Filed by Electro Scientific Industries, Inc.
Pursuant to Rule 425 under the Securities Act of 1933
and deemed filed pursuant to Rule 14a-12
under the Securities Exchange Act of 1934
Subject Company: Zygo Corporation
Commission File No. 000-12944
This filing relates to the proposed acquisition by Electro Scientific Industries, Inc. (ESI) of Zygo Corporation (Zygo) pursuant to the terms of an Agreement and Plan of Merger and Reorganization, dated October 15, 2008, by and among ESI, Zirkon Merger Sub, LLC, and Zygo (the Merger Agreement). The Merger Agreement will be filed by ESI with the Securities and Exchange Commission under cover of Form 8-K and, upon such filing, is incorporated by reference into this filing.
Additional Information About the Acquisition and Where to Find It
ESI and Zygo intend to file with the Securities and Exchange Commission (SEC) a Registration Statement on Form S-4, which will include a joint proxy statement/prospectus with respect to the acquisition and other relevant materials (the proxy statement/prospectus). BEFORE MAKING ANY VOTING OR INVESTMENT DECISION, STOCKHOLDERS AND INVESTORS OF ESI AND ZYGO ARE URGED TO READ THE PROXY STATEMENT/PROSPECTUS AND OTHER RELEVANT DOCUMENTS WHEN THEY BECOME AVAILABLE BECAUSE THEY WILL CONTAIN IMPORTANT INFORMATION ABOUT ESI, ZYGO AND THE ACQUISITION. Investors and security holders may obtain copies of the proxy statement prospectus, including the annexes attached to, and the reports incorporated by reference in, the proxy statement/prospectus, and any other related reports and documents filed or to be filed by ESI or Zygo with the SEC relating to the acquisition, free of charge, at the SECs web site at www.sec.gov. Investors and security holders also may obtain these documents free of charge from ESI at the Investor Relations link on ESIs web site at www.esi.com or by contacting ESIs Investor Relations at (503) 641-4141. Documents will also be available at the Investors link on Zygos web site at www.zygo.com, or by contacting Zygos Investor Relations at (860) 347-8506.
ESI and Zygo and their respective directors and executive officers may be deemed participants in the solicitation of proxies from security holders in connection with this transaction. Information about the directors and executive officers of ESI and Zygo and information about other persons who may be deemed participants in this transaction will be included in the proxy statement/prospectus. You can find information about ESIs executive officers and directors in ESIs proxy statement (DEF14A) filed with the SEC on June 27, 2008. You can find information about Zygos officers and directors in Zygos proxy statement (DEF14A) filed with the SEC on October 5, 2007 and Zygos annual report (Form 10-K) filed with the SEC on September 15, 2008. You can obtain free copies of these documents from the SEC or from ESI and Zygo using the contact information above. In addition, directors and executive officers of Zygo may have direct or indirect interests in the acquisition due to securities holdings, vesting of options, or rights to severance payments if their employment is terminated following the acquisition. Additional information regarding ESI, Zygo, and the interests of their respective executive officers and directors in the merger will be contained in the proxy statement/prospectus.
The following materials are filed:
1. | Letter to Employees of ESI |
2. | Transcript of a conference call/webcast held by ESI on October 16, 2008 |
3. | Investor presentation slides |
4. | Slides from presentation to Zygo employees |
To: All ESI Employees
From: Nick Konidaris, CEO
Date: October 16, 2008
Subject: ESI-Zygo Merger
It is with great pleasure that I inform you that Electro Scientific Industries (ESI) announced in a special press release this morning that it has entered into a definitive merger agreement to acquire Zygo Corporation. The merger is subject to regulatory approval, shareholder approval, and other customary closing conditions and is expected to close in the first calendar quarter of 2009. The merger of our companies aligns closely with our strategy for growth, and I would like to take this opportunity to share some of my thoughts with you.
Zygos merger with ESI creates a premier photonics and optical systems company that will provide our customers with solutions ranging from microengineering to metrology. I believe that both companies are strong separately, but together we can be even greater.
The decision to merge Zygos impressive portfolio of products and solutions with ESI was an easy one to reach. Both companies deal with very high-precision markets and applications and this merger enables us to build on our core competencies. In addition, both Zygo and ESI are leaders in their markets, have strong brand recognition, and have a long history of innovation and customer focus
This merger represents an important step forward in our corporate strategies, will increase our collective scale and should enable us to access new growth opportunities better than we could as separate companies. For example, this merger gives us access to Zygos world-class optics and metrology technology and complements our existing technology portfolio. It diversifies our revenue over a broader set of industries and expands our addressable markets into targeted opportunities in microelectronics, medical, industrial, security and defense markets. In addition, the combined company will have the size and scale to both make strategic investments and better compete in todays challenging international markets.
ESIs core competencies are also important to Zygos growth strategy. We have a proven record in selling and supporting systems in high volume manufacturing environments. By leveraging our systems expertise, sales and support infrastructure, and customer knowledge, Zygo will be better able to execute its growth strategy of integrating its world-class metrology and optical technologies into in-line system solutions.
Although the merger provides many technical and competitive advantages, the largest creation of value will be in combining the talent and superior technical expertise of two great organizations.
Over the next few months, we will be immersed in the exciting work of planning the integration of our two companies that will begin after the official closing. During this time, we will remain two separate companies, which will present challenges for everyone involved in the process. To that point, I ask for your patience and cooperation with each other as we begin this journey.
Our first step in this process will be to identify a cross-functional team of ESI and Zygo representatives who will work together to develop integration plans that build upon the best technological, cultural, business, and product development aspects of the two companies. In the meantime, it is essential for everyone to maintain sharp focus on our own business objectives while maintaining our customers satisfaction and goodwill.
We will be hosting an all-hands employee meeting on Monday to discuss this acquisition in more detail. I encourage you to all to attend, as we will be explaining the strategy and rationale behind this merger. A meeting invite will be forthcoming.
Finally, please join me in welcoming the Zygo employees to the ESI family. This is an exciting time for both companies and it gives me great pleasure to look to the future with the addition of such an impressive and talented organization. Please feel free to contact me or anyone else on my staff if you have any questions or concerns.
Best Regards,
Nick Konidaris
ESI and Zygo intend to file with the Securities and Exchange Commission (SEC) a Registration Statement on Form S-4, which will include a joint proxy statement/prospectus with respect to the merger and other relevant materials (the proxy statement/prospectus). BEFORE MAKING ANY VOTING OR INVESTMENT DECISION, STOCKHOLDERS AND INVESTORS OF ESI AND ZYGO ARE URGED TO READ THE PROXY STATEMENT/PROSPECTUS AND OTHER RELEVANT DOCUMENTS WHEN THEY BECOME AVAILABLE BECAUSE THEY WILL CONTAIN IMPORTANT INFORMATION ABOUT ESI, ZYGO AND THE MERGER. Investors and security holders may obtain copies of the proxy statement/prospectus, including the annexes attached to, and the reports incorporated by reference in, the proxy statement/prospectus, and any other related reports and documents filed or to be filed by ESI or Zygo with the SEC relating to the acquisition, free of charge, at the SECs web site at www.sec.gov. Investors and security holders also may obtain these documents free of charge from ESI at the Investor Relations link on ESIs web site at www.esi.com or by contacting ESIs Investor Relations at (503) 641-4141. Documents will also be available at the Investors link on Zygos web site at www.zygo.com, or by contacting Zygos Investor Relations at (860) 347-8506.
