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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:
[X] Preliminary Proxy Statement
[ ] Confidential, for Use of the Commission Only
[ ] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to sec.240.14a-11(c) or sec.240.14a-12
SILICON VALLEY GROUP, INC.
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(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] $125 per Exchange Act Rules 0-11(c)(1)(ii), 14a-6(i)(1) or 14a-6(i)(2).
[ ] $500 per each party to the controversy pursuant to Exchange Act Rule
14a-6(i)(3).
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
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(2) Aggregate number of securities to which transaction applies:
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(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.):
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(4) Proposed maximum aggregate value of transaction:
(5) Total fee paid:
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[ ] Fee paid previously with preliminary materials.
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[ ] 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,
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PRELIMINARY COPY
SILICON VALLEY GROUP, INC.
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD FEBRUARY 20, 1997
The Annual Meeting of Stockholders of SILICON VALLEY GROUP, INC., a
Delaware corporation (the "Company"), will be held at the Company's offices
located at 2240 Ringwood Avenue, San Jose, California, on Thursday, February 20,
1997, at 3:00 p.m., Pacific Time, for the following purposes:
1. To approve an amendment to the Company's Certificate of Incorporation
to provide for a classified Board of Directors, divided into three
classes with one class to be elected each year.
2. To elect two Class I directors to serve a term of one year, elect two
Class II directors to serve a term of two years, and elect two Class
III directors to serve a term of three years, or until their
respective successors are elected.
3. To approve an amendment to the Company's Certificate of Incorporation
to require all stockholder action be taken at a meeting of
stockholders.
4. To approve an amendment to the Company's Certificate of Incorporation
to eliminate cumulative voting in the election of directors.
5. To approve the adoption of the Company's 1996 Stock Plan and to
reserve 1,500,000 shares for issuance thereunder.
6. To transact such other business as may properly come before the
meeting or any adjournment thereof.
Stockholders of record at the close of business on December 23, 1996 will
be entitled to vote at the meeting.
By Order of the Board of Directors
LARRY W. SONSINI
Secretary
San Jose, California
January 8, 1997
IMPORTANT: TO ASSURE THAT YOUR SHARES ARE REPRESENTED AT THE MEETING PLEASE
FILL IN, DATE, SIGN AND MAIL PROMPTLY THE ENCLOSED PROXY IN THE POSTAGE-PREPAID
ENVELOPE PROVIDED. IF YOU ATTEND THE MEETING, YOU MAY CHOOSE TO VOTE IN PERSON
EVEN THOUGH YOU HAVE SENT IN YOUR PROXY.
<PAGE> 3
PRELIMINARY COPY
SILICON VALLEY GROUP, INC.
101 METRO DRIVE, SUITE 400
SAN JOSE, CALIFORNIA 95110
PROXY STATEMENT
GENERAL
The accompanying proxy is solicited by the Board of Directors of Silicon
Valley Group, Inc., a Delaware corporation (the "Company"), for use at the
Annual Meeting of Stockholders to be held on February 20, 1997, at 3:00 p.m.,
Pacific Time, or at any adjournment thereof. The meeting will be held at the
Company's offices located at 2240 Ringwood Avenue, San Jose, California 95131.
The Company's telephone number at that address is (408) 434-0500. At the
meeting, only stockholders of record at the close of business on December 23,
1996 will be entitled to vote. On that date, the Company's outstanding capital
stock consisted of [30,177,634] shares of Common Stock.
This Proxy Statement and form of proxy were first sent or given to
stockholders on or about January 8, 1997, together with the Company's 1996
Annual Report to Stockholders.
VOTING AND SOLICITATION
Each stockholder is entitled to one vote for each share of Common Stock
held on all matters presented at the meeting. However, if any stockholder at the
meeting and prior to the voting gives notice of the stockholder's intention to
cumulate votes for the election of directors, then all stockholders may (i)
cumulate their votes and give any one candidate a number of votes equal to the
number of directors to be elected multiplied by the number of votes to which
their shares are entitled; or (ii) distribute their votes on the same principle
among as many candidates as they choose, up to a maximum of five candidates.
The cost of solicitation of proxies will be borne by the Company. The
Company may also reimburse brokerage houses and other custodians, nominees and
fiduciaries for their expenses incurred in forwarding solicitation materials to
the beneficial owners of shares held of record by such persons. It is
contemplated that proxies will be solicited principally through the mail, but
directors, officers and regular employees of the Company may, without additional
compensation, solicit proxies personally or by telephone, facsimile or special
letter. In addition, the Company has retained Corporate Investor Communications,
Inc. at an estimated cost of $10,500 plus reimbursement of expenses, to assist
in the solicitation of proxies from brokers, nominees, institutions and
individuals.
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 Secretary of the
Company a written notice of revocation or a duly executed proxy bearing a later
date, or by attending the meeting and voting in person.
QUORUM; ABSTENTIONS; BROKER NON-VOTES
The required quorum for the transaction of business at the Annual Meeting
is a majority of the votes eligible to be cast by holders of shares of Common
Stock issued and outstanding on the Record Date. Shares that are voted "FOR,"
"AGAINST" or "WITHHELD FROM" a matter are treated as being present at the
meeting for purposes of establishing a quorum and are also treated as shares
entitled to vote at the Annual Meeting (the "Votes Cast") with respect to such
matter.
While there is no definitive statutory or case law authority in Delaware as
to the proper treatment of abstentions, the Company believes that abstentions
should be counted for purposes of determining both (i) the presence or absence
of a quorum for the transaction of business and (ii) the total number of Votes
Cast with respect to a proposal (other than the election of directors). In the
absence of controlling precedent
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to the contrary, the Company intends to treat abstentions in this manner.
Accordingly, abstentions will have the same effect as a vote against the
proposal.
In a 1988 Delaware case, Berlin v. Emerald Partners, the Delaware Supreme
Court held that, while broker non-votes should be counted for purposes of
determining the presence or absence of a quorum for the transaction of business,
broker non-votes should not be counted for purposes of determining the number of
Votes Cast with respect to the particular proposal on which the broker has
expressly not voted. Accordingly, the Company intends to treat broker non-votes
in this manner. Thus, a broker non-vote will not affect the outcome of the
voting on a proposal (other than the proposals to amend the Certificate of
Incorporation of the Company).
PROPOSED AMENDMENTS OF THE COMPANY'S CERTIFICATE OF INCORPORATION AND
BYLAWS TO ADOPT CERTAIN ANTI-TAKEOVER MEASURES
At the Annual Meeting, the stockholders are being asked to consider several
proposals to amend provisions of the Company's Certificate of Incorporation. The
Board of Directors of the Company has voted unanimously to authorize the
proposed amendments to the Certificate of Incorporation and to recommend such
proposed amendments to the stockholders for adoption. The purpose and intended
effect of the proposed amendments are to render the Company a less attractive
target for unfriendly acquisition by an outsider by making it more difficult for
such a person to obtain control of the Company. The Board of Directors believes
that the proposed defensive measures are in the best interests of the Company
and its stockholders. The proposed amendments are: (i) to classify the Board of
Directors into three equal classes serving staggered three-year terms ("Proposal
One"); (iii) to provide that stockholder action may be taken only at annual or
special meetings of stockholders and not by stockholder written consent
("Proposal Three"); and (iv) to eliminate cumulative voting ("Proposal Four").
The overall impact of the amendment may be to render more difficult or
discourage attempts to assume control of the Company by means of a merger or
tender offer which is not negotiated with the Board of Directors (even if such
transaction would result in a premium over the market price for the shares of
Common Stock held by the stockholders or is otherwise favorable to the interests
of the stockholders).
The Board believes that companies can be and are acquired and changes in
control of companies can and do occur at prices below realistically achievable
levels when boards do not have measures in place to require an acquiror to
negotiate the terms of any acquisition directly with the board. Many companies,
with stockholder approval, have put provisions in place which effectively
require such negotiations. While it is possible for such measures to be misused
to resist reasonable takeover actions contrary to stockholders' interests, the
Board of Directors of the Company is aware of, and committed to, its fiduciary
obligations not to misuse such provisions.
These proposals are not made in response to any efforts of which the
Company is aware to accumulate the Company's stock or to obtain control of the
Company. The Board of Directors does not currently contemplate recommending to
the stockholders for their approval any further measures which would affect the
ability of third parties to change control of the company.
EXISTING TAKEOVER DEFENSES
Restated Certificate of Incorporation. Except as described below, the
Company's Certificate of Incorporation does not contain provisions the Company
intends or knows to have an anti-takeover effect. The Certificate of
Incorporation currently authorizes the issuance of 100,000,000 shares of Common
Stock and 1,000,000 shares of authorized but undesignated shares of Preferred
Stock, not all of which have been issued or reserved. The authorized and
available Common Stock and Preferred Stock could (within the limits imposed by
applicable law and the rules of the Nasdaq Stock Market) be issued by the
Company and used to discourage a change in control of the Company. Moreover, the
undesignated shares of Preferred Stock may be issued by the Board of Directors
from time to time without the approval of stockholders and could have rights and
privileges which adversely affect voting power or other rights and preferences
of the Common Stock. The
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Board of Directors has authorized the issuance of 50,000 shares of Preferred
Stock designated as Series A Participating Preferred Stock under the
circumstances described below.
Stockholder Rights Plan. On September 25, 1996 the Board of Directors of
the Company approved and adopted a stockholder rights plan (the "Rights Plan")
and declared a dividend of one Preferred Share Purchase Right (a "Right") for
each outstanding share of Common Stock to stockholders of record on October 15,
1996 (the "Record Date"). Each Right entitles the registered holder to purchase
from the Company one one-thousandth of a share (a "Unit") of Series A
Participating Preferred Stock, $0.01 par value per share, at an exercise price
of $125.00 in cash per Unit, subject to adjustment (the "Exercise Price").
Pursuant to the Rights Plan, the Rights automatically attach to and trade
together with each share of Common Stock. The Rights will not be exercisable or
transferable separately from the shares of Common Stock to which they are
attached until the earlier of (i) 10 days following a public announcement that a
person or group of affiliated or associated persons (an "Acquiring Person") has
acquired, or obtained the right to acquire, beneficial ownership of 15% or more
of the outstanding shares of Common Stock (a "Shares Acquisition Date"), or (ii)
10 days following the commencement of a tender offer or exchange offer that
would result in an Acquiring Person individually owning 15% or more of the
outstanding shares of Common Stock (the earlier of such dates being referred to
as the "Distribution Date"). The events described in this paragraph are referred
to as "Triggering Events."
The Rights will expire at the close of business September 25, 2006 unless
earlier redeemed or exchanged by the Company in accordance with the Rights Plan.
The Rights are redeemable, under certain circumstances, for $0.01 per Right.
Upon the occurrence of any Triggering Event (other than pursuant to a
tender offer for all outstanding shares deemed adequate and in the best
interests of the Company and its stockholders by the Board of Directors (a
"Permitted Offer") and other than by certain persons who exceed such 15%
threshold inadvertently or without an intention to change or influence control
of the Company), then each Right (other than the Rights owned by an Acquiring
Person or its affiliates) will entitle the holder thereof to purchase, for the
Exercise Price, a number of shares of the Company's Common Stock having a then
current market value of twice the Exercise Price.
