SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
SCHEDULE 14A
(Rule 14a-101)
INFORMATION REQUIRED IN
PROXY STATEMENT
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of
the Securities Exchange Act of 1934
Filed by the registrant [X]
Filed by a party other than the registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement
[ ] Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Section 240.14a-11(c) or Section 240.14a-12
APPLIED FILMS CORPORATION
(Name of registrant as specified in its charter)
(Name of person(s) filing Proxy Statement, if other than the Registrant)
Payment of filing fee (Check the appropriate box):
[X] No fee required
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11
(1) Title of each class of securities to which transaction applies:
(2) Aggregate number of securities to which transaction applies:
(3) Per unit price or other underlying value of transaction
computed pursuant to Exchange Act Rule 0-11 (set forth the
amount on which the filing fee is calculated and state how it
was determined):
(4) Proposed maximum aggregate value of transaction:
(5) Total fee Paid:
[ ] Fee paid previously with preliminary materials
[ ] Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number, or
the form or schedule and the date of its filing.
(1) Amount previously paid:
(2) Form, schedule, or registration statement no.:
(3) Filing party:
(4) Date filed:
<PAGE>
NOTICE OF ANNUAL MEETING AND PROXY STATEMENT
ANNUAL MEETING OF SHAREHOLDERS
OCTOBER 27, 1998
[ L O G O ]
APPLIED FILMS CORPORATION
LONGMONT, COLORADO
<PAGE>
APPLIED FILMS CORPORATION
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
To Our Shareholders:
The Annual Meeting of Shareholders of Applied Films Corporation will be
held at 9586 I-25 Frontage Road, Longmont, Colorado 80504, on Tuesday, October
27, 1998 at 9:00 A.M., local time, for the following purposes:
1. To elect five (5) directors, two (2) for terms of one year, one (1)
for a term of two years, and two (2) for terms of three years.
2. To transact such other business as may properly come before the
meeting or at any adjournment thereof.
Shareholders of record at the close of business September 4, 1998, will be
entitled to vote at the meeting or any adjournment thereof.
Whether or not you expect to be present in person at this meeting, you are
urged to sign the enclosed Proxy and return it promptly in the enclosed
envelope. If you do attend the meeting and wish to vote in person, you may do so
even though you have submitted a Proxy.
Dated: September 17, 1998
Longmont, Colorado
John S. Chapin, Secretary
<PAGE>
Dated: September 17, 1998
APPLIED FILMS CORPORATION
9586 I-25 FRONTAGE ROAD
LONGMONT, COLORADO 80504
------------------
PROXY STATEMENT
For the Annual Meeting of Shareholders
to be held October 27, 1998
------------------
SOLICITATION OF PROXIES FOR ANNUAL MEETING
This Proxy Statement is furnished to the Shareholders of Applied Films
Corporation in connection with the solicitation by the Board of Directors of
proxies to be used at the Annual Meeting of Shareholders which will be held at
9586 I-25 Frontage Road, Longmont, Colorado 80504, October 27, 1998, at 9:00
A.M., local time.
The Annual Meeting is being held for the following purposes:
1. To elect five (5) directors, two (2) for terms of one year, one (1)
for a term of two years, and two (2) for terms of three years.
2. To transact such other business as may properly come before the
meeting or at any adjournment thereof.
If a proxy in the form distributed by the Company's Board of Directors is
properly executed and returned to the Company, the shares represented by the
proxy will be voted at the Annual Meeting of Shareholders and at any adjournment
of that meeting. Where shareholders specify a choice, the proxy will be voted as
specified. If no choice is specified, the shares represented by the proxy will
be voted FOR the nominees named by the Board of Directors in the proxy. Shares
not voted at the meeting, whether by abstention, broker non-vote, or otherwise,
will not be treated as votes cast at the meeting. Votes cast at the meeting and
submitted by proxy will be tabulated by the Company's transfer agent.
A proxy may be revoked prior to its exercise by delivering a written notice
of revocation to the secretary of the Company, executing and delivering a proxy
of a later date or attending the meeting and voting in person. Attendance at the
meeting does not automatically act to revoke a proxy.
