Ultratech, Inc.
ULTRATECH INC (Form: 10-Q, Received: 05/05/2006 17:13:47)

 

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

(Mark One)

 

 

ý

 

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934

 

 

 

 

 

For the quarterly period ended         April 1, 2006

 

 

 

o

 

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the transition period from         to         

 

Commission File Number      0-22248

 

ULTRATECH, INC.

(Exact name of registrant as specified in its charter)

 

DELAWARE

 

94-3169580

(State or other jurisdiction of incorporation or organization)

 

(I.R.S. Employer Identification No.)

 

 

 

3050 Zanker Road, San Jose, California

 

95134

(Address of principal executive offices)

 

(Zip Code)

 

Registrant’s telephone number, including area code       (408) 321-8835

 

(Former name, former address and former fiscal year, if changed since last report.)

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

 

Yes        ý

 

No        o

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check one):

 

Large accelerated filer  o

Accelerated filer  ý

Non-accelerated filer  o

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

 

Yes        o

 

No        ý

 

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practical date:

 

Class

 

Outstanding as of May 1, 2006

common stock, $.001 par value

 

23,914,807

 

 



 

ULTRATECH, INC.

 

INDEX

 

PART I.

FINANCIAL INFORMATION

3

 

 

 

Item 1.

Financial Statements

3

 

 

 

 

Condensed Consolidated Balance Sheets as of April 1, 2006 and December 31, 2005

3

 

 

 

 

Condensed Consolidated Statements of Operations for the three months ended April 1, 2006 and April 2, 2005

4

 

 

 

 

Condensed Consolidated Statements of Cash Flows for the three months ended April 1, 2006 and April 2, 2005

5

 

 

 

 

Notes to Condensed Consolidated Financial Statements

6

 

 

 

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

15

 

 

 

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

22

 

 

 

Item 4.

Controls and Procedures

22

 

 

 

PART II.

OTHER INFORMATION

23

 

 

 

Item 1.

Legal Proceedings

23

 

 

 

Item 1A.

Risk Factors

23

 

 

 

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

32

 

 

 

Item 3.

Defaults upon Senior Securities

32

 

 

 

Item 4.

Submission of Matters to a Vote of Security Holders

32

 

 

 

Item 5.

Other Information

32

 

 

 

Item 6.

Exhibits

32

 

 

 

SIGNATURES

33

 

2



 

PART I.                  FINANCIAL INFORMATION

Item 1.         Financial Statements

 

ULTRATECH, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

 

(In thousands)

 

Apr. 1,
2006

 

Dec. 31,
2005*

 

 

 

(Unaudited)

 

 

 

ASSETS

 

 

 

 

 

Current assets:

 

 

 

 

 

Cash, cash equivalents, and short-term investments

 

$

124,301

 

$

141,067

 

Accounts receivable, net

 

19,150

 

19,110

 

Inventories

 

31,758

 

28,969

 

Prepaid expenses and other current assets

 

1,243

 

1,589

 

Total current assets

 

176,452

 

190,735

 

 

 

 

 

 

 

Long-term investments

 

23,217

 

 

 

 

 

 

 

 

Equipment and leasehold improvements, net

 

23,027

 

25,117

 

 

 

 

 

 

 

Demonstration inventories

 

3,221

 

3,367

 

 

 

 

 

 

 

Other assets

 

3,083

 

3,090

 

 

 

 

 

 

 

Total assets

 

$

229,000

 

$

222,309

 

 

 

 

 

 

 

LIABILITIES AND STOCKHOLDERS’ EQUITY

 

 

 

 

 

Current liabilities:

 

 

 

 

 

Notes payable

 

$

4,091

 

$

4,289

 

Accounts payable

 

8,814

 

8,403

 

Deferred product and services income

 

3,350

 

1,970

 

Other current liabilities

 

12,195

 

10,892

 

Total current liabilities

 

28,450

 

25,554

 

 

 

 

 

 

 

Other liabilities

 

7,611

 

7,805

 

 

 

 

 

 

 

Stockholders’ equity

 

192,939

 

188,950

 

 

 

 

 

 

 

Total liabilities and stockholders’ equity

 

$

229,000

 

$

222,309

 

 


* The Balance Sheet as of December 31, 2005 has been derived from the audited financial statements at that date.

 

See accompanying notes to unaudited condensed consolidated financial statements

 

3



 

ULTRATECH, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

 

 

 

Three Months Ended

 

(In thousands, except per share amounts)

 

Apr. 1,
2006

 

Apr. 2,
2005

 

Net sales:

 

 

 

 

 

Products

 

$

31,409

 

$

23,736

 

Services

 

3,535

 

3,098

 

Licenses

 

 

1,128

 

Total net sales

 

34,944

 

27,962

 

 

 

 

 

 

 

Cost of sales:

 

 

 

 

 

Cost of products sold

 

19,116

 

13,392

 

Cost of services

 

2,171

 

2,292

 

Total cost of sales

 

21,287

 

15,684

 

Gross profit

 

13,657

 

12,278

 

 

 

 

 

 

 

Operating expenses:

 

 

 

 

 

Research, development, and engineering

 

6,153

 

7,503

 

Selling, general, and administrative

 

7,297

 

7,535

 

Amortization of intangible assets

 

 

95

 

 

 

 

 

 

 

Operating income (loss)

 

207

 

(2,855

)

 

 

 

 

 

 

Interest expense

 

(12

)

(91

)

 

 

 

 

 

 

Interest and other income, net

 

1,517

 

914

 

 

 

 

 

 

 

Income (loss) before income taxes

 

1,712

 

(2,032

)

Provision (benefit) for Income taxes

 

130

 

(136

)

 

 

 

 

 

 

Net income (loss)

 

$

1,582

 

$

(1,896

)

 

 

 

 

 

 

Net income (loss) per share - basic:

 

$

0.07

 

$

(0.08

)

Number of shares used in per share computations - basic

 

23,830

 

23,877

 

 

 

 

 

 

 

Net income (loss) per share - diluted:

 

$

0.06

 

$

(0.08

)

Number of shares used in per share computations - diluted

 

25,127

 

23,877

 

 

See accompanying notes to unaudited condensed consolidated financial statements

 

4



 

ULTRATECH, INC

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

 

 

 

Three Months Ended

 

(In thousands)

 

Apr. 1,
2006

 

Apr. 2,
2005

 

Cash flows from operating activities:

 

 

 

 

 

Net income (loss)

 

$

1,582

 

$

(1,896

)

Adjustments to reconcile net income (loss) to net cash provided by (used in)

 

 

 

 

 

operating activities:

 

 

 

 

 

Depreciation

 

1,526

 

1,628

 

Amortization

 

316

 

482

 

Loss on disposal of equipment

 

6

 

 

Stock-based compensation

 

473

 

 

Deferred income taxes

 

56

 

(19

)

Changes in operating assets and liabilities:

 

 

 

 

 

Accounts receivable

 

(40

)

307

 

Inventories

 

(1,642

)

(1,250

)

Prepaid expenses and other current assets

 

290

 

(289

)

Demonstration inventory

 

(116

)

(59

)

Other assets

 

7

 

(146

)

Accounts payable

 

411

 

(3,437

)

Deferred product and services income

 

1,380

 

477

 

Deferred license income

 

 

(928

)

Other current liabilities

 

1,303

 

810

 

Other liabilities

 

(194

)

275

 

Net cash provided by (used in) operating activities

 

5,358

 

(4,045

)

 

 

 

 

 

 

Cash flows from investing activities:

 

 

 

 

 

Capital expenditures

 

(589

)

(2,405

)

Purchase of investments

 

(14,493

)

(58,567

)

Proceeds from sales and maturities of investments

 

9,960

 

59,456

 

Net cash used in investing activities

 

(5,122

)

(1,516

)

 

 

 

 

 

 

Cash flows from financing activities:

 

 

 

 

 

Proceeds from notes payable

 

5,931

 

41,064

 

Repayment of notes payable

 

(6,129

)

(41,042

)

Proceeds from issuance of common stock

 

2,442

 

831

 

Tax benefit from stock options

 

21

 

 

Net cash provided by financing activities

 

2,265

 

853

 

 

 

 

 

 

 

Net effect of exchange rate changes on cash

 

(124

)

189

 

 

 

 

 

 

 

Net increase (decrease) in cash and cash equivalents

 

2,377

 

(4,519

)

 

 

 

 

 

 

Cash and cash equivalents at beginning of period

 

36,344

 

47,985

 

 

 

 

 

 

 

Cash and cash equivalents at end of period

 

$

38,721

 

$

43,466

 

 

 

 

 

 

 

Supplemental disclosures of cash flow information:

 

 

 

 

 

Other non-cash change:

 

 

 

 

 

Systems transferred from (to) inventory to (from) equipment and demonstration inventory

 

$

(1,035

)

$

1,757

 

 

See accompanying notes to unaudited condensed consolidated financial statements

 

5



 

Ultratech, Inc.

Notes to Condensed Consolidated Financial Statements

(Unaudited)

April 1, 2006

 

(1) Description of Business

 

Ultratech, Inc. (referred to as “Ultratech” and “we”) develops, manufactures and markets photolithography and laser thermal processing equipment for manufacturers of integrated circuits and nanotechnology components located throughout North America, Europe, Japan, Taiwan and the rest of Asia.

 

We supply step-and-repeat photolithography systems based on one-to-one imaging technology.  Within the integrated circuits industry, we target the market for advanced packaging applications.  Within the nanotechnology industry, our target markets include thin film head magnetic recording devices, ink jet print heads, laser diodes and LEDs (light emitting diodes).  Our laser thermal processing equipment is targeted at advanced annealing applications within the semiconductor industry.

 

In evaluating its business segments, we gave consideration to the Chief Executive Officer’s review of financial information and the organizational structure of our management.  Based on this review, we concluded that, at the present time, resources are allocated and other financial decisions are made based on consolidated financial information.  Accordingly, we have determined that we operate in one business segment, which is the manufacture and distribution of capital equipment to manufacturers of integrated circuits and nanotechnology components.

 

(2) Basis of Presentation

 

We have prepared the unaudited condensed consolidated financial statements in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X.  Accordingly, they do not include all of the information and footnotes required by U.S. generally accepted accounting principles for complete financial statements.  In the opinion of management, all adjustments, consisting of only normal recurring adjustments considered necessary for fair presentation, have been included.

 

Operating results for the three months ended April 1, 2006 are not necessarily indicative of the results that may be expected for the year ending December 31, 2006, or any future period.

 

USE OF ESTIMATES — The preparation of the financial statements and related disclosures in conformity with accounting principles generally accepted in the United States requires management to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities at the date of the consolidated financial statements.  By their nature, these estimates and judgments are subject to an inherent degree of uncertainty.  On an ongoing basis, management evaluates its estimates, including those related to inventories, warranty obligations, purchase order commitments, asset retirement obligations, bad debts, estimated useful lives of fixed assets, asset impairment, income taxes, intangible assets, and contingencies and litigation.  Management bases its estimates on historical experience and on various other analyses and assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources.  Actual results may differ from these estimates under different assumptions or conditions.

 

IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS — In June 2005, the FASB issued Statement No. 154, “Accounting Changes and Error Corrections” (SFAS 154), a replacement of APB Opinion No. 20, “Accounting Changes”, and Statement No. 3, “Reporting Accounting Changes in Interim Financial Statements.” SFAS 154 changes the requirements for the accounting for and the reporting of a change in accounting principle.  Previously, most voluntary changes in accounting principles required recognition by recording a cumulative effect adjustment within net income in the period of change.  SFAS 154 requires retrospective application to prior periods’ financial statements, unless it is impracticable to determine either the specific period effects or the cumulative effect of the change.  SFAS 154 is effective for accounting changes made in fiscal years beginning after December 15,

 

6



 

2005.  During the quarter ended April 1, 2006, the Company adopted FAS 154.  The adoption had no impact on the Company’s consolidated financial statements for the first quarter of 2006.

 

In November 2005, the FASB issued FSP FAS 115-1 and FAS 124-1, “The Meaning of Other-Than-Temporary Impairment and Its Application to Certain Investments” (“FSP 115-1”), which provides guidance on determining when investments in certain debt and equity securities are considered impaired, whether that impairment is other-than-temporary, and on measuring such impairment loss.  FSP 115-1 also includes accounting considerations subsequent to the recognition of an other-than temporary impairment and requires certain disclosures about unrealized losses that have not been recognized as other-than-temporary impairments.  FSP 115-1 is required to be applied to reporting periods beginning after December 15, 2005.  During the quarter ended April 1, 2006, the Company adopted FSP FAS 115-1 and FAS 124-1.  The adoption had no impact on the Company’s consolidated statements of operations for the first quarter of 2006.

 

(3) Stock-Based Compensation

 

The Company has adopted stock plans that provide for the grant to employees of stock-based awards, including stock options and restricted stock units, of Ultratech.  In addition, these plans permit the grant of nonstatutory stock-based awards to be paid to consultants and outside directors.

 

Prior to January 1, 2006, the Company accounted for its stock plans under the provisions of Accounting Principles Board Opinion No. 25, “Accounting for Stock Issued to Employees” (APB No. 25) and FASB Interpretation (FIN) No. 44, “Accounting for Certain Transactions Involving Stock Compensation — an Interpretation of APB Opinion No. 25” (FIN No. 44).  The Company adopted Statement of Financial Accounting Standards No. 123 (revised 2004), “Share-Based Payment” (SFAS No. 123R), effective January 1, 2006 using the modified prospective transition method.  Under that transition method, stock-based compensation expense recognized during the three months ended April 1, 2006 includes: (a) stock options and restricted stock units granted prior to, but not yet vested as of, January 1, 2006, based on the grant-date fair value estimated in accordance with the original provisions of SFAS No. 123, and (b) restricted stock units granted subsequent to January 1, 2006, based on the grant-date fair value estimated in accordance with the provisions of SFAS No. 123R.  Under the modified prospective transition method, results for prior periods are not restated.

 

The Company analyzed its stock-based compensation strategies prior to the adoption of SFAS No. 123R and made the decision to grant restricted stock units rather than stock options during the three months ended April 1, 2006.  The Company recognized stock-based compensation expense of $0.5 million during the three months ended April 1, 2006.  Included in this amount are expenses related to restricted stock units of $0.3 million during the three months ended April 1, 2006, which would have been included in the Company’s Condensed Consolidated Statements of Operations under the provisions of APB No. 25.  The expense related to restricted stock units is therefore excluded from the following table, which presents the impact of the adoption of SFAS No. 123R for the three months ended April 1, 2006.

 

 

 

Three months ended April 1, 2006

 

(In thousands, except per share amounts)

 

As reported

 

Excluding impact of
adoption of SFAS No.
123R

 

Income before income taxes

 

$

1,712

 

$

1,929

 

Net income

 

$

1,582

 

$

1,799

 

Earnings per share - basic

 

$

0.07

 

$

0.08

 

Earnings per share - diluted

 

$

0.06

 

$

0.07

 

 

There was no income tax benefit recognized in the condensed consolidated statements of operations related to stock-based compensation expense during the three months ended April 1, 2006.  The estimated fair value of

 

7



 

the Company’s stock-based awards, less expected forfeitures, is amortized over the awards’ vesting period using a single grant approach on a ratable basis for awards granted after the adoption of SFAS No. 123R and using a multiple grant approach on a straight-line basis for awards granted prior to the adoption of SFAS No. 123R.

 

The modified prospective transition method of SFAS No. 123R requires the presentation of pro forma information for periods presented prior to the adoption of SFAS No. 123R regarding net income (loss) and net income (loss) per share as if the Company had accounted for its stock plans under the fair value method of SFAS No. 123R.  For pro forma purposes, fair value of stock options was estimated using the Black-Scholes option valuation model and amortized using a multiple grant approach on a straight-line basis.  The fair value of all of the Company’s stock-based awards was estimated assuming no expected dividends and estimates of expected life, volatility and risk-free interest rate at the time of grant.  The following table illustrates the effect on net income and net income per share if the Company had accounted for its stock plans under the fair value method of accounting under SFAS No. 123R:

 

(In thousands, except per share amounts)

 

Three Months
Ended Apr. 2,
2005

 

Net loss as reported

 

$

(1,896

)

Deduct: SFAS No. 123R compensation expense, net of tax

 

(2,683

)

Pro forma net loss

 

$

(4,579

)

 

 

 

 

 

Net loss per share - basic, as reported

 

$

(0.08

)

Pro forma net loss per share - basic

 

$

(0.19

)

 

 

 

 

 

Net loss per share - diluted, as reported

 

$

(0.08

)

Pro forma net loss per share - diluted

 

$

(0.19

)

 

The fair value of the Company’s stock options granted in the three month period ended April 2, 2005 was estimated using the following weighted-average assumptions:

 

 

 

Three Months
Ended Apr. 2, 2005

 

Expected life (in years)

 

3.5

 

Risk-free interest rate

 

3.42

%

Volatility factor

 

0.52

 

Dividend yield

 

N/A

 

 

Stock Options and Restricted Stock Units

 

Ultratech’s 1993 Stock Option Plan/Stock Issuance Plan, as amended, and its 1998 Supplemental Stock Option/Stock Issuance Plan, as amended, provide for the grant of qualified and non-qualified stock-based awards to eligible employees, consultants and advisors, and non-employee directors of the Company and its subsidiaries.  As of April 1, 2006, there was a total of 1,004,878 shares reserved for future issuance under these Plans.

