<PAGE>
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of
the Securities Exchange Act of 1934 (Amendment No. )
Filed by the Registrant /X/
Filed by a Party other than the Registrant / /
Check the appropriate box:
/ / Preliminary Proxy Statement
/ / Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
/X/ Definitive Proxy Statement
/ / Definitive Additional Materials
/ / Soliciting Material Pursuant to Section 240.14a-11(c) or Section
240.14a-12
NOVELLUS SYSTEMS, INC.
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
NOVELLUS SYSTEMS, INC.
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
/X/ $125 per Exchange Act Rules 0-11(c)(1)(ii), 14a-6(i)(1), 14a-6(i)(2) or
Item 22(a)(2) of Schedule 14A.
/ / $500 per each party to the controversy pursuant to Exchange Act Rule
14a-6(i)(3).
/ / Fee computed on table below per Exchange Act Rules 14a-6(i)(4)
and 0-11.
1) Title of each class of securities to which transaction applies:
------------------------------------------------------------------------
2) Aggregate number of securities to which transaction applies:
------------------------------------------------------------------------
3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
filing fee is calculated and state how it was determined):
------------------------------------------------------------------------
4) Proposed maximum aggregate value of transaction:
------------------------------------------------------------------------
5) Total fee paid:
------------------------------------------------------------------------
/ / Fee paid previously with preliminary materials.
/ / Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
1) Amount Previously Paid:
------------------------------------------------------------------------
2) Form, Schedule or Registration Statement No.:
------------------------------------------------------------------------
3) Filing Party:
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4) Date Filed:
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<PAGE>
[LOGO]
NOVELLUS SYSTEMS, INC.
April 22, 1996
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 17, 1996 at 9:00 a.m., California
time. The Annual Meeting will be held at the Company's principal executive
offices, 3970 North First Street, 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
<PAGE>
NOVELLUS SYSTEMS, INC.
------------------
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
------------------------
TO BE HELD ON MAY 17, 1996
NOTICE IS HEREBY GIVEN that the Annual Meeting of Shareholders of Novellus
Systems, Inc. (the "Company") will be held on May 17, 1996 at 9:00 a.m.,
California time, at the Company's principal executive offices, 3970 North First
Street, San Jose, California 95134, for the following purposes:
1. To elect six 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 2,000,000 shares to 2,680,000 shares.
3. 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 250,000 shares to 290,000 shares.
4. To ratify and approve the appointment of Ernst & Young LLP as the
independent auditors for the Company for the fiscal year ending December
31, 1996.
5. 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, 1996 are
entitled to vote at the Annual Meeting.
FOR THE BOARD OF DIRECTORS
William J. Wall
SECRETARY
San Jose, California
April 22, 1996
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.
<PAGE>
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 17, 1996 at 9:00 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, 3970 North
First Street, San Jose, California 95134.
This Proxy Statement, the form of proxy, and the Company's 1995 Annual
Report are first being mailed to shareholders on or about April 22, 1996.
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, 1996 are
entitled to vote at the Annual Meeting. At the record date, 16,003,049 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 1997 must be
received by the Company no later than December 19, 1996 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
As set by the Board of Directors (the "Board" or "Board of Directors")
pursuant to the Bylaws of the Company, the authorized number of directors is set
at seven. Six directors will be elected at the Annual Meeting. Following the
Annual Meeting there will be one vacancy due to the retirement of Mr. Robert F.
Graham. The six 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 six 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 44 President and Chief Executive Officer of 1993
the Company
D. James Guzy 60 President, Arbor Company, a limited 1990
partnership engaged in the electronics
and computer industries
Tom Long 64 Director of Programs, Planar Advance, 1995
Inc., a flat panel company engaged in
the electronics industry
Glen Possley 55 President, SubMicron Technology, Inc., a 1991
company engaged in the manufacturing of
semiconductors
Robert H. Smith 59 Industry Consultant 1995
Joseph Van Poppelen 68 President, Van Poppelen Company, a 1993
consulting firm focused on marketing
and business strategies for high
technology companies
</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.
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.
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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.
MR. LONG joined the Board of Directors in May 1995. Mr. Long currently is
the 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.
DR. POSSLEY joined the Board of Directors in July 1991. He has been
President of 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. SMITH joined the Board of Directors in May 1995. Mr. Smith has been 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. 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. Van
Poppelen also serves on the Board of Directors of GaSonics International, Inc.
