-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, ApCzCgZ6cgmWeCylmh174nXymnbTrojeDB/iTQwq9ypuOJPLTMxLc/JfS1K1Qxfc 3g9M1jsTAcp0toj8SUBIIA== 0000912057-01-004223.txt : 20010208 0000912057-01-004223.hdr.sgml : 20010208 ACCESSION NUMBER: 0000912057-01-004223 CONFORMED SUBMISSION TYPE: S-3/A PUBLIC DOCUMENT COUNT: 3 FILED AS OF DATE: 20010207 FILER: COMPANY DATA: COMPANY CONFORMED NAME: ZYGO CORP CENTRAL INDEX KEY: 0000730716 STANDARD INDUSTRIAL CLASSIFICATION: OPTICAL INSTRUMENTS & LENSES [3827] IRS NUMBER: 060864500 STATE OF INCORPORATION: DE FISCAL YEAR END: 0630 FILING VALUES: FORM TYPE: S-3/A SEC ACT: SEC FILE NUMBER: 333-53214 FILM NUMBER: 1527578 BUSINESS ADDRESS: STREET 1: LAUREL BROOK RD CITY: MIDDLEFIELD STATE: CT ZIP: 06455 BUSINESS PHONE: 8603478506 MAIL ADDRESS: STREET 1: LAUREL BROOK ROAD CITY: MIDDLEFIELD STATE: CT ZIP: 06455 S-3/A 1 a2037249zs-3a.txt S-3/A AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON FEBRUARY 7, 2001. REGISTRATION NO. 333-53214 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ------------------------ AMENDMENT NO. 1 TO FORM S-3 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 ------------------------ ZYGO CORPORATION (Exact name of registrant as specified in its charter) DELAWARE 06-0864500 (State or other jurisdiction of incorporation or (I.R.S. Employer Identification Number) organization)
LAUREL BROOK ROAD MIDDLEFIELD, CONNECTICUT 06455-0448 (860) 347-8506 (Address, including zip code and telephone number, including area code, of registrant's principal executive offices) J. BRUCE ROBINSON PRESIDENT AND CHIEF EXECUTIVE OFFICER LAUREL BROOK ROAD MIDDLEFIELD, CONNECTICUT 06455-0448 (860) 347-8506 (Name, address, including zip code and telephone number, including area code, of agent for service) ------------------------------ COPIES TO: PAUL JACOBS, ESQ. STEVEN R. FINLEY, ESQ. SHELDON G. NUSSBAUM, ESQ. Gibson, Dunn & Crutcher LLP Fulbright & Jaworski L.L.P. 200 Park Avenue 666 Fifth Avenue New York, New York 10166 New York, New York 10103 (212) 351-4000 (212) 318-3000
------------------------ APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: From time to time after the effective date of this Registration Statement. If the only securities being registered on this Form are being offered pursuant to dividend or interest reinvestment plans, please check the following box. / / If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, as amended, other than securities offered only in connection with dividend or interest reinvestment plans, check the following box. / / If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. / / If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. / / If delivery of the prospectus is expected to be made pursuant to Rule 434, please check the following box. / / THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A), MAY DETERMINE. - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- SUBJECT TO COMPLETION, DATED FEBRUARY 7, 2001 THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. A REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY OFFERS TO BUY BE ACCEPTED BEFORE THE REGISTRATION STATEMENT BECOMES EFFECTIVE. THIS PROSPECTUS IS NOT AN OFFER TO SELL SECURITIES AND IS NOT SOLICITING AN OFFER TO BUY THESE SECURITIES IN ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED. PROSPECTUS 2,880,000 SHARES [LOGO] COMMON STOCK ------------------------ We are offering 2,500,000 shares of our common stock and the selling stockholders are selling an additional 380,000 shares of our common stock. We will not receive any proceeds from the sale of shares by the selling stockholders. Our common stock is traded on the Nasdaq National Market under the symbol "ZIGO." The last reported sale price of our common stock on the Nasdaq National Market on February 6, 2001 was $40 1/4 per share. SEE "RISK FACTORS" BEGINNING ON PAGE 5 TO READ ABOUT THE RISKS YOU SHOULD CONSIDER BEFORE BUYING SHARES OF OUR COMMON STOCK. NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY OTHER REGULATORY BODY HAS PASSED UPON THE ADEQUACY OR ACCURACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. ------------------------
PER SHARE TOTAL --------------- --------- Public offering price....................................... $ $ Underwriting discounts and commissions...................... $ $ Proceeds, before expenses, to us............................ $ $ Proceeds, before expenses, to the selling stockholders...... $ $
------------------------ We have granted the underwriters a 30-day option to purchase up to an additional 432,000 shares of our common stock to cover any over-allotments. ------------------------ BEAR, STEARNS & CO. INC. LEHMAN BROTHERS C.E. UNTERBERG, TOWBIN ING BARINGS The date of this Prospectus is , 2001. PROSPECTUS SUMMARY THIS SUMMARY HIGHLIGHTS INFORMATION MORE FULLY DESCRIBED ELSEWHERE IN THIS PROSPECTUS. THIS SUMMARY IS NOT COMPLETE AND DOES NOT CONTAIN ALL THE INFORMATION YOU SHOULD CONSIDER BEFORE BUYING SHARES OF OUR COMMON STOCK IN THIS OFFERING. YOU SHOULD READ THIS ENTIRE PROSPECTUS CAREFULLY, INCLUDING "RISK FACTORS" AND OUR CONSOLIDATED FINANCIAL STATEMENTS AND THE RELATED NOTES INCORPORATED BY REFERENCE IN THIS PROSPECTUS, BEFORE DECIDING TO INVEST IN SHARES OF OUR COMMON STOCK. ZYGO CORPORATION We are an emerging supplier of optical components and modules for the telecommunications market and a leading designer, developer and manufacturer of optics and on-line yield enhancement solutions for the semiconductor and industrial manufacturing markets. We intend to leverage our knowledge and expertise in on-line yield enhancement, namely metrology and automation, to provide innovative solutions and advanced optical components and modules to telecommunications customers. Because we are vertically integrated and have advanced yield enhancement equipment, we believe our fiber optics components will be manufactured reliably with high throughput. Selected telecommunications customers include Agilent, Axsun, Cidra, Coherent, Corning Rochester Photonics, Lightchip, Lucent, Nortel Networks, Tyco and Vytran. Selected semiconductor and industrial manufacturing customers include Bosch, Canon, Caterpillar, Cummins Engine, IBM, KLA-Tencor, Nikon and SVG. In May 2000, we acquired Firefly Technologies, Inc., renamed Zygo TeraOptix, which develops optical components and modules for the telecommunications market. Our telecommunications products include fiber and lens arrays, switches and modules that are used in specific products and systems for optical networks, such as dense wave division multiplexers, or DWDMs. Our optics unit also designs high performance macro-optics components and assemblies that are used in applications such as telecommunications equipment, laser fusion research, semiconductor manufacturing equipment and aerospace optical systems. These components and assemblies are also an integral part of our own yield enhancement solutions. Network service providers are increasingly deploying next-generation optical networks to address the demand for high speed communications and the increased need for bandwidth. According to a leading market research consultant, industry demand for fiber optic components will exceed $23 billion in the year 2003, up from $6.6 billion in 1999. Fiber optic network providers need suppliers who can deliver consistent supplies of reliable critical components and modules at significant volumes in a timely, cost-effective manner. Historically, the focus of our business has been metrology and automation. Our metrology unit manufactures noncontact optical measurement instruments and products. We are one of the largest and most experienced manufacturers of interferometric products that inspect and analyze surfaces of objects. Our automation solutions unit designs, develops, manufactures and markets comprehensive automated system solutions to enhance operational efficiencies and product yields by building metrology into the production process. These automation systems are used in the manufacture of high precision equipment. Advancing technologies have required manufacturers in a variety of industries to produce smaller products with more precise tolerances and increased complexity. The trend towards miniaturization and tighter tolerances creates new challenges as manufacturers are forced to handle, measure and test ever smaller components. As a result, "nanotechnology scale" precision is necessary and, to a greater extent than ever, manufacturers require automated measurement and control. While the semiconductor market is rather mature in its use of these types of tools, the industrial manufacturing market's use of on-line automated metrology solutions is at an early stage. 1 Our objective is to: - become a significant provider of cost-effective optical components, optical assemblies, fiber optic modules and precision optics on a volume basis for next-generation optical networks and precision semiconductor and industrial applications; and - continuously improve our customers' competitiveness by providing on-line yield enhancement metrology and automation solutions for the telecommunications, semiconductor and other high precision markets. Our strategy to accomplish these objectives includes the following: - INCREASE INVESTMENTS IN THE TELECOMMUNICATIONS MARKET. We intend to focus more of our research and development resources on the high growth telecommunications market. - MAINTAIN VERTICAL MANUFACTURING CAPABILITY IN THE OPTICS BUSINESS. Since we are vertically integrated and have advanced yield enhancement equipment, we believe our fiber optics components will be manufactured reliably with high throughput. - CONTINUE TO DIVERSIFY CUSTOMERS AND PRODUCTS. Our products are used in a broad range of applications which reduces our reliance on sales to any particular industry. - DEVELOP LONG-TERM AND SIGNIFICANT CUSTOMER RELATIONSHIPS. We seek to enter into collaborative arrangements with existing and potential customers in attractive end-user markets in order to optimize our products for their use. - PURSUE A SELECTIVE ACQUISITION AND INVESTMENT STRATEGY. We seek to access additional technological capabilities and complementary product lines through selective acquisitions and strategic investments. We believe that our telecommunication solutions, combined with over 30 years of experience in on-line yield enhancement, enable us to deliver high-performance, cost-effective components and modules to telecommunications customers and to quickly develop and commercialize the next generation of optical components and modules. We were incorporated in 1970 under the laws of the State of Delaware. The address of our principal executive offices is Laurel Brook Road, Middlefield, Connecticut 06455-0448. Our telephone number at that address is (860) 347-8506. Our Web site address is www.zygo.com. The information on our Web site is not a part of this prospectus. 2 THE OFFERING Common stock offered by Zygo.............. 2,500,000 shares Common stock offered by the selling stockholders............................ 380,000 shares Common stock to be outstanding after this offering................................ 16,902,294 shares Use of proceeds........................... For capital expenditures relating to new manufacturing facilities, expenditures relating to purchases of coating equipment for our optics business, increased research and development and general corporate purposes. See "Use of Proceeds." Nasdaq National Market symbol............. "ZIGO"
The table set forth above is based on shares of our common stock outstanding as of December 31, 2000. This table excludes: - 4,850,000 shares of our common stock reserved for issuance under our Amended and Restated Non-Qualified Stock Option Plan, of which 1,608,968 shares are issuable upon exercise of outstanding options at a weighted average exercise price of $51.38 per share as of December 31, 2000; - 620,000 shares of our common stock reserved for issuance under our Amended and Restated Non-Employee Director Stock Option Plan, of which 197,000 shares are issuable upon exercise of outstanding options at a weighted average exercise price of $13.08 per share as of December 31, 2000; - 500,000 shares of our common stock available for issuance under our Employee Stock Purchase Plan; and - up to 432,000 shares of our common stock issued by us if the underwriters exercise their over-allotment option. 3 SUMMARY FINANCIAL DATA The summary financial data presented below as of and for the years ended June 30, 1996, 1997, 1998, 1999 and 2000 have been derived from our consolidated financial statements, which have been audited by KPMG LLP, independent auditiors, whose report for the three years ended June 30, 2000 is incorporated by reference in this prospectus. The summary financial data as of and for the six months ended December 31, 2000 have been derived from our unaudited consolidated financial statements. As adjusted results give effect to the net proceeds to be received by us from this offering, after deducting underwriting discounts and commissions and the estimated offering expenses payable by us, and net proceeds to be received by us from this offering.
SIX MONTHS ENDED FISCAL YEAR ENDED JUNE 30, DECEMBER 31, ---------------------------------------------------------- ------------------- 1996 1997(1) 1998(1) 1999(1) 2000(1) 1999 2000 -------- -------- -------- -------- -------- -------- -------- (IN THOUSANDS, EXCEPT PER SHARE DATA) CONSOLIDATED STATEMENT OF OPERATIONS DATA: Net sales............................... $57,374 $87,220 $99,084 $63,382 $87,243 $40,965 $56,663 Cost of goods sold...................... 31,508 45,395 57,635 40,997 54,688 23,522 33,083 Gross profit............................ 25,866 41,825 41,449 22,385 32,555(4) 17,443 23,580 Operating profit (loss)................. 10,828 9,203 10,168 (7,691) (18,322) 2,865 4,065 Net earnings (loss)..................... $7,799 $2,877 $7,029 $(3,876) $(16,047) $1,963 $2,722 Earnings (loss) per common and common equivalent share: Basic(3).............................. $0.84 $0.28 $0.61 $(0.33) $(1.28) $0.16 $0.19 Diluted(3)............................ $0.72 $0.24 $0.55 $(0.33) $(1.28) $0.15 $0.18 Weighted average common shares and common dilutive equivalents outstanding: Basic................................. 9,323 10,403 11,480 11,780 12,511 11,905 14,329 Diluted............................... 10,878 11,998 12,877 11,780 12,511 13,083 15,166 Before non-recurring expenses: Operating income...................... $10,828 $20,286(2) $12,088(2) $(7,691) $6,246(2) $2,865 $4,065 Net income............................ $7,799 $13,960(2) $8,949(2) $(3,876) $4,798(2) $1,963 $2,722 Earnings (loss) per common and common equivalent share: Basic............................... $0.84 $1.34(2) $0.78(2) $(0.33) $0.38(2) $0.16 $0.19 Diluted............................. $0.72 $1.16(2) $0.69(2) $(0.33) $0.34(2) $0.15 $0.18
AS OF DECEMBER 31, 2000 ---------------------------- ACTUAL AS ADJUSTED -------- ----------- (IN THOUSANDS) BALANCE SHEET DATA: Cash and cash equivalents................................... $9,350 $103,741 Working capital............................................. 55,048 149,439 Total assets................................................ 107,106 201,497 Long-term debt (excluding current portion).................. 5,079 5,079 Stockholders' equity........................................ 83,786 178,177
- -------------------------- (1) The results of Firefly Technologies, Inc., which is being accounted for as a pooling-of-interests, are included as of July 1, 1997. The results of Sight Systems, Inc. ("SSI"), which is being accounted for as an immaterial pooling-of-interests, are included from July 1, 1997; the results of Syncotec Neue Technologien and Instrumente GmbH ("Syncotec") are included from September 1, 1997 when the acquisition of the remaining 50% of Syncotec was completed; and the results of Technical Instrument Company ("TIC") are included in our consolidated results from August 8, 1996 when that acquisition was effective. Both Syncotec and TIC were accounted for as purchases. (2) Nonrecurring charges include: acquisition-related charges of $14,001 (of which $12,024 was a noncash charge), $1,585, and $11,083 for the three months ended June 30, 2000, and September 30, 1997 and 1996, respectively; our West Coast operations reorganization cost of $10,567 (of which $9,692 was a noncash charge) for the three months ended June 30, 2000; and failed merger costs of $335 for the three months ended September 30, 1997. (3) The difference between basic shares outstanding and diluted shares outstanding is the assumed conversion of common stock equivalents (stock options) in the amounts of 1,555,000; 1,595,000; 1,397,000; 0; and 0 in the years ended June 30, 1996, 1997, 1998, 1999 and 2000, respectively, and 1,178,000 and 837,000 for the six month periods ended December 31, 1999 and 2000, respectively. (4) Includes nonrecurring noncash charges of $4,214 related to a write-off of inventory during the three months ended June 30, 2000 as part of our West Coast operations reorganization. 4 RISK FACTORS BEFORE YOU INVEST IN OUR COMMON STOCK, YOU SHOULD CAREFULLY CONSIDER THE FOLLOWING FACTORS AND CAUTIONARY STATEMENTS, AS WELL AS THE OTHER INFORMATION SET FORTH HEREIN. IF ANY OF THE FOLLOWING RISKS ACTUALLY OCCUR, OUR BUSINESS, FINANCIAL CONDITION OR RESULTS OF OPERATIONS MAY SUFFER. AS A RESULT, THE TRADING PRICE OF OUR COMMON STOCK COULD DECLINE, AND YOU COULD LOSE A SUBSTANTIAL PORTION OF THE MONEY YOU PAID TO BUY OUR COMMON STOCK. IF WE ARE UNSUCCESSFUL IN OUR EFFORTS TO BECOME A SIGNIFICANT PROVIDER OF OPTICAL PRODUCTS TO THE TELECOMMUNICATIONS MARKET, OUR REVENUES WILL NOT GROW AS EXPECTED OR MAY DECREASE AND WE MAY INCUR SIGNIFICANT OPERATING LOSSES. We may be unsuccessful in making the transition from a company primarily involved in the design and manufacture of on-line yield enhancement products and solutions, to a larger and more complex organization, which will also focus on the design and manufacture of optical components and modules for the telecommunications industry. If we fail to make this transition successfully, our revenues may not grow as expected or may decrease and we may incur significant operating losses. This transition may require that we, among other things: - make significant capital expenditures and incur expenses; - expand and refocus our global sales and marketing force to sell optical components and modules for the telecommunications industry; - successfully integrate our recent acquisition of Firefly Technologies; - enhance our financial and management controls and systems; - develop a customer base for our new products; and - develop and market new products and services. We cannot provide any assurance that we will succeed in managing this transition. In addition, we have limited expertise in the design and manufacture of optical components and modules for the telecommunications industry, and have a limited history of shipping products to this industry. Therefore, we may fail to generate sufficient revenues from our sale of optical components and modules for the telecommunications industry and we may incur significant operating losses. For the six months ended December 31, 2000, revenues from our micro-optics business accounted for less than 3% of our net sales and revenues from the telecommunications market accounted for less than 8% of our net sales. IF THE OPTICAL NETWORKING MARKET DOES NOT DEVELOP AND EXPAND AS WE ANTICIPATE, DEMAND FOR OUR OPTICAL COMMUNICATIONS COMPONENTS AND MODULES MAY BE LESS THAN EXPECTED, WHICH WOULD NEGATIVELY IMPACT OUR NET SALES AND OPERATING RESULTS. A significant portion of our business growth strategy is dependent on the deployment of our optical communications components and modules. Our future success in the optical communications market depends on the continued deployment of optical networks, continued growth of the Internet as a widespread communication and commerce medium, the continuing increase in the amount of data transmitted over communications networks and the growth of optical networks to meet the increased demand for bandwidth. Future demand for our optical communications products is uncertain and will depend to a great degree on the speed of the widespread adoption and upgrading of optical networks and the acceptance of fiber optics as the replacement for copper wire. If the transition to optical communications occurs too slowly or capital expenditures within the industry are less than expected, the market for our optical communications products and the growth of our business will be significantly limited. In addition, many of our optical components customers are early stage telecommunication companies. If these companies are unable to obtain financing to allow them to grow, they may not be able to purchase optical components from us and our sales may suffer. 5 The optical communications market is new and characterized by rapid technological change, frequent new product introductions, changes in customer requirements, unpredictable rates of product deployment and evolving industry standards. Because this market is new, it is difficult to predict its future size or growth rate. Our success in generating net sales in this emerging market will depend on: - developing, maintaining and enhancing relationships with customers; - the awareness of potential end-user customers and network service providers about the benefits of optical networks; and - our ability to accurately predict market demand, develop our products to meet industry needs and comply with industry standards. If we fail to address changing market conditions, the sales of our optical communications products may not materialize, which would harm our net sales. In addition, since we have made and will continue to make an investment in the development of products for this market, the failure of optical networks to gain widespread acceptance may significantly negatively impact our operating results. BECAUSE WE HAVE ONLY RECENTLY BEGUN SELLING PRODUCTS TO THE OPTICAL NETWORKING INDUSTRY, REVENUES FROM THESE PRODUCTS MAY BE DIFFICULT TO PREDICT, NET REVENUES AND RESULTS OF OPERATIONS MAY FLUCTUATE AND OUR STOCK PRICE MAY BE MORE VOLATILE. We have only recently begun selling our fiber optic components and modules to the optical networking industry. We may be unable to accurately forecast our revenues of these products, and we have limited meaningful historical financial data upon which to plan future operating expenses. In addition, many of our expenses are fixed, and we may not be able to quickly reduce spending if our revenue is lower than we project. New product introductions will also result in increased operating expenses in advance of generating revenues, if any. Therefore, net losses in a given quarter could be greater than expected. We may not be able to address the risks associated with our limited operating history in an emerging market and our business strategy in this market may not be sustainable. Resulting quarterly fluctuations in our net revenues could result in volatility or a decline in our stock price. INTEGRATION OF FIREFLY TECHNOLOGIES WITH OUR BUSINESS MAY PROVE DIFFICULT. On May 5, 2000, we purchased all of the capital stock and other outstanding securities of Firefly Technologies for approximately 20% of our outstanding capital stock. We cannot give assurances that the integration of Firefly, now our Zygo TeraOptix division, with our business will be successful. Failure to successfully integrate Firefly may also adversely affect our ability to expand our micro-optics sales to the telecommunications industry. WE MAY NOT BE ABLE TO CONTINUE TO ATTRACT AND RETAIN QUALIFIED EMPLOYEES. Our future success depends on our ability to attract and retain qualified personnel in the following areas: - engineering; - management; - manufacturing; - research and development; - sales and marketing; and - support. Competition for these individuals from a variety of employers, including our competitors and companies in computer or technology-related industries, is intense. We cannot assure you that we will be able to retain our existing personnel or attract and retain additional personnel. 6 IF WE ARE UNABLE TO COMMIT TO DELIVER SUFFICIENT QUANTITIES OF OUR PRODUCTS TO SATISFY CUSTOMERS' NEEDS, WE MAY NOT ATTRACT NEW ORDERS AND CUSTOMERS AND WE MAY LOSE CURRENT ORDERS AND CUSTOMERS. Communications service providers and equipment manufacturers typically require that suppliers commit to provide specified quantities of products over a given period of time. If we are unable to commit to deliver sufficient quantities of our products to satisfy a customer's anticipated needs, we may lose the order and the opportunity for significant sales to that customer for a lengthy period of time. We will be unable to pursue many large orders if we do not have sufficient manufacturing capacity to enable us to commit to providing customers with specified quantities of products. Since we have only recently decided to focus on optical communications products, we have limited manufacturing capacity and experience in this field. This limited capacity combined with our limited experience in predicting demand in this area increases the risk that we may be unable to satisfy product supply commitments. OUR LENGTHY AND VARIABLE QUALIFICATION AND SALES CYCLE MAKES IT DIFFICULT TO PREDICT THE TIMING OF A SALE OR WHETHER A SALE WILL BE MADE, WHICH MAY CAUSE US TO HAVE EXCESS MANUFACTURING CAPACITY OR INVENTORY AND NEGATIVELY IMPACT OUR OPERATING RESULTS. As is typical in the industry, our customers generally expend significant efforts in evaluating and qualifying our products and manufacturing process. This evaluation and qualification process frequently results in a lengthy sales cycle, typically ranging from three to six months and sometimes longer. While our customers are evaluating our products and before they place an order with us, we may incur substantial sales, marketing and research and development expenses, expend significant management efforts, increase manufacturing capacity and order long-lead-time supplies prior to receiving an order. Even after this evaluation process, it is possible that a potential customer will not purchase our products. In addition, product purchases are frequently subject to unplanned processing and other delays, particularly with respect to larger customers for which our products represent a very small percentage of their overall purchase activity. If we increase capacity and order supplies in anticipation of an order that does not materialize, our gross margins will decline and we will have to carry or write off excess inventory. Even if we receive an order, the additional manufacturing capacity that we add to service the customer's requirements may be underutilized in a subsequent quarter. Either situation could cause our results of operations to be below the expectations of investors and public market analysts, which would, in turn, cause the price of our common stock to decline. Our long sales cycles, as well as the practice of companies in the telecommunications industry to sporadically place large orders with short lead times, may cause our revenues and operating results to vary significantly and unexpectedly from quarter to quarter. BECAUSE WE ARE DEPENDENT ON A SMALL NUMBER OF SUPPLIERS FOR RAW MATERIALS, WE MAY SUFFER DELAYS AND INCREASED EXPENSES IF THESE SUPPLIERS DO NOT PERFORM THEIR OBLIGATIONS. We are dependent on suppliers for raw materials and various electrical, mechanical and optical supplies, including fiber and electronic components and modules. If any relationship with a key supplier is terminated or if a supplier fails or is unable to provide reliable services or equipment and we are unable to reach suitable alternative solutions quickly, we may experience significant delays and additional costs in the manufacturing of our products. If our key suppliers cease manufacturing the supplies we require, if their manufacturing operations are interrupted for any significant amount of time, or if they are unwilling to supply us for any other reason, including capacity restraints, then we may be at least temporarily unable to obtain these supplies, thus exposing us to significant delays and additional costs. In the fourth quarter of fiscal 2000 and the first quarter of fiscal 2001, a supplier of electronics components that we needed for our manufacture of displacement measurement interferometry was unable to meet our scheduled demand, adversely affecting our revenues and margins. Although we enter, either directly or through our contract manufacturers, into purchase orders with our suppliers based on our forecasts, we do not have any guaranteed supply arrangements with these suppliers. Moreover, as our demand for supplies increases, we may not be able to obtain these 7 supplies in a timely manner. If we are unable to obtain, either directly or through contract manufacturers, a sufficient amount of supplies, or if we experience any interruption in delivery of supplies, we could experience difficulties in obtaining alternative sources or in altering product designs to use alternative supplies. Currently there are only a limited number of companies that are capable of supplying optical materials in the quantity and of the quality we require. If any of these companies cease manufacturing optical materials, if their manufacturing operations are interrupted for any significant amount of time, or if they are unable or unwilling to supply us for any other reason, including capacity constraints, then we may be at least temporarily unable to obtain sufficient supplies of optical materials, thus exposing us to significant delays and additional costs and adversely affecting our net sales. IF WE FAIL TO PREDICT OUR MANUFACTURING REQUIREMENTS ACCURATELY, WE COULD INCUR ADDITIONAL COSTS OR EXPERIENCE MANUFACTURING DELAYS, WHICH COULD CAUSE US TO LOSE ORDERS OR CUSTOMERS AND RESULT IN LOWER NET SALES. We currently use a rolling 12-month forecast based primarily on our anticipated product orders and, in the telecommunications field, our limited product order history to help determine our requirements for components and materials. It is very important that we accurately predict both the demand for our products and the lead time required to obtain the necessary components and raw materials. Lead times for materials and components that we order vary significantly and depend on factors such as the specific supplier, the size of the order, contract terms and demand for each component at a given time. If we underestimate our requirements, we may have inadequate manufacturing capacity or inventory, which could interrupt manufacturing of our products and result in delays in shipments and net sales. If we overestimate our requirements, we could have excess inventory of parts. We also may experience shortages of components from time to time, which also could delay the manufacturing of our products and could cause us to lose orders or customers. IF OUR NEW MANAGEMENT TEAM DOES NOT OPERATE EFFECTIVELY TOGETHER, OUR BUSINESS AND RESULTS OF OPERATION MAY BE MATERIALLY AND ADVERSELY AFFECTED. Nearly all of our management team joined us since 1999 including our chief financial officer who joined us in January 2001. Accordingly, the members of the team have worked together for only a brief period of time. Our ability to effectively execute our business strategy depends in large part on our new management team's ability to operate effectively together. If our executives are unable to do so, our business and results of operation may be materially and adversely affected. OUR BACKLOG MAY NOT RESULT IN FUTURE SALES. We schedule the production of our systems based in part upon order backlog. Due to possible customer changes in delivery schedules and cancellations of orders, our backlog at any particular date is not necessarily indicative of actual sales for any succeeding period. There can be no assurance that amounts included in backlog will ultimately result in future sales. A reduction in backlog during any particular period, or the failure of our backlog to result in future sales, could adversely affect our results of operations. CYCLICALITY IN OUR BUSINESS HAS HISTORICALLY LED TO SUBSTANTIAL DECREASES IN DEMAND FOR OUR PRODUCTS AND MAY FROM TIME TO TIME CONTINUE TO DO SO. Our business has historically been significantly dependent on capital expenditures by manufacturers of components for the semiconductor industry. This industry is cyclical and historically experiences periods of oversupply, which result in significantly reduced demand for capital equipment, including the products manufactured and marketed by us. For the foreseeable future, our operations will continue to be dependent on the capital expenditures in this industry, which, in turn, is largely dependent on the market demand for products containing integrated circuits. Our net sales and results of operations may 8 be materially adversely affected if downturns or slowdowns in the semiconductor market occur in the future. WE FACE RISKS RELATING TO OUR INTERNATIONAL SALES AND OUR FOREIGN OPERATIONS. Our products are sold internationally, including to customers in Japan and throughout the Pacific Rim. Customers outside the United States accounted for 43%, 44%, and 44% of our net sales in each of the fiscal years ended June 30, 1998, 1999, and 2000, respectively and 47% for the six months ended December 31, 2000, and are expected to continue to account for a substantial percentage of our net sales. International sales and foreign operations are subject to inherent risks. These risks include: - exposure to currency exchange fluctuations; - longer payment cycles; - greater difficulty in accounts receivable collection; - compliance with foreign laws; - changes in regulatory requirements; - tariffs or other barriers; - difficulties in obtaining export licenses; - difficulties in staffing and managing foreign operations; - reduced protection for, and enforcement of, intellectual property rights; - political and economic instability; - transportation delays; and - potentially adverse tax consequences. Even that portion of our international sales which are negotiated for and paid in U.S. dollars are subject to currency risks, since changes in the values of foreign currencies relative to the value of the U.S. dollar can render our products comparatively more expensive. These exchange rate fluctuations could negatively impact international sales of our products and our foreign operations, as could changes in the general economic conditions in those markets. Although we do not currently hedge against exchange rate fluctuations, any measures we take to hedge against exchange rate fluctuations may not adequately protect us from their potential harm. WE WILL NEED TO RELOCATE OUR OPTICS UNIT TO NEW FACILITIES IN THE FUTURE. We intend to move our micro-optics manufacturing operations to a new facility in the near future. If our micro-optics business does not grow as quickly as we expect, our new manufacturing facility might in part represent excess capacity for which we may not recover the cost; in that circumstance, our revenues may be inadequate to support our committed costs and our planned growth, and our profitability and business strategy would suffer. If we encounter delays in moving to our new manufacturing facility, in obtaining and installing the necessary equipment or in hiring and training personnel to commence manufacturing on a large scale basis, we will be delayed in our efforts to obtain and fill customer orders or profitably manufacture our various fiber optic components and modules. In addition, our financial position may be adversely affected if any of our optics equipment, which is highly fragile and calibrated, is damaged or otherwise affected during our relocation due to both the delay and the cost and an expense to us and the delay or the decline in net sales or customers while we replace or repair the equipment. 