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 25, 2000
APPLIED FILMS CORPORATION
LONGMONT, COLORADO
<PAGE>
APPLIED FILMS CORPORATION
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
Dear Shareholders:
The Annual Meeting of Shareholders of Applied Films Corporation will be
held at 9586 I-25 Frontage Road, Longmont, Colorado 80504, on Wednesday, October
25, 2000, at 9:00 A.M., local time, for the following purposes:
1. To elect two (2) directors, each for terms of three years.
2. To consider and vote upon a proposal to approve the Third Amendment to
the Applied Films Corporation 1997 Stock Option Plan.
3. To consider and vote upon a proposal to approve the Third Amendment to
the Applied Films Corporation Employee Stock Purchase Plan.
4. 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 21, 2000, 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 21, 2000
Longmont, Colorado
/s/ Lawrence D. Firestone
Lawrence D. Firestone, Secretary
2
<PAGE>
Dated: September 21, 2000
APPLIED FILMS CORPORATION
9586 I-25 FRONTAGE ROAD
LONGMONT, COLORADO 80504
------------------
PROXY STATEMENT
For the Annual Meeting of Shareholders
to be held October 25, 2000
------------------
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 25, 2000, at 9:00
A.M., local time.
The Annual Meeting is being held for the following purposes:
1. To elect two (2) directors, each for terms of three years.
2. To consider and vote upon a proposal to approve the Third
Amendment to the Applied Films Corporation 1997 Stock Option
Plan.
3. To consider and vote upon a proposal to approve the Third
Amendment to the Applied Films Corporation Employee Stock
Purchase Plan.
4. 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 our Board of Directors is properly
executed and returned to us, 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 and FOR the proposals
described 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 our
transfer agent.
A proxy may be revoked prior to its exercise by delivering a written notice
of revocation to the Secretary of our 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.
3
<PAGE>
VOTING SECURITIES AND PRINCIPAL HOLDERS THEREOF
On September 6, 2000, there were outstanding 6,040,856 total shares of
Common Stock. The record date for determining the shareholders entitled to vote
at the Annual meeting is September 21, 2000. 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 6, 2000, information
concerning persons known to management who may be deemed to be beneficial owners
of more than 5% of our common stock.
<TABLE>
Name and Address of Amount and Nature of Percent of
Beneficial Owner Beneficial Ownership Common Stock
------------------------ -------------------------- -----------------
<S> <C> <C>
Navellier & Associates
One East Liberty 500,000(1) 8%
Third Floor
Reno, NV 89501
Maple Row Management, Inc. 427,700(2) 7%
112 Rowayton Avenue
Rowayton, Connecticut 06853
Friess Associates, Inc. 409,300(3) 7%
3908 Kennett Pike
Greenville, DE 19807
Cecil Van Alsburg 345,317(4) 6%
9586 I-25 Frontage Road
Longmont, Colorado 80504
John S. Chapin 320,726(5) 5%
9586 I-25 Frontage Road
Longmont, Colorado 80504
Suffolk Capital Management, Inc.
1633 Broadway, 40th Floor 324,537(6) 5%
New York, NY 10019
</TABLE>
4
<PAGE>
NOTES
(1) Navellier and Associates disclosed to us on behalf of its investment
advisory clients that it had acquired beneficial ownership of 500,000
shares of Common Stock as of August 21, 2000, and that it believed
that its beneficial ownership remained at 500,000 shares of Common
Stock as of September 6, 2000. Navellier and Associates has sole power
to dispose of and vote all such shares.
(2) In a Schedule 13G, dated March 27, 2000, and delivered to us, Maple
Row Management disclosed on behalf of its investment advisory clients
that it had acquired beneficial ownership of 323,200 shares of Common
Stock. Additional information provided to us indicates that Maple Row
Management subsequently increased its beneficial ownership by 104,500
shares of Common Stock, bringing its total beneficial ownership as of
September 6, 2000, to 427,700 shares of Common Stock. Maple Row
Management has sole power to dispose of and vote all such shares.
(3) In a Schedule 13G, dated August 8, 2000, and delivered to us, Friess
Associates, Inc. disclosed on behalf of its investment advisory
clients that it had acquired beneficial ownership of 409,300 shares of
Common Stock. Friess Associates, Inc. has sole power to dispose of and
vote all such shares.
(4) Includes (i) 306,317 shares held by Mr. Van Alsburg, (ii) 1,000 shares
held by Mr. Van Alsburg's spouse, and (iii) options to purchase 38,000
shares of Common Stock exercisable within 60 days.
(5) Includes (i) 114,603 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 35,409 shares of Common Stock
exercisable within 60 days.
(6) In a Schedule 13F, dated July 5, 2000, and delivered to us, Suffolk
Capital Management, Inc. disclosed on behalf of its investment
advisory clients that it had acquired beneficial ownership of 324,537
shares of Common Stock. Suffolk Capital Management has sole power to
dispose of and vote all such shares.
5
<PAGE>
NOMINEES FOR ELECTION AS DIRECTORS
Our 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 six (6) members. Two (2) 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 Board of Directors:
<TABLE>
Annual Shareholder
Meeting at Which Term
Person Will Expire
<S> <C>
Thomas T. Edman 2003
Vincent Sollitto, Jr. 2003
</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 of our
Company's directors.
A plurality of the votes cast at the Annual Meeting is required to elect
the nominees as directors of our Company. As such, the two individuals who
receive this number of votes cast by the holders of our 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 us.
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.
