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
Filed by the Registrant [x]
Filed by a Party other than the Registrant
Check the appropriate box:
[ ] Preliminary Proxy Statement [ ] Confidential, For Use of the Commission
Only (as permitted by Rule 14a-6(e)(2)
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
CFM TECHNOLOGIES, 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:
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CFM TECHNOLOGIES, INC.
1336 Enterprise Drive
West Chester, PA 19380
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NOTICE OF 1999 ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD MARCH 4, 1999
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TO OUR SHAREHOLDERS:
You are invited to be present either in person or by proxy at the Annual
Meeting of Shareholders of CFM Technologies, Inc. to be held at the Sheraton
Great Valley Hotel, 707 East Lancaster Avenue, Frazer, Pennsylvania 19355, on
Thursday, March 4, 1999 beginning at 10:00 A.M., for the following purposes:
1. To elect five (5) directors;
2. To consider and adopt a proposal to amend the Amended and Restated
1995 Incentive Plan;
3. To consider and adopt a proposal to amend the Amended and Restated
Non-Employee Directors' Stock Option Plan; and
4. To act upon such other matters as may properly come before the
meeting.
The Board of Directors has fixed the close of business on January 26, 1999
as the record date for determining shareholders entitled to notice of and to
vote at the meeting and any adjournments thereof. A list of shareholders
entitled to vote at the meeting will be available for examination by any
shareholder for any purpose germane to the meeting ten days prior to the meeting
during normal business hours at the Company's offices at 1336 Enterprise Drive,
West Chester, PA 19380. Such list of shareholders will also be available for
inspection at the meeting.
The Directors hope that you will find it convenient to attend the meeting
in person, but whether or not you plan to attend, please sign, date and return
the enclosed proxy promptly to ensure your shares are represented at the
meeting. Shareholders who execute proxies retain the right to revoke them (in
writing) at any time prior to the voting thereof. A return envelope, which
requires no postage if mailed in the United States, is enclosed for your
convenience.
By Order of the Board of Directors
Lorin J. Randall
Secretary
West Chester, Pennsylvania
February 4, 1999
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CFM TECHNOLOGIES, INC.
1336 Enterprise Drive
West Chester, PA 19380
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PROXY STATEMENT
FOR 1999 ANNUAL MEETING OF SHAREHOLDERS
To be held March 4, 1999
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This Proxy is furnished to the shareholders of CFM Technologies, Inc., a
Pennsylvania corporation (the "Company"), in connection with the solicitation of
proxies by the Board of Directors for use at the 1999 Annual Meeting of
Shareholders of the Company to be held on March 4, 1999 at 10:00 A.M. and any
adjournment or postponement thereof (the "Meeting"). The Meeting will be held at
the Sheraton Great Valley Hotel, 707 Lancaster Avenue, Frazer, Pennsylvania
19355. A copy of the notice of the Meeting accompanies this Proxy Statement. It
is anticipated that the mailing of this Proxy Statement will commence on or
about February 4, 1999.
If the enclosed proxy is executed and returned, it may nevertheless be
revoked at any time before it is exercised by giving written notice to the
Secretary of the Company, but mere attendance at the Meeting, without such
notice, will not revoke the proxy. Shares represented by a valid proxy which is
received pursuant to this solicitation and not revoked before it is exercised
will be voted as provided on the proxy at the Meeting.
VOTING AT THE MEETING
Only holders of shares of Common Stock of the Company (the "Common Stock")
of record at the close of business on January 26, 1999 will be entitled to vote
at the Meeting. On such date, there were 7,855,166 shares of Common Stock
outstanding. Each share of Common Stock is entitled to one vote on all matters.
The holders of a majority of the shares entitled to vote, present in person
or represented by proxy, constitute a quorum. Except for the election of
directors, for which a plurality is required, the affirmative vote of a majority
of the shares present in person or represented by proxy at the Meeting and
entitled to vote is required to take action with respect to any other matter as
may properly be brought before the Meeting. Shares cannot be voted at the
Meeting unless the holder of record is present in person or by proxy. The shares
of Common Stock represented by each properly executed proxy will be voted at the
Meeting in accordance with each shareholder's directions. Shareholders are urged
to specify their choices by marking the appropriate boxes on the enclosed proxy;
if no choice has been specified, the shares will be voted as recommended by the
Board of Directors. If any other matters are properly presented to the Meeting
for action, the proxy holders will vote the proxies (which confer discretionary
authority to vote on such matters) in accordance with their best judgment.
With regard to the election of directors, votes may be cast in favor or
withheld; votes that are withheld will be excluded entirely from the vote and
will have no effect, other than for purposes of determining the presence of a
quorum.
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Abstentions will be considered present and entitled to vote at the Meeting,
but will not be counted as votes cast in the affirmative. Brokers who hold
shares in street name for customers have the authority to vote on certain items
when they have not received instructions from beneficial owners. Brokers that do
not receive instructions are entitled to vote those shares with respect to the
election of directors. Broker non-votes (shares held by a broker or nominee as
to which the broker or nominee does not have the authority to vote on a
particular matter) are not considered shares present for purposes of determining
the presence of a quorum and will not be voted.
The Company will bear the cost of the Meeting and the cost of soliciting
proxies, including the cost of mailing the proxy materials. In addition to
solicitation by mail, directors, officers and regular employees of the Company
(who will not be specifically compensated for such services) may solicit proxies
in person and by telephone or facsimile. Arrangements have been made for the
Company's transfer agent, American Stock Transfer & Trust Company (and may also
be made with brokerage houses and other custodians, nominees and fiduciaries),
for forwarding proxy materials to the beneficial owners of shares of Common
Stock held of record by such persons, and the Company will reimburse the
transfer agent (and such other entities) for reasonable out-of-pocket expenses
incurred in forwarding such materials.
Your proxy vote is important. Accordingly, the Company asks you to
complete, sign and return the accompanying proxy whether or not you plan to
attend the Meeting. If you plan to attend the Meeting to vote in person and your
shares are registered with the Company's transfer agent in the name of a broker,
bank or other custodian, nominee or fiduciary, you must secure a proxy from such
person assigning you the right to vote your shares.
SECURITY OWNERSHIP
The following table sets forth certain information as of January 26, 1999,
as supplied to the Company, regarding the beneficial ownership of the Common
Stock by all persons known to the Company who own more than 5% of the
outstanding shares of the Company's Common Stock, each director of the Company,
each executive officer named in the Summary Compensation Table under the caption
"Executive Compensation" included elsewhere herein and all executive officers
and directors as a group. Unless otherwise indicated, based upon information
provided to the Company by the directors, executive officers and principal
shareholders, the persons named in the table below have sole voting and
investment power with respect to all shares of Common Stock shown as
beneficially owned by them.
