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April 19, 1995
To the Shareholders of Novellus Systems, Inc.
You are cordially invited to attend the Annual Meeting of Shareholders of
Novellus Systems, Inc. (the "Company") on May 26, 1995 at 8:00 a.m., California
time. The Annual Meeting will be held at the Company's principal executive
offices, 81 Vista Montana, San Jose, California 95134.
A description of the business to be conducted at the Annual Meeting is set
forth in the attached Notice of Annual Meeting and Proxy Statement. Also
enclosed is a copy of our Annual Report to Shareholders.
Whether or not you plan to attend the Annual Meeting, PLEASE MARK, SIGN,
DATE AND RETURN THE ENCLOSED PROXY CARD PROMPTLY IN THE ACCOMPANYING ENVELOPE.
If you attend the Annual Meeting and wish to change your proxy vote, you may do
so simply by voting in person at the Annual Meeting.
Richard S. Hill
Chief Executive Officer
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NOVELLUS SYSTEMS, INC.
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD ON MAY 26, 1995
NOTICE IS HEREBY GIVEN that the Annual Meeting of Shareholders of Novellus
Systems, Inc. (the "Company") will be held on May 26, 1995 at 8:00 a.m.,
California time, at the Company's principal executive offices, 81 Vista Montana,
San Jose, California 95134, for the following purposes:
1. To elect seven directors of the Company to serve for the ensuing year
and until their successors are elected and qualified.
2. To ratify and approve an amendment to the Company's 1992 Stock Option
Plan (the "Option Plan") to increase the number of shares reserved for
issuance thereunder from 1,300,000 shares to 2,000,000 shares.
3. To ratify and approve an amendment to the Company's Option Plan to
authorize the Stock Option Committee to make restricted stock grants and
award stock bonuses.
4. To ratify and approve an amendment to the Company's 1992 Employee Stock
Purchase Plan to increase the number of shares reserved for issuance
thereunder from 150,000 shares to 250,000 shares.
5. To ratify and approve the appointment of Ernst & Young LLP as the
independent auditors for the Company for the fiscal year ending December
31, 1995.
6. To transact such other business as may properly come before the meeting.
The foregoing items of business, including the nominees for directors, are
more fully described in the Proxy Statement which is attached and made a part
hereof.
Shareholders of record at the close of business on April 3, 1995 are
entitled to vote at the Annual Meeting.
FOR THE BOARD OF DIRECTORS
William J. Wall
SECRETARY
San Jose, California
April 19, 1995
YOUR VOTE IS IMPORTANT
TO ENSURE YOUR REPRESENTATION AT THE MEETING, YOU ARE URGED TO MARK, SIGN,
DATE AND RETURN THE ENCLOSED PROXY AS PROMPTLY AS POSSIBLE IN THE ACCOMPANYING
ENVELOPE. IF YOU ATTEND THE MEETING, YOU MAY VOTE IN PERSON EVEN IF YOU RETURNED
A PROXY.
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NOVELLUS SYSTEMS, INC.
PROXY STATEMENT
GENERAL
The enclosed proxy is solicited on behalf of the Board of Directors of
Novellus Systems, Inc. (the "Company") for use at the Annual Meeting of
Shareholders to be held on May 26, 1995 at 8:00 a.m., California time (the
"Annual Meeting"), or at any adjournment or postponement thereof. The Annual
Meeting will be held at the Company's principal executive offices, 81 Vista
Montana, San Jose, California 95134.
This Proxy Statement, the form of proxy, and the Company's 1994 Annual
Report are first being mailed to shareholders on or about April 19, 1995.
REVOCABILITY OF PROXIES
Any proxy given pursuant to this solicitation may be revoked by the person
giving it at any time before its use by delivering to the Company (to the
attention of William J. Wall) a written notice of revocation or a duly executed
proxy bearing a later date or by attending the meeting and voting in person.
RECORD DATE, SHARE OWNERSHIP AND QUORUM
Shareholders of record at the close of business on April 3, 1995 are
entitled to vote at the Annual Meeting. At the record date, 16,255,132 shares of
the Company's common stock ("Common Stock") were issued and outstanding. The
presence of a majority of these shares of Common Stock will constitute a quorum
for the transaction of business at the Annual Meeting.
VOTING AND SOLICITATION
Each share outstanding on the record date is entitled to one vote. Under the
cumulative voting provisions in the Company's Bylaws, each shareholder may cast
for a single nominee for director, or distribute among up to seven nominees, a
number of votes equal to seven multiplied by the number of shares held by such
shareholder. However, cumulative voting will not be available unless at least
one shareholder has given notice of his intention to cumulate votes prior to the
voting, and will apply only to those candidates whose names have been placed in
nomination prior to the voting.
The costs of soliciting proxies will be borne by the Company. Proxies may be
solicited by certain of the Company's directors, officers and regular employees,
without additional compensation, in person or by telephone or telegram.
An automated system administered by the Company's transfer agent will
tabulate votes cast by proxy at the Annual Meeting and an officer of the Company
will tabulate votes cast in person. Abstentions and broker non-votes are each
included in the determination of the number of shares present and voting, and
each is tabulated separately. In determining whether a proposal has been
approved or a nominee has been elected as a director, abstentions are counted as
votes against a proposal or nominee and broker non-votes are not counted as
votes for or against a proposal or nominee.
DEADLINE FOR RECEIPT OF SHAREHOLDER PROPOSALS
Proposals of shareholders of the Company that are intended to be presented
at the Company's Annual Meeting of Shareholders to be held in 1996 must be
received by the Company no later than December 19, 1995 to be included in the
proxy statement and form of proxy relating to that meeting.
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PROPOSAL NO. 1
ELECTION OF DIRECTORS
A board of seven directors ("Board" or "Board of Directors") will be elected
at the Annual Meeting. The seven nominees receiving the highest number of
affirmative votes will be elected as directors. Unless otherwise instructed, the
proxy holders will vote the proxies they receive for the seven nominees of the
Board of Directors named below. In the event that any nominee of the Board is
unable or declines to serve as a director at the time of the Annual Meeting, the
proxies will be voted for any nominee designated by the present Board of
Directors to fill the vacancy. It is not expected that any nominee will be
unable or will decline to serve as a director. In the event that additional
persons are nominated for election as directors, the proxy holders intend to
vote all proxies received by them in such a manner in accordance with cumulative
voting as will assure the election of as many of the nominees listed below as
possible, with any required selection among such nominees to be determined by
the proxy holders.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE NOMINEES LISTED BELOW.
<TABLE>
<CAPTION>
DIRECTOR
NAME OF NOMINEE AGE PRINCIPAL OCCUPATION SINCE
- --------------------------------------- --- ------------------------------------------------------ -----------
<S> <C> <C> <C>
Richard S. Hill 43 President and Chief Executive Officer of the Company 1993
Robert F. Graham 65 Chairman of the Board of the Company, former Chief 1986
Executive Officer of the Company
D. James Guzy 59 President, Arbor Company, a limited partnership 1990
engaged in the electronics and computer industries
Glen Possley 54 Advisor to SubMicron Technology, Inc., a company 1991
engaged in the manufacturing of semiconductors
Joseph Van Poppelen 67 President, Van Poppelen Company, a consulting firm 1993
focused on marketing and business strategies for high
technology companies
Robert H. Smith 58 Industry Consultant Nominee
Tom Long 63 Director of Programs, Planar Advance, Inc., a flat Nominee
panel company engaged in the electronics industry
</TABLE>
The term of office of each person elected as a director will continue until
the next Annual Meeting of Shareholders or until his successor has been elected
and qualified. The Company's Bylaws provide that no person may be elected or run
for reelection to the Board of Directors after having attained the age of 70
years. There is no family relationship between any director and any other
director or executive officer of the Company.
MR. HILL has been the President and Chief Executive Officer and member of
the Board of Directors of the Company since December 1993. Since August 1994 Mr.
Hill has served on the Board of Directors of Maxtek Corporation. From 1981 to
1993, Mr. Hill was employed by Tektronix, Inc., an electronics company, where he
held such positions as President of the Tektronix Development Company, Vice
President of the Test & Measurement Group, and President of Tektronix Components
Corporation. Prior to joining Tektronix, Mr. Hill held engineering management
positions at General Electric, Motorola and Hughes Aircraft Company.
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MR. GRAHAM joined the Company in September 1986 and currently serves as its
Chairman of the Board of Directors. Mr. Graham has served on the Board of
Directors since 1986. From November 1986 to December of 1993, Mr. Graham served
as Chief Executive Officer and Chairman of the Board of the Company. From 1974
until he joined the Company, Mr. Graham served in a variety of positions at
Applied Materials, Inc., where he last served as Senior Vice President, Mergers
and Acquisitions. Mr. Graham was a founder of Intel Corporation. Mr. Graham also
serves on the Board of Directors at Maxim Integrated Products Inc. and GaSonics
International.
MR. GUZY joined the Board of Directors in January 1990. He has been
President of the Arbor Company, a limited partnership engaged in the electronics
and computer industries, since 1969. Mr. Guzy is also a director of Intel
Corporation, Cirrus Logic, Inc., Micro Component Technology, Inc., Frame
Technology Corporation, New York Venture Fund, Venture Income Plus Fund, Venture
Muni Fund, Retirement Planning Funds and Alliance Capital Management Technology
Fund.
DR. POSSLEY joined the Board of Directors in July 1991. He has been an
advisor to SubMicron Technology, Inc., a semiconductor company, since March
1994. From April 1992 to March 1994 he was Senior Vice President of
Manufacturing at Ramtron International, a semiconductor company. From January
1991 to April 1992, he was Vice President, Operations at Sundisk Technology, a
manufacturer of solid state memory systems. From 1986 to January 1991, Dr.
Possley was Vice President, Manufacturing Operations for Signetics, Inc., a
semiconductor company. Prior to joining Signetics, Inc., he was Vice President,
Wafer Fabrication and Research and Development at United Technologies Mostek,
and held engineering positions with Texas Instruments, Inc., Fairchild Camera
and Instrument Corporation and the semiconductor division of General Electric
Company.
MR. VAN POPPELEN joined the Board of Directors in May 1993. He has been
president of Van Poppelen Company, a consulting firm focused on marketing and
business strategies for high technology companies, since 1989. From 1975 to
1989, Mr. Van Poppelen was employed by National Semiconductor Corporation, where
he last served as Senior Vice President, Worldwide Marketing and Sales.
MR. SMITH is a nominee of the Board of Directors and has not previously
served on the Board. Mr. Smith has been an industry consultant since 1990. From
June of 1994 through September 1994 Mr. Smith was the Chairman of the Board of
Directors of Micro Component Technology, Inc., a semiconductor test equipment
manufacturer. From 1988 through 1990, Mr. Smith was the President of Maxwell
Graphics, Inc., a printing company. From 1982 through 1988, Mr. Smith held Chief
Financial Officer positions with Maxwell Communications of North America
Corporation and R.R. Donnelley and Sons, printing companies. Mr. Smith also
serves on the Board of Directors of Cirrus Logic, Inc.
MR. LONG is a nominee of the Board of Directors and has not previously
served on the Board. Mr. Long recently came out of retirement to accept the
position of Director of Programs for Planar Advance, Inc. In this position he is
responsible for the management of product development. From August 1991 to
October 1994 Mr. Long retired from business to pursue personal goals. Prior to
August 1991 Mr. Long served as the Vice President and Chief Technical Officer of
Tektronix, Inc. for seven years.
BOARD MEETINGS AND COMMITTEES
The Board of Directors of the Company held six meetings during 1994. During
the last year, no incumbent director attended fewer than 75% of the meetings of
the Board of Directors and its committees on which he served that were held
during the period in which he was a director. The Board of Directors has an
Audit Committee, Compensation Committee and Stock Option Committee. It does not
have a nominating committee or a committee performing the functions of a
nominating committee. Although there are no formal procedures for shareholders
to recommend nominations, the Board will consider shareholder recommendations.
Such recommendations should be addressed to William J. Wall, the Company's
Secretary, at the Company's principal executive offices.
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During 1994, Messrs. Guzy, Van Poppelen and Dox (who is retiring from the
Board of Directors following this Annual Meeting) served on the Audit Committee.
The Audit Committee held four meetings during the last year. The Audit Committee
recommends the engagement of the Company's independent accountants and is
primarily responsible for approving the services performed by the Company's
independent accountants and for reviewing and evaluating the Company's
accounting principles and its system of internal accounting controls.
During 1994, Messrs. Graham, Guzy and Hill served on the Compensation
Committee. The Compensation Committee held one meeting during the last year. The
principal functions of the Compensation Committee are to review and approve the
Company's executive compensation policy.
During 1994, Messrs. Guzy and Van Poppelen and Dr. Possley served on the
Stock Option Committee. The Stock Option Committee held two meetings during the
last year. The Stock Option Committee administers the issuance of stock and the
grant of options to purchase stock of the Company pursuant to the Company's
stock plans and, in accordance with the term of the respective stock plans,
determines the terms and conditions of such issuances and grants.
Directors are reimbursed for out-of-pocket travel expenses associated with
their attendance at meetings of the Board. In addition, during 1994, Messrs.
Guzy and Van Poppelen and Dr. Possley received a fee of $3,000 for each quarter,
$1,000 for each Board meeting attended and $300 for each Committee meeting
attended which was not held on the same day as a Board meeting.
PROPOSAL NO. 2
RATIFICATION AND APPROVAL OF AN AMENDMENT TO THE
COMPANY'S 1992 STOCK OPTION PLAN
The Company's shareholders are being asked to act upon a proposal to approve
the action of the Board of Directors amending the Company's 1992 Stock Option
Plan (the "Option Plan"). Ratification of the proposal requires the affirmative
vote of a majority of the shares of Common Stock voting on the proposal in
person or by proxy.
The Board of Directors amended the Option Plan in January 1995, subject to
shareholder approval, to increase the number of shares reserved for issuance
under the Option Plan from 1,300,000 shares to 2,000,000 shares.
The Board of Directors believes that the attraction and retention of high
quality personnel are essential to the Company's continued growth and success
and that an incentive plan such as the Option Plan is necessary for the Company
to remain competitive in its compensation practices. In the absence of
shareholder approval of this increase in the available shares, no additional
shares will be available for future option grants under the Option Plan, except
to the extent that shares become available upon termination or cancellation of
outstanding options.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE RATIFICATION AND APPROVAL
OF THE AMENDMENT TO THE COMPANY'S 1992 STOCK OPTION PLAN.
