LAM RESEARCH CORP, DEF 14A, 1999-10-12

LAM RESEARCH CORP
DEF 14A, 1999-10-12
SPECIAL INDUSTRY MACHINERY, NEC

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<PAGE> 1

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 (AMENDMENT NO. )

Filed by the Registrant [x]

Filed by a Party other than the Registrant [ ]

Check the appropriate box:

<TABLE>
<S> <C>
[ ] 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 Rule 14a-11(c) or Rule 14a-12
</TABLE>
LAM RESEARCH 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> 2

LOGO

LAM RESEARCH CORPORATION
------------------------

NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD NOVEMBER 4, 1999
------------------------

To the Stockholders:

NOTICE IS HEREBY GIVEN that the 1999 Annual Meeting of Stockholders of Lam
Research Corporation, a Delaware corporation (the "Company"), will be held on
Thursday, November 4, 1999, 11:00 a.m., local time, at the principal executive
offices of the Company at 4650 Cushing Parkway, Fremont, California 94538, for
the following purposes:

1. To elect directors to serve for the ensuing year, and until their
successors are elected;

2. To ratify the appointment of Ernst & Young LLP as independent auditors
of the Company for the fiscal year ending June 30, 2000; and

3. To transact such other business as may properly come before the meeting,
or any adjournment thereof.

The foregoing items of business are more fully described in the Proxy Statement
accompanying this Notice.

Only stockholders of record at the close of business on September 23, 1999
are entitled to notice of and to vote at the meeting, and for any adjournment
thereof.

All stockholders are cordially invited to attend the meeting in person.
However, to assure your representation at the meeting, you are urged to mark,
sign and date the enclosed proxy and return it as promptly as possible in the
postage-prepaid and return-addressed envelope enclosed for that purpose.
However, any stockholder of record attending the meeting may vote in person,
even if he or she has returned a proxy.

By Order of the Board of Directors,

LOGO
Richard H. Lovgren
Secretary
Fremont, California
October 12, 1999

YOUR VOTE IS IMPORTANT
IN ORDER TO ASSURE YOUR REPRESENTATION AT THE MEETING, YOU ARE REQUESTED TO
MARK, SIGN AND DATE THE ENCLOSED PROXY CARD AS PROMPTLY AS POSSIBLE AND RETURN
IT IN THE ENCLOSED RETURN-ADDRESSED ENVELOPE (TO WHICH NO POSTAGE NEED BE
AFFIXED IF MAILED IN THE UNITED STATES).
<PAGE> 3

LAM RESEARCH CORPORATION

------------------------

PROXY STATEMENT
FOR
ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD NOVEMBER 4, 1999

TABLE OF CONTENTS

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Information Concerning Solicitation and Voting.............. 1

Proposal No. 1 -- Election of Directors..................... 3

Security Ownership of Certain Beneficial Owners and
Management............................................. 5

Director Compensation..................................... 6

Executive Compensation and Other Information.............. 7

Certain Relationships and Related Transactions............ 12

Compensation Committee Interlocks and Insider
Participation.......................................... 13

Report of the Compensation Committee...................... 14

Comparative Stock Performance............................. 17

Proposal No. 2 -- Ratification of Appointment of Independent
Auditors.................................................. 17

Section 16(a) Beneficial Ownership Reporting Compliance..... 18

Other Matters............................................... 18
</TABLE>

i
<PAGE> 4

LAM RESEARCH CORPORATION

------------------------

PROXY STATEMENT FOR 1999 ANNUAL MEETING OF STOCKHOLDERS

INFORMATION CONCERNING SOLICITATION AND VOTING

GENERAL

The enclosed proxy is solicited on behalf of Lam Research Corporation, a
Delaware corporation (the "Company"), for use at the Annual Meeting of
Stockholders to be held Thursday, November 4, 1999 at 11:00 a.m., local time
(the "Annual Meeting"), or for any adjournment thereof, for the purposes set
forth herein and in the accompanying Notice of Annual Meeting of Stockholders.
The Annual Meeting will be held at the principal executive offices of the
Company at 4650 Cushing Parkway, Fremont, California 94538. The Company's
telephone number at that location is (510) 659-0200.

These proxy solicitation materials will be mailed on or about October 12,
1999 to all stockholders entitled to vote at the meeting. A copy of Lam Research
Corporation's 1999 Annual Report to Stockholders accompanies this Proxy
Statement.

RECORD DATE AND PRINCIPAL SHARE OWNERSHIP

Stockholders of record at the close of business on September 23, 1999 are
entitled to receive notice of and to vote at the Annual Meeting. At the record
date, 39,429,800 shares of the Company's Common Stock were outstanding.

REVOCABILITY OF PROXIES

Any proxy given pursuant to this solicitation may be revoked by the person
giving it at any time before its use by delivering to the Company a written
notice of revocation or a duly executed proxy bearing a later date, or by
attending the Annual Meeting and voting in person. However, attending the Annual
Meeting in and of itself does not constitute a revocation of a proxy.

VOTING AND SOLICITATION

Each stockholder voting on the election of directors may cumulate such
stockholder's votes and give one candidate a number of votes equal to the number
of directors to be elected (seven at this meeting) multiplied by the number of
shares held by such stockholder, or distribute the stockholder's votes on the
same principle among as many candidates as the stockholder deems appropriate.
However, votes cannot be cast for more than seven candidates. No stockholder
shall be entitled to cumulate votes for a candidate unless the candidate's name
has been placed in nomination prior to the voting.

Where no vote is specified or where a vote FOR all nominees is marked, the
cumulative votes represented by a proxy will be cast, unless contrary
instructions are given, at the discretion of the proxy holders in order to elect
as many nominees as believed possible under the then-prevailing circumstances.
If a stockholder desires to cumulate his or her votes, the accompanying proxy
card should be marked to indicate clearly that the stockholder desires to
exercise the right to cumulate votes and should specify how the votes are to be
allocated among the nominees for directors. For example, a stockholder may write
next to the name of the nominee or nominees for whom the stockholder desires to
cast votes the number of votes to be cast for such nominee or nominees.
Alternatively, without exercising his or her right to vote cumulatively, a
stockholder may instruct the proxy holders not to vote for one or more nominees
by writing the name(s) of such nominee or nominees on the space provided on the
proxy card. Unless indicated to the contrary in the space provided on the proxy
card, if a stockholder withholds authority to vote for one or more nominees, all
cumulative votes of such stockholder will be distributed among the remaining
nominees at the discretion of the proxy holders.

On all other matters, each share has one vote.

1
<PAGE> 5

Votes cast by proxy or in person at the Annual Meeting will be tabulated by
the Inspector of Elections (the "Inspector"). The Inspector will also determine
whether or not a quorum is present. The seven candidates for election as
directors at the Annual Meeting who receive the highest number of affirmative
votes will be elected. The ratification of the independent auditors for the
Company for the current year will require the affirmative vote of a majority of
the shares of the Company's Common Stock present or represented and entitled to
vote at the Annual Meeting.

In general, Delaware law also provides that a quorum consists of a majority
of the shares entitled to vote and present or represented by proxy at the
meeting. The Inspector will treat abstentions as shares that are present or
represented and entitled to vote for purposes of determining the presence of a
quorum, but will not treat abstentions as votes in favor of approving any matter
submitted to the stockholders for a vote. Thus, abstentions have the same effect
in this regard as negative votes. Any proxy which is properly dated, executed
and returned using the form of proxy enclosed will be voted at the Annual
Meeting in accordance with the instructions of the stockholder. If no specific
instructions are given, the shares will be voted for the election of directors,
for ratification of the appointment of the designated independent auditors and,
with respect to any other matter or matters that may come before the meeting, as
the proxy holders deem advisable in accordance with their best judgment. If a
broker indicates on the enclosed proxy or its substitute that it does not have
discretionary authority as to certain shares to vote on a particular matter
("broker non-votes"), those shares will not be considered as present or
represented with respect to that matter. Shares as to which proxy authority has
been withheld with respect to any matter will not be considered as present or
represented with respect to that matter. The Company believes that the
tabulation procedures to be followed by the Inspector are consistent with the
general statutory requirements in Delaware concerning voting of shares and
determination of a quorum.