9 OUR QUARTERLY AND ANNUAL OPERATING RESULTS MAY FLUCTUATE AND THE PRICE OF OUR COMMON STOCK MAY CHANGE IN RESPONSE TO THOSE FLUCTUATIONS. Our quarterly and annual operating results have varied in the past and may in the future vary significantly depending on factors such as: - the effect of our acquisitions and consequent integration; - the size, timing and recognition of revenue from significant orders; - increased competition; - our ability to develop innovative products; - the timing of new product releases by us or our competitors; - market acceptance of our products; - changes in our and our competitors' pricing policies; - budgeting cycles of our customers; - changes in operating expenses and personnel changes; - changes in our business strategy; and - general economic factors. Due to these and other factors we believe that quarter-to-quarter comparisons of our operating results may not be meaningful. You should not rely on our results for one quarter as any indication of our future performance. In future periods our operating results may be below the expectations of public market analysts or investors. If this occurs, the price of our common stock would likely decrease. WE MAY EXPAND OUR BUSINESS THROUGH NEW ACQUISITIONS THAT COULD DISRUPT OUR BUSINESS AND HARM OUR FINANCIAL CONDITION. Our growth strategy includes expanding our products and services, and we may seek acquisitions to expand our business. We regularly review potential acquisitions of businesses, technologies or products complementary to our business and periodically engage in discussions regarding such possible acquisitions. Acquisitions involve numerous risks, including some or all of the following: - substantial cash expenditures; - potentially dilutive issuance of equity securities; - incurrence of debt and contingent liabilities; - amortization of expenses related to goodwill and other intangible assets; - difficulties in assimilating the operations and products of the acquired companies; - diverting our management's attention away from other business concerns; - risks of entering markets in which we have limited or no direct experience; and - potential loss of key employees of the acquired companies in the process of integrating personnel with disparate business backgrounds and combining different corporate cultures. We cannot assure you that any acquisition will result in long-term benefits to us or that our management will be able to effectively manage the acquired businesses. We may also incorrectly judge the value or worth of an acquired company or business. In addition, our future success will depend in part on our ability to manage the rapid growth associated with these acquisitions. We may not be able 10 to successfully combine our business with the businesses of an acquired company. Furthermore, the development or expansion of our business or any acquired business may require substantial capital investment. We may not have the necessary funds nor may they be readily available to us on acceptable terms or at all. We may also seek to raise funds by selling shares of our stock, which could dilute your ownership interest in our company. IF WE FAIL TO MANAGE OUR GROWTH EFFECTIVELY, OUR BUSINESS MAY NOT SUCCEED. We are experiencing a period of rapid growth and expansion due to both acquisitions and internal growth. Our growth and expansion has placed, and could continue to place, a significant strain on our management, personnel and other resources. To accommodate our recent growth and to compete effectively and manage future growth we will be required to continue to implement and improve our operational, financial and management information systems, procedures and controls on a timely basis and to expand, train, motivate and manage our workforce. Our inability to satisfy customer orders in a timely fashion, or at all, could result in termination of customer relationships or cause customers to seek alternative sources for their products. In addition, our financial control systems and infrastructure may not be adequate to maintain and effectively monitor our future growth. We cannot assure you that our personnel, systems, procedures and controls will be adequate to support our existing and future operations. SALES TO OUR LARGEST CUSTOMER ACCOUNT FOR A SIGNIFICANT PORTION OF OUR NET SALES. During fiscal 1998, 1999 and 2000, sales to Canon Sales Co., Inc., our largest customer in those periods, accounted for approximately 18%, 21% and 19%, respectively, of our net sales. During the six months ended December 31, 2000, sales to Canon accounted for approximately 29% of our net sales. We expect that sales to Canon, an affiliate of which owns approximately 8.5% of our outstanding common stock and is a distributor of some of our products in the Japanese market, will continue to represent a significant percentage of our net sales for the foreseeable future. Our customers, including Canon, generally do not enter into long-term agreements obligating them to purchase our products. A reduction or delay in orders from this customer, including reductions or delays due to market, economic, or competitive conditions in the semiconductor industry, could have a material adverse effect upon our results of operations. WE MAY BE UNABLE TO EFFECTIVELY RESPOND TO TECHNOLOGICAL CHANGE. The market for our products is characterized by rapidly changing technology. Our future success will depend upon our ability to enhance our current products and to develop and introduce new products that keep pace with technological developments and evolving industry standards, respond to changes in customer requirements and achieve market acceptance. If we fail to anticipate or respond adequately to technological developments and customer requirements, or experience significant delays in product development or introduction, our business, results of operations, financial condition and liquidity will be negatively affected. In order to develop new products successfully, we depend on close relationships with our customers and their willingness to share proprietary information about their requirements and participate in collaborative efforts with us. We cannot assure you that our customers will continue to provide us with timely access to such information. We may also fail to successfully develop and market new products and services or product and service enhancements on a timely basis, including in the optical communications market where we have very limited experience, and we may not respond effectively to technological changes or new product announcements by others. 11 ENVIRONMENTAL REGULATIONS APPLICABLE TO OUR MANUFACTURING OPERATIONS COULD LIMIT OUR ABILITY TO EXPAND OR SUBJECT US TO SUBSTANTIAL COSTS. We are subject to a variety of environmental regulations relating to the use, storage, discharge and disposal of hazardous chemicals used during our manufacturing processes. Any failure by us to comply with present and future regulations could subject us to future liabilities or the suspension of production. In addition, such regulations could restrict our ability to expand our facilities or could require us to acquire costly equipment or to incur other significant expenses to comply with environmental regulations. WE FACE INTENSE COMPETITION, AND IF WE ARE UNABLE TO COMPETE SUCCESSFULLY, WE WILL LOSE MARKET SHARE AND OUR BUSINESS WILL SUFFER. We face competition from a number of companies in all of our markets, some of which have greater manufacturing and marketing capabilities and experience, and greater financial, technological and personnel resources. We also compete with current and prospective customers' attempts to become vertically integrated. Our business requires us to continue to invest in research and development, sales, marketing and service. We cannot assure you that we will have sufficient resources to continue to make these investments or that we will be able to make the technological advances necessary to maintain any competitive advantages. OUR PRODUCTS ARE DEPLOYED IN LARGE AND COMPLEX SYSTEMS AND MAY CONTAIN DEFECTS THAT ARE NOT DETECTED UNTIL AFTER OUR PRODUCTS HAVE BEEN INSTALLED, WHICH COULD DAMAGE OUR REPUTATION AND CAUSE US TO LOSE CUSTOMERS. We design some of our products for deployment in large and complex optical networks. Because of the nature of these products, they can only be fully tested for reliability when deployed in networks for long periods of time. Our fiber optic products may contain undetected defects when first introduced or as new versions are released, and our customers may discover defects in our products only after they have been fully deployed and operated under peak stress conditions. In addition, our products are combined with products from other vendors. As a result, should problems occur, it may be difficult to identify the source of the problem. These conditions increase the risk that we could experience, among other things: - loss of customers; - damage to our brand reputation; - failure to attract new customers or achieve market acceptance; - diversion of development and engineering resources; and - legal actions by our customers. The occurrence of any one or more of the foregoing factors could cause us to experience losses, incur liabilities and cause our net sales to decline. NECESSARY LICENSES OF THIRD-PARTY TECHNOLOGY MAY NOT BE AVAILABLE TO US OR MAY BE VERY EXPENSIVE, WHICH COULD ADVERSELY AFFECT OUR ABILITY TO MANUFACTURE AND SELL OUR PRODUCTS. From time to time we may be required to license technology from third parties to develop new products or product enhancements. We cannot assure you that third-party licenses will be available to us on commercially reasonable terms, or at all. The inability to obtain any third-party license required to develop new products and product enhancements could require us to obtain substitute technology of lower quality or performance standards or at greater cost, either of which could seriously harm our ability to manufacture and sell our products. 12 IF WE FAIL TO ADEQUATELY PROTECT OUR INTELLECTUAL PROPERTY, WE MAY NOT BE ABLE TO COMPETE. Our success is heavily dependent upon our proprietary technology. We cannot assure you that the steps we have taken to protect our proprietary technology will be adequate to prevent misappropriation of our technology by third parties or will be adequate under the laws of some foreign countries, including those countries where we ship significant product, which may not protect our proprietary rights to the same extent as do laws of the United States. Also, others may "reverse engineer" our products in order to determine their method of operation and introduce competing products or others may develop competing technology independently. Furthermore, our existing or future patents may be challenged, invalidated or circumvented. Any such adverse circumstances could have a material adverse effect on our results of operations. We rely on trade secret protection for our technology, in part through confidentiality agreements with our employees, consultants and third parties. However, these agreements may be breached and we may not have adequate remedies for any breach. In any case, others may come to discover or duplicate our trade secrets through a variety of methods. IN THE EVENT OUR PRODUCTS INFRINGE ON THE INTELLECTUAL PROPERTY RIGHTS OF THIRD PARTIES, OUR BUSINESS MAY SUFFER IF WE ARE SUED FOR INFRINGEMENT OR CANNOT OBTAIN LICENSES TO THESE RIGHTS ON COMMERCIALLY ACCEPTABLE TERMS. We are subject to the risk of adverse claims and litigation alleging infringement by us of the intellectual property rights of others. Although we believe our services and products do not infringe the intellectual property rights of others, it is possible that claims could be asserted against us in the future. Many participants in the technology industry have an increasing number of patents and patent applications and have frequently demonstrated a readiness to take legal action based on allegations of patent and other intellectual property infringement. Further, as the number of our products increase, the markets in which our products are sold expand and the functionality of our products grows and overlaps with products offered by our competitors, we believe that we may become increasingly subject to infringement claims. If infringement claims are brought against us, we may have to expend potentially significant funds and resources to defend or settle such claims and, if we were found to infringe on the intellectual property rights of others, we could be forced to pay significant license fees or damages for infringement. WE HAVE BROAD DISCRETION IN HOW TO USE THE PROCEEDS FROM THIS OFFERING AND A SIGNIFICANT PERCENTAGE OF NET PROCEEDS HAS NOT BEEN ALLOCATED. A significant percentage of the net proceeds from this offering has not been allocated to any particular growth plan. As a result, our management will have significant flexibility in applying the net proceeds of this offering. The failure of management to use such funds effectively could have a material adverse effect on our financial position, liquidity and results of operations. WE EXPECT TO EXPERIENCE VOLATILITY IN OUR SHARE PRICE, WHICH COULD NEGATIVELY AFFECT YOUR INVESTMENT, AND YOU MAY NOT BE ABLE TO RESELL YOUR SHARES AT OR ABOVE THE OFFERING PRICE. The price you pay in this offering may vary from the market price of our common stock after the offering. If you purchase shares of common stock, you may not be able to resell those shares at or above the offering price. The market price of our common stock has fluctuated significantly since our initial public offering and we expect that our common stock price will fluctuate significantly in the future due to: - any deviations in our net revenues, gross margins or net losses from levels expected by securities analysts; - changes in financial estimates by securities analysts; 13 - changes in market valuations of other companies in the same or similar markets; and - future sales of common stock or other securities. In addition, the Nasdaq National Market has experienced extreme volatility that has often been unrelated to the performance of particular companies. Future market fluctuations may cause our stock price to fall regardless of our performance. FUTURE SALES OF OUR COMMON STOCK MAY ADVERSELY AFFECT OUR COMMON STOCK PRICE. If our stockholders sell a large number of shares of common stock, or if we issue a large number of shares of our common stock in connection with future acquisitions, financings, or other circumstances, the market price of our common stock could decline significantly. Moreover, the perception in the public market that our stockholders might sell shares of common stock could depress the market price of the common stock. Immediately following this offering, an aggregate of shares of our currently outstanding common stock ( shares if the underwriters' over-allotment option is fully exercised) will be freely tradable without restriction or registration under the Securities Act, except to the extent held by our affiliates. An additional restricted shares will be eligible for sale subject to compliance with volume and other limitations under Rule 144 of the Securities Act. As of December 31, 2000, an additional 1,805,968 shares are subject to issue upon the exercise of vested stock options previously granted by us, all of which would be freely tradable if issued subject to compliance with Rule 144 in the case of our affiliates. SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS This prospectus and the documents incorporated by reference contain forward-looking statements, including, without limitation, statements concerning the future of the industry, product development, business strategy, continued acceptance and growth of our products and dependence on significant customers. These statements can be identified by the use of forward-looking terminology such as "may," "will," "should," "potential," "intend," "expect," "endeavor," "seek," "anticipate," "estimate," "overestimate," "underestimate," "believe," "could," "project," "predict," "continue" or other similar words. These statements discuss future expectations, contain projections of results of operations or of financial condition or state other forward-looking information. When considering forward-looking statements, you should keep in mind the risk factors and other cautionary statements in this prospectus. Readers are cautioned not to place undue reliance on any of these forward-looking statements, which reflect our management's views as of the date of this prospectus. The "Risk Factors" and other factors noted throughout this prospectus could cause our actual results to differ significantly from those contained in any forward-looking statement. Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, performance or achievements. Moreover, neither we nor any other person assumes responsibility for the accuracy and complements of these statements. We are under no duty to update any of the forward-looking statements after the date of this prospectus to conform these statements to actual results. 14 USE OF PROCEEDS We estimate that the net proceeds from our sale of the 2,500,000 shares of our common stock in this offering, at an assumed public offering price of $40 1/4 per share, the last reported sale price of our common stock on the Nasdaq National Market on February 6, 2001, and after deducting underwriting discounts and commissions and other estimated offering expenses payable by us, will be approximately $94.4 million or approximately $110.8 million if the underwriters exercise their over-allotment option in full. We expect to use the net proceeds from this offering in the following ways: - approximately $25 million to fund capital expenditures relating to new manufacturing facilities for the micro-optics business; - approximately $15 million to purchase coating equipment for the optics business; and - approximately $15 million to fund our increased research and development expenditures relating to optical components and modules and automation in the areas of micro-optics. We may also use a portion of the net proceeds to acquire or to invest in complementary businesses, technologies, products or services, but we have no current plans or commitments to do so. Amounts of net proceeds, which are not otherwise expended, will be used for general corporate purposes. Our management will retain broad discretion in the allocation of the net proceeds of this offering. Actual expenditures may vary substantially from these estimates. The amounts and timing of our actual expenditures will depend on numerous factors, including the status of our research and product development efforts, marketing and sales activities, and the growth of our manufacturing and distribution arrangements. We may find it necessary to use portions of the net proceeds for other purposes. Pending these uses, we intend to invest our net proceeds in short-term, investment grade securities, at prevailing market rates of interest. 15 DIVIDEND POLICY We have never declared or paid any dividends on our common stock. We currently anticipate that we will retain all future earnings to support our growth strategy. Accordingly, we do not anticipate paying cash dividends on our common stock in the foreseeable future. The payment of any future dividends will be at the discretion of our board of directors and will depend upon, among other things, future earnings, operations, capital requirements, our financial condition and business conditions. PRICE RANGE OF COMMON STOCK Our common stock is quoted on the Nasdaq National Market under the symbol "ZIGO." The following table sets forth, for the periods indicated, the high and low reported sale prices per share for our common stock as reported on the Nasdaq National Market, which prices are believed to represent actual transactions.
HIGH LOW -------- -------- YEAR ENDED JUNE 30, 1999: First quarter......................................... $15 3/8 $ 6 3/8 Second quarter........................................ $12 3/4 $ 5 Third quarter......................................... $15 3/4 $ 8 1/2 Fourth quarter........................................ $13 1/8 $ 7 1/4 YEAR ENDED JUNE 30, 2000: First quarter......................................... $14 5/8 $ 9 1/4 Second quarter........................................ $25 1/16 $13 Third quarter......................................... $74 5/16 $19 3/8 Fourth quarter........................................ $94 $20 3/4 YEAR ENDED JUNE 30, 2001: First quarter......................................... $98 3/8 $50 1/2 Second quarter........................................ $88 1/2 $20 Third quarter through February 6, 2001................ $49 3/4 $23
The number of stockholders of record of our common stock on February 1, 2001 was approximately 465. The last reported sale price of our common stock on the Nasdaq National Market on February 6, 2001 was $40 1/4. 16 CAPITALIZATION The following table sets forth our capitalization as of December 31, 2000, (i) on a historical basis and (ii) on a historical basis, as adjusted, to reflect our sale of 2,500,000 shares of common stock offered by us in this offering, assuming the underwriting over-allotment option is not exercised. You should read the following table with "Management's Discussion and Analysis of Financial Condition and Results of Operations" and the financial statements and notes incorporated by reference in this prospectus.
DECEMBER 31, 2000 ---------------------- ACTUAL AS ADJUSTED -------- ----------- (IN THOUSANDS) Long-term debt:............................................. $5,079 $5,079 ------- -------- Stockholders' equity: Treasury stock, at cost; 207,600 shares................... (301) (301) Common stock--$.10 par value; authorized 40,000,000 shares; issued: 14,609,894 shares, as adjusted--17,109,894 shares; outstanding: 14,402,294 shares, as adjusted--16,902,294 shares.................. 1,461 1,711 Net unrealized (loss) on marketable securities............ (91) (91) Additional paid-in capital................................ 71,339 165,480 Retained earnings......................................... 11,777 11,777 ------- -------- Currency translation...................................... (399) (399) ------- -------- Total stockholders' equity.............................. 83,786 178,177 ------- -------- Total capitalization.................................... $88,865 $183,256 ======= ========
The above information is based on shares outstanding as of December 31, 2000. This information excludes: - 4,850,000 shares of our common stock reserved for issuance under our Amended and Restated Non-Qualified Stock Option Plan, of which 1,608,968 shares are issuable upon exercise of outstanding options at a weighted average exercise price of $51.38 per share as of December 31, 2000; - 620,000 shares of our common stock reserved for issuance under our Amended and Restated Non-Employee Director Stock Option Plan, of which 197,000 shares are issuable upon exercise of outstanding options at a weighted average exercise price of $13.08 per share as of December 31, 2000; - 500,000 shares of our common stock available for issuance under our Employee Stock Purchase Plan; and - up to 432,000 shares of our common stock issued by us if the underwriters exercise their over-allotment option. 17 SELECTED FINANCIAL DATA The selected financial data presented below as of and for the years ended June 30, 1996, 1997, 1998, 1999 and 2000 have been derived from our consolidated financial statements, which have been audited by KPMG LLP, independent auditors, whose report for the three years ended June 30, 2000 is incorporated by reference in this prospectus. The selected financial data as of and for the six months ended December 31, 2000 have been derived from our unaudited consolidated financial statements incorporated by reference in this prospectus. You should read the selected financial data set forth below with the consolidated financial statements and related notes incorporated by reference in this prospectus and with the "Management's Discussion and Analysis of Financial Condition and Results of Operations," which is included elsewhere in this prospectus.
SIX MONTHS ENDED FISCAL YEAR ENDED JUNE 30, DECEMBER 31, ------------------------------------------------------------- ------------------- 1996 1997(1) 1998(1) 1999(1) 2000(1) 1999 2000 -------- -------- -------- -------- -------- -------- -------- (DOLLARS IN THOUSANDS EXCEPT PER SHARE AMOUNTS) Net sales................... $57,374 $87,220 $99,084 $63,382 $87,243 $40,965 $56,663 Gross profit................ 25,866 41,825 41,449 22,385 32,555(4) 17,443 23,580 Earnings before taxes and nonrecurring charges...... 11,558 21,121(2) 12,940(2) (6,851) 7,256(2) 3,277 4,232 Earnings before nonrecurring charges................... $7,799 $13,960 $8,949(2) $(3,876) $4,798(2) $1,963 $2,722 Earnings per share before nonrecurring charges Basic..................... $0.84 $1.34(2) $0.78(2) $(0.33) $0.38(2) $0.16 $0.19 Diluted................... $0.72 $1.16(2) $0.69(2) $(0.33) $0.34(2) $0.15 $0.18 Net earnings................ $7,799 $2,877 $7,029 $(3,876) $(16,047) $1,963 $2,722 Net earnings per common share: Basic(3).................. $0.84 $0.28 $0.61 $(0.33) $(1.28) $0.16 $0.19 Diluted(3)................ $0.72 $0.24 $0.55 $(0.33) $(1.28) $0.15 $0.18 Weighted average number of shares: Basic..................... 9,323 10,403 11,480 11,780 12,511 11,905 14,329 Diluted................... 10,878 11,998 12,877 11,780 12,511 13,083 15,166 Research and development.... $5,538 $7,151 $9,844 $9,185 $11,270 $4,421 $7,471 Capital expenditures........ 2,864 4,723 9,126 4,372 6,513 1,507 12,682 Depreciation and amortization.............. 1,477 2,612 3,412 4,448 11,318 2,548 2,042
AS OF JUNE 30, AS OF ---------------------------------------------------- DECEMBER 31, 1996 1997(1) 1998(1) 1999(1) 2000(1) 2000 -------- -------- -------- -------- -------- ------------ (DOLLARS IN THOUSANDS) Working capital...................... $47,148 $47,633 $50,246 $43,766 $56,550 $55,048 Total assets......................... 65,895 78,799 91,444 82,442 95,162 107,106 Long-term debt (excluding current portion)........................... -- -- 65 36 84 5,079 Stockholders' equity................. 54,087 62,408 72,382 68,712 78,229 83,786
- ------------------------ (1) The results of Firefly Technologies, Inc., which is being accounted for as a pooling-of-interests, are included as of July 1, 1997. The results of SSI, which is being accounted for as an immaterial 18 pooling-of interests, are included from July 1, 1997; the results of Syncotec are included from September 1, 1997 when the acquisition of the remaining 50% of Syncotec was completed; and the results of TIC are included in our consolidated results from August 8, 1996 when that acquisition was effective. Both Syncotec and TIC were accounted for as purchases. (2) Nonrecurring charges include: acquisition-related charges of $14,001 (of which $12,024 was a noncash charge), $1,585, and $11,083 for the three months ended June 30, 2000, and September 30, 1997 and 1996, respectively; our West Coast operations reorganization cost of $10,567 (of which $9,692 was a noncash charge) for the three months ended June 30, 2000; and failed merger costs of $335 for the three months ended September 30, 1997. (3) The difference between basic shares outstanding and diluted shares outstanding is the assumed conversion of common stock equivalents (stock options) in the amounts of 1,555,000; 1,595,000; 1,397,000; 0; and 0 in the years ended June 30, 1996, 1997, 1998, 1999 and 2000, respectively, and 1,178,000 and 837,000 for the six month periods ended December 31, 1999 and 2000, respectively. (4) Includes nonrecurring noncash charges of $4,214 related to a write-off of inventory during the three months ended June 30, 2000 as part of our West Coast operations reorganization. 19 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS OVERVIEW We are an emerging supplier of optical components and modules for the telecommunications market and a leading designer, developer and manufacturer of optics and on-line yield enhancement solutions for the semiconductor and industrial manufacturing markets. We have achieved our leadership position through 30 years of understanding, utilizing and developing applications related to the physics of light. We intend to leverage this knowledge and expertise in on-line yield enhancement, namely metrology and automation, to provide innovative solutions and advanced optical components and modules to telecommunications customers. We believe this knowledge of optics and associated metrology and automation, combined with our vertical manufacturing capabilities, positions us to become a volume, cost-effective provider of telecommunication components. RESULTS OF OPERATIONS SIX MONTHS ENDED DECEMBER 31, 2000 COMPARED TO SIX MONTHS ENDED DECEMBER 31, 1999 Net sales of $56.7 million for the six months ended December 31, 2000 increased by $15.7 million, or 38.3%, from net sales in the comparable prior year period. Segment reporting was implemented for fiscal 2001. Segment data prior to fiscal 2001 is not available for comparison purposes. As a result, segment data is being identified for first and second quarters of fiscal 2001 only. Fiscal 2001 net sales in the semiconductor segment for the second quarter were $20.7 million, an increase of $5.6 million, or 37.3%, from the first quarter, net sales in the industrial segment were $8.6 million, an increase of $1.1 million, or 15.0%, from the first quarter, and net sales in the telecommunications segment were $3.4 million, an increase of $2.0 million, or 154.5%, from the first quarter of fiscal 2001. Gross profit for the six months ended December 31, 2000 amounted to $23.6 million, an increase of $6.1 million from the comparable prior year period. The increase in gross profit dollars was primarily due to the increase in sales volume. Gross profit as a percentage of net sales for the six months ended December 31, 2000 was 41.6%, as compared to 42.6% for the comparable period in fiscal 2000. Selling, general and administrative, or SG&A, expenses of $11.6 million in the six months ended December 31, 2000 increased by $2.3 million, or 24.5%, from the same period the year earlier, primarily as a result of an increased sales infrastructure, as well as increased spending on our telecommunications business. As a percentage of net sales, SG&A expenses in the six month period ended December 31, 2000 was 20.6%, as compared to 22.8% from the same prior year period. Research, development and engineering expenses, or R&D, amounted to $7.5 million, or 13.2% of net sales, for the six month period ended December 31, 2000. In the comparable six month period in the prior year, R&D expenses totaled $4.4 million or 10.8% of net sales. The increased investment in R&D primarily was due to increased expenditures related to original equipment manufacturer opportunities in the semiconductor area and also to the development of prototypes for major users in the optical module market. We recorded operating profit in the six months ended December 31, 2000 totaling $4.1 million, as compared to $2.9 million in the six months ended December 31, 1999. We recorded net income of $2.7 million or $0.18 per share for the first half of fiscal 2001, as compared to $2.0 million or $0.15 per share in the comparable prior year period. 