<PAGE>
VOTING SECURITIES AND PRINCIPAL HOLDERS THEREOF
On September 4, 1998, the record date for determination of shareholders
entitled to vote at the Annual Meeting, there were outstanding 3,474,465 shares
of Common Stock of the Company. Shares cannot be voted unless the shareholder is
present at the meeting or is represented by proxy.
The following table sets forth as of September 1, 1998, information
concerning persons known to management who may be deemed to be beneficial owners
of more than 5% of the Company's common stock.
<TABLE>
Name and Address of Amount and Nature of Percent of
Beneficial Owner Beneficial Owner Common Stock
<S> <C> <C>
Cecil Van Alsburg 590,474 (1) 17.0%
9586 I-25 Frontage Road
Longmont, Colorado 80504
John S. Chapin 568,341 (2) 16.4%
9586 I-25 Frontage Road
Longmont, Colorado 80504
Gentex Corporation 369,000 (3) 10.6%
600 N. Centennial Street
Zeeland, Michigan 49464
Wellington Management Company, LLP 344,000 (4) 10.0%
75 State Street
Boston, Massachusetts 02109
Benson Associates LLC 254,500 (5) 7.3%
111 SW 5th, Suite 2130
Portland, Oregon 97204
Heartland Advisors, Inc. 250,000 (6) 7.2%
790 North Milwaukee Street
Milwaukee, Wisconsin 53202
</TABLE>
2
<PAGE>
NOTES
(1) Includes (i) 559,418 shares held by Mr. Van Alsburg, (ii) 1,000 shares
held by Mr. Van Alsburg's spouse, and (iii) options to purchase 30,056
shares of Common Stock exercisable within 60 days.
(2) Includes (i) 367,571 shares held by Mr. Chapin, (ii) 170,714 shares
held by the John Chapin Family Trust, of which Mr. Chapin is the
Trustee, and (iii) options to purchase 30,056 shares of Common Stock
exercisable within 60 days.
(3) In a Schedule 13G, dated August 21, 1998, and delivered to the
Company, Gentex Corporation ("Gentex") disclosed that it had acquired
beneficial ownership of 369,000 shares of Common Stock. Gentex has
sole power to dispose of and vote all of such shares.
(4) In a Schedule 13G, dated January 12, 1998, and delivered to the
Company, Wellington Management Company, LLP ("Wellington Management")
disclosed on behalf of its investment advisory clients that they
acquired beneficial ownership of 285,000 shares of Common Stock.
Wellington Management has shared power to dispose of and vote all such
shares. One Wellington Management client, Wellington Trust Company,
NA, has the right to receive, or the power to direct the receipt of,
dividends from, or the proceeds from the sale of, 5% or more of the
Company's Common Stock. Additional information provided to the Company
indicates that Wellington Management has acquired beneficial ownership
of an additional 59,000 shares of Common Stock, for a total beneficial
ownership of 344,000 shares of Common Stock.
(5) In a Schedule 13G, dated February 13, 1998, and delivered to the
Company, Benson Associates LLC ("Benson") disclosed on behalf of its
investment advisory clients that it had acquired beneficial ownership
of 212,500 shares of Common Stock. Benson has sole power to dispose of
and vote all such shares. Additional information provided to the
Company indicates that Benson has acquired beneficial ownership of an
additional 42,000 shares of Common Stock, for a total beneficial
ownership of 254,500 shares of Common Stock.
(6) In a Schedule 13G, dated January 23, 1998, and delivered to the
Company, Heartland Advisors, Inc. ("Heartland") disclosed on behalf of
its investment advisory clients that it had acquired beneficial
ownership of 190,000 shares of Common Stock. Heartland has sole power
to dispose of and vote all such shares. Additional information
provided to the Company indicates that Heartland has acquired
beneficial ownership of an additional 60,000 shares of Common Stock,
for a total beneficial ownership of 250,000 shares of Common Stock.
