0000950110-01-500474.txt : 20011009 0000950110-01-500474.hdr.sgml : 20011009 ACCESSION NUMBER: 0000950110-01-500474 CONFORMED SUBMISSION TYPE: 10-K405 PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 20010630 FILED AS OF DATE: 20010928 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: 10-K405 SEC ACT: 1934 Act SEC FILE NUMBER: 000-12944 FILM NUMBER: 1748445 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 10-K405 1 e86574_10-k405.txt FORM 10-K 405 ================================================================================ UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ---------- FORM 10-K405 (Mark One) [X] Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the fiscal year ended June 30, 2001 Or [ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the transition period from _______________ to _______________ Commission file number 0-12944 ZYGO CORPORATION ------------------------------------------------------ (Exact name of registrant as specified in its charter) Delaware 06-0864500 ------------------------------- ---------------------- (State or other jurisdiction of (IRS Employer incorporation or organization) Identification Number) Laurel Brook Road, Middlefield, Connecticut 06455 ------------------------------------------------- (Address of principal executive offices) (Zip Code) (860) 347-8506 ----------------------------------------------- (Registrant's telephone number, including area code:) Securities registered pursuant to Section 12(b) of the Act: ----------------------------------------------------------- None Securities registered pursuant to Section 12(g) of the Act: ----------------------------------------------------------- Common Stock, $.10 Par Value Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES [X] NO [ ] Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K405. [ ] State the aggregate market value of the voting stock held by non-affiliates of the registrant. The aggregate market value shall be computed by reference to the price at which the stock was sold, or the average bid and asked prices of such stock, as of a specified date within 60 days prior to the date of filing. Aggregate market value at September 24, 2001, was $207,249,467 Indicate the number of shares outstanding of each of the registrant's classes of common stock, as of the latest practicable date. 17,804,937 Shares of Common Stock, $.10 Par Value, at September 24, 2001 Documents incorporated by reference: Specified portions of the registrant's Proxy Statement related to the registrant's 2001 Annual Meeting of Stockholders, to be filed pursuant to Regulation 14A of the Securities Exchange Act of 1934 with the Securities and Exchange Commission, are incorporated by reference into Part III of this Report. ================================================================================ FORWARD LOOKING STATEMENTS All statements other than statements of historical fact included in this Annual Report, regarding the Company's financial position, business strategy, plans and objectives of management of the Company for future operations, are forward-looking statements. These forward looking statements include without limitation statements under "Business," "Management's Discussion and Analysis of Financial Condition and Results of Operations," and "Risk Factors." Forward-looking statements are intended to provide management's current expectations or plans for the future operating and financial performance of the Company, based upon information currently available and assumptions currently believed to be valid. Forward-looking statements can be identified by the use of words such as "anticipate," "believe," "estimate," "expect," "intend," "plans," "strategy," "project" and other words of similar meaning in connection with a discussion of future operating or financial performance. Actual results could differ materially from those contemplated by the forward-looking statements as a result of certain factors such as those disclosed under "Risk Factors." Such statements reflect the current views of the Company with respect to future events and are subject to these and other risks, uncertainties and assumptions relating to the operations, results of operations, and growth strategy of the Company. 2 PART I ITEM 1. 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, and subcomponents 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 have expended significant capital in this area 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. 3 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. 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 creating 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. Despite the turndown in the optical component industry, we anticipate that the continuously increasing data flow will ultimately influence demand. 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. 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, and arrays. 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 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 4 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. 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: o decreasing product geometries; o increasing complexity of manufacturing processes; o shortening product life cycles; o declining product prices; and o 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. 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 continue. Our growth is driven by both projected number of steppers to be sold, 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 5 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 101 United States patents, of which 86 are currently active, and 45 foreign patents, and we have 69 United States patent applications and 81 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: o Laser Focus World Commercial Technology Award 2001; o Photonics Spectra Circle of Excellence Awards in 1988, 1994, 1996, 1997, 1998 and 2001; o R&D Magazine 100 Awards in 1978, 1982, 1988 (three awards), 1994, 1996, 1997 and 1998; o American Machinist Excellence in Manufacturing Technology Achievement Award for Technology & Reliability in 2000; o 1997 R&D Magazine 100 and Photonics Spectra Circle of Excellence Award for ZMI 2001 Displacement Measuring Interferometer; and o 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 a result, these manufacturers can now measure these components prior to assembly, resulting in increased yields and cost-efficiencies. 6 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. OPTICS }--------------| | NEXT GENERATION DESIGN AND } | OPTICAL NETWORK MANUFACTURING }--------------|------------------ COMPONENTS, MODULES CAPABILITIES } | & SEMICONDUCTOR | OPTICS & ASSEMBLIES AUTOMATION } | AND }--------------| METROLOGY } | 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. HIGH PRECISION } | METROLOGY }--------------| SYSTEMS } | ON LINE YIELD |------------------ ENHANCEMENT PARTS HANDLING } | SOLUTIONS AUTOMATION }--------------| SOLUTION } | 7 OUR STRATEGY Our objective is to: o 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 o 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: CONTINUED EMPHASIS WITH 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. 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. 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 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. PURSUE A SELECTIVE ACQUISITION AND INVESTMENT STRATEGY. We seek to access additional technological capabilities and complementary product lines through selective acquisitions and strategic investments. 8 PRODUCTS AND APPLICATIONS We manufacture micro-optics components such as lenses, filters, and fiber arrays 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: o optics--sold as components and assembled modules; and o 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 o Low insertion loss Telecommunications Shipping light into arrayed o Precision spacing devices like o Low cost arrayed waveguides Laser Diode Used for mounting o Low cost Telecommunications Shipping Submounts laser chips in o High reliability optical amplifier systems Optical Substrates Used for thin-film o Superior flatness Telecommunications Shipping and Components filters, dichronic and thickness Semiconductor mirrors, diffraction o Finish control gratings and o Customized polarization cubes to customer specifications Microlens Arrays Used to collimate o Certified at Telecommunications Shipping light from arrayed communication components like wavelength fiber arrays or o Low insertion loss emitters into optical subsystems like DWDMs, switches, and other large channel count devices Fiber Optic Used to collimate o Low cost Telecommunications Shipping Collimators light from o High performance discrete components
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 9 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. MACRO-OPTICS AND ASSEMBLIES:
PRODUCT DESCRIPTION BENEFITS TO CUSTOMER MARKET STATUS -------- ----------- --------------------- ------ ------ Prisms, High precision plano o Low insertion loss Telecommunications Shipping Rhomboids, and optical components o High quality Semiconductor Beamsplitters used singly or in combination to direct, steer, combine, divide and separate laser beams Optical Coatings Thin-film coatings o High efficiency Telecommunications Shipping used to reflect, energy transfer Semiconductor minimize loss, o Reduced feedback separate or combine and noise light o Low insertion loss Lenses and Lens High precision o High resolution Telecommunications Shipping Systems spherical and optical Semiconductor aspherical lens telecommunications elements and signal analysis assemblies used in o High resolution telecommunications lithography and semiconductor imaging systems
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PRODUCT DESCRIPTION BENEFITS TO CUSTOMER MARKET STATUS -------- ----------- --------------------- ------ ------ Reference Flat Super-smooth flat o Precise location Semiconductor Shipping Mirrors mirrors used as of reference reference surfaces surfaces with displacement o High resolution measurement sensors lithography Stage Mirrors Lightweight wafer o High throughput Semiconductor Shipping and reticle stages used for lithography and metrology systems used in semiconductor manufacturing and testing Laser Optics Mirrors, polarizers o Improved laser Industrial Shipping and laser and performance and assemblies disks damage resistance used in high energy laser systems for alternative energy research and nuclear weapons simulation
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. 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 11 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, 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 o Measures Telecommunications Shipping Wavefront the surface performance of Interferometer shape of lenses transmitted wavelengths and optical components Interferometric Used for o Improves Telecommunications Shipping Microscopes three-dimensional analysis of Semiconductor analysis of the various types Industrial surface of an of surfaces object Displacement Used to measure o Improves Telecommunications Shipping Measuring and control, positioning Semiconductor Interferometers while they are accurancy Industrial in motion, the o High Resolution x, y and theta o High Velocity stages in photo o Low data age lithography uncertainty equipment
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PRODUCT DESCRIPTION BENEFITS TO CUSTOMER MARKET STATUS -------- ----------- --------------------- ------ ------ Wavefront Analyzer Used to align o Decreases Telecommunications Internal optical production Use components time for optical components and modules Large Aperture Used to analyze o Precise process Semiconductor Shipping Wavefront surface shape control Industrial Interferometer and transmitted wavelength of optical components and modules Photomask Used to measure o Allows Semiconductor Shipping Critical and analyze superior Dimension resist-coated resolution, Metrology System and production repeatability masks and linearity o Available with defect printability analysis Geometrically Used to measure o Allows industrial Industrial Shipping Desenitized the flatness of surfaces to Interferometer precision be measured machined parts quickly and without contact Digital Video Disk Used to measure o Allows inspection Industrial Shipping Interferometer the transmitted of small, wavefront aspherical quality of small lenses lenses o Used in digital video disk optical devices 3-D Interferometer Used to measure o High throughput Industrial Shipping flatness, o 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. 13 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 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. 14 AUTOMATION:
PRODUCT DESCRIPTION BENEFITS TO CUSTOMER MARKET STATUS -------- ----------- --------------------- ------ ------ Fiber Placement Used to attach o High Telecommunication Internal Use Station fibers in the throughput manufacturing o High yield process o Reliable ZARIS (Automated Used to present o Safely Semiconductor Shipping reticle inspection reticles to an handles fragile system) operator for reticles inspection, o High classification, throughput cleaning and o High yield subsequent o Increased sorting cleanliness Reticle Shuffler Used to transfer o Provides an Semiconductor Shipping multiple types automated front of reticles end to many OEM customers Auto KMS Fully automated o High Semiconductor Shipping system used to throughput measure critical o High yield dimensions on o Process reticles control Inspection System Used for o High Semiconductor Shipping Loader automated throughput Industrial material o Quality handling for OEM control inspection systems E-Beam Loading Used for o High Semiconductor Shipping System automatic environmental loading and control reticle control, o High in vacuum, to an throughput OEM direct write mask maker
AUTOMATION Our Automation Systems division develops both products and custom automation solutions across 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 delivered reticle 15 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. 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 2001: SELECTED CUSTOMERS BY END MARKET TELECOMMUNICATIONS SEMICONDUCTOR INDUSTRIAL ------------------ ------------- ---------- Agilent Applied Materials Boeing Cidra Canon Bosch Corning Rochester Photonics Electro Scientific Caterpillar Dicon Fiber Optics IBM Eastman Kodak JDS Uniphase KLA-Tencor Elcan Lightchip Samsung Hitachi Lucent Lawrence Livermore National Nortel Networks SVG Laboratories Tyco Lockheed Martin Vytran Nikon University of Rochester 16 During fiscal 2001, 2000, and 1999, sales to Canon Inc. and Canon Sales Co., Inc., a distributor of certain of our products in Japan and a subsidiary of Canon Inc., amounted to 33%, 19%, and 21% of our net sales, respectively. No other single customer accounted for more than 10% of our sales in any of the fiscal years 2001, 2000, and 1999. 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 101 United States patents, of which 86 are currently active, and 45 foreign patents. While we cannot guarantee that any pending patent application will issue, we also have 69 United States patent applications and 81 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 June 30, 2001, we employed 133 individuals within our research and development and engineering operations, including 34 individuals with advanced degrees, of which 12 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 17 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: o performance and flexibility of solutions; o value; o on-time delivery; o responsive customer service and support; and o breadth of product line. We believe we compete favorably on each of these factors. BACKLOG Backlog at June 30, 2001 was $55,502,000, an increase of $9,559,000, or 21% as compared to $45,943,000 at June 30, 2000. The year-end fiscal 2001 backlog consisted of $11,206,000, or 20%, in the semiconductor segment, $31,689,000, or 57%, in the industrial segment, and $12,607,000, or 23%, in the telecommunications segment. The backlog decreased $14,851,000 between the third and fourth quarters due to the slowdown in the semiconductor and telecommunications markets. 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. The following table sets forth the percentage of our total sales by region (including sales delivered through distributors) during the past three years: 18 Fiscal Year Ended June 30, -------------------------- 2001 2000 1999 ---- ---- ---- Americas (primarily United States) ....... 51% 56% 54% Far East: Japan ................................. 34% 20% 23% Pacific Rim ........................... 6% 14% 10% --- --- --- Total Far East ........................... 40% 34% 33% Europe and other (primarily Europe) ...... 9% 10% 13% --- --- --- Total .................................... 100% 100% 100% === === === 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, 2001, our global sales customer support and service organization consisted of over 93 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 and Westborough, 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 19 loss of certain of these sources could have a negative impact on our results of operations and damage customer relationships. EMPLOYEES At June 30, 2001, we employed 648 people. Our employees are not represented by a labor union or a collective bargaining agreement. We regard our employee relations as good. EXECUTIVE OFFICERS OF THE REGISTRANT J. BRUCE ROBINSON - AGE 59 - CHAIRMAN, PRESIDENT, AND CHIEF EXECUTIVE OFFICER Mr. Robinson has served as Chairman, President, and Chief Executive Officer since November 2000, as President and Chief Executive Officer from November 1999 to November 2000, and as President from February 1999 to November 1999. Previously, he spent 25 years with The Foxboro Company, his most recent positions were President Worldwide Operations from 1996 to 1998, and President of Europe from 1990 to 1996. Mr. Robinson has served as an executive officer of the Company since February 1999 and is a director of the Company. RICHARD M. DRESSLER - AGE 56 - VICE PRESIDENT, FINANCE, CHIEF FINANCIAL OFFICER, AND TREASURER Mr. Dressler has served as Vice President, Finance, Chief Financial Officer, and Treasurer since January 2001. Previously, he 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 Systems of Carrier, as Controller of Sikorsky Aircraft, and as Vice President, Finance and Administration of United Technologies Control Systems. Mr. Dressler has served as an executive officer of the Company since February 2001. JOHN S. BERG - AGE 38 - PRESIDENT, ZYGO TERAOPTIX Mr. Berg has served as the President, Zygo TeraOptix since May 2000. Previously, he served as the President and Chief Technical Officer of Firefly Technologies, Inc. from 1997 to 2000 and has held senior management and key engineering positions at Digital Papyrus Corporation from 1995 to 1997. Mr. Berg has served as an executive officer of the Company since May 2000 and is a director of the Company. WILLIAM H. BACON - AGE 51 - VICE PRESIDENT, METROLOGY MANUFACTURING Mr. Bacon has served as Vice President, Metrology Manufacturing since April 2000. Previously, he served as Vice President, Corporate Quality of the Company from January 1996 to April 2000. From November 1993 to January 1996, Mr. Bacon was Director of Total Quality of the Company and also served as Manager of Instrument Manufacturing Engineering of the Company from June 1987 to November 1993. Mr. Bacon has served as an executive officer of the Company since January 1996. BRIAN J. MONTI - AGE 45 - VICE PRESIDENT, WORLDWIDE SALES AND MARKETING Mr. Monti has served as Vice President, Worldwide Sales and Marketing since July 1999. Previously, he served as Vice President, Sales, Service and Marketing for Radiometric Corporation from 1998 to 1999 and Vice President, Sales, Service and Marketing for Honeywell Measurex from 1984 to 1998. Mr. Monti has served as an executive officer of the Company since July 1999. PETER B. MUMOLA - AGE 57 -VICE PRESIDENT, OPTICS DIVISION Mr. Mumola has served as Vice President, Optics Division since February 2000. From June 1999 to February 2000, he served as 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, he served as the Business Director for Diversification of Hughes Electronics, Danbury Optical Systems. Mr. Mumola has served as an executive officer of the Company since July 2000. DAVID J. PERSON - AGE 53 - VICE PRESIDENT, HUMAN RESOURCES Mr. Person has served as Vice President, Human Resources since September 1998. Previously, he served in a number of senior human resource management positions with Digital Equipment Corporation from 1972 to September 1998. Mr. Person has served as an executive officer of the Company since September 1998. PATRICK K. TAN - AGE 41 - VICE PRESIDENT, BUSINESS OPERATIONS, ZYGO TERAOPTIX Mr. Tan has served as the Vice President, Business Operations, Zygo TeraOptix since May 2000. Previously, he served as the Vice President of Business Operations of Firefly Technologies, Inc. from 1997 to 2000 and has held management and engineering positions at Quantum Corporation from 1994 to 1997. Mr. Tan has served as an executive officer of the Company since May 2000 and is a director of the Company. ROBERT A. SMYTHE - AGE 50 - VICE PRESIDENT, ENGINEERING Mr. Smythe has served as Vice President, Engineering since June 1998. Previously, he served as Vice President, Sales and Marketing of the Company from January 1996 to June 1998. From June 1993 to January 1996, Mr. Smythe was Director of Sales and Marketing of the Company and from April 1992 to June 1993 served as Manager, Industry Marketing of the Company. Mr. Smythe has served as an executive officer of the Company since January 1996. CARL A. ZANONI - AGE 60 - VICE PRESIDENT, TECHNOLOGY Dr. Zanoni has served as Vice President, Technology since June 1998. Previously, he served as Vice President, Research, Development and Engineering of the Company from April 1992 to June 1998. Dr. Zanoni is a cofounder of the Company and has served as an executive officer since its inception in 1970. He is also a director of the Company. 