20 FISCAL YEAR ENDED JUNE 30, 2000 COMPARED TO FISCAL YEAR ENDED JUNE 30, 1999 Net sales of $87.2 million for fiscal 2000 increased by $23.9 million or 37.6% from fiscal 1999 net sales of $63.4 million. Our sales were favorably impacted by the increase in demand in the semiconductor market and from the reorganization of our sales function. Our net sales outside of the United States amounted to $38.4 million in fiscal 2000, an increase of $10.4 million or 37.0% from fiscal 1999 levels of $28.0 million. Sales in Japan during fiscal 2000 amounted to $17.6 million, an increase of $3.4 million or 24.4% from fiscal 1999 levels. Sales in the Pacific Rim and Europe amounted to $11.7 million and $9.1 million, respectively, representing 94.0% and 16.0% increases from fiscal 1999 sales levels. Gross profit in fiscal 2000 amounted to $32.6 million, an increase of $10.2 million or 45.4% from gross profit of $22.4 million in fiscal 1999. As a percentage of net sales, gross profit in fiscal 2000 was 37.3%, as compared to 35.3% in fiscal 1999. The increase in gross profit and gross profit as a percentage of sales were primarily due to the increase in volume and related operating leverage. SG&A expenses in fiscal 2000 amounted to $18.5 million, a decrease of $1.1 million or 5.8% over fiscal 1999. During fiscal 2000, we recorded a $1 million credit to the SG&A expenses as a result of a legal settlement. Absent that credit, as a percentage of net sales, SG&A expenses decreased in fiscal 2000 to 22.4% as compared to 31.0% in fiscal 1999, as a result of the increase in the volume of sales and an increase in efficiencies of the group. R&D in fiscal 2000 totaled $11.3 million and increased by $2.1 million from fiscal 1999. Part of the increased R&D expenditures is due to increased funding in prototype development in the telecommunications industry. We recorded nonrecurring charges in the amount of $24.6 million in fiscal 2000. This charge was a result of our acquisition of Firefly and our decision to reorganize our West Coast operations. We recorded nonrecurring charges of $14.0 million in fiscal 2000 as a result of the acquisition of Firefly. The nonrecurring charge from the acquisition was a noncash charge of $12.0 million for compensation expense resulting from the difference in the Firefly stock option exercise price and the deemed fair market value on the date of grant for financial statement purposes and $2.0 million for the payment of professional fees related to the transaction. We recorded a charge of $10.6 million as a result of our reorganization of our West Coast operations, principally for the write-off of goodwill and inventory. We did not record any nonrecurring charges in fiscal 1999. Amortization expense of $7.1 million for fiscal 2000 increased by $5.8 million or 464.5% from fiscal 1999 levels of $1.3 million. Substantially all of the increase is associated with the West Coast operations write-off of goodwill and other intangible assets and the amortization expense recorded on our Atomic Force Microscope line of business. Our operating loss in fiscal 2000 was $18.3 million as compared to operating loss of $7.7 million in fiscal 1999. Income tax benefits in fiscal 2000 totaled $1.5 million or 8.4% of pretax losses, which compares with income tax benefit of $3.0 million or 43.4% of pretax losses in fiscal 1999. The change from year to year relates primarily to the tax benefits that could not be recorded for financial statement purposes associated with the compensation charge in connection with the fiscal 2000 acquisition. We recorded a net loss for fiscal 2000 of $16.0 million or $(1.28) per share, as compared to a net loss of $3.9 million or $(0.33) per share during fiscal 1999. Backlog at June 30, 2000 was $45.9 million compared to $28.9 million at June 30, 1999, an increase of $17.0 million or 58.8%. 21 FISCAL YEAR ENDED JUNE 30, 1999 COMPARED TO FISCAL YEAR ENDED JUNE 30, 1998 Net sales of $63.4 million for fiscal 1999 decreased by $35.7 million or 36.0% from fiscal 1998 net sales of $99.1 million. Our sales were adversely impacted by market conditions, which began with poor conditions in the Asian economic environment, leading to weak conditions in the semiconductor and data storage markets. These forces impacted net sales of our instruments and systems, which decreased by 35.3% to $41.0 million. Net sales of modules and components decreased by 35.1% to $22.4 million. The decrease in modules and components was principally the result of reductions in revenue associated with the Lawrence Livermore National Laboratory National Ignition Facility Project as fiscal 1998 results included $8.9 million of revenue associated with the facilitation of our Middlefield, Connecticut plant. In addition, the decrease was attributable to reduced motion and optical component sales to OEM customers. Our sales outside of the United States amounted to $28.0 million in fiscal 1999, a decrease of $15.0 million or 34.8% from fiscal 1998 levels of $43.0 million. Sales in Japan during fiscal 1999 amounted to $14.1 million, a decrease of $8.1 million or 36.5% from fiscal 1998 levels. Shortfalls were caused by lower demand from Japanese customers due to market conditions, including lower sales of motion control components to Canon for incorporation into Canon's photolithography "steppers" used in the production of semiconductors. Additional reductions occurred in mask metrology systems where macroeconomic factors impacted sales levels. Sales in the Pacific Rim and Europe amounted to $6.0 million and $7.8 million, respectively, representing 46.8% and 16.4% reductions from the fiscal 1998 sales levels. Our sales and costs are primarily negotiated and paid in U.S. dollars. Significant changes in the values of foreign currencies relative to the value of the U.S. dollar can impact the sales of the our products in our export markets as would changes in the general economic conditions in those markets. Gross profit in fiscal 1999 amounted to $22.4 million, a decrease of $19.1 million or 46.0% from gross profit of $41.4 million in fiscal 1998. As a percentage of net sales, gross profit in fiscal 1999 was 35.3%, as compared to 41.8% in fiscal 1998. The decreases in gross profit and gross profit as a percentage of sales were primarily due to volume shortfalls and the associated underutilization of our manufacturing facilities as well as increased costs, which were essentially non-recurring, incurred as we realigned our manufacturing operations in response to lower demand. These actions led to the elimination of manufacturing in our Newbury Park and Sunnyvale, California facilities. SG&A expenses in fiscal 1999 amounted to $19.6 million an increase of $0.9 million or 4.9% over fiscal 1998. During fiscal 1999, we initiated substantial cost reduction efforts as well as efforts associated with creating additional sales and support infrastructure. Fiscal 1999 results were also impacted by bad debt expenses, most notably with contracts associated with StorMedia, Inc. Additional costs have been incurred for the creation of sales infrastructure and the addition of atomic force microscopy technology to our product portfolio. As a percentage of net sales, selling, general and administrative expenses increased in fiscal 1999 to 31.0% as compared to 18.9% in fiscal 1998, as a result of such increased expenses and lower sales volume levels. Research and development expenses in fiscal 1999 totaled $9.2 million and decreased by $0.7 million from fiscal 1998 primarily due to consolidation and cost reduction efforts. Particular emphasis was given to the vision and confocal product lines where the completion of certain R&D programs and the resulting introduction of new products enabled these cost savings actions to move forward. R&D costs as a percentage of net sales amounted to 14.5%, which compares with 9.9% of net sales in fiscal 1998. We recorded nonrecurring charges in the amount of $1.9 million in fiscal 1998, all which were incurred in the three months ended September 30, 1997. The nonrecurring charges related to $0.7 million of expenses incurred to complete our merger with Sight Systems, Inc. which was recorded as a pooling-of-interest, the write-off of $0.9 million of in-process research and development costs in 22 conjunction with our acquisition of Syncotec and transaction expenses of $0.3 million relating to our failed efforts to merge with Digital Instruments, Inc. We did not record any nonrecurring charges in fiscal 1999. Amortization expense of $1.3 million for fiscal 1999 increased by $0.5 million or 58.6% from fiscal 1998 levels of $0.8 million. Substantially all of the increase is associated with the amortization expense recorded on the atomic force microscope line of business. Our operating losses in fiscal 1999 were $7.7 million as compared to operating profits of $10.2 million in fiscal 1998. Income tax benefits in fiscal 1999 totaled $3.0 million or 43.4% of pretax losses which compares with income tax expense of $4.0 million or 36.2% of pretax income in fiscal 1998. We recorded a net loss for fiscal 1999 of $3.9 million or $(0.33) per share, as compared to net earnings of $7.0 million or $0.55 per share during fiscal 1998. Backlog at June 30, 1999 was $28.9 million compared to $24.4 million at June 30, 1998, an increase of $4.5 million. Our instruments and systems backlog at June 30, 1999 increased $6.3 million largely due to increases in the automation backlog. The components backlog fell by $1.7 million. LIQUIDITY AND CAPITAL RESOURCES FINANCIAL CONDITION At December 31, 2000, working capital was $55.0 million, a decrease of $1.5 million from the amount at June 30, 2000. At December 31, 2000, we had cash and cash equivalents of $9.4 million and marketable securities of $7.3 million for a total of $16.6 million, a decrease of $7.2 million from June 30, 2000, primarily used to finance the increase in inventories. Inventories increased by $7.7 million to support the anticipated growth in sales as reflected in the backlog. Accounts receivable increased by $1.9 million. Accounts payable increased by $2.2 million and accrued liabilities decreased by $1.0 million. On December 1, 2000, we borrowed $5.0 million to finance the acquisition of an 87,000 square foot facility in Westboro, Massachusetts. The financing currently consists of a bridge loan, which is expected to be converted to a long-term note. As of December 31, 2000, there were no borrowings outstanding under our $3.0 million bank line of credit. Unused amounts under the line of credit are available for short-term working capital needs. At June 30, 2000, working capital was $56.6 million, an increase of $12.8 million from the amount at June 30, 1999. We had cash and cash equivalents of $15.6 million and marketable securities amounting to $8.3 million for a total of $23.9 million. Accounts payable and accrued expenses increased by $4.6 million, while accounts receivable increased by $7.6 million. As of June 30, 2000, there were no borrowings outstanding under our $3.0 million bank line of credit. Stockholders equity at June 30, 2000 increased by $9.5 million from the prior year to $78.2 million, largely as a result of stock option exercises and the related tax benefit as well as the acquisition of Firefly. QUALITATIVE AND QUANTITATIVE DISCLOSURES REGARDING MARKET RISK We develop products in the United States and market our products in North America, and to a lesser extent in the Asia Pacific and Europe regions. As a result, our financial results could be affected by factors such as changes in foreign currency exchange rates or weak economic conditions in foreign markets. Because most of our revenues are currently denominated in U.S. dollars, a strengthening of the dollar could make our products less competitive in foreign markets. Our interest income and interest expense on our variable rate debt are sensitive to changes in the general level of U.S. interest rates, particularly since the majority of our investments and variable rate borrowings are relatively 23 short-term instruments. Due to the short-term nature of our investments and variable rate borrowings, we do not believe that a material risk exposure exists. RECENT ACCOUNTING PRONOUNCEMENTS In June 1998, the Financial Accounting Standards Board, or FASB, issued Statement of Financial Accounting Standards No. 133, "Accounting for Derivative Instruments and Hedging Activities," which establishes accounting and reporting standards for derivative instruments, including certain derivative instruments embedded in other contracts, and for hedging activities. It requires that an entity recognize all derivatives as either assets or liabilities in the statements of financial position and measure those instruments at fair value. In addition, SFAS No. 133 permits hedge accounting when certain conditions are met. SFAS No. 133, as amended by SFAS No. 137 and No. 138, is effective for all fiscal quarters of fiscal years beginning after June 15, 2000. This statement does not have a significant impact on our results of operations or financial position. In December 1999, the Securities and Exchange Commission issued Staff Accounting Bulletin No. 101, which summarizes views of the Commission staff in applying accounting principles generally accepted in the United States to revenue recognition in financial statements. Subsequently, the SEC issued SAB No. 101A and SAB No. 101B, "Amendment: Revenue Recognition in Financial Statements," that delays the implementation date of certain provisions of SAB No. 101. Management currently is evaluating the impact, if any, that this SAB will have on the results of operations or financial position and expects to adopt it in the fourth quarter of fiscal 2001. In March 2000, the Financial Accounting Standards Board issued Interpretation No. 44, "Accounting for Certain Transactions Involving Stock Compensation, an interpretation of APB Opinion No. 25." The Interpretation answers questions dealing with APB No. 25 implementation practice issues. Interpretation No. 44 is being applied prospectively to new awards, modifications to outstanding awards, and changes in employee status on or after July 1, 2000, except as follows: (a) requirements related to the definition of an employee apply to new awards granted after December 15, 1998; (b) modifications that directly or indirectly reduce the exercise price of an award apply to modifications made after December 15, 1998; and (c) modifications to add a reload feature to an award apply to modifications made after January 12, 2000. Financial statements for periods prior to July 1, 2000 will not be affected. The adoption of Interpretation No. 44 did not have a material impact on our results of operations or financial position. In September 2000, the FASB's Emerging Issued Task Force released its discussion on EITF Issue No. 00-10, "Accounting for Shipping and Handling Fees and Costs." EITF No. 00-10 sets forth guidance on how a seller of goods should classify in the income statement: (a) amounts billed to a customer for shipping and handling and (b) costs incurred for shipping and handling. The consensus guidance must be adopted by the fourth quarter of our 2001 fiscal year. We are in the process of evaluating this standard, but we believe that any effect will generally be limited to the form and content of our financial statement disclosures. 24 BUSINESS OVERVIEW We are an emerging supplier of optical components and modules for the telecommunications market and a leading designer, developer and manufacturer of optics and on-line yield enhancement solutions for the semiconductor and industrial manufacturing markets. We have achieved our leadership position through 30 years of understanding, utilizing and developing applications related to the physics of light. We intend to leverage this knowledge and expertise in on-line yield enhancement, namely metrology and automation, to provide innovative solutions and advanced optical components and modules to customers in the telecommunications market. We believe this knowledge of optics and associated metrology and automation, combined with our vertical manufacturing capabilities, position us to become a volume, cost-effective provider of telecommunication components. Selected semiconductor and industrial manufacturing customers include Bosch, Canon, Caterpillar, Cummins Engine, IBM, KLA-Tencor, Nikon and SVG. Selected telecommunications customers include Agilent, Axsun, Cidra, Coherent, Corning Rochester Photonics, Lightchip, Lucent, Nortel Networks, Tyco and Vytran. In May 2000, we acquired Firefly Technologies, Inc., renamed Zygo TeraOptix, which develops optical components and modules for the telecommunications market. As a result, our optics unit became a vertically integrated, manufacturer of micro optic components and modules for the telecommunications industry. Our telecommunication products include fiber and lens arrays, switches and modules that are used in specific products and systems for optical networks, such as dense wave division multiplexers, or DWDMs. These products are designed for use in high capacity, high performance terrestrial long distance, metropolitan and cable fiber optic systems and networks. Although sales to the telecommunications market do not currently comprise a large portion of our net sales, we intend to expend significant capital in this area and leverage our precision manufacturing expertise to provide quality optical components and modules to the telecommunications market. Our optics unit also designs high performance macro-optics components and assemblies that are used in applications such as telecommunications equipment, laser fusion research, semiconductor manufacturing equipment and aerospace optical systems. These components and assemblies are also an integral part of our own yield enhancement solutions. Our metrology unit manufactures noncontact optical measurement instruments and products. We are one of the largest and most experienced manufacturers of interferometric products that inspect and analyze surfaces of objects. We are also a leader in displacement interferometry, which is used to achieve highly accurate distance measurement and motion control. These products enable lithography tool and semiconductor chip manufacturers to increase yield and semiconductor chip capacity. These interferometric measurement instruments are sold to customers in the telecommunications, semiconductor and industrial manufacturing markets and are used by us in our manufacture of optical components and modules. Our automation solutions unit designs, develops, manufactures and markets comprehensive automated system solutions to reduce downtime and to enhance operational efficiencies and product yields by building metrology into the production process. These automation systems are used in the manufacture of high precision equipment. We are currently shipping to the semiconductor and industrial manufacturing markets and are developing automation for use in the telecommunications market. 25 INDUSTRY BACKGROUND AND SOLUTIONS THE TELECOMMUNICATIONS INDUSTRY The proliferation of the Internet and the increase in activities such as electronic commerce, the transmission of large data files and telecommuting have caused a significant increase in the volume of data traffic across the communications infrastructure. According to Ryan, Hankin & Kent, a leading market research and consulting firm, Internet data traffic will increase from approximately 900,000 terabytes, or trillions of bytes, per month in 2000 to over 15.9 million terabytes per month in 2003. According to International Data Corporation, a market research company, this is primarily driven by a projected increase in Internet users worldwide from 245 million in 1999 to approximately 643 million in 2003. The number of Internet users continues to grow, and their bandwidth usage is growing even faster. To alleviate this potential bottleneck, network service providers are increasingly deploying next-generation optical networks that address the demand for high-speed communications. Optical networks help meet the increased need for bandwidth and are expected to ultimately replace existing bandwidth-constrained electrical-based systems as the backbone of the Internet by transporting and processing information more quickly and more efficiently than traditional communications networks. Both established and emerging companies are rushing to create next-generation all-optical components, systems and networks. Given this growth in the use of the Internet and the need and proliferation of high bandwidth communication services there has been a worldwide expansion of the telecommunications and data communications infrastructure. This build-out has driven demand for optical components and modules. According to Ryan, Hankin & Kent, industry demand for fiber optic components will exceed $23 billion in the year 2003, up from $6.6 billion in 1999. The demand for critical components, optical equipment and fiber-optic modules is presently pacing the growth of the telecommunications industry. In addition, the industry has been consolidating in recent years, creating a problem for customers who typically want multiple sources for critical components and modules. Fiber optic network providers need suppliers who can fill the void and deliver consistent supplies of reliable critical components and modules at significant volumes and in a timely, cost-effective manner. OUR TELECOMMUNICATIONS SOLUTIONS We develop and manufacture micro-optic components and modules for the telecommunications industry and macro-optic components for the telecommunications, semiconductor and industrial manufacturing markets. A significant problem facing the telecommunications industry today is a lack of cost-effective, high quality components and modules developed on a timely basis. We believe that we have a competitive advantage in addressing this problem because of the following: VERTICAL INTEGRATION OF OUR OPTICAL BUSINESS. Our optical business is substantially vertically integrated. We purchase raw materials from a variety of suppliers and manufacture in-house the optical components necessary to fabricate modules and switches including critical coatings, filters, ball lenses, collimator lenses, arrays and active devices such as micro-electro-mechanical structures, or MEMS. As a result, we believe we are less subject to component shortages that plague many component manufacturers and network suppliers in the telecommunications industry. In addition, most facets of the design and manufacturing processes are done in our own facilities which allows us to rapidly respond to market demand. This also allows us to provide advanced prototypes and application-specific solutions to our customers on an expedited basis. LEVERAGED EXPERTISE IN BOTH OPTICS AND YIELD ENHANCEMENT. Our micro-optic development expertise coupled with our core automation and metrology capabilities enables us to create and accurately test the performance of the optical components that we manufacture. Having this measurement skill 26 internally enables us to more effectively tailor our manufacturing process at the development stage to meet desired specifications. As a result, we are able to deliver to our customers in a timely manner a wide array of high quality, cost-effective and reliable components and modules. For example, a key issue confronting manufacturers of fiber optic modules is the efficient and precise alignment of optical components to achieve low insertion loss, which is the degradation of light during the transmission process. Today, the method used by most manufacturers is alignment through trial and error. Using our automation and metrology capabilities, we have developed a proprietary automated alignment system that uses wavefront feedback to deterministically align components quickly. The result to our customers is increased quality and volume and greater cost-efficiency through yield enhancement. STRONG AND SCALABLE MANUFACTURING CAPABILITIES. We believe that our advanced wafer fabrication facilities, our advanced prototyping capability and our proprietary packaging technology allows us to manufacture a broad range of optical components at increasing volumes. A number of our principal engineering and manufacturing team members come from the optical and magnetic data storage industry where low-cost and high-volume manufacturing were essential aspects of their business. We believe that this experience, coupled with our metrology and automation experience, will enable us to expand our optical manufacturing capabilities, resulting in improved time to market and yield for our customers. We believe that our telecommunication solutions, combined with over 30 years of experience in on-line yield enhancement, enable us to deliver high-performance, cost-effective components and modules to our telecommunications customers and to quickly develop and commercialize the next generation of optical components and modules. PRECISION MANUFACTURING INDUSTRY Manufacturers in semiconductor and industrial manufacturing industries continue to redesign their processes in order to compete more effectively in an increasingly competitive marketplace. These changes are necessitated by: - decreasing product geometries; - increasing complexity of manufacturing processes; - shortening product life cycles; - declining product prices; and - intensifying global competition. Precision metrology is an enabling technology for the semiconductor, industrial and telecommunications industries. These pressures on manufacturers to improve productivity and quality have fueled demand for precision noncontact optical metrology, and required integration of high precision metrology directly into the manufacturing process in order to increase yields and quality control. Advancing technologies have required manufacturers in a variety of industries to produce smaller products with more precise tolerances and increased complexity of design geometries. These components cannot be adequately measured by the metrology devices and systems historically utilized. For example, contact profilers and visual qualitative inspection systems are inadequate for quantitative analysis of critical dimensions such as semiconductor line widths, photomask surface quality and magnetic recording disks. Additionally, precision machined part tolerances now required in high performance automotive engines are approaching dimensions that require manufacturers to implement sophisticated metrology and inspection tools. 27 The trend towards miniaturization and tighter tolerances creates new challenges for manufacturers as they are forced to handle, measure and test ever-smaller components. As piece part dimensions and tolerances become smaller, "nanotechnology scale" precision is necessary and, to a greater extent than ever, manufacturers require automated measurement and control. With on-line process control and yield improvement metrology solutions being enabling factors for manufacturers of precision components, the growth for yield enhancement solutions is expected to outpace the growth of the overall capital equipment market. IC Insight Inc., a semiconductor market research company, estimates the projected global market demand for metrology solutions to be $10 billion in 2000, a 119% growth from 1999, and $18.3 billion in 2003. Our growth is driven by both projected number of steppers to be sold, according to Dataquest, a market research company, from 1,106 in 2000 to 1,407 in 2002 and an increase in the number of axes per stepper as the need for precision requirements and throughput increases. Shortening product lifecycles, increased competition and declining product prices in these industries, have forced manufacturers to no longer depend solely on sales growth to fuel financial performance improvement, but rather to focus greater attention on the need to reduce production defects and significantly increase production yields. While the semiconductor market is rather mature in its use of these types of tools, the industrial manufacturing markets' requirement for on-line automated metrology solutions is at an early stage of penetration, since manufacturers are just beginning to measure critical dimensions and surface topography of smaller parts to tighter tolerances. OUR HIGH PRECISION MANUFACTURING SOLUTIONS A significant problem facing the precision manufacturing industry today is an increased requirement for in-production automated measurement systems. The precision tolerances that are required today make historical methods of measuring sample parts obsolete. We believe that we are able to address this problem for our customers by virtue of the following: HISTORY OF INNOVATION AND COMMERCIALIZATION. Throughout our history, we have met our customers' requirements through innovation and commercialization. Since we introduced the first optical interferometer in 1972, we have developed 95 United States patents, of which 75 are currently active, and 44 foreign patents, and we have 69 United States patent applications and 69 foreign patent applications pending. This wealth of intellectual property has led to an introduction by us of our yield enhancement solutions over the last 30 years. We have received numerous achievement awards, including: - Laser Focus World Commercial Technology Award 2001; - Photonics Spectra Circle of Excellence Awards in 1988, 1994, 1996, 1997, 1998 and 2001; - R&D Magazine 100 Awards in 1978, 1982, 1988 (three awards), 1994, 1996, 1997 and 1998; - American Machinist Excellence in Manufacturing Technology Achievement Award for Technology & Reliability in 2000; - 1997 R&D Magazine 100 and Photonics Spectra Circle of Excellence Award for ZMI 2001 Displacement Measuring Interferometer; and - 1998 R&D Magazine 100 and Photonics Spectra Circle of Excellence Award for MESA Interferometric System. INTEGRATION OF OUR METROLOGY AND AUTOMATION CAPABILITIES. We can provide yield enhancement solutions integrating our metrology and automation capabilities. For example, our automation unit has built a system that enables a manufacturer of fuel injector parts to rapidly, automatically and continuously measure a stream of parts for flatness, thickness and parallelism in its production line. As 28 a result, these manufacturers can now measure these components prior to assembly, resulting in increased yields and cost-efficiencies. INTEGRATED CORE COMPETENCIES OPTICAL COMPONENTS AND MODULES As illustrated in the following chart, we combine our expertise in optics, our design and manufacturing capabilities and our expertise in automation and metrology to manufacture next generation optical network components, modules and semiconductor optics and assemblies. [DIAGRAM] YIELD ENHANCEMENT SOLUTIONS As illustrated in the following chart, the combination of our high precision metrology systems and our parts handling automation solutions results in on-line yield enhancement solutions for our customers. These solutions can be customized to a customer's specific application. [DIAGRAM] 29 OUR STRATEGY Our objective is to: - become a significant provider of cost-effective optical components, optical assemblies, fiber optic modules and precision optics on a volume basis for next-generation optical networks and precision semiconductor and industrial applications; and - continuously improve our customers' competitiveness by providing on-line yield enhancement metrology and automation solutions for the telecommunications, semiconductor and other high precision markets. Our strategy to accomplish these objectives has the following elements: INCREASE INVESTMENTS IN THE TELECOMMUNICATIONS MARKET. Our precision measurement technology expertise enables us to focus on the high growth telecommunications market. Due to the technological complexities of measuring sub-micron features, fewer industry players are able to provide the needed metrology effectively. We are able to compete in these markets because of our skilled employee base, which encompasses a wide range of scientific disciplines and technical capabilities. We intend to dedicate more of our research and development resources and invest significant capital in our telecommunications business. MAINTAIN VERTICAL MANUFACTURING CAPABILITY IN THE OPTICS BUSINESS. In order to compete effectively in the telecommunications industry, we believe that our optics business must continue to be vertically integrated in the near term. Increasing demand for products and the limited availability of reliable component suppliers has created a shortage of quality critical fiber optics components in the telecommunications industry. We purchase raw materials from suppliers, but we do not have to rely on third party manufacturers to make our critical components and modules. This vertical integration enables us to minimize delays from component suppliers, thus decreasing our time to market. Because we are vertically integrated and have the advanced yield enhancement equipment, we believe our fiber optics components will be manufactured reliably with high throughput using our proprietary wavefront guided assembly technology, high-speed fiber placement techniques, self-packaging parts and knowledge of high-volume processing methods. In addition, this capability allows us to produce prototype components and modules for customers on an expedited basis. We intend to maintain our vertical manufacturing capability until such time as we believe that efficient, reliable sources of supply of components are and will continue to be available. At that point, we would modify our comprehensive vertical integration strategy in those areas that we believe make sense and consider reallocation of our resources. CONTINUE TO DIVERSIFY CUSTOMERS AND PRODUCTS. We believe that diversifying the customers we serve as well as the products we manufacture will enable us to minimize the traditional cyclical effects of the semiconductor industry on our business. We have a significant market presence in North America, Asia and Europe. Moreover, our products are used in a broad range of applications that reduces reliance on sales to any particular industry. This ability to leverage our intellectual property across markets allows us to diversify our investment in research and design. DEVELOP LONG-TERM AND SIGNIFICANT CUSTOMER RELATIONSHIPS. We seek to enter into collaborative arrangements with existing and potential customers in attractive end-user markets in order to jointly develop and optimize our products for their use. We believe that our ability to provide technical assistance to these companies in terms of the design and development of solutions encourages the incorporation of our products in their devices. For example, in July 2000, we entered into a development and supply agreement with Lightchip in which we agreed to design, develop and supply components and modules critical to Lightchip's DWDM. 30 PURSUE A SELECTIVE ACQUISITION AND INVESTMENT STRATEGY. We seek to access additional technological capabilities and complementary product lines through selective acquisitions and strategic investments. For example, through our funded partnership with Vacuum Process Technology, we are jointly developing high-yield chambers for specialty telecommunication coatings. We anticipate that the resultant coatings design laboratory and production facility will be combined with our scientific expertise to provide a competitive, quality product to the telecommunications and semiconductor markets. In addition, we will continue to look for technologies or other areas of expertise that will complement our existing core competencies. 31 PRODUCTS AND APPLICATIONS We manufacture micro-optics components and modules such as lenses, filters, fiber arrays and switches for the optical telecommunications industry and macro-optical components, such as flats, spheres, waveplates and mirrors for the semiconductor and industrial markets. We also manufacture, design and market yield enhancement solutions for high performance manufacturers through optical metrology and automation. Our products are based on our two core competencies: - optics--sold as components and assembled modules; and - yield enhancement--integration of automation and metrology. HIGH PRECISION OPTICAL COMPONENTS AND MODULES MICRO-OPTICS AND ASSEMBLIES:
PRODUCT DESCRIPTION BENEFITS TO CUSTOMER MARKET STATUS - ------- ----------- -------------------- ------ ------ Fiber Arrays Used to couple light - Low insertion loss Telecommunications Shipping into arrayed devices - Precision spacing like arrayed waveguides - Low cost Laser Diode Used for mounting laser - Low cost Telecommunications Shipping Submounts chips in optical - High reliability amplifier systems Optical Substrates Used for thin-film - Superior flatness Telecommunications Shipping and Components filters, dichroic and thickness Semiconductor mirrors, diffraction - Finish control gratings and - Customized to polarization cubes customer specifications Microlens Arrays Used to collimate light - Certified at Telecommunications Beta Test/ from arrayed components communication Pilot like fiber arrays or wavelength Production emitters into optical - Low insertion loss subsystems like DWDMs, switches, and other large channel count devices Fiber Optic Used to collimate light - Low cost Telecommunications Beta Test/ Collimators from discrete - High performance Pilot components Production Custom Integrated Customer-specific - Low cost Telecommunications Beta test Modules modules that integrate - Leverages our discrete components to optics, metrology combine, split, deflect and alignment or filter optical capabilities signals All Optical MEMS Optical cross connects, - Low insertion loss Telecommunications Development Switch configurable from 32 - Low power to I/O to 1024 I/O, for operate core or edge switching applications
32 MICRO-OPTICS AND ASSEMBLIES Our micro-optics capability is enhanced by our measurement capability for small, high performance optical elements and our proprietary batch processing and wafer fabrication technologies that are resident within our telecommunications optics division. Our micro-optics products include: FIBER ARRAYS. Our fiber arrays are the interface for signal transmission into wavelength division multiplexing systems and almost every kind of free space optical switch. We pattern and etch silicon, polish the fibers, coat, and position the fibers. We have the capability to etch fiber so that it can be placed at pitches less than 60 microns, which is much less than the fiber diameter itself. This is useful for integrated optical devices. We also apply our automation expertise for the placement of the fibers which has been a difficult, low-yielding and time consuming manual process for other optical component suppliers. LASER DIODE SUBMOUNTS. These are metal-patterned ceramic components that are used for mounting both passive and active optical elements such as laser chips into optical modules. One of these parts has been shipping in volume to a leader in submarine communication systems which produces an optical amplifier module. OPTICAL SUBSTRATES AND COMPONENTS. Our flat, high quality optical substrates and components are used in the manufacture of high performance DWDM filters, etalons, gratings and polarizers. Because of our experience in precision machining of glasses and ceramic materials, we have a strong capability for the production of these substrates and components. We recently entered this market as a direct result of customer requests. MICROLENS ARRAYS. Fabricated using photo-patterning and other wafer processing techniques, microlens arrays are comprised of closely and accurately spaced microlens elements on a substrate. They are used for coupling light between arrayed components, such as fiber arrays and arrayed MEMS switches. In many cases, lens array quality is the limiting factor for large scale all-optical switches. FIBER OPTIC COLLIMATORS. Our fiber optic collimators integrate discrete lens elements like spherical and bullet lenses with individual fibers and are used in the telecommunications industry for collimating beams from lasers or into other optical elements, while minimizing insertion loss. The end products which employ these components include various optical modules filter-based wavelength division multiplexers, beam combiners and switches. CUSTOM INTEGRATED MODULES. Our custom integrated modules involve packaging, aligning and assembling optical elements into a larger module such as a DWDM, a beam combiner, a switch or an optical add drop multiplexer. This custom integration leverages our metrology capability for use in the critical alignment of components in packaged assemblies. These assemblies can be of a generic nature or may be tailored for a customer's unique need or capability. Ultimately, a large number of discrete modules will be integrated within a singular integrated package. ALL OPTICAL MEMS SWITCHES. MEMS devices are micromachined in silicon and provide a technology platform that is widely used for optical switch devices. Using our knowledge of materials science and wafer processing, we developed a customized two dimensional electrostatic switch for a customer within ten weeks from receipt of order. We are currently developing a three dimensional switch based piezoelectric actuation. This three dimensional switch is targeted for applications requiring optical cross connects from 32X32 to 1024X1024. 33 MACRO-OPTICS AND ASSEMBLIES:
PRODUCT DESCRIPTION BENEFITS TO CUSTOMER MARKET STATUS - ------- ----------- -------------------- ------ ------ Prisms, Rhomboids, High precision plano - Low insertion loss Telecommunications Shipping and Beamsplitters optical components used - High quality Semiconductor singly or in combination to direct, steer, combine, divide and separate laser beams Optical Coatings Thin-film coatings used - High efficiency Telecommunications Shipping to reflect, minimize energy transfer Semiconductor loss, separate or - Reduced feedback combine light and noise - Low insertion loss Lenses and Lens High precision - High resolution Telecommunications Shipping Systems spherical and optical Semiconductor aspherical lens telecommunications elements and assemblies signal analysis used in - High resolution telecommunications and lithography semiconductor imaging systems Filters Wavelength-selective - Low insertion loss Telecommunications Development thin-film coatings used - Low channel cross- to separate or combine talk optical signals in DWDM applications Reference Flat Super-smooth flat - Precise location Semiconductor Shipping Mirrors mirrors used as of reference reference surfaces with surfaces displacement - High resolution measurement sensors lithography Stage Mirrors Lightweight wafer and - High throughput Semiconductor Shipping reticle stages used for lithography and metrology systems used in semiconductor manufacturing and testing Laser Optics Mirrors, polarizers and - Improved laser Industrial Shipping laser and assemblies performance and disks used in high damage resistence energy laser systems for alternative energy research and nuclear weapons simulation
34 MACRO-OPTICS AND ASSEMBLIES We manufacture and supply high precision optical components and modules to customers as well as for use in our own instruments. Our macro-optic products include: PRISMS, RHOMBOIDS, AND BEAMSPLITTERS. Our high-precision plano optical components are manufactured and supplied to our external customers for use in a variety of modules and assemblies, including those used in fiber optic telecommunications systems. In addition, they are also used internally as part of our metrology and automation solutions. They are used individually or in combination with one another to direct, steer, combine, divide, and separate laser beams. These products are often coated with special optical films to meet the highly demanding requirements for low insertion loss and cross-channel isolation. OPTICAL COATINGS. Reflective films are designed to minimize loss of optical energy upon reflection from the coated surface. Anti-reflective films minimize the loss of energy upon transmission through the coated surface. These coatings are produced by vacuum deposition of thin dielectric films in sophisticated coating chambers. Reflective and anti-reflective coatings are essential for achieving low insertion losses through components and modules in optical telecommunications applications. Polarization coatings are applied to prisms and other plano optical components to separate or combine laser beams of orthogonal polarization. Such coatings are essential for efficient pumping of optical fiber amplifiers used in telecommunications systems. LENSES AND LENS SYSTEMS. Lenses are transmissive optical components with spherical or aspherical surfaces. They are used individually or in combination as lens systems to form and transfer images. We produce lenses and assemblies for use in a wide variety of applications, ranging from spectrum analyzers for optical telecom systems to semiconductor lithography. Such lenses are produced using advanced computer numeric control manufacturing and metrology equipment. We assemble lens systems in clean-room conditions using laser-based alignment and centering equipment. FILTERS. Our filters are made up of multiple layers of thin films whose thickness and material properties are chosen for their ability to distinguish among differing wavelengths. For example, narrow-bandpass filters are used to separate or combine optical signals in DWDM applications. Our filters are also used to separate optical telecommunication signals from amplifier pump radiation at shorter wavelengths. The design and deposition technology for producing filters employs vacuum coating chambers equipped with optical monitoring and real-time control systems. REFERENCE FLAT MIRRORS. Our super-smooth flat mirrors serve as reference surfaces when used in conjunction with displacement measurement interferometers. These reference mirrors must be made of special materials to be insensitive to temperature variation and non-uniformity. We produce a large quantity and variety of reference flat mirrors used in semiconductor manufacturing and metrology equipment. The flatness and smoothness of these mirrors are essential for precise location of semiconductor wafers and exposure masks during production and testing of integrated circuits. STAGE MIRRORS. Our stage mirrors are lightweight structures, which serve as both a mechanical support for a wafer or reticle and two orthogonal reference flat mirror surfaces. Stage mirrors are used in high performance lithography and metrology systems employing laser, electron-beam, or x-ray exposure sources. They are made of low-expansion materials to reduce sensitivity to thermal variations, and are machined to produce a lightweight but stiff mechanical structure with excellent dimensional stability. Two adjacent sides of the stage are finished using proprietary technology to serve as reference flat mirrors. The combined optical and structural properties of such stage mirrors are critical for achieving higher wafer throughput in advanced lithography and metrology tools. We supply stage mirrors to a number of manufacturers of semiconductor lithography and metrology equipment. LASER OPTICS. Laser optics are mirrors, polarizers and solid-state laser amplifiers used in high energy laser systems. Such components are used in laser fusion research and nuclear weapons simulation. Such optical components must be finished to the highest quality in terms of surface flatness, 35 smoothness, and surface cosmetics. Even the smallest defects can lead to catastrophic failure in use. We are a leader in producing large plano laser optics, having supplied such components to major laser fusion laboratories for nearly two decades. We are under contract to the Lawrence Livermore National Laboratory, to produce mirrors, polarizers and amplifier slabs for the National Ignition Facility, also known as NIF. The NIF, when completed in 2007, is expected to be the largest laser system ever built. YIELD ENHANCEMENT SOLUTIONS METROLOGY:
PRODUCT DESCRIPTION BENEFITS TO CUSTOMER MARKET STATUS - ------- ----------- -------------------- ------ ------ Small Aperture Used to analyze the - Measures Telecommunications Shipping Wavefront surface shape of performance of Interferometer transmitted lenses wavelengths and optical components Interferometric Used for three- - Improves analysis Telecommunications Shipping Microscopes dimensional of various types Semiconductor analysis of the of surfaces Industrial surface of an object Displacement Used to measure and - Improves Telecommunications Shipping Measuring control, while they positioning Semiconductor Interferometers are in motion, the accuracy Industrial x, y and theta - High Resolution stages in photo - High Velocity lithography - Low data age equipment uncertainty Wavefront Analyzer Used to align - Decreases Telecommunications Internal Use optical components production time for optical components and modules Large Aperture Used to analyze - Precise process Semiconductor Shipping Wavefront surface shape and control Industrial Inteferometer transmitted wavelength of optical components and modules Photomask Critical Used to measure and - Allows superior Semiconductor Shipping Dimension Metrology analyze resist- resolution, System coated and repeatability and production masks linearity - Available with defect printability analysis Geometrically Used to measure the - Allows industrial Industrial Shipping Desensitized flatness of surfaces to be Interferometer precision machined measured quickly parts and without contact
36
PRODUCT DESCRIPTION BENEFITS TO CUSTOMER MARKET STATUS - ------- ----------- -------------------- ------ ------ Digital Video Disk Used to measure the - Allows inspection Industrial Shipping Interferometer transmitted of small, wavefront quality aspherical lenses of small lenses - Used in digital video disk optical devices 3-D Interferometer Used to measure - High throughput Industrial Beta Test flatness, - High yield thickness, and parallelism of precision machined parts
METROLOGY We offer a broad range of interferometry-based products. An interferometer analyzes the number, shape and position of the lines in the fringe pattern of bright and dark lines that result from the optical path difference between a reference and a measurement beam. These interferometric instruments and systems utilize highly sophisticated subsystems including precision optical components, stable and long-life laser or other light sources, piece part positioning stages and high-powered workstations or PCs for processing and analyzing fringe pattern data. Our metrology products include: SMALL APERTURE WAVEFRONT INTERFEROMETER. Our small aperture wavefront interferometer is a compact interferometer that is designed for ease of use, especially for applications that involve repetitive testing of similar components. It has the ability to quickly and automatically characterize microlenses as small as 20 microns to three millimeters in diameter. Its integrated motion control and down facing orientation make it ideal for testing lens arrays and picking and testing discrete lenses, molded aspherics, miniature mirrors and filters. INTERFEROMETRIC MICROSCOPES. Our interferometric microscopes combine advanced techniques of interferometry, microscopy and precision analysis algorithms in an automated package. These instruments make high precision surface analysis possible and are important because they provide surface structure analysis. These microscopes use scanning white light interferometry to measure nonspecular surfaces and build ultra-high z-axis resolution images. Our patented Frequency Domain Analysis system and powerful workstations and personal computers then combine for next-generation three-dimensional surface structure analysis. DISPLACEMENT MEASURING INTERFEROMETERS. Our displacement measuring interferometer family of laser interferometer systems provides measurements that control some of the world's most sophisticated machinery in the semiconductor, flat panel display production and optical component manufacturing industries. These products are used to measure the position of a tool relative to a part under fabrication through the use of a directed laser beam reflecting from the moving portion of a machine. Most of these systems are sold on an OEM basis into the semiconductor photolithography market. WAVEFRONT ANALYZER. The wavefront analyzer program is a fully automated micro-optic metrology system. The analyzer is used in the critical alignment of optical elements where the objective is to minimize wavefront error or align to a particular wavefront shape or target. LARGE APERTURE WAVEFRONT INTERFEROMETER. Our large aperture wavefront interferometer is used for large surface metrology. Our interferometers are used extensively in the optics industry to measure glass or plastic optical components such as flats, lenses and prisms. In addition, they are used to measure other precision components such as hard disks, bearings and sealing surfaces, polished ceramics and contact lens molds. PHOTOMASK CRITICAL DIMENSION METROLOGY SYSTEM. Our photomask critical dimension metrology system product lines hold a significant market share of the photomask metrology market and constitute 37 the majority of our confocal scanning microscopy sales. They provide measurement in three axes and real observation in color. The positioning, measurement and data collection functions of the products can be custom configured to most networks. GEOMETRICALLY DESENSITIZED INTERFEROMETER. Our geometrically desensitized interferometer product is a patented interferometer which utilizes diffraction gratings to measure surfaces that have roughness and departures 20 times greater than those surfaces presently measurable with existing interferometer technology. It is able to measure rougher, nonspecular surfaces, such as those used in precision-machined parts applications, without sacrificing such advantages of other interferometers, such as the ability to utilize high-speed noncontact interferometry and to produce a full-field wide aperture view. DIGITAL VIDEO DISK INTERFEROMETER. The digital disk interferometer measures spherical and aspherical lenses for next-generation DVD players. 3-D INTERFEROMETER. The 3-D interferometer product family is a new concept in interferometric metrology. They extend optical interferometric metrology to the rapid measurement of dimensional relationships. While previous interferometric metrology only measured one primary surface parameter such as roughness or flatness, it simultaneously measures the flatness, thickness and parallelism of industrial components. This patent pending technology combines our scanning broadband interferometry and displacement interferometry into one system. We expect industrial assemblies such as fuel injector systems to benefit from this technology with both increased efficiency and improved production yields. 38 AUTOMATION:
PRODUCT DESCRIPTION BENEFITS TO CUSTOMER MARKET STATUS - ------- ----------- -------------------- ------ ------ Fiber Placement Used to attach fibers - High throughput Telecommunications Beta Test Station in the manufacturing - High yield process - Reliable ZARIS (Automated Used to present - Safely handles Semiconductor Shipping reticle inspection reticles to an fragile reticles system) operator for - High throughput inspection, - High yield classification, - Increased cleaning and cleanliness subsequent sorting Reticle Shuffler Used to transfer - Provides an Semiconductor Shipping multiple types of automated front end reticles to many OEM customers Auto KMS Fully automated - High throughput Semiconductor Shipping system used to - High yield measure critical - Process control dimensions on reticles Inspection System Used for automated - High throughput Semiconductor Shipping Loader material handling for - Quality control Industrial OEM inspection systems E-Beam Loading Used for automatic - High environmental Semiconductor Shipping System loading and reticle control control, in vacuum, - High throughput to an OEM direct write mask maker
AUTOMATION Our Automation Systems division develops both products and custom automation solutions across a broad range of industries. Our automation products include: FIBER PLACEMENT STATION. Our fiber placement stations automatically place optical fibers in a silicon V-groove substrate. These stations eliminate the dependency on human operators for micro-assembly of fiber arrays and greatly increase the quality and throughput of the fiber array assembly process by an order of magnitude. The station can handle glass fibers with less than 60 microns in diameter on a 55 micron pitch on the silicon substrate. ZARIS. Our ZARIS tool is an automated reticle macro and micro inspection and cleaning system. Reticles are presented for visual inspection either at a bright light station or a microscope station. The tool's automated reticle handling eliminates scratched reticles and punctured pellicle due to manual handling. The ZARIS tool assists in cassette transfer procedures associated with reticle use and can be configured to interface with most standard input/output and stepper cassettes. RETICLE SHUFFLER. The Reticle Shuffler is a family of fully automated systems capable of transferring reticles in and out of various reticle carriers. All of the handling tasks are performed by a high-precision robot in an ultra clean mini-environment thereby reducing the risks normally associated with manual handling. The system is equipped with three input/output stations to accept manually 39 delivered reticle carriers. The input/output stations can be configured to accommodate most major reticle carriers, as well as bar code identification to ensure proper routing. AUTO KMS. This fully automated inspection system incorporates our KMS microscope with a robotic material handling system. The system accepts an individual reticle from a carrier, automatically presents it to a bar code reader for identification, loads it to the microscope's inspection stage, performs an automated inspection routine, and returns the reticle to the original input location. A single graphical user interface provides the operator with input to both the handling and inspection systems. INSPECTION SYSTEM LOADER. This loader provides the automated material handling interface between the operator and the automated optical mask inspection equipment. As with our Reticle Shuffler, the loader is equipped with three input/output stations to accept manually delivered reticle carriers. The input/output stations can be configured to accommodate most major reticle carriers, as well as bar code identification to ensure proper routing. The loader has additional capabilities for orienting reticles and for placement onto the inspection stage. E-BEAM LOADING SYSTEM. Our E-beam loading system provides the automated material handling interface between the fabrication shop or mask shop operator and the mask writing equipment. The loader ensures product safety as well as cleanliness and thermal stability throughout the loading and unloading process, and provides production buffer by storing masks within the controlled environment. Inputs to the loader include standard or custom interfaces. The loader aligns the mask to a carrier using machine vision, loads the aligned pair into an airlock under atmospheric pressure, and transfers the pair to and from the E-beam stage under high vacuum. The system is integrated extensively with the mask writer and includes the graphical user interface for executing the loading process. 40 CUSTOMERS AND MARKETS The growing requirements for dimensional control to the subnanometer level have created an escalating need for our yield enhancement instruments and systems among both OEMs and end-users of microfabrication technology. We have been able to meet these demands with on-line yield improvement instruments and systems as well as with our off-line quality control instruments. Today, our installed base of high precision metrology systems exceeds 6,500. Several of our customers purchase multiple product family types and multiple technology platforms and employ our solutions at their facilities worldwide. The following is a sampling of our customers in fiscal 2000: SELECTED CUSTOMERS BY END MARKET
TELECOMMUNICATIONS SEMICONDUCTOR INDUSTRIAL - ------------------ ------------- ---------- Agilent Applied Materials Boeing Axsun Canon Bosch Cidra Cyberoptics Caterpillar Coherent Electro Cummins Engine Corning Rochester Photonics Scientific Eastman Kodak Dicon Fiber Optics IBM Elcan JDS Uniphase KLA-Tencor Hitachi Lightchip Nanya Lawrence Livermore National Lucent Samsung Laboratories Nortel Networks SVG Lockheed Martin Tyco Nikon Vytran University of Rochester Zenastra Photonics
In fiscal years 1998, 1999 and 2000, sales to our top customer, Canon, accounted for approximately 18%, 21% and 19%, respectively, of our net sales. Sales to the Lawrence Livermore National Laboratories accounted for 13%, 6% and 3% of our sales in 1998, 1999 and 2000, respectively. No other single customer accounted for more than 10% of our sales in any of the 1998, 1999 or 2000 fiscal years. PATENTS AND OTHER INTELLECTUAL PROPERTY Our success and ability to compete depend substantially upon our internally developed technology. We have been developing a portfolio of intellectual property for 30 years. We rely on a combination of patent, copyright, trademark and trade secret laws and license agreements to establish and protect our proprietary rights in our products. We believe, however, that our success depends upon innovation, technological expertise and distribution strength. Since our inception, we have been granted 95 United States patents, of which 75 are currently active, and 44 foreign patents. While we cannot guarantee that any pending patent application will issue, we also have 69 United States patent applications and 69 foreign patent applications that are pending. All of our patents and applications were internally developed. In addition, we have numerous registered and unregistered trademarks. While we rely on patent, copyright, trade secret and trademark law to protect our technology, we also believe that factors such as the technological and creative skills of our personnel, new product developments, frequent product enhancements and reliable product maintenance are essential to establishing and maintaining a technology leadership position. RESEARCH AND DEVELOPMENT AND ENGINEERING OPERATIONS We operate in industries that are subject to rapid technological change and engineering innovation. We dedicate substantial resources to research and development. At December 31, 2000, we employed 132 individuals within our research and development and engineering operations, including 45 41 individuals with advanced degrees, of which 15 have earned doctoral degrees. Our strategy is to form close technical working relationships with customers and OEM suppliers in our markets to ensure that our products have relevancy when commercialized. In connection with our research and development operations, we also maintain a close working relationship with various research groups and academic institutions in the United States as well as abroad such as University Erlangen-Nurnberg in Germany, Zetetic Institute in Arizona, University of North Carolina at Charlotte and Stanford University. We believe that continued enhancement, development and commercialization of new and existing products and systems is essential to maintaining and improving our leadership position. COMPETITION The industries in which we participate are intensely competitive and are characterized by price pressure and technological change. These markets are further dominated by a few market leaders. The telecommunications components and modules industry is characterized by lack of quality, on-time components and modules. We believe that we are one of a limited group of companies that develops and markets yield enhancement solutions. Our primary yield enhancement competitors in the semiconductor and telecommunications markets include Agilent's Laser Interferometer Positioning Systems Division, ADE's Phase Shift Technology, Leica's Mask Metrology Division, Veeco's Metrology Division, Berliner Glass and Bond Optics. In the telecommunications market, we compete with, among others: MEMS Optical, Corning Rochester Photonics, Digital Optics Corporation, LINOS, NSG America, ACT MicroDevices, O-E Land, AMP, Wave Optics, Nanostructures, Inc., JDS Uniphase, Nitto Optics, Prisms Unlimited, Adept Technologies and Newport Corporation. The principal factors upon which we compete are: - performance and flexibility of solutions; - value; - on-time delivery; - responsive customer service and support; and - breadth of product line. We believe we compete favorably on each of these factors. MARKETING AND SALES In the telecommunications market, we sell our optical components and modules directly from our optics division to optical network system manufacturers and suppliers. Generally, these customers have centralized purchasing and qualifications divisions and do not require that we have a worldwide organization for sales and distribution. In the semiconductor and industrial markets, our sales and marketing strategy is to establish and/or solidify strategic relationships with leading OEMs and end-users in targeted market sectors. The selling process for our products is performed through our worldwide sales organization operating out of six regional sales offices in California, Illinois, Connecticut, Germany, Singapore and Japan. Supporting this core sales team are business development, marketing, service, and engineering specialists representing our various optics, metrology, and automation factories in Connecticut, Massachusetts, Colorado, Florida, and Germany. Product promotion is done through trade shows, printed and e-business advertising, and industry technical organizations. The underlying focus of all our sales and marketing activities is to improve the performance of our customers' products and process through value-added, yield-enhancing solutions. 42 The following table sets forth the percentage of our total sales by region (including sales delivered through distributors) during the past three years:
YEAR ENDED JUNE 30, -------------------------------------- 1998 1999 2000 -------- -------- -------- United States...................................... 56.5% 55.8% 56.0% Japan.............................................. 22.5% 22.3% 20.2% Pacific Rim........................................ 11.4% 9.5% 13.4% Other (primarily Europe)........................... 9.5% 12.4% 10.4%
Customer service is an essential and a growing part of our business, since product up-time is critical given the effect on our customers' production efficiency. As of June 30, 2000, our global sales customer support and service organization consisted of over 100 people skilled in sales, marketing, optical and electro component repair, software, application and system integration, diagnostics, and problem-solving capabilities. MANUFACTURING, RAW MATERIALS AND SOURCES OF SUPPLY Our principal manufacturing activities are conducted at our facilities in Middlefield, Connecticut; Longmont, Colorado; Holliston, Massachusetts and Asslar, Germany. We maintain an advanced optical components manufacturing facility in Middlefield, specializing in the fabrication, polishing, and coating of plano, or flat, optics for sales to third parties, as well as the manufacturing of a wide variety of optics that are used in our metrology products. Our manufacturing activities for our metrology and system products consist primarily of assembling and testing components and sub assemblies, some of which are supplied by us and others are supplied by third-party vendors and then integrated into our finished products. In our optical unit, our wafer fabrication facility at Holliston, Massachusetts has a full complement of vacuum deposition, photolithography, ion-milling, reactive ion etching, electroplating, wet chemistry and film characterization machines. This enables us to fabricate a wide variety of optical components. These include patterned substrates for microwave devices, MEMS devices for high-speed switching, and various metal and dielectric coatings, including those required for optical filters and anti-reflection. Silicon baseplates, with built-in alignment and attachment features, are also fabricated within the wafer fabrication facility. This vertically integrated manufacturing capability reduces the necessity to rely on outside suppliers in a supply contained market allowing faster development of products and faster deliveries. Our capabilities in precision mechanical processing, spanning from lapping and polishing to slicing and grinding, allows us to fabricate micro-optic and opto-mechanical components, i.e. ball lenses, collimator lenses, polished fibers, silicon baseplates, and platforms at Holliston. In addition, a fully equipped model shop at the Holliston facility enables our optics division to rapidly fabricate its own machined parts and tools for quick approval by customers. Certain components and subassemblies incorporated into our systems are obtained from a single source or a limited group of suppliers. We routinely monitor single or limited source supply parts, and we endeavor to ensure that adequate inventory is available to maintain manufacturing schedules should the supply of any part be interrupted. Although we seek to reduce our dependence on sole or limited source suppliers, we have not qualified a second source for various of these products and the partial or complete loss of certain of these sources could have a negative impact on our results of operations and damage customer relationships. EMPLOYEES At December 31, 2000, we employed 632 people. Our employees are not represented by a labor union or a collective bargaining agreement. We regard our employee relations as good. 43 PROPERTIES We maintain manufacturing facilities in Middlefield, Connecticut; Holliston, Massachusetts; Asslar, Germany and Longmont, Colorado. Our corporate headquarters is on Laurel Brook Road in Middlefield, Connecticut. The Middlefield facility consists of one 135,500 square-foot building on approximately 80 acres. In 1998, this facility was expanded by 35,500 square feet to provide additional optical fabrication capacity and a new office area for sales, service, R&D and administrative personnel. We recently purchased an 87,000 square-foot facility in Westboro, Massachusetts to expand production capacity for Zygo TeraOptix. Building modifications and clean room construction is under way and expected to be completed by Summer 2001. At that time, we will completely relocate Zygo TeraOptix from Holliston and consolidate all of our micro-optics operations in Westboro.