3
<PAGE>
NOMINEES FOR ELECTION AS DIRECTORS
The Company's Articles of Incorporation provide for the division of the
Board of Directors into three classes of nearly equal size with staggered
three-year terms of office. The Articles of Incorporation provide that the Board
shall consist of not less than five nor more than nine members. The Board is
currently composed of seven (7) members. Five (5) persons have been nominated
for election to the Board to serve the terms indicated below. The Board of
Directors has nominated the following persons to election to the Company's Board
of Directors:
<TABLE>
Annual Shareholder
Meeting at Which Term
Person Will Expire
<S> <C>
Richard P. Beck 1999
Jeffrey K. Fergason 1999
Thomas T. Edman 2000
Cecil Van Alsburg 2001
John S. Chapin 2001
</TABLE>
Holders of common stock should complete the accompanying proxy. Unless
otherwise directed by a shareholder's proxy, it is intended that the votes cast
upon exercise of proxies in the form accompanying this statement will be in
favor of electing the nominees as directors for the terms indicated above. Each
of the nominees are presently serving as directors. The following pages of this
Proxy Statement contain more information about the nominees and other directors
of the Company.
A plurality of the votes cast at the Annual Meeting is required to elect
the nominees as directors of the Company. As such, the five individuals who
receive this number of votes cast by the holders of the Company's common stock
will be elected as directors. Shares not voted at the meeting, whether by
abstention, broker non-vote, or otherwise, will not be treated as votes cast at
the meeting. Votes cast at the meeting and submitted by proxy will be tabulated
by the Company.
If any nominee becomes unavailable for election due to circumstances not
now known, the accompanying proxy will be voted for such other person to become
a director as the Board of Directors selects. The Board of Directors recommends
a vote FOR the election of each of the persons nominated by the Board.
4
<PAGE>
The content of the following table is based upon information as of
September 1, 1998, furnished to the Company by the nominees and other directors.
<TABLE>
Year First Percent of
Became a Amount and Nature of Common
Name Age Director Beneficial Ownership Stock
Nominees for Election as Directors for Terms
Expiring in 1999
<S> <C> <C> <C> <C>
Richard P. Beck 65 1998 1,000 *
Jeffrey K. Fergason (a)(b) 39 1997 30,000 *
Nominee for Election as Director for Term
Expiring in 2000
Thomas T. Edman 36 1998 23,973 (1) *
Nominees for Election as Directors for Terms
Expiring in 2001
John S. Chapin 57 1976 568,341 (2) 16.4%
Cecil Van Alsburg 61 1976 590,474 (3) 17.0%
Director Whose Term Expires in 1999
Chad D. Quist (a)(b) 36 1997 -- *
Director Whose Term Expires in 2000
James A. Knister (a)(b) 60 1992 2,000 *
</TABLE>
*Denotes ownership of less than one percent.
(a) Member Audit Committee
(b) Member Compensation Committee
NOTES
(1) Includes (i) 6,700 shares held by Mr. Edman and (ii) options to purchase
17,273 shares of Common Stock exercisable within 60 days.
(2) Includes (i) 367,571 shares held by Mr. Chapin, (ii) 170,714 shares held by
the John Chapin Family Trust, of which Mr. Chapin is the Trustee, and (iii)
options to purchase 30,056 shares of Common Stock exercisable within 60
days.
(3) Includes (i) 559,418 shares held by Mr. Van Alsburg, (ii) 1,000 shares held
by Mr. Van Alsburg's spouse, and (iii) options to purchase 30,056 shares of
Common Stock exercisable within 60 days.
5
<PAGE>
Richard P. Beck has been a director of the Company since May 1998. Since
1992, Mr. Beck has served as Chief Financial Officer of Advanced Energy
Industries, Inc., a manufacturer of power conversion and control systems. Since
1995, Mr. Beck has also served as a director of Advanced Energy Industries, Inc.
From 1987 to 1992, Mr. Beck served as Executive Vice President and Chief
Financial Officer of Cimage Corporation, a computer software company. Mr. Beck
obtained a bachelor's of science degree in accounting and a masters degree in
business administration in finance from Babson College.
