<PAGE>

                UNITED STATES SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                    FORM 10-Q
          QUARTERLY REPORT UNDER SECTION 13 OR 15(D) OF THE SECURITIES
                              EXCHANGE ACT OF 1934

   (Mark One)
      [X]       QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
                SECURITIES EXCHANGE ACT OF 1934

                FOR THE QUARTERLY PERIOD ENDED      SEPTEMBER 30, 2000
                                                    ------------------


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

                For the transition period from                  to
                                                ---------------    -------------

                    Commission File Number          0-22248
                                           --------------------------

                             ULTRATECH STEPPER, INC.
--------------------------------------------------------------------------------
             (Exact name of registrant as specified in its charter)

                       DELAWARE                             94-3169580
--------------------------------------------------------------------------------
(State or other jurisdiction of incorporation            (I.R.S. employer
               or organization)                        identification number)

   3050 Zanker Road, San Jose, California                          95134
--------------------------------------------------------------------------------
  (Address of principal executive offices)                       (Zip Code)

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


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


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

           Yes                   X                        No
                           --------------                         -------------

  Indicate the number of shares of the issuer's class of common stock, as of
  the latest practical date:


                 Class                        Outstanding as of November 7, 2000
---------------------------------------       ----------------------------------
     common stock, $.001 par value                       21,243,435


<PAGE>

                             ULTRATECH STEPPER, INC.

                                      INDEX

<TABLE>
<CAPTION>
                                                                                                               PAGE NO.
                                                                                                               --------
<S>               <C>                                                                                          <C>
PART 1.           FINANCIAL INFORMATION

ITEM 1.           CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

                  Condensed Consolidated Balance Sheets as of September 30, 2000 and December 31, 1999........... 3

                  Condensed Consolidated Statements of Operations for the three months ended
                  September 30, 2000 and 1999 and the nine months ended September 30, 2000 and 1999.............. 4

                  Condensed Consolidated Statements of Cash Flows for the nine months ended
                  September 30, 2000 and 1999.................................................................... 5

                  Notes to Condensed Consolidated Financial Statements........................................... 6

ITEM 2.           MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS..........11

ITEM 3.           QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.....................................27


PART 2.           OTHER INFORMATION

ITEM 1.           LEGAL PROCEEDINGS..............................................................................28

ITEM 2.           CHANGES IN SECURITIES AND USE OF PROCEEDS......................................................28

ITEM 3.           DEFAULTS UPON SENIOR SECURITIES................................................................28

ITEM 4.           SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS............................................28

ITEM 5.           OTHER INFORMATION..............................................................................28

ITEM 6.           EXHIBITS AND REPORTS ON FORM 8-K...............................................................28



SIGNATURES.......................................................................................................29
</TABLE>


                                       2
<PAGE>

PART 1.  FINANCIAL INFORMATION
ITEM 1.  CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

                             ULTRATECH STEPPER, INC.
                      CONDENSED CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>
                                                                       SEPT. 30,         Dec. 31,
(In thousands)                                                           2000             1999*
--------------------------------------------------------------------------------------------------
<S>                                                                    <C>              <C>
ASSETS                                                                (Unaudited)
Current assets:
      Cash, cash equivalents and short-term investments                $ 152,277        $ 143,544
      Accounts receivable, net                                            20,227           19,993
      Inventories                                                         30,130           28,975
      Current portion of leases receivable                                     -            1,354
      Prepaid expenses and other current assets                            3,845            2,040
--------------------------------------------------------------------------------------------------
Total current assets                                                     206,479          195,906

Equipment and leasehold improvements, net                                 26,832           20,486

Restricted long-term investments                                               -            5,479

Leases receivable, net                                                       121              282

Intangible assets, net                                                     7,376            8,940

Other assets                                                               6,497            5,715
--------------------------------------------------------------------------------------------------

Total  assets                                                          $ 247,305        $ 236,808
==================================================================================================

--------------------------------------------------------------------------------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities:
      Notes payable                                                    $     929        $     490
      Accounts payable                                                     9,242            7,931
      Deferred product and service income                                  6,654              353
      Deferred license income                                             25,324                -
      Other current liabilities                                           19,477           23,531
--------------------------------------------------------------------------------------------------
Total current liabilities                                                 61,626           32,305

Other liabilities                                                            248              289

Stockholders' equity:
      Common stock                                                            21               21
      Additional paid-in capital                                         177,316          175,573
      Accumulated other comprehensive loss, net                           (1,410)          (2,408)
      Treasury stock                                                      (6,867)               -
      Retained earnings                                                   16,371           31,028
--------------------------------------------------------------------------------------------------
Total stockholders' equity                                               185,431          204,214
--------------------------------------------------------------------------------------------------
Total liabilities and stockholders' equity                             $ 247,305        $ 236,808
==================================================================================================
</TABLE>

* The Balance Sheet as of December 31, 1999 has been derived from the audited
  financial statements at that date.

      SEE ACCOMPANYING NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


                                       3
<PAGE>

                             ULTRATECH STEPPER, INC.
                 CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
                                  (UNAUDITED)

<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------------------------------------
                                                                          Three Months Ended           Nine Months Ended
                                                                       --------------------------   -------------------------
                                                                          SEPT. 30,    Sept. 30,       SEPT. 30,   Sept. 30,
(In thousands, except per share amounts)                                      2000         1999            2000        1999
-----------------------------------------------------------------------------------------------------------------------------
<S>                                                                         <C>          <C>             <C>         <C>
Net sales:
     Products                                                               $35,011      $26,005         $89,796     $72,076
     Services                                                                 4,703        4,408          12,839      13,400
     Licenses                                                                 2,502            -           3,009           -
-----------------------------------------------------------------------------------------------------------------------------
Total net sales                                                              42,216       30,413         105,644      85,476
Cost of sales:
     Cost of products sold                                                   21,834       14,091          57,412      43,151
     Cost of services                                                         3,362        3,234           9,516       9,221
-----------------------------------------------------------------------------------------------------------------------------
Total cost of sales                                                          25,196       17,325          66,928      52,372
-----------------------------------------------------------------------------------------------------------------------------
Gross profit                                                                 17,020       13,088          38,716      33,104

OPERATING EXPENSES:
     Research, development, and engineering                                   6,664        6,994          19,822      20,296
     Amortization of goodwill                                                   495          430           1,564       1,167
     Selling, general, and administrative                                     8,560        6,859          22,274      19,938
     Shutdown of operations                                                   1,686            -           9,670           -

-----------------------------------------------------------------------------------------------------------------------------
Operating loss                                                                 (385)      (1,195)        (14,614)     (8,297)
Gain on sale of land                                                         15,983            -          15,983           -
Interest expense                                                                (69)         (59)           (211)       (300)
Interest and other income, net                                                1,975        1,688           5,501       5,428
-----------------------------------------------------------------------------------------------------------------------------
Income (loss) before tax and cumulative effect of a change
     in accounting principle                                                 17,504          434           6,659      (3,169)
Income taxes                                                                  2,433            -           2,433           -
-----------------------------------------------------------------------------------------------------------------------------
Income (loss) before cumulative effect of a change in accounting
     principle                                                               15,071          434           4,226      (3,169)
Cumulative effect on prior years of the application of SAB 101
     "Revenue Recognition in Financial Statements"                                -            -         (18,883)          -
-----------------------------------------------------------------------------------------------------------------------------
Net income (loss)                                                           $15,071         $434        ($14,657)    ($3,169)
=============================================================================================================================

EARNINGS PER SHARE-BASIC:
Income (loss) before cumulative effect of a change in accounting
     principle                                                                $0.71        $0.02           $0.20      ($0.15)
Cumulative effect on prior years of the application of
     SAB 101 "Revenue Recognition in Financial Statements"                    $0.00        $0.00          ($0.89)      $0.00
Net income (loss)                                                             $0.71        $0.02          ($0.69)     ($0.15)
Number of shares used in
     per share computations - basic                                          21,093       21,344          21,238      21,244

EARNINGS PER SHARE-DILUTED:
Income (loss) before cumulative effect of a change in accounting
     principle                                                                $0.70        $0.02           $0.20      ($0.15)
Cumulative effect on prior years of the application of
     SAB 101 "Revenue Recognition in Financial Statements"                    $0.00        $0.00          ($0.89)      $0.00
Net income (loss)                                                             $0.70        $0.02          ($0.69)     ($0.15)
Number of shares used in
     per share computations - diluted                                        21,669       21,740          21,238      21,244
=============================================================================================================================
</TABLE>

      SEE ACCOMPANYING NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


                                       4

<PAGE>

                             ULTRATECH STEPPER, INC.
                 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
                                   (Unaudited)

<TABLE>
<CAPTION>
                                                                                Nine Months Ended
                                                                          -------------------------------
                                                                              SEPT. 30,         Sept. 30,
(In thousands)                                                                  2000              1999
---------------------------------------------------------------------------------------------------------
<S>                                                                           <C>                <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss                                                                      ($14,657)          ($3,169)
Gain from sale of land                                                         (15,983)                -
Change in accounting principle - SAB 101 "Revenue Recognition
     in Financial Statements"                                                   18,883                 -
Charges to income not affecting cash                                            10,202             9,979
Net effect of changes in operating assets and liabilities                        7,213            (2,457)
---------------------------------------------------------------------------------------------------------
Net cash provided by operating activities                                        5,658             4,353

CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures                                                           (14,765)           (5,588)
Net reduction in available-for-sale securities                                   4,151             1,256
Net reduction in (Segregation of) restricted long-term investments               5,549               (12)
Proceeds from sale of land                                                      16,165                 -
---------------------------------------------------------------------------------------------------------
Net cash provided by (used in) investing activities                             11,100            (4,344)

CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds (repayment) from issuance of notes payable                            439                (2)
Buy-back of common stock                                                        (6,866)                -
Net proceeds from issuance of common stock pursuant to employee stock plans      1,743             1,367
---------------------------------------------------------------------------------------------------------
Net cash provided by (used in) financing activities                             (4,684)            1,365

Net increase in cash and cash equivalents                                       12,074             1,374

Cash and cash equivalents at beginning of period                                46,978            54,142
---------------------------------------------------------------------------------------------------------

Cash and cash equivalents at end of period                                     $59,052           $55,516
=========================================================================================================
</TABLE>

     SEE ACCOMPANYING NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


                                       5
<PAGE>

                             ULTRATECH STEPPER, INC.
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                   (UNAUDITED)
                               SEPTEMBER 30, 2000


(1)  BASIS OF PRESENTATION

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

COMPANY AND INDUSTRY INFORMATION - The Company operates in one business segment,
which is the manufacture and distribution of photolithography equipment to
manufacturers of integrated circuits, thin film heads and micromachined
components.

USE OF ESTIMATES - The preparation of the accompanying unaudited condensed
consolidated financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the amounts reported in the financial statements and accompanying notes.
Actual results could differ from those estimates.

REVENUE RECOGNITION - Sales of the Company's products are recorded after the
contractual obligation for installation has been satisfied and customer
acceptance provisions have lapsed, provided collections of the related accounts
receivable are probable. The Company also sells service contracts for which
revenue is recognized ratably over the contract period.

From time to time, the Company leases its products to customers typically as
sales-type leases. These leases generally have a five-year term.

The Company previously recognized revenue from the sales of its products
generally upon shipment, which usually preceded installation and final customer
acceptance, provided that final customer acceptance and collection of the
related receivable were probable. Effective January 1, 2000, the Company changed
its method of accounting for product sales to recognize such revenues when the
contractual obligation for installation has been satisfied, or when installation
is substantially complete, and customer acceptance provisions have lapsed,
provided collections of the related receivable are probable. The Company
believes the change in accounting principle is preferable based on guidance
provided in SEC Staff Accounting Bulletin No. 101 (SAB 101), "Revenue
Recognition in Financial Statements." The cumulative effect of the change in
accounting principle, $18,883,000 (or $0.89 per share, basic and diluted) was
reported as a charge in the quarter ended March 31, 2000 in the accompanying
statement of operations.

The cumulative effect of this change in accounting principle includes system
revenue, cost of sales and certain expenses, including warranty and commission
expenses, that will be recognized when both installation and customer acceptance
provisions are satisfied, subsequent to January 1, 2000.

During 2000, the Company substantially changed its operations to implement SAB
101. Approximately 7% and 34% of the Company's net sales for the three month and
nine month periods ended September 30, 2000, respectively, resulted from systems
shipped in 1999 and accepted in 2000. This reflects the Company's traditional
time frame for shipment, installation and customer acceptance. The net result of
shipments and acceptances during the quarter was a reduction of approximately
$3.0 million in deferred product and service income. On a year-to-date basis,
the net result of shipments and acceptances for the nine-month period ended
September 30, 2000 was a


                                       6
<PAGE>

reduction of approximately $14.4 million in deferred product and service income.
The Company believes that estimates of its system revenue under its prior method
of accounting would not be indicative of results that would have been achieved
if the Company had not substantially changed its operations to implement SAB
101.

FISCAL PERIODS: The Company's third fiscal quarter in 2000 and 1999 ended on
September 30, 2000 and October 2, 1999, respectively. For convenience of
presentation, the Company's financial statements have been shown as having ended
on September 30, 2000 and September 30, 1999.


Operating results for the three and nine-month periods ended September 30, 2000
are not necessarily indicative of the results that may be expected for the year
ending December 31, 2000, or any future period.


(2) INVENTORIES

Inventories consist of the following:

<TABLE>
<CAPTION>
                                                       Sept. 30, 2000           Dec. 31, 1999
                                                      -----------------        -----------------
(In thousands)                                         (Unaudited)
<S>                                                           <C>                      <C>
Raw materials.....................................            $15,571                  $12,589
Work-in-process...................................             10,910                   13,484
Finished products ................................              3,649                    2,902
                                                      -----------------        -----------------
                                                              $30,130                  $28,975
                                                      =================        =================
</TABLE>

(3) OTHER CURRENT LIABILITIES

Other current liabilities consist of the following:

<TABLE>
<CAPTION>
                                                          Sept. 30, 2000      Dec. 31, 1999
                                                          --------------     -----------------
(In thousands)                                             (Unaudited)
<S>                                                             <C>                <C>
Salaries and benefits...............................            $3,281             $3,369
Warranty reserves...................................             3,395              3,997
Advance billings....................................             1,006              4,845
Income taxes payable................................             5,922              5,081
Sales returns and allowances........................                 -              1,471
Reserve for losses on purchase order commitments....             2,257              2,423
Other...............................................             3,616              2,345
                                                           ------------      -------------
                                                               $19,477            $23,531
                                                           ============      =============
</TABLE>


                                       7
<PAGE>

(4) COMPUTATION OF NET INCOME (LOSS) PER SHARE

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

<TABLE>
<CAPTION>
                                                                       Three Months Ended           Nine Months Ended
                                                                    --------------------------  ---------------------------
                                                                     Sept. 30,     Sept. 30,     Sept. 30,      Sept. 30,
(Unaudited, in thousands, except per share amounts)                    2000          1999          2000           1999
---------------------------------------------------------------------------------------------------------------------------

<S>                                                                     <C>              <C>       <C>             <C>
Numerator:
      Income (loss) before cumulative effect of a change in
           accounting principle                                         $15,071          $434        $4,226        ($3,169)
      Cumulative effect on prior years of the application
           of SAB 101 "Revenue Recognition in Financial
           Statements"                                                        -             -       (18,883)             -
                                                                    ------------  ------------  ------------   ------------
      Net income (loss)                                                 $15,071          $434      ($14,657)       ($3,169)
                                                                    ------------  ------------  ------------   ------------

Denominator:
      Denominator for basic net income (loss) per share                  21,093        21,344        21,238         21,244
      Effect of dilutive employee stock options                             576           396             -              -
                                                                    ------------  ------------  ------------   ------------
      Denominator for diluted net income (loss) per share                21,669        21,740        21,238         21,244
                                                                    ------------  ------------  ------------   ------------

Earnings per share - basic:
      Income (loss) before cummulative effect of a change in
           accounting principle                                           $0.71         $0.02         $0.20         ($0.15)
                                                                    ============  ============  ============   ============
      Cumulative effect on prior years of the application
           of SAB 101 "Revenue Recognition in Financial
           Statements"                                                    $0.00         $0.00        ($0.89)         $0.00
                                                                    ============  ============  ============   ============
      Net income (loss)                                                   $0.71         $0.02        ($0.69)        ($0.15)
                                                                    ============  ============  ============   ============

Earnings per share - diluted:
      Income (loss) before cummulative effect of a change in
           accounting principle                                           $0.70         $0.02         $0.20         ($0.15)
                                                                    ============  ============  ============   ============
      Cumulative effect on prior years of the application
           of SAB 101 "Revenue Recognition in Financial
           Statements"                                                    $0.00         $0.00        ($0.89)         $0.00
                                                                    ============  ============  ============   ============
      Net income (loss)                                                   $0.70         $0.02        ($0.69)        ($0.15)
                                                                    ============  ============  ============   ============
</TABLE>

For the three-month and nine-month periods ended September 30, 2000, options to
purchase 1,547,000 shares and 3,922,000 shares of Common Stock at an average
exercise price of $20.31 and $15.23, respectively were excluded from the
computation of diluted net income (loss) per share as the effect would have been
anti-dilutive. This compares to the exclusion of 2,329,000 options and 3,544,000
options at an average exercise price of $20.01 and $16.23, respectively, for the
three-month and nine-month periods ended September 30, 1999. Options are
anti-dilutive when the Company has a net loss or when the exercise price of the
stock option is greater than the average market price of the Company's Common
Stock.