20 ITEM 2. PROPERTIES The Company's principal manufacturing facilities are located in Middlefield, Connecticut; Longmont, Colorado; Holliston and Westborough, Massachusetts; and Asslar, Germany. The Corporate headquarters is located on Laurel Brook Road in Middlefield, Connecticut. The Middlefield facility consists of one 135,500-square-foot building on approximately 13 acres. Square Footage -------------------- Owned / Leased Operation/Location Manufacturing Total Expiration Date ------------------------------------ ------------- ------- ----------------- CORPORATE HEADQUARTERS, EASTERN REGIONAL SALES OFFICE, AND INSTRUMENT AND OPTICS MANUFACTURING Middlefield, Connecticut ............... 80,000 135,500 Owned AUTOMATION SYSTEMS MANUFACTURING Longmont, Colorado ..................... 15,000 32,000 Leased - 05/31/06 ZYGO TERAAUTOMATION Delray Beach, Florida .................. 0 10,343 Leased - 07/31/04 ZYGO TERAOPTIX Westborough, Massachusetts ............. 95,075 118,575 Owned* Holliston, Massachusetts ............... 10,000 16,000 Leased - 03/31/02 ZYGO - LASER TECHNOLOGY (R&D) Watsonville, California ................ 0 1,452 Leased - 04/14/05 WESTERN REGIONAL SALES OFFICE AND R&D Center Sunnyvale, California .................. 0 20,000 Leased - 10/31/03 SERVICE SUPPORT OFFICE Northbrook, Illinois ................... 0 3,283 Leased - 06/30/04 R&D CENTERS Tucson, Arizona ........................ 0 1,200 Leased - 05/01/04 Simi Valley, California ................ 0 6,290 Leased - 12/14/05 Newbury Park, California ............... 0 12,240 Leased - 02/02/03 EUROPEAN REGIONAL SALES OFFICE, CONFOCAL MANUFACTURING Asslar, Germany ........................ 1,500 4,000 Leased - 08/31/03 ZYGO - PACIFIC RIM SALES OFFICE Singapore .............................. 0 2,350 Leased - 03/01/02 ZYGOLOT Damstad, Germany ....................... 0 1,296 Leased - 10/01/04 ZYGO KK Japan .................................. 0 1,775 Leased - 10/31/01 ------- ------- Total .................................. 201,575 356,731 ======= ======= * Opened in July 2001. 21 ITEM 3. LEGAL PROCEEDINGS From time to time, we are subject to certain legal proceedings and claims that arise in the normal course of its business. In the opinion of management, we are not party to any litigation that it believes could have a material effect on us or our business. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS None. 22 Of the above executive officers, Mr. Robinson, Mr. Berg, Mr. Tan and Dr. Zanoni are directors of the Company. Under the By-laws, executive officers serve for a term of one year and until their successors are chosen and qualified unless earlier removed. PART II ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS Our common shares are traded over-the-counter and are quoted on the NASDAQ/National Market under the symbol "ZIGO". Market price data for 2001 and 2000, is as follows: Fiscal Year Ended Fiscal Year Ended June 30, 2001 June 30, 2000 ------------------------ ---------------------- High Low High Low --------- --------- -------- -------- First quarter .......... $93-15/16 $53-3/4 $14-5/8 $9-1/4 Second quarter ......... $76-1/8 $21-15/16 $25-1/16 $13 Third quarter .......... $48-3/4 $15-7/16 $74-5/16 $19-3/8 Fourth quarter ......... $38-1/25 $16-5/16 $94 $20-3/4 The number of stockholders of record at June 30, 2001 was 480. The Company has never declared or paid a cash dividend on its capital stock. The Company currently intends to retain all its earnings to finance the expansion and development of its business and, therefore, does not anticipate paying any cash dividends in the foreseeable future. 23 ITEM 6. SELECTED FINANCIAL DATA (Thousands, except per share amounts)
Fiscal Year Ended June 30, ------------------------------------------------------------------ 2001 2000(1) 1999(1) 1998(1) 1997(1) -------- -------- -------- ------- -------- Net Sales ................................................. $133,250 $ 87,243 $ 63,382 $99,084 $87,220 Gross Profit .............................................. $ 61,169 $ 32,555(2) $ 22,385 $41,449 $41,825 % of sales .......................................... 46% 37% 35% 42% 48% Earnings (loss) before taxes and nonrecurring charges ..... $ 14,113 $ 7,256(2) $ (6,851) $12,940(2) $21,121 % of sales .......................................... 11% 8% (11%) 13% 24% Earnings (loss) before nonrecurring charges ............... $ 10,659 $ 4,797(2) $ (3,876) $ 8,949(2) $13,960 % of sales .......................................... 8% 5% (6%) 9% 16% Earnings (loss) per share before nonrecurring charges Basic ............................................... $ 0.69 $ 0.38(2) ($ 0.33) $ 0.78(2) $ 1.34 Diluted ............................................. $ 0.66 $ 0.34(2) ($ 0.33) $ 0.69(2) $ 1.16 Earnings (loss) per share before nonrecurring charges growth rate - Diluted .............................. 94% 203% (148%) (41%) 62% Net earnings (loss) ....................................... $ 10,659 ($16,047) ($ 3,876) $ 7,029 $ 2,877 Net earnings (loss) per common share: Basic (3) .............................................. $ 0.69 ($ 1.28)(4) ($ 0.33)(4) $ 0.61 $ 0.28 Diluted (3) ............................................ $ 0.66 ($ 1.28)(4) ($ 0.33)(4) $ 0.55 $ 0.24 Weighted average number of shares: Basic .................................................. 15,398 12,511 11,780 11,480 10,403 Diluted ................................................ 16,063 12,511 11,780 12,877 11,998 Research and development .................................. $ 17,673 $ 11,270(2) $ 9,185 $ 9,844 $ 7,151 Capital expenditures ...................................... $ 33,050 $ 6,513 $ 4,372 $ 9,126 $ 4,723 Depreciation and amortization ............................. $ 3,996 $ 11,318(2) $ 4,448 $ 3,412 $ 2,612 June 30, ------------------------------------------------------------------ 2001 2000(1) 1999(1) 1998(1) 1997(1) -------- -------- -------- ------- -------- Working capital ........................................... $ 94,112 $ 56,550 $ 43,766 $50,246 $47,633 Current ratio ............................................. 4.8 4.5 4.8 4.1 4.6 Total assets .............................................. $186,832 $ 95,162 $ 82,442 $91,444 $78,799 Long-term debt (excluding current portion) ................ $ 12,281 $ 84 $ 36 $ 65 $ -- Stockholders' equity ...................................... $149,139 $ 78,229 $ 68,712 $72,391 $62,408 Price-earnings ratio ...................................... 33.7 N/A N/A 26.9 128.1 Number of employees at year end ........................... 648 486 444 466 399 Sales per employee - average .............................. $ 206 $ 179 $ 143 $ 213 $ 231 Book value per common share ............................... $ 8.48 $ 5.50 $ 6.16 $ 6.60 $ 5.91 Market price at year-end .................................. $ 22.250 $ 90.813 $ 11.438 $14.813 $30.750
---------- (1) The results of Firefly Technologies, Inc. (renamed to Zygo TeraOptix, Inc.), which was accounted for as a pooling-of-interests, are included as of July 1, 1997. The results of Sight Systems, Inc. ("SSI"), which was accounted for as an immaterial pooling-of-interests, are included from July 1, 1997; the results of Syncotec Neue Technologien und 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 the consolidated results of the Company from August 8, 1996 when that acquisition was effective. Both of Syncotec and TIC were accounted for as purchases. (2) Nonrecurring charges include acquisition-related charges of $14,001, $1,585, and $11,083 in the fourth quarter ended June 30, 2000, and in the first quarter ended September 30, 1997 and 1996, respectively; West Coast operations reorganization costs of $10,567 in the fourth quarter ended June 30, 2000; and failed merger costs of $335, in the first quarter 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 665, 0, 0, 1,397, and 1,595, in the years ended June 30, 2001, 2000, 1999, 1998, and 1997, respectively. (4) Accounting principles generally accepted in the United States of America require the computation of the net loss per share to be based on the weighted average basic shares outstanding. 24 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION RESULTS OF OPERATIONS FISCAL 2001 COMPARED TO FISCAL 2000 Net sales of $133,250,000 for fiscal 2001 increased by $46,007,000, or 53%, from fiscal 2000 net sales of $87,243,000. The significant increase in sales was due to increased demand from key markets, specifically increased sales and market share in stage metrology, optical metrology, and macro optics products. For the fiscal year 2001, net sales in the semiconductor segment were $84,561,000, or 64%, net sales in the industrial segment were $35,178,000, or 26%, and net sales in the telecommunications segment were $13,511,000, or 10%. Company sales to the Americas, primarily the United States, amounted to $68,299,000 in fiscal 2001, an increase of $19,464,000, or 40%, from fiscal 2000 levels of $48,835,000. The Company's sales to outside the Americas amounted to $64,951,000 in fiscal 2001, an increase of $26,543,000, or 69%, from fiscal 2000 levels of $38,408,000. Sales to Japan during fiscal 2001 amounted to $45,194,000, an increase of $27,606,000, or 157%, from fiscal 2000 sales levels. Japan sales reached record levels driven by demand for stage metrology, metrology instrumentation components and systems, and semiconductor and optical storage. Sales to Europe/Other, primarily Europe, amounted to $12,334,000, an increase of $3,228,000, or 35%, from fiscal 2000 due to increased sales in the industrial and semiconductor markets driven by the first full year of operations of the ZygoLOT joint venture. Sales to the Pacific Rim, excluding Japan, amounted to $7,423,000, a decrease of $4,291,000, or 37%, from 2000 sales levels due to reductions in sales in the semiconductor and industrial markets. Substantially all of the Company's sales and costs are 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 Company's products in its export markets, as would changes in the general economic conditions in those markets. The impact of such changes in foreign currency values on the Company's sales cannot be measured. Gross profit in fiscal 2001 amounted to $61,169,000, an increase of $28,614,000, or 88%, from gross profit of $32,555,000 in fiscal 2000. Excluding fiscal 2000 nonrecurring charges of $4,214,000, gross profit for fiscal 2001 increased $24,400,000, or 66%. Gross profit as a percentage of sales in fiscal 2001 was 46%, as compared to 37% in fiscal 2000. Excluding nonrecurring charges, fiscal 2000 gross profit as a percentage of net sales was 42%. On a comparable basis, excluding nonrecurring charges for fiscal 2000, the increase in gross profit and gross profit as a percentage of sales were primarily due to the increase in volume and higher productivity resulting from investments in equipment and manufacturing process enhancements. Selling, general and administrative expenses ("SG&A") in fiscal 2001 amounted to $29,119,000, an increase of $10,615,000, or 57%, from fiscal 2000. As a percentage of net sales, SG&A has remained relatively constant at approximately 22%. The increase in fiscal 2001 resulted from increased commissions and incentive compensation costs resulting from higher sales and profit and increased administrative costs due to one new location that opened during the year, three locations which opened last fiscal year that now have been operating for a full year, and higher professional fees. During fiscal 2000, the Company recorded a $1,000,000 credit to SG&A as a result of a legal settlement. Research, development and engineering expenses ("R&D") in fiscal 2001 totaled $17,673,000 and increased by $6,403,000, or 57%. Excluding fiscal 2000 nonrecurring charges of $875,000, fiscal 2001 R&D costs increased $7,278,000, or 70%. R&D as a percentage of net sales has remained relatively constant at approximately 13%. The Company continues to invest in technology to enhance its position 25 in the marketplace. R&D was driven by investments in next generation lithography product requirements and investments to broaden our customer base into automotive and telecommunications. The Company did not record any nonrecurring charges in fiscal 2001. The Company recorded nonrecurring charges in the amount of $24,568,000 in fiscal 2000. The Company recorded nonrecurring charges of $14,001,000 as a result of the acquisition of Firefly Technologies, Inc., which became Zygo TeraOptix, Inc. ("Zygo TeraOptix"). The nonrecurring charge from the acquisition consisted of $12,024,000 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 $1,977,000 for the payment of professional fees related to the transaction. In 2000, the Company recorded a charge of $10,567,000 as a result of its reorganization of its West Coast operations, principally for the write off of goodwill and inventory. Amortization expense of $797,000 for fiscal 2001 decreased by $6,305,000, or 89%, from fiscal 2000 levels of $7,102,000. Substantially all of the decrease is associated with the West Coast operations write-off of goodwill and other intangible assets in fiscal 2000. The Company's operating profit in fiscal 2001 was $13,580,000, an increase of $31,902,000 from the operating loss of $18,322,000. Excluding fiscal 2000 nonrecurring charges of $24,568,000, operating profit for fiscal 2001 increased $7,334,000. Operating profit as a percentage of sales in fiscal 2001 was 10%, as compared to the operating loss as a percentage of sales of 21% in fiscal 2000. Excluding nonrecurring charges, fiscal 2000 operating profit as a percentage of sales was 7%. Income tax expense in fiscal 2001 totaled $3,454,000, or 24% of pretax profits, which compares with income tax benefit of $1,459,000, or 8% of pretax losses, in fiscal 2000. The effective tax rate of 24% versus the combined federal and state statutory rate of 39% in fiscal 2001 is primarily due to the impact of transactions involving the early sale of stock resulting from the exercise of incentive stock options by former employees of Firefly (renamed Zygo TeraOptix). The effective tax rate of 8% versus the combined statutory rate of 39% in fiscal 2000 was primarily due to the tax benefits related to expenses that could not be recorded as a charge to earnings for financial statement purposes associated with the compensation charge in connection with the Firefly acquisition. The Company recorded net earnings for fiscal year 2001 of $10,659,000, or $.66 on a diluted per share basis, as compared to a net loss of $16,047,000, or $1.28 loss per share, during fiscal 2000. Excluding nonrecurring charges for fiscal year 2000, net earnings were $4,797,000, or $.34 on a diluted per share basis. The diluted weighted average number of shares outstanding at June 30, 2001 was 16,063,000, an increase of 3,552,000 as compared to 12,511,000 at June 30, 2000. The increase is due to the shares related to the secondary offering and the impact of stock options offset by the repurchase of shares from two officers and directors. Backlog at June 30, 2001 was $55,502,000, an increase of $9,559,000, or 21%, as compared to $45,943,000 at June 30, 2000. The year-end fiscal 2001 backlog consisted of $11,206,000, or 20%, in the semiconductor segment, $31,689,000, or 57%, in the industrial segment, and $12,607,000, or 23%, in the telecommunications segment. The backlog decreased $14,851,000 between the third and fourth quarters due to the slowdown in the semiconductor and telecommunications markets. Orders for fourth quarter fiscal 2001 totaled $23,019,000 and consisted of $17,308,000, or 75%, in the semiconductor segment, $7,711,000, or 34%, in the industrial segment, and net debooking of $2,000,000, or (9%), in the telecommunications segment. The net debooking in the telecommunications segment was primarily due to cancellations of orders totaling $8,806,000 from two major customers due to market conditions. 26 FISCAL 2000 COMPARED TO FISCAL 1999 Net sales of $87,243,000 for fiscal 2000 increased by $23,861,000, or 38%, from fiscal 1999 net sales of $63,382,000. The Company's sales were favorably impacted by the increase in demand from the semiconductor market and from the reorganization of the sales function, which moved the sales, marketing, and customer service to a regional basis in order to put the critical support services closer to the customer. During each quarter of fiscal 2000 there was an increase in orders, sales, and backlog. Product and system backlog reflected the strong market demand for our manufacturing productivity and yield enhancement solutions. Orders for the year exceeded $100 million for the first time. Company sales to the Americas, primarily the United States, amounted to $48,835,000 in fiscal 2000, an increase of $13,482,000, or 38%, from fiscal 1999 levels of $35,353,000. The Company's sales to outside the Americas amounted to $38,408,000 in fiscal 2000, an increase of $10,379,000, or 37%, from fiscal 1999 levels of $28,029,000. Sales to Japan during fiscal 2000 amounted to $17,588,000, an increase of $3,445,000, or 24.4%, from fiscal 1999 sales levels. Sales to the Pacific Rim, excluding Japan, amounted to $11,714,000, a 94% increase from 1999 sales levels. Sales to Europe/Other amounted to $9,106,000, a 16% increase from 1999 sales levels. Substantially all of the Company's sales and costs are 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 Company's products in its export markets as would changes in the general economic conditions in those markets. The impact of such changes in foreign currency values on the Company's sales cannot be measured. Gross profit in fiscal 2000 amounted to $32,555,000, an increase of $10,170,000, or 45.4%, from gross profit of $22,385,000 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 increases in gross profit and gross profit as a percentage of sales were primarily due to the increase in volume and a more favorable product mix. Selling, general and administrative expenses ("SG&A") in fiscal 2000 amounted to $18,504,000 a decrease of $1,129,000, or 5.8%, over fiscal 1999. During fiscal 2000, the Company recorded a $1,000,000 credit to SG&A as a result of a legal settlement. Absent that credit, the expenses in this area remained relatively constant. As a percentage of net sales, SG&A decreased in fiscal 2000 to 21.2 % as compared to 31.0% in fiscal 1999 as a result of the increase in the volume of sales, increase in efficiencies of the group, and the decrease in the expense primarily as a result of the proceeds from the legal settlement. Research, development and engineering expenses ("R&D") in fiscal 2000 totaled $11,270,000 and increased by $2,085,000 from fiscal 1999. The Company's management continues to pursue projects which will enhance the Company's product offering and provide long-term strategic and financial benefits. In addition to the normal investment in R&D, the Company has increased its development in the optical module market in order to develop prototypes for major users in the telecommunications industry. R&D as a percentage of net sales