Jeffrey K. Fergason has been a director of the Company since 1997. Mr.
Fergason has served as President of i-o Display Systems LLC, an electronics
company since August 1997. Mr. Fergason also has served as President of Ilixco,
Inc., a company which integrates liquid crystal displays, electronics and
advanced optical systems, since October 1996. From 1990 to 1996, Mr. Fergason
served as President of OSD Envizion, Inc., an electronic welding safety products
company. Mr. Fergason obtained a bachelors of business administration degree
from Kent State University and a masters degree in business administration from
Pace University.
Thomas T. Edman has been employed by the Company since June 1996 and has
served as its President and Chief Executive Officer since May 1998. From June
1996 until May 1998, Mr. Edman served as Chief Operating Officer and Executive
Vice President. Mr. Edman has also served as a director of Applied Films
Corporation from July 1998 to the present. From 1993 until joining the Company,
he served as General Manager of the High Performance Materials Division of
Marubeni Specialty Chemicals, Inc., a subsidiary of a major Japanese trading
corporation. Mr. Edman obtained a bachelors of arts in East Asian studies
(Japan) from Yale and, in June 1993, a masters degree in business in
multinational management and marketing from The Wharton School at the University
of Pennsylvania.
Cecil Van Alsburg co-founded Applied Films Lab, Inc. in 1976 and served as
President and Chief Executive Officer from 1976 to May 1998. Mr. Van Alsburg has
also served as a director of Applied Films Corporation since its inception and
has been Chairman of the Board since January 1998. Prior to 1976, Mr. Van
Alsburg was employed in various capacities by Donnelly Corporation for which he
had worked since 1957. Mr. Van Alsburg majored in civil engineering and
architecture at the University of Michigan.
John S. Chapin co-founded Applied Films Lab, Inc. in 1976 and has
continuously served as Vice President - Research and a director of Applied Films
Corporation since its inception. Mr. Chapin is the inventor of the planar
magnetron and co-inventor of a reactive sputtering process control. Mr. Chapin
obtained a bachelors of science degree in geophysics from the Colorado School of
Mines and a masters degree in electrical engineering from the University of
Colorado.
Chad D. Quist has been a director of the Company since April 1997. Mr.
Quist is the President of Information Products, Inc., a wholly-owned subsidiary
of Donnelly Corporation, and has been employed by Donnelly since 1995.
Information Products, Inc. is a leading supplier of glass components for the
touch screen industry. From 1989 to 1995, Mr. Quist served as Vice President of
Fisher-Rosemont, Inc., an industrial instrumentation company. Mr. Quist obtained
a bachelors degree in engineering from Stanford University and a masters degree
in business administration from the Kellogg Graduate School of Business at
Northwestern.
James A. Knister has been a director of the Company since 1992 and served
as the Company's non-employee Chairman from 1996 until January 1998. Mr. Knister
has been the Group Managing Director of Ventures at Donnelly Corporation since
January 1997. From 1967 until December 1996, Mr. Knister served in various
capacities at Donnelly Corporation including, from 1981 to 1994, as Senior Vice
President and Chief Financial Officer and, from 1994 until December 1996, as a
Senior Vice President. Mr. Knister also serves on the Board of Directors of
X-Rite, Incorporated. Mr. Knister obtained a bachelors of science degree in
industrial engineering and a masters degree in business administra tion from the
University of Michigan.
6
<PAGE>
The Board of Directors, which had six meetings in the last fiscal year, has
two standing committees: the Audit Committee and the Compensation Committee. The
responsibilities of the Audit Committee, which met once during the last fiscal
year, include making recommendations on the choice of independent public
accountants, approving the scope of the audit and the audit fee, reviewing
financial statements and meeting with such accountants, internal auditors and
management. The Compensation Committee's responsibilities include making
recommendations to the Board with respect to executive compensation, including
salaries and bonuses, and administering the Company's stock option plans and
Employee Stock Purchase Plan. The Compensation Committee met once during the
last fiscal year. The Company has no nominating committee. All directors
attended at least three-fourths of the aggregate number of meetings of the Board
and Board committees which they were eligible to attend.