SQUARE FEET ------------------------ OPERATION/LOCATION MANUFACTURING TOTAL OWNED/LEASED - ------------------ ------------- -------- ------------ Corporate Headquarters: 80,000 135,500 Owned Eastern Regional Sales Office, Instrument Manufacturing, and Optics Manufacturing Middlefield, Connecticut Automation Systems Manufacturing 15,000 32,000 Leased Longmont, Colorado Zygo TeraOptix Holliston, Massachusetts* 10,000 16,000 Leased Westboro, Massachusetts*+ 60,000 87,000 Owned Zygo--Laser Technology (R&D) 0 1,452 Leased Watsonville, California R&D Center 0 12,240 Leased Newbury Park, California Zygo Delray Beach 0 15,000 Leased Delray Beach, Florida Western Regional Sales Office 0 7,400 Leased Sunnyvale, California Central Regional Sales Office 0 3,283 Leased Northbrook, Illinois Zygo Engineering Office 0 6,290 Leased Simi Valley, California European Regional Sales Office, 1,500 4,000 Leased Confocal Manufacturing Asslar, Germany Zygo--Pacific Rim Sales Office 0 2,350 Leased Singapore ZygoLOT 0 1,296 Leased Damstad, Germany Zygo KK 0 1,775 Leased Tokyo, Japan ------- ------- Total 166,500 325,586 ======= =======
- ------------------------ * Westboro facility is expected to be operational by Summer 2001; replaces Holliston facility + Possible space expansion up to 140,000 square feet 44 MANAGEMENT EXECUTIVE OFFICERS AND DIRECTORS The following table lists our current executive officers and directors:
NAME AGE POSITION - ---- --- -------- J. Bruce Robinson................. 58 Chairman, Chief Executive Officer and President William H. Bacon.................. 51 Vice President, Metrology Manufacturing John Berg......................... 38 Director; President and Chief Technical Officer of Zygo TeraOptix Richard M. Dressler............... 55 Vice President, Finance, Chief Financial Officer and Treasurer Brian J. Monti.................... 44 Vice President, Worldwide Sales and Marketing Peter B. Mumola................... 56 Vice President, Optics Division David J. Person................... 53 Vice President, Human Resources Robert A. Smythe.................. 49 Vice President, Engineering Patrick Tan....................... 40 Director; Vice President, Business Operations of Zygo TeraOptix Carl A. Zanoni.................... 59 Director and Vice President, Technology Paul F. Forman.................... 66 Director, Chairman Emeritus R. Clark Harris................... 63 Director Seymour Liebman................... 51 Director Robert G. McKelvey................ 64 Director Robert B. Taylor.................. 53 Director
J. BRUCE ROBINSON serves as our Chairman, Chief Executive Officer and President. Prior to joining us in February 1999, Mr. Robinson spent 25 years with the Foxboro Company as Vice President, Business Development, from December 1998 to February 1999; President, Worldwide Operations, from November 1996 to December 1998; and President of Europe from 1990 to 1996. WILLIAM H. BACON has served as our Vice President, Metrology Manufacturing since April 2000. Previously, Mr. Bacon served as our Vice President, Corporate Quality from January 1996 to April 2000. From November 1993 to January 1996, Mr. Bacon was our Director of Total Quality and also served as our Manager of Instrument Manufacturing Engineering from June 1987 to November 1993. JOHN BERG serves on our Board of Directors and has served as the President and Chief Technical Officer of Zygo TeraOptix since May 2000. Previously Mr. Berg served as the President and Chief Technical Officer of Firefly Technologies from 1997 to 2000 and was Vice-President of Engineering at Digital Papyrus Corporation. Prior to that, John held senior management and technical positions at Digital Equipment Corporation and Quantum Corporation from 1988 to 1995. RICHARD M. DRESSLER has served as Vice President, Finance, Chief Financial Officer and Treasurer since January 2001. Previously, Mr. Dressler served as President of Richard Dressler L.L.C. Consulting from July 2000 until January 2001. From 1976 to 2000, Mr. Dressler served in various capacities with units of United Technologies Corporation, including as Director of Cost Management and Financial 45 Systems of Carrier Corporation, as Controller of Sikorsky Aircraft and as Vice President, Finance and Administration of United Technologies Control Systems. BRIAN J. MONTI has served as our Vice President, Worldwide Sales and Service since July 1999. Previously, Mr. Monti served as Vice President, Sales, Service and Marketing for Radiometric Corporation and Vice President, Sales, Services and Marketing for Honeywell Measurex DMC. PETER B. MUMOLA has served as our Vice President of Optics Division since February 2000. From June 1999 to February 2000, he served as our General Manager, Optics Business. From January 1996 until June 1999, Mr. Mumola was President of IPEC-Precision Inc., a supplier of specialty silicon wafer manufacturing and metrology equipment. Previously, Mr. Mumola served as the Business Director for Diversification of Hughes Electronics, Danbury Optical Systems. DAVID J. PERSON has served as our Vice President, Human Resources since September 1998. Previously Mr. Person served in a number of senior human resource management positions with Digital Equipment Corporation from 1972 to September 1998. ROBERT A. SMYTHE has served as our Vice President, Engineering since June 1998. From January 1996 to June 1998, he served as our Vice President, Sales and Marketing. From June 1993 to January 1996, Mr. Smythe was our Director of Sales and Marketing and from April 1992 to June 1993, he served as our Manager, Industry Marketing. PATRICK TAN serves on our Board of Directors and has served as the Vice President of Business Operations of Zygo TeraOptix since May 2000. Previously Mr. Tan served as the Vice President of Business Operations of Firefly Technologies from 1997 to 2000 and has held senior management and engineering positions at Digital Equipment Corporation and Quantum Corporation from 1985 to 1997. CARL A. ZANONI has served as our Vice President, Technology since June 1998. Previously, he served as our Vice President, Research, Development and Engineering from April 1992 to June 1998. Dr. Zanoni is one of our co-founders and has served as an executive officer since our inception in 1970. He also serves on our Board of Directors. PAUL F. FORMAN is one of our co-founders and serves on our Board of Directors and has served as Chairman Emeritus since November 1998. He also served as our Chairman of the Board from June 1970 to November 1998 and as our Chief Executive Officer from June 1970 to November 1993. R. CLARK HARRIS serves on our Board of Directors. Mr. Harris has been a partner of North East Ventures since June 1998. From May 1995 to May 1998, Mr. Harris served as President of Uniphase Telecommunication Products. Mr. Harris is currently a director of New Focus, Inc. SEYMOUR LIEBMAN serves on our Board of Directors. He has worked as Executive Vice President and General Counsel of Canon U.S.A., Inc. since February 1996 and Senior Vice President Finance and General Counsel of Canon U.S.A., Inc. from January 1992 until January 1996. ROBERT G. MCKELVEY serves on our Board of Directors. He has been the Chairman and President of George McKelvey Co., Inc., an investment advisor and securities broker-dealer, since 1976. ROBERT B. TAYLOR serves on our Board of Directors. Since January 2001, he has been the Senior Vice President of Finance and Administration of Colonial Williamsburg Foundation. Previously, he served in various capacities for Wesleyan University, including as its Vice President and Treasurer for the last 15 years. 46 TRANSACTIONS WITH RELATED PARTIES Seymour Liebman who serves on our Board of Directors is the Executive Vice President and General Counsel of Canon U.S.A., Inc., an affiliate of Canon Inc., or Canon. Canon is one of our principal stockholders. Canon Sales Co., Inc., a subsidiary of Canon, acts as exclusive distributor of some of our products in Japan. Sales to Canon Sales Co., Inc. aggregated approximately $16.5 million or 19% of our net sales, for fiscal 2000. Selling prices were based, generally, on customary terms given to domestic distributors. In addition, we have entered into agreements providing for confidential exchange of proprietary technology with Canon. In December 2000, we made loans to two of our executive officers and directors, John Berg and Patrick Tan. Mr. Berg and Mr. Tan executed promissory notes in principal amounts of $114,782.20 and $72,417.89, respectively. The promissory notes are secured by real property owned by Mr. Berg and Mr. Tan, bear interest at a rate equal to 7% per annum, payable to us upon demand. The purpose of the loans was to allow Mr. Berg and Mr. Tan to satisfy their tax obligations arising from our acquisition of Firefly, in which they were principal shareholders. As of the date of this prospectus, the entire principal amount of each promissory note was outstanding. These notes are expected to be repaid by Messrs. Berg and Tan with the proceeds realized by them in this offering. In January 2001, we appointed Richard M. Dressler our Vice President, Finance, Chief Financial Officer and Treasurer. Mr. Dressler is employed on an at-will basis. Mr. Dressler's base salary is $160,000 per year. In addition, Mr. Dressler is eligible for a bonus of up to 35% of his base salary if designated corporate and business unit goals are met. Mr. Dressler also receives a monthly automobile allowance and received options to purchase up to 20,000 shares of our common stock at an exercise price equal to the fair market value of our common stock on the date of grant, vesting over four years. SELLING STOCKHOLDERS The following table presents information regarding the selling stockholders' beneficial ownership of our common stock as of January 29, 2001. The beneficial ownership is calculated based on 14,860,144 shares of our common stock outstanding as of January 29, 2001 and 17,360,144 shares of common stock after completion of this offering. Beneficial ownership is determined in accordance with the rules of the Securities and Exchange Commission. In computing the number of shares beneficially owned by a person and the percentage ownership of that person, shares of common stock subject to options held by that person that are currently exercisable or exercisable within 60 days after January 29, 2001 are deemed outstanding. Such shares, however, are not deemed outstanding for the purpose of computing the percentage ownership of each other person. To our knowledge, except pursuant to applicable community property laws, the persons named in the table have sole voting and investment power with respect to the shares set forth opposite such person's name. The address of each of the selling stockholder, all of whom are directors and executive officers of our company, is c/o Zygo Corporation, Laurel Brook Road, Middlefield, Connecticut 06455. Each individual below has agreed not to sell any shares of our common stock during the period ended 180 days after the effective date of this offering without the prior written consent of Bear, Stearns & Co. Inc., subject to specified exceptions.
NUMBER OF SHARES OF COMMON STOCK NUMBER OF SHARES NUMBER OF SHARES BENEFICIALLY OWNED OF COMMON STOCK OF COMMON STOCK PRIOR TO TO BE SOLD IN BENEFICIALLY OWNED SELLING STOCKHOLDER THIS OFFERING THIS OFFERING AFTER THIS OFFERING - ------------------- ------------------ ---------------- ------------------- John Berg.............................. 532,984 155,000 377,984 Patrick Tan............................ 336,363 125,000 211,363 Carl A. Zanoni......................... 546,400 100,000 446,400
47 UNDERWRITING Subject to the terms and conditions of an Underwriting Agreement, dated , 2001, the underwriters named below, acting through their representatives, Bear, Stearns & Co. Inc., Lehman Brothers Inc., C.E. Unterberg, Towbin and ING Barings LLC have severally agreed with us and the selling stockholders, subject to the terms and conditions of the Underwriting Agreement, to purchase from us and the selling stockholders the number of shares of common stock set forth below opposite their respective names.
UNDERWRITER NUMBER OF SHARES - ----------- ---------------- Bear, Stearns & Co. Inc..................................... Lehman Brothers Inc......................................... C.E. Unterberg, Towbin...................................... ING Barings LLC............................................. Total.....................................................
The Underwriting Agreement provides that the obligations of the several underwriters to purchase and accept delivery of the shares of common stock offered by this prospectus are subject to approval by their counsel of legal matters and to other conditions set forth in the Underwriting Agreement. The underwriters are obligated to purchase and accept delivery of all the shares of common stock offered hereby, other than those shares covered by the over-allotment option described below, if any, are purchased. The representatives have advised us that the underwriters propose to offer the shares of common stock to the public at the public offering price set forth on the cover page of this prospectus and to certain dealers at that price less a concession of not in excess of $ per share, of which $ may be reallowed to other dealers. After this offering, the public offering price, concession and reallowance to dealers may be reduced by the representatives. No such reduction shall change the amount of proceeds to be received by us as set forth on the cover page of this prospectus. The common stock is offered by the underwriters as stated herein, subject to receipt and acceptance by them and subject to their right to reject any order in whole or in part. The underwriters do not intend to confirm sales to any accounts over which they exercise discretionary authority. We have granted to the underwriters an option, exercisable within 30 days after the date of this prospectus, to purchase from time to time up to an aggregate of 432,000 shares of common stock to cover over-allotments, if any, at the public offering price less underwriting discounts and commissions. If the underwriters exercise their over-allotment option to purchase any of the additional 432,000 shares of common stock, each underwriter, subject to certain conditions, will become obligated to purchase its pro-rata portion of these additional shares based on the underwriter's percentage underwriting commitment in the offering as indicated in the preceding table. If purchased, these additional shares will be sold by the underwriters on the same terms as those on which the shares offered hereby are being sold. We will be obligated, pursuant to the over-allotment option, to sell shares to the underwriters to the extent the over-allotment option is exercised. The underwriters may exercise the over-allotment option only to cover over-allotments made in connection with the sale of the shares of common stock offered in this offering. 48 The following table summarizes the compensation to be paid to the underwriters by us and the selling stockholders. Such amounts are shown assuming both no exercise and full exercise of the underwriters' over-allotment option to purchase additional shares.
TOTAL ----------------------- WITHOUT WITH OVER- OVER- PER SHARE ALLOTMENT ALLOTMENT --------- ----------- --------- Underwriting discounts and commissions payable by us................................................. $ $ $ Underwriting discounts and commissions payable by the selling stockholders...............................
We estimate expenses payable by us in connection with this offering, other than the underwriting discounts and commissions referred to above, will be approximately $700,000. We and the selling stockholders have agreed to indemnify the underwriters against certain liabilities, including liabilities under the Securities Act, liabilities arising from breaches of representations and warranties contained in the Underwriting Agreement, or to contribute to payments that the underwriters may be required to make in respect of those liabilities. Each of our executive officers and directors, including without limitation, the selling stockholders, have agreed, subject to specified exceptions, not to: - offer to sell, contract to sell, or otherwise sell, dispose of, loan, pledge or grant any rights with respect to any shares of common stock or any options or warrants to purchase any shares of common stock, or any securities convertible into or exchangeable for shares of common stock owned as of the date of this prospectus or thereafter acquired directly by those holders or with respect to which they have the power of disposition; or - enter into any swap or other arrangement that transfers all or a portion of the economic consequences associated with the ownership of any common stock (regardless of whether any of these transactions are to be settled by the delivery of common stock, or such other securities, in cash or otherwise) for a period of 180 days after the date of this prospectus without the prior written consent of Bear, Stearns & Co. Inc. This restriction terminates after the close of trading of the common stock on and including the 180th day after the registration statement relating to the offering has been declared effective by the staff of the Securities and Exchange Commission. However, Bear, Stearns & Co. Inc. may, in its sole discretion and at any time or from time to time before the termination of the 180-day period, without notice, release all or any portion of the securities subject to lock-up agreements. There are no existing agreements between the representatives and any of our shareholders who have executed a lock-up agreement, other than the selling stockholders, providing consent to the sale of shares prior to the expiration of the lock-up period. In addition, we have agreed that, subject to certain exceptions, during the lock-up period we will not, without the prior written consent of Bear, Stearns & Co. Inc., consent to the disposition of any shares held by shareholders subject to lock-up agreements prior to the expiration of the lock-up period, or issue, sell, contract to sell, or otherwise dispose of, any shares of common stock, any options or warrants to purchase any shares of common stock or any securities convertible into, exercisable for or exchangeable for shares of common stock other than our sale of shares in this offering, the issuance of our common stock upon the exercise of outstanding options or warrants, and the issuance of options or shares of common stock under existing stock option and incentive plans. Other than in the United States, no action has been taken by us, the selling stockholders or the Underwriters that would permit a public offering of the shares of common stock offered by this 49 prospectus in any jurisdiction where action for that purpose is required. The shares of common stock offered by this prospectus may not be offered or sold, directly or indirectly, nor may this prospectus or any other offering material or advertisements in connection with the offer and sale of any such shares of common stock be distributed or published in any jurisdiction, except under circumstances that will result in compliance with the applicable rules and regulations of that jurisdiction. Persons into whose possession this prospectus comes are advised to inform themselves about and to observe any restrictions relating to the offering and the distribution of this prospectus. This prospectus does not constitute an offer to sell or a solicitation of an offer to buy any shares of common stock offered by this prospectus in any jurisdiction in which such an offer or a solicitation is unlawful. OUR COMMON STOCK IS TRADED ON THE NASDAQ NATIONAL MARKET UNDER THE SYMBOL "ZIGO." A prospectus in electronic format may be made available on the Internet sites or through other online services maintained by one or more of the underwriters of this offering, or by their affiliates. In those cases, prospective investors may view offering terms online and, depending upon the particular underwriter, prospective investors may be allowed to place orders online. The underwriters may agree with us to allocate a specific number of shares for sale to online brokerage account holders. Any such allocation for online distributions will be made by the representatives on the same basis as other allocations. Other than the prospectus in electronic format, the information on any underwriter's web site and any information contained in any other web site maintained by an underwriter is not part of the prospectus or the registration statement of which this prospectus forms a part, has not been approved and/or endorsed by us or any underwriter in its capacity as underwriter and should not be relied upon by investors. The representatives have advised us that, pursuant to Regulation M under the Securities Exchange Act, some participants in the offering may engage in transactions, including stabilizing bids, syndicate covering transactions or the imposition of penalty bids, that may have the effect of stabilizing or maintaining the market price of the shares of common stock at a level above that which might otherwise prevail in the open market. A "stabilizing bid" is a bid for or the purchase of shares of common stock on behalf of the underwriters for the purpose of fixing or maintaining the price of the common stock. A "syndicate covering transaction" is the bid for or purchase of common stock on behalf of the underwriters to reduce a short position incurred by the underwriters in connection with the offering. A "penalty bid" is an arrangement permitting the representatives to reclaim the selling concession otherwise accruing to an underwriter or syndicate member in connection with this offering if the common stock originally sold by such underwriter or syndicate member is purchased by the representatives in a syndicate covering transaction and has therefore not been effectively placed by such underwriter or syndicate member. The representatives have advised us that such transactions may be effected on the Nasdaq National Market or otherwise and, if commenced, may be discontinued at any time. In connection with this offering and before the commencement of offers or sales of the common stock, certain underwriters who are qualified market makers on the Nasdaq National Market may engage in passive market making transactions in the common stock on the Nasdaq National Market in accordance with Rule 103 of Regulation M under the Securities Exchange Act, during the business day prior to the pricing of the offering. Passive market makers must comply with applicable volume and price limitations and must be identified as such. In general, a passive market maker must display its bid at a price not in excess of the highest independent bid for such security; if all independent bids are lowered below the passive market maker's bid, however, such bid must then be lowered when certain purchase limits are exceeded. Bear, Stearns & Co. Inc. and other representatives from time to time perform investment banking and other financial services for us and our affiliates for which they have received advisory or 50 transaction fees, as applicable, plus out-of-pocket expenses, of the nature and in amounts customary in the industry for these financial services. LEGAL MATTERS The validity of the common stock offered by this prospectus will be passed upon for us by Fulbright & Jaworski L.L.P., New York, New York. Paul Jacobs, a partner in Fulbright & Jaworski L.L.P., is our Secretary and, as of February 1, 2001, beneficially owned 4,000 shares of our common stock. Certain legal matters will be passed upon for the underwriters by Gibson, Dunn & Crutcher LLP, New York, New York. EXPERTS The consolidated financial statements as of June 30, 1998, 1999 and 2000 and for each of the three years in the period ended June 30, 2000 incorporated by reference in this prospectus have been so included in reliance on the report of KPMG LLP, independent certified public accountants, on the authority of said firm as experts in auditing and accounting. AVAILABLE INFORMATION We are subject to the informational requirements of the Exchange Act, which means we are required to file annual, quarterly and special reports, proxy statements and other information with the Securities and Exchange Commission. These reports, proxy statements and other information filed can be inspected and copied at the Securities and Exchange Commission's Public Reference Room, 450 Fifth Street, N.W., Washington, D.C. 20549, and at the following regional offices of the Securities and Exchange Commission: Seven World Trade Center, 13th Floor, New York, New York 10048 and 500 West Madison Street, Suite 1400, Chicago, Illinois 60661-2511. Copies of such material can be obtained from the Public Reference Section of the Securities and Exchange Commission, 450 Fifth Street, N.W., Washington, D.C. 20549, at prescribed rates. You may call the Securities and Exchange Commission Public Reference Room at 1-800-SEC-0330 for further information on its operations. The Securities and Exchange Commission maintains a Web site (http://www.sec.gov) containing reports, proxy and information statements and other information of registrants, including ours, that file electronically with the Securities and Exchange Commission. In addition, our common stock is listed on the Nasdaq National Market and similar information concerning us can be inspected and copied at the offices of the National Association of Securities Dealers, Inc., 9513 Key West Avenue, Rockville, Maryland 20850. We have filed with the Securities and Exchange Commission a registration statement on Form S-3 (of which this prospectus is a part) under the Securities Act, with respect to the shares of our common stock being offered by this prospectus. This prospectus does not contain all of the information set forth in this registration statement, some portions of which have been incorporated by reference as permitted by the rules and regulations of the Securities and Exchange Commission. Statements contained in this prospectus as to the contents of any contract or other documents are not necessarily complete, and in each instance reference is made to the copy of such contract or other document filed as an exhibit to the registration statement. Each of these statements are qualified in all respects by this reference and the exhibits and schedules thereto. For further information regarding us and the shares of our common stock being offered by this prospectus, reference is hereby made to the registration statement and such exhibits and schedules which may be obtained from the Securities and Exchange Commission at its principal office in Washington, D.C. upon payment of the fees prescribed by the Securities and Exchange Commission. 51 INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE Our Annual Report on Form 10-K405 for the year ended June 30, 2000 and the Reports on Form 10-Q for the Quarterly Periods Ended September 30, 2000 and December 31, 2000, filed with the SEC, are incorporated by reference in this prospectus. Any statement contained in a document we incorporate by reference is deemed modified or superceded to the extent that a later filed document, including this prospectus, shall modify or supercede that statement. Any statement so modified or superceded shall not be deemed, except as so modified or superceded, to constitute part of this prospectus. We will furnish, without charge, to each person to whom a copy of this prospectus is delivered, upon the written or oral request of such person, a copy of the documents referred to above which have been incorporated by reference in this prospectus, other than exhibits to such documents (unless such exhibits are specifically incorporated by reference in this prospectus). Requests for such documents should be directed to Richard M. Dressler, Zygo Corporation, Laurel Brook Road, Middlefield, Connecticut 06455, telephone (860) 347-8506. 52 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- Prospective investors may rely only on the information contained or incorporated by reference in this prospectus. Neither Zygo Corporation nor any underwriter has authorized anyone to provide prospective investors different or additional information. This prospectus is not an offer to sell nor is it seeking an offer to buy these securities in any jurisdiction where the offer or sale is not permitted. The information contained in this prospectus is accurate only as of the date of the prospectus, regardless of the time of delivery of this prospectus or of any sale of these securities. -------------------------- TABLE OF CONTENTS ------------------------
Page -------- Prospectus Summary................. 1 Summary Financial Data............. 4 Risk Factors....................... 5 Special Note Regarding Forward-Looking Statements....... 14 Use of Proceeds.................... 15 Dividend Policy.................... 16 Price Range of Common Stock........ 16 Capitalization..................... 17 Selected Financial Data............ 18 Management's Discussion and Analysis of Financial Condition and Results of Operations........ 20 Business........................... 25 Management......................... 45 Transactions with Related Parties.......................... 47 Selling Stockholders............... 47 Underwriting....................... 48 Legal Matters...................... 51 Experts............................ 51 Available Information.............. 51 Incorporation of Certain Documents by Reference..................... 52
UNTIL , 2001 (25 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL DEALERS EFFECTING TRANSACTIONS IN THE COMMON STOCK, WHETHER OR NOT PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS DELIVERY REQUIREMENT IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS. [LOGO] 2,880,000 SHARES COMMON STOCK --------------- PROSPECTUS --------------- BEAR, STEARNS & CO. INC. LEHMAN BROTHERS --------------- C.E. UNTERBERG, TOWBIN ING BARINGS , 2001 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- PART II INFORMATION NOT REQUIRED IN PROSPECTUS ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION. The expenses payable by the Registrant in connection with the issuance and distribution of the securities being registered (other than underwriting accounts and commissions) are as follows: SEC Registration Fee........................................ $ 28,916 National Association of Securities Dealers, Inc. Filing Fee....................................................... 12,066 Accountants' Fees and Expenses*............................. 150,000 Legal Fees and Expenses*.................................... 385,000 Printing Fees*.............................................. 110,000 Miscellaneous*.............................................. 14,018 ----------- Total..................................................... $ 700,000 ===========
- ------------------------ * Estimated ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS. Section 145 of the General Corporation Law of Delaware permits indemnification of directors, officers and employees of a corporation under certain conditions and subject to certain limitations. Article VI of the By-Laws of the Registrant contains provision for the indemnification of directors, officers and employees within the limitations permitted by Section 145. In addition, the Company has entered into Indemnity Agreements with certain directors and officers, which provide the maximum indemnification allowed by Section 145. The officers and directors are insured against losses arising from any claim against them as such for wrongful acts or omissions, subject to certain limitations. ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES. (A) EXHIBITS
NO. DESCRIPTION - --- ----------- 1.1 Form of Underwriting Agreement 5.1 Opinion of Fulbright & Jaworski L.L.P.+ 10.1 Zygo Corporation Employee Stock Purchase Plan+ 23.1 Consent of KPMG LLP 23.2 Consent of Fulbright & Jaworski L.L.P. (included in Exhibit 5.1) 24.1 Power of Attorney (included on signature page to the Registration Statement)*
* Previously filed. + To be filed by amendment (B) FINANCIAL STATEMENT SCHEDULES Not Applicable. ITEM 17. UNDERTAKINGS. Insofar as indemnification by the Company for liabilities arising under the Securities Act may be permitted to directors, officers and controlling persons of the Company pursuant to the provisions referenced in Item 15 of this Registration Statement or otherwise, the Company has been advised that II-1 in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Securities Act, and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the Company of expenses incurred or paid by a director, officer, or controlling person of the Company in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered hereunder, the Company will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Securities Act and will be governed by the final adjudication of such issue. The undersigned Company hereby undertakes that: (1) For purposes of determining any liability under the Securities Act, the information omitted from the form of prospectus filed as part of this Registration Statement in reliance upon Rule 430A and contained in a form of prospectus filed by the Company pursuant to Rule 424(b)(1) or (4) or 497(h) under the Securities Act shall be deemed to be part of this Registration Statement as of the time it was declared effective. (2) For the purpose of determining any liability under the Securities Act, each post-effective amendment that contains a form of prospectus shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial BONA FIDE offering thereof. Insofar as indemnification for liabilities arising under the Securities Act may be permitted to directors, officers and controlling persons of the Registrant pursuant to the foregoing provisions, or otherwise, the Registrant has been advised that in the opinion of the Commission such indemnification is against public policy as expressed in the Securities Act and is, therefore unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the Registrant of expenses incurred or paid by a director, officer or controlling person of the Registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the Registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Securities Act and will be governed by the final adjudication of such issue. II-2 SIGNATURES Pursuant to the requirements of the Securities Act of 1933, the registrant certifies that it has reasonable grounds to believe that it meets all of the requirements for filing on Form S-3 and has duly caused this registration statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Middlefield, State of Connecticut, on February 7, 2001. ZYGO CORPORATION By: /s/ J. BRUCE ROBINSON ----------------------------------------- J. Bruce Robinson, CHAIRMAN, CEO AND PRESIDENT
Pursuant to the requirements of the Securities Act of 1933, this registration statement has been signed below by the following persons in the capacities and on the dates indicated:
NAME TITLE DATE ---- ----- ---- Chairman, Chief Executive /s/ J. BRUCE ROBINSON Officer and President ------------------------------------------- (Principal Executive February 7, 2001 J. Bruce Robinson Officer) Vice President, Finance, /s/ RICHARD M. DRESSLER Treasurer and Chief ------------------------------------------- Financial Officer February 7, 2001 Richard M. Dressler (Principal Financial and Accounting Officer) * ------------------------------------------- Director February 7, 2001 John Berg * ------------------------------------------- Director February 7, 2001 Paul F. Forman * ------------------------------------------- Director February 7, 2001 R. Clark Harris * ------------------------------------------- Director February 7, 2001 Seymour E. Liebman * ------------------------------------------- Director February 7, 2001 Robert G. McKelvey * ------------------------------------------- Director February 7, 2001 Patrick Tan * ------------------------------------------- Director February 7, 2001 Robert B. Taylor
II-3
NAME TITLE DATE ---- ----- ---- * ------------------------------------------- Director February 7, 2001 Carl A. Zanoni
*By: /s/ J. BRUCE ROBINSON -------------------------------------- J. Bruce Robinson ATTORNEY-IN-FACT
