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 26, 1999
[GRAPHIC OMITTED]
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
26, 1999 at 9:00 A.M., local time, for the following purposes:
1. To elect three (3) directors, one (1) for a term of one year, and two
(2) for terms of three years.
2. To consider and vote upon a proposal to approve the Second Amendment to
the Applied Films Corporation 1997 Stock Option Plan.
3. 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 23, 1999, 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 24, 1999
Longmont, Colorado
John S. Chapin, Secretary
<PAGE>
Dated September 24, 1999
APPLIED FILMS CORPORATION
9586 I-25 FRONTAGE ROAD
LONGMONT, COLORADO 80504
------------------
PROXY STATEMENT
For the Annual Meeting of Shareholders
to be held October 26, 1999
------------------
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 26, 1999, at 9:00
A.M., local time.
The Annual Meeting is being held for the following purposes:
1. To elect three (3) directors, one (1) for a term of one year, and two
(2) for terms of three years.
2. To consider and vote upon a proposal to approve the Second Amendment to
the Applied Films Corporation 1997 Stock Option Plan.
3. 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 23, 1999, the record date for determination of shareholders
entitled to vote at the Annual Meeting, there were outstanding 3,493,398 total
shares of Common Stock. 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, 1999, information
concerning persons known to management who may be deemed to be beneficial owners
of more than 5% of the Company's common stock.
Name and Address of Amount and Nature of Percent of
Beneficial Owner Beneficial Ownership Common Stock
------------------- -------------------- ------------
Cecil Van Alsburg 594,963 (1) 16%
9586 I-25 Frontage Road
Longmont, Colorado 80504
John S. Chapin 572,830 (2) 15%
9586 I-25 Frontage Road
Longmont, Colorado 80504
Gentex Corporation 369,000 (3) 10%
600 N. Centennial Street
Zeeland, Michigan 49464
Benson Associates LLC 338,700 (4) 9%
111 SW 5th, Suite 2130
Portland, Oregon 97204
Harlan J. Byker 217,000 (5) 6%
1210 Birdie Lane
Holland, MI 49423
C. Richard Condon 165,729 (6) 5%
9586 I-25 Frontage Road
Longmont, Colorado 80504
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 34,545
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 34,545 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 February 12, 1999, and delivered to the
Company, Benson Associates LLC ("Benson") disclosed on behalf of its
investment advisory clients that it had acquired beneficial ownership
of 354,000 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 sold subsequently its beneficial
ownership of an additional 15,300 shares of Common Stock, for a total
beneficial ownership of 338,700 shares of Common Stock.
(5) In a Schedule 13D, dated March 18, 1999, and delivered to the Company,
Mr. Harlan J. Byker disclosed on his behalf that he had acquired
beneficial ownership of 217,000 shares of Common Stock. Mr. Byker has
sole power to dispose of and vote all such shares.
(6) Includes (i) 131,184 shares held by Mr. Condon and (ii) options to
purchase 34,545 shares of Common Stock exercisable within 60 days.
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. Following the
resignation of Mr. Jeffrey Fergason on July 28, 1999, the Board is currently
composed of six (6) members. Three (3) 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:
Annual Shareholder
Meeting at Which Term
Person Will Expire
------ ---------------------
Vincent Sollitto, Jr. 2000
Richard P. Beck 2002
Chad D. Quist 2002
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 two 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, 1999, 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
------------------------------------ ----- ------------- ---------------------- -----------
<S> <C> <C> <C> <C>
Nominee for Election as Director for Term
Expiring in 2000
Vincent Sollitto, Jr. 51 1999 -- *
Nominees for Election as Directors for Terms
Expiring in 2002
Richard P. Beck (a)(b) 66 1998 -- *
Chad D. Quist (a)(b) 37 1997 -- *
Directors Whose Terms Expire in 2001
John S. Chapin 58 1976 572,830 (1) 15%
Cecil Van Alsburg 62 1976 594,963 (2) 16%
Directors Whose Terms Expire in 2000
James A. Knister (a)(b)(c) 61 1992 2,000 *
Thomas T. Edman 37 1998 32,608 (3) *
</TABLE>
*Denotes ownership of less than one percent.
(a) Member Audit Committee
(b) Member Compensation Committee
(c) Mr. Knister has resigned his position as a director of the Company
effective October 26, 1999.