 

The Company did not grant any stock options during the three months ended April 1, 2006.  The fair value of the Company’s stock options issued prior to the adoption of SFAS No. 123R was estimated using a Black-Scholes option valuation model.  This model requires the input of highly subjective assumptions, including expected stock price volatility and the estimated life of each award.  The fair value of these stock options was estimated assuming no expected dividends and estimates of expected life, volatility and risk-free interest rate at the time of grant.  Prior to the adoption of SFAS No. 123R, the Company used historical and implied market volatility as a basis for calculating expected volatility.

 

8



 

A summary of stock option activity under the Plans as of April 1, 2006 and changes during the three months then ended is presented below:

 

Options

 

Shares (in
thousands)

 

Weighted-
Average
Exercise Price

 

Weighted-
Average
Remaining
Contractual
Term (years)

 

Aggregate
Intrinsic
Value (in
thousands)

 

Outstanding at December 31, 2005

 

6,443,948

 

17.71

 

 

 

Granted

 

 

 

 

 

Exercised

 

(163,128

)

14.93

 

 

 

Forfeited or expired

 

(48,448

)

26.92

 

 

 

Outstanding at April 1, 2006

 

6,232,372

 

17.71

 

6.75

 

$

45,821

 

Exercisable at April 1, 2006

 

6,002,265

 

17.95

 

6.74

 

$

42,830

 

 

The total intrinsic value of options exercised during the three months ended April 1, 2006 was $1.1 million.  As of April 1, 2006, there was $0.5 million of total unrecognized compensation cost related to nonvested stock options granted and outstanding; that cost is expected to be recognized through fiscal year 2009, with a weighted average remaining period of 0.48 year.  Cash received from stock option exercises was $2.4 million during the three months ended April 1, 2006.

 

A summary of the status of the Company’s restricted stock units as of April 1, 2006, and changes during the three months then ended is presented below:

 

Nonvested Restricted Stock Units

 

Shares (in
thousands)

 

Weighted-
Average
Grant-Date
Fair Value (in
millions)

 

Nonvested at December 31, 2005

 

 

 

Granted

 

168

 

$

3.2

 

Vested

 

(5

)

$

0.1

 

Forfeited

 

(1

)

 

Nonvested at April 1, 2006

 

162

 

$

3.1

 

 

The fair value of the Company’s restricted stock units was calculated based upon the fair market value of the Company’s stock at the date of grant.  As of April 1, 2006, there was $2.5 million of total unrecognized compensation cost related to nonvested restricted stock units granted; that cost is expected to be recognized over a remaining period of 2.75 years.

 

(4) Net Income (Loss) Per Share

 

The following sets forth the computation of basic and diluted net income (loss) per share:

 

9



 

 

 

Three Months Ended

 

(In thousands, except per share amounts)

 

April 1,
2006

 

April 2,
2005

 

Numerator:

 

 

 

 

 

Net income (loss)

 

$

1,582

 

$

(1,896

)

 

 

 

 

 

 

Denominator:

 

 

 

 

 

Denominator for basic net income (loss per share)

 

23,830

 

23,877

 

Effect of dilutive employee stock options

 

1,297

 

 

Denominator for diluted net income (loss per share)

 

25,127

 

23,877

 

 

 

 

 

 

 

Net income (loss) per share - basic:

 

 

 

 

 

 

 

 

 

 

 

Net income (loss)

 

$

0.07

 

$

(0.08

)

 

 

 

 

 

 

Net income (loss) per share - diluted:

 

 

 

 

 

 

 

 

 

 

 

Net income (loss)

 

$

0.06

 

$

(0.08

)

 

For the three-month periods ended April 1, 2006 and April 2, 2005, options to purchase 1,736,070 and 6,396,235 shares of common stock at an average exercise price of $25.54 and $17.93, respectively, were excluded from the computation of diluted net loss per share, as the effect would have been anti-dilutive.  Options are anti-dilutive when we have a net loss or when the exercise price of the stock option is greater than the average market price of our common stock during the period.

 

10



 

(5) Inventories

 

Inventories consist of the following:

 

(In thousands)

 

Apr. 1
2006

 

Dec. 31,
2005

 

Raw materials

 

$

12,409

 

$

10,873

 

Work-in-process

 

9,941

 

8,322

 

Finished products

 

9,408

 

9,774

 

 

 

$

31,758

 

$

28,969

 

 

(6) Other Assets

 

Other assets consist of the following:

 

(In thousands)

 

Apr. 1,
2006

 

Dec. 31,
2005

 

Deferred compensation plan assets

 

$

1,990

 

$

1,972

 

Deferred income taxes

 

279

 

274

 

Other

 

814

 

844

 

 

 

$

3,083

 

$

3,090

 

 

(7) Line of Credit

 

We have a line of credit agreement with a brokerage firm.  Under the terms of this agreement, we may borrow funds at a cost equal to the current Federal funds open rate plus 100 basis points (approximately 5.75% as of April 1, 2006).  Certain of our cash, cash equivalents and investments secure borrowings outstanding under this facility.  Funds are advanced to us under this facility based on pre-determined advance rates on the cash and securities held by us in this brokerage account.  This agreement has no set expiration date and there are no loan covenants, other than the aforementioned collateral requirement.  As of April 1, 2006, $4.1 million was outstanding under this facility, with a related collateral requirement of approximately $5.5 million of our cash, cash equivalents and investments.

 

(8) Other Current Liabilities

 

Other current liabilities consist of the following:

 

(In thousands)

 

Apr. 1,
2006

 

Dec. 31,
2005

 

Salaries and benefits

 

$

4,272

 

$

3,723

 

Warranty accrual

 

2,586

 

2,397

 

Advance billings

 

1,132

 

854

 

Income taxes payable

 

420

 

768

 

Reserve for losses on purchase order commitments

 

340

 

406

 

Accrued taxes-other

 

2,289

 

1,542

 

Other

 

1,156

 

1,202

 

 

 

$

12,195

 

$

10,892

 

 

11



 

Warranty Accrual

 

We generally warrant our products for a period of 12 months for new products, or 3 months for refurbished products, from the date of customer acceptance for material and labor to repair the product; accordingly, an accrual for the estimated cost of the warranty is recorded at the time the product is shipped.  Extended warranty terms, if granted, result in deferral of revenue equating to our standard pricing for similar service contracts.  Recognition of the related warranty cost is deferred until product revenue is recognized.  Factors that affect our warranty liability include the number of installed units, historical and anticipated rates of warranty claims, and cost per claim.  We periodically assess the adequacy of our recorded warranty liabilities and adjust the amounts as necessary.  In 2005, the Company commenced volume shipments of its unity-based lithography systems and commenced warranty coverage on several of its laser annealing systems.  As may occur with new product introductions, after-sales (warranty) costs were higher than anticipated.  The Company believes its warranty accrual, as of April 1, 2006, will be sufficient to satisfy outstanding obligations as of that date.

 

Changes in our warranty accrual are as follows:

 

 

 

Three Months Ended

 

(In thousands)

 

Apr. 1,
2006

 

Apr. 2,
2005

 

Balance, beginning of the period

 

$

2,397

 

$

2,013

 

Warranties issued during the period

 

917

 

954

 

Settlements made during the period

 

(1,118

)

(1,059

)

Changes in liability for pre-existing warranties

 

390

 

118

 

Balance, end of the period

 

$

2,586

 

$

2,026

 

 

Deferred Services Revenue

 

Deferred services revenue is included in the deferred product and services income line on the condensed consolidated balance sheets.  We sell service contracts for which revenue is deferred and recognized ratably over the contract period, for time based service contracts, or as service hours are delivered, for contracts based on a purchased quantity of hours.

 

Changes in our deferred service revenue are as follows:

 

 

 

Three Months Ended

 

(In thousands)

 

Apr. 1,
2006

 

Apr. 2,
2005

 

Balance, beginning of the period

 

$

1,970

 

$

1,332

 

Service contracts sold during the period

 

3,957

 

1,988

 

Service contract revenue recognized during the period

 

(2,714

)

(1,968

)

Balance, end of the period

 

$

3,213

 

$

1,352

 

 

(9) Other Liabilities

 

Other liabilities consist of the following:

 

12



 

(In thousands)

 

Apr. 1,
2006

 

Dec. 31,
2005

 

Deferred rent

 

$

3,074

 

$

3,157

 

Deferred compensation plan liability

 

1,727

 

1,932

 

Asset retirement obligations

 

2,154

 

2,064

 

Other

 

656

 

652

 

 

 

$

7,611

 

$

7,805

 

 

(10) Accumulated Other Comprehensive Income (Loss)

 

The components of accumulated other comprehensive income (loss) are as follows:

 

 

 

Three Months Ended

 

(In thousands)

 

Apr. 1,
2006

 

Apr. 2,
2005

 

Net income (loss)

 

$

1,582

 

$

(1,896

)

Accumulated other comprehensive income (loss):

 

 

 

 

 

Unrealized loss on available-for-sale investments

 

(405

)

(502

)

Unrealized gain on foreign exchange forward contracts

 

(124

)

189

 

Comprehensive income (loss)

 

$

1,053

 

$

(2,209

)

 

Accumulated other comprehensive income (loss) presented in the condensed consolidated balance sheets is comprised of unrealized gains or losses on available-for-sale securities and the effect of exchange rate changes on foreign exchange forward contracts, net of tax.

 

(In thousands)

 

Apr. 1,
2006

 

Dec. 31,
2005

 

Unrealized gains (losses) on:

 

 

 

 

 

Available-for-sale investments

 

$

(1,605

)

$

(1,200

)

Foreign exchange forward contracts

 

190

 

314

 

Accumulated other comprehensive loss at end of period

 

$

(1,415

)

$

(886

)

 

(11) Stock Repurchase Program

 

On September 19, 2005, the Company’s Board of Directors authorized the repurchase of up to $30 million of its common stock in the open market at the then prevailing market prices during the period commencing September 19, 2005 through September 30, 2007.  Through April 1, 2006, the Company had repurchased 644,535 shares of its common stock at a total purchase price of $9.2 million.  No shares were repurchased during the quarter ended April 1, 2006.

 

(12) Employee Benefit Plans

 

Employee bonus plans

 

We currently sponsor an executive incentive bonus plan that distributes employee awards based on the achievement of predetermined targets.  We have recorded $0.4 million and $0.0 million of expenses under this bonus plan for the quarters ended April 1, 2006 and April 2, 2005, respectively.

 

13



 

Employee savings and retirement plans

 

Ultratech sponsors a 401(k) employee salary deferral plan that allows voluntary contributions by all full-time employees of from 1% to 20% of their pretax earnings.  Company contributions made to this plan were $0.1 million for both quarters ended April 1, 2006 and April 2, 2005.  These Company contributions generally become 20 percent vested at the end of an employee’s first year of service from the date of hire with the Company, and vest 20 percent per year of service thereafter until they become fully vested at the end of five years of service.  We also sponsor an executive non-qualified deferred compensation plan (the “Plan”) that allows qualifying executives to defer current cash compensation.

 

(13) Contingencies

 

Legal Proceedings

 

On February 29, 2000, we filed lawsuits asserting patent infringement and related claims against Nikon, Canon, and ASML in the U.S. District Court for the Eastern District of Virginia.  In April 2000, we reached a settlement with Nikon, and in September 2001, we reached a settlement with Canon.  In the patent litigation against ASML, a jury trial was conducted during the three-month period ended July 2, 2005.  The jury reached a verdict that the patent was infringed, but that the asserted claims of the patent were invalid.  We filed a post-trial motion for a new trial and for judgment as a matter of law in our favor.  ASML also filed a motion for judgment as a matter of law seeking to invalidate three of the asserted claims for lack of enablement and requested that the court award costs.  On February 13, 2006, the Court denied our post-trial motions, including the motion for a new trial, and entered judgment in favor of ASML invalidating three claims of the patent for lack of enablement.  The Court also awarded ASML approximately $330,000 in costs.  Ultratech has filed a notice of appeal.  ASML has filed a notice of cross-appeal.

 

On July 11, 2003, we filed a lawsuit against a Southern California company asserting infringement of certain claims related to U.S. patent No. 5,621,813 in the U.S. District Court in and for the Northern District of California.  On May 17, 2005, the court found the subject patent to be invalid.  Ultratech appealed that decision, but, in March of 2006, the Federal Circuit upheld the district court’s ruling.  Ultratech has filed a request for reconsideration of such ruling that is still pending.

 

The defendant also brought a motion for reimbursement of its attorneys’ fees and costs in a total asserted amount of approximately $2 million.  We opposed this motion and, on October 12, 2005, the District Court denied the defendant’s request for attorneys’ fees in its entirety.  On November 3, 2005, the defendant filed a notice of appeal with respect to the court’s ruling on its motion for attorneys’ fees, and Ultratech has filed its opposing brief in that regard.  There is not yet a ruling on that appeal nor any scheduled hearing date on that appeal.  It is expected that such a ruling will occur following the scheduled hearing date and that the likely scheduled hearing date will be in the third or fourth quarter of 2006.

 

14



 

Item 2.         Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

Certain of the statements contained herein, which are not historical facts and which can generally be identified by words such as “anticipates”, “expects”, “intends”, “will”, “could”, “believes”, “estimates”, “continue”, and similar expressions, are forward-looking statements under Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, that involve risks and uncertainties, such as risks related to our dependence on new product introductions and market acceptance of new products and enhanced versions of our existing products; lengthy sales cycles, including the timing of system installations and acceptances; lengthy and costly development cycles for laser-processing and lithography technologies and applications; integration, development and associated expenses of the laser processing operation; delays, deferrals and cancellations of orders by customers; cyclicality in the semiconductor and nanotechnology industries; pricing pressures and product discounts; high degree of industry competition; intellectual property matters; expiration of licensing arrangements, and the resulting adverse impact on our licensing revenues; changes to financial accounting standards; changes in pricing by us, our competitors or suppliers; customer concentration; international sales; timing of new product announcements and releases by us or our competitors; ability to volume produce systems and meet customer requirements; sole or limited sources of supply; ability and resulting costs to attract or retain sufficient personnel to achieve our targets for a particular period; dilutive effect of employee stock option grants on net income per share, which is largely dependent upon us achieving and maintaining profitability and the market price of our stock; mix of products sold; rapid technological change and the importance of timely product introductions; outcome of litigation; manufacturing variances and production levels; timing and degree of success of technologies licensed to outside parties; product concentration and lack of product revenue diversification; inventory obsolescence; asset impairment; effects of certain anti-takeover provisions; future acquisitions; volatility of stock price; foreign government regulations and restrictions, the political restrictions in Taiwan regarding offshore investments and the exporting of sensitive technologies and jobs to certain countries;  business interruptions due to natural disasters or utility failures; environmental regulations; and any adverse effects of terrorist attacks in the United States or elsewhere, or government responses thereto, or military actions in Iraq, Afghanistan and elsewhere, on the economy in general, or on our business in particular.  Due to these and additional factors, the statements, historical results and percentage relationships set forth below are not necessarily indicative of the results of operations for any future period.  These forward-looking statements are based on management’s current beliefs and expectations, some or all of which may prove to be inaccurate, and which may change.  We undertake no obligation to revise or update any forward-looking statements to reflect any event or circumstance that may arise after the date of this report.

 

OVERVIEW

 

Ultratech develops, manufactures and markets photolithography and laser thermal processing equipment for manufacturers of integrated circuits and nanotechnology components located throughout North America, Europe, Japan, Taiwan and the rest of Asia.

 

We supply step-and-repeat photolithography systems based on one-to-one imaging technology.  Within the integrated circuits industry, we target the market for advanced packaging applications.  Within the nanotechnology industry, our target markets include thin film head magnetic recording devices, ink jet print heads, laser diodes and LEDs (light emitting diodes).  Our laser thermal processing equipment is targeted at advanced annealing applications within the semiconductor industry.

 

RESULTS OF OPERATIONS

 

We derive a substantial portion of our total net sales from sales of a relatively small number of newly manufactured systems, which typically range in price from $1.2 million to $4.5 million.  As a result of these high sale prices, the timing and recognition of revenue from a single transaction has had and most likely will continue to have a significant impact on our net sales and operating results for any particular period.

 

15



 

Our backlog at the beginning of a period typically does not include all of the sales needed to achieve our sales objectives for that period.  In addition, orders in backlog are subject to cancellation, shipment or customer acceptance delays, and deferral or rescheduling by a customer with limited or no penalties to the customer.  Consequently, our net sales and operating results for a period have been and will continue to be dependent upon our obtaining orders for systems to be shipped and accepted in the same period in which the order is received.  Our business and financial results for a particular period could be materially adversely affected if an anticipated order for even one system is not received in time to permit shipment and customer acceptance during that period.  Furthermore, a substantial portion of our shipments has historically occurred near the end of each quarter.  Delays in installation and customer acceptance due, for example, to our inability to successfully demonstrate the agreed-upon specifications or criteria at the customer’s facility, or to the failure of the customer to permit installation of the system in the agreed upon time, may cause net sales in a particular period to fall significantly below our expectations, which may materially adversely affect our operating results for that period.  This risk is especially applicable in connection with the introduction and initial sales of a new product line.  Additionally, the failure to receive anticipated orders or delays in shipments due, for example, to rescheduling, delays, deferrals or cancellations by customers, additional customer configuration requirements, or to unexpected manufacturing difficulties or delays in deliveries by suppliers due to their long production lead times or otherwise, have caused and may in the future cause net sales in a particular period to fall significantly below our expectations, which could materially adversely affect our operating results for that period.  In particular, the long manufacturing and acceptance cycles of our advanced packaging family of wafer steppers and laser thermal processing systems and the long lead time for lenses and other materials, could cause shipments and acceptances of such products to be delayed from one quarter to the next, which could materially adversely affect our financial condition and results of operations for a particular quarter.