GENERAL DESCRIPTION OF OPTION PLAN
The following summary of the Option Plan, including the proposed amendment,
is subject in its entirety to the specific language of the Option Plan, a copy
of which is available to any shareholder upon request.
The Option Plan was adopted by the Board of Directors in April 1992 and
approved by the shareholders in May 1992. The purpose of the Option Plan is to
attract and retain qualified personnel and to provide additional incentives to
the Company's employees, officers, directors and consultants. In November 1993,
the Board of Directors approved, and in May 1994 the shareholders ratified, an
amendment to the Option Plan to increase the number of shares available for
grants thereunder from 550,000 shares to 1,300,000 shares. In January 1995, the
Board of Directors approved an amendment
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to the Option Plan to increase the number of shares available for granting
thereunder from 1,300,000 shares to 2,000,000 shares. As of March 31, 1995,
options to purchase 1,367,991 had been granted under the option plan of which
options to purchase 919,031 were outstanding, including options to purchase
67,991 shares which were granted subject to shareholder approval of the proposed
amendment.
The Option Plan provides for the granting to employees (including officers
and employee directors) of "incentive stock options" within the meaning of
Section 422 of the Internal Revenue Code of 1986, as amended, (the "Code") and
for the granting to employees, non-employee directors ("Outside Directors") and
consultants of nonstatutory stock options. As of March 31, 1995, the number of
executive officers, employees, consultants and directors of the Company and its
subsidiaries that were eligible to receive grants under the Option Plan was
approximately 588 persons. The Company cannot grant an incentive stock option if
as a result of the grant the optionee would have the right in any calendar year
to exercise for the first time one or more incentive stock options for shares
having an aggregate fair market value (under all plans of the Company and
determined for each share as of the date the option to purchase the share was
granted) in excess of $100,000.
The Option Plan currently is administered by the Stock Option Committee of
the Board of Directors (the "Stock Option Committee"), which, subject to the
terms of the Option Plan, determines the terms of the options granted under the
Option Plan, including the exercise price, the number of shares subject to the
option and exercisability. No employee may be granted options to purchase in
excess of 100,000 shares per fiscal year, except new hires may be granted
options for up to 200,000 shares. Generally, options granted under the Option
Plan in connection with the commencement of employment with the Company become
exercisable at the rate of 25% of the shares subject to the option one year
after grant and thereafter, 25% of the shares subject to the option each
subsequent year. Options granted after such initial grant generally vest as to
50% of the shares subject to such option at the end of the third year after the
grant date and the remaining 50% of the shares subject to such option vest at
the end of the fourth year after the grant date. No option may be transferred by
the optionee other than by will or the laws of descent or distribution.
The exercise price of all stock options granted under the Option Plan must
equal at least the fair market value of the Common Stock of the Company on the
date of grant. The fair market value of the Common Stock on a given date is
determined by the Board of Directors based upon the last sale price of the
Common Stock on the Nasdaq National Market System as of such date. On December
31, 1994, the fair market value of the Company's Common Stock was $50.00. The
exercise price of any incentive stock option granted to an optionee who owns
stock possessing more than 10% of the voting power of the Company's outstanding
capital stock must equal at least 110% of the fair market value of the Common
Stock on the date of grant. Although the Option Plan may provide that payment of
the exercise price may be made in cash, promissory notes, other shares of the
Company's Common Stock (subject to certain conditions) or such other
consideration determined by the Board of Directors, options granted to date may
be exercised only for cash.
The Option Plan provides for automatic and non-discretionary grants of
options to Outside Directors. Pursuant to the Option Plan, on the day
immediately following the date of each annual meeting of shareholders of the
Company, each Outside Director will be automatically granted an option to
purchase 4,000 shares (the "Director Options"). Shares subject to the Director
Options are immediately exercisable.
The Option Plan provides that, in the event of a proposed sale of all or
substantially all of the assets of the Company, or the merger of the Company
with or into another corporation, outstanding options shall be assumed or an
equivalent option or right shall be substituted by the successor corporation or
a parent or subsidiary of such successor corporation, unless the Board
determines, in the exercise of its sole discretion and in lieu of such
assumption or substitution, that the optionee shall have the right to exercise
the option as to all shares of stock subject to such option, including shares as
to which the option would not otherwise be exercisable.
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AMENDED PLAN BENEFITS
The Company has granted options to purchase 67,991 shares at a weighted
average exercise price of $57.25 to certain employees, including all current
officers who are not executive officers, which options are subject to
shareholder approval of the increase in shares subject to the Option Plan. As of
the date of this Proxy Statement, no named executive officers, Outside Directors
nor associates of any director, executive officer or nominee for director has
been granted any options subject to shareholder approval of the proposed
amendment. The benefits to be received pursuant to the Option Plan amendment by
the Company's directors, executive officers and employees are not determinable
at this time.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The following summarizes only the federal income tax consequences of stock
options granted under the Option Plan. State and local tax consequences may
differ.
The grant of a nonqualified stock option under the Option Plan will not
result in any federal income tax consequences to the optionee or to the Company.
Upon exercise of a nonqualified stock option, the optionee is subject to income
taxes at the rate applicable to ordinary compensation income on the difference
between the option price and the fair market value of the shares on the date of
exercise. This income is subject to withholding for federal income and
employment tax purposes. The Company is entitled to an income tax deduction in
the amount of the income recognized by the optionee. Any gain or loss on the
optionee's subsequent disposition of the shares will receive long or short-term
capital gain or loss treatment depending on whether the shares are held for more
or not more than twelve months, respectively, following exercise. The Company
does not receive a tax deduction for any such gain. Capital gains currently are
taxed at the same rates as ordinary income, except that the maximum marginal
rate at which ordinary income is taxed to individuals is currently 39.6% and the
maximum rate at which long-term capital gains are taxed is 28%. Special
considerations apply to optionees who are reporting persons for purposes of
Section 16(a) of the Securities Exchange Act of 1934 (the "Exchange Act") and
such optionees should consult their tax advisors with respect to the tax
treatment of such options.
The grant of an incentive stock option ("ISO") under the Option Plan will
not result in any federal income tax consequences to the optionee or to the
Company. An optionee recognizes no federal taxable income upon exercising an ISO
(subject to the alternative minimum tax rules discussed below), and the Company
receives no deduction at the time of exercise. In the event of a disposition of
stock acquired upon exercise of an ISO, the tax consequences depend upon how
long the optionee has held the shares. If the optionee does not dispose of the
shares within two years after the ISO was granted, nor within one year after the
ISO was exercised and shares were purchased, the optionee will recognize a
long-term capital gain (or loss) equal to the difference between the sale price
of the shares and the exercise price. The Company is not entitled to any
deduction under these circumstances.
If the optionee fails to satisfy either of the foregoing holding periods, he
or she must recognize ordinary income in the year of the disposition (referred
to as a "disqualifying disposition"). The amount of such ordinary income
generally is the lesser of (i) the difference between the amount realized on
disposition and the exercise price, or (ii) the difference between the fair
market value of the stock on the exercise date and the exercise price. Any gain
in excess of the amount taxed as ordinary income will be treated as a long- or
short-term capital gain, depending on whether the stock was held for more or not
more than twelve months, respectively. The Company, in the year of the
disqualifying disposition, is entitled to a deduction equal to the amount of
ordinary income recognized by the optionee.
The "spread" under an ISO -- i.e., the difference between the fair market
value of the shares at exercise and the exercise price -- is classified as an
item of tax preference in the year of exercise for purposes of the alternative
minimum tax.
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Effective January 1, 1994, the Code was amended to impose a cap on the
amount of executive compensation recognized by a corporation's Chief Executive
Officer and its four other most highly compensated executive officers that the
corporation may deduct, set at $1,000,000 per such executive per year. To
facilitate the Company's ability to continue to deduct in full all amounts of
income recognized by such executive officers of the Company upon exercise of
stock options, the Board of Directors adopted, and the shareholders approved, an
amendment to the Option Plan to impose a per employee share limitation of
100,000 shares per fiscal year, with a 200,000 share limitation for grants to
new hires.
PROPOSAL NO. 3
RATIFICATION AND APPROVAL OF AN AMENDMENT TO THE
COMPANY'S 1992 STOCK OPTION PLAN
TO ALLOW FOR RESTRICTED STOCK GRANTS AND STOCK BONUS AWARDS
The Company's shareholders are being asked to act upon a proposal to approve
the action of the Board of Directors amending the Option Plan. Ratification of
the proposal requires the affirmative vote of a majority of the shares of Common
Stock voting on the proposal in person or by proxy.
The Board of Directors of the Company amended the Option Plan in December
1994 to effect the following, subject to shareholder approval: to authorize the
Stock Option Committee to grant the right to purchase Common Stock of the
Company subject to restrictions ("Restricted Shares") and to award stock bonuses
("Stock Bonuses").
The Board of Directors believes that the attraction and retention of high
quality personnel are essential to the Company's continued growth and success
and that an incentive plan such as the Option Plan, which includes the ability
to sell Restricted Shares and award Stock Bonuses is necessary for the Company
to remain competitive in its compensation practices.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE RATIFICATION AND APPROVAL
OF THE AMENDMENT TO THE COMPANY'S 1992 STOCK OPTION PLAN.
GENERAL DESCRIPTION OF OPTION PLAN
For a general description of the Option Plan, please see the summary
provided under the heading "General Description of Option Plan" for Proposal No.
2 in this Proxy Statement.
The following summary of the proposed amendment, is subject in its entirety
to the specific language of the Option Plan, a copy of which is available to any
shareholder upon request.
RESTRICTED SHARES. If the proposed amendment is adopted, a grant of
Restricted Shares would consist of the sale of a specified number of shares of
Common Stock which would be contingently awarded in amounts determined by the
Stock Option Committee to those employees, directors, and consultants selected
by the Stock Option Committee. Outside Directors would not be eligible for a
grant of Restricted Shares. Restricted Shares would be subject to certain
restrictions on transfer, forfeiture, repurchase, and vesting as the Stock
Option Committee may determine pursuant to the terms of a Restricted Stock
Purchase Agreement. An individual who has been awarded Restricted Shares would
have the right to vote and receive dividends on Restricted Shares, but could not
sell, assign, transfer, pledge or otherwise encumber Restricted Shares except in
accordance with the Restricted Stock Purchase Agreement. The purchase price of
Restricted Shares would be at least the fair market value of the Common Stock of
the Company on the date of grant of the Restricted Shares. Payment for
Restricted Shares would be made in any combination of cash, Common Stock, or
other consideration as determined by the Stock Option Committee.
STOCK BONUS. If the proposed amendment is adopted, a grant of a Stock Bonus
would consist of a specified number of shares of Common Stock which would be
awarded in amounts determined by the Stock Option Committee to those employees,
directors, and consultants selected by the Stock Option
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Committee. Outside Directors would not be eligible for awards of Stock Bonuses.
Shares awarded as Stock Bonuses would be subject to restrictions on transfer,
forfeiture, repurchase, and vesting as the Stock Option Committee may determine
pursuant to the terms of a Restricted Stock Bonus Agreement. The individual
receiving a Stock Bonus would not pay for the shares received as a Stock Bonus,
although the fair market value of the shares received would be deemed
compensation to the individual upon the lapsing of any restrictions.
AMENDED PLAN BENEFITS
Mr. Hill, the Company's President and Chief Executive Officer, was awarded a
stock bonus of 5,000 shares of the Company's Common Stock which award is to be
made pursuant to shareholder approval of the amendment to the Option Plan. The
fair market value of the Company's Common Stock on the date the bonus was
awarded was $50.75 per share. As of the date of this Proxy Statement no other
employees, including named executive officers, officers who are not executives,
directors nor associates of any director, executive officer or nominee for
director has been awarded Restricted Shares or Stock Bonuses subject to
shareholder approval. The benefits to be received pursuant to this Option Plan
amendment by the Company's directors, executive officers and employees are not
determinable at this time.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The following summarizes only the federal income tax consequences to
participants and the Company of the acquisition and disposition of shares under
the proposed amendment to the Option Plan. State and local tax consequences may
differ. For a summary of the federal income tax consequences of stock options
granted under the Option Plan, please refer to the summary under the heading
"Certain Federal Income Tax Consequences" for Proposal No. 2.
RESTRICTED SHARES. A participant who received Restricted Shares will
generally recognize ordinary income at the time the restrictions on
transferability lapse. The amount of ordinary income so recognized will be the
fair market value of the Common Stock at the time the income is recognized less
the amount the participant paid for the Restricted Shares, determined without
regard to any restrictions other than restrictions which by their terms will
never lapse. This amount is deductible for federal income tax purposes by the
Company. Dividends paid with respect to Common Stock that is nontransferable
will be ordinary compensation income to the participant (and generally
deductible by the Company).
In lieu of the treatment described above, a participant may elect immediate
recognition of income under Section 83(b) of the Code. In such event, the
participant will recognize as income the fair market value of the Restricted
Shares at the time of grant less the amount the participant paid for the
Restricted Shares, determined without regard to any restrictions other than
restrictions which by their terms will never lapse, and the Company will be
entitled to a corresponding deduction. Dividends paid with respect to shares as
to which a proper Section 83(b) election has been made will not be deductible to
the Company. If a Section 83(b) election is made and the Restricted Shares are
subsequently forfeited, the participant will not be entitled to any offsetting
tax deduction.
STOCK BONUSES. With respect to Stock Bonuses under the Option Plan
described above, generally, when a participant receives a Stock Bonus, the fair
market value of the Common Stock on the date the restrictions, if any, are
removed will be ordinary income to such participant and will be allowed as a
deduction for federal income purposes to the Company.
PAYMENT OF WITHHOLDING TAXES. The Company may withhold, or require a
participant to remit to the Company, an amount sufficient to satisfy any
federal, state or local withholding tax requirements associated with awards
under the Option Plan.
SPECIAL RULES. Special rules may apply to a participant who is subject to
Section 16(b) of the Exchange Act (generally directors, executive officers and
10% shareholders).
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PROPOSAL NO. 4
APPROVAL OF AN AMENDMENT TO THE
1992 EMPLOYEE STOCK PURCHASE PLAN
The Company's shareholders are being asked to act upon a proposal to approve
the action of the Board of Directors amending the Company's 1992 Employee Stock
Purchase Plan (the "Purchase Plan"). Ratification of the proposal requires the
affirmative vote of a majority of the shares of Common Stock voting on the
proposal in person or by proxy.
The Board of Directors of the Company amended the Purchase Plan in January
1995 to effect the following, subject to shareholder approval: to increase the
number of shares reserved for issuance under the Purchase Plan from 150,000
shares to 250,000 shares.
