<PAGE> 1
SCHEDULE 14A
(RULE 14A-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE SECURITIES
EXCHANGE ACT OF 1934 (AMENDMENT NO. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
<TABLE>
<S> <C>
[ ] Preliminary Proxy Statement [ ] Confidential, for Use of the Commission
Only (as permitted by Rule 14a-6(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
</TABLE>
NOVELLUS SYSTEMS, INC.
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
(1) Title of each class of securities to which transaction applies:
(2) Aggregate number of securities to which transaction applies:
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which the
filing fee is calculated and state how it was determined):
(4) Proposed maximum aggregate value of transaction:
(5) Total fee paid:
[ ] Fee paid previously with preliminary materials:
[ ] Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
(2) Form, Schedule or Registration Statement No.:
(3) Filing Party:
(4) Date Filed:
<PAGE> 2
[NOVELLUS SYSTEMS, INC. LOGO]
NOVELLUS SYSTEMS, INC.
April 22, 1997
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 23, 1997 at 8:00 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
Chairman of the Board and
Chief Executive Officer
<PAGE> 3
NOVELLUS SYSTEMS, INC.
------------------------
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD ON MAY 23, 1997
NOTICE IS HEREBY GIVEN that the Annual Meeting of Shareholders of Novellus
Systems, Inc. (the "Company") will be held on May 23, 1997 at 8:00 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 Amended and
Restated 1992 Stock Option Plan (the "Option Plan") to increase the number
of shares reserved for issuance thereunder from 2,680,000 shares to
3,340,000 shares.
3. To ratify and approve an amendment to the Company's Amended and
Restated 1992 Employee Stock Purchase Plan to increase the number of shares
reserved for issuance thereunder from 290,000 shares to 350,000 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, 1997.
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 4, 1997 are
entitled to vote at the Annual Meeting.
For the Board of Directors
Robert H. Smith
Secretary
San Jose, California
April 22, 1997
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> 4
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 23, 1997 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, 3970 North
First Street, San Jose, California 95134.
This Proxy Statement, the form of proxy, and the Company's 1996 Annual
Report are first being mailed to shareholders on or about April 22, 1997.
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 Robert H. Smith) 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 4, 1997 are
entitled to vote at the Annual Meeting. At the record date, 16,436,673 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 the meeting, 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 1998 must be
received by the Company no later than December 18, 1997 to be included in the
proxy statement and form of proxy relating to that meeting.
<PAGE> 5
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 as the Company has not identified a
suitable Board member to fill the remaining position. 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 45 Chairman of the Board and Chief Executive Officer of 1993
the Company
D. James Guzy 61 President, Arbor Company, a limited partnership 1990
engaged in the electronics and computer industries
Tom Long 65 Director of Programs, Planar Advance, Inc., a flat 1995
panel company engaged in the electronics industry
Glen Possley 56 President, SubMicron Technology, Inc., a company 1991
engaged in the manufacturing of semiconductors
Robert H. Smith 60 Executive Vice President, Finance and Administration, 1995
Chief Financial Officer and Secretary of the Company
Joseph Van Poppelen 69 President, Van Poppelen Company, a consulting firm 1993
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 Chief Executive Officer and member of the Board of
Directors of the Company since December 1993. In May 1996 he was appointed
Chairman of the Board of Directors. 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. Mr. Guzy is also a director of Intel
Corporation, Cirrus Logic, Inc., Micro Component Technology, Inc., 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
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<PAGE> 6
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 June
1994. From April 1992 to May 1994 he was Senior Vice President of Manufacturing
at Ramtron International, a semiconductor company. From January 1991 to March
1992, he was Vice President, Operations at Sandisk Technology, a manufacturer of
solid state memory systems. From January 1986 to December 1990, Dr. Possley was
Senior Vice President of Manufacturing for Philips, a semiconductor company.
Prior to joining Philips, 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. In October 1996 Mr.