 

Additionally, the need for continued expenditures for research and development, capital equipment, ongoing training and worldwide customer service and support, among other factors, will make it difficult for us to reduce our operating expenses.

 

Net sales

 

 

 

Three Months Ended

 

 

 

 

 

(In millions)

 

Apr. 1,
2006

 

Apr. 2,
2005

 

Amount of
Change

 

Percentage
Change

 

Sales of:

 

 

 

 

 

 

 

 

 

Products: Systems

 

$

26.9

 

$

20.3

 

$

6.6

 

32

%

Products: Spare parts and upgrades

 

4.5

 

3.4

 

$

1.1

 

32

%

Services

 

3.5

 

3.1

 

$

0.4

 

14

%

Licenses

 

 

1.1

 

$

(1.1

)

-100

%

Total net sales

 

$

34.9

 

$

28.0

 

$

7.0

 

25

%

 

Net sales consist of revenues from system sales, spare parts sales and upgrades, services and licensing of technologies.  System sales increased 32% in the first quarter of 2006 compared to the first quarter of 2005.  The average selling prices of systems sold increased 32% compared to the comparable year-ago period, primarily as a result of increased sales in laser thermal processing and advanced packaging platforms, which typically have higher average selling prices than our nanotechnology platforms.  Unit volumes were unchanged, compared to last year’s first quarter.

 

On a product market application basis, system sales to the semiconductor industry, primarily for advanced packaging applications, were $25.5 million for the quarter ended April 1, 2006, an increase of 98% when compared with system sales to this market in the first quarter of 2005.  This increase was due to a 74% increase in sales to the advanced packaging markets and to the sale of one laser thermal processing system that was revenued during the first quarter of 2006 compared to no laser thermal processing system sales in the first quarter of 2005.  These systems typically have significantly higher average selling prices compared to the Company’s nanotechnology

 

16



 

offerings.  System sales to the nanotechnology market were $1.4 million for the quarter ended April 1, 2006, a decrease of 81% compared with sales of $7.4 million in the first quarter of 2005.  System sales to the nanotechnology market are highly dependent on customer capacity demand in the thin film head industry.

 

Spare parts and upgrades sales for the first quarter of 2006 were $4.5 million, an increase of 32% over last year’s first quarter, primarily as a result of a higher levels of system upgrades compared to the same period a year ago.  Revenues from services for the first quarter of 2006 were $3.5 million, an increase of 14% over last year’s first quarter, primarily as a result of increases in service and training contracts, offset by a decrease in time and material contract service jobs compared to the same period of 2005.

 

There was no revenue from licenses in the quarter ended April 1, 2006 compared with $1.1 million in the comparable period a year ago.  This decrease was a result of the completion of the amortization period of prior-period proceeds from licensing agreements.  Future revenues from licensing activities, if any, will be contingent upon the outcome of current litigation (see “Legal Proceedings”), and upon existing and future licensing and royalty arrangements.  The Company may not be successful in generating licensing revenues in the future and does not anticipate the recognition of additional licensing income during the remainder of 2006.

 

At April 1, 2006, we had approximately $3.4 million of deferred product and services income resulting from primarily deferred service revenue compared to $2.0 million at December 31, 2005.  Deferred income related to our products is recognized upon satisfying the contractual obligations for installation and/or customer acceptance.  Deferred service revenue is recognized ratably over the contract period or as purchased services are rendered.

 

For the quarter ended April 1, 2006, international net sales were $20.9 million, or 60% of total net sales compared with $20.7 million, or 74% of total net sales for the first quarter of 2005.  We expect sales to international customers to represent a significant majority of our revenues during the remainder of 2006.  Our revenue derived from sales in foreign countries is not generally subject to significant exchange rate fluctuations, principally because sales contracts for our systems are generally denominated in U.S. dollars.  In Japan, however, orders are often denominated in Japanese yen.  This subjects us to the risk of currency fluctuations.  We attempt to mitigate this risk by entering into foreign currency forward exchange contracts for the period between when an order is received and when it is recorded as revenue.  After recording revenue, we use various mechanisms, such as foreign currency forward exchange contracts and natural hedges, to offset substantial portions of the gains or losses associated with our Japanese yen denominated receivables due to exchange rate fluctuations.  We had approximately $0.7 million of Japanese yen denominated receivables at April 1, 2006.  International sales expose us to a number of additional risks, including fluctuations in the value of local currencies relative to the U.S. dollar, which impact the relative cost of ownership of our products and, thus, the customer’s willingness to purchase our product.  (See “Item 1A Risk Factors: International Sales”).

 

Gross profit

 

On a comparative basis, gross margins were 39.1% and 43.9% for the first quarters of 2006 and 2005, respectively.  The 4.8% decrease in gross margin was due to a less favorable mix of products sold (3.8 percentage points), the absence of licensing revenue resulting from the completion of the amortization period of licensing payments received in prior periods (2.3 percentage points), additional manufacturing costs resulting from ramp-up of production of both laser spike annealing systems and unity-platform lithography systems plus additional service costs resulting from installation and warranty costs of our new laser spike annealing systems (1.8 percentage points), partially offset by an increase in manufacturing capacity utilization (3.1 percentage points).

 

There were no licensing revenues for the quarter ended April 1, 2006.  Exclusive of licensing revenues, gross margin was  41.6% for the first quarter of 2005.  We believe disclosure of gross margins without reference to licensing revenues provides additional appropriate disclosure to allow comparison of our product and service gross margins over time because there is little, if any, cost of sales associated with our licensing revenues.  Future revenues from licensing activities, if any, will be contingent upon the outcome of current litigation (see “Legal Proceedings”), and upon existing and future licensing and royalty arrangements.  The Company may not be successful in generating licensing revenues in the future and does not anticipate the recognition of additional licensing income during the

 

17



 

remainder of 2006.  Gross margins have been, and will continue to be, negatively impacted by the discontinuance of license revenue.

 

Our gross profit as a percentage of sales has been and most likely will continue to be significantly affected by a variety of factors, including the introduction of new products, which typically have higher manufacturing costs until manufacturing efficiencies are realized and which are typically discounted more than existing products until the products gain market acceptance; the mix of products sold; the rate of capacity utilization; writedown of inventory and open purchase commitments; technology support and licensing revenues, which have little or no associated cost of sales; product discounts, pricing and competition in our targeted markets; non-linearity of shipments during the quarter which can result in manufacturing inefficiencies; the percentage of international sales, which typically have lower gross margins than domestic sales principally due to higher field service and support costs; and start-up costs and inefficiencies associated with the implementation of subcontracting arrangements.

 

Operating expenses

 

Research, development and engineering expenses were $6.2 million for first quarter of 2006, a decrease of $1.3 million from the amount reported for the comparable period of 2005.  The decrease was due primarily to cost saving efforts and lower spending associated with the development of our laser processing technologies.

 

Selling, general, and administrative expenses were $7.3 million for the first quarter of 2006 compared with $7.5 million for the comparable period of 2005.  As a percentage of net sales, selling, general, and administrative expenses decreased to 21% in the quarter ended April 1, 2006, compared to 27% in the first quarter of 2005.  This decrease, as a percentage of net sales, was primarily due to a 25% increase in revenue, along with decreased legal costs related to our being a plaintiff in two patent infringement lawsuits in the first quarter of 2005.

 

Interest and other income, net

 

Interest and other income, net, which consists primarily of interest income, was $1.5 million for the first quarter of 2006, compared with $0.9 million for the comparable period of 2005.  This increase was primarily attributable to higher interest rates on our investments.  We presently maintain an investment portfolio with a weighted-average maturity of approximately 1.4 years.  As a result, changes in short-term interest rates have had, and will continue to have, a significant impact on our interest income.

 

Provision (benefit) for income taxes

 

For the three months ended April 1, 2006, we recorded an income tax expense of $0.1 million compared to an income tax benefit of $0.1 million for the first quarter in 2005.  The tax expense recognized in the current period resulted from our full year forecasted effective tax rate of approximately 8% of pretax income.  The tax benefit for the prior year first quarter resulted from our then forecasted effective tax rate of approximately 7% for the full year ended December 31, 2005, applied to the first quarter loss.  The estimated effective tax rate of 8% for 2006 results primarily from foreign income taxes and the U.S. federal alternative minimum tax.  This effective tax rate is substantially less than the statutory rate because of available U.S. federal and state net operating loss carryforwards.

 

In October 2004, the United States enacted The American Jobs Creation Act of 2004 (“the Act”).  The Act provides for a three year phase-out of current extraterritorial income tax (“ETI”) benefits and replaces ETI with a phased-in 9% domestic production activity deduction that will not be fully effective until 2010.  Although our activities qualify for the domestic production activity deduction, we will not be able to benefit from this provision until our net operating loss carryforwards are fully utilized in future years.

 

Income tax estimates can be affected by whether or not, and within which jurisdictions, future earnings will occur and how and when cash is repatriated to the United States, combined with other aspects of an overall income tax strategy.  Additionally, taxing jurisdictions could retroactively disagree with our tax treatment of certain items, and some historical transactions have income tax effects into the future.  Accounting rules require these future effects to be evaluated using current laws, rules and regulations, each of which can change at any time and in an

 

18



 

unpredictable manner.  We believe we have adequately provided for any reasonably foreseeable outcome related to these matters, and we do not anticipate any material earnings impact from their ultimate resolutions.

 

Each quarter we assess the likelihood that we will be able to recover our deferred tax assets.  We consider all available evidence, both positive and negative, including historical levels of income, expectations and risks associated with estimates of future taxable income and ongoing prudent and feasible tax planning strategies in assessing the need for the valuation allowance.  As a result of our analysis of all available evidence, we concluded that it is more likely that our non-Japanese net deferred tax asset will not be realized and we continue to provide a full valuation allowance against the asset.  We closely monitor all available evidence, and may release some or all of the valuation allowance in future periods.

 

Outlook

 

Although we believe that our served markets have generally strengthened during the last twelve months, the anticipated timing of orders, shipments and customer acceptances usually requires us to fill a number of production slots in any given quarter in order to meet our sales targets.  If we are unsuccessful in our efforts to secure those production orders, or if existing production orders are delayed or cancelled, our results of operations will be materially adversely impacted.  Accordingly, we may not be able to achieve or maintain our current or prior level of sales.  We presently expect that net sales for the second quarter of 2006 may be in a range of  10% to 15% down from the first quarter of 2006.  For the full year, we believe we could see annual revenue growth of 10% to 20% over levels achieved in 2005.

 

Because our net sales are subject to a number of risks, including risks associated with the introduction of our new laser processing product line, delays in customer acceptances, intense competition in the capital equipment industry, uncertainty relating to the timing and market acceptance of our products, and the condition of the macro-economy and the semiconductor industry, we may not exceed or maintain our current or prior level of net sales for any period in the future.  Additionally, we believe that the market acceptance and volume production of our advanced packaging systems, laser processing systems and our nanotechnology systems are of critical importance to our future financial results.  At April 1, 2006, these critical systems represented 89% of our backlog.  To the extent that these products do not achieve or maintain significant sales due to difficulties involving manufacturing or engineering, the inability to reduce the current long manufacturing and customer acceptance cycles for these products, competition, excess capacity in the semiconductor or nanotechnology device industries, or any other reason, our business, financial condition and results of operations would be materially adversely affected.

 

We believe that gross margin for the second quarter of 2006 will be between 41% and 42%.  The final gross margin achieved will depend heavily upon sales volumes and the resulting product mix.  Should our sales not reach the level expected, we may incur a higher risk of inventory obsolescence and excess purchase commitments and lower utilization of our manufacturing infrastructure, which would materially adversely impact our results of operations.  New products generally have lower gross margins until there is widespread market acceptance and until production and after-sales efficiencies can be achieved.  Should significant market demand fail to develop for our laser processing systems and our new advanced packaging offerings, our business, financial condition and results of operations would be materially adversely affected.  In addition, higher costs associated with extended manufacturing and customer acceptance periods on shipments of our new laser processing products have had, and will continue to have, an adverse impact on our gross margins.  We believe that operating margin for the second quarter of 2006 may be in a range of (3%) to (7%) and that net income per share may be in the range of $0.02 to ($0.02) for the second quarter of 2006.

 

LIQUIDITY AND CAPITAL RESOURCES

 

Net cash generated by operating activities was $5.4 million for the three months ended April 1, 2006, compared with net cash used in operating activities of $4.0 million for the comparable period in 2005.  Net cash generated by operating activities during the first quarter of 2006 was primarily attributable to net income of $1.6 million, non-cash charges to income for depreciation and amortization of $1.8 million, an increase in deferred product and services income of $1.4 million, an increase in other current liabilities of $1.3 million, a non-cash charge to income

 

19



 

for stock-based compensation of $0.5 million, and an increase in accounts payable of $0.4 million, partially offset by an increase in inventories of $1.6 million.

 

We believe that because of the relatively long manufacturing cycle of certain of our systems, particularly newer products, our inventories will continue to represent a significant and growing portion of working capital.  Currently, we are devoting significant resources to the development, introduction and commercialization of our laser processing system and to the development of our next generation 1X lithography technologies.  We currently intend to continue to incur significant operating expenses in the areas of research, development and engineering, manufacturing, and selling, general and administrative costs in order to further develop, produce and support these new products.  Additionally, gross profit margins, inventory and capital equipment levels may be adversely impacted in the future by costs associated with the initial production of the laser processing system and by future generations of our 1X wafer steppers.  These costs include, but are not limited to, additional manufacturing overhead, costs of demonstration systems and facilities and the establishment of additional after-sales support organizations.  Additionally, there can be no assurance that operating expenses will not increase, relative to sales, as a result of adding technical, marketing and administrative personnel, among other costs, to support our new products.  If we are unable to achieve significantly increased net sales or if our sales fall below expectations, our cash flow and operating results will be materially adversely affected until, among other factors, costs and expenses can be reduced.  Our failure to achieve our sales targets for these new products could result in additional inventory write-offs and asset impairment charges, either or both of which could materially adversely impact our results of operations.

 

During the quarter ended April 1, 2006, net cash used in investing activities was $5.1 million, attributable to net purchases of short and long-term investments of $4.5 million and capital expenditures of $0.6 million.

 

Net cash provided by financing activities was $2.3 million during the first quarter of 2006, attributable to $2.4 million of proceeds received from the issuance of common stock under our employee stock option plans, partially offset by a net repayment of our notes payable of $0.2 million.

 

At April 1, 2006, we had working capital of $148 million.  Our principal source of liquidity at April 1, 2006 consisted of $120.2 million in cash, cash equivalents and short-term investments, net of outstanding borrowings under our line of credit.  As of December 31, 2005, the Company classified all investment securities as short-term, even though the stated maturity date may be one year or more beyond December 31, 2005, as the Company viewed its investment securities as available for use in its current operations.  As of April 1, 2006, based upon recent operating results and expectations of future operating income, the Company classified certain investment securities with remaining maturities of one year or more to be long-term investments.  We have a line of credit agreement with a brokerage firm.  Under the terms of this agreement, we may borrow funds at a cost equal to the current Federal funds open rate plus 100 basis points (approximately 5.75% as of April 1, 2006).  Certain of our cash, cash equivalents and short-term investments secure borrowings outstanding under this facility.  Funds are advanced to us under this facility in accordance with pre-determined advance rates based on the cash and securities held by us in this brokerage account.  This agreement has no set expiration date and there are no loan covenants.  As of April 1, 2006, $4.1 million was outstanding under this facility, with a related collateral requirement of approximately $5.5 million of our cash, cash equivalents and investments.

 

On September 19, 2005, our Board of Directors authorized the repurchase of up to $30 million of our common stock in the open market at then prevailing market prices during the period commencing September 19, 2005 through September 30, 2007.  Through April 1, 2006, we had repurchased 644,535 shares of our common stock at a total purchase price of $9.2 million.  No shares were repurchased during the quarter ended April 1, 2006.  Any future repurchase of stock could have a significant impact on our cash position.

 

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The development and manufacture of new lithography systems and enhancements are highly capital-intensive.  In order to be competitive, we believe we must continue to make significant expenditures for capital equipment; sales, service, training and support capabilities; systems, procedures and controls; and expansion of operations and research and development, among many other items.  We expect that cash generated from operations and our cash, cash equivalents and short-term investments will be sufficient to meet our cash requirements for at least the next twelve months.  However, in the near-term, we may continue to utilize existing and future lines of credit, and other sources of financing, in order to maintain our present levels of cash, cash equivalents and investments.  Beyond the next twelve months, we may require additional equity or debt financing to address our working capital or capital equipment needs.  In addition, we may seek to raise equity or debt capital at any time that we deem market conditions to be favorable.  Additional financing, if needed, may not be available on reasonable terms, or at all.

 

In addition, we may seek to raise equity or debt capital at any time that we deem market conditions to be favorable.  Additional financing, if needed, may not be available on reasonable terms, or at all.

