ASML today announced it had finally cleared U.S. review of its planned purchase of San Jose-based SVG about seven months after announcing plans to acquire the lithography supplier for $1.6 billion in stock. Completion of the merger had been stalled for several months because of concerns about U.S. national security and protection of defense-related technologies. The U.S. government agreement now clears the way for ASML to complete its takeover of SVG within the next few weeks, according to officials in Veldhoven (see today's story).

"Clearly any CEO would like a completely free hand, with no obligations," said ASML chief executive officer Doug Dunn, during a conference call today following the announcement of the agreement. Dunn said a free hand was "never going to be the case with this particular merger/takeover. The U.S. government took a very strong interest in this because, in their opinion, it very clearly effected national security."

Topping the list of requirements in the agreement is a promise by ASML to make a "good faith effort" to sell SVG's Tinsley Laboratories subsidiary within six months of completing the acquisition of Silicon Valley Group. Tinsley's lens-polishing technology was one of the major concerns blocking ASML from finishing its purchase of SVG.

Dunn said ASML would be diligent in trying to find a U.S.-based buyer for Tinsley, but he added that the deal will be contingent on the new owner making lens-polishing technologies available to SVG operations. All of SVG's lenses are produced by Tinsely, and Dunn said ASML will be concerned about maintaining the relationship when the subsidiary is sold.

The decision to put the Tinsley unit up for sale "was not an easy option for ASML or SVG to agree to," Dunn told analysts and the press during today's conference call. "Although it Tinsley has a small number of people about 120 they play an important role. Every lens used by SVG is polished by Tinsley." (Tinsley's revenues were about 2% of SVG's sales in fiscal 2000, or about $17 million.)

However, Dunn noted that ASML itself relies on a third-party supplier--Germany's Carl Zeiss in Jena--for polished lithography lenses. "We at ASML buy our lenses form Zeiss... and therefore it is conceivable and practical that with the right commercial considerations, we would enjoy very good supplier relationships with a third party, if we were to divest of Tinsley," Dunn said.

While negotiating with potential buyers, ASML has promised to implement new security measures at Tinsley immediately upon completing its takeover of SVG. These security measures would stay in place to protect Tinsley's technology from "leaking out the doors and windows" if ASML is unable to sell the subsidiary within the next six months, Dunn added.

ASML has also promised to strictly comply with U.S. export control requirements in selling any systems or technologies from Tinsley, SVG, and SVG's Lithography Division in Wilton, Conn., said Dunn. "We always comply with any country's export control requirements," he said during the conference call today. ASML will be required to have U.S. government clearance for non-U.S. citizens gaining access to information on sensitive technologies at SVG Lithography and Tinsley, he said.

Dunn also said ASML reached key agreements with the U.S. government on how it will handle the SVG Lithography operations. "We will maintain SVG Lithography R&D and production facilities in the U.S. for a period of years," said Dunn, who later added that he would not give out specifics on the timeframe in commitments, but he said it was between five and 10 years.

"This commitment is intended to ensure that the capabilities continues to exist and are viable within the U.S.A. shores," said the CEO.

Dunn said this U.S. government requirement was in line with ASML's original goals in acquiring SVG and to increase its presence in the country. "In a sense the requirements of the U.S.A. government and our own were 'convergent,' " Dunn stated.

ASML has promised to make minimum levels of U.S. investments in SVG based on a percentage of sales for a number of years. Again, Dunn did not disclose the timeframe or level of investments under the agreement.

"While it is unusual to have that requirement place on a company, we have no disagreement because it was our intention to develop the R&D capabilities in the U.S.A.," he said, adding that ASML hopes to leverage ownership of SVG to increase its access to U.S. infrastructure, engineering, universities, and supplier base.

ASML has also agreed to advise the U.S. government of any plans to divest operations from SVG, the SVG Lithography operation, and Tinsley--if it continues to own the lens-polishing subsidiary. "We are required to give them a 40-day notice period," Dunn explained.

The agreement requires ASML to appoint a U.S. citizen on its advisory board. Dunn said he had already made an offer to Michael J. Attardo, a member of SVG's board and former president of IBM Microelectronics. Attardo is retired from IBM Corp. and a former board member of the U.S.-based Semiconductor Industry Association (SIA).

To keep the U.S. updated on requirements in the agreement, ASML has agreed to provide reports to the government twice a year on the status of its obligations, Dunn said.

--J. Robert Lineback reporting from the U.S.