Shares Beneficially Owned (1)
-----------------------------
Name * Number Percent
- ------ ------ -------
Christopher F. McConnell (2) 1,223,594 15.53%
Roger A. Carolin (3) 269,445 3.33
James J. Kim (4) 100,038 **
Burton E. McGillivray (5) 56,697 **
Milton S. Stearns, Jr. (6) 53,243 **
Joseph E. Berger (7) 50,800 **
Lorin J. Randall (8) 57,154 **
Brad S. Mattson (9) 19,400 **
David L. deLesdernier (10) 13,125 **
All directors and executive officers
as a group (9 persons) (11) 1,843,496 22.22%
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* The business address of each shareholder named in this table is CFM
Technologies, Inc., 1336 Enterprise Drive, West Chester, PA 19830.
** Less than 1%.
(1) Based on 7,855,166 shares outstanding.
(2) Includes 38,919 shares owned by Mr. McConnell's wife, 200,000 shares owned
jointly with Mr. McConnell's wife and 40,123 shares held in trust for Mr.
McConnell's children. Mr. McConnell has exercisable options to purchase
22,500 shares.
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(3) Includes 41,159 shares owned by Mr. Carolin's wife and exercisable options
to purchase 226,678 shares.
(4) Includes 60,758 shares owned by ANAM S&T Co., Ltd. ("ANAM"), of which Mr.
Kim is, directly and indirectly, the largest shareholder. Mr. Kim has
exercisable options to purchase 6,000 shares.
(5) Includes 24,948 shares owned jointly with Mr. McGillivray's wife and
exercisable options to purchase 31,749 shares.
(6) Includes 4,000 shares held in a trust of which Mr. Stearns is a trustee and
exercisable options to purchase 18,043 shares.
(7) Includes exercisable options to purchase 50,416 shares.
(8) Includes exercisable options to purchase 54,916 shares.
(9) Consists of exercisable options to purchase 19,400 shares.
(10) Consists of exercisable options to purchase 13,125 shares.
(11) Includes exercisable options to purchase 442,827 shares.
PROPOSAL NO. 1 - ELECTION OF DIRECTORS
The Company's By-laws provide that the Board of Directors will consist of
not fewer than three members, as determined from time to time by resolution of
the Board of Directors. At the meeting, five directors are to be elected by the
holders of Common Stock, with each share of Common Stock being entitled to one
vote.
It is the intention of the persons named in the enclosed proxy, unless
otherwise directed, to vote all proxies in favor of the election to the Board of
Directors of the nominees identified below. Each nominee has consented to being
named in this Proxy Statement and to serve if elected. If any nominee should
become unavailable for any reason, which management does not anticipate, the
proxy will be voted for any substitute nominee selected by management prior to
or at the Meeting, or the Board of Directors may reduce the membership of the
Board of Directors to the number of nominees available.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE ELECTION OF
EACH OF THE NOMINEES FOR DIRECTOR.
Nominees
Set forth in the table below and the following paragraphs are the names and
ages of the nominees, their positions with the Company, their principal
occupations during the past five years and certain other directorships they
hold. All nominees are current members of the Board of Directors.
Name Age Position
- ---- --- --------
Christopher F. McConnell 45 Chairman of the Board of Directors
Roger A. Carolin 43 President, Chief Executive Officer and Director
James J. Kim 63 Director
Brad S. Mattson 44 Director (1)
Milton S. Stearns, Jr 75 Director (2)
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(1) Member of Executive Compensation and Stock Option Committee.
(2) Member of Audit Committee.
Christopher F. McConnell founded the Company in May 1984 and served as
President and Chief Executive Officer until October 1990 when he was named
Chairman of the Board of Directors. Prior to forming the Company, Mr. McConnell
held various technical and marketing positions with Dow Chemical. Mr. McConnell
received his BS and MS degrees in Chemical Engineering from Dartmouth College
and Purdue University, respectively, and his MBA from Harvard Business School.
Mr. McConnell is a named inventor on all of the Company's patents. Mr. McConnell
is Chairman of the Board of Directors of Batteries Batteries, Inc., an assembler
and distributor of specialty batteries and cellular products.
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Roger A. Carolin has served the Company as a director since its inception
in 1984 and as President and Chief Executive Officer since April 1991. From
October 1990 to April 1991, he served as a marketing and sales consultant to the
Company. From June 1984 to October 1990, Mr. Carolin was Senior Vice President
of The Mills Group, Inc., a real estate development firm. Previously, Mr.
Carolin worked for The General Electric Company and Honeywell, Inc. in a variety
of technical positions. Mr. Carolin received his BS in Electrical Engineering
from Duke University and his MBA from Harvard Business School.
James J. Kim has been a director of the Company since December 1991. Mr.
Kim is the founder, Chairman and Chief Executive Officer of AMKOR Technology,
Inc. AMKOR, headquartered in West Chester, Pennsylvania, is a leader in
semiconductor assembly, test, packaging and technology, utilizing the facilities
of Anam Industrial Co., Ltd., of Seoul, and Amkor/Anam Pilipinas, Inc., in
Manila. See "Certain Relationships and Related Transactions."
Brad S. Mattson has been a director of the Company since December 1995. Mr.
Mattson founded Mattson Technology, Inc., a manufacturer of semiconductor
fabrication equipment, and has served as its Chief Executive Officer, President
and a director since its inception in November 1988. Mr. Mattson was the founder
of Novellus, a semiconductor equipment company, and formerly served as its
President, Chief Executive Officer and Chairman. He has also held executive
positions at Applied Materials and LFE Corporation, both semiconductor equipment
companies.
Milton S. Stearns, Jr. has been a director of the Company since December
1994. Since 1972, Mr. Stearns has been President of Charter Financial Company, a
corporate financial consulting company. Mr. Stearns has been a director of five
public and a number of private companies. In addition, from 1976 to 1987, he was
Chairman and Chief Executive Officer of Judson Infrared Inc., a manufacturer of
infrared detectors for military and telecommunications companies. Mr. Stearns
received his BS from Harvard University and his MBA from Harvard Business
School.
All directors hold office until the next annual meeting of shareholders or
until their successors have been elected and qualified. Officers are appointed
by the Board of Directors and serve at the discretion of the Board.
During the fiscal year ended October 31, 1998, the Board of Directors held
a total of four regular meetings and the Executive Compensation and Stock Option
Committee held one regular meeting. The Audit Committee held three meetings in
fiscal 1998. Each director of the Company attended more than 75% of the meetings
of the Board of Directors and of the committees of the Board of Directors on
which such director served.
PROPOSAL NO. 2 - APPROVAL OF AN AMENDMENT TO THE AMENDED
AND RESTATED 1995 INCENTIVE PLAN
The Board of Directors proposes that the shareholders consider and adopt an
amendment to the Company's Amended and Restated 1995 Incentive Plan (the
"Incentive Plan") to increase the number of shares of Common Stock available
thereunder from 1,000,000 to 1,750,000 shares. The Incentive Plan, which was
adopted by the Board of Directors on December 19, 1995 and approved by the
Company's shareholders on January 3, 1996, authorizes the Company to grant
"incentive stock options" under Section 422 of the Internal Revenue Code of
1986, as amended (the "Code"), non-qualified stock options and awards of
restricted stock, covering up to an aggregate of 400,000 shares of Common Stock.