6
<PAGE>
The content of the following table is based upon information as of
September 6, 2000, furnished to us by the nominees and other directors.
<TABLE>
Year First Percent of
Became Amount and Nature of Common
Name Age Director Beneficial Ownership Stock
<S> <C> <C> <C> <C>
Nominees for Election as Director for Terms
Expiring in 2003
Thomas T. Edman 38 1998 45,859(1) *
Vincent Sollitto, Jr. (a)(b) 52 1999 3,455(2) *
Directors Whose Terms Expire in 2002
Richard P. Beck (a)(b) 67 1998 4,455(3) *
Chad D. Quist (a)(b) 38 1997 3,455(4) *
Directors Whose Terms Expire in 2001
Cecil Van Alsburg 63 1976 345,317(6) 6%
John S. Chapin 59 1976 320,726(5) 5%
</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
39,159 shares of Common Stock exercisable within 60 days.
(2) Consists of options to purchase 3,455 shares of Common Stock exercisable
within 60 days.
(3) Includes (i) 1,000 shares held by Mr. Beck jointly with his spouse, and
(ii) options to purchase 3,455 shares of Common Stock exercisable within 60
days.
(4) Consists of options to purchase 3,455 shares of Common Stock exercisable
within 60 days.
(5) Includes (i) 114,603 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 35,409 shares of Common Stock exercisable within 60
days.
(6) Includes (i) 306,317 shares held by Mr. Van Alsburg, (ii) 1,000 shares held
by Mr. Van Alsburg's spouse, and (iii) options to purchase 38,000 shares of
Common Stock exercisable within 60 days.
7
<PAGE>
Thomas T. Edman has been employed by us since June 1996 and has served as
our 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 our Company from July 1998
to the present. From 1993 until joining us, 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.
Vincent Sollitto, Jr. has been a director of our Company since 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 our 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
serves as a director of Photon Dynamics, Inc. 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 our Company since April 1997. Mr.
Quist is the President of Information Products, Inc., a wholly-owned subsidiary
of Donnelly Corporation, and has recently assumed responsibility for the
electrochromic mirror business unit for Donnelly Corporation as its Vice
President. Mr. Quist 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 our Company
since our 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 our Company since our 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.
The Board of Directors, which had five meetings in the last fiscal year,
has two standing committees: the Audit Committee and the Compensation Committee.
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.
Audit Committee
The responsibilities of the Audit Committee, which met four times 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. Effective
8
<PAGE>
April 24, 2000, our Board of Directors adopted a written charter with respect to
the Audit Committee's roles and responsibilities. A copy of the charter is
attached as Exhibit A to this Proxy Statement.
In fulfilling its responsibilities, the Committee has reviewed and
discussed the audited financial statements contained in the 2000 Annual Report
on SEC Form 10-K with our Company's management and the independent auditors.
Management is responsible for the financial statements and the reporting
process, including the system of internal controls. The independent auditors are
responsible for expressing an opinion on the conformity of those audited
financial statements with accounting principles generally accepted in the United
States.
The Committee discussed with the independent auditors, the matters required
to be discussed by Statement on Auditing Standards No. 61, Communication with
Audit Committees, as amended. In addition, the Committee has discussed with the
independent auditors, the auditors' independence from us and our management
including the matters in the written disclosures required by Independence
Standards Board Standard No. 1, Independence Discussions with Audit Committees.
In reliance on the reviews and discussions referred to above, the Committee
recommended to the Board of Directors (and the Board has approved) that the
audited financial statements be included in our Annual Report on SEC Form 10-K
for the year ended July 1, 2000, for filing with the Securities and Exchange
Commission.
Audit Committee of the
Board of Directors of
Applied Films Corporation
Richard P. Beck
Chad D. Quist
Vincent Sollitto, Jr.
Compensation Committee
The Compensation Committee's responsibilities include making
recommendations to the Board with respect to executive compensation, including
salaries and bonuses, and administering our stock option plans (the "Option
Plans") and Employee Stock Purchase Plan. The Compensation Committee met four
times during the last fiscal year.
COMPENSATION OF DIRECTORS
Directors who are not officers or employees of, or consultants to our
Company, are paid an annual fee of $10,000 and $800 per Board meeting or
Committee meeting attended, and $400 for participation in conference call
meetings. Such directors are reimbursed for their expenses for each meeting
attended. Directors who are our employees are not compensated for their service
on the Board.
On October 26, 1999, the Board of Directors approved the Applied Films
Corporation Outside Director Stock Option Plan. The Outside Director Plan has
24,000 shares of common stock reserved for issuance upon the exercise of
options. The purpose of the Outside Director Plan is to encourage stock
ownership by nonemployee directors, to provide those individuals with additional
incentive to manage our Company effectively and to contribute to our success,
and to provide a form of compensation that will attract and retain highly
qualified individuals as members of the Board of Directors. On October 26, 1999,
each of Mr. Beck, Mr. Quist, Mr. Sollitto and Mr. VanAlsburg were granted
options to purchase 3,455 shares of common stock at an exercise price of $3.00,
which options vest on October 26, 2000.
9
<PAGE>
COMPENSATION OF EXECUTIVE OFFICERS
Committee Report on Executive Compensation
The Compensation Committee of the Board of Directors (the "Committee"),
comprised in fiscal 2000 of Vincent Sollitto, Jr., Richard P. Beck and Chad D.