BOARD MEETINGS AND COMMITTEES
The Board of Directors of the Company held six meetings during 1995. 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.
During 1995, Messrs. Guzy, Van Poppelen and Smith 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 1995, Messrs. Graham (who is retiring from the Board of Directors at
this Annual Meeting), Guzy, Hill and Van Poppelen 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.
3
<PAGE>
During 1995, Messrs. Guzy, Long, Smith and Van Poppelen 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 1995, Messrs.
Guzy, Smith, Van Poppelen, Long 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 March 1996, subject to
shareholder approval, to increase the number of shares reserved for issuance
under the Option Plan from 2,000,000 shares to 2,680,000 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, and in May 1995 the shareholders ratified, an
amendment to the Option Plan to increase the number of shares available for
granting thereunder from 1,300,000 shares to 2,000,000 shares. The Board of
Directors and Shareholders also adopted an amendment allowing for Restricted
Shares and Bonuses. As of March 31, 1996, options to purchase 1,986,248 had been
granted under the Option Plan of which options to purchase 1,748,639 were
outstanding.
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, 1996, the number of
executive officers, employees, consultants and directors of the Company and its
subsidiaries that were
4
<PAGE>
eligible to receive grants under the Option Plan was approximately 927 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, 1995, the fair market value of the Company's Common Stock was $54.00. 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.
In March of 1996 the Board approved an amendment to the Option Plan which
provides that the Stock Option Committee may not, without further approval of
the shareholders of the Company, authorize the amendment of any outstanding
option to reduce the option price or authorize the amendment of any outstanding
stock appreciation right ("SAR") to reduce the base price. In addition, the
Company may not, without the approval of the shareholders, cancel an option or
SAR and replace it with an award having a lower price or base price unless the
vesting period is restarted to the period designated for new options or SARs.
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 6,000 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.
RESTRICTED SHARES. A grant of Restricted Shares consists of the sale of a
specified number of shares of Common Stock which are contingently awarded in
amounts determined by the Stock Option Committee to those employees, directors,
and consultants selected by the Stock Option Committee.
5
<PAGE>
Outside Directors are not eligible for a grant of Restricted Shares. Restricted
Shares are 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 has the right to vote and receive dividends on Restricted
Shares, but can 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 is 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 is made in any combination of cash or
Common Stock as determined by the Stock Option Committee.
STOCK BONUSES. A grant of a Stock Bonus consists of a specified number of
shares of Common Stock which are awarded in amounts determined by the Stock
Option Committee to those employees, directors, and consultants selected by the
Stock Option Committee. Outside Directors are not eligible for awards of Stock
Bonuses. Shares awarded as Stock Bonuses are 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 does not pay for the shares received as a
Stock Bonus, although the fair market value of the shares received is deemed
compensation to the individual upon the lapsing of any restrictions.
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.
STOCK OPTIONS. 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 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
6
<PAGE>
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.
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.
The following summarizes only the federal income tax consequences to
participants and the Company of the acquisition and disposition of Restricted
Shares and Stock Bonuses under the Plan.
RESTRICTED SHARES. A participant who receives 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 Securities Exchange Act of 1934 (generally directors,
executive officers and 10% shareholders).
7
<PAGE>
PROPOSAL NO. 3
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 March
1996, to effect the following, subject to shareholder approval: to increase the
number of shares reserved for issuance under the Purchase Plan from 250,000
shares to 290,000 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. In January 1995 the Board of Directors adopted, and in May
1995 the shareholders ratified and approved an increase in the number of shares
available for issuance under the Purchase Plan from 150,000 to 250,000 shares of
Common Stock. 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 March 1996, subject to shareholder approval, to increase
the number of shares reserved for issuance thereunder by 40,000 shares; bringing
the total number of shares reserved for issuance under the Purchase Plan to
290,000 shares. As of March 31, 1996, 191,522 shares of Common Stock had been
sold pursuant to the Purchase Plan at a weighted average price of $23.20 per
share, with 58,478 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.
8
<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 accumu-
lated 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.
9
<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 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 1996 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 1996. 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 1996.