ESI and Zygo and their respective directors and executive officers may be deemed participants in the solicitation of proxies from security holders in connection with this transaction. Information about the directors and executive officers of ESI and Zygo and information about other persons who may be deemed participants in the merger transaction will be included in the proxy statement/prospectus. Information about ESIs executive officers and directors is included in ESIs proxy statement (DEF14A) filed with the SEC on June 27, 2008. Information about Zygos officers and directors is included in Zygos proxy statement (DEF14A) filed with the SEC on October 5, 2007 and Zygos annual report (Form 10-K) filed with the SEC on September 15, 2008. Free copies of these documents can be obtained from the SEC or from ESI and Zygo using the contact information above. In addition, directors and executive officers of Zygo may have direct or indirect interests in the merger due to securities holdings, vesting of options, or rights to severance payments if their employment is terminated following the merger. Additional information regarding ESI, Zygo, and the interests of their respective executive officers and directors in the merger will be contained in the proxy statement/prospectus.
FINAL TRANSCRIPT
Thomson StreetEventsSM
ESIO - Electro Scientific Industries and Zygo Merger Announcement
Event Date/Time: Oct. 16. 2008 / 8:30AM ET
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FINAL TRANSCRIPT |
Oct. 16. 2008 / 8:30AM, ESIO - Electro Scientific Industries and Zygo Merger Announcement |
CORPORATE PARTICIPANTS
Brian Smith
Electro Scientific Industries - IR
Nick Konidaris
Electro Scientific Industries - President & CEO
Bruce Robinson
Zygo Corporation - Chairman & CEO
Paul Oldham
Electro Scientific Industries - CFO, VP Administration & Corporate Secretary
Walter Shepherd
Zygo Corporation - CFO
CONFERENCE CALL PARTICIPANTS
Jim Ricchiuti
Needham & Co. - Analyst
Matt Petkun
DA Davidson - Analyst
Scott Mittleman
[AIM Investment Partners] - Analyst
Darice Liu
Maxim Group - Analyst
PRESENTATION
Operator
Good day, ladies and gentlemen and welcome to the ESI/Zygo merger conference call. My name is Francis and I will be your coordinator for today. At this time, all participants are in listen-only mode. We will be facilitating a question-and-answer session towards the end of this conference. (Operator Instructions). As a reminder, this conference is being recorded for replay purposes. I would now like to turn the presentation over to your host for todays call, Mr. Brian Smith, Director of Investor Relations for ESI. Please proceed.
Brian Smith - Electro Scientific Industries - IR
Thank you, Francis and good morning, everyone. My name is Brian Smith, Director of Investor Relations for ESI. With me today are Nick Konidaris, our CEO; Paul Oldham, ESIs Chief Financial Officer and Bruce Robinson, CEO of Zygo; and Walter Shepherd, Zygos Chief Financial Officer.
Before we go into the details of the call, I would like to remind you that some of what we say on this call will include forward-looking statements. These statements are subject to the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995. These statements include a number of risks and uncertainties that are discussed in more detail in todays press release and our filings with the SEC. Actual results may differ materially from those forward-looking statements. This call also contains time-sensitive information that we believe to be accurate as of today, October 16, 2008 and which could change in the future. This call is the property of ESI. Now Id like to turn the call over to ESIs CEO, Nick Konidaris.
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FINAL TRANSCRIPT |
Oct. 16. 2008 / 8:30AM, ESIO - Electro Scientific Industries and Zygo Merger Announcement |
Nick Konidaris - Electro Scientific Industries - President & CEO
Thank you, Brian and good morning, everyone. Thank you for joining us on short notice. We are pleased to announce that we have signed a definitive agreement to merge with Zygo Corporation. Zygo is a leading provider of high precision metrology solutions and optical systems and components. The combination of ESI and Zygo will create the premier photonic and optical systems company, providing customers with solutions ranging from microengineering to metrology. We believe this merger represents a strong value proposition to our shareholders and enables us to access new growth opportunities and increases the scale and diversity of our Company.
Let me start by telling you about Zygo and why we are so excited about this transaction. Zygo was founded in 1970 in Middlefield, Connecticut and is publicly traded under the symbol ZIGO. Last fiscal year, Zygo revenues were approximately $160 million, with 70% of its revenue coming from metrology solutions and the remaining 30% from its optical systems business. Zygos metrology tools are highly complex instruments and systems based on interferometry that are capable of making a variety of high precision measurements such as form roughness, dimension and film thickness on an array of surfaces.
These solutions serve a wide variety of end markets, including semiconductors, flat-panel displays, defense and aerospace, medical and industrial. Zygo has a very strong brand name and is known throughout their industry for quality and precision. Zygos customers like to say, We dont measure it, we Zygo it when dealing with high precision tolerances.
Zygo uses these technologies in optical test interferometers, precision positioning systems, vision and inspection systems and semiconductor and flat-panel metrology systems. In addition, Zygo has world-class optics capability, which is used for precision optics and electro-optical systems.
The combination of ESI and Zygo complements and enables its other strategy for growth. Zygos fundamental competences are in ultra-high, nanoscale precision inspection and metrology. This skill set complements ESIs own technology expertise in photonic microengineering and extends our portfolio of proprietary vision and inspection technologies.
Leveraging these competencies enables us to broaden our addressable market and immediately extends our presence into adjacent opportunities in our targeted markets of microelectronics, medical, industrial, security and defense.
ESIs substantial systems expertise and support infrastructure further enable Zygos strategy of integrating their world-class technologies into system solutions for high-volume manufacturing applications. ESI understands the systems business and has a proven track record in providing high-value solutions and support to customers in very demanding production environments.
Longer term, the combination of the two companies will allow us to bring new solutions to market, leveraging our combined strengths in both microengineering and metrology. We believe this transaction represents a strong value proposition to the shareholders of both companies.
In addition to broadening our range of capabilities and more than doubling our addressable market, it creates a synergistic company of greater scale and market presence. This will allow us to leverage common infrastructure and reduce public company costs.
In addition, our expanded product portfolio and new market positions will diversify our revenue stream, which we would expect will reduce volatility by mitigating the impact of cyclicality in the semiconductor market. Scale and diversification are particularly important in todays challenging international markets.
This transaction represents the coming together of culturally similar industry leaders with very complementary technologies and leader product overlap. This combination maximizes the opportunity for the two companies to benefit from each other and reduces the risk of a complicated or difficult integration.
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Oct. 16. 2008 / 8:30AM, ESIO - Electro Scientific Industries and Zygo Merger Announcement |
As ESI looks to increase its scale in photonics-based markets and Zygo to integrate its technology into high-volume manufacturing solutions, both management teams have decided that now is the time to come together. I would like now to introduce Bruce Robinson, Chief Executive Officer of Zygo for a few comments.