                                       8
<PAGE>

(5) COMPREHENSIVE INCOME (LOSS)

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

<TABLE>
<CAPTION>
                                                                        Three Months Ended                Nine Months Ended
                                                                        ------------------                -----------------
                                                                       Sept. 30,     Sept. 30,        Sept. 30,         Sept. 30,
(Unaudited, in thousands)                                                 2000          1999             2000              1999
--------------------------------------------------------------------------------------------------------------------------------
<S>                                                                    <C>              <C>          <C>                <C>
Net income (loss)..............................................        $15,071          $434         ($14,657)          ($3,169)
Accumulated other comprehensive income (loss)..................
     Unrealized holding gain (loss) on
       available-for-sale securities...........................            926          (564)             998            (2,664)
     Tax  effect...............................................              -             -                -                 -
--------------------------------------------------------------------------------------------------------------------------------
Comprehensive income (loss)                                            $15,997         ($130)        ($13,659)          ($5,833)
================================================================================================================================
</TABLE>

Accumulated other comprehensive income (loss) presented in the accompanying
condensed consolidated balance sheets consists entirely of accumulated
unrealized holding gain (loss) on available-for-sale securities. The unrealized
holding gain (loss) on available-for-sale securities is not currently adjusted
for income taxes as a result of the Company's operating losses.

(6) TREASURY STOCK

Treasury stock is comprised of 475,000 shares of the Company's Common Stock.
These shares were purchased in open market transactions at a total cost of
$6,866,000, pursuant to the stock repurchase program approved by the Company's
Board of Directors in April 2000.

(7) ACCOUNTING FOR DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES.

In September 1999, the Financial Accounting Standards Board issued Statement No.
137 (FAS 137), "Accounting for Derivative Instruments and Hedging Activities -
Deferral of the Effective Date of FASB Statement No. 133." FAS 137 amends the
Financial Accounting Standards Board issued Statement No. 133 (FAS 133),
"Accounting for Derivative Instruments and Hedging Activities" which was issued
in September 1998 and was to be effective for all fiscal quarters of fiscal year
beginning after September 15, 1999. FAS 137 defers the effective date of FAS 133
to be effective for all fiscal quarters of all fiscal years beginning after
September 15, 2000. Accordingly, the Company will adopt the provisions of FAS
133 for its 2001 fiscal year. FAS 133 establishes accounting and reporting
standards for derivative instruments and requires recognition of all derivatives
as assets or liabilities in the statement of financial position and measurement
of those instruments at fair value. Because of the Company's minimal use of
derivatives, management does not anticipate that the adoption of the new
Statement will have a significant effect on earnings or the financial position
of the Company.

(8) SHUTDOWN OF OPERATIONS

During the quarter ended June 30, 2000, the Company shutdown the operations
of its UltraBeam unit. As a direct result of this decision, the Company
recognized a charge in the quarter ended June 30, 2000 of $8.0 million, or
$0.38 per share (diluted). During the quarter ended September 30, 2000, the
Company recognized an additional charge of $1.7 million, or $0.08 per share
(diluted) primarily attributed to revised estimates of amounts to be realized
upon the disposition of operating assets. Of the year-to-date total charge of
$9.7 million, approximately $6.8 million related to operating and capital
assets disposed of, $2.5 million related to amounts paid for shutdown and
accrued liabilities still outstanding as of September 30, 2000 of $0.4
million.

                                       9
<PAGE>

(9) LAND SALE

During the quarter ended September 30, 2000, the Company exercised an option it
held to purchase 6.34 acres of undeveloped land it leased in San Jose,
California and sold this property to a third party. This transaction resulted in
a net gain of $16.0 million before related income taxes, or $0.74 per share
(diluted).


                                       10
<PAGE>

ITEM 2.           MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
                  CONDITION AND RESULTS OF OPERATIONS


OVERVIEW

Certain of the statements contained in this report may be considered
forward-looking statements under Section 21E of the Securities Exchange Act of
1934, as amended, that may involve a number of risks and uncertainties. In
addition to the factors discussed herein, factors that could cause actual
results to differ materially include the following: cyclicality in the Company's
served markets; high degree of industry competition; lengthy sales cycles,
including the timing of system acceptances; manufacturing inefficiencies and the
ability to volume produce systems; mix of products sold; the ability and
resulting costs to attract or retain sufficient personnel to achieve the
Company's targets for a particular period; inventory obsolescence; delays,
deferrals and cancellations of orders by customers; integration and development
of Verdant operations; failure to develop and commercialize the Company's
reduction stepper products; timing and degree of success of technologies
licensed to outside parties; sole or limited sources of supply; international
sales; customer concentration; rapid technological change and the importance of
timely product introductions; dependence on key personnel; future acquisitions;
changes to financial accounting standards; intellectual property matters;
environmental regulations; effects of certain anti-takeover provisions;
volatility of stock price; and the other risk factors listed in this filing and
other Company filings with the SEC, including the Company's annual report on
Form 10-K. The Company undertakes no obligation to update any of its
disclosures to reflect such future events.

Due to these and additional factors, certain statements, historical results and
percentage relationships discussed below will not necessarily be indicative of
the results of operations for any future period.

Ultratech develops, manufactures and markets photolithography equipment
(steppers) designed to reduce the cost of manufacturing integrated circuits
(ICs), thin film heads (TFHs) for disk drives and micromachined components.
The Company supplies step-and-repeat systems based on one-to-one and reduction
optical technologies to customers located throughout North America, Europe,
Japan and the rest of Asia. These products range from low-cost systems for
high-volume manufacturing to advanced systems for cost-effective production of
leading-edge devices and for research and development applications.

In April 2000, the Company reached a decision to shut down its UltraBeam
operations. As a result of this decision, the Company recognized a charge during
the quarter ended June 30, 2000 of $8.0 million, or $0.38 per share (diluted),
and a charge of $1.7 million, or $0.08 per share (diluted) during the quarter
ended September 30, 2000.

During the quarter ended June 30, 2000, the Company settled litigation it had
initiated against Nikon Inc. ("Nikon"). In conjunction with the settlement
agreement, the Company may recognize licensing revenue in future quarters
consistent with the terms of settlement. The Company is presently proceeding
with related actions against Canon Inc. ("Canon") and ASM Lithography, Ltd.
("ASM"). There can be no assurance that the Company will prevail in those
actions.

In July 2000, the Company entered into an agreement with Applied Materials,
Inc. ("Applied Materials") under which Applied Materials has licensed the
laser thermal processing technology of the Company's Verdant Technologies
Division. Additionally, Ultratech develops, manufactures and markets its own
laser thermal processing systems used in the development and future
production of advanced devices.

During the quarter ended September 30, 2000, the Company exercised an option
it held to purchase 6.34 acres of undeveloped land it leased in San Jose,
California and sold this property to a third party. This transaction resulted
in a net gain of $16.0 million before related income taxes, or $0.74 per
share (diluted).

                                       11
<PAGE>

The Applied Materials and Nikon agreement and land sale resulted in special
income tax charges during the quarter ended September 30, 2000 of $2.4
million, or $0.11 per share (diluted). Excluding these special items and the
taxes associated with them, net income for the quarter ended September 30,
2000 was $3.2 million, or $0.15 per share (diluted).

The following discussion should be read in conjunction with the Company's 1999
Annual Report on Form 10-K, which is available from the Company upon request.

RESULTS OF OPERATIONS

The Company's operating results have fluctuated significantly in the past and
most likely will continue to fluctuate significantly in the future. Factors
that have caused operating results to fluctuate significantly in the past and
most likely will continue to cause fluctuations in the future include those
mentioned above as well as: inventory and open purchase commitment reserve
positions; concentration of credit risk; lengthy development cycles for new
products; market acceptance of new products and enhanced versions of the
Company's existing products; delayed shipments to customers due to customer
configuration changes and other factors; acquisition activities requiring the
devotion of substantial management resources; lengthy manufacturing cycles
for the Company's products; the timing of new product announcements and
releases by the Company or its competitors; manufacturing inefficiencies
associated with the startup of new product introductions; patterns of capital
spending by customers; product discounts; changes in pricing by the Company,
its competitors or suppliers; shutdown of operations; sale of assets; outcome
of litigation; political and economic instability throughout the world, in
particular the Asia/Pacific region; changes in sales or distribution
agreements; natural disasters; regulatory changes; and business interruptions
related to the Company's occupation of its facilities.

The Company's gross profit as a percentage of sales has been and most likely
will continue to be significantly affected by a variety of factors, including
product discounts and competition in the Company's targeted markets; the mix
of products sold; inventory and open purchase commitment reserve provisions;
the rate of capacity utilization; nonlinearity of shipments during the
quarter; the introduction of new products, which typically have higher
manufacturing costs until manufacturing efficiencies are realized and are
typically discounted more than existing products until the products gain
market acceptance; the percentage of international sales, which typically
have lower gross margins than domestic sales principally due to higher field
service and support costs; and the implementation of subcontracting
arrangements.

The Company derives a substantial portion of its total net sales from sales
of a relatively small number of newly manufactured systems, which typically
range in price from $800,000 to $2.4 million for the Company's 1X steppers,
and $1.5 million to more than $6.0 million for the Company's reduction
steppers. As a result of these high sale prices, the timing of recognition of
revenue from a single transaction has had and most likely will continue to
have a significant impact on the Company's net sales and operating results.