amounted to 12.9%, which compares with 14.5% of net sales in 1999. The Company recorded nonrecurring charges in the amount of $24,568,000 in fiscal 2000. These charges were a result of the Company's acquisition of Firefly (renamed Zygo TeraOptix) and the Company's decision to reorganize its West Coast operations. The Company recorded nonrecurring charges of $14,001,000 in 2000 as a result of the Firefly acquisition. The nonrecurring charge from the acquisition consisted of $12,024,000 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 $1,977,000 for the payment of professional fees related to the transaction. The Company recorded a charge of $10,567,000 as a result of its reorganization of its West Coast operations, 27 principally for the write-off of goodwill and inventory. The Company did not record any nonrecurring charges in fiscal 1999. Amortization expense of $7,102,000 for fiscal 2000 increased by $5,844,000, or 465%, from fiscal 1999 levels of $1,258,000. Substantially all of the increase was associated with the West Coast operations write-off of goodwill and other intangible assets and the amortization expense recorded on the Atomic Force Microscope line of business. The Company's operating loss in fiscal 2000 was $18,322,000 as compared to the operating loss of $7,691,000 in fiscal 1999. The income tax benefit in fiscal 2000 totaled $1,459,000 or 8% of the pretax loss, which compares with income tax benefit of $2,975,000, or 43% of the pretax loss, in fiscal 1999. The change from year-to-year relates primarily to the tax benefits related to expenses that could not be recorded as a charge to earnings for financial statement purposes associated with the compensation charge in connection with the Firefly acquisition in fiscal 2000. The Company recorded a net loss for fiscal year 2000 of $16,047,000, or $1.28 loss per share, as compared to a net loss of $3,876,000, or $.33 loss per share during fiscal 1999. Excluding nonrecurring charges for fiscal 2000, net earnings were $4,797,000, or $.34 on a diluted per share basis. Backlog at June 30, 2000 was $45,943,000 compared to $28,941,000 at June 30, 1999, an increase of $17,002,000, or 59%. LIQUIDITY AND CAPITAL RESOURCES At June 30, 2001, working capital was $94,112,000, an increase of $37,562,000 from the $56,550,000 at June 30, 2000. The Company maintained cash, cash equivalents, and marketable securities of $59,751,000 at fiscal year-end 2001, which are invested primarily in securities with maturities of 30 days or less. This represents an increase of $35,885,000 over the prior fiscal year primarily due to the net proceeds from the secondary offering ($51,824,000) and debt proceeds ($12,560,000) offset by investments in fixed assets ($28,982,000) and inventory ($12,382,000). The increase in property, plant and equipment in fiscal 2001 was due, in part, to the purchase of a building and equipment for Zygo TeraOptix in Westborough, Massachusetts ($13,549,000) and the purchase of optics coating chambers ($4,905,000). Accounts payable and accrued expenses increased by $5,239,000, while accounts receivable increased by $7,140,000. As of June 30, 2001 the Company had $12,560,000 in long-term debt related to a mortgage on the new plant in Westborough, Massachusetts. There were no borrowings outstanding under the Company's $3,000,000 bank line of credit at fiscal year-end 2001. Stockholders equity at June 30, 2001 increased by $70,910,000 from the year earlier to $149,139,000, primarily due to 2001 net earnings, the secondary offering and stock option exercises and the related tax benefits, offset by the increase in treasury stock. At June 30, 2000, working capital was $56,550,000, an increase of $12,784,000 from the amount at June 30, 1999, and the Company had cash and cash equivalents of $15,598,000 and marketable securities amounting to $8,268,000 for a total of $23,866,000. Accounts payable and accrued expenses increased by $4,629,000, while accounts receivable increased by $7,657,000. As of June 30, 2000, there were no borrowings outstanding under the Company's $3,000,000 bank line of credit. Stockholders' equity at June 30, 2000 increased by $9,517,000 from the year earlier to $78,229,000, largely as a result of stock option exercises and the related tax benefit and the Firefly acquisition. 28 RISK FACTORS THAT MAY IMPACT FUTURE RESULTS INDUSTRY CONCENTRATION AND CYCLICALITY ZYGO's business is significantly dependent on capital expenditures and component requirements for manufacturers in the semiconductor and telecommunications industries. These industries are cyclical and have historically experienced periods of oversupply, resulting 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 these industries which, in turn, is largely dependent on the market demand in the semiconductor, industrial, and telecommunications markets. The overall economy is in the midst of a sharp slowdown, which could have a significant impact on the Company's near-term financial results as customer demand declines. During the fourth quarter of 2001, there has been a reduction in capital spending by our customers both in the semiconductor and telecommunications market, which is consistent with economic indicators. The impact of this slowdown is evident in the significant decrease in the backlog between the third and fourth quarters of fiscal 2001 from the semiconductor and telecommunications markets. ZYGO's net sales and results of operations will be materially adversely affected if downturns or slowdowns in the markets in which we serve extend significantly into the future. RISKS ASSOCIATED WITH ACQUISITIONS ZYGO's 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; the inability to manage the growth expected for various acquisitions; 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. 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. MANUFACTURING CAPACITY We have recently built and financed a new facility in Westborough, Massachusetts for our Zygo TeraOptix operation, providing us with significantly more micro-optics manufacturing capacity. 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 results would suffer. CUSTOMER CONCENTRATION; RELATIONSHIP WITH CANON During fiscal 2001, 2000, and 1999, sales to Canon Inc. and Canon Sales Co., Inc. (collectively, "Canon"), ZYGO's largest customer in those periods, accounted for 33%, 19%, and 21% of our net sales, respectively. We expect that sales to Canon, an original investor in ZYGO which owns approximately 7% of ZYGO's outstanding shares of common stock and is a distributor of certain ZYGO products in the Japanese market, will continue to represent a significant percentage of our net sales for the foreseeable future. Our customers generally do not enter into long-term agreements obligating them to purchase ZYGO's products. A reduction or delay in orders from this customer, including reductions or delays due to market, economic, or competitive conditions in the industries in which we serve, could have a material adverse effect upon ZYGO's results of operations. QUARTERLY FLUCTUATIONS ZYGO's 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. 29 Current conditions in the domestic and global economies are extremely uncertain. As a result, it is difficult to estimate the level of growth for the economy as a whole or of capital expenditures in the semiconductor, industrial and telecommunications markets. Because all of the components of the Company's budgeting and forecasting are dependent on estimates of spending within these markets, the prevailing economic uncertainty renders estimates of future revenue and expenses even more difficult than usual to make. POSSIBLE VOLATILITY OF STOCK PRICE ZYGO believes that factors such as the announcement of new products or technologies by ZYGO or our competitors, market conditions in the semiconductor, industrial, and telecommunications markets, and quarterly fluctuations in financial results are expected to cause the market price of the common stock to vary substantially. Further, our net sales or results of operations in future quarters may be below the expectations of public market securities analysts and investors. In such event, the price of the common stock would likely decline. In addition, historically the stock market has experienced price and volume fluctuations that have particularly affected the market prices for many high technology companies and which often have been unrelated to the operating performance of such companies. The market volatility may adversely affect the market price of the shares of ZYGO's common stock. COMPETITION ZYGO faces competition from a number of companies in all its markets, some of which have greater manufacturing and marketing capabilities, and greater financial, technological, and personnel resources. In addition, we compete with the internal development efforts of our current and prospective customers, some of which may attempt to become vertically integrated. ZYGO's competitors can be expected to continue to improve the design and performance of their products and to introduce new products with competitive price/performance characteristics. Competitive pressures may necessitate price reductions, which can adversely affect results of operations. Although we believe that we have certain technical and other advantages over certain of our competitors, maintaining such advantages will require a continued high level of investment by ZYGO in research and development and sales, marketing, and service. There can be no assurance that we will have sufficient resources to continue to make such investments or that we will be able to make the technological advances necessary to maintain such competitive advantages. In addition, there can be no assurance that the bases of competition in the industries in which ZYGO competes will not shift. TECHNOLOGICAL CHANGE AND NEW PRODUCT DEVELOPMENT The market for ZYGO's products is characterized by rapidly changing technology. Our future success will continue to 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. The development of new technologically advanced products is a complex and uncertain process requiring high levels of innovation, as well as the accurate anticipation of technological and market trends. ZYGO expends significant financial and personnel resources to redesign and enhance its instruments, systems and components and upgrade its proprietary software technology incorporated in its products on a continuous basis. Any failure by us to anticipate or respond adequately to technological developments and customer requirements, or any significant delays in product development or introduction, could have a material adverse effect on ZYGO's business and impact our close relationships with customers. This could have an impact on customers' willingness to share proprietary information about their requirements and participate in collaborative efforts with us. There can be no assurance that our customers will continue to provide us with timely access to such information, that we will be successful in developing and marketing new products and services or product and service enhancements on a timely basis, or respond effectively to technological changes or new product announcements by others. In addition, there can be no assurance the new products and services or product enhancements, if any, developed by ZYGO will achieve market acceptance. DEPENDENCE ON PROPRIETARY TECHNOLOGY ZYGO's success is heavily dependent upon its proprietary technology. There can be no assurance that the steps taken by us 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, which may not protect our proprietary rights to the same extent as do laws of the United States. In addition, there remains the possibility that others will "reverse engineer" our products in order to determine their method of operation and introduce competing products or that others will develop competing technology independently. Any such adverse circumstances could have a material adverse effect on our results of operations. 30 Some of the markets in which we compete are characterized by the existence of a large number of patents and frequent litigation for financial gain that is based on patents with broad, and often questionable, application. As the number of our products increase, the markets in which our products are sold expands, and the functionality of those products grows and overlaps with products offered by competitors, we believe that ZYGO may become increasingly subject to infringement claims. Although we do not believe any of our products or proprietary rights infringe the rights of third parties, there can be no assurance that infringement claims will not be asserted against ZYGO in the future or that any such claim will not result in costly litigation or require us to enter into royalty arrangements, which may not be available to us on commercially acceptable terms if at all. DEPENDENCE ON KEY PERSONNEL Nearly all of ZYGO's management team joined the Company 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. ZYGO's success depends in large part upon the continued services of many of our highly skilled personnel involved in management, research, development and engineering, sales and marketing, manufacturing, and support and upon our ability to attract and retain additional highly qualified employees. Our employees may voluntarily terminate their employment with us at any time. 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. DEPENDENCE ON THIRD-PARTY SUPPLIERS ZYGO is 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. 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. 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 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. REVENUES DERIVED FROM INTERNATIONAL SALES AND FOREIGN OPERATIONS ZYGO's products are sold internationally by ZYGO primarily to customers in Japan and throughout the Pacific Rim. Net sales to customers outside the Americas (primarily the United States) accounted for 49%, 44%, and 46% of our net sales in each of the fiscal years ended June 30, 2001, 2000, and 1999, 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, including the economic conditions in these various foreign countries and their trading partners, political instability, 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, staffing and managing foreign operations, exposure to currency exchange fluctuations, transportation delays, and potentially adverse tax consequences. Substantially all ZYGO's sales and costs are negotiated and paid in U.S. dollars. However, changes in the values of foreign currencies relative to the value of the U.S. dollar can render our products comparatively more expensive to the extent locally produced alternative products are available. Such conditions could negatively impact international sales of our products and foreign operations, as would changes in the general economic conditions in those markets. There can be no assurance that risks inherent in international sales and foreign operations will not have a material adverse effect on ZYGO in the future. 31 BACKLOG ZYGO schedules the production of its 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. The Company has recently experienced a significant decrease in backlog primarily due to the slowdown in the semiconductor and telecommunications markets; and net debookings in the telecommunications segment, primarily due to order cancellations. SALES CYCLE ZYGO's 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. PREDICTION OF MANUFACTURING REQUIREMENTS 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. UNDETECTED PRODUCT DEFECTS ZYGO's 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 might 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. ENVIRONMENTAL REGULATIONS Environmental regulations applicable to ZYGO's 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. 32 EFFECT OF RECENT ACCOUNTING PRONOUNCEMENTS In June 1998 and June 1999, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards (SFAS) No. 133, "Accounting for Derivative Instruments and Hedging Activities," as amended, which establishes accounting and reporting standards for derivative instruments, including certain derivative instruments embedded in other contracts and for hedging activities. Under SFAS No. 133, certain contracts that were not formerly considered derivatives may now meet the definition of a derivative. 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. The adoption of SFAS No. 133 did not have a material effect on our results of operations or financial position. In December 1999, the Securities and Exchange Commission issued Staff Accounting Bulletin (SAB) No. 101, "Revenue Recognition in Financial Statements." SAB No. 101 summarizes the views of the SEC 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. The adoption of SAB No. 101 in the fourth quarter of fiscal 2001 did not have a material effect on our results of operations or financial position. In March 2000, the FASB 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 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 Issues Task Force (EITF) 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 adoption of EITF Issue No. 00-10 did not have a material impact on our results of operations or financial position. In June 2001, the FASB issued SFAS No. 141, "Business Combinations" which addresses the financial accounting and reporting for business combinations and supercedes Accounting Principles Board (APB) Opinion No. 16, "Business Combinations," and SFAS No. 38, "Accounting for Preacquisition Contingencies of Purchased Enterprises." SFAS No. 141 requires that all business combinations be accounted for by a single method, the purchase method, modifies the criteria for recognizing intangible assets, and expands disclosure requirements. The provisions of SFAS No. 141 apply to all business combinations initiated after June 30, 2001. We do not expect the adoption of SFAS No. 141 to have a material effect on our results of operations or statements of financial position. In June 2001, the FASB issued SFAS No. 142, "Goodwill and Other Intangible Assets" which addresses financial accounting and reporting for acquired goodwill and other intangible assets and supersedes APB 33 No. 17, "Intangible Assets." SFAS No. 142 addresses how intangible assets that are acquired individually or with a group of other assets should be accounted for in financial statements upon their acquisition and after they have been initially recognized in the financial statements. SFAS No. 142 requires that goodwill and intangible assets that have indefinite useful lives not be amortized but rather tested at least annually for impairment, and intangible assets that have finite useful lives be amortized over their useful lives. SFAS No. 142 provides specific guidance for testing goodwill and intangible assets that will not be amortized for impairment. In addition, SFAS No. 142 expands the disclosure requirements for goodwill and other intangible assets in the years subsequent to their acquisition. SFAS No. 142 is effective for our fiscal year 2003, with early adoption permitted at the beginning of our fiscal year 2002. Impairment losses for goodwill and indefinite-life intangible assets that arise due to the initial application of SFAS No. 142 are to be reported as resulting from a change in accounting principles. However, goodwill and intangible assets acquired after June 30, 2001 will be subject immediately to provisions of SFAS No. 142. We are in the process of evaluating the impact that this SFAS will have on our results of operations and financial position. ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS The following discussion about our market risk involves forward-looking statements. Actual results could differ materially from those projected in the forward-looking statements. We are exposed to market risk related to changes in interest rates and foreign currency exchange rates. We do not use derivative financial instruments for speculative or trading purposes. INTEREST RATE SENSITIVITY We maintain a portfolio of cash equivalents and marketable securities including money market funds, commercial paper, corporate bonds and tax-exempt bonds. Our interest income on our variable rate investments are sensitive to changes in the general level of U.S. interest rates, particularly since the majority of our investments are short-term instruments. Due to the short-term nature of our investments, we do not believe that a material risk exposure exists. During fiscal 2001 the company entered into a mortgage on its Westborough facility of $12,560,000 at an interest rate of LIBOR plus 100 basis points (4.5% at June 30, 2001) which is payable in full on May 14, 2007. In conjunction with the mortgage, the Company entered into an interest rate swap agreement that provides for a fixed interest rate of approximately 7% for the duration of the mortgage. Due to the existence of the swap agreement, we do not believe that a material risk exposure exists. EXCHANGE RATE SENSITIVITY Substantially all of the Company's sales and costs are 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 Company's products in its export markets as would changes in the general economic conditions in those markets. The impact of such changes in foreign currency values on the Company's sales cannot be measured. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA Financial statements and supplementary data required pursuant to this Item begin on Page F-1 of this Report. 34 ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None. PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT Except for the information concerning executive officers which is set forth in Part I of this Annual Report, information required by this item will be included under the captions "Election of Board of Directors" and "Other Agreements and Other Matters" in the Proxy Statement to be filed pursuant to Regulation 14A for use in connection with the Registrant's 2001 Annual Meeting of Stockholders ("the Proxy Statement") and is herein incorporated by reference. ITEM 11. EXECUTIVE COMPENSATION Information required by this item will be included in the Proxy Statement under the caption "Executive Compensation" and is herein incorporated by reference. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT Information required by this item will be included in the Proxy Statement under the captions "Election of Board of Directors" and "Principal Stockholders" and is herein incorporated by reference. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS Information required by this item will be included in the Proxy Statement under the caption "Certain Relationships and Related Transactions" and is herein incorporated by reference. PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K (a) The following documents are filed as part of this report: 1. and 2. Financial Statements and Financial Statement Schedules: An index to the financial statements and financial statement schedules filed is located on page F-1. 3. EXHIBITS 3.(i) Restated Certificate of Incorporation of the Company and amendments thereto (Exhibit 3.(i) to the Company's Annual Report on Form 10-K for its year ended June 30, 1993)* 35 3.(ii) Certificate of Amendment of Certificate of Incorporation, filed June 3, 1996 (Exhibit 3.(ii) to the Company's Annual Report on Form 10-K 405 for its year ended June 30, 1996)* 3.(iii) By-laws of the Company (Exhibit (3)(b) to Registration No. 2-87253 on Form S-1 hereinafter "Registration No. 2-87253")* 4.1 Shareholders Agreement dated October 17, 1983, between Canon Inc., Wesleyan University, Paul F. Forman, Carl A. Zanoni, and Sol F. Laufer (Exhibit (4)(a) to Registration 2-87253)* 10.1 Confidentiality and Non-Competition Agreement dated October 25, 1983, between the Company and Carl A. Zanoni (Exhibit (10)(b) to Registration No. 2-87253)* 10.2 Agreement dated May 27, 1975, between the Company and Canon U.S.A., Inc., regarding information sharing and marketing (Exhibit (10)(x) to Registration No. 2-87253)* 10.3 Agreement dated November 20, 1980, between the Company and Canon Inc. regarding exchange of information (Exhibit (10)(y) to Registration No. 2-87253)* 10.4 Amended and Restated Zygo Corporation Profit Sharing Plan (Exhibit 10.15 to the Company's Annual Report on Form 10-K405 for its year ended June 30, 1995)* 10.5 Canon/Zygo Confidentiality Agreement dated March 7, 1990, between the Company and Canon Inc. regarding confidential technical information received from each other (Exhibit 10.42 to the Company's Annual Report on Form 10-K for its year ended June 30, 1991)* 10.6 Employment Agreement dated February 13, 1992, relating to the employment of Gary K. Willis by the Company (Exhibit 10.38 to the Company's Annual Report on Form 10-K for its year ended June 30, 1992)* 10.7 Amendment, dated August 26, 1993, to the Employment Agreement dated February 13, 1992, between Gary K. Willis and the Company (Exhibit 10.22 to the Company's Annual Report on Form 10-K for its year ended June 30, 1993)* 10.8 Second Amendment, dated March 10, 1995, to the Employment Agreement dated February 13, 1992, between Gary K. Willis and the Company (Exhibit 10.19 to the Company's Annual Report on Form 10-K405 for its year ended June 30, 1996)* 10.9 Stock Purchase Agreement dated March 4, 1992, relating to the purchase of Company Common Stock by Gary K. Willis from Wesleyan University (Exhibit 10.39 to the Company's Annual Report on Form 10-K for its year ended June 30, 1992)* 10.10 Services Agreement dated August 26, 1993, between the Company and Paul F. Forman (Exhibit 10.26 to the Company's Annual Report on Form 10-K for its year ended June 30, 1993)* 10.11 Amendment Agreement dated as of December 31, 1996, between the Company and Paul F. Forman. 36 10.12 Non-Competition Agreement dated August 26, 1993, between the Company and Paul F. Forman (Exhibit 10.27 to the Company's Annual Report on Form 10-K for its year ended June 30, 1993)* 10.13 Zygo Corporation Amended and Restated Non-Qualified Stock Option Plan ratified and approved by the Company's Stockholders on November 19, 1992 (Exhibit 10.30 to the Company's Annual Report on Form 10-K for its year ended June 30, 1993)* 10.14 Termination Agreement dated November 30, 1993, covering the termination of the Shareholders' Agreement between Canon Inc., Wesleyan University, Paul F. Forman, Carl A. Zanoni, and Sol F. Laufer dated October 17, 1983 (Exhibit 10.33 to the Company's Annual Report on Form 10-K for its year ended June 30, 1994)* 10.15 Registration Rights Agreement dated November 30, 1993, between Canon Inc., Wesleyan University, Paul F. Forman, Carl A. Zanoni, Sol F. Laufer, and the Company (Exhibit 10.34 to the Company's Annual Report on Form 10-K for its year ended June 30, 1994)* 10.16 Renewal of Line of Credit dated June 3, 1997, between the Company and Fleet Bank Connecticut, N.A.* 10.17 Zygo Corporation Non-Employee Director Stock Option Plan ratified and approved by the Company's stockholders on November 17, 1994 (Exhibit 10.30 to the Company's Annual Report on Form 10-K405 for its year ended June 30, 1996)* 10.18 Subcontract B335188 between The Regents of The University of California Lawrence Livermore National Laboratory and Zygo Corporation dated May 9, 1997* 10.19 Agreement between Zygo Corporation and Dacon Corporation covering an addition to the Company's Middlefield, Connecticut, facilities (Project 1774) and the N.I.F. Manufacturing Renovation (Project 1842) dated April 7, 1997* 10.20 Employment agreement dated January 15, 1999, between Zygo Corporation and J. Bruce Robinson. (Exhibit 10.34 to the Company's Annual Report on Form 10-K 405 for its year ended June 30, 1999)* 10.21 Zygo Corporation Amended and Restated Non-Employee Director Stock Option Plan ratified and approved by the Company's stockholders on November 17, 1999 * 10.22 Employment agreement dated July 1, 1999, between Zygo Corporation and Brian J. Monti. 10.23 Acquisition Agreement dated May 5, 2000, by and among Zygo Corporation, Firefly Technologies Inc., and the Shareholders of Firefly Technologies Inc. (Company's Current Reports on Form 8-K dated May 8, 2000 and on Form 8-KA dated June 30, 2000)* 10.24 Employment agreement dated May 5, 2000, between Zygo Corporation and John Berg. (Exhibit 10.01(e)(1) to the Company's Current Reports on Form 8-K dated May 8, 2000 and on Form 8-KA dated June 30, 2000)* 37 10.25 Employment agreement dated May 5, 2000, between Zygo Corporation and Patrick Tan. (Exhibit 10.01(e)(2) to the Company's Current Reports on Form 8-K dated May 8, 2000 and on Form 8-KA dated June 30, 2000)* 10.26 Amended and restated credit agreement dated May 14, 2001, between Zygo Corporation and Fleet National Bank. 21. Subsidiaries of Registrant 23. Accountants' Consent 24. Power of Attorney ---------- * Incorporated herein by reference. 38 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. ZYGO CORPORATION Registrant By /s/ RICHARD M. DRESSLER Date September 25, 2001 ------------------------------- Richard M. Dressler Vice President, Finance, Chief Financial Officer, and Treasurer Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
Signature Title --------- ----- /s/ J. BRUCE ROBINSON Chairman, President, and Chief Date September 25, 2001 --------------------------- Executive Officer J. Bruce Robinson /s/ RICHARD M. DRESSLER Vice President, Finance, Chief Date September 25, 2001 --------------------------- Financial Officer, and Treasurer Richard M. Dressler /s/ CARL A. ZANONI Vice President, Technology Date September 25, 2001 --------------------------- and Director Carl A. Zanoni PAUL F. FORMAN* Director --------------------------- (Paul F. Forman) JOHN BERG* President, Zygo TeraOptix --------------------------- and Director (John Berg) R. CLARK HARRIS* Director --------------------------- (R. Clark Harris) SEYMOUR E. LIEBMAN* Director --------------------------- (Seymour E. Liebman) ROBERT G. MCKELVEY* Director --------------------------- (Robert G. McKelvey) PATRICK TAN* Vice President, Business Operations, --------------------------- Zygo TeraOptix and Director (Patrick Tan) ROBERT B. TAYLOR* Director --------------------------- (Robert B. Taylor) *By /s/ RICHARD M. DRESSLER Date September 25, 2001 ----------------------- Richard M. Dressler Attorney-in-Fact
39 ZYGO CORPORATION AND CONSOLIDATED SUBSIDIARY INDEX TO FINANCIAL STATEMENTS AND SCHEDULE Page ---- F-2 Report of Management F-3 Independent Auditors' Report F-4 Consolidated balance sheets at June 30, 2001 and 2000 F-5 Consolidated statements of earnings for the years ended June 30, 2001, 2000, and 1999 F-6 Consolidated statements of stockholders' equity for the years ended June 30, 2001, 2000, and 1999 F-7 Consolidated statements of cash flows for the years ended June 30, 2001, 2000, and 1999 F-8 to F-22 Notes to consolidated financial statements F-23 Selected consolidated quarterly financial data for the years ended June 30, 2001 and 2000 CONSOLIDATED SCHEDULES S-1 Independent Auditors' Report on Schedule S-2 II - Valuation and qualifying accounts All other schedules have been omitted since the required information is not present or not present in amounts sufficient to require submission of the schedules or the information required is included in the consolidated financial statements or notes thereto. F-1 REPORT OF MANAGEMENT Management is responsible for preparing the Company's consolidated financial statements and related information that appears in this annual report. The consolidated financial statements were prepared in conformity with accounting principles generally accepted in the United States of America appropriate in the circumstances and, accordingly, include some amounts based on management's best judgements and estimates. Financial information in this Annual Report is consistent with that in the consolidated financial statements. The Company maintains a system of internal controls and procedures which provides reasonable assurance, at an appropriate cost/benefit relationship, that assets are safeguarded and that transactions are authorized, recorded, and reported properly. Management believes that the Company's system of internal controls provides reasonable assurance that assets are safeguarded against material loss from unauthorized use or disposition and that the financial records are reliable for preparing financial statements and other data and for maintaining accountability for assets. The Audit Committee of the Board of Directors, composed solely of Directors who are not officers or employees of the Company, meets with the independent auditors and financial management periodically to discuss internal accounting controls, auditing and financial reporting matters, and to discharge its responsibilities outlined in its written charter. The Committee reviews with the independent auditors the scope and results of the audit effort. The Committee also meets with the independent auditors without management present to ensure that the independent auditors have free access to the Committee. The independent auditors, KPMG LLP, were recommended by the Audit Committee of the Board of Directors and selected by the Board of Directors. KPMG LLP was engaged to audit the 2001, 2000, and 1999 consolidated financial statements of Zygo Corporation and its subsidiaries and conducted such tests and related procedures as deemed necessary in conformity with auditing standards generally accepted in the United States of America. The opinion of the independent auditors, based upon their audits of the consolidated financial statements, is included in this annual report. Richard M. Dressler Vice President, Finance, Chief Financial Officer, and Treasurer F-2 REPORT OF INDEPENDENT AUDITORS THE BOARD OF DIRECTORS AND STOCKHOLDERS OF ZYGO CORPORATION: We have audited the accompanying consolidated balance sheets of Zygo Corporation and subsidiaries as of June 30, 2001 and 2000, and the related consolidated statements of earnings, stockholders' equity and cash flows for each of the years in the three-year period ended June 30, 2001. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Zygo Corporation and subsidiaries as of June 30, 2001 and 2000, and the results of their operations and their cash flows for each of the years in the three-year period ended June 30, 2001, in conformity with accounting principles generally accepted in the United States of America. KPMG LLP Hartford, Connecticut August 10, 2001 F-3 CONSOLIDATED BALANCE SHEETS (Thousands of dollars, except share amounts)
June 30, June 30, 2001 2000 -------- ------- ASSETS CURRENT ASSETS: Cash and cash equivalents ...................................... $ 52,630 $15,598 Marketable securities (note 3) ................................. 7,121 8,268 Receivables (note 4) ........................................... 27,278 20,138 Income taxes receivable ........................................ -- 866 Inventories (note 5) ........................................... 24,261 11,879 Costs in excess of billings (note 6) ........................... 1,802 5,743 Prepaid expenses ............................................... 1,393 1,173 Deferred income taxes (note 17) ................................ 4,076 9,020 -------- ------- Total current assets ........................................ 118,561 72,685 -------- ------- Property, plant and equipment, net (notes 7 and 11) .................. 47,475 18,493 Deferred income taxes (note 17) ...................................... 15,819 -- Goodwill and other intangibles, net (note 8) ......................... 4,867 3,078 Other assets ......................................................... 110 906 -------- ------- TOTAL ASSETS ......................................................... $186,832 $95,162 ======== ======= LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES: Current portion of long-term debt (note 10) ..................... $ 279 $ -- Accounts payable ................................................ 8,648 8,380 Accrued expenses and progress payments .......................... 549 279 Accrued salaries and wages ...................................... 7,153 3,485 Other accrued expenses .......................................... 4,688 3,934 Income taxes payable ............................................ 3,132 57 -------- ------- Total current liabilities ................................. 24,449 16,135 -------- ------- Long-term debt (note 10) ............................................. 12,281 84 Deferred income taxes (note 17) ...................................... -- 271 Minority interest .................................................... 963 443 STOCKHOLDERS' EQUITY (NOTES 13, 14, 15, AND 16): Common stock, $.10 par value per share: 40,000,000 shares authorized (15,000,000 in 2000); 17,803,812 shares issued (14,441,231 in 2000); 17,356,607 shares outstanding (14,233,631 in 2000) .............. 1,780 1,444 Additional paid-in capital ........................................ 134,380 68,304 Retained earnings ................................................. 19,714 9,055 Accumulated other comprehensive income: Currency translation effects ...................................... (1,786) (182) Net unrealized gain on swap agreement (note 10) ................... 31 -- Net unrealized gain (loss) on marketable securities (note 3) ...... 37 (91) -------- ------- 154,156 78,530 Less treasury stock, at cost; 447,205 common shares (207,600 shares in 2000) ........................................ 5,017 301 -------- ------- Total stockholders' equity ..................................... 149,139 78,229 -------- ------- TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY ........................... $186,832 $95,162 ======== =======
See accompanying notes to consolidated financial statements. F-4 CONSOLIDATED STATEMENTS OF EARNINGS (Thousands except per share amounts)
Fiscal Year Ended June 30, ---------------------------------- 2001 2000 1999 -------- -------- -------- Net sales (notes 18 and 19) ............................ $133,250 $ 87,243 $ 63,382 Cost of goods sold ..................................... 72,081 54,688 40,997 -------- -------- -------- Gross profit ..................................... 61,169 32,555 22,385 Selling, general and administrative expenses ........... 29,119 18,504 19,633 Research and development ............................... 17,673 11,270 9,185 Nonrecurring acquisition-related charges ............... -- 14,001 -- Amortization and impairment of goodwill and other intangibles (note 2) ...................... 797 7,102 1,258 -------- -------- -------- Operating profit (loss) .......................... 13,580 (18,322) (7,691) -------- -------- -------- Other income (expense): Interest income .................................. 1,641 1,250 1,148 Miscellaneous expense, net ....................... (526) (240) (308) -------- -------- -------- Total other income ............................ 1,115 1,010 840 -------- -------- -------- Earnings (loss) before income taxes and minority interest ......................... 14,695 (17,312) (6,851) Income tax expense (benefit) (note 17) ................. 3,454 (1,459) (2,975) -------- -------- -------- Earnings (loss) before minority interest ............... 11,241 (15,853) (3,876) Minority interest ...................................... 582 194 -- -------- -------- -------- Net earnings (loss) .................................... $ 10,659 $(16,047) $ (3,876) ======== ======== ======== Earnings (loss) per common and common equivalent share: Basic ............................................ $ 0.69 $ (1.28) $ (0.33) ======== ======== ======== Diluted .......................................... $ 0.66 $ (1.28) $ (0.33) ======== ======== ======== Weighted average common shares and common dilutive equivalents outstanding: Basic ............................................ 15,398 12,511 11,780 ======== ======== ======== Diluted .......................................... 16,063 12,511 11,780 ======== ======== ========
See accompanying notes to consolidated financial statements. F-5 CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (Thousands of dollars)
Other Comp. Retained Comp. Common Treasury Paid-In Total Income Earnings Income Stock Stock Capital -------------------------------------------------------------------------------- Balance at June 30, 1998 $ 72,391 $ 28,978 $ 15 $1,352 $ (301) $ 42,347 Comprehensive loss Net loss (3,876) (3,876) (3,876) ------- Other comprehensive loss, net of tax Unrealized loss on marketable securities (83) (83) Foreign currency translation effect (58) (58) ------- Other comprehensive loss (141) (141) ------- Comprehensive loss (4,017) ======= Exercise of employee stock options And related tax effect 338 18 320 -------------------------------------------------------------------------------- Balance at June 30, 1999 $ 68,712 $ 25,102 $ (126) $1,370 $ (301) $ 42,667 Comprehensive loss Net loss (16,047) (16,047) (16,047) ------- Other comprehensive loss, net of tax Unrealized loss on marketable securities (22) (22) Foreign currency translation effect (125) (125) ------- Other comprehensive loss (147) (147) ------- Comprehensive loss (16,194) ======= Unearned Compensation 12,024 12,024 Exercise of employee stock options And related tax effect 13,687 74 13,613 -------------------------------------------------------------------------------- Balance at June 30, 2000 $ 78,229 $ 9,055 $ (273) $1,444 $ (301) $ 68,304 Comprehensive income Net earnings 10,659 10,659 10,659 ------- Other comprehensive income (loss), net of tax Unrealized gain on marketable securities, net of related tax effect 128 128 Unrealized gain on Swap Agreement 31 31 Foreign currency translation effect (1,604) (1,604) ------- Other comprehensive income (1,445) (1,445) ------- Comprehensive income 9,214 ======= Repurchased common stock, net of adjustment (4,716) (4,716) Secondary offering 51,824 292 51,532 Exercise of employee stock options and related tax effect 14,588 44 14,544 -------------------------------------------------------------------------------- Balance at June 30, 2001 $149,139 $ 19,714 $(1,718) $1,780 $(5,017) $134,380