 

We may in the future pursue additional acquisitions of complementary product lines, technologies or businesses.  Future acquisitions may result in potentially dilutive issuances of equity securities, the incurrence of debt and contingent liabilities and amortization expenses and impairment charges related to goodwill and other intangible assets, which could materially adversely affect our financial condition and results of operations.  In addition, acquisitions involve numerous risks, including difficulties in the assimilation of the operations, technologies, personnel and products of the acquired companies; the diversion of management’s attention from other business concerns; risks of entering markets in which we have limited or no direct experience; and the potential loss of key employees of the acquired company.  In the event we acquire product lines, technologies or businesses which do not complement our business, or which otherwise do not enhance our sales or operating results, we may incur substantial write-offs and higher recurring operating costs, which could have a material adverse effect on our business, financial condition and results of operations.  In the event that any such acquisition does occur, there can be no assurance as to the effect thereof on our business or operating results.

 

Foreign Currency

 

As part of our overall strategy to manage the level of exposure to the risk of foreign currency exchange rate fluctuations, we attempt to hedge most of our Japanese yen denominated foreign currency exposures.  We use foreign currency forward contracts to hedge the risk that unremitted Japanese yen denominated receipts from customers, for actual or forecasted sales of equipment after receipt of customer orders, may be adversely affected by changes in foreign currency exchange rates.  After recording revenue, we use various mechanisms, such as foreign currency forward exchange contracts and natural hedges, to offset substantial portions of the potential gains or losses associated with our Japanese yen denominated assets and liabilities due to exchange rate fluctuations.  At April 1, 2006, we had taken action to hedge approximately 100% of these Japanese yen denominated exposures.  In addition to natural hedges resulting from having both assets and liabilities denominated in Japanese yen, we enter into foreign currency forward contracts that generally have maturities of nine months or less.  We often close foreign currency forward contracts by entering into an offsetting contract.  At April 1, 2006, we had contracts for the sale of $9.4 million of foreign currencies at fixed rates of exchange.

 

Information Available on Company Web-site

 

Ultratech’s web-site is located at www.ultratech.com .  We make available, free of charge through our web-site, our annual report on Form 10-K, quarterly reports on Form 10-Q and current reports on Form 8-K (and amendments to those reports), as soon as reasonably practicable after such reports are filed electronically with the SEC.  We have adopted a Code of Ethics for our principal executive officer, principal financial officer, principal accounting officer or controller, or persons performing similar functions.  We have posted this Code of Ethics on our web-site.  Any future amendments to this Code will also be posted on our web-site.

 

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Item 3.         Quantitative and Qualitative Disclosures about Market Risk

 

Reference is made to Part II, Item 7A, “Quantitative and Qualitative Disclosures About Market Risk” in our Annual Report on Form 10-K for the year ended December 31, 2005 and to the subheading “Derivative Instruments and Hedging” in Item 8, “Financial Statements and Supplementary Data”, under the heading “Notes to Consolidated Financial Statements” of our Annual Report on Form 10-K for the year ended December 31, 2005.

 

Interest Rate Risk

 

Our exposure to market risk due to potential changes in interest rates relates primarily to our investment portfolio, which consisted primarily of fixed interest rate instruments as of April 1, 2006.  We maintain an investment policy designed to ensure the safety and preservation of our invested funds by limiting market risk and the risk of default.

 

Certain of our cash, cash equivalents and short and long-term investments serve as collateral for a line of credit we maintain with a brokerage firm.  The line of credit is used for liquidity purposes, mitigating the need to liquidate investments in order to meet our current operating cash requirements.

 

Foreign Currency Risk Management

 

The majority of our revenue, expense and capital purchasing activities is transacted in U.S. dollars.  However, we do enter into these transactions in other currencies, primarily Japanese yen.  To protect against reductions in value and the volatility of future cash flows caused by changes in currency exchange rates, we have established transaction and balance sheet hedging programs.  We use foreign currency forward contracts to hedge the risk that unremitted Japanese yen denominated receipts from customers for actual or forecasted sales of equipment after receipt of customer orders may be adversely affected by changes in foreign currency exchange rates.  After recording revenue, we use various mechanisms, such as foreign currency forward exchange contracts and natural hedges, to offset substantial portions of the potential gains or losses associated with our Japanese yen denominated assets and liabilities due to exchange rate fluctuations.  At April 1, 2006, we had taken action to hedge approximately 100% of these Japanese yen denominated exposures.  In addition to natural hedges resulting from having both assets and liabilities denominated in Japanese yen, we enter into foreign currency forward contracts that generally have maturities of nine months or less.  We often close foreign currency forward contracts by entering into an offsetting contract.  At April 1, 2006, we had contracts for the sale of $9.4 million of Japanese yen at fixed rates of exchange.  Our hedging programs reduce, but do not always entirely eliminate, the impact of currency movements.

 

Item 4.         Controls and Procedures

 

We conducted an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), as of the end of the period covered by this report (the “Evaluation Date”).  Based upon the evaluation, our principal executive officer and principal financial officer concluded that, as of the Evaluation Date, our disclosure controls and procedures were effective and ensure that information required to be disclosed by us in reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in Securities and Exchange Commission rules and forms.

 

Disclosure controls and procedures are controls and other procedures that are designed to ensure that information required to be disclosed in our reports filed or submitted under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms.  Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed in our reports filed or submitted under the Exchange Act is accumulated and communicated to management to allow timely decisions regarding required disclosure.  In designing and evaluating the disclosure controls and procedures, our management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives.  Management is further required to apply judgment in evaluating the cost-benefit relationship of possible controls and procedures.

 

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Changes in Internal Control Over Financial Reporting

 

There were no changes in our internal controls over financial reporting during the quarter ended April 1, 2006 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

 

PART II.      OTHER INFORMATION

 

Item 1.         Legal Proceedings

 

On February 29, 2000, we filed lawsuits asserting patent infringement and related claims against Nikon, Canon, and ASML in the U.S. District Court for the Eastern District of Virginia.  In April 2000, we reached a settlement with Nikon, and in September 2001, we reached a settlement with Canon.  In the patent litigation against ASML, a jury trial was conducted during the three-month period ended July 2, 2005.  The jury reached a verdict that the patent was infringed, but that the asserted claims of the patent were invalid.  We filed a post-trial motion for a new trial and for judgment as a matter of law in our favor.  ASML also filed a motion for judgment as a matter of law seeking to invalidate three of the asserted claims for lack of enablement and requested that the court award costs.  On February 13, 2006, the Court denied our post-trial motions, including the motion for a new trial, and entered judgment in favor of ASML invalidating three claims of the patent for lack of enablement.  The Court also awarded ASML approximately $330,000 in costs.  Ultratech has filed a notice of appeal.  ASML has filed a notice of cross-appeal.

 

On July 11, 2003, we filed a lawsuit against a Southern California company asserting infringement of certain claims related to U.S. patent No. 5,621,813 in the U.S. District Court in and for the Northern District of California.  On May 17, 2005, the court found the subject patent to be invalid.  We appealed that decision, but, in March of 2006, the Federal Circuit upheld the district court’s ruling.  We have filed a request for reconsideration of such ruling that is still pending.

 

The defendant also brought a motion for reimbursement of its attorneys’ fees and costs in a total asserted amount of approximately $2 million.  We opposed this motion and, on October 12, 2005, the District Court denied the defendant’s request for attorneys’ fees in its entirety.  On November 3, 2005, the defendant filed a notice of appeal with respect to the court’s ruling on its motion for attorneys’ fees, and we have filed its opposing brief in that regard.  There is not yet a ruling on that appeal nor any scheduled hearing date on that appeal.   It is expected that such a ruling will occur following the scheduled hearing date and that the likely scheduled hearing date will be in the third or fourth quarter of 2006.

 

Item 1A      Risk Factors

 

In addition to risks described in the foregoing discussions, the following risks apply to our business and us :

 

We currently spend, and expect to continue to spend, significant resources to develop, introduce and commercialize our laser processing systems and AP wafer stepper products, and we may not be successful in achieving or increasing sales of these products.

 

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Currently, we are devoting significant resources to the development, introduction and commercialization of our laser products as well as our lithography wafer steppers.  We intend to continue to develop these products and technologies during 2006, and will continue to incur significant operating expenses in the areas of research, development and engineering, manufacturing and general and administrative costs in order to develop, produce and support these new products.  Additionally, gross profit margins and inventory levels may be further adversely impacted in the future by costs associated with the initial production of our laser processing systems and by future generations of our 1X lithography systems.  Introduction of new products generally involves higher installation costs and product performance uncertainties that could delay customer acceptance of our systems, resulting in a delay in recognizing revenue associated with those systems and a reduction in gross margins.  These costs include, but are not limited to, additional manufacturing overhead, additional inventory write-offs, costs of demonstration systems and facilities, costs associated with the establishment of additional after-sales support organizations.  Additionally, operating expenses may increase, relative to sales, as a result of adding additional marketing and administrative personnel, among other costs, to support our new products.  If we are unable to achieve significantly increased net sales or if our sales fall below expectations, our operating results will be materially adversely affected.

 

Our ability to commercialize our laser processing technologies depends on our ability to demonstrate a manufacturing-worthy tool.  We do not presently have in-house capability to fabricate devices.  As a result, we rely on partnering with semiconductor companies to develop the anneal process.  The development of new process technologies is largely dependent upon our ability to interest potential customers in working on joint process development.  Our ability to deliver timely solutions is also limited by wafer turnaround at the potential customer’s fabrication facility.

 

Our sales cycle is typically lengthy and involves a significant commitment of capital by our customers, which has subjected us, and is likely to continue to subject us, to delays in customer acceptances of our products and other risks, any of which could adversely impact our results of operations by, among other things, delaying recognition of revenue with respect to those orders and resulting in increased installation, qualification and similar costs.

 

Sales of our systems depend, in significant part, upon the decision of a prospective customer to increase manufacturing capacity or to restructure current manufacturing facilities, either of which typically involves a significant commitment of capital.  Many of our customers in the past have cancelled the development of new manufacturing facilities and have substantially reduced their capital equipment budgets.  In view of the significant investment involved in a system purchase, we have experienced and may continue to experience delays following initial qualification of our systems as a result of delays in a customer’s approval process.  Additionally, we are presently receiving orders for systems that have lengthy delivery schedules, which may be due to longer production lead times or a result of customers’ capacity scheduling requirements.  For these and other reasons, our systems typically have a lengthy sales cycle during which we may expend substantial funds and management effort in securing a sale.  Lengthy sales cycles subject us to a number of significant risks, including inventory obsolescence and fluctuations in operating results, over which we have little or no control.  In order to maintain or exceed our present level of net sales, we are dependent upon obtaining orders for systems that will ship and be accepted in the current period.  We may not be able to obtain those orders.

 

We may not be successful in protecting our intellectual property rights or we could be found to have infringed the intellectual property rights of others, either of which could weaken our competitive position and adversely affect our results of operations.

 

Although we attempt to protect our intellectual property rights through patents, copyrights, trade secrets and other measures, we believe that our success will depend more upon the innovation, technological expertise and marketing abilities of our employees.  Nevertheless, we have a policy of seeking patents when appropriate on inventions resulting from our ongoing research and development and manufacturing activities.  We own 106 United States and foreign patents, which expire on dates ranging from April 2006 to April 2023 and have 97 United States and foreign patent applications pending.  In addition, we have various registered trademarks and copyright registrations covering mainly software programs used in the operation of our systems.  We also rely upon trade secret protection for our confidential and proprietary information.  We may not be able to protect our technology adequately and competitors may be able to develop similar technology independently.  Our pending patent applications may not be issued or U.S. or foreign intellectual property laws may not protect our intellectual property rights.  In addition, litigation may be necessary to enforce our patents, copyrights or other intellectual property rights, to protect our trade secrets, to

 

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determine the validity and scope of the proprietary rights of others or to defend against claims of infringement.  Such litigation has resulted in, and in the future could result in, substantial costs and diversion of resources and could have a material adverse effect on our business, financial condition and results of operations, regardless of the outcome of the litigation.  Patents issued to us may be challenged, invalidated or circumvented and the rights granted thereunder may not provide competitive advantages to us.  Furthermore, others may independently develop similar technology or products, or, if patents are issued to us, design around the patents issued to us.  Invalidation of our patents related to those technologies could allow our competitors to more effectively compete against us, which could result in less revenue for us.

 

On February 29, 2000, we filed lawsuits asserting patent infringement and related claims against Nikon, Canon, and ASML in the U.S. District Court for the Eastern District of Virginia.  In April 2000, we reached a settlement with Nikon, and in September 2001, we reached a settlement with Canon.  In the patent litigation against ASML, a jury trial was conducted during the three-month period ended July 2, 2005.  The jury reached a verdict that the patent was infringed, but that the asserted claims of the patent were invalid.  We filed a post-trial motion for a new trial and for judgment as a matter of law in our favor.  ASML also filed a motion for judgment as a matter of law seeking to invalidate three of the asserted claims for lack of enablement and requested that the court award costs.  On February 13, 2006, the Court denied our post-trial motions, including the motion for a new trial, and entered judgment in favor of ASML invalidating three claims of the patent for lack of enablement.  The Court also awarded ASML approximately $330,000 in costs.  Ultratech has filed a notice of appeal.  ASML has filed a notice of cross-appeal.

 

On July 11, 2003, we filed a lawsuit against a Southern California company asserting infringement of certain claims related to U.S. patent No. 5,621,813 in the U.S. District Court in and for the Northern District of California.  On May 17, 2005, the court found the subject patent to be invalid.  We appealed that decision, but, in March of 2006, the Federal Circuit upheld the district court’s ruling.  We have filed a request for reconsideration of such ruling that is still pending.

 

The defendant also brought a motion for reimbursement of its attorneys’ fees and costs in a total asserted amount of approximately $2 million.  We opposed this motion and, on October 12, 2005, the District Court denied the defendant’s request for attorneys’ fees in its entirety.  On November 3, 2005, the defendant filed a notice of appeal with respect to the court’s ruling on its motion for attorneys’ fees, and we have filed its opposing brief in that regard.  There is not yet a ruling on that appeal nor any scheduled hearing date on that appeal.  It is expected that such a ruling will occur following the scheduled hearing date and that the likely scheduled hearing date will be in the third or fourth quarter of 2006.

 

We have from time to time been notified of claims that we may be infringing intellectual property rights possessed by third parties.  We believe that the outcome of these matters will not be material to our business or financial condition.

 

Infringement claims by third parties or claims for indemnification resulting from infringement claims may be asserted in the future and such assertions could materially adversely affect our business, financial condition and results of operations, regardless of the outcome of any litigation.  With respect to any such future claims, we may seek to obtain a license under the third party’s intellectual property rights.  However, a license may not be available on reasonable terms or at all.  We could decide, in the alternative, to resort to litigation to challenge such claims.  Such challenges could be expensive and time consuming and could materially adversely affect our business, financial condition and results of operations, regardless of the outcome of any litigation.

 

We operate in a highly competitive industry in which customers are required to invest substantial resources in each product, which makes it difficult to achieve significant sales to a particular customer once another vendor’s equipment has been purchased by that customer.

 

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The capital equipment industry in which we operate is intensely competitive.  A substantial investment is required to install and integrate capital equipment into a semiconductor, semiconductor packaging or nanotechnology device production line.  We believe that once a device manufacturer or packaging subcontractor has selected a particular supplier’s capital equipment, the manufacturer generally relies upon that equipment for the specific production line application and, to the extent possible, subsequent generations of similar products.  Accordingly, it is difficult to achieve significant sales to a particular customer once another supplier’s capital equipment has been selected.

 

We experience competition in advanced packaging from various proximity aligner companies such as Suss Microtec AG (Suss Microtec), projection companies such as Ushio, Inc. (Ushio), and reduction stepper companies such as Nikon Precision, Canon, and ASML.  While we believe that the use of reduction steppers is not easily adapted for thick resists utilized in the advanced packaging market, some device manufactures may consider this technology option.  In nanotechnology, we experience competition from proximity aligner companies, such as Suss Microtec, as well as other stepper manufacturers who have developed or are developing tools specifically designed for nanotechnology applications.  We expect our competitors to continue to improve the performance of their current products and to introduce new products with improved price and performance characteristics.  This could cause a decline in sales or loss of market acceptance of our steppers in our served markets, and thereby materially adversely affect our business, financial condition and results of operations.  Enhancements to, or future generations of, competing products may be developed that offer superior cost of ownership and technical performance features.

 

With respect to our laser annealing technologies, marketed under the LSA100 product name, the primary competition comes from companies such as Applied Materials, Inc., and Dainippon Screen Manufacturing Co., LTD.  Many of these companies offer products utilizing rapid thermal processing, or RTP, which is the current prevailing manufacturing technology.  RTP does not prevent semiconductor device manufacturers from scaling the lateral dimensions of their transistors to obtain improved performance, but diffusion resulting from the time scales associated with RTP limits the vertical dimension of the junctions.  Faster annealing times result in shallower and more abrupt junctions and faster transistors.  We believe our annealing technology results in faster transistors for a given size.  We believe that RTP manufacturers recognize the need to reduce thermal cycle times and are working toward this goal.  In July 2000, we licensed certain rights to our then existing laser processing technology, with reservations, to a competing manufacturer of semiconductor equipment.  We presently anticipate that this company will offer laser-annealing tools to the semiconductor industry that will compete with our offerings.