The cost of soliciting proxies will be borne by the Company. The Company
has retained the services of ChaseMellon Shareholder Services ("ChaseMellon") to
act as agent in the solicitation of proxies from bankers, bank nominees and
other institutional owners. The Company estimates that it will pay ChaseMellon a
fee of approximately $5,500 for its services and will reimburse ChaseMellon for
certain out-of-pocket expenses. The Company may reimburse brokerage firms and
other persons representing beneficial owners of shares for their expenses in
forwarding solicitation materials to such beneficial owners. Proxies may also be
solicited by certain of the Company's directors, officers and regular employees,
without additional compensation, personally or by telephone or other
communication means.

STOCKHOLDER PROPOSALS AND NOMINATIONS TO BE VOTED ON AT ANNUAL MEETING

Stockholders of the Company may from time to time submit proposals which
they believe should be voted on at the Annual Meeting or nominate persons for
election to the Board of Directors. In accordance with the Company's bylaws, any
such proposal or nomination must be submitted in writing to the Secretary of the
Company not less than 60 days nor more than 90 days prior to the date of the
Annual Meeting of Stockholders. The submission must include certain specified
information concerning the proposal or nominee, as the case may be, and
information about the proponent and the proponent's ownership of Common Stock of
the Company. Proposals or nominations that do not meet these requirements will
not be entertained at the Annual Meeting. The Secretary should be contacted in
writing at the address on the first page of this Proxy Statement to make any
submission, or to obtain additional information as to the proper form and
content of submissions.

STOCKHOLDER PROPOSALS TO BE INCLUDED IN THE COMPANY'S 2000 PROXY STATEMENT

Pursuant to applicable rules under the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), some stockholder proposals may be eligible for
inclusion in the Company's 2000 Proxy Statement. Any such proposal must be
received by the Company no later than June 14, 2000. Stockholders interested in
submitting such a proposal are advised to contact counsel familiar with the
detailed requirements of the applicable securities rules. Any such proposal then
to be voted on at the Company's 2000 Annual Meeting must also then be submitted
in compliance with the preceding paragraph.

2
<PAGE> 6

PROPOSAL NO. 1
ELECTION OF DIRECTORS

NOMINEES

A board of seven directors is to be elected at the Annual Meeting. The
bylaws of the Company provide that the number of directors shall be fixed at
seven. The proxies cannot be voted for a greater number of persons than the
seven nominees named below. Unless otherwise instructed, the proxy holders will
vote the proxies received by them for the Company's seven nominees named below,
each of whom is currently a director of the Company. If any nominee of the
Company should decline or be unable to serve as a director as of the time of the
Annual Meeting, the proxies will be voted for any substitute nominee whom shall
be designated by the present Board of Directors to fill the vacancy. In the
event that additional persons are nominated for election as directors, the proxy
holders intend to vote all proxies received by them in such a manner in
accordance with cumulative voting as will assure the election of as many of the
nominees listed below as possible, and in such event the specific nominees to be
voted for will be determined by the proxy holders. Discretionary authority to
cumulate the votes held by the proxy holders is solicited by this Proxy
Statement. The Company is not aware of any nominee who will be unable or will
decline to serve as a director. The term of office of each person elected as a
director will continue until the next Annual Meeting of Stockholders, or until a
successor has been elected and qualified.

THE BOARD OF DIRECTORS OF THE COMPANY RECOMMENDS A VOTE "FOR" EACH OF THE SEVEN
NOMINEES FOR DIRECTOR SET FORTH BELOW.

The following table sets forth certain information concerning the nominees,
which is based on data furnished by them:

3
<PAGE> 7

<TABLE>
<CAPTION>
NOMINEES DIRECTOR PRINCIPAL OCCUPATION AND BUSINESS EXPERIENCE
FOR DIRECTOR AGE SINCE DURING PAST FIVE YEARS
- ------------------------- --- -------- ----------------------------------------------------
<S> <C> <C> <C>
David G. Arscott(1,2).... 55 1980 Mr. Arscott has been a director of the Company since
1980, and was Chairman of the Board of Directors
from 1982 to 1984. He is currently, and has been
since 1988, a General Partner of Compass Management
Partners, an investment management firm. From 1978
to 1988, Mr. Arscott was a Managing General Partner
of Arscott, Norton & Associates, a venture capital
firm. Mr. Arscott currently is a director of Silicon
Valley Research, Inc.
Richard J. Elkus, 64 1997 Mr. Elkus has been a director of the Company since
Jr.(1)................. August 6, 1997, the day following consummation of
the Merger. He is currently, and has been since
1996, Co-Chairman of Voyan Technology and is
currently a director of KLA-Tencor Corporation,
Barcelona Design and Sopa SA. From February 1994
until consummation of the merger between Tencor
Instruments, Inc. ("Tencor") and KLA Instruments,
Inc. in April 1997, Mr. Elkus was Vice Chairman of
the Board of Tencor. From February 1994 to September
1996, Mr. Elkus was Executive Vice President of
Tencor, and was one of the founders of Prometrix
Corporation, which was acquired by Tencor in
February 1994. Mr. Elkus was Chairman of the Board
and Chief Executive Officer of Prometrix Corporation
from 1983 until February 1994.
Jack R. Harris(1,2)...... 57 1982 Mr. Harris has been a director of the Company since
1982. From 1986 until September 1999, Mr. Harris was
Chairman, Chief Executive Officer and President of
Optical Specialties, Inc. Mr. Harris is currently
Chairman of HT, Inc. and Innovative Robotics
Solutions. Mr. Harris currently is also a director
of ILEX.
Grant M. Inman(1,2)...... 57 1981 Mr. Inman has been a director of the Company since
1981. From 1985 until 1998, Mr. Inman was a General
Partner of Inman & Bowman. Mr. Inman is currently
President of Inman Investment Management and a
director of Paychex, Inc., Wind River Systems, Inc.
and ClickAction, Inc. From 1996 until 1998, Mr.
Inman also served as a director of Insite Vision,
Inc.
Kenneth M. Thompson(1)... 61 1998 Mr. Thompson has been a director of the Company
since 1998. Prior to joining the Board, Mr. Thompson
was employed by Intel Corporation for 25 years in
various management positions, most recently as Vice
President of Technology Manufacturing Engineering.
Before joining Intel Corporation, Mr. Thompson
worked with Ampex Corporation in its core memory
group. Mr. Thompson currently serves as a director
of Silicon Valley Group, Inc., PRI Automation, Inc.,
GaSonics International Corporation, Advant Com
Network, Inc. and Baguda Wear Inc.
</TABLE>

- ---------------
(1) Member of Audit Committee.

(2) Member of Compensation Committee.

There is no family relationship between any of the foregoing nominees, or
between any of such nominees and any of the Company's executive officers.

4
<PAGE> 8

BOARD MEETINGS AND COMMITTEES

The Board of Directors of the Company held a total of six regularly
scheduled or special meetings during the fiscal year ended June 30, 1999. The
Board of Directors has an Audit Committee and a Compensation Committee. The
functions previously performed in fiscal 1998 by a separate Stock Committee were
included in fiscal 1999 within the functions of the Compensation Committee.
There is no Nominating Committee or committee performing the functions of a
nominating committee.

The Audit Committee, which consisted of Messrs. Arscott, Elkus, Harris and
Inman, all non-employee directors, held two meetings during fiscal 1999. Mr.
Thompson has joined the Audit Committee as of fiscal 2000. This committee
recommends to the Board for its approval and for ratification by the
stockholders the engagement of the Company's independent auditors to serve the
following fiscal year, reviews the scope of the audit, considers comments made
by the independent auditors with respect to accounting procedures and internal
controls and the consideration given thereto by the Company's management, and
reviews internal accounting procedures and controls with the Company's financial
and accounting staff.