The Board of Directors believes that the attraction and retention of high
quality personnel are essential to the Company's continued growth and success
and that an incentive plan such as the Purchase Plan is necessary for the
Company to remain competitive in its compensation practices. In the absence of
an increase in the available shares, no additional shares will be available for
purchase under the Purchase Plan, except to the extent that shares are not
purchased during the current offering period due to the withdrawal of a plan
participant.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE RATIFICATION AND APPROVAL
OF THE AMENDMENT TO THE COMPANY'S 1992 EMPLOYEE STOCK PURCHASE PLAN.
GENERAL DESCRIPTION OF THE PURCHASE PLAN
The following summary of the Purchase Plan, including the proposed
amendment, is qualified in its entirety by the specific language of the Purchase
Plan, a copy of which is available to any shareholder upon request.
In May 1992 the Board of Directors adopted, and the shareholders approved,
the Purchase Plan. A total of 150,000 shares of Common Stock were reserved for
issuance thereunder. The purpose of the Purchase Plan is to provide employees of
the Company who participate in the Plan with an opportunity to purchase Common
Stock of the Company through payroll deductions. The 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 Board of Directors
amended the Purchase Plan in January 1995, subject to shareholder approval, to
increase the number of shares reserved for issuance thereunder by 100,000
shares; bringing the total number of shares reserved for issuance under the
Purchase Plan to 250,000 shares. As of March 31, 1995, 148,402 shares of Common
Stock had been sold pursuant to the Purchase Plan at a weighted average price of
$16.61 per share, with 1,598 shares available for future issuance under the
Purchase Plan.
Any person who is employed by the Company (or any of its majority-owned
subsidiaries for whom the appropriate regulatory filings have been made) for at
least 20 hours per week and more than five months in a calendar year is eligible
to participate in the Purchase Plan provided that the employee is employed on
the first day of an offering period and subject to certain limitations imposed
by Section 423(b) of the Code. Eligible employees become participants in the
Purchase Plan by delivering to the Company a subscription agreement authorizing
payroll deductions prior to the applicable offering date, unless a later time
for filing the subscription agreement has been set by the Board of Directors for
all eligible employees with respect to a given offering.
The Purchase Plan may be administered by the Board of Directors or a
committee appointed by the Board, and is currently being administered by the
Board of Directors. All questions of interpretation of the Purchase Plan are
determined by the Board of Directors or its committee, whose decisions are final
and binding upon all participants.
9
<PAGE>
The Purchase Plan is implemented by one offering during each six-month
period of the Purchase Plan. The first offering period commenced on or about
January 1, 1989. The Board of Directors may alter the duration of the offering
periods without shareholder approval.
The price per share at which shares are sold under the Purchase Plan is
equal to the lower of (i) 85% of the fair market value of the Common Stock on
the date of commencement of the six-month offering period and (ii) 85% of the
fair market value of the Common Stock on the last day of the offering period.
The fair market value of the Common Stock on a given date is determined by the
Board of Directors based upon the last sale price of the Common Stock on the
Nasdaq National Market System as of such date.
The purchase price of the shares is accumulated by payroll deductions during
the offering period. The deductions may not exceed the lesser of (i) 15% of a
participant's eligible compensation, which is defined in the Purchase Plan to
include the regular straight time gross salary in effect at the beginning of the
offering period, exclusive of any payments for overtime, shift premium, bonuses,
commissions, incentive compensation, incentive payments, or other compensation
or (ii) $5,000 for each offering period. A participant may discontinue his or
her participation in the Purchase Plan or may decrease, but not increase, the
rate of payroll deductions at any time during the offering period. Payroll
deductions shall commence on the first payday following the offering date, and
shall continue at the same rate until the end of the offering period unless
terminated sooner as provided in the Purchase Plan.
The maximum number of shares placed under option to a participant in an
offering is that number determined by dividing the amount of the participant's
total payroll deductions to be accumulated during the offering period (not to
exceed an amount equal to 15% of the participant's actual eligible compensation
during the offering period) by the lower of 85% of the fair market value of the
Common Stock at the beginning or end of the offering period. Unless a
participant withdraws from the Purchase Plan, such participant's option for the
purchase of shares will be exercised automatically at the end of the offering
period for the maximum number of shares at the applicable price.
Notwithstanding the foregoing, (i) no employee will be permitted to
subscribe for shares under the Purchase Plan if, immediately after the grant of
the option, the employee would own 5% or more of the voting power or value of
all classes of stock of the Company or of a parent or of any of its subsidiaries
(including stock which may be purchased under the Purchase Plan or pursuant to
any other options), and (ii) no employee shall be granted an option which would
permit the employee to buy pursuant to the Purchase Plan more than $25,000 worth
of stock (determined at the fair market value of the shares at the time the
option is granted) in any calendar year.
A participant's interest in a given offering may be terminated in whole, but
not in part, by signing and delivering to the Company a notice of withdrawal
from the Purchase Plan. Such withdrawal may be elected at any time prior to the
end of the applicable six-month offering period. Any withdrawal by the
participant of accumulated payroll deductions for a given offering automatically
terminates the participant's interest in that offering. The failure to remain in
the continuous employ of the Company for at least 20 hours per week during an
offering period will be deemed to be a withdrawal from that offering.
Participation in the Purchase Plan by officers and directors of the Company
subject to Section 16(b) of the Exchange Act is subject to certain additional
conditions or restrictions as may be required under Rule 16b-3 of the Exchange
Act.
In the event any change is made in the Company's capitalization, such as a
stock split or stock dividend, which results in an increase or decrease in the
number of outstanding shares of Common Stock without receipt of consideration by
the Company, appropriate adjustments will be made by the Board of Directors to
the shares subject to purchase under the Purchase Plan and in the purchase price
per share.
10
<PAGE>
No rights or accumulated payroll deductions of a participant under the
Purchase Plan may be pledged, assigned or transferred for any reason and any
such attempt may be treated by the Company as an election to withdraw from the
Purchase Plan.
The Board of Directors may at any time amend or terminate the Purchase Plan,
except that such termination shall not affect options previously granted prior
thereto which adversely affects the rights of any participant. No amendment may
be made to the Purchase Plan without prior approval of the shareholders of the
Company if such amendment would increase the number of shares reserved under the
Purchase Plan, permit payroll deductions in excess of 15% of the participant's
compensation, materially modify the eligibility requirements or materially
increase the benefits which may accrue under the Purchase Plan.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The following summarizes only the federal income tax consequences of
participation under the Purchase Plan. State and local tax consequences may
differ.
The Purchase Plan, and the right of participants to make purchases
thereunder, is intended to qualify under the provisions of Section 421 and 423
of the Code. Under these provisions, no income will be taxable to a participant
at the time of grant of the option or purchase of shares. Upon disposition of
the shares, the participant will generally be subject to tax and the amount of
the tax will depend upon the participant's holding period. If the shares have
been held by the participant for more than two years after the date of option
grant, the lesser of (i) the difference between the fair market value of the
shares on the date the option was granted and the purchase price or (ii) the
difference between the fair market value of the shares on the purchase date and
the purchase price will be treated as ordinary income, and any further gain will
be treated as long-term capital gain. If the shares are disposed of before the
expiration of this holding period, the excess of the fair market value of the
shares on the exercise date over the option price will be treated as ordinary
income, and any further gain or loss on such disposition will be long-term or
short-term capital gain or loss, depending on the holding period. Different
rules may apply with respect to optionees subject to Section 16(b) of the
Exchange Act. The Company is not entitled to a deduction for amounts taxed as
ordinary income or capital gain to a participant except to the extent of
ordinary income reported by participants upon disposition of shares within two
years from date of grant.
PROPOSAL NO. 5
RATIFICATION AND APPROVAL OF APPOINTMENT OF INDEPENDENT AUDITORS
The Board of Directors has selected Ernst & Young LLP, independent auditors,
to audit the financial statements of the Company for 1995 and recommends that
the shareholders ratify such selection. In the event that a majority of the
outstanding shares are not voted in favor of ratification, the Board will
reconsider its selection. Unless otherwise instructed, the proxy holders will
vote the proxies they receive for the ratification of Ernst & Young LLP as the
independent auditors for 1995. Representatives of Ernst & Young LLP will be
present at the Annual Meeting, will have the opportunity to make a statement if
they so desire and will be available to respond to appropriate questions.
Ernst & Young LLP (or one of its predecessor firms, Arthur Young & Company)
has audited the Company's financial statements since the year ended December 31,
1986.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE RATIFICATION OF ERNST &
YOUNG LLP AS THE COMPANY'S INDEPENDENT AUDITORS FOR 1995.
11
<PAGE>
OTHER INFORMATION
EXECUTIVE OFFICERS
In addition to Messrs. Hill and Graham, the other executive officers of the
Company as of April 19, 1995, were as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
- -------------------------------- --- ----------------------------------------------------------------
<S> <C> <C>
Peter Hanley 55 Executive Vice President, Sales and Marketing
William J. Wall 48 Vice President, Finance and Administration, Chief Financial
Officer and Secretary
John Chenault 46 Vice President, Customer Satisfaction
Eliot Broadbent 39 Vice President, Technology
</TABLE>
DR. HANLEY joined the Company as Executive Vice President, Sales and
Marketing in June 1992. From 1985 to June 1992, Dr. Hanley held various
positions at Applied Materials, Inc., most recently Group Vice President
responsible for sales, service and process for all North American accounts.
Previously, Dr. Hanley was President of Tegal, a division of Motorola, Inc., an
electronics company, and held positions at Varian, Inc.
MR. WALL joined the Company in November 1992 as Vice President, Finance and
Administration, Chief Financial Officer and Secretary of the Company. From
January 1991 to November 1992 he was Vice President, Finance and Chief Financial
Officer of Resumix, Inc., a software company. From January 1990 to January 1991
he was Vice President, Finance and Chief Financial Officer of Power Integration,
Inc., a semiconductor company. From July 1988 to January 1990 he was Vice
President, Finance and Chief Financial Officer of CareLink Corporation, a
medical instruments company. Mr. Wall has also served as Chief Financial Officer
of Actel Corporation and Monolithic Memories, Inc., semiconductor companies.
MR. CHENAULT joined the Company in September 1991 as Vice President,
Operations and is currently its Vice President, Customer Satisfaction. From
October 1988 to July 1991 he was the Vice President and General Manager of Veeco
Instruments, an electronics company. From 1986 to October 1988 Mr. Chenault was
Vice President and General Manager for Carroll Touch, an electronics company.
Mr. Chenault has also held various positions with Texas Instruments, Inc. and
Recognition Equipment, Inc.
MR. BROADBENT has been Vice President, Technology of the Company since June
1992. He has been employed at the Company since February 1989, and prior to his
current position he served as Director of Process Technology. From 1982 to
February 1989 he was a Senior Scientist at Philips Research Laboratories.
12
<PAGE>
EXECUTIVE COMPENSATION
The following table sets forth certain information concerning compensation
of (i) each person that served as the Company's Chief Executive Officer during
the last fiscal year of the Company, (ii) the four other most highly compensated
executive officers of the Company, and (iii) each former executive officer of
the Company who would have been one of the Company's four most highly
compensated executive officers had such executive officer been serving as such
at the end of the Company's last fiscal year (collectively, the "named executive
officers"):
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
---------------
AWARDS
---------------
SECURITIES
ANNUAL COMPENSATION UNDERLYING
------------------------------- OPTIONS/ ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY ($) BONUS ($)(1) SARS (#)(2) COMPENSATION ($)(3)
- ---------------------------------------- ---- ------------ -------------- --------------- ----------
<S> <C> <C> <C> <C> <C>
Richard S. Hill......................... 1994 $315,000 $603,750(5) 35,000 $27,726 (6)(7)
President and Chief Executive 1993 12,115(4) -- 200,000 --
Officer 1992 -- -- -- --
Robert F. Graham........................ 1994 236,600 13,013 -- 24,284(7)(8)
Chairman of the Board 1993 236,600 236,600 -- 14,368
1992 246,869 -- 205,062(9) 14,134
Evert van de Ven (10)................... 1994 218,462 300,000 -- 2,496(7)(11)
Executive Vice President and 1993 208,462 252,000 30,000 408
Chief Technical Officer 1992 175,385 -- 120,000(12) 408
Peter Hanley............................ 1994 218,462 316,999(14) 21,000 1,440
Executive Vice President, 1993 208,462 170,740(14) 45,000 922
Sales and Marketing 1992 101,538(13) 147,000(14) 100,000 461
William J. Wall......................... 1994 170,154 344,000 14,500 1,357(7)
Vice President, Finance and 1993 160,000 160,000 15,000 1,557(11)
Administration, Chief Financial 1992 13,538(15) -- 65,000 --
Officer and Secretary
John Chenault........................... 1994 156,692 265,000 4,125 1,357(7)
Vice President, Customer 1993 151,135 142,500 20,000 557
Satisfaction 1992 137,692 17,000 85,000(16) 557
<FN>
- ------------------------
(1) Includes amounts earned in 1994 and paid in 1995.
(2) Amounts represent stock option grants and, in 1992, repricings of stock
options of certain named executive officers. See Option/SAR Grants in Last
Fiscal Year Table.
(3) Amounts include life insurance premiums paid by the Company on behalf of
the named executive officers.
(4) Mr. Hill joined the Company in December 1993, and his annual base salary
was established at $315,000.
(5) Bonus amount of $603,750 represents a $350,000 cash bonus awarded to Mr.
Hill under the Company's bonus policy and a stock bonus award of 5,000
shares of the Company's Common Stock valued at the time of the award at
$253,750. Mr. Hill's stock bonus award provides that the shares will be
forfeited and transferred to the Company should he terminate his employment
with the Company prior to December 10, 1996. Mr. Hill's stock bonus award
is to be made pursuant to
</TABLE>
13
<PAGE>
<TABLE>
<S> <C>
the Company's 1992 Stock Option Plan, which is proposed to be amended to
provide for restricted stock grants and stock bonuses. This proposed
amendment is being submitted for approval by the shareholders of the
Company as Company Proposal No. 3 described in this Proxy Statement.
(6) Includes $18,000 relocation expenses, $6,600 furniture allowance and $1,000
computer reimbursement.
(7) Includes tax preparation fees paid for by the Company.
(8) Includes health insurance benefits paid for by the Company under the
Company's Directors and Officers Medical Retirement Plan.
(9) Includes options for 55,062 shares granted in prior years and repriced on
July 1, 1992.
(10) Dr. van de Ven retired from the offices of Executive Vice President and
Chief Technical Officer as of January 1, 1995.
(11) Includes $1,000 computer reimbursement.