Bruce Robinson - Zygo Corporation - Chairman & CEO
Good morning. Thank you, Nick. We, at Zygo, are excited about the opportunity to join forces with ESI. ESI has been a leader in its markets and has a strong global presence in the systems business. Leveraging ESIs system expertise, which includes system design, sales and support infrastructure and market knowledge, will enable us to better execute on our growth strategy that is centered around integrating our world-class metrology and optics technologies into in-line, high-volume manufacturing solutions.
In our view, this is a compelling transaction for our shareholders and it should provide us with the resources we need to realize the full market potential of our technologies. Given our complementary nature, similar culture, commitment to customers and the ability of each company to help the other achieve its strategic goals, we believe the combination of the two companies will provide opportunities and scale that neither company would have on its own. Now I will turn the call back to Nick.
Nick Konidaris - Electro Scientific Industries - President & CEO
Thank you, Bruce. Although the merger provides many technical and competitive advantages, the largest creation of value would be in combining the talent and superior technical expertise of two great organizations. I look forward to working with the Zygo team and working them into the ESI family.
In summary, bringing these two leading companies together will help accelerate each companys current growth strategy. ESIs systems expertise will facilitate Zygos growth strategy into the systems business. And we expect to realize new market opportunities by enhancing our micromachining applications with Zygos world-class metrology and optics technologies.
Finally, the combined company will have the size and scale necessary to make strategic investments and to better compete in todays challenging international markets. Simply put, we believe the combination of ESI and Zygo will create a stronger, more diversified photonic systems company with expanded opportunities for growth. Now I would like to turn it over to Paul.
Paul Oldham - Electro Scientific Industries - CFO, VP Administration & Corporate Secretary
Thank you, Nick and good morning, everyone. As we stated in our press release, the acquisition will be transacted as a stock-for-stock merger between ESI and Zygo with each share of Zygo stock exchanged for 1.0233 shares of ESI stock. Based on the respective closing prices of the two companies yesterday, this represents a one-day premium of 36%.
Upon closing, ESI will issue approximately 18.1 million shares on a diluted basis to complete the transaction, resulting in 40% Zygo shareholder ownership of the combined company. The Board of Directors at each company has unanimously approved the transaction.
On a pro forma basis, the combined company had revenues in calendar year 2007 of approximately $458 million and EBITDA, on an adjusted basis, of approximately $66 million. Looking forward, we expect to see operating synergies in the range of $5 million to $7 million of operating income before tax at the end of the integration period. Excluding the impact of purchase price amortization and incremental stock compensation expenses, we expect the transaction will be accretive to non-GAAP earnings per share in the first full fiscal year of combined operations.
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Oct. 16. 2008 / 8:30AM, ESIO - Electro Scientific Industries and Zygo Merger Announcement |
Turning to the balance sheet, we expect the combined company to have cash investments of greater than $200 million and no debt after transaction costs. This strong balance sheet should enable the Company to significantly increase its opportunistic share repurchase program post-transaction, pursue other strategic opportunities and retain ample liquidity in todays uncertain markets.
We anticipate filing an S-4 registration statement and related documents with the SEC in November. Subject to shareholder approval, regulatory approvals and customary conditions, we expect the transaction will close in the first calendar quarter of 2009.
Contingent upon the close of the merger, the Board of Directors of ESI has approved an increase to the existing share buyback program to $100 million of outstanding shares of ESI common stock. The shares will be repurchased based on open market conditions in an open market program beginning subsequent to the close of the transaction. This opportunistic repurchase program will better balance our capital structure over time and reduce dilution from the transaction. We will provide more details about this transaction next week on ESIs second-quarter earnings conference call scheduled for Wednesday, October 22.
I would also like to take a moment to update you on our expected second-quarter financial results. The weakening economic environment and a further downturn in the semiconductor memory market continued to negatively impact our business. Specifically, we have seen a further decline in orders and revenues in the memory repair and passive component segments, resulting in orders of approximately $37 million for the second quarter and revenues of approximately $49 million.
We expect earnings per share on a GAAP basis to be a loss of $0.02 to $0.03. On a non-GAAP basis, excluding the impact of purchase accounting, stock compensation and one-time items, we expect earnings per share to be approximately $0.04 to $0.05 with good expense control and improved gross margins offsetting the lower-than-expected revenues.
Consistent with these market conditions, during the quarter, we took additional actions to reduce our overall cost structure, which resulted in a charge for structuring costs of approximately $1.2 million. This action should enable us to reduce the operating breakeven point of ESI to approximately $50 million on a non-GAAP basis and better position us to mitigate the continued cyclicality in our markets. And now I will turn the call back to Nick.
Nick Konidaris - Electro Scientific Industries - President & CEO
Thank you, Paul. I would like to take a moment to reiterate that we believe this merger represents a strong value proposition to our shareholders. The merger of Zygo and ESI positions us to become the premier photonic microengineering and metrology solutions company. It creates a company of greater scale with a more diversified revenue stream and broadens both our range of capabilities in our addressable market. This transaction is an important step forward in both our corporate strategies and will enable us to access new growth opportunities as we look ahead to the coming years. This concludes our prepared remarks. We are ready for your questions now. Francis?
QUESTIONS AND ANSWERS
Operator
(Operator Instructions). Jim Ricchiuti, Needham & Co.
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Oct. 16. 2008 / 8:30AM, ESIO - Electro Scientific Industries and Zygo Merger Announcement |
Jim Ricchiuti - Needham & Co. - Analyst
Thank you, good morning. I wonder if you would be willing to just talk a little bit about the revenue profile for the combined company in terms of the vertical markets you are going to be addressing.
Nick Konidaris - Electro Scientific Industries - President & CEO
Yes. First of all, the way to think about the combined companies that we are going to have, a micromachining segment and metrology segment. In the micromachining, we are addressing semiconductor, along with microelectronics industries. Typical semiconductor applications would be the memory repair, the wafer [simulation] and the wafer simulation as an example, along with [thin-film] on silicon trimming.
Typical non-semiconductor micromachining applications would be the microvia drilling on IC packages, microvia drilling on flex, along with other, more general type of micromachining applications.
Then we would have metrology and metrology would address both semiconductor with in-line, high-volume production systems that are basically using interferometry as a core technology. And then we would have, in the semiconductor also, PPS kinds of solutions for people who are involved in lithography.
But in addition to that in metrology, we would have instruments that basically are based on high-precision, interferometric type of measurements that basically address a large market of large industries in places where you need to make measurements that are not necessarily in high-volume manufacturing.
In addition then, we are going to have, based on the interferometric expertise, we are going to have a premier optics group that basically is going to be a center of excellence on a worldwide basis for optics manufacturing, flat surfaces and [spheres] and (inaudible) spheres, along with superb expertise in high-precision optical assembly for a number of industries.