NOTES
(1) 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 34,545 shares of Common Stock
exercisable within 60 days.
(2) 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 34,545
shares of Common Stock exercisable within 60 days.
(3) Includes (i) 6,700 shares held by Mr. Edman and (ii) options to
purchase 25,908 shares of Common Stock exercisable within 60 days.
5
<PAGE>
Vincent Sollitto, Jr. has been nominated as a director of the Company for a
term beginning October 1999. Mr Sollitto has been the Chief Executive Officer
since June 1996 and a member of the Board of Directors since July 1996 at Photon
Dynamics, Inc. From August 1993 to 1996, Mr. Sollitto was the General Manager of
Business Unit Operations for Fujitsu Microelectronics, Inc. From April 1991 to
August 1993, he was the Executive Vice President of Technical Operations at
Supercomputer Systems, Incorporated. Mr. Sollitto spent 21 years in various
positions, including Director of Technology and Process at International
Business Machines Corporation, before joining Supercomputer Systems,
Incorporated. Mr. Sollitto serves as a director of Irvine Sensors Corp. Mr.
Sollitto is a graduate of Tufts College where he received a B.S.E.E. in 1970.
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 bachelors of science degree in accounting and a masters degree in
business administration in finance from Babson College.
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 University.
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.
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.
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 administration from the
University of Michigan.
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 a masters degree in business administration from The
Wharton School at the University of Pennsylvania.
The Board of Directors, which had four meetings in the last fiscal year,
has two standing committees: the Audit Committee and the Compensation Committee.
If Mr. Sollitto is approved as a director, it is expected that he will be
appointed to serve on the Compensation Committee, as well as the Audit
Committee. The responsibilities of the Audit Committee, which met twice 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
6
<PAGE>
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 1999 of Jeffrey K. Fergason, James A. Knister and Chad D.
Quist, and currently comprised of Chad D. Quist, Richard P. Beck, and James A.
Knister, 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 1999, 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. One
stock option was awarded in fiscal 1999 to Mr. Edman for 15,000 shares. 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
$1,000,000 as imposed by ss. 162(m) of the Internal Revenue Code. To date, no
officer has exceeded that level.
7
<PAGE>
Compensation Committee
of the Board of Directors of
Applied Films Corporation
James A. Knister
Richard P. Beck
Chad D. Quist
Executive Compensation
The following table sets forth the annual and long-term compensation paid
by the Company to its Chief Executive Officer and each of the Company's four
most highly compensated executive officers (collectively referred to as the
"Named Executives") for services rendered to the Company during fiscal 1999,
1998 and 1997.
SUMMARY COMPENSATION TABLE
<TABLE>
Long Term
Annual Compensation Compensation
--------------------------------- --------------
<S> <C> <C> <C> <C> <C>
Other
Annual Securities All Other
Fiscal Compen- Underlying Compen-
Name and Principal Position Year Salary sation ($) Options(#) sation(1)
- --------------------------- ---- ------ ---------- ---------- ---------
Cecil Van Alsburg (2).................... 1999 $110,628 - - $3,122
Chairman of the Board 1998 $189,427 -- - $3,867
1997 $174,658 -- -- --
Thomas T. Edman.......................... 1999 $136,310 - 15,000 $3,371
President, Chief Executive 1998 $141,114 - - $2,955
Officer 1997 $120,197 - 34,545 --
C. Richard Condon........................ 1999 $112,142 -- - $2,774
Vice President - Engineering 1998 $116,292 -- - $2,247
1997 $109,157 -- - --
Roger Smith (3).......................... 1999 $112,142 -- - $3,047
Director of Materials 1998 $118,492 -- - $2,360
1997 $109,174 -- - --
Graeme Hennessey......................... 1999 $129,818 -- - $3,211
Vice President - Sales and 1998 $137,297 - - $2,829
Marketing 1997 $126,384 - - --
</TABLE>
(1) Represents Company matches under the Company's salary savings plan. See
"Compensation of Executive Officers -- Executive Compensation --
Benefits."
(2) Mr. Van Alsburg retired from participating in the daily operations of the
Company effective July 2, 1999 and will not be part of the compensation
pool going forward.
(3) Mr. Smith assumed the Director of Accounting duties in May 1999 following
the departure of Mr. Thomas D. Schmidt, Chief Financial Officer.