Smith became the Executive Vice President, Finance and Administration and Chief
Financial Officer and Secretary of the Company. Mr. Smith had 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 1996. 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, Stock Option Committee and Technology
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 Robert H. Smith,
the Company's Secretary, at the Company's principal executive offices.
During 1996, 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 1996, Messrs. Guzy, Long, Smith and Van Poppelen served on the
Compensation Committee. The Compensation Committee held two meetings during the
last year. The principal functions of the Compensation Committee are to review
and approve the Company's executive compensation policy. Mr. Smith resigned from
the Compensation Committee upon his appointment as Executive Vice President,
Finance and Administration and Chief Financial Officer and Secretary of the
Company in October 1996.
During 1996, Messrs. Guzy, Long, and Van Poppelen served on the Stock
Option Committee. The Stock Option Committee held one meeting 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.
3
<PAGE> 7
During 1996, Mr. Long and Dr. Possley served on the Technology Committee.
The Technology Committee held two meetings during the last fiscal year. The
Technology Committee reviews, guides and approves the Company's technology
plans.
Directors are reimbursed for out-of-pocket travel expenses associated with
their attendance at meetings of the Board. In addition, during 1996, Messrs.
Guzy, Smith, Van Poppelen, Long and Dr. Possley received a fee of $3,000 each
for the first and second quarter of 1996 and a fee of $5,000 each for the third
and fourth quarter of 1996, $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 during the first and second quarter of 1996 and $500 for each Committee
meeting attended which was not held on the same day as a Board meeting during
the third and fourth quarter of 1996.
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 Amended and
Restated 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 April 1997, subject to
shareholder approval, to increase the number of shares reserved for issuance
under the Option Plan from 2,680,000 shares to 3,340,000 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 AMENDED AND RESTATED 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
grant 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. In March 1996,
the Board of Directors approved, and in May 1996 the shareholders ratified, an
amendment to the Option Plan to increase the number of shares available for
granting thereunder from 2,000,000 shares to 2,680,000 shares. The Board of
Directors and shareholders also adopted an amendment allowing for Restricted
Shares and Bonuses. In April 1997, the Board of Directors approved an amendment
to the Option Plan to increase the number of shares available for grant
thereunder from 2,680,000 to 3,340,000. As of March 31, 1997, options to
purchase 2,600,896 shares had been granted under the Option Plan of which
options to purchase 2,160,848 shares were outstanding.
4
<PAGE> 8
As of the date of this Proxy Statement, no Outside Directors and no
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.
The Option Plan provides for the grant 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
grant to employees, non-employee directors ("Outside Directors") and consultants
of nonstatutory stock options. As of March 31, 1997, 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 1,059 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 or
options granted after such initial grants 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. 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, 1996, the fair market value of the Company's Common Stock was $54.19. 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. The Option Plan provides 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.
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.
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<PAGE> 9
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 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.
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. 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. 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 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
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<PAGE> 10
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 adjustment in the year of exercise for purposes of the alternative
minimum tax.
The Company generally will be entitled to a tax deduction for an amount
equal to the ordinary income realized by the participant at the time the
participant recognizes such income. In addition, Internal Revenue Code section
162(m) contains special rules regarding the federal income tax deductibility of
compensation paid to the Company's Chief Executive Officer and to each of the
other four most highly compensated executive officers. The general rule is that
annual compensation paid to any of these specified executives will be deductible
only to the extent that it does not exceed $1 million. However, the Company can
preserve the deductibility of certain compensation in excess of $1 million if it
complies with conditions imposed by the new rules, including the establishment
of a maximum number of shares which may be granted to any one employee during a
specified time period. The Company has established the maximum number of shares
with respect to which options can be granted. Those limits are 100,000 shares
per fiscal year, with a 200,000 share limitation for grants to new hires.
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).
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
7
<PAGE> 11
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).