On March 11, 1997, the Company's shareholders approved an increase in the number
of shares available under the Incentive Plan to 1,000,000. The purpose of the
Incentive Plan is to enable the Company to offer employees and consultants who
render services to the Company and its subsidiaries, options to acquire equity
interests in the Company and other incentive awards, thereby attracting,
retaining and rewarding such persons, and strengthening the mutuality of
interests between such persons and the Company's shareholders.
As of January 26, 1999, options to purchase an aggregate of 875,219 shares
under the Incentive Plan were outstanding. The proposed increase in the number
of shares issuable pursuant to the Incentive Plan was approved by the Board of
Directors on December 2, 1998, subject to shareholder approval. If the proposed
amendment is approved by the shareholders, an aggregate of 857,597 shares will
be available for future grants under the Incentive Plan. The text of the
proposed amendment is set forth in Appendix A to this Proxy Statement.
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Administration
The Incentive Plan is administered and interpreted by the Executive
Compensation and Stock Option Committee of the Board of Directors (the
"Committee").
The Committee has the authority to (i) adopt, alter and repeal such
administrative rules, guidelines and practices as it deems advisable for the
administration of the Incentive Plan; (ii) interpret the terms and provisions of
the Incentive Plan and any award granted thereunder; and (iii) otherwise
supervise the administration of the Incentive Plan. In addition, the Committee
may correct any defect, supply any omission or reconcile any inconsistency in
the Incentive Plan or in any award granted in the manner and to the extent it
shall deem necessary to carry the Incentive Plan into effect. In the event of
any disagreement as to the interpretation of the Incentive Plan or any rule or
procedure thereunder, the decision of the Committee will be final and binding
upon all persons in interest.
Eligible Participants
All officers and other employees of the Company and its subsidiaries are
eligible to be granted incentive stock options, non-qualified stock options and
restricted stock under the Incentive Plan. Any director who is also an employee
of the Company or a subsidiary is also eligible to receive stock options and
restricted stock under the Incentive Plan. Consultants to the Company and its
subsidiaries are only eligible to receive non-qualified stock options under the
Incentive Plan. As of January 26, 1999, approximately 270 persons were eligible
to participate in the Incentive Plan.
Number of Shares Subject to the Incentive Plan
The maximum number of Shares that may be issued under the Incentive Plan is
currently 1,000,000. No participant may be granted awards of stock options
representing more than 50,000 shares during any calendar year. The shares may be
either authorized and unissued shares or issued shares reacquired by the
Company. The aggregate number of shares issuable under the Incentive Plan and
the number of shares subject to awards made under the Incentive Plan are subject
to adjustment in the event of a merger, reorganization, consolidation,
recapitalization, dividend (other than a regular cash dividend), stock split, or
other change in corporate structure affecting the shares.
If any stock option granted under the Incentive Plan expires, terminates or
is canceled for any reason without having been exercised in full, the number of
unpurchased shares will again be available for the purposes of the Incentive
Plan. Further, if any shares of restricted stock are forfeited, the shares
subject to such forfeiture shall again be available under the Incentive Plan.
Types of Awards Under the Incentive Plan
Stock Options
The terms of stock options granted under the Incentive Plan are determined
by the Committee. The Committee determines the eligible recipients, option
price, the expiration date of the option (provided that no option is exercisable
more than ten years after the date the option is granted), the number of shares
to which the option pertains, any conditions relating to the exercise of the
option and such other terms and conditions as the Committee, in its sole
discretion, shall determine. The Committee will also specify whether the option
is intended to be an incentive stock option ("ISO") eligible for preferential
tax treatment under Section 422 of the Code or a non-qualified stock option.
The option price for ISOs may not be less than the fair market value of the
Company's Common Stock on the date of grant. The option price for non-qualified
stock options is determined by the Committee at the time of grant. The option
exercise price may be paid (i) in cash, (ii) to the extent determined by the
Committee, in the form of shares of Common Stock duly owned by the participant
(and for which the participant has good title free and clear of any liens and
encumbrances), based on the fair market value of the shares of Common Stock on
the last trading date preceding payment or (iii) by a combination of cash and
shares of Common Stock. A participant is not deemed to be the holder of shares
of Common Stock, or to have the rights of a holder of Common Stock, with respect
to Common Stock subject to an option, unless and until a stock certificate
representing the shares subject to an option is issued to the participant.
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Unless otherwise determined by the Committee, if a participant's employment
with, or services as a director of or consultant to, the Company and all of its
subsidiaries terminates by reason of retirement, any stock option held by the
participant which was exercisable on the date of such termination may be
exercised by the participant within the earlier of a period of one year from the
date of such termination or until the expiration of the stated term of such
stock option.
Unless otherwise determined by the Committee, in the event that a
participant's employment with, or services as a director of or consultant to,
the Company and all its subsidiaries terminates by reason of the death of the
participant, any stock option held by such participant exercisable as of the
date of death may be exercised by the legal representative of the participant's
estate. Such stock option shall be exercisable until the earlier of one year
after the date of death or the expiration of the term of such stock option.
Stock options not exercisable on the date of death shall be forfeited.
Unless otherwise determined by the Committee, in the event that a
participant's employment with, or services as a director of or consultant to,
the Company and all its subsidiaries terminates by reason of the disability of
the participant, any stock option held by the participant shall become
immediately fully exercisable and may thereafter be exercised until the earlier
of one year after the date of such termination or until the expiration of such
stock option. If the participant dies during the one year period, any
unexercised stock options held by the participant may thereafter be exercised by
the legal representative of the participant's estate until the earlier of one
year after the date of death or until the expiration of the term of such stock
option. If an incentive stock option is exercised after the expiration of the
exercise period that applies for purposes of Section 422 of the Code, such stock
option will be treated as a non-qualified stock option.
Unless otherwise determined by the Committee, if a participant's employment
with, or services as a director of or consultant to, the Company and all of its
subsidiaries terminates for any reason other than retirement, death or
disability, any stock option which was exercisable on the date of such
termination may be exercised within a period of 90 days from the date of
termination or until the expiration of the stated term of such option, whichever
period is shorter.
In the event of a Change of Control (as defined below), all outstanding
stock options will immediately become fully exercisable, and upon payment by the
participant of the option exercise price, and, if requested by the Company, a
representation in writing that the participant is acquiring the shares without a
view to distribution thereof, a stock certificate representing the shares
covered thereby will be issued and delivered to the participant. A "Change of
Control" means the occurrence of any of the following events: (i) the Company
enters into an agreement of reorganization, merger or consolidation, pursuant to
which the Company or any of its subsidiaries is not the surviving corporation,
(ii) the Company sells substantially all of its assets to a purchaser other than
a subsidiary or (iii) shares of stock of the Company representing in excess of
30% of the total combined voting power of all outstanding classes of stock of
the Company are acquired, in one transaction or a series of transactions, by a
single purchaser or group of related purchasers.