II-4 EX-1.1 2 a2037249zex-1_1.txt EXHIBIT 1.1 Exhibit 1.1 [Form of Underwriting Agreement] _________ Shares of Common Stock ZYGO CORPORATION UNDERWRITING AGREEMENT February __, 2001 BEAR, STEARNS & CO. INC. on behalf of, BEAR, STEARNS & CO. INC. LEHMAN BROTHERS INC. ING BARINGS LLC C.E. UNTERBERG, TOWBIN as Representatives of the several Underwriters named in Schedule I attached hereto c/o Bear, Stearns & Co. Inc. 245 Park Avenue New York, New York 10167 Ladies and Gentlemen: Zygo Corporation, a corporation organized and existing under the laws of Delaware (the "Company"), proposes, subject to the terms and conditions stated herein, to issue and sell to the several underwriters named in Schedule I hereto (the "Underwriters") an aggregate of _______________ shares (the "Company Firm Shares") of its common stock, par value $0.10 per share (the "Common Stock"), and the stockholders listed on Schedule II hereto (the "Selling Stockholders"), propose, subject to the terms and conditions stated herein, to sell to the Underwriters _______ shares of Common Stock (the "Selling Stockholders Firm Shares" and, collectively, with the Company Firm Shares, the "Firm Shares"). The Company proposes to sell, for the sole purpose of covering over-allotments in connection with the sale of the Firm Shares, at the option of the Underwriters, up to an additional_______________ shares (the "Additional Shares") of Common Stock. The Firm Shares and any Additional Shares purchased by the Underwriters are referred to herein as the "Shares." The Shares are more fully described in the Registration Statement referred to below. 1. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company represents and warrants to, and agrees with, the Underwriters that: (a) The Company has filed with the Securities and Exchange Commission (the "Commission") a registration statement on Form S-3 (No. 333-53214), and amendments thereto, and related Preliminary Prospectuses for the registration under the Securities Act of 1933, as amended (the "Securities Act"), of Shares, which registration statement, as so amended, has been declared effective by the Commission and copies of which have heretofore been delivered to the Underwriters. The registration statement, as amended at the time it became effective, including the exhibits and information (if any) deemed to be part of the registration statement at the time of effectiveness pursuant to Rule 430A or 434(d) under the Securities Act, is hereinafter referred to as the "Registration Statement." If the Company has filed or is required pursuant to the terms hereof to file a registration statement pursuant to Rule 462(b) under the Act registering additional shares of Common Stock (a "Rule 462(b) Registration Statement"), then, unless otherwise specified, any reference herein to the term "Registration Statement" shall be deemed to include such Rule 462(b) Registration Statement. Other than a Rule 462(b) Registration Statement, which became effective upon filing, no other document with respect to the Registration Statement has heretofore been filed with the Commission. No stop order suspending the effectiveness of either the Registration Statement or the Rule 462(b) Registration Statement, if any, has been issued and no proceeding for that purpose has been initiated or, to the Company's knowledge, threatened by the Commission. The Company, if required by the rules and regulations of the Commission (the "Rules and Regulations"), proposes to file the Prospectus with the Commission pursuant to Rule 424(b) of the Rules and Regulations. The Prospectus, in the form in which it is to be filed with the Commission pursuant to Rule 424(b) of the Rules and Regulations, or, if the Prospectus is not to be filed with the Commission pursuant to Rule 424(b), the Prospectus in the form included as part of the Registration Statement at the time the Registration Statement became effective, is hereinafter referred to as the "Prospectus," except that if any revised prospectus or prospectus supplement shall be provided to the Underwriters by the Company for use in connection with the offering and sale of the Shares (the "Offering") which differs from the Prospectus (whether or not such revised prospectus or prospectus supplement is required to be filed by the Company pursuant to Rule 424(b) of the Rules and Regulations), the term "Prospectus" shall refer to such revised prospectus or prospectus supplement, as the case may be, from and after the time it is first provided to the Underwriters for such use. Any Preliminary Prospectus or prospectus subject to completion included in the Registration Statement or filed with the Commission pursuant to Rule 424 under the Securities Act is hereafter called a "Preliminary Prospectus." Any reference herein to the Registration Statement, any Preliminary Prospectus or the Prospectus shall be deemed to refer to and include the documents incorporated by reference therein pursuant to Item 12 of Form S-3 which were filed under the Securities Exchange Act of 1934, as amended (the "Exchange Act") on or before the effective date of the Registration Statement, the date of such Preliminary Prospectus or the date of the Prospectus, as the case may be, and any reference herein to the terms "amend", "amendment" or "supplement" with respect to the Registration 2 Statement, any Preliminary Prospectus or the Prospectus shall be deemed to refer to and include (i) the filing of any document under the Exchange Act after the effective date of the Registration Statement, the date of such Preliminary Prospectus or the date of the Prospectus, as the case may be, which is incorporated therein by reference and (ii) any such document so filed. All references in this Agreement to the Registration Statement, the Rule 462(b) Registration Statement, the Preliminary Prospectus and the Prospectus, or any amendments or supplements to any of the foregoing, shall be deemed to include any copy thereof filed with the Commission pursuant to its Electronic Data Gathering, Analysis and Retrieval System ("EDGAR"). (b) At the time of the effectiveness of the Registration Statement or the effectiveness of any post-effective amendment to the Registration Statement, when the Prospectus is first filed with the Commission pursuant to Rule 424(b) or Rule 434 of the Rules and Regulations, when any supplement to or amendment of the Prospectus is filed with the Commission, when any document filed under the Exchange Act is filed and at the Closing Date and the Additional Closing Date, if any (as hereinafter respectively defined), the Registration Statement and the Prospectus and any amendments thereof and supplements thereto complied or will comply with the applicable provisions of the Act and the Rules and Regulations and the Exchange Act and the respective rules and regulations thereunder and did not and will not contain an untrue statement of a material fact and did not and will not omit to state any material fact required to be stated therein or necessary in order to make the statements therein (i) in the case of the Registration Statement, not misleading and (ii) in the case of the Prospectus or any related Preliminary Prospectus in light of the circumstances under which they were made, not misleading. When any related Preliminary Prospectus was first filed with the Commission (whether filed as part of the registration statement for the registration of the Shares or any amendment thereto or pursuant to Rule 424(a) of the Rules and Regulations) and when any amendment thereof or supplement thereto was first filed with the Commission, such Preliminary Prospectus and any amendments thereof and supplements thereto complied in all material respects with the applicable provisions of the Act and the Regulations and the Exchange Act and the respective rules and regulations thereunder and did not contain an untrue statement of a material fact and did not omit to state any material fact required to be stated therein or necessary in order to make the statements therein in light of the circumstances under which they were made not misleading. No representation and warranty is made in this subsection (b), however, with respect to any information contained in or omitted from the Registration Statement or the Prospectus or any related Preliminary Prospectus or any amendment thereof or supplement thereto in reliance upon and in conformity with information furnished in writing to the Company by or on behalf of any Underwriter through you specifically for use therein ("Underwriters' Information"). The parties acknowledge and agree that the Underwriters Information consists solely of the material included in paragraphs ___, ___ and ___ under the caption "Underwriting" in the Prospectus. (c) KPMG LLP, who have certified the financial statements and 3 supporting schedules of the Company included in the Registration Statement, is an independent public accountant as required by the Act and the Regulations. (d) Subsequent to the respective dates as of which information is given in the Registration Statement and the Prospectus, except as set forth in the Registration Statement and the Prospectus, there has been no material adverse change or any development involving a prospective material adverse change in the business, prospects, properties, operations, condition (financial or other) or results of operations of the Company and the Subsidiaries (as hereinafter defined) taken as a whole, whether or not arising from transactions in the ordinary course of business, and since the date of the latest balance sheet presented in the Registration Statement and the Prospectus, neither the Company nor any of the Subsidiaries has incurred or undertaken any liabilities or obligations, direct or contingent, which are material to the Company and the Subsidiaries, except for liabilities or obligations which are reflected in the Registration Statement and the Prospectus. (e) No stop order suspending the effectiveness of the Registration Statement or any part thereof has been issued and no proceeding for that purpose has been instituted or, to the knowledge of the Company, threatened by the Commission or by the state securities or Blue Sky authority of any jurisdiction. No order preventing or suspending the use of the Prospectus has been issued and no proceeding for that purpose has been instituted or, to the knowledge of the Company, threatened by the Commission or by the state securities or Blue Sky authority of any jurisdiction. (f) The Company has timely filed all reports, contracts or documents required to be filed with the Commission under the Exchange Act and the rules and regulations thereunder. (g) This Agreement and the transactions contemplated herein have been duly and validly authorized by the Company, and this Agreement has been duly and validly executed and delivered by the Company. (h) The execution, delivery and performance of this Agreement and the consummation of the transactions contemplated hereby do not and will not (i) conflict with or result in a breach of any of the terms and provisions of, or constitute a default (or an event which with notice or lapse of time, or both, would constitute a default) under, or result in the creation or imposition of any lien, charge or encumbrance upon any property or assets of the Company or any of the Subsidiaries pursuant to any material agreement, indenture, mortgage, deed of trust, loan agreement, instrument, franchise, license or permit to which the Company or any of the Subsidiaries is a party or by which any of such entities or their respective properties or assets may be bound or (ii) violate or conflict with any provision of the certificate or articles of incorporation, by-laws or other organizational documents of the Company or any of the Subsidiaries or, to the knowledge of the Company, any judgment, decree, order, statute, rule or regulation of any court or 4 any public, governmental or regulatory agency or body having jurisdiction over the Company or any of the Subsidiaries or any of their respective properties or assets. No consent, approval, authorization, order, registration, filing, qualification, license or permit of or with any court or any public, governmental or regulatory agency or body having jurisdiction over the Company or any of the Subsidiaries or any of their respective properties or assets is required for the execution, delivery and performance of this Agreement or the consummation of the transactions contemplated hereby, by the Registration Statement and by the Prospectus, including the issuance, sale and delivery of the Shares to be issued, sold and delivered by the Company hereunder, except the registration under the Act of the Shares and such consents, approvals, authorizations, orders, registrations, filings, qualifications, licenses and permits as may be required under state securities or Blue Sky laws in connection with the purchase and distribution of the Shares by the Underwriters. (i) The Company has the authorized capitalization set forth in the Registration Statement and the Prospectus and all of the issued shares of capital stock of the Company have been duly and validly authorized and issued, are fully paid and non-assessable and were not issued in violation of or subject to any preemptive or similar rights that entitle or will entitle any person to acquire any shares of Common Stock from the Company upon issuance thereof by the Company, except for such rights as may have been fully satisfied or waived prior to the effectiveness of the Registration Statement; the Shares to be delivered on the Closing Date and the Additional Closing Date, if any, (as hereinafter respectively defined) have been duly and validly authorized and, when delivered by the Company against payment therefor in accordance with this Agreement, will be duly and validly issued, fully paid and non-assessable and will not have been issued in violation of or subject to any preemptive or similar rights that entitle or will entitle any person to acquire any Shares from the Company upon issuance thereof by the Company; and all of the issued shares of capital stock of each Subsidiary have been duly and validly authorized and issued and are fully paid and non-assessable and are owned directly or indirectly by the Company, free and clear of all liens, encumbrances, equities or claims; the Common Stock and the Shares conform to the descriptions thereof contained in the Registration Statement and the Prospectus. (j) The only subsidiaries (as defined in Rule 405 of the Regulations) of the Company are those listed on Exhibit 21 of the Company's Form 10-K405 for the Company's fiscal year ended June 30, 2000 (the "Subsidiaries"). The Company and each of the Subsidiaries has been duly organized and is validly existing as a corporation in good standing under the laws of its jurisdiction of incorporation. Each of the Company and the Subsidiaries is duly qualified and in good standing as a foreign corporation in each jurisdiction in which the character or location of its properties (owned, leased or licensed) or the nature or conduct of its business makes such qualification necessary, except for those failures to be so qualified or in good standing which in the aggregate could not reasonably be expected to have a material adverse effect on (i) the condition (financial or otherwise), results of operations, stockholders' equity, business, properties or 5 prospects of the Company and the Subsidiaries taken as a whole or (ii) the Offering, or give rise to any liability or obligation on the part of the Underwriters or (iii) the transactions contemplated by this Agreement or the Company's performance of its obligations hereunder (a "Material Adverse Effect"). Each of the Company and the Subsidiaries has all requisite power and authority, and all necessary consents, approvals, authorizations, orders, registrations, qualifications, licenses and permits (collectively, the "Consents") of and from all public, regulatory or governmental agencies and bodies, to own, lease and operate its properties and conduct its business as now being conducted and as described in the Registration Statement and the Prospectus except for any Consents the nonobtainment of which individually or in the aggregate could not reasonably be expected to have a Material Adverse Effect. No Consent contains any material restriction not adequately disclosed in the Registration Statement and the Prospectus. (k) Except as described in the Prospectus, there is no legal or governmental proceeding to which the Company or any of the Subsidiaries is a party to which any property of the Company or any of the Subsidiaries is subject or which is pending or, to the knowledge of the Company, contemplated against the Company or any of the Subsidiaries. (l) Neither the Company nor any officer, director or, to the Company's knowledge, affiliate of the Company has taken or will take, directly or indirectly, any action designed to cause or result in, or which constitutes or which might reasonably be expected to constitute, the stabilization or manipulation of the price of the shares of Common Stock to facilitate the sale or resale of the Shares. (m) The financial statements, including the notes thereto, and supporting schedules, if any, included or incorporated by reference in the Registration Statement and the Prospectus present fairly the financial position of the Company on a consolidated basis as of the dates indicated and condition and results of operations for the periods specified; except as otherwise stated in the Registration Statement, said financial statements have been prepared in conformity with generally accepted accounting principles applied on a consistent basis; and the supporting schedules included in the Registration Statement present fairly the information required to be stated therein. The financial information and data included in the Registration Statement and the Prospectus present fairly the information included therein and have been prepared on a basis consistent with that of the financial statements included or incorporated by reference in the Registration Statement and the Prospectus and the books and records of the respective entities presented therein. Pro forma financial information included in the Prospectus has been prepared in accordance with the applicable requirements of the Act and the Regulations and includes all adjustments necessary to present fairly the pro forma financial position of the respective entity or entities presented therein at the respective dates indicated and the results of their operations for the respective periods specified. 6 (n) Except for the Subsidiaries or as otherwise set forth in the Prospectus, the Company owns no capital stock or other beneficial interest, directly or indirectly, in any corporation, partnership, joint venture or other business entity. (o) Except as disclosed in the Prospectus, no holder of securities of the Company has any rights to the registration of securities of the Company because of the filing of the Registration Statement or otherwise in connection with the sale of the Shares contemplated hereby, and any such rights so disclosed have been either fully complied with by the Company or effectively waived by the holders thereof. (p) The Company is not, and upon consummation of the transactions contemplated hereby will not be, subject to registration as an "investment company" under the Investment Company Act of 1940. (q) The conditions for use of Form S-3, as set forth in the General Instructions thereto, have been satisfied. (r) The documents incorporated or deemed to be incorporated by reference in the Prospectus, at the time they were or hereafter are filed with the Commission, complied and will comply in all material respects with the requirements of the Exchange Act and the rules and regulations of the Commission under the Exchange Act, and, when read together with the other information in the Prospectus, at the time the Registration Statement and any amendments thereto become effective and at the Closing Date, will not contain an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading. (s) There are no contracts or other documents that are required to be filed as exhibits to the Registration Statement or to the Company's Form 10-K405 for the Company's fiscal year ended June 30, 2000 that have not been so filed. (t) The Company and each of the Subsidiaries has complied with all laws, regulations and orders applicable to each of them or their respective businesses or assets except where the failure to do so would not have a Material Adverse Effect. Neither the Company nor any of the Subsidiaries is in default under any indenture, mortgage, deed of trust, voting trust agreement, loan agreement, bond, debenture, note agreement or other evidence of indebtedness, lease, contract or other agreement or instrument to which any of them is a party or by which any of them or their respective properties are bound except where such default would not have a Material Adverse Effect. (u) The Company and each of the Subsidiaries have accurately prepared and timely filed all federal, state and other tax returns that are required to be filed by it and has paid or made provision for the payment of all taxes, assessments, governmental or other similar charges, including without limitation, all sales and use taxes and all taxes 7 which the Company and each of the Subsidiaries is obligated to withhold from amounts owing to employees, creditors and third parties, with respect to the periods covered by such tax returns (whether or not such amounts are shown as due on any tax return). No deficiency assessment with respect to a proposed adjustment of the Company's or any of the Subsidiaries' Federal, state, or other taxes is pending or, to the best of the Company's knowledge, threatened. There is no tax lien, whether imposed by any federal, state, or other taxing authority, outstanding against the assets, properties or business of the Company or any of the Subsidiaries. (v) The Company and the Subsidiaries have good and marketable title in fee simple to all real property and good and marketable title to all personal property owned by them, in each case free and clear of all liens, encumbrances and defects except such as are described in the Registration statement and the Prospectus or such as do not materially affect the value of such property by the Company and the Subsidiaries; and any real property and buildings held under lease by the Company and the Subsidiaries are held by them under valid, subsisting and enforceable leases with such exceptions as are not material and do not interfere with the use made and proposed to be made of such property and buildings by the Company and the Subsidiaries. (w) The Shares are registered pursuant to Section 12(g) of the Exchange Act and are listed for quotation on The Nasdaq Stock Market's National Market (the "Nasdaq National Market"), and the Company has taken no action designed to, or reasonably likely to have the effect of, terminating the registration of the Shares under the Exchange Act or de-listing the Shares from the Nasdaq National Market, nor has the Company received any notification that the SEC or the Nasdaq National Market is contemplating terminating such registration or listing. (x) The Company owns, holds, licenses to or otherwise has rights to use, on reasonable terms, all patents, patent applications, trade and service marks, trade and service mark registrations, trade names, copyrights, mask works, inventions, trade secrets, technology, know-how and other intellectual property (collectively, the "Intellectual Property") reasonably necessary for the conduct of the Company's business as now conducted or as proposed in the Prospectus to be conducted. Except as set forth in the Prospectus under the caption "Business--Intellectual Property," (i) there are no rights of third parties to any such Intellectual Property; (ii) to the Company's knowledge, there is no infringement by third parties of any such Intellectual Property; (iii) there is no pending or, to the Company's knowledge, threatened action, suit, proceeding or claim by others challenging the Company's rights in or to any such Intellectual Property, and the Company is unaware of any facts which would form a reasonable basis for any such claim; (iv) there is no pending or, to the Company's knowledge, threatened action, suit, proceeding or claim by others challenging the validity or scope of any such Intellectual Property, and the Company is unaware of any facts which would form a reasonable basis for any such claim; (v) there is no pending or, to the Company's knowledge, threatened action, suit, proceeding or claim by others that the Company infringes or otherwise 8 violates any patent, trademark, copyright, trade secret or other proprietary rights of others, and the Company is unaware of any other fact which would form a reasonable basis for any such claim; and (vi) there is no prior art of which the Company is aware that may render any U.S. patent held by the Company invalid or any U.S. patent application held by the Company unpatentable which has not been disclosed to the U.S. Patent and Trademark Office. (y) No "prohibited transaction" (as defined in Section 406 of the Employee Retirement Income Security Act of 1974, as amended, including the regulations and published interpretations thereunder ("ERISA"), or Section 4975 of the Internal Revenue Code of 1986, as amended from time to time (the "Code"), or "accumulated funding deficiency" (as defined in Section 302 of ERISA) or any of the events set forth in Section 4043(b) of ERISA (other than events with respect to which the 30-day notice requirement under Section 4043 of ERISA has been waived) has occurred with respect to any employee benefit plan which could have a Material Adverse Effect; each employee benefit plan is in compliance in all material respects with applicable law; including ERISA and the Code; the Company has not incurred and does not expect to incur liability under Title IV of ERISA with respect to the termination of, or withdrawal from any "pension plan;" and each "pension plan" (as defined in ERISA) for which the Company would have any liability that is intended to be qualified under Section 401(a) of the Code is so qualified in all material respects and nothing has occurred, whether by action or by failure to act, which could cause the loss of such qualification. (z) There has been no storage, generation, transportation, handling, treatment, disposal, discharge, emission, or other release of any kind of toxic or other wastes or other hazardous substances by, due to, or caused by the Company (or, to the Company's knowledge, any other entity for whose acts or omissions the Company is or is reasonably likely to be liable) upon any other property now or previously owned or leased by the Company or any of the Subsidiaries, or upon any other property, in violation of any statute or any ordinance, rule, regulation, order, judgment, decree or permit or which would, under any statute or any ordinance, rule (including rule of common law), regulation, order, judgment, decree or permit, give rise to any liability except where such violation in all such circumstances would not have and is not likely to have a Material Adverse Effect; there has been no disposal discharge, emission or other release of any kind onto such property or into the environment surrounding such property of any toxic or other wastes or other hazardous substances with respect to which the Company or any of the Subsidiaries has knowledge. (aa) The statistical and market-related data included in the Prospectus and the Registration Statement are based on or derived from sources which the Company believes to be reliable and accurate. (bb) Except as contemplated by this Agreement, neither the Company nor any of the Subsidiaries has incurred any liability for a fee, commission or other 9 compensation on account of the engagement of a broker or finder in connection with the transactions contemplated herein. (cc) Except for normal disputes with employees in the ordinary course of business, no labor dispute with the employees of the Company or any of the Subsidiaries exists or, to the Company's knowledge, is eminent, and the Company is not aware that any executive, key employee or group of employees of the Company or any of the Subsidiaries plans to terminate (except for Michael J. Auth) employment with the Company or any of the Subsidiaries. (dd) Each Operative Document (as hereinafter defined) has been duly authorized, executed and delivered by the Company and the Subsidiaries and, to the Company's knowledge, the other parties thereto, as applicable, and constitutes the valid and binding agreement of the Company and the Subsidiaries and, to the Company's knowledge, the other parties thereto enforceable against the Company and the Subsidiaries and, to the Company's knowledge, the other parties thereto in accordance with its terms, subject, as to enforcement, to applicable bankruptcy, insolvency, reorganization and moratorium laws and other laws affecting the enforcement of creditors' rights generally and to equitable principles. The execution, delivery and performance of the Operative Documents and the consummation of the transactions contemplated thereby, in all cases by the Company or its Subsidiaries, as applicable, have not and will not result in a breach or violation of any term or provision of, or constitute a default under, (i) any law, rule or regulation applicable to the Company or the Subsidiaries, (ii) any indenture, mortgage, deed of trust or other agreement or instrument to which the Company or any of the Subsidiaries is a party or by which any of them is bound or to which any property of the Company or any of the Subsidiaries is or, upon consummation of the transactions contemplated by the Operative Documents, will be subject or (iii) any order or decree of any court or governmental agency or body having jurisdiction over the Company or any of the Subsidiaries or any of their respective properties except in the cases of (i) through (iii) above, where such breach or violation would not have a Material Adverse Effect. No material consent, approval, authorization or order of, or filing with, any court or governmental agency or body or any other third party is required to be obtained or made by the Company or any of the Subsidiaries for the consummation of the transactions contemplated by the Operative Documents except for such consents, approvals, authorizations, orders or filings as had been obtained or made, except where the failure to do so would not have a Material Adverse Effect. "Operative Documents" shall mean the contracts or documents filed as exhibits to the Company's Form 10-K405 for the Company's fiscal year ended June 30, 2000, pursuant to Item 601 of Regulation S-K promulgated under the Act, as such Operative Documents may be amended or modified at or as of the effective time of the Registration Statement. 2. REPRESENTATIONS AND WARRANTIES OF THE SELLING STOCKHOLDERS. Each Selling Stockholder severally represents and warrants to, and agrees with, the Underwriters, with respect to such Selling Stockholder only, that: 10 (a) Such Selling Stockholder on the Closing Date and the Additional Closing Date, if any, will have good and marketable title to the Selling Stockholders Firm Shares and, if applicable, any Additional Shares to be sold by such Selling Stockholder hereunder and full right, power and authority to enter into this Agreement and Custody Agreement and Power of Attorney (each, a "Custody Agreement and Power of Attorney"), relating to the deposit of the Shares to be sold by such Selling Stockholder and appointing certain individuals as such Selling Stockholder's attorneys-in-fact (an "Attorney-in-Fact") and to sell, assign, transfer and deliver the Selling Stockholder Firm Shares and any such Additional Shares to be sold by such Selling Stockholder as set forth on Schedule II hereto, free and clear of all voting trust arrangements, pledges, liens, encumbrances, equities, security interests and claims; and upon the delivery and payment for such Shares hereunder, the several Underwriters will acquire good and marketable title to such Shares, free and clear of all voting trust arrangements, pledges, liens, encumbrances, equities, security interests and claims. (b) This Agreement and the Custody Agreement and Power of Attorney executed by such Selling Stockholder and the transactions contemplated herein and therein have been duly and validly authorized by each Selling Stockholder, and this Agreement and each Custody Agreement and Power of Attorney has been duly and validly executed and delivered by each Selling Stockholder. (c) The execution, delivery and performance of this Agreement and the Custody Agreement and Power of Attorney and the consummation of the transactions contemplated hereby and thereby will not (A) conflict with or result in a breach of any of the terms and provisions of, or constitute a default (or an event which with notice or lapse of time, or both, would constitute a default) under, or result in the creation or imposition of any lien, charge or encumbrance upon any property or assets of such Selling Stockholder pursuant to any agreement, instrument, franchise, license or permit to which such Selling Stockholder is a party or by which any of his properties or assets may be bound or (B) violate or conflict with any provisions of any partnership agreement, trust agreement or other organizational documents, as the case may be, of such Selling Stockholder or any judgment, decree, order, statute, rule or regulation of any court or any public, governmental or regulatory agency or body having jurisdiction over such Selling Stockholder or any of his properties or assets. No consent, approval, authorization, order, registration, filing, qualification, license or permit of or with any court or any public, governmental or regulatory agency or body having jurisdiction over such Selling Stockholder or any of his properties or assets is required for the execution, delivery and performance of this Agreement or the Custody Agreement and Power of Attorney by such Selling Stockholder or the consummation of the transactions contemplated hereby or thereby, except the registration under the Act of the Shares to be sold by such Selling Stockholder, filings under the Exchange Act resulting from the sale of the Selling Stockholder Firm Shares and the Additional Shares, if any, to be sold by such Selling Stockholder and such consents, approvals, authorizations, orders, registrations, filings, 11 qualifications, licenses and permits as may be required under state securities or Blue Sky laws in connection with the purchase and distribution of the Shares to be sold by such Selling Stockholder by the Underwriters. (d) The Custody Agreement and Power of Attorney executed by such Selling Stockholder has been duly authorized, executed and delivered by or on behalf of such Selling Stockholder and is a valid and binding agreement of such Selling Stockholder, enforceable in accordance with its terms, and pursuant to such Custody Agreement and Power of Attorney (subject, as to enforcement, to applicable bankruptcy, insolvency, reorganization and moratorium laws and other laws affecting the enforcement of creditors' rights generally and to equitable principles) such Selling Stockholder has, among other things, authorized the designated Attorneys-in-Fact to execute and deliver on such Selling Stockholder's behalf this Agreement and any other document that an Attorney-in-Fact may deem necessary or desirable in connection with the transactions contemplated hereby and thereby and to deliver the Shares to be sold by such Selling Stockholder pursuant to this Agreement. (e) Such Selling Stockholder has not taken nor will take, directly or indirectly, any action designed to cause, result in, or which constitute or which might reasonably be expected to constitute, the stabilization or manipulation of the price of the shares of Common Stock to facilitate the sale or resale of the Shares. (f) At the time of the effectiveness of the Registration Statement or the effectiveness of the post-effective amendment to the Registration Statement, when the Prospectus is first filed with the Commission pursuant to the Rule 424(b) of the Regulations, when any supplement to or amendment of the Prospectus is filed with the Commission, when any document is filed under the Exchange Act and at the Closing Date and the Additional Closing Date, if any, the Registration Statement and the Prospectus and any amendments thereof and supplements thereto, insofar as they relate to such Selling Stockholder (in his capacity as Selling Stockholder), comply or will comply in all material respects with the applicable provisions of the Act and the Regulations and the Exchange Act and the respective rules and regulations thereunder and do not or will not contain an untrue statement of a material fact and do not or will not omit to state any material fact required to be stated therein or necessary in order to make the statements therein (i) in the case of the Registration Statement, not misleading and (ii) in the case of the Prospectus, in light of the circumstances in which they were made, not misleading. When any related Preliminary Prospectus was first filed with the Commission (whether filed as part of the Registration Statement or pursuant to Rule 424(a) of the Regulations) and when any amendment thereof or supplement thereto was first filed with the Commission, insofar as such Preliminary Prospectus relates to such Selling Stockholder (in his capacity as a Selling Stockholder), such Preliminary Prospectus and any amendments thereof and supplements thereto complied in all material respects with the applicable provisions of the Act and the Regulations and the Exchange Act and the respective rules and regulations thereunder and did not contain an untrue statement of a 12 material fact and did not omit to state any material fact required to be stated therein or necessary to make the statements therein in light of the circumstances under which they were made not misleading. No representation and warranty is made in this subsection (f), however, with respect to any information contained in or omitted from the Registration Statement or the Prospectus or any related Preliminary Prospectus or any amendment thereof or supplement thereto in reliance upon and in conformity with information furnished in writing to the Company by or on behalf of any Underwriter through you as herein stated expressly for use in connection with the preparation thereof. (g) At any time during the period commencing on the first business day after the date of this Agreement and from time to time thereafter for such period as in the reasonable opinion of Underwriters' Counsel (as defined below) a prospectus is required by law to be delivered in connection with sales by an Underwriter or dealer, if there is any change in the information referred to in Section 2(f) above, such Selling Stockholder will promptly notify you and the Company of such change. (h) Such Selling Stockholder agrees with the Company and the Underwriters, except as provided in this Agreement, not to sell, offer or agree to sell, grant any option for the sale of, pledge or otherwise dispose of, directly or indirectly, any Common Stock for a period of 180 days after this Agreement becomes effective without your prior written consent. (i) In order to document the Underwriters' compliance with the reporting and withholding provisions of the Internal Revenue Code of 1986, as amended, with respect to the transactions herein contemplated, such Selling Stockholder agrees to deliver to you prior to or on the Closing Date and Additional Closing Date, if applicable, a properly completed and executed United States Treasury Department Form W-9 (or other applicable form or statement specified by Treasury Department regulations in lieu thereof). 3. PURCHASE, SALE AND DELIVERY OF THE SHARES. (a) On the basis of the representations, warranties, covenants and agreements herein contained, but subject to the terms and conditions herein set forth, the Company and each Selling Stockholder, severally and not jointly, agree to sell to the Underwriters and the Underwriters, severally and not jointly, agree to purchase from the Company and the Selling Stockholders, at a purchase price per share of $_______, the number of Firm Shares set forth opposite the respective names of the Underwriters in Schedule I hereto plus any additional number of Shares which such Underwriter may become obligated to purchase pursuant to the provisions of Section 10 hereof. (b) Payment of the purchase price for, and delivery of certificates for, the Shares shall be made at the office of Gibson, Dunn & Crutcher LLP, 200 Park Avenue, New York, New York 10166, or at such other place as shall be agreed upon by you and 13 the Company, at 10:00 A.M., New York City time on the third or fourth business day (as permitted under Rule 15c6-1 under the Exchange Act) (unless postponed in accordance with the provisions of Section 10 hereof) following the date of the effectiveness of the Registration Statement (or, if the Company has elected to rely upon Rule 430A of the Regulations, the third or fourth business day (as permitted under Rule 15c6-1 under the Exchange Act) after the determination of the public offering price of the Shares), or such other time not later than ten business days after such date as shall be agreed upon by you and the Company (such time and date of payment and delivery being herein called the "Closing Date"). Payment shall be made to the Company and the Selling Stockholders c/o the Company by wire transfer in same day funds, against delivery to you or through the facilities of the Depository Trust Company for the respective accounts of the Underwriters of certificates for the Shares to be purchased by them. Certificates for the Shares shall be registered in such name or names and in such authorized denominations as you may request in writing at least two full business days prior to the Closing Date. You will be permitted to examine and package such certificates for delivery at least one full business day prior to the Closing Date. (c) In addition, the Company hereby grants to the Underwriters the option to purchase up to ______ Additional Shares at the same purchase price per share to be paid by the Underwriters to the Company and the Selling Stockholders for the Firm Shares as set forth in this Section 3, for the sole purpose of covering over-allotments in the sale of Firm Shares by the Underwriters. This option may be exercised from time to time and at any time, in whole or in part, on or before the thirtieth day following the date of the Prospectus, by written notice by you to the Company and the Selling Stockholder. Such notice shall set forth the aggregate number of Additional Shares as to which the option is being exercised and the date and time, as reasonably determined by you, when the Additional Shares are to be delivered (such date and time being herein sometimes referred to as the "Additional Closing Date"); PROVIDED, HOWEVER, that the Additional Closing Date shall not be earlier than the Closing Date or earlier than the second full business day after the date on which the option shall have been exercised nor later than the eighth full business day after the date on which the option shall have been exercised (unless such time and date are postponed in accordance with the provisions of Section 10 hereof). Certificates for the Additional Shares shall be registered in such name or names and in such authorized denominations as you may request in writing at least two full business days prior to the Additional Closing Date. The Company will permit you to examine and package such certificates for delivery at least one full business day prior to the Additional Closing Date. The number of Additional Shares to be sold to each Underwriter shall be the number which bears the same ratio to the aggregate number of Additional Shares being purchased as the number of Firm Shares set forth opposite the name of such Underwriter in Schedule I hereto (or such number increased as set forth in Section 10 hereof) bears to ___________ [the total number of Firm Shares being purchased from the Company and each Selling Stockholder], subject, however, to such adjustments to 14 eliminate any fractional shares as you in your sole discretion shall make. Payment for the Additional Shares shall be made to the Company by wire transfer in same day funds at the offices of Gibson, Dunn & Crutcher LLP, 200 Park Avenue, New York, New York, 10166, or such other location as may be mutually acceptable to you and the Company, upon delivery of the certificates for the Additional Shares to you for the respective accounts of the Underwriters. 