UNITED
STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
|
|
(Mark One) |
|
|
|
x |
|
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
|
|
For the quarterly period ended June 30, 2007 |
|
|
OR |
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 0-16244
VEECO INSTRUMENTS INC.
(Exact Name of Registrant as Specified in Its Charter)
Delaware |
|
11-2989601 |
(State or Other Jurisdiction of |
|
(I.R.S. Employer |
Incorporation or Organization) |
|
Identification Number) |
|
|
|
100
Sunnyside Boulevard, Suite B
|
|
11797-2902 |
(Address of Principal Executive Offices) |
|
(Zip Code) |
|
|
|
Registrants telephone number, including area code: (516) 677-0200 |
||
|
|
|
Website: www.veeco.com |
Indicate by check mark whether the Registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No 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 x Accelerated filer o 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 x
31,739,823 shares of common stock, $0.01 par value per share, were outstanding as of the close of business on July 31, 2007.
SAFE HARBOR STATEMENT
This Quarterly Report on Form 10-Q (the Report) contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Discussions containing such forward-looking statements may be found in Items 2 and 3 hereof, as well as within this Report generally. In addition, when used in this Report, the words believes, anticipates, expects, estimates, plans, intends, and similar expressions are intended to identify forward-looking statements. All forward-looking statements are subject to a number of risks and uncertainties that could cause actual results to differ materially from projected results. These risks and uncertainties include, without limitation, the following:
|
|
The cyclicality of the microelectronics industries we serve directly affects our business. |
|
|
|
|
|
We operate in an industry characterized by rapid technological change. |
|
|
|
|
|
We face significant competition. |
|
|
|
|
|
We depend on a limited number of customers that operate in highly concentrated industries. |
|
|
|
|
|
Our quarterly operating results fluctuate significantly. |
|
|
|
|
|
We face securities class action and shareholder derivative lawsuits which could result in substantial costs, diversion of managements attention and resources and negative publicity. |
|
|
|
|
|
Our outsourcing strategy could adversely affect our results of operations. |
|
|
|
|
|
We rely on a limited number of suppliers. |
|
|
|
|
|
Any difficulty or inability to attract, retain and motivate key employees could have a material adverse effect on our business. |
|
|
|
|
|
We are exposed to the risks of operating a global business and the requirement to comply with laws and regulations of various jurisdictions such as import/export controls, which may not apply to our non-U.S. competitors. |
|
|
|
|
|
We are subject to foreign currency exchange risks. |
|
|
|
|
|
Our success depends on protection of our intellectual property rights. |
|
|
|
|
|
We may be subject to claims of intellectual property infringement by others. |
|
|
|
|
|
Our acquisition strategy subjects us to risks associated with evaluating and pursuing these opportunities and integrating these businesses. |
|
|
|
|
|
Changes in accounting standards for stock-based compensation may adversely affect our stock price and our ability to attract, motivate and retain key employees. |
|
|
|
|
|
The implementation of a new information technology system may disrupt our operations. |
|
|
|
|
|
We may not obtain sufficient affordable funds to finance our future needs. |
|
|
|
|
|
We are subject to risks of non-compliance with environmental and safety regulations. |
|
|
|
|
|
We have adopted certain measures that may have anti-takeover effects which may make an acquisition of our company by another company more difficult. |
2
|
|
The other matters discussed under the heading Managements Discussion and Analysis of Financial Condition and Results of Operations contained in this Report and in the Annual Report on Form 10-K for the year ended December 31, 2006 of Veeco Instruments Inc. (Veeco or the Company). |
Consequently, such forward-looking statements should be regarded solely as our current plans, estimates and beliefs. We do not undertake any obligation to update any forward-looking statements to reflect future events or circumstances after the date of such statements.
Available Information
We file annual, quarterly and current reports, information statements and other information with the Securities and Exchange Commission (the SEC). The public may read and copy any materials we file with the SEC at the SECs Public Reference Room at 450 Fifth Street, N.W., Washington, D.C. 20549. The public may obtain information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. The SEC also maintains an Internet site that contains reports, proxy and information statements, and other information regarding issuers that file electronically with the SEC. The address of that site is http://www.sec.gov.
Internet Address
We maintain a website where additional information concerning our business and various upcoming events can be found. The address of our website is www.veeco.com. We provide a link on our website, under Investors Financial Information SEC Filings, through which investors can access our filings with the SEC, including our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, and all amendments to those reports. These filings are posted to our Internet site, as soon as reasonably practicable after we electronically file such material with the SEC.
3
VEECO INSTRUMENTS INC.
INDEX
4
Item 1. Financial Statements (Unaudited)
Veeco Instruments Inc. and Subsidiaries
Condensed Consolidated Statements of Operations
(In thousands, except per share data)
(Unaudited)
|
|
Three Months Ended
|
|
||||
|
|
2007 |
|
2006 |
|
||
|
|
|
|
|
|
||
Net sales |
|
$ |
98,769 |
|
$ |
111,635 |
|
Cost of sales |
|
56,524 |
|
61,923 |
|
||
Gross profit |
|
42,245 |
|
49,712 |
|
||
Costs and expenses: |
|
|
|
|
|
||
Selling, general and administrative expense |
|
23,818 |
|
24,996 |
|
||
Research and development expense |
|
15,903 |
|
15,252 |
|
||
Amortization expense |
|
2,368 |
|
3,989 |
|
||
Restructuring expense |
|
1,445 |
|
|
|
||
Other income, net |
|
(279 |
) |
(132 |
) |
||
Total operating expenses |
|
43,255 |
|
44,105 |
|
||
Operating (loss) income |
|
(1,010 |
) |
5,607 |
|
||
Interest expense, net |
|
772 |
|
1,149 |
|
||
(Loss) income before income taxes and noncontrolling interest |
|
(1,782 |
) |
4,458 |
|
||
Income tax provision |
|
1,042 |
|
1,433 |
|
||
Noncontrolling interest |
|
(229 |
) |
|
|
||
Net (loss) income |
|
$ |
(2,595 |
) |
$ |
3,025 |
|
|
|
|
|
|
|
||
Net (loss) income per common share |
|
$ |
(0.08 |
) |
$ |
0.10 |
|
Diluted net (loss) income per common share |
|
$ |
(0.08 |
) |
$ |
0.10 |
|
|
|
|
|
|
|
||
Weighted average shares outstanding |
|
30,926 |
|
30,322 |
|
||
Diluted weighted average shares outstanding |
|
30,926 |
|
31,254 |
|
See accompanying notes.
5
Veeco Instruments Inc. and Subsidiaries
Condensed Consolidated Statements of Operations
(In thousands, except per share data)
(Unaudited)
|
|
Six Months Ended
|
|
||||
|
|
2007 |
|
2006 |
|
||
|
|
|
|
|
|
||
Net sales |
|
$ |
197,935 |
|
$ |
205,553 |
|
Cost of sales |
|
111,995 |
|
114,072 |
|
||
Gross profit |
|
85,940 |
|
91,481 |
|
||
Costs and expenses: |
|
|
|
|
|
||
Selling, general and administrative expense |
|
46,624 |
|
46,326 |
|
||
Research and development expense |
|
31,292 |
|
29,838 |
|
||
Amortization expense |
|
6,277 |
|
8,004 |
|
||
Restructuring expense |
|
1,445 |
|
|
|
||
Other (income) expense, net |
|
(426 |
) |
67 |
|
||
Total operating expenses |
|
85,212 |
|
84,235 |
|
||
Operating income |
|
728 |
|
7,246 |
|
||
Interest expense, net |
|
1,591 |
|
2,527 |
|
||
Gain on extinguishment of debt |
|
(738 |
) |
(330 |
) |
||
(Loss) income before income taxes and noncontrolling interest |
|
(125 |
) |
5,049 |
|
||
Income tax provision |
|
2,536 |
|
2,266 |
|
||
Noncontrolling interest |
|
(359 |
) |
|
|
||
Net (loss) income |
|
$ |
(2,302 |
) |
$ |
2,783 |
|
|
|
|
|
|
|
||
Net (loss) income per common share |
|
$ |
(0.07 |
) |
$ |
0.09 |
|
Diluted net (loss) income per common share |
|
$ |
(0.07 |
) |
$ |
0.09 |
|
|
|
|
|
|
|
||
Weighted average shares outstanding |
|
30,912 |
|
30,208 |
|
||
Diluted weighted average shares outstanding |
|
30,912 |
|
30,946 |
|
See accompanying notes.
6
Veeco Instruments Inc. and Subsidiaries
Condensed Consolidated Balance Sheets
(In thousands)
|
|
June 30, 2007 |
|
December 31, 2006 |
|
||
|
|
(Unaudited) |
|
|
|
||
|
|
|
|
|
|
||
Assets |
|
|
|
|
|
||
Current assets: |
|
|
|
|
|
||
Cash and cash equivalents |
|
$ |
108,079 |
|
$ |
147,046 |
|
Accounts receivable, less allowance for doubtful accounts of $2,716 in 2007 and $2,683 in 2006 |
|
65,215 |
|
86,589 |
|
||
Inventories |
|
104,658 |
|
100,355 |
|
||
Prepaid expenses and other current assets |
|
10,323 |
|
9,378 |
|
||
Deferred income taxes |
|
2,650 |
|
2,565 |
|
||
Total current assets |
|
290,925 |
|
345,933 |
|
||
Property, plant and equipment at cost, less accumulated depreciation of $92,436 in 2007 and $88,087 in 2006 |
|
72,105 |
|
73,510 |
|
||
Goodwill |
|
100,898 |
|
100,898 |
|
||
Purchased technology, less accumulated amortization of $69,757 in 2007 and $64,736 in 2006 |
|
38,831 |
|
43,852 |
|
||
Other intangible assets, less accumulated amortization of $28,281 in 2007 and $26,740 in 2006 |
|
24,301 |
|
25,053 |
|
||
Other assets |
|
214 |
|
354 |
|
||
Total assets |
|
$ |
527,274 |
|
$ |
589,600 |
|
|
|
|
|
|
|
||
Liabilities and shareholders equity |
|
|
|
|
|
||
Current liabilities: |
|
|
|
|
|
||
Accounts payable |
|
$ |
38,153 |
|
$ |
40,588 |
|
Accrued expenses |
|
44,653 |
|
48,714 |
|
||
Deferred profit |
|
1,244 |
|
251 |
|
||
Income taxes payable |
|
1,924 |
|
2,723 |
|
||
Current portion of long-term debt |
|
5,489 |
|
5,597 |
|
||
Total current liabilities |
|
91,463 |
|
97,873 |
|
||
Deferred income taxes |
|
2,987 |
|
2,423 |
|
||
Long-term debt |
|
146,496 |
|
203,607 |
|
||
Other non-current liabilities |
|
2,120 |
|
2,304 |
|
||
|
|
|
|
|
|
||
Noncontrolling interest |
|
1,802 |
|
1,642 |
|
||
|
|
|
|
|
|
||
Shareholders equity |
|
282,406 |
|
281,751 |
|
||
Total liabilities and shareholders equity |
|
$ |
527,274 |
|
$ |
589,600 |
|
See accompanying notes.
7
Veeco Instruments Inc. and Subsidiaries
Condensed Consolidated Statements of Cash Flows
(In thousands)
(Unaudited)
|
|
Six Months Ended
|
|
||||
|
|
2007 |
|
2006 |
|
||
Operating activities |
|
|
|
|
|
||
Net (loss) income |
|
$ |
(2,302 |
) |
$ |
2,783 |
|
Adjustments to reconcile net (loss) income to net cash provided by operating activities: |
|
|
|
|
|
||
Depreciation and amortization |
|
13,459 |
|
14,594 |
|
||
Deferred income taxes |
|
447 |
|
303 |
|
||
Gain on extinguishment of debt |
|
(738 |
) |
(330 |
) |
||
Non-cash compensation expense for share-based payments |
|
2,046 |
|
721 |
|
||
Noncontrolling interest in net loss of subsidiary |
|
(359 |
) |
|
|
||
Gain on sale of property, plant and equipment |
|
(81 |
) |
(16 |
) |
||
Other |
|
|
|
21 |
|
||
Changes in operating assets and liabilities: |
|
|
|
|
|
||
Accounts receivable |
|
21,128 |
|
2,659 |
|
||
Inventories |
|
(4,002 |
) |
(6,354 |
) |
||
Accounts payable |
|
(2,425 |
) |
6,765 |
|
||
Accrued expenses, deferred profit and other current liabilities |
|
(4,615 |
) |
(1,576 |
) |
||
Other, net |
|
(1,919 |
) |
(2,827 |
) |
||
Net cash provided by operating activities |
|
20,639 |
|
16,743 |
|
||
|
|
|
|
|
|
||
Investing activities |
|
|
|
|
|
||
Capital expenditures |
|
(5,876 |
) |
(9,570 |
) |
||
Proceeds from sale of property, plant and equipment |
|
304 |
|
35 |
|
||
Payments for net assets of businesses acquired |
|
|
|
(3,161 |
) |
||
Other |
|
|
|
(580 |
) |
||
Net cash used in investing activities |
|
(5,572 |
) |
(13,276 |
) |
||
|
|
|
|
|
|
||
Financing activities |
|
|
|
|
|
||
Proceeds from stock issuance |
|
2,131 |
|
7,983 |
|
||
Repayments of long-term debt |
|
(54,998 |
) |
(19,585 |
) |
||
Other |
|
(1,316 |
) |
|
|
||
Net cash used in financing activities |
|
(54,183 |
) |
(11,602 |
) |
||
Effect of exchange rates on cash and cash equivalents |
|
149 |
|
(335 |
) |
||
Net change in cash and cash equivalents |
|
(38,967 |
) |
(8,470 |
) |
||
Cash and cash equivalents at beginning of period |
|
147,046 |
|
124,499 |
|
||
Cash and cash equivalents at end of period |
|
$ |
108,079 |
|
$ |
116,029 |
|
Non-Cash Items
During the six months ended June 30, 2007, the Company had non-cash items, which were excluded from the Condensed Consolidated Statements of Cash Flows of approximately $118.8 million related to a debt exchange and transfers between fixed assets and inventory totaling $0.5 million. During the six months ended June 30, 2006, the Company had transfers between fixed assets and inventory totaling $0.6 million.
See accompanying notes.
8
VEECO INSTRUMENTS INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Unaudited)
Note 1Basis of Presentation
The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States 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 considered necessary for a fair presentation (consisting of normal recurring accruals) have been included. Operating results for the three and six months ended June 30, 2007, are not necessarily indicative of the results that may be expected for the year ending December 31, 2007. For further information, refer to the financial statements and footnotes thereto included in the Companys Annual Report on Form 10-K for the year ended December 31, 2006.
Consistent with prior years, the Company reports interim quarters, other than fourth quarters which end on December 31, on a 13-week basis ending on the last Sunday within such period. The interim quarter ends are determined at the beginning of each year based on the 13-week quarters. The 2007 interim quarter ends are April 1, July 1 and September 30. The 2006 interim quarter ends were April 2, July 2 and October 1. For ease of reference, the Company reports these interim quarter ends as March 31, June 30, and September 30 in its interim condensed consolidated financial statements.
Net (Loss) Income Per Common Share
The following table sets forth the reconciliation of weighted average shares outstanding and diluted weighted average shares outstanding:
|
|
Three months ended
|
|
Six months ended
|
|
||||
|
|
2007 |
|
2006 |
|
2007 |
|
2006 |
|
|
|
(In thousands) |
|
||||||
|
|
|
|
|
|
|
|
|
|
Weighted average shares outstanding |
|
30,926 |
|
30,322 |
|
30,912 |
|
30,208 |
|
Dilutive effect of stock options and restricted stock awards |
|
|
|
932 |
|
|
|
738 |
|
Diluted weighted average shares outstanding |
|
30,926 |
|
31,254 |
|
30,912 |
|
30,946 |
|
Net (loss) income and diluted net (loss) income per common share are computed using the weighted average number of common and common equivalent shares outstanding during the period.
During the three and six month periods ended June 30, 2007, options to purchase 5.9 million shares of common stock (at prices ranging from $0.27 to $72.00 per share) that were outstanding were excluded from the computation of diluted earnings per share. During the comparable 2006 periods, options to purchase 2.9 million and 3.2 million shares of common stock (at prices ranging from $23.98 to $72.00 and $22.63 to $72.00 per share, respectively) that were outstanding, were excluded from the computation of diluted earnings per share. In the 2007 periods, the Company recorded net losses, so the effect of all options outstanding was anti-dilutive. In 2006, the exercise price of these options exceeded the average market price of our common stock, thereby causing their effect to be anti-dilutive.
During the second quarter of 2007, the Company issued a new series of 4.125% convertible subordinated notes due April 15, 2012 (the New Notes) pursuant to privately negotiated exchange agreements with certain holders of its outstanding 4.125% convertible subordinated notes due 2008 (the Old Notes). In total, the Company exchanged $118.8 million of Old Notes for $117.8 million of New Notes.
The effect of the assumed conversion of the Old Notes is approximately 1.5 million and 3.0 million common equivalent shares for the three and six months ended June 30, 2007, respectively, and 5.2 million and 5.3 million for the comparable periods of 2006, respectively. The converted shares are anti-dilutive, and therefore, are not included
9
in the weighted shares outstanding for the three and six months ended June 30, 2007 and 2006, respectively. The second quarter 2007 debt exchange, together with $56 million in debt repurchases of Old Notes during the first quarter of 2007 reduced the effect of the assumed conversion of the Old Notes, which was calculated using the if converted method of accounting.
The New Notes meet the criteria for determining the effect of the assumed conversion using the treasury stock method of accounting, as long as the Company has the ability and the intent to settle the principal amount of the New Notes in cash. Under the terms of the New Notes, the Company may pay the principal amount of converted New Notes in cash or in shares of common stock. The Company has indicated that it intends to pay such amounts in cash. Using the treasury stock method, the impact of the assumed conversion of the New Notes is anti-dilutive for the three and six months ended June 30, 2007, as the average stock price was below the conversion price of $27.23 for both the three and six month periods. The effect of the assumed converted shares is dependent on the stock price at the time of the conversion. The maximum common equivalent shares issuable upon conversion is approximately 4.3 million.
Taxes
In July 2006, the Financial Accounting Standards Board (FASB) issued Financial Interpretation 48, Accounting for Uncertainty in Income Taxes (FIN 48) , an interpretation of FASB Statement No. 109 (SFAS 109), which became effective for Veeco on January 1, 2007. FIN 48 addresses the determination of how tax benefits claimed or expected to be claimed on a tax return should be recorded in the financial statements. Under FIN 48, the Company must recognize the tax benefit from an uncertain tax position only if it is more likely than not that the tax position will be sustained on examination by the taxing authorities, based on the technical merits of the position. The tax benefits recognized in the financial statements from such positions are measured based on the largest benefit that has a greater than fifty percent likelihood of being realized upon ultimate resolution. The application of income tax law is inherently complex. Laws and regulations in this area are voluminous and are often ambiguous. The Company is required to make many subjective assumptions and judgments regarding its income tax exposures. Interpretations of and guidance surrounding income tax laws and regulations change over time and changes in assumptions and judgments can materially affect the amounts recognized in the Companys condensed consolidated financial statements. The impact of the Companys reassessment during the first quarter of 2007 of its tax positions in accordance with FIN 48 resulted in a $0.8 million reduction to the January 1, 2007 retained earnings balance. For additional information regarding the adoption of FIN 48, see Note 5, Income Taxes.
Recent Accounting Pronouncements
In September 2006, the FASB issued Statement of Financial Accounting Standards No. 157 (SFAS 157), Fair Value Measurements . SFAS 157 establishes a common definition for fair value to be applied to U.S. generally accepted accounting principles requiring use of fair value, establishes a framework for measuring fair value, and expands disclosure about such fair value measurements. SFAS 157 is effective for fiscal years beginning after November 15, 2007. The adoption of this statement is not expected to have a material impact on the Companys consolidated financial position or results of operations.
In February 2007, the FASB issued Statement of Financial Accounting Standards No. 159 (SFAS 159), The Fair Value Option for Financial Assets and Financial Liabilities . SFAS 159 permits entities to choose to measure financial assets and liabilities (except for those that are specifically scoped out of the Statement) at fair value. The election to measure a financial asset or liability at fair value can be made on an instrument-by-instrument basis and is irrevocable. The difference between carrying value and fair value at the election date is recorded as an adjustment to opening retained earnings. Subsequent changes in fair value are recognized in earnings. SFAS 159 is effective for fiscal years beginning after November 15, 2007. The adoption of this statement is not expected to have a material impact on the Companys consolidated financial position or results of operations.