Restricted Stock
Awards of restricted stock are shares granted to a participant which,
except as set forth below, will be forfeited to the Company if the participant
ceases to be an employee of the Company or any of its subsidiaries during a
restriction period specified by the Committee, not to exceed five years from the
date of grant of such award (the "Restriction Period"). The Committee will
determine the eligible employees to whom, and the time or times at which, grants
of restricted stock will be made, the number of shares to be awarded, the time
or times within which such awards may be subject to forfeiture, the vesting
schedule and rights to acceleration thereof, and the other terms and conditions
of the awards. The provisions of the awards need not be the same with respect to
each participant, and awards to individual participants need not be the same in
subsequent years. Subject to the provisions of the Incentive Plan, the Committee
may provide for the lapse of restrictions in installments and may waive such
restrictions, in whole or in part, at any time after the date of the award,
based on such factors as the Committee deems appropriate in its sole discretion.
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When the restrictions applicable to a restricted stock award, or any
portion thereof, lapse, a stock certificate representing the number of shares
covered by the award, or portion thereof, will be issued and registered in the
name of and delivered to the participant. A participant will not be deemed the
holder of shares, or to have the rights of a holder of shares, with respect to
shares subject to the restricted stock award, unless and until the forfeiture
restrictions lapse and a stock certificate representing such shares is issued to
such participant.
If a participant's employment with the Company and its subsidiaries is
terminated during the Restriction Period due to death or disability,
restrictions will lapse with respect to a percentage of the restricted stock
award granted to the participant that is equal to the percentage of the
Restriction Period that has elapsed as of the date of death or the date on which
such disability commenced (as determined by the Committee in its sole
discretion), and a stock certificate representing such shares will be issued and
delivered to the participant. All other awards of restricted stock will be
forfeited to the Company.
Upon a Change of Control, all shares of restricted stock remaining subject
to forfeiture will immediately cease to be subject to forfeiture and stock
certificates representing such shares will be issued and delivered to the
participants.
Federal Tax Consequences
The federal income tax discussion set forth below is intended for general
information only. State and local income tax consequences are not discussed and
may vary from locality to locality.
Non-Qualified Stock Options. A participant will not be deemed to receive
any income at the time a non-qualified stock option is granted, nor will the
Company be entitled to a deduction at that time. However, when any part of a
non-qualified stock option is exercised, the participant will be deemed to have
received compensation taxable as ordinary income in an amount equal to the
difference between the option exercise price of the non-qualified stock option
and the fair market value of the shares received upon the exercise of the
non-qualified stock option. Where a non-qualified stock option is exercised by a
director or executive officer within six months of the date of its grant, the
recognition of income in respect of such exercise will ordinarily be delayed
until such shares may be resold without incurring liability under Section 16(b)
of the Securities Exchange Act of 1934, as amended (the "Exchange Act")
(generally six months after the date of grant of the non-qualified stock
option), and in such case the amount of such ordinary income will be determined
as of the date of recognition based upon the fair market value of the shares on
that date. If, however, a participant subject to Section 16(b) of the Exchange
Act files an appropriate election under Section 83(b) of the Code with the
Internal Revenue Service within thirty days of his or her exercise of a
non-qualified stock option that had been granted within the six-month period
ending on the date of such exercise, such participant will be deemed to have
received compensation taxable as ordinary income in an amount equal to the
difference between the exercise price and the fair market value, on the date of
exercise, of the shares received upon such exercise. The Company will (subject
to any applicable Code limitation) be entitled to a tax deduction in an amount
equal to the amount of compensation taxable as ordinary income when such income
is recognized by the participant.
Upon any subsequent sale of the shares acquired upon the exercise of a
non-qualified stock option, any gain (the excess of the amount received over the
fair market value of the shares on the date ordinary income was recognized) or
loss (the excess of the fair market value of the shares on the date ordinary
income was recognized over the amount received) will be a long-term capital gain
or loss if the sale occurs more than one year after the date of exercise (or, if
later, the date when income was recognized by the optionee) and otherwise will
be a short-term capital gain or loss.
If all or any part of the exercise price of a non-qualified stock option is
paid by the participant with shares of Common Stock (including shares previously
acquired upon exercise of an incentive stock option), no gain or loss will be
recognized on the shares surrendered in payment. The number of shares received
on such exercise of the non-qualified stock option equal to the number of shares
surrendered will have the same basis and holding period, for purposes of
determining whether subsequent dispositions result in long-term or short-term
capital gain or loss, as the basis and holding period of the shares surrendered.
The balance of the shares received on such exercise will be treated for federal
income tax purposes as described in the preceding paragraphs as though issued
upon the exercise of the non-qualified stock option for an option exercise price
equal to the consideration, if any, paid by the participant in cash. The
participant's compensation, which is taxable as ordinary income upon such
exercise, and the Company's deduction will not be affected by whether the
exercise price is paid in cash or in shares.
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Incentive Stock Options. A participant will not be deemed to receive any
income at the time an incentive stock option is granted or exercised pursuant to
the Incentive Plan. (However, special rules apply to participants who are
subject to the alternative minimum tax.) If a participant does not dispose of
the shares acquired upon exercise of an incentive stock option within two years
after the grant of the incentive stock option and one year after the exercise of
the incentive stock option, the gain (if any) on a subsequent sale (the excess
of the amount received over the exercise price) or loss (if any) on a subsequent
sale (the excess of the exercise price over the amount received) will be a
long-term capital gain or loss.
If the participant disposes of the shares acquired upon exercise of an
incentive stock option within two years after the date of grant of the incentive
stock option or within one year after the exercise of the incentive stock
option, the disposition is a "disqualifying disposition," and the participant
will generally recognize income in the year of the "disqualifying disposition"
equal to the excess of the amount received for the shares over the exercise
price. Of that income, the portion equal to the excess of the fair market value
of the shares at the time the incentive stock option was exercised over the
option exercise price will be treated as compensation taxable as ordinary income
(for which the Company will be entitled to a tax deduction in the year of the
"disqualifying disposition") and the balance, if any, will be long-term or
short-term capital gain depending on whether the shares were sold more than one
year after the incentive stock option was exercised. However, in the case of a
"disqualifying disposition" that is a sale or exchange (other than a sale or
exchange with certain persons related to the participant), the amount of
compensation income recognized by the participant cannot exceed the excess of
the amount received over the option exercise price, even where the amount
received is less than the fair market value of the shares at the time the
incentive stock option was exercised. If a participant uses shares acquired upon
the exercise of an incentive stock option to exercise an incentive stock option
at a time when the sale of such shares would constitute a "disqualifying
disposition," the participant will recognize ordinary income in the amount
described in the preceding two sentences.
Restricted Stock. Because restricted stock awarded under the Incentive Plan
is subject to forfeiture, receipt of the award should not be a taxable event to
the participant for federal income tax purposes. Rather, the participant will
generally be deemed to receive compensation taxable as ordinary income, and the
Company will be entitled to an equivalent deduction (subject to any applicable
Code limitation), on the date the forfeiture provisions lapse or are waived, in
an amount equal to the fair market value of the shares on such date, unless the
participant files an appropriate election under Section 83(b) of the Code to be
taxed at the time of the award (in which event no deduction will be allowed to
the participant in the event of a forfeiture). The participant's income and the
Company's deduction is equal to the fair market value of the shares on the date
of lapse or waiver of such restrictions (or on the date of the award if the
Section 83(b) election is made).