10
<PAGE>
OTHER INFORMATION
EXECUTIVE OFFICERS
In addition to Messrs. Hill and Graham, the other executive officers of the
Company as of April 19, 1996, were as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ---------------------------------------- --- --------------------------------------------------
<S> <C> <C>
Jeffrey Benzing 39 Vice President, Engineering
John Chenault 47 Vice President, Operations
Linus Cordes 58 Vice President, Human Resources
Peter Hanley 56 Executive Vice President, Sales and Marketing
Alain Harrus 40 Vice President and Chief Technical Officer
Wilbert van den Hoek 39 Vice President and General Manager, HDP Products
Business Group
Robert Wagner 39 Vice President, Customer Satisfaction
William J. Wall 49 Vice President, Finance and Administration, Chief
Financial Officer and Secretary
</TABLE>
MR. BENZING joined the Company in October 1988 as Director of Special
Projects. From June 1992 through April 1995 he served as Vice President, Product
Development and is currently its Vice President, Engineering. From 1984 to 1988
he was co-founder and Vice President of Engineering of Benzing Technologies,
Inc., a semiconductor equipment company. From 1979 to 1984 he held various
positions at Hewlett Packard Company.
MR. CHENAULT joined the Company in September 1991 as Vice President,
Operations. From April 1993 through April 1996 he served as Vice President,
Customer Satisfaction and is currently its Vice President, Operations. 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.
DR. CORDES joined the Company in November 1995 as Vice President, Human
Resources. From 1992 to 1995 he served as assistant director of the Microsystems
Technology Laboratories of the Massachusetts Institute of Technology. Prior to
that he was a member of the Corporate Engineering Staff of Raytheon Company, an
electronics company, and also served as the General Manager of Raytheon
Company's Advanced Device Center and Microelectronics Center. Dr. Cordes has
also held various research and management positions with General Electric
Company.
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.
DR. HARRUS joined the Company in April 1994 as Director of Strategic
Marketing and is currently is Vice President and Chief Technical Officer. From
March 1993 to April 1994 he was Director of CVD Technology at Lam Research
Corporation. From 1989 to 1993 he was Director of Dielectric Technology at the
Company. Prior to joining the Company, Dr. Harrus spent five years at AT&T Bell
Laboratories, where he was responsible for the development of materials and
processes for CMOS applications, with an emphasis on CVD.
DRS. VAN DEN HOEK joined the Company in May 1990 as Director of Technology
of Nippon Novellus Systems and is currently the Vice President and General
Manager of the Company's HDP Product
11
<PAGE>
Business Unit. From 1980 to May 1990 he held a variety of positions at the
Philips Research Laboratories in Eindhoven, the Netherlands and Sunnyvale,
California. The last position Drs. van den Hoek held at Philips was group
manager of the Si Technology Research group.
MR. WAGNER joined the Company in October 1987 as Account Executive, was
promoted to Director of Global Accounts in November 1991 and is currently its
Vice President of Customer Satisfaction. From 1983 to 1987 he held several
Marketing positions at Applied Materials including Manager, Product Marketing
Etch Product Division. From 1978 to 1982 Mr. Wagner held various positions at
General Electric, Nuclear Business Group in San Jose, California.
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.
12
<PAGE>
EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE
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"):
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
------------
ANNUAL COMPENSATION AWARDS
-------------------------- OPTIONS/ ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY ($) BONUS ($)(1) SARS (#)(2) COMPENSATION ($)(3)
- -------------------------------------------------- ---- ----------- ------------ ------------ -------------------
<S> <C> <C> <C> <C> <C>
Richard S. Hill 1995 $328,327 $443,021 35,000 $ 5,000(4)(5)
President and Chief Executive Officer 1994 315,000 603,750(6) 35,000 27,726(4)(7)
1993 12,115(8) -- 200,000 --
Peter Hanley 1995 228,461 302,790(9) 20,000 --
Executive Vice President Sales and Marketing 1994 218,462 316,999(9) 21,000 1,440
1993 208,462 170,740(9) 45,000 922
William J. Wall 1995 183,000 242,841 16,000 3,850(4)(5)
Vice President, Finance and Administration, Chief 1994 170,154 344,000 14,500 1,357(4)
Financial Officer and Secretary 1993 160,000 160,000 15,000 1,557
John Chenault 1995 163,846 198,421 8,500 850(4)
Vice President, Operations 1994 156,692 265,000 4,125 1,357(4)
1993 151,135 142,500 20,000 557
Eliot Broadbent 1995 154,538 132,732(11) 5,000 3,000(5)
Vice President, Technology (10) 1994 151,692 137,024(11) 3,000 211
1993 147,115 143,599(11) 5,000 --
Jeffrey Benzing 1995 152,308 251,301(12) 13,500 3,000(5)
Vice President, Engineering 1994 141,769 174,826(12) 19,626 1,211
1993 133,461 99,097(12) 5,000 --
</TABLE>
- ------------------------
(1) Includes amounts earned in 1995 and paid in 1996.