10
Note 2Share-Based Payments
Stock Option and Restricted Stock Plans
During the three and six months ended June 30, 2007 and 2006, the Company made equity compensation awards under the Veeco Instruments Inc. 2000 Stock Incentive Plan, as amended, (the 2000 Plan). In 2007, the Company granted to certain key employees: 442,750 shares of restricted common stock, 15,800 restricted stock units and 599,000 stock options during the three month period ended June 30, 2007 and an additional 3,000 shares of restricted common stock in the first quarter of 2007. In the three and six months ended June 30, 2007, 89,720 shares of restricted stock vested, of which the Company cancelled 16,343 shares due to executives electing to receive fewer shares in lieu of paying withholding taxes. Also during the three and six month periods ended June 30, 2007, the Company cancelled 18,384 and 19,584 shares of restricted stock related to employee terminations, respectively. In the comparable 2006 periods, the Company granted to certain key employees: 198,250 shares of restricted common stock and 146,200 stock options. There were no cancellations of restricted common stock during those prior year periods. All awards to employees vest over three years. The Company also granted 40,000 shares of restricted common stock, which vest over a one-year period, to the non-employee members of the Board of Directors in May of 2007 and 2006. The 2000 Plan provides for the grant to officers and key employees of up to 8,530,000 share-based awards (of which, 1,857,335 are available for future option grants as of June 30, 2007) in common stock of the Company. Of those, up to 1,700,000 of the awards may be issued in the form of restricted stock (974,083 shares of the total available for future grants as of June 30, 2007, are available in the form of restricted stock).
Total compensation expense related to restricted stock awards and stock options recognized in operating results under Statement of Financial Accounting Standards No. 123(R), Share-Based Payment (SFAS 123(R)), was $1.2 million and $2.0 million for the three and six months ended June 30, 2007, respectively and $0.5 million and $0.7 million for the comparable prior year periods. As of June 30, 2007, the total unrecognized compensation cost related to nonvested stock awards is $11.4 million and stock option awards is $4.2 million. The related weighted average period over which it is expected that such unrecognized compensation costs will be recognized is approximately 2.6 years for the nonvested stock awards and 2.7 years for option awards.
A summary of the Companys restricted stock awards including restricted stock units as of June 30, 2007, is presented below:
|
|
Shares
|
|
Weighted-
|
|
|
Nonvested at beginning of year |
|
244 |
|
$ |
22.50 |
|
Granted |
|
502 |
|
19.23 |
|
|
Vested |
|
(90 |
) |
25.17 |
|
|
Forfeited |
|
(20 |
) |
16.79 |
|
|
Nonvested as of June 30, 2007 |
|
636 |
|
$ |
19.72 |
|
The Company applies the Black-Scholes option-pricing model to determine the fair value of options on the grant date. Inherent in that model are assumptions related to expected stock-price volatility, option life, risk-free interest rate and dividend yield. While the risk-free interest rate and dividend yield are less subjective assumptions, typically based on factual data derived from public sources, the expected stock-price volatility and option life assumptions require a level of judgment which make them critical accounting estimates. Since the fourth quarter of 2005, the Company has used an expected stock-price volatility assumption that is a combination of both historical and implied volatilities of the underlying stock, which are obtained from public data sources. Prior to that time, the Company based this assumption solely on historical volatility. The Company considers the exercise behavior of past grants and models the pattern of aggregate exercises in determining the expected weighted-average option life.
11
The following assumptions were used to estimate the fair value of stock options granted using the Black-Scholes option-pricing model for the following periods:
|
|
Granted in
|
|
Granted in
|
|
Unvested at
|
|
Weighted-average expected stock-price volatility |
|
35 |
% |
40 |
% |
60 |
% |
Weighted-average expected option life |
|
3 years |
|
3 years |
|
4 years |
|
Average risk-free interest rate |
|
5.0 |
% |
5.0 |
% |
3.6 |
% |
Average dividend yield |
|
0 |
% |
0 |
% |
0 |
% |
A summary of the Companys stock option plans as of and for the six months ended June 30, 2007, is presented below:
|
|
Shares
|
|
Weighted-
|
|
Aggregate
|
|
Weighted-
|
|
||
Outstanding at beginning of year |
|
6,363 |
|
$ |
25.58 |
|
|
|
|
|
|
Granted |
|
599 |
|
19.57 |
|
|
|
|
|
||
Exercised |
|
(124 |
) |
16.17 |
|
|
|
|
|
||
Forfeited (including cancelled options) |
|
(915 |
) |
37.58 |
|
|
|
|
|
||
Outstanding at June 30, 2007 |
|
5,923 |
|
$ |
23.31 |
|
$ |
8,719 |
|
3.3 |
|
Options exercisable at June 30, 2007 |
|
5,199 |
|
$ |
23.79 |
|
$ |
7,887 |
|
2.9 |
|
The weighted average grant date fair value of the stock options granted for the three and six months ended June 30, 2007 and 2006 was $5.74 and $7.61 per option, respectively. The total intrinsic value of stock options exercised during the three and six months ended June 30, 2007 was $0.2 million and $0.5 million, respectively. The total intrinsic value of stock options exercised during the comparable 2006 periods was $2.8 million and $3.2 million, respectively.
The following table summarizes information about stock options outstanding at June 30, 2007:
|
|
Options Outstanding |
|
Options Exercisable |
|
||||||||
Range of Exercise Prices |
|
Number
|
|
Weighted-
|
|
Weighted-
|
|
Number
|
|
Weighted-
|
|
||
$0.27 |
|
91 |
|
3.5 |
|
$ |
0.27 |
|
91 |
|
$ |
0.27 |
|
10.26-15.35 |
|
141 |
|
4.1 |
|
14.50 |
|
132 |
|
14.52 |
|
||
15.45-22.80 |
|
3,648 |
|
4.0 |
|
19.50 |
|
3,011 |
|
19.49 |
|
||
23.61-35.00 |
|
1,825 |
|
1.9 |
|
29.67 |
|
1,747 |
|
29.94 |
|
||
35.75-50.60 |
|
163 |
|
1.9 |
|
46.94 |
|
163 |
|
46.94 |
|
||
54.35-72.00 |
|
55 |
|
1.8 |
|
56.05 |
|
55 |
|
56.05 |
|
||
|
|
5,923 |
|
3.3 |
|
$ |
23.31 |
|
5,199 |
|
$ |
23.79 |
|
Shares Reserved for Future Issuance
As of June 30, 2007, the Company has reserved the following shares for future issuance related to:
Issuance upon exercise of stock options and issuance of restricted stock |
|
7,799,868 |
|
Issuance upon conversion of subordinated debt (see Note 1) |
|
6,623,018 |
|
Issuance of shares pursuant to the ESP Plan |
|
1,440,024 |
|
Total shares reserved |
|
15,862,910 |
|
12
Note 3Balance Sheet Information
Inventories
Inventories have been determined by lower of cost (principally first-in, first-out) or market. Inventories consist of:
|
|
June 30, 2007 |
|
December 31, 2006 |
|
||
|
|
(In thousands) |
|
||||
|
|
|
|
|
|
||
Parts and components (1) |
|
$ |
60,821 |
|
$ |
60,249 |
|
Work in process (1) |
|
30,789 |
|
27,961 |
|
||
Finished goods |
|
13,048 |
|
12,145 |
|
||
|
|
$ |
104,658 |
|
$ |
100,355 |
|
(1) The prior period has been reclassified to conform to current period presentation.
Accrued Warranty
The Company estimates the costs that may be incurred under the warranty it provides and recognizes a liability in the amount of such costs at the time the related revenue is recognized. Factors that affect the Companys warranty liability include product failure rates, material usage and labor costs incurred in correcting product failures during the warranty period. The Company periodically assesses the adequacy of its recognized warranty liability and adjusts the amount as necessary. Changes in the Companys warranty liability during the period are as follows:
|
|
Six Months Ended June 30, |
|
||||
|
|
2007 |
|
2006 |
|
||
|
|
(In thousands) |
|
||||
|
|
|
|
|
|
||
Balance as of January 1 |
|
$ |
7,118 |
|
$ |
6,671 |
|
Warranties issued during the period |
|
2,628 |
|
3,353 |
|
||
Settlements made during the period |
|
(3,141 |
) |
(3,264 |
) |
||
Balance as of June 30 |
|
$ |
6,605 |
|
$ |
6,760 |
|
Note 4Segment Information
The Company manages the business, reviews operating results and assesses performance, as well as allocates resources, based upon two separate reporting segments. The Process Equipment segment combines the etch, deposition, dicing and slicing products sold mostly to data storage customers and the molecular beam epitaxy and metal organic chemical vapor deposition products primarily sold to high-brightness light emitting diode and wireless telecommunications customers. This segment has production facilities in Plainview, New York, Ft. Collins, Colorado, Camarillo, California, St. Paul, Minnesota and Somerset, New Jersey. The Metrology segment represents products that are used to provide critical surface measurements on products such as semiconductor devices and thin film magnetic heads and includes the Companys broad line of atomic force microscopes, optical interferometers and stylus profilers sold to semiconductor customers, data storage customers and thousands of research facilities and scientific centers. This segment has production facilities in Camarillo and Santa Barbara, California and Tucson, Arizona.
The Company evaluates the performance of its reportable segments based on income (loss) from operations before interest, income taxes, amortization and certain items (EBITA). Certain items include charges for purchased in-process technology, restructuring and asset impairment charges and merger-related costs. The accounting policies of the reportable segments are the same as those described in the summary of critical accounting policies.
13
The following tables present certain data pertaining to the reportable product segments of the Company and a reconciliation of EBITA to income (loss) before income taxes and noncontrolling interest for the three and six months ended June 30, 2007 and 2006 and goodwill and total assets as of June 30, 2007 and December 31, 2006 (in thousands):
|
|
|
|
|
|
Unallocated |
|
|
|
||||
|
|
Process |
|
|
|
Corporate |
|
|
|
||||
|
|
Equipment |
|
Metrology |
|
Amount |
|
Total |
|
||||
Three Months Ended June 30, 2007 |
|
|
|
|
|
|
|
|
|
||||
Net sales |
|
$ |
60,016 |
|
$ |
38,753 |
|
$ |
|
|
$ |
98,769 |
|
Income (loss) before interest, taxes, amortization and certain items (EBITA) |
|
$ |
5,382 |
|
$ |
388 |
|
$ |
(2,967 |
) |
$ |
2,803 |
|
Interest expense, net |
|
|
|
|
|
772 |
|
772 |
|
||||
Amortization expense |
|
1,910 |
|
325 |
|
133 |
|
2,368 |
|
||||
Other items (1) |
|
|
|
1,352 |
|
93 |
|
1,445 |
|
||||
Income (loss) before income taxes and noncontrolling interest |
|
$ |
3,472 |
|
$ |
(1,289 |
) |
$ |
(3,965 |
) |
$ |
(1,782 |
) |
|
|
|
|
|
|
|
|
|
|
||||
Three Months Ended June 30, 2006 |
|
|
|
|
|
|
|
|
|
||||
Net sales |
|
$ |
67,361 |
|
$ |
44,274 |
|
$ |
|
|
$ |
111,635 |
|
Income (loss) before interest, taxes, amortization and certain items (EBITA) |
|
$ |
7,801 |
|
$ |
6,316 |
|
$ |
(4,521 |
) |
$ |
9,596 |
|
Interest expense, net |
|
|
|
|
|
1,149 |
|
1,149 |
|
||||
Amortization expense |
|
3,288 |
|
441 |
|
260 |
|
3,989 |
|
||||
Income (loss) before income taxes and noncontrolling interest |
|
$ |
4,513 |
|
$ |
5,875 |
|
$ |
(5,930 |
) |
$ |
4,458 |
|
|
|
|
|
|
|
Unallocated |
|
|
|
||||
|
|
Process |
|
|
|
Corporate |
|
|
|
||||
|
|
Equipment |
|
Metrology |
|
Amount |
|
Total |
|
||||
Six Months Ended June 30, 2007 |
|
|
|
|
|
|
|
|
|
||||
Net sales |
|
$ |
118,105 |
|
$ |
79,830 |
|
$ |
|
|
$ |
197,935 |
|
Income (loss) before interest, taxes, amortization and certain items (EBITA) |
|
$ |
9,593 |
|
$ |
4,410 |
|
$ |
(5,553 |
) |
$ |
8,450 |
|
Interest expense, net |
|
|
|
|
|
1,591 |
|
1,591 |
|
||||
Amortization expense |
|
5,184 |
|
736 |
|
357 |
|
6,277 |
|
||||
Other items (2) |
|
|
|
1,352 |
|
(645 |
) |
707 |
|
||||
Income (loss) before income taxes and noncontrolling interest |
|
$ |
4,409 |
|
$ |
2,322 |
|
$ |
(6,856 |
) |
$ |
(125 |
) |
14
Six Months Ended June 30, 2006 |
|
|
|
|
|
|
|
|
|
||||
Net sales |
|
$ |
120,552 |
|
$ |
85,001 |
|
$ |
|
|
$ |
205,553 |
|
Income (loss) before interest, taxes, amortization and certain items (EBITA) |
|
$ |
9,677 |
|
$ |
11,928 |
|
$ |
(6,355 |
) |
$ |
15,250 |
|
Interest expense, net |
|
|
|
|
|
2,527 |
|
2,527 |
|
||||
Amortization expense |
|
6,576 |
|
895 |
|
533 |
|
8,004 |
|
||||
Other items (3) |
|
|
|
|
|
(330 |
) |
(330 |
) |
||||
Income (loss) before income taxes and noncontrolling interest |
|
$ |
3,101 |
|
$ |
11,033 |
|
$ |
(9,085 |
) |
$ |
5,049 |
|
(1) |
|
Restructuring expense. |
|
|
|
(2) |
|
Restructuring expense, net of gain on extinguishment of debt. |
|
|
|
(3) |
|
Gain on extinguishment of debt. |
|
|
|
|
|
|
Unallocated |
|
|
|
||||
|
|
Process |
|
|
|
Corporate |
|
|
|
||||
|
|
Equipment |
|
Metrology |
|
Amount |
|
Total |
|
||||
As of June 30, 2007 |
|
|
|
|
|
|
|
|
|
||||
Goodwill |
|
$ |
71,530 |
|
$ |
29,368 |
|
$ |
|
|
$ |
100,898 |
|
Total assets |
|
270,780 |
|
130,154 |
|
126,340 |
|
527,274 |
|
||||
|
|
|
|
|
|
|
|
|
|
||||
As of December 31, 2006 |
|
|
|
|
|
|
|
|
|
||||
Goodwill |
|
$ |
71,530 |
|
$ |
29,368 |
|
$ |
|
|
$ |
100,898 |
|
Total assets |
|
285,661 |
|
138,140 |
|
165,799 |
|
589,600 |
|
Corporate total assets are comprised principally of cash and cash equivalents at June 30, 2007 and December 31, 2006.
Note 5Income Taxes
The Compan y adopted FIN 48 on January 1, 2007. As a result of adopting FIN 48, the Company recognized a $0.8 million increase to its reserves for uncertain tax positions during the first quarter of 2007, which was recorded as a reduction to the January 1, 2007 retained earnings balance. At the adoption date of January 1, 2007, the Company had approximately $2.3 million of unrecognized tax benefits, including the cumulative effect increase to its reserve for uncertain tax positions. For the three and six months ended June 30, 2007, the Company recorded $0.2 million and $0.5 million related to unrecognized tax benefits. As a result, the Company had $2.8 million of unrecognized tax benefits at June 30, 2007, all of which relate to positions taken on its foreign tax returns and representing the amount of unrecognized tax benefits that, if recognized, would favorably impact the effective income tax rate in future periods.
The Company or one of its subsidiaries files income tax returns in the U.S. federal jurisdiction and various state, local and foreign jurisdictions. All material federal, state, local, and foreign income tax matters have been concluded for years through 2002.
The Company is continuing its practice of recognizing interest and penalties related to income tax matters in income tax expense. The total accrual for interest and penalties related to uncertain tax positions was approximately $1.1 million as of June 30, 2007, which included $0.1 million accrued during the first quarter and the second quarter of 2007, the impact of which was to reduce net income by $0.1 million and earnings per diluted share by less than $0.01 in the three and six months ended June 30, 2007.
15
Note 6Comprehensive (Loss) Income
Total comprehensive (loss) income was $(3.0) million and $(2.4) million for the three and six months ended June 30, 2007, and $4.0 million and $4.5 million for the three and six months ended June 30, 2006. The Companys comprehensive (loss) income is comprised of net (loss) income and foreign currency translation adjustments.
Note 7Debt
During the first quarter of 2007, the Company repurchased $56.0 million of its Old Notes for $54.8 million , reducing the amount of Old Notes outstanding from $200.0 million to $144.0 million. As a result of these repurchases, the Company recorded a net gain from the extinguishment of debt of $0.7 million.
On April 20, 2007, the Company issued new notes pursuant to privately negotiated exchange agreements with certain holders of Old Notes. Under these agreements, such holders agreed to exchange $106.4 million aggregate principal amount of the Old Notes for approximately $105.5 million aggregate principal amount of New Notes . On May 1, 2007, the Company issued an additional $12.3 million aggregate principal amount of New Notes in a second round of exchange transactions with the holders of $12.4 million of Old Notes. Following the exchange transactions, approximately $25.2 million of the Old Notes, with a conversion price of $38.51 per common share, remained outstanding. No net gain or loss was recorded on the exchange transactions since the carrying value of the Old Notes including unamortized deferred financing costs approximated the exchange value of the New Notes.
The New Notes initially will be convertible into 36.7277 shares of common stock per $1,000 principal amount of New Notes (equivalent to a conversion price of $27.23 per share or a premium of 38% over the closing market price for Veecos common stock on April 16, 2007). Holders may convert the New Notes at any time during the period beginning on January 15, 2012 through the close of business on the second day prior to April 15, 2012 and earlier upon the occurrence of certain events including the Companys common stock trading at prices 130% over the conversion price for a specified period.
Note 8 Commitments, Contingencies and Other Matters
Litigation
As previously reported in Veecos Annual Report of Form 10-K for the year ending December 31, 2006, Veeco and certain of its officers have been named as defendants in a securities class action lawsuit consolidated in August 2005 that is pending in federal court in the Southern District of New York (the Court). The lawsuit arises out of the restatement in March 2005 of Veecos financial statements for the quarterly periods and nine months ended September 30, 2004 as a result of the Companys discovery of certain improper accounting transactions at its TurboDisc business unit. On July 5, 2007, Veeco entered into a Memorandum of Understanding to settle and fully resolve this lawsuit for a payment of $5.5 million. Veeco expects that insurance proceeds will cover the settlement amount and any significant legal expenses related to the settlement. The settlement agreement is subject to court approval and would dismiss all pending claims against Veeco and the other defendants with no admission or finding of wrongdoing by Veeco or any of the other defendants, and Veeco and the other defendants would receive a full release of all claims pending in the litigation.
2007 Restructuring Expenses
In conjunction with a cost reduction plan, the Company recognized a restructuring charge of approximately $1.4 million during the second quarter of 2007, which was recorded as restructuring expense in the condensed consolidated statements of operations. The charge consisted of personnel severance costs for approximately 25 employees, or approximately 2% of total employees, which included management, administration and manufacturing employees primarily located at the Companys Metrology operations in Santa Barbara, California and Tucson, Arizona. As of June 30, 2007, approximately $0.2 million has been paid and approximately $1.2 million remains accrued. The remainder is expected to be paid by the fourth quarter of 2008.
16
The following is a reconciliation of the liability for the restructuring charge (in thousands):
|
|
Process
|
|
Metrology |
|
|
|
Total |
|
||||
Charged to accrual |
|
$ |
|
|
$ |
1,352 |
|
$ |
93 |
|
$ |
1,445 |
|
Cash payments during 2007 |
|
|
|
(226 |
) |
(27 |
) |
(253 |
) |
||||
Balance as of June 30, 2007 |
|
$ |
|
|
$ |
1,126 |
|
$ |
66 |
|
$ |
1,192 |
|
17
Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations.
Executive Summary
Veeco designs, manufactures, markets and services a broad line of equipment primarily used by manufacturers in the data storage, scientific and industrial research, semiconductor, high-brightness light emitting diode (HB-LED) and wireless industries. These industries help create a wide range of information age products such as computer integrated circuits, personal computers, hard disk drives, network servers, digital cameras, wireless phones, TV set-top boxes, personal music/video players and personal digital assistants. Our broad line of products features leading edge technology and allows customers to improve time-to-market of their next generation products. Veecos products are also enabling advancements in the growing fields of nanoscience, nanobiology and other areas of scientific and industrial research.