These revenue streams are going to be - in summary, if you look, this would be along expertises, but if you look along industries, there is going to be a significant component, of course, in the semi conductor segment, which is the source of a lot of our technology. But then that is going to be overflowing now into microelectronics and into medical and aerospace and defense markets.
Jim Ricchiuti - Needham & Co. - Analyst
Nick, as you look out longer term and you are able to leverage Zygos technology in the systems area, is there anything youre prepared to talk to us about in terms of the markets and potential applications as you move the technology to more of a full-blown systems area?
Nick Konidaris - Electro Scientific Industries - President & CEO
Nothing specific, but I can give you the following theme that is a standard theme as I visit our customers. We micromachine at very high speed in extremely small dimensions and this it is very difficult to know the results of our micromachining, whether really we have accomplished the objective or not. And continually, our customers are asking us - can you measure what you have done with your micromachining. And in fact, some of our vision expertise is really being dedicated now in developing specialized systems that do the measurement of whatever we are micromachining.
So once you micromachine, we alter the form, [film] dimensions and so forth of an article. Then you have to know what you have done. That is why you need to metrology. So I think the synergies are great and that is kind of a thing that basically one can start speculating on a lot of opportunities in the future.
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FINAL TRANSCRIPT |
Oct. 16. 2008 / 8:30AM, ESIO - Electro Scientific Industries and Zygo Merger Announcement |
Jim Ricchiuti - Needham & Co. - Analyst
Thank you. And lastly, is there anything you can say about this transaction, this merger as it relates to your long-term operating model? Does it change anything?
Nick Konidaris - Electro Scientific Industries - President & CEO
Our long-term operating model is basically based on two things. One is that we want to grow and we want to grow aggressively and B, we want to grow profitably along the lines of 50/30/20. This merger keeps that 50/30/20 and accelerates the growth opportunity. Our addressable market more than doubles. The new opportunities out of two pioneering companies, leading technology companies, are ahead of us and both of us have exhibited very good growth in the last few years and I think the combination is going to accelerate that.
Jim Ricchiuti - Needham & Co. - Analyst
Thank you.
Operator
Matt Petkun, DA Davidson.
Matt Petkun - DA Davidson - Analyst
Hi, good morning. Nick, have you guys been users of some of the componentry that Zygo has manufactured?
Nick Konidaris - Electro Scientific Industries - President & CEO
Yes, we have been users. Zygo has a line, a PPS line, that is basically used in positioning of our laser beam very, very accurately. The total value of our buys from Zygo I think is less than $1 million.
Matt Petkun - DA Davidson - Analyst
Okay. And then overall, when you look at the obviously, there is a lot of work to be done. But margin opportunity, historically, Zygo has been similar to your margins, maybe a little bit lower. The components business is doing very well. How does this change your overall long-term view of what gross margin should look like for the combined entity?
Nick Konidaris - Electro Scientific Industries - President & CEO
It really doesnt. If you look into Zygo gross margins, they have very good gross margins in their (inaudible) business and then they are investing into going into high-volume manufacturing, which is our core competence in, I call it, in-line solutions into the semiconductor industry. That includes flat-panel display. And that requires significant investment to really develop these not just products, but complete solutions with global support on a 7 by 24 basis over many, many different continents and this is our expertise. I think the combination of the two companies, A, accelerates that penetration and B, makes it, from a scale point of view, more affordable. So our model continues to be the 50/30/20.
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FINAL TRANSCRIPT |
Oct. 16. 2008 / 8:30AM, ESIO - Electro Scientific Industries and Zygo Merger Announcement |
Matt Petkun - DA Davidson - Analyst
Okay and then just to be clear. Were you saying that you will start to disclose your revenues just by two product categories then in the future? Jims question, when you responded to that, seemed to allude that youd focus on the metrology business.
Nick Konidaris - Electro Scientific Industries - President & CEO
Let me not address this thing, but clearly we are right now a unique photonics company that has leading start in laser microengineering and leading staff in metrology. Our core competencies are overlapping and basically, we have this unique combination of microengineering and metrology using photons.
Matt Petkun - DA Davidson - Analyst
Okay. And both this company, Zygo, as well as New Wave Research, a fair amount of their sales have been on an OEM basis. I assume that will continue.
Nick Konidaris - Electro Scientific Industries - President & CEO
I think this is not a correct impression. As far as Zygo is concerned, instruments are not on an OEM basis directly. PPS is on an OEM basis. Their in-line tools are not on an OEM basis and their optical things are components to end-users, they are not OEMs the way I think. Part of it may be, but Zygo is 100 close like here $160 million. I need a little bit of help. How much of that would be OEM, which is PPS?
Matt Petkun - DA Davidson - Analyst
Okay.
Nick Konidaris - Electro Scientific Industries - President & CEO
It is about 20% is OEM. Neither NWR is OEM. They are end-user systems.
Matt Petkun - DA Davidson - Analyst
Okay. Thanks a lot and it looks like a good structure for a deal. I wish more companies would see future value in their shares and be willing to trade shares effectively and maintain cash. Thanks. Good deal.
Nick Konidaris - Electro Scientific Industries - President & CEO
Thanks, Matt.
Operator
[Scott Mittleman], [Aim Investment Partners].
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FINAL TRANSCRIPT |
Oct. 16. 2008 / 8:30AM, ESIO - Electro Scientific Industries and Zygo Merger Announcement |
Scott Mittleman - [AIM Investment Partners] - Analyst
Good morning. Congratulations.
Nick Konidaris - Electro Scientific Industries - President & CEO
Thank you.
Scott Mittleman - [AIM Investment Partners] - Analyst
You cited about $5 million to $7 million of synergies from revenue and cost savings. Could you give us a percentage of that for cost savings, please?
Paul Oldham - Electro Scientific Industries - CFO, VP Administration & Corporate Secretary
Yes, the majority of the synergies that we have cited does come from cost savings. We think there is a significant amount of upside on the revenue synergies over time as we combine technologies and we further penetrate the markets. But in this first year or two, we are not counting on a significant amount to that. So the majority would come from cost savings and it would be from public company costs, infrastructure, supply chain procurement-types of opportunities largely.
Scott Mittleman - [AIM Investment Partners] - Analyst
Thats great. Thanks. And for Electro Scientific Industries, sales in Asia, could you just break out how much is in Japan? Is that possible?
Nick Konidaris - Electro Scientific Industries - President & CEO
We dont break it, but for ESI, sales in Asia are about 75% and you have got to think that with plus or minus is approximately they are equally distributed between Korea, China and Japan.
Scott Mittleman - [AIM Investment Partners] - Analyst
Great. Just two more quick questions. For Zygo, what percentage of your revenue is from your top three customers? I didnt see it in your annual report.
Walter Shepherd - Zygo Corporation - CFO
No, we dont list it that way. The major customer, of course, is Canon, which not only buys for their own use, but buys and resells in the marketplace and they have been as much as well, they have been as much as, I think, 17% last year, thereabout, 16% to 17% of our total business.