(12) Consists of options granted in prior years and repriced on July 1, 1992.
(13) Dr. Hanley joined the Company in June 1992.
(14) Includes commission based compensation in the amount of $96,999, $55,520
and $57,000 in 1994, 1993 and 1992, respectively.
(15) Mr. Wall joined the Company in November 1992.
(16) Includes options for 50,000 shares granted in prior years and repriced on
July 1, 1992.
</TABLE>
OPTION/SAR GRANTS IN LAST FISCAL YEAR
The following table provides certain information with respect to stock
options granted to the named executive officers in 1994:
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
-------------------------------------------------
NUMBER OF % OF TOTAL POTENTIAL REALIZABLE VALUE
SECURITIES OPTIONS/ AT ASSUMED ANNUAL RATE OF
UNDERLYING SARS GRANTED STOCK PRICE APPRECIATION FOR
OPTIONS/ TO EMPLOYEES EXERCISE OPTION TERM (1)
SARS IN FISCAL PRICE PER EXPIRATION ----------------------------
NAME GRANTED (#) YEAR SHARE DATE 5% ($) 10% ($)
- ------------------------------------ ----------- ------------- --------- ---------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Richard S. Hill..................... 35,000 7.20% $50.75 12/09/04 $ 1,117,074 $ 2,830,885
Robert F. Graham.................... -- -- -- -- -- --
Evert van de Ven.................... -- -- -- -- -- --
Peter Hanley........................ 21,000 4.32% 50.75 12/09/04 670,244 1,698,531
William J. Wall..................... 14,500 2.98% 50.75 12/09/04 462,788 1,172,795
John Chenault....................... 4,125 0.85% 50.75 12/09/04 131,655 333,640
<FN>
- ------------------------
(1) The potential realizable value portion of the foregoing table illustrates
value that might be realized upon exercise of the options immediately prior
to the expiration of their terms, assuming the specified compounded rates
of appreciation on the Company's Common Stock over the term of the options.
Actual gains, if any, on stock option exercise are dependent upon a number
of factors, including the future performance of the Common Stock, overall
stock market conditions, and the timing of option exercises, if any. There
can be no assurance that amounts reflected in this table will be achieved.
</TABLE>
14
<PAGE>
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION/SAR VALUES
The following table sets forth certain information with respect to stock
options exercised by the named executive officers during 1994, including the
aggregate value of gains on the date of exercise. In addition, the table sets
forth the number of shares covered by stock options as of December 31, 1994, and
the value of "in-the-money" stock options, which represents the positive spread
between the exercise price of a stock option and the market price of the shares
subject to such option on December 31, 1994.
<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING VALUE OF UNEXERCISED
UNEXERCISED OPTIONS/SARS IN-THE-MONEY OPTIONS/SARS
AT FISCAL YEAR END (#) AT FISCAL YEAR END ($)(1)
SHARES ACQUIRED VALUE -------------------------- ----------------------------
NAME ON EXERCISE (#) REALIZED ($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---------------------- --------------- ---------------- ----------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Richard S. Hill....... 0 0 50,000 185,000 $ 1,312,500 $ 3,937,500
Robert F. Graham...... 47,200 $ 1,619,648 748 65,032 31,136 2,706,957
Evert van de Ven...... 44,374 1,563,827 5,833 49,793 159,570 1,829,378
Peter Hanley.......... 40,000 1,622,500 38,035 87,965 1,504,926 2,018,199
William J. Wall....... 32,500 1,070,625 1,875 60,125 38,906 1,434,219
John Chenault......... 15,000 510,000 12,499 71,626 468,083 2,322,542
<FN>
- ------------------------
(1) Calculated on the basis of the last reported sale price per share for the
Company's Common Stock on The Nasdaq National Market System of $50.00 on
December 31, 1994.
</TABLE>
COMPENSATION COMMITTEE AND STOCK OPTION COMMITTEE REPORT ON EXECUTIVE
COMPENSATION
Notwithstanding anything to the contrary set forth in any of the Company's
previous filings under the Securities Act of 1933 or the Securities Exchange Act
of 1934 that might incorporate future filings, including this Proxy Statement,
in whole or in part, the following report and the Performance Graph which
follows shall not be deemed to be filed with the Securities and Exchange
Commission nor incorporated by reference into any such filings.
COMPENSATION PHILOSOPHY
The Company applies a consistent philosophy to compensation for all
employees, including senior management. The premise of this philosophy is to pay
for performance. The Company sets aggressive goals and objectives at the
beginning of each year and makes a significant percentage of executive
compensation dependent on performance against these goals and objectives. By
linking a significant percentage of pay to performance, the Company seeks to
ensure that the interests of its employees, including the named executive
officers, are closely aligned with those of its shareholders.
The Company strives to be in a leadership position within the semiconductor
industry for overall compensation. Competition for qualified personnel within
the semiconductor industry is intense and a leadership position in compensation
is necessary to attract, hire and retain persons of the highest caliber.
COMPENSATION VEHICLES
Compensation at the Company has three principal components: Salary, Bonus
and Stock Options.
1. SALARY
The salary program is structured to position the Company in the
seventy-fifth percentile within the semiconductor industry. To ensure this
position, the Company consults surveys that track other leading companies in the
semiconductor and semiconductor equipment industries, many of whom are included
in the Hambrecht & Quist Technology Index used to compare five year stock price
history.
15
<PAGE>
2. BONUS
Bonuses are designed to be a significant part of compensation. Bonuses are
based on achievement of corporate goals and individual objectives. Corporate
goals are expressed in a financial plan containing profitability targets;
individual objectives depend on the role of each employee, and include such
matters as sales within a particular market or to specific customers, inventory
turns and technological achievements. Upon the achievement of profitability
goals, the Board of Directors will approve the allocation of a certain
percentage of pre-tax income to a bonus pool. This pool is distributed to the
named executive officers and all other employees based on their individual
performance.
In addition to cash bonuses, the Company intends to utilize grants of
Restricted Shares and awards of Stock Bonuses to provide additional incentives
for the named executive officers and other employees, and to provide additional
incentives to such persons in a manner that is consistent with the Company's
long-term goals and objectives through equity ownership.
3. STOCK OPTIONS
The Company grants stock options to all employees upon hiring to allow
everyone to achieve an ownership position in the Company and thus provide all
employees the opportunity to share in the Company's achievements. Yearly,
additional stock options are granted to those named executive officers and other
employees who have done an exemplary job of meeting their objectives or have had
other accomplishments of note.
PERFORMANCE MEASURES AND CEO COMPENSATION
In 1994, the Company's profits exceeded the performance goals set by the
Compensation Committee at the beginning of the year. Accordingly, Richard S.
Hill, the Company's Chief Executive Officer, received an annual bonus equal to
192%(1) of his base salary. The other named executives received bonuses based on
their performance against the specific goals and objectives established for them
at levels ranging from 6% to 202% of their base salaries. The balance of the
compensation package for the CEO for 1994 was determined based on the Company's
obligations to him under his employment agreement which became effective in
December of 1993.
COMPENSATION POLICY REGARDING DEDUCTIBILITY
The Company does not expect cash compensation paid to officers subject to
Section 162(m) of the Code to exceed the limitations of Section 162(m) for
fiscal 1995, and therefore expects all such cash compensation to be deductible.
<TABLE>
<S> <C>
STOCK OPTION COMMITTEE COMPENSATION COMMITTEE
D. James Guzy Richard S. Hill
Glen Possley D. James Guzy
Joseph Van Poppelen Robert F. Graham
<FN>
- ------------------------
(1) Percentage is based on the combination of Mr. Hill's 1994 cash bonus of
$350,000 and stock bonus award valued at $253,750, totaling $603,750.
</TABLE>
16
<PAGE>
PERFORMANCE GRAPH
The following line graph compares the yearly percentage change in (i) the
cumulative total shareholder return on the Company's Common Stock since December
31, 1989 with (ii) cumulative total shareholder return on (a) the Nasdaq Stock
Market -- U.S. Index and (b) the Hambrecht & Quist Technology Index. The
comparison assumes an investment of $100 on December 31, 1989 and reinvestment
of dividends, if any. The stock price performance shown on the graph is not
necessarily indicative of future price performance.
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
NOVELLUS SYSTEMS H&O TECHNOLOGY NASDAQ
<S> <C> <C> <C>
1989 100.00 100.00 100.00
1990 167.27 91.42 84.92
1991 309.09 135.14 136.28
1992 265.45 155.45 158.58
1993 498.18 169.64 180.93
1994 727.27 196.90 176.92
</TABLE>
EMPLOYMENT AGREEMENTS
In June 1992, the Company entered into an employment agreement with Peter
Hanley pursuant to which the Company retained Dr. Hanley as its Executive Vice
President, Sales and Marketing for an annual salary (subject to adjustment) of
$200,000 plus a bonus to be determined by the Board of Directors. In connection
with the agreement, the Company granted Dr. Hanley options to purchase 100,000
shares of Common Stock at an exercise price of $8.38, of which, the Company
guaranteed a return of $800,000 on options to purchase 40,000 of such shares. In
July 1993, the Company accelerated the vesting of the options to purchase 40,000
shares in consideration of a release from the Company's guaranteed $800,000
return thereon. In the event the Company terminates Dr. Hanley's employment
without cause, the Company is required to pay Dr. Hanley up to 12 months of
salary after the six-month notice period and provide continued life, disability
and medical benefits during such period. In the event Dr. Hanley voluntarily
terminates his employment, unless he commences employment with a competitor, the
Company is required to pay his salary and provide continued benefits during the
six-month notice period. In the event of termination of Dr. Hanley's employment
certain adjustments will be made to the vesting schedule for Dr. Hanley's
options.
In December 1993, the Company entered into an employment agreement with
Richard S. Hill pursuant to which the Company retained Mr. Hill and its Chief
Executive Officer for an annual salary of $315,000, plus a bonus to be
determined by the Board of Directors. In connection with the agreement, the
Company granted Mr. Hill options to purchase 200,000 shares of Common Stock at
an
17
<PAGE>
exercise price of $23.75. Such options vest at the rate of 25% per year over a
four year period. Commencing in January 1994, the Company agreed to establish a
deferred bonus program for Mr. Hill. Interest on such program will accrue
monthly using the month-end closing weekly average interest rate of five year
treasury notes plus 2%. The deferred bonus amount will be earned over a
four-year period. If Mr. Hill is terminated prior to the conclusion of such
four-year period, the Company and Mr. Hill will enter into a consulting
agreement to cover the duration of such four-year period. In the event of death,
the entire balance owed Mr. Hill will be paid to his estate. In addition, the
Company has agreed to guarantee a loan to Mr. Hill of up to $1,000,000, at an
interest rate not to exceed 6%, in connection with the acquisition of Mr. Hill's
residence.
In January 1994, the Company and Robert F. Graham entered into a consulting
agreement pursuant to which the Company retained Mr. Graham as a consultant for
a three-year period commencing January 1, 1994. Pursuant to the agreement, the
Company agreed to pay $236,000 to Mr. Graham for the first year of the term and
$118,000 in each of the second and third years of the term.
On January 1, 1995 Evert van de Van retired from the offices of Executive
Vice President and Chief Technical Officer of the Company. The Company and Dr.
van de Ven entered into a consulting agreement pursuant to which the Company
retained Dr. van de Ven as a consultant for a period of one year eleven months
commencing January 1, 1995 and ending December 1, 1996. Pursuant to the
consulting agreement, the Company agreed to pay $25,000 for the first year of
the term and $25,000 for the final eleven months of the term. The consulting
agreement calls for Dr. van de Ven to consult for two days per month; additional
days will be compensated at the rate of $2,000 per day. The previous employment
agreement entered into with Dr. van de Ven in December 1990 has been terminated
and is no longer in effect.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth the beneficial ownership of Common Stock as
of February 25, 1995 as to (a) each director and nominee, (b) each named
executive officer, (c) all directors and executive officers as a group, and (d)
each person known by the Company to beneficially own more than 5% of the
outstanding shares of its Common Stock.
<TABLE>
<CAPTION>
BENEFICIAL
OWNERSHIP (1)
----------------------
NUMBER OF PERCENT
BENEFICIAL OWNER SHARES OF TOTAL
- ------------------------------------------------------------------------------------------ ----------- ---------
<S> <C> <C>
FMR Corp. (2)
82 Devonshire Street
Boston, Massachusetts 02109............................................................. 2,136,300 13.1%
AIM Management Group Inc. (3)
11 Greenway Plaza, Suite 1919
Houston, TX 77046....................................................................... 1,241,900 7.6%
Twentieth Century Companies, Inc. (4)
4500 Main Street
P.O. Box 418210
Kansas City, MO 64141-1004.............................................................. 1,208,000 7.4%
Prudential Insurance Company of America (5)
Prudential Plaza
Newark, NJ 07102-3777................................................................... 814,479 5.0%
Jennison Associates Capital Corp. (6)
466 Lexington Avenue
New York, New York...................................................................... 810,200 5.0%
Richard S. Hill (7)....................................................................... 55,000 *
</TABLE>
18
<PAGE>
<TABLE>
<CAPTION>
BENEFICIAL
OWNERSHIP (1)
----------------------
NUMBER OF PERCENT
BENEFICIAL OWNER SHARES OF TOTAL
- ------------------------------------------------------------------------------------------ ----------- ---------
<S> <C> <C>
Robert F. Graham (8)...................................................................... 4,553 *
D. James Guzy (9)......................................................................... 28,000 *
Glen Possley (10)......................................................................... 7,500 *
William J. Wall (11)...................................................................... 1,875 *
Joseph Van Poppelen (12).................................................................. 8,500 *
Robert H. Smith (13)...................................................................... 0 *
Tom Long (13)............................................................................. 0 *
Joseph F. Dox (14)........................................................................ 20,000 *
Peter Hanley (15)......................................................................... 44,159 *
Evert van de Ven (16)..................................................................... 5,101 *
John Chenault (17)........................................................................ 13,426 *
All current directors and executive officers as a group (11 persons) (18)................. 196,321 1.2%
<FN>
- ------------------------
* Less than one percent
(1) Except as indicated in the footnotes to this table and pursuant to
applicable community property laws, the persons named in this table have
sole voting and investment power with respect to all shares of Common Stock
shown as beneficially owned by them. Applicable percentages are based on
16,272,796 shares outstanding on February 25, 1995, adjusted as required by
the rules promulgated by the Securities and Exchange Commission.
(2) As reported in a Schedule 13G filed by FMR Corp., as of December 31, 1994,
includes 113,100 shares as to which FMR Corp. has sole voting power and
2,136,300 shares as to which FMR Corp. has sole investment power.