See accompanying notes to consolidated financial statements. F-6 CONSOLIDATED STATEMENTS OF CASH FLOWS (Thousands of dollars)
Fiscal Year Ended June 30, ----------------------------------- 2001 2000 1999 ------- -------- -------- Cash provided by (used for) operating activities: Net earnings (loss) $10,659 $(16,047) $ (3,876) Adjustments to reconcile net earnings to cash provided by (used for) operating activities: Depreciation and amortization 3,996 11,318 4,448 Loss on disposal of assets 869 1,176 662 Deferred income taxes 2,446 (7,247) (1,540) Unearned compensation related to stock options -- 12,024 -- Loss on sale of marketable securities -- -- (38) Changes in operating accounts: Receivables (7,140) (7,657) 4,074 Costs in excess of billings 3,942 (5,083) 522 Inventories (12,382) 3,594 (1,043) Prepaid expenses and taxes 3,721 4,770 42 Accounts payable and accrued expenses 3,306 4,654 (5,252) Minority interest 520 194 -- ------- -------- -------- Net cash provided by (used for) operating activities 9,937 1,696 (2,001) ------- -------- -------- Cash provided by (used for) investing activities: Additions to property, plant and equipment (33,050) (6,513) (4,372) Investment in marketable securities (2,155) (2,466) (11,860) Investments in other assets (1,790) -- (2,958) Proceeds from the sale of marketable securities 2,250 -- 8,616 Proceeds from maturity of marketable securities 1,180 2,500 3,045 ------- -------- -------- Net cash used for investing activities (33,565) (6,479) (7,529) ------- -------- -------- Cash provided by (used for) financing activities: Proceeds (Repayments) of debt 12,556 48 (125) Exercise of employee stock options 996 7,062 338 Issuance and repurchase of common stock 47,108 -- -- Contributions from minority interest of consolidated subsidiaries -- 249 -- ------- -------- -------- Net cash provided by financing activities 60,660 7,359 213 ------- -------- -------- Net increase (decrease) in cash and cash equivalents 37,032 2,576 (9,317) Cash and cash equivalents, beginning of year 15,598 13,022 22,339 ------- -------- -------- Cash and cash equivalents, end of year $52,630 $ 15,598 $ 13,022 ======= ======== ========
See accompanying notes to consolidated financial statements. F-7 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS June 30, 2001, 2000, and 1999 Thousands, except for per share amounts NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES PRINCIPLES OF CONSOLIDATION The accompanying consolidated financial statements include the accounts of Zygo Corporation and its subsidiaries ("ZYGO" or the "Company"). All material transactions and accounts with the subsidiaries have been eliminated from the consolidated financial statements. As discussed in Note 2, all the outstanding shares of Firefly Technologies, Inc. ("Firefly") were acquired by the Company on May 5, 2000, in a transaction accounted for as a pooling-of-interests. Accordingly the financial statements of the Company have been restated to reflect the merger as if it had occurred on July 1, 1997. CASH AND CASH EQUIVALENTS The Company considers cash and cash investments with maturities at the date of purchase of three months or less to be cash and cash equivalents. MARKETABLE SECURITIES The Company considers investments in securities with maturities at the date of purchase in excess of three months as marketable securities. Marketable securities primarily consist of corporate and tax exempt bonds. All securities held by the Company at June 30, 2001 and 2000, were classified as available-for-sale and recorded at fair value or held to maturity and recorded at cost. Unrealized holding gains and losses, net of the related tax effect, on available-for-sale securities are excluded from earnings and are reported as a separate component of stockholders' equity until realized. INVENTORIES Inventories are stated at the lower of cost (determined on a first-in, first-out basis) or market. DEPRECIATION Depreciation is based on the estimated useful lives of the various classes of assets and is computed using the straight-line method. See note 7. IMPAIRMENT OF LONG-LIVED ASSETS As required by Statement of Financial Accounting Standards No. 121, "Accounting for the Impairment of Long-Lived Assets for Long-Lived Assets to Be Disposed Of," the Company evaluates the carrying value of its long-lived and intangible assets at each balance sheet date to determine if impairment exists based upon estimated undiscounted future cash flows. The impairment, if any, is measured by the difference between carrying value and estimated fair value and charged to expense in the period identified. The remaining amortization periods are periodically evaluated and would be revised if considered necessary. See notes 8 and 20. REVENUE RECOGNITION Revenues, other than revenue under the National Ignition Facility ("NIF") contract (note 20) and revenue from certain automation contracts (note 6), are recognized when units are shipped. Revenues related to NIF and certain automation contracts are recognized under the percentage-of-completion method of accounting. In December 1999, the Securities and Exchange Commission ("SEC") issued SEC Staff Accounting Bulletin ("SAB") No. 101, "Revenue Recognition in Financial Statements." SAB 101 summarized certain of the SEC's views in applying generally accepted accounting principles to revenue recognition F-8 in financial statements. SAB 101 was effective for ZYGO in the fourth quarter of fiscal 2001. The adoption of SAB 101 did not have a material effect on ZYGO's financial position or results of operations. EARNINGS PER SHARE Basic and diluted earnings per share are calculated in accordance with Statement of Financial Accounting Standards No. 128, "Earnings Per Share." The following table sets forth the reconciliation of weighted average shares outstanding and diluted weighted average shares outstanding: ------------------------------------------------------------------------- JUNE 30, June 30, June 30, 2001 2000 1999 ------------------------------------------------------------------------- Weighted average shares outstanding 15,398 12,511 11,780 ------ ------ ------ Dilutive effect of stock options 665 -- -- ------ ------ ------ Diluted weighted average shares outstanding 16,063 12,511 11,780 ------------------------------------------------------------------------- During 2000 and 1999, the Company recorded a loss and all options were excluded from the computation because of the anti-dilutive effect on earnings per share. GAIN CONTINGENCY The Company was awarded $2,669 plus recovery of certain costs in a judgment rendered by the United States District Court (District of Arizona) on June 2, 1994. The Court's decision was appealed to the Court of Appeals for the Federal Circuit located in Washington, D.C. by the defendant and oral arguments of the appeal were heard by the Court on March 9, 1995. On April 1, 1996, the United States Court of Appeals for the Federal Circuit rendered an Opinion Announcing Judgment of the Court. The appellate court affirmed-in-part and reversed-in-part the District Court's earlier findings and remanded the case to the District Court for a redetermination of the damage award. ZYGO recorded a gain of $1 million in the third quarter of 2000 when the Company received the proceeds from this settlement. STOCK BASED COMPENSATION Stock-based compensation awards to employees under the Company's stock plans are accounted for using the intrinsic value method prescribed in Accounting Principals Board Opinion ("APB") No. 25, "Accounting for Stock Issued to Employees" and related interpretations. The Company has adopted the disclosure requirements of Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based Compensation." The Company follows the practice of recording amounts received upon the exercise of options by crediting common stock and additional capital. Except as discussed in Note 2, no charges are reflected in the consolidated statements of operations as a result of the grant or exercise of stock options, which are granted with an exercise price at fair-market value on the date of grant. The Company realizes an income tax benefit from the exercise or early disposition of certain stock options. This benefit results in a decrease in current income taxes payable and an increase in additional paid-in capital. FAIR VALUE OF FINANCIAL INSTRUMENTS Statement of Financial Accounting Standards No. 107, "Disclosures about Fair Value of Financial Instruments," requires that reporting entities provide, to the extent practicable, the fair value of financial F-9 instruments, both assets and liabilities. The carrying amounts of cash, accounts receivable, accounts payable, and accrued expenses approximate fair value because of the short maturity of these items. USE OF ESTIMATES Management of the Company has made a number of estimates and assumptions relating to the reporting of assets, liabilities, revenues and expenses and the disclosure of contingent assets and liabilities to prepare these consolidated financial statements in conformity with accounting principles generally accepted in the United States of America. Actual results could differ from those estimates. RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS In June 1998 and June 1999, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards (SFAS) No. 133, "Accounting for Derivative Instruments and Hedging Activities," as amended, which establishes accounting and reporting standards for derivative instruments, including certain derivative instruments embedded in other contracts and for hedging activities. Under SFAS No. 133, certain contracts that were not formerly considered derivatives may now meet the definition of a derivative. 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. The adoption of SFAS No. 133 did not have a material effect our results of operations or financial position. In December 1999, the Securities and Exchange Commission issued Staff Accounting Bulletin (SAB) No. 101, "Revenue Recognition in Financial Statements." SAB No. 101 summarizes the views of the SEC 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. The adoption of SAB No. 101 in the fourth quarter of fiscal 2001 did not have a material effect on our results of operations or financial position. In March 2000, the FASB 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 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 Issues Task Force (EITF) 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 adoption of EITF Issue No. 00-10 did not have a material impact on our results of operations or financial position. In June 2001, the FASB issued SFAS No. 141, "Business Combinations" which addresses the financial accounting and reporting for business combinations and supercedes Accounting Principles Board (APB) Opinion No. 16, "Business Combinations," and SFAS No. 38, "Accounting for Preacquisition F-10 Contingencies of Purchased Enterprises." SFAS No. 141 requires that all business combinations be accounted for by a single method, the purchase method, modifies the criteria for recognizing intangible assets, and expands disclosure requirements. The provisions of SFAS No. 141 apply to all business combinations initiated after June 30, 2001. We do not expect the adoption of SFAS No. 141 to have a material effect on our results of operations or statements of financial position. In June 2001, the FASB issued SFAS No. 142, "Goodwill and Other Intangible Assets" which addresses financial accounting and reporting for acquired goodwill and other intangible assets and supersedes APB No. 17, "Intangible Assets." SFAS No. 142 addresses how intangible assets that are acquired individually or with a group of other assets should be accounted for in financial statements upon their acquisition and after they have been initially recognized in the financial statements. SFAS No. 142 requires that goodwill and intangible assets that have indefinite useful lives not be amortized but rather tested at least annually for impairment, and intangible assets that have finite useful lives be amortized over their useful lives. SFAS No. 142 provides specific guidance for testing goodwill and intangible assets that will not be amortized for impairment. In addition, SFAS No. 142 expands the disclosure requirements for goodwill and other intangible assets in the years subsequent to their acquisition. SFAS No. 142 is effective for our fiscal year 2003, with early adoption permitted at the beginning of our fiscal year 2002. Impairment losses for goodwill and indefinite-life intangible assets that arise due to the initial application of SFAS No. 142 are to be reported as resulting from a change in accounting principles. However, goodwill and intangible assets acquired after June 30, 2001 will be subject immediately to provisions of SFAS No. 142. We are in the process of evaluating the impact that this SFAS will have on our results of operations and financial position. NOTE 2: MERGERS, ACQUISITIONS AND STRATEGIC INITIATIVES On May 5, 2000, the Company entered into an agreement and plan of merger with Firefly Technologies, Inc. ("Firefly"), a Delaware corporation, Zygo TeraOptix, Inc., ("Zygo TeraOptix") a Delaware corporation and a wholly-owned subsidiary of the Company, and the security holders of Firefly, pursuant to which the Company agreed to acquire Firefly. Immediately thereafter, the acquisition was consummated by the merger of Zygo TeraOptix with and into Firefly and Firefly became a wholly-owned subsidiary of the Company under the new name Zygo TeraOptix, Inc. Under the terms of the acquisition, the Company exchanged an aggregate of 2,303,937 shares of its common stock, $.10 par value per share, for all of the then outstanding capital stock and stock options of Firefly. The acquisition, which is intended to be tax free for federal income tax purposes to the Firefly security holders, has been accounted for as a pooling-of-interest transaction. Firefly manufactures metrology equipment, micro-optics, switches and filters for the telecommunications industry, as well as heads and related products for the optical data storage industry. The telecommunications components are used in wave division multiplexers to increase the capacity of optical fibers. The Company intends to continue to use the assets acquired in the acquisition for these purposes. Related to the transaction and the vesting of certain Firefly stock options, the Company has recorded approximately $12,024 of additional compensation expense and in addition recorded $1,977 in acquisition related costs for legal, investment banking and accounting fees in fiscal 2000. In the fourth quarter of fiscal 2000, the Company decided to discontinue its investment in certain product lines, which were no longer compatible with its strategic plan. Related to the discontinuance of these product lines, the Company recorded approximately $10,567 of charges in the fourth quarter of fiscal year 2000 which consisted of the write-down of goodwill and other intangible assets ($5,478) and inventory ($5,089) which the Company will no longer continue to develop. F-11 On September 1, 1997, the Company, through its Technical Instruments subsidiary, completed the purchase of the remaining 50% of Syncotec Neue Technologien und Instrumente GmbH ("Syncotec") the Company did not already own. The Company paid $2,262 and issued 19,432 shares of common stock, $.10 par value, valued at $623. The transaction was accounted for as a purchase. The net purchase price was allocated to the fair value of the net assets acquired. This allocation resulted in a charge of $878 of in-process research and development costs. NOTE 3: MARKETABLE SECURITIES Marketable securities consisted primarily of corporate bonds and tax-exempt bonds issued by various state and municipal agencies for both 2001 and 2000. Marketable securities at June 30, 2001 and June 30, 2000 are reported either at fair value or at cost depending on their classification. The unrealized gain on marketable securities of $51 (gross) is shown net of its related tax effect of $37 as a separate component of stockholders' equity. Dividend and interest income is recognized when earned. Realized gains and losses are included in earnings and are derived using the specific identification method for determining the cost of securities sold. The cost, gross unrealized holding gains (losses), and fair value of available-for-sale securities at June 30, 2001 and 2000 were as follows: Gross Gross Unrealized Unrealized Holding Holding Fair Cost Gains Losses Value ------ ---------- ---------- ------ AT JUNE 30, 2001 CORPORATE, STATE AND LOCAL MUNICIPAL BONDS $5,320 $ 51 $ -- $5,371 At June 30, 2000 Corporate, state and local Municipal bonds $7,240 $ -- $(154) $7,086 ====== ==== ===== ====== There were no gross realized gains or losses recorded in 2001 or 2000. Maturities of investment securities classified as available-for-sale were as follows at June 30, 2001 and 2000:
JUNE 30, 2001 June 30, 2000 ------------------ ----------------- FAIR Fair COST VALUE Cost Value ------ ------ ------ ------ Due within one year $ -- $ -- $ -- $ -- Due after one year through five years 5,320 5,371 7,240 7,086 ------ ------ ------ ------ $5,320 $5,371 $7,240 $7,086 ====== ====== ====== ======
F-12 Maturities of investment securities classified as held-to-maturity were as follows at June 30, 2001 and 2000:
JUNE 30, 2001 June 30, 2000 ------------------ ----------------- FAIR Fair COST VALUE Cost Value ------ ------ ------ ------ Due within one year $1,750 $1,750 $1,182 $1,182 ------ ------ ------ ------ Due after one year through five years -- -- -- -- ------ ------ ------ ------ $1,750 $1,750 $1,182 $1,182 ====== ====== ====== ======