COMPENSATION OF DIRECTORS
Directors who are not officers or employees of, or consultants to the
Company, are paid an annual fee of $10,000 and $800 per Board meeting or
Committee meeting attended. Such directors are reimbursed for their expenses for
each meeting attended. Directors who are employees of the Company are not
compensated for their service on the Board.
COMPENSATION OF EXECUTIVE OFFICERS
Committee Report on Executive Compensation
The Compensation Committee of the Board of Directors (the "Committee"),
comprised in fiscal 1998 of Jeffrey K. Fergason, James A. Knister and Chad D.
Quist, is responsible for the establishment of the level and manner of
compensation of the Company's executive officers ("Executive Officers"). The
Committee adheres to the compensation policies and practices of the Company
utilized in establishing the compensation of all employees. This is reflective
of the Company's long-time commitment to the participative management process
and the resulting emphasis on the collective efforts and achievements of all
employees of the Company.
Compensation Philosophy. The Company's and the Committee's approach to
compensation is to further the Company's goal of empowering its employees,
working individually and as a team, to achieve personal and collective goals.
The Company's compensation policies are intended to reward the achievement of
annual and long-term goals, both personal and corporate, as well as to encourage
future excellent performance. Annual compensation, to date, has not been tied to
Company performance.
Compensation Policies and Programs. For fiscal year 1998, the Company's
compensation programs consisted of cash compensation and stock options. Each
year the Company utilizes external wage surveys to determine the total
compensation levels of employees performing roles with organizations of similar
size and like function. These pay ranges are then used to establish a base
compensation. CEO compensation is arrived at using the same methodology as for
other senior employees.
The Company believes stock options and stock ownership contribute to the
aligning of employee's interests with those of shareholders. The Company's Stock
Option Plan encourages stock ownership by employees by authorizing the grant of
stock options to certain employees of the Company. In determining the size of
individual option grants, the Committee evaluates each employee's job
responsibilities, competitive market practices, as well as the anticipated
potential that individual has in contributing to the success of the Company. No
stock options were awarded in fiscal 1998 to the Named Executives. See
"Compensation of Executive Officers -- Executive Compensation." The Company also
encourages stock ownership through participation in the Company's Employees'
Stock Purchase Plan. This plan, available to most employees of the Company,
permits employees to purchase shares of the Company's common stock at a discount
(up to 15%) from the market price of such shares.
The Committee will review the limitations on the deductibility for certain
compensation paid to Executive Officers whose annual compensation exceeds
$1,000,000 as imposed by ss. 162(m) of the Internal Revenue Code. To date, no
officer has exceeded that level.
7
<PAGE>
Compensation Committee
of the Board of Directors of
Applied Films Corporation
Jeffrey K. Fergason
James A. Knister
Chad D. Quist
Executive Compensation
The following table sets forth the annual and long-term compensation paid
by the Company to its Chief Executive Officer and each of the Company's four
most highly compensated executive officers (collectively referred to as the
"Named Executives") for services rendered to the Company during fiscal 1998,
1997 and 1996.
<TABLE>
SUMMARY COMPENSATION TABLE
Long Term
Annual Compensation Compensation
Other
Annual Securities All Other
Fiscal Compen- Underlying Compen-
Name and Principal Position Year Salary sation ($) Options(#) sation(1)
- --------------------------- ---- ------ ---------- ---------- ---------
<S> <C> <C> <C> <C> <C>
Cecil Van Alsburg........................ 1998 $189,427 -- -- $3,867
Chairman of the Board 1997 $174,658 -- -- -
1996 $166,310 -- -- -
Thomas T. Edman.......................... 1998 $141,114 -- -- $2,955
President, Chief Executive 1997 $120,197 -- 34,545 -
Officer 1996(2) $ 9,242 -- -- -
C. Richard Condon........................ 1998 $116,292 -- -- $2,247
Vice President - Engineering 1997 $109,157 -- -- -
1996 $108,050 -- -- -
Mark Auble(3)............................ 1998 $126,843 -- -- $2,360
Vice President - Operations - 1997 $114,635 -- -- -
Thin Film Coatings 1996 $113,075 -- -- -
Graeme Hennessey......................... 1998 $137,297 -- -- $2,829
Vice President - Sales and 1997 $126,384 -- -- -
Marketing 1996 $125,589 -- -- -
</TABLE>
(1) Represents Company matches under the Company's salary savings plan. See
"Compensation of Executive Officers -- Executive Compensation --
Benefits."