(3) As reported in a Schedule 13G filed by AIM Management Group, Inc. ("AIM"),
as of December 31, 1994, includes 1,241,900 shares as to which AIM has
shared voting and investment power.
(4) As reported in a Schedule 13G filed by Twentieth Century Companies, Inc.
("Twentieth Century"), as of December 31, 1994, includes 1,208,000 shares
as to which Twentieth Century has sole voting and investment power.
(5) As reported in an Amended Schedule 13G filed by Prudential Insurance
Company of America ("Prudential"), as of December 31, 1994, includes 61,700
shares as to which Prudential has sole voting and investment power.
(6) As reported in an Amended Schedule 13G filed by Jennison Associates Capital
Corp. ("Jennison Associates"), as of December 31, 1994, includes 59,300
shares as to which Jennison Associates has sole voting power, and no shares
as to which Jennison Associates has sole investment power.
(7) Includes options to purchase an aggregate of 50,000 shares which will be
fully vested and exercisable as of April 25, 1995. Also includes a 5,000
share stock bonus award.
(8) Includes options to purchase an aggregate of 748 shares which will be fully
vested and exercisable as of April 25, 1995.
(9) Includes options to purchase an aggregate of 28,000 shares which will be
fully vested and exercisable as of April 25, 1995.
</TABLE>
19
<PAGE>
<TABLE>
<S> <C>
(10) Includes options to purchase an aggregate of 4,000 shares which will be
fully vested and exercisable as of April 25, 1995.
(11) Includes options to purchase an aggregate of 1,875 shares which will be
fully vested and exercisable as of April 25, 1995.
(12) Includes options to purchase an aggregate of 6,500 shares which will be
fully vested and exercisable as of April 25, 1995.
(13) Mr. Smith and Mr. Long are Nominees to the Board of Directors.
(14) Includes options to purchase an aggregate of 20,000 shares which will be
fully vested and exercisable as of April 25, 1995.
(15) Includes options to purchase an aggregate of 43,749 shares which will be
fully vested and exercisable as of April 25, 1995.
(16) Includes options to purchase an aggregate of 3,125 shares which will be
fully vested and exercisable as of April 25, 1995.
(17) Includes options to purchase an aggregate of 12,499 shares which will be
fully vested and exercisable as of April 25, 1995.
(18) Includes options to purchase an aggregate of 178,163 shares which will be
fully vested and exercisable as of April 25, 1995. Also includes shares
held by Eliot Broadbent.
</TABLE>
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
During 1994, Messrs. Graham, Guzy and Hill served on the Compensation
Committee of the Board of Directors. Mr. Hill serves as the Chief Executive
Officer of the Company and Mr. Graham serves as the Chairman of the Board of
Directors.
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT
Section 16(a) of the Exchange Act requires the Company's executive officers
and directors, and persons who own more than ten percent of a registered class
of the Company's equity securities, to file an initial report of ownership on
Form 3 and changes in ownership on Form 4 or 5 with the Securities and Exchange
Commission (the "SEC") and The Nasdaq National Market System. Such officers,
directors and ten-percent shareholders are also required by SEC rules to furnish
the Company with copies of all Section 16(a) forms they file.
Based solely on its review of the copies of such forms received by it, or
written representations from certain reporting persons that no Forms 5 were
required for such persons, the Company believes that its executive officers,
directors and ten-percent shareholders complied with all Section 16(a) filing
requirements applicable to them.
OTHER MATTERS
The Company knows of no other matters to be submitted to the meeting. If any
other matters properly come before the meeting, it is the intention of the
persons named in the enclosed form of proxy to vote the shares they represent as
the Board of Directors may recommend.
THE BOARD OF DIRECTORS
Dated: April 19, 1995
<PAGE>
(THIS PAGE HAS BEEN LEFT BLANK INTENTIONALLY.)
<PAGE>
(THIS PAGE HAS BEEN LEFT BLANK INTENTIONALLY.)
<PAGE>
NOVELLUS SYSTEMS, INC.
AMENDED AND RESTATED
1992 STOCK OPTION PLAN
1. PURPOSES OF THE PLAN. The purposes of this 1992 Stock Option Plan are
to attract and retain the best available personnel for positions of substantial
responsibility, to provide additional incentives to the Employees, Consultants
and Outside Directors of the Company and to promote the success of the Company's
business.
Options granted hereunder 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," at the discretion of the Board and as
reflected in the terms of the written option agreement.
2. DEFINITIONS. As used herein, the following definitions shall apply:
(a) "BOARD" shall mean the Committee, if one has been appointed, or
the Board of Directors of the Company, if no Committee is appointed.
(b) "COMMON STOCK" shall mean the Common Stock of the Company.
(c) "COMPANY" shall mean Novellus Systems, Inc., a California
corporation.
(d) "COMMITTEE" shall mean the Committee appointed by the Board of
Directors in accordance with paragraph (a) of Section 4 of the Plan, if one is
appointed.
(e) "CONSULTANT" shall mean any person who is engaged by the Company
or any Parent or Subsidiary to render consulting services and is compensated for
such consulting services, and any director of the Company whether compensated
for such services or not; provided that if and in the event the Company
registers any class of any equity security pursuant to Section 12 of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), the term
Consultant shall thereafter not include directors who are not compensated for
their services or are paid only a director's fee by the Company.
(f) "CONTINUOUS STATUS AS AN EMPLOYEE OR CONSULTANT" shall, for the
purposes of this Plan and the Options granted and Shares issued hereunder only,
mean the absence of any interruption or termination of service as an Employee or
Consultant. Continuous Status as an Employee or Consultant shall not be
considered interrupted in the case of sick leave (including leave on account of
disability or military leave, provided that such sick leave or military leave is
for a period or not more than 90 days, except as may otherwise be approved by
the Board and specified in writing by the Company, or any other leave of absence
approved by the Board and
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<PAGE>
specified in writing by the Company, subject to any conditions of such
approval). In the event that at the end of such leave the Employee or
Consultant does not return to work for the Company, his employment or consulting
relationship with the Company (and his Continuous Status as an Employee or
Consultant) shall be deemed to have terminated as of the end of the leave
period.
(g) "DIRECTOR" shall mean a member of the Board of Directors of the
Company.
(h) "EMPLOYEE" shall mean any person, including officers and
directors, employed by the Company or any Parent or Subsidiary of the Company.
The payment of a director's fee by the Company shall not be sufficient to
constitute "employment" by the Company.
(i) "FAIR MARKET VALUE" means, as of any date, unless otherwise
determined by the Committee in good faith, (i) the last sales price per share of
Common Stock as reported by NASDAQ (or a successor system) or by the Wall Street
Journal for such date (or if there is no trading on such date, then on the last
preceding business day on which there was trading); (ii) if the Common Stock is
listed on any stock exchange, the closing sales price for such Common Stock as
quoted on such exchange for the date the Option is granted (or if there are no
sales for such date, then on the last preceding business day on which there were
sales); or (iii) the fair market value thereof, as determined in any other
manner adopted in good faith by the Board.
(j) "INCENTIVE STOCK OPTION" shall mean an Option intended to qualify
as an incentive stock option within the meaning of Section 422 of the Code.
(k) "NAMED EXECUTIVE" shall mean, for each taxable year of the
Company, the Chief Executive Officer of the Company as of the close of such
taxable year and each Employee whose total compensation is required to be
reported to shareholders under the Securities Exchange Act of 1934 by reason of
such Employee being among the four (4) highest compensated Employees for such
taxable year.
(l) "NONSTATUTORY STOCK OPTION" means any Option that is not an
Incentive Stock Option.
(m) "OPTION" shall mean a stock option granted pursuant to the Plan.
(n) "OPTIONED STOCK" shall mean the Common Stock subject to an
Option.
(o) "OPTIONEE" shall mean an Employee, Consultant or Outside Director
who receives an Option.
2
<PAGE>
(p) "OUTSIDE DIRECTOR" means a Director who is not an employee of the
Company.
(q) "PARENT" shall mean a "parent corporation", whether now or
hereafter existing, as defined in Section 424(e) of the Code.
(r) "PLAN" shall mean this 1992 Stock Option Plan.
(s) "SHARE" shall mean a share of the Common Stock, as adjusted in
accordance with Section 10 of the Plan.
(t) "SUBCOMMITTEE" shall mean the special subcommittee of the
Committee described in paragraph (d) of Section 4 of the Plan, if one is
established.
(u) "SUBSIDIARY" shall mean a "subsidiary corporation", whether now
or hereafter existing, as defined in Section 424(f) of the Code.
3. STOCK SUBJECT TO THE PLAN. Subject to the provisions of Section 10 of
the Plan, the maximum aggregate number of shares which may be optioned and/or
sold under the Plan is 2,000,000 shares of Common Stock.
If an Option should expire or become unexercisable for any reason
without having been exercised in full, the unpurchased Shares which were subject
thereto shall, unless the Plan shall have been terminated, become available for
future grant under the Plan. However, any shares sold under the Plan and
subsequently repurchased by the Company shall not be available for new issuance
pursuant to the Plan.
4. ADMINISTRATION OF THE PLAN.
(a) PROCEDURE. Subject to Section 4(d) below, the Plan shall be
administered by a Committee that is designated by the Board to administer the
Plan. The Committee shall be constituted to permit the Plan to comply with Rule
16b-3 promulgated under the Securities Exchange Act of 1934 or any successor
thereto ("Rule 16b-3") with respect to a plan intended to qualify thereunder as
a discretionary plan. Once appointed, the Committee shall continue to serve
until otherwise directed by the Board. From time to time the Board may increase
the size of the Committee and appoint additional members thereof, remove members
(with or without cause) and appoint new members in substitution therefor, fill
vacancies, however caused, and remove all members of the Committee and
thereafter directly administer the Plan.
(b) POWERS OF THE COMMITTEE. Subject to the provisions of the Plan,
and except as set forth in Section 8(c) with respect to grants of Options to
Outside Directors, the Committee shall have the authority, in its discretion:
(i) to determine the Fair Market Value of the Common Stock; (ii) to determine,
in accordance with Section 7(a) of the Plan, the exercise
3
<PAGE>
price per Share of Options to be granted; (iii) to determine the Employees and
Consultants to whom, and the time or times at which, Options shall be granted
and, subject to Section 8(d) of the Plan, the number of Shares to be represented
by each Option; (iv) to interpret the Plan; (v) to determine the terms and
conditions, not inconsistent with the terms of the Plan, or any Option granted
hereunder (including, but not limited to, any restriction or limitation, or any
vesting acceleration or waiver of forfeiture restrictions regarding any Option
and/or the Shares relating thereto, based in each case on such factors as the
Committee shall determine, in its sole discretion); (vi) to approve forms of
agreement for use under the Plan; (vii) to prescribe, amend and rescind rules
and regulations relating to the Plan; (viii) to modify or amend each Option or
accelerate the exercise date of any Option (with the consent of the Optionee);
(ix) to reduce the exercise price of any Option to the then current Fair Market
Value if the Fair Market Value of the Common Stock covered by such Option shall
have declined since the date the Option was granted; (x) to authorize any person
to execute on behalf of the Company any instrument required to effectuate the
grant of an Option previously granted by the Committee; and (xi) to make all
other determinations deemed necessary or advisable for the administration of the
Plan.
(c) EFFECT OF COMMITTEE'S DECISION. All decisions, determinations
and interpretations of the Committee shall be final and binding on all Optionees
and any other holders of any Options.
(d) SUBCOMMITTEE. Notwithstanding the foregoing provisions of this
Section 4, if the Committee at any time is not composed solely of two or more
outside directors (as defined below), then any grant of an Option to a Named
Executive shall be made only by a separate subcommittee of the Committee which
shall be so composed (the "Subcommittee"). Any actions taken by the Committee
under this Section 4 shall apply to Options held by a Named Executive only if
also authorized by the Subcommittee. Solely for purposes of this Section 4(d),
"outside directors" means directors other than (i) current employees of the
Company or any Subsidiary, (ii) former employees of the Company or any
Subsidiary who are currently receiving compensation for prior services (other
than benefits under a tax-qualified pension plan), (iii) current or former
officers of the Company or any Subsidiary, and (iv) persons currently receiving
compensation for personal services in any capacity other than as a director. If
the Subcommittee has not been formed pursuant to this Section 4(d), then all
references to the Subcommittee herein shall be treated as references to the
Committee.
5. ELIGIBILITY.
(a) Nonstatutory Stock Options may be granted to Employees,
Consultants and Outside Directors. Incentive Stock Options may be granted only
to Employees. An Employee, Consultant or Outside Director who has been granted
an Option may, if he is otherwise eligible, be granted an additional Option or
Options.
(b) Each Option shall be designated in the written agreement
governing the Option as either an Incentive Stock Option or a Nonstatutory Stock
Option. However,
4
<PAGE>
notwithstanding such designations, to the extent that the aggregate fair market
value of the Shares with respect to which Options designated as Incentive Stock
Options are exercisable for the first time by any Optionee during any calendar
year (under all plans of the Company) exceeds $100,000, such Options shall be
treated as Nonstatutory Stock Options.
(c) For purposes of Section 5(b) hereof, Options shall be taken into
account in the order in which they were granted, and the Fair Market Value of
the Shares shall be determined as of the time the Option with respect to such
Shares is granted.
(d) The Plan shall not confer upon any Optionee any right with
respect to continuation of the employment or consulting relationship with the
Company, nor shall it interfere in any way with the Optionee's right or the
Company's right to terminate the Optionee's employment or consulting
relationship at any time, with or without cause.
6. TERM OF PLAN. The Plan shall become effective upon the earlier to
occur of its adoption by the Board of Directors or its approval by the
shareholders of the Company as described in Section 16 of the Plan. It shall
continue in effect for a term of ten (10) years unless sooner terminated under
Section 12 of the Plan.
7. EXERCISE PRICE AND CONSIDERATION.
(a) The per Share exercise price for the Shares to be issued pursuant
to exercise of an Option shall be such price as is determined by the Board, but
shall be subject to the following:
(i) In case of an Incentive Stock Option
(A) granted to an Employee who, at the time of the grant of
such Incentive Stock Option, owns stock representing more than ten percent (10%)
of the voting power of all classes of stock of the Company or any Parent or
Subsidiary, the per Share exercise price shall be no less than 110% of the Fair
Market Value per Share on the date of grant.
(B) granted to any Employee other than an Employee
described in clause (i)(A) above, the per Share exercise price shall be no less
than 100% of the Fair Market Value per Share on the date of grant.