If, after the Shares Acquisition Date, (i) the Company merges into another
entity, (ii) an acquiring entity merges into the Company or (iii) the Company
sells more than 50% of the Company's assets or earning power, then each Right
(other than Rights owned by an Acquiring Person or its affiliates) will entitle
the holder thereof to purchase, for the exercise price, a number of shares of
Common Stock of the person engaging in the transaction having a then current
market value of twice the exercise price (unless the transaction satisfies
certain conditions and is consummated with a person who acquired shares pursuant
to a Permitted Offer, in which case the Rights will expire).
Employee Common Stock Option Agreements. The Company's stock option plans
contain "change-of-control" provisions requiring the acceleration of stock
options and compensation under certain circumstances. While these measures were
not adopted to deter takeovers, they may have an incidental anti-takeover effect
by making it more expensive for a bidder to acquire control of the Company.
Delaware "Anti-takeover" Statute. The Company is subject to Section 203 of
the General Corporation Law (the "Delaware Law"), an antitakeover law. The
Delaware Law prohibits the Company from engaging in a business combination with
an interested stockholder during the three-year period after the transaction by
which the stockholder became an interested stockholder, unless one of three
conditions is met. The term "interested stockholder" generally means any owner
of 15% or more of the voting stock of the Company, although the term is defined
more completely in the statute. The three conditions are (1) approval by the
Board of Directors of the Company of the business combination or the transaction
which resulted in the stockholder becoming an interested stockholder prior to
such transaction, (2) the ownership by the stockholder of more than 85% of the
voting stock upon consummation of the transaction which resulted in the
stockholder becoming an interested stockholder (excluding shares held by
directors who are officers or held in certain employee stock plans) and (3)
approval of the business combination by the Board of Directors and by
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the affirmative vote of at least 66 2/3% of the outstanding shares of voting
stock not owned by the interested stockholder at a meeting of stockholders on or
subsequent to the date of such transaction.
Although this statute offers certain protection against "two-step"
acquisitions of the Company, which in the Board of Directors' opinion are often
coercively or unfairly structured, it offers no protection against the second
step if an acquiror obtains 85% of the voting stock in a tender offer, or if the
acquiror simply elects to take control of the Company and wait for three years
before completing the second step. Therefore, the statute may not provide
adequate protection against coercive and unfair attempts to take control of the
Company.
PROPOSED ADDITIONAL TAKEOVER DEFENSES
The possible anti-takeover effects of the proposed amendments to the
Certificate of Incorporation which stockholders are being asked to consider at
the meeting are described below. The following summary descriptions of the
proposed amendments are not intended to be complete and are qualified in their
entirety by reference to the complete texts of the amendments, which appear as
ANNEX A.
Approval of each of Proposals One, Three and Four requires the affirmative
vote of holders of a majority of the outstanding shares of the Company's Common
Stock entitled to vote in person or by proxy at the Annual Meeting.
Adoption of each of the proposed amendments also requires the approval of
the Board of Directors. The Board of Directors has unanimously voted to approve
each amendment.
If any of Proposals One, Three or Four is adopted by the requisite vote of
the stockholders, then elimination or amendment of the defensive measures
instituted by such proposals would require approval of 66.67% or more of the
outstanding Common Stock.
THE BOARD OF DIRECTORS BELIEVES THAT THE PROPOSED AMENDMENTS ARE IN THE
BEST INTERESTS OF THE COMPANY AND ITS STOCKHOLDERS AND UNANIMOUSLY RECOMMENDS A
VOTE FOR APPROVAL OF EACH OF THE PROPOSED AMENDMENTS.
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PROPOSAL ONE:
AMENDMENT TO THE CERTIFICATE OF
INCORPORATION TO CLASSIFY THE BOARD OF DIRECTORS
The Board of Directors of the Company proposes to amend Article IX of the
Company's Certificate of Incorporation to provide that the Board of Directors be
divided into three classes of directors serving staggered three-year terms.
Currently, directors are elected annually to serve one-year terms ("Proposal
One").
Proposal One would create three classes of directors, each consisting as
nearly as possible of one-third of the members of the Board, with one class to
be elected each year. Members of all three classes would be elected initially at
the 1997 Annual Meeting. If Proposal One is approved and the slate of six
directors proposed for election at the 1997 Annual Meeting is elected, they
would be elected in three separate classes as follows: two "Class I Directors"
would be elected for a term expiring at the 1998 Annual Meeting; two "Class II
Directors" would be elected for a term expiring at the 1999 Annual Meeting; and
two "Class III Directors" would be elected for a term expiring at the 2000
Annual Meeting. At each annual meeting after the 1997 Annual Meeting, only
directors of the class whose term is expiring that year would be required to
stand for election, and upon election each such director would serve a
three-year term.
The number of directors to be elected at the 1997 Annual Meeting is six,
which is within the range currently specified in the Company's Bylaws for the
size of the Board. The Board of Directors has no present plans, arrangements,
commitments or understandings with respect to increasing or decreasing the size
of the Board or any class of directors.
If Proposal One is approved, the Company's Certificate of Incorporation
will be amended to revise Article IX as set forth above. The text of Article IX
as proposed to be revised, is set forth in ANNEX A.
The Board of Directors of the Company believes that the adoption of
Proposal One is advantageous to the Company and its stockholders for a number of
reasons. As discussed above, public companies are potentially subject to
attempts by various individuals and entities to acquire significant minority
positions with the intent either of obtaining actual control by electing their
own slate of directors, or of achieving some other goal, such as the repurchase
of their shares by the company at a premium. Public companies also are
potentially subject to inadequately priced or coercive bids for control through
majority share ownership. These prospective acquirors may be in a position to
elect the majority of a company's board of directors (or, if cumulative voting
is eliminated, its entire board) through a proxy contest or otherwise, even
though they do not actually own a majority of a company's outstanding shares at
the time. If Proposal One is approved, a majority of the Company's directors
could not be replaced by such persons until at least two annual meetings of
stockholders have occurred, unless the proponent of removal achieved sufficient
votes to remove the entire Board of Directors pursuant to the provisions of
Delaware General Corporations Law Section 141. By eliminating the possibility of
the sudden removal of the Board, the incumbent Board will be given the time and
opportunity to evaluate any proposals for acquisition of control of the Company
and assess and develop alternatives without the pressure created by the threat
of imminent removal or loss of control, in a manner consistent with their
responsibility to the Company's stockholders.
In addition, by allowing directors to serve three-year terms rather than
one-year terms, Proposal One will enhance the continuity and stability of both
the composition of the Company's Board of Directors and the policies formulated
by the Board. This will enhance the Board's ability to adopt and implement long
term business strategies aimed at increasing stockholder value. The Board
believes, therefore, that removing the threat of sudden removal will permit it
more effectively to represent the interests of all stockholders, including
responding to demands or actions by any stockholder or group.
If Proposal One were adopted, it will generally take at least two annual
meetings of stockholders to elect a majority of the Board. Proposal One may
therefore discourage persons from attempting to acquire control of the Company
without the consent of the Board of Directors because its provisions would
operate to delay such person's ability to obtain control of the Board of
Directors. In addition, Proposal One would similarly delay stockholders who do
not approve of policies of the Board in their attempt to replace a majority of
the directors. For the same reason, the adoption of Proposal One may also deter
certain mergers, tender offers or other
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takeover attempts which some or a majority of holders of the Company's voting
stock may deem to be in their best interests.
The Board of Directors of the Company has no knowledge of any present
effort to gain control of the Company or to organize a proxy contest. In
addition, the Company has not experienced any problems in the past or at the
present time with the Board's continuity or stability. However, the Board
believes that adopting Proposal One is prudent, advantageous and in the best
interests of stockholders because it will give the Board more time to fulfill
its responsibilities to stockholders and it will provide greater assurance of
continuity and stability in the composition and policies of the Board of
Directors. The Board also believes such advantages outweigh any disadvantages
relating to discouraging potential acquirors from attempting to obtain control
of the Company.
Approval of Proposal One requires the affirmative vote of a majority of
outstanding shares of Common Stock as of the Record Date. THE BOARD OF DIRECTORS
UNANIMOUSLY RECOMMENDS A VOTE FOR APPROVAL OF PROPOSAL ONE.
PROPOSAL TWO:
ELECTION OF TWO CLASS I DIRECTORS, TWO CLASS II DIRECTORS,
AND TWO CLASS III DIRECTORS
The persons named in the enclosed proxy will vote to elect as directors the
six nominees named below, unless the proxy is marked otherwise. All nominees are
currently directors of the Company. If a person other than a management nominee
is nominated, the proxy holders may choose to cumulate their votes and allocate
them among such nominees of management as the proxy holders shall determine in
their discretion in order to elect as many nominees of management as possible.
The six candidates receiving the highest number of votes will be elected. The
proxy holders have also advised that, in the event any nominee is unavailable
for election, which is not currently anticipated, they may vote in accordance
with their judgment for the election of substitute nominees designated by the
Board.
If the stockholders approve the proposed amendment to the Company's
Certificate of Incorporation providing for the classification of the Board of
Directors into three classes, as described above, two Class I Directors (William
Martin and Nam Suh) will be elected for a one-year term expiring at the 1998
Annual Meeting of Stockholders, two Class II Directors (William Hightower and
Larry Sonsini) will be elected for a two-year term expiring at the 1999 Annual
Meeting of Stockholders and two Class III Directors (Papken Der Torossian and
Lawrence Tomlinson), will be elected for a threeyear term expiring at the 2000
Annual Meeting of Stockholders, in all cases subject to the election and
qualification of their successors and to their earlier death, resignation or
removal. If this proposed amendment to the Certificate of Incorporation is not
adopted, all six directors will be elected for a one-year term expiring at the
1998 Annual Meeting of Stockholders, subject to the election and qualification
of their successors and to their earlier death, resignation or removal.
The following table sets forth information concerning the nominees for
director.
<TABLE>
<CAPTION>
YEAR DIRECTOR
NAME BORN SINCE PRINCIPAL OCCUPATION
- ------------------------------ ---- -------- -----------------------------------------------
<S> <C> <C> <C>
Papken S. Der Torossian(3).... 1938 1984 Chairman of the Board of Directors since 1991;
Director since 1984; Chief Executive Officer
since February 1986; President from 1984 to
1991. Mr. Der Torossian has previously held a
variety of management and executive positions,
including 12 years in engineering management at
Hewlett-Packard Company.
</TABLE>
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<TABLE>
<CAPTION>
YEAR DIRECTOR
NAME BORN SINCE PRINCIPAL OCCUPATION
- ------------------------------ ---- -------- -----------------------------------------------
<S> <C> <C> <C>
William A. Hightower(l)(2).... 1943 1994 Chairman of the Board of Directors of Cadnet
Corp. since 1996. Prior to joining Cadnet in
1996, Mr. Hightower was President and Chief
Executive Officer of Telematics International,
Inc. Mr. Hightower also serves as a director of
Jotan, Inc.
William L. Martin(1)(2)(3).... 1923 1986 Private investor; Chief Executive Officer of
Plantronics, Inc. prior to his retirement in
1980; founder and chief executive officer of
Zehntel, Inc. until 1978.
Larry W. Sonsini.............. 1941 1991 Member and Chairman of the Executive Committee
of Wilson Sonsini Goodrich & Rosati, attorneys.