NOTE 4: ACCOUNTS RECEIVABLE At June 30, 2001 and 2000, accounts receivable, net of allowances, were as follows: JUNE 30, June 30, 2001 2000 -------- -------- Trade (note 19) $ 25,644 $ 19,293 Other 2,015 1,079 -------- -------- 27,659 20,372 Allowance (381) (234) -------- -------- $ 27,278 $ 20,138 ======== ======== NOTE 5: INVENTORIES At June 30, 2001 and 2000, inventories, net of reserves, were as follows: JUNE 30, June 30, 2001 2000 -------- -------- Raw materials and manufactured parts $ 20,359 $ 9,759 Work in process 5,674 3,471 Finished goods 1,308 1,496 -------- -------- 27,341 14,726 Reserves (3,080) (2,847) -------- -------- $ 24,261 $ 11,879 ======== ======== NOTE 6: COSTS IN EXCESS OF BILLINGS Revenues from automation projects are accounted for under the percentage-of-completion method using total project costs incurred to date in relation to estimated total costs of the contracts to measure the stage of completion. The cumulative effects of revisions of estimated total contract costs and revenues are recorded in the period in which the facts become known. When a loss is anticipated on a contract, the full amount of the loss is provided for currently. The differences between amounts billed and revenue recognized is shown as costs in excess of billings on the accompanying balance sheets. Totals of revenue earned and billings issued on contracts were as follows: JUNE 30, June 30, 2001 2000 -------- -------- Revenue recognized to date $50,529 $37,069 Billings to date 48,727 31,326 ------- ------- $ 1,802 $ 5,743 ======= ======= F-13 NOTE 7: PROPERTY, PLANT AND EQUIPMENT Property, plant and equipment are stated at cost. Costs of additions, replacements and improvements are capitalized and depreciated over a range of 3-40 years. Maintenance and repairs are charged to expense as incurred. At June 30, 2001 and 2000, property, plant and equipment, at cost, were as follows: JUNE 30, June 30, 2001 2000 -------- -------- Land $ 3,778 $ 897 Building 9,199 9,115 Machinery, equipment and office furniture 31,101 23,839 Leasehold improvements 625 519 Construction in progress 23,849 3,621 ------- ------- 68,552 37,991 Less accumulated depreciation 21,077 19,498 ------- ------- $47,475 $18,493 ======= ======= NOTE 8: GOODWILL AND OTHER INTANGIBLES The cost of goodwill and other intangible assets is amortized on a straight-line basis, which ranges from 4 to 20 years. Management evaluates, on an ongoing basis, the carrying value of its goodwill and other intangible assets and makes adjustments when impairments are identified. Goodwill and other intangibles, net, at June 30, 2001 and 2000 were as follows: JUNE 30, June 30, 2001 2000 -------- -------- Goodwill and other intangibles $7,726 $5,140 Accumulated amortization 2,859 2,062 ------ ------ $4,867 $3,078 ====== ====== NOTE 9: BANK LINE OF CREDIT The Company has a $3,000 unsecured bank line of credit with interest at LIBOR plus 60 basis points (approximately 4.5% at June 30, 2001). The line of credit is available through November 22, 2001. At June 30, 2001 and 2000, no amounts were outstanding under the bank line of credit. NOTE 10: LONG-TERM DEBT On May 14, 2001 the Company entered into a mortgage on the newly constructed facility located in Westborough, Massachusetts. The mortgage amount is $12,560 at an interest rate of LIBOR plus 100 basis points (approximately 4.9% at June 30, 2001) and is payable in full on May 14, 2007. Interest only payments are to be made through February 14, 2002. The mortgage is amortizing on a 15-year level amortization schedule requiring level monthly principal and interest payments. As of June 30, 2001, long-term debt was $12,281 with a current portion of long-term debt of $279. The agreement contains financial covenants, which among others relate to debt service and consolidated debt ratios. As of June 30, 2001, the Company is in compliance with the financial covenants. In conjunction with the mortgage, the Company entered into an interest rate swap agreement that provides for a fixed interest rate of approximately 7% for the duration of the mortgage. As of June 30, F-14 2001, the market value of the agreement is $31 and is recorded as an asset with a corresponding credit to stockholders' equity. Interest payments on debt and capital leases were $107, $6, and $11 in fiscal 2001, 2000, and 1999, respectively. NOTE 11: LEASES The Company leases certain manufacturing equipment and facilities under operating leases, some of which include cost escalation clauses, expiring on various dates through 2006. Total rental expense charged to operations was $1,562 in 2001, $986 in 2000, and $738 in 1999. At June 30, 2001 the minimum future rental commitments under noncancellable leases payable over the remaining lives of the leases were: Year ending June 30, Capital Operating ------- --------- 2002 $ 33 $1,798 2003 -- 1,448 2004 -- 1,151 2005 -- 925 2006 -- 745 ---- ------ Total minimum lease payments 33 $6,067 ====== Less amount representing interest 3 Present value of minimum lease payments 30 Less current portion of capital lease obligations 30 ---- Capital lease obligation, excluding current portion $ -- ==== NOTE 12: PROFIT-SHARING PLAN The Company maintains a deferred profit-sharing plan under which substantially all full-time employees of the Company are eligible to participate. Profit-sharing expense for the years ended June 30, 2001, 2000, and 1999, amounted to $2,516, $1,209, and $607, respectively. The profit-sharing plan consists of a cash distribution and a contribution to the Company's 401(k) program. Profit-sharing contributions are determined annually at the discretion of the Board of Directors. The cash distribution for the years ended June 30, 2001, 2000, and 1999, amounted to $930, $709, and $0, respectively. Effective June 30, 1985, the existing profit-sharing plan was revised and amended to incorporate a 401(k) tax deferred payroll deduction program and an Employee Stock Ownership Program. Under the 401(k) program, employees may contribute a tax-deferred amount of up to 15% of their compensation, as defined. The Company may contribute to the 401(k) program an amount determined annually at the discretion of the Board of Directors. The 401(k) contribution expense for the years ended June 30, 2001, 2000, and 1999 amounted to $1,586, $500, and $607, respectively. As of January 1, 2001, the employees of Zygo TeraOptix have been incorporated into the Company's 401(k) program for fiscal 2001. Prior to January 1, 2001, the Company maintained a separate defined contribution retirement plan for the employees of Zygo TeraOptix. The plan allowed employees to participate after three months of employment with the Company by deferring up to 15% of their salary on a pre-tax basis, and allowed the Company to make discretionary contributions to the plan, which F-15 were allocated to the participants' accounts. The Company did not make any contributions to the plan through January 1, 2001. Under the Employee Stock Ownership Program, the Company may, at the discretion of the Board of Directors, contribute its own stock or contribute cash to purchase its own stock. The purchased stock's fair market value can not exceed the maximum amount of employee stock ownership credit as determined under Section 416 of the Internal Revenue Code. There were no purchases and no contributions made under this program for the years ended June 30, 2001, 2000, and 1999. NOTE 13: STOCKHOLDERS' EQUITY On July 31, 2000 the shareholders voted to increase the number of authorized shares of common stock from 15 million to 40 million. On March 7, 2001 the Company closed a secondary public offering of 2,924,500 shares of common stock including 424,500 shares sold to underwriters to cover over-allotments. The offering price was $19 per share. The net proceeds to the Company including the over-allotment shares, after deducting underwriting discounts, commissions, and offering expenses totaled $51,824. On April 11, 2001, the Company purchased 239,605 shares of its common stock from two officers and directors, pursuant to stock purchase agreements; all at a price per share of $20.81 (the closing price of the common stock in the public markets on that day) for $4,986. The funding for the purchase came from cash balances. The purpose of the purchase was to allow these two officers and directors to satisfy their tax obligations arising from the Firefly acquisition, in which they were principal stockholders, and to satisfy and extinguish the margin loans they incurred to pay additional taxes, which arose from the acquisition of Firefly and were due prior to the date the Company made the loans. The common stock purchased is being held as treasury stock. NOTE 14: STOCK COMPENSATION PLANS As of June 30, 2001, Zygo Corporation has two stock based compensation plans, which are described below (see note 15). The Company applies APB Opinion No. 25, Accounting for Stock Issued to Employees, and related interpretations in accounting for its plans. Since all options were granted with an exercise price equal to the fair-market value on the date of the grant, no compensation cost has been recognized for its fixed option plans. Pro forma information regarding net income and earnings per share is required by SFAS No. 123 "Accounting for Stock-Based Compensation", which requires that the information be determined as if the Company has accounted for its stock options granted in fiscal years beginning after December 15, 1994 under the fair value method of the statement. The fair value of options at date of grant was estimated using the Black-Scholes model. The Company's pro forma information is as follows:
JUNE 30, June 30, June 30, 2001 2000 1999 -------- --------- -------- Pro forma net income (loss) $9,952 $(16,930) $(4,697) Pro forma earnings (loss) per share - diluted $ 0.62 $ (1.35) $ (.40)
F-16 The fair value of these options at the date of grant was estimated with the following weighted average assumptions of 2001 and 2000: JUNE 30, June 30, June 30, 2001 2000 1999 --------- --------- --------- Risk free rate of interest 5.0% 5.9% 4.8% Dividend yield 0.0% 0.0% 0.0% Volatility factor 77% 67% 58% Expected life of option 4.8 YEARS 5.6 years 5.7 years The above pro forma information is based on historical activity and may not represent future trends. On June 26, 2001, the Board of Directors granted an option to purchase 25,000 shares of the Company's common stock to the Zetetic Institute, a non-profit organization that provides assistance to the Company in connection with certain research and development activities. The option has an exercise price of $18.64 per share, the closing price of the common stock on the date of the grant, and will vest, in equal annual increments, over the four-year period following the date of grant. NOTE 15: STOCK OPTION PLANS EMPLOYEE STOCK OPTION PLAN AND DATA The Zygo Corporation Amended and Restated Non-Qualified Stock Option Plan permits the granting of non-qualified options to purchase a total of 4,850,000 shares (adjusted for splits) of common stock at prices not less than the fair-market value on the date of grant. Options generally become exercisable at the rate of 25% of the shares each year commencing one year after the date of grant. The Plan as amended will expire on September 3, 2002. JUNE 30, 2001 --------------------------------- WEIGHTED AVERAGE SHARES EXERCISE PRICE --------- -------------- Outstanding at beginning of year 798,299 $ 10.0199 Granted 1,386,436 $ 61.8101 Exercised (347,463) $ 3.5084 Expired or canceled (58,964) $ 58.5268 --------- --------- Outstanding at end of year 1,778,308 $ 50.2233 ========= ========= June 30, 2000 --------------------------------- Weighted Average Shares Exercise Price --------- -------------- Outstanding at beginning of year 1,245,299 $ 7.2277 Granted 182,650 $ 23.1386 Exercised (519,200) $ 7.2148 Expired or canceled (110,450) $ 13.2402 --------- --------- Outstanding at end of year 798,299 $ 10.0199 ========= ========= F-17 June 30, 1999 --------------------------------- Weighted Average Shares Exercise Price --------- -------------- Outstanding at beginning of year 1,416,779 $ 7.2866 Granted 228,000 $ 10.5957 Exercised (184,480) $ 1.8362 Expired or canceled (215,000) $ 26.6993 --------- --------- Outstanding at end of year 1,245,299 $ 7.2277 ========= ========= NON-EMPLOYEE DIRECTOR STOCK OPTION PLAN AND DATA The Zygo Corporation Amended and Restated Non-Employee Director Stock Option Plan permits the granting of non-qualified options to purchase a total of 620,000 shares (adjusted for splits) of common stock at prices not less than the fair-market value on the date of grant. Under the terms of the Plan, as amended on September 24, 1999, each new non-employee director (other than a person who was previously an employee of the Company or any of its subsidiaries) is granted an option to purchase 8,000 shares of Common stock, generally, on his or her first day of service as a non-employee director; and each other non-employee director is granted an option to purchase 3,000 shares of Common stock on an annual basis. All Options are fully exercisable on the date of grant and have a 10-year term. The Plan, as amended, will expire on November 17, 2009. JUNE 30, 2001 --------------------------------- WEIGHTED AVERAGE SHARES EXERCISE PRICE --------- -------------- Outstanding at beginning of year 249,000 $ 5.7922 Granted 23,000 $ 55.8726 Exercised (90,000) $ 2.0000 Expired or canceled -- $ -- --------- --------- Outstanding at end of year 182,000 $ 13.9963 ========= ========= June 30, 2000 --------------------------------- Weighted Average Shares Exercise Price --------- -------------- Outstanding at beginning of year 450,000 $ 6.2292 Granted 15,000 $ 17.2500 Exercised (216,000) $ 7.4983 Expired or canceled -- $ -- --------- --------- Outstanding at end of year 249,000 $ 5.7922 ========= ========= June 30, 1999 --------------------------------- Weighted Average Shares Exercise Price --------- -------------- Outstanding at beginning of year 450,000 $ 6.2292 Granted -- $ -- Exercised -- $ -- Expired or canceled -- $ -- --------- --------- Outstanding at end of year 450,000 $ 6.2292 ========= ========= F-18 The following table summarizes information about all fixed stock options outstanding at June 30, 2001:
Options Outstanding Options Exercisable ------------------------------------------------- ------------------------------------ Number Weighted Average Range of Outstanding Remaining Weighted Number Weighted Exercise as of Contractual Average Exercisable as of Average Prices June 30, 2001 Life Exercise Price June 30, 2001 Exercise Price ---------------------------------- -------------------------------- ------------------------------------- $ 1.92 - $ 9.50 267,674 4.61 $ 4.1931 207,700 $ 2.7381 $10.56 - $13.38 163,875 7.35 $11.0178 67,875 $10.9442 $14.31 - $18.64 405,283 9.76 $18.4411 25,375 $16.3963 $18.82 - $43.06 196,360 8.05 $27.3266 87,325 $27.3800 $43.88 - $77.75 199,420 9.20 $66.7770 8,700 $54.1896 $78.00 - $80.13 8,100 9.06 $80.0988 8,000 $80.1250 $81.50 - $81.50 2,240 9.18 $81.5000 0 $ 0 $83.00 - $83.00 126,000 9.23 $83.0000 0 $ 0 $87.00 - $87.00 581,356 9.25 $87.0000 0 $ 0 $90.81 - $90.81 10,000 9.00 $90.8100 2,500 $90.8130 --------------------------------------------------------------------- ------------------------------------ $ 1.92 - $90.81 1,960,308 8.43 $46.8599 407,475 $13.3948 ===================================================================== ====================================
As discussed in Note 2, the Company recorded approximately $12,024 of additional compensation expense to reflect the derived fair market value of certain Firefly stock options, which were exercised by Firefly employees in connection with the exchange of Firefly capital stock and stock options for Zygo Corporation common stock. No Firefly options have been included in the tables above because all Firefly options were exercised and converted to ZYGO shares in connection with the merger. NOTE 16: EMPLOYEE STOCK PURCHASE PLAN In November 2000, Zygo Corporation's Board of Directors adopted a non-compensatory Employee Stock Purchase Plan ("ESPP"). Under the ESPP, employees of the company who elect to participate are granted options to purchase common stock at a 15 percent discount from the market value of such stock. The ESPP permits an enrolled employee to make contributions to purchase shares of common stock by having withheld from his or her salary an amount between 1 percent and 10 percent of compensation. The total number of shares of common stock that may be issued pursuant to options granted under the ESPP is approximately 500,000. At June 30, 2001, the Company had withheld $613 for purchase of shares under this plan; and in July 2001, issued approximately 32,000 shares of common stock. F-19 NOTE 17: INCOME TAXES The components of income tax expense (benefit) for each year are as follows: Fiscal Year Ended June 30, ---------------------------------- 2001 2000 1999 ---------------------------------- Currently payable: Federal $ -- $ 1,136 $ (1,339) State -- (71) 101 Foreign 1,008 604 101 ---------------------------------- $ 1,008 $ 1,669 $ (1,137) ================================== Deferred: Federal $ 2,328 $ (3,051) $ (1,034) State 118 (77) (755) Foreign -- -- (49) ---------------------------------- $ 2,446 $ (3,128) $ (1,838) ---------------------------------- Total income tax (benefit) expense $ 3,454 $ (1,459) $ (2,975) ================================== Income taxes refunded amounted to $1,979, $2,539, and $848 in fiscal 2001, 2000, and 1999, respectively. The total income tax expense (benefit) differs from the amount computed by applying the applicable U.S. federal income tax rate of 35% in each of the fiscal years 2001, 2000, and 1999 to earnings before income taxes for the following reasons: Fiscal Year Ended June 30, ---------------------------------- 2001 2000 1999 ---------------------------------- Computed "expected" tax expense (benefit) $ 5,143 $ (5,886) $ (2,400) Increases (reductions) in taxes resulting from: Acquisition- related charges (1,112) 4,329 -- State taxes, net of federal income tax benefit (331) (96) (432) Tax exempt interest income (43) (15) (131) FSC benefit (254) (300) -- Change in Valuation Allowance 619 -- -- Research Credit (1,114) (300) (109) Other, net 546 809 97 ---------------------------------- $ 3,454 $ (1,459) $ (2,975) ================================== F-20 The tax effects of temporary differences that give rise to significant portions of the deferred tax assets and deferred tax liabilities as of June 30, 2001 and 2000 are presented below: JUNE 30, June 30, 2001 2000 -------- -------- Deferred tax assets: Accounts receivable, principally due to the allowance for doubtful accounts $ 143 $ 468 Accrued liabilities 610 395 Inventory valuation 1,492 1,412 Unrealized gain on marketable securities -- 57 One-time charges 1,943 2,140 Intangibles 96 245 Federal and state NOLs and credits 17,486 4,572 Other -- 30 -------- -------- 21,770 9,319 Less valuation allowance 1,653 -- -------- -------- Deferred tax asset 20,117 9,319 Deferred tax liabilities: Prepaid expenses (92) (39) Plant and equipment, principally due to differences in depreciation expense (111) (516) Unrealized gain on marketable securities (19) -- Other -- (15) -------- -------- Deferred tax liability (222) (570) -------- -------- Net deferred tax asset $ 19,895 $ 8,749 ======== ======== The net current deferred tax assets and net non-current deferred tax liabilities as recorded on the balance sheet as of June 30, 2001 and 2000 are as follows: JUNE 30, June 30, 2001 2000 -------- -------- Net current deferred tax asset $ 4,076 $ 9,020 Net noncurrent deferred tax asset (liability) 15,819 (271) ------- ------- Net deferred tax asset (liability) $19,895 $ 8,749 ======= ======= The Company has recorded a valuation allowance to reflect the uncertainty of realizing certain state net operating loss carryforwards. The valuation allowance as of July 1, 2000 was $0. The net change in the total valuation allowance for the year ended June 30, 2001 was an increase of $1,653. Subsequently recognized tax benefits relating to the valuation allowance for deferred tax assets as of June 30, 2001 will be allocated as follows: Income tax benefit $ 619 Additional paid in capital 1,034 -------- $ 1,653 Management believes it is more likely than not that the remaining net deferred tax assets of $19,895 will be realized as the results of future operations are expected to generate sufficient taxable income to do so. At June 30, 2001, the Company's share of the cumulative undistributed earnings of foreign subsidiaries was $1,699. No provision has been made for U.S. or additional foreign taxes on the undistributed earnings of foreign subsidiaries since the Company intends to continue to reinvest these earnings. F-21 Determination of the amount of unrecognized deferred tax liability associated with these earnings is not practicable. At June 30, 2001, the Company has federal and state net operating loss carryforwards of approximately $36,507 and $50,500 which are available to reduce federal and state taxable income, if any, through 2019. The Company also has a federal general business credit carry forward of approximately $1,989, which is available to reduce federal taxable income, if any, through 2019. During 2001, the Company realized tax benefits of approximately $6,889 from the exercise of stock options which was credited to consolidated stockholders' equity which is a non-cash transaction as it relates to the consolidated statement of cash flows. NOTE 18: SEGMENT REPORTING The Company has adopted the Financial Accounting Standards Board (FASB) Statement No. 131, "Disclosures about Segments of an Enterprise and Related Information." FASB No. 131 establishes standards, using a management approach, for reporting information regarding operating segments in annual financial statements. The management approach designates the internal reporting that is used by the chief operating decision maker when making operating decisions and assessing performance as the source of the Company's reportable segments. The Company's president has been determined to be its chief operating decision-maker, as defined under Statement 131. The Company operates in three principal business segments globally: Semiconductor; Industrial; and Telecommunications. For its fiscal year 2000, ZYGO operated in one segment, as a world leader in metrology, process control, and yield solutions servicing high precision industries. Substantially all of the Company's operating results, assets, depreciation, and amortization are U.S. based. The segment data is presented below in a manner consistent with management's internal measurement of the business.