Veecos Process Equipment products precisely deposit or remove (etch) various materials in the manufacturing of thin film magnetic heads (TFMHs) for the data storage industry, HB-LED/wireless devices (such as power amplifiers and laser diodes) and semiconductor mask reticles. Veecos metrology equipment is used to provide critical surface measurements on semiconductor devices and TFMHs. This equipment allows customers to monitor their products throughout the manufacturing process in order to improve yields, reduce costs and improve product quality. Veecos metrology solutions are also used by many universities, scientific laboratories and industrial applications. We sell our broad line of atomic force microscopes (AFMs), optical interferometers and stylus profilers to thousands of universities, research facilities and scientific centers worldwide.
We currently maintain manufacturing facilities in Arizona, California, Colorado, Minnesota, New Jersey and New York, with sales and service locations around the world.
Highlights of the Second Quarter of 2007
Revenue was $98.8 million, a 12% decrease from the second quarter of 2006.
Orders were $112.5 million, down 21% from the second quarter of 2006.
Net loss was $2.6 million, or ($0.08) per share, compared to net income of $3.0 million, or $0.10 per share, in the second quarter of 2006.
Gross margins were 42.8%, compared to 44.5% in the second quarter of 2006.
Highlights of the First Half of 2007
Revenue was $197.9 million, a 4% decrease from the first half of 2006.
Orders were $218.4 million, down 19% from the first half of 2006.
Net loss was $2.3 million, or ($0.07) per share, compared to net income of $2.8 million, or $0.09 per share, in the first half of 2006.
Gross margins were 43.4%, compared to 44.5% in the first half of 2006.
Veeco reported revenue of $98.8 million in the second quarter of 2007, a 12% decrease from the prior year. Veeco expects continued fluctuations in data storage and semiconductor capital expenditure purchases as customers reassess their production ramps and timing of new technology transition plans. Veecos revenues fell below guidance of $100 million to $105 million due primarily to the field acceptance delay of a new data storage PVD system and end of quarter data storage customer factory shut-downs. In addition to the challenges in data storage, weakness in Veecos semiconductor business also negatively impacted revenue and profitability.
Veecos orders for the three months ended June 30, 2007 were $112.5 million, a decrease of 21% from the $143.2 million reported in the same three month period of 2006. While still below last years peak rates, Veecos data storage orders increased 41% sequentially to $41.4 million (a decrease of 42% from last years second quarter) and the Company currently believes that the data storage environment has improved from an order perspective. While Veecos data storage customers are undergoing a period of consolidation and Veeco often has limited visibility to their spending
18
patterns, we believe that longer term industry requirements for increased areal density and consumer electronic expansion will drive future investment in perpendicular head technology and conversion to larger wafer size. Second quarter orders in the HB-LED/Wireless segment remain strong at $34.5 million, down 11% sequentially but up 26% from last years second quarter. This increased order rate compared to the prior year reflects the introduction of new consumer HB-LED backlighting for emerging applications such as personal computers and flat panel televisions as well as positive customer interest in Veecos next generation K-Series metal organic chemical vapor deposition (MOCVD) tools, which were introduced in December 2006 and provide significant advantages in uniformity and throughput. The most unfavorable order segment for Veeco during the second quarter was semiconductor, down 29% sequentially. Veeco will be launching its next generation automated AFM product in the fall of 2007 (currently taking evaluation orders from key customers), and currently expects this product to help improve Veecos semiconductor order and revenue stream in 2008.
Technology changes are continuing in all of Veecos markets: the continued increase of 80 GB hard drives and investment in 120 GB hard drives and the transition to perpendicular recording in data storage; the increased usage of mini drives in consumer electronic applications; the reduction of feature sizes in the semiconductor industry to 45 nanometer and below; the growing applications in HB-LED such as automotive, architectural lighting and backlighting for laptops; and opportunities in the solar industry. Veeco believes that these trends, together with the continued funding of nanoscience research, will prompt customers to seek our next-generation solutions to address their manufacturing and technology challenges. In addition, consumer spending on many types of electronics has increased and various worldwide economies, such as those in the Asia Pacific region, are experiencing growth.
Outlook
The Company reviews a number of indicators to evaluate the strength of its markets going forward, such as plant utilization trends, capacity requirements and capital spending trends. Veeco is currently forecasting a decline in revenues on a sequential basis for the third quarter of 2007 with revenues improving in the fourth quarter. Veeco currently expects its revenues to be in the range of approximately $92 million to $97 million for the third quarter of 2007. While Veeco has a strong pipeline of new products for the data storage, HB-LED, semiconductor and scientific research markets, many of these are in the early stages of shipments and there is uncertainty associated with customer acceptance and the Companys ability to recognize revenue upon shipment of the products. The Company is also forecasting a decline in profitability in the third quarter of 2007 compared to the second quarter due to several key factors including: introductory pricing for several new data storage products and low revenue in Veecos Metrology business. Fourth quarter 2007 revenues and profitability are forecasted to improve from the weak third quarter levels on improved volume and pricing in both Process Equipment and Metrology. Compared with first half 2007 revenue of $197.9 million, Veeco currently forecasts that second half 2007 revenue will improve to $200-$220 million, subject to customer acceptance timing. This would bring revenue for the full year to approximately $400-$420 million, down 5-10% from 2006.
19
Results of Operations:
Consistent with prior years, the Company reports interim quarters, other than fourth quarters which end on December 31, on a 13-week basis ending on the last Sunday within such period. The interim quarter ends are determined at the beginning of each year based on the 13-week quarters. The 2007 interim quarter ends are April 1, July 1 and September 30. The 2006 interim quarter ends were April 2, July 2 and October 1. For ease of reference, the Company reports these interim quarter ends as March 31, June 30, and September 30 in its interim condensed consolidated financial statements.
The following tables show selected items of Veecos Consolidated Statements of Operations, percentages of sales and comparisons between the three months ended June 30, 2007 and 2006 and the analysis of sales and orders for the same periods by segment, industry and region (in thousands):
|
|
Three Months ended
|
|
Dollar |
|
|||||||||
|
|
2007 |
|
2006 |
|
Change |
|
|||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||
Net sales |
|
$ |
98,769 |
|
100.0 |
% |
$ |
111,635 |
|
100.0 |
% |
$ |
(12,866 |
) |
Cost of sales |
|
56,524 |
|
57.2 |
|
61,923 |
|
55.5 |
|
(5,399 |
) |
|||
Gross profit |
|
42,245 |
|
42.8 |
|
49,712 |
|
44.5 |
|
(7,467 |
) |
|||
Operating expenses: |
|
|
|
|
|
|
|
|
|
|
|
|||
Selling, general and administrative expense |
|
23,818 |
|
24.1 |
|
24,996 |
|
22.4 |
|
(1,178 |
) |
|||
Research and development expense |
|
15,903 |
|
16.1 |
|
15,252 |
|
13.7 |
|
651 |
|
|||
Amortization expense |
|
2,368 |
|
2.4 |
|
3,989 |
|
3.5 |
|
(1,621 |
) |
|||
Restructuring expense |
|
1,445 |
|
1.5 |
|
|
|
|
|
1,445 |
|
|||
Other income, net |
|
(279 |
) |
(0.3 |
) |
(132 |
) |
(0.1 |
) |
(147 |
) |
|||
Total operating expenses |
|
43,255 |
|
43.8 |
|
44,105 |
|
39.5 |
|
(850 |
) |
|||
Operating (loss) income |
|
(1,010 |
) |
(1.0 |
) |
5,607 |
|
5.0 |
|
(6,617 |
) |
|||
Interest expense, net |
|
772 |
|
0.8 |
|
1,149 |
|
1.0 |
|
(377 |
) |
|||
(Loss) income before income taxes and noncontrolling interest |
|
(1,782 |
) |
(1.8 |
) |
4,458 |
|
4.0 |
|
(6,240 |
) |
|||
Income tax provision |
|
1,042 |
|
1.0 |
|
1,433 |
|
1.3 |
|
(391 |
) |
|||
Noncontrolling interest |
|
(229 |
) |
(0.2 |
) |
|
|
|
|
(229 |
) |
|||
Net (loss) income |
|
$ |
(2,595 |
) |
(2.6 |
)% |
$ |
3,025 |
|
2.7 |
% |
$ |
(5,620 |
) |
|
|
Sales |
|
Orders |
|
|
|
|
|
||||||||||||||||||
|
|
Three
Months ended
|
|
Dollar
and
|
|
Three
Months ended
|
|
Dollar
and
|
|
Book to
Bill
|
|
||||||||||||||||
|
|
2007 |
|
2006 |
|
Year to Year |
|
2007 |
|
2006 |
|
Year to Year |
|
2007 |
|
2006 |
|
||||||||||
Segment Analysis |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Process Equipment |
|
$ |
60,016 |
|
$ |
67,361 |
|
$ |
(7,345 |
) |
(10.9 |
)% |
$ |
77,667 |
|
$ |
94,309 |
|
$ |
(16,642 |
) |
(17.6 |
)% |
1.29 |
|
1.40 |
|
Metrology |
|
38,753 |
|
44,274 |
|
(5,521 |
) |
(12.5 |
) |
34,786 |
|
48,899 |
|
(14,113 |
) |
(28.9 |
) |
0.90 |
|
1.10 |
|
||||||
Total |
|
$ |
98,769 |
|
$ |
111,635 |
|
$ |
(12,866 |
) |
(11.5 |
)% |
$ |
112,453 |
|
$ |
143,208 |
|
$ |
(30,755 |
) |
(21.5 |
)% |
1.14 |
|
1.28 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Industry Analysis |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Data Storage |
|
$ |
31,155 |
|
$ |
53,105 |
|
$ |
(21,950 |
) |
(41.3 |
)% |
$ |
41,362 |
|
$ |
71,446 |
|
$ |
(30,084 |
) |
(42.1 |
)% |
1.33 |
|
1.35 |
|
HB-LED/wireless |
|
25,743 |
|
18,424 |
|
7,319 |
|
39.7 |
|
34,515 |
|
27,405 |
|
7,110 |
|
25.9 |
|
1.34 |
|
1.49 |
|
||||||
Semiconductor |
|
10,782 |
|
12,448 |
|
(1,666 |
) |
(13.4 |
) |
8,331 |
|
19,997 |
|
(11,666 |
) |
(58.3 |
) |
0.77 |
|
1.61 |
|
||||||
Research and Industrial |
|
31,089 |
|
27,658 |
|
3,431 |
|
12.4 |
|
28,245 |
|
24,360 |
|
3,885 |
|
15.9 |
|
0.91 |
|
0.88 |
|
||||||
Total |
|
$ |
98,769 |
|
$ |
111,635 |
|
$ |
(12,866 |
) |
(11.5 |
)% |
$ |
112,453 |
|
$ |
143,208 |
|
$ |
(30,755 |
) |
(21.5 |
)% |
1.14 |
|
1.28 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Regional Analysis (1) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
North America |
|
$ |
31,275 |
|
$ |
34,541 |
|
$ |
(3,266 |
) |
(9.5 |
)% |
$ |
39,428 |
|
$ |
52,834 |
|
$ |
(13,406 |
) |
(25.4 |
)% |
1.26 |
|
1.53 |
|
Europe |
|
20,593 |
|
16,095 |
|
4,498 |
|
27.9 |
|
22,091 |
|
9,648 |
|
12,443 |
|
129.0 |
|
1.07 |
|
0.60 |
|
||||||
Japan |
|
11,251 |
|
11,297 |
|
(46 |
) |
(0.4 |
) |
17,057 |
|
19,596 |
|
(2,539 |
) |
(13.0 |
) |
1.52 |
|
1.73 |
|
||||||
Asia-Pacific |
|
35,650 |
|
49,702 |
|
(14,052 |
) |
(28.3 |
) |
33,877 |
|
61,130 |
|
(27,253 |
) |
(44.6 |
) |
0.95 |
|
1.23 |
|
||||||
Total |
|
$ |
98,769 |
|
$ |
111,635 |
|
$ |
(12,866 |
) |
(11.5 |
)% |
$ |
112,453 |
|
$ |
143,208 |
|
$ |
(30,755 |
) |
(21.5 |
)% |
1.14 |
|
1.28 |
|
(1) The prior period has been reclassified to conform to the current period presentation.
20
Net sales of $98.8 million for the second quarter of 2007 were down $12.9 million, or 11.5%, compared to the second quarter of 2006. By segment, Process Equipment sales were down $7.4 million, or 10.9%. The decrease in Process Equipment sales is primarily due to a decrease in sales to the data storage market. Partially offsetting this decline was a continued increase in sales to the HB-LED/wireless market. Metrology sales declined $5.5 million, primarily due to decreased purchases of optical metrology products in the data storage market and automated AFM products in the semiconductor market. By region, net sales increased by 27.9% in Europe, while sales in Asia-Pacific, North America and Japan declined 28.3%, 9.5% and 0.4%, respectively. The Company believes that quarter-to-quarter variations in the geographic distribution of sales will continue.
Orders of $112.5 million for the second quarter of 2007 decreased by $30.8 million, or 21.5%, from the comparable 2006 period. By segment, the 17.6% decrease in Process Equipment orders was primarily due to a $22.0 million decrease in orders for Ion Beam equipment as a result of a decrease in customer demand in the data storage industry. The 28.9% decrease in Metrology orders was due to an $11.9 million decrease in orders for automated AFM products, principally to semiconductor customers, as well as a $1.6 million decrease in orders for optical metrology products, principally to data storage customers.
The Companys book-to-bill ratio for the second quarter of 2007, which is calculated by dividing orders received in a given time period by revenue recognized in the same time period, was 1.14. The Companys backlog as of June 30, 2007 was $161.3 million, compared to $140.8 million as of December 31, 2006. During the quarter ended June 30, 2007, the Company experienced no significant net backlog adjustments and order cancellations. However the Company did experience rescheduling of order delivery dates by customers. Due to changing business conditions and customer requirements, the Company may continue to experience cancellations and/or rescheduling of orders.
Gross profit for the quarter ended June 30, 2007 was 42.8%, compared to 44.5% in the second quarter of 2006. Process Equipment sales represented 60.8% of total sales for the second quarter of 2007, up from 60.3% in the prior year period. Metrology sales accounted for 39.2% of total sales for the second quarter of 2007, down from 39.7% in the prior year period. Metrology gross margins decreased to 44.4% from 51.0%, principally due to lower sales volume of optical metrology and automated AFM products and a less favorable product mix in the AFM products sold to scientific and research customers. This decrease was partially offset by an increase in Process Equipment gross margins to 41.7% from 40.3% in the prior year period, despite a $7.4 million reduction in sales. This increase is primarily due to significant improvement in MOCVD product gross margins to 40.3% up from 22.1% in the prior year period due to a $7.5 million, or 55% increase in sales, as well as a significant improvement in mix and price.
Selling, general and administrative expenses were $23.8 million, or 24.1% of sales, in the second quarter of 2007, compared with $25.0 million, or 22.4% of sales, in the comparable prior year period. The $1.2 million decrease is primarily attributable to a reduction in management bonuses and long-term incentive expenses associated with reduced earnings in 2007 and a reduction in legal fees partially offset by an increase in non-cash stock-based compensation expense .
Research and development expense totaled $15.9 million in the second quarter of 2007, an increase of $0.7 million from the second quarter of 2006, primarily due to new product development efforts in automated AFM for the semiconductor market as well as an investment in AFM for life sciences applications. As a percentage of sales, research and development increased to 16.1% in the second quarter of 2007, compared to 13.7% in the second quarter of 2006.
Amortization expense was $2.4 million in the second quarter of 2007, compared to $4.0 million in the second quarter of 2006. The decrease was principally due to certain technology-based intangibles becoming fully amortized during the second quarter of 2007.
The restructuring expense of $1.4 million for the quarter ended June 30, 2007, was related to personnel severance costs principally associated with the Companys Metrology operations in Santa Barbara, California and Tucson, Arizona.
Net interest expense in the second quarter of 2007 was $0.8 million compared to $1.1 million in the second quarter of 2006. This reduction in net interest expense is primarily related to less interest expense associated with the extinguishment of debt and higher cash balances invested during the second quarter of 2007 compared to the second quarter of 2006.
21
The income tax provision for the quarter ended June 30, 2007 was $1.0 million compared to $1.4 million in the second quarter of 2006. The 2007 provision for income taxes included $0.7 million relating to Veecos foreign operations which continue to be profitable and $0.3 million relating to the Companys domestic operations. Due to significant domestic net operating loss carry forwards, which are fully reserved by a valuation allowance, Veecos domestic operations are not expected to incur significant income taxes for the foreseeable future. The 2006 provision for income taxes included $1.1 million relating to Veecos foreign operations and $0.3 million relating to the Companys domestic operations. The reduction in income tax provision is due to a decrease in taxable income in the Companys foreign operations.
Noncontrolling interest was a credit to income of $0.2 million for the three months ended June 30, 2007. As the Company is the primary beneficiary of Fluens Corporation (Fluens), a variable interest entity as defined by Financial Accounting Standards Board (FASB) Interpretation No. 46(R), Consolidation of Variable Interest Entities (revised December 2003)an interpretation of ARB No. 51, it is required to consolidate Fluens and eliminate the portion of its results attributable to noncontrolling interests. As a result, the Company eliminated from its net income 80.1% of Fluens operating losses for the three months ended June 30, 2007.