The Compensation Committee, which consisted of Messrs. Arscott, Harris and
Inman, held one meeting during fiscal 1999. This committee recommends salaries,
incentives and other forms of compensation for directors, officers and other
employees of the Company, administers the Company's various incentive
compensation and benefit plans, and recommends policies relating to such
compensation and benefit plans. This committee also approves grants of stock
options, restricted stock, deferred stock and performance share awards to
officers and other employees of the Company.

SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The table below sets forth the beneficial ownership of shares of Common
Stock of the Company by: (i) each person or entity whom, based on information
obtained, the Company believes beneficially owned more than 5% of the Company's
Common Stock, and the address of each such person or entity ("5% stockholder");
(ii) each current director of the Company; (iii) each named executive officer
described below in the section of this Proxy Statement captioned "Executive
Compensation and Other Information" ("named executive"); and (iv) all current
directors and current executive officers as a group. With the exception of 5%
stockholders, the information below concerning the number of shares beneficially
owned is provided with respect to holdings as of September 1, 1999. With respect
to the 5% stockholders, the information below is provided with respect to
holdings as of June 30, 1999 (unless otherwise specified). The percent of class
is

5
<PAGE> 9

calculated using 39,061,385 as the number of shares of the Company's Common
Stock outstanding as of September 1, 1999.

<TABLE>
<CAPTION>
SHARES PERCENT
NAME OF PERSON OR IDENTITY OF GROUP BENEFICIALLY OWNED OF CLASS
- ------------------------------------------------------------ ------------------ --------
<S> <C> <C>
Fidelity Management & Research.............................. 5,791,000(1) 14.83%
82 Devonshire Street
Boston, Massachusetts 02109
James W. Bagley............................................. 844,000(2) 2.16%
Roger D. Emerick............................................ 185,128(2) *
David G. Arscott............................................ 75,206(2) *
Richard J. Elkus, Jr. ...................................... 35,240(2) *
Jack R. Harris.............................................. 48,000(2) *
Grant M. Inman.............................................. 76,233(2) *
Kenneth M. Thompson......................................... 6,000(2) *
Stephen G. Newberry......................................... 128,334(2) *
Hsui-Sheng (Way) Tu......................................... 92,268(2) *
Mercedes Johnson............................................ 41,630(2) *
Richard H. Lovgren.......................................... 24,250(2) *
All current directors and current executive officers as a
group (14 persons)........................................ 1,584,888(3) 4.06%
</TABLE>

- ---------------
* Less than one percent

(1) This information was obtained from the Nasdaq National Market, Inc., and was
identified as representing the entity's quarterly 13F filing reflecting
holdings as of June 30, 1999.

(2) Includes 784,000, 169,525, 42,000, 24,450, 42,000, 42,000, 6,000, 108,334,
77,008, 38,750 and 22,780 shares subject to outstanding options that are
currently exercisable or exercisable within 60 days after September 1, 1999
in favor of Mr. James W. Bagley, Mr. Roger D. Emerick, Mr. David G. Arscott,
Mr. Richard J. Elkus, Jr., Mr. Jack R. Harris, Mr. Grant M. Inman, Mr.
Kenneth M. Thompson, Mr. Stephen G. Newberry, Mr. Hsui-Sheng (Way) Tu, Ms.
Mercedes Johnson and Mr. Richard H. Lovgren, respectively, and 23,748 shares
in favor of all other current executive officers as a group.

(3) Current directors and current executive officers include: Mr. James W.
Bagley, Mr. Roger D. Emerick, Mr. David G. Arscott, Mr. Richard J. Elkus,
Jr., Mr. Jack R. Harris, Mr. Grant M. Inman, Mr. Kenneth M. Thompson, Mr.
Stephen G. Newberry, Mr. Hsui-Sheng (Way) Tu, Ms. Mercedes Johnson, Mr.
Richard H. Lovgren, Mr. Craig Garber, Mr. Gregor A. Campbell and Mr. David
E. Bayly.

DIRECTOR COMPENSATION

Directors who are not employees of the Company receive annual retainers of
$15,000; meeting fees of $1,000 for each Board of Directors meeting attended,
plus reimbursement for reasonable travel expenses; fees of $500 for each
telephonic Board meeting attended (with aggregate fees for such Board meetings
not to exceed $8,000 per fiscal year); committee meeting fees of $500 per
meeting attended, plus reimbursement for reasonable travel expenses; and fees of
$250 for each telephonic committee meeting attended (with no aggregate fee limit
for committee meetings). In addition, each person who is a non-employee director
is automatically granted on or about December 15 of each calendar year an option
to purchase 6,000 shares of the Company's Common Stock under the Company's
Amended and Restated 1991 Incentive Stock Option Plan or Amended and Restated
1997 Stock Incentive Plan, at an exercise price per share equal to the fair
market value of one share of the Company's Common Stock on the date of grant.
Each option has a term of ten years and is immediately exercisable. The plans
provide that unexercised options may be exercisable for specified periods
following termination of director status, whether by death, disability or
retirement, determined by years of service as a director to the Company.

6
<PAGE> 10

EXECUTIVE COMPENSATION AND OTHER INFORMATION

SUMMARY OF CASH AND CERTAIN OTHER COMPENSATION

The following table provides, for the three fiscal years ended June 30,
1999, 1998 and 1997, respectively, certain summary information concerning
compensation paid or accrued by the Company to or on behalf of the Company's
Chief Executive Officer, James W. Bagley, and each of the four other most highly
compensated executive officers of the Company (determined at the end of the last
fiscal year) (the "named executives").

SUMMARY COMPENSATION TABLE

<TABLE>
<CAPTION>
ANNUAL COMPENSATION LONG-TERM COMPENSATION
----------------------------------------- -------------------------
OTHER NUMBER OF
ANNUAL RESTRICTED SECURITIES ALL OTHER
NAME AND COMPEN- STOCK UNDERLYING COMPEN-
PRINCIPAL POSITION YEAR SALARY($)(1) BONUS($)(1) SATION($)(3) AWARDS($)(5) OPTIONS(#) SATION($)
- ------------------------ ---- ------------ ----------- ------------ ------------ ---------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
James W. Bagley......... 1999 91,704 17,632(4) 480,000 4,738(6)
Chairman of the Board 1998 100,000 475,000 5,343(6)
and Chief Executive 1997 N/A
Officer
Stephen G. Newberry..... 1999 416,479 1,252 300,000 126,321(7)
President and Chief 1998 392,892 400,000 924(7)
Operating Officer 1997 N/A
Hsui-Sheng (Way) Tu..... 1999 415,475 6,862 40,000 3,510(8)
President, Asia Pacific 1998 449,251 264 80,000 3,508(8)
Operations 1997 424,008 51,941 2,270 20,000 3,023(8)
Mercedes Johnson........ 1999 241,295 37,500(2) 826 80,000 4,714(9)
Vice President, Finance, 1998 260,000 37,500(2) 23 30,000 7,067(9)
and Chief Financial 1997 50,000 75,000 252(9)
Officer
Richard H. Lovgren...... 1999 213,792 26,910 24,000 5,272(10)
Vice President, General 1998 228,422 10,000 4,074(10)
Counsel and Secretary 1997 226,813 22,261 8,000 6,021(10)
</TABLE>

- ---------------
(1) Includes amounts earned and bonuses paid (if any) in fiscal 1999, 1998 and
1997, but deferred at the election of executive officer under the Company's
deferred compensation plans and the Company's Employee Savings Plus Plan, a
qualified defined contribution plan under Section 401(k) of the Internal
Revenue Code of 1986 (as amended). Mr. Newberry's deferred interest in a
signing bonus received at the outset of his employment with the Company is
shown in All Other Compensation and is described in fn. 7, below.