8
<PAGE>
Option Grants in Last 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. Shown below is information
on grants of stock options during the 1999 fiscal year to Named Executives.
<TABLE>
<S> <C> <C> <C> <C> <C>
Potential Realizable
Value at Assumed
Number of % of Total Annual Rates of
Shares Options Stock Price
Underlying Granted to Appreciation for
Options Employees in Exercise Expiration Option Term (3)
Name Granted (1) Fiscal Year Price $/Sh Date 5% 10%
- -------------------------------------------------------------------------------------------------------------------------------
Thomas T. Edman................ 15,000 100% $2.75 4/27/09 $26,689 $70,415
- -------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Options become exercisable one year after date of grant.
(2) The exercise price is equal to or greater than the fair market value of
the shares on the date the option is granted. The exercise price may be
paid in cash.
(3) These amounts are based on assumed rates of appreciation only. Actual
gains, if any, on stock option exercises will be dependent on overall
market conditions and on the future performance of the Company's Common
Stock. There can be no assurance that the amounts reflected in this
table will be realized.
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 July 3, 1999.
None of the Named Executives exercised any stock options during fiscal 1999.
<TABLE>
Number of Shares Subject to Value of Unexercised
Unexercised Options Held In-the-Money Options at
at July 3, 1999 July 3, 1999(1)
----------------- ----------------
<S> <C> <C> <C> <C>
Name Exercisable Unexercisable Exercisable Unexercisable
- ---------------------------------------------------------------------------------------------------------------------------
Cecil Van Alsburg......................... 34,545 0 $13,355 $0
Thomas T. Edman........................... 17,273 32,273 $0 $5,625
C. Richard Condon......................... 34,545 0 $13,355 $0
Roger Smith............................... 34,545 0 $13,355 $0
Graeme Hennessey.......................... 34,545 0 $18,697 $0
- ---------------------------------------------------------------------------------------------------------------------------
</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 July 3,
1999 (when the closing price of the Company's Common Stock was $3.125
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 July 3,
1999, 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>
<S> <C> <C>
Name Amount and Nature of Percent of
Beneficial Ownership Common Stock
- -------------------------------------------------------------------------------------------------------------------
Cecil Van Alsburg................................................. 594,963 (1) 16.0%
Thomas T. Edman................................................... 23,973 (2) *
C. Richard Condon................................................. 165,729 (3) 4.5%
Roger Smith....................................................... 34,545 (4) *
Graeme Hennessey.................................................. 34,545 (4) *
All Executive Officers and Directors as a Group (12 persons) 1,457,924 39.3%
- -------------------------------------------------------------------------------------------------------------------
</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 34,545
shares of Common Stock that are fully vested and 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 34,545 shares of Common Stock that are fully vested and
exercisable within 60 days.
(4) Comprised of options to purchase 34,545 shares of Common Stock that are
fully vested and exercisable.
10
<PAGE>
APPROVAL OF THE SECOND AMENDMENT TO THE
APPLIED FILMS CORPORATION
1997 STOCK OPTION PLAN
On September 21, 1999, the Board of Directors adopted the Second Amendment
(the "Amendment") to the Applied Films Corporation 1997 Stock Option Plan (the
"Plan"), subject to approval by the Company's shareholders. The following
summary of the Plan is subject to the specific provisions contained in the
complete text of the Plan and in the Amendment set forth in Appendix A to this
Proxy Statement.
General
The Plan currently provides for the granting of options to key employees of
the Company and its subsidiaries to purchase, in the aggregate, not more than
172,500 shares of Common Stock of the Company. The Plan was adopted by the Board
of Directors of the Company on April 29, 1997, and was approved by its
shareholders on April 29, 1997. The First Amendment to the Plan was adopted by
the Board of Directors of the Company on September 10, 1997, and was approved by
its shareholders on September 19, 1997.
Amendment
The Amendment increases the maximum number of shares available under the
Plan from 172,500 to 272,500 shares of common stock.
Purpose
The purpose of the Plan is to encourage stock ownership by certain key
employees of the Company and to provide them with an additional incentive to
contribute to the success of the Company.