The following tables show selected items of Veecos Consolidated Statements of Operations, percentages of sales and comparisons between the six months ended June 30, 2007 and 2006 and the analysis of sales and orders for the same periods by segment, industry and region (in thousands):
|
|
Six Months ended
|
|
Dollar |
|
|||||||||
|
|
2007 |
|
2006 |
|
Change |
|
|||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||
Net sales |
|
$ |
197,935 |
|
100.0 |
% |
$ |
205,553 |
|
100.0 |
% |
$ |
(7,618 |
) |
Cost of sales |
|
111,995 |
|
56.6 |
|
114,072 |
|
55.5 |
|
(2,077 |
) |
|||
Gross profit |
|
85,940 |
|
43.4 |
|
91,481 |
|
44.5 |
|
(5,541 |
) |
|||
Operating expenses: |
|
|
|
|
|
|
|
|
|
|
|
|||
Selling, general and administrative expense |
|
46,624 |
|
23.6 |
|
46,326 |
|
22.6 |
|
298 |
|
|||
Research and development expense |
|
31,292 |
|
15.8 |
|
29,838 |
|
14.5 |
|
1,454 |
|
|||
Amortization expense |
|
6,277 |
|
3.2 |
|
8,004 |
|
3.9 |
|
(1,727 |
) |
|||
Restructuring expense |
|
1,445 |
|
0.7 |
|
|
|
|
|
1,445 |
|
|||
Other (income) expense, net |
|
(426 |
) |
(0.2 |
) |
67 |
|
|
|
(493 |
) |
|||
Total operating expenses |
|
85,212 |
|
43.1 |
|
84,235 |
|
41.0 |
|
977 |
|
|||
Operating income |
|
728 |
|
0.3 |
|
7,246 |
|
3.5 |
|
(6,518 |
) |
|||
Interest expense, net |
|
1,591 |
|
0.8 |
|
2,527 |
|
1.2 |
|
(936 |
) |
|||
Gain on extinguishment of debt |
|
(738 |
) |
(0.4 |
) |
(330 |
) |
(0.2 |
) |
(408 |
) |
|||
(Loss) income before income taxes and noncontrolling interest |
|
(125 |
) |
(0.1 |
) |
5,049 |
|
2.5 |
|
(5,174 |
) |
|||
Income tax provision |
|
2,536 |
|
1.3 |
|
2,266 |
|
1.1 |
|
270 |
|
|||
Noncontrolling interest |
|
(359 |
) |
(0.2 |
) |
|
|
|
|
(359 |
) |
|||
Net (loss) income |
|
$ |
(2,302 |
) |
(1.2 |
)% |
$ |
2,783 |
|
1.4 |
% |
$ |
(5,085 |
) |
22
|
|
Sales |
|
Orders |
|
|
|
||||||||||||||||||||
|
|
Six
Months ended
|
|
Dollar
and
|
|
Six
Months ended
|
|
Dollar
and
|
|
Book to
Bill
|
|
||||||||||||||||
|
|
2007 |
|
2006 |
|
Year to Year |
|
2007 |
|
2006 |
|
Year to Year |
|
2007 |
|
2006 |
|
||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Segment Analysis |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Process Equipment |
|
$ |
118,105 |
|
$ |
120,552 |
|
$ |
(2,447 |
) |
(2.0 |
)% |
$ |
146,367 |
|
$ |
177,802 |
|
$ |
(31,435 |
) |
(17.7 |
)% |
1.24 |
|
1.47 |
|
Metrology |
|
79,830 |
|
85,001 |
|
(5,171 |
) |
(6.1 |
) |
71,993 |
|
92,100 |
|
(20,107 |
) |
(21.8 |
) |
0.90 |
|
1.08 |
|
||||||
Total |
|
$ |
197,935 |
|
$ |
205,553 |
|
$ |
(7,618 |
) |
(3.7 |
)% |
$ |
218,360 |
|
$ |
269,902 |
|
$ |
(51,542 |
) |
(19.1 |
)% |
1.10 |
|
1.31 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Industry Analysis |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Data Storage |
|
$ |
66,666 |
|
$ |
93,188 |
|
$ |
(26,522 |
) |
(28.5 |
)% |
$ |
70,737 |
|
$ |
141,832 |
|
$ |
(71,095 |
) |
(50.1 |
)% |
1.06 |
|
1.52 |
|
HB-LED/wireless |
|
46,745 |
|
33,520 |
|
13,225 |
|
39.5 |
|
73,372 |
|
51,732 |
|
21,640 |
|
41.8 |
|
1.57 |
|
1.54 |
|
||||||
Semiconductor |
|
20,951 |
|
23,757 |
|
(2,806 |
) |
(11.8 |
) |
20,073 |
|
30,095 |
|
(10,022 |
) |
(33.3 |
) |
0.96 |
|
1.27 |
|
||||||
Research and Industrial |
|
63,573 |
|
55,088 |
|
8,485 |
|
15.4 |
|
54,178 |
|
46,243 |
|
7,935 |
|
17.2 |
|
0.85 |
|
0.84 |
|
||||||
Total |
|
$ |
197,935 |
|
$ |
205,553 |
|
$ |
(7,618 |
) |
(3.7 |
)% |
$ |
218,360 |
|
$ |
269,902 |
|
$ |
(51,542 |
) |
(19.1 |
)% |
1.10 |
|
1.31 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Regional Analysis (1) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
North America |
|
$ |
66,502 |
|
$ |
67,259 |
|
$ |
(757 |
) |
(1.1 |
)% |
$ |
73,500 |
|
$ |
92,902 |
|
$ |
(19,402 |
) |
(20.9 |
)% |
1.11 |
|
1.38 |
|
Europe |
|
34,955 |
|
34,450 |
|
505 |
|
1.5 |
|
41,176 |
|
26,816 |
|
14,360 |
|
53.6 |
|
1.18 |
|
0.78 |
|
||||||
Japan |
|
31,147 |
|
26,298 |
|
4,849 |
|
18.4 |
|
29,795 |
|
31,174 |
|
(1,379 |
) |
(4.4 |
) |
0.96 |
|
1.19 |
|
||||||
Asia-Pacific |
|
65,331 |
|
77,546 |
|
(12,215 |
) |
(15.8 |
) |
73,889 |
|
119,010 |
|
(45,121 |
) |
(37.9 |
) |
1.13 |
|
1.53 |
|
||||||
Total |
|
$ |
197,935 |
|
$ |
205,553 |
|
$ |
(7,618 |
) |
(3.7 |
)% |
$ |
218,360 |
|
$ |
269,902 |
|
$ |
(51,542 |
) |
(19.1 |
)% |
1.10 |
|
1.31 |
|
(1) The prior period has been reclassified to conform to the current period presentation.
Net sales of $197.9 million for the six months ended June 30, 2007 were down $7.6 million, or 3.7%, compared to the six months ended June 30, 2006. By segment, Process Equipment sales were down $2.4 million, or 2.0%. The decrease in Process Equipment sales is primarily due to a decrease in customer demand in the data storage industry. Partially offsetting this decline was an increase in sales to the HB-LED/wireless market. Metrology sales decreased $5.2 million, or 6.1%, primarily due to decreased purchases of optical metrology products in the data storage market and automated AFM products in the semiconductor market. By region, net sales increased by 18.4% in Japan and 1.5% in Europe, while sales in Asia-Pacific and North America declined 15.8% and 1.1%, respectively. The Company believes that there will continue to be period-to-period variations in the geographic distribution of sales.
Orders of $218.4 million for the six months ended June 30, 2007 decreased by $51.5 million, or 19.1%, from the comparable 2006 period. By segment, the 17.7% decrease in Process Equipment orders was primarily due to a $40.6 million decrease in orders for Ion Beam equipment as a result of a decrease in customer demand in the data storage industry, partially offset by a $21.7 million increase in MOCVD orders resulting from an increase in purchases in the HB-LED/wireless market. The 21.8% decrease in Metrology orders was primarily due to a $10.1 million decrease in orders for optical metrology products, principally to data storage customers, and a $10.2 million decrease in orders for automated AFM products, principally to semiconductor customers.
The Companys book-to-bill ratio for the six months ended June 30, 2007, which is calculated by dividing orders received in a given time period by revenue recognized in the same time period, was 1.10. The Companys backlog as of June 30, 2007 was $161.3 million, compared to $140.8 million as of December 31, 2006. During the six months ended June 30, 2007, the Company experienced net backlog adjustments and order cancellations of less than $0.1 million. The Company also experienced rescheduling of order delivery dates by customers. Due to changing business conditions and customer requirements, the Company may continue to experience cancellations and/or rescheduling of orders.
Gross profit for the six months ended June 30, 2007 was 43.4%, compared to 44.5% in the comparable prior year period. Process Equipment sales represented 59.7% of total sales for the six months ended June 30, 2007, up from 58.6% in the prior year period. Metrology sales accounted for 40.3% of total sales for the six months ended June 30, 2007, down from 41.4% in the comparable prior year period. Metrology gross margins decreased to 46.9% from 51.9%, principally due to less favorable product mix in AFM products sold to scientific and research customers and lower sales volume of automated AFM and optical metrology products. This decrease was partially offset by an increase in Process Equipment gross margins to 41.0% from 39.3% in the prior year period. This increase is primarily due to significant improvement in MOCVD product gross margins when compared to the prior year period due to a $12.3 million, or 55.1% increase in sales, as well as a significant improvement in mix and price.
23
Selling, general and administrative expenses were $46.6 million, or 23.6% of sales, in the six months ended June 30, 2007, compared with $46.3 million, or 22.6% of sales, in the comparable prior year period. The $0.3 million increase is primarily attributable to an increase in non-cash compensation expense related to stock options and restricted shares and selling expense due primarily to an investment in the AFM product line for life sciences applications partially offset by a reduction in management incentive bonus expense and legal fees.
Research and development expense totaled $31.3 million in the six months ended June 30, 2007, an increase of $1.5 million from the comparable prior year period, primarily due to an investment in life sciences applications in AFM as well as new product development efforts in the Companys MOCVD product platform for HB-LED/wireless applications and automated AFM products for the semiconductor industry. As a percentage of sales, research and development increased to 15.8% in the six months ended June 30, 2007, compared to 14.5% in the comparable prior year period.
Amortization expense was $6.3 million in the six months ended June 30, 2007, compared to $8.0 million in the comparable prior year period. The decrease was due to certain technology-based intangibles becoming fully amortized during the second quarter of 2007.
The restructuring expense of $1.4 million for the six months ended June 30, 2007, was related to personnel severance costs principally associated with the Companys Metrology operations in Santa Barbara, California and Tucson, Arizona.
During the six months ended June 30, 2007, the Company repurchased $56.0 million of its convertible subordinated notes, reducing the amount outstanding from $200.0 million to $144.0 million. The repurchase amount was $55.1 million in cash, of which $54.8 million related to principal and $0.3 million related to accrued interest. As a result of the repurchase, the Company recorded a net gain from the extinguishment of debt in the amount of $0.7 million. During the six months ended June 30, 2006, the Company repurchased $20.0 million of its convertible subordinated notes reducing the amount outstanding from $220.0 million to $200.0 million. As a result of these repurchases, the Company recorded a net gain from the extinguishment of debt in the amount of $0.3 million.
Net interest expense in six months ended June 30, 2007 was $1.6 million compared to $2.5 million in the comparable prior year period. This reduction in net interest expense is primarily related to less interest expense associated with the extinguishment of debt and higher cash balances invested during the six months ended June 30, 2007 compared to the prior year period.
The income tax provision for the six months ended June 30, 2007 was $2.5 million compared to $2.3 million in the comparable prior year period. The 2007 provision for income taxes included $1.9 million relating to Veecos foreign operations, which continue to be profitable, and $0.6 million relating to the Companys domestic operations. Due to significant domestic net operating loss carry forwards, which are fully reserved by a valuation allowance, Veecos domestic operations are not expected to incur significant income taxes for the foreseeable future. The 2006 provision for income taxes included $1.7 million relating to Veecos foreign operations and $0.6 million relating to the Companys domestic operations.
Noncontrolling interest was a credit to income of $0.4 million for the six months ended June 30, 2007. As the Company is the primary beneficiary of Fluens Corporation, a variable interest entity as defined by FASB Interpretation No. 46(R), Consolidation of Variable Interest Entities (revised December 2003)an interpretation of ARB No. 51, it is required to consolidate Fluens and eliminate the portion of its results attributable to noncontrolling interests. As a result, the Company eliminated from its net income 80.1% of Fluens operating losses for the six months ended June 30, 2007.
Liquidity and Capital Resources
Historically, Veecos principal capital requirements have included the funding of acquisitions and capital expenditures. The Company traditionally has generated cash from operations and debt and stock issuances. Veecos ability to generate sufficient cash flows from operations is dependent on the continued demand for the Companys products and services.
24
The Company had a net decrease in cash of $39.0 million for the six months ended June 30, 2007 from December 31, 2006, primarily due to the repurchase of $56.0 million of its 4.125% convertible subordinated notes due 2008 (the Old Notes). Cash provided by operations was $20.6 million for this period, as compared to cash provided by operations of $16.7 million for the comparable 2006 period. Net (loss) income adjusted for non-cash items provided operating cash flows of $12.5 million for the six months ended June 30, 2007, compared to $18.1 million for the comparable 2006 period. Net cash provided by operations for the six months ended June 30, 2007 was impacted by an increase in net operating assets and liabilities of $8.2 million. Accounts receivable decreased $21.1 million during the six months ended June 30, 2007, due to a $24.3 million reduction in sales when comparing the fourth quarter of 2006 to the second quarter of 2007 and favorable cash collections during 2007. Inventories increased by approximately $4.0 million during the same period, principally due to an increase in work in process and finished goods inventories for systems to be shipped during the second half of 2007 in the Process Equipment segment. Accrued expenses and other current liabilities decreased $4.1 million during the six months ended June 30, 2007, due primarily to the first quarter payout of management incentive compensation and sales commissions.
Cash used in investing activities of $5.6 million for the six months ended June 30, 2007, resulted primarily from capital expenditures of $5.9 million, partially offset by $0.3 million in proceeds from the sale of property, plant and equipment. During 2007, the Company expects to invest a total of approximately $16.4 million in capital projects primarily related to engineering equipment and lab tools used in producing, testing and process development for Veecos products, enhanced manufacturing facilities and the continuing implementation of SAP and related computer systems.
Cash used in financing activities for the six months ended June 30, 2007, totaled $54.2 million, primarily consisting of $55.1 million primarily used to repurchase a portion of the Companys Old Notes, $1.0 million in payments for debt issuance costs, partially offset by $2.1 million from the issuance of common stock resulting from the exercise of employee stock options.
During the first quarter of 2007, the Company repurchased $56.0 million of its Old Notes, for $54.8 million. As a result of these repurchases, the amount of Old Notes outstanding was reduced to $144.0 million and the Company recorded a net gain of $0.7 million.
On April 20, 2007, the Company issued new notes pursuant to privately negotiated exchange agreements with certain holders of the Old Notes. Under these agreements, such holders agreed to exchange $106.4 million aggregate principal amount of the Old Notes for approximately $105.5 million aggregate principal amount of a new series of 4.125% convertible subordinated notes due April 15, 2012 (the New Notes). On May 1, 2007, the Company issued an additional $12.3 million aggregate principal amount of New Notes in a second round of exchange transactions with the holders of $12.4 million of Old Notes. Following the exchange transactions, approximately $25.2 million of the Old Notes, with a conversion price of $38.51 per common share, remained outstanding. No net gain or loss was recorded on the exchange transactions since the carrying value of the Old Notes including unamortized deferred financing costs approximated the exchange value of the New Notes.
The New Notes initially will be convertible into 36.7277 shares of common stock per $1,000 principal amount of New Notes (equivalent to a conversion price of $27.23 per share or a premium of 38% over the closing market price for Veecos common stock on April 16, 2007). Holders may convert the New Notes at any time during the period beginning on January 15, 2012 through the close of business on the second day prior to April 15, 2012 and earlier upon the occurrence of certain events including Veecos common stock trading at prices 130% over the conversion price for a specified period.
The Company believes that existing cash balances together with cash generated from operations and amounts available under the Companys revolving credit facility will be sufficient to meet the Companys projected working capital and other cash flow requirements for the next twelve months, as well as the Companys contractual obligations, over the next two years. The Company believes it will be able to meet its obligation to repay the outstanding $25.2 million of the Old Notes that mature on December 21, 2008 through cash on hand and cash generated from operations. The Company believes it will be able to meet its obligation to repay the outstanding $117.8 million of the New Notes due in April 2012 through a combination of refinancing, cash generated from operations and/or other means.
In 2006, Veeco purchased 19.9% of the common stock of Fluens Corporation. Veeco and Fluens are jointly developing a next-generation process for high-rate deposition of aluminum oxide for data storage applications. If this
25
development is successful and upon the satisfaction of certain additional conditions by May 2009, Veeco will be obligated to purchase the balance of the outstanding stock of Fluens for $3.5 million and pay an earn-out. Approximately 31% of Fluens is owned by a Vice President of one of Veecos business units.
Application of Critical Accounting Policies
General: Veecos discussion and analysis of its financial condition and results of operations are based upon the Companys Condensed Consolidated Financial Statements, which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of these financial statements requires Veeco to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses. On an on-going basis, management evaluates its estimates and judgments, including those related to bad debts, inventories, intangible assets and other long-lived assets, income taxes, warranty obligations, restructuring costs and contingent liabilities, including potential litigation. Management bases its estimates and judgments on historical experience and on various other factors 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. The Company considers certain accounting policies related to revenue recognition, the valuation of inventories, the impairment of goodwill and indefinite-lived intangible assets, the impairment of long-lived assets, warranty costs, the accounting for taxes and share-based compensation to be critical policies due to the estimation processes involved in each.
Revenue Recognition: The Company recognizes revenue in accordance with the Securities and Exchange Commission (SEC) Staff Accounting Bulletin (SAB) No. 104, Revenue Recognition . Certain of our product sales are accounted for as multiple-element arrangements in accordance with Emerging Issues Task Force (EITF) 00-21, Revenue Arrangements with Multiple Deliverables. A multiple-element arrangement is a transaction which may involve the delivery or performance of multiple products, services, or rights to use assets, and performance may occur at different points in time or over different periods of time. The Company recognizes revenue when persuasive evidence of an arrangement exists, the sales price is fixed or determinable and collectibility is reasonably assured.
For products manufactured according to the Companys published specifications, where no installation is required or installation is deemed perfunctory and no substantive customer acceptance provisions exist, revenue is recognized when title passes to the customer, generally upon shipment. For products produced according to a particular customers specifications, revenue is recognized when the product has been tested, it has been demonstrated that it meets the customers specifications and title passes to the customer. The amount of revenue recorded is reduced by the amount of any customer retention (generally 10% to 20%), which is not payable by the customer until installation is completed and final customer acceptance is achieved. Installation is not deemed to be essential to the functionality of the equipment since installation does not involve significant changes to the features or capabilities of the equipment or building complex interfaces and connections. In addition, the equipment could be installed by the customer or other vendors and generally the cost of installation approximates only 1% to 2% of the sales value of the related equipment.
For new products, new applications of existing products, or for products with substantive customer acceptance provisions where performance cannot be fully assessed prior to meeting customer specifications at the customer site, revenue is recognized upon completion of installation and receipt of final customer acceptance. Since title to goods generally passes to the customer upon shipment and 80% to 90% of the contract amount becomes payable at that time, inventory is relieved and accounts receivable is recorded for the amount billed at the time of shipment. The profit on the amount billed for these transactions is deferred and recorded as deferred profit in the accompanying condensed consolidated balance sheets. At June 30, 2007 and December 31, 2006, $1.2 million and $0.3 million, respectively, are recorded in deferred profit.
Service and maintenance contract revenues are recorded as deferred revenue, which is included in other accrued expenses, and recognized as revenue on a straight-line basis over the service period of the related contract.
Inventory Valuation: Inventories are stated at the lower of cost (principally first-in, first-out method) or market. Management evaluates the need to record adjustments for impairment of inventory on a quarterly basis. The Companys policy is to assess the valuation of all inventories, including raw materials, work-in-process, finished goods and spare parts. Obsolete inventory or inventory in excess of managements estimated usage for the next 12 months requirements is written-down to its estimated market value, if less than its cost. Inherent in the estimates of market value
26
are managements estimates related to Veecos future manufacturing schedules, customer demand, technological and/or market obsolescence, possible alternative uses and ultimate realization of excess inventory.
Goodwill and Indefinite-Lived Intangible Asset Impairment: The Company has significant intangible assets related to goodwill and other acquired intangibles. In assessing the recoverability of the Companys goodwill and other indefinite-lived intangible assets, the Company must make assumptions regarding estimated future cash flows and other factors to determine the fair value of the respective assets. If it is determined that impairment indicators are present and that the assets will not be fully recoverable, their carrying values are reduced to estimated fair value. Impairment indicators include, among other conditions, cash flow deficits, an historic or anticipated decline in revenue or operating profit, adverse legal or regulatory developments, and a material decrease in the fair value of some or all of the assets. Assets are grouped at the lowest levels for which there are identifiable cash flows that are largely independent of the cash flows generated by other asset groups. Changes in strategy and/or market conditions could significantly impact these assumptions, and thus Veeco may be required to record impairment charges for those assets not previously recorded.
Long-Lived Asset Impairment: The carrying values of long-lived assets are periodically reviewed to determine if any impairment indicators are present. If it is determined that such indicators are present and the review indicates that the assets will not be fully recoverable, based on undiscounted estimated cash flows over the remaining depreciation period, their carrying values are reduced to estimated fair value. Impairment indicators include, among other conditions, cash flow deficits, an historic or anticipated decline in revenue or operating profit, adverse legal or regulatory developments, and a material decrease in the fair value of some or all of the assets. Assets are grouped at the lowest level for which there is identifiable cash flows that are largely independent of the cash flows generated by other asset groups. Assumptions utilized by management in reviewing for impairment of long-lived assets could be effected by changes in strategy and/or market conditions which may require Veeco to record additional impairment charges for these assets, as well as impairment charges on other long-lived assets not previously recorded.
Warranty Costs: The Company estimates the costs that may be incurred under the warranty it provides and records a liability in the amount of such costs at the time the related revenue is recognized. Estimated warranty costs are determined by analyzing specific product and historical configuration statistics and regional warranty support costs. The Companys warranty obligation is affected by product failure rates, material usage and labor costs incurred in correcting product failures during the warranty period. As the Companys customer engineers and process support engineers are highly trained and deployed globally, labor availability is a significant factor in determining labor costs. The quantity and availability of critical replacement parts is another significant factor in estimating warranty costs. Unforeseen component failures or exceptional component performance can also result in changes to warranty costs. If actual warranty costs differ substantially from the Companys estimates, revisions to the estimated warranty liability would be required.
Taxes: As part of the process of preparing Veecos Consolidated Financial Statements, the Company is required to estimate its income taxes in each of the jurisdictions in which it operates. This process involves estimating the actual current tax expense, together with assessing temporary differences resulting from differing treatment of items for tax and accounting purposes. These differences result in deferred tax assets and liabilities, which are included within the Companys Condensed Consolidated Balance Sheets. The carrying value of deferred tax assets is adjusted by a valuation allowance to recognize the extent to which the future tax benefits will be recognized on a more likely than not basis. Veecos net deferred tax assets consist primarily of net operating loss and tax credit carryforwards, and timing differences between the book and tax treatment of inventory and other asset valuations. Realization of these net deferred tax assets is dependent upon the Companys ability to generate future taxable income.