Withholding
The Company has the right to reduce the number of shares otherwise
deliverable under the Incentive Plan by an amount that would have a fair market
value on such date equal to the amount of all federal, state and local taxes
required to be withheld by the Company, or to deduct the amount of such taxes
from any cash payment otherwise to be made to the participant. In connection
with such withholding, the Committee may make such arrangements as are
consistent with the Incentive Plan as it deems appropriate.
Plan Benefits
From November 1, 1997 through the date of this Proxy Statement, 484,870
shares were awarded under the Incentive Plan. The Committee has discretion with
respect to the recipients and terms of grants of stock options and restricted
stock in accordance with the terms of the Incentive Plan. Information with
respect to option grants in the last fiscal year under the Incentive Plan is set
forth below.
8
<PAGE>
PLAN BENEFITS - FISCAL 1998
Securities Underlying
Options Granted in
Name and Position Fiscal 1998
- ----------------- -----------
Roger A. Carolin 25,000
President and Chief Executive Officer
Christopher F. McConnell 10,000
Chairman of the Board of Directors
Lorin J. Randall 12,000
Vice President Finance, Chief Financial Officer,
Secretary and Treasurer
Joseph E. Berger 7,000
Vice President Worldwide Sales and Marketing
David deLesdernier (1) 7,500
Vice President Engineering
Executive Group 61,500
Non-Executive Director Group --
Non-Executive Officer Employee Group 246,267
- ----------
(1) These options were canceled upon the termination of Mr. DeLesdernier's
employment in September 1998.
THE BOARD OF DIRECTORS DEEMS PROPOSAL NO. 2 TO BE IN THE
BEST INTERESTS OF THE COMPANY AND ITS SHAREHOLDERS AND
RECOMMENDS A VOTE "FOR" APPROVAL THEREOF.
PROPOSAL NO. 3 - APPROVAL OF AN AMENDMENT TO THE AMENDED AND
RESTATED NON-EMPLOYEE DIRECTORS' STOCK OPTION PLAN
The Board of Directors proposes that the shareholders consider and adopt
amendments to the Company's Amended and Restated Non-Employee Directors' Stock
Option Plan (the "Directors' Plan") to provide for the issuance of options to
purchase Common Stock as partial consideration for a director's service on the
Board of Directors, with the value of such options determined as provided in the
proposed amendment. The proposed amendments also modify the terms of the options
to be granted under the Directors' Plan. The Directors' Plan was adopted by the
Company's Board of Directors on December 19, 1995, approved by the Company's
shareholders on January 3, 1996 and amended by the Company's shareholders on
March 11, 1997. The purpose of the Directors' Plan is to enable the Company to
attract and retain non-employee members of the Company's Board of Directors and
to further promote the mutuality of interests between such directors and the
Company's shareholders.
The proposed amendments to the Directors' Plan to provide for a change in
the method of determining an annual grant of options to purchase Common Stock of
the Company were approved by the Board of Directors and the Executive
Compensation and Stock Option Committee on December 2, 1998, subject to
shareholder approval. The text of the proposed amendments is set forth in
Appendix B to this Proxy Statement.
Administration
The Board of Directors has the authority, subject to certain limitations,
to adopt, alter, and repeal administrative rules, guidelines, and practices
governing the Directors' Plan as it, from time to time, deems advisable. The
Board of Directors is also responsible for interpreting the terms and provisions
of the Directors' Plan and any stock options granted under the Directors' Plan
(and any agreements relating thereto), and for otherwise supervising the
administration of the Directors' Plan. The Board of Directors may correct any
defect, supply any omission or reconcile any inconsistency in the Directors'
Plan or in any stock options in the manner and to the extent it shall deem
necessary to carry the Directors' Plan into effect. Notwithstanding the
foregoing, no action of the Board of Directors in performing its duties above
shall impair the rights of any Directors' Plan participant without his or her
consent, unless otherwise required by law.
9
<PAGE>
Eligible Participants
Any member of the Board of Directors who is not an officer or an employee
of the Company or any of the Company's subsidiaries is eligible to participate
in the Directors' Plan (each, an "Eligible Participant"). As of January 26,
1999, four persons were eligible to participate in the Directors' Plan.
Number of Shares Subject to the Directors' Plan
The maximum number of shares of Common Stock that may be issued under the
Directors' Plan is 150,000. The shares of Common Stock may be either authorized
and unissued shares or issued shares reacquired by the Company. The aggregate
number of shares of Common Stock issuable under the Directors' Plan and the
number of shares subject to awards made under the Directors' Plan are subject to
adjustment in the event of a merger, reorganization, consolidation,
recapitalization, dividend (other than a regular cash dividend), stock split, or
other change in corporate structure affecting the shares of Common Stock.
If any option granted under the Directors' Plan expires, terminates or is
canceled for any reason without having been exercised in full, the number of
unpurchased shares will again be available for the purposes of the Directors'
Plan.
Option Grants
If the proposed amendments to the Directors' Plan are adopted, on the date
of each annual meeting of the Company's shareholders, the Board of Directors
will grant stock options to eligible participants to purchase the number of
shares of Common Stock as shall then have a fair value, as reasonably determined
utilizing a valuation method in accordance with generally accepted accounting
principles (the "Option Value"), of $20,000 for such eligible participant's
prior year of service on the Board of Directors, prorated for a partial year of
service. Any new member of the Board of Directors who is elected to fill a
vacancy on the Board of Directors and who is eligible to participate in the
Directors' Plan on the date of such election will automatically be granted, as
of the date of the annual meeting of shareholders following such election,
additional options to purchase shares of Common Stock with an Option Value of
$20,000. The exercise price of the options shall be $5.00 per share, and all
such options become exercisable immediately upon grant. The term of each option
shall be ten years from the date of grant.
Payment of the option price may be made (i) in cash or by check payable to
the Company, (ii) to the extent determined by the Board of Directors on or after
the date of grant, in shares of Common Stock duly owned by the grantee, or (iii)
by a reduction in the number of shares of Common Stock issuable upon such
exercise, based, in each case, on the fair market value of the Common Stock on
the last trading date preceding the date of exercise. Upon payment in full of
the option price and satisfaction of the other conditions provided therein, a
stock certificate representing the number of shares of Common Stock to which the
grantee is entitled shall be issued and delivered to the grantee.
Unless otherwise determined by the Board of Directors on or after the date
of grant, if a grantee ceases to be a member of the Board of Directors for any
reason other than death or disability, any option held by such grantee may be
exercised until the expiration of the option term of such option.
Unless otherwise determined by the Board of Directors on or after the date
of grant, if a grantee ceases to be a member of the Board of Directors by reason
of death, any option held by such grantee at the date of death may thereafter be
exercised by the legal representative of the grantee's estate until the
expiration of the option term of such option.