(2) Reflects a bonus paid on the anniversary of Ms. Johnson's employment, which
Ms. Johnson designated be used to offset the principal amount of a loan
extended by the Company to Ms. Johnson in April 1997. See "Certain
Relationships and Related Transactions," below.

(3) Includes interest earned on deferred compensation, to the extent that the
interest rate exceeded 120% of the applicable federal long-term rate.

(4) Includes $9,979 and $4,998 in Company-provided reimbursements for certain
medical and health services.

(5) No dividends are paid on restricted stock. The Company last issued
restricted stock awards in June 1996.

(6) Consists of the Company's matching contributions under the Company's 401(k)
plan in the amounts of $1,597 and $1,500 for 1999 and 1998, respectively,
and $3,141 and $3,843 for term life insurance premiums for 1999 and 1998,
respectively.

(7) Includes for fiscal 1999 $125,000 reflecting Mr. Newberry's interest in a
signing bonus received at the outset of his employment with the Company and
held in his deferred compensation account, which interest vested on the
first anniversary of his employment with the Company. See "Employment and
Termination Agreements, Change of Control Arrangements and Retirement
Benefits," "Employment Agreement with Stephen G. Newberry", below. Also
includes $1,321 and $924 for term life insurance premiums paid in 1999 and
1998, respectively.

(8) Consists of the Company's matching contributions under the Company's 401(k)
plan in the amounts of $2,606 for 1999, $2,500 for 1998 and $2,375 for
1997; and $904, $1,008 and $648 for term life insurance premiums for 1999,
1998 and 1997, respectively.

(9) Consists of the Company's matching contributions under the Company's 401(k)
plan in the amounts of $3,640 for 1999 and $6,059 for 1998; and $1,074,
$1,008 and $252 for term life insurance premiums for 1999, 1998 and 1997,
respectively.

(10) Consists of the Company's matching contributions under the Company's 401(k)
plan in the amounts of $4,326 for 1999, $3,066 for 1998 and $5,013 for
1997; and $946, $1,008 and $1,008 for term life insurance premiums for
1999, 1998 and 1997 respectively.

In fiscal 1999, all named executives agreed to a reduction in base salaries
and certain benefits in recognition of the financial environment effecting the
semiconductor equipment industry and the Company.

7
<PAGE> 11

STOCK PLANS

Amended and Restated 1991 Incentive Stock Option Plan; Amended and Restated
1997 Stock Incentive Plan; and 1999 Stock Option Plan.

The Company's Amended and Restated 1991 Incentive Stock Option Plan (the
"1991 Option Plan") permits the grant of both "incentive stock options" within
the meaning of Section 422 of the Internal Revenue Code of 1986, as amended (the
"Code"), as well as nonstatutory stock options. Only employees (including
employees of any company in which the Company owns directly or indirectly at
least 50% of the voting shares) may receive incentive stock options, while
employees, paid consultants and, in certain limited instances, outside
directors, may receive nonstatutory stock options. The Amended and Restated 1997
Stock Incentive Plan (the "1997 Option Plan") provides for the grant of
incentive stock options, nonstatutory stock options, restricted stock, deferred
stock and performance share awards to participating officers, directors,
employees, consultants and advisors of the Company and its subsidiaries. In
November 1998, the Board of Directors amended the 1997 Option Plan to allow for
re-pricing of stock options held by eligible employees who, at the time of any
such re-pricing, were not a member of the Board of Directors, a member of the
Company's senior management or a principal stockholder of the Company. Also in
November 1998, the Board of Directors approved the 1999 Stock Option Plan (the
"1999 Option Plan"). The 1999 Option Plan provides for the grant of nonstatutory
stock options to eligible employees, consultants and advisors of the Company and
its subsidiaries. However, employees who are a member of the Board of Directors,
a member of the Company's senior management or a principal stockholder of the
Company are not eligible to receive stock option awards under this plan.

During fiscal 1999, the Company granted options to purchase 924,000 shares
to all named executives as a group (5 persons), at an average exercise price of
$14.47, options to purchase 30,000 shares to all non-employee directors serving
in fiscal 1999 who were not named executives, as a group (five persons), at an
average exercise price of $18.00, and options to purchase 4,538,852 shares to
all employees in fiscal 1999 as a group (excluding named executives and
directors), at an average exercise price of $19.39.* The number of options
granted in fiscal 1999 to all employees as a group includes options granted in
conjunction with the re-pricing program approved by the Board of Directors in
November 1999 described in the preceding paragraph.

1984 Employee Stock Purchase Plan

The 1984 Employee Stock Purchase Plan (the "1984 Purchase Plan") last
issued shares in September 1998, at which time all shares reserved and available
for issuance under the plan were exhausted. As a result, all future offerings
were suspended and the plan subsequently terminated.

1999 Employee Stock Purchase Plan

The 1999 Employee Stock Purchase Plan (the "1999 Purchase Plan") was
approved by the Company's stockholders on November 5, 1998. The 1999 Purchase
Plan is implemented by periodic offerings, typically lasting twelve months (and
comprising three interim purchasing dates). The 1999 Purchase Plan is
administered by the Board of Directors of the Company or by a committee
appointed by the Board. Employees of the Company or any majority-owned
subsidiary, including officers, are eligible to participate if they are
customarily employed by the Company for at least 20 hours per week. The 1999
Purchase Plan permits eligible employees to purchase Common Stock through
payroll deductions (typically up to 15% of an employee's base compensation) at
85% of the fair market value thereof at the beginning or end of each offering
period, whichever is lower. Employees may end their participation in an offering
at any time during the offering period and participation ends automatically on
termination of employment with the Company. Three million shares of the
Company's Common Stock are reserved for issuance under the plan: 1,000,000

- ---------------

* Mr. Osamu Kano, who retired as a Director of the Company effective October 1,
1998, did not receive any option grants during fiscal 1999 and is not included
in this calculation. Mr. Emerick, who continues to provide services as an
employee of the Company, also did not receive any option grants during fiscal
1999.

8
<PAGE> 12

shares may be issued at any time and an additional share (up to 2,000,000 total
additional shares) may be issued for each share of the Company's Common Stock
which the Company redeems in public-market or private purchases and designates
for this purpose.

Performance-Based 1996 Restricted Stock Plan

In 1995, the Company adopted a Performance-Based Restricted Stock Plan,
which was implemented on January 1, 1996 (the "1996 Restricted Stock Plan").
Shares were last issued under the 1996 Restricted Stock Plan in June 1996.

OnTrak Employee Stock Purchase Plan

A total of 90,000 shares of the Company's Common Stock were reserved for
issuance to OnTrak employees who were participating in OnTrak's employee stock
purchase plan during the purchase period in which the Merger was consummated.
The OnTrak employee stock purchase plan terminated following completion of the
stock purchase period on January 31, 1999. As of September 1, 1999, no shares
remain available for purchase under the OnTrak employee stock purchase plan.

The following table provides certain information concerning the grants to
the named executives in fiscal 1999 of options to purchase the Company's Common
Stock and the potential realizable value of those options, at projected
appreciation levels.