Mr. Sonsini also serves as a director of
Lattice Semiconductor Corporation, Novell,
Inc., PIXAR, and Pure Atria Corporation.
Nam P. Suh(3)................. 1936 1994 Cross Professor of Manufacturing and Mechanical
Engineering, Head of the Department of
Mechanical Engineering and Director of the
Manufacturing Institute at the Massachusetts
Institute of Technology. Dr. Suh is also the
Founder and a member of the Board of Trexel,
Inc. Dr. Suh served as Assistant Director of
the National Science Foundation from 1984 to
1988.
Lawrence Tomlinson............ 1940 1996 Vice President-Treasurer of Hewlett-Packard
Company since 1993; Director of Finance and
Administration for Hewlett-Packard's European
operations from 1989 to 1993. Mr. Tomlinson was
appointed to the board in December 1996.
</TABLE>
- ---------------
(1) Member of the Audit Committee.
(2) Member of the Compensation Committee.
(3) Member of Technical Advisory Committee.
See also "Stock Ownership of Certain Beneficial Owners and Management." A
description of the business experience of the other executive officers of the
Company is contained in the Company's Annual Report on Form 10-K for the fiscal
year ended September 30, 1996 filed with the Securities and Exchange Commission.
There are no family relationships between any of the Company's directors or
executive officers.
During fiscal 1996, the Board of Directors held seven meetings.
The standard committees of the Board include an Audit Committee, a
Compensation Committee and a Technical Advisory Committee. There is no
Nominating Committee.
The Audit Committee held two meetings in fiscal 1996. The functions of the
Audit Committee include recommending appointment of the Company's independent
auditors to the Board of Directors and reviewing (i) the scope of the
independent auditors' annual audit and their compensation; (ii) the general
policies and procedures of the Company with respect to internal auditing,
accounting and financial controls; and (iii) any change in accounting
principles, significant audit adjustments proposed by the auditors and any
recommendations that the auditors may have with respect to policies and
procedures.
The Compensation Committee held two meetings in fiscal 1996. The
Compensation Committee monitors the nature and levels of compensation paid by
the Company to its executive personnel and administers the Company's stock
option plans and employee stock purchase plan.
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The Technical Advisory Committee held three meetings in fiscal 1996. The
Technical Advisory Committee is responsible for monitoring and assessing the
state of the Company's technical operations.
During fiscal 1996 (or such portion of fiscal 1996 during which a director
served as a member of the Board of Directors), no director attended fewer than
75 percent of the aggregate of (i) the total number of meetings of the Board of
Directors held and (ii) the total number of meetings held by all committees of
the Board of Directors on which such director served.
PROPOSAL THREE:
AMENDMENT OF CERTIFICATE OF INCORPORATION TO ELIMINATE
ACTIONS OF THE STOCKHOLDERS BY WRITTEN CONSENT WITHOUT A MEETING
The Board of Directors of the Company proposes to amend the Certificate of
Incorporation to add a new provision requiring that stockholder action be taken
at an annual or special meeting of stockholders and prohibiting stockholder
action by written consent ("Proposal Three"). Under Delaware law, any actions
required or permitted to be taken by stockholders may be taken (unless a
company's certificate of incorporation otherwise provides) without a meeting,
without prior notice and without a stockholder vote if a written consent setting
forth the action to be taken is signed by the holders of stock having the
requisite number of votes. The Company's Certificate of Incorporation currently
does not prohibit such action by written consent. Consequently, unless Proposal
Three is approved, a person or group of persons holding a majority interest in
the Company could take significant corporate action without giving all
stockholders notice or the opportunity to vote. Proposal Three would not affect
voting by proxy.
The Board of Directors believes that it is in the best interest of
stockholders that all stockholders be advised in advance of any significant
corporate action that requires the approval of the stockholders and be given the
opportunity to vote. If action by written consent without a meeting is
permitted, a majority of the stockholders could consent in writing to certain
action without advance notice to other stockholders. Notice of such action
provides all stockholders the opportunity to express their views on the proposed
action and to persuade other stockholders and management of their support or
opposition. The Board of Directors believes that stockholder decisions reached
after all stockholders have received notice and have had an opportunity to
express their views will be informed decisions and more consistent with the
principles of corporate democracy.
Action by written consent may, in some circumstances, permit the
stockholders to take action opposed by the Board of Directors more rapidly than
would be possible if a meeting were required. Such action may include proposals
to approve offers to acquire the Company or its assets or replace members of the
Board of Directors which the Board may oppose. The proposed amendment to the
Certificate of Incorporation may therefore complicate or delay any attempt to
assume control of the Company without the approval of the Board of Directors.
The Board of Directors nonetheless believes that it is important that it be able
to give advance notice of and consideration to any such stockholder action and
that stockholders be able to discuss at a meeting matters which may affect their
rights.
If stockholders approve Proposal Three, the Board of Directors will amend
the Certificate of Incorporation to add a new Article X thereto, requiring that
all stockholder actions be taken at a regular or special meeting of the
stockholders. The proposed text of Article X of the Certificate is set forth in
ANNEX A.
Approval of Proposal Three requires the affirmative vote of a majority of
all outstanding shares of Common Stock as of the Record Date. THE BOARD OF
DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE FOR APPROVAL OF PROPOSAL THREE.
9
<PAGE> 11
PROPOSAL FOUR:
AMENDMENT OF CERTIFICATE OF INCORPORATION
TO ELIMINATE CUMULATIVE VOTING
Currently, under Article IX of the Certificate of Incorporation,
stockholders have the right to cumulate votes in any election of directors. The
Board of Directors of the Company has unanimously recommended that the
stockholders approve an amendment to the Certificate of Incorporation
eliminating Article IX's provision for cumulative voting.
If cumulative voting is eliminated, the holders of a majority of the shares
present at any annual meeting will be able to elect all of the directors to be
elected at that meeting. No nominee could be elected without the support of a
majority of the stockholders present and voting. Thus, if cumulative voting is
eliminated, a person or group of persons holding shares or proxies representing
less than a majority of the shares voting for the election of directors will not
be able to elect any directors, even though they might have been able to do so
if cumulative voting were available. For example, if six directors were to be
elected, a stockholder or group of stockholders holding more than one-sixth of
the shares voting at the meeting could, by voting cumulatively, elect one
director; without cumulative voting such stockholder or group of stockholders
would not be able to elect any directors unless holders of more than one-half of
the shares voting at the meeting supported the nominees of such stockholder or
group of stockholders. Additionally, in the absence of a classified board of
directors (see Proposal One) the holders of a majority of the outstanding shares
would be able to remove any or all of the directors, even over the objections of
stockholders holding a number of shares that would be sufficient to prevent the
removal of one or more directors under cumulative voting. Accordingly, the
elimination of cumulative voting would (i) permit a majority of the shares
voting to elect or remove every director; and (ii) preclude a minority of the
shares voting at a meeting from electing or preventing the removal of any
director. The elimination of cumulative voting could therefore prevent minority
stockholders (even those with substantial holdings but less than a majority)
from obtaining representation on the Board of Directors. The elimination of
cumulative voting may tend to make achieving a change in control of the Company
more difficult by preventing substantial minority stockholders from electing
directors.
The Board of Directors believes that the elimination of cumulative voting
is in the best interest of the Company and its stockholders. Public companies
are potentially subject to attempts to acquire significant minority positions
with the intent either of obtaining actual control by electing their own slate
of directors by certain parties, or achieving some other goal, such as the
repurchase of their shares by the company at a premium. Because it facilitates
minority representation on the Board, cumulative voting makes it easier for an
uninvited acquiror or competitor to gain representation on the Company's Board.
Even if such a person lacked sufficient shares to actually gain control of the
Company, board representation would allow them access to confidential
corporation information and could be disruptive. The adoption of Proposal Four
will make it more difficult for such a person to gain representation on the
Company's Board.
Another advantage of eliminating cumulative voting is that the Company's
Board will be composed of persons representing a majority of the stockholders,
rather than directors potentially elected by one or more separate factions of
minority stockholders to serve as guardians of narrow or limited interests. The
Board, through its nominating process, has selected directors based on their
qualifications, their business acumen and their divergent backgrounds. The Board
thus selected reflects the broad interests of the Company and its stockholders
without the factionalization that can occur when minority stockholders elect
board members to represent their special interests. By eliminating cumulative
voting, a unified Board, of divergent views and backgrounds, can, in the
exercise of its fiduciary duties, examine all options available to the Company
and represent all stockholders in evaluating and pursuing those options.
Approval of Proposal Four requires the affirmative vote of a majority of
outstanding shares of Common Stock as of the Record Date. THE BOARD OF DIRECTORS
UNANIMOUSLY RECOMMENDS A VOTE FOR PROPOSAL FOUR.
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<PAGE> 12
PROPOSAL FIVE:
APPROVAL OF ADOPTION OF 1996 STOCK PLAN
On October 22, 1996, the Board of Directors adopted the 1996 Stock Plan
(the "1996 Plan") and reserved 1,500,000 shares of Common Stock for issuance
thereunder subject to stockholder approval. In addition, 126,600 shares remained
available for grant under the Company's 1987 Stock Option Plan (the "1987 Plan")
as of November 29, 1996. The Board has terminated the 1987 Plan as to future
grants conditioned upon and effective immediately upon stockholder approval of
the 1996 Plan at the Annual Meeting. The Board of Directors believes that
adoption of the 1996 Plan is necessary because of the 3,200,000 shares of Common
Stock reserved for issuance under the 1987 Plan, only 126,600 shares remained
available for grant as of November 29, 1996. Adoption of the 1996 Plan will also
allow the Company to take advantage of recent changes in the Securities and
Exchange Commission rule governing administration of equity incentive plans,
Rule 16b-3, which will provide the Company with greater flexibility in
administering the 1996 Plan. As of November 29, 1996, no options or rights to
purchase stock had been granted pursuant to the 1996 Plan.
At the Annual Meeting, the stockholders are being asked to approve the 1996
Plan and the reservation of shares thereunder.
SUMMARY OF THE 1996 PLAN
General. The purpose of the 1996 Plan is to attract and retain the best
available personnel for positions of substantial responsibility with the
Company, to provide additional incentive to the employees and consultants of the
Company and to promote the success of the Company's business. Options and stock
purchase rights may be granted under the 1996 Plan. Options granted under the
1996 Plan may be either "incentive stock options," as defined in Section 422 of
the Internal Revenue Code of 1986, as amended (the "Code"), or nonstatutory
stock options.
Administration. The 1996 Plan may generally be administered by the Board
or the Committee appointed by the Board. However, with respect to grants of
options to employees who are also officers or directors of the Company
("Insiders"), the 1996 Plan shall be administered by: (i) the Board if the Board
may administer the Plan in a manner complying with Section 162(m) of the Code;
or (ii) a committee designated by the Board to administer the 1996 Plan, which
committee shall be constituted to comply with the rules under Section 162(m) of
the Code governing incentive stock option awards to Insiders. The administrators
of the 1996 Plan are referred to herein as the "Administrator."
Eligibility; Limitations. Nonstatutory stock options and stock purchase
rights may be granted under the 1996 Plan to employees, directors and
consultants of the Company and any parent or subsidiary of the Company.