Quist is responsible for the establishment of the level and manner of
compensation of our executive officers ("Executive Officers"). The Committee
adheres to the compensation policies and practices of our Company utilized in
establishing the compensation of all employees. This is reflective of our
long-time commitment to the participative management process and the resulting
emphasis on the collective efforts and achievements of all our employees.
Compensation Philosophy. Our Company's and the Committee's approach to
compensation is to further our goal of empowering our employees, working
individually and as a team, to achieve personal and collective goals. Our
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 our
performance.
Compensation Policies and Programs. For fiscal year 2000, our compensation
programs consisted of cash compensation and stock options. Each year we utilize
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.
In June 2000, the Board of Directors approved the Executive Team Bonus
Policy for fiscal year 2001 (the "Policy"). Participants include; the Chief
Executive Officer and President, the Chief Financial Officer, and executive team
members. The potential bonuses consist of four (4) components that are payable
independently from one another and are payable if certain goals are met,
including revenue, gross profit percentage, fiscal year end earnings per share,
and cash balance. We will pay bonuses promptly after receipt of audited
financial statements at the end of fiscal year 2001.
We believe stock options and stock ownership contribute to the aligning of
employee's interests with those of shareholders. Our Option Plans encourage
stock ownership by employees by authorizing the grant of stock options to
certain of our key employees. 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 our success. Stock options were awarded in
fiscal 2000 to Mr. Edman for 3,455 shares, Mr. Firestone for 38,000 shares, Mr.
Chapin for 3,455 shares, Mr. Hennessey of 3,455 shares and Mr. Condon of 3,455
shares. See "Compensation of Executive Officers -- Executive Compensation." We
also encourage stock ownership through participation in our Employee Stock
Purchase Plan. This plan, available to most of our employees, currently permits
employees to purchase shares of our common stock at a discount (up to 10%) 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
$1,000,000 as imposed by ss. 162(m) of the Internal Revenue Code. To date, no
officer has exceeded that level.
10
<PAGE>
Compensation Committee
of the Board of Directors of
Applied Films Corporation
Richard P. Beck
Chad D. Quist
Vincent Sollitto, Jr.
Executive Compensation
The following table sets forth the annual and long-term compensation paid
by our Company to our Chief Executive Officer, each of our three most highly
compensated executive officers, and an additional highly compensated employee
who served as an executive officer for a portion of fiscal 2000 (collectively
referred to as the "Named Executives") for services rendered to our during
fiscal 2000, 1999 and 1998.
<TABLE>
SUMMARY COMPENSATION TABLE
Long Term
Compensation
Annual Compensation ------------
-------------------
Other
Annual Securities All Other
Fiscal Compensation Underlying Compensation
Name and Principal Positions Year Salary ($) Options (#) (1)
---------------------------- ---- ------ --- ---------- ---
<S> <C> <C> <C> <C> <C>
Thomas T. Edman....................... 2000 $142,557 -- 3,455 $3,767
President, Chief Executive Officer 1999 $136,310 -- 15,000 $3,371
1998 $141,114 -- -- $2,955
Graeme Hennessey...................... 2000 $135,773 -- 3,455 $3,588
Vice President - Sales and 1999 $129,818 -- -- $3,211
Marketing 1998 $137,297 -- -- $2,829
Lawrence D. Firestone................. 2000 $125,408 -- 38,000 $1,752
Chief Financial Officer 1999 -- -- -- --
1998 -- -- -- --
C. Richard Condon..................... 2000 $119,323 -- 3,455 $3,128
Research Engineer 1999 $112,142 -- -- $2,774
1998 $116,292 -- -- $2,247
John S. Chapin........................ 2000 $114,382 -- 3,455 $3,065
Vice President - Research 1999 $ 91,055 -- -- $2,210
1998 $118,492 -- -- $1,785
</TABLE>
(1) Represents Company matches under our salary savings plan. See "Compensation
of Executive Officers - Executive Compensation - Benefits".
11
<PAGE>
Option Grants in Last Fiscal Year. Under the Option Plans, key employees
and certain non-employee directors may be granted options to purchase our Common
Stock. An aggregate of 573,000 shares of Common Stock were reserved for issuance
pursuant to the Option Plans. Shown below is information on grants of stock
options during the 2000 fiscal year to Named Executives.
<TABLE>
Potential Realizable
Number of % of Total Value at Assumed
Shares Options Annual Rates of Stock
Underlying Granted to Price Appreciation
Options Employees in Exercise Price Expiration for Option Term (2)
Name Granted Fiscal Year $/Sh (1) Date -------------------
---- ------- ----------- -------- ---- 5% 10%
-----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Thomas T. Edman............. 3,455(3) 3% $3.00 10/26/09 $6,706 $17,693
Graeme Hennessey............ 3,455(3) 3% $3.00 10/26/09 $6,706 $17,693
Lawrence D. Firestone....... 38,000(3) 31% (4) (5) $7,944 $209,522
C. Richard Condon........... 3,455(3) 3% $3.00 10/26/09 $6,706 $17,693
John S. Chapin.............. 3,455(3) 3% $3.00 10/26/09 $6,706 $17,693
</TABLE>
(1) 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.
(2) 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 our Common Stock. There
can be no assurance that the amounts reflected in this table will be
realized.
(3) Options become exercisable 25% each year for four years, starting one year
from the date of grant.
(4) 17,273 of the options were granted with an exercise price of $3.50, and
20,727 of the options were granted with an exercise price of $3.00.
(5) 17,273 of the options expire on 7/12/09, and 20,727 of the options expire
on 10/26/09.