OPTION GRANTS IN LAST FISCAL YEAR
INDIVIDUAL GRANTS TO THE NAMED EXECUTIVES IN FISCAL 1999

<TABLE>
<CAPTION>
POTENTIAL REALIZABLE VALUE,
% OF TOTAL AT ASSUMED ANNUAL RATES OF
OPTIONS EXERCISE STOCK APPRECIATION FOR OPTION
NO. OF SECURITIES GRANTED TO PRICE OF EXPIRATION TERM (10 YRS.)(2)
UNDERLYING EMPLOYEES IN OPTIONS DATE OF ------------------------------
NAME OPTIONS GRANTED FISCAL YEAR ($/SH) OPTIONS(1) 5% 10%
- ------------------------ ----------------- ------------ -------- ---------- ------------- --------------
<S> <C> <C> <C> <C> <C> <C>
James W. Bagley......... 480,000 8.79% $14.47 11/5/08(3a) $4,367,649 $11,068,517
Stephen G. Newberry..... 300,000 5.49% 14.47 11/5/08(3b) 2,729,781 6,917,823
Hsui-Sheng (Way) Tu..... 40,000 0.73% 14.47 11/5/08(3c) 363,971 922,376
Mercedes Johnson........ 80,000 1.46% 14.47 11/5/08(3d) 727,942 1,844,753
Richard H. Lovgren...... 24,000 0.44% 14.47 11/5/08(3e) 218,382 553,426
</TABLE>

- ---------------
(1) The options in this table were granted under the 1991 and 1997 Option Plans
and have a 10-year expiration term. The exercisability of outstanding stock
options may accelerate in certain circumstances (see "1984 Incentive Stock
Option Plan," "1991 Incentive Stock Option Plan" and "1997 Stock Incentive
Plan" and, with respect to options granted to Mr. Bagley and Mr. Newberry,
see "Employment Termination Agreements, Change of Control Arrangements and
Retirement Benefits," "Employment Agreement with James W. Bagley" and
"Employment Agreement with Stephen G. Newberry," below).

(2) The "potential realizable value" shown represents hypothetical gains based
on assumed annual compound stock price appreciation of 5% and 10%, from the
date of grant through the full 10-year option term, net of exercise price,
but before taxes associated with exercise. The amounts represent certain
assumed rates of appreciation only, based on the Securities and Exchange
Commission rules. Actual gains, if any, on stock option exercises depend on
the future performance of the Common Stock, overall market conditions and
the option holder's continued employment through the vesting period. The
amounts reflected in this table may not necessarily be achieved and do not
reflect the Company's actual estimate of future stock price growth.

(3) With respect to the vesting and exercisability of the granted options, the
respective option agreements executed by the named executives vary and
generally provide as follows:

(a) 120,000 shares of the options shall vest and become exercisable on
3/1/99, 3/1/2000, 3/1/2001 and 3/1/2002;

(b) 75,000 shares of the options shall vest and become exercisable on
3/1/99, 3/1/2000, 3/1/2001 and 3/1/2002;

(d) 26,300 shares of the options shall vest and become exercisable on 11/99,
26,300 shares on 3/2000 and 27,400 shares on 3/2001; and

(e) 8,000 shares of the options shall vest and become exercisable on 11/99,
3/2000 and 3/2001.

9
<PAGE> 13

The following table provides certain information concerning the exercise of
options to purchase the Company's Common Stock in the fiscal year ended June 30,
1999, and the unexercised options held as of June 30, 1999 by the named
executives.

AGGREGATED OPTION EXERCISES BY NAMED EXECUTIVES IN LAST FISCAL YEAR,
AND FISCAL YEAR-END OPTION VALUES

<TABLE>
<CAPTION>
VALUE OF UNEXERCISED
NO. OF UNEXERCISED OPTIONS IN-THE-MONEY OPTIONS
NO. OF SHARES AT FISCAL YEAR-END AT FISCAL YEAR-END(2)
ACQUIRED ON VALUE REALIZED --------------------------- ---------------------------
NAME EXERCISE ($)(1) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---------------------- ------------- -------------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
James W. Bagley....... 0 $ 0 784,000 835,000 $21,066,766 $11,598,732
Stephen G. Newberry... 0 0 108,334 591,666 3,251,836 8,920,024
Hsui-Sheng (Way) Tu... 3,235 81,684 86,922 125,898 1,695,336 2,723,189
Mercedes Johnson...... 0 0 38,750 146,250 676,875 3,726,871
Richard H. Lovgren.... 0 0 22,780 47,720 309,439 1,156,216
</TABLE>

- ---------------
(1) Market value of underlying securities at date of exercise, minus the
exercise price.

(2) Market value of underlying securities at fiscal year-end, minus the exercise
price.

EMPLOYMENT AND TERMINATION AGREEMENTS,
CHANGE OF CONTROL ARRANGEMENTS AND RETIREMENT BENEFITS

EMPLOYMENT AGREEMENT WITH JAMES W. BAGLEY

On July 1, 1997, the Company signed an employment agreement with James W.
Bagley which became effective on August 6, 1997, the day following consummation
of the Merger (the "Bagley Agreement"). The term of the Bagley Agreement is five
years, unless earlier terminated by the Company or Mr. Bagley. The Bagley
Agreement provides for a base salary at the annualized rate of $100,000. Mr.
Bagley is not entitled to participate in any performance bonus plan of the
Company, unless otherwise determined by the Board of Directors. As an incentive
to joining the Company, Mr. Bagley was granted non-qualified stock options to
purchase 250,000 shares of Common Stock (the "Incentive Options"). In lieu of
additional base compensation or participation in performance bonus plans, the
Company granted Mr. Bagley non-qualified stock options to purchase 225,000
shares of Common Stock (the "Base Options"). In November 1998, Mr. Bagley was
granted options to purchase an additional 480,000 shares of the Company's Common
Stock. Under the Bagley Agreement, Mr. Bagley is also entitled to participate in
the Company's Executive Deferred Compensation Plan and other benefit plans and
compensation programs generally maintained for other key executives of the
Company.

In the event of a change in control of the Company or the involuntary
termination of Mr. Bagley without cause, all unvested Incentive Options will
automatically be accelerated in full so as to become fully vested. Mr. Bagley
will have two years from the date of termination in which to exercise such
options. If Mr. Bagley's employment is involuntarily terminated without cause on
or after the first anniversary of the effective date of the Bagley Agreement, he
will be entitled to receive a lump sum payment of $100,000, and an automatic
vesting of any unvested portion of the Base Options that would have vested
within the 1-year period following the date of such termination (which vested
options may be exercised within two years of termination).

The Bagley Agreement provides that for a period of 12 months following Mr.
Bagley's termination of employment with the Company (other than through
expiration of the Bagley Agreement), Mr. Bagley may not perform services
respecting certain aspects of semiconductor manufacturing equipment and/or
software for anyone other than the Company, and may not solicit any of the
Company's employees to become employed by any other business enterprise.

In fiscal 1999, Mr. Bagley agreed to a reduction in base salary and certain
benefits in recognition of the financial environment effecting the semiconductor
equipment industry and the Company.

10
<PAGE> 14

EMPLOYMENT AGREEMENT WITH STEPHEN G. NEWBERRY

On August 5, 1997, the Company signed an employment agreement with Stephen
G. Newberry (the "Newberry Agreement"). The term of the Newberry Agreement is
five years, unless earlier terminated by the Company or Mr. Newberry. The
Newberry Agreement provides for a base salary at the annualized rate of
$450,000, which is to be reviewed at least annually by the Board of Directors
for possible increases. Mr. Newberry is not entitled to participate in any
performance bonus plan of the Company, unless otherwise determined by the Board
of Directors. As an incentive to joining the Company, Mr. Newberry was granted
non-qualified stock options to purchase 200,000 shares of Common Stock (the
"Incentive Options"). In lieu of additional base compensation or participation
in performance bonus plans, the Company granted Mr. Newberry non-qualified stock
options to purchase 100,000 shares of Common Stock (the "Base Options"). In
November 1998, Mr. Newberry was granted options to purchase an additional
300,000 shares of the Company's Common Stock.

Under the Newberry Agreement, Mr. Newberry is also entitled to participate
in the Company's Executive Deferred Compensation Plan and other benefit plans
and compensation programs generally maintained for other key executives of the
Company. Mr. Newberry also received a deferred signing bonus in the amount of
$500,000, the entire amount of which was held in a deferred compensation
account, pursuant to the Company's Elective Deferred Compensation Plan, with Mr.
Newberry's interest in the account vesting in equal installments of 25% on each
of the first four anniversaries following August 5, 1997.