Scott Mittleman - [AIM Investment Partners] - Analyst
Okay, thank you. And my last question is just as far as antitrust, what jurisdictions are you planning on making filings in besides the US?
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Oct. 16. 2008 / 8:30AM, ESIO - Electro Scientific Industries and Zygo Merger Announcement |
Paul Oldham - Electro Scientific Industries - CFO, VP Administration & Corporate Secretary
Well, we would certainly look at the US. I think we would need to look at probably Japan and possibly Germany.
Scott Mittleman - [AIM Investment Partners] - Analyst
All right. Thanks very much. Congratulations again.
Nick Konidaris - Electro Scientific Industries - President & CEO
Thank you.
Operator
(Operator Instructions). Darice Liu, Maxim Group.
Darice Liu - Maxim Group - Analyst
Good morning. I was wondering if there was any product overlap between the two companies. And secondly, are there any Zygo productlines that do not align with the long-term vision of ESI?
Bruce Robinson - Zygo Corporation - Chairman & CEO
Maybe I can answer on the product overlap. Darice, we dont see really any product overlap. We see, certainly in the areas of systems and vision, our [saw] vision and some of the vision products that are associated with ESI I think are very complementary. Certainly the skill of high-volume manufacturing production that ESI has will leverage many of our technologies into the semiconductor world. As you know, our growth initiatives are centered around in-line semiconductor manufacturing tools and I believe that ESI brings a lot of help there in that area based on their knowledge. So I dont see any overlap and I will let Nick talk about the ESI piece of that.
Nick Konidaris - Electro Scientific Industries - President & CEO
Yes, Darice, I agree that we dont see also overlap. That is one of the attractions of this acquisition. It allows us to move into what we call adjacent markets. I dont know if you had an opportunity to see our corporate presentation, but basically our business model is based on three generic core competencies that allow us to move into different markets.
One is competence in terms of what we call directing photons to do microengineering. This deals with laser beam positioning, laser [material] interaction. Then we have a competence in terms of characterizing photons. We have a very proprietary and very advanced optics and illumination technology, along with vision algorithms that we use on a merchant basis and in-house to direct the photons for microengineering. And then, of course, providing the complete system level, high-volume solutions to very exacting and demanding manufacturing environments like semiconductors.
What we see in this merger is that Zygo enhances and catapults us into a premier company in the area of metrology, that enhances this competence of characterizing photons and complements our vision, (inaudible) not only with their [sole] vision acquisition, but with their totally different approach to measuring surfaces and so forth through interferometry. And then we are coming in with our high-volume system expertise to accelerate their growth into the high-volume production markets. And there is no overlap, theres just a lot of complementarity.
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FINAL TRANSCRIPT |
Oct. 16. 2008 / 8:30AM, ESIO - Electro Scientific Industries and Zygo Merger Announcement |
Darice Liu - Maxim Group - Analyst
So, Nick, you are saying that none of the productlines do not align with your long-term vision of the Company?
Bruce Robinson - Zygo Corporation - Chairman & CEO
(inaudible).
Nick Konidaris - Electro Scientific Industries - President & CEO
All of the products are welcome into our Company and we are very excited to include in our portfolio. And think about that. We very much like our position to be, in a way, a unique company leading in laser and microengineering and leading into photonic metrology.
Darice Liu - Maxim Group - Analyst
Okay. And then a question for Zygo. Can you go over the pricing rationale? Currently, at last nights - based on last nights closing price of ESI, the value of the transaction is equivalent to less than one times your tangible book and less than one time your trailing 12-month sales if you exclude the $50 million in cash you have.
Bruce Robinson - Zygo Corporation - Chairman & CEO
Yes, I think, Darice, that it is very difficult in this environment in the market today to determine that - you are looking at one day. We have been talking to ESI for a number of years, going back I think, Nick and I, three years probably. We have been discussing possible things we could do together. And if you look at it from a historic standpoint over those three, four, five, six years, Zygo shareholders I think have received a fair and reasonable return and premium for our company.
Nick Konidaris - Electro Scientific Industries - President & CEO
Darice, I second that fully. This is a fair deal. Zygo shareholders received a fair premium and basically, what this transaction does, as we say a stock-to-stock transaction, locks in the long-term relationship in the stock values of the two companies.
Darice Liu - Maxim Group - Analyst
Okay, thank you, guys.
Operator
(Operator Instructions). Matt Petkun, DA Davidson.
Matt Petkun - DA Davidson - Analyst
Hi. Sorry, Paul, since you did give early numbers for Q2, one question for you. It does look like your overall EPS came in in line actually towards the top end of your prior guidance despite the weaker sales. Is that because you made some cost adjustments mid-quarter?
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FINAL TRANSCRIPT |
Oct. 16. 2008 / 8:30AM, ESIO - Electro Scientific Industries and Zygo Merger Announcement |
Paul Oldham - Electro Scientific Industries - CFO, VP Administration & Corporate Secretary
Yes, I wouldnt say so much that we made the adjustments to the structure mid-quarter, but we did, in fact, see expenses come in lower as part of our ongoing effort to lower costs. And we had slightly better gross margins based on a little bit better mix. So it was a combination of things. The action that we took will allow us to see expenses come down from the second quarter going forward even from the lower levels.
Matt Petkun - DA Davidson - Analyst
Okay, great. Thank you.
Operator
There are no other questions in the queue at this time. I would like to turn the call back over to Mr. Nick Konidaris for closing remarks.
Nick Konidaris - Electro Scientific Industries - President & CEO
Thank you very much for joining us. You are welcome to call Paul, Brian or me if you have further questions. Questions regarding Zygo can be directed to Bruce or Walter. This concludes our call. Thank you for joining us today.
Operator
Ladies and gentlemen, thank you all for your participation in todays conference. This concludes the presentation. You may now disconnect. Have a great day.
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Additional Information About the Acquisition and Where to Find It
ESI and Zygo intend to file with the Securities and Exchange Commission (SEC) a Registration Statement on Form S-4, which will include a joint proxy statement/prospectus with respect to the acquisition and other relevant materials (the proxy statement/prospectus). BEFORE MAKING ANY VOTING OR INVESTMENT DECISION, STOCKHOLDERS AND INVESTORS OF ESI AND ZYGO ARE URGED TO READ THE PROXY STATEMENT/PROSPECTUS AND OTHER RELEVANT DOCUMENTS WHEN THEY BECOME AVAILABLE BECAUSE THEY WILL CONTAIN IMPORTANT INFORMATION ABOUT ESI, ZYGO AND THE ACQUISITION. Investors and security holders may obtain copies of the proxy statement prospectus, including the annexes attached to, and the reports incorporated by reference in, the proxy statement/prospectus, and any other related reports and documents filed or to be filed by ESI or Zygo with the SEC relating to the acquisition, free of charge, at the SECs web site at www.sec.gov. Investors and security holders also may obtain these documents free of charge from ESI at the Investor Relations link on ESIs web site at www.esi.com or by contacting ESIs Investor Relations at (503) 641-4141. Documents will also be available at the Investors link on Zygos web site at www.zygo.com, or by contacting Zygos Investor Relations at (860) 347-8506.