(2) Amounts represent stock option grants. 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) Includes tax preparation fees paid for by the Company.
(5) Includes financial advice fees paid for by the Company.
(6) 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.
(7) Includes $18,000 relocation expenses and $6,600 furniture allowance.
13
<PAGE>
(8) Mr. Hill joined the Company in December 1993, and his annual base salary
was established at $315,000.
(9) Includes commission based compensation in the amount of $164,158, $96,999
and $55,520 in 1995, 1994 and 1993 respectively.
(10) Mr. Broadbent ceased being an executive officer of the Company in June
1995.
(11) Includes commission based compensation in the amount of $55,232, $26,524
and $13,599 in 1995, 1994 and 1993 respectively.
(12) Includes commission based compensation in the amount of $55,670, $26,089
and $13,959 in 1995, 1994 and 1993 respectively.
OPTION/SAR GRANTS IN LAST FISCAL YEAR
The following table provides certain information with respect to stock
options granted to the named executive officers in 1995:
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS POTENTIAL REALIZABLE
---------------------------------------------------- VALUE
% OF TOTAL AT ASSUMED ANNUAL RATE
OPTIONS/SARS OF STOCK PRICE
GRANTED TO APPRECIATION
UNDERLYING EMPLOYEES EXERCISE FOR OPTION TERM (1)
OPTIONS/SARS IN FISCAL PRICE PER EXPIRATION ----------------------
NAME GRANTED (#) YEAR SHARE DATE 5% ($) 10% ($)
- -------------------------------------------------- ------------ ------------ --------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Richard S. Hill................................... 35,000 4.65 $55.00 12/15/05 $1,210,622 $3,067,954
Peter Hanley...................................... 20,000 2.66 $55.00 12/15/05 691,784 1,753,117
William J. Wall................................... 16,000 2.13 $55.00 12/15/05 553,427 1,402,493
John Chenault..................................... 8,500 1.13 $55.00 12/15/05 294,008 745,075
Eliot Broadbent................................... 5,000 0.67 $55.75 12/21/05 175,304 444,256
Jeffrey Benzing................................... 13,500 1.80 $55.00 12/15/05 466,954 1,183,354
</TABLE>
- ------------------------
(1) The potential realizable value portion of the foregoing table illustrates
value that might be realized upon exercise of the options immediately prior
to the expiration of their terms, assuming the specified compounded rates of
appreciation on the Company's Common Stock over the term of the options.
Actual gains, if any, on stock option exercise are dependent upon a number
of factors, including the future performance of the Common Stock, overall
stock market conditions, and the timing of option exercises, if any. There
can be no assurance that amounts reflected in this table will be achieved.
14
<PAGE>
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION/SAR VALUES
The following table sets forth certain information with respect to stock
options exercised by the named executive officers during 1995, including the
aggregate value of gains on the date of exercise. In addition, the table sets
forth the number of shares covered by stock options as of December 31, 1995, and
the value of "in-the-money" stock options, which represents the positive spread
between the exercise price of a stock option and the market price of the shares
subject to such option on December 31, 1995.
<TABLE>
<CAPTION>
NUMBER OF
SECURITIES UNDERLYING VALUE OF UNEXERCISED
UNEXERCISED OPTIONS/SARS IN-THE-MONEY OPTIONS/SARS
AT FISCAL YEAR END (#)(1) AT FISCAL YEAR END (#)(1)
SHARES ACQUIRED VALUE --------------------------- ---------------------------
NAME ON EXERCISE (#) REALIZED ($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- --------------------------------------- --------------- ------------ ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Richard S. Hill........................ 43,420 $ 1,456,940 56,580 170,000 $ 1,711,545 $ 3,138,750
Peter Hanley........................... 10,000 657,000 48,928 87,072 2,075,778 1,479,348
William J. Wall........................ 1,875 53,906 18,125 58,000 692,344 971,500
John Chenault.......................... 20,999 1,286,328 19,000 52,626 701,563 1,464,389
Eliot Broadbent........................ 7,000 381,500 8,021 28,480 339,775 884,619
Jeffrey Benzing........................ 10,000 511,000 16,500 49,626 716,094 984,566
</TABLE>
- ------------------------
(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 $54.00 on
December 31, 1995.