Unless otherwise determined by the Board of Directors on or after the date
of grant, if a grantee ceases to be a member of the Board of Directors by reason
of a disability that prevents him or her from performing the duties of a
director, any option held by such grantee may thereafter be exercised by the
grantee or, in the event of the death of the grantee, by the legal
representative of the grantee's estate, until the expiration of the option term
of such option.
10
<PAGE>
Federal Tax Consequences
The following discussion generally describes the possible federal income
tax consequences of participating in the Directors' Plan. The description is
based upon the Code as it has been interpreted to the date hereof and therefore
may not be a sufficient description of the tax consequences if there were a
change in the Code as it is written or interpreted. Different rules than those
summarized below may apply to grantees subject to Section 16 of the Exchange Act
and to grantees who exercise their options using previously-owned Common Stock.
Because the tax consequences may vary with each grantee, grantees are advised to
consult with their own tax advisors. No attempt has been made herein to describe
the state and local tax consequences of participating in the Directors' Plan,
which may differ significantly from the federal income tax consequences of such
participation.
Grantees of options are subject to tax liability at the time the options
are exercised, not at the time the options are granted to them. Generally, for
non-qualified options, such as the options granted under the Directors' Plan, a
grantee's tax liability is based on the amount by which the fair market value of
the Common Stock underlying the option, calculated on the day the option is
exercised, exceeds the option exercise price. The Company will receive a
corresponding deduction (subject to any applicable Code limitations). When the
grantee subsequently disposes of the Common Stock, the grantee will realize
capital gain or loss, based on the difference between the disposition price and
the fair market value of the Common Stock at the time the option was exercised.
Estimated Benefits
From November 1, 1997 through the date of this Proxy Statement, 12,800
shares were awarded under the Directors' Plan. As proposed to be amended, the
Directors' Plan provides for annual grants of options with a fixed value to the
Company's non-employee directors in connection with their service on the Board
of Directors. Set forth below is information with respect to options which would
have been granted during the 1998 fiscal year, if the proposed amendments to the
Directors' Plan had been in effect. No grants will be made under the Directors'
Plan to the Named Executive Officers or any other employees of the Company.
ESTIMATED BENEFITS
Non-Executive Director Group 5,112 shares
THE BOARD OF DIRECTORS DEEMS PROPOSAL NO. 3 TO BE IN THE
BEST INTERESTS OF THE COMPANY AND ITS SHAREHOLDERS AND
RECOMMENDS A VOTE "FOR" APPROVAL THEREOF.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
In October 1994, the Company sold 332,633 shares of Common Stock of the
Company to ANAM, a company controlled by Mr. James J. Kim, a director and
shareholder of the Company, for $6.02 per share. The Company believes that the
terms of the sale of these shares of Common Stock to ANAM were no less favorable
than could have been obtained from other large investors.
Anam Semiconductor Design Co., Ltd. ("Anam Semiconductor"), a company
partly owned by ANAM, acts as the Company's sales agent in Korea. The Company
recorded commission expense in fiscal 1998, 1997 and 1996 of $391,000,
$3,948,000 and $2,444,000, respectively, which related to commissions payable to
Anam Semiconductor. Commissions payable to Anam Semiconductor, included in
accrued expenses as of October 31, 1998 and 1997 were $1,437,000 and $2,586,000,
respectively. The terms of the commissions to Anam Semiconductor were no less
favorable than would have been obtained from unrelated third parties. The
Company also recorded net sales of $4,891,000 and $6,760,000 in fiscal 1998 and
1997, respectively, to Anam Semiconductor Company, a company of which Mr. Kim, a
director of the Company, is Chairman of the Board of Directors. The Company
believes that terms of the sales to Anam Semiconductor Company were no more
favorable than would have been granted to unrelated third parties.
11
<PAGE>
COMPLIANCE WITH SECTION 16(a) OF THE SECURITIES EXCHANGE ACT OF 1934
Section 16(a) of the Securities Exchange Act of 1934, as amended, requires
the Company's directors and executive officers and persons who own more than ten
percent of its Common Stock to file with the Securities and Exchange Commission
and The Nasdaq Stock Market initial reports of ownership and reports of changes
in ownership of Common Stock and other equity securities of the Company.
To the Company's knowledge, based solely on a review of the copies of such
reports furnished to it and written representations that no other reports were
required during or with respect to the fiscal year ended October 31, 1998, the
Company's officers, directors and greater than ten percent shareholders complied
with all applicable Section 16(a) filing requirements.
EXECUTIVE COMPENSATION
The following table sets forth the total compensation for the Company's
Chief Executive Officer and the four other most highly compensated executive
officers of the Company (collectively, the "Named Executive Officers") for
services in all capacities to the Company or its subsidiaries for the fiscal
year ended October 31, 1998 and the total compensation earned by such
individuals for the Company's prior two fiscal years.
<TABLE>
<CAPTION>
Summary Compensation Table
Long-Term
Compensation Awards
-------------------
Annual Compensation Securities All Other
Name and Fiscal ------------------------ Underlying Compensation
Principal Position Year Salary ($) Bonus ($) Options (#) ($)(1)
- ------------------ ---- ---------- --------- ----------- ------
<S> <C> <C> <C> <C> <C>
Roger A. Carolin 1998 $196,000 $ -- 25,000 $ 5,302
President and 1997 175,000 34,500 63,300 5,476
Chief Executive Officer 1996 150,000 60,000 -- 6,653
Christopher F. McConnell 1998 106,000 -- 10,000 4,186
Chairman of the Board of 1997 150,000 40,250 40,000 6,786
Directors 1996 140,000 50,000 -- 8,066
Lorin J. Randall 1998 146,000 -- 12,000 5,220
Vice President Finance, 1997 145,000 33,500 45,800 5,662
Chief Financial Officer, 1996 125,000 30,000 -- 5,426
Secretary and Treasurer
Joseph E. Berger 1998 116,000 -- 7,000 4,168
Vice President 1997 120,000 25,000 21,000 5,040
Worldwide Sales and Marketing 1996 90,000 25,000 -- 3,691
David L. deLesdernier 1998 106,000 -- 7,500 185
Vice President 1997 110,000 10,500 -- 798
Engineering (2) 1996 32,082 -- 30,000 116
</TABLE>
- ----------
(1) Compensation reported represents (a) the Company's matching contribution to
the Company's 401(k) Plan paid in fiscal 1997 for the 1996 fiscal year,
paid in fiscal 1998 for the 1997 fiscal year and paid in fiscal 1999 for
the 1998 fiscal year and (b) the dollar value of premiums paid by the
Company on life
12
<PAGE>
insurance policies regularly furnished to all employees. The amounts
reported above for fiscal year 1998 are comprised of:
401(k) Life
Company Match Insurance
------------- ---------
Roger A. Carolin $5,000 $ 302
Christopher F. McConnell 4,033 154
Lorin J. Randall 4,362 859
Joseph E. Berger 4,037 132
David L. deLesdernier -- 185
(2) Mr. deLesdernier joined the Company in September 1996 and served as Vice
President Engineering until September 1998 when he terminated employment
with the Company.