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 Amended
and Restated 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 April
1997, to effect the following, subject to shareholder approval: to increase the
number of shares reserved for issuance under the Purchase Plan from 290,000
shares to 350,000 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 AMENDED AND RESTATED 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. In March 1996, the Board of
Directors approved, and in May 1996 the shareholders ratified, an amendment to
the Purchase Plan to increase the number of shares available for issuance
thereunder from 250,000 shares to 290,000 shares. In April 1997, the Board of
Directors approved an amendment to the Purchase Plan increasing the number of
shares available for issuance thereunder from 290,000 shares to 350,000 shares.
As of March 31, 1997, 267,421 shares of Common Stock had been sold pursuant to
the Purchase Plan at a weighted average price of $25.80 per share, with 22,579
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
8
<PAGE> 12
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.
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.
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
9
<PAGE> 13
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.
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. 4
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 1997 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 1997. 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 1997.
10
<PAGE> 14
OTHER INFORMATION
EXECUTIVE OFFICERS
In addition to Messrs. Hill and Smith the other executive officers of the
Company as of March 31, 1997, were as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ----------------------------------------- --- ----------------------------------------------
<S> <C> <C>
Jeffrey Benzing.......................... 40 Vice President, Engineering
John Chenault............................ 48 Vice President, Operations
Linus Cordes............................. 59 Vice President, Human Resources
Peter Hanley............................. 57 Executive Vice President, Sales and Marketing
Alain Harrus............................. 41 Vice President and Chief Technical Officer
Sheila Vaidya............................ 44 Vice President, Metals Business Group
Wilbert van den Hoek..................... 40 Vice President and General Manager, Dielectric
Business Group
Robert Wagner............................ 40 Vice President, Customer Satisfaction
</TABLE>
MR. BENZING joined the Company in July 1988 as Director of Special Projects
and has been the Company's Vice President, Engineering since May 1995. From 1984
to 1988 he was co-founder and Vice President of Engineering of Benzing
Technologies. From 1979 to 1988 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.
DR. VAIDYA joined the Company in October 1996 as Vice President of the
Metals Business Group. Prior to joining the Company, Dr. Vaidya served as
Director, Advanced CVD Metals Product Unit of Applied Materials, Inc. Between
1979 and 1995, Dr. Vaidya was a Supervisor of three different research groups at
AT&T Bell Laboratories.
DR. 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 Dielectric Business Group. From 1979 to May 1990 he
held a variety of positions at the Philips Research Laboratories in
11
<PAGE> 15
Eindhoven, the Netherlands and Sunnyvale, California. The last position Dr. 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 the
Vice President, Customer Satisfaction. From 1982 to 1987 he was the Product
Marketing Manager at Applied Materials. From 1978 to 1982 Mr. Wagner held
various positions at General Electric, Nuclear Business Group in San Jose,
California.
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 1996 $ 344,744 $ 347,287 100,000 $ 5,548(4)(5)
Chairman of the Board and 1995 328,327 443,021 35,000 5,000(4)(5)
Chief Executive Officer 1994 315,000 603,750(6) 35,000 27,726(4)(7)
Peter Hanley 1996 234,231 191,689(8) 25,000 1,952
Executive Vice President, 1995 228,461 302,790(8) 20,000 --
Sales and Marketing 1994 218,462 316,999(8) 21,000 1,440
John Chenault 1996 176,326 152,954 35,000 1,667(4)
Vice President, Operations 1995 163,846 198,421 8,500 850(4)
1994 156,692 265,000 4,125 1,357(4)
Jeffrey Benzing 1996 171,769 149,959(9) 10,000 4,386(4)(5)
Vice President, Engineering 1995 152,308 251,301(9) 13,500 3,000(5)
1994 141,769 174,826(9) 19,626 1,211
Robert Wagner 1996 139,108 288,950(10) 18,000 363
Vice President, Customer 1995 111,546 111,144(10) 2,000 194
Satisfaction 1994 105,077 68,787(10) 1,000 209
</TABLE>
- ---------------
(1) Includes amounts earned in 1996 and paid in 1997.
(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 would have
been forfeited and transferred to the Company if he had terminated his
employment with the Company prior to December 10, 1996.
(7) Includes $18,000 relocation expenses and $6,600 furniture allowance.