Incentive stock options may be granted only to employees. The Administrator, in
its discretion, selects the employees, directors and consultants to whom options
and stock purchase rights may be granted, the time or times at which such
options and stock purchase rights shall be granted, and the number of shares
subject to each such grant.
Section 162(m) of the Code places limits on the deductibility for federal
income tax purposes of compensation paid to certain executive officers of the
Company. In order to preserve the Company's ability to deduct the compensation
income associated with options and stock purchase rights granted to such
persons, the 1996 Plan provides that no employee may be granted, in any fiscal
year of the Company, options and stock purchase rights to purchase more than
400,000 shares of Common Stock. Notwithstanding this limit, however, in
connection with an employee's initial employment, he or she may be granted
options or stock purchase rights to purchase up to an additional 300,000 shares
of Common Stock.
Terms and Conditions of Options. Each option is evidenced by a stock
option agreement between the Company and the optionee, and is subject to the
following additional terms and conditions:
(a) Exercise Price. The Administrator determines the exercise price
of options at the time the options are granted. The exercise price of an
incentive stock option may not be less than 100% of the fair
11
<PAGE> 13
market value of the Common Stock on the date such option is granted;
provided, however, the exercise price of an incentive stock option granted
to a 10% stockholder may not be less than 110% of the fair market value of
the Common Stock on the date such option is granted. The fair market value
of the Common Stock is generally determined with reference to the closing
sale price for the Common Stock as reported by the Nasdaq National Market
(or the closing bid if no sales were reported) on the date the option is
granted.
(b) Exercise of Option; Form of Consideration. The Administrator
determines when options become exercisable, and may in its discretion,
accelerate the vesting of any outstanding option. Stock options granted
under the 1996 Plan generally vest and become exercisable over four years.
The means of payment for shares issued upon exercise of an option is
specified in each option agreement. The 1996 Plan permits payment to be
made by cash, check, promissory note, other shares of Common Stock of the
Company (with some restrictions), cashless exercises, a reduction in the
amount of any Company liability to the optionee, any other form of
consideration permitted by applicable law, or any combination thereof.
(c) Term of Option. The term of an incentive stock option may be no
more than ten (10) years from the date of grant; provided that in the case
of an incentive stock option granted to a 10% stockholder, the term of the
option may be no more than five (5) years from the date of grant. No option
may be exercised after the expiration of its term.
(d) Termination of Employment. If an optionee's employment or
consulting relationship terminates for any reason (other than death or
disability), then all options held by the optionee under the 1996 Plan
expire on the earlier of (i) the date set forth in his or her notice of
grant or (ii) the expiration date of such option. To the extent the option
is exercisable at the time of such termination, the optionee may exercise
all or part of his or her option at any time before termination.
(e) Death or Disability. If an optionee's employment or consulting
relationship terminates as a result of death or disability, then all
options held by such optionee under the 1996 Plan expire on the earlier of
(i) 12 months from the date of such termination or (ii) the expiration date
of such option. The optionee (or the optionee's estate or the person who
acquires the right to exercise the option by bequest or inheritance), may
exercise all or part of the option at any time before such expiration to
the extent that the option was exercisable at the time of such termination.
(g) Nontransferability of Options: Options granted under the 1996
Plan are not transferable other than by will or the laws of descent and
distribution, and may be exercised during the optionee's lifetime only by
the optionee.
(h) Other Provisions: The stock option agreement may contain other
terms, provisions and conditions not inconsistent with the 1996 Plan as may
be determined by the Administrator.
Stock Purchase Rights. A stock purchase right gives the purchaser a period
of no longer than 6 months from the date of grant to purchase Common Stock. A
stock purchase right is accepted by the execution of a restricted stock purchase
agreement between the Company and the purchaser, accompanied by the payment of
the purchase price for the shares. Unless the Administrator determines
otherwise, the restricted stock purchase agreement gives the Company a
repurchase option exercisable upon the voluntary or involuntary termination of
the purchaser's employment or consulting relationship with the Company for any
reason (including death and disability). The purchase price for any shares
repurchased by the Company is the original price paid by the purchaser. The
repurchase option lapses at a rate determined by the Administrator. A stock
purchase right is nontransferable other than by will or the laws of descent and
distribution, and may be exercised during the optionee's lifetime only by the
optionee.
Adjustments Upon Changes in Capitalization. In the event that the stock of
the Company changes by reason of any stock split, reverse stock split, stock
dividend, combination, reclassification or other similar change in the capital
structure of the Company effected without the receipt of consideration,
appropriate adjustments will be made in the number and class of shares of stock
subject to the 1996 Plan, the number and
12
<PAGE> 14
class of shares of stock subject to any option or stock purchase right
outstanding under the 1996 Plan, and the exercise price of any such outstanding
option or stock purchase right.
In the event of a liquidation or dissolution, any unexercised options or
stock purchase rights will terminate. The Administrator may, in its discretion
provide that each optionee shall have the right to exercise all of the
optionee's options and stock purchase rights, including those not otherwise
exercisable, until the date ten (10) days prior to the consummation of the
liquidation or dissolution.
In connection with any merger, consolidation, acquisition of assets or like
occurrence involving the Company, the Plan requires that each outstanding option
or stock purchase right be assumed or an equivalent option or right substituted
by the successor corporation. If the successor corporation refuses to assume the
options and stock purchase rights or to substitute substantially equivalent
options and stock purchase rights, the optionee will have the right to exercise
the option or stock purchase right as to all the optioned stock, including
shares not otherwise exercisable. In such event, the Administrator is required
to notify the optionee that the option or stock purchase right is fully
exercisable for fifteen (15) days from the date of such notice and that the
option or stock purchase right terminates upon expiration of such period.
Amendment and Termination of the Plan. The Board may amend, alter, suspend
or terminate the 1996 Plan, or any part thereof, at any time and for any reason.
However, the Company shall obtain stockholder approval for any amendment to the
1996 Plan to the extent necessary to comply with Rule 16b-3, Section 162(m) and
Section 422 of the Code, or any similar rule or statute. No such action by the
Board or stockholders may alter or impair any option or stock purchase right
previously granted under the 1996 Plan without the written consent of the
optionee. Unless terminated earlier, the 1996 Plan shall terminate ten years
from the date of its approval by the Board.
FEDERAL INCOME TAX CONSEQUENCES
Incentive Stock Options. An optionee who is granted an incentive stock
option does not recognize taxable income at the time the option is granted or
upon its exercise, although the exercise may subject the optionee to the
alternative minimum tax. Upon a disposition of the shares more than two years
after grant of the option and one year after exercise of the option, any gain or
loss is treated as long-term capital gain or loss. If these holding periods are
not satisfied, the optionee recognizes ordinary income at the time of
disposition equal to the difference between the exercise price and the lower of
(i) the fair market value of the shares at the date of the option exercise or
(ii) the sale price of the shares. Any gain or loss recognized on such a
premature disposition of the shares in excess of the amount treated as ordinary
income is treated as long-term or short-term capital gain or loss, depending on
the holding period. A different rule for measuring ordinary income upon such a
premature disposition may apply if the optionee is also an officer, director, or
10% stockholder of the Company. The Company is entitled to a deduction in the
same amount as the ordinary income recognized by the optionee.
Nonstatutory Stock Options. An optionee does not recognize any taxable
income at the time he or she is granted a nonstatutory stock option. Upon
exercise, the optionee recognizes taxable income generally measured by the
excess of the then fair market value of the shares over the exercise price. Any
taxable income recognized in connection with an option exercise by an employee
of the Company is subject to tax withholding by the Company. The Company is
entitled to a deduction in the same amount as the ordinary income recognized by
the optionee. Upon a disposition of such shares by the optionee, any difference
between the sale price and the optionee's exercise price, to the extent not
recognized as taxable income as provided above, is treated as long-term or
short-term capital gain or loss, depending on the holding period.
Stock Purchase Rights. Stock purchase rights will generally be taxed in
the same manner as nonstatutory stock options. However, restricted stock is
generally purchased upon the exercise of a stock purchase right. At the time of
purchase, restricted stock is subject to a "substantial risk of forfeiture"
within the meaning of Section 83 of the Code. As a result, the purchaser will
not recognize ordinary income at the time of purchase. Instead, the purchaser
will recognize ordinary income on the dates when a stock ceases to be subject to
a substantial risk of forfeiture. The stock will generally cease to be subject
to a substantial risk of forfeiture when it is no longer subject to the
Company's right to repurchase the stock upon the purchaser's
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<PAGE> 15
termination of employment with the Company. At such times, the purchaser will
recognize ordinary income measured as the difference between the purchase price
and the fair market value of the stock on the date the stock is no longer
subject to a substantial risk of forfeiture.
The purchaser may accelerate to the date of purchase his or her recognition
of ordinary income, if any, and the beginning of any capital gain holding period
by timely filing an election pursuant to Section 83(b) of the Code. In such
event, the ordinary income recognized, if any, is measured as the difference
between the purchase price and the fair market value of the stock on the date of
purchase, and the capital gain holding period commences on such date. The
ordinary income recognized by a purchaser who is an employee will be subject to
tax withholding by the Company. Different rules may apply if the purchaser is
also an officer, director, or 10% stockholder of the Company.
THE FOREGOING IS ONLY A SUMMARY OF THE EFFECT OF FEDERAL INCOME TAXATION
UPON OPTIONEES, HOLDERS OF STOCK PURCHASE RIGHTS, AND THE COMPANY WITH RESPECT
TO THE GRANT AND EXERCISE OF OPTIONS AND STOCK PURCHASE RIGHTS UNDER THE 1996
PLAN. IT DOES NOT PURPORT TO BE COMPLETE, AND DOES NOT DISCUSS THE TAX
CONSEQUENCES OF THE EMPLOYEE'S OR CONSULTANT'S DEATH OR THE PROVISIONS OF THE
INCOME TAX LAWS OF ANY MUNICIPALITY, STATE OR FOREIGN COUNTRY IN WHICH THE
EMPLOYEE OR CONSULTANT MAY RESIDE.
PARTICIPATION IN THE OPTION PLAN
As of the date of this proxy statement, there has been no determination by
the Administrator of the 1996 Plan with respect to future awards under the 1996
Plan. Accordingly, future awards are not determinable. The following table sets
forth information with respect to options granted under the 1987 Stock Option
Plan (the "1987 Plan") during the fiscal year ended September 30, 1996 to (i)
the Company's Chief Executive Officer and the four other Named Executive
Officers; (ii) all current executive officers as a group; (iii) all current
directors who are not executive officers as a group and (iv) all employees who
are not executive officers, as a group. The term of all options outstanding
under the 1987 Plan is [six to ten] years from the date of grant:
<TABLE>
<CAPTION>
WEIGHTED MARKET
AVERAGE PRICE OF
SHARES SUBJECT TO EXERCISE PRICE UNDERLYING DOLLAR VALUE
NAME OPTIONS GRANTED PER SHARE SHARES(1) OF OPTIONS(1)
- --------------------------------------- ----------------- -------------- ---------- -------------
<S> <C> <C> <C> <C>
Papken S. Der Torossian................ 65,000 $ 23.375 $17.75 $ 0
185,000(2) 16.125 17.75 300,500
Robert J. Richardson................... 30,000 23.375 17.75 0
60,000(2) 16.125 17.75 97,500
Edward A. Dohring...................... 30,000 23.375 17.75 0
50,000(2) 16.125 17.75 81,250
Russell G. Weinstock................... 30,000 23.375 17.75 0
60,000(2) 16.125 17.75 97,500
Steven L. Jensen....................... 20,000 23.375 17.75 0
40,000(2) 16.125 17.75 65,000
All current executive officers as a
group 265,000 24.741 17.75 0
(9 persons)............................ 565,000(2) 16.125 17.75 918,125
All current directors who are not
executive 20,000 22.781 17.75 0
officers as a group (4 persons)........ 30,000(2) 18.063 17.75 0
All employees who are not executive
officers 243,050 24.59 17.75 0
as a group (395 persons)............... 375,114(2) 16.125 17.75 609,560
</TABLE>
- ---------------
(1) Determined on the basis of the market price of the Company's Common Stock as
reported by the Nasdaq National Market as of the close of trading on
September 30, 1996.