 

Another potential advanced annealing solution utilizes flash lamp annealing technology, or FLA.  Several companies have published papers on annealing tools that incorporate flash lamp technology in order to reduce annealing times and increase anneal temperatures.  Developers of FLA technology claim to have overcome annealing difficulties at the 65nm node.  This technique, which employs xenon flash lamps, has shown improvements over RTP in junction depth and sheet resistance, but we believe FLA will suffer from pattern-related non-uniformities and could require additional, costly processes to reduce the reflectivity of different areas within the chip or wafer.  Our proprietary laser processing solution has been specifically developed to provide junction annealing on near-instantaneous time-scales, while maintaining low sheet resistance.  Laser spike annealing, the first implementation of laser processing, activates dopants in the microsecond-to-millisecond time frame without melting.  Our research indicates that, at temperatures just below the melting point of silicon, time durations in the microsecond to millisecond range, are required to achieve full activation, and dopant diffusion is minimal.

 

Additionally, competition to our laser processing products may come from other laser annealing tools, including those presently being used by the flat panel display industry to re-crystallize silicon.  Manufacturers of these tools may try to extend the use of their technologies to semiconductor device applications.

 

We believe that in order to be competitive, we will need to continue to invest significant financial resources in new product development, new features and enhancements to existing products, the introduction of new stepper systems in our served markets on a timely basis, and maintaining customer service and support centers worldwide.  In marketing our products, we may also face competition from vendors employing other technologies.  In addition, increased competitive pressure has led to intensified price-based competition in certain of our markets, resulting in lower prices and margins.  Should these competitive trends continue, our business, financial condition and operating results may be materially adversely affected.

 

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We sell our products primarily to a limited number of customers and to customers in a limited number of industries, which subjects us to increased risks related to the business performance of our customers, and therefore their need for our products, and the business cycles of the markets into which we sell.

 

Historically, we have sold a substantial portion of our systems to a limited number of customers.  In the first quarter of 2006, our top five customers accounted for 71% of our total system sales.  In 2005 and 2004, Intel Corporation accounted for 13% and 10% of our net sales.  We expect that sales to a relatively few customers will continue to account for a high percentage of our net sales in the foreseeable future and believe that our financial results depend in significant part upon the success of these major customers and our ability to meet their future capital equipment needs.  Although the composition of the group comprising our largest customers may vary from period to period, the loss of a significant customer or any reduction in orders by a significant customer, including reductions due to market, economic or competitive conditions in the semiconductor, semiconductor packaging or nanotechnology industries or in the industries that manufacture products utilizing integrated circuits, thin film heads or other nanotechnology components, would likely have a material adverse effect on our business, financial condition and results of operations.  Our ability to maintain or increase our sales in the future depends, in part, on our ability to obtain orders from new customers as well as the financial condition and success of our existing customers, the semiconductor and nanotechnology industries and the economy in general.

 

In addition to the business risks associated with dependence on a few major customers, these significant customer concentrations have in the past resulted in significant concentrations of accounts receivable.  These significant and concentrated receivables expose us to additional risks, including the risk of default by one or more customers representing a significant portion of our total receivables.  If we were required to take additional accounts receivable reserves, our business, financial condition and results of operations would be materially adversely affected.

 

On a market application basis, sales to the semiconductor industry, primarily for advanced packaging applications, accounted for approximately 95% and 63% of system revenue for the first three months of 2006 and 2005, respectively.  During the first quarter of 2006 and 2005, approximately 5% and 37%, respectively, of our systems revenue was derived from sales to nanotechnology manufacturers, including micro systems, thin film head and optical device manufacturers.  Our future operating results and financial condition would be materially adversely impacted by a downturn in any of these market segments, or by loss of market share in any of these segments.  A growing portion of our backlog of system orders is comprised of laser spike annealing tools.  To date, we have limited experience with this technology.  Should significant demand not materialize, due to technical, production, market, or other factors, our business, financial position and results of operations would be materially adversely impacted.

 

We rely on a limited number of outside suppliers and subcontractors to manufacture certain components and subassemblies, and on single or a limited group of outside suppliers for certain materials for our products, which could result in our inability to obtain an adequate supply of required components due to the suppliers’ failure or inability to provide such components in a timely manner, or at all, and reduced control over pricing and timely delivery of components and materials, any of which could adversely affect our results of operations.

 

Our manufacturing activities consist of assembling and testing components and subassemblies, which are then integrated into finished systems.  We rely on a limited number of outside suppliers and subcontractors to manufacture certain components and subassemblies.  We order one of the most critical components of our technology, the glass for our 1X lenses, from external suppliers.  We design the 1X lenses and provide the lens specifications and the glass to other suppliers, who then grind and polish the lens elements.  We then assemble and test the optical 1X lenses.

 

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We procure some of our other critical systems’ components, subassemblies and services from single outside suppliers or a limited group of outside suppliers in order to ensure overall quality and timeliness of delivery.  Many of these components and subassemblies have significant production lead times.  To date, we have been able to obtain adequate services and supplies of components and subassemblies for our systems in a timely manner.  However, disruption or termination of certain of these sources could have a significant adverse impact on our ability to manufacture our systems.  This, in turn, would have a material adverse effect on our business, financial condition and results of operations.  Our reliance on a sole supplier or a limited group of suppliers and our reliance on subcontractors involve several risks, including a potential inability to obtain an adequate supply of required components due to the suppliers’ failure or inability to provide such components in a timely manner, or at all, and reduced control over pricing and timely delivery of components.  Although the timeliness, yield and quality of deliveries to date from our subcontractors have been acceptable, manufacture of certain of these components and subassemblies is an extremely complex process, and long lead-times are required.  Any inability to obtain adequate deliveries or any other circumstance that would require us to seek alternative sources of supply or to manufacture such components internally could delay our ability to ship our products, which could damage relationships with current and prospective customers and have a material adverse effect on our business, financial condition and results of operations.

 

The semiconductor industry historically has been highly cyclical and has experienced periods of oversupply, which has in turn affected the market for semiconductor equipment such as ours and which could adversely affect our results of operations during such periods.

 

Our business depends in significant part upon capital expenditures by manufacturers of semiconductors, advanced packaging semiconductors and nanotechnology components, including thin film head magnetic recording devices, which in turn depend upon the current and anticipated market demand for such devices and products utilizing such devices.  The semiconductor industry historically has been highly cyclical and has experienced recurring periods of oversupply.  This has, from time to time, resulted in significantly reduced demand for capital equipment including the systems manufactured and marketed by us.  We believe that markets for new generations of semiconductors and semiconductor packaging will also be subject to similar fluctuations.  Our business and operating results would be materially adversely affected by downturns or slowdowns in the semiconductor packaging market or by loss of market share.  Accordingly, we may not be able to achieve or maintain our current or prior level of sales.  We attempt to mitigate the risk of cyclicality by participating in multiple markets including semiconductor, semiconductor packaging, and nanotechnology sectors, as well as diversifying into new markets such as laser-based annealing for implant activation and other applications.  Despite such efforts, when one or more of such markets experiences a downturn or a situation of excess capacity, our net sales and operating results are materially adversely affected.

 

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Our industry is subject to rapid technological change and product innovation, which could result in our technologies and products being replaced by those of our competitors, which would adversely affect our business and results of operations.

 

The semiconductor and nanotechnology manufacturing industries are subject to rapid technological change and new product introductions and enhancements.  Our ability to be competitive in these and other markets will depend, in part, upon our ability to develop new and enhanced systems and related software tools, and to introduce these systems and related software tools at competitive prices and on a timely and cost-effective basis to enable customers to integrate them into their operations either prior to or as they begin volume product manufacturing.  We will also be required to enhance the performance of our existing systems and related software tools.  Our success in developing new and enhanced systems and related software tools depends upon a variety of factors, including product selection, timely and efficient completion of product design, timely and efficient implementation of manufacturing and assembly processes, product performance in the field and effective sales and marketing.  Because new product development commitments must be made well in advance of sales, new product decisions must anticipate both future demand and the technology that will be available to meet that demand.  We may not be successful in selecting, developing, manufacturing or marketing new products and related software tools or enhancing our existing products and related software tools.  Any such failure would materially adversely affect our business, financial condition and results of operations.

 

Because of the large number of components in our systems, significant delays can occur between a system’s introduction and our commencement of volume production of such systems.  We have experienced delays from time to time in the introduction of, and technical and manufacturing difficulties with, certain of our systems and enhancements and related software features and options, and may experience delays and technical and manufacturing difficulties in future introductions or volume production of new systems or enhancements and related software features and options.

 

We may encounter additional technical, manufacturing or other difficulties that could further delay future introductions or volume production of systems or enhancements.  Our inability to complete the development or meet the technical specifications of any of our systems or enhancements and related software tools, or our inability to manufacture and ship these systems or enhancements and related software tools in volume and in time to meet the requirements for manufacturing the future generation of semiconductor or nanotechnology devices would materially adversely affect our business, financial condition and results of operations.  In addition, we may incur substantial unanticipated costs to ensure the functionality and reliability of our products early in the products’ life cycles.  If new products have reliability or quality problems, reduced orders or higher manufacturing costs, delays in customer acceptance, revenue recognition and collecting accounts receivable and additional service and warranty expenses may result.  Any of such events may materially adversely affect our business, financial condition and results of operations.

 

A substantial portion of our sales is outside of the United States, which subjects us to risks related to customer service, installation, foreign economic and political stability, uncertain regulatory and tax rules, and foreign exchange rate fluctuations, all of which make it more difficult to operate our business.

 

International sales accounted for approximately 60% and 74% of total net sales for the three months ended April 1, 2006 and April 2, 2005, respectively.  We anticipate that international sales, which typically have lower gross margins than domestic sales, principally due to increased competition and higher field service and support costs, will continue to account for a significant portion of total net sales.  As a result, a significant portion of our net sales will continue to be subject to certain risks, including unexpected changes in regulatory requirements; difficulty in satisfying existing regulatory requirements; exchange rate fluctuations; tariffs and other barriers; political and economic instability; difficulties in accounts receivable collections; natural disasters; difficulties in staffing and managing foreign subsidiary and branch operations; and potentially adverse tax consequences.

 

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Although we generally transact our international sales in U.S. dollars, international sales expose us to a number of additional risk factors, including fluctuations in the value of local currencies relative to the U.S. dollar, which, in turn, impact the relative cost of ownership of our products and may further impact the purchasing ability of our international customers.  However, in Japan, we have direct sales operations and orders are often denominated in Japanese yen.  This may subject us to a higher degree of risk from currency fluctuations.  We attempt to mitigate this exposure through the use of foreign currency forward exchange contracts.  We are also subject to the risks associated with the imposition of legislation and regulations relating to the import or export of semiconductors and nanotechnology products.  We cannot predict whether the United States or any other country will implement changes to quotas, duties, taxes or other charges or restrictions upon the importation or exportation of our products.  These factors, or the adoption of restrictive policies, may have a material adverse effect on our business, financial condition and results of operations.

 

We are dependent on our key personnel, especially Mr. Zafiropoulo, our Chief Executive Officer, and our business and results of operations would be adversely affected if we were to lose our key employees.

 

Our future operating results depend, in significant part, upon the continued contributions of key personnel, many of whom would be difficult to replace.  Most of our employees are employed “at will.”  We have entered into employment agreements with only a limited number of our employees, including our Chief Executive Officer, President, Chief Financial Officer and Senior Vice President World-wide Sales and Customer Operations.   Some of these agreements contain vesting acceleration and severance payment provisions that could result in significant costs or charges to us should the employee be terminated without cause, die or have a disability.  We do not maintain any life insurance on any of our key people.  The loss of key personnel could have a material adverse effect on our business, financial condition and results of operations.  In addition, our future operating results depend in significant part upon our ability to attract and retain other qualified management, manufacturing, technical, sales and support personnel for our operations.  There are only a limited number of persons with the requisite skills to serve in these positions and it may become increasingly difficult for us to hire such personnel over time.  At times, competition for such personnel has been intense, particularly in the San Francisco Bay Area where we maintain our headquarters and principal operations.  We may not be successful in attracting or retaining such personnel in the future.  The failure to attract or retain such persons would materially adversely affect our business, financial condition and results of operations.

 

Changes in financial accounting standards or policies in the past have affected, and in the future may affect, our reported results of operations.

 

We prepare our financial statements in conformity with accounting principles generally accepted in the United States, or U.S. GAAP.  These principles are subject to interpretation by the Financial Accounting Standards Board (FASB), the American Institute of Certified Public Accountants (AICPA), the Securities and Exchange Commission (SEC) and various bodies formed to interpret and create appropriate accounting policies.  A change in those policies can have a significant effect on our reported results and may affect our reporting of transactions completed before a change is announced.

 

Accounting policies affecting many other aspects of our business, including rules relating to revenue recognition, off-balance sheet transactions, employee stock options, restructurings, asset disposals and asset retirement obligations, intangible assets, derivative and other financial instruments, and in-process research and development charges, have recently been revised or are under review.  Changes to those rules or the questioning of how we interpret or implement those rules may have a material adverse effect on our reported financial results or on the way we conduct business.  In addition, our preparation of financial statements in accordance with U.S. GAAP requires that we make estimates and assumptions that affect the recorded amounts of assets and liabilities, disclosure of those assets and liabilities at the date of the financial statements and the recorded amounts of expenses during the reporting period.  A change in the facts and circumstances surrounding those estimates could result in a change to our estimates and could impact our future operating results.

 

Changes in securities laws and listing standards, in particular those that have resulted from the passage of the Sarbanes-Oxley Act of 2002 and related rules and regulations, have increased our legal and financial costs.  We expect to continue to spend significant resources to comply with these requirements.

 

30



 

The Sarbanes-Oxley Act of 2002 required changes in our corporate governance, public disclosure and compliance practices.  The number of rules and regulations applicable to us has increased, and will continue to increase, our legal and financial compliance cost and has made some activities more difficult, such as requiring stockholder approval of new option plans.  In addition, we have incurred, and expect to continue to incur, significant costs in connection with compliance with Section 404 of the Sarbanes-Oxley Act regarding internal controls over financial reporting.  We incurred significant costs to achieve initial compliance with Section 404, and we expect ongoing annual costs to maintain compliance to also be substantial.  We also expect these developments to make it more difficult and more expensive to obtain director and officer liability insurance, and we may be required to accept reduced coverage or incur substantially higher costs to obtain coverage.  These developments could make it more difficult for us to attract and retain qualified members of our board of directors, particularly to serve on our audit committee, and qualified executive officers.  In addition, in connection with our Section 404 certification process, we may identify from time to time deficiencies in our internal controls.  Any material weakness or deficiency in our internal controls over financial reporting could materially and negatively impact our reported financial results and the market price of our stock could significantly decline.  Additionally, adverse publicity related to the disclosure of a material weakness or deficiency in internal controls over financial reporting could have a negative impact on our reputation, business and stock price.

 

Our shareholder rights plan, equity incentive plans, certain provisions of our Certificate of Incorporation and Bylaws, and Delaware law may discourage third parties from pursuing a change of control transaction with us.

 

Certain provisions of our Certificate of Incorporation, equity incentive plans, Shareholder Rights Plan, licensing agreements, Bylaws and Delaware law may discourage certain transactions involving a change in control of our company.  In addition to the foregoing, our classified board of directors, the shareholdings of Ultratech’s officers, directors and persons or entities that may be deemed affiliates and the ability of the Board of Directors to issue “blank check” preferred stock without further stockholder approval could have the effect of delaying, deferring or preventing us from experiencing a change in control and may adversely affect the voting and other rights of holders of our common stock.

 

Our stock price has experienced significant volatility in the past and we expect this to continue in the future as a result of many factors, some of which could be unrelated to our operating performance.  Such volatility can have a major impact on the number of shares subject to outstanding stock options that are included in calculating our earnings per share.

 

We believe that factors such as announcements of developments related to our business, fluctuations in our operating results, a shortfall in revenue or earnings, changes in analysts’ expectations, general conditions in the semiconductor and nanotechnology industries or the worldwide or regional economies, sales of our securities into the marketplace, an outbreak or escalation of hostilities, announcements of technological innovations or new products or enhancements by us or our competitors, developments in patents or other intellectual property rights and developments in our relationships with our customers and suppliers could cause the price of our common stock to fluctuate, perhaps substantially.  The market price of our common stock has fluctuated significantly in the past and we expect it to continue to experience significant fluctuations in the future, including fluctuations that may be unrelated to our performance.

 

As of April 1, 2006, we had options to purchase approximately $6.2 million shares of our common stock outstanding.  Among other determinants, the market price of our stock has a major bearing on the number of stock options outstanding that are included in the weighted-average shares used in determining our net income (loss) per share.  During periods of extreme volatility, the impact of higher stock prices can have a materially dilutive effect on our net income per share.   Additionally, options are excluded from the calculation of net loss per share when we have a net loss or when the exercise price of the stock option is greater than the average market price of our common stock, as the impact of the stock options would be anti-dilutive.

 

Our results of operations and business could be adversely affected by wars and other military action, as well as terrorist attacks and threats and government responses thereto, especially if any such actions were directed at us or our facilities or customers.

 

31



 

Terrorist attacks in the United States and elsewhere, government responses thereto, and military actions in Iraq, Afghanistan and elsewhere, may disrupt our operations or those of our customers and suppliers and may affect the availability of materials needed to manufacture our products or the means to transport those materials to manufacturing facilities and finished products to customers.  In addition, any of these events could increase volatility in the United States and world financial markets, which may depress the price of our common stock and may limit the capital resources available to us or our customers or suppliers, which could result in decreased orders from customers, less favorable financing terms from suppliers, and scarcity or increased costs of materials and components of our products.  Additionally, terrorist attacks directly upon us may significantly disrupt our ability to conduct our business.  Any of these occurrences could have a significant impact on our operating results, revenues and costs and may result in increased volatility of the market price of our common stock.