Fiscal Year-End Options Values. Shown below is information with respect to
unexercised options to purchase shares of our Common Stock granted under the
Option Plans to the Named Executives and held by them at July 1, 2000.
<TABLE>
Number of Shares Subject to
Unexercised Options Held Value of Unexercised In-the-Money
at July 1, 2000 Options at July 1, 2000 (1)
Name Exercisable Unexercisable Exercisable Unexercisable
--------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Thomas T. Edman.................... 38,295 14,705 $1,210,534 $497,268
Graeme Hennessey................... 34,545 3,455 $1,174,087 $116,174
Lawrence D. Firestone.............. 0 38,000 $0 $1,269,114
C. Richard Condon.................. 33,545 3,455 $1,133,345 $116,174
John S. Chapin..................... 34,545 3,455 $1,167,650 $116,174
</TABLE>
(1) The value of unexercised options reflects the increase in market value of
our Common Stock from the date of grant through July 1, 2000 (when the
closing price of our Common Stock was $36.625 per share). Value actually
realized upon exercise by the Named Executives will depend on the value of
our Common Stock at the time of exercise.
12
<PAGE>
Benefits. We provide group health and life insurance benefits and
supplemental unemployment benefits to our regular employees, including executive
officers. We also maintain a salary savings plan in which all of our regular
employees are eligible to participate. We match 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
September 6, 2000, 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.
<TABLE>
Name Amount and Nature of Percent of
Beneficial Ownership Common Stock
--------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Thomas T. Edman................................................ 45,859 (1) *
Graeme Hennessey............................................... 35,409 (2) *
Lawrence D. Firestone.......................................... 9,550(3) *
C. Richard Condon.............................................. 75,625 (4) 1%
John S. Chapin................................................. 320,726 (5) 5%
All Executive Officers and Directors as a Group (8 persons) 768,226 12%
--------------------------------------------------------------------------------------------------------------------
</TABLE>
* Denotes ownership of less than one percent.
(1) Includes (i) 6,700 shares held by Mr. Edman and (ii) options to purchase
39,159 shares of Common Stock exercisable within 60 days.
(2) Consists of options to purchase 35,409 shares of Common Stock within 60
days.
(3) Includes (i) 50 shares held by Mr. Firestone's children, and (ii) options
to purchase 9,500 shares of Common Stock exercisable within 60 days.
(4) Includes (i) 41,216 shares held by Mr. Condon and (ii) options to purchase
34,409 shares of Common Stock exercisable within 60 days.
(5) Includes (i) 114,603 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 35,409 shares of Common Stock exercisable within 60
days.
(6) Includes options to purchase 167,842 shares exercisable within 60 days.
13
<PAGE>
APPROVAL OF THE THIRD AMENDMENT TO THE
APPLIED FILMS CORPORATION
1997 STOCK OPTION PLAN
On September 8, 2000, the Board of Directors adopted the Third Amendment
(the "Amendment") to the Applied Films Corporation 1997 Stock Option Plan (the
"Plan"), subject to approval by our 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 Exhibit B to this Proxy Statement.
General
The Plan currently provides for the granting of options to key employees of
our Company and our subsidiaries to purchase, in the aggregate, not more than
272,500 shares of our Common Stock. The Plan was adopted by the our Board of
Directors on April 29, 1997, and was approved by our shareholders on April 29,
1997. The First Amendment to the Plan was adopted by our Board of Directors on
September 10, 1997, and was approved by our shareholders on September 19, 1997;
the second Amendment to the Plan was adopted by our Board of Directors on
September 21, 1999 and was approved by our Shareholders on October 26, 1999.
Amendment
The Amendment increases the maximum number of shares available under the
Plan from 272,500 to 1,022,500 shares of common stock.
Purpose
The purpose of the Plan is to encourage stock ownership by certain key
employees of our Company and to provide them with an additional incentive to
contribute to our success.
Administration of the Plan
The Plan is administered by the Compensation Committee appointed by our
Board of Directors (the "Committee"), which currently consists of three
Directors who are not officers or employees of us. 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 our 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 our chief executive officer, the nature of
the services rendered by the respective employees, their present and potential
contributions to our success and the success of the particular subsidiary or
division of our 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
1,022,500 shares of our Common Stock are authorized for sale pursuant to options
granted under the Plan. Upon the expiration or termination of options
14
<PAGE>
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.
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. We 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 we are the surviving corporation in any merger or
consolidation, or if we are merged into a wholly owned subsidiary solely for
purposes of changing our 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 our assets or the dissolution or
liquidation of us or in the event of a merger or consolidation in which we are
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
we are 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 our employ or
obligates us to retain the participant in our 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
our Company.
15
<PAGE>
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.
Termination of Employment; Retirement; Disability; Death
If an optionee's employment with us 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 us), 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 us, 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 us 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
us.
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 us 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.
16
<PAGE>
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 Third Amendment to the Plan, which would increase the number of
shares reserved for issuance under the Plan from 272,500 to 1,022,500. The
affirmative vote of a majority of the holders of our 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 Third
Amendment to the Applied Films Corporation 1997 Stock Option Plan.
17
<PAGE>
Approval of the Third Amendment
to the Applied Films Corporation
EMPLOYEE STOCK PURCHASE PLAN
On September 8, 2000, the Board of Directors adopted the Third Amendment
(the "Amendment") to the Applied Films Corporation Employee Stock Purchase Plan
(the "Plan"), subject to approval of certain of the amendments by our
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 Exhibit C to this Proxy Statement.