(8) Includes commission based compensation in the amount of $102,419, $164,158
and $96,999 in 1996, 1995 and 1994 respectively.
12
<PAGE> 16
(9) Includes commission based compensation in the amount of $8,254, $55,670 and
$26,089 in 1996, 1995 and 1994 respectively.
(10) Includes commission based compensation in the amount of $233,007, $111,144
and $68,787 in 1996, 1995 and 1994 respectively.
OPTION/SAR GRANTS IN LAST FISCAL YEAR
The following table provides certain information with respect to stock
options granted to the named executive officers in 1996:
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS POTENTIAL REALIZABLE
----------------------------------------------------------- VALUE AT
NUMBER OF % OF TOTAL ASSUMED ANNUAL RATES OF
SECURITIES OPTIONS/SARS STOCK PRICE APPRECIATION
UNDERLYING GRANTED TO EXERCISE FOR OPTION TERM(1)
OPTIONS/SARS EMPLOYEES IN PRICE PER EXPIRATION -------------------------
NAME GRANTED (#) FISCAL YEAR SHARE(#/$) DATE 5%($) 10%($)
- ---------------- ------------ ------------ ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Richard S. Hill 100,000 11.62% $60.25 12/13/06 $3,789,098 $9,602,296
Peter Hanley 25,000 2.90 $60.25 12/13/06 947,273 2,400,575
John Chenault 2,222 0.26 $45.00 03/26/06 62,883 159,358
7,778 0.90 $45.00 03/26/06 220,119 557,826
25,000 2.90 $60.25 12/13/06 947,273 2,400,575
Jeffrey Benzing 10,000 1.16 $60.25 12/13/06 378,909 960,230
Robert Wagner 838 0.10 $45.00 03/26/06 23,716 60,100
9,162 1.06 $45.00 03/26/06 259,287 657,084
8,000 0.93 $60.25 12/13/06 303,127 768,184
</TABLE>
- ---------------
(1) The potential realizable value portion of the foregoing table illustrates
value that might be realized upon exercise of the options immediately prior
to the expiration of their terms, assuming the specified compounded rates of
appreciation on the Company's Common Stock over the term of the options.
Actual gains, if any, on stock option exercise are dependent upon a number
of factors, including the future performance of the Common Stock, overall
stock market conditions, and the timing of option exercises, if any. There
can be no assurance that amounts reflected in this table will be achieved.
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION/SAR VALUES
The following table sets forth certain information with respect to stock
options exercised by the named executive officers during 1996, including the
aggregate value of gains on the date of exercise. In addition, the table sets
forth the number of shares covered by stock options as of December 31, 1996, and
the value of "in-the-money" stock options, which represents the positive spread
between the exercise price of a stock option and the market price of the shares
subject to such option on December 31, 1996.
<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING VALUE OF UNEXERCISED
UNEXERCISED OPTIONS/SARS IN-THE-MONEY OPTIONS/SARS
AT FISCAL YEAR END(#)(1) AT FISCAL YEAR END(#)(1)
SHARES ACQUIRED VALUE ----------------------------- -----------------------------
NAME ON EXERCISE(#) REALIZED($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---------------- --------------- ----------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Richard S. Hill 19,210 $ 622,415 87,370 220,000 $ 2,659,281 $ 1,642,145
Peter Hanley -- -- 72,500 88,500 2,897,620 679,197
John Chenault 27,500 1,109,113 21,501 57,625 682,816 355,418
Jeffrey Benzing 4,000 211,500 24,000 48,126 1,031,363 495,890
Robert Wagner 4,000 175,625 1,500 22,500 37,406 132,713
</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 $54.19 on
December 31, 1996.
13
<PAGE> 17
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.
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 growth and
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 1996, the Company's profits grew by 14% over 1995. Profits exceeded 90%
of the goal set by the Compensation Committee at the beginning of the year.
Richard Hill, the Company's Chairman and Chief
14
<PAGE> 18
Executive Officer, received an annual bonus equal to 100% 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 30% to 85% 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 1996, and therefore expects all such cash compensation to be deductible.