(2) Mr. Edman joined the Company in June 1996.
(3) Mr. Auble resigned from the Company effective September 4, 1998.
8
<PAGE>
Option Grants in Last Fiscal Year. No grants of stock options were made to
the Named Executives pursuant to the Company's stock option plans (the "Option
Plans") during the 1998 fiscal year. Under the Option Plans, key employees and
certain non-employee directors may be granted options to purchase the Company's
Common Stock. An aggregate of 449,000 shares of Common Stock were reserved for
issuance pursuant to the Option Plans.
Fiscal Year-End Options Values. Shown below is information with respect to
unexercised options to purchase shares of the Company's Common Stock granted
under the Option Plans to the Named Executives and held by them at June 27,
1998. None of the Named Executives exercised any stock options during fiscal
1998.
<TABLE>
Number of Shares Subject to Value of Unexercised
Unexercised Options Held In-the-Money Options at
at June 27, 1998 June 27, 1998(1)
------------------ -----------------
Name Exercisable Unexercisable Exercisable Unexercisable
- ------------------------------------------ ---------------- ------------------- ---------------- -------------------
<S> <C> <C> <C> <C>
Cecil Van Alsburg......................... 30,056 4,489 $78,909 $9,392
Thomas T. Edman........................... 17,273 17,273 $2,073 $2,073
C. Richard Condon......................... 30,056 4,489 $78,909 $9,382
Mark Auble................................ 28,397 6,148 $69,006 $12,849
Graeme Hennessey.......................... 31,715 2,830 $81,813 $5,914
- ------------------------------------------ ---------------- ------------------- ---------------- -------------------
</TABLE>
(1) The value of unexercised options reflects the increase in market value
of the Company's Common Stock from the date of grant through June 27,
1998 (when the closing price of the Company's Common Stock was $5.38
per share). Value actually realized upon exercise by the Named
Executives will depend on the value of the Company's Common Stock at
the time of exercise.
Benefits. The Company provides group health and life insurance benefits and
supplemental unemployment benefits to its regular employees, including executive
officers. The Company also maintains a salary savings plan in which all regular
employees of the Company are eligible to participate. The Company matches 100%
of the first 2% of an employee's contribution and 25% of a subsequent 4% of an
employee's contribution.
Security Ownership of Management. The following table shows, as of June 27,
1998, the number of shares beneficially owned by each of the Named Executives
identified in the executive compensation tables of this proxy statement and by
all Directors and Executive Officers as a group. Except as described in the
notes following the table, the following persons have sole voting and
dispositive power as to all of their respective shares.
9
<PAGE>
<TABLE>
Amount and Nature of Percent of
Name Beneficial Ownership Common Stock
- ------------------------------------------------------------------ --------------------------- ---------------------
<S> <C> <C>
Cecil Van Alsburg................................................. 590,474 (1) 17.0%
Thomas T. Edman................................................... 23,973 (2) *
C. Richard Condon................................................. 161,240 (3) *
Mark Auble........................................................ 28,397 (4) *
Graeme Hennessey.................................................. 31,715 (5) *
All Executive Officers and Directors as a Group (12 persons) 1,463,075 42.1%
- ------------------------------------------------------------------ --------------------------- ---------------------
</TABLE>
* Denotes ownership of less than one percent.
(1) Includes (i) 559,418 shares held by Mr. Van Alsburg, (ii) 1,000 shares held
by Mr. Van Alsburg's spouse, and (iii) options to purchase 30,056 shares of
Common Stock exercisable within 60 days.