Administration of the Plan
The Plan is administered by the Compensation Committee appointed by the
Company's Board of Directors (the "Committee"), which currently consists of
three Directors who are not officers or employees of the Company. The Board of
Directors may remove members from or add members to the committee and will fill
any vacancies on the Committee. The Committee is authorized to determine, within
the group of eligible persons, those persons who are to receive options, the
number of shares subject to each option, the option term (subject to certain
limitations) and such other matters as are specified in the Plan.
Eligibility
Key employees of the Company are eligible to participate in the Plan. The
Committee is authorized to determine, within the group of eligible persons,
those persons who are to receive options. In making selections, the Committee
may consider the recommendations of the Company's chief executive officer, the
nature of the services rendered by the respective employees, their present and
potential contributions to the Company's success and the success of the
particular subsidiary or division of the Company by which they are employed and
such other factors as the Committee shall deem relevant. An optionee may hold
more than one option, but only on the terms and subject to the restrictions set
forth in the Plan or any agreement executed pursuant to the Plan. No person,
while a member of the Committee, shall be eligible to receive an option under
the Plan.
Securities Subject to Option Grants
If the Amendment is approved, the Plan will provide that a maximum of
272,500 shares of the Company's Common Stock are authorized for sale pursuant to
options granted under the Plan. Upon the expiration or termination of options
without exercise, the shares covered by those options may be the subject of
other options granted under the Plan. The Plan provides for appropriate
adjustments in the number of shares and option prices in the event of any stock
dividends, reclassification of shares or recapitalization to prevent dilution of
the interests of the optionees.
11
<PAGE>
Term of Plan and Amendments
The Plan automatically terminates on April 29, 2007, unless terminated
earlier by the Board of Directors. The Board of Directors may amend the Plan at
any time, except that no amendment may, without shareholder approval: (i)
increase the maximum number of shares which may be subject to the Plan; (ii)
increase the maximum number of shares which may be optioned to any one employee;
(iii) change the designation of the class of employees eligible to received
options; (iv) materially increase the benefits accruing to the option holders
under the Plan; (v) decrease the price at which options may be granted; (vi)
remove the administration of the Plan from the Committee; (vii) render any
member of the Committee eligible to receive an option under the Plan while
serving on the Committee; or (viii) permit the grant of options under the Plan
after the Plan terminates.
Transferability of Options
Options may not be transferred except by will or the laws of descent and
distribution upon an optionee's death. During the lifetime of an optionee,
options may be exercised only by the optionee. The Company may impose such
restrictions on shares acquired pursuant to the exercise of an option as it
deems advisable, including, without limitation, restrictions under federal and
state securities laws.
Merger or Consolidation
The Plan provides that if the Company is the surviving corporation in any
merger or consolidation, or if the Company is merged into a wholly owned
subsidiary solely for purposes of changing the Company's state of incorporation,
each outstanding option will pertain to the securities to which a holder of the
number of shares of stock subject to the option would have been entitled. The
Plan provides also that upon a sale of all or substantially all of the Company's
assets or the dissolution or liquidation of the Company or in the event of a
merger or consolidation in which the Company is not the surviving corporation,
outstanding options under the Plan will terminate. However, optionees will have
the right, immediately prior to such sale of assets, dissolution or liquidation,
or merger or consolidation in which the Company is not the surviving
corporation, to exercise any unexercised options, in whole or in part.
The Grant of Stock Options
All options granted under the Plan are incentive stock options ("ISOs") as
defined in Section 422 of the Internal Revenue Code of 1986, as amended (the
"Code"). The primary characteristics of ISOs are set forth below under the
caption "Federal Tax Consequences." Each option is evidenced by a written
agreement containing such terms and conditions as may be established by the
Committee. Nothing contained in the Plan or any agreement executed pursuant to
the Plan will confer upon any participant the right to continue in the employ of
the Company or obligates the Company to retain the participant in its employ for
any period.
Each option agreement will state the per share purchase price at which a
share of Common Stock may be purchased. The exercise price for each option is
required to equal the fair market value of the shares on the date of grant,
unless the optionee owns shares representing more than 10% of the total voting
power at the time of grant, in which case the option price is required to equal
110% of the fair market value of the shares on the date of grant. Fair market
value is equal to the closing sale price as reported on the National Association
of Securities Dealers Automated Quotation System ("NASDAQ") or, if no sale of
shares are reported on the date of grant, on the next preceding date on which
there was a sale reported by NASDAQ. The option price for each share purchased
pursuant to the exercise of an option is payable in full upon delivery to the
optionee of certificates for such shares, and is payable in United States
dollars in cash or by check bank draft or money order payable to the order of
the Company.