<TABLE>
<S> <C>
STOCK OPTION COMMITTEE COMPENSATION COMMITTEE
D. James Guzy D. James Guzy
Tom Long Tom Long
Joseph Van Poppelen Robert Smith
Joe Van Poppelen
</TABLE>
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, 1991 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, 1991 and reinvestment
of dividends, if any. The stock price performance shown on the graph is not
necessarily indicative of future price performance.
<TABLE>
<CAPTION>
Measurement Period Novellus Systems, H&Q Technology Nasdaq Stock
(Fiscal Year Covered) Inc. Index Market - U.S.
<S> <C> <C> <C>
1991 100.00 100.00 100.00
1992 85.88 115.02 116.38
1993 161.18 125.52 133.60
1994 235.29 145.70 130.59
1995 254.12 218.76 184.88
1996 255.01 262.49 227.17
</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
15
<PAGE> 19
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.
16
<PAGE> 20
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth the beneficial ownership of Common Stock as
of March 31, 1997 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, 1996, 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>
FMR Corp.
82 Devonshire Street
Boston, MA 02109(2) 2,069,600 12.6%
J. & W. Seligman & Co., Incorporated
100 Park Avenue, 8th Floor
New York, NY 10006(3) 1,362,000 8.3%
Richard S. Hill(4) 100,939 *
Peter Hanley(5) 74,500 *
D. James Guzy(6) 46,000 *
Jeffrey Benzing(7) 27,042 *
Joseph Van Poppelen(8) 26,000 *
John Chenault(9) 22,970 *
Glen Possley(10) 10,000 *
Robert H. Smith(11) 10,000 *
Tom Long(12) 6,000 *
Robert Wagner(13) 1,921 *
All officers and directors as a group (14
persons)(14) 360,288 2.2%
</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 March 31, 1997 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 16,436,473 shares outstanding on March
31, 1997 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.
(2) As reported in a Schedule 13G filed by FMR Corp. as of December 31, 1996,
includes 185,800 shares as to which FMR Corp. has sole voting power and
2,069,600 shares as to which FMR Corp. has sole investment power.
(3) As reported in a Schedule 13G filed by J. & W. Seligman & Co., Inc., as of
December 31, 1996, includes 1,362,000 shares as to which J. & W. Seligman &
Co., Inc. has sole voting and investment power.
(4) Includes options to purchase an aggregate of 87,370 shares which will be
fully vested and exercisable within 60 days of March 31, 1997.
(5) Includes options to purchase an aggregate of 72,500 shares which will be
fully vested and exercisable within 60 days of March 31, 1997.
(6) Includes options to purchase an aggregate of 16,000 shares which will be
fully vested and exercisable within 60 days of March 31, 1997.
17
<PAGE> 21
(7) Includes options to purchase an aggregate of 26,500 shares which will be
fully vested and exercisable within 60 days of March 31, 1997.
(8) Includes options to purchase an aggregate of 24,000 shares which will be
fully vested and exercisable within 60 days of March 31, 1997.
(9) Includes options to purchase an aggregate of 21,501 shares which will be
fully vested and exercisable within 60 days of March 31, 1997.
(10) Includes options to purchase an aggregate of 10,000 shares which will be
fully vested and exercisable within 60 days of March 31, 1997.
(11) Includes options to purchase an aggregate of 10,000 shares which will be
fully vested and exercisable within 60 days of March 31, 1997.
(12) Includes options to purchase an aggregate of 6,000 shares which will be
fully vested and exercisable within 60 days of March 31, 1997.
(13) Includes options to purchase an aggregate of 1,500 shares which will be
fully vested and exercisable within 60 days of March 31, 1997.
(14) Includes options to purchase an aggregate of 306,259 shares which will be
fully vested and exercisable within 60 days of March 31, 1997.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION IN COMPENSATION
DECISIONS
During 1996, Mr. Smith served on the Compensation Committee of the Board of
Directors. Mr. Smith resigned from the Compensation Committee upon his
appointment as Executive Vice President, Finance and Administration and Chief
Financial Officer and Secretary of the Company in October 1996.