The Company records valuation allowances in order to reduce its deferred tax assets to the amount expected to be realized. In assessing the adequacy of recorded valuation allowances, it considers a variety of factors, including the scheduled reversal of deferred tax liabilities, future taxable income, and prudent and feasible tax planning strategies. Under Statement of Financial Accounting Standards No. 109 (SFAS 109), Accounting for Income Taxes factors such as current and previous operating losses are given significantly greater weight than the outlook for future profitability in determining the deferred tax asset carrying value.
27
At June 30, 2007, the Company had a valuation allowance of approximately $67.8 million against substantially all of its domestic net deferred tax assets, which consist of net operating loss and tax credit carryforwards, as well as temporary deductible differences. The valuation allowance was calculated in accordance with the provisions of SFAS 109, which place primary importance on the Companys historical results of operations. Although the Companys results in prior years were significantly affected by restructuring and other charges, the Companys historical losses and the losses incurred in 2005 and 2004 represent negative evidence sufficient to require a full valuation allowance under the provisions of SFAS 109. If the Company is able to realize part or all of the deferred tax assets in future periods, it will reduce its provision for income taxes with a release of the valuation allowance in an amount that corresponds with the income tax liability generated.
In July 2006, the FASB issued Interpretation 48, Accounting for Uncertainty in Income Taxes (FIN 48), an interpretation of FASB Statement No. 109 , which became effective for Veeco on January 1, 2007. FIN 48 addresses the determination of how tax benefits claimed or expected to be claimed on a tax return should be recorded in the financial statements. Under FIN 48, the Company must recognize the tax benefit from an uncertain tax position only if it is more likely than not that the tax position will be sustained on examination by the taxing authorities, based on the technical merits of the position. The tax benefits recognized in the financial statements from such positions are measured based on the largest benefit that has a greater than fifty percent likelihood of being realized upon ultimate resolution. The application of income tax law is inherently complex. Laws and regulations in this area are voluminous and are often ambiguous. The Company is required to make many subjective assumptions and judgments regarding its income tax exposures. Interpretations of and guidance surrounding income tax laws and regulations change over time and changes in assumptions and judgments can materially affect the amounts recognized in the Companys condensed consolidated financial statements. The impact of the Companys reassessment during the first quarter of 2007 of its tax positions in accordance with FIN 48 resulted in a $0.8 million reduction to the January 1, 2007 retained earnings balance.
Share-Based Compensation: In 2006, the Company adopted Statement of Financial Accounting Standards No. 123 (R) Share-Based Payment (SFAS 123(R)) , which is a revision of Statement of Financial Accounting Standards No. 123 (SFAS 123), Accounting for Stock-Based Compensation , supersedes Accounting Principles Board No. 25 (APB 25) and amends Statement of Financial Accounting Standards No. 95, Statement of Cash Flows . Generally, the approach in SFAS 123(R) is similar to the approach described in SFAS 123. However, SFAS 123(R) requires all share-based payments to employees, including grants of employee stock options, to be recognized in the income statement based on their fair values. Pro forma disclosure is no longer an alternative. SFAS 123(R) was adopted using the modified prospective method of application, which requires the recognition of compensation expense on a prospective basis. Under this method, in addition to reflecting compensation expense for new share-based awards, expense is also recognized to reflect the remaining service period of awards that had been included in the pro forma disclosures in periods reported prior to the adoption of SFAS 123(R).
Under SFAS 123(R), the Company is required to record the fair value of stock-based compensation awards as an expense. In order to determine the fair value of stock options on the grant date, the Company applies the Black-Scholes option-pricing model. Inherent in the model are assumptions related to expected stock-price volatility, option life, risk-free interest rate and dividend yield. While the risk-free interest rate and dividend yield are less subjective assumptions, typically based on factual data derived from public sources, the expected stock-price volatility and option life assumptions require a level of judgment which make them critical accounting estimates. Since the fourth quarter of 2005, the Company has used an expected stock-price volatility assumption that is a combination of both historical and implied volatilities of the underlying stock, which is obtained from public data sources. Prior to that time, the Company based this assumption solely on historical volatility. The Company considers the exercise behavior of past grants and models the pattern of aggregate exercises in determining the expected weighted-average option life.
Recent Accounting Pronouncements
In September 2006, the FASB issued Statement of Financial Accounting Standards No. 157 (SFAS 157), Fair Value Measurements . SFAS 157 establishes a common definition for fair value to be applied to U.S. generally accepted accounting principles requiring use of fair value, establishes a framework for measuring fair value, and expands disclosure about such fair value measurements. SFAS 157 is effective for fiscal years beginning after November 15, 2007. The adoption of this statement is not expected to have a material impact on the Companys consolidated financial position or results of operations.
28
In February 2007, the FASB issued Statement of Financial Accounting Standards No. 159 (SFAS 159), The Fair Value Option for Financial Assets and Financial Liabilities . SFAS 159 permits entities to choose to measure financial assets and liabilities (except for those that are specifically scoped out of the Statement) at fair value. The election to measure a financial asset or liability at fair value can be made on an instrument-by-instrument basis and is irrevocable. The difference between carrying value and fair value at the election date is recorded as an adjustment to opening retained earnings. Subsequent changes in fair value are recognized in earnings. SFAS 159 is effective for fiscal years beginning after November 15, 2007. The adoption of this statement is not expected to have a material impact on the Companys consolidated financial position or results of operations.
29
Item 3. Quantitative and Qualitative Disclosures About Market Risk.
Veecos net sales to foreign customers represented approximately 68.7% and 67.1% of Veecos total net sales for the three and six months ended June 30, 2007, respectively, and 71.1% and 68.6% for the comparable 2006 periods, respectively. The Company expects that net sales to foreign customers will continue to represent a large percentage of Veecos total net sales. Veecos net sales denominated in foreign currencies represented approximately 20.6% and 20.5% of Veecos total net sales for the three and six months ended June 30, 2007, and 16.4% and 16.5% for the comparable 2006 periods, respectively.
The consolidated results of operations for the three and six months ended June 30, 2007 include aggregate foreign currency losses of approximately $0.2 million and $0.3 million, respectively. Included in those losses were gains of less than $0.1 million and losses of approximately $0.1 million, respectively, related to forward contracts. The 2006 consolidated results of operations include aggregate foreign currency losses of approximately $0.1 million and $0.4 million for the three and six months ended June 30, respectively. Included in those losses were losses of approximately $0.1 million and gains of approximately $0.1 million, respectively, related to forward hedge contracts.
Veeco is exposed to financial market risks, including changes in foreign currency exchange rates. The changes in currency exchange rates that have the largest impact on translating Veecos international operating profit are the Japanese Yen and the Euro. Veeco uses derivative financial instruments to mitigate these risks. Veeco does not use derivative financial instruments for speculative or trading purposes. The Company generally enters into monthly forward contracts to reduce the effect of fluctuating foreign currencies on short-term foreign currency-denominated intercompany transactions and other known currency exposures. The average notional amount of such contracts was approximately $2.4 million and $2.9 million for the three and six months ended June 30, 2007, respectively. As of June 30, 2007, the Company had not entered into any forward contracts for the month of July.
Assuming second quarter 2007 variable debt and investment levels, the effect of a one-point change in interest rates would not have a material effect on net interest expense.
Item 4. Controls and Procedures.
The Companys senior management is responsible for establishing and maintaining a system of disclosure controls and procedures (as defined in Rule 13a-15 and 15d-15 under the Securities Exchange Act of 1934 (the Exchange Act)) designed to ensure that information required to be disclosed by the Company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commissions rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by an issuer in the reports that it files or submits under the Exchange Act is accumulated and communicated to the issuers management, including its principal executive officer or officers and principal financial officer or officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure.
The Company has evaluated the effectiveness of the design and operation of its disclosure controls and procedures under the supervision of and with the participation of management, including the Chief Executive Officer and Chief Financial Officer, as of the end of the period covered by this report. Based on that evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that our disclosure controls and procedures are effective in timely alerting them to material information required to be included in our periodic Securities and Exchange Commission filings.
The Company is presently in the process of implementing new company-wide integrated applications software and, as of June 30, 2007, has completed the conversion to this new platform in ten of Veecos business locations with the remainder expected to be completed by the first half of 2008. As a result, certain changes have been made to the Companys internal controls, which management believes will strengthen the Companys internal control structure. There have been no other significant changes in our internal controls or other factors during the fiscal quarter ended June 30, 2007 that have materially affected, or are reasonably likely to materially affect, the Companys internal control over financial reporting.
30
As previously reported in Veecos Annual Report of Form 10-K for the year ending December 31, 2006, Veeco and certain of its officers have been named as defendants in a securities class action lawsuit consolidated in August 2005 that is pending in federal court in the Southern District of New York (the Court). The lawsuit arises out of the restatement in March 2005 of Veecos financial statements for the quarterly periods and nine months ended September 30, 2004 as a result of the Companys discovery of certain improper accounting transactions at its TurboDisc business unit. On July 5, 2007, Veeco entered into a Memorandum of Understanding to settle and fully resolve this lawsuit for a payment of $5.5 million. Veeco expects that insurance proceeds will cover the settlement amount and any significant legal expenses related to the settlement. The settlement agreement is subject to court approval and would dismiss all pending claims against Veeco and the other defendants with no admission or finding of wrongdoing by Veeco or any of the other defendants, and Veeco and the other defendants would receive a full release of all claims pending in the litigation.
Information regarding risk factors appears in the Safe Harbor Statement at the beginning of this Quarterly Report on Form 10-Q and in Part I Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2006. There have been no material changes from the risk factors previously disclosed in our Annual Report on Form 10-K.
Item 4. Submission of Matters to a Vote of Security Holders.
The annual meeting of stockholders of the Company was held on May 4, 2007. The matters voted on at the meeting were: (a) the election of three directors: (i) Heinz K. Fridrich, (ii) Roger D. McDaniel and (iii) Irwin H. Pfister; and (b) ratification of the Boards appointment of Ernst & Young LLP as the Companys independent registered public accounting firm for the year ending December 31, 2007. The terms of each of the following directors continued after the meeting: Joel A. Elftmann, Paul R. Low, Peter J. Simone, Edward H. Braun, Richard A. DAmore and Douglas A. Kingsley. As of the record date for the meeting, there were 31,149,232 shares of common stock outstanding, each of which was entitled to one vote with respect to each of the matters voted on at the meeting. Each of the directors up for reelection was reelected and the appointment of Ernst & Young LLP as the Companys independent registered public accounting firm was ratified by the required number of votes on each such matter. The results of the voting were as follows:
Matter |
|
For |
|
Withheld |
|
|
|
|
|
|
|
(a)(i) |
|
28,423,918 |
|
173,347 |
|
(a)(ii) |
|
28,423,086 |
|
174,179 |
|
(a)(iii) |
|
28,430,528 |
|
166,737 |
|
Matter |
|
For |
|
Against |
|
Abstained |
|
Broker
|
|
|
|
|
|
|
|
|
|
|
|
(b) |
|
27,389,356 |
|
1,193,132 |
|
14,779 |
|
|
|
31
Unless otherwise indicated, each of the following exhibits has been previously filed with the Securities and Exchange Commission by the Company under File No. 0-16244.
Number |
|
Description |
|
Incorporated
by Reference to the
|
|
|
|
|
|
10.1 |
|
Amendment No. 1 effective April 18, 2007 (ratified by the Board August 7, 2007) to Veeco Instruments Inc. Amended and Restated 2000 Stock Incentive Plan. |
|
* |
10.2 |
|
Employment agreement effective as of April 27, 2007 between Edward H. Braun and Veeco Instruments Inc. |
|
* |
10.3 |
|
Employment agreement effective as of July 1, 2007 between John R. Peeler and Veeco Instruments Inc. |
|
* |
10.4 |
|
Indemnification Agreement dated as of July 1, 2007 between Veeco Instruments Inc. and John R. Peeler. |
|
Current Report on Form 8-K filed October 23, 2006, Exhibit 10.1 |
31.1 |
|
Certification of Chief Executive Officer pursuant to Rule 13a14(a) or Rule 15d14(a) of the Securities and Exchange Act of 1934. |
|
* |
31.2 |
|
Certification of Chief Financial Officer pursuant to Rule 13a14(a) or Rule 15d14(a) of the Securities and Exchange Act of 1934. |
|
* |
32.1 |
|
Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes- Oxley Act of 2002. |
|
* |
32.2 |
|
Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes- Oxley Act of 2002. |
|
* |
* Filed herewith
32
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.
Date: August 7, 2007
|
Veeco Instruments Inc. |
|
|
|
|
|
By: |
/s/ JOHN R. PEELER |
|
|
John R. Peeler |
|
|
Chief Executive Officer |
|
|
|
|
By: |
/s/ JOHN F. REIN, JR. |
|
|
John F. Rein, Jr. |
|
|
Executive
Vice President, Chief Financial Officer
|
33
INDEX TO EXHIBITS
Unless otherwise indicated, each of the following exhibits has been previously filed with the Securities and Exchange Commission by the Company under File No. 0-16244.
Number |
|
Description |
|
Incorporated
by Reference to the
|
|
|
|
|
|
10.1 |
|
Amendment No. 1 effective April 18, 2007 (ratified by the Board August 7, 2007) to Veeco Instruments Inc. Amended and Restated 2000 Stock Incentive Plan. |
|
* |
10.2 |
|
Employment agreement effective as of April 27, 2007 between Edward H. Braun and Veeco Instruments Inc. |
|
* |
10.3 |
|
Employment agreement effective as of July 1, 2007 between John R. Peeler and Veeco Instruments Inc. |
|
* |
10.4 |
|
Indemnification Agreement dated as of July 1, 2007 between Veeco Instruments Inc. and John R. Peeler. |
|
Current Report on Form 8-K filed October 23, 2006, Exhibit 10.1 |
31.1 |
|
Certification of Chief Executive Officer pursuant to Rule 13a14(a) or Rule 15d14(a) of the Securities and Exchange Act of 1934. |
|
* |
31.2 |
|
Certification of Chief Financial Officer pursuant to Rule 13a14(a) or Rule 15d14(a) of the Securities and Exchange Act of 1934. |
|
* |
32.1 |
|
Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes- Oxley Act of 2002. |
|
* |
32.2 |
|
Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes- Oxley Act of 2002. |
|
* |
* Filed herewith
Exhibit 10.1
AMENDMENT TO
VEECO INSTRUMENTS INC.
AMENDED AND RESTATED
Effective April 18, 2007, Section 5(d) of the Veeco Instruments Inc. Amended and Restated 2000 Stock Incentive Plan (the Plan), is amended to read, in its entirety, as follows:
(d) Subject to Section 10, (i) no person may be granted Options under the Plan during any calendar year with respect to more than 300,000 shares of Stock; and (ii) no person may be granted Restricted Stock and Restricted Stock Units under the Plan during any calendar year with respect to more than 200,000 shares of Stock in the aggregate; and
Exhibit 10.2
EMPLOYMENT AGREEMENT
This EMPLOYMENT AGREEMENT effective April 27, 2007, is by and between Veeco Instruments Inc., a Delaware corporation (the Company or Employer), and Edward H. Braun (Executive).
The Company and Executive hereby agree as follows:
1. Definitions . As used herein, the following definitions shall apply:
Boards Designee shall mean the person to whom the Executive shall report, as designated by the Board from time to time. The initial Board Designee is set forth on the signature page hereto.
Change of Control shall mean: (a) any person or group of persons becomes the beneficial owner of securities representing 50 percent or more of the Companys outstanding voting securities, or (b) the approval by the Companys stockholders of one of the following:
(i) Any merger or statutory plan of exchange (Merger) in which the Company would not be the surviving corporation or pursuant to which the Companys voting securities would be converted into cash, securities or other property, other than a Merger in which the holders of the Companys voting securities immediately prior to the Merger have the same proportionate ownership of voting securities of the surviving corporation after the Merger;
(ii) Any Merger in which the holders of outstanding voting securities of the Company prior to such Merger will not, in the aggregate, own a majority of the outstanding voting securities of the combined entity after such Merger; or
(iii) Any sale or other transfer (in one transaction or a series of related transactions) of all or substantially all of the Companys assets or the adoption of any plan or proposal for the Companys liquidation or dissolution.
Disability shall mean the inability of Executive (whether due to accident, sickness or other cause) to perform his designated responsibilities for the Company for a period that would entitle Executive to qualify for long-term disability benefits under the Companys then-current long-term disability insurance program or, in the absence of such a program, for a period of 90 consecutive days. Disability of Executive shall be determined by the Board or the Boards Designee.
Employment Period shall mean the period from the date hereof through and including December 31, 2011.
Termination for Cause shall mean a termination based on (i) Executives willful and substantial misconduct in the performance of his duties, (ii) Executives willful failure to
perform his duties after two weeks written notice from the Company (other than as a result of a total or partial incapacity due to a physical or mental illness, accident or similar event), (iii) the Executives material breach of any of the agreements contained in Sections 5, 6 or 7 hereof, (iv) the commission by Executive of any material fraudulent act with respect to the business and affairs of the Company or any subsidiary or affiliate thereof or (v) Executives conviction of (or plea of nolo contendere to) a crime constituting a felony. The Company may terminate Executives employment for Cause only with the approval of a majority of the Board.
Termination for Good Reason shall mean termination by Executive of his employment with the Company hereunder based on:
(a) an involuntary relocation of the Executives primary place of work by more than 50 miles from its then current location (it being understood that Executives decision not to relocate would not be a basis for Termination for Cause);
(b) the Executive involuntarily ceases to be a member of the Board; or
(c) the breach by the Company of any of its material obligations under this Agreement (it being understood that termination by Executive for Good Reason pursuant to this clause (c) shall not constitute an election of remedies or otherwise waive any rights Executive may have with regard to such breach).
2. Employment .
(a) General . The Company hereby employs the Executive in the positions and for the periods set forth on the signature page hereto or such other position as the Company and Executive may mutually agree, and the Executive hereby accepts such employment by the Company, upon the terms and conditions set forth herein. The Executive will faithfully perform the duties and responsibilities of each such office, as they may be assigned from time to time by the Board of Directors of the Company (the Board) or the Boards Designee. In addition, while Executive is employed by the Company, the Company will use its best efforts to ensure the Executive is a member of the Board. The Executive will not be engaged in any other business activity which, in the reasonable judgment of the Board or the Boards Designee, conflicts with the duties of the Executive hereunder, whether or not such activity is pursued for gain, profit or other pecuniary advantage. The parties agree that Executives employment with the Company constitutes at-will employment which may be terminated by either party at any time, upon written notice to the other, with or without cause or for any or no cause. Executive may be entitled to continuation of compensation and/or other benefits as described in this Agreement depending upon the circumstances of Executives termination of employment.
(b) Base Salary. The Company will pay Executive an annual base salary equal to the amount specified as the Base Salary on the signature page hereto, payable in accordance with the Companys normal payroll policy.
2
(c) Bonus. For the period from the date hereof through and including December 31, 2008, (i) the Executive shall be eligible to participate in annual cash incentive plans as established from time to time by the Compensation Committee of the Board (the Committee) and subject to achievement of the performance goals specified thereunder, and (ii) Executives target bonus under such plans for such periods will be 100% of Executives Base Salary.
(d) Benefits; Stock Options. In addition to the salary and bonus referred to above, the Executive shall be entitled to participate in such employee benefit plans or programs of the Company, and shall be entitled to such other fringe benefits, as are from time to time made available by the Company generally to employees of the Executives position, tenure, salary, and other qualifications. Without limiting the generality of the foregoing, the Executive shall be eligible for such awards, if any, under the Companys stock option plan as shall be granted to the Executive by the Committee or other appropriate designee of the Board acting in its sole discretion. During the Employment Period, the Company will pay the Executive a monthly car allowance in an amount not less than that previously paid by the Company to Executive. The Executive acknowledges and agrees that the Company does not guarantee the adoption or continuance of any particular employee benefit plan or program or other fringe benefit during the Employment Period, and participation by the Executive in any such plan or program shall be subject to the rules and regulations applicable thereto.
(e) Reimbursement of Expenses . The Company will reimburse the Executive, in accordance with the practices in effect from time to time for other officers or staff personnel of the Company, for all reasonable and necessary traveling expenses and other disbursements incurred by the Executive for or on behalf of the Company in the performance of the Executives duties hereunder, upon presentation by the Executive to the Company of appropriate vouchers or documentation.
(f) Equity Awards . Effective on April 27, 2007 (the Grant Date), Executive shall be granted the following awards pursuant to the terms of the Companys 2000 Stock Incentive Plan, as amended:
(i) a stock option award to purchase 250,000 shares of Veeco Common Stock; one third of these options shall become exercisable on each of the first three anniversaries of the Grant Date; and
(ii) a restricted stock award in the amount of 175,000 shares of Veeco Common Stock; the restrictions on these shares will lapse with respect to one third of the total award on each of the first three anniversaries of the Grant Date.