General
The Plan currently provides for the purchase by employees of our Company
and our subsidiaries, in the aggregate, not more than 30,000 shares of our
Common Stock. The Plan, as amended by our Board of Directors, was approved by
our shareholders on September 19, 1997. The Second Amendment to the Plan was
adopted by our Board of Directors on January 27, 1998.
Amendment
The Amendment (a) decreases the full-time employment eligibility criterion
from twelve (12) to six (6) months, (b) increases the Shares reserved for
purchase under the Plan from 30,000 to 100,000 Shares, and (c) reduces the
purchase price of a Share from ninety percent (90%) to eighty-five percent (85%)
of the fair market value of that Share on the Purchase Date. See Exhibit C of
this Proxy Statement.
Purpose
The Plan enables eligible employees of our Company to acquire shares of our
Common Stock through payroll deductions. Employee deductions are credited to
separate employee accounts, and at the end of each option period the funds
credited to each employee account are used to purchase from our shares of Common
Stock at a price currently equal to 90% of the then fair market value of the
Common Stock.
The purpose of the Plan is to provide our employees with a further
inducement to continue their employment with us and to encourage employees to
increase their efforts to promote our best interests.
Eligibility and Participation
Currently, participation in the Plan is open to all of our active employees
("Eligible Employees"), except (a) employees who have been continuously employed
by us on a full-time basis for less than 12 months at the beginning of an
"Option Period"; (b) employees whose customary employment by us is less than
twenty (20) hours per week; and (c) employees whose customary employment by us
or a participating subsidiary is for not more than six months in a calendar
year. An Option Period commences every six (6) months, beginning on the Monday
subsequent to the October quarterly earnings release, ending on the Friday prior
to the April quarterly earnings release, and beginning on the Monday subsequent
to the April quarterly earnings release, ending on the Friday prior to the
October quarterly earnings release.
No Eligible Employee may purchase shares under the Plan (a) if such
employee, immediately after receiving the grant of an option under the Plan owns
5% or more of the combined voting power or value of our stock of (as defined by
Section 425(f) of the Code); or (b) which permits such employee to purchase our
stock under the Plan and any of our other employee stock purchase plans at
option prices aggregating more than $25,000 in any one calendar year.
18
<PAGE>
An employee who is an Eligible Employee at or prior to the first day of any
Option Period may become a participant as of such date by completing and
returning a payroll deduction authorization form (the "Authorization") to the
Eligible Employee's appropriate payroll location at least 10 days prior to the
first day of any Option Period. The Authorization will direct a regular payroll
deduction from the Eligible Employee's compensation to be made on each pay date
occurring during each Option Period in which the Eligible Employee is a
participant. A participant may authorize a payroll deduction of not less than
one percent (1%) and not more than ten percent (10%) of his or her gross pay per
pay period, subject to the $25,000 calendar year limitation referred to above.
Payroll deductions will be made by us for each participant in accordance
with the Authorization and will continue until the participant's participation
terminates, his or her Authorization is revised or revoked, or the Plan
terminates. By filing a new Authorization at least ten days prior to the
beginning of any Option Period, a participant may increase or decrease his or
her payroll deductions within the limits specified above.
Purchase of Shares
All payroll deductions made with respect to a participant will be credited
to his or her stock purchase account ("Purchase Account"), which will be a
non-interest bearing account. No monies other than monies from payroll
deductions may be credited to a Purchase Account. No provision of the Plan
allows any person to create a lien on any monies credited to a participant's
Purchase Account. Until the purchase of shares is effected for an employee or
until an employee is entitled to a refund of monies credited to his or her
Purchase Account, we reserve the right to use those funds for any corporate
purpose.
Each participant, during each Option Period, will be granted an option
either as of the first business day of that Option Period or as of the last
business day of that Option Period, on whichever of those two (2) days the
closing sale price as reported on the NASDAQ National Market System is lower
("Purchase Date"), for the purchase of as many full Shares, but not less than
one (1) full Share, as may be purchased with the funds in his or her Purchase
Account. This option will be exercised automatically unless the participant
terminates participation in the Plan. The purchase price for each share of
Common Stock is currently 90% of the fair market value of a share of stock on
the Purchase Date. As of each Purchase Date, the Purchase Account of each
participant will be totaled and as many full shares will be purchased for the
participant as the Purchase Account will allow. Any balance remaining in a
participant's Purchase Account after a Purchase Date will be carried forward in
the Purchase Account for the following Option Period. Any balance remaining in a
Purchase Account upon termination of employment or at the termination of the
Plan will be automatically refunded to the participant.
Each participant will receive, after each Option Period, a report setting
forth: (i) the monies credited to his or her Purchase Account at the beginning
of the Option Period; (ii) additional monies credited to his or her Purchase
Account during such period; (iii) monies used to purchase shares and the number
of shares purchased for his or her account; and (iv) monies credited to his or
her Purchase Account at the end of such Option Period.
If the our Common Stock continues to be traded in the NASDAQ National
Market System and does not become listed upon an established stock exchange, the
fair market value for the shares to be purchased on each Purchase Date will be
the closing sale price of the stock on the Purchase Date (or if no closing sale
price is reported for the Purchase Date, then the first date immediately
preceding the Purchase Date on which such price is reported).
Shares issued to participants pursuant to the Plan will be from our
authorized but unissued Common Stock. We reserve the right, however, to purchase
shares in the over-the-counter market for issuance to participants.