 

Item 2.         Unregistered Sales of Equity Securities and Use of Proceeds .

 

None.

 

Item 3.         Defaults upon Senior Securities.

 

None.

 

Item 4.         Submission of Matters to a Vote of Security Holders.

 

None.

 

Item 5.         Other Information.

 

None.

 

Item 6.         Exhibits

 

10.1               Description of Long-Term Incentive Compensation Plan.  (Incorporated by reference to Item 1.01 of our Current Report on Form 8-K filed on February 3, 2006 (Commission File No. 0-22248)

 

10.2               Employment Agreement between Registrant and Mr. Rick Friedman, Senior Vice President, World-wide Sales and Customer Services.  (Incorporated by reference to Exhibit 10.1 of our Current Report on Form 8-K filed on February 3, 2006 (Commission File No. 0-22248)

 

10.3               Form of Restricted Stock Unit Issuance Agreement for Executive Officers with Employment Agreements

 

10.4               Form of Restricted Stock Unit Issuance Agreement for All Other Executive Officers

 

31.1               Certification of Chief Executive Officer required pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

 

31.2               Certification of Chief Financial Officer required pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

 

32.1               Certification of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

 

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SIGNATURES

 

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

 

ULTRATECH, INC.

(Registrant)

 

 

 

 

Date:

May 5, 2006

 

By:

/s/Bruce R. Wright

 

 

Bruce R. Wright

 

 

Senior Vice President, Finance and Chief Financial

 

 

Officer (Duly Authorized Officer and Principal

 

 

Financial and Accounting Officer)

 

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EXHIBIT INDEX

 

10.1

 

Description of Long-Term Incentive Compensation Plan. (Incorporated by reference to Item 1.01 of our Current Report on Form 8-K filed on February 3, 2006 (Commission File No. 0-22248)

 

 

 

10.2

 

Employment Agreement between Registrant and Mr. Rick Friedman, Senior Vice President, World-wide Sales and Customer Services. (Incorporated by reference to Exhibit 10.1 of our Current Report on Form 8-K filed on February 3, 2006 (Commission File No. 0-22248)

 

 

 

10.3

 

Form of Restricted Stock Unit Issuance Agreement for Executive Officers with Employment Agreements

 

 

 

10.4

 

Form of Restricted Stock Unit Issuance Agreement for All Other Executive Officers

 

 

 

31.1

 

Certification of Chief Executive Officer required pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

 

 

 

31.2

 

Certification of Chief Financial Officer required pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

 

 

 

32.1

 

Certification of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

 

34



Exhibit 10.3

 

EXECUTIVE OFFICER MASTER FORM

 

ULTRATECH,  INC.

 

RESTRICTED STOCK UNIT ISSUANCE AGREEMENT

 

RECITALS

 

A.             The Board has adopted the Plan for the purpose of retaining the services of selected Employees and consultants and other independent advisors who provide services to the Corporation (or any Parent or Subsidiary).

 

B.             Participant is to render valuable services to the Corporation (or a Parent or Subsidiary), and this Agreement is executed pursuant to, and is intended to carry out the purposes of, the Plan in connection with the Corporation’s issuance of shares of Common Stock to the Participant under the Stock Issuance Program.

 

C.             All capitalized terms in this Agreement shall have the meaning assigned to them in the attached Appendix A.

 

NOW, THEREFORE , it is hereby agreed as follows:

 

1.              Grant of Restricted Stock Units. The Corporation hereby awards to the Participant, as of the Award Date, Restricted Stock Units under the Plan. Each Restricted Stock Unit which vests during the Participant’s period of Service shall entitle the Participant to receive one share of Common Stock on the specified issuance date. The number of shares of Common Stock subject to the awarded Restricted Stock Units, the applicable vesting schedule for those shares, the date on which those vested shares shall become issuable to Participant and the remaining terms and conditions governing the award (the “Award”) shall be as set forth in this Agreement.

 

AWARD SUMMARY

 

Award Date:                                                          , 200    

 

Number of Shares
Subject to Award
:
                                        shares of Common Stock (the “Shares”)

 

Vesting Schedule :                 The Shares shall vest in a series of                      (    ) successive equal                      installments upon the Participant’s completion of each               of Service over the                    (     )-year period measured from                        . However, the Shares may be subject to accelerated vesting in whole or in part in accordance with the provisions of Paragraphs 4 and 6 of this Agreement.

 



 

Issuance Schedule                The Shares in which the Participant vests in accordance with the foregoing Vesting Schedule will become issuable on the date (the “Issue Date”) upon which occurs the earliest of the following dates or events: (i)                  , 20   , (ii) the date of the Participant’s Separation from Service or (iii) the closing date of a Change in Control. The actual issuance of the Shares shall be subject to the Corporation’s collection of all applicable Withholding Taxes and shall be effected on the applicable Issue Date or as soon as administratively practicable thereafter, but in no event later than the close of the calendar year in which such Issue Date occurs or (if later) the fifteenth (15th) day of the third calendar month following such Issue Date. The procedures pursuant to which the applicable Withholding Taxes are to be collected are set forth in Paragraph 8 of this Agreement.

 

2.              Limited Transferability. Prior to actual receipt of the Shares which vest and become issuable hereunder, the Participant may not transfer any interest in the Award or the underlying Shares. Any Shares which vest hereunder but which otherwise remain unissued at the time of the Participant’s death may be transferred pursuant to the provisions of the Participant’s will or the laws of inheritance or to the Participant’s designated beneficiary or beneficiaries of this Award. The Participant may also direct the Corporation to issue the stock certificates for any Shares which in fact vest and become issuable under the Award during his or her lifetime to one or more designated family members or a trust established for the Participant and/or his or her family members. The Participant may make such a beneficiary designation or certificate directive at any time by filing the appropriate form with the Plan Administrator or its designee.

 

3.              Cessation of Service. Except as otherwise provided in Paragraph 4 below, should the Participant cease Service for any reason prior to vesting in one or more Shares subject to this Award, then the Award will be immediately cancelled with respect to those unvested Shares, and the number of Restricted Stock Units will be reduced accordingly. The Participant shall thereupon cease to have any right or entitlement to receive any Shares under those cancelled units. Should the Participant’s Service terminate by reason of a Termination for Cause, then this Award will be immediately cancelled with respect to all the Restricted Stock Units subject to such Award, whether vested or unvested at the time, and the Participant shall thereupon cease to have any right or entitlement to receive any Shares under this Award and the cancelled Restricted Stock Units.

 

4.              Accelerated Vesting . The following special vesting acceleration provisions shall be in effect for the Award and shall be in addition to the vesting acceleration provisions of Paragraph 6 of this Agreement:

 

(a)            Should the Participant terminate Service by reason of Retirement(1) or should the Participant’s Service terminate at or after attainment of age sixty-five (65) by

 


(1) Not applicable to grants made to the Chief Executive Officer.

 

2



 

reason of death, Disability or Involuntary Termination (other than a Termination for Cause), then all the Shares at the time subject to this Award shall immediately vest.

 

(b)            Should the Participant’s Service terminate prior to attainment of age sixty-five (65) by reason of his or her death, Disability or Involuntary Termination (other than a Termination for Cause), then the Participant shall immediately vest in the additional number of Shares (not to exceed one hundred percent (100%) of the unvested Shares at that time) equal to the greater of (i) twenty-five percent of the total Shares subject to this Award or (ii) the additional number of Shares (if any) in which the Participant would have been vested at the time of such termination had the Shares subject to this Award vested in a series of               (        ) successive equal                  installments over the duration of the Vesting Schedule.

 

(c)            The Shares which vest on an accelerated basis pursuant to this Paragraph 4, together with any other Shares in which the Participant is at the time vested, shall be issued on the date of the Participant’s Separation from Service or as soon as administratively practicable thereafter, subject to the Corporation’s collection of the applicable Withholding Taxes, but in no event later than the close of the calendar year in which such Separation from Service occurs or (if later) the fifteenth (15th) day of the third calendar month following the date of such Separation from Service.

 

5.              Stockholder Rights and Dividend Equivalents

 

(a)            The holder of this Award shall not have any stockholder rights, including voting or dividend rights, with respect to the Shares subject to the Award until the Participant becomes the record holder of those Shares following their actual issuance upon the Corporation’s collection of the applicable Withholding Taxes.

 

(b)            Notwithstanding the foregoing, should any dividend or other distribution, whether regular or extraordinary and whether payable in cash, securities or other property, be declared and paid on the outstanding Common Stock while one or more Shares remain subject to this Award (i.e., those Shares are not otherwise issued and outstanding for purposes of entitlement to the dividend or distribution), then a special book account shall be established for the Participant and credited with a phantom  dividend equal to the actual dividend or distribution which would have been paid on the Shares at the time subject to this Award had those Shares been issued and outstanding and entitled to that dividend or distribution. The phantom dividend equivalents so credited shall vest at the same time as the Shares to which they relate and shall be distributed to the Participant (in the same form the actual dividend or distribution was paid to the holders of the Common Stock entitled to that dividend or distribution) concurrently with the issuance of those Shares on the applicable Issue Date. However, each such distribution shall be subject to the Corporation’s collection of the Withholding Taxes applicable to that distribution.

 

6.              Change of Control.

 

(a)            Any Restricted Stock Units subject to this Award at the time of a Change in Control will vest immediately prior to the closing of that Change in Control. The

 

3



 

Shares subject to those vested units, together with any other Shares in which the Participant is at that time vested, will be issued on the Issue Date triggered by the Change in Control (or otherwise converted into the right to receive the same consideration per share of Common Stock payable to the other stockholders of the Corporation in consummation of that Change in Control and distributed at the same time as such stockholder payments), subject to the Corporation’s collection of the applicable Withholding Taxes pursuant to the provisions of Paragraph 8.

 

(b)            This Agreement shall not in any way affect the right of the Corporation to adjust, reclassify, reorganize or otherwise change its capital or business structure or to merge, consolidate, dissolve, liquidate or sell or transfer all or any part of its business or assets.

 

7.              Adjustment in Shares. Should any change be made to the Common Stock by reason of any stock split, stock dividend, recapitalization, combination of shares, exchange of shares or other change affecting the outstanding Common Stock as a class without the Corporation’s receipt of consideration, appropriate adjustments shall be made to the total number and/or class of securities issuable pursuant to this Award in order to reflect such change and thereby preclude a dilution or enlargement of benefits hereunder.

 

8.              Collection of Withholding Taxes.

 

(a)            The Corporation shall collect the employee portion of the FICA taxes (Social Security and Medicare) with respect to the Shares at the time those Shares vest hereunder. The FICA taxes shall be based on the Fair Market Value of the Shares on their vesting date. The Corporation shall also collect the employee portion of the FICA taxes with respect to any phantom dividends at the time those phantom dividends vest hereunder. The FICA taxes shall be based on the cash amount and the fair market value of any other property underlying the phantom dividends on the vesting date. Unless the Participant delivers a separate check payable to the Corporation in the amount of the FICA taxes required to be withheld from the Participant, the Corporation shall withhold those taxes from the Participant’s wages. However, if the Participant is at the time an executive officer of the Corporation, then such withholding taxes must be collected from the Participant through delivery of his or her separate check not later than the vesting date.

 

(b)            The Corporation shall collect the federal, state and local income taxes required to be withheld with respect to the distribution of the phantom dividend equivalents to the Participant by withholding a portion of that distribution equal to the amount of those taxes, with the cash portion of the distribution to be the first portion so withheld. Until such time as the Corporation provides the Participant with notice to the contrary, the Corporation shall collect the federal, state and local income taxes required to be withheld with respect to the issuance of the vested Shares hereunder through an automatic Share withholding procedure pursuant to which the Corporation will withhold, at the time of such issuance, a portion of the  Shares with a Fair Market Value (measured as of the issuance date) equal to the amount of those taxes  (the “Share Withholding Method”); provided, however , that the amount of any Shares so withheld shall not exceed the amount necessary to satisfy the Corporation’s required tax withholding obligations using the minimum statutory withholding rates for federal and state tax purposes that are

 

4



 

applicable to supplemental taxable income. Participant shall be notified in writing in the event such Share Withholding Method is no longer available.

 

(c)            Should any Shares be distributed at time the Share Withholding Method is not available, then the federal, state and local income taxes required to be withheld with respect to those Shares shall be collected from the Participant through either of the following alternatives:

 

              the Participant’s delivery of his or her separate check payable to the Corporation in the amount of such Withholding Taxes, or

 

              the use of the proceeds from a next-day sale of the Shares issued to the Participant, provided and only if (i) such a sale is permissible under the Corporation’s trading policies governing the sale of Common Stock, (ii) the Participant makes an irrevocable commitment, on or before the Issue Date for those Shares, to effect such sale of the Shares and (iii) the transaction is not otherwise deemed to constitute a prohibited loan under Section 402 of the Sarbanes-Oxley Act of 2002.

 

(d)            Except as otherwise provided in Paragraph 6 and Paragraph 8(b), the settlement of all Restricted Stock Units which vest under the Award shall be made solely in shares of Common Stock. In no event, however, shall any fractional shares be issued. Accordingly, the total number of shares of Common Stock to be issued pursuant to the Award shall, to the extent necessary, be rounded down to the next whole share in order to avoid the issuance of a fractional share.

 

9.              Deferred Issue Date. Notwithstanding any provision to the contrary in this Agreement, no Shares which become issuable by reason of the Participant’s Separation from Service shall actually  be issued to a Participant prior to the earlier of (i) the expiration of the six (6)-month period measured from the date of his or her Separation from Service or (ii) the date of his or her death, if  the Participant is deemed at the time of such Separation from Service to be a “key employee” within the meaning of that term under Code Section 416(i)  and such delayed issuance is otherwise required in order to avoid a prohibited distribution under Code Section 409A(a)(2). Upon the expiration of the applicable Code Section 409A(a)(2) deferral period, all Shares deferred pursuant to this Paragraph 9 shall be issued in a lump sum to the Participant.

 

10.            Benefit Limit. In the event the vesting and issuance of the Shares subject to this Award would otherwise constitute a parachute payment under Code Section 280G, then the vesting and issuance of those Shares shall be subject to reduction to the extent necessary  to assure that the number of Shares which vest and are issued under this Award will be limited to the greater of (i)  the number of Shares which can vest and be issued without triggering a parachute payment under Code Section 280G or (ii)  the maximum number of Shares which can vest and be issued under this Award so as to provide the Participant with the greatest after-tax amount of such vested and issued Shares after taking into account any excise tax the Participant may incur under Code Section 4999 with respect to those Shares and any other benefits or payments to which the Participant may be entitled in connection with any change in control or ownership of the Corporation or the subsequent termination of the Participant’s Service.

 

5



 

[10.          Benefit Limit. In the event the vesting and issuance of the Shares subject to this Award would constitute a parachute payment under Code Section 280G, the Participant shall become entitled to the tax gross-up payment provided under Section 8.3 of his Employment Agreement, to the extent such agreement in effect at that time. Otherwise, the vesting and issuance of those Shares shall be subject to reduction to the extent necessary  to assure that the number of Shares which vest and are issued under this Award will be limited to the greater of (i)  the number of Shares which can vest and be issued without triggering a parachute payment under Code Section 280G or (ii)  the maximum number of Shares which can vest and be issued under this Award so as to provide the Participant with the greatest after-tax amount of such vested and issued Shares after taking into account any excise tax the Participant may incur under Code Section 4999 with respect to those Shares and any other benefits or payments to which the Participant may be entitled in connection with any change in control or ownership of the Corporation or the subsequent termination of the Participant’s Service.]  ALTERNATIVE

 

11.            Compliance with Laws and Regulations. The issuance of shares of Common Stock pursuant to the Award shall be subject to compliance by the Corporation and Participant with all applicable requirements of law relating thereto and with all applicable regulations of any stock exchange (or the Nasdaq National Market, if applicable) on which the Common Stock may be listed for trading at the time of such issuance.

 

12.            Notices. Any notice required to be given or delivered to the Corporation under the terms of this Agreement shall be in writing and addressed to the Corporation at its principal corporate offices. Any notice required to be given or delivered to Participant shall be in writing and addressed to Participant at the address indicated below Participant’s signature line on this Agreement. All notices shall be deemed effective upon personal delivery or upon deposit in the U.S. mail, postage prepaid and properly addressed to the party to be notified.

 

13.            Successors and Assigns. Except to the extent otherwise provided in this Agreement, the provisions of this Agreement shall inure to the benefit of, and be binding upon, the Corporation and its successors and assigns and Participant, Participant’s assigns, the legal representatives, heirs and legatees of Participant’s estate and any beneficiaries of the Award designated by Participant.

 

14.            Construction. This Agreement and the Award evidenced hereby are made and granted pursuant to the Plan and are in all respects limited by and subject to the terms of the Plan. All decisions of the Plan Administrator with respect to any question or issue arising under the Plan or this Agreement shall be conclusive and binding on all persons having an interest in the Award.

 

15.            Governing Law. The interpretation, performance and enforcement of this Agreement shall be governed by the laws of the State of California without resort to that State’s conflict-of-laws rules.

 

6



 

16.            Employment at Will. Nothing in this Agreement or in the Plan shall confer upon Participant any right to continue in Service for any period of specific duration or interfere with or otherwise restrict in any way the rights of the Corporation (or any Parent or Subsidiary employing or retaining Participant) or of Participant, which rights are hereby expressly reserved by each, to terminate Participant’s Service at any time for any reason, with or without cause.

 

IN WITNESS WHEREOF , the parties have executed this Agreement on the day and year first indicated above.