In the event of a change in control of the Company or involuntary
termination without cause, all unvested Incentive Options will automatically be
accelerated in full so as to become fully vested, as will any Base Options that
would have vested within the 1-year period following the date of such
termination. Mr. Newberry will have two years from the date of termination in
which to exercise such options. If Mr. Newberry's employment is involuntarily
terminated without cause on or after the first anniversary of the effective date
of the Newberry Agreement, he will be entitled to receive a lump sum payment
equal to one times his then annual base compensation.

The Newberry Agreement provides that for a period of 12 months following
Mr. Newberry's termination of employment with the Company (other than through
expiration of the Newberry Agreement), Mr. Newberry may not solicit any of the
Company's employees to become employed by any other business enterprise.

In fiscal 1999, Mr. Newberry agreed to a reduction in base salary and
certain benefits in recognition of the financial environment effecting the
semiconductor equipment industry and the Company.

CHANGE OF CONTROL ARRANGEMENTS

In addition to the change of control provisions in the foregoing
agreements, the 1991, 1997 and 1999 Option Plans and the 1984 and 1999 Purchase
Plans provide that, upon a merger of the Company with or into another
corporation, or the sale of substantially all of the assets of the Company, each
outstanding option or right to purchase Common Stock shall be assumed, or an
equivalent option or right substituted by the successor corporation or a parent
or subsidiary of the successor corporation. In the event that the successor
corporation does not agree to assume the option or right, or substitute an
equivalent option or right, some or all of the options granted under the Option
Plans shall be fully exercisable and all of the rights granted under the 1984
and 1999 Purchase Plans shall be fully exercisable following the merger for a
period from the date of notice by the Board of Directors. In the case of the
1999 Option Plan, any such accelerated options will remain exercisable until
expiration of the option term. Following the expiration of such periods, the
options and rights will terminate.

RETIREMENT MEDICAL AND DENTAL BENEFITS

The Board of Directors approved a plan in July 1996 allowing executives who
retire from the Company to continue to participate in the Company's group
medical and dental plans after retirement. Additionally, in July 1998, the Board
amended the Executive Deferred Compensation Plan to provide that any participant

11
<PAGE> 15

55 years or older may petition the Board for an early distribution of benefits
under the Plan. Any such early distribution would not effect a participant's
ability to continue to participate and earn benefits under this Plan.

CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

LOAN TO ROGER D. EMERICK

In April 1996, Roger D. Emerick, then Chairman of the Board and Chief
Executive Officer of the Company, borrowed $600,000 from the Company pursuant to
a promissory note bearing interest at 5.05% per annum. In April 1997, and again
in April 1998 and April 1999, the loan was renewed by the Company. In August
1999, Mr. Emerick repaid in full the promissory note and all accrued interest.
As of September 1, 1999, no loan principal or accrued interest remains
outstanding.

LOAN TO MERCEDES JOHNSON

In connection with her initial and continued employment, the Company made
Mercedes Johnson, Vice President, Finance and Chief Financial Officer as of May
1, 1997, a loan in the amount of $150,000. The loan bears no interest and is
payable in equal annual installments over a 4-year period. On the each of the
first four anniversaries of Ms. Johnson's employment, the Company will pay Ms.
Johnson a bonus in the amount of $37,500, which amount will be used to offset
the loan. In the event Ms. Johnson terminates her employment with the Company,
she will be required to pay the outstanding balance of the loan in accordance
with its terms. As of September 1, 1999, $75,000 remains due and owing under the
loan (and subject to future offset).

LOAN TO CRAIG GARBER

In connection with his initial and continued employment, the Company made
Craig Garber, Vice President and Treasurer, a loan in September 1997 in the
amount of $60,000. The loan bears interest at 6% per annum, which is forgivable
upon complete repayment of the loan. The loan is payable in equal installments
over a 4-year period. On each of the first four anniversaries of Mr. Garber's
employment, the Company will pay Mr. Garber a bonus in the amount of $15,000,
which amount will be used to offset the loan. In the event Mr. Garber terminates
his employment with the Company, he will be required to pay the outstanding
balance of the loan in accordance with its terms. As of September 1, 1999,
$45,000 remains due and owing under the loan (and subject to future offset).

INVESTMENT IN OPTICAL SPECIALTIES, INC.

On March 28, 1997, the Company invested $4 million in an investment limited
partnership, Tribridge International, L.P. (the "Partnership"), the general
partner of which was a limited liability company, Tribridge Venture Management
LLC (the "General Partner"). Roger D. Emerick, Grant M. Inman and Osamu Kano,
each of whom was at the time of the investment a member of the Board of
Directors of the Company, were the sole owners of the General Partner. The
Partnership was organized for the purpose of investing in emerging technology
companies. Pursuant to the terms of the partnership agreement, the General
Partner would be paid an annual management fee of 1% of the Partnership's
committed capital contributions. In addition, the General Partner had a carried
interest in the Partnership of 4% of the $12.5 million in capital contributions.
On April 23, 1997, the Partnership made an investment of $2 million in Optical
Specialties, Inc. ("OSI"), a company of which Jack R. Harris was Chairman, Chief
Executive Officer and President. Former director Osamu Kano was also at the time
of the investment a director of OSI. David G. Arscott, along with Messrs. Harris
and Kano, all then held shares of OSI and were, at the time of the Partnership's
investment, all members of the Board of Directors of the Company. Effective July
1998, the Company withdrew its interest and participation in the Partnership,
receiving a distribution of its share of uncommitted capital and retaining, by
assignment from the Partnership, a residual interest in investments of the
Partnership as of the date of the Company's withdrawal (including a residual
interest in OSI).

12
<PAGE> 16

EMPLOYMENT AGREEMENT WITH ROGER D. EMERICK

In July 1996, the Company signed an employment agreement with Roger D.
Emerick, then Chairman of the Board and Chief Executive Officer of the Company.
The agreement, which became effective on July 1, 1996, provided that Mr. Emerick
was to serve as Chief Executive Officer of the Company for a period of two
years, which period extended automatically (but not beyond June 30, 2002) unless
terminated by the Company or Mr. Emerick with at least 180 days' advance notice.
In the event Mr. Emerick ceased to serve as the Chief Executive Officer of the
Company, Mr. Emerick was originally to serve as a consultant to the Company
through June 30, 2002. The agreement was amended, however, on June 26, 1997, to
provide for the continued employment of Mr. Emerick following the appointment of
James W. Bagley as Chief Executive Officer of the Company and again amended to
reflect Mr. Emerick's resignation as Chairman of the Board of Directors,
effective September 1, 1998, and continued service as an employee of the Company
(as amended, the "Emerick Agreement"). As provided in the Emerick Agreement, Mr.
Emerick's employment with the Company continued until June 30, 1998, which
period is automatically extended (but not beyond June 30, 2002), unless
terminated by the Company or Mr. Emerick with at least 180 days' advance notice,
during which time Mr. Emerick shall perform such strategic, senior-level duties
and responsibilities as the Company's Chief Executive Officer may assign to him.
Upon expiration of Mr. Emerick's employment period, Mr. Emerick shall continue
to serve as a consultant to the Company through June 30, 2002 (unless such
consultancy is otherwise terminated, as provided in the Emerick Agreement).