(2) Includes (i) 6,700 shares held by Mr. Edman and (ii) options to purchase
17,273 shares of Common Stock exercisable within 60 days.
(3) Includes (i) 131,184 shares held by Mr. Condon and (ii) options to purchase
30,056 shares of Common Stock exercisable within 60 days.
(4) Comprised of options to purchase 28,397 shares of Common Stock exercisable
within 60 days.
(5) Comprised of options to purchase 31,715 shares of Common Stock exercisable
within 60 days.
Section 16(a) Beneficial Ownership Reporting Compliance. The Company notes
that two officers, inadvertently, had untimely reports filed on their behalf on
transactions in Applied Films Corporation Common Stock during, or with respect
to, 1998 as follows: Thomas Edman regarding one transaction and Thomas D.
Schmidt regarding one transaction. Both transactions were reported in the next
month following the month in which they should have been reported.
SHAREHOLDER RETURN PERFORMANCE GRAPH
The following line graph compares the cumulative total shareholder return
on the Company's Common Stock with the cumulative total return of the NASDAQ
Stock Market (U.S.) and the cumulative total return of an industry peer group
(the "Peer Group") for the period commencing November 21, 1997, the effective
date of the Company's initial public offering, and ending June 27, 1998. The
Peer Group consists of Southwall Technologies, Inc., Intevac, Inc., and
Three-Five Systems, Inc. The graph assumes the investment of $100 on November
21, 1997 in the Company's Common Stock, the NASDAQ Stock Market (U.S.) and the
Peer Group Index with dividends reinvested.
10
<PAGE>
<TABLE>
Cumulative Total Return
-----------------------------------------------------------------------------------------------------------
11/21/97 11/97 12/97 1/98 2/98 3/98 4/98 5/98 6/98
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
APPLIED FILMS
CORPORATION 100.00 97.06 100.00 113.24 110.29 108.82 85.29 88.24 63.24
PEER GROUP 100.00 98.73 88.00 91.36 97.48 86.87 94.36 85.07 84.02
NASDAQ STOCK
MARKET (U.S.) 100.00 98.93 97.35 100.40 109.83 113.88 115.81 109.46 117.16
</TABLE>
11
<PAGE>
CERTAIN TRANSACTIONS
During fiscal 1993, the Company acquired a 25% general partner interest in
a partnership (the "Partnership") from an unrelated party; the remaining 75%
general partner interest in the Partnership was owned equally by Messrs. Van
Alsburg, Condon and Chapin. The Partnership owned and leased certain Boulder,
Colorado office and manufacturing facilities (the "Boulder Facility") to the
Company under a non-cancelable lease which was to expire on April 30, 2000 (the
"Lease"). In June 1998, the Partnership sold the Boulder Facility to an
unrelated party. The Company and the Partnership terminated the Lease and the
Company entered into a new lease with the unrelated party. Under the Lease, the
Company paid the Partnership monthly rent and paid property taxes and insurance
costs. The Company paid rent of approximately $241,000 under the Lease during
each of fiscal years 1996 and 1997, and $248,000 in fiscal 1998. The Company
believes that the occupancy costs paid to the Partnership by the Company under
the Lease were no higher than those which would have been charged by an
unrelated third party under similar circumstances.
In connection with its purchase of the Boulder Facility, the partnership
borrowed $1,320,000 pursuant to the terms of a partnership borrowing agreement
(the "Partnership Borrowing Agreement"). The Partnership Borrowing Agreement, as
amended, was paid in full in June 1998 upon the sale of the Boulder Facility.
In fiscal 1995, the Partnership acquired 14,993 shares of the Company's
Common Stock. Accordingly, the Company reduced its investment for its 25% share
of the Partnership's investment in the Company. In connection with the sale of
the Boulder Facility, the Partnership was dissolved and liquidated. As a result,
the Company received 25% of the shares of Common Stock owned by the Partnership.
As of June 30, 1998, these shares constitute authorized but unissued shares of
the Company.