OTHER MATTERS
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
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 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 Wagner filed one
late Form 4.
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, 1997
18
<PAGE> 22
NOVELLUS SYSTEMS, INC.
AMENDED AND RESTATED
1992 STOCK OPTION PLAN
1. Purposes of the Plan. The purposes of this Amended and
Restated 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.
The Plan provides Employees, Consultants and Outside Directors
the opportunity to purchase or acquire shares of Common Stock pursuant to (i)
options which may qualify as "incentive stock options," as defined in Section
422 of the Internal Revenue Code of 1986, as amended (the "Code"), (ii) options
which are not described in Sections 422 of the Code, referred to as
"nonstatutory stock options," (iii) a "restricted stock" agreement or, (iv) a
"stock bonus", at the discretion of the Board and as reflected in the terms of
the applicable written 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
1
<PAGE> 23
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 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.
2
<PAGE> 24
(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.
(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) "Restricted Shares" shall mean shares of Common Stock
subject to restrictions, as defined in paragraph (b) of Section 19 of the Plan.
(t) "Share" shall mean a share of the Common Stock, as
adjusted in accordance with Section 10 of the Plan.
(u) "Stock Bonus" shall mean the award of bonunses of
Common Stock, as defined in paragraph (c) of Section 19 of the Plan.
(v) "Subcommittee" shall mean the special subcommittee of
the Committee described in paragraph (d) of Section 4 of the Plan, if one is
established.
(w) "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 3,340,000 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.
3
<PAGE> 25
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 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 outstanding
Option or stock apreciation right ("SAR") to the then current Fair Market Value
if the Fair Market Value of the Common Stock covered by such Option or SAR
shall have declined since the date the Option was granted. A prospective
reduction shall be submitted as a proposal to the shareholders, and will be
subject to the approval of the majority of the shareholders voting on the
proposal, in person, by proxy, or by written consent. However, the Committee
may, without shareholder approval, cancel an option or SAR and replace it with
an award having a lower option oprice or base price if the vesting period is
restarted to the period designated for new options or SARs; (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.
4
<PAGE> 26
(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, 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.
5
<PAGE> 27
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.
(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
6
<PAGE> 28
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
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.
7
<PAGE> 29
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 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
8
<PAGE> 30
(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 6,000 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.
(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)
9
<PAGE> 31
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 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
10
<PAGE> 32
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 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.
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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.
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.
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(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.
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
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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 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
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to the Committee for the satisfaction of federal, state, and local income and
social security tax withholding obligations.
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<PAGE> 37
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.
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(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.
(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
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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.
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
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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.
(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
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<PAGE> 41
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.
(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
350,000 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.
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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.
(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, dependent 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.
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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 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.
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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:
(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
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<PAGE> 45
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 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.
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THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
NOVELLUS SYSTEMS, INC.
ANNUAL MEETING OF SHAREHOLDERS
MAY 23, 1997
The undersigned hereby appoints Richard S. Hill and Robert H. Smith 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 23, 1997, 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 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, AND 4.
CONTINUED AND TO BE SIGNED ON REVERSE SIDE
<PAGE> 47
PLEASE MARK YOUR CHOICE LIKE PLAN TO ATTEND THE MEETING
THIS [X] IN BLUE OR BLACK INK [ ]
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, 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 2,680,000 shares to 3,340,000 shares.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
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 from 290,000 shares to 350,000 shares.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
4. Proposal to ratify the appointment of Ernst & Young LLP as the independent
auditors for the Company for the fiscal year ending December 31, 1997.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
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.
(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, 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:_________________________, 1997
_______________________________________
Printed Name of Shareholder
_______________________________________
Signature
_______________________________________
Signature
PLEASE MARK, SIGN, DATE AND RETURN THIS PROXY CARD PROMPTLY USING THE ENCLOSED
REPLY ENVELOPE