The Emerick Agreement provided for an initial annual base salary of
$621,857 during the employment period. Effective September 1, 1998, the salary
was adjusted to an annualized rate equivalent to $33,333 per month. The Emerick
Agreement also provides for an annual performance bonus of up to 50% of base
salary based on attainment of certain performance targets established by the
Company's Board of Directors. For services as a consultant, the Company will pay
Mr. Emerick a monthly consulting fee of $33,333. Mr. Emerick also participates
in all of the incentive compensation plans and programs generally available to
the senior management of the Company, as well as any employee benefit plan
maintained by the Company for its employees. If Mr. Emerick's employment is
involuntarily terminated without cause, he will be entitled to receive his
targeted bonus amount, plus an amount equal to the consulting fee, for the
period beginning on the date of termination and ending June 30, 2002, subject to
a maximum of 48 months, as well as certain other benefits. In addition, upon
involuntary termination without cause or a change in control of the Company, the
unvested portion of Mr. Emerick's stock options and restricted stock will
automatically be accelerated in full so as to become fully vested. The Emerick
Agreement provides that for a period of 24 months following Mr. Emerick's
termination of employment with the Company, Mr. Emerick may not perform services
for any direct competitor of the Company, and may not solicit any of the
Company's employees to become employed by any other business enterprise.

In July 1998, Mr. Emerick petitioned the Board to receive an early
distribution of benefits under the Company's Elective Deferred Compensation
Plan. Beginning September 1, 1998, Mr. Emerick received a monthly distribution
of $8,000 of benefits due him under the plan.

COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

Jack R. Harris, director of the Company since 1982, is a member of the
Compensation Committee. From 1986 through September 1999, Mr. Harris served as
Chairman, Chief Executive Officer and President of Optical Specialties, Inc.
("OSI"). The Company has invested a total of $500,000 to purchase Series A
Preferred Stock and Series E Preferred Stock of OSI in two transactions. Other
outside investors also participated in the transactions. The latter of the
transactions took place on December 14, 1994. As noted above, the limited
partnership Tribridge International, L.P. (the "Partnership") invested $2
million in OSI on April 23, 1997; however, the Company no longer holds a direct
interest in OSI or the Partnership. See "Certain Relationships and Related
Transactions," above.

Grant M. Inman, director of the Company since 1981, is a member of the
Compensation Committee. At the time of the Company's investment in the
Partnership, Mr. Inman was a stockholder of Tribridge Venture

13
<PAGE> 17

Management LLC (the General Partner of the Partnership), which was paid an
annual management fee of 1% of the committed capital contributions of the
Partnership.

REPORT OF THE COMPENSATION COMMITTEE

Notwithstanding anything to the contrary set forth in any of the Company's
previous filings under the Securities Act of 1933, as amended ("Securities
Act"), or the Securities Exchange Act of 1934, as amended ("Exchange Act"), that
might incorporate all or portions of future filings, including this Proxy
Statement, the following Report of the Compensation Committee, and the
Performance Graph below, shall not be incorporated by reference into any such
filings, nor shall they be deemed to be soliciting material or deemed filed with
the Securities and Exchange Commission ("SEC") under the Securities Act or the
Exchange Act.

The Compensation Committee (the "Committee") of the Board of Directors,
composed of three non-employee directors, determines and administers the
Company's executive compensation policies and programs. This committee also
approves grants of stock options, restricted stock, deferred stock and
performance share awards to officers and other employees of the Company.

COMPENSATION POLICIES

One of the Committee's primary goals in setting compensation policies is to
maintain competitive, progressive programs to attract, retain and motivate
high-caliber executives, foster teamwork and maximize the long-term success of
the Company by appropriately rewarding such individuals for their achievements.
Another goal is to provide an incentive to executives to focus efforts on
long-term strategic goals for the Company by closely aligning their financial
interests with stockholder interests. To attain these goals, the Committee has
designed the Company's executive compensation program to include base salary,
annual incentives and long-term incentives.

In formulating and administering the individual elements of the Company's
executive compensation program, the Committee emphasizes planning, implementing
and achieving long-term objectives and strives to use prudent judgment in
establishing performance objectives, evaluating performance and determining
actual incentive awards.

The Committee believes that the Company's executive compensation programs
have met these objectives. The Company has been able to attract and retain the
executive talent necessary to support the corporation and promote long-term
growth. The Company has also been able to reduce the payment of bonuses during
those periods, such as fiscal 1999, in which the Company's revenue and gross
margins were depressed.

COMPENSATION COMPONENTS

Base Salary

The Committee establishes the base salaries of executive officers, after
review of relevant data of other executives with similar responsibilities from
published industry reports and surveys of similarly situated companies.
Accordingly, the Committee strives to maintain the Company's annual executive
salaries at levels competitive with the market average base salaries of
executive officers in similar positions. The market comprises similarly sized
high-technology companies within and outside the Company's industry. In
addition, a large portion of each executive officer's compensation may be annual
incentives in the form of a cash bonus, provided certain target performance
objectives are met.

Annual Incentives

Incentive bonuses may be provided to executives as part of a competitive
compensation package. The bonus levels are intended to provide the appropriate
elements of variability and risk. Bonus payments may be tied specifically to
targeted corporate performance. The Committee will establish a base bonus
amount, determined through review of a competitive market survey for executives
at similar levels, which will be

14
<PAGE> 18

incrementally reduced if the Company does not meet its targeted performance or
increased if the Company exceeds its targeted performance. There is no minimum
or maximum percentage by which a bonus can be reduced or increased.

Long-Term Incentives

Stock Options

The Committee grants stock options to focus an executive's attention on the
long-term performance of the Company and on maximizing stockholder value. The
grant of stock options is closely tied to individual executive performance. The
Committee grants such stock options after a review of various factors, including
the executive's potential contributions to the Company, current equity ownership
in the Company and vesting rates of existing stock options, if any. Stock
options are granted with an exercise price equal to the current fair market
value of the Company's stock and utilize vesting periods intended to encourage
retention of executive officers. Because of the direct benefit executive
officers receive through improved stock performance, the Committee believes
stock options serve to align the interests of executive officers closely with
those of other stockholders.

Restricted Stock

Restricted stock awards may be granted to executives under the 1996
Restricted Stock Plan (which was approved by the Company's stockholders in
1995). The award of restricted stock is based on the Company's performance
measured against quarterly targets. Because the restricted stock does not vest
until five years after the date of the award, the 1996 Restricted Stock Plan is
expected to serve as a retention tool, as well as a means of aligning executive
and stockholder interests. Shares were last issued under the Restricted Stock
Plan in June 1996.

Deferred Compensation Plan

Another component of the Company's executive compensation program is the
Executive Deferred Compensation Plan (the "Deferred Plan"), a voluntary,
non-tax-qualified, deferred compensation plan that encourages officers to save
for retirement. Under the Deferred Plan, participants are entitled to defer
compensation until retirement, death, other termination of employment, or until
specified dates. As amended by the Board in July 1998, Deferred Plan
participants 55 years or older may petition the Board for an early distribution
of benefits, which early distribution would not affect the participant's ability
to continue to participate or earn benefits under the Deferred Plan.
Participants receive a fixed-rate yield based on the average annual interest
rate of 10-year United States Treasury Notes for the previous ten years. An
enhanced yield of up to 115% of the fixed-rate yield will be payable in the
event of death, retirement under certain circumstances, and termination of
employment after plan participation for a specified number of years. Because the
benefits of the Deferred Plan increase with each year of participation, offering
the Deferred Plan to executives encourages them to stay with the Company.

COMPENSATION OF CHIEF EXECUTIVE OFFICER

The Committee bases the compensation of the Company's Chief Executive
Officer on the policies and procedures described above. In determining the Chief
Executive Officer's base salary and bonus (if any), the Committee examines
compensation levels for other chief executive officers in high-technology firms
within and outside the industry. The Committee compares this information to the
relevant performance of such firms relative to the Company's performance.

James W. Bagley

In accordance with the Bagley Agreement, Mr. Bagley, Chief Executive
Officer since August 6, 1997, was to receive a base salary in fiscal 1999 of
$100,000. However, Mr. Bagley agreed to reduce his base salary and certain
benefits to $91,704 in recognition of the financial environment effecting the
semiconductor equipment industry and the Company. Mr. Bagley is not entitled to
participate in any performance bonus plan

15
<PAGE> 19

of the Company, unless otherwise determined by the Board of Directors. As an
incentive to joining the Company, Mr. Bagley was granted in 1997 non-qualified
stock options to purchase 475,000 shares of Common Stock and received an
additional grant in fiscal 1999 of options to purchase 480,000 shares of Common
Stock. See the discussion of Mr. Bagley's Employment Agreement in "Employment
and Termination Agreements, Change of Control Arrangements and Retirement
Benefits," above.