3. Compensation Upon Termination . If Executives employment with the Company terminates for any reason, including death or Disability (other than (i) a termination of Executives employment for Cause, (ii) a resignation by the Executive without Good Reason or (iii) termination at the end of the Employment Period), and contingent upon Executives compliance with this Agreement and execution of the Release of Claims (as provided in Section 4 below), without revocation, Executive (or, if applicable, his estate) shall be entitled to the following benefits:
3
(a) The Company shall continue to pay Executive the Base Salary which would have been payable absent such termination. These amounts shall be payable over the Employment Period in equal installments on Employers regular pay days, in each case commencing on the Companys first pay day which is at least 21 days after the later of (i) expiration of the applicable revocation period following execution of the Release of Claims (without revocation) and (ii) the termination date.
(b) If such termination occurs prior to the payment of the annual bonus with respect to 2008, Executive shall be entitled to receive a pro rata portion of the bonus Executive would have received for the year in which termination occurs under annual cash incentive plans in effect at the time of termination based on Executives and the Companys performance relative to the goals under such plans (less amounts previously paid). Such amount shall be payable on the later of: (i) expiration of the applicable revocation period following execution of the Release of Claims (without revocation) and (ii) the same date(s) that the Company makes it bonus payments to employees generally with regard to such year.
(c) If such termination occurs prior to the payment of any long-term cash incentive award granted to Executive, then:
(i) If such termination occurs within 12 months following a Change of Control, then Executive will be entitled to receive a pro-rated portion of any such outstanding long-term cash incentive awards, which portion will be calculated by the Compensation Committee of the Companys Board of Directors as of the later of the date of Executives termination or the date of the Change of Control and based on the Companys performance measured from the beginning of the applicable performance period to the end of the most recently completed fiscal quarter, and will be pro-rated based on the length of service during the applicable performance period as compared to the entire performance period, rounded to the nearest whole month. This award will be paid as soon as practicable following the Change in Control (or, if later, the date of such termination); or
(ii) If such termination occurs other than as a result of or within 12 months following a Change of Control, then Executive will be entitled to receive a pro-rated portion of any such outstanding long-term cash incentive awards at the end of the applicable performance period based on the Companys cumulative performance for the performance period and pro-rated based on the length of service during the applicable performance period as compared to the entire performance period, rounded to the nearest whole month. This award will be paid at the same time as awards are payable to participants generally with respect to such performance period.
(d) During the Employment Period, the Executive shall be entitled to participate in all group health and insurance programs and all other benefits, fringe benefits and
4
perquisites available generally to senior executives of the company (including
in the case of health programs, continued coverage for the Executives spouse
and eligible dependents). In the event
that the Executives participation in any such plan or program is prohibited by
operation of law or by the terms of such plan or program as in effect
immediately preceding the date of termination of the Employment Period, the
Company shall arrange to provide the Executive with benefits substantially
similar to those which the Executive would have been entitled to receive under
such plans and programs. In either event,
the level of benefits provided to Executive under such plans during the
Employment Period shall be equal to the level of benefits provided for active
executives of the Company.
(e) Any options to purchase shares of the Companys stock which were granted to Executive on or after the date hereof and which are held by Executive as of the date of termination that were not vested and exercisable as of such date shall become immediately and fully vested and exercisable as of such date (provided that options granted to Executive between April 1, 2003 and the day prior to the date hereof shall be treated as provided in the Employment Agreement dated April 1, 2003 between the Company and Executive).
(f) Executive shall retain the right to exercise any options to purchase shares of the Companys stock which were granted to Executive on or after the date hereof and which are held by Executive as of the date of termination until the earlier of (a) three (3) years following the date of such termination and (b) the expiration of the original full term of each such option (provided that (i) options granted to Executive between April 3, 2000 and March 31, 2003 shall be treated as provided in the Employment Agreement dated April 3, 2000 between the Company and Executive; and (ii) options granted to Executive between April 1, 2003 and the day prior to the date hereof shall be treated as provided in the Employment Agreement dated April 1, 2003 between the Company and Executive).
(g) All shares of restricted stock or restricted stock units which (a) were awarded to Executive on or after the date of this Agreement, (b) are held by Executive as of the date of termination and (c) continue to be subject to restrictions as of such date shall become vested and the restrictions with regard thereto shall lapse upon such termination (provided that restricted stock granted to Executive between June 9, 2006 and the day prior to the date hereof shall be treated as provided in the Amendment to Employment Agreement dated June 9, 2006 between the Company and Executive).
Other than the benefits provided above in this Section 3, Executive agrees that no further severance or similar benefits will be payable following termination.
4. Release of Claims . Receipt of the benefits described in Section 3 is conditioned upon the execution by Executive (without revocation) of a general release and waiver of claims
5
against the Company in a form satisfactory to the Company. In the case of termination on account of death or Disability, such general release and waiver of claims may be provided by Executives personal representative or in another manner reasonably satisfactory to the Company.
5. Confidentiality and Assignment of Inventions .
(a) Confidentiality. During the term of Executives employment with Employer and for five years thereafter, Executive will not use or disclose to any individual or entity any Confidential Information (as defined below) except (i) in the performance of Executives duties for Employer, (ii) as authorized in writing by Employer, or (iii) as required by law or legal process, provided, that, prior written notice of such required disclosure is provided to Employer and, provided, further, that, all reasonable efforts to preserve the confidentiality of such information shall be made. As used herein, Confidential Information shall mean information that (i) is used or potentially useful in Employers business, (ii) Employer treats as proprietary, private or confidential, and (iii) is not generally known to the public. Confidential Information includes, without limitation to, information relating to Employers products or services, processing, manufacturing, selling, customer lists, call lists, customer data, memoranda, notes, records, technical data, sketches, plans, drawings, chemical formulae, trade secrets, composition of products, research and development data, sources of supply and material, operating and cost data, financial information, and information contained in manuals or memoranda. Confidential Information also includes proprietary and/or confidential information of Employers customers, suppliers and trading partners who may share such information with Employer pursuant to a confidentiality agreement or otherwise. The Executive agrees to treat all such customer, supplier or trading partner information as Confidential Information hereunder.
(b) Inventions. (i) Attached as Appendix A hereto is a compete and accurate list of each invention, discovery, idea, improvement or application (each, an Invention) whether or not patentable, conceived, developed, created or made by Executive, either alone or with others, prior to employment with Employer. Except as set forth on Appendix A , Executive has no unpatented Inventions which are to be withheld from this Agreement and all present or future Inventions of Executive are subject to assignment to Employer hereunder.
(ii) Executive shall promptly advise Employer, in writing, of each Invention, whether or not patentable, which is in any way or manner related to the business of Employer or resulting from or was suggested by any work done for Employer and which is conceived, developed, created or made by Executive, alone or with others, (i) during his or her employment with Employer or (ii) within two years after the termination of Executives employment with Employer but which is based on Employers trade secrets or Confidential Information (each, an Employer Related Invention). Each Employer Related Invention shall become the sole and exclusive property of Employer. Executive agrees to disclose the same promptly to Employer, to execute all documents requested by Employer for vesting in it the entire right, title and interest in and to the same, to execute all documents requested by Employer for filing and prosecuting such applications for patents, copyrights and/or trademarks as Employer, in its sole discretion may desire to prosecute, and to give Employer all the assistance it reasonably requires, including the
6
giving of testimony in any suit, action or proceeding, in order to obtain, maintain and protect Employers right therein and thereto.
(iii) The assignment of inventions contained herein shall not apply to an invention that the Executive develops entirely on his or her own time without using the Employers equipment, supplies, facilities or trade secret information except for those inventions that either: (1) relate at the time of conception or reduction to practice of the invention to the Employers business, or actual or demonstrably anticipated research or development of the Employer; or (2) result from any work performed by the Executive for the Employer.
(c) Independent Obligations . Executive acknowledges and agrees that the obligations and covenants under this Section 5 are intended to be, and shall be construed as, agreements separate and independent from other terms and provisions of his employment. The existence of any claim or cause of action by Executive against Employer, whether predicated on Executives employment or otherwise, shall not constitute a defense to the enforcement by Employer of said covenants.
(d) Survival. In the event of termination of employment by either party, the provisions of this Section 5 will remain in effect. Upon termination, Executive will immediately deliver to Employer all property belonging to Employer then in the Executives possession or control, including all Documents embodying Confidential Information. As used herein, Documents shall mean originals or copies of files, memoranda, correspondence, notes, photographs, slides, overheads, audio or video tapes, cassettes, or disks, and records maintained on computer or other electronic media.
6. Non-Competition . For as long as Executive is receiving payments or other benefits from the Company hereunder and for twelve (12) months thereafter (the Noncompete Period), Executive will not, without the prior written consent of the Company, directly or indirectly, engage or invest in, own, manage, operate, finance, control or participate in the ownership, management, operation, financing or control of, be employed by, associated with, or in any manner connected with, lend Executives name to, lend Executives credit to or render services or advice to, any business whose products or activities compete in whole or in part with the former, current or currently contemplated products or activities of the Company or any of its subsidiaries, in any state of the United States or in any country in which the Company or any of its subsidiaries sells products or conducts business; provided, however , that Executive may purchase or otherwise acquire up to (but not more than) one percent of any class of securities of any enterprise (but without otherwise participating in the activities of such enterprise) if such securities are listed on any national or regional securities exchange or have been registered under Section 12(g) of the Securities Exchange Act of 1934, as amended. Executive agrees that this covenant is reasonable with respect to its duration, geographical area, and scope. During the Noncompete Period, Executive will, within ten days after accepting any employment, advise the Company of the identity of any employer of Executive. Receipt of the benefits provided under Section 3 is conditioned upon compliance by Executive with this Section.
7
7. Non-Solicitation; Non-Hire . For the Noncompete Period, Executive hereby agrees that Executive will not, directly or indirectly, either for himself or any other person: (a) induce or attempt to induce any employee of the Company or any of its subsidiaries to leave the employ of the Company or such subsidiary, (b) in any way interfere with the relationship between the Company and its subsidiaries and any employee of the Company or any of its subsidiaries, (c) employ, or otherwise engage as an employee, independent contractor or otherwise, any current or former employee of the Company or any of its subsidiaries, other than such former employees who have not worked for the Company or any of its subsidiaries in the prior 12 months; (d) induce or attempt to induce any customer, supplier, licensee or business relation of the Company or any of its subsidiaries to cease doing business with the Company or such subsidiary, or in any way interfere with the relationship between the Company and its subsidiaries and any customer, supplier, licensee or business relation of the Company or any of its subsidiaries; or (e) solicit the business of any person known to Executive to be a customer of the Company or any of its subsidiaries, whether or not Executive had personal contact with such person, with respect to products or activities which compete in whole or in part with the former, current or currently contemplated products or activities of the Company and its subsidiaries or the products or activities of the Company and its subsidiaries in existence or contemplated at the time of termination of Executives employment. Receipt of the benefits provided under Section 3 is conditioned upon compliance by Executive with this Section.
8. Cutback of Certain Payments . Notwithstanding any provision in this Agreement, in the event that Executive would receive a greater after-tax benefit from the Capped Benefit (as defined below) than from the payments due as a result of the termination of Executive hereunder and under any other agreement, plan or program (the Specified Benefits), the Capped Benefit shall be paid to Executive and the Specified Benefits shall not be paid. The Capped Benefit shall mean the Specified Benefits, reduced by the amount necessary to prevent any portion of the Specified Benefits from being parachute payments as defined in Section 280G(b)(2) of the Internal Revenue Code of 1986, as amended (IRC), or any successor provision. For purposes of determining whether Executive would receive a greater after-tax benefit from the Capped Benefit than from the Specified Benefits, there shall be taken into account all payments and benefits Executive will receive upon a change in control of the Company (collectively, excluding the Specified Benefits, the Change of Control Payments). To determine whether Executives after-tax benefit from the Capped Benefit would be greater than Executives after-tax benefit from the Specified Benefits, there shall be subtracted from the sum of the before-tax Specified Benefits and the Change of Control Payments (including the monetary value of any non-cash benefits) any excise tax that would be imposed under IRC § 4999 and all federal, state and local taxes required to be paid by Executive in respect of the receipt of such payments, assuming that such payments would be taxed at the highest marginal rate applicable to individuals in the year in which the Specified Benefits are to be paid or such lower rate as Executive advises the Company in writing is applicable to Executive. In the event that the Company and Executive are unable to agree as to the amount of the reduction described above, if any, Executive shall select a law firm or accounting firm from among those regularly consulted (during the twelve-month period immediately prior to the date of termination) by the Company regarding federal income tax matters, and such law firm or accounting firm shall determine the amount of such reduction and such determination shall be final and binding upon Executive and the Company.
8
9. Injunctive Relief . A breach of Executives obligations under Section 5, 6 or 7 hereof may not be one which is capable of being easily measured by monetary damages and, consequently, Executive specifically agrees that such sections may be enforced by injunctive relief. Further, Executive specifically agrees that, in addition to such injunctive relief, and not in lieu of it, the Company may also bring suit for damages incurred by the Company as a result of a breach of Executives obligations under such sections.
10. Arbitration; Waiver of Jury Trial . Except as provided below and as provided in Section 9, any dispute or claim arising under this Agreement or in connection with Executives employment with the Company shall be settled solely by arbitration held in accordance with the Employment Dispute Procedures of the American Arbitration Association and held in the county and state in which Executives place of employment is located, or any other location mutually agreed upon by the parties. Such proceedings and evidence shall be confidential. The arbitrator shall have the power and the authority to make such decisions and awards as he or she shall deem appropriate, including, but not limited to, granting compensatory damages, costs and attorneys fees to the prevailing party, and the granting or issuance of such mandatory directions, prohibitions, orders, restraints and other injunctions (other than any of the foregoing that would reestablish the employment relation formerly existing between Executive and the Company) that he or she may deem necessary or advisable directed to or against any of the parties, including a direction or order requiring specific performance of any covenant, agreement or provision of this Agreement as a result of a breach or threatened breach thereof. This agreement to arbitrate all disputes between the parties includes, but is not limited to, claims under the Age Discrimination in Employment Act, the Americans with Disabilities Act, the Family and Medical Leave Act, Title VII of the Civil Rights Act of 1964, the New York State Human Rights Law, class action claims, all common law claims and any other federal, State or local law or regulation. The cost of such arbitration shall be borne equally by the parties unless otherwise directed by the arbitrator, provided that, in any event, the total cost to the Executive shall not exceed 1% of the Executives most recent annual base salary. Any decision of the arbitrator shall be final, binding and conclusive upon all of the parties hereto and said decision may be entered as a final judgment in any court of competent jurisdiction. With respect to the claims described in Section 9 and to the extent that any claim is found not to be subject to arbitration, such claims shall be decided either by the U.S. District Court or the state court of general jurisdiction in and for the judicial district in which Executives place of employment is located, by a judge sitting without a jury, to ensure rapid adjudication of those claims and proper application of existing law.
11. Governing Law; Severability . This Agreement will be governed by, and construed and enforced in accordance with, the laws of the State of New York, without regard to the conflicts of laws principles thereof. If any provision of this Agreement is prohibited or unenforceable in any jurisdiction, then such provision will, as to such jurisdiction, be ineffective to the extent of such prohibition or unenforceability without invalidating the remaining provisions hereof, and any such prohibition or unenforceability in any jurisdiction will not invalidate or render unenforceable such provision in any other jurisdiction.
9
12. Notices. Notices and other communications hereunder will be in writing and will be delivered personally or sent by air courier or first class certified or registered mail, return receipt requested and postage prepaid, addressed as follows:
if to the Company, to: Veeco Instruments Inc. 100 Sunnyside Boulevard Woodbury, New York 11797 Attention: General Counsel |
|
if to the Executive, to:
Forchelli, Curto, Schwartz, Mineo,
330 Old Country Road
|
All notices and other communications given to any party hereto in accordance with the provisions of this Agreement will be deemed to have been given on the date of delivery, if personally delivered; on the business day after the date when sent, if sent by air courier; and on the third business day after the date when sent, if sent by mail, in each case addressed to such party as provided in this section or in accordance with the latest unrevoked direction from such party.
13. Offset; Withholding . The amount of payments to be made following termination of employment under this Agreement, if any, may serve to offset or reduce any severance, termination or similar payments the Company may be required to pay Executive under federal, state and local laws or any separate severance policy or plan of the Company. The Company is authorized to withhold, or cause to be withheld, from any payment or benefit under this Agreement the full amount of any applicable withholding taxes or other applicable deductions.
14. Assignment; Successors . This Agreement is personal to Executive and Executive shall not assign or transfer this Agreement or any of his rights or obligations hereunder. The provisions hereof will inure to the benefit of, and be binding upon, the respective heirs, legal representatives and successors of Executive and each successor of the Company, whether by merger, consolidation, transfer of all or substantially all of its assets or otherwise.
15. Entire Agreement; Amendment; Waiver . This Agreement contains the entire agreement between the parties with respect to the subject matter hereof and supersedes all prior agreements or understandings among the parties with respect thereto, except for (a) the Employment Agreement dated April 3, 2000 between the Company and Executive as it relates to the treatment upon termination of Executives employment of stock options granted between the date of such agreement and March 31, 2003, which provisions shall continue in accordance with their terms with respect to such stock options; and (b) the Employment Agreement dated April 1, 2003, as amended June 9, 2006, between the Company and Executive as it relates to the treatment upon termination of Executives employment of stock options and restricted stock granted between the date of such agreement and the day prior to the date hereof, which
10
provisions shall continue in accordance with their terms with respect to such stock options and shares of restricted stock. This Agreement may be amended or terminated only in a writing signed by the parties hereto. The waiver by either party of a breach of any provision of this Agreement by the other party must be in writing and will not operate, or be construed as, a waiver of any subsequent breach by such other party.
16. Headings. The section headings contained in this Agreement are for reference purposes only and will not affect in any way the meaning or interpretation of this Agreement.
* * * * *
IN WITNESS WHEREOF, the parties have duly executed this Agreement as of the date first above written.
VEECO INSTRUMENTS INC.
|
EXECUTIVE |
||||
By: |
|
|
|
|
|
Name: |
Paul R. Low |
Edward H. Braun |
|||
Title: |
Chairman of the Compensation Committee, on behalf of the Board of Directors |
|
|||
Period: |
|
Position: |
|
Base Salary: |
|
Date hereof through such time as theCompany has appointed a new CEO (the CEO Appointment Date)
|
|
Chairman and Chief Executive Officer |
|
$650,000 |
|
From the CEO Appointment Date through and including December 31, 2008
|
|
Chairman |
|
$650,000 |
|
January 1, 2009 through and including December 31, 2011
|
|
Consultant |
|
$200,000 |
|
Initial Board Designee (to whom Executive Shall Report): None, reports to full Board
11
APPENDIX A TO
EMPLOYMENT AGREEMENT
|
|
|
Brief Description
|
|
Right, Title or Interest
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) None unless otherwise indicated.
12
Exhibit 10.3
EMPLOYMENT AGREEMENT
This EMPLOYMENT AGREEMENT effective July 1, 2007, is by and between Veeco Instruments Inc., a Delaware corporation (the Company or Employer), and John R. Peeler (Executive).
The Company and Executive hereby agree as follows:
1. Definitions . As used herein, the following definitions shall apply:
Board shall mean the Board of Directors of the Company.
Change of Control shall mean: (a) any person or group of persons becomes the beneficial owner of securities representing 50 percent or more of the Companys outstanding voting securities, or (b) the approval by the Companys stockholders of one of the following:
(i) Any merger or statutory plan of exchange (Merger) in which the Company would not be the surviving corporation or pursuant to which the Companys voting securities would be converted into cash, securities or other property, other than a Merger in which the holders of the Companys voting securities immediately prior to the Merger have the same proportionate ownership of voting securities of the surviving corporation after the Merger;
(ii) Any Merger in which the holders of outstanding voting securities of Veeco prior to such Merger will not, in the aggregate, own a majority of the outstanding voting securities of the combined entity after such Merger; or
(iii) Any sale or other transfer (in one transaction or a series of related transactions) of all or substantially all of the Companys assets or the adoption of any plan or proposal for the Companys liquidation or dissolution.