(ii) In the case of a Nonstatutory Stock Option
(A) granted to a person who, at the time of the grant of
such Option, owns stock representing more than ten percent (10%) of the voting
power of all classes of stock of the Company or any Parent or Subsidiary, the
per Share exercise price shall be no less than 110% of the Fair Market Value per
Share on the date of the grant.
5
<PAGE>
(B) granted to a Named Executive, the per Share exercise
price shall be no less than 100% of the Fair Market Value per Share on the date
of grant.
(C) granted to any person other than a person described in
clauses (ii)(A) or (B) above, the per Share exercise price shall be no less than
85% of the Fair Market Value per Share on the date of grant.
(iii) In the case of any Option granted on or after the
effective date of registration of any class of equity security of the Company
pursuant to Section 12 of the Exchange Act and prior to six months after the
termination of such registration, the per Share exercise price shall be no less
than 100% of the Fair Market Value per Share on the date of grant.
(b) The consideration to be paid for the Shares to be issued upon
exercise of an Option, including the method of payment, shall be determined by
the Board at the time of grant and may consist entirely of cash, check,
promissory note, other Shares of Common Stock which (i) either have been owned
by the Optionee more than six (6) months on the date of surrender or were not
acquired, directly or indirectly, from the Company, and (ii) have a fair market
value on the date of surrender equal to the aggregate exercise price of the
Shares as to which said Option shall be exercised, or any combination of such
methods of payment, or such other consideration and method of payment for the
issuance of Shares to the extent permitted under Sections 408 and 409 of the
California Corporations Law. In making its determination as to the type of
consideration to accept, the Board shall consider whether acceptance of such
consideration may be reasonably expected to benefit the Company (Section 315(b)
of the California Corporations Law).
8. OPTIONS.
(a) TERM OF OPTION. Except as provided in Section 8(c)(iv)(A) hereof
with respect to Options granted to Outside Directors, the term of each Option
shall be ten (10) years from the date of grant thereof or such shorter term as
may be provided in the written agreement governing such Option. However, in the
case of an Option granted to an Optionee who, at the time the Option is granted,
owns stock representing more than ten percent (10%) of the voting power of all
classes of stock of the Company or any Parent or Subsidiary, the term of the
Option shall be five (5) years from the date of grant thereof or such shorter
time as may be provided in the written agreement governing such Option.
(b) EXERCISE OF OPTION.
(i) PROCEDURE FOR EXERCISE; RIGHTS AS A SHAREHOLDER. Any Option
granted hereunder shall be exercisable and shall vest at such times and under
such conditions as are determined by the Board, including performance criteria
with respect to the Company and/or the Optionee, and as shall be permissible
under the terms of the Plan. For purposes of this
6
<PAGE>
provision, an Incentive Stock Option shall be treated as outstanding until such
Option is exercised in full or expires by reason of lapse of time.
An Option may not be exercised for a fraction of a Share.
An Option shall be deemed to be exercised when written notice of such
exercise has been given to the Company in accordance with the terms of the
Option by the person entitled to exercise the Option and full payment for the
Shares with respect to which the Option is exercised has been received by the
Company. Full payment may, as authorized by the Board, consist of any
consideration and method of payment allowable under Section 7(b) of the Plan.
Until the issuance (as evidenced by the appropriate entry on the books of the
Company or of a duly authorized transfer agent of the Company) of the stock
certificate evidencing such Shares, no right to vote or receive dividends or any
other rights as a shareholder shall exist with respect to the Optioned Stock,
notwithstanding the exercise of the Option. No adjustment will be made for a
dividend or other right for which the record date is prior to the date the stock
certificate is issued, except as provided in Section 10 of the Plan.
Exercise of an Option in any manner shall result in a decrease in the
number of Shares that thereafter shall be available, both for purposes of the
Plan and for sale under the Option, by the number of Shares as to which the
Option is exercised. Any Shares issued and sold pursuant to the Plan and
repurchased by the Company shall not be available for reissuance under the Plan.
(ii) TERMINATION OF STATUS AS AN EMPLOYEE OR CONSULTANT. If an
Optionee's Continuous Status as an Employee or Consultant terminates or an
Optionee is an Outside Director and he ceases to serve on the Board, other than
by reason of death or total and permanent disability, the Optionee may, but only
within three (3) months after the date he ceases to be an Employee, Consultant
or Outside Director (as the case may be) of the Company (but in no event later
than the date of expiration of the term of such Option as set forth in the
written agreement governing the Option), exercise his Option to the extent that
he was entitled to exercise the Option at the date of such termination. To the
extent that the Optionee was not entitled to exercise the Option at the date of
such termination, or if the Optionee does not exercise such Option (which he was
entitled to exercise) within the time specified herein, the Option shall
terminate.
(iii) DISABILITY. Notwithstanding the provisions of
Section 8(b)(ii) above, (1) in the event of termination of Continuous Status as
an Employee or Consultant or (2) in the event that an Outside Director ceases to
serve on the Board, as a result of an Optionee's total and permanent disability
(as defined in Section 22(e)(3) of the Code), the Optionee may, but only within
twelve (12) months from the date of such termination (but in no event later than
the date of expiration of the term of such Option as set forth in the written
agreement governing the Option), exercise his Option to the extent that the
Optionee was entitled to exercise it at the date of such termination. To the
extent that the Optionee was not entitled to exercise the Option at
7
<PAGE>
the date of such termination, or if the Optionee does not exercise such Option
(which he was entitled to exercise) within the time specified herein, the Option
shall terminate.
(iv) DEATH OF OPTIONEE. In the event of the death of an
Optionee:
(1) If the Optionee dies during the term of his Option,
where such Optionee is at the time of his death an Employee, Consultant or
Outside Director of the Company and such Optionee at the date of death shall
have been in Continuous Status as an Employee or Consultant or serving as an
Outside Director since the date of grant of the Option, the Option may be
exercised at any time within twelve (12) months following the date of death (but
in no event later than the date of expiration of the term of such Option as set
forth in the written agreement governing the Option), by the Optionee's estate
or by a person who acquired the right to exercise the Option by bequest or
inheritance, but only to the extent the Optionee was entitled to exercise the
Option at the time of death; or
(2) If the Optionee dies within three (3) months after the
termination of such Optionee's Continuous Status as an Employee or Consultant or
within three (3) months after he ceases to serve as an Outside Director, then
the Option may be exercised at any time within twelve (12) months following the
date of death (but in no event later than the date of expiration of the term of
such Option as set forth in the written agreement governing the Option), by the
Optionee's estate or by a person who acquired the right to exercise the Option
by bequest or inheritance, but only to the extent that the right to exercise the
Option had accrued at the date of termination.
(c) GRANTS TO OUTSIDE DIRECTORS. All grants of Options to Outside
Directors as set forth below shall be automatic and non-discretionary and shall
be made strictly in accordance with the following provisions:
(i) No person shall have any discretion to select which Outside
Directors shall be granted Options or to determine the number of shares to be
covered by Options granted to Outside Directors; provided, however, that nothing
in this Plan shall be construed to prevent an Outside Director from declining to
receive an Option under this Plan.
(ii) On the day immediately following the annual meeting of
shareholders of the Company, each Outside Director shall be automatically
granted an Option to purchase 4,000 shares of Common Stock (as adjusted in
accordance with Section 10 hereof) (a "Director's Option"), provided that at the
date of grant of each Director's Option such person is an Outside Director; and
provided, further, that sufficient shares are available under the Plan for the
grant of such Director's Option.
8
<PAGE>
(iii) The terms of a Director's Option granted under this
Section 8(c) shall be as follows:
(A) the term of the Director's Option shall be five
(5) years;
(B) the exercise price per share of Common Stock shall be
100% of the Fair Market Value on the date of grant of the Director's Option.
However, if any Outside Director is, on the date of grant, the owner of Common
Stock possessing more than 10% of the total combined voting power of all classes
of stock of the Company or any Parent or Subsidiary, then the exercise price per
share of Common Stock shall be 110% of the Fair Market Value on the date of
grant of the Director's Option;
(C) the shares subject to each Director's Option shall be
immediately exercisable.
(iv) The provisions set forth in this Section 8(c) (and any other
Sections of this Plan that affect the formula award terms required to be
specified herein by Rule 16b-3) shall not be amended more than once in any six-
month period, except to effect such amendments as may be necessary to comport
with changes in the Code, the Employee Retirement Income Security Act, or the
rules and regulations promulgated thereunder.
(d) NUMBER OF SHARES. The number of Shares subject to Options
granted to an Employee in any taxable year shall not exceed 100,000 Shares;
provided, that Options representing up to 200,000 Shares may be granted to an
Employee in any taxable year in connection with the commencement of such
Employee's employment with the Company.
9. NON-TRANSFERABILITY OF OPTIONS. Options may not be sold, pledged,
assigned, hypothecated, transferred or otherwise disposed of in any manner other
than by will or by the laws of descent or distribution or pursuant to a
qualified domestic relations order as defined by the Code or Title I of the
Employee Retirement Income Security Act, or the rules thereunder. The
designation of a beneficiary by an Optionee does not constitute a transfer. An
Option may be exercised, during the lifetime of the Optionee, only by the
Optionee or by a transferee permitted by this Section 9.
10. ADJUSTMENTS UPON CHANGES IN CAPITALIZATION OR MERGER.
(a) SPLITS, DIVIDENDS, COMBINATIONS, OR RECLASSIFICATIONS. Subject
to any required action by the shareholders of the Company, the number of shares
of Common Stock covered by each outstanding Option, and the number of shares of
Common Stock which have been authorized for issuance under the Plan but as to
which no Options have yet been granted or which have been returned to the Plan
upon cancellation or expiration of an Option, as well as the price per share of
Common Stock covered by each such outstanding Option, shall be proportionately
adjusted for any increase or decrease in the number of issued shares of Common
9
<PAGE>
Stock resulting from a stock split, reverse stock split, stock dividend,
combination or reclassification of the Common Stock, or any other increase or
decrease in the number of issued shares of Common Stock effected without receipt
of consideration by the Company; provided, however, that conversion of any
convertible securities of the Company shall not be deemed to have been "effected
without receipt of consideration." Such adjustment shall be made by the Board,
whose determination in that respect shall be final, binding and conclusive.
Except as expressly provided herein, no issuance by the Company of shares of
stock of any class, or securities convertible into shares of stock of any class,
shall affect, and no adjustment by reason thereof shall be made with respect to,
the number or price of shares of Common Stock subject to an Option.
(b) DISSOLUTION OR LIQUIDATION. In the event of the proposed
dissolution or liquidation of the Company, any outstanding Options shall
terminate immediately prior to the consummation of such proposed action, unless
otherwise provided by the Board. The Board may, in the exercise of its sole
discretion in such instances, declare that any Option shall terminate as of a
date fixed by the Board, and may give each Optionee the right to exercise his
Option as to all or any part of the Optioned Stock, including Shares as to which
the Option would not otherwise be exercisable.
(c) SALE OR MERGER. In the event of a proposed sale of all or
substantially all of the assets of the Company, or the merger of the Company
with or into another corporation, Options shall be assumed or an equivalent
option or right shall be substituted by such successor corporation or a parent
or subsidiary of such successor corporation, unless the Board determines, in the
exercise of its sole discretion and in lieu of such assumption or substitution,
that the Optionee shall have the right to exercise the Option as to all of the
Optioned Stock, including Shares as to which the Option would not otherwise be
exercisable. If the Board makes an Option fully exercisable in lieu of
assumption or substitution in the event of a merger or sale of assets, the Board
shall notify the Optionee that the Option shall be fully exercisable for a
period of thirty (30) days from the date of such notice, and the Option will
terminate upon the expiration of such period.
11. TIME OF GRANTING OPTIONS. The date of grant of an Option shall, for
all purposes, be the date on which the Board makes the determination granting
such Option. Notice of the determination shall be given to each Employee or
Consultant to whom an Option is so granted within a reasonable time after the
date of such grant.
12. AMENDMENT AND TERMINATION OF THE PLAN.
(a) AMENDMENT AND TERMINATION. The Board may at any time amend,
alter, suspend, or discontinue the Plan, but no amendment, alteration,
suspension, or discontinuation shall be made which would impair the rights of
any Optionee under any grant theretofore made, without his or her consent. In
addition, to the extent necessary to comply with Rule 16b-3 under the Exchange
Act or Section 422 of the Code (or any other applicable law or regulation), or
to
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the extent necessary to avoid non-deductibility of compensation income
recognized upon exercise of an Option under Section 162(m) of the Code, the
Company shall obtain shareholder approval of any Plan amendment in such a manner
and to such a degree as required.
(b) EFFECT OF AMENDMENT OR TERMINATION. Any such amendment or
termination of the Plan shall not affect Options already granted and such
Options shall remain in full force and effect as if this Plan had not been
amended or terminated unless otherwise mutually agreed between the Board and the
Optionee, which agreement must be in writing and signed by the Company and the
Optionee.
(c) SHAREHOLDER APPROVAL. If any amendment requiring shareholder
approval under Section 12(a) of the Plan is made subsequent to the first
registration of any class of equity security by the Company under Section 12 of
the Exchange Act, such shareholder approval shall be solicited as described in
Section 16(b) of the Plan.
13. CONDITIONS UPON ISSUANCE OF SHARES. Shares shall not be issued
pursuant to the exercise of an Option unless the exercise of such Option and the
issuance and delivery of such Shares pursuant thereto shall comply with all
relevant provisions of law, including, without limitation, the Securities Act of
1933, as amended, and the rules and regulations promulgated thereunder, the
Exchange Act and the rules and regulations promulgated thereunder, any rule
under Part 207 of Title 12 of the Code of Federal Regulations ("Regulation G")
as promulgated by the Federal Reserve Board, and the requirements of any stock
exchange upon which the Shares may then be listed, and shall be further subject
to the approval of counsel for the Company with respect to such compliance.
In addition, issuance of Shares pursuant to the exercise of a
Nonstatutory Stock Option shall be subject to satisfaction of applicable income
and employee tax withholding requirements.
14. RESERVATION OF SHARES; COMPLIANCE WITH LAW.
(a) The Company, during the term of this Plan, will at all times
reserve and keep available such number of Shares as shall be sufficient to
satisfy the requirements of the Plan.
(b) Inability of the Company to obtain authority from any regulatory
body having jurisdiction, which authority is deemed by the Company's counsel to
be necessary to the lawful issuance and sale of any Shares hereunder, shall
relieve the Company of any liability in respect of the failure to issue or sell
such Shares as to which such requisite authority shall not have been obtained.