The Company's backlog at the beginning of a period typically does not include
all of the sales needed to achieve the Company's objectives for that period.
In addition, orders in backlog are subject to cancellation, shipment or
customer acceptance delays, and deferral or rescheduling by a customer with
limited or no penalties. Consequently, the Company's net sales and operating
results for a period have been and most likely will continue to be dependent
upon the Company obtaining orders for systems to be shipped and accepted in
the same period in which the order is received. The Company's business and
financial results for a particular period could be materially adversely
affected if an anticipated order for even one system is not received in time
to permit shipment and customer acceptance during a particular period.
Furthermore, a substantial portion of the Company's shipments has
historically been realized near the end of each quarter. Delays in
installation and customer acceptance due, for example, to the inability of
the Company to successfully demonstrate the agreed upon specifications or
criteria

                                       12
<PAGE>

at the customer's facility, or to the failure of the customer to permit
installation of the system in the agreed upon time, may cause net sales in a
particular period to fall significantly below the Company's expectations, which
may materially adversely affect the Company's operating results for such period.
Additionally, the failure to receive anticipated orders or delays in shipments
due, for example, to reschedulings, delays, deferrals or cancellations by
customers, additional customer configuration requirements, or to unexpected
manufacturing difficulties or delays in deliveries by suppliers due to their
long production lead times or otherwise, has caused and may continue to cause
net sales in a particular period to fall significantly below the Company's
expectations, which has and could continue to materially adversely affect the
Company's operating results for such period. In particular, the long
manufacturing cycles of the Company's Saturn Wafer Stepper(R), and the Company's
reduction stepper product offerings, and the long lead time for lenses and other
materials, could cause shipments of such products to be delayed from one quarter
to the next, which could materially adversely affect the Company's financial
condition and results of operations for a particular quarter.

The Company's business has in prior years been subject to seasonality, although
the Company believes such seasonality has been masked in recent years by
cyclical trends within the semiconductor and thin film head industries. In
addition, the need for continued expenditures for research and development,
capital equipment, ongoing training and worldwide customer service and support,
among other factors, will make it difficult for the Company to reduce its
operating expenses in a particular period if the Company fails to achieve its
net sales goals for the period. Additionally, during the quarter ended September
30, 2000 the Company continued to operate at less than optimal capacity
utilization, resulting in manufacturing inefficiencies that adversely affected
the Company's gross margins and results of operations. The Company is presently
ramping production to meet the Company's growing backlog of system orders. There
can be no assurance that the Company will be successful in its attempts to
increase production levels and secure the additional after-sales support
personnel required to sustain the Company's planned expansion.

NET SALES

Net sales consist of revenue from system sales, spare parts sales, service and
licensing of technologies. For the quarter ended September 30, 2000, net sales
were $42.2 million, an increase of 39% as compared with net sales of $30.4
million for the comparable period in 1999. On a year-to-date basis, net sales
were $105.6 million for the nine-month period ended September 30, 2000, an
increase of 24% as compared with net sales of $85.5 million for the comparable
period in 1999. Both the current quarter and year-to-date increases, relative to
the comparable 1999 periods, were primarily attributed to improved conditions
within the semiconductor industry, which has resulted in higher capital spending
levels, partially offset by lower equipment sales to the thin film head
industry. Additionally, contributing to the current quarter increase in net
sales, relative to the year-ago period, were $3.0 million from the sale of the
Company's first Verdant laser thermal processing system and approximately $2.5
million from licensing revenue.

Approximately 7% and 34% of the Company's net sales for the three-month and
nine-month periods ended September 30, 2000, respectively, resulted from systems
shipped in 1999 (see discussion of SAB 101, below). The net result of shipments
and acceptances during the three-month period ended September 30, 2000 was a
reduction in deferred product and service income of approximately $3.0 million.
On a year-to-date basis, the net result of shipments and acceptances resulted in
a reduction in deferred product and service income of approximately $14.4
million. During the three-month period ended September 30, 2000, deferred
license income increased $13.8 million, as cash received during the period
relative to licensing activities exceeded revenue recognized. On a year-to-date
basis, deferred license income increased $25.3 million. Overall, total deferred
income (which includes products,


                                       13
<PAGE>

service and licensing) increased $10.8 million during the quarter and $10.9
million on a year-to-date basis. Deferred income relative to the Company's
products is recognized upon installation and customer acceptance of the systems.
Deferred income relative to service revenue is recognized over the life of the
related service contract. Deferred income relative to the Company's licensing
activities is recognized over the longer of the estimated useful life of the
licensed technologies, or the period of any technology transfer support
arrangements.

Overall, unit sales of the Company's systems for the three-month period ended
September 30, 2000 decreased 12% relative to the comparable period in 1999.
However, total dollar sales of the Company's systems increased 38% over that
same period, primarily as a result of a change in product mix. The Company
experienced significantly higher unit sales for its Saturn Spectrum 3(R),
relative to the comparable period in 1999. This product serves the market for
semiconductor packaging. Partially offsetting this increase was a decline in
unit sales of the Company's Model 1700, which serves the market for back-end
thin film head production. The thin film head industry is currently
experiencing a period of excess capacity, and the Company presently
anticipates that this trend will continue for at least the next several
quarters, which will continue to materially adversely impact the Company's
results of operations. On a year-to-date basis, unit sales for the nine-month
period ended September 30, 2000 increased 15% from the comparable period in
1999. This increase was also related to the significantly higher unit sales
of the Company's Saturn Spectrum 3. The weighted-average selling price of all
units sold for both the three-month and nine-month periods ended September
30, 2000 were flat, as compared with the comparable periods in 1999.

Service revenue for the quarter ended September 30, 2000 increased 7%, as
compared with the comparable period in 1999. However, service revenue declined
4% on a year-to-date basis. The year-to-date decline, relative to the comparable
period in 1999, was primarily due to lower contract revenue from reduction
steppers.

License revenue was $2.5 million and $3.0 million for the three-month and
nine-month periods ended September 30, 2000, respectively. There was no
licensing income during the comparable periods in 1999.

The Company previously recognized revenue from the sales of its products
generally upon shipment, which usually preceded installation and final customer
acceptance, provided that final customer acceptance and collection of the
related receivable were probable. Effective January 1, 2000, the Company changed
its method of accounting for product sales to recognize such revenues when the
contractual obligation for installation has been satisfied, or when installation
is substantially complete, and customer acceptance provisions have lapsed,
provided collections of the related receivable are probable. The Company
believes the change in accounting principle is preferable based on guidance
provided in SEC Staff Accounting Bulletin No. 101 (SAB 101), "Revenue
Recognition in Financial Statements."

The Company has substantially changed its operations to implement SAB 101. The
Company believes that estimates of its system revenue under its prior method of
accounting would not be indicative of results that would have been achieved if
the Company had not substantially changed its operations to implement SAB 101.

For the quarter ended September 30, 2000, international net sales were $26.0
million, or 61% of total net sales, as compared with $15.0 million, or 49% of
total net sales for the comparable period in 1999. On a year-to-date basis,
international net sales for the nine-month period ended September 30, 2000
were $57.0 million, or 54% of total net sales, as compared with $46.2
million, or 54% of total net sales in the comparable period in 1999. Both the
current quarter and year-to-date increases in international sales, in terms
of absolute dollars, were primarily attributed to increased sales of the
Company's Saturn Spectrum 3 to semiconductor companies in the Japan and Asia,
excluding Japan territories, partially offset by lower sales to thin film
head customers in Asia, excluding Japan. The Company anticipates that an
increasing percentage of its overall sales for the remainder of 2000 will
come from semiconductor manufacturers in the Japan and Asia, excluding Japan
territories, utilizing the Company's systems in

                                       14
<PAGE>

the process of semiconductor packaging. The Company's operations in foreign
countries are not generally subject to significant exchange rate fluctuations,
principally because sales contracts for the Company's systems are generally
denominated in U.S. dollars. In Japan, however, orders are typically denominated
in Japanese yen. This may subject the Company to a higher degree of risk from
currency fluctuations. The Company attempts to mitigate this exposure through
the use of foreign exchange contracts; however, there can be no assurance of the
success of any such efforts. International sales expose the Company to a number
of additional risks, including fluctuations in the value of local currencies
relative to the U.S. dollar, which, in turn, impact the relative cost of
ownership of the Company's products. (See "Additional Risk Factors:
International Sales; Japanese Market").

Although the Company's backlog of system orders increased substantially during
the quarter, the anticipated timing of shipments and customer acceptances of
those orders will require the Company to fill a number of production slots in
the current quarter in order to meet its near-term sales targets. If the Company
is unsuccessful in its efforts to secure those production orders, its results of
operations will be materially adversely impacted in the near-term. Additionally,
in prior years, the Company experienced significant shipment delays and purchase
order restructuring by several of its customers, and also experienced purchase
order cancellations. There can be no assurance that this trend will not occur in
the future. Accordingly, the Company can give no assurance that it will be able
to achieve or maintain its current or prior level of sales.

The Company presently expects that net sales for the three-month period ending
December 30, 2000 may be substantially higher than net sales in the comparable
period in 1999. However, due to current production limitations, customer
shipment dates and uncertainty as to customer acceptances, the Company can give
no assurance that it will be able to achieve or maintain its current or prior
sales levels.

Because the Company's net sales are subject to a number of risks, including
intense competition in the capital equipment industry and the timing and market
acceptance of the Company's products, there can be no assurance that the Company
will exceed or maintain its current or prior level of net sales for any period
in the future. Additionally, the Company believes that the market acceptance and
volume production of its Saturn Spectrum 3, its XLS advanced reduction steppers
and its 1000 series family of wafer steppers, are of critical importance to its
future financial results. To the extent that these products do not achieve
significant sales due to difficulties involving manufacturing or engineering,
the inability to reduce the current long manufacturing cycles for such products,
competition, excess capacity in the semiconductor on thin film industry,
customer acceptances, or any other reason, the Company's business, financial
condition and results of operations would be materially adversely affected.