ESI and Zygo and their respective directors and executive officers may be deemed participants in the solicitation of proxies from security holders in connection with this transaction. Information about the directors and executive officers of ESI and Zygo and information about other persons who may be deemed participants in this transaction will be included in the proxy statement/prospectus. You can find information about ESIs executive officers and directors in ESIs proxy statement (DEF14A) filed with the SEC on June 27, 2008. You can find information about Zygos officers and directors in Zygos proxy statement (DEF14A) filed with the SEC on October 5, 2007 and Zygos annual report (Form 10-K) filed with the SEC on September 15, 2008. You can obtain free copies of these documents from the SEC or from ESI and Zygo using the contact information above. In addition, directors and executive officers of Zygo may have direct or indirect interests in the acquisition due to securities holdings, vesting of options, or rights to severance payments if their employment is terminated following the acquisition. Additional information regarding ESI, Zygo, and the interests of their respective executive officers and directors in the merger will be contained in the proxy statement/prospectus.
Portlnd2-4703964.1 0026860-00120
![]() October 16,
2008 ESI-Zygo Merger |
![]() www.esi.com Safe Harbor This presentation may contain forward-looking statements which are subject to a number of risks and uncertainties. Risks and uncertainties that may affect the forward-looking statements include: Risks surrounding the proposed combination, including the deal closing; regulatory or shareholder approval being granted; integration resulting in projected synergies; and retention of key employees post-closing. The relative strength and volatility of the electronics industry which is dependent on many factors including component prices, global economic and political stability, and overall demand for electronic devices used in wireless telecommunications equipment, computers, and other consumer and automotive electronics The ability of the company to respond promptly to customer requirements The ability of the company to develop, manufacture and successfully deliver new products and enhancements The ability of the company to achieve anticipated cost reductions and savings The companys need to continue investing in research and development The companys ability to create and sustain intellectual property protection around its products. Such risks and uncertainties are discussed in more detail in the companys annual report on From 10-K and other interim reports on Form 10-Q. |
![]() www.esi.com Combination Creates a Premier, Global Supplier of Micro-engineering and Metrology Systems Pioneer and premier provider of photonic systems for high volume microengineering applications Laser based micro-machining solutions Systems engineering for high volume production systems Pioneer and leading provider of high precision metrology solutions and optical systems R&D Metrology tools & process control High precision optics and optical systems Complementary core competencies that accelerate strategies for growth Increased product portfolio and expanded addressable market Greater global scale and market presence |
![]() www.esi.com Combination Creates a Premier, Global Supplier of Micro-engineering and Metrology Systems $291 million $650 million Semiconductor Micromachining Passive Components Photonics microengineering Optics & illumination Systems engineering High volume manufacturing Semiconductor manufacturing High precision manufacturing Microelectronics CY2007 Revenues $167 million $1,250 million Metrology Optical systems & components Photonics metrology Optics precision components & systems Process Control Instrument tools Industrial Medical Defense Semiconductor Flat panel display Addressable Market Product Groups Core Competencies End Markets |
![]() www.esi.com Complementary Core Competencies Enhance Strategy for Growth ESI brings to Zygo Proven experience, size, and reputation for high volume production systems Access to systems engineering, expertise, sales & support infrastructure Expanded presence in Asia, especially Korea and Japan Zygo brings to ESI Access to differentiated & sustainable technology for precision inspection, measurement, & metrology World class optics capability Expanded presence in medical, industrial, security and other targeted markets |
![]() www.esi.com Enabling Future Growth and Profitability Merger supports Zygos systems growth strategy Zygo accesses ESIs leadership in system integration, expertise, sales and support infrastructure Creates future micro-machining application opportunities ESI accesses Zygos world class metrology and optics Expands ESIs addressable markets Opens up semiconductor, microelectronics, medical and industrial markets already targeted by ESI Provides opportunity for Cost Synergies Public company costs, infrastructure, supply chain, administrative support |
![]() www.esi.com Merger Creates a Stronger Industry Player 0 200 400 600 442 291 167 458 478 503 522 593 598 402 361 160 146 CY2007 Revenue GSI figure includes Excel Technology |
![]() www.esi.com 44 56 66 20 40 60 80 2005 2006 2007 143 175 200 42.6% 41.5% 43.7% 50 100 150 200 2005 2006 2007 40.0% 42.0% 44.0% 344 410 458 100 200 300 400 500 2005 2006 2007 Solid Historical Financial Performance Pro Forma Historical Revenue Pro Forma Historical Gross Profit Pro Forma Historical EBITDA Source: company filings and ESI estimates Excludes stock compensation & purchase accounting |
![]() www.esi.com Semiconductor Micromachining Passive Components Metrology Optics Asia Americas Europe 2007 Revenues by Geography, pro forma combined 2007 Revenues by Product Group, pro forma combined Capturing Benefits of Scale Increased revenues and cost savings lower the relative breakeven Deal structure maintains strong balance sheet Diversified revenue stream minimizes business group cyclicality impact |
![]() www.esi.com Transaction Type Stock for Stock Merger Exchange Ratio 1.0233 ESI share / 1 Zygo share Ownership Split 60% ESI 40% Zygo Combined Equity Value $455M Expected Close Q1 Calendar 2009 Approvals Required HSR, SEC, Shareholders Transaction Overview |
![]() www.esi.com Delivering Shareholder Value Share price premium of approximately 36% for Zygo shareholders Expected to be accretive in FY 2010 on a non-GAAP basis Annual synergy benefit of $5-7 million after integration Expected cash balance of over $200 million enables significant share repurchase, strategic investments, and financial stability Accelerates complementary growth strategies of both companies Minimal organizational and product overlap reduces integration risk Complementary photonics-based core competencies, similar cultures and friendly merger Increased scale and diversified revenue stream positions company for success in challenging international markets |
![]() www.esi.com Summary Combination of ESI and Zygo creates a differentiated and sizeable photonics systems company Provides customers with solutions from micro-engineering to metrology Complementary technology and markets enhance value Strong cultural fit between two industry leaders Scale and breadth of combined company creates broader market presence and mitigates cyclicality of individual businesses Combination provides stronger financial profile |
![]() Overview of
Zygo |
![]() www.esi.com Zygo at a Glance Leading provider of high precision metrology solutions and optical products Founded: 1970 Headquarters: Middlefield, Connecticut CY2007 Revenue: ~$167 million Employees: ~600 Markets: Semiconductors, flat panel display, defense & aerospace, medical and industrial |
![]() www.esi.com Metrology & Optical Systems/Components Optical Test Interferometers Semiconductor in-line tools Precision Positioning Systems Electro-Optical Assemblies Zygo Core Competencies Zygo possesses unique proficiency in characterizing photons on the micro- and nano-scales. Utilizing core interferometry technology within versatile tools capable of making a variety
of measurements |
![]() www.esi.com Zygo Market Leadership Metrology Division Instruments Business Unit Precision Positioning Systems In-Line Tools Semiconductor Flat panel metrology IC packaging inspection Optical Systems Division Optical Components Electro-Optical Assemblies |
![]() Overview of
ESI |
![]() www.esi.com ESI at a Glance Pioneer & premier provider of photonic-based systems for high- volume micro-engineering applications Founded: 1944 Headquarters: Portland, Oregon CY2007 Revenue: ~$291M Employees: ~700 Markets: Semiconductor, micro- electronics, precision manufacturing Global Presence: Sales and support in U.S., Europe, Asia |
![]() www.esi.com ESI Core Competencies Automation & Micro Handling Systems Engineering Optics & Illumination Vision Algorithms Laser Beam Positioning Laser/Material Interaction ESI uniquely possesses the core competencies to design, manufacture & market integrated solutions that direct & characterize photons for high- volume-manufacturing applications. |
![]() www.esi.com Semiconductor Products Group Memory repair Thin film on silicon trimming (TFOS) LED wafer scribing LCD repair Wafer singulation Interconnect & Micromachining Group High-density interconnect Flex Circuits IC Packaging Micro-Machining Passive Components Group Electrical test Optical test Strong position across addressed markets. ESI Market Leadership |
![]() www.esi.com Disclosures ESI and Zygo intend to file with the Securities and Exchange Commission (SEC) a
Registration Statement on Form S- 4, which will include a joint proxy
statement/prospectus with respect to the merger and other relevant materials (the proxy statement/prospectus). BEFORE MAKING ANY VOTING OR INVESTMENT DECISION,
STOCKHOLDERS AND INVESTORS OF ESI AND ZYGO ARE URGED TO READ THE PROXY
STATEMENT/PROSPECTUS AND OTHER RELEVANT DOCUMENTS WHEN THEY BECOME AVAILABLE BECAUSE
THEY WILL CONTAIN IMPORTANT INFORMATION ABOUT ESI, ZYGO AND THE ACQUISITION.