When Options May Be Exercised
The term of each option granted under the Plan is determined by the
Committee and may not be more than ten years from the date of grant. An option
may not be exercised with respect to less than 100 shares, unless the remaining
shares covered by an option are fewer than 100 shares. Options may be exercised
in any order regardless of the date of grant or the existence of any other
outstanding stock option.
Each option holder will receive, annually, a report setting forth: (i) the
number of options held by the option holder, (ii) the grant dates, (iii) the
vesting dates, (iv) the exercise prices, (v) the expiration dates, and (vi) with
respect to options exercised, the number of shares purchased and the purchase
date.
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Termination of Employment; Retirement; Disability; Death
If an optionee's employment with the Company terminates for a reason other
than death, disability or retirement, his or her options are exercisable at any
time prior to the expiration date of the option, or within thirty days after the
date of termination of employment, whichever period is shorter. An option may be
exercised only to the extent the option is exercisable at the date of
termination of employment. Further, options are void immediately upon acceptance
of employment with a competitor or if an employee assists a competitor.
Upon termination of employment due to retirement or on account of death or
physical disability, options are exercisable at any time prior to the expiration
date of the option, or within ninety days after the date of termination of
employment, whichever period is shorter. Options may be exercised only to the
extent such options were exercisable at the date of retirement or disability. If
a retired employee ceases to be retired (as determined by the Company), options
must be exercised within thirty (30) days of the date on which the retired
employee ceases to be retired; provided that if a retired employee accepts
employment with or otherwise aids or assists a competitor of the Company, all
options will be void on the date such employment was accepted or such assistance
was provided.
In the event of an optionee's death during employment, any outstanding
option may thereafter be exercised by the optionee's legal representative or by
any person or persons who shall have acquired the option by bequest or
inheritance at any time prior to the expiration date of the option or within
ninety days after the date of death, whichever period is shorter. An option will
be exercisable only to the extent it was exercisable at the date of death.
Nothing in the Plan or in any option agreement will limit or affect in any
way the right of the Company to terminate an optionee's employment at any time
or be deemed to confer upon any optionee any right to continue in the employment
of the Company.
Federal Tax Consequences
The following paragraphs summarize the federal income tax consequences with
respect to the grant of options and acquisitions and dispositions of shares,
based upon management's understanding of existing federal income tax laws. This
summary is necessarily general in nature and does not purport to be complete.
Also, state and local income tax consequences are not discussed and may vary
from locality to locality.
The grant of options under the Plan will not result in the recognition of
income to recipients. In general, recipients of ISOs do not recognize taxable
income at the time of grant or at the time of exercise. Further, if the shares
acquired as a result of the exercise of an ISO are disposed of more than two
years after the date the option was granted and more than one year after the
date the option was exercised, the entire gain, if any, realized upon
disposition is entitled to capital gain treatment. As a result, no deduction
will be allowable to the Company in connection with either the grant or the
exercise of an ISO, except in the case of a "disqualifying disposition" as
defined in the Plan.
The exercise of an ISO may result in an alternative minimum tax liability.
Optionees who have tax preference items or who suspect that they may be subject
to the alternative minimum tax should consult a tax advisor.
The rules governing the tax treatment of options and stock acquired upon
the exercise of options are quite technical; therefore, the above description of
tax consequences is necessarily general in nature and does not purport to be
complete. In addition, the tax consequences under applicable state or local laws
may not be the same under federal law.
Required Vote for Approval
At the Annual Meeting, the shareholders are being requested to consider and
approve the First Amendment to the Plan, which would increase the number of
shares reserved for issuance under the Plan from 172,500 to 272,500. The
affirmative vote of a majority of the holders of the Company's outstanding
voting stock represented and voted at the Annual Meeting is required to approve
the Plan.
The Board of Directors recommends a vote FOR approval of the Second
Amendment to the Applied Films Corporation 1997 Stock Option Plan.
13
<PAGE>
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 July 3, 1999. 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.