Compensation Committee Interlocks
The Executive Compensation and Stock Option Committee of the Company's
Board of Directors was formed in November 1991. During fiscal 1998 and until the
1999 Annual Meeting of Shareholders, the members of this committee were Messrs.
Mattson and Burton E. McGillivray. Neither of these individuals was at any time
during the fiscal year ended October 31, 1998, or at any other time an officer
or employee of the Company. No executive officer of the Company serves as a
member of the board of directors or compensation committee of any entity which
has one or more executive officers serving as a member of the Company's Board of
Directors or Executive Compensation and Stock Option Committee.
Option Grants in the Last Fiscal Year
The following table sets forth each grant of stock options made during the
fiscal year ended October 31, 1998 to each of the Named Executive Officers:
<TABLE>
<CAPTION>
Individual Grants
------------------------------------------------------ Potential Realizable Value
Number of % of Total at Assumed Annual Rates
Securities Options of Stock Price Appreciation
Underlying Granted to Exercise for Option Term (2)
Options Employees in Price Expiration ----------------------
Name Granted (#)(1) Fiscal Year ($/Share) Date 5% ($) 10% ($)
- ---- -------------- ----------- --------- ---- ------ -------
<S> <C> <C> <C> <C> <C> <C>
Roger A. Carolin 25,000 8.1% $14.313 12/11/07 $225,034 $570,281
Christopher F. McConnell 6,351 2.1 15.745 12/11/02 48,068 135,771
3,649 1.2 14.313 12/11/07 32,843 83,233
Lorin J. Randall 12,000 3.9 14.313 12/11/07 108,016 273,735
Joseph E. Berger 7,000 2.3 14.313 12/11/07 63,010 159,679
David L. deLesdernier (3) 7,500 2.4 14.313 12/11/07 67,510 171,084
</TABLE>
- ----------
(1) These options all vest on October 31, 2001.
(2) The potential realizable value is based on the term of the option at the
time of the grant (ten years). Potential gains are net of the exercise
price but before taxes associated with the exercise. Amounts represent
hypothetical gains that could be achieved for the respective options if
exercised at the end of the relevant option term. The assumed 5% and 10%
rates of stock appreciation are based on appreciation from the exercise
price per share established at the relevant grant date. These rates are
provided in accordance with the rules of the Securities and Exchange
Commission and do not represent the Company's estimate or projection of the
future Common Stock price. Actual gains, if any, on stock options exercised
are dependent on the future financial performance of the Company, overall
market conditions and the option holders' continued employment through the
vesting period. This table does not take into account any appreciation in
the price of Common Stock from the date of grant to the date of this Proxy
Statement, other than the columns reflecting assumed rates of appreciation
of 5% and 10%.
(3) These options were canceled upon the termination of Mr. DeLesdernier's
employment in September 1998.
13
<PAGE>
Fiscal Year-End Stock Option Values
The following table sets forth information with respect to the number of
shares covered by exercisable and unexercisable options held by the Named
Executive Officers on October 31, 1998 and the value of such unexercised options
on October 31, 1998. No stock options were exercised by any of the Named
Executive Officers during the 1998 fiscal year.
Fiscal Year-End Stock Option Values
<TABLE>
<CAPTION>
Number of Securities Value of Unexercised
Underlying Unexercised In-the-Money Options
Options at Fiscal Year End (#) at Fiscal Year End ($) (1)
------------------------------ --------------------------
Exercisable Unexercisable Exercisable Unexercisable
----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Roger A. Carolin 191,178 62,050 $1,087,700 $ --
Christopher F. McConnell 17,500 32,500 -- --
Lorin J. Randall 39,922 52,794 48,114 3,701
Joseph E. Berger 43,916 20,500 240,164 --
David L. deLesdernier 13,125 -- -- --
</TABLE>
- ----------
(1) Options are in-the-money if the market value of the shares covered thereby
is greater than the options' exercise price. Calculated based on the fair
market value at fiscal year end of $9.00 per share, less the exercise
price.
Compensation of Directors
The Company reimburses directors for expenses incurred in connection with
attendance at meetings of the Board of Directors and committees. Each
non-employee director will receive (subject to shareholder approval of Proposal
No. 3 contained in this Proxy Statement) an option grant to purchase a number of
shares of Common Stock of the Company with a fair value, as reasonably
determined utilizing a valuation method in accordance with generally accepted
accounting principles, of $20,000 for each year or partial year of service (on a
prorated basis) on the date of the Company's Annual Meeting of Shareholders
following such year of service. Newly elected non-employee directors will
receive (subject to shareholder approval of Proposal No. 3 contained in this
Proxy Statement) an additional option grant to purchase a number of shares of
Common Stock of the Company with a fair value, as reasonably determined
utilizing a valuation method in accordance with generally accepted accounting
principles, of $20,000 on the date of the Company's Annual Meeting of
Shareholders following such election. In addition, each non-employee director
receives fees of $1,000 for attendance at regularly scheduled meetings of the
Board of Directors, $500 for attendance at committee meetings and $250 for
attendance at telephonic meetings.
In March 1996, Mr. Mattson received a grant of options to purchase up to
10,000 shares of Common Stock at an exercise price of $7.52 per share pursuant
to the Directors' Plan. Two-thirds of these options have vested and the
remaining one-third vests in March 1999 on the anniversary of the grant.
In March 1997, the Board of Directors granted to Mr. Mattson ten-year
options to purchase up to 1,000 shares of Common Stock at an exercise price of
$34.31 per share, of which 500 shares became exercisable on March 11, 1998 and
the remaining 500 shares will be exercisable on or after March 11, 1999. These
options were granted as compensation for Mr. Mattson's service as a consultant
to the Company during the term of the options.
In the future, the Company may compensate directors for their service as
directors through cash compensation, stock options or stock grants, or a
combination thereof.
14
<PAGE>
Employment Contracts
The Company has entered into a written employment agreement with Lorin J.
Randall, its Vice President Finance and Chief Financial Officer. The agreement
continues until terminated pursuant to its terms. In the event the Company
terminates the agreement without "cause" (as defined in the agreement), Mr.
Randall will be entitled to continue to receive his then-current base salary for
six months following such termination, or until the date he commences permanent,
full-time employment elsewhere, whichever first occurs.
Except as set forth above, the Company does not have employment agreements
with any of its executive officers.
Report of Executive Compensation and Stock Option Committee on Annual
Compensation
The Executive Compensation and Stock Option Committee of the Board of
Directors (the "Committee") is comprised entirely of the undersigned
independent, outside directors. The Committee meets at least once each year to
act on specific recommendations by management for the grant of stock options and
to review the overall compensation philosophy, policies and practices of the
Company with regard to all employees. The Committee also reviews policies upon
which compensation decisions are based, and, where required, recommends to the
Board of Directors for approval the philosophy and policies established by the
Committee.