Investors and security holders may obtain copies of the proxy statement/prospectus, including the annexes attached to, and the reports incorporated by reference in, the proxy statement/prospectus, and any other related reports and documents filed or to be filed by ESI or
Zygo with the SEC relating to the merger, free of charge, at the SECs web site at www.sec.gov. Investors and security holders also may obtain these documents free of charge from ESI at the Investor Relations link on ESIs web site at www.esi.com or by contacting ESIs Investor Relations at (503) 641-4141. Documents will also be
available at the Investors link on Zygos web site at www.zygo.com, or by
contacting Zygos Investor Relations at (860) 347-8506. ESI and Zygo and their
respective directors and executive officers may be deemed participants in the solicitation of proxies from security holders in connection with this transaction. Information about the
directors and executive officers of ESI and Zygo and information about other persons who
may be deemed participants in the merger transaction will be included in the proxy
statement/prospectus. Information about ESIs executive officers and directors is
included in ESIs proxy statement (DEF14A) filed with the SEC on June 27, 2008.
Information about Zygos officers and directors is included in Zygos proxy statement (DEF14A) filed with the SEC on October 5, 2007 and Zygos annual report (Form 10- K) filed with the SEC on September 15, 2008. Free copies of these documents can be
obtained from the SEC or from ESI and Zygo using the contact information above. In
addition, directors and executive officers of Zygo may have direct or indirect interests
in the merger due to securities holdings, vesting of options, or rights to severance payments if their employment is terminated following the merger. Additional information regarding ESI,
Zygo, and the interests of their respective executive officers and directors in the
merger will be contained in the proxy statement/prospectus. |
![]() October 16,
2008 ESI-Zygo Merger |
ESI-Zygo Merger
Nick Konidaris
October 16, 2008
ESI Company Overview
Headquarters: Portland, Oregon
Revenue: ~$250M
Employees: ~700
IP Position: >600 patents
Technology: Photonic-based systems
Markets: semiconductor, micro-machining, passive components
Addressable Market: ~$650M
Global Presence: Sales and support in U.S., Europe, Asia
Financials: 18 quarters of positive EPS*, no debt
* Excluding one-time items and special charges
www.esi.com
Focused on Technology Leadership
ESI is a pioneer & premier provider of photonic-based systems for high-volume micro-engineering applications.
The company leverages its technology leadership to enable better performance & yields for its global customers.
www.esi.com
Global Customer Base
www.esi.com
ESI Core Competencies
ESI uniquely possesses the core competencies to design, manufacture & market integrated solutions that direct & characterize photons for high-volume-manufacturing applications.
Direct Photons
Laser Beam Positioning
Laser/Material Interaction
Characterize Photons
Optics & Illumination
Vision Algorithms
Integrate Solutions
Automation & Micro Handling
Systems Engineering
Laser Beam Positioning Laser Material Interaction Optics & Illumination Vision Algorithms Automation & Material Handling Systems Engineering
www.esi.com
Corporate Overview
Leveraging Competencies Across Market Segments
Common competencies enable ability to address multiple applications & markets
Differentiated capability enables leadership
Laser Beam Positioning Laser Material Interaction Optics & Illumination Vision Algorithms Automation & Material Handling Systems Engineering
Memory Repair
TFOS
LED Wafer Scribing
LCD Repair
Wafer Singulation
High-Density Interconnect
Micro-Machining
Electrical Test
Optical Test
www.esi.com
Corporate Overview
Photonics Systems Markets
Semiconductor Products Group
Memory repair
Thin film on silicon trimming (TFOS)
LED wafer scribing
LCD repair
Wafer singulation
Interconnect & Micromachining Group
High-density interconnect
Flex Circuits
IC Packaging
Micro-Machining
Passive Components Group
Electrical test
Optical test
Strong position across our addressed markets.