4. OFFERING. Upon your authorization of the release of the Firm Shares, the Underwriters propose to offer the Shares for sale to the public upon the terms and conditions set forth in the Prospectus. 5. COVENANTS OF THE COMPANY. The Company covenants and agrees with the Underwriters that: (a) If the Registration Statement has not yet been declared effective the Company will use its best efforts to cause the Registration Statement and any amendments thereto to become effective as promptly as possible, and if Rule 430A is used or the filing of the Prospectus is otherwise required under Rule 424(b), the Company will file the Prospectus (properly completed if Rule 430A has been used) pursuant to Rule 424(b) within the prescribed time period and will provide evidence satisfactory to you of such timely filing. The Company will notify you immediately (and, if requested by you, will confirm such notice in writing) (i) when the Registration Statement and any amendments thereto become effective, (ii) of any request by the Commission for any amendment of or supplement to the Registration Statement or the Prospectus or for any additional information, (iii) of the mailing or the delivery to the Commission for filing of any amendment of or supplement to the Registration Statement or the Prospectus, (iv) of the issuance by the Commission of any stop order suspending the effectiveness of the Registration Statement or any post-effective amendment thereto or of the initiation, or the threatening, of any proceedings therefor, (v) of the receipt of any comments from the Commission, and (vi) of the receipt by the Company of any notification with respect to the suspension of the qualification of the Shares for sale in any jurisdiction or the initiation or threatening of any proceeding for that purpose. If the Commission shall propose or enter a stop order at any time, the Company will make every reasonable effort to prevent the issuance of any such stop order and, if issued, to obtain the lifting of such order as soon as possible. The Company will not file any amendment to the Registration Statement or any amendment of or supplement to the Prospectus (including the prospectus required to be filed pursuant to Rule 424(b)) that differs from the prospectus on file at the time of the effectiveness of the Registration Statement before or after the effective date of the Registration Statement or, so long as the prospectus delivery requirements are applicable, file any document under the Exchange Act if such document would be deemed to be incorporated by reference into the Prospectus to which you shall 15 reasonably object in writing after being reasonably timely furnished in advance a copy thereof. (b) If at any time when a prospectus relating to the Shares is required to be delivered under the Act or the Exchange Act in connection with sales of Shares, any event shall have occurred as a result of which the Prospectus as then amended or supplemented would, in the judgment of the Underwriters or the Company, include an untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading, or if it shall be necessary at any time to amend or supplement the Prospectus or Registration Statement to comply with the Act or the Regulations, or to file under the Exchange Act so as to comply therewith any document incorporated by reference in the Registration Statement or the Prospectus or in any amendment thereof or supplement thereto, the Company will notify you promptly and prepare and file with the Commission an appropriate amendment or supplement (in form and substance reasonably satisfactory to you) which will correct such statement or omission or which will effect such compliance and will use its best efforts to have any amendment to the Registration Statement declared effective as soon as possible. (c) The Company will promptly deliver to each of the Underwriters and Underwriter's Counsel a signed copy of the Registration Statement, including exhibits and all documents incorporated by reference therein and all amendments thereto, and the Company will promptly deliver to each of the Underwriters such number of copies of any Preliminary Prospectus, the Prospectus, the Registration Statement, all amendments of and supplements to such documents, if any, all documents incorporated by reference in the Registration Statement and Prospectus or any amendment thereof or supplement thereto, without exhibits, as you may reasonably request. Prior to 10:00 A.M., New York time, on the business day next succeeding the date of this Agreement and from time to time thereafter the Company will furnish each Underwriter without charge with copies of the Prospectus in New York City in such quantities as you may reasonably request. (d) The Company will endeavor in good faith, in cooperation with you, at or prior to the time of effectiveness of the Registration Statement, to qualify the Shares for offering and sale under the securities laws relating to the offering or sale of the Shares in such jurisdictions as you may designate and to maintain such qualification in effect for so long as required for the distribution thereof; except that in no event shall the Company be obligated in connection therewith to qualify as a foreign corporation or take any action that would subject it to general service of process in any jurisdiction where it is not presently qualified or where it would be subject to taxation as a foreign corporation. (e) The Company will make generally available (within the meaning of Section 11(a) of the Act) to its security holders and to you as soon as practicable, but not later than eighteen months after the effective date of the Registration Statement (as defined in Rule 158(c) under the Act), an earnings statement of the Company and the 16 Subsidiaries (which need not be audited) complying with Section 11(a) of the Act and the rules and regulations of the Commission thereunder. (f) During the period of 180 days from the date of the Prospectus, the Company will not, directly or indirectly, without your prior written consent, issue, sell, offer or agree to sell, grant any option for the sale of, pledge, make any short sale or maintain any short position, establish or maintain a "put equivalent position" (within the meaning of Rule 16-a-1(h) under the Securities Exchange Act of 1934, as amended), enter into any swap, derivative transaction or other arrangement that transfers to another, in whole or in part, any of the economic consequences of ownership of the Common Stock (whether any such transaction is to be settled by delivery of Common Stock, other securities, cash or other consideration) or otherwise dispose of, any Common Stock (or any securities convertible into, exercisable for or exchangeable for Common Stock) or interest therein of the Company or of any of the Subsidiaries, and the Company will obtain the undertaking of each of its executive officers and directors and such of its shareholders as have been heretofore designated by you and listed on Schedule II attached hereto not to engage in any of the aforementioned transactions on their own behalf, other than the Company's or a Selling Stockholder's, as applicable, sale of Shares hereunder and the Company's issuance of Common Stock upon (i) the conversion or exchange of outstanding convertible or exchangeable securities; (ii) the exercise of presently outstanding options; (iii) the exercise of currently outstanding warrants; and (iv) the grant and exercise of options under, or the issuance and sale of shares pursuant to, employee stock option plans or employee stock purchase plans in effect on the date hereof. (g) During the period of three years from the effective date of Registration Statement, the Company will furnish to you copies of all reports or other communications (financial or other) furnished to security holders, and to deliver to you (i) as soon as they are available, copies of any reports and financial statements furnished to or filed with the Commission or any national securities exchange on which any class of securities of the Company listed, in all such instances, to the extent not publicly available through the Internet or similar methods; and (ii) such additional information concerning the business and financial condition of the Company as you may from time to time reasonably request (such financial statements to be on a consolidated basis to the extent the accounts of the Company and the Subsidiaries are consolidated in reports furnished to its security holders generally or to the Commission). (h) The Company will apply the proceeds from the sale of the Shares as set forth under the caption "Use of Proceeds" in the Prospectus. (i) The Company will use its best efforts to list for quotation the Shares on The Nasdaq National Market. (j) The Company, during the period when the Prospectus is required to be 17 delivered under the Act or the Exchange Act, will file all documents required to be filed with the Commission pursuant to Section 13, 14 or 15 of the Exchange Act within the time periods required by the Exchange Act and the rules and regulations thereunder. 6. PAYMENT OF EXPENSES. Whether or not the transactions contemplated in this Agreement are consummated or this Agreement is terminated, the Company hereby agrees to pay all costs and expenses incident to the performance of the obligations of the Company hereunder, including the following: (i) the fees, disbursements and expenses of the Company's counsel and accountants in connection with the registration of the Shares under the Act and all other expenses in connection with the preparation, printing and filing of the Registration Statement, any Preliminary Prospectus and the Prospectus and amendments and supplements thereto and the mailing and delivering of copies thereof to the Underwriters and dealers; (ii) the cost of producing any Agreement Among Underwriters, this Agreement, the Blue Sky Memoranda closing documents (including any compilations thereof) and any other documents in connection with the offering, purchase, sale and delivery of the Shares; (iii) all expenses in connection with the qualification of the Shares for offering and sale under state securities laws as provided in Section 5(d) hereof, including the fees and disbursements of counsel for the Underwriters in connection with such qualification and in connection with the Blue Sky survey; (iv) all fees and expenses in connection with listing the Shares on The Nasdaq National Market; (v) all travel expenses of the Company's officers and employees and any other expense of the Company incurred in connection with attending or hosting meetings with prospective purchasers of the Shares; and (vi) the filing fees incident to, and the fees and disbursements of counsel for the Underwriters in connection with, securing any required review by the National Association of Securities Dealers, Inc. of the terms of the sale of the Shares. The Company also will pay or cause to be paid: (i) the cost of preparing stock certificates; (ii) the cost and charges of any transfer agent or registrar; and (iii) all other costs and expenses incident to the performance of its obligations hereunder which are not otherwise specifically provided for in this Section 5. It is understood, however, that except as provided in this Section, and Sections 8 and 12 hereof, the Underwriters will pay all of their own costs and expenses, including the fees of their counsel, stock transfer taxes on resale of any of the Shares by them, and any advertising expenses connected with any offers they may make. 7. CONDITIONS OF UNDERWRITERS' OBLIGATIONS. The obligations of the Underwriters to purchase and pay for the Firm Shares and the Additional Shares, as provided herein, shall be subject to the accuracy of the representations and warranties of the Company and the Selling Stockholders herein contained, as of the date hereof and as of the Closing Date (for purposes of this Section 7 "Closing Date" shall refer to the Closing Date for the Firm Shares and any Additional Closing Date, if different, for the Additional Shares), to the absence from any certificates, opinions, written statements or letters furnished to you or to Gibson, Dunn & Crutcher LLP ("Underwriters' Counsel") pursuant to this Section 7 of any misstatement or omission, to the performance by the Company of its obligations hereunder, and to the following additional conditions: 18 (a) The Registration Statement (including any 462(b) Registration Statement) shall have become effective not later than, if pricing pursuant to Rule 430A: 5:30 P.M., New York time, on the date of this Agreement or at such later time and date as shall have been consented to in writing by you; if the Company shall have elected to rely upon Rule 430A of the Regulations, the Prospectus shall have been filed with the Commission in a timely fashion in accordance with Section 5(a) hereof; and, at or prior to the Closing Date no stop order suspending the effectiveness of the Registration Statement or any post-effective amendment thereof shall have been issued and no proceedings therefor shall have been initiated or threatened by the Commission. (b) At the Closing Date, you shall have received the favorable written opinion of Fulbright & Jaworski L.L.P., counsel for the Company, dated the Closing Date addressed to the Underwriters and in form and substance satisfactory to Underwriters' Counsel, to the effect that: (i) Each of the Company and the Subsidiaries has been duly incorporated (or organized, as applicable) and is validly existing as an entity in good standing under the laws of its jurisdiction of incorporation (or organization as applicable). Each of the Company and the Subsidiaries is duly qualified and in good standing as a foreign corporation in each jurisdiction in which the character or location of its properties (owned, leased or licensed) or the nature or conduct of its business makes such qualification necessary. All of the issued and outstanding capital stock of each Subsidiary of the Company has been duly and validly issued and is fully paid and non-assessable and was not issued in violation of preemptive rights and, to the best of such counsel's knowledge, is owned, directly or indirectly, by the Company, free and clear of any lien, encumbrance, claim, security interest, restriction on transfer, stockholders' agreement, voting trust or other defect of title whatsoever. (ii) The Company has the authorized capitalization set forth in the Registration Statement and the Prospectus under the caption heading "Capitalization" and all of the issued shares of capital stock of the Company have been duly and validly authorized and issued, are fully paid and non-assessable and were not issued in violation of or subject to any preemptive or, to the best of such counsel's knowledge, rights that entitle or will entitle any person to acquire any shares of common stock from the Company upon issuance thereof by the Company, except for such rights as may have been fully satisfied or waived prior to the effectiveness of the Registration Statement; the Shares to be delivered on the Closing Date and the Additional Closing Date, if any, (as hereinafter respectively defined) have been duly and validly authorized and, when paid for and delivered by the Company in accordance with this Agreement, will be duly and validly issued, fully paid and non-assessable and will not have been issued in violation of or subject to any preemptive or, to the best of such counsel's 19 knowledge rights, that entitle or will entitle any person to acquire any Shares from the Company upon issuance thereof by the Company; and all of the issued shares of capital stock of each Subsidiary have been duly and validly authorized and issued and are fully paid and non-assessable and are owned directly or indirectly by the Company, free and clear of all liens, encumbrances, equities or claims; the Common Stock and the Shares conform to the descriptions thereof contained in the Registration Statement and the Prospectus. (iii) The Common Stock currently outstanding is listed, and the Shares to be sold under this Agreement to the Underwriters are duly authorized for quotation on the Nasdaq National Market. (iv) This Agreement has been duly and validly authorized, executed and delivered by the Company. (v) To the best of such counsel's knowledge, there is no legal or governmental or other action, suit, proceeding or investigation before any court or before or by any public, regulatory or governmental agency or body pending or to the best of such counsel's knowledge, threatened against, or involving the properties or business of, the Company or any of the Subsidiaries, which is of a character required to be disclosed in the Registration Statement and the Prospectus which has not been disclosed therein. (vi) The execution, delivery, and performance of this Agreement and the consummation of the transactions contemplated hereby by the Company do not and will not (A) conflict with or result in a breach of any of the terms and provisions of, or constitute a default (or an event which with notice or lapse of time, or both, would constitute a default) under, or result in the creation or imposition of any lien, charge or encumbrance upon any property or assets of the Company or any of the Subsidiaries pursuant to, any agreement, instrument, franchise, license or permit specified in an exhibit to such opinion or (B) violate or conflict with any provision of (x) the certificate or articles of incorporation or by-laws of the Company or any of the Subsidiaries, or, to the best of such counsel's knowledge, any judgment, decree, order, statute, rule or regulation of any court or any public, governmental or regulatory agency or body having jurisdiction over the Company or any of the Subsidiaries or any of their respective properties or assets or (y) the terms and provisions of any of the Operative Documents. No consent, approval, authorization, order, registration, filing, qualification, license or permit of or with any court or any public, governmental or regulatory agency or body having jurisdiction over the Company or any of the Subsidiaries or any of their respective properties or assets is required for the execution, delivery and performance of this Agreement or the consummation of the transactions contemplated hereby, except for (1) such as may be required under state securities or Blue Sky laws in connection with the purchase and 20 distribution of the Shares by the Underwriters (as to which such counsel need express no opinion) and (2) such as have been made or obtained under the Act and (3) such as are required by the National Association of Securities Dealers, Inc. (vii) The Registration Statement and the Prospectus and any amendments thereof or supplements thereto (other than the financial statements and schedules and other financial data included or incorporated by reference therein, as to which no opinion need be rendered) comply as to form in all material respects with the requirements of the Act and the Rules and Regulations. The documents filed under the Exchange Act and incorporated by reference in the Registration Statement and the Prospectus or any amendment thereof or supplement thereto (other than the financial statements and schedules and other financial data included or incorporated by reference therein, as to which no opinion need be rendered) when they became effective or were filed with the Commission, as the case may be, complied as to form in all material respects with the Act or the Exchange Act, as applicable, and the rules and regulations of the Commission thereunder; and such counsel has no reason to believe that any of such documents, when such documents became effective or were so filed, as they case may be, contained, in the case of a registration statement which became effective under the Act, an untrue statement of a material fact, or omitted to state a material fact required to be stated therein or necessary to make the statements therein not misleading, or, in the case of other documents which were filed under the Exchange Act with the Commission, an untrue statement of a material fact or omitted to state a material fact necessary in order to make the statements therein, in the light of the circumstances under which they were made when such documents were so filed, not misleading. (viii) The statements under the captions "Prospectus Summary", "Risk Factors", "Management's Discussion and Analysis of Financial Condition and Results of Operations", "Business", "Management", "Transactions with Related Parties", "Description of Capital Stock" and "Underwriting" in the Prospectus and Items 14 and 15 of Part II of the Registration Statement, insofar as such statements constitute a summary of the legal matters, documents or proceedings referred to therein, fairly present the information called for with respect to such legal matters, documents and proceedings, except for purposes of this opinion matters relating to intellectual property. (ix) The Company is not and, after giving effect to the offering and sale of the Shares and the application of the proceeds thereof as described in the Prospectus, will not be, an "investment company" as such term is defined in the Investment Company Act of 1940, as amended. (x) The Company has full right, power and authority to execute 21 and deliver this Agreement, to deliver the Shares and to perform its obligations hereunder, and all corporate action required to be taken for the due and proper authorization, execution and delivery of this Agreement, the deliver of the Shares and the consummation of the transactions contemplated by this Agreement and as described in the Prospectus have been duly and validly taken. (xi) To the best knowledge of the Company, no contract or agreement is required to be filed as an exhibit to the Registration Statement that is not so filed. (xii) To the best of such counsel's knowledge after due inquiry, neither the Company nor any of the Subsidiaries is in violation of its respective charter or by-laws and neither the Company nor any of the Subsidiaries is in default in the performance of any obligation, agreement, covenant or condition contained in any indenture, loan agreement, mortgage, lease or other agreement or instrument that filed as an exhibit to any of the Company's filings with the Commission, taken as a whole, to which the Company or any of the Subsidiaries is a party or by which the Company or any of the Subsidiaries or their respective property is bound. (xiii) The Registration Statement is effective under the Act, and, to the best of such counsel's knowledge after due inquiry, no stop order suspending the effectiveness of the Registration Statement or any post-effective amendment thereof has been issued and no proceedings therefor have been initiated or threatened by the Commission and all filings required by Rule 424(b) of the Regulations have been made. In addition, such opinion shall also contain a statement that such counsel has participated in conferences with officers and representatives of the Company, representatives of the independent public accountants for the Company and the Underwriters at which the contents and the Prospectus and related matters were discussed and, no facts have come to the attention of such counsel which would lead such counsel to believe that either the Registration Statement, at the time it became effective (including the information deemed to be part of the Registration Statement at the time of effectiveness pursuant to Rule 430A(b) or Rule 434, if applicable), or any amendment thereof made prior to the Closing Date, as of the date of such amendment, contained or incorporated by reference any untrue statement of a material fact or omitted to state any material fact required to be stated therein or necessary to make the statements therein not misleading or that the Prospectus (including the documents incorporated by reference therein), as of its date (or any amendment thereof or supplement thereto made prior to the Closing Date as of the date of such amendment or supplement) and as of the Closing Date, contained or contains an untrue statement of a material fact or omitted or omits to state any material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading (it 22 being understood that such counsel need express no belief or opinion with respect to the financial statements and schedules and other financial data included or incorporated by reference therein). In rendering such opinion, such counsel may rely (A) as to matters involving the application of laws other than the laws of the United States and jurisdictions in which they are admitted, to the extent such counsel deems proper and to the extent specified in such opinion, if at all, upon an opinion or opinions (in form and substance reasonably satisfactory to Underwriters' Counsel) of other counsel reasonably acceptable to Underwriters' Counsel, familiar with the applicable laws; (B) as to matters involving incorporations in other jurisdictions, on a reading of the applicable statutes without any review of judicial or administrative interpretations thereof and (C) as to matters of fact, to the extent they deem proper, on certificates of responsible officers of the Company and certificates or other written statements of officers of departments of various jurisdictions having custody of documents respecting the corporate existence or good standing of the Company and the Subsidiaries, provided that copies of any such statements or certificates shall be delivered to Underwriters' Counsel. In addition, as to matters relating to existence, good standing (or the equivalent thereof) or authority of any of the Subsidiaries, such counsel's review shall be limited to the following: (w) the minute books of each such Subsidiary; (x) the stock transfer ledgers of each such Subsidiary; (y) good standing (or the equivalent thereof) certificates of each such Subsidiary; and (z) the actual knowledge of such counsel. The opinion of such counsel for the Company shall state that the opinion of any such other counsel is in form satisfactory to such counsel and, in their opinion, you and they are justified in relying thereon. (c) At the Closing Date, you shall have received the favorable written opinion of Fish & Richardson P.C., intellectual property counsel for the Company, dated the Closing Date addressed to the Underwriters and in form and substance satisfactory to Underwriters' Counsel, to the effect that: The Company owns, holds, licenses to or otherwise has rights to use, all of the Intellectual Property reasonably necessary for the conduct of the Company's business as now conducted or as proposed in the Prospectus to be conducted. Except as set forth in the Prospectus under the caption "Business--Intellectual Property": (A) there are no rights of third parties to any such Intellectual Property; (B) to the knowledge of such counsel, there is no infringement by third parties of any such Intellectual Property; (C) there is no pending or, to such counsel's knowledge, threatened action, suit, proceeding or claim by others challenging the Company's rights in or to any such Intellectual Property, and counsel is unaware of any facts which would form a reasonable basis for any such claim; (D) there is no pending or, to the knowledge of such counsel, threatened action, suit, proceeding or claim by others challenging the validity or scope of any such Intellectual Property, and counsel is unaware of any 23 facts which would form a reasonable basis for any such claim; (E) there is no pending or, to such counsel's knowledge, threatened action, suit, proceeding or claim by others that the Company infringes or otherwise violates any patent, trademark, copyright, trade secret or other proprietary rights of others, and such counsel is unaware of any other fact which would form a reasonable basis for any such claim; and (F) there is no prior art of which such counsel is aware that may render any U.S. patent held by the Company invalid or any U.S. patent application held by the Company unpatentable which has not been disclosed to the U.S. Patent and Trademark Office. In rendering such opinion, such counsel may rely (A) as to matters involving the application of laws other than the laws of the United States and jurisdictions in which they are admitted, to the extent such counsel deems proper and to the extent specified in such opinion, if at all, upon an opinion or opinions (in form and substance reasonably satisfactory to Underwriters' Counsel) of other counsel reasonably acceptable to Underwriters' Counsel, familiar with the applicable laws; (B) as to matters involving incorporations in other jurisdictions, on a reading of the applicable statutes without any review of judicial or administrative interpretations thereof; and (C) as to matters of fact, to the extent they deem proper, on certificates of responsible officers of the Company and certificates or other written statements of officers of departments of various jurisdictions having custody of documents respecting the corporate existence or good standing of the Company and the Subsidiaries, provided that copies of any such statements or certificates shall be delivered to Underwriters' Counsel. The opinion of such counsel for the Company shall state that the opinion of any such other counsel is in form satisfactory to such counsel and, in their opinion, you and they are justified in relying thereon. (d) At the Closing Date, you shall have received the opinion of counsel to the Selling Stockholders addressed to the Underwriters and in form and substance satisfactory to the Underwriters' Counsel, to the effect: (i) The Underwriting Agreement has been duly executed and delivered by or on behalf of each Selling Stockholder. (ii) Each Selling Stockholder has, to the knowledge of such counsel after due inquiry, good and valid title to all of the Shares which may be sold by such Selling Stockholder under the Underwriting Agreement and has, to the knowledge of such counsel after due inquiry, the legal right and power, and, to the knowledge of such counsel after due inquiry, all authorizations and approvals required to enter into the Underwriting Agreement and its Custody Agreement and Power of Attorney, to sell, transfer and deliver all of the Shares which may be sold by such Selling Stockholder under the Underwriting Agreement and to comply with its other obligations under the Underwriting Agreement, its Custody Agreement and Power of Attorney. 24 (iii) The Custody Agreement and Power of Attorney of each Selling Stockholder has been duly executed and delivered by such Selling Stockholder and is a valid and binding agreement of such Selling Stockholder, enforceable in accordance with its terms, subject, as to enforcement, to applicable bankruptcy, insolvency, reorganization and moratorium laws and other laws affecting the enforcement of creditors' rights generally and to equitable principles. (iv) Assuming that the Underwriters purchase the Shares which are sold by each Selling Stockholder pursuant to the Underwriting Agreement for value, in good faith and without notice of any adverse claims, the delivery of such Shares pursuant to the Underwriting Agreement will pass good and valid title to such Shares, free and clear of any security interest, mortgage, pledge, lieu encumbrance or other claim. (v) To the best of such counsel's knowledge, no consent, approval, authorization or other order of, or registration or filing with, any court or governmental authority or agency, is required for the consummation by any Selling Stockholder of the transactions contemplated in the Underwriting Agreement, except as required under the Securities Act, applicable state securities or blue sky laws, and from the NASD. In rendering such opinion, such counsel may rely (A) as to matters involving the application of laws other than the laws of the United States and jurisdictions in which they are admitted, to the extent such counsel deems proper and to the extent specified in such opinion, if at all, upon an opinion or opinions (in form and substance reasonably satisfactory to Underwriters' Counsel) of other counsel reasonably acceptable to Underwriters' Counsel, familiar with the applicable laws; (B) as to matters of fact, to the extent they deem proper, on certificates of the Selling Stockholders or responsible officers of the Selling Stockholders and certificates or other written statements of officers of departments of various jurisdictions having custody of documents respecting the corporate existence or good standing of the Selling Stockholders, provided that copies of any such statements or certificates shall be delivered to Underwriters' Counsel. The opinion of such counsel shall state that the opinion of any such other counsel is in form satisfactory to such counsel and, in their opinion, you and they are justified in relying thereon. (e) All proceedings taken in connection with the sale of the Firm Shares and the Additional Shares as herein contemplated shall be satisfactory in form and substance to you and to Underwriters' Counsel, and the Underwriters shall have received from said Underwriters' Counsel a favorable opinion, dated as of the Closing Date with respect to the issuance and sale of the Shares, the Registration Statement and the Prospectus and such other related matters as you may reasonably require, and the Company shall have furnished to Underwriters' Counsel such documents as they 25 reasonably request for the purpose of enabling them to pass upon such matters. (f) At the Closing Date, you shall have received a certificate of the Chief Executive Officer and Chief Financial Officer of the Company, dated the Closing Date, to the effect that (i) the condition set forth in subsection (a) of this Section 7 has been satisfied, (ii) as of the date hereof and as of the Closing Date the representations and warranties of the Company set forth in Section 1 hereof are accurate, (iii) as of the Closing Date the obligations of the Company to be performed hereunder on or prior thereto have been duly performed and (iv) subsequent to the respective dates as of which information is given in the Registration Statement and the Prospectus, the Company and the Subsidiaries have not sustained any material loss or interference with their respective businesses or properties from fire, flood, hurricane, accident or other calamity, whether or not covered by insurance, or from any labor dispute or any legal or governmental proceeding, and there has not been any material adverse change, or any development involving a material adverse change, in the business, properties, operations, condition (financial or other) or results of operations of the Company and the Subsidiaries taken as a whole, except in each case as described in or contemplated by the Prospectus. (g) At the time this Agreement is executed and at the Closing Date, you shall have received a letter, from KPMG LLP, independent public accountants for the Company, dated, respectively, as of the date of this Agreement and as of the Closing Date addressed to the Underwriters and in form and substance satisfactory to you, to the effect that: (i) they are independent certified public accountants with respect to the Company within the meaning of the Act and the Regulations and stating that the answer to Item 10 of the Registration Statement is correct insofar as it relates to them; (ii) stating that, in their opinion, the financial statements and schedules of the Company incorporated by reference in the Registration Statement and the Prospectus and covered by their opinion therein comply as to form in all material respects with the applicable accounting requirements of the Act and the Exchange Act and the applicable published rules and regulations of the Commission thereunder; (iii) on the basis of procedures referred to in such letter, including, without limitation, a reading of the Company's unaudited consolidated balance sheet at December 31, 2000, the Company's unaudited statement of income for the six months ended December 31, 2000 and the Company's consolidated statement of cash flows for the six months ended December 31, 2000 and a reading of the minutes of meetings and consents of the stockholders and boards of directors of the Company and the Subsidiaries and the committees of such boards subsequent to June 30, 2000, inquiries of officers and other employees of the Company and the Subsidiaries who have responsibility for financial and accounting matters of the Company and the Subsidiaries with respect to transactions and events subsequent to June 30, 2000, and other specified procedures and inquiries to a date not more than five days prior to the date of such letter, nothing has come to their attention that would cause them to believe that: (A) with respect to the period subsequent to June 30, 2000 there were, as of the date of the most recent available monthly consolidated financial statements of the Company and the Subsidiaries and as of a specified date not more than five days prior to the date of 26 such letter, any changes in the capital stock or long-term indebtedness of the Company or any decrease in the net current assets or stockholders' equity of the Company, in