15. OPTION AGREEMENTS. Options shall be evidenced by written option
agreements in such form as the Board shall approve.
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16. SHAREHOLDER APPROVAL.
(a) Continuance of the Plan shall be subject to approval by the
shareholders of the Company within twelve (12) months before or after the date
the Plan is adopted. If such shareholder approval is obtained at a duly held
shareholders' meeting, it must be obtained by the affirmative vote of the
holders of a majority of the votes cast at a shareholders' meeting at which a
quorum representing a majority of all outstanding voting stock is, either in
person or by proxy, present and voting on the Plan; or if such shareholder
approval is obtained by written consent, it must be obtained by the written
consent of the holders of a majority of the outstanding shares of the Company
entitled to vote on the Plan; provided, however, that approval at a meeting or
by written consent may be obtained by a lesser degree of shareholder approval if
the Board determines, in its discretion after consultation with the Company's
legal counsel, that such a lesser degree of shareholder approval will comply
with all applicable laws.
(b) If and in the event that the Company registers any class of
equity securities pursuant to Section 12 of the Exchange Act, any required
approval of the shareholders of the Company obtained after such registration
shall be solicited substantially in accordance with Section 14(a) of the
Exchange Act and the rules and regulations promulgated thereunder.
(c) If any required approval of the Plan or any amendment thereto by
the shareholders of the Company is solicited at any time otherwise than in the
manner described in Section 16(b) hereof, then the Company shall, at or prior to
the first annual meeting of shareholders held subsequent to the later of (1) the
first registration of any class of equity securities of the Company under
Section 12 of the Exchange Act or (2) the granting of an Option hereunder to an
officer or director after such registration, do the following:
(i) furnish in writing to the shareholders entitled to vote for
the Plan substantially the same information which would be required (if proxies
to be voted with respect to approval or disapproval of the Plan or the amendment
thereto were then being solicited) by the rules and regulations in effect under
Section 14(a) of the Exchange Act at the time such information is furnished; and
(ii) file with, or mail for filing to, the Securities and
Exchange Commission four copies of the written information referred to in
clause (c)(i) hereof not later than the date on which such information is first
sent or given to shareholders.
17. INFORMATION TO OPTIONEES. The Company shall provide or make available
to each Optionee, during the period for which such person has one or more
Options outstanding, copies of all annual reports and other information provided
to all shareholders of the Company. The Company shall not be required to
provide such information if the issuance of Options under the Plan is limited to
key employees whose duties on behalf of the Company ensure their access to
equivalent information.
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18. SALE RESTRICTIONS. In the event that Rule 16b-3 so requires, the
following restriction shall be applicable to Optionees subject to Section 16(b)
of the Exchange Act: No Optioned Stock may be sold by any Optionee subject to
Section 16(b) under the Exchange Act for at least six months after the grant of
the Option pursuant to which such Optioned Stock was acquired. In the event
that Rule 16b-3 does not require that the restriction set forth in the foregoing
sentence be applied to Optionees subject to Section 16(b) of the Exchange Act,
such restriction shall have no force or effect.
19. SALE OF RESTRICTED SHARES AND AWARDS OF STOCK BONUSES.
(a) COMMITTEE AUTHORITY. Pursuant to the terms of this Section and
the Plan, the Committee shall have the authority to grant the right to purchase
Common Stock subject to restrictions ("Restricted Shares") and to award bonuses
of Common Stock ("Stock Bonuses"), to eligible individuals in connection with
the performance of services for the Company within the share limitation provided
in Section 3. Individuals who shall be eligible to have granted to them
Restricted Shares or Stock Bonuses shall be such Employees, Consultants, and
Directors as the Committee, in its discretion, shall designate from time to
time. Notwithstanding the foregoing, Outside Directors shall not be eligible to
receive Restricted Shares or Stock Bonuses. The Committee shall determine the
timing of grants of Restricted Shares and the award of Stock Bonuses, the terms
thereof and the number of Shares to be granted or awarded.
(b) RESTRICTED SHARES. Restricted Shares shall be issued for such
consideration as the Committee deems appropriate; provided, however, that sales
of Restricted Shares shall not be for less than the Fair Market Value of such
Shares on the date the right to purchase the Shares is granted. Payment for
Restricted Shares can be in any combination of cash, Common Stock or other
consideration as determined by the Committee. Each sale of Restricted Shares
pursuant to the Plan will be evidenced by a written Restricted Stock Purchase
Agreement executed by the Company and the person to whom such Shares are sold.
The Restricted Stock Purchase Agreement may contain such terms, provisions and
conditions consistent with this Plan as may be determined by the Committee,
including not by way of limitation, restrictions on transfer, forfeiture
provisions, repurchase provisions, and vesting provisions. The Committee may
amend any Restricted Stock Purchase Agreement, but any amendment which would
adversely affect the shareholder's rights to the Shares shall not be made
without his or her written consent. Shares subject to a Restricted Stock
Purchase Agreement shall be transferable only as provided in such Agreement.
(c) STOCK BONUSES. The Committee shall have the authority to grant
Stock Bonuses consisting of a specified number of Shares to those eligible
persons as selected by the Committee. The Committee shall have the discretion
to impose restrictions on Shares awarded as Stock Bonuses. If Shares awarded as
a Stock Bonus are subject to restriction, such Shares shall be issued subject to
the terms of a Restricted Stock Bonus Agreement executed by the Company and the
person to whom the Stock Bonus is awarded. The Restricted Stock Bonus Agreement
may contain such terms, provisions, and conditions consistent with this Plan as
may
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be determined by the Committee, including not by way of limitation, restrictions
on transfer, forfeiture provisions, repurchase provisions, and vesting
provisions. The Committee may amend any Restricted Stock Bonus Agreement, but
any amendment which would adversely affect the shareholder's rights to the
Shares shall not be made without his or her written consent. Shares subject to
a Restricted Stock Bonus Agreement shall be transferable only as provided in
such Agreement. The recipient of a Stock Bonus will not pay the Company for
such Shares received but will include the Fair Market Value of such Shares on
the date of grant in the recipient's net income.
(d) WITHHOLDING TAXES. No grant of Restricted Shares or award of
Stock Bonuses shall be delivered to any recipient until the recipient has made
arrangements acceptable to the Committee for the satisfaction of federal, state,
and local income and social security tax withholding obligations.
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NOVELLUS SYSTEMS
1992 EMPLOYEE STOCK PURCHASE PLAN
The following constitute the provisions of the 1992 Employee Stock
Purchase Plan of Novellus Systems, Inc.
1. PURPOSE. The purpose of the Plan is to provide employees of the
Company and its Designated Subsidiaries with an opportunity to purchase Common
Stock of the Company through accumulated payroll deductions. It is the
intention of the Company to have the Plan qualify as an "Employee Stock Purchase
Plan" under Section 423 of the Internal Revenue Code of 1986, as amended. The
provisions of the Plan shall, accordingly, be construed so as to extend and
limit participation in a manner consistent with the requirements of that section
of the Code.
2. DEFINITIONS.
(a) "BOARD" shall mean the Board of Directors of the Company.
(b) "CODE" shall mean the Internal Revenue Code of 1986, as
amended.
(c) "COMMON STOCK" shall mean the Common Stock, no par value, of
the Company.
(d) "COMPANY" shall mean Novellus Systems, Inc., a California
corporation.
(e) "COMPENSATION" shall mean all regular straight time gross
earnings, exclusive of payments for overtime, shift premium, incentive
compensation, incentive payments, bonuses, commissions or other compensation.
(f) "CONTINUOUS STATUS AS AN EMPLOYEE" shall mean the absence of
any interruption or termination of service as an Employee. Continuous Status as
an Employee shall not be considered interrupted in the case of a leave of
absence agreed to in writing by the Company, provided that such leave is for a
period of not more than 90 days or reemployment upon the expiration of such
leave is guaranteed by contract or statute.
(g) "DESIGNATED SUBSIDIARIES" shall mean the Subsidiaries which
have been designated by the Board from time to time in its sole discretion as
eligible to participate in the Plan.
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(h) "EMPLOYEE" shall mean any person, including an officer, who
is customarily employed for at least twenty (20) hours per week and more than
five (5) months in a calendar year by the Company or one of its Designated
Subsidiaries.
(i) "EXERCISE DATE" shall mean the last day of each offering
period of the Plan.
(j) "OFFERING DATE" shall mean the first day of each offering
period of the Plan.
(k) "PLAN" shall mean this Employee Stock Purchase Plan.
(l) "SUBSIDIARY" shall mean a corporation, domestic or foreign,
of which not less than 50% of the voting shares are held by the Company or a
Subsidiary, whether or not such corporation now exists or is hereafter organized
or acquired by the Company or a Subsidiary.
3. ELIGIBILITY.
(a) Any person who is an Employee as of the Offering Date of a
given offering period shall be eligible to participate in such offering period
under the Plan, subject to the requirements of paragraph 5(a) and the
limitations imposed by Section 423(b) of the Code.
(b) Any provisions of the Plan to the contrary notwithstanding,
no Employee shall be granted an option under the Plan (i) if, immediately after
the grant, such Employee (or any other person whose stock would be attributed to
such Employee pursuant to Section 424(d) of the Code) would own stock and/or
hold outstanding options to purchase stock possessing five percent (5%) or more
of the total combined voting power or value of all classes of stock of the
Company or of any subsidiary of the Company, or (ii) which permits his rights to
purchase stock under all employee stock purchase plans (described in Section 423
of the Code) of the Company and its subsidiaries to accrue at a rate which
exceeds Twenty-five Thousand dollars ($25,000) of fair market value of such
stock (determined at the time such option is granted) for each calendar year in
which such option is outstanding at any time.
4. OFFERING PERIODS. The Plan shall be implemented by one offering
during each six-month period of the Plan following commencement of the Plan
until the Plan is terminated in accordance with paragraph 19 hereof. The Board
of Directors of the Company shall have the power to change the duration of
offering periods with respect to future offerings without shareholder approval
if such change is announced at least fifteen (15) days prior to the scheduled
beginning of the first offering period to be affected.
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5. PARTICIPATION.
(a) An eligible Employee may become a participant in the Plan by
completing a subscription agreement authorizing payroll deduction on the form
provided by the Company and filing it with the Company's payroll office prior to
the applicable Offering Date, unless a later time for filing the subscription
agreement is set by the Board for all eligible Employees with respect to a given
offering.
(b) Payroll deductions for a participant shall commence on the
first payroll following the Offering Date and shall end on the Exercise Date of
the offering to which such authorization is applicable, unless sooner terminated
by the participant as provided in paragraph 10.
6. PAYROLL DEDUCTIONS.
(a) At the time a participant files his subscription agreement,
he shall elect to have payroll deductions made on each payday during the
offering period in an amount not exceeding fifteen percent (15%) of the
Compensation which he received on the payday immediately preceding the Offering
Date, and the aggregate of such payroll deductions during the offering period
shall not exceed the lesser of (i) 15% of his aggregate Compensation during said
offering period or (ii) $5,000.
(b) All payroll deductions made by a participant shall be
credited to his account under the Plan. A participant may not make any
additional payments into such account.
(c) A participant may discontinue his participation in the Plan
as provided in paragraph 10, or may lower, but not increase, the rate of his
payroll deductions during the offering period by completing or filing with the
Company a new authorization for payroll deduction. The change in rate shall be
effective fifteen (15) days following the Company's receipt of the new
authorization.
7. GRANT OF OPTION.
(a) On the Offering Date of each offering period, each eligible
Employee participating in the Plan shall be granted an option to purchase (at
the per share option price) up to a number of shares of the Company's Common
Stock determined by dividing such Employee's payroll deductions to be
accumulated during such offering period (not to exceed an amount equal to
fifteen percent (15%) of his Compensation as of the date of the commencement of
the applicable offering period) by eighty-five percent (85%) of the fair market
value of a share of the Company's Common Stock on the Offering Date, subject to
the limitations set forth in paragraph 3(b) and paragraph 12 hereof. Fair
market value of a share of the Company's Common Stock shall be determined as
provided in paragraph 7(b) herein.
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(b) The option price per share of the shares offered in a given
offering period shall be the lower of: (i) 85% of the fair market value of a
share of the Common Stock of the Company on the Offering Date; or (ii) 85% of
the fair market value of a share of the Common Stock of the Company on the
Exercise Date. The fair market value of the Company's Common Stock on a given
date shall be determined by the Board in its good faith discretion; provided,
however, that where there is a public market for the Common Stock, the fair
market value per share shall be the closing bid price or last sale price of the
Common Stock for such date, as reported in the WALL STREET JOURNAL (or, if not
so reported, as otherwise reported on the National Market System of the National
Association of Securities Dealers Automated Quotation (NASDAQ) or, in the event
the Common Stock is listed on a stock exchange, the fair market value per Share
shall be the closing price on such exchange on such date, as reported in the
WALL STREET JOURNAL.
8. EXERCISE OF OPTION. Unless a participant withdraws from the Plan
as provided in paragraph 10, his option for the purchase of shares will be
exercised automatically on the Exercise Date of the offering period, and the
maximum number of full shares subject to option will be purchased for him at the
applicable option price with the accumulated payroll deductions in his account.
The shares purchased upon exercise of an option hereunder shall be deemed to be
transferred to the participant on the Exercise Date. During his lifetime, a
participant's option to purchase shares hereunder is exercisable only by him.
9. DELIVERY. As promptly as practicable after the Exercise Date of
each offering period, the Company shall arrange the delivery to each
participant, or to a broker designated by the participant, as appropriate, of a
certificate representing the shares purchased upon exercise of his option. Any
cash remaining to the credit of a participant's account under the Plan after a
purchase by him of shares at the termination of each offering period, or which
is insufficient to purchase a full share of Common Stock of the Company, shall
be returned to said participant.
10. WITHDRAWAL; TERMINATION OF EMPLOYMENT.
(a) A participant may withdraw all but not less than all the
payroll deductions credited to his account under the Plan at any time prior to
the Exercise Date of the offering period by giving written notice to the
Company. All of the participant's payroll deductions credited to his account
will be paid to him promptly after receipt of his notice of withdrawal and his
option for the current period will be automatically terminated, and no further
payroll deductions for the purchase of shares will be made during the offering
period.
(b) Upon termination of the participant's Continuous Status as
an Employee prior to the Exercise Date of the offering period for any reason,
including retirement or death, the payroll deductions credited to his account
will be returned to him or, in the case of his death, to the person or persons
entitled thereto under paragraph 14, and his option will be automatically
terminated.