------------------------------------------------------------------------
-----------------------------------------------------------------------
<TABLE>
Applied Films Corp (AFCO) 11/21/97
% Peer Group
Peer Group Cumulative Total Return Weighted Cumulative Total Return Market Cap
--------------------------------------- --------------
<S> <C> <C> <C> <C> <C>
(Weighted Average by Market Value) 11/21/97 6/27/98 7/3/99 7/3/99
Peer Group Weighted Average: 100 84 58 100%
Total Market Cap for the Peer Group 288
Intevac Inc IVAC 100 97 49 41.57%
Southwall Technologies Inc SWTX 100 65 51 13.48%
Three-Five Sys Inc TFS 100 81 68 44.95%
</TABLE>
14
<PAGE>
OTHER APPOINTMENTS
During the July 26, 1999 Board of Directors meeting, Larry Firestone was
named Chief Financial Officer and elected Treasurer of Applied Films.
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--2000 ANNUAL MEETING
Any proposal of a shareholder intended to be presented for action at the
2000 annual meeting of the Company must be received by the Company at 9586 I-25
Frontage Road, Longmont, Colorado 80504, not later than May 18, 2000, 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 July 3, 1999 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: Lawrence D. Firestone, 9586 I-25 Frontage Road, Longmont, Colorado
80504.
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 24, 1999.
Cecil Van Alsburg
CHAIRMAN OF THE BOARD
15
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16
<PAGE>
APPENDIX A
SECOND AMENDMENT TO THE
APPLIED FILMS CORPORATION
1997 STOCK OPTION PLAN
BACKGROUND
1. Effective April 29, 1997, Applied Films Corporation (the "Company")
adopted and approved the Applied Films Corporation 1997 Stock Option Plan (the
"Original Plan").
2. Effective September 19, 1997, the Company adopted and approved the First
Amendment to the Applied Films Corporation 1997 Stock Option Plan (the "First
Amendment", and together with the Original Plan, the "Plan").
3. The Plan provides for the reservation, for purposes of the Plan, of one
hundred seventy-two five hundred (172,500) shares of the Company's common stock,
no par value per share.
4. The Company desires to amend the Plan to provide for an increased number
of shares to be authorized under the Plan.
AGREEMENT
1. The provisions of Section 5 are deleted in their entirety and are
replaced as follows:
Subject to the adjustments as provided in paragraph 6(g), the
aggregate number of shares reserved for purposes of the Plan shall be
Two Hundred Seventy-two Thousand Five Hundred (272,500) shares of the
Company's Common Stock, no par value per share ("Common Stock"). If any
outstanding option under the Plan for any reason expires or is
terminated for any reason before April 29, 2007, the shares allocable
to the unexercised portion of such option may again be subjected to an
option under the Plan.
2. The provisions of Section 6(k) shall be deleted in their entirety and
Section 6(l) shall be renumbered as Section 6(k):
3. Except as otherwise set forth herein, the terms of the Plan are hereby
ratified and shall continue in full force and effect.
17
<PAGE>
Approved by the Board of Directors of the Company on September 21, 1999.
APPLIED FILMS CORPORATION
/s/ John S. Chapin
John S. Chapin, Secretary
Approved by the Shareholders of the Company on October ___, 1999.
APPLIED FILMS CORPORATION
_________________________________
John S. Chapin, Secretary
18
<PAGE>
- --------------------------------------------------------------------------------
An annual report to shareholders for the year ended July 3, 1999 containing
certified financial statements is being mailed to the shareholders with these
materials.
- --------------------------------------------------------------------------------
<PAGE>
PROXY
APPLIED FILMS CORPORATION PROXY
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoint(s) Lawrence D. Firestone 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 23, 1999, at the Annual Meeting of Shareholders to be held on October
26, 1999, 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.
<TABLE>
<S> <C> <C>
1. Election of Director for terms expiring in 2000:
Nominee: Vincent Sollitto, Jr. FOR [ ] WITHHELD [ ]
2. Election of Directors for terms expiring in 2002:
Nominees: Richard P. Beck Chad D. Quist FOR [ ] WITHHELD [ ]
For, except votes withheld from the following nominee:
3. Approval of the Second Amendment to the Applied Films Corporation 1997 Stock
Option Plan:
FOR [ ] AGAINST [ ]
(Continued on reverse side.)
</TABLE>
<PAGE>
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:_____________________
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.
<PAGE>