Fiscal Year Ended June 30, 2001 --------------------------------------------------------------- Semiconductor Industrial Telecommunications Total ------------- ---------- ------------------ -------- Sales $ 84,561 $35,178 $13,511 $133,250 Gross Profit 38,737 15,969 6,463 61,169 Gross Profit as a % Sales 46% 45% 48% 46%
Separate financial information by segment for total assets, capital expenditures and depreciation and amortization is not available and is not evaluated by the chief operating decision maker of the Company. Sales to Canon Inc. and to Canon Sales Co., Inc., accounted for more than 19% of total Company sales for each of the years ended June 30, 2001, 2000, and 1999 (see note 19). No other individual customer accounted for more than 10% of total Company sales for any year presented in the accompanying consolidated financial statements. Substantially all of the Company's operating results, assets, depreciation, and amortization are U.S. based. The Company's sales are noted below. F-22 Sales by geographic area were as follows: Fiscal Year Ended June 30, ------------------------------------ 2001 2000 1999 ------------------------------------ Americas (primarily United States) $ 68,299 $ 48,835 $ 35,353 Far East: Japan 45,194 17,588 14,143 Pacific Rim 7,423 11,714 6,038 ------------------------------------ Total Far East $ 52,617 $ 29,302 $ 20,181 Europe and Other (primarily Europe) 12,334 9,106 7,848 ------------------------------------ Total $133,250 $ 87,243 $ 63,382 ==================================== NOTE 19: RELATED PARTY TRANSACTIONS Sales to Canon Inc., a stockholder, and Canon Sales Co., Inc., a distributor of certain of the Company's products in Japan and a subsidiary of Canon Inc., amounted to $43,336 (33% of net sales), $16,463 (19% of net sales), and $13,375 (21% of net sales), for the years ended June 30, 2001, 2000, and 1999, respectively. Selling prices of products sold to Canon Inc. and Canon Sales Co., Inc. are based, generally, on the normal terms given to distributors. At June 30, 2001 and 2000, there was approximately, in the aggregate, $3,827 and $2,171, respectively, of trade accounts receivable from Canon Inc. and Canon Sales Co., Inc. On April 11, 2001, the Company purchased 239,605 shares of its common stock from two officers and directors for $4,986 (see note 13). NOTE 20: MATERIAL CONTRACTS On May 9, 1997, the Company announced it had entered into a contract with the University of California's Lawrence Livermore National Laboratory ("LLNL"), whereby the Company will be a primary supplier of large plano optical components for the National Ignition Facility ("NIF"), a $1.2 billion Department of Energy project at LLNL to produce the world's largest laser for nuclear fusion research. The contract provided for the Company to design, manufacture, and equip a world-class optical fabrication facility at its Middlefield, Connecticut operations for a fixed price of nearly $10 million over an 18-month time period. Revenues recognized on this contract in fiscal 2001, 2000, and 1999 amounted to $3,308, $2,802, and $900, respectively. To accommodate the space required for the NIF facility and to provide additional office facilities, the Company built a 35,500-square-foot building addition to its Middlefield, Connecticut facility. During fiscal year 1999, the Company entered into an agreement with IBM, which allows for marketing and servicing rights for its Atomic Force Microscope (AFM) line of business for a four-year period. The Company made payments totaling $2,250 to secure this relationship, which are being amortized over four years or less. F-23 On March 28, 2000, the Company entered into an agreement to terminate the distribution agreement to market and sell AFM products. As part of the agreement, the Company was granted a nonexclusive license to the IBM AFM technology for the next three years and may continue to license the technology for additional terms thereafter. The Company and Veeco Corporation, which subsequently entered into the distribution agreement with IBM, have entered into an additional agreement for support and service of AFM products previously sold by ZYGO. As a result of this agreement ZYGO's AFM sales and service department has been discontinued. F-24 SELECTED CONSOLIDATED QUARTERLY FINANCIAL DATA (UNAUDITED) (Thousands except per share amounts)
FOR THE FISCAL YEAR ENDED JUNE 30, 2001 ------------------------------------------------------ SEPTEMBER 30, DECEMBER 31, MARCH 31, JUNE 30, ------------- ------------ --------- -------- Net sales $ 23,932 $ 32,731 $ 38,717 $37,870 Earnings before taxes and minority interest $ 1,379 $ 3,063 $ 5,055 $ 5,198 Income taxes 469 1,041 1,719 225 Minority interest 93 117 129 243 -------- -------- -------- ------- Net earnings $ 817 $ 1,905 $ 3,207 $ 4,730 ======== ======== ======== ======= Net earnings per share: Basic (1) $ 0.06 $ 0.13 $ 0.21 $ 0.27 ======== ======== ======== ======= Diluted (1) $ 0.05 $ 0.13 $ 0.20 $ 0.26 ======== ======== ======== ======= For the Fiscal Year Ended June 30, 2000 ---------------------------------------------------------- September 30 December 31 March 31 June 30(3) ------------ ----------- --------- ---------- Net sales $ 18,603 $ 22,362 $ 22,408 $ 23,870 Earnings before taxes, minority interest and nonrecurring charges $ 926 $ 2,424 $ 2,136 $ 1,770 Income taxes 354 960 609 342 Minority interest -- 73 (6) 127 -------- -------- --------- -------- Earnings before nonrecurring charges $ 572 $ 1,391 $ 1,533 $ 1,301 ======== ======== ========= ======== Earnings per share before nonrecurring charges: Basic $ 0.05 $ 0.12 $ 0.13 $ 0.09 ======== ======== ========= ======== Diluted $ 0.04 $ 0.11 $ 0.11 $ 0.08 ======== ======== ========= ======== Net earnings (loss) $ 572 $ (949) $ 792 $(16,462) ======== ======== ========= ======== Net earnings (loss) per share: Basic (1) $ 0.05 $ (0.08)(2) $ 0.06 $ (1.17)(2) ======== ======== ========= ======== Diluted (1) $ 0.04 $ (0.08)(2) $ 0.06 $ (1.17)(2) ======== ======== ========= ========
(1) The difference between basic shares outstanding and diluted shares outstanding is the assumed conversion of common stock equivalents (stock options) in the amounts of 909, 764, 440, and 547 for fiscal 2001 quarters and 1,075, 0, 1,595, and 0 for fiscal 2000 quarters ended September 30, December 31, March 31, and June 30, respectively. (2) Accounting principles generally accepted in the United States of America require the computation of the net loss per share to be based on the weighted average basic shares outstanding. (3) Nonrecurring charges include acquisition-related charges of $14,001 and the West Coast operations reorganization costs of $10,567 in the fourth quarter ended June 30, 2000. F-25 INDEPENDENT AUDITORS' REPORT ON SCHEDULE The Board of Directors Zygo Corporation Under date of August 10, 2001, we reported on the consolidated balance sheets of Zygo Corporation and subsidiaries as of June 30, 2001 and 2000, and the related consolidated statements of earnings, stockholders' equity and cash flows for each of the years in the three-year period ended June 30, 2001 as contained in the 2001 annual report to stockholders. In connection with our audits of the aforementioned consolidated financial statements, we also audited the related consolidated financial statement schedule listed in the accompanying index. This financial statement schedule is the responsibility of the Company's management. Our responsibility is to express an opinion on this financial statement schedule based on our audits. In our opinion, this financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly, in all material respects, the information set forth therein. KPMG LLP Hartford, Connecticut August 10, 2001 S-1 ZYGO CORPORATION AND CONSOLIDATED SUBSIDIARY SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS YEARS ENDED JUNE 30, 2001, 2000, AND 1999
Balance Balance at Beginning at End Description of Period Provision Write-Offs of Period ----------- ------------- ----------- ----------- ----------- YEAR ENDED JUNE 30, 2001: ALLOWANCE FOR DOUBTFUL ACCOUNTS $ 234,400 $ 245,500 $ 98,600 $ 381,300 INVENTORY RESERVE $ 2,846,600 $ 311,700 $ 77,900 $ 3,080,400 Year Ended June 30, 2000: Allowance for Doubtful Accounts $ 1,324,300 $ 70,100 $ 1,160,000 $ 234,400 Inventory Reserve $ 4,513,300 $ (23,800) $ 1,642,900 $ 2,846,600 Year Ended June 30, 1999: Allowance for Doubtful Accounts $ 753,600 $ 1,286,600 $ 715,900 $ 1,324,300 Inventory Reserve $ 2,423,500 $ 2,679,000 $ 589,200 $ 4,513,300
S-2 EXHIBIT INDEX
EXHIBIT TABLE FORM 10K-405 NUMBER PAGE NUMBER ------ ----------- 10.26 Construction-to Permanent Term Loan Promissory Note 21. Subsidiaries of Registrant 23. Accountants' Consent 24. Power of Attorney
EX-10.26 3 e86574_ex10-26.txt CONSTRUCTION TO PERM. TERM LOAN PROM NOTE EXHIBIT 10.26 ------------- CONSTRUCTION-TO PERMANENT TERM LOAN PROMISSORY NOTE --------------------------------------------------- $12,560,000 MAY 14, 2001 FOR VALUE RECEIVED, the undersigned, ZTO PROPERTY HOLDINGS, LLC, a Delaware limited liability company (the "MAKER"), does hereby promise to pay to the order of FLEET NATIONAL BANK ("LENDER"), at its office at 777 Main Street, Hartford, Connecticut 06115, or at such other place as the holder hereof (including Lender, hereinafter referred to as "HOLDER") may designate the following amounts in accordance with the terms hereof and of that certain Amended and Restated Credit Agreement between Maker and Lender dated as of the date hereof (the "CREDIT AGREEMENT"): (a) the principal sum of TWELVE MILLION FIVE HUNDRED SIXTY THOUSAND AND NO/100 DOLLARS ($12,560,000), or, if less, the aggregate principal amount of all Construction Loan Advances made by Holder to Maker or of the Converted Construction Loan, as applicable, payable as follows: (i) during the period from the date hereof through and including the Construction Loan Conversion Date, there shall be no regularly scheduled principal repayments; (ii) in the event that the Construction Loan Advances are not converted to the Converted Construction Loan on the Construction Loan Conversion Date for any reason whatsoever, all then outstanding Construction Loan Advances shall be repaid in full on the Construction Loan Conversion Date; (iii) upon conversion of the Construction Loan Advances to the Converted Construction Loan on the Construction Loan Conversion Date the principal amount of the Converted Construction Loan shall be due and payable as follows: (i) in sixty two (62) equal monthly installments of $69,777.78, such installments to commence on March 14, 2002 and to continue on the first day of each month thereafter through and including April 14, 2007, and (ii) one (1) final installment of principal in an amount equal to the then outstanding principal on the Maturity Date of the Converted Construction Loan; together with (b) interest on the unpaid principal amount of this Note beginning as of the date hereof, before or after maturity or judgment, payable at the rates, at the times and in the manner as provided in the Credit Agreement until all of said principal and any other sums due hereunder are fully and finally paid in cash in immediately available funds; and (c) together with all reasonable costs, expenses and attorneys' and other professional fees incurred in any action to collect this Note or to enforce, defend, protect, preserve, foreclose or realize upon any mortgage, lien, security interest or other collateral securing this Note or to enforce, foreclose, defend, preserve, protect or sustain any such mortgage, lien or security interest or guaranty or other agreement or in any litigation or controversy arising from or connected with any of the foregoing in accordance with the Credit Agreement. Capitalized terms used in this Note and not otherwise defined herein shall have the meanings assigned in the Credit Agreement. This Note is the Construction Loan Note referred to in, evidences the Construction Loan Advances and the Converted Construction Loan under, and has been issued by Maker in accordance with the terms of, the Credit Agreement. Payments on this Note may be evidenced by a grid (if any) attached to this Note or similar certificates or documents, or by the internal computerized records of Holder, PROVIDED that any failure of Holder to make any such notation shall not affect the unconditional obligation of Maker to pay all amounts due hereunder as and when due. Holder shall be entitled to the benefits of the Credit Agreement and the other Loan Documents and may enforce the agreements of Maker contained therein, and Holder may exercise the respective remedies provided for thereby or otherwise available in respect thereof, all in accordance with the terms thereof. Holder shall have the right (but not the obligation), in its sole discretion, to charge any amounts due hereunder not otherwise paid on the due dates thereof to any account maintained by Maker with Holder. All computations of interest with respect to this Note shall be made on the basis of a 360 day year and the actual number of days elapsed. Unless sooner accelerated as a result of the occurrence of an Event of Default or as otherwise provided in the Credit Agreement, principal, accrued and unpaid interest and any other sums due hereunder shall be due and payable in full, in Dollars and in immediately available funds on, as applicable: (i) the Construction Loan Conversion Date if the Constructions Loan Advances are not converted to the Converted Construction Loan; and (ii) on the Maturity Date of the Converted Construction Loan if the Construction Loan Advances have been converted to the Converted Construction Loan. Maker has the right under certain circumstances to prepay in whole or in part the principal of this Note on the terms and conditions specified in the Credit Agreement. Maker agrees that: (i) if any installment of interest, principal or any other sum due under this Note shall not be paid within ten (10) calendar days after its due date; or (ii) if any other Event of Default shall occur, then, upon the happening of any such event, the entire indebtedness with accrued interest thereon due under this Note shall, automatically or at the option of Holder, as the case may be as provided in the Credit Agreement, accelerate and become immediately due and payable without notice. Failure to exercise such option shall not constitute a waiver of the right to exercise the same in the event of any subsequent Event of Default. Notwithstanding anything to the contrary contained herein, upon the occurrence of such an Event of Default or after maturity or judgment, the interest rate on this Note shall automatically increase without notice or demand to a per annum rate equal to the Default Rate. In the event Maker fails to pay any installment of interest, principal and/or any other sum due hereunder or under the Credit Agreement for more than ten (10) days from the date it is due and payable, without in any way affecting Holder's right to declare an Event of Default to have occurred, a late charge equal to five (5%) percent of such late payment shall be assessed against Maker and shall be immediately due and payable without demand or notice of any kind. Maker agrees that no delay or failure on the part of Holder in exercising any power, privilege, remedy, option or right hereunder shall operate as a waiver thereof or of any other power, privilege, remedy or right; nor shall any single or partial exercise of any power, privilege, remedy, option or right hereunder preclude any other or future exercise thereof or the exercise of any other power, privilege, remedy, option or right. The rights and remedies expressed herein and in the Credit Agreement are cumulative, and may be enforced successively, alternatively, or concurrently and are not exclusive of any rights or remedies which Holder may or would otherwise have under the provisions of all applicable laws, and under the provisions of all agreements between Maker and Holder or between any endorser or guarantor and Holder. All agreements between Maker, each Guarantor and Holder are hereby expressly limited so that in no contingency or event whatsoever, whether by reason of acceleration of maturity of any of the Obligations or otherwise, shall the amount paid or agreed to be paid to Holder for the use or the forbearance of the Obligations exceed the maximum permissible under applicable law. As used herein, "APPLICABLE LAW" shall mean the law in effect as of the date hereof provided, however, that in the event there is a change in the law which results in a higher permissible rate of interest, then this Note, the Credit Agreement and the other Loan Documents shall be governed by such new law as of its effective date. In this regard, it is expressly agreed that it is the intent of Maker and Holder in the execution, delivery and acceptance of the Loan Documents to contract in strict compliance with the laws of the State of Connecticut from time to time in effect. If, under or from any circumstances whatsoever, fulfillment of any provision hereof or of any of the other Loan Documents at the time of performance of such provision shall be due, shall involve transcending the limit of such validity prescribed by applicable law, then the obligation to be fulfilled shall automatically be reduced to the limits of such validity, and if under for from circumstances whatsoever Holder should ever receive as interest an amount which would exceed the highest lawful rate, such amount which would be excessive interest shall be applied to the reduction of the principal balance of the Loan evidenced by this Note and not to the payment of interest. This provision shall control every other provision of all agreements between Maker, each Guarantor and Holder. Maker hereby grants Holder a continuing lien, security interest and right of setoff for all of its Obligations and other liabilities to Holder, whether now