Disability shall mean (i) the inability of Executive (whether due to accident, sickness or other cause) to perform his designated responsibilities for the Company for a period that would entitle Executive to qualify for long-term disability benefits under the Companys then-current long-term disability insurance program or (ii) in the absence of such a program, the Executive is, by reason of any medically determinable physical or mental impairment which can be expected to last for a continuous period of not less than 12 months, receiving income replacement benefits for a period of not less than three months under an accident, disability or health plan covering employees of the Company. Disability of Executive shall be determined by the Board.
Severance Period shall mean the Severance Period specified on the signature page hereto.
Termination for Cause shall mean a termination based on (i) Executives willful and substantial misconduct in the performance of his duties, (ii) Executives willful failure to
perform his duties after two weeks written notice from the Company (other than as a result of a total or partial incapacity due to a physical or mental illness, accident or similar event), (iii) the Executives material breach of any of the agreements contained in Sections 5, 6 or 7 hereof, (iv) the commission by Executive of any material fraudulent act with respect to the business and affairs of the Company or any subsidiary or affiliate thereof or (v) Executives conviction of (or plea of nolo contendere to) a crime constituting a felony. The Company may terminate Executives employment for Cause only with the approval of a majority of the Board. Prior to any termination for Cause as defined in subsections (i), (ii), (iii) and (iv), herein, Executive shall have an opportunity to appear before the Board to present his position, provided that such appearance shall be scheduled within two calendar weeks after Executives receipt of a notice of intent to terminate which specifies the facts on which the proposed termination for cause is based.
Termination for Good Reason shall mean termination by Executive of his employment with the Company hereunder based on:
(a) an involuntary diminution in the Executives position, title, responsibilities, authority or reporting responsibilities;
(d) an involuntary relocation of the Executives primary place of work by more than 50 miles from its then current location (it being understood that Executives decision not to relocate would not be a basis for Termination for Cause);
(e) the Executive is not appointed to the Board within thirty (30) days of his first day of employment with the Company or thereafter involuntarily ceases to be a member of the Board, or
(f) the breach by the Company of any of its material obligations under this Agreement.
A termination will not be considered Good Reason as defined herein unless Executive provides the Company with written notice of the existence of the applicable condition described in clauses (a) through (f) above no later than 90 days after the initial existence of such condition is known by the Executive and the Company fails to remedy such condition within 30 days of the date of such written notice.
2
2. Employment .
(a) General . The Company hereby employs the Executive in the position set forth on the signature page hereto or such other position as the Company and Executive may mutually agree, and the Executive hereby accepts such employment by the Company, upon the terms and conditions set forth herein. The Executive will faithfully perform the duties and responsibilities of such office, as they may be assigned from time to time by the Board. In addition, while Executive is employed by the Company, the Company will use its best efforts to ensure the Executive is a member of the Board. The Executive shall devote his full business time, attention and energy to the business of the Company. The Executive will not be engaged in any other business activity which, in the reasonable judgment of the Board, conflicts with the duties of the Executive hereunder, whether or not such activity is pursued for gain, profit or other pecuniary advantage. The parties agree that Executives employment with the Company constitutes at-will employment which may be terminated by either party at any time, upon written notice to the other, with or without cause or for any or no cause. As described in this Agreement, Executive may be entitled to severance benefits depending upon the circumstances of Executives termination of employment. Notwithstanding the foregoing, nothing herein shall prohibit the Executive from serving on boards of directors or committees with the Boards prior approval.
(b) Base Salary. The Company will pay Executive an annual base salary in the amount specified as the Initial Base Salary on the signature page hereto (Base Salary), payable in accordance with the Companys normal payroll policy. The Base Salary shall be reviewed annually for increases but may not be decreased (other than a salary reduction made as part of a salary reduction program affecting employees similarly situated to Executive generally).
(c) Bonus.
(i) Management Bonus Plan. The Executive shall be eligible to participate in cash incentive plans as established from time to time by the Compensation Committee of the Board (the Committee) and subject to achievement of the performance goals specified thereunder. Executives target bonus will be 100% of Base Salary for the plan year for this bonus plan (January 1 through December 31). For the first year of service, the bonus payment will be pro-rated to reflect the actual start date.
(ii) Sign-On Bonus . A sign-on bonus, in the amount of $1,000,000 shall be paid to Executive on or before December 31, 2007; provided that Executive is actively employed by the Company and in good standing on the aforementioned payment date; provided, further, that (A) if Executives employment is terminated by the Company for Cause or by Executive without Good Reason prior to the first anniversary of Executives start date with the Company, then Executive shall reimburse the Company for the full amount of the sign-on bonus, and (B) if Executives employment is terminated by the Company for Cause or by Executive without Good Reason on or after the first anniversary of Executives start date with the Company and prior to the second anniversary of Executives start date with the Company, then Executive shall reimburse the Company for one-half (1/2) of the sign-on bonus. Such reimbursement shall be made by Executive within 10 days of such termination.
3
(iii) Long-Term Cash-Based Incentive Plan . Executive shall be eligible to participate in the Companys Long-Term Cash-Based Incentive Plan, as established from time to time by the Committee and subject to achievement of the performance goals specified thereunder. Executives target bonus will be 75% of Base Salary, pro-rated for the first year of employment to reflect the actual start date. Awards payable under this plan will be earned over a three-year period based on the achievement of performance metrics.
(d) Benefits; Stock Options; Restricted Stock. In addition to the Base Salary and bonus plans referred to above, the Executive shall be entitled to participate in such employee benefit plans or programs of the Company, and shall be entitled to such other fringe benefits, as are from time to time made available by the Company generally to employees of the Executives position, tenure, salary, and other qualifications. Without limiting the generality of the foregoing, the Executive shall receive:
(i) Initial Hire Grants . Effective upon Executives first day of employment (the Grant Date), Executive shall be granted the following pursuant to the terms of the Companys 2000 Stock Incentive Plan, as amended (the Plan):
(1) A restricted stock award in the amount of 150,000 shares of Veeco Common Stock and subject to the terms and conditions specified in the form of award notice attached hereto as Appendix A . The restrictions on these shares will lapse with respect to one third of the total award on each of the first three anniversaries of the Grant Date as specified in Appendix A .
(2) A stock option award to purchase 250,000 shares of Veeco Common Stock with an exercise price equal to the fair market value of Veeco Common Stock on the Grant Date and subject to the terms and conditions specified in the Plan. One third of these options shall become exercisable on each of the first three anniversaries of the Grant Date.
(ii) 2008 Grants . On the same date as annual awards are generally made to other eligible employees (the 2008 Grant Date), Executive shall, if actively employed in good standing, receive the following:
(1) A restricted stock award in the amount of 50,000 shares of Veeco Common Stock. The restrictions on these shares will lapse with respect to one third of the total award on each of the first three anniversaries of the 2008 Grant Date and this award shall be subject to terms and conditions substantially similar to those specified in Appendix A .
(2) A stock option award to purchase 100,000 shares of Veeco Common Stock with an exercise price equal to the fair market value of Veeco Common Stock on the 2008 Grant Date. One third of these options shall become exercisable on each of the first three anniversaries of the 2008 Grant Date and these options shall be subject to the terms and conditions specified in the Plan.
In the event of any change in the capital structure of the Company on or before the 2008 Grant Date, the number of shares of Veeco Common Stock subject to the 2008 Grants shall be adjusted equitably to reflect any such change.
4
(iii) Car Allowance . During the employment period, the Company will pay the Executive a car allowance of $1,500, subject to applicable tax withholding, which shall be paid not less frequently than on a monthly basis in accordance with the Companys regular payroll practices.
(iv) Vacation . Executive shall accrue vacation at the rate of four weeks per calendar year. As of the start date of employment, Executive shall be awarded a vacation bank of two weeks of vacation and during the remainder of calendar year 2007 will accrue vacation at the rate consistent with an annual four week vacation accrual.
(v) Relocation . Executives office will be based in Woodbury, New York. During the first year of Executives employment (and prior to Executives relocation to the Woodbury, NY area), the Company will reimburse Executives reasonable housing and transportation expenses, including a tax gross-up for these amounts. Such amounts, including the tax gross-up, shall not exceed $100,000. The Company shall also reimburse Executive an amount equal to closing costs on the sale and purchase of a home and movement/storage of household goods at such time as Executive relocates to the Woodbury, NY area.
(e) Reimbursement of Expenses . The Company will reimburse the Executive, in accordance with the practices in effect from time to time for other officers or staff personnel of the Company, for all reasonable and necessary traveling expenses and other disbursements incurred by the Executive for or on behalf of the Company in the performance of the Executives duties hereunder, upon presentation by the Executive to the Company of appropriate vouchers or documentation.
(f) Continuation of Benefits . The Executive acknowledges and agrees that the Company does not guarantee the adoption or continuance of any particular employee benefit plan or program or other fringe benefit during the employment period, and participation by the Executive in any such plan or program shall be subject to the rules and regulations applicable thereto.
(g) Certain Reimbursement Requirements . Any reimbursement provided under Section 2(d)(v) and Section 2(e) shall (i) be paid no later than the last day of Executives tax year following the tax year in which the expense was incurred, (ii) not be affected by any other expenses that are eligible for reimbursement in any tax year and (iii) not be subject to liquidation or exchange for another benefit; provided, however, a reimbursement payment for tax gross-ups shall be made no later than the end of the Executives tax year immediately following the tax year in which Executive remits the related taxes to an agency.
5
3. Compensation Upon Termination . (a) If Executives employment with the Company terminates for any reason (including, death or Disability and whether or not such termination results from or is in connection with a Change in Control), other than pursuant to a termination of Executives employment for Cause or a resignation by the Executive without Good Reason, and contingent upon Executives compliance with this Agreement and execution of the Release of Claims (as provided in Section 4 below), without revocation, Executive (or, if applicable, his estate) shall be entitled to the following benefits:
(i) The Company shall pay Executive severance in an amount equal to the amount of Executives annual base salary as in effect immediately prior to such termination (but without regard to any salary reduction program then in place) which would have been payable over the Severance Period absent such termination. This severance shall be payable over the Severance Period in equal installments on Employers regular pay days, in each case commencing on the Companys first pay day which is at least 21 days after the later of (i) expiration of the applicable revocation period following execution of the Release of Claims (without revocation) and (ii) the termination date.
(ii) Executive shall be entitled to receive a pro rata portion of his target bonus for the year in which termination occurs under the management bonus plan in effect at the time of termination. Such amount shall be payable on the later of: (i) expiration of the applicable revocation period following execution of the Release of Claims (without revocation) and (ii) the same date(s) that the Company makes it bonus payments to employees generally with regard to such year.
(iii) During the Severance Period, the Executive shall be entitled to participate in all group health and insurance programs and all other benefits, fringe benefits and perquisites available generally to senior executives of the company (including in the case of health programs, continued coverage for the Executives spouse and eligible dependents). In the event that the Executives participation in any such plan or program is prohibited by operation of law or by the terms of such plan or program as in effect immediately preceding the date of termination of the employment period, the Company shall arrange to provide (or reimburse Executive for the reasonable cost of) benefits substantially similar to those which the Executive would have been entitled to receive under such plans and programs. In either event, the level of Company contribution to such plans shall be equal to the contribution level for an active executive of the Company. Nothing herein shall require the Company to maintain any group benefit plans for its senior executives or prevent the Company from modifying its group benefit plans or contribution level for its senior executives. Any reimbursement or benefit the Executive is entitled to receive pursuant to this Section 3(a)(iii) shall (I) be paid no later than the last day of Executives tax year following the tax year in which the expense was incurred, (II) not be affected by any other expenses that are eligible for reimbursement in any tax year and (III) not be subject to liquidation or exchange for another benefit.
6
(iv) Any options to purchase shares of the Companys stock which are held by Executive as of the date of termination that were not vested and exercisable as of such date shall become immediately and fully vested and exercisable as of such date.
(v) Executive shall retain the right to exercise any options to purchase shares of the Companys stock which are held by Executive as of the date of termination until the earlier of (a) the end of the Severance Period and (b) the expiration of the original full term of each such option.
(vi) Any shares of restricted stock or restricted stock units which are held by Executive as of the date of termination shall become vested and the restrictions with regard thereto shall lapse upon such termination.
(vii) The Sign-On Bonus, if not previously paid, shall be paid within 21 days after the later of (I) expiration of the applicable revocation period following execution of the Release of Claims (without revocation) and (II) the termination date.
(b) If Executives employment with the Company is terminated by the Company for Cause or is terminated by Executive without Good Reason, the Executive will not have any further rights or claims against the Company under this Agreement except the right to receive (i) the unpaid portion of Executives base salary computed on a pro rata basis to the date of termination, (ii) payment of his previously accrued but unpaid rights that are then payable in accordance with the terms of any incentive compensation, equity incentive, retirement, employee welfare or other employee benefit plans or programs of the Company in which the Executive is then participating, and (iii) reimbursement for any expenses for which the Executive shall not have theretofore been reimbursed, provided such reimbursement shall be subject to the applicable requirements provided in Section 2(g).
4. Release of Claims . Receipt of the benefits described in Section 3 is conditioned upon the execution by Executive (without revocation) of a general release and waiver of claims against the Company in a form satisfactory to the Company. In the case of termination on account of death or Disability, such general release and waiver of claims may be provided by Executives personal representative or in another manner reasonably satisfactory to the Company.
5. Confidentiality and Assignment of Inventions .
(a) Confidentiality. During the term of Executives employment with Employer and for five years thereafter, Executive will not use or disclose to any individual or entity any Confidential Information (as defined below) except (i) in the performance of Executives duties for Employer, (ii) as authorized in writing by Employer, or (iii) as required by law or legal process, provided, that, prior written notice of such required disclosure is provided to Employer and, provided, further, that, all reasonable efforts to preserve the confidentiality of such information shall be made. As used herein, Confidential Information shall mean information that (i) is used or potentially useful in Employers business, (ii) Employer treats as proprietary,
7
private or confidential, and (iii) is not generally known to the public. Confidential Information includes, without limitation to, information relating to Employers products or services, processing, manufacturing, selling, customer lists, call lists, customer data, memoranda, notes, records, technical data, sketches, plans, drawings, chemical formulae, trade secrets, composition of products, research and development data, sources of supply and material, operating and cost data, financial information, and information contained in manuals or memoranda. Confidential Information also includes proprietary and/or confidential information of Employers customers, suppliers and trading partners who may share such information with Employer pursuant to a confidentiality agreement or otherwise. The Executive agrees to treat all such customer, supplier or trading partner information as Confidential Information hereunder.
(b) Inventions. (i) Attached as Appendix B hereto is a compete and accurate list of each invention, discovery, idea, improvement or application (each, an Invention) whether or not patentable, conceived, developed, created or made by Executive, either alone or with others, prior to employment with Employer. Except as set forth on Appendix B , Executive has no unpatented Inventions which are to be withheld from this Agreement and all present or future Inventions that are created, conceived, developed or made by Executive during his employment or pursuant to clause 5(b)(ii)(B) of this Agreement are subject to assignment to Employer hereunder.
(ii) Executive shall promptly advise Employer, in writing, of each Invention, whether or not patentable, which is in any way or manner related to the business of Employer or resulting from or was suggested by any work done for Employer and which is conceived, developed, created or made by Executive, alone or with others, (A) during his employment with Employer or (B) within two years after the termination of Executives employment with Employer but which is based on Employers trade secrets or Confidential Information (each, an Employer Related Invention). Each Employer Related Invention shall become the sole and exclusive property of Employer. Executive agrees to disclose the same promptly to Employer, to execute all documents requested by Employer for vesting in it the entire right, title and interest in and to the same, to execute all documents requested by Employer for filing and prosecuting such applications for patents, copyrights and/or trademarks as Employer, in its sole discretion may desire to prosecute, and to give Employer all the assistance it reasonably requires, including the giving of testimony in any suit, action or proceeding, in order to obtain, maintain and protect Employers right therein and thereto.
(iii) The assignment of inventions contained herein shall not apply to an invention that the Executive develops entirely on his own time without using the Employers equipment, supplies, facilities or trade secret information except for those inventions that either: (1) relate at the time of conception or reduction to practice of the invention to the Employers business, or actual or demonstrably anticipated research or development of the Employer; or (2) result from any work performed by the Executive for the Employer.
(c) Independent Obligations . Executive acknowledges and agrees that the obligations and covenants under this Section 5 are intended to be, and shall be construed as, agreements separate and independent from other terms and provisions of his employment. The existence of any claim or cause of action by Executive against Employer, whether predicated on Executives
8
employment or otherwise, shall not constitute a defense to the enforcement by Employer of said covenants.
(d) Survival. In the event of termination of employment by either party, the provisions of this Section 5 will remain in effect. Upon termination, Executive will immediately deliver to Employer all property belonging to Employer then in the Executives possession or control, including all Documents embodying Confidential Information. As used herein, Documents shall mean originals or copies of files, memoranda, correspondence, notes, photographs, slides, overheads, audio or video tapes, cassettes, or disks, and records maintained on computer or other electronic media.
6. Non-Competition . For the duration of Executives employment with the Company and (a) if severance is payable under Section 3 following the termination of such employment, for the Severance Period or (b) if severance is not payable under Section 3 following termination of such employment, for twelve (12) months following such termination (collectively, the Noncompete Period), Executive will not, without the prior written consent of the Company, directly or indirectly, engage or invest in, own, manage, operate, finance, control or participate in the ownership, management, operation, financing or control of, be employed by, associated with, or in any manner connected with, lend Executives name to, lend Executives credit to or render services or advice to, any business whose products or activities compete in whole or in part with the former, current or currently contemplated products or activities of the Company or any of its subsidiaries, in any state of the United States or in any country in which the Company or any of its subsidiaries sells products or conducts business; provided, however , that Executive may purchase or otherwise acquire up to (but not more than) one percent of any class of securities of any enterprise (but without otherwise participating in the activities of such enterprise) if such securities are listed on any national or regional securities exchange or have been registered under Section 12(g) of the Securities Exchange Act of 1934, as amended. Executive agrees that this covenant is reasonable with respect to its duration, geographical area, and scope. During the Noncompete Period, Executive will, within ten days after accepting any employment, advise the Company of the identity of any employer of Executive. Receipt of the benefits provided under Section 3 is conditioned upon compliance by Executive with this Section.
7. Non-Solicitation; Non-Hire . For the Noncompete Period, Executive hereby agrees that Executive will not, directly or indirectly, either for himself or any other person: (a) induce or attempt to induce any employee of the Company or any of its subsidiaries to leave the employ of the Company or such subsidiary, (b) in any way interfere with the relationship between the Company and its subsidiaries and any employee of the Company or any of its subsidiaries, (c) employ, or otherwise engage as an employee, independent contractor or otherwise, any current or former employee of the Company or any of its subsidiaries, other than such former employees who have not worked for the Company or any of its subsidiaries in the prior 12 months; (d) induce or attempt to induce any customer, supplier, licensee or business relation of the Company or any of its subsidiaries to cease doing business with the Company or such subsidiary, or in any way interfere with the relationship between the Company and its subsidiaries and any customer, supplier, licensee or business relation of the Company or any of its subsidiaries; or (e) solicit the business of any person known to Executive to be a customer of
9
the Company or any of its subsidiaries, whether or not Executive had personal contact with such person, with respect to products or activities which compete in whole or in part with the former, current or currently contemplated products or activities of the Company and its subsidiaries or the products or activities of the Company and its subsidiaries in existence or contemplated at the time of termination of Executives employment. Receipt of the benefits provided under Section 3 is conditioned upon compliance by Executive with this Section.
8. Cutback of Certain Payments . Notwithstanding any provision in this Agreement, in the event that Executive would receive a greater after-tax benefit from the Capped Benefit (as defined below) than from the payments due as a result of the termination of Executive hereunder and under any other agreement, plan or program (the Specified Benefits), the Capped Benefit shall be paid to Executive and the Specified Benefits shall not be paid. The Capped Benefit shall mean the Specified Benefits, reduced by the amount necessary to prevent any portion of the Specified Benefits from being parachute payments as defined in Section 280G(b)(2) of the Internal Revenue Code of 1986, as amended (IRC), or any successor provision. For purposes of determining whether Executive would receive a greater after-tax benefit from the Capped Benefit than from the Specified Benefits, there shall be taken into account all payments and benefits Executive will receive upon a change in control of the Company (collectively, excluding the Specified Benefits, the Change of Control Payments). To determine whether Executives after-tax benefit from the Capped Benefit would be greater than Executives after-tax benefit from the Specified Benefits, there shall be subtracted from the sum of the before-tax Specified Benefits and the Change of Control Payments (including the monetary value of any non-cash benefits) any excise tax that would be imposed under IRC § 4999 and all federal, state and local taxes required to be paid by Executive in respect of the receipt of such payments, assuming that such payments would be taxed at the highest marginal rate applicable to individuals in the year in which the Specified Benefits are to be paid or such lower rate as Executive advises the Company in writing is applicable to Executive. In the event that the Company and Executive are unable to agree as to the amount of the reduction described above, if any, Executive shall select a law firm or accounting firm from among those regularly consulted (during the twelve-month period immediately prior to the date of termination) by the Company regarding federal income tax matters, and such law firm or accounting firm shall determine the amount of such reduction and such determination shall be final and binding upon Executive and the Company.