The Company accrued charges of $250,000 and $103,000 for fiscal years 1997
and 1998, respectively, which were ultimately paid to Donnelly Corporation, a
significant shareholder of the Company prior to the Company's public offering,
to guarantee $5.0 million of the Company's line of credit. Following completion
of the Company's initial public offering, the Donnelly guaranty was released and
the borrowing terms of the Company's line of credit were renegotiated.
RELATIONS WITH INDEPENDENT PUBLIC ACCOUNTANTS
The combined consolidated financial statements of the Company have been
examined by Arthur Andersen LLP, independent certified public accountants. A
representative of Arthur Andersen LLP is expected to be present at the annual
meeting with the opportunity to make a statement, if desired, and will be
available to respond to appropriate questions. It is anticipated that the
Company's Audit Committee will select the Company's auditors before the end of
this calendar year.
SHAREHOLDER PROPOSALS--1999 ANNUAL MEETING
Any proposal of a shareholder intended to be presented for action at the
1999 annual meeting of the Company must be received by the Company at 9586 I-25
Frontage Road, Longmont, Colorado 80504, not later than May 20, 1999, if the
shareholder wishes the proposal to be included in the Company's proxy materials
for that meeting.
AVAILABILITY OF 10-K ANNUAL REPORT
An annual report on Form 10-K to the Securities and Exchange Commission for
the year ended June 27, 1998 containing certified financial statements has been
mailed to the shareholders with these materials and also will be provided free
to shareholders upon written request. Write Applied Films Corporation,
Attention: Thomas D. Schmidt, 9586 I-25 Frontage Road, Longmont, Colorado 80504.
12
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MISCELLANEOUS
The management is not aware of any other matter to be presented for action
at the meeting. However, if any such other matter is properly presented for
action, it is the intention of the persons named in the accompanying forms of
proxy to vote thereon in accordance with their best judgment.
The cost of soliciting proxies in the accompanying forms will be borne by
the Company. In addition to solicitation by mail, proxies may be solicited in
person, or by telephone or telegraph, by some regular employees of the Company.
The above Notice and Proxy Statement are sent by order of the Board of
Directors.
September 17, 1998. /s/ Cecil Van Alsburg
Cecil Van Alsburg
CHAIRMAN OF THE BOARD
13
<PAGE>
- --------------------------------------------------------------------------------
An annual report to shareholders for the year ended June 27, 1998
containing certified financial statements is being mailed to the shareholders
with these materials.
- --------------------------------------------------------------------------------
::ODMA\PCDOCS\GRR\185761\6
14
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PROXY
APPLIED FILMS CORPORATION
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoint(s) Cecil Van Alsburg and Thomas T. Edman as
Proxies, each with the power to appoint a substitute, and hereby authorizes them
to represent and to vote, as designated herein, all of the shares of common
stock of Applied Films Corporation held of record by the undersigned on
September 4, 1998, at the Annual Meeting of Shareholders to be held on October
27, 1998, or at adjournment thereof.
When properly executed, this proxy will be voted in the manner directed by
the undersigned shareholder(s). IF NO DIRECTION IS MADE, THIS PROXY WILL BE
VOTED "FOR" THE ELECTION OF THE LISTED NOMINEES.
1. Election of Directors for terms expiring in 1999:
Nominees:
Richard P. Beck
Jeffrey K. Fergason
FOR WITHHELD
[ ] [ ]
For, except votes withheld from the following nominee:
2. Election of Director for a term expiring in 2000:
Nominee:
Thomas T. Edman
FOR WITHHELD
[ ] [ ]
3. Election of Directors for terms expiring in 2001:
Nominees:
Cecil Van Alsburg
John S. Chapin
FOR AGAINST
[ ] [ ]
For, except votes withheld from the following nominee:
4. In their discretion, the Proxies are authorized to act upon such other
business as may properly come before the meeting
I plan to attend the meeting.
YES NO
[ ] [ ]
SIGNATURE(S) Date:
NOTE: Please sign your name as it appears hereon. When shares are held
jointly, each holder should sign. When signing for an estate, trust or
corporation, the title and capacity should be stated. Persons signing
as attorneys-in-fact should submit powers of attorney.