existing or hereafter arising, upon and against all its deposits (general or special, time or demand, provisional or final), credits, collateral and property now or hereafter in the possession, custody, safekeeping or control of Holder or, if Holder is Lender, any entity under common control of FleetBoston Financial Corporation and its successors and assigns, or in transit to any of them. Holder may, at any time and from time to time after the occurrence and during the continuation of an Event of Default, without demand or notice (any such notice being expressly waived by Maker), apply or set off the same, or any part thereof, to any Obligation or liability of Maker to Holder, even though unmatured and regardless of the adequacy of any other collateral securing such Obligations and liabilities. ANY AND ALL RIGHTS TO REQUIRE HOLDER TO MARSHAL OR OTHERWISE EXERCISE ITS RIGHTS OR REMEDIES WITH RESPECT TO ANY OTHER COLLATERAL WHICH SECURES ANY OR ALL OF SUCH OBLIGATIONS AND LIABILITIES PRIOR TO EXERCISING ITS RIGHT OF SETOFF WITH RESPECT TO SUCH DEPOSITS, CREDITS OR OTHER PROPERTY OF MAKER ARE HEREBY KNOWINGLY, VOLUNTARILY AND IRREVOCABLY WAIVED. The rights of Holder under this paragraph are in addition to other rights and remedies (including, without limitation, other rights of setoff) which Holder may have. Failure by Holder to insist upon the strict performance by Maker of any terms and provisions herein shall not be deemed to be a waiver of any terms and provisions herein, and Holder shall retain the right thereafter to insist upon strict performance by Maker of any and all terms and provisions of this Note or any document securing the repayment of this Note. MAKER AND HOLDER (BY ACCEPTANCE OF THIS NOTE) MUTUALLY HEREBY KNOWINGLY, VOLUNTARILY AND INTENTIONALLY WAIVE THE RIGHT TO A TRIAL BY JURY IN RESPECT OF ANY CLAIM BASED HEREON, ARISING OUT OF, UNDER OR IN CONNECTION WITH THIS NOTE OR ANY OTHER LOAN DOCUMENTS OR ANY COURSE OF CONDUCT, COURSE OF DEALINGS, STATEMENTS (WHETHER VERBAL OR WRITTEN) OR ACTIONS OF ANY PARTY, INCLUDING, WITHOUT LIMITATION, ANY COURSE OF CONDUCT, COURSE OF DEALINGS, STATEMENTS OR ACTIONS OF THE HOLDER RELATING TO THE ADMINISTRATION OF ANY OF THE LOANS OR ENFORCEMENT OF THE LOAN DOCUMENTS, AND AGREE THAT NEITHER PARTY WILL SEEK TO CONSOLIDATE ANY SUCH ACTION WITH ANY OTHER ACTION IN WHICH A JURY TRIAL CANNOT BE OR HAS NOT BEEN WAIVED. EXCEPT AS PROHIBITED BY LAW, THE MAKER AND THE HOLDER EACH HEREBY WAIVE ANY RIGHT IT MAY HAVE TO CLAIM OR RECOVER IN ANY LITIGATION ANY SPECIAL, EXEMPLARY, PUNITIVE OR CONSEQUENTIAL DAMAGES OR ANY DAMAGES OTHER THAN, OR IN ADDITION TO, ACTUAL DAMAGES. THE MAKER CERTIFIES THAT NO REPRESENTATIVE, AGENT OR ATTORNEY OF THE LENDER HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT THE LENDER WOULD NOT, IN THE EVENT OF LITIGATION, SEEK TO ENFORCE THE FOREGOING WAIVER. THE MAKER ACKNOWLEDGES AND STIPULATES THAT THE WAIVERS GRANTED ABOVE ARE MADE KNOWINGLY, VOLUNTARILY AND INTENTIONALLY AND AFTER FULL CONSULTATION WITH COUNSEL AND CONSTITUTE A MATERIAL INDUCEMENT FOR THE LENDER TO ACCEPT THIS NOTE AND MAKE THE LOAN EVIDENCED HEREBY. MAKER WAIVES DILIGENCE, DEMAND, PRESENTMENT FOR PAYMENT, NOTICE OF NONPAYMENT, PROTEST AND NOTICE OF PROTEST, AND NOTICE OF ANY RENEWALS OR EXTENSIONS OF THIS NOTE. MAKER ACKNOWLEDGES THAT IT MAKES THIS WAIVER KNOWINGLY, VOLUNTARILY, WITHOUT DURESS AND ONLY AFTER CONSIDERATION OF THE RAMIFICATIONS OF THIS WAIVER WITH ITS ATTORNEYS. MAKER FURTHER ACKNOWLEDGES THAT LENDER HAS NOT AGREED WITH OR REPRESENTED TO MAKER THAT THE PROVISIONS OF THIS PARAGRAPH WILL NOT BE FULLY ENFORCED IN ALL INSTANCES. This Note shall be governed by the laws of the State of Connecticut (but not its conflicts of law provisions). ZTO PROPERTY HOLDINGS, LLC By /s/ RICHARD M. DRESSLER ------------------------------------------ Name: Richard M. Dressler EX-21 4 e86574_ex-21.txt SUBSIDIARIES OF ZYGO CORP. (DELAWARE) EXHIBIT 21 ---------- SUBSIDIARIES OF ZYGO CORPORATION (DELAWARE) Zygo Credit Corporation (Delaware) 100% owned by Registrant Zygo International Sales Corporation (U.S. Virgin Islands) 100% owned by Registrant Technical Instrument Company (California) 100% owned by Registrant (effective as of August 8, 1996) Syncotec Neue Technologien und Instrumente GmbH 100% owned by Technical Instrument Company (effective as of September 1, 1997) NexStar Corporation (Colorado) 100% owned by Registrant (effective as of September 12, 1996) TechniStar Corporation (Delaware) 25% owned by NexStar Corporation Sight Systems, Inc. (California) 100% owned by Registrant (effective as of August 19, 1997) Zygo TeraOptix (Delaware) 100% owned by Registrant (effective as of May 5, 2000) Zygo KK 100% owned by Registrant (effective as of October 1, 1999) Zygo PTE 100% owned by Registrant (effective as of January 1, 1998) ZygoLOT GmbH 60% owned by Registrant (effective as of October 2, 1999) Six Brookside Drive (Connecticut) 100% owned by Registrant (effective as of January 9, 1998) EX-23 5 e86574_ex-23.txt ACCOUNTANTS' CONSENT EXHIBIT 23 ---------- ACCOUNTANTS' CONSENT The Board of Directors Zygo Corporation: We consent to incorporation by reference in Registration Statements No. 333-44333, No. 33-62087, No. 33-57060, No. 33-20880, and No. 33-34619 on Forms S-8 of Zygo Corporation of our reports dated August 10, 2001, with respect to the consolidated balance sheets of Zygo Corporation and subsidiaries as of June 30, 2001 and 2000 and the related consolidated statements of earnings, stockholders' equity, and cash flows and related schedule for each of the years in the three-year period ended June 30, 2001, which reports appear in or are incorporated by reference into the June 30, 2001 Annual Report on Form 10-K405 of Zygo Corporation. KPMG LLP Hartford, Connecticut September 25, 2001 EX-24 6 e86574_ex-24.txt POWER OF ATTORNEY EXHIBIT 24 POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS, which are intended to constitute a General Power of Attorney pursuant to Article V, Title 15 of the New York General Obligations Law, that I, Paul F. Forman, 15 Flying Point Road, Stony Creek, Connecticut 06405, do hereby appoint Richard M. Dressler, vice president, finance, Zygo Corporation, Laurel Brook Road, Middlefield, Connecticut 06455, my attorney-in-fact to act in my name, place, and stead in any way which I myself could do, if I were personally present, with respect to the following matter to the extent that I am permitted by law to act through an agent: the signing of an Annual Report on Form 10-K for the fiscal year ended June 30, 2001, and any amendments thereto, to be filed by Zygo Corporation under Section 13 of the Securities Exchange Act of 1934, as amended, with the Securities and Exchange Commission and grant full and unqualified authority to my attorney-in-fact to delegate the foregoing power to any person or persons whom my attorney-in-fact shall select. This power of attorney shall not be affected by the subsequent disability or incompetence of the principal. To induce any third party to act hereunder, I hereby agree that any third party receiving a duly executed copy or facsimile of the instrument may act hereunder, and that revocation or termination hereof shall be ineffective as to such third party unless and until actual notice or knowledge of such revocation or termination shall have been received by such third party, and I, for myself and for my heirs, executors, legal representatives, and assigns, hereby agree to indemnify and hold harmless any such third party from and against any and all claims that may arise against such third party by reason of such third party having relied on the provisions of this instrument. IN WITNESS WHEREOF, I have hereunto signed my name this 10th day of July 2001. /s/ PAUL FORMAN ----------------------------- Paul F. Forman STATE OF CONNECTICUT, COUNTY OF NEW HAVEN ss.: On the 10th day of July 2001, before me personally came Paul F. Forman to me known, and known to me to be the individual described in, and who executed the foregoing instrument, and he acknowledged to me that he executed the same. /s/ FRANCIS L. PUGSLY ------------------------------- Notary Public My commission expires 6/26/03 POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS, which are intended to constitute a General Power of Attorney pursuant to Article V, Title 15 of the New York General Obligations Law, that I, R. Clark Harris, NorthEast Ventures Associates, LLC., One State Street, Suite 1720, Hartford, Connecticut 06103, do hereby appoint Richard M. Dressler, vice president, finance, Zygo Corporation, Laurel Brook Road, Middlefield, Connecticut 06455, my attorney-in-fact to act in my name, place, and stead in any way which I myself could do, if I were personally present, with respect to the following matter to the extent that I am permitted by law to act through an agent: the signing of an Annual Report on Form 10-K for the fiscal year ended June 30, 2001, and any amendments thereto, to be filed by Zygo Corporation under Section 13 of the Securities Exchange Act of 1934, as amended, with the Securities and Exchange Commission and grant full and unqualified authority to my attorney-in-fact to delegate the foregoing power to any person or persons whom my attorney-in-fact shall select. This power of attorney shall not be affected by the subsequent disability or incompetence of the principal. To induce any third party to act hereunder, I hereby agree that any third party receiving a duly executed copy or facsimile of the instrument may act hereunder, and that revocation or termination hereof shall be ineffective as to such third party unless and until actual notice or knowledge of such revocation or termination shall have been received by such third party, and I, for myself and for my heirs, executors, legal representatives, and assigns, hereby agree to indemnify and hold harmless any such third party from and against any and all claims that may arise against such third party by reason of such third party having relied on the provisions of this instrument. IN WITNESS WHEREOF, I have hereunto signed my name this 19th day of July 2001. /s/ R. CLARK HARRIS -------------------------------- R. Clark Harris STATE OF CONNECTICUT, COUNTY OF NEW HAVEN ss.: On the 19th day of July 2001, before me personally came R. Clark Harris to me known, and known to me to be the individual described in, and who executed the foregoing instrument, and he acknowledged to me that he executed the same. /s/ JOYCE GOLDBERG ------------------------------------ Notary Public Joyce A. Goldberg Notary Public, State of Connecticut My commission expires Dec. 31, 2001 POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS, which are intended to constitute a General Power of Attorney pursuant to Article V, Title 15 of the New York General Obligations Law, that I, Seymour E. Liebman, Canon U.S.A., One Canon Plaza, Lake Success, New York 11042, do hereby appoint Richard M. Dressler, vice president, finance, Zygo Corporation, Laurel Brook Road, Middlefield, Connecticut 06455, my attorney-in-fact to act in my name, place, and stead in any way which I myself could do, if I were personally present, with respect to the following matter to the extent that I am permitted by law to act through an agent: the signing of an Annual Report on Form 10-K for the fiscal year ended June 30, 2001, and any amendments thereto, to be filed by Zygo Corporation under Section 13 of the Securities Exchange Act of 1934, as amended, with the Securities and Exchange Commission and grant full and unqualified authority to my attorney-in-fact to delegate the foregoing power to any person or persons whom my attorney-in-fact shall select. This power of attorney shall not be affected by the subsequent disability or incompetence of the principal. To induce any third party to act hereunder, I hereby agree that any third party receiving a duly executed copy or facsimile of the instrument may act hereunder, and that revocation or termination hereof shall be ineffective as to such third party unless and until actual notice or knowledge of such revocation or termination shall have been received by such third party, and I, for myself and for my heirs, executors, legal representatives, and assigns, hereby agree to indemnify and hold harmless any such third party from and against any and all claims that may arise against such third party by reason of such third party having relied on the provisions of this instrument. IN WITNESS WHEREOF, I have hereunto signed my name this 11th day of July 2001. /s/ SEYMOUR E. LIEBMAN ------------------------------ Seymour E. Liebman STATE OF NEW YORK, COUNTY OF NASSAU ss.: On the 11th day of July 2001, before me personally came Seymour E. Liebman to me known, and known to me to be the individual described in, and who executed the foregoing instrument, and he acknowledged to me that he executed the same. /s/ STEVEN B. BECKER -------------------------------- Notary Public STEVEN B. BECKER Notary Public, State of New York No. 02BE6002184 Qualified in Nassau County Commission expires Feb. 2, 2002 POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS, which are intended to constitute a General Power of Attorney pursuant to Article V, Title 15 of the New York General Obligations Law, that I, Robert G. McKelvey, George McKelvey Co., Inc., 529 Washington Boulevard, Sea Girt, New Jersey 08759, do hereby appoint Richard M. Dressler, vice president, finance and administration, Zygo Corporation, Laurel Brook Road, Middlefield, Connecticut 06455, my attorney-in-fact to act in my name, place, and stead in any way which I myself could do, if I were personally present, with respect to the following matter to the extent that I am permitted by law to act through an agent: the signing of an Annual Report on Form 10-K for the fiscal year ended June 30, 2001, and any amendments thereto, to be filed by Zygo Corporation under Section 13 of the Securities Exchange Act of 1934, as amended, with the Securities and Exchange Commission and grant full and unqualified authority to my attorney-in-fact to delegate the foregoing power to any person or persons whom my attorney-in-fact shall select. This power of attorney shall not be affected by the subsequent disability or incompetence of the principal. To induce any third party to act hereunder, I hereby agree that any third party receiving a duly executed copy or facsimile of the instrument may act hereunder, and that revocation or termination hereof shall be ineffective as to such third party unless and until actual notice or knowledge of such revocation or termination shall have been received by such third party, and I, for myself and for my heirs, executors, legal representatives, and assigns, hereby agree to indemnify and hold harmless any such third party from and against any and all claims that may arise against such third party by reason of such third party having relied on the provisions of this instrument. IN WITNESS WHEREOF, I have hereunto signed my name this 13th day of July 2001. /s/ ROBERT G. McKELVEY ----------------------------------- Robert G. McKelvey STATE OF NEW JERSEY, COUNTY OF MONMOUTH ss.: On the 13th day of July 2001, before me personally came Robert G. McKelvey to me known, and known to me to be the individual described in, and who executed the foregoing instrument, and he acknowledged to me that he executed the same. /s/ ANDREA E. MAICHIN ---------------------------------- Notary Public ANDREA E. MAICHIN Notary Public of New Jersey Commission Expires April 19, 2006 POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS, which are intended to constitute a General Power of Attorney pursuant to Article V, Title 15 of the New York General Obligations Law, that I, Robert B. Taylor, Colonial Williamsburg Foundation, Goodwin Building, 134 North Henry Street, Williamsburg, VA 23187, do hereby appoint Richard M. Dressler, vice president, finance, Zygo Corporation, Laurel Brook Road, Middlefield, Connecticut 06455, my attorney-in-fact to act in my name, place, and stead in any way which I myself could do, if I were personally present, with respect to the following matter to the extent that I am permitted by law to act through an agent: the signing of an Annual Report on Form 10-K for the fiscal year ended June 30, 2001, and any amendments thereto, to be filed by Zygo Corporation under Section 13 of the Securities Exchange Act of 1934, as amended, with the Securities and Exchange Commission and grant full and unqualified authority to my attorney-in-fact to delegate the foregoing power to any person or persons whom my attorney-in-fact shall select. This power of attorney shall not be affected by the subsequent disability or incompetence of the principal. To induce any third party to act hereunder, I hereby agree that any third party receiving a duly executed copy or facsimile of the instrument may act hereunder, and that revocation or termination hereof shall be ineffective as to such third party unless and until actual notice or knowledge of such revocation or termination shall have been received by such third party, and I, for myself and for my heirs, executors, legal representatives, and assigns, hereby agree to indemnify and hold harmless any such third party from and against any and all claims that may arise against such third party by reason of such third party having relied on the provisions of this instrument. IN WITNESS WHEREOF, I have hereunto signed my name this 6th day of July 2001. /s/ ROBERT B. TAYLOR --------------------------------- Robert B. Taylor STATE OF VIRGINIA, CITY OF WILLIAMSBURG: On the 6th day of July 2001, before me personally came Robert B. Taylor to me known, and known to me to be the individual described in, and who executed the foregoing instrument, and he acknowledged to me that he executed the same. /s/ MARIE A. RANIERI --------------------------------- Notary Public My Commission Expires 10-31-04