GROSS PROFIT

The Company's gross profit as a percentage of net sales, or gross margin, was
40.3% for the quarter ended September 30, 2000, as compared with a gross margin
of 43.0% for the comparable period in 1999. On a year-to-date basis, gross
margin for the nine-month period ended September 30, 2000 was 36.6%, as compared
with 38.7% for the comparable period a year ago. On a comparative basis, gross
margins for both the three and nine-month periods in 2000 were adversely
impacted by a shift in product mix and competitive pressure on selling prices.

The Company believes that gross profit as a percentage of net sales for the
quarter ending December 30, 2000 may be higher than levels achieved during
the comparable period a year ago, primarily as a result of improved product
pricing, licensing income and higher levels of capacity utilization,
partially offset by a less favorable product mix. However, intense
competition in the markets the Company serves may make it difficult for the
Company to increase or maintain its current gross margin percentages in the
near term. The Company is presently increasing inventory purchases based on
current and forecasted demand for its Saturn Spectrum 3 wafer stepper, its
Verdant laser thermal processing system and its 157nm advanced reduction
stepper. The purchase of such additional inventories will result in a
significantly higher risk of obsolescence, which may require inventory
write-offs, which would

                                       15
<PAGE>

negatively impact gross margins. Additionally, new products generally have lower
gross margins until there is widespread market acceptance and until production
and after-sales efficiencies can be achieved. Should the Saturn Spectrum 3,
Verdant laser thermal processing system or the Company's reduction stepper
offerings, fail to develop or generate significant market demand, the Company's
business, financial condition and results of operations would be materially
adversely affected.

RESEARCH, DEVELOPMENT AND ENGINEERING EXPENSES

The Company's research, development and engineering expenses were $6.7 million
for the quarter ended September 30, 2000, as compared with $7.0 million for the
comparable period in 1999. On a year-to-date basis, research, development and
engineering expenses for the nine-month period ending September 30, 2000 were
$19.8 million, as compared with $20.3 million in the comparable period in 1999.
This decrease in spending, relative to the comparable periods in 1999, was
primarily attributed to the shutdown of the Company's UltraBeam operations,
which occurred early in the second quarter, and lower spending on the Company's
laser thermal processing technology, partially offset by higher facilities and
personnel costs.

The Company continues to invest significant resources in the development and
enhancement of its Verdant laser thermal processing systems and technologies,
together with continuing expenditures for its 1X and reduction optical
products and technologies. The Company presently expects that the absolute
dollar amount of research, development and engineering expenses for the
quarter ending December 30, 2000 may be similar to levels incurred in the
comparable period in 1999, as the decline in spending relative to the
UltraBeam shutdown is offset by increased investments in the Company's
Verdant and photolithography technologies and higher facilities and personnel
costs.

AMORTIZATION OF GOODWILL

Amortization of goodwill was $0.5 million for the quarter ended September 30,
2000, as compared with $0.4 million for the comparable period in 1999. On a
year-to-date basis, amortization of goodwill for the nine-month period ended
September 30, 2000 was $1.6 million, as compared with $1.2 million for the
comparable period in 1999. The additional amortization expense was directly
related to intangible assets purchased in December 1999.

SELLING, GENERAL AND ADMINISTRATIVE EXPENSES

Selling, general and administrative expenses were $8.6 million for the quarter
ended September 30, 2000, as compared with $6.9 million for the comparable
period in 1999. As a percentage of net sales, selling, general and
administrative expenses declined to 20.3%, as compared with 22.6% of net sales
for the comparable period in 1999. On a year-to-date basis, selling, general,
and administrative expenses for the nine-month period ended September 30, 2000
were $22.3 million, as compared with $19.9 million for the comparable period in
1999. As a percentage of net sales, selling, general and administrative expenses
declined to 21.1% for the nine-month period ended September 30, 2000, as
compared to 23.3% of net sales for the comparable period in 1999. Both the
current quarter and year-to-date increases in absolute dollars, as compared with
the comparable periods in 1999, were primarily due to higher sales, service and
support expenses typically associated with an increase in sales, together with
higher facilities and personnel costs, partially offset by the impact of the
shutdown of the UltraBeam operations. The Company presently anticipates that
selling, general and administrative expenses for the three-month period ending
December 30, 2000 will increase significantly, relative to the comparable period
in 1999, due primarily to higher anticipated sales, service and support expenses
resulting from an anticipated increase in net sales and higher facilities and
personnel costs.

SHUTDOWN OF OPERATIONS

During the quarter ended June 30, 2000, the Company shutdown the operations of
its UltraBeam unit. As a direct result of this decision, the Company recognized
a charge in the quarter ended June 30, 2000 of $8.0 million, or $0.38 per share
(diluted). During the quarter ended September 30, 2000, the Company recognized
an additional charge of $1.7 million, or $0.08 per share (diluted) primarily


                                       16
<PAGE>

attributed to revised estimates of amounts to be realized upon the sale of
operating assets. Of the year-to-date total charge of $9.7 million,
approximately $6.8 million related to operating and capital assets disposed of,
$2.5 million related to amounts paid for shutdown and accrued liabilities
still outstanding as of September 30, 2000 of $0.4 million.

GAIN OF SALE OF LAND

During the quarter ended September 30, 2000, the Company exercised an option it
held to purchase 6.34 acres of undeveloped land it leased in San Jose,
California and sold this property to a third party. This transaction resulted in
a net gain of $16.0 million before related income taxes, or $0.74 per share
(diluted).

INTEREST AND OTHER INCOME, NET

Interest and other income, net, which consists primarily of interest income, was
$2.0 million for the quarter ended September 30, 2000, as compared with $1.7
million for the comparable period in 1999. On a year-to-date basis, interest and
other income, net, for the nine-month period ended September 30, 2000 was $5.5
million, as compared with $5.4 million for the comparable period in 1999. Both
the current quarter and year-to-date increases, as compared with the comparable
periods in 1999, were primarily attributed to higher invested balances.

INCOME TAX EXPENSE

The Company recognized income taxes of $2.4 million, related to special
items, during the three-month and nine-month periods ended September 30,
2000, or $0.11 per share (diluted), relating to the sale of the land and
certain other cash receipts during the quarter. There was no additional
income tax expense recognized during the 2000 periods, as a result of
available net operating loss carry-forwards. There was no income tax benefit
recognized in 1999 on the Company's pre-tax loss, due to uncertainty related
to the utilization of its net operating loss carry-forward.

LIQUIDITY AND CAPITAL RESOURCES

Net cash provided by operating activities was $5.7 million for the nine-month
period ended September 30, 2000, as compared with $4.4 million during the
comparable period in 1999. Cash flow generated by operating activities was
primarily attributed to non-cash charges to income of $10.2 million and a net
change in operating assets and liabilities of $7.2 million, partially offset
by the Company's net loss for the nine-month period.

The Company sells certain of its accounts receivable in order to mitigate its
credit risk and to enhance cash flow. Sales of accounts receivable typically
precede final customer acceptance of the system. Among other terms and
conditions, the agreements include provisions that require the Company to
repurchase receivables if certain conditions are present including, but not
limited to, disputes with the customer regarding suitability of the product, and
from time-to-time the Company has repurchased certain accounts and leases
receivable in accordance with these terms. At September 30, 2000, $3.3 million
of sold accounts receivable were outstanding to third party financial
institutions. The Company may continue to attempt to mitigate the impact of
extended payment terms and non-linear shipments by selling a substantial portion
of its accounts receivable in the future. There can be no assurance that this
financing will be available on reasonable terms, or at all.

The Company believes that because of the relatively long manufacturing cycle of
certain of its systems, particularly newer products, the Company's inventories
will continue to represent a significant portion of working capital. In
particular, the Company is increasing its purchases of inventory for its Saturn
Spectrum 3 wafer stepper, Verdant laser thermal processing system and its


                                       17
<PAGE>

XLS 157nm advanced reduction stepper. Higher inventory levels may increase the
risk of inventory obsolescence, which may adversely impact the Company results
of operations. Additionally, in conjunction with its XLS 157nm system, the
Company anticipates that it will be required to make advanced payments related
to lens production of approximately $2.0 million during the quarter ending
December 30, 2000. The Company intends to characterize this expenditure as a
long-term prepayment of inventories.

During the nine months ended September 30, 2000, net cash provided by
investing activities was $11.1 million, primarily attributed to the proceeds
from the sale of land of $16.2 million, the release of restricted cash of
$5.5 million, a net reduction in available-for-sale securities of $4.2
million, partially offset by capital expenditures of $14.8 million. The
capital expenditures were primarily attributed to the relocation of certain
of the Company's facilities and further expansion in San Jose, California.