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 up to 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 the majority of employees upon hiring
to allow everyone to achieve an ownership position in the Company and
thus provide 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 1995, the Company's profits exceeded the performance goals set by the
Compensation Committee at the beginning of the year. Accordingly, Richard Hill,
the Company's Chief Executive Officer, received an annual bonus equal to 135% of
his base salary. The other named executives received bonuses based on the
Company's performance and on their performance against the specific goals and
objectives established for them at levels ranging from 50% to 133% of their base
salaries.
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.
STOCK OPTION COMMITTEE COMPENSATION COMMITTEE
D. James Guzy Robert F. Graham
Tom Long D. James Guzy
Robert Smith Richard S. Hill
Joseph Van Poppelen Joseph Van Poppelen
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, 1990 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, 1990 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>
1990 100.00 100.00 100.00
1991 184.78 147.83 160.55
1992 158.70 170.04 186.85
1993 297.83 185.56 214.50
1994 434.78 215.39 209.67
1995 469.57 323.40 296.51
</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 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 as 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 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.
17
<PAGE>
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.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth the beneficial ownership of Common Stock as
of April 3, 1996 as to (a) each director and nominee, (b) each named executive
officer, (c) all directors and officers as a group, and (d) for each person
known by the Company, as of December 31, 1995, to beneficially own more than 5%
of the outstanding shares of its Common Stock.
<TABLE>
<CAPTION>
BENEFICIAL OWNERSHIP (1)
------------------------------------
BENEFICIAL OWNER NUMBER OF SHARES PERCENT OF TOTAL
- --------------------------------------------------------------------- ----------------- -----------------
<S> <C> <C>
AIM Management Group Inc. (2)
11 Greenway Plaza, Suite 1919
Houston, TX 77046................................................... 1,409,000 8.8%
J.&W. Seligman & Co. Incorporated (3)
100 Park Avenue
New York, NY 10017.................................................. 1,164,900 7.3%
State Street Bank and Trust Company, Trustee (4)
225 Franklin Street
Boston, MA 02110.................................................... 927,200 5.8%
Peter Hanley (5)..................................................... 57,758 *
Richard S. Hill (6).................................................. 55,000 *
D. James Guzy (7).................................................... 36,000 *
John Chenault (8).................................................... 20,156 *
Jeffrey Benzing (9).................................................. 19,229 *
Joseph Van Poppelen (10)............................................. 17,500 *
Eliot Broadbent (11)................................................. 13,561 *
Robert F. Graham (12)................................................ 8,366 *
William J. Wall (13)................................................. 8,233 *
Glen Possley (14).................................................... 6,000 *
Tom Long (15)........................................................ 6,000 *
Robert H. Smith (16)................................................. 4,000 *
All officers and directors as a group (17 persons) (17).............. 285,165 1.8%
</TABLE>
- ------------------------
* Less than one percent
(1) Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission. In computing the number of shares
beneficially owned by a person and the percentage ownership of that person,
shares of Common Stock subject to options held by that person that are
currently exercisable or exercisable within 60 days of April 3, 1996 are
deemed outstanding. Such shares, however, are not deemed outstanding for the
purposes of computing the percentage ownership of each other person.
Applicable percentages are based on 16,003,049 shares outstanding on April
3, 1996, adjusted as required by the rules. To the Company's knowledge,
except as set forth in the footnotes to this table and subject to applicable
community property laws, each person named in the table has sole voting and
investment power with respect to the shares set forth opposite such person's
name.
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(2) As reported in a Schedule 13G filed by AIM Management Group, Inc. ("AIM"),
as of December 31, 1995, includes 1,409,000 shares as to which AIM has
shared voting and investment power.
(3) As reported in a Schedule 13G filed by J.&W. Seligman & Co. Incorporated
("J.&W. Seligman"), as of December 31, 1995, includes 1,164,900 shares as to
which J.&W. Seligman has sole voting and investment power.