Termination of Participation
Upon a participant's retirement, death, or termination of employment, no
payroll deduction will be taken from any pay due and owing to him or her at such
time. The balance in the Purchase Account will be paid to the terminating
participant, or to his or her estate if termination results from death.
19
<PAGE>
A participant may, for any reason and at any time on written notice to us
prior to the last pay date in any Option Period, elect to terminate
participation in the Plan and permanently draw out the balance accumulated in
his or her Purchase Account. Upon termination as a participant, the
Authorization will be revoked with respect to subsequent payroll deductions, and
the amount in the Purchase Account and not payable in respect to the exercise of
any option to purchase stock theretofore granted under the Plan, as well as any
payroll deductions made after such revocation, will be returned promptly to the
former participant. An Eligible Employee who has thus terminated participation
in the Plan may thereafter begin participation in the Plan again, but only after
the expiration of one (1) Option Period subsequent to the Option Period in which
the Participant terminated enrollment in the Plan.
In the event we terminate the Plan, or upon the expiration of the term of
the Plan, all amounts in the Purchase Accounts of participants will be promptly
refunded. Rights under the Plan may not be transferred by a participant and are
exercisable only by a participant during his or her lifetime.
Administration, Termination and Amendment
The Plan is administered by the Compensation Committee appointed by our
Board of Directors (the "Committee"), which currently consists of three
Directors who are not our officers or employees. The Board of Directors may
remove members from or add members to the Committee and will fill any vacancies
on the Committee. A majority of the Committee constitutes a quorum, and the acts
of a majority of the members present at any meeting at which a quorum is present
(or acts approved in writing by a majority of the members of the Committee) are
valid acts of the Committee. Unless otherwise determined by the Board of
Directors, the interpretation and construction of the Plan by the Committee is
binding.
The Plan will terminate on September 5, 2007, unless we, through our Board
of Directors, elect to terminate the Plan at any earlier time. Our Board of
Directors may also amend the Plan from time to time, except that without the
approval of the holders of a majority of our shares of stock entitled to vote,
no amendment may (a) increase the number of shares approved for issuance under
the Plan; (b) decrease the purchase price per share; or (c) change the
eligibility requirements for participation in the Plan.
Federal Tax Consequences
The Plan is intended to be a qualified employees' stock purchase plan
within the meaning of Section 423 of the Code. The consequences of the issuance
and disposition of shares under the Plan are summarized below, based on
management's understanding of existing federal income tax laws.
Funds credited to employee Purchase Accounts through payroll deductions are
a part of current compensation taxable as ordinary income, although not actually
received by employees. Under the Plan, an option to purchase shares from funds
credited to an employee's Purchase Account is considered granted on the last day
of each "Option Period", and the simultaneous purchase of such shares at that
time is considered to be the exercise of that option.
Under the current provisions of the Code, if no disposition of the shares
acquired under the Plan is made for at least two years after the date of
exercise of the option, no income will be recognized by a participant at the
time the option is granted or exercised. This two-year holding period
requirement will be deemed to be satisfied if the shares acquired under the Plan
are transferred after the death of an employee by his or her estate, or by a
person who acquired the shares by bequest or inheritance or by reason of the
death of the employee, regardless of the length of time the shares were owned by
the participant.
If shares acquired by a participant are sold after being held for the
required holding period, the participant, upon disposition of the shares (or his
or her estate upon the participant's death), will realize compensation taxable
as ordinary income, equal to the lesser of: (a) the amount by which the fair
market value of the shares at the time of disposition or death exceeds the
option exercise price (the purchase price for the stock); or (b) the amount by
which the fair market value of the shares at the time the option was granted
exceeded the option exercise price (the purchase price for the Stock). If the
fair market value of the shares at the time of disposition exceeds the fair
market value of the shares at the time the option was granted, the difference
between these amounts will be taxed as a capital gain. If the fair
20
<PAGE>
market value of the shares at the time of disposition or death is less than the
option exercise price, no ordinary income is recognized and the difference
between the option exercise price and the sale price is treated as a capital
loss. No deduction is allowed to us as a result of the grant or exercise of or
option to purchase shares, except in the case of a disqualifying distribution
described below.
21
<PAGE>
Disqualifying Disposition
If an employee disposes of shares purchased under the Plan before the
expiration of the two-year holding period, the disposition of the shares will be
treated as a "disqualifying disposition", and the employee will not be entitled
to the tax treatment described above. In the event of a disqualifying
disposition, at the time the shares are disposed of, the employee must include
in his or her compensation the difference between the option exercise price (the
purchase price for the stock) and the fair market value of the stock at the time
of grant. We will then be entitled to a deduction for federal income tax
purposes equal to the amount recognized as compensation by the employee. The
difference between the selling price, if applicable, and the option price (plus
the amount recognized as compensation) is treated as a capital gain or loss.
Required Vote for Approval
At the Annual Meeting, the shareholders are being requested to consider and
approve the Third Amendment to the Plan. The affirmative vote of a majority of
the holders of our 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 Third
Amendment to the Applied Films Corporation Employee Stock Purchase Plan.
22
<PAGE>
SHAREHOLDER RETURN PERFORMANCE GRAPH
The following line graph compares the cumulative total shareholder return
on our 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 our
initial public offering, and ending July 1, 2000. 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 our Common Stock,
the NASDAQ Stock Market (U.S.) and the Peer Group Index with dividends
reinvested.