Cash used in financing activities was $4.7 million during the nine-month
period ended September 30, 2000, primarily attributed to the Company's
previously announced stock buyback. As of September 30, 2000, the Company had
repurchased 475,000 shares of its common stock. The Company has authorized
the repurchase of up to 2.0 million of its common stock at prevailing market
prices. The Company intends to finance the repurchase of its common stock
from its existing cash, cash equivalents and short term investments. During
the nine-month period ended September 30, 2000, the Company raised $1.7
million from stock issued pursuant to the Company's stock option and employee
stock purchase plans and raised an additional $0.4 million from borrowings
under its existing line of credit pursuant to international hedging
activities.

At September 30, 2000, the Company had working capital of $144.9 million. The
Company's principal source of liquidity at September 30, 2000 consisted of
$152.3 million in cash, cash equivalents and short-term investments.

The development and manufacture of new lithography systems and enhancements are
highly capital-intensive. In order to be competitive, the Company must continue
to make significant expenditures for capital equipment, sales, service, training
and support capabilities; investments in systems, procedures and controls and
expansion of operations and research and development, among many other items.
The Company expects that anticipated cash flows from operations and its cash,
cash equivalents and short-term investments will be sufficient to meet the
Company's cash requirements for the next twelve months. Beyond the next twelve
months, the Company may require additional equity or debt financing to address
its working capital or capital equipment needs.

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

Additionally, the Company may experience renewed interest in its equipment
leasing program and this may result in the further formation of significant
long-term receivables, which, in turn, would require the use of substantial
amounts of working capital. The formation of significant long-term
receivables and the granting of extended customer payment terms exposes the
Company to additional risks, including potentially higher customer
concentration and higher potential operating expenses relating to customer
defaults. If reserves on lease receivables were required in the future, the
Company's business, financial condition and results of operations could be
materially adversely affected.

To the extent that the Company's financial resources are insufficient to

                                       18
<PAGE>

fund the Company's activities, additional funds will be required. There can be
no assurance that additional financing will be available on reasonable terms, or
at all.

ADOPTION OF THE EURO

The introduction of a European single currency, the Euro, was initially
implemented as of January 1, 1999, and the transition period will continue
through Jan 1, 2002. As of September 30, 2000, the adoption of the Euro has not
had a material effect on the Company's foreign exchange and hedging activities
or the Company's use of derivative instruments. While the Company will continue
to evaluate the impact of the Euro introduction over time, based on currently
available information, management does not believe that the introduction of the
Euro currency will have a material adverse impact on the Company's financial
condition or overall trends in results of operations.


                                       19
<PAGE>

ADDITIONAL RISK FACTORS

CYCLICALITY OF SEMICONDUCTOR, SEMICONDUCTOR PACKAGING AND THIN FILM HEAD
INDUSTRIES The Company's business depends in significant part upon capital
expenditures by manufacturers of semiconductors and thin film head magnetic
recording devices, which in turn depend upon the current and anticipated market
demand for such devices and products utilizing such devices. The semiconductor
industry is highly cyclical and historically has experienced recurring periods
of oversupply. This has, from time to time, resulted in significantly reduced
demand for capital equipment including the systems manufactured and marketed by
the Company. The Company believes that markets for new generations of
semiconductors and semiconductor packaging will also be subject to similar
fluctuations. Accordingly, the Company can give no assurance that it will be
able to achieve or maintain its current or prior level of sales.

The Company attempts to mitigate the risk of cyclicality by participating in
multiple markets including semiconductor, semiconductor packaging and thin film
heads, as well as diversifying into new markets such as photolithography for
micromachining and optical networking. Despite such efforts, when one or more of
such markets experiences a downturn or a situation of excess capacity, such as
is currently occurring in the thin film head market, the Company's net sales and
operating results are materially adversely affected.

During 1999 and 1998, approximately 30% and 50%, respectively, of the Company's
net sales were derived from sales to thin film head manufacturers and
micromachining customers. For the first nine months of 2000, sales to thin film
head manufacturers and micromachining customers accounted for approximately 17%
of total net sales. The Company believes the TFH market is currently in a state
of over-capacity and expects this situation to last for at least the next
several quarters. This has and will continue to result in lower sales and delays
or deferrals of customer orders from these industries, which will continue to
materially adversely affect the Company's business, financial condition and
results of operations in the near term. Additionally, the Company is
experiencing increased competition in this market from Nikon, Canon and ASML.
The Company's business and operating results would be materially adversely
affected by continued downturns or slowdowns in TFH market or by loss of market
share.

HIGHLY COMPETITIVE INDUSTRY The capital equipment industry in which the Company
operates is intensely competitive. A substantial investment is required to
install and integrate capital equipment into a semiconductor, semiconductor
packaging or thin film head production line. The Company believes that once a
device manufacturer or packaging subcontractor has selected a particular
vendor's capital equipment, the manufacturer generally relies upon that
equipment for the specific production line application and, to the extent
possible, subsequent generations of similar products. Accordingly, it is
difficult to achieve significant sales to a particular customer once another
vendor's capital equipment has been selected. The Company experiences intense
competition worldwide from a number of leading foreign and domestic stepper
manufacturers, such as Nikon Inc. ("Nikon"), Canon Inc. ("Canon"), ASM
Lithography, Ltd. ("ASML") and Silicon Valley Group ("SVG"), Inc.'s Micralign
products, all of which have substantially greater financial, marketing and other
resources than the Company. Nikon supplies a 1X stepper for use in the
manufacture of liquid crystal displays and Canon, Nikon and ASML offer reduction
steppers for thin film head fabrication. Additionally, the Company's XLS
reduction stepper product line competes directly with advanced reduction
steppers offered by Canon, Nikon and ASML. With respect to the semiconductor
packaging market, the Company receives intense competition from various
proximity aligner companies such as Suss Microtec AG (Karl Suss).

Current thin film head front-end production involves manufacturing steps that
require critical feature sizes. Although the reduction stepper product lines
address critical feature sizes, additional


                                       20
<PAGE>

development of these product lines may be necessary to fully address the unique
requirements of thin film head manufacturing. Additionally, ASML has entered the
low-cost lithography market. ASML and Nikon have each introduced an i-line
step-and-scan system as a lower cost alternative to the deep ultra-violet (DUV)
step-and-scan system for use on the less critical layers. These systems compete
with widefield steppers, such as the Company's Saturn and Titan steppers, for
advanced mix-and-match applications. In addition, the Company believes that the
high cost of developing new lithography tools has increasingly caused its
competitors to collaborate with customers and other parties in various areas
such as research and development, manufacturing and marketing, or to acquire
other competitors, thereby resulting in a combined competitive threat with
significantly enhanced financial, technical and other resources. The Company
expects its competitors to continue to improve the performance of their current
products. These competitors have stated that they will introduce new products
with improved price and performance characteristics that will compete directly
with the Company's products. This could cause a decline in sales or loss of
market acceptance of the Company's steppers, and thereby materially adversely
affect the Company's business, financial condition and results of operations.
There can be no assurance that enhancements to, or future generations of,
competing products will not be developed that offer superior cost of ownership
and technical performance features. The Company believes that to be competitive,
it will require significant financial resources in order to continue to invest
in new product development, features and enhancements, to introduce next
generation stepper systems on a timely basis, and to maintain customer service
and support centers worldwide. In marketing its products, the Company may also
face competition from vendors employing other technologies. In addition,
increased competitive pressure has led to intensified price-based competition,
resulting in lower prices and margins. Should these competitive trends continue,
the Company's business, financial condition and operating results would continue
to be materially adversely affected. There can be no assurance that the Company
will be able to compete successfully in the future.

Foreign integrated circuit manufacturers have a significant share of the
worldwide market for certain types of ICs for which the Company's systems are
used. The Japanese stepper manufacturers are well established in the Japanese
stepper market, and it is extremely difficult for non-Japanese lithography
equipment companies to penetrate the Japanese stepper market. Although the
Company has experienced recent success in its introduction of its Saturn
Spectrum 3 into the Japanese marketplace, to date the Company has not
established itself as a major competitor in the Japanese equipment market and
there can be no assurance that the Company will be able to achieve significant
sales to Japanese manufacturers in the future. (See "International Sales;
Japanese Market").

DEVELOPMENT OF NEW PRODUCT LINES; EXPANSION OF OPERATIONS Currently, the Company
is devoting significant resources to the development, introduction and
commercialization of its Verdant laser thermal processing system and its
advanced XLS 157nm reduction stepper, and to the volume production for its
Saturn Spectrum 3 wafer stepper. During the remainder of 2000, the Company will
continue to develop these products and will continue to incur significant
operating expenses in the areas of research, development and engineering,
manufacturing and general and administrative costs in order to further develop,
produce and support these new products. Additionally, gross profit margins and
inventory levels may be further adversely impacted in the future by costs
associated with the initial production of these new product lines. These costs
include, but are not limited to, additional manufacturing overhead, additional
inventory write-offs, costs associated with managing multiple sites and the
establishment of additional after-sales support organizations. Additionally,
there can be no assurance that operating expenses will not increase, relative to
sales, as a result of adding additional marketing and administrative personnel,
among other costs, to support the Company's new products. If the Company is
unable to achieve significantly increased net sales or its sales fall below
expectations, the Company's operating results will be materially adversely
affected until, among other factors, costs and expenses can be reduced.