 

 

ULTRATECH, INC.

 

 

 

 

 

By:

 

 

 

Title:

 

 

 

 

 

 

 

PARTICIPANT

 

 

 

 

 

Signature:

 

 

 

Address:

 

 

 

 

 

 

 

7



 

APPENDIX A

DEFINITIONS

 

The following definitions shall be in effect under the Agreement:

 

A.             Agreement shall mean this Restricted Stock Unit Issuance Agreement.

 

B.             Award shall mean the award of Restricted Stock Units made to the Participant pursuant to the terms of this Agreement.

 

C.             Award Date shall mean the date the Restricted Stock Units are awarded to Participant pursuant to the Agreement and shall be the date indicated in Paragraph 1 of the Agreement.

 

D.             Board shall mean the Corporation’s Board of Directors.

 

E.              Change in Control shall mean a change in ownership or control of the Corporation effected through any of the following transactions:

 

(i)             a merger or consolidation in which the Corporation is not the surviving entity and in which securities possessing more than fifty percent (50%) of the total combined voting power of the Corporation’s outstanding securities are transferred to person or persons different from the persons holding those securities immediately prior to such merger or consolidation,

 

(ii)            the sale, transfer or other disposition of all or substantially all of the assets of the Corporation in complete liquidation or dissolution of the Corporation, or

 

(iii)           any reverse merger in which the Corporation is the surviving entity but in which securities possessing more than fifty percent (50%) of the total combined voting power of the Corporation’s outstanding securities are transferred to person or persons different from the persons holding those securities immediately prior to such merger.

 

(iv)           the acquisition, directly or indirectly by any person or related group of persons (other than the Corporation or a person that directly or indirectly controls, is controlled by, or is under common control with, the Corporation), of beneficial ownership (within the meaning of Rule 13d-3 of the 1934 Act) of securities possessing more than fifty percent (50%) of the total combined voting power of the Corporation’s outstanding securities pursuant to a tender or exchange offer made directly to the Corporation’s stockholders, or

 

A-1



 

(v)            a change in the composition of the Board over a period of twelve (12) consecutive months or less such that a majority of the Board members ceases, by reason of one or more contested elections for Board membership, to be comprised of individuals who either (A) have been Board members continuously since the beginning of such period or (B) have been elected or nominated for election as Board members during such period by at least a majority of the Board members described in clause (A) who were still in office at the time the Board approved such election or nomination.

 

F.              Code shall mean the Internal Revenue Code of 1986, as amended.

 

G.             Common Stock shall mean shares of the Corporation’s common stock.

 

H.             Corporation shall mean Ultratech, Inc., a Delaware corporation, and any successor corporation to all or substantially all of the assets or voting stock of Ultratech, Inc. which shall by appropriate action adopt the Plan.

 

I.               Disability shall mean the Participant’s inability, because of physical or mental illness or injury, to perform his customary duties as an executive officer of the Corporation, with or without reasonable accommodation, and the continuation of such disabled condition for a period of one hundred eighty (180) continuous days as determined by an approved medical doctor. For purposes hereof, an approved medical doctor shall mean a doctor selected by the Corporation and the Participant. If the Corporation and the Participant cannot agree on a medical doctor, each shall select a medical doctor and the two doctors shall select a third who shall be the approved medical doctor for this purpose.

 

J.              Employee shall mean an individual who is in the employ of the Corporation (or any Parent or Subsidiary), subject to the control and direction of the employer entity as to both the work to be performed and the manner and method of performance.

 

K.             Employment Agreement shall mean the written employment agreement between the Corporation and the Participant in effect on the Award Date.

 

L.              Fair Market Value per share of Common Stock on any relevant date shall be determined in accordance with the following provisions:

 

(i)             If the Common Stock is not at the time listed or admitted to trading on any Stock Exchange but is traded on the Nasdaq National Market, the Fair Market Value shall be the closing selling price per share on the date in question, as such price is reported by the National Association of Securities Dealers on the Nasdaq National Market or any successor system. If there is no

 

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reported closing selling price for the Common Stock on the date in question, then the closing selling price on the last preceding date for which such quotation exists shall be determinative of Fair Market Value.

 

(ii)            If the Common Stock is at the time listed or admitted to trading on any Stock Exchange, then the Fair Market Value shall be the closing selling price per share on the date in question on that Stock Exchange, as such price is officially quoted in the composite tape of transactions on such exchange. If there is no reported sale of Common Stock on such Stock Exchange on the date in question, then the Fair Market Value shall be the closing selling price on the exchange on the last preceding date for which such quotation exists.

 

M.            Involuntary Termination shall mean the termination of the Participant’s Service which occurs by reason of:

 

(i)             such individual’s involuntary dismissal or discharge by the Corporation (or any Parent or Subsidiary) for reasons other than a Termination for Cause,  or

 

(ii)            such individual’s voluntary resignation following any of the following events without the Participant’s written consent: (A) any reduction in the aggregate level of the Participant’s annual rate of base salary, except a reduction that is part of a program applicable to all of the Corporation’s officers to reduce expenses; (B) the failure by the Corporation or any Parent or Subsidiary (or any successor to the Corporation) to comply with any material terms of the Employment Agreement or any other material agreement between the Participant and the Corporation or any Parent or Subsidiary (or any successor to the Corporation); (C) any material reduction in the nature or scope of the Participant’s duties, title, function, authority or responsibilities, subject to any limitations specified in the Employment Agreement(2); or (D) a requirement that the Participant relocate his principal office to a location that is more than sixty (60) miles from the location of his principal office determined as of the date specified in the Employment Agreement; provided , however , that none of the events specified above shall constitute grounds for an Involuntary Termination unless the Participant shall have notified the Corporation in writing describing the events which constitute grounds for such Involuntary Termination and the Corporation shall have failed to cure such event within thirty (30) days after the Corporation’s receipt of such written notice.

 

N.             1934 Act shall mean the Securities Exchange Act of 1934, as amended from time to time.

 


(2) For grants made to the Chief Executive Officer, the language will be as follows:  “(C) any material reduction in the nature or scope of the Participant’s duties, title, function, authority or responsibilities (including, for example, the Participant’s directly reporting to anyone other than the Board.”

 

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O.             Participant shall mean the person to whom the Award is made pursuant to the Agreement.

 

P.              Parent shall mean any corporation (other than the Corporation) in an unbroken chain of corporations ending with the Corporation, provided each corporation in the unbroken chain (other than the Corporation) owns, at the time of the determination, stock possessing fifty percent (50%) or more of the total combined voting power of all classes of stock in one of the other corporations in such chain.

 

Q.             Plan shall mean the Corporation’s 1993 Stock Option/Stock Issuance Plan, as amended and restated.

 

R.             Plan Administrator shall mean either the Board or a committee of the Board acting in its capacity as administrator of the Plan.

 

S.              Restricted Stock Unit shall mean each unit subject to this Award which shall entitle the Participant to receive one share of Common Stock under the Plan at a designated time following the vesting of that unit.

 

T.             Retirement shall mean the Participant’s voluntary termination from Service on or after his or her attainment of age sixty five (65) other than in connection with a Termination for Cause event

 

U.             Separation from Service shall mean the Participant’s termination of Service under circumstances which are deemed to constitute a separation from service within the meaning of Code Section 409A and the applicable Treasury Regulations thereunder.

 

V.             Service shall mean the Participant’s performance of services for the Corporation (or any Parent or Subsidiary) in the capacity of an Employee, a non-employee member of the board of directors or a consultant or independent advisor. For purposes of this Agreement, Participant shall be deemed to cease Service immediately upon the occurrence of the either of the following events: (i) Participant no longer performs services in any of the foregoing capacities for the Corporation (or any Parent or Subsidiary) or (ii) the entity for which Participant performs such services ceases to remain a Parent or Subsidiary of the Corporation, even though Participant may subsequently continue to perform services for that entity. Service shall not be deemed to cease during a period of military leave, sick leave or other personal leave approved by the Corporation; provided, however , that except to the extent otherwise required by law or expressly authorized by the Plan Administrator or the Corporation’s written leave of absence policy, no Service credit shall be given for vesting purposes for any period the Participant is on a leave of absence.

 

W.            Stock Exchange shall mean the American Stock Exchange or the New York Stock Exchange.

 

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X.             Subsidiary shall mean any corporation (other than the Corporation) in an unbroken chain of corporations beginning with the Corporation, provided each corporation (other than the last corporation) in the unbroken chain owns, at the time of the determination, stock possessing fifty percent (50%) or more of the total combined voting power of all classes of stock in one of the other corporations in such chain.

 

Y.             Termination for Cause shall mean the termination of the Participant’s Service by the Corporation (or any Parent or Subsidiary)  for one or more of the following reasons:

 

(i)             the Participant’s repeated failure to perform any essential duty of his or her position other than due to Disability or such illness or injury as would result in Disability if it continued for the one hundred eighty (180)-day period specified in the Disability definition above;

 

(ii)            the Participant’s commission of any act that constitutes gross misconduct and is injurious to the Corporation or any Parent or Subsidiary or any successor to the Corporation;

 

(iii)           the Participant’s conviction of or pleading guilty or nolo contendere to any felony involving theft, embezzlement, dishonesty or moral turpitude;

 

(iv)           the Participant’s commission of any act of fraud against, or the misappropriation of property belonging to, the Corporation or any Parent or Subsidiary or any successor to the Corporation;

 

(v)            the Participant’s commission of any act of dishonesty in connection with his or her responsibilities as an employee that is intended to result in his or her personal enrichment or the personal enrichment of his or her family or others; or

 

(vi)           the Participant’s material breach of the Employment Agreement he or she may have at the time with the Corporation or any other agreement between the Participant and the Corporation or any Parent or Subsidiary or successor to the Corporation.

 

Z.             Withholding Taxes shall mean (i) the employee portion of the federal, state and local employment taxes required to be withheld by the Corporation in connection with the vesting of the shares of Common Stock under the Award and any phantom dividend equivalents relating to those shares and (ii) the federal, state and local income taxes required to be withheld by the Corporation in connection with the issuance of those vested shares and the distribution of any phantom dividend equivalents relating to such shares.

 

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Exhibit 10.4

 

ULTRATECH, INC.

 

RESTRICTED STOCK UNIT ISSUANCE AGREEMENT

 

RECITALS

 

A.             The Board has adopted the Plan for the purpose of retaining the services of selected Employees and consultants and other independent advisors who provide services to the Corporation (or any Parent or Subsidiary).

 

B.             Participant is to render valuable services to the Corporation (or a Parent or Subsidiary), and this Agreement is executed pursuant to, and is intended to carry out the purposes of, the Plan in connection with the Corporation’s issuance of shares of Common Stock to the Participant under the Stock Issuance Program.

 

C.             All capitalized terms in this Agreement shall have the meaning assigned to them in the attached
Appendix A.

 

NOW, THEREFORE , it is hereby agreed as follows:

 

1.              Grant of Restricted Stock Units . The Corporation hereby awards to the Participant, as of the Award Date, Restricted Stock Units under the Plan. Each Restricted Stock Unit which vests during the Participant’s period of Service shall entitle the Participant to receive one share of Common Stock on the specified issuance date. The number of shares of Common Stock subject to the awarded Restricted Stock Units, the applicable vesting schedule for those shares, the date on which those vested shares shall become issuable to Participant and the remaining terms and conditions governing the award (the “Award”) shall be as set forth in this Agreement.

 

AWARD SUMMARY

 

Award Date:

                       , 200    

 

Number of Shares
Subject to Award:

 

                shares of Common Stock (the “Shares”)

 

Vesting Schedule:

The Shares shall vest in a series of          (    ) successive equal          installments upon the Participant’s completion of each          of Service over the          (    )-year period measured from         , 20    . However, the Shares may be subject to accelerated vesting in whole or in part in accordance with the provisions of Paragraphs 4 and 6 of this Agreement.

 



 

Issuance Schedule

The Shares in which the Participant vests in accordance with the foregoing Vesting Schedule will become issuable on the date (the “Issue Date”) upon which occurs the earliest of the following dates or events: (i)         20    , (ii) the date of the Participant’s Separation from Service or (iii) the closing date of a Change in Control. The actual issuance of the Shares shall be subject to the Corporation’s collection of all applicable Withholding Taxes and shall be effected on the applicable Issue Date or as soon as administratively practicable thereafter, but in no event later than the close of the calendar year in which such Issue Date occurs or (if later) the fifteenth (15th) day of the third calendar month following such Issue Date. The procedures pursuant to which the applicable Withholding Taxes are to be collected are set forth in Paragraph 8 of this Agreement.

 

2.              Limited Transferability . Prior to actual receipt of the Shares which vest and become issuable hereunder, the Participant may not transfer any interest in the Award or the underlying Shares. Any Shares which vest hereunder but which otherwise remain unissued at the time of the Participant’s death may be transferred pursuant to the provisions of the Participant’s will or the laws of inheritance or to the Participant’s designated beneficiary or beneficiaries of this Award. The Participant may also direct the Corporation to issue the stock certificates for any Shares which in fact vest and become issuable under the Award during his or her lifetime to one or more designated family members or a trust established for the Participant and/or his or her family members. The Participant may make such a beneficiary designation or certificate directive at any time by filing the appropriate form with the Plan Administrator or its designee.

 

3.              Cessation of Service . Except as otherwise provided in Paragraph 4 below, should the Participant cease Service for any reason prior to vesting in one or more Shares subject to this Award, then the Award will be immediately cancelled with respect to those unvested Shares, and the number of Restricted Stock Units will be reduced accordingly. The Participant shall thereupon cease to have any right or entitlement to receive any Shares under those cancelled units. Should the Participant’s Service terminate by reason of a Termination for Cause, then this Award will be immediately cancelled with respect to all the Restricted Stock Units subject to such Award, whether vested or unvested at the time, and the Participant shall thereupon cease to have any right or entitlement to receive any Shares under this Award and the cancelled Restricted Stock Units.

 

4.              Accelerated Vesting . The following special vesting acceleration provisions shall be in effect for the Award and shall be in addition to the vesting acceleration provisions of Paragraph 6 of this Agreement:

 

(a)            Should the Participant terminate Service by reason of Retirement or should the Participant’s Service terminate at or after attainment of age sixty-five (65) by reason of death, Permanent Disability or Involuntary Termination (other than a Termination for Cause), then all the Shares at the time subject to this Award shall immediately vest.

 

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(b)            Should the Participant’s Service terminate prior to attainment of age sixty-five (65) by reason of his or her death, Permanent Disability or Involuntary Termination (other than a Termination for Cause), then the Participant shall immediately vest in the additional number of Shares (if any) in which the Participant would have been vested at the time of such termination had the Shares subject to this Award vested in a series of                 (    ) successive equal            installments over the duration of the Vesting Schedule.

 

(c)            The Shares which vest on an accelerated basis pursuant to this Paragraph 4, together with any other Shares in which the Participant is at the time vested, shall be issued on the date of the Participant’s Separation from Service or as soon as administratively practicable thereafter, subject to the Corporation’s collection of the applicable Withholding Taxes, but in no event later than the close of the calendar year in which such Separation from Service occurs or (if later) the fifteenth (15th) day of the third calendar month following the date of such Separation from Service.

 

5.              Stockholder Rights and Dividend Equivalents

 

(a)            The holder of this Award shall not have any stockholder rights, including voting or dividend rights, with respect to the Shares subject to the Award until the Participant becomes the record holder of those Shares following their actual issuance upon the Corporation’s collection of the applicable Withholding Taxes.

 

(b)            Notwithstanding the foregoing, should any dividend or other distribution, whether regular or extraordinary and whether payable in cash, securities or other property, be declared and paid on the outstanding Common Stock while one or more Shares remain subject to this Award (i.e., those Shares are not otherwise issued and outstanding for purposes of entitlement to the dividend or distribution), then a special book account shall be established for the Participant and credited with a phantom dividend equal to the actual dividend or distribution which would have been paid on the Shares at the time subject to this Award had those Shares been issued and outstanding and entitled to that dividend or distribution. The phantom dividend equivalents so credited shall vest at the same time as the Shares to which they relate and shall be distributed to the Participant (in the same form the actual dividend or distribution was paid to the holders of the Common Stock entitled to that dividend or distribution) concurrently with the issuance of those Shares on the applicable Issue Date. However, each such distribution shall be subject to the Corporation’s collection of the Withholding Taxes applicable to that distribution.

 

6.              Change of Control .

 

(a)            Any Restricted Stock Units subject to this Award at the time of a Change in Control will vest immediately prior to the closing of that Change in Control. The Shares subject to those vested units, together with any other Shares in which the Participant is at that time vested, will be issued on the Issue Date triggered by the Change in Control (or otherwise converted into the right to receive the same consideration per share of Common Stock

 

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payable to the other stockholders of the Corporation in consummation of that Change in Control and distributed at the same time as such stockholder payments), subject to the Corporation’s collection of the applicable Withholding Taxes pursuant to the provisions of Paragraph 8.

(b)            This Agreement shall not in any way affect the right of the Corporation to adjust, reclassify, reorganize or otherwise change its capital or business structure or to merge, consolidate, dissolve, liquidate or sell or transfer all or any part of its business or assets.

 

7.              Adjustment in Shares . Should any change be made to the Common Stock by reason of any stock split, stock dividend, recapitalization, combination of shares, exchange of shares or other change affecting the outstanding Common Stock as a class without the Corporation’s receipt of consideration, appropriate adjustments shall be made to the total number and/or class of securities issuable pursuant to this Award in order to reflect such change and thereby preclude a dilution or enlargement of benefits hereunder.