GRAPH OMITTED
<TABLE>
APPLIED FILMS CORP (AFCO)
%Peer Group
Peer Group Cumulative Total Return Weighted Cumulative Total Return Market Cap
------------------------------------------------- -----------
(Weighted Average by Market Value) 11/97 6/98 7/99 7/00 7/00
<S> <C> <C> <C> <C> <C> <C>
Peer Group Weighted Average: 100 84.29 58.34 299.88
Intevac Inc IVAC 100.00 96.97 49.09 36.97 32.59%
Southwall Technologies Inc. SWTX 100.00 64.52 50.81 141.14 15.68%
Three-Five Sys Inc. TFS 100.00 81.06 68.01 586.31 51.73%
</TABLE>
23
<PAGE>
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Pursuant to Section 16 of the Securities Exchange Act of 1934, our directors and
executive officers, as well as any person holding more than 10 percent of our
Common Stock, are required to report initial statements of ownership of our
securities and changes in such ownership to the Securities and Exchange
Commission. Based upon a review of the copies of such forms furnished to us, we
believe the following: Mr. Chapin filed one late report representing one
transaction; Mr. Condon filed eleven late reports representing eleven
transactions; Mr. Firestone filed one late report representing one transaction;
and Mr. Van Alsburg filed one late report representing one transaction.
RELATIONS WITH INDEPENDENT PUBLIC ACCOUNTANTS
Our combined consolidated financial statements 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 our Audit Committee will select
our auditors before the end of this calendar year.
SHAREHOLDER PROPOSALS 2001 ANNUAL MEETING
Any proposal of a shareholder intended to be presented for action at our
2001 annual meeting must be received by the Company at 9586 I-25 Frontage Road,
Longmont, Colorado 80504, not later than May 21, 2001, if the shareholder wishes
the proposal to be included in our 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 1, 2000 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
Our 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
us. In addition to solicitation by mail, proxies may be solicited in person, or
by telephone or telegraph, by some of our regular employees.
The above Notice and Proxy Statement are sent by order of the Board of
Directors.
September 21, 2000. /s/ Cecil Van Alsburg
Cecil Van Alsburg
CHAIRMAN OF THE BOARD
24
<PAGE>
Exhibit A
AUDIT COMMITTEE CHARTER
The Audit Committee shall regularly review the adequacy of the Company's
internal controls and financial reporting process. This Committee is the
principal agent of the Board of Directors in assuring the independence of the
Company's independent accountants, the integrity of management, the oversight of
financial reporting and the adequacy of disclosure to shareholders.
Membership
The Audit Committee will consist of at least three members who are financially
literate and non-employee directors of the Company. One member shall serve as
Chairman of the Committee. A member may not accept any compensation from the
Company except compensation for board service or benefits under a tax-qualified
retirement plan.
A member of the committee shall not have been an employee of the Company or any
of its affiliates for the past five years unless, in the opinion of the Board of
Directors, such person will exercise independent judgement and will materially
assist the function of the Committee.
Committee Meetings - Operating Principles
- The Audit Committee shall hold meetings at least twice each fiscal year,
and at any additional time as either the entire Board or Audit Committee
Member deems necessary.
- Committee meetings normally will occur in conjunction with and immediately
prior to meetings of the full Boards of Directors. However, special
meetings of the Committee may be called as needed by the Committee Chairman
or the Chief Financial Officer.
- Pre-meeting materials will be distributed to Committee members in
sufficient time prior to the meeting to permit review by members. Committee
members will review pre-meeting materials in advance.
- Meetings will focus on substantive issues of current import and be of
duration adequate to permit full discussion of the agenda.
- The Committee may request that members of management and the Company's
independent accountants be present as needed in order to execute the
Committee's primary responsibilities.
- The Company's Chief Financial Officer will be engaged with and supportive
of a proactive philosophy that anticipates and shares with the Committee
current issues and significant concerns.
- Minutes of each meeting will be kept and distributed to the entire Board of
Directors.
- The Committee shall discuss with the Company's independent accountants the
quality, not just the acceptability, of the Company's accounting principles
as applied in its financial reporting; the discussion should include such
issues as the clarity of the Company's financial disclosures and degree of
aggressiveness or conservatism of the Company's accounting principles and
underlying estimates made by management in preparing the financial
disclosure and reviewed by independent accountants.
- The Chairman of the Committee shall meet annually, outside normal meeting
times, with management, internal auditors and independent accountants to
clearly agree on mutual expectations, agree on an annual detailed plan of
Committee activities and agree on the nature, extent, and timing of
Committee information needs.
A-1
<PAGE>
- In connection with its Audit functions, the Committee may meet separately
with the Company's independent accountants.
- The Committee adopts the following principles with respect to the role of
its relationship with the Company's independent accountants:
- Arthur Andersen LLP in its capacity as the Company's independent
accountants is responsible to the Audit Committee.
- If Arthur Andersen LLP identifies a significant problem, which is not
being adequately addressed by management, it should be communicated to
the Chairman or another member of the Audit Committee.
- The Audit Committee will be represented by Arthur Andersen LLP at the
quarterly and year-end closing of the Company's books and will report
to the Committee any issues raised at the closing.
- The Company will notify the Audit Committee in advance of any material
consulting activities to be undertaken by Arthur Andersen LLP so that
the Committee may address whether related consulting fees might impair
the independence of Arthur Andersen LLP. The Audit Committee reserves
the discretion to raise, as it sees fit the issue of any possible
conflict between the representation by Arthur Andersen LLP of the
Company and any other client.