9. Injunctive Relief . A breach of Executives obligations under Section 5, 6 or 7 hereof may not be one which is capable of being easily measured by monetary damages and, consequently, Executive specifically agrees that such sections may be enforced by injunctive relief. Further, Executive specifically agrees that, in addition to such injunctive relief, and not in lieu of it, the Company may also bring suit for damages incurred by the Company as a result of a breach of Executives obligations under such sections.
10. Arbitration; Waiver of Jury Trial . Except as provided below and as provided in Section 9, any dispute or claim arising under this Agreement or in connection with Executives employment with the Company shall be settled solely by arbitration held in accordance with the Employment Dispute Procedures of the American Arbitration Association and held in the county and state in which Executives place of employment is located, or any other location mutually agreed upon by the parties. Such proceedings and evidence shall be confidential. The arbitrator
10
shall have the power and the authority to make such decisions and awards as he or she shall deem appropriate, including, but not limited to, granting compensatory damages, costs and attorneys fees to the prevailing party, and the granting or issuance of such mandatory directions, prohibitions, orders, restraints and other injunctions (other than any of the foregoing that would reestablish the employment relation formerly existing between Executive and the Company) that he or she may deem necessary or advisable directed to or against any of the parties, including a direction or order requiring specific performance of any covenant, agreement or provision of this Agreement as a result of a breach or threatened breach thereof. This agreement to arbitrate all disputes between the parties includes, but is not limited to, claims under the Age Discrimination in Employment Act, the Americans with Disabilities Act, the Family and Medical Leave Act, Title VII of the Civil Rights Act of 1964, the New York State Human Rights Law, class action claims, all common law claims and any other federal, State or local law or regulation. The cost of such arbitration shall be borne equally by the parties unless otherwise directed by the arbitrator. Any decision of the arbitrator shall be final, binding and conclusive upon all of the parties hereto and said decision may be entered as a final judgment in any court of competent jurisdiction. With respect to the claims described in Section 9 and to the extent that any claim is found not to be subject to arbitration, such claims shall be decided either by the U.S. District Court or the state court of general jurisdiction in and for the judicial district in which Executives place of employment is located, by a judge sitting without a jury, to ensure rapid adjudication of those claims and proper application of existing law.
11. Governing Law; Severability . This Agreement will be governed by, and construed and enforced in accordance with, the laws of the State of New York, without regard to the conflicts of laws principles thereof. If any provision of this Agreement is prohibited or unenforceable in any jurisdiction, then such provision will, as to such jurisdiction, be ineffective to the extent of such prohibition or unenforceability without invalidating the remaining provisions hereof, and any such prohibition or unenforceability in any jurisdiction will not invalidate or render unenforceable such provision in any other jurisdiction.
12. Notices. Notices and other communications hereunder will be in writing and will be delivered personally or sent by air courier or first class certified or registered mail, return receipt requested and postage prepaid, addressed as follows:
if to the Company, to:
Veeco Instruments Inc. 100 Sunnyside Boulevard Woodbury, New York 11797 Attention: General Counsel |
|
if to the Executive, to:
the last residential
address of Executive known to the Company
|
All notices and other communications given to any party hereto in accordance with the provisions of this Agreement will be deemed to have been given on the date of delivery, if personally delivered; on the business day after the date when sent, if sent by air courier; and on the third business day after the date when sent, if sent by mail, in each case addressed to such party as provided in this section or in accordance with the latest unrevoked direction from such party.
11
13. Offset; Withholding . The amount of severance pay provided under this Agreement, if any, may serve to offset or reduce any severance, termination or similar payments the Company may be required to pay Executive under federal, state and local laws or any separate severance policy or plan of the Company. The Company is authorized to withhold, or cause to be withheld, from any payment or benefit under this Agreement the full amount of any applicable withholding taxes or other applicable deductions.
14. IRC Section 409A. The parties understand and agree that certain payments contemplated by this Agreement, including severance pay, may be deferred compensation for purposes of IRC Section 409A. Notwithstanding any provision of this Agreement to the contrary, any payments constituting deferred compensation required to be made upon or in respect of the Executives termination of employment hereunder shall not be paid prior to six months after the Executives termination of employment, to the extent necessary to comply with IRC Section 409A(2)(B)(i). The Company shall identify in writing delivered to the Executive any payments it reasonably determines are subject to delay hereunder and shall promptly pay any such delayed payments, without interest, at the conclusion of the applicable six month period (or, if later, when scheduled to be paid under the terms of the Agreement). No deferred compensation payable hereunder shall be subject to acceleration or to any change in the specified time or method of payment, except as otherwise provided under this Agreement and consistent with IRC Section 409A. In no event shall the Company have any liability or obligation with respect to taxes for which the Executive may become liable as a result of the application of IRC Section 409A.
15. Assignment; Successors . This Agreement is personal to Executive and Executive shall not assign or transfer this Agreement or any of his rights or obligations hereunder. The provisions hereof will inure to the benefit of, and be binding upon, the respective heirs, legal representatives and successors of Executive and each successor of the Company, whether by merger, consolidation, transfer of all or substantially all of its assets or otherwise.
16. Legal Fees . The Company hereby agrees to pay the legal fees and expenses of DLA Piper in connection with their representing Executive in the negotiation and documentation of this Agreement (not to exceed $5,000). Such payment shall be made before August 31, 2007.
17. Cooperation. Following any termination of Executives employment, Executive shall reasonably cooperate with the Company, at mutually convenient times, in connection with (i) all matters relating to the completion or transition of pending work on behalf of the Company, and (ii) any existing or future internal or external investigation or litigation in which the Company deems Executives cooperation necessary.
18. Entire Agreement; Amendment; Waiver . This Agreement contains the entire agreement between the parties with respect to the subject matter hereof and supersedes all prior agreements or understandings among the parties with respect thereto including the offer letter dated April 19, 2007. This Agreement may be amended or terminated only in a writing signed by the parties hereto. The waiver by either party of a breach of any provision of this Agreement by the other party must be in writing and will not operate, or be construed as, a waiver of any subsequent breach by such other party.
12
19. Headings. The section headings contained in this Agreement are for reference purposes only and will not affect in any way the meaning or interpretation of this Agreement.
20. Effective Date . This Agreement shall become effective on July 1, 2007.
* * * * *
IN WITNESS WHEREOF, the parties have duly executed this Agreement as of the date first above written.
VEECO INSTRUMENTS INC. |
EXECUTIVE |
|
|||
|
|
|
|||
|
|
|
|||
By: |
|
|
|
|
|
Name: |
John R. Peeler |
|
|||
Title: |
|
||||
|
Position: |
Chief Executive Officer |
|||
|
|
|
|||
|
Initial Base Salary: |
$600,000 |
|||
|
|
|
|||
|
Severance Period: |
36 months |
|||
13
APPENDIX A
NOTICE OF RESTRICTED STOCK AWARD
VEECO INSTRUMENTS INC.
NOTICE OF RESTRICTED STOCK AWARD
Veeco Instruments Inc. (the Company ), is pleased to confirm the award to the employee named below ( Participant ) of restricted shares of common stock, par value $0.01 per share, of the Company described below.
Participant: |
|
|
|||
|
|
|
|||
Award Date: |
|
, 2007 |
|||
|
|
|
|||
Aggregate
number of shares of Restricted
|
|
|
|||
|
|
|
|||
Vesting/Lapsing
of Restrictions:
|
|
One-third of the shares comprising the Award will vest, and the restrictions with respect to such shares shall lapse, on each of first three anniversaries of the Award Date. |
|||
|
|
|
|||
Additional Provisions: |
|
This Award shall be subject to the terms and conditions set forth in the Veeco Instruments Inc. Terms and Conditions of Restricted Stock Award (2007) (the Terms and Conditions ). Unless Participant notifies Veeco within 10 days following receipt of this notice that he or she declines this Award, Participant will be deemed to have accepted and agreed to the Terms and Conditions. Any such notice should be in writing and sent to Veeco Instruments Inc., Attention: General Counsel, 100 Sunnyside Boulevard, Suite B, Woodbury, NY 11797 or by facsimile to 516-677-0380. |
|||
|
|
||||
|
|
VEECO INSTRUMENTS INC. |
|||
|
|
|
|||
|
|
|
|||
|
|
By: |
|
|
|
|
|
Name: |
|||
|
|
Title: |
|||
A-1
VEECO INSTRUMENTS INC.
TERMS AND CONDITIONS OF RESTRICTED STOCK AWARD
(2007)
These TERMS AND CONDITIONS OF RESTRICTED STOCK AWARD (2007) (these Terms and Conditions ) apply to any award by Veeco Instruments Inc., a Delaware corporation (the Company ), of the Companys common stock, par value $0.01 per share ( Common Stock ), subject to certain restrictions ( Restricted Stock ), pursuant to the Veeco Instruments Inc. 2000 Stock Incentive Plan (as it may be amended from time to time, the Plan ), which specifically references these Terms and Conditions.
ARTICLE 1.
DEFINITIONS
Section 1.1 In General . Capitalized terms used but not defined herein shall have the meanings assigned to such terms in the Plan and/or the applicable Notice of Restricted Stock Award. In addition, wherever the following term is used in these Terms and Conditions, it shall have the meaning specified below, unless the context clearly indicates otherwise.
Section 1.2 Restrictions shall mean the restrictions on sale or other transfer set forth in Section 4.2 and the exposure to forfeiture set forth in Section 3.1.
ARTICLE
2.
RESTRICTED STOCK AWARD
Section 2.1 Award of Restricted Stock . The Award is made in consideration of the Participants agreement to remain in the employ of the Company and for other good and valuable consideration which the Committee has determined exceeds the aggregate par value of the shares of Common Stock subject to the Award.
Section 2.2 Award Subject to Plan . The Award is subject to the terms and provisions of the Plan, including without limitation Section 8 thereof.
ARTICLE 3.
RESTRICTIONS
Section 3.1 Forfeiture . Unless otherwise provided by written agreement between the Company and Participant, which may be entered into at any time, including in connection with the termination of Participants employment, any shares of Restricted Stock which are not vested at the time Participants employment with the Company or one of its Subsidiaries terminates shall thereupon be forfeited immediately and without any further action by the Company or the Participant.
A-2
Section 3.2 Vesting and Lapse of Restrictions . Subject to Section 3.1, the Restrictions shall lapse with respect to the Restricted Stock subject to the Award, and the Participants rights thereto shall vest, as follows:
|
Restrictions
Shall
|
|
First Anniversary of Award Date |
|
One-third of the Award |
Second Anniversary of Award Date |
|
One-third of the Award |
Third Anniversary of Award Date |
|
One-third of the Award |
provided, in each case, that the Participant remains continuously employed in active service from the Award Date through such vesting date.
Section 3.3 Legend . Until such time as the Restrictions have lapsed, the Company may instruct the transfer agent for the Common Stock and/or other record-keepers to include a restrictive code or similar notation in its records (or legend on stock certificates, if any) to denote the Restrictions and any applicable federal and/or state securities laws restrictions relating to Restricted Stock. The notation or legend may include the following:
THE SECURITIES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO RESTRICTIONS SET FORTH IN THE PLAN AND IN THE TERMS AND CONDITIONS APPLICABLE TO THE RESTRICTED STOCK AWARD, COPIES OF WHICH ARE ON FILE AT THE PRINCIPAL OFFICE OF THE CORPORATION.
A-3
A-4
ARTICLE
4.
OTHER PROVISIONS
Section 4.2 Restricted Stock Not Transferable . No Restricted Stock or any interest or right therein or part thereof shall be liable for the debts, contracts or engagements of the Participant or his successors in interest or shall be subject to disposition by transfer, alienation, anticipation, pledge, encumbrance, assignment or any other means whether such disposition be voluntary or involuntary or by operation of law by judgment, levy, attachment, garnishment or any other legal or equitable proceedings (including bankruptcy), and any attempted disposition thereof shall be null and void and of no effect; provided, however, that this Section 4.2 shall not prevent transfers by will or by applicable laws of descent and distribution.
Section 4.4 No Right to Continued Employment . Nothing in these Terms and Conditions or in the Plan shall confer upon the Participant any right to continue in the employ of
A-5
the Company or any of its Subsidiaries or shall interfere with or restrict in any way the rights of the Company or its Subsidiaries, which are hereby expressly reserved, to discharge the Participant at any time for any reason whatsoever, with or without cause, except as may otherwise be provided by any written agreement entered into by and between the Company and the Participant.
Section 4.6 Conformity to Securities Laws . The Participant acknowledges that the Plan and these Terms and Conditions are intended to conform to the extent necessary with all provisions of the Securities Act of 1933, as amended, and the Securities Exchange Act of 1934, as amended (the Exchange Act ), and any and all regulations and rules promulgated thereunder by the Securities and Exchange Commission, including without limitation Rule 16b-3 under the Exchange Act. Notwithstanding anything herein to the contrary, the Plan shall be administered, and the Awards are granted, only in such a manner as to conform to such laws, rules and regulations. To the extent permitted by applicable law, the Plan and these Terms and Conditions shall be deemed amended to the extent necessary to conform to such laws, rules and regulations.
Section 4.7 Amendment, Suspension and Termination . The Award and these Terms and Conditions may be wholly or partially amended or otherwise modified, suspended or terminated at any time or from time to time by the Committee or the Board , provided that, except as may otherwise be provided by the Plan, neither the amendment, suspension nor termination of the Award or these Terms and Conditions shall, without the consent of the Participant, alter or impair any rights or obligations under any Award.
Section 4.8 Notices . Notices required or permitted hereunder shall be given in writing and shall be deemed effectively given upon personal delivery or upon deposit in the United States mail by certified mail, with postage and fees prepaid, addressed to the Participant to his address shown in the Company records, and to the Company at its principal executive office.
Section 4.9 Severability . The invalidity or unenforceability of any paragraph or provision of these Terms and Conditions shall not affect the validity or enforceability of any other paragraph or provision, and all other provisions shall remain in full force and effect. If any provision of these Terms and Conditions is held to be excessively broad, then such provision shall be reformed and construed by limiting and reducing it so as to be enforceable to the maximum extent permitted by law.
Section 4.10 Certain Provisions Applicable to Participants Employed at International Locations. The Company will assess its requirements regarding tax, social insurance and any other payroll tax ( Tax-Related Items ) withholding and reporting in connection with the shares of Restricted Stock. These requirements may change from time to time as laws or interpretations change. Regardless of the actions of the Company in this regard, Participant hereby acknowledges and agrees that the ultimate liability for any and all Tax-
A-6
Related Items is and remains his or her responsibility and liability and that the Company makes no representations nor undertakings regarding treatment of any Tax-Related Items in connection with any aspect of the grant of Restricted Stock and does not commit to structure the terms of the grant or any aspect of the Restricted Stock to reduce or eliminate the Participants liability regarding Tax-Related Items. In the event that the Company must withhold any Tax-Related Items as a result of the grant or vesting of the Restricted Stock, Participant agrees to make arrangements satisfactory to the Company to satisfy all withholding requirements. Participant authorizes the Company to withhold all applicable Tax-Related Items legally due from the Participant from his or her wages or other cash compensation paid him or her by the Company and/or to cause the sale of vested shares of Restricted Stock on Participants behalf or reduce the number of vested shares of Restricted Stock delivered to Participant at the time the restrictions lapse, as contemplated by Section 3.4 above, to satisfy such Tax-Related Items.
Section 4.11 Data Privacy . Participant consents to the collection, use and transfer of personal data as described in this Section. Participant understands that the Company and its Subsidiaries hold certain personal information about the Participant, including the Participants name, home address and telephone number, date of birth, social security number or identification number, salary, nationality, job title, any shares of stock or directorships held in the Company, details of all options or any other entitlement to shares of stock (restricted or otherwise) awarded, cancelled, exercised, vested, unvested or outstanding in Participants favor, for the purpose of managing and administering the Plan ( Data ). Participant further understands that the Company and/or its Subsidiaries will transfer Data amongst themselves as necessary for the purpose of implementation, administration and management of Participants participation in the Plan, and that the Company and/or any of its Subsidiaries may each further transfer Data to any third parties assisting the Company in the implementation, administration and management of the Plan ( Data Recipients ). Participant understands that these Data Recipients may be located in the Participants country of residence, the European Economic Area, or elsewhere throughout the world, such as the United States. Participant authorizes the Data Recipients to receive, possess, use, retain and transfer the Data, in electronic or other form, for the purposes of implementing, administering and managing Participants participation in the Plan, including any transfer of such Data, as may be required for the administration of the Plan and/or the subsequent holding of shares on the Participants behalf, to a broker or other third party with whom Participant may elect to deposit any shares of stock acquired upon vesting of the shares of Restricted Stock. Participant understands that he or she may, at any time, review the Data, require any necessary amendments to it or withdraw the consent herein in writing by contacting the Company. Withdrawal of consent may, however, affect Participants ability to participate in the Plan.
* * * * *
A-7
APPENDIX B
INVENTIONS PRIOR TO EMPLOYMENT WITH EMPLOYER
Brief Description of Inventions (1) |
|
Right,
Title or Interest
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) None unless otherwise indicated.
B-1
Exhibit 31.1
CERTIFICATION
PURSUANT TO
RULE 13a - 14(a) or RULE 15d - 14(a)
OF THE SECURITIES EXCHANGE ACT OF 1934
I, John R. Peeler, Chief Executive Officer of Veeco Instruments Inc., certify that:
1. I have reviewed this quarterly report on Form 10-Q for the period ended June 30, 2007 of Veeco Instruments 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 registrants other certifying officer 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;
(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;
(c) Evaluated the effectiveness of the registrants 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 registrants internal control over financial reporting that occurred during the registrants most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrants internal control over financial reporting; and
5. The registrants other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrants auditors and the audit committee of the registrants 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 registrants 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 registrants internal control over financial reporting.
/s/ JOHN R. PEELER |
|
John R. Peeler |
|
Chief Executive Officer
|
|
August 7, 2007 |
|
Exhibit 31.2
CERTIFICATION
PURSUANT TO
RULE 13a - 14(a) or RULE 15d - 14(a)
OF THE SECURITIES EXCHANGE ACT OF 1934
I, John F. Rein, Jr., Executive Vice President, Chief Financial Officer and Secretary of Veeco Instruments Inc., certify that:
1. I have reviewed this quarterly report on Form 10-Q for the period ended June 30, 2007 of Veeco Instruments 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 registrants other certifying officer 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;
(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;
(c) Evaluated the effectiveness of the registrants 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 registrants internal control over financial reporting that occurred during the registrants most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrants internal control over financial reporting; and
5. The registrants other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrants auditors and the audit committee of the registrants 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 registrants 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 registrants internal control over financial reporting.
/s/ JOHN F. REIN, JR. |
|
John F. Rein, Jr. |
|
Executive Vice
President, Chief Financial Officer and Secretary
|
|
August 7, 2007 |
|
Exhibit 32.1
CERTIFICATION
PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of Veeco Instruments Inc. (the Company) on Form 10-Q for the period ended June 30, 2007 as filed with the Securities and Exchange Commission on the date hereof (the Report), I, John R. Peeler, Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:
(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
/s/ JOHN R. PEELER |
|
John R. Peeler |
|
Chief Executive Officer
|
|
August 7, 2007 |
|
A signed original of this written statement required by Section 906 has been provided to Veeco Instruments Inc. and will be retained by Veeco Instruments Inc. and furnished to the Securities and Exchange Commission or its staff upon request.
Exhibit 32.2
CERTIFICATION
PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of Veeco Instruments Inc. (the Company) on Form 10-Q for the period ended June 30, 2007 as filed with the Securities and Exchange Commission on the date hereof (the Report), I, John F. Rein, Jr., Executive Vice President, Chief Financial Officer and Secretary of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:
(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
/s/ JOHN F. REIN, JR. |
|
John F. Rein, Jr. |
|
Executive Vice
President, Chief Financial Officer and Secretary
|
|
August 7, 2007 |
|
A signed original of this written statement required by Section 906 has been provided to Veeco Instruments Inc. and will be retained by Veeco Instruments Inc. and furnished to the Securities and Exchange Commission or its staff upon request.