The Company's overall philosophy on compensation, as adopted by the
Committee, is to provide competitive compensation capable of attracting talented
employees. Other than eligibility for certain levels of stock options and
incentive awards, there are no perquisites, pay or benefit programs offered to
executive officers which are not offered to all employees. An incentive awards
plan is generally proposed annually by management for senior executives and
reviewed and recommended, in aggregate, by the Committee. These awards are based
upon a combination of individual and Company performance against predetermined
objectives, each of which is tested against the goal of the creation of
shareholder value.
The components of overall compensation for each position are set by, among
other things, comparison with the pay practices of comparable companies. The
Company, on a discretionary basis, matches contributions to the Company's 401(k)
plan at the rate of 50 percent of eligible employee contributions.
A portion of the Committee's meetings each year takes place without the
Chief Executive Officer's presence to discuss the performance and compensation
of the Chief Executive Officer. Objectives used in determining such performance
are based upon milestones related to the achievement of growth, profits,
financing, and technology development goals. Further, while difficult to
measure, the Committee believes that the demonstration of vision and unrelenting
commitment are critical measures of the performance of the Chief Executive
Officer. Cash compensation and stock option awards made to the Chief Executive
Officer during the fiscal year ended October 31, 1998 were made in accordance
with these principles.
Burton E. McGillivray, Committee Chairman
Brad S. Mattson, Committee Member
15
<PAGE>
COMPARATIVE PERFORMANCE GRAPH
The graph below compares the cumulative total shareholder return on the
Common Stock with the cumulative total stockholder return of (i) The Nasdaq
Stock Market (U.S.) Index (the "Nasdaq Index"), and (ii) a peer group consisting
of the Hambrecht & Quist Semiconductor Index which represents companies in the
semiconductor industry (the "Peer Group"), assuming an investment of $100 on
June 18, 1996 in each of the Common Stock of the Company, the Nasdaq Index
stocks and the Peer Group stocks. The graph assumes dividend reinvestment and,
with respect to companies in the Peer Group, the returns of each company have
been weighted at each measurement point to reflect relative stock market
capitalization. The graph commences as of June 18, 1996, the date the Common
Stock became publicly traded.
CUMULATIVE OF 28 MONTH CUMULATIVE TOTAL RETURN*
AMONG CFM TECHNOLOGIES, INC.,
THE NASDAQ STOCK MARKET (U.S.) INDEX
AND THE HAMBRECHT & QUIST SEMICONDUCTOR INDEX
[CHART]
Cumulative Total Returns ($)
--------------------------------------------------
June 18, October 31, October 31, October 31,
1996 1996 1997 1998
---- ---- ---- ----
CFM TECHNOLOGIES, INC $100 $ 84 $183 $ 90
NASDAQ STOCK MARKET (U.S.) 100 103 135 152
H & Q SEMICONDUCTOR 100 113 176 154
16
<PAGE>
APPOINTMENT OF AUDITORS
The Board of Directors has selected the firm of Arthur Andersen LLP as
independent public accountants for the fiscal year ending October 31, 1999. A
representative of Arthur Andersen LLP is expected to be present at the Meeting
to respond to appropriate questions and will have the opportunity to make a
statement if he or she so desires.
SHAREHOLDER PROPOSALS
For the next annual meeting of shareholders, shareholder proposals must be
received by the Secretary of the Company not later than October 7, 1999 to be
considered for inclusion in the Company's proxy materials for the Annual Meeting
of Shareholders to be held in 2000. Shareholder proposals to be presented at the
Annual Meeting in 2000, but not included in the proxy materials relating to such
meeting, must be received by the Secretary of the Company not later than January
4, 2000 nor earlier than December 5, 1999. Nothing in this paragraph shall be
deemed to require the Company to include in its proxy materials relating to such
Annual Meeting of Shareholders any shareholder proposal which does not meet all
of the requirements for inclusion established by the Securities and Exchange
Commission and the Company's By-laws then in effect.
OTHER MATTERS
The Board of Directors is not aware of any other matters to be presented
for action at the Meeting. However, if any other matter properly comes before
the Meeting, it is the intention of the persons named in the enclosed proxy to
vote on such matters in accordance with their best judgment.
By Order of the Board of Directors
Lorin J. Randall
Secretary
February 4, 1999
17
<PAGE>
APPENDIX A
Proposed Amendment to the Amended and Restated 1995 Incentive Plan
Section 4.1 is amended in its entirety to read in full as follows:
4.1 Shares. The maximum aggregate number of shares of Common Stock that may be
issued under the Plan is 1,750,000 (subject to any increase or decrease
pursuant to Section 4.3), which may be either authorized and unissued
shares of Common Stock or issued Common Stock reacquired by the Company. If
any Option granted under the Plan shall expire, terminate or be cancelled
for any reason without having been exercised in full, the number of
unpurchased shares shall again be available for the purposes of the Plan.
Further, if any shares of Restricted Stock are forfeited, the shares
subject to such Award, the extent of such forfeiture, shall again be
available under the Plan.
A-1
<PAGE>
APPENDIX B
Proposed Amendments to the Amended and Restated Non-Employee
Directors' Stock Option Plan
Section 6.2 is amended in its entirety to read in full as follows:
6.2. Grants. After the Effective Date, for as long as the Plan remains in
effect, each Eligible Director shall automatically be granted Stock Options for
a number of shares of Common Stock of the Company with a fair value, as
reasonably determined utilizing a valuation method in accordance with generally
accepted accounting principles (the "Option Value"), of $20,000 for each year or
partial year (on a prorated basis) of service on the date of the Company's
annual meeting of shareholders following such year or partial year of service.
In addition to the grants of Stock Options above, each new member of the Board
of Directors who is elected to fill a vacancy on the Board of Directors, if an
Eligible Director, will automatically be granted, on the date of the Company's
annual meeting of shareholders following such member's initial year of service,
additional Stock Options with a total Option Value of $20,000.
Section 6.3 is amended in its entirety to read in full as follows:
6.3 Terms of Options. Options granted under the Plan shall be subject to
the following terms and conditions and shall contain such additional terms and
conditions, not inconsistent with the terms of the Plan, as the Board shall deem
desirable:
(a) Stock Option Contract. Each Stock Option shall be evidenced by,
and subject to the terms of, a Stock Option Contract executed by the
Company and the Participant. The Stock Option Contract shall specify the
number of shares of Common Stock subject to the Stock Option, the option
price, and the other terms and conditions applicable to the Stock Option.
(b) Option Price. The option price per share of Common Stock
purchasable upon exercise of a Stock Option shall be $5.00.
(d) Exercisability. All Stock Options shall become exercisable
immediately upon grant.
(e) Method of Exercise. Stock Options may be exercised in whole or in
part at any time during the option term by delivering to the Company
written notice of exercise specifying the number of shares of Common Stock
to be purchased and the option price therefor. The notice of exercise shall
be accompanied by payment in full of the option price and, if requested, by
the representation described in Section 9.2. Payment of the option price
may be made (i) in cash or by check payable to the Company or (ii) to the
extent determined by the Board on or after the date of grant, in shares of
Common Stock duly owned by the Participant (and for which the Participant
has good title free and clear of any liens and encumbrances) or (iii) by
reduction in the number of shares of