(4) As reported in a Schedule 13G filed by State Street Bank and Trust Company
("State Street Bank and Trust"), as of December 31, 1995, includes 787,700
shares as to which State Street Bank and Trust has sole voting power, and
927,200 shares of which State Street Bank and Trust has sole investment
power.
(5) Includes options to purchase an aggregate of 56,071 shares which will be
fully vested and exercisable within 60 days of April 3, 1996.
(6) Includes options to purchase an aggregate of 41,580 shares which will be
fully vested and exercisable within 60 days of April 3, 1996.
(7) Includes options to purchase an aggregate of 10,000 shares which will be
fully vested and exercisable within 60 days of April 3, 1996.
(8) Includes options to purchase an aggregate of 19,000 shares which will be
fully vested and exercisable within 60 days of April 3, 1996.
(9) Includes options to purchase an aggregate of 19,000 shares which will be
fully vested and exercisable within 60 days of April 3, 1996.
(10) Includes options to purchase an aggregate of 15,500 shares which will be
fully vested and exercisable within 60 days of April 3, 1996.
(11) Includes options to purchase an aggregate of 13,021 shares which will be
fully vested and exercisable within 60 days of April 3, 1996.
(12) Mr. Graham is retiring from the Board following this Annual Meeting.
(13) Includes options to purchase an aggregate of 8,125 shares which will be
fully vested and exercisable within 60 days of April 3, 1996.
(14) Includes options to purchase an aggregate of 4,000 shares which will be
fully vested and exercisable within 60 days of April 3, 1996.
(15) Includes options to purchase an aggregate of 4,000 shares which will be
fully vested and exercisable within 60 days of April 3, 1996.
(16) Includes options to purchase an aggregate of 4,000 shares which will be
fully vested and exercisable within 60 days of April 3, 1996.
(17) Includes options to purchase an aggregate of 224,172 shares which will be
fully vested and exercisable within 60 days of April 3, 1996.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
During 1995, Messrs. Graham 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. 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
19
<PAGE>
that its executive officers, directors and ten-percent shareholders complied
with all Section 16(a) filing requirements applicable to them, except as
follows: Mr. Robert Graham, Chairman of the Board, and Mr. Richard S. Hill,
President and Chief Executive Officer, each filed one late Form 4 with respect
to one transaction.
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 22, 1996
20
<PAGE>
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
NOVELLUS SYSTEMS, INC.
ANNUAL MEETING OF SHAREHOLDERS
May 17, 1996
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 9:00 a.m.,
local time on May 17, 1996, at the Company's principal executive offices, 3970
North First Street San Jose, California, 95134, or any adjournment or
postponement thereof.
THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED AS DIRECTED BY THE
UNDERSIGNED SHAREHOLDERS. 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, and 4.
CONTINUED AND TO BE SIGNED ON REVERSE SIDE
-----------
See Reverse
Side
-----------
<PAGE>
PLEASE MARK
/X/ YOUR CHOICES
LIKE THIS
-------------- ---------------
/ / ACCOUNT NUMBER COMMON
WITHHOLD
AUTHORITY
FOR ALL FOR ALL
NOMINEES NOMINEES
1. Election of Directors: / / / /
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, D. James Guzy, Glen Possley, Joseph Van Poppelen,
Robert H. Smith, Tom Long
Item 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 2,000,000 shares to 2,680,000.
FOR AGAINST ABSTAIN
/ / / / / /
Item 3. 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 form 250,000 to 290,000 shares.
FOR AGAINST ABSTAIN
/ / / / / /
Item 4. Proposal to ratify the appointment of Ernst & Young LLP as the
independent auditors for the Company for the fiscal year ending December 31,
1996.
FOR AGAINST ABSTAIN
/ / / / / /
Item 5. 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
/ / / / / /
PLAN TO ATTEND THE MEETING / /
(Please sign your name exactly as it appears on this proxy card. If shares are
held jointly, each holder should sign. When signing as attorney, executor,
administrator, corporation, 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:__________, 1996
________________________________________
Printed Name of Shareholder
________________________________________
Signature
________________________________________
Signature
PLEASE MARK, SIGN, DATE AND RETURN THIS PROXY CARD PROMPTLY USING THE ENCLOSED
REPLY ENVELOPE.