each case as compared with the amounts shown in the most recent balance sheet presented in the Registration Statement and the Prospectus, except for changes or decreases which the Registration Statement and the Prospectus disclose have occurred or may occur or which are set forth in such letter; (B) with respect to the period subsequent to December 31, 2000 there were, as of the date of the most recent available monthly consolidated financial statements of the Company and the Subsidiaries and as of a specified date not more than five days prior to the date of such letter, any changes in the capital stock or long-term indebtedness of the Company or any decrease in the net current assets or stockholders' equity of the Company, in each case as compared with the amounts shown in the most recent balance sheet presented in the Registration Statement and the Prospectus, except for changes or decreases which the Registration Statement and the Prospectus disclose have occurred or may occur or which are set forth in such letter; or (C) that during the period from December 31, 2000 to the date of the most recent available monthly consolidated financial statements of the Company and the Subsidiaries, if any, and to a specified date not more than five days prior to the date of such letter, there was any decrease, as compared with the corresponding period in the prior fiscal year, in total revenues, or total or per share net income, except for decreases which the Registration Statement and the Prospectus disclose have occurred or may occur or which are set forth in such letter; (iv) stating that nothing caused them to believe that the unaudited proforma financial information of the Company included in the Registration Statement does not comply as to form in all material respects with the applicable accounting requirements of Rule 11-02 of Regulation S-X promulgated under the Act or that the proforma adjustments have not been properly applied to the historical amounts in the compilation of such statements; and (v) stating that they have compared specific dollar amounts, numbers of shares, percentages of revenues and earnings, and other financial information pertaining to the Company and the Subsidiaries set forth in the Registration Statement and the Prospectus, which have been specified by you prior to the date of this Agreement, to the extent that such amounts, numbers, percentages, and information may be derived from the general accounting and financial records of the Company and the Subsidiaries or from schedules furnished by the Company, and excluding any questions requiring an interpretation by legal counsel, with the results obtained from the application of specified readings, inquiries, and other appropriate procedures specified by you set forth in such letter, and found them to be in agreement. (h) Prior to the Closing Date the Company shall have furnished to you such further information, certificates and documents as you may reasonably request. (i) You shall have received from (i) each person who is a director or executive officer of the Company or such stockholders as have been heretofore designated by you and listed on Schedule II hereto an agreement to the effect that for a period 27 of 180 days from the date of the Prospectus and (ii) each Selling Stockholder and each related party listed on Schedule III hereto an agreement to the effect that for a period of 180 days from the date of the Prospectus such persons will not, directly or indirectly, without your prior written consent, offer, sell, offer or agree to sell, grant any option to purchase or otherwise dispose (or announce any offer, sale, grant of an option to purchase or other disposition) of any shares of Common Stock (or any securities convertible into, exercisable for or exchangeable or exercisable for shares of Common Stock). (j) At the Closing Date, the Shares shall have been approved for quotation on the Nasdaq National Market upon notice of issuance. (k) On or prior to the Closing Date, you shall have received a properly completed and executed United States Treasury Department Form W-9 (or other applicable form or statement specified by Treasury Department regulations in lieu thereof) from each Selling Stockholder. (l) You shall have also received from KPMG LLP, a letter stating that the Company's system of internal accounting controls taken as a whole is sufficient to meet the broad objectives of internal accounting control insofar as those objectives pertain to the prevention or detection of errors or irregularities in amounts that would be material in relation to the financial statements of the Company and the Subsidiaries. (m) Subsequent to the execution and delivery of this Agreement or, if earlier, the dates as of which information is given in the Registration Statement (exclusive of any amendment thereof) and the Prospectus (exclusive of any supplement thereto), there shall not have been any change in the capital stock or long-term debt of the Company or any of the Subsidiaries or any change, or any development involving a prospective change, in or affecting the condition (financial or otherwise), results of operations, business, properties or prospects of the Company and the Subsidiaries taken as a whole, the effect of which, in any such case described above, is, in the judgment of the Underwriters, so material and adverse as to make it impracticable or inadvisable to proceed with the public offering or the delivery of the Shares on the terms and in the manner contemplated in the Prospectus (exclusive of any supplement). If any of the conditions specified in this Section 7 shall not have been fulfilled when and as required by this Agreement, or if any of the certificates, opinions, written statements or letters furnished to you or to Underwriters' Counsel pursuant to this Section 7 shall not be in all material respects reasonably satisfactory in form and substance to you and to Underwriters' Counsel, all obligations of the Underwriters hereunder may be cancelled by you at, or at any time prior to, the Closing Date and the obligations of the Underwriters to purchase the Additional Shares may be cancelled by you at, or at any time prior to, the Additional Closing Date. Notice of such cancellation shall be given to the Company in writing, or by telephone, electronic mail or facsimile, confirmed in writing. 8. INDEMNIFICATION. 28 (a) The Company shall indemnify and hold harmless each Underwriter and each person, if any, who controls any Underwriter within the meaning of Section 15 of the Act or Section 20(a) of the Exchange Act against any and all losses, liabilities, claims, damages and expenses whatsoever as incurred (including but not limited to reasonable attorneys' fees and any and all expenses whatsoever incurred in investigating, preparing or defending against any litigation, commenced or threatened, or any claim whatsoever, and any and all amounts paid in settlement of any claim or litigation), joint or several, to which they or any of them may become subject under the Act, the Exchange Act or otherwise, insofar as such losses, liabilities, claims, damages or expenses (or actions in respect thereof) arise out of or are based upon any untrue statement or alleged untrue statement of a material fact contained in the Registration Statement for the registration of the Shares, as originally filed or any amendment thereof, or any related Preliminary Prospectus or the Prospectus, or in any supplement thereto or amendment thereof, or arise out of or are based upon the omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading; PROVIDED, HOWEVER, that the Company will not be liable in any such case to any Underwriter or any controlling person of any Underwriter to the extent but only to the extent that any such loss, liability, claim, damage or expense arises out of or is based upon any such untrue statement or alleged untrue statement or omission or alleged omission made therein in reliance upon and in conformity with written information furnished to the Company by or on behalf of any Underwriter through you expressly for use therein. The foregoing indemnity agreement with respect to any Preliminary Prospectus shall not inure to the benefit of any Underwriter who failed to deliver a Prospectus (as then amended or supplemented, provided by the Company to the several Underwriters in the requisite quantity and on a timely basis to permit proper delivery on or prior to the Closing Date) to the person asserting any losses, claims, damages and liabilities and judgments caused by any untrue statement or alleged untrue statement of a material fact contained in any Preliminary Prospectus, or caused by any omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, if such material misstatement or omission or alleged material misstatement or omission was cured, as determined by a court of competent jurisdiction in a decision not subject to further appeal, in such Prospectus and such Prospectus was required by law to be delivered at or prior to the written confirmation of sale to such person. This indemnity agreement will be in addition to any liability which the Company may otherwise have including under this Agreement. (b) Each Selling Stockholder agrees to indemnify and hold harmless each Underwriter and each person, if any, who controls any Underwriter within the meaning of Section 15 of the Act or Section 20(a) of the Exchange Act against any and all losses, liabilities, claims, damages and expenses as incurred (including but not limited to reasonable attorneys' fees and any and all expenses incurred in investigating, preparing or defending against any litigation, commenced or threatened, or any claim, and any and all amounts paid in settlement of any claim or litigation), severally, to which they or any of 29 them may become subject under the Act, the Exchange Act or otherwise, insofar as such losses, liabilities, claims, damages or expenses (or actions in respect thereof) arise out of or are based upon any untrue statement or alleged untrue statement of a material fact relating to such Selling Stockholder contained in the Registration Statement for the registration of the Shares relating to such Selling Stockholder, as originally filed or any amendment thereof, or any related Preliminary Prospectus or the Prospectus, or in any supplement thereto or amendment thereof, or arise out of or are based upon the omission or alleged omission to state therein a material fact relating to such Selling Stockholder required to be stated therein or necessary to make the statements therein not misleading, in each such case to the extent but only to the extent that, with respect to any Selling Stockholder, any such loss, liability, claim, damage or expense arises out of or is based upon any such untrue statement or alleged untrue statement or omission or alleged omission made therein in reliance upon and in conformity with written information furnished to the Company by or on behalf of such Selling Stockholder expressly for use therein. The foregoing indemnity agreement with respect to any preliminary prospectus shall not inure to the benefit of any Underwriter who failed to deliver a Prospectus (as then amended or supplemented, provided by the Company to the several Underwriters in the requisite quantity and on a timely basis to permit proper delivery on or prior to the Closing Date) to the person asserting any losses, claims, damages and liabilities and judgments caused by any untrue statement or alleged untrue statement of a material fact contained in any preliminary prospectus, or caused by any omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, if such material misstatement or omission or alleged material misstatement or omission was cured, as determined by a court of competent jurisdiction in a decision not subject to further appeal, in such Prospectus and such Prospectus was required by law to be delivered at or prior to the written confirmation of sale to such person. This indemnity agreement will be in addition to any liability which such Selling Stockholder may otherwise have including under this Agreement. (c) Each Underwriter severally, and not jointly, agrees to indemnify and hold harmless the Company, each of the directors of the Company, each of the officers of the Company who shall have signed the Registration Statement, and each other person, if any, who controls the Company within the meaning of Section 15 of the Act or Section 20(a) of the Exchange Act, against any losses, liabilities, claims, damages and expenses as incurred (including but not limited to reasonable attorneys' fees and any and all expenses incurred in investigating, preparing or defending against any litigation, commenced or threatened, or any claim, and any and all amounts paid in settlement of any claim or litigation), jointly or severally, to which they or any of them may become subject under the Act, the Exchange Act or otherwise, insofar as such losses, liabilities, claims, damages or expenses (or actions in respect thereof) arise out of or are based upon any untrue statement or alleged untrue statement of a material fact contained in the Registration Statement for the registration of the Shares, as originally filed or any amendment thereof, or any related Preliminary Prospectus or the Prospectus, or in any amendment thereof or supplement thereto, or arise out of or are based upon the omission 30 or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, in each case to the extent, but only to the extent, that any such loss, liability, claim, damage or expense arises out of or is based upon any such untrue statement or alleged untrue statement or omission or alleged omission made therein in reliance upon and in conformity with written information furnished to the Company by or on behalf of any Underwriter through you expressly for use therein; PROVIDED, HOWEVER, that in no case shall any Underwriter be liable or responsible for any amount in excess of the underwriting discount applicable to the Shares purchased by such Underwriter hereunder. This indemnity will be in addition to any liability which any Underwriter may otherwise have including under this Agreement. The Company acknowledges that the statements set forth in the [two paragraphs immediately following the table on the cover page] and in the first table and the first and third paragraphs following such table under the caption "Underwriting" in the Prospectus constitute the only information furnished in writing by or on behalf of any Underwriter expressly for use in the Registration Statement relating to the Shares as originally filed or in any amendment thereof, any related Preliminary Prospectus or the Prospectus or in any amendment thereof or supplement thereto, as the case may be. (d) Promptly after receipt by an indemnified party under subsection (a), (b) or (c) above of notice of any claims or the commencement of any action, such indemnified party shall, if a claim in respect thereof is to be made against the indemnifying party under such subsection, notify each party against whom indemnification is to be sought in writing of the claim or the commencement thereof (but the failure to so notify an indemnifying party shall not relieve it from any liability which it may have under this Section 8 unless such failure adversely affects the ability to defend). An indemnifying party may participate at its own expense in the defense of any such action and to the extent it may elect by written notice delivered to the indemnified party promptly after receiving the aforesaid notice from such indemnified party, to assume the defense thereof with counsel satisfactory to such indemnified party. Notwithstanding the foregoing, the indemnified party or parties shall have the right to employ its or their own counsel in any such case, but the fees and expenses of such counsel shall be at the expense of such indemnified party or parties unless (i) the employment of such counsel shall have been authorized in writing by one of the indemnifying parties in connection with the defense of such action, (ii) the indemnifying parties shall not have employed counsel to have charge of the defense of such action within a reasonable time after notice of commencement of the action (iii) the indemnified party does not diligently defend after assumption of the defense or (iv) such indemnified party or parties shall have reasonably concluded that there may be defenses available to it or them which are different from or additional to those available to one or all of the indemnifying parties (in which case the indemnifying parties shall not have the right to direct the defense of such action on behalf of the indemnified party or parties), in any of which events such fees and expenses shall be borne by the indemnifying parties. In no event shall the indemnifying party be liable for more than one counsel for each 31 indemnified party. No indemnifying party shall, without the prior written consent of the indemnified party, effect any settlement or compromise of, or consent to the entry of judgment with respect to, any pending or threatened action in respect of which the indemnified party is or reasonably could have been a party and indemnity or contribution may be or could have been sought hereunder by the indemnified party, unless such settlement, compromise or judgment (i) includes an unconditional release of the indemnified party from all liability on claims that are or reasonably could have been the subject matter of such action and (ii) does not include a statement as to or an admission of fault, culpability or a failure to act, by or on behalf of the indemnified party. 9. CONTRIBUTION. In order to provide for contribution in circumstances in which the indemnification provided for in Section 8 hereof is for any reason held to be unavailable from any indemnifying party or is insufficient to hold harmless a party indemnified thereunder, the Company, the Selling Stockholders and the Underwriters shall contribute to the aggregate losses, claims, damages, liabilities and expenses of the nature contemplated by such indemnification provision (including any investigation, legal and other expenses incurred in connection with, and any amount paid in settlement of, any action, suit or proceeding or any claims asserted, but after deducting in the case of losses, claims, damages, liabilities and expenses suffered by the Company and each Selling Stockholder any contribution received by the Company and/or the Selling Stockholder from persons, other than the Underwriters, who may also be liable for contribution, including persons who control the Company and/or the Selling Stockholder within the meaning of Section 15 of the Act or Section 20(a) of the Exchange Act, officers of the Company who signed the Registration Statement and directors of the Company) as incurred to which the Company, each Selling Stockholder and one or more of the Underwriters may be subject, in such proportions as are appropriate to reflect the relative benefits received by the Company and each Selling Stockholder on the one hand and the Underwriters on the other hand from the offering of the Shares or, if such allocation is not permitted by applicable law or indemnification is not available as a result of the indemnifying party not having received notice as provided in Section 8 hereof, in such proportions as are appropriate to reflect not only the relative benefits referred to above but also the relative fault of the Company and each Selling Stockholder on the one hand and the Underwriters on the other hand in connection with the statements or omissions which resulted in such losses, claims, damages, liabilities or expenses, as well as any other relevant equitable considerations. The relative benefits received by the Company and the Selling Stockholder on the one hand and the Underwriters on the other hand shall be deemed to be in the same proportion as (a) the total proceeds from the offering (net of underwriting discounts and commissions but before deducting expenses) received by the Company and the Selling Stockholder bear to (b) the underwriting discounts and commissions received by the Underwriters, respectively, in each case as set forth in the table on the cover page of the Prospectus. The relative fault of each of the Company, any Selling Stockholder and the Underwriters shall be determined by reference to, among other things, whether 32 the untrue or alleged untrue statement of a material fact or the omission or alleged omission to state a material fact relates to information supplied by the Company, the Selling Stockholders or the Underwriters and the parties' relative intent, knowledge, access to information and opportunity to correct or prevent such statement or omission. The Company, the Selling Stockholders and the Underwriters agree that it would not be just and equitable if contribution pursuant to this Section 9 were determined by pro rata allocation (even if the Underwriters were treated as one entity for such purpose) or by any other method of allocation which does not take account of the equitable considerations referred to above. Notwithstanding the provisions of this Section 9, (i) in no case shall any Underwriter be liable or responsible for any amount in excess of the underwriting discount applicable to the Shares purchased by such Underwriter hereunder, and (ii) no person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Act) shall be entitled to contribution from any person who was not guilty of such fraudulent misrepresentation. Notwithstanding the provisions of this Section 9 and the preceding sentence, no Underwriter shall be required to contribute any amount in excess of the amount by which the total price at which the Shares underwritten by it and distributed to the public were offered to the public exceeds the amount of any damages that such Underwriter has otherwise been required to pay by reason of such untrue or alleged untrue statement or omission or alleged omission. For purposes of this Section 9, each person, if any, who controls an Underwriter within the meaning of Section 15 of the Act or Section 20(a) of the Exchange Act shall have the same rights to contribution as such Underwriter, and each person, if any, who controls the Company within the meaning of Section 15 of the Act or Section 20(a) of the Exchange Act, each officer of the Company who shall have signed the Registration Statement and each director of the Company shall have the same rights to contribution as the Company and any Selling Stockholder, as applicable, subject in each case to clauses (i) and (ii) of this Section 9. Any party entitled to contribution will, promptly after receipt of notice of commencement of any action, suit or proceeding against such party in respect of which a claim for contribution may be made against another party or parties, notify each party or parties from whom contribution may be sought, but the omission to so notify such party or parties shall not relieve the party or parties from whom contribution may be sought from any obligation it or they may have under this Section 9 or otherwise unless the failure to so notify has an adverse impact on the party to be so notified. No party shall be liable for contribution with respect to any action or claim settled without its consent; provided however that such consent was not unreasonably withheld. The obligations of the Underwriters to contribute pursuant to this Section 8 are several in proportion to the respective number of Shares purchased by each of the Underwriters hereunder and not joint. 10. DEFAULT BY AN UNDERWRITER. (a) If any Underwriter or Underwriters shall default in its or their obligation to purchase Firm Shares or Additional Shares hereunder, and if the Firm Shares or Additional Shares with respect to which such default relates do not (after giving 33 effect to arrangements, if any, made by you pursuant to subsection (b) below) exceed in the aggregate 10% of the number of Firm Shares or Additional Shares, the Firm Shares or Additional Shares to which the default relates shall be purchased by the non-defaulting Underwriters in proportion to the respective proportions which the numbers of Firm Shares set forth opposite their respective names in Schedule I hereto bear to the aggregate number of Firm Shares set forth opposite the names of the non-defaulting Underwriters. (b) In the event that such default relates to more than 10% of the Firm Shares or Additional Shares, as the case may be, you may in your discretion arrange for yourself or for another party or parties (including any non-defaulting Underwriter or Underwriters who so agree) to purchase such Firm Shares or Additional Shares, as the case may be, to which such default relates on the terms contained herein. In the event that within five calendar days after such a default you do not arrange for the purchase of the Firm Shares or Additional Shares, as the case may be, to which such default relates as provided in this Section 10, this Agreement or, in the case of a default with respect to the Additional Shares, the obligations of the Underwriters to purchase and of the Company and the Selling Stockholder to sell the Additional Shares shall thereupon terminate, without liability on the part of the Company or the Selling Stockholder with respect thereto (except in each case as provided in Sections 6, 8(a) and 9 hereof with respect to the Company and in Sections 8(b) and 9 hereof with respect to the Selling Stockholder) or the Underwriters, but nothing in this Agreement shall relieve a defaulting Underwriter or Underwriters of its or their liability, if any, to the other Underwriters and the Company and the Selling Stockholders for damages occasioned by its or their default hereunder. (c) In the event that the Firm Shares or Additional Shares to which the default relates are to be purchased by the non-defaulting Underwriters, or are to be purchased by another party or parties as aforesaid, you or the Company shall have the right to postpone the Closing Date or Additional Closing Date, as the case may be for a period, not exceeding five business days, in order to effect whatever changes may thereby be made necessary in the Registration Statement or the Prospectus or in any other documents and arrangements, and the Company agrees to file promptly any amendment or supplement to the Registration Statement or the Prospectus which, in the opinion of Underwriters' Counsel, may thereby be made necessary or advisable. The term "Underwriter" as used in this Agreement shall include any party substituted under this Section 10 with like effect as if it had originally been a party to this Agreement with respect to such Firm Shares and Additional Shares. 11. SURVIVAL OF REPRESENTATIONS AND AGREEMENTS. All representations and warranties, covenants and agreements of the Underwriters, the Company and the Selling Stockholders contained in this Agreement, including the agreements contained in Section 6, the indemnity agreements contained in Section 8 and the contribution agreements contained in Section 9, shall remain operative and in full force and effect regardless of any investigation made by or on behalf of any Underwriter or any controlling person thereof or by or on behalf of the Company or the Selling Stockholders, any of their 34 respective officers and directors or any controlling persons thereof, and shall survive delivery of and payment for the Shares to and by the Underwriters. The representations contained in Section 1 and the agreements contained in Sections 6, 8, 9 and 12(d) hereof shall survive the termination of this Agreement, including termination pursuant to Section 10 or 12 hereof. 12. EFFECTIVE DATE OF AGREEMENT; TERMINATION. (a) This Agreement shall become effective, upon the later of when (i) you and the Company shall have received notification of the effectiveness of the Registration Statement or (ii) the execution of this Agreement. If either the public offering price or the purchase price per Share has not been agreed upon prior to 5:00 P.M., New York City time, on the fifth full business day after the Registration Statement shall have become effective, this Agreement shall thereupon terminate without liability to the Company, the Selling Stockholders or the Underwriters except as herein expressly provided. Until this Agreement becomes effective as aforesaid, it may be terminated by the Company by notifying you or by you notifying the Company. Notwithstanding the foregoing, the provisions of this Section 12 and of Sections 1, 6, 8, 9 and 11 hereof shall at all times be in full force and effect. (b) You shall have the right to terminate this Agreement at any time prior to the Closing Date or the obligations of the Underwriters to purchase the Additional Shares at any time prior to the Additional Closing Date, as the case may be, if (i) any domestic or international event or act or occurrence has materially disrupted, or in your opinion will in the immediate future materially disrupt, the market for the Company's securities or securities in general; (ii) if trading on the New York Stock Exchange or the Nasdaq National Market shall have been suspended, or minimum or maximum prices for trading shall have been fixed, or maximum ranges for prices for securities shall have been required, on the New York Stock Exchange or the Nasdaq National Market or by order of the Commission or any other governmental authority having jurisdiction; (iii) if a banking moratorium has been declared by a state or federal authority or if any new restriction materially adversely affecting the distribution of the Firm Shares or the Additional Shares, as the case may be, shall have become effective; (iv) (A) if the United States becomes engaged in hostilities or there is an escalation of hostilities involving the United States or there is a declaration of a national emergency or war by the United States or (B) if there shall have been such change in political, financial or economic conditions if the effect of any such event in (A) or (B) as in your judgment makes it impracticable or inadvisable to proceed with the offering, sale and delivery of the Firm Shares or the Additional Shares, as the case may be, on the terms contemplated by the Prospectus. (c) Any notice of termination pursuant to this Section 12 shall be in writing. 35 (d) If this Agreement shall be terminated pursuant to any of the provisions hereof (otherwise than pursuant to (i) notification by you as provided in Section 12(a) hereof or (ii) Section 10(b) or 12(b) hereof), or if the sale of the Shares provided for herein is not consummated because any condition to the obligations of the Underwriters set forth herein is not satisfied or because of any refusal, inability or failure on the part of the Company to perform any agreement herein or comply with any provision hereof, the Company will, subject to demand by you, reimburse the Underwriters for all reasonable out-of-pocket expenses (including the reasonable fees and expenses of their counsel), incurred by the Underwriters in connection herewith. 13. NOTICES. All communications hereunder, except as may be otherwise specifically provided herein, shall be in writing and , if sent to any Underwriter, shall be mailed, delivered, or facsimile and confirmed in writing, to such Underwriter c/o Bear, Stearns & Co. Inc., 245 Park Avenue, New York, New York 10167, Attention: _______________, with a copy to Gibson, Dunn & Crutcher LLP, 200 Park Avenue, New York, New York 10166, Attention: Steven R. Finley, Esq.; if sent to the Company, shall be mailed, delivered, or faxed and confirmed in writing to the Company, Laurel Brook Road, Middlefield, CT 06455, Attention: J. Bruce Robinson, Chairman, Chief Executive Officer and President and its counsel at the addresses set forth in the Registration Statement, Attention: Sheldon G. Nussbaum, Esq.; and if sent to the Selling Stockholders shall be mailed, delivered or faxed and confirmed in writing to the Custodian c/o the Company, Laurel Brook Road, Middlefield, CT 06455, Attention: J. Bruce Robinson, PROVIDED, HOWEVER, that any notice to an Underwriter pursuant to Section 7 shall be delivered or sent by mail or facsimile transmission to such Underwriter at its address set forth in its acceptance facsimile to you, which address will be supplied to any other party hereto by you upon request. Any such statements, requests, notices or agreements shall take effect at the time of receipt thereof. 14. PARTIES. This Agreement shall insure solely to the benefit of, and shall be binding upon, the Underwriters, the Selling Stockholders and the Company and the controlling persons, directors, officers, employees and agents referred to in Sections 8 and 9 hereof, and their respective heirs, devisees, successors and assigns, and no other person shall have or be construed to have any legal or equitable right, remedy or claim under or in respect of or by virtue of this Agreement or any provision herein contained. The term "successors and assigns" shall not include a purchaser, in its capacity as such, of Shares from any of the Underwriters. 15. GOVERNING LAW. This Agreement shall be governed by and construed in accordance with the laws of the State of New York, but without regard to principles of conflicts of law. 16. COUNTERPARTS; FACSIMILE SIGNATURES. This Agreement may be executed in any number of counterparts, each of which shall be deemed to be an original, but all such counterparts shall together constitute one and the same instrument. Facsimile 36 signatures shall be treated as originals. 17. HEADINGS. The headings herein are inserted for convenience of reference only and are not intended to be part of, or to affect the meaning or interpretation of, this Agreement. 18. TIME IS OF THE ESSENCE. Time shall be of the essence of this Agreement. As used herein, the term "business day" shall mean any day when the Commission's office in Washington, D.C. is open for business. [signature page follows] 37 If the foregoing correctly sets forth the understanding between you and the Company, please so indicate in the space provided below for that purpose, whereupon this letter shall constitute a binding agreement among us. It is understood that your acceptance of this letter on behalf of each of the Underwriters is pursuant to the authority set forth in a form of Agreement among Underwriters, the form of which shall be submitted to the Company for examination, upon request, but without warranty on your part as to the authority of the signers thereof. Very truly yours, ZYGO CORPORATION By: ----------------------------------------- J. Bruce Robinson Chairman of the Board, Chief Executive Officer and President ZYGO CORPORATION, as Custodian for Selling Stockholders By: By: ----------------------------------------- Name: Title: , as Attorney-in-Fact for the Selling Stockholders Accepted as of the date first above written BEAR, STEARNS & CO. INC. By: ------------------------- Name: Title: On behalf of themselves and the other 38 Underwriters named in Schedule I hereto. 39 SCHEDULE I NAME OF UNDERWRITER NUMBER OF FIRM SHARES TO BE PURCHASED Bear, Stearns & Co. Inc. ------------------------------------ Lehman Brothers Inc. ------------------------------------ ING Barings LLC ------------------------------------ C.E. Unterberg, Towbin ------------------------------------ Total: ------------------------------ I-1 SCHEDULE II NUMBER OF FIRM SHARES TO BE SOLD NAMES OF SELLING STOCKHOLDER TO THE UNDERWRITERS ----------------------------- -------------------------------- II-1 SCHEDULE III [NAMES OF STOCKHOLDERS SUBJECT TO THE LOCK-UP PROVISION] III-1 EXHIBIT A November __, 2000 BEAR, STEARNS & CO. INC. LEHMAN BROTHERS INC. ING BARINGS LLC C.E. UNTERBERG, TOWBIN as Representatives of the several Underwriters c/o Bear, Stearns & Co. Inc. 245 Park Avenue New York, New York 10167 Attention: Equity Capital Markets ZYGO CORPORATION LOCK-UP AGREEMENT Ladies and Gentlemen: We refer to the proposed Underwriting Agreement (the "Underwriting Agreement"), between Zygo Corporation, a Delaware corporation (the "Company"), and you as representatives of the Underwriters named therein (the "Underwriters") relating to an underwritten public offering (the "Offering") of common stock, $.10 par value (the "Common Stock"), of the Company. In order to induce you and the other Underwriters to enter into the Underwriting Agreement, the undersigned hereby agrees that, without the prior written consent of Bear, Stearns & Co. Inc., the undersigned will not, directly or indirectly, during the period from the date hereof until one hundred eighty (180) days from the date of the final prospectus for the Offering (the "Lock-Up Period"), (i) offer, sell, agree to offer or sell, solicit offers to purchase, grant any call option or purchase any put option with respect to, pledge, borrow or otherwise dispose of any Relevant Security, (ii) establish or increase a "put equivalent position" or liquidate or decrease a "call equivalent position" with respect to any Relevant Security (in each case within the meaning of Section 16 of the Securities Exchange Act of 1934, as amended, and the rules and regulations promulgated thereunder), or otherwise enter into any swap, derivative or other transaction or arrangement that transfers to another, in whole or in part, any of the economic consequences of ownership of any Relevant Security, whether or not such transaction is to be settled by delivery of Relevant Securities, other securities, cash or other consideration. As used herein "Relevant Security" means the Common Stock, any other equity security of the Company or any of the Subsidiaries and any security convertible into, or exercisable or exchangeable for, any Common Stock or other such equity security. The undersigned hereby further agrees that, during the Lock-up Period, the undersigned (x) will not file or participate in the filing with the Securities and Exchange Commission of any registration statement, or circulate or participate in the circulation of any preliminary or final prospectus or other disclosure document with respect to any proposed offering or sale of a Relevant Security and (y) will not exercise any rights the undersigned may have to require registration with the Securities and Exchange Commission of any proposed offering or sale of a Relevant Security. 40 The undersigned hereby represents and warrants that the undersigned has full power and authority to enter into this letter agreement and that this letter agreement constitutes the legal, valid and binding obligation of the undersigned, enforceable in accordance with its terms. Upon request, the undersigned will execute any additional documents necessary in connection with enforcement hereof. Any obligations of the undersigned shall be binding upon the successors and assigns of the undersigned from the date first above written. This letter agreement shall be governed by and construed in accordance with the laws of the State of New York. Delivery of a signed copy of this letter by telecopier or facsimile transmission shall be effective as delivery of the original hereof. Very truly yours, By: --------------------------- Print Name: ------------------- EX-23.1 3 a2033288zex-23_1.txt CONSENT OF KPMG EXHIBIT 23.1 The Board of Directors Zygo Corporation We consent to the use of our reports incorporated herein by reference and to the reference to our firm under the heading "Experts" in the propectus. Hartford, CT February 7, 2001 -----END PRIVACY-ENHANCED MESSAGE-----