LENGTHY SALES CYCLE Sales of the Company's systems depend, in significant part,
upon the decision of a prospective customer to increase manufacturing capacity
or to restructure current manufacturing facilities, either of which typically
involves a significant commitment of capital. In view of the significant
investment involved in a system purchase, the Company has experienced and may
continue


                                       21
<PAGE>

to experience delays following initial qualification of the Company's systems as
a result of delays in a customer's approval process. Additionally, the Company
is presently receiving orders for systems that have lengthy delivery schedules,
which may be due to longer production lead times or a result of customers'
capacity scheduling requirements. In order to maintain or exceed the Company's
present level of net sales, the Company is dependent upon obtaining orders for
systems that will ship and be accepted in the current period. There can be no
assurance that the Company will be able to obtain those orders. For these and
other reasons, the Company's systems typically have a lengthy sales cycle during
which the Company may expend substantial funds and management effort in securing
a sale. Lengthy sales cycles subject the Company to a number of significant
risks, including inventory obsolescence and fluctuations in operating results,
over which the Company has little or no control.

CUSTOMER CONCENTRATION Historically, the Company has sold a substantial portion
of its systems to a limited number of customers. In 1999, no single customer
accounted for 10% or more of the Company's net sales. However, sales to one
customer accounted for approximately 25% of total net sales in 1998. For the
nine-month period ended September 30, 2000, one customer accounted for 10% of
total net sales. The Company expects that sales to a relatively few customers
will continue to account for a high percentage of its net sales in the
foreseeable future and believes that the Company's financial results depend in
significant part upon the success of these major customers and the Company's
ability to meet their future capital equipment needs. Although the composition
of the group comprising the Company's largest customers may vary from period to
period, the loss of a significant customer or any reduction in orders by any
significant customer, including reductions due to market, economic or
competitive conditions in the semiconductor, semiconductor packaging or magnetic
recording head industries or in the industries that manufacture products
utilizing integrated circuits or thin film heads, may have a material adverse
effect on the Company's business, financial condition and results of operations.
The Company's ability to maintain or increase its sales in the future will
depend, in part, upon its ability to obtain orders from new customers as well as
the financial condition and success of its customers, the semiconductor and thin
film head industries and the economy in general, of which there can be no
assurance. (See "Additional Risk Factors: Cyclicality of Semiconductor,
Semiconductor Packaging and Thin Film Head Industries").

In addition to the business risks associated with the dependence on these major
customers, these significant customer concentrations have in the past resulted
in significant concentrations of accounts receivable and leases receivable.
Additionally, the Company markets and sells its products in Taiwan through an
outside representative firm. The Company is presently experiencing increased
order activity in this territory. In addition to the significant business risks
associated with this strategy, this relationship may result in the formation of
significant receivable balances. The formation of significant and concentrated
receivables exposes the Company to additional risks, including the risk of
default by one or more customers representing a significant portion of the
Company's total receivables. If additional lease and accounts receivable
reserves were to be required, the Company's business, financial condition and
results of operations would be materially adversely affected.

RAPID TECHNOLOGICAL CHANGE; IMPORTANCE OF TIMELY PRODUCT INTRODUCTION The
semiconductor, semiconductor packaging and magnetic recording head manufacturing
industries are subject to rapid technological change and new product
introductions and enhancements. The Company's ability to be competitive in these
and other markets will depend, in part, upon its ability to develop new and
enhanced systems and related software tools, and to introduce these systems and
related software tools at competitive prices and on a timely and cost-effective
basis to enable customers to integrate them into their operations either prior
to or as they begin volume product manufacturing. The Company will also be
required to enhance the performance of its existing systems and related software
tools. Any success of the Company in developing new and enhanced systems and
related software tools depends upon a variety of factors, including product
selection, timely and efficient completion of product design, timely and
efficient implementation of manufacturing and assembly processes, product
performance in the field and effective sales and marketing. Because new product
development commitments must be made well in advance of sales, new product
decisions must anticipate both future demand and the technology that will be
available to supply that demand. There can be no assurance that the Company will
be successful in selecting, developing, manufacturing and marketing


                                       22
<PAGE>

new products and related software tools or enhancing its existing products and
related software tools. Any such failure would materially adversely affect the
Company's business, financial condition and results of operations.

Because of the large number of components in the Company's systems, significant
delays can occur between a system's introduction and the commencement by the
Company of volume production of such systems. The Company has experienced delays
from time to time in the introduction of, and technical and manufacturing
difficulties with, certain of its systems and enhancements and related software
tools and may experience delays and technical and manufacturing difficulties in
future introductions or volume production of new systems or enhancements and
related software tools.

There can be no assurance that the Company will not encounter additional
technical, manufacturing or other difficulties that could further delay future
introductions or volume production of systems or enhancements. The Company's
inability to complete the development or meet the technical specifications of
any of its systems or enhancements and related software tools, or its inability
to manufacture and ship these systems or enhancements and related software tools
in volume and in time to meet the requirements for manufacturing the future
generation of semiconductor or thin film head devices would materially adversely
affect the Company's business, financial condition and results of operations. In
addition, the Company may incur substantial unanticipated costs to ensure the
functionality and reliability of its products early in the products' life
cycles. If new products have reliability or quality problems, reduced orders or
higher manufacturing costs, delays in collecting accounts receivable and
additional service and warranty expenses may result. Any of such events may
materially adversely affect the Company's business, financial condition and
results of operations.

INTERNATIONAL SALES; JAPANESE MARKET International sales accounted for
approximately 53% and 47% of total net sales for the years 1999 and 1998,
respectively. During the nine-month period ended September 30, 2000,
international sales accounted for approximately 54% of total net sales, as
compared to 54% for the comparable period in 1999. The Company anticipates that
international sales, which typically have lower gross margins than domestic
sales, principally due to increased competition and higher field service and
support costs, will continue to account for a significant portion of total net
sales and may increase as a percentage of total net sales in the near-term. As a
result, a significant and growing portion of the Company's net sales will
continue to be subject to certain risks, including dependence on outside sales
representative organizations, unexpected changes in regulatory requirements,
difficulty in satisfying existing regulatory requirements, exchange rate
fluctuations, tariffs and other barriers, political and economic instability,
difficulties in accounts receivable collections, natural disasters, difficulties
in staffing and managing foreign subsidiary and branch operations and
potentially adverse tax consequences. Although the Company generally transacts
its international sales in U.S. dollars, international sales expose the Company
to a number of additional risk factors, including fluctuations in the value of
local currencies relative to the U.S. dollar, which, in turn, impact the
relative cost of ownership of the Company's products and may further impact the
purchasing ability of its international customers. In Japan, however, the
Company has commenced direct sales operations and orders are often denominated
in Japanese yen. This may subject the Company to a higher degree of risk from
currency fluctuations. The Company attempts to mitigate this exposure through
the use of foreign exchange contracts. The Company is also subject to the risks
associated with the imposition of legislation and regulations relating to the
import or export of semiconductors and magnetic recording head products. The
Company cannot predict whether changes to quotas, duties, taxes or other charges
or restrictions will be implemented by the United States, Japan or any other
country upon the importation or exportation of the Company's products in the
future. There can be no assurance that any of these factors or the adoption of
restrictive policies will not have a material adverse effect on the Company's
business, financial condition and results of operations.


                                       23
<PAGE>

INTELLECTUAL PROPERTY RIGHTS Although the Company attempts to protect its
intellectual property rights through patents, copyrights, trade secrets and
other measures, it believes that any success will depend more upon the
innovation, technological expertise and marketing abilities of its employees.
Nevertheless, the Company has a policy of seeking patents when appropriate on
inventions resulting from its ongoing research and development and manufacturing
activities. The Company owns various United States and foreign patents, which
expire on dates ranging from December 2000 to December 2018, and has various
United States and foreign patent applications pending. The Company also has
various registered trademarks and copyright registrations covering mainly
software programs used in the operation of its stepper systems. The Company also
relies upon trade secret protection for its confidential and proprietary
information. There can be no assurance that the Company will be able to protect
its technology adequately or that competitors will not be able to develop
similar technology independently. There can be no assurance that any of the
Company's pending patent applications will be issued or that foreign
intellectual property laws will protect the Company's intellectual property
rights. In addition, litigation may be necessary to enforce the Company's
patents, copyrights or other intellectual property rights, to protect the
Company's trade secrets, to determine the validity and scope of the proprietary
rights of others or to defend against claims of infringement. Such litigation
could result in substantial costs and diversion of resources and could have a
material adverse effect on the Company's business, financial condition and
results of operations, regardless of the outcome of the litigation. There can be
no assurance that any patent issued to the Company will not be challenged,
invalidated or circumvented or that the rights granted thereunder will provide
competitive advantages to the Company. Furthermore, there can be no assurance
that others will not independently develop similar products, duplicate the
Company's products or, if patents are issued to the Company, design around the
patents issued to the Company. Additionally, the Company presently has several
agreements in force to license certain of its technologies. Challenges or
invalidation to patents relative to those technologies would expose the Company
to the risk of forfeiture of revenues and further risk of litigation.

On February 29, 2000, in the U.S. District Court of Virginia, Ultratech filed
patent infringement lawsuits against Nikon, Canon and ASM Lithography. In
April of 2000, the Company reached settlement with Nikon Corporation. The
litigation against Canon and ASM Lithography is ongoing. In conjunction with
this litigation, Canon has filed a counter-claim against the Company alleging
infringement of its technologies. The Company is in the process of reviewing
this claim but believes that it is without merit and that it will not
have a material adverse impact on the results of operations or financial
condition of the Company.