 

8.              Collection of Withholding Taxes .

 

(a)            The Corporation shall collect the employee portion of the FICA taxes (Social Security and Medicare) with respect to the Shares at the time those Shares vest hereunder. The FICA taxes shall be based on the Fair Market Value of the Shares on their vesting date. The Corporation shall also collect the employee portion of the FICA taxes with respect to any phantom dividends at the time those phantom dividends vest hereunder. The FICA taxes shall be based on the cash amount and the fair market value of any other property underlying the phantom dividends on the vesting date. Unless the Participant delivers a separate check payable to the Corporation in the amount of the FICA taxes required to be withheld from the Participant, the Corporation shall withhold those taxes from the Participant’s wages. However, if the Participant is at the time an executive officer of the Corporation, then such withholding taxes must be collected from the Participant through delivery of his or her separate check not later than the vesting date.

 

(b)            The Corporation shall collect the federal, state and local income taxes required to be withheld with respect to the distribution of the phantom dividend equivalents to the Participant by withholding a portion of that distribution equal to the amount of those taxes, with the cash portion of the distribution to be the first portion so withheld. Until such time as the Corporation provides the Participant with notice to the contrary, the Corporation shall collect the federal, state and local income taxes required to be withheld with respect to the issuance of the vested Shares hereunder through an automatic Share withholding procedure pursuant to which the Corporation will withhold, at the time of such issuance, a portion of the Shares with a Fair Market Value (measured as of the issuance date) equal to the amount of those taxes (the “Share Withholding Method”); provided, however , that the amount of any Shares so withheld shall not exceed the amount necessary to satisfy the Corporation’s required tax withholding obligations using the minimum statutory withholding rates for federal and state tax purposes that are applicable to supplemental taxable income. Participant shall be notified in writing in the event such Share Withholding Method is no longer available.

 

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(c)            Should any Shares be distributed at time the Share Withholding Method is not available, then the federal, state and local income taxes required to be withheld with respect to those Shares shall be collected from the Participant through either of the following alternatives:

 

              the Participant’s delivery of his or her separate check payable to the Corporation in the amount of such Withholding Taxes, or

 

              the use of the proceeds from a next-day sale of the Shares issued to the Participant, provided and only if (i) such a sale is permissible under the Corporation’s trading policies governing the sale of Common Stock, (ii) the Participant makes an irrevocable commitment, on or before the Issue Date for those Shares, to effect such sale of the Shares and (iii) the transaction is not otherwise deemed to constitute a prohibited loan under Section 402 of the Sarbanes-Oxley Act of 2002.

 

(d)            Except as otherwise provided in Paragraph 6 and Paragraph 8(b), the settlement of all Restricted Stock Units which vest under the Award shall be made solely in shares of Common Stock. In no event, however, shall any fractional shares be issued. Accordingly, the total number of shares of Common Stock to be issued pursuant to the Award shall, to the extent necessary, be rounded down to the next whole share in order to avoid the issuance of a fractional share.

 

9.              Deferred Issue Date. Notwithstanding any provision to the contrary in this Agreement, no Shares which become issuable by reason of the Participant’s Separation from Service shall actually be issued to a Participant prior to the earlier of (i) the expiration of the six (6)-month period measured from the date of his or her Separation from Service or (ii) the date of his or her death, if the Participant is deemed at the time of such Separation from Service to be a “key employee” within the meaning of that term under Code Section 416(i) and such delayed issuance is otherwise required in order to avoid a prohibited distribution under Code Section 409A(a)(2). Upon the expiration of the applicable Code Section 409A(a)(2) deferral period, all Shares deferred pursuant to this Paragraph 9 shall be issued in a lump sum to the Participant.

 

10.            Benefit Limit. In the event the vesting and issuance of the Shares subject to this Award would otherwise constitute a parachute payment under Code Section 280G, then the vesting and issuance of those Shares shall be subject to reduction to the extent necessary to assure that the number of Shares which vest and are issued under this Award will be limited to the greater of (i)  the number of Shares which can vest and be issued without triggering a parachute payment under Code Section 280G or (ii)  the maximum number of Shares which can vest and be issued under this Award so as to provide the Participant with the greatest after-tax amount of such vested and issued Shares after taking into account any excise tax the Participant may incur under Code Section 4999 with respect to those Shares and any other benefits or payments to which the Participant may be entitled in connection with any change in control or ownership of the Corporation or the subsequent termination of the Participant’s Service.

 

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11.            Compliance with Laws and Regulations . The issuance of shares of Common Stock pursuant to the Award shall be subject to compliance by the Corporation and Participant with all applicable requirements of law relating thereto and with all applicable regulations of any stock exchange (or the Nasdaq National Market, if applicable) on which the Common Stock may be listed for trading at the time of such issuance.

 

12.            Notices . Any notice required to be given or delivered to the Corporation under the terms of this Agreement shall be in writing and addressed to the Corporation at its principal corporate offices. Any notice required to be given or delivered to Participant shall be in writing and addressed to Participant at the address indicated below Participant’s signature line on this Agreement. All notices shall be deemed effective upon personal delivery or upon deposit in the U.S. mail, postage prepaid and properly addressed to the party to be notified.

 

13.            Successors and Assigns . Except to the extent otherwise provided in this Agreement, the provisions of this Agreement shall inure to the benefit of, and be binding upon, the Corporation and its successors and assigns and Participant, Participant’s assigns, the legal representatives, heirs and legatees of Participant’s estate and any beneficiaries of the Award designated by Participant.

 

14.            Construction . This Agreement and the Award evidenced hereby are made and granted pursuant to the Plan and are in all respects limited by and subject to the terms of the Plan. All decisions of the Plan Administrator with respect to any question or issue arising under the Plan or this Agreement shall be conclusive and binding on all persons having an interest in the Award.

 

15.            Governing Law . The interpretation, performance and enforcement of this Agreement shall be governed by the laws of the State of California without resort to that State’s conflict-of-laws rules.

 

16.            Employment at Will . Nothing in this Agreement or in the Plan shall confer upon Participant any right to continue in Service for any period of specific duration or interfere with or otherwise restrict in any way the rights of the Corporation (or any Parent or Subsidiary employing or retaining Participant) or of Participant, which rights are hereby expressly reserved by each, to terminate Participant’s Service at any time for any reason, with or without cause.

 

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IN WITNESS WHEREOF , the parties have executed this Agreement on the day and year first indicated above.

 

 

ULTRATECH, INC.

 

 

 

 

 

By:

 

 

 

 

Title:

 

 

 

 

 

 

PARTICIPANT

 

 

 

 

 

Signature:

 

 

 

 

 

Address:

 

 

 

 

 

 

 

 

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APPENDIX A

 

DEFINITIONS

 

The following definitions shall be in effect under the Agreement:

 

A.             Agreement shall mean this Restricted Stock Unit Issuance Agreement.

 

B.             Award shall mean the award of Restricted Stock Units made to the Participant pursuant to the terms of this Agreement.

 

C.             Award Date shall mean the date the Restricted Stock Units are awarded to Participant pursuant to the Agreement and shall be the date indicated in Paragraph 1 of the Agreement.

 

D.             Board shall mean the Corporation’s Board of Directors.

 

E.              Change in Control shall mean a change in ownership or control of the Corporation effected through any of the following transactions:

 

(i)             a merger or consolidation in which the Corporation is not the surviving entity and in which securities possessing more than fifty percent (50%) of the total combined voting power of the Corporation’s outstanding securities are transferred to person or persons different from the persons holding those securities immediately prior to such merger or consolidation,

 

(ii)            the sale, transfer or other disposition of all or substantially all of the assets of the Corporation in complete liquidation or dissolution of the Corporation, or

 

(iii)           any reverse merger in which the Corporation is the surviving entity but in which securities possessing more than fifty percent (50%) of the total combined voting power of the Corporation’s outstanding securities are transferred to person or persons different from the persons holding those securities immediately prior to such merger.

 

(iv)           the acquisition, directly or indirectly by any person or related group of persons (other than the Corporation or a person that directly or indirectly controls, is controlled by, or is under common control with, the Corporation), of beneficial ownership (within the meaning of Rule 13d-3 of the 1934 Act) of securities possessing more than fifty percent (50%) of the total combined voting power of the Corporation’s outstanding securities pursuant to a tender or exchange offer made directly to the Corporation’s stockholders, or

 

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(v)            a change in the composition of the Board over a period of twelve (12) consecutive months or less such that a majority of the Board members ceases, by reason of one or more contested elections for Board membership, to be comprised of individuals who either (A) have been Board members continuously since the beginning of such period or (B) have been elected or nominated for election as Board members during such period by at least a majority of the Board members described in clause (A) who were still in office at the time the Board approved such election or nomination.

 

F.              Code shall mean the Internal Revenue Code of 1986, as amended.

 

G.             Common Stock shall mean shares of the Corporation’s common stock.

 

H.             Corporation shall mean Ultratech, Inc., a Delaware corporation, and any successor corporation to all or substantially all of the assets or voting stock of Ultratech, Inc. which shall by appropriate action adopt the Plan.

 

I.               Employee shall mean an individual who is in the employ of the Corporation (or any Parent or Subsidiary), subject to the control and direction of the employer entity as to both the work to be performed and the manner and method of performance.

 

J.              Fair Market Value per share of Common Stock on any relevant date shall be determined in accordance with the following provisions:

 

(i)             If the Common Stock is not at the time listed or admitted to trading on any Stock Exchange but is traded on the Nasdaq National Market, the Fair Market Value shall be the closing selling price per share on the date in question, as such price is reported by the National Association of Securities Dealers on the Nasdaq National Market or any successor system. If there is no reported closing selling price for the Common Stock on the date in question, then the closing selling price on the last preceding date for which such quotation exists shall be determinative of Fair Market Value.

 

(ii)            If the Common Stock is at the time listed or admitted to trading on any Stock Exchange, then the Fair Market Value shall be the closing selling price per share on the date in question on that Stock Exchange, as such price is officially quoted in the composite tape of transactions on such exchange. If there is no reported sale of Common Stock on such Stock Exchange on the date in question, then the Fair Market Value shall be the closing selling price on the exchange on the last preceding date for which such quotation exists.

 

K.             Involuntary Termination shall mean the termination of the Participant’s Service which occurs by reason of:

 

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(i)             such individual’s involuntary dismissal or discharge by the Corporation (or any Parent or Subsidiary) for reasons other than a Termination for Cause, or

 

(ii)            such individual’s voluntary resignation following (A) a change in his or her position with the Corporation (or any Parent or Subsidiary) which materially reduces his or her duties and responsibilities or the level of management to which he or she reports, (B) a reduction in his or her rate of base salary or target bonus under any corporate-performance based bonus or incentive programs by more than fifteen percent (15%) or (C) a relocation of such individual’s place of employment by more than sixty (60) miles, provided and only if such change, reduction or relocation is effected by the Corporation (or any Parent or Subsidiary) without the individual’s consent.

 

L.              1934 Act shall mean the Securities Exchange Act of 1934, as amended from time to time.

 

M.            Participant shall mean the person to whom the Award is made pursuant to the Agreement.

 

N.             Parent shall mean any corporation (other than the Corporation) in an unbroken chain of corporations ending with the Corporation, provided each corporation in the unbroken chain (other than the Corporation) owns, at the time of the determination, stock possessing fifty percent (50%) or more of the total combined voting power of all classes of stock in one of the other corporations in such chain.

 

O.             Permanent Disability shall mean the Participant’s inability to engage in any substantial gainful activity by reason of any medically determinable physical or mental impairment expected to result in death or to be of continuous duration of twelve (12) months or more.

 

P.              Plan shall mean the Corporation’s 1993 Stock Option/Stock Issuance Plan, as amended and restated.

 

Q.             Plan Administrator shall mean either the Board or a committee of the Board acting in its capacity as administrator of the Plan.

 

R.             Restricted Stock Unit shall mean each unit subject to this Award which shall entitle the Participant to receive one share of Common Stock under the Plan at a designated time following the vesting of that unit.

 

S.              Retirement shall mean the Participant’s voluntary termination from Service on or after his or her attainment of age sixty five (65) other than in connection with a Termination for Cause event

 

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T.             Separation from Service shall mean the Participant’s termination of Service under circumstances which are deemed to constitute a separation from service within the meaning of Code Section 409A and the applicable Treasury Regulations thereunder.

 

U.             Service shall mean the Participant’s performance of services for the Corporation (or any Parent or Subsidiary) in the capacity of an Employee, a non-employee member of the board of directors or a consultant or independent advisor. For purposes of this Agreement, Participant shall be deemed to cease Service immediately upon the occurrence of the either of the following events: (i) Participant no longer performs services in any of the foregoing capacities for the Corporation (or any Parent or Subsidiary) or (ii) the entity for which Participant performs such services ceases to remain a Parent or Subsidiary of the Corporation, even though Participant may subsequently continue to perform services for that entity. Service shall not be deemed to cease during a period of military leave, sick leave or other personal leave approved by the Corporation; provided, however , that except to the extent otherwise required by law or expressly authorized by the Plan Administrator or the Corporation’s written leave of absence policy, no Service credit shall be given for vesting purposes for any period the Participant is on a leave of absence.

 

V.             Stock Exchange shall mean the American Stock Exchange or the New York Stock Exchange.

 

W.            Subsidiary shall mean any corporation (other than the Corporation) in an unbroken chain of corporations beginning with the Corporation, provided each corporation (other than the last corporation) in the unbroken chain owns, at the time of the determination, stock possessing fifty percent (50%) or more of the total combined voting power of all classes of stock in one of the other corporations in such chain.

 

X.            Termination for Cause shall mean the termination of the Participant’s Service by the Corporation (or any Parent or Subsidiary) for one or more of the following reasons:

 

(i)             the Participant’s repeated failure to perform any essential duty of his or her position other than due to Permanent Disability;

 

(ii)            the Participant’s commission of any act that constitutes gross misconduct and is injurious to the Corporation or any Parent or Subsidiary or any successor to the Corporation;

 

(iii)           the Participant’s conviction of or pleading guilty or nolo contendere to any felony involving theft, embezzlement, dishonesty or moral turpitude;

 

A-4



 

(iv)           the Participant’s commission of any act of fraud against, or the misappropriation of property belonging to, the Corporation or any Parent or Subsidiary or any successor to the Corporation;

 

(v)            the Participant’s commission of any act of dishonesty in connection with his or her responsibilities as an employee that is intended to result in his or her personal enrichment or the personal enrichment of his or her family or others;

 

(vi)           any other intentional misconduct by the Participant adversely affecting the business or affairs of the Corporation in a material manner; or

 

(vii)          the Participant’s material breach of any employment agreement he or she may have at the time with the Corporation or any other agreement between the Participant and the Corporation or any Parent or Subsidiary or successor to the Corporation.

 

Y.             Withholding Taxes shall mean (i) the employee portion of the federal, state and local employment taxes required to be withheld by the Corporation in connection with the vesting of the shares of Common Stock under the Award and any phantom dividend equivalents relating to those shares and (ii) the federal, state and local income taxes required to be withheld by the Corporation in connection with the issuance of those vested shares and the distribution of any phantom dividend equivalents relating to such shares.

 

A-5



Exhibit 31.1

 

I, Arthur Zafiropoulo, certify that:

 

1.      I have reviewed this quarterly report on Form 10-Q of Ultratech, Inc.;

 

2.      Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

 

3.      Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

 

4.      The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

 

a)      Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; and

 

b)     Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; and

 

c)      Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

 

d)     Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

 

5.      The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent functions):

 

a)      All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

 

b)     Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

 

Date: May 5, 2006

/s/ ARTHUR ZAFIROPOULO

 

Arthur Zafiropoulo

 

Chief Executive Officer

 



Exhibit 31.2

 

I, Bruce Wright, certify that:

 

1.      I have reviewed this quarterly report on Form 10-Q of Ultratech, Inc.;

 

2.      Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

 

3.      Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

 

4.      The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

 

a)      Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; and

 

b)     Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; and

 

c)      Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

 

d)     Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

 

5.      The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent functions):

 

a)      All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

 

b)     Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

 

Date: May 5, 2006

/s/ BRUCE WRIGHT

 

Bruce Wright

 

Chief Financial Officer

 



Exhibit 32.1

 

CERTIFICATIONS OF CHIEF EXECUTIVE OFFICER AND CHIEF FINANCIAL OFFICER
PURSUANT TO 18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

 

I, Arthur Zafiropoulo, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to my knowledge:

 

                  the Quarterly Report of Ultratech, Inc. on Form 10-Q for the period ended April 1, 2006 fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

 

                  the information contained in such Quarterly Report fairly presents in all material respects the financial condition and results of operations of Ultratech, Inc.

 

By:

/s/ ARTHUR ZAFIROPOULO

 

Name: Arthur Zafiropoulo

Title: Chief Executive Officer

 

I, Bruce Wright, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to my knowledge:

 

                  the Quarterly Report of Ultratech, Inc. on Form 10-Q for the period ended April 1, 2006 fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

 

                  the information contained in such Quarterly Report fairly presents in all material respects the financial condition and results of operations of Ultratech, Inc.

 

By:

/s/ BRUCE WRIGHT

 

Name: Bruce Wright

Title: Chief Financial Officer

 


*A signed original of this written statement required by Section 906 has been provided to Ultratech, Inc. and will be retained by Ultratech, Inc. and furnished to the Securities and Exchange Commission or its staff upon request.