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(c) In the event an Employee fails to remain in Continuous
Status as an Employee of the Company for at least twenty (20) hours per week
during the offering period in which the employee is a participant, he will be
deemed to have elected to withdraw from the Plan and the payroll deductions
credited to his account will be returned to him and his option terminated.
(d) A participant's withdrawal from an offering will not have
any effect upon his eligibility to participate in a succeeding offering or in
any similar plan which may hereafter be adopted by the Company.
11. INTEREST. No interest shall accrue on the payroll deductions of
a participant in the Plan.
12. STOCK.
(a) The maximum number of shares of the Company's Common Stock
which shall be made available for sale under the Plan shall be 150,000 shares,
subject to adjustment upon changes in capitalization of the Company as provided
in paragraph 18. If the total number of shares which would otherwise be subject
to options granted pursuant to paragraph 7(a) hereof on the Offering Date of an
offering period exceeds the number of shares then available under the Plan
(after deduction of all shares for which options have been exercised or are then
outstanding), the Company shall make a PRO RATA allocation of the shares
remaining available for option grant in as uniform a manner as shall be
practicable and as it shall determine to be equitable. In such event, the
Company shall give written notice of such reduction of the number of shares
subject to the option to each Employee affected thereby and shall similarly
reduce the rate of payroll deductions, if necessary.
(b) The participant will have no interest or voting right in
shares covered by his option until such option has been exercised.
(c) Shares to be delivered to a participant under the Plan will
be registered in the name of the participant or in the name of the participant
and his spouse.
13. ADMINISTRATION. The Plan shall be administered by the Board of
the Company or a committee of members of the Board appointed by the Board. The
administration, interpretation or application of the Plan by the Board or its
committee shall be final, conclusive and binding upon all participants. Members
of the Board who are eligible Employees are permitted to participate in the
Plan, provided that:
(a) Members of the Board who are eligible to participate in the
Plan may not vote on any matter affecting the administration of the Plan or the
grant of any option pursuant to the Plan.
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(b) If a Committee is established to administer the Plan, no
member of the Board who is eligible to participate in the Plan may be a member
of the Committee.
14. DESIGNATION OF BENEFICIARY.
(a) A participant may file a written designation of a
beneficiary who is to receive any shares and cash, if any, from the
participant's account under the Plan in the event of such participant's death
subsequent to the end of the offering period but prior to delivery to him of
such shares and cash. In addition, a participant may file a written designation
of a beneficiary who is to receive any cash from the participant's account under
the Plan in the event of such participant's death prior to the Exercise Date of
the offering period.
(b) Such designation of beneficiary may be changed by the
participant at any time by written notice. In the event of the death of a
participant and in the absence of a beneficiary validly designated under the
Plan who is living at the time of such participant's death, the Company shall
deliver such shares and/or cash to the executor or administrator of the estate
of the participant, or if no such executor or administrator has been appointed
(to the knowledge of the Company), the Company, in its discretion, may deliver
such shares and/or cash to the spouse or to any one or more dependents or
relatives of the participant, or if no spouse, dependant or relative is known to
the Company, then to such other person as the Company may designate.
15. TRANSFERABILITY. Neither payroll deductions credited to a
participant's account nor any rights with regard to the exercise of an option or
to receive shares under the Plan may be assigned, transferred, pledged or
otherwise disposed of in any way (other than by will, the laws of descent and
distribution or as provided in paragraph 14 hereof) by the participant. Any
such attempt at assignment, transfer, pledge or other disposition shall be
without effect, except that the Company may treat such act as an election to
withdraw funds in accordance with paragraph 10.
16. USE OF FUNDS. All payroll deductions received or held by the
Company under the Plan may be used by the Company for any corporate purpose, and
the Company shall not be obligated to segregate such payroll deductions.
17. REPORTS. Individual accounts will be maintained for each
participant in the Plan. Statements of account will be given to participating
Employees promptly following the Exercise Date, which statements will set forth
the amounts of payroll deductions, the per share purchase price, the number of
shares purchased and the remaining cash balance, if any.
18. ADJUSTMENTS UPON CHANGES IN CAPITALIZATION. Subject to any
required action by the shareholders of the Company, the number of shares of
Common Stock covered by each option under the Plan which has not yet been
exercised and the number of shares of Common Stock which have been authorized
for issuance under the Plan but have not yet
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been placed under option (collectively, the "Reserves"), as well as the price
per share of Common Stock covered by each option under the Plan which has not
yet been exercised, shall be proportionately adjusted for any increase or
decrease in the number of issued shares of Common Stocks resulting from a stock
split, reverse stock split, stock dividend, combination or reclassification of
the Common Stock, or any other increase or decrease in the number of shares of
Common Stock effected without receipt of consideration by the Company; provided,
however, that conversion of any convertible securities of the Company shall not
be deemed to have been "effected without receipt of consideration". Such
adjustment shall be made by the Board, whose determination in that respect shall
be final, binding and conclusive. Except as expressly provided herein, no issue
by the Company of shares of stock of any class, or securities convertible into
shares of stock of any class, shall affect, and no adjustment by reason thereof
shall be made with respect to, the number or price of shares of Common Stock
subject to an option.
In the event of the proposed dissolution or liquidation of the
Company, the offering period will terminate immediately prior to the
consummation of such proposed action, unless otherwise provided by the Board.
In the event of a proposed sale of all or substantially all of the assets of the
Company, or the merger of the Company with or into another corporation, each
option under the Plan shall be assumed or an equivalent option shall be
substituted by such successor corporation or a parent or subsidiary of such
successor corporation, unless the Board determines, in the exercise of its sole
discretion and in lieu of such assumption or substitution, that the participant
shall have the right to exercise the option as to all of the optioned stock,
including shares as to which the option would not otherwise be exercisable. If
the Board makes an option fully exercisable in lieu of assumption or
substitution in the event of a merger or sale of assets, the Board shall notify
the participant that the option shall be fully exercisable for a period of
thirty (30) days from the date of such notice, and the option will terminate
upon the expiration of such period.
The Board may, if it so determines in the exercise of its sole
discretion, also make provision for adjusting the Reserves, as well as the price
per share of Common Stock covered by each outstanding option, in the event that
the Company effects one or more reorganizations, recapitalizations, rights
offerings or other increases or reductions of shares of its outstanding Common
Stock, and in the event of the Company being consolidated with or merged into
any other corporation.
19. AMENDMENT OR TERMINATION. The Board of Directors of the Company
may at any time terminate or amend the Plan. Except as provided in
paragraph 18, no such termination can affect options previously granted, nor may
an amendment make any change in any option theretofore granted which adversely
affects the rights of any participant, nor may an amendment be made without
prior approval of the shareholders of the Company (obtained in the manner
described in paragraph 21) if such amendment would:
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(a) Increase the number of shares that may be issued under the
Plan;
(b) Permit payroll deductions at a rate in excess of the lesser
of (i) fifteen percent (15%) of the participant's Compensation or (ii) $5,000
per offering period;
(c) Change the designation of the employees (or class of
employees) eligible for participation in the Plan; or
(d) If the Company has a class of equity securities registered
under Section 12 of the Securities Exchange Act of 1934, as amended (the
"Exchange Act") at the time of such amendment, materially increase the benefits
which may accrue to participants under the Plan.
If any amendment requiring shareholder approval under this
paragraph 19 of the Plan is made subsequent to the first registration of any
class of equity securities by the Company under Section 12 of the Exchange Act,
such shareholder approval shall be solicited as described in paragraph 21 of the
Plan.
20. NOTICES. All notices or other communications by a participant to
the Company under or in connection with the Plan shall be deemed to have been
duly given when received in the form specified by the Company at the location,
or by the person, designated by the Company for the receipt thereof.
21. SHAREHOLDER APPROVAL.
(a) Continuance of the Plan shall be subject to approval by the
shareholders of the Company within twelve (12) months before or after the date
the Plan is adopted. If such shareholder approval is obtained at a duly held
shareholders' meeting, it must be obtained by the affirmative vote of the
holders of a majority of the votes cast at a shareholders' meeting at which a
quorum representing a majority of all outstanding voting stock is, either in
person or by proxy, present and voting on the Plan; or if such shareholder
approval is obtained by written consent, it must be obtained by the written
consent of the holders of a majority of the outstanding shares of the Company
entitled to vote on the Plan; provided, however, that approval at a meeting or
by written consent may be obtained by a lesser degree of shareholder approval if
the Board determines, in its discretion after consultation with the Company's
legal counsel, that such a lesser degree of shareholder approval will comply
with all applicable laws and will not adversely affect the qualification of the
Plan under Section 423 of the Code.
(b) If any required approval by the shareholders of the Plan
itself or of any amendment thereto is solicited at any time otherwise than
substantially in accordance with Section 14(a) of the Exchange Act and the rules
and regulations promulgated thereunder, then the Company shall, at or prior to
the first annual meeting of shareholders
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held subsequent to the granting of an option hereunder to an officer or
director, do the following:
(i) furnish in writing to the holders entitled to vote for
the Plan substantially the same information which would be required (if proxies
to be voted with respect to approval or disapproval of the Plan or amendment
were then being solicited) by the rules and regulations in effect under
Section 14(a) of the Exchange Act at the time such information is furnished; and
(ii) file with, or mail for filing to, the Securities and
Exchange Commission four copies of the written information referred to in
subsection (i) hereof not later than the date on which such information is first
sent or given to shareholders.
22. CONDITIONS UPON ISSUANCE OF SHARES. Shares shall not be issued
with respect to an option unless the exercise of such option and the issuance
and delivery of such shares pursuant thereto shall comply with all applicable
provisions of law, domestic or foreign, including, without limitation, the
Securities Act of 1933, as amended, the Securities Act of 1934, as amended, the
rules and regulations promulgated thereunder, and the requirements of any stock
exchange upon which the shares may then be listed, and shall be further subject
to the approval of counsel for the Company with respect to such compliance.
23. TERM OF PLAN. The Plan shall become effective upon the earlier
to occur of its adoption by the Board of Directors or its approval by the
shareholders of the Company as described in paragraph 21. It shall continue in
effect for a term of twenty (20) years unless sooner terminated under
paragraph 19.
9
<PAGE>
NOVELLUS SYSTEMS, INC.
AMENDMENT TO THE 1992 EMPLOYEE STOCK PURCHASE PLAN
CERTIFICATE OF SECRETARY
________________________________________
The undersigned, William J. Wall, does hereby certify that he is the
duly elected, qualified and acting Secretary of Novellus Systems, Inc., a
California corporation (the "Company"), that, as such, he is authorized to
execute this Certificate on behalf of the Company, and solely in such capacity,
further certifies on behalf of the Company that:
On January 20, 1995, the Board of Directors of the Company amended Section
12(a) of the Company's 1992 Employee Stock Purchase Plan (the "Purchase
Plan") to effect the following, subject to shareholder approval: to
increase the maximum number of shares of the Company's Common Stock which
shall be made available for sale under the Purchase Plan from 150,000
shares to 250,000 shares.
IN WITNESS WHEREOF, on behalf of the Company as the Secretary thereof,
I have set my hand as of the 20th day of January, 1995.
NOVELLUS SYSTEMS, INC.
A CALIFORNIA CORPORATION
By: /s/ William J. Wall
-------------------------------------
William J. Wall
Secretary
10
<PAGE>
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
NOVELLUS SYSTEMS, INC.
ANNUAL MEETING OF SHAREHOLDERS
May 26, 1995
The undersigned hereby appoints Richard S. Hill and William J. Wall and
each of them, as proxies, each with the power to appoint his substitute, and
hereby authorizes them to represent and to vote as designated below all of the
shares of Common Stock of Novellus Systems, Inc. that the undersigned is
entitled to vote at the Annual Meeting of Shareholders to be held at 8:00 a.m.,
local time on May 26, 1995, at the Company's principal executive offices,
81 Vista Montana, San Jose, California, 95134, or any adjournment or
postponement thereof.
THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED AS DIRECTED BY THE
UNDERSIGNED SHAREHOLDER. IF NO SUCH DIRECTIONS ARE MADE, THIS PROXY WILL BE
VOTED FOR THE ELECTION OF THE NOMINEES LISTED ON THE REVERSE SIDE FOR THE BOARD
OF DIRECTORS AND FOR PROPOSALS 2, 3, 4 and 5.
CONTINUED AND TO BE SIGNED ON REVERSE SIDE
See Reverse
Side
<PAGE>
____________ PLEASE MARK YOUR CHOICE LIKE PLAN TO ATTEND
COMMON THIS /X/ IN BLUE OR BLACK INK THE MEETING / /
1. Election of Directors
/ / FOR ALL NOMINEES / / WITHHOLD AUTHORITY FOR ALL NOMINEES
If you wish to withhold authority to vote for any individual nominee,
strike a line through that nominee's name in the list below:
Richard S. Hill, Robert F. Graham, D. James Guzy, Glen Possley, Joseph Van
Poppelen, Robert H. Smith, Tom Long.
2. Proposal to ratify and approve an amendment to the Company's 1992 Stock
Option Plan (the "Option Plan") to increase the number of shares reserved
for issuance thereunder from 1,300,000 shares to 2,000,000 shares.
/ / FOR / / AGAINST / / ABSTAIN
3. Proposal to ratify and approve an amendment to the Company's Option Plan to
authorize the Stock Option Committee to make restricted stock grants and
award stock bonuses.
/ / FOR / / AGAINST / / ABSTAIN
4. Proposal to ratify and approve an amendment to the Company's 1992 Employee
Stock Purchase Plan to increase the number of shares reserved for issuance
thereunder from 150,000 shares to 250,000 shares.
/ / FOR / / AGAINST / / ABSTAIN
5. Proposal to ratify the appointment of Ernst & Young LLP as the independent
auditors for the Company for the fiscal year ending December 31, 1995.
/ / FOR / / AGAINST / / ABSTAIN
6. Authority is hereby given to the proxies identified on the front of this
card to vote in their discretion upon such other business as may properly
come before the meeting.
/ / FOR / / AGAINST / / ABSTAIN
(Please sign exactly as your name appears on this proxy card. If shares are
held jointly, each holder should sign. When signing as attorney, executor,
administrator, trustee or guardian, please give full title as such. If a
corporation, please sign in full corporate name by President or other
authorized officer. If a partnership, please sign in partnership name by
authorized person.)
Date _________, 1995
____________________________________________________________
Printed Name of Shareholder
____________________________________________________________
Signature
____________________________________________________________
Signature
PLEASE MARK, SIGN, DATE AND RETURN THIS PROXY CARD PROMPTLY USING THE ENCLOSED
REPLY ENVELOPE