Although there are no pending lawsuits against the Company regarding
infringement claims with respect to any existing patent or any other
intellectual property right (with the exception of the Canon counter-claim), the
Company has from time to time been notified of claims that it may be infringing
intellectual property rights possessed by third parties. Certain of the
Company's customers have received notices of infringement from Technivision
Corporation and the Lemelson Medical, Education and Research Foundation, Limited
Partnership alleging that the manufacture of certain semiconductor products
and/or the equipment used to manufacture those semiconductor products infringes
certain issued patents. The Company has been notified by certain of these
customers that the Company may be obligated to defend or settle claims that the
Company's products infringe any of such patents and, in the event it is
subsequently determined that the customer infringes any of such patents, they
intend to seek reimbursement from the Company for damages and other expenses
resulting from this matter.

Although there are no pending lawsuits against the Company regarding
infringement claims with respect to any existing patents or any other
intellectual property rights (with the exception of the


                                       24
<PAGE>

Canon counter-claim), there can be no assurance that infringement claims by
third parties or claims for indemnification resulting from infringement claims
in the future will not be asserted, or that such assertions, if proven to be
true, will not materially adversely affect the Company's business, financial
condition and results of operations, regardless of the outcome of any
litigation. With respect to any such future claims, the Company may seek to
obtain a license under the third party's intellectual property rights. There can
be no assurance, however, that a license will be available on reasonable terms
or at all. The Company could decide, in the alternative, to resort to litigation
to challenge such claims. Such challenges could be extremely expensive and time
consuming and could materially adversely affect the Company's business,
financial condition and results of operations, regardless of the outcome of any
litigation.

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

DEPENDENCE ON KEY PERSONNEL The Company's future operating results depend, in
significant part, upon the continued contributions of key personnel, many of
whom would be difficult to replace. None of such persons has an employment or
noncompetition agreement with the Company. The Company does not maintain any
life insurance on any of its key persons. The loss of key personnel could have a
material adverse effect on the business, financial condition and results of
operations of the Company. In addition, the Company's future operating results
depend in significant part upon its ability to attract and retain other
qualified management, manufacturing, and technical, sales and support personnel
for its operations. There are only a limited number of persons with the
requisite skills to serve in these positions and it may become increasingly
difficult for the Company to hire such personnel over time. Competition for such
personnel is intense, and there can be no assurance that the Company will be
successful in attracting or retaining such personnel. The failure to attract or
retain such persons would materially adversely affect the Company's business,
financial condition and results of operations.

CHANGES TO FINANCIAL ACCOUNTING STANDARDS MAY AFFECT THE COMPANY'S REPORTED
RESULTS OF OPERATIONS The Company prepares its financial statements to conform
with generally accepted accounting principles, or GAAP. GAAP are subject to
interpretation by the American Institute of Certified Public Accountants, the
SEC and various bodies formed to interpret and create appropriate accounting
policies. A change in those policies can have a significant effect on the
Company's reported results and may even affect its reporting of transactions
completed before a change is announced.


                                       25
<PAGE>

In December 1999, the Securities and Exchange Commission issued Staff Accounting
Bulletin No. 101 (SAB 101), entitled "Revenue Recognition in Financial
Statements." The Company implemented the provisions of SAB 101 effective January
1, 2000. The Company previously recognized revenue from the sales of its
products generally upon shipment, which usually preceded installation and final
customer acceptance, provided that final customer acceptance and collection of
the related receivable were probable. Effective January 1, 2000, the Company
changed its method of accounting for product sales to recognize such revenues
when the contractual obligation for installation has been satisfied, or when
installation is substantially complete, and customer acceptance provisions have
lapsed, provided collection of the related receivable are probable. The Company
believes the change in accounting principle is preferable based on guidance
provided in SAB 101. The cumulative effect of the change in accounting
principle, $18,883,000 (or $0.89 per share, basic and diluted) was reported as a
charge in the quarter ended March 31, 2000 in the accompanying statement of
operations.

The cumulative effect of the change in accounting principle includes system
revenue, cost of sales and certain expenses, including warranty and commission
expenses, that will be recognized when both installation and customer acceptance
provisions are satisfied, subsequent to January 1, 2000.

Accounting policies affecting many other aspects of our business, including
rules relating to purchase and pooling-of-interests accounting for business
combinations, revenue recognition, in-process research and development charges,
employee stock purchase plans and stock option grants, have recently been
revised or are under review. Changes to those rules or the questioning of
current practices may have a material adverse effect on the Company's reported
financial results or on the way it conducts business. In addition, the Company's
preparation of financial statements in accordance with GAAP requires that it
make estimates and assumptions that affect the recorded amounts of assets and
liabilities, disclosure of those assets and liabilities at the date of the
financial statements and the recorded amounts of expenses during the reporting
period. A change in the facts and circumstances surrounding those estimates
could result in a change to the Company's estimates and could impact its future
operating results.

EFFECTS OF CERTAIN ANTI-TAKEOVER PROVISIONS Certain provisions of the Company's
Certificate of Incorporation, equity incentive plans, Shareholder Rights Plan,
licensing agreements, Bylaws and Delaware law may discourage certain
transactions involving a change in control of the Company. In addition to the
foregoing, the Company's classified board of directors, the shareholdings of the
Company's officers, directors and persons or entities that may be deemed
affiliates and the ability of the Board of Directors to issue "blank check"
preferred stock without further stockholder approval could have the effect of
delaying, deferring or preventing a change in control of the Company and may
adversely affect the voting and other rights of holders of Common Stock.

VOLATILITY OF STOCK PRICE The Company believes that factors such as
announcements of developments related to the Company's business, fluctuations in
the Company's operating results, sales of securities of the Company into the
marketplace, general conditions in the semiconductor and magnetic recording head
industries or the worldwide or regional economies, an outbreak of hostilities, a
shortfall in revenue or earnings from, or changes, in analysts' expectations,
announcements of technological innovations or new products or enhancements by
the Company or its competitors, developments in patents or other intellectual
property rights and developments in the Company's relationships with its
customers and suppliers could cause the price of the Company's Common Stock to
fluctuate, perhaps substantially. In addition, in recent years the stock market
in general, and the market for shares of small capitalization stocks in
particular, including the Company's, have experienced extreme price
fluctuations, which have often been unrelated to the operating performance of
affected companies. There can be no assurance that the market price of the
Company's Common Stock will not continue to experience significant fluctuations
in the future, including fluctuations that may be unrelated to the Company's
performance.


                                       26
<PAGE>

ITEM 3.           QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK


Reference is made to Part II, Item 7A, "Quantitative and Qualitative Disclosures
About Market Risk" in the Company's Annual Report on Form 10-K for the year
ended December 31, 1999 and to the subheading "Derivative Instruments and
Hedging" in Item 8, "Financial Statements and Supplementary Data", under the
heading "Notes to Consolidated Financial Statement" of the Company's Annual
Report on Form 10-K for the year ended December 31, 1999.


                                       27
<PAGE>

<TABLE>
<S>               <C>                                                                                         <C>
PART 2:           OTHER INFORMATION

ITEM 1.           LEGAL PROCEEDINGS.                                                                          None.

ITEM 2.           CHANGES IN SECURITIES AND USE OF PROCEEDS.                                                  None.

ITEM 3.           DEFAULTS UPON SENIOR SECURITIES.                                                            None.

ITEM 4.           SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.                                        None

ITEM 5.           OTHER INFORMATION.

                  In August 2000, Mr. Rick Timmins joined the Company's Board of Directors. Mr. Timmins, age 48, is Vice President
                  of Worldwide Sales and Service Finance for Cisco Systems, Inc. Mr. Timmins joined Cisco in 1996 as Vice President
                  and Corporate  Controller. Prior to joining Cisco, he spent twenty-two years at Motorola in various positions
                  including Vice President and Controller of the Microprocessor, Memory and  Microcontroller Group and Vice
                  President and Controller of Nippon Motorola Limited, Japan. Mr. Timmins received a Bachelor Degree in
                  Accounting and Finance from the University of Arizona and holds an MBA from St. Edwards University in Austin,
                  Texas.

ITEM 6.           EXHIBITS AND REPORTS ON FORM 8-K

                  (A) EXHIBITS

                  Exhibit 3.2.1       Bylaws of Registrant, as amended

                  Exhibit 27          Financial Data Schedule

                  (B) REPORTS ON FORM 8-K

                  The Company did not file any reports on Form 8-K during the
                  three months ended September 30, 2000.
</TABLE>


                                       28
<PAGE>

                                   SIGNATURES


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



                             ULTRATECH STEPPER, INC.
--------------------------------------------------------------------------------
                                  (Registrant)



Date:       November 10, 2000              By: /s/ Bruce R. Wright
      -----------------------------------      ---------------------------------
                                               Bruce R. Wright
                                               Senior Vice President, Finance
                                                 and Chief Financial Officer
                                                 (Duly Authorized Officer and
                                                 Principal Financial and
                                                 Accounting Officer)


                                       29