Primary Responsibilities - Audit
Independent and Internal Audits
1) Review the scope of the audit coverage by both the independent accountants
and the Company's internal organization, and the coordination of work
between the two, including the audit scope and plan of the internal
organization to ensure completeness of coverage, reduction of redundant
efforts and the effective use of audit resources.
2) Review the results of the audits by the independent accountants:
a) Assure that the audit coverage has been completed as planned.
b) Ascertain that no restrictions were placed on the scope of the
examinations or their implementation.
c) Ascertain significant accounting and reporting issues during the audit
period and their impact on the audit results.
d) Review the Company's annual financial statements and related footnotes
to be included in the Company's Annual Report on Form 10-K and Annual
Report to Shareholders.
e) Review significant variances in the financial statements between
accounting periods.
3) Review with management the performance of the independent accountants and
fees for audit services, as recommended by management.
4) Review non-audit services (and related fees) performed by the independent
accountants to consider what effect, if any, such activities could have on
their independence.
5) Recommend to the Board the appointment of the independent accountants.
6) Review the adequacy of staffing of the Finance function.
A-2
<PAGE>
Internal Controls
7) Evaluate the Company's policies and procedures to assure the adequacy of
the internal accounting controls and the financial reporting process,
including the controls surrounding the Company's information systems and
the protection of the Company's assets.
8) Review the status of internal control recommendations made by the
independent accountants and Internal Auditing.
9) Review the adequacy of the policy and practices of the Company related to:
a) Conflicts of Interest;
b) Ethical conduct; and
c) Compliance with key regulatory issues (e.g., Foreign Corrupt Practices
Act, Federal Sentencing Guidelines, Export Control Act).
Other
10) Receive status reports on any government investigations that could involve
criminal violations or others fines with respect to the Company or any
employee in connection with the Company's business.
11) Conduct investigations and, if necessary, retain outside experts, with
respect to any alleged illegality that may be brought to the attention of
the Committee.
12) Develop procedures to assist auditors in fulfilling their obligation to
detect illegality under the 1995 Private Securities Litigation Reform Act.
13) Review with the Company's counsel the status of any matters, such as
threatened or pending litigation, which may result in a material financial
impact to the Company.
Other Responsibilities
14) Perform a self-assessment every three years.
15) Revise the Committee Charter as business conditions dictate.
16) Report at the next meeting of the Board all significant items discussed at
any Audit Committee meeting.
17) Take such further action or provide such further advice as the Board of
Directors may from time to time request.
18) Will comply with proxy disclosure on charter and components of the Audit
Committee.
19) The Audit Committee on an annual basis will review this Charter.
A-3
<PAGE>
Exhibit B
Third 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").
3. Effective October 26, 1999, the Company adopted and approved the Second
Amendment to the Applied Films Corporation 1997 Stock Option Plan (the "Second
Amendment", and together with the Original Plan and the First Amendment, the
"Plan").
4. The Plan provides for the reservation, for purposes of the Plan, of two
hundred seventy-two thousand five hundred (272,500) shares of the Company's
common stock, no par value per share.
5. 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 One
Million Twenty-Two Thousand Five Hundred (1,022,500) 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. Except as otherwise set forth herein, the terms of the Plan are hereby
ratified and shall continue in full force and effect.
Approved by the Board of Directors of the Company on September 8, 2000.
APPLIED FILMS CORPORATION
/s/Lawrence D. Firestone
Lawrence D. Firestone, Secretary
Approved by the Shareholders of the Company on October 25, 2000.
APPLIED FILMS CORPORATION
____________________________________
Lawrence D. Firestone, Secretary
B-1
<PAGE>
Exhibit C
THIRD AMENDMENT TO
APPLIED FILMS CORPORATION
EMPLOYEE STOCK PURCHASE PLAN
BACKGROUND
1. Effective September 19, 1997, Applied Films Corporation (the "Company")
adopted and approved the Applied Films Corporation Employee Stock Purchase Plan,
as amended (the "Plan").
2. The Company desires to amend the Plan as provided in this Third
Amendment.
Agreement
1. The first sentence of Section 3 of the Plan is hereby amended to read in
its entirety as follows:
Participation under the Plan shall be open to all active employees (the
"Eligible Employees") of the Company except: (a) employees who have not
been continuously employed by the Company on a full-time basis for at least
six (6) months at the beginning of an Option Period (as hereinafter
defined); (b) employees whose customary employment by the Company is for
less than twenty (20) hours per week; and (c) employees whose customary
employment by the Company is for not more than six (6) months in a calendar
year.
2. The second sentence of Section 4 of the Plan is hereby amended to read
in its entirety as follows:
The aggregate maximum number of Shares which may be purchased under the
Plan is One Hundred Thousand (100,000) Shares; subject, however, to
adjustment as hereinafter set forth.
3. The third sentence of Section 10 of the Plan is hereby amended to read
in its entirety as follows:
The purchase price for each Share purchased shall be eighty-five percent
(85%) of the fair market value of a Share on the Purchase Date where fair
market value means the closing sale price reported on the NASDAQ National
Market System on the Purchase Date.
Approved by the Board of Directors of the Company on September 8, 2000.
APPLIED FILMS CORPORATION
/s/Lawrence D. Firestone
Lawrence D. Firestone, Secretary
Approved by the Shareholders of the Company on October 25, 2000.
APPLIED FILMS CORPORATION
________________________________________
Lawrence D. Firestone, Secretary
C-1
<PAGE>
An annual report to shareholders for the year ended July 1, 2000 containing
certified financial statements is being mailed to the shareholders with these
materials.
C-2