(2) Represents options granted in exchange for cancellation of previously
outstanding options with higher exercise prices.
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<PAGE> 16
REQUIRED VOTE
At the Annual Meeting, the stockholders are being asked to approve the
adoption of the 1996 Plan. The affirmative vote of the holders of a majority of
the shares represented and voting at the Annual Meeting will be required to
approve the adoption of the 1996 Plan.
THE BOARD OF DIRECTORS RECOMMENDS THAT STOCKHOLDERS VOTE "FOR" THE APPROVAL
OF THE 1996 PLAN. Approval of the 1996 Plan will make effective the termination
of the 1987 Plan.
15
<PAGE> 17
STOCK OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information regarding the Company's
Common Stock beneficially owned as of November 29, 1996 by (i) the Chief
Executive Officer of the Company, (ii) each director of the Company; (iii) each
of the four most highly paid executive officers of the Company earning more than
$100,000 in fiscal 1996 (together with the Chief Executive Officer, the "Named
Executive Officers") and (iv) all directors and executive officers of the
Company as a group. No person is known by the Company to own beneficially more
than 5% of the Company's Common Stock.
<TABLE>
<CAPTION>
AMOUNT AND
NATURE OF
BENEFICIAL
NAME OWNERSHIP PERCENT(1)
- -------------------------------------------------------------------- ---------- ----------
<S> <C> <C>
Papken S. Der Torossian............................................. 430,594(2) 1.43
William A Hightower................................................. 0 *
William L. Martin................................................... 5,900(3) *
Larry W. Sonsini.................................................... 12,700(4) *
Nam P. Suh.......................................................... 4,000(5) *
Robert J. Richardson................................................ 21,072(6) *
Edward A. Dohring................................................... 35,000(7) *
Russell G. Weinstock................................................ 26,401(8) *
Steven L. Jensen.................................................... 47,486(9) *
All directors and executive officers as a group (13 persons)........ 629,771(10) 2.09
</TABLE>
- ---------------
* Less than 1%
(1) Computed on the basis or 30,177,634 shares of Common Stock outstanding as
of November 29, 1996 plus, with respect to those persons holding warrant
or options to purchase Common Stock exercisable within 60 days of November
29, 1996, the number of shares of Common Stock that are issuable upon
exercise thereof.
(2) Includes 233,120 shares subject to options which are exercisable within 60
days after November 29, 1996 and 2,400 shares held by Mr. Der Torossian's
daughter, as to which he disclaims beneficial ownership.
(3) Includes 4,200 shares subject to options which are exercisable within 60
days after November 29, 1996.
(4) Includes 12,700 shares subject to options which are exercisable within 60
days after November 29, 1996.
(5) Includes 4,000 shares subject to options which are exercisable within 60
days after November 29, 1996.
(6) Includes 21,072 shares subject to options which are exercisable within 60
days after November 29, 1996.
(7) Includes 35,000 shares subject to options which are exercisable within 60
days after November 29, 1996.
(8) Includes 22,000 shares subject to options which are exercisable within 60
days after November 29, 1996.
(9) Includes 46,000 shares subject to options which are exercisable within 60
days after November 29, 1996.
(10) Includes 418,142 shares subject to options which are exercisable within 60
days after November 29, 1996.
COMPLIANCE WITH SECTION 16(A) FILING REQUIREMENTS
Section 16(a) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), requires the Company's directors, officers and beneficial
owners of more than 10% of the Company's Common Stock to file with the
Securities and Exchange Commission (the "SEC") initial reports of ownership and
reports of
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<PAGE> 18
changes in ownership of Common Stock and other equity securities of the Company.
Based solely, on its review of the copies of such reports received by it, or
written representations from reporting persons, the Company believes that during
the fiscal year ended September 30, 1996, its officers, directors and holders of
more than 10% of the Company's Common Stock complied with all Section 16(a)
filing requirements.
EXECUTIVE COMPENSATION
DIRECTOR COMPENSATION
Directors' fees of $1,500 per Board meeting attended and a $2,500 quarterly
retainer are paid to directors who are not employees of the Company. Directors
are also reimbursed for reasonable expenses incurred in attending Board and
committee meetings. Members of the Board committees who are not part of the
Company's management receive $500 per committee meeting attended. During fiscal
1996, directors Hightower, Martin, Sonsini and Suh, who were not employees of
the Company, were each granted an option to purchase 5,000 shares of Common
Stock pursuant to the Option Plan at per share exercise prices of $25.875,
$16.75, $16.125 and $32.375, respectively. Upon his first becoming a director in
December 1996, Mr. Tomlinson was granted an option to purchase 10,000 shares of
Common Stock pursuant to the Option Plan at a per share exercise price of
$21.50. In July 1996, options held by Messrs. Der Torossian, Hightower, Martin,
Sonsini and Dr. Suh to purchase 185,000, 15,000, 5,000, 5,000 and 5,000 shares,
respectively, at exercise prices ranging from $19.56 to $44.50 were canceled, in
exchange for issuance of new options with similar terms, except that the
exercise prices of the new options granted to Mr. Der Torossian were $16.125 and
the exercise prices of the new options granted to directors Hightower, Martin,
Sonsini and Suh were $18.063 per share. During fiscal 1996, Messrs. Hightower
and Martin and Dr. Suh performed certain consulting services to the Company for
which they received fees of $10,000, $26,000 and $73,000, respectively.
EXECUTIVE EMPLOYMENT AGREEMENTS
On August 1, 1994, the Company entered into a five-year employment
agreement (the "Employment Agreement") with Papken S. Der Torossian, Chairman of
the Board and Chief Executive Officer of the Company. The Employment Agreement
provides for a base salary of $370,000 per annum, or such higher rate as the
Company's Board of Directors may determine from time to time, along with such
performance bonus amounts and car allowances, if any, as the Board shall
authorize, in its discretion, from time to time, and provides that Mr. Der
Torossian shall be eligible to participate in the employee benefit plans and
executive compensation programs maintained by the Company. In the event of Mr.
Der Torossian's (i) termination of employment by the Company without cause; (ii)
termination by the Company within twelve (12) months of a change in control;
(iii) death or disability, or (iv) voluntary termination due to a material
reduction in salary or benefits or a material change in responsibilities or a
requirement to relocate, Mr. Der Torossian shall be paid an amount equal to 200%
of the base salary in effect on the date of such termination plus an amount
equal to 200% of the aggregate bonus and car allowance, if any, paid to Mr. Der
Torossian for the immediately preceding fiscal year or during the preceding
twelve month period, whichever is greater.
On October 3, 1994, the Company entered into an employment agreement
expiring December 31, 1999 (the "Weinstock Agreement") with Russell G.
Weinstock, Vice President of Finance, Chief Financial Officer and Assistant
Secretary of the Company. The Weinstock Agreement provides for a base salary of
$195,000 per annum, or such higher rate as the Company's Board of Directors may
determine from time to time, along with such performance bonus amounts and car
allowances, if any, as the Board shall authorize, in its discretion, from time
to time (collectively, the "Base Compensation"), and provides that Mr. Weinstock
shall be eligible to participate in the employee benefit plans and executive
compensation programs maintained by the Company. In the event of Mr. Weinstock's
(i) termination of employment by the Company without cause or (ii) death or
disability, Mr. Weinstock shall be paid an amount equal to 150% of the Base
Compensation in effect on the date of such termination. In the event that Mr.
Weinstock is terminated by the Company within twelve (12) months of a change in
control, Mr. Weinstock will be paid an amount equal to 200% of the Base
Compensation in effect on the date of such termination.
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<PAGE> 19
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The members of the Compensation Committee of the Board of Directors during
fiscal 1996 were Messrs. Hightower and Martin. All members are or were
non-employee directors. No member of the Compensation Committee has a
relationship that would constitute an interlocking relationship with executive
officers or directors of another entity.
COMPENSATION COMMITTEE REPORT
The Compensation Committee sets, reviews and administers the executive
compensation program of the Company and is comprised of the individuals listed
below, all of whom are non-employee directors of the Company. The role of the
Compensation Committee is to establish and approve salaries and other
compensation paid to the executive officers of the Company and to administer the
Company's stock option plans and employee stock purchase plan.
Compensation Philosophy. The Company's compensation philosophy is that
cash compensation should be directly linked to the short-term performance of the
Company and that longer-term incentives, such as stock options, should be
aligned with the objective of enhancing stockholder value over the long-term.
The use of stock options clearly links the interests of the officers and
employees of the Company to the interests of the stockholders. In addition, the
Compensation Committee believes that the total compensation package must be
competitive with other companies in the industry to ensure that the Company can
continue to attract, retain and motivate key employees who are critical to the
long-term success of the Company.
Under federal tax laws, the Company is not allowed a federal income tax
deduction for compensation paid to certain executive officers to the extent that
compensation exceeds $1 million per officer in any fiscal year. No officer of
the Company has received compensation in excess of $1 million to date. The
Compensation Committee may consider adopting policies with respect to this
limitation on deductibility when appropriate.
Components of Executive Compensation. The principal cash components of
executive compensation are base salary and cash bonuses.
Base salary is set based on competitive factors and the historic salary
structure for various levels of responsibility within the Company. The
Compensation Committee annually conducts surveys of companies in the industry in
order to determine whether the Company's executive base salaries are in a
competitive range. Generally, salaries are set at the middle of the range. A
significant portion of each executive's total compensation is intended to be
variable and to relate to and be contingent upon Company performance.
Bonuses are paid semi-annually to executive officers as recommended by the
Chief Executive Officer and reviewed and approved by the Compensation Committee.
In establishing the overall level of executive bonuses, the Compensation
Committee considers data from surveys of the bonus amounts paid by other
companies in similar businesses. The amount of bonus for each executive consists
of an amount which is based upon the operating profit plan and cash flow
objectives of the Company approved by the entire Board of Directors at the
beginning of the fiscal year. An additional smaller portion of the bonus is
discretionary, based upon that executive meeting certain objectives set out for
him relating to his area of activity. The operating profit and cash flow
components of the bonus plan emphasize the Compensation Committee's belief that,
when the Company is successful, the executive's compensation should be higher,
but that, conversely, if the Company is not successful and is not profitable,
bonuses should be minimal. Depending upon the level of the executive, the
Company targets between 40% and 60% of the total compensation to be variable and
based upon the Company meeting 100% of its budgetary performance plan. If
operating profits fell below 70% of plan, no performance bonus would be paid.
