unbroken chain of corporations beginning with the
Corporation, provided each 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.
A-4
<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-31-2000
<PERIOD-START> JAN-01-2000
<PERIOD-END> MAR-31-2000
<CASH> 39,843
<SECURITIES> 92,626
<RECEIVABLES> 19,116
<ALLOWANCES> 937
<INVENTORY> 33,476
<CURRENT-ASSETS> 187,081
<PP&E> 53,128
<DEPRECIATION> 32,078
<TOTAL-ASSETS> 227,345
<CURRENT-LIABILITIES> 44,939
<BONDS> 0
0
0
<COMMON> 21
<OTHER-SE> 182,109
<TOTAL-LIABILITY-AND-EQUITY> 227,345
<SALES> 25,729
<TOTAL-REVENUES> 29,900
<CGS> 17,213
<TOTAL-COSTS> 20,487
<OTHER-EXPENSES> 7,076
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 71
<INCOME-PRETAX> 21,906
<INCOME-TAX> 0
<INCOME-CONTINUING> (3,023)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> (18,883)
<NET-INCOME> (21,906)
<EPS-BASIC> (1.02)
<EPS-DILUTED> (1.02)
</TABLE>