EFFECT OF SECTION 162(M) OF THE INTERNAL REVENUE CODE

Section 162(m) of the Code generally limits the corporate deduction for
compensation paid to certain executive officers to $1 million, unless the
compensation is performance-based. The Committee has carefully considered the
potential impact of this tax code provision on the Company and has concluded in
general that the best interests of the Company and the stockholders will be
served if certain of the Company's stock-based long-term incentives qualify as
performance-based compensation within the meaning of the Code. It is the
Committee's intention that, so long as it is consistent with the Company's
overall compensation objectives, virtually all executive compensation will be
deductible by the Company for federal income tax purposes.

COMPENSATION COMMITTEE
David G. Arscott
Jack R. Harris
Grant M. Inman

16
<PAGE> 20

COMPARATIVE STOCK PERFORMANCE

Set forth below is a line graph comparing the cumulative total stockholder
return on the Company's Common Stock ("LRCX") for the last five fiscal years
against the cumulative total return on the Nasdaq National Market Index (U.S.
companies only) ("NASDAQ") and the Solomon Smith Barney Semiconductor Equipment
Index ("SSB") over the same period. The graph and table assume that the
investment in Lam Common Stock and each index was $100 on July 1, 1994, and that
dividends, if any, were reinvested. This data was furnished by Salomon Smith
Barney. The Nasdaq National Market Index and the Solomon Smith Barney
Semiconductor Equipment Index are based on a calendar year. The Company's return
is based on its fiscal year. The stock price performance shown on the graph is
not necessarily indicative of future price performance.

LAM RESEARCH CORPORATION
SALOMON SMITH BARNEY SEMICONDUCTOR EQUIPMENT INDEX
NASDAQ NATIONAL MARKET -- U.S. INDEX

PROPOSAL NO. 2
RATIFICATION OF APPOINTMENT OF
INDEPENDENT AUDITORS

Unless marked to the contrary, proxies received will be voted "FOR" the
ratification of the appointment of Ernst & Young LLP as the independent auditors
for the Company for the current fiscal year. Ernst & Young LLP has been the
Company's independent auditors since fiscal year 1981.

The audit services of Ernst & Young LLP during fiscal 1999 included the
examination of the consolidated financial statements of the Company and services
related to filings with the SEC and other regulatory bodies.

17
<PAGE> 21

The Audit Committee of the Company meets with Ernst & Young LLP on an
annual or more frequent basis. At such time, the Audit Committee reviews both
audit and non-audit services performed by Ernst & Young LLP for the preceding
year, as well as the fees charged for such services. Among other things, the
Committee examines the effect that the performance of non-audit services may
have upon the independence of the auditors.

A representative of Ernst & Young LLP is expected to be present at the
Annual Meeting and will have an opportunity to make a statement if he or she so
desires. The representative will also be available to respond to appropriate
questions from the stockholders.

Approval of Proposal No. 2 will require the affirmative vote of a majority
of the outstanding shares of Common Stock present or represented and entitled to
vote at the Annual Meeting.

THE BOARD OF DIRECTORS OF THE COMPANY RECOMMENDS A VOTE "FOR"
THE RATIFICATION OF THE APPOINTMENT OF ERNST & YOUNG LLP AS
INDEPENDENT AUDITORS FOR FISCAL YEAR 2000.

SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE

Section 16(a) of the Exchange Act requires the Company's executive
officers, directors and persons who own more than 10% of a registered class of
the Company's equity securities to file an initial report of ownership on Form 3
and changes in ownership on Forms 4 or 5 with the SEC. Executive officers,
directors and greater than 10% stockholders are also required by SEC rules to
furnish the Company with copies of all Section 16(a) forms they file. Specific
due dates for these reports have been established, and the Company is required
to disclose in this Proxy Statement any failure to file such reports on a timely
basis. Based solely on its review of the copies of such forms received by it, or
written representations from certain reporting persons, the Company believes
that all of these requirements were satisfied during the last fiscal year.

OTHER MATTERS

The Company knows of no other matters to be submitted to the meeting. If
any other matters properly come before the meeting, it is the intention of the
proxy holders named in the enclosed form of Proxy to vote the shares they
represent as the Board of Directors may recommend.

It is important that your stock be represented at the meeting, regardless
of the number of shares which you hold. You are, therefore, urged to execute and
return, at your earliest convenience, the accompanying proxy card in the
envelope which has been enclosed.

By Order of the Board of Directors,

LOGO
Richard H. Lovgren
Secretary

Fremont, California
Dated: October 12, 1999

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<PAGE> 22
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
OF
LAM RESEARCH CORPORATION
IN CONJUNCTION WITH THE
1999 ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON
NOVEMBER 4, 1999

The undersigned stockholder of LAM RESEARCH CORPORATION, a Delaware
corporation (the "Company"), hereby acknowledges receipt of the Notice of
Annual Meeting of Stockholders and Proxy Statement, each dated October 12,
1999, and 1999 Annual Report to Stockholders, and hereby appoints James W.
Bagley and Richard H. Lovgren, or either of them, proxies and
attorneys-in-fact, with full power to each of substitution, on behalf and in
the name of the undersigned, to represent the undersigned at the 1999 Annual
Meeting of Stockholders of LAM RESEARCH CORPORATION to be held on Thursday,
November 4, 1999 at 11:00 a.m. local time, at the principal executive offices
of the Company at 4650 Cushing Parkway, Fremont, California 94538, and for any
adjournment or adjournments thereof, and to vote all shares of Common Stock
which the undersigned would be entitled to vote if then and there personally
present, on the matters set forth below and, in their discretion, upon such
other matter or matters which may properly come before the meeting or any
adjournment or adjournments thereof.

THIS PROXY WILL BE VOTED AS DIRECTED OR, IF NO CONTRARY DIRECTION IS
INDICATED, WILL BE VOTED FOR THE ELECTION OF DIRECTORS, FOR THE RATIFICATION OF
THE APPOINTMENT OF ERNST & YOUNG LLP AS INDEPENDENT AUDITORS FOR THE CURRENT
FISCAL YEAR AND, AS SAID PROXIES DEEM ADVISABLE, ON SUCH OTHER MATTER OR
MATTERS AS MAY PROPERLY COME BEFORE THE MEETING.

CONTINUED AND TO BE SIGNED ON REVERSE SIDE
<PAGE> 23
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF THE COMPANY.

1. Election of Directors:

FOR all nominees listed WITHHOLD
below (except as
indicated)

[ ] [ ]

(IF YOU WISH TO WITHHOLD AUTHORITY TO VOTE FOR ANY INDIVIDUAL NOMINEE, STRIKE A
LINE THROUGH THAT NOMINEE'S NAME IN THE LIST BELOW)

James W. Bagley; Roger D. Emerick; David G. Arscott; Richard J. Elkus, Jr.; Jack
R. Harris; Grant M. Inman; Kenneth M. Thompson

2. Proposal to ratify the appointment of Ernst & Young LLP as the independent
auditors of the Company for the fiscal year 2000:

For Against Abstain
[ ] [ ] [ ]

(This Proxy should be marked, dated and signed by the stockholder(s)
exactly as his or her name appears hereon, and returned promptly in the
enclosed envelope. Persons signing in a fiduciary capacity should so indicate.
If shares are held by joint tenants or as community property, all such
stockholders should sign.)

Signature(s):

- ----------------------------------------

Dated: --------------------------, 1999
(Be sure to date Proxy.)

Please mark, sign, date and return the proxy card promptly, using the enclosed
return-addressed and postage-paid envelope.