Each individual executive officer's bonus is determined, based upon the
executive's base salary, profitability of the Company, attainment of cash flow
objectives and the executive's individual performance.
The principal equity component of executive compensation is the stock
option program. Stock options are generally granted when an executive joins the
Company and periodically thereafter. Options vary with the responsibility level
of the executive. The initial option granted to the executive vests over a
period of four or five years. This provides a method of retention and motivation
for the senior level executives of the Company
18
<PAGE> 20
and also aligns senior management's objectives with long-term stock price
appreciation. This approach is designed to encourage the creation of stockholder
value over the long-term since no benefit is realized from the stock option
grant unless the price of the Common Stock rises over a number of years. In
addition to the stock option program, all eligible employees of the Company may
participate in payroll deduction employee stock purchase plans pursuant to which
stock may be purchased at 85% of the fair market value at the beginning or end
of each one-year offering period (up to a maximum of $25,000 worth for each
calendar year in each enrollment period or 10% of annual compensation under all
such plans, whichever is less).
In July 1996, the Compensation Committee authorized the reduction of the
exercise price under options granted to employees, including executives, which
had an exercise price higher than the current market price of the Company's
Common Stock at the time of the repricing ($16.125). The options granted to
employees were designed to provide incentive to the employees to work to achieve
long term success for the Company. The decline in the market price of the
Company's Common Stock since the date the options were granted frustrated the
purpose of the options and the Committee deemed it to be in the best interests
of the Company to allow the reissue of the options to reduce the exercise price
to the market price at the time of the reissue. All repriced options are subject
to a new four-year vesting period, beginning on the date of reissue.
Other elements of executive compensation are participation in a
Company-wide life insurance program as well as Company-wide medical benefits and
the ability to defer compensation pursuant to a 401(k) plan. The Company makes
matching contributions under the 401(k) plan based on the amount of the
employee's compensation, up to a maximum of 3% of compensation.
The Compensation Committee believes that the compensation levels of the
Company's executive officers are competitive and in line with those of
comparable companies.
Compensation Committee of the Board of
Directors
William L. Martin, Chairman
William A. Hightower
19
<PAGE> 21
EXECUTIVE COMPENSATION
The following table sets forth the compensation paid during the last three
fiscal years to the Company's Chief Executive Officer and to the four other
Named Executive Officers:
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
ANNUAL COMPENSATION(1) ------------
------------------------------------------- STOCK OPTION
NAME AND PRINCIPAL FISCAL OTHER ANNUAL GRANTS ALL OTHER
POSITION YEAR SALARY($) BONUS($)(2) COMPENSATION($)(3) (# OF SHS.) COMPENSATION($)
- ------------------------- ------ -------- ----------- ------------------ ------------ ---------------
<S> <C> <C> <C> <C> <C> <C>
Papken S. Der 1996 $510,191 $ 431,598 $ 27,125 65,000(8) $ 9,082(4)
Torossian.............. 185,000(9)
Chairman of the Board 1995 444,133 445,927 19,733 150,000 2,359(4)
and 1994 370,000 357,716 20,745 250,000 1,961(5)
Chief Executive Officer
Robert J. Richardson..... 1996 249,249 130,644 18,020 30,000(8) 942(5)
Vice President, New 60,000(9)
Business Development 1995 206,922 133,659 17,762 48,840 52,459(6)
and Corporate Marketing 1994 184,230 115,056 16,829 20,000 570(5)
Edward A. Dohring........ 1996 248,462 139,231 16,851 30,000(8) 45,742(7)
Vice President, Silicon 50,000(9)
Valley Group, Inc. and 1995 213,172 137,585 15,420 30,000 13,735(6)
President, SVG 1994 185,164 132,434 15,611 20,000 1,234(5)
Lithography Systems,
Inc.
Russell G. Weinstock..... 1996 245,287 142,442 16,920 30,000(8) 1,151(5)
Vice President of 60,000(9)
Finance and Chief 1995 213,173 147,018 15,420 30,000 832(5)
Financial Officer 1994 183,462 122,025 15,668 25,000 658(5)
Steven L. Jensen......... 1996 231,518 125,884 18,037 20,000(8) 692(5)
Vice President, 40,000(9)
Worldwide 1995 191,154 125,168 15,854 20,000 507(5)
Sales and Service 1994 174,700 109,148 16,287 20,000 431(5)
</TABLE>
- ---------------
(1) Excludes certain perquisites and other amounts, which, for any executive
officer, in the aggregate did not exceed the lesser of $50,000 or 10% of the
total annual salary and bonus for such executive officer.
(2) Includes bonus and profit sharing amounts earned during the fiscal year
indicated even if such amounts are paid in another fiscal year.
(3) Represents Company matching contributions to the Named Executive Officer's
401(k) plan account, automobile allowances and reimbursement of tax return
preparation fees.
(4) Represents income related to split-life insurance premiums paid by the
Company for the benefit of the named executive officer, and in the case of
Mr. Der Torossian, additional income of $5,910 in whole life insurance.
(5) Represents income related to split-life insurance premiums paid by the
Company for the benefit of the named executive officer. Does not include
$226,877 in compensation resulting from loan interest forgiveness and tax
reimbursement.
(6) For Messrs. Richardson and Dohring, represents $51,783 and $12,198,
respectively, for relocation expenses and $676 and $1,537, respectively, for
split-life insurance premiums paid by the Company for the benefit of such
executive officers.
(7) For Mr. Dohring, represents 43,605 for relocation expenses and 2,137 for
split-life insurance premiums paid by the Company for Mr. Dohring's benefit.
(8) Represents options granted under the Company's 1987 Stock Plan.
(9) Represents grants of options in exchange for cancellation of previously
outstanding options with higher exercise prices.
OPTIONS GRANTED AND OPTIONS EXERCISED IN THE LAST FISCAL YEAR
The following tables set forth information regarding stock options granted
to and exercised by the Named
20
<PAGE> 22
Executive Officers during the last fiscal year, as well as options held by such
officers as of September 30, 1996:
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS POTENTIAL REALIZABLE VALUE OF
--------------------------------------------- ASSUMED ANNUAL RATES OF
% OF STOCK PRICE APPRECIATION
TOTAL EXERCISE (THROUGH EXPIRATION DATE)(1)
OPTIONS OPTIONS PRICE EXPIRATION --------------------------------
NAME GRANTS(#) GRANTED ($/SH) DATE 5% PER YEAR($) 10% PER YEAR($)
- --------------------------------- --------- ------- -------- ---------- -------------- ---------------
<S> <C> <C> <C> <C> <C> <C>
Papken S. Der Torossian.......... 65,000(2) 4.34% $ 23.375 4/15/2003 $ 955,527 $ 2,421,492
185,000(3) 12.35% 16.125 7/16/2003 1,876,071 4,754,333
Robert J. Richardson............. 30,000(2) 2.00% 23.375 4/15/2003 441,012 1,117,612
60,000(3) 4.00% 16.125 7/16/2003 608,456 1,541,946
Edward A. Dohring................ 30,000(2) 2.00% 23.375 4/15/2003 441,012 1,117,612
50,000(3) 3.34% 16.125 7/16/2003 507,046 1,284,955
Russell G. Weinstock............. 30,000(2) 2.00% 23.375 4/15/2003 441,012 1,117,612
60,000(3) 4.00% 16.125 7/16/2003 608,456 1,541,946
Steven L. Jensen................. 20,000(2) 1.33% 23.375 4/15/2003 294,008 745,075
40,000(3) 2.67% 16.125 7/16/2003 405,637 1,027,964
</TABLE>
- ---------------
(1) The Potential Realizable Values are calculated based on the fair market
value on the date of grant, which is equal to the exercise price of options
granted in fiscal 1996, assuming that the stock appreciates in value from
the date of grant until the end of the option term at the annual rate
specified (5% and 10%). Potential Realizable Values are net of the option
exercise price. The assumed rates of appreciation are specified in rules of
the Securities and Exchange Commission, and do not represent the Company's
estimate or projection of its future stock price. Actual gains, if any,
resulting from stock option exercises and Common Stock holdings are
dependent on the future performance of the Common Stock, overall stock
market conditions, as well as the option holder's continued employment
through the exercise/vesting period. There can be no assurance that the
amounts reflected in this table will be achieved.
(2) These options were granted under the Company's 1987 Stock Option Plan in
April 1996 and have an exercise price equal to the fair market value of the
Company's Common Stock as of the date of grant. Each of the options vests
cumulatively over a period of four years from the date of grant.
(3) These options were granted to the Named Executive Officers in exchange for
cancellation of previously outstanding options held by such officers. The
terms of the new options are substantially similar to those of the
previously outstanding options, except that the exercise prices of the new
options are significantly lower than those of the canceled options.
OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF
UNEXERCISED OPTIONS VALUE OF UNEXERCISED
AT FISCAL YEAR OPTIONS AT FISCAL YEAR
SHARES END(#) END(1)(#)
ACQUIRED ON VALUE ------------------- -------------------------
NAME EXERCISE(#) REALIZED($) VESTED UNVESTED VESTED UNVESTED
- -------------------------- ------------ ----------- ------- -------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Papken S. Der Torossian... 82,595 $ 956,923 203,120 350,000 $1,836,290 $1,495,000
Robert J. Richardson...... -- -- 18,572 85,268 82,375 236,000
Edward A. Dohring......... -- -- 32,500 81,500 310,750 313,250
Russell G. Weinstock...... -- -- 20,500 82,500 189,625 291,062
Steven L. Jensen.......... -- -- 46,000 64,000 485,250 291,000
</TABLE>
- ---------------
(1) Represents the difference between the exercise price of the options and the
closing price of the Company's Common Stock as reported on the Nasdaq
National Market on September 30, 1996.
21
<PAGE> 23
The following table summarizes stock options granted to the executive
officers of the Company that have been repriced during the past ten fiscal
years:
<TABLE>
<CAPTION>
NUMBER
OF
SECURITIES MARKET PRICE EXERCISE LENGTH OF
UNDERLYING OF STOCK AT PRICE AT NEW ORIGINAL OPTION
REPRICING OPTIONS TIME OF TIME OF EXERCISE TERM REMAINING AT
NAME DATE REPRICED(#) REPRICING($) REPRICING($) PRICE($) DATE OF REPRICING
- --------------------------------- -------- ------- ------------ ------------ ------ -----------------
<S> <C> <C> <C> <C> <C> <C>
Papken S. Der Torossian.......... 7/16/96 150,000 $ 16.125 $ 26.875 $16.125 5 years, 275 days
Chairman of the Board 7/16/96 35,000 16.125 23.375 16.125 6 years, 273 days
and Chief Executive Officer 10/29/87 100,000 5.750 13.625 5.750 5 years, 342 days
Robert J. Richardson............. 7/16/96 30,000 16.125 26.875 16.125 5 years, 275 days
Vice President, New Business 7/16/96 30,000 16.125 26.375 16.125 6 years, 273 days
Development and Corporate
Marketing
Edward A. Dohring................ 7/16/96 30,000 16.125 23.375 16.125 6 years, 273 days
Vice President, Silicon Valley 7/16/96 20,000 16.125 26.875 16.125 5 years, 275 days
Group, Inc. and President,
SVG Lithography Systems, Inc.
Russell G. Weinstock............. 7/16/96 30,000 16.125 23.375 16.125 6 years, 273 days
Vice President, Finance and 7/16/96 20,000 16.125 26.875 16.125 5 years, 275 days
Chief Financial Officer 7/16/96 10,000 16.125 19.625 16.125 5 years, 108 days
10/29/87 1,000 5.750 7.750 5.750 5 years, 176 days
10/29/87 1,000 5.750 13.625 5.750 5 years, 342 days
Steven L. Jensen................. 7/16/96 20,000 16.125 26.875 16.125 5 years, 275 days
Vice President, Worldwide 7/16/96 20,000 16.125 23.375 16.125 6 years, 273 days
Sales and Service
Jeffrey M. Kowalski.............. 7/16/96 30,000 16.125 22.625 16.125 5 years, 200 days
Vice President, Silicon 7/16/96 30,000 16.125 23.375 16.125 6 years, 273 days
Valley Group, Inc. 7/16/96 10,000 16.125 35.438 16.125 6 years, 97 days
and President, Thermco 7/16/96 10,000 16.125 26.875 16.125 5 years, 275 days
Systems Division
Boris Lipkin..................... 7/16/96 30,000 16.125 26,875 16.125 5 years, 275 days
Vice President, Corporate 7/16/96 20,000 16.125 23.375 16.125 6 years, 273 days
7/16/96 10,000 16.125 35.438 16.125 6 years, 97 days
John W. Matthews................. 7/16/96 5,000 16.125 26.875 16.125 5 years, 275 days
Vice President, Worldwide 7/16/96 5,000 16.125 35.438 16.125 6 years, 97 days
Service
Edward R. Ward................... 7/16/96 10,000 16.125 23.375 16.125 6 years, 273 days
Vice President, Corporate 7/16/96 5,000 16.125 35.438 16.125 6 years, 97 days
Technology 7/16/96 5,000 16.125 26.875 16.125 5 years, 275 days
David R. Bartlett................ 10/29/87 3,500 5.750 8.000 5.750 5 years, 110 days
Former Vice President, 10/29/87 3,500 5,750 9,000 5,750 5 years, 250 days
Human Resources
Charles Desmond.................. 10/29/87 2,000 5.750 7.750 5.750 5 years, 176 days
Former Vice President, Sales 10/29/87 3,500 5.750 9.000 5.750 5 years, 250 days
and Service
James E. Herlinger............... 10/29/87 3,500 5.750 8.000 5.750 5 years, 110 days
Former Vice President and 10/29/87 3,500 5.750 9.000 5.750 5 years, 250 days
General Manager, CVD Division
Byron F. McMillan................ 10/29/87 125,000 5.750 9.000 5.750 5 years, 243 days
Former Executive Vice President
and Chief Operating Officer
Anthony R. Muller................ 10/29/87 3,500 5.750 8.000 5.750 5 years, 110 days
Former Vice President, Finance 10/29/87 3,500 5.750 9.000 5.750 5 years, 250 days
and Chief Financial Officer
Patrick C. O'Connor.............. 10/29/87 3,500 5.750 8.000 5.750 5 years, 110 days
Former Senior Vice President, 10/29/87 3,500 5.750 9.000 5.750 5 years, 250 days
Corporate Development
Arthur G. Silver................. 10/29/87 3,500 5.750 8.000 5.750 5 years, 110 days
Former Vice President and 10/29/87 3,500 5.750 9.000 5.750 5 years, 250 days
General Manager, Track Division
</TABLE>
22
<PAGE> 24
COMPARISON OF TOTAL CUMULATIVE STOCKHOLDER RETURN
The following graph sets forth the Company's total cumulative stockholder
return as compared to the S&P 500 Index and the Russell 2000 Index for the past
five fiscal years. The total stockholder return assumes $100 invested at the
beginning of the period in Common Stock of the Company, the S&P 500, and the
Russell 2000 Index. Total return assumes reinvestment of dividends. Historical
stock price performance is not necessarily indicative of future stock price
performance.
COMPARISON OF FIVE YEAR CUMULATIVE TOTAL RETURN*
AMONG SILICON VALLEY GROUP, INC., THE S & P 500 INDEX
AND THE RUSSELL 2000 INDEX
<TABLE>
<CAPTION>
MEASUREMENT PERIOD SILICON VALLEY
(FISCAL YEAR COVERED) GROUP, INC. S & P 500 RUSSELL 2000
<S> <C> <C> <C>
9/91 100 100 100
9/92 75 111 109
9/93 166 125 145
9/94 217 130 149
9/95 583 169 184
9/96 268 203 208
</TABLE>
* $100 INVESTED IN 9/30/91 IN STOCK OR INDEX-
INCLUDING REINVESTMENT OF DIVIDENDS.
23
<PAGE> 25
CERTAIN TRANSACTIONS
TRANSACTIONS WITH PERKIN-ELMER
In July 1992, the Company purchased all 1,990,000 shares of the common
stock of SVG Lithography Systems, Inc. ("SVGL") held by Perkin-Elmer and a
promissory note in the aggregate principal amount of $8,200,000 payable by SVGL
to Perkin-Elmer. The purchase price for such shares and note was 10,000 shares
of the Company's Series A Preferred Stock. On March 14, 1995, the Series A
Preferred Stock was converted into 1,000,000 shares of the Company's Common
Stock. The Series A Preferred Stock accrued cumulative quarterly dividends of 7%
per annum. During fiscal 1995, the Company issued 27,692 Shares of Common Stock
in satisfaction of the quarterly dividend amounts due. On March 23, 1995, the
Company, filed a Registration Statement on Form S-3 pursuant to which the
Company sold 3,192,606 shares of Common Stock and Perkin-Elmer sold its entire
holding of 1,807,394 shares of Common Stock, including 1,000,000 shares from the
conversion of the Series A Preferred Stock.
AGREEMENTS WITH EXECUTIVE OFFICERS
See also "Executive Compensation -- Executive Employment Agreements."
EMPLOYEE BENEFIT PLANS
STOCK OPTION PLANS
The Company has four stock option plans that provide for the grant of
options to employees and directors of the Company, the 1981 Amended Stock Option
Plan, the 1982 Employee Stock Option Plan and the 1984 Stock Option Plan
(collectively, the "Plans"), the 1987 Stock Option Plan, as amended (the "1987
Plan") and the 1996 Stock Option Plan (the "1996 Plan"). These plans provide for
the grant of "incentive stock options" qualified under Section 422 of the Code
as well as nonstatutory options. Since 1981, an aggregate of 5,980,000 shares of
Common Stock have been reserved for issuance under the five plans. At November
29, 1996, options to purchase an aggregate of 1,931,439 shares were outstanding
under all the plans, and 1,627,610 shares were available for additional grants.
The 1996 Plan was approved by the Board of Directors in October 1996, and is
subject to stockholder approval at the Annual Meeting. In the event that the
stockholders approve the 1996 Plan at the Annual meeting, no further grants will
be made under the 1987 Plan, and all shares remaining available for issuance
under the 1987 Plan will be made available for grant under the 1996 Plan.
The following describes certain terms of the 1987 Plan. For a discussion of
the 1996 Plan, see Proposal Five.
General. The 1987 Plan gives the Board, or a committee which the Board may
appoint from among its members, authority to grant options to purchase Common
Stock. Options granted under the 1987 Plan may be either "incentive stock
options" as defined in Section 422 of the Code, or nonstatutory stock options,
as determined by the Board or its committee.
Purpose. The purpose of the 1987 Plan is to enable the company to grant to
key employees and directors an opportunity to acquire Common Stock, thereby
providing them with an inducement to remain in the service of the Company,
contribute to the Company's success and aid in attracting other capable
personnel.
Administration of the Option Plan. The 1987 Plan is currently administered
by the Compensation Committee of the Board of Directors (the "Committee").
Subject to the other provisions of the 1987 Plan, the Committee has the sole
authority to determine (i) the persons to whom options to purchase shares of
Common Stock shall be granted; (ii) the number of shares to be granted to each
optionee; (iii) the price to be paid for the shares upon the exercise of each
option; (iv) the period within which each option may be exercised, including any
vesting requirements and (v) the terms and conditions of each stock option
agreement to be entered into between the Company and the optionee. The Committee
shall have full and complete authority to promulgate such rules and regulations
as it deems necessary or desirable for
24
<PAGE> 26
administering and interpreting the 1987 Plan. Any determination, decision,
computation or interpretation of the 1987 Plan by the Committee shall be
conclusive as to any interested person.
Eligibility. The 1987 Plan provides that options may be granted to key
employees and directors, including Outside Directors. Incentive stock options
may be granted only to employees.
Outside Directors' Options. The 1987 Plan provides that, with respect to
Outside Directors, nonstatutory options shall be automatically granted to
Outside Directors on a yearly basis in order to provide an incentive to Outside
Directors of the Company (the "Automatic Grant Program"). Each Outside Director
will receive (i) upon becoming a director, an option to purchase 10,000 shares
of Common Stock and (ii) upon the date of each anniversary of becoming a
director of the Company, an option to purchase 5,000 shares of Common Stock.
Options granted to Outside Directors have a term of ten years from the date of
grant and are exercisable only during the time the optionee remains a director
or within one year thereafter (but not beyond expiration of the option term and
only to the extent vested at the date of termination).
Terms and Conditions of Options. Each option is evidenced by a stock
option agreement between the optionee and the Company and is subject to the
following terms and conditions and to such other terms and conditions not
inconsistent therewith as the Committee may deem appropriate in each case:
(a) Option Price. The price to be paid for shares of Common Stock
upon the exercise of an option granted under the 1987 Plan is determined by
the Committee at the time the option is granted but shall in no event be
less than the closing price on the Nasdaq National Market for the date the
option is granted (or if there was no trade on such date, then the closing
price on the most recent date on which trading in the Common Stock
occurred).
(b) Period of Option. The period within which an option may be
exercised is determined by the Committee at the time the option is granted
but must not exceed ten years from the date the option is granted. Options
granted to Outside Directors pursuant to the Automatic Grant Program expire
ten years from the date of grant. No option may be exercised by any person
after such expiration.
(c) Payment for Stock. Payment for each share of Common Stock
purchased under an option may be made (i) in cash; (ii) in shares of Common
Stock owned by the optionee (other than Common Stock acquired by the
optionee within six months preceding the payment date pursuant to any
Company stock option, stock purchase or other stock incentive plan) or
(iii) a combination of such Common Stock and cash, unless the Committee
requires that payment be made in cash.
(d) Stock Appreciation Rights. The Committee, in its discretion, may
provide that any option by its terms may permit the participant, upon
exercise of an option, to elect, in lieu of payment for stock, to receive
payment from the Company in (i) cash equal to the excess of the value of
one share over the option price times the number of shares as to which the
option is exercised; (ii) the number of full shares having an aggregate
value equal to the cash amount calculated under alternative (i) or (iii)
any combination of cash and Common Stock having an aggregate value equal to
the cash amount calculated under alternative (i).
(e) Nontransferability of Options. An option is nontransferable by
the optionee other than by will or the laws of descent and distribution,
and is exercisable during the optionee's lifetime only by the optionee.
(f) Value Limitation. The aggregate fair market value (determined as
of the time the option is granted) of all shares of Common Stock with
respect to which incentive stock options are exercisable for the first time
by an optionee during any calendar year shall not exceed $100,000.
(g) Effective Date of Grant. The date of grant of options under the
1987 Plan shall be deemed to be the date of the action by the Committee,
notwithstanding that issuance of the option may be conditioned on the
execution of a stock option agreement.
Performance-Based Compensation Limitation. No employee may be granted, in
any fiscal year, options to purchase more than 250,000 shares. The foregoing
limitation, which will be adjusted proportionately in
25
<PAGE> 27
connection with any change in the Company's capitalization (such as a stock
split), is intended to satisfy the requirements applicable to options intended
to qualify as "performance-based compensation" within the meaning of Section
162(m) of the Code. In the event that the Board or its committee determines that
such limitations are not required to qualify options as performance-based
compensation, the Board or its committee may modify or eliminate such
limitations.
Adjustment Upon Changes in Capitalization. In the event of changes in the
outstanding Common Stock of the Company by reason of stock dividends, mergers,
split-ups, consolidations, recapitalizations, reorganizations or like events (as
determined by the Committee), an appropriate adjustment will be made by the
Committee in the number of shares of Common Stock reserved under the Option Plan
and in the number of shares of Common Stock and the option price per share
specified in any stock option agreement with respect to any unpurchased shares.
The determination of the Committee as to which adjustments shall be made shall
be conclusive.
Amendment and Termination of the 1987 Plan. The Board may amend the 1987
Plan at any time, except that without the approval by vote of the holders of a
majority of the Company's common shares represented and entitled to vote at a
duly held meeting (i) the number of shares of Common Stock that may be made
available under the 1987 Plan may not be increased and (ii) the class of persons
eligible to be granted options under the 1987 Plan may not be changed.
The material terms of each of the Plans are substantially the same as the
terms of the 1987 Plan described above.
The Plans may be administered by the Board of Directors or by a committee
of the Board, and are currently being administered by the Compensation
Committee. An option may be granted to a director only by action of the Board
with a majority of the Board and a majority of the directors acting in the
matter being disinterested persons within the meaning of Rule 16b-3 under the
Exchange Act. Under the 1981 Amended Stock Option Plan and 1982 Employee Stock
Option Plan, a non-employee director may not receive an option. The exercise
price for all options must be at least equal to the fair market value of the
shares on the date of grant. The Plans also authorize stock appreciation rights
in connection with the exercise of an option, but none have been granted.
PROFIT SHARING PLAN
The Company maintains a profit sharing plan under which a cash bonus is
paid quarterly to eligible employees equal to a percentage of their base salary.
All domestic and certain other employees working at least 30 hours per week with
three months continuous service, with the exception of employees participating
in the sales commission program, are eligible to participate in the plan. Profit
sharing payments totaling $7,235,000 were made during fiscal 1996.
CASH OR DEFERRED PROFIT SHARING PLAN (401(K) PLAN)
The Company's Cash or Deferred Profit Sharing Plan is intended to be a
qualified retirement plan under Section 401(k) of the Code. Under this plan, a
participating employee may contribute up to 17% of such employee's compensation,
but not exceeding the amount allowed for employee deferrals under applicable tax
laws ($9,500 in calendar 1996), and the Company may contribute an additional
amount for the employee's account. All domestic employees of the Company are
eligible to participate in the plan. The Company's contributions on behalf of
employees who have been employed with the Company for at least five years are
fully vested. If an employee has been employed less than five years, 20% of the
Company contribution times the number of years of service to the Company vests
immediately and the balance vests in equal annual increments until the fifth
anniversary of employment (based on continued service to the Company). If a
participant's employment is terminated prior to one year of service, the entire
Company's contribution is forfeited.
26
<PAGE> 28
LIFE INSURANCE PLAN
The Company pays the premiums on a group term life insurance policy for all
regular full-time employees who have worked for the Company for 90 days. The
amount of coverage under this plan is equal to one times annual salary. The
first $50,000 of coverage for executive officers is provided in the same manner
as for other employees of the Company. Additional coverage for officers up to
approximately three times annual salary is provided through individual split
dollar policies on which the Company pays the premiums. A substantial portion of
the cost of the premiums paid each year are offset by increases in the cash
value of the policy. In the event that the policy is not surrendered for cash
value, but rather death benefits are paid, the Company also recovers an amount
sufficient to offset the amount of premiums previously paid under the policy.
STOCK PURCHASE PLAN
The 1996 Employee Stock Purchase Plan (the "1996 Purchase Plan") was
adopted by the Board of Directors of the Company in [October] 1995, and approved
by the stockholders in February 1996. 1,000,000 shares were reserved for
issuance under the 1996 Purchase Plan. The 1996 Purchase Plan, and the right of
participants to make purchases thereunder, is intended to qualify under the
provisions of Sections 421 and 423 of the Code. The purpose of the 1996 Purchase
Plan is to provide employees of the Company and its designated subsidiaries with
an opportunity to purchase Common Stock of the Company at discounted prices
through payroll deductions. As of December 1, 1996, approximately 2,627
employees are eligible for the 1996 Purchase Plan.
The 1996 Purchase Plan is administered by the Compensation Committee of the
Board of Directors. The 1996 Purchase Plan is implemented by overlapping
12-month offering periods that commence on April 1 and October 1 of each year.
Shares are purchased on the last business day of each offering period (a
"purchase date") unless a participant withdraws from the offering period prior
to such purchase date. The price per share at which shares are purchased in an
offering under the 1996 Purchase Plan is the lower of (i) 85% of the fair market
value of a share of Common Stock on the date of commencement of the 12-month
offering period (the "Entry Price"); or (ii) 85% of the fair market value of a
share of Common Stock on the purchase date (the "Ending Price").
The purchase price of the shares is accumulated by payroll deductions over
the offering period. Under the 1996 Purchase Plan, deductions may not exceed 10%
of a participant's compensation, including amounts deferred in multiple offering
periods under the 1996 Purchase Plan and/or the Old Purchase Plan. A participant
may not make additional contributions to his or her account.
Termination of a participant's employment for any reason, including failure
to be scheduled to work at least 20 hours per week, retirement or death, cancels
the participant's participation in the 1996 Purchase Plan immediately. In such
event, the payroll deductions credited to the participant's account will be
returned to such participant or to his or her beneficiaries without interest. In
the event of a sale or merger of the Company to or into another corporation, the
offering periods then in progress shall be shortened and shall terminate
immediately prior to the consummation of such transaction.
STOCKHOLDER PROPOSALS TO BE PRESENTED AT
THE NEXT ANNUAL MEETING
Proposals of stockholders intended to be presented at the next Annual
Meeting of Stockholders of the Company (i) must be received by the Company at
101 Metro Drive, Suite 400, San Jose, California 95110 no later than September
11, 1997 and (ii) must satisfy the conditions established by the Securities and
Exchange Commission for stockholder proposals to be included in the Company's
Proxy Statement for that meeting.
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INDEPENDENT AUDITORS
The Board has selected Deloitte & Touche LLP, independent auditors, to
audit the financial statements of the Company for the fiscal year ending
September 30, 1996. Representatives of Deloitte & Touche LLP are expected to be
present at the Annual Meeting and will have the opportunity to make a statement
if they desire to do so. Such representatives are also expected to be available
to respond to any questions.
OTHER BUSINESS
At this time management knows of no other matters that may be brought
before the meeting. However, if any other matters are properly brought before
the meeting, the proxy holders named in the accompanying proxy intend to vote
the proxies on such matters in accordance with their best judgment.
By Order of the Board of Directors
January 8, 1997
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PRELIMINARY COPY
----------------
THE PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
-------------------------------------------------
SILICON VALLEY GROUP, INC.
PROXY FOR 1997 ANNUAL MEETING OF STOCKHOLDERS
FEBRUARY 20, 1997
The undersigned stockholder of Silicon Valley Group, Inc. (the
"Company") hereby acknowledges receipt of the Notice of Annual Meeting of
Stockholders and Proxy Statement for the 1997 Annual Meeting of Stockholders of
the Company to be held on February 20, 1997 at 3:00 p.m., Pacific Time, at the
Company's offices located at 2240 Ringwood Avenue, San Jose, California
(telephone (408) 434-0500), and hereby revokes all previous proxies and appoints
Papken S. Der Torossian and Russell G. Weinstock, or either of them, with full
power of substitution, Proxies and Attorneys-in-Fact, on behalf and in the name
of the undersigned, to vote and otherwise represent all of the shares registered
in the name of the undersigned at said Annual Meeting, or any adjournment
thereof, with the same effect as if the undersigned were present and voting such
shares, on the following matters and in the following manner:
1. Proposal to approve an amendment to the Company's Certificate of
Incorporation to provide for a classified Board of Directors, divided
into three classes with one class to be elected each year.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
2. Election of two Class I directors, two Class II directors and two Class
III directors
[ ] FOR all the nominees listed below (except as indicated).
[ ] WITHHOLD authority to vote for all nominees listed below.
IF YOU WISH TO WITHHOLD AUTHORITY TO VOTE FOR ANY INDIVIDUAL NOMINEE,
STRIKE A LINE THROUGH THAT NOMINEE'S NAME IN THE LIST BELOW:
PAPKEN S. DER TOROSSIAN, WILLIAM A. HIGHTOWER, WILLIAM L. MARTIN,
LARRY W. SONSINI, NAM P. SUH, LAWRENCE TOMLINSON.
3. Proposal to approve an amendment to the Company's Certificate of
Incorporation to require all stockholder action to be taken at a
meeting of stockholders.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
4. Proposal to approve an amendment to the Company's Certificate of
Incorporation to eliminate cumulative voting in the election of
directors.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
(Continued and to be signed on reverse side)
<PAGE> 31
5. Proposal to approve the adoption of the Company's 1996 Stock Plan and
to reserve 1,500,000 shares for issuance thereunder.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
In their discretion, the Proxies are entitled to vote upon such other matters as
may properly come before the meeting or any adjournments thereof.
THE SHARES REPRESENTED BY THIS PROXY WILL BE VOTED IN ACCORDANCE WITH THE
SPECIFICATIONS MADE. IF NO SPECIFICATION IS MADE, THE SHARES REPRESENTED BY THIS
PROXY WILL BE VOTED FOR EACH OF THE ABOVE PERSONS AND PROPOSALS, AND FOR SUCH
OTHER MATTERS AS MAY PROPERLY COME BEFORE THE MEETING AS THE PROXYHOLDERS DEEM
ADVISABLE.
Dated _______________________, 1997
Signature: ___________________________________
Signature: ___________________________________
I Plan to attend the meeting: [ ]
(This proxy should be marked, dated and signed by each stockholder exactly as
such stockholder's name appears hereon, and returned promptly in the enclosed
envelope. Persons signing in a fiduciary capacity should so indicate. A
corporation is requested to sign its name by its President or other authorized
officer, with the office held designated. If shares are held by joint tenants or
as community property, both holders should sign.)
TO ENSURE YOUR REPRESENTATION AT THE ANNUAL MEETING, PLEASE MARK, SIGN
AND DATE THIS PROXY AND RETURN IT AS PROMPTLY AS POSSIBLE.