www.esi.com
Miniaturization & Complexity Drive Growth
Semiconductor Products Group (SPG)
Rising memory bit growth
Increasing wafer density
Interconnect & Micromachining Group (IMG)
Smaller, more complex designs
Transition from traditional tools to micro-machining laser systems
Passive Components Group (PCG)
Increasing functionality & miniaturization of electronic devices
Jump in device volume & required capacitance
Silicon Wafer
Flex Circuit
MLCCs
www.esi.com
Photonics-Centered Growth Strategy
Leverage core competencies to be the market leader across multiple new & established markets & applications
Grow share in established markets
Enhance leadership positions with advanced technologies that deliver higher performance & yields
Expand addressable market
Enter into adjacent applications within existing markets
Extend existing applications & technology into adjacent markets
www.esi.com
Growth Strategy Execution
FY06 Revenue in Millions
Micro Machining $30M
Passives $42M
Semi $123M
$195M*
FY07 Revenue in Millions
Micro machining $44M
Semi $128M Passives $64M
$237M*
FY08 Revenue in Millions
Micro machining $67M
Semi $152M
Passives $84M
$302M*
*Revenue calculated based on trailing four quarters at March 2008 fiscal year end, excluding June 2007
www.esi.com
Our Culture
Customer Focused
Team Oriented
Mega Speed Mentality
Thrives on Innovation and Technology
ESI employees are:
Smart
Driven
Passionate
Talented
www.esi.com
Combination Creates a Premier, Global Supplier of Micro-engineering and Metrology Systems
Pioneer and premier provider of photonic systems for high volume microengineering applications
Laser based micro-machining solutions
Systems engineering for high volume production systems
Pioneer and leading provider of high precision metrology solutions and optical systems
R&D Metrology tools & process control
High precision optics and optical systems
Complementary core competencies that accelerate strategies for growth
Increased product portfolio and expanded addressable market Greater global scale and market presence
www.esi.com
Combination Creates a Premier, Global Supplier of Micro-engineering and Metrology Systems
CY2007 Revenues $291 million $167 million
Addressable Market $650 million $1,250 million
Product Groups Semiconductor Metrology
Micromachining Optical systems & components
Passive Components
Core Competencies Photonics microengineering Photonics metrology
Optics & illumination Optics precision components & systems
Systems engineering Process Control
High volume manufacturing Instrument tools
End Markets Semiconductor manufacturing Industrial
High precision manufacturing Medical
Microelectronics Defense
Semiconductor
Flat panel display
www.esi.com
Complementary Core Competencies Enhance Strategy for Growth
ESI brings to Zygo
Proven experience, size, and reputation for high volume production systems
Access to systems engineering, expertise, sales & support infrastructure
Expanded presence in Asia, especially Korea and Japan
Zygo brings to ESI
Access to differentiated & sustainable technology for precision inspection, measurement, & metrology
World class optics capability
Expanded presence in medical, industrial, security and other targeted markets
www.esi.com
Enabling Future Growth and Profitability
Merger supports Zygos systems growth strategy
Zygo accesses ESIs leadership in system integration, expertise, sales and support infrastructure
Creates future micro-machining application opportunities
ESI accesses Zygos world class metrology and optics
Expands ESIs addressable markets
Opens up semiconductor, microelectronics, medical and industrial markets already targeted by ESI
Provides opportunity for Cost Synergies
Public company costs, infrastructure, supply chain, administrative support
www.esi.com
Merger Creates a Stronger Industry Player
CY2007 Revenue
600 400 200 0
598 593
522 503 478 458 442
402
361
291
167 160 146
Coherent FEI
Cymer Rofin-Sinar GSI
Newport Veeco Orbotech
Rudolph Nanometrics
GSI figure includes Excel Technology
www.esi.com
Solid Historical Financial Performance
Pro Forma Historical Revenue
500 400 300 200 100
344 410 458
2005 2006 2007
Pro Forma Historical Gross Profit
200 150 100 50
143 41.5% 175 42.6% 200 43.7% 44.0% 42.0% 40.0%
2005 2006 2007
Pro Forma Historical EBITDA
80 60 40 20
44 56 66
2005 2006 2007
Source: company filings and ESI estimates
Excludes stock compensation & purchase accounting
www.esi.com
Capturing Benefits of Scale
Diversified revenue stream minimizes business group cyclicality impact
Increased revenues and cost savings lower the relative breakeven
Deal structure maintains strong balance sheet
2007 Revenues by Product Group, pro forma combined
Passive Components
Micromachining
Semiconductor
Optics
Metrology
2007 Revenues by Geography, pro forma combined
Europe
Americas
Asia
www.esi.com
Transaction Overview
Transaction Type Exchange Ratio Ownership Split Combined Equity Value Expected Close Approvals Required
Stock for Stock Merger
1.0233 ESI share / 1 Zygo share 60% ESI 40% Zygo $455M
Q1 Calendar 2009
HSR, SEC, Shareholders
www.esi.com
Delivering Shareholder Value
Share price premium of approximately 36% for Zygo shareholders
Expected to be accretive in FY 2010 on a non-GAAP basis
Annual synergy benefit of $5-7 million after integration
Expected cash balance of over $200 million enables significant share repurchase, strategic investments, and financial stability
Accelerates complementary growth strategies of both companies
Minimal organizational and product overlap reduces integration risk
Complementary photonics-based core competencies, similar cultures and friendly merger
Increased scale and diversified revenue stream positions company for success in challenging international markets
www.esi.com
Summary
Combination of ESI and Zygo creates a differentiated and sizeable photonics systems company
Provides customers with solutions from micro-engineering to metrology
Complementary technology and markets enhance value
Strong cultural fit between two industry leaders
Scale and breadth of combined company creates broader market presence and mitigates cyclicality of individual businesses
Combination provides stronger financial profile
www.esi.com
During the next 90 days
Operate as two separate companies with plans to merge
Identify joint ESI / Zygo integration team
Learn more about the businesses and how we will operate as a combined company
Executive management teams in both companies available to answer questions on an on-going basis
Development 90-180-360 day formal integration plans
Finalize the merger and become one company
In the meantime keep working and growing the business !
www.esi.com
Disclosures
ESI and Zygo intend to file with the Securities and Exchange Commission (SEC) a Registration Statement on Form S-4, which will include a joint proxy statement/prospectus with respect to the merger and other relevant materials (the proxy statement/prospectus). BEFORE MAKING ANY VOTING OR INVESTMENT DECISION, STOCKHOLDERS AND INVESTORS OF ESI AND ZYGO ARE URGED TO READ THE PROXY STATEMENT/PROSPECTUS AND OTHER RELEVANT DOCUMENTS WHEN THEY BECOME AVAILABLE BECAUSE THEY WILL CONTAIN IMPORTANT INFORMATION ABOUT ESI, ZYGO AND THE ACQUISITION. Investors and security holders may obtain copies of the proxy statement/prospectus, including the annexes attached to, and the reports incorporated by reference in, the proxy statement/prospectus, and any other related reports and documents filed or to be filed by ESI or Zygo with the SEC relating to the merger, free of charge, at the SECs web site at www.sec.gov. Investors and security holders also may obtain these documents free of charge from ESI at the Investor Relations link on ESIs web site at www.esi.com or by contacting ESIs Investor Relations at (503) 641-4141. Documents will also be available at the Investors link on Zygos web site at www.zygo.com, or by contacting Zygos Investor Relations at (860) 347-8506.
ESI and Zygo and their respective directors and executive officers may be deemed participants in the solicitation of proxies from security holders in connection with this transaction. Information about the directors and executive officers of ESI and Zygo and information about other persons who may be deemed participants in the merger transaction will be included in the proxy statement/prospectus. Information about ESIs executive officers and directors is included in ESIs proxy statement (DEF14A) filed with the SEC on June 27, 2008. Information about Zygos officers and directors is included in Zygos proxy statement (DEF14A) filed with the SEC on October 5, 2007 and Zygos annual report (Form 10-K) filed with the SEC on September 15, 2008. Free copies of these documents can be obtained from the SEC or from ESI and Zygo using the contact information above. In addition, directors and executive officers of Zygo may have direct or indirect interests in the merger due to securities holdings, vesting of options, or rights to severance payments if their employment is terminated following the merger. Additional information regarding ESI, Zygo, and the interests of their respective executive officers and directors in the merger will be contained in the proxy statement/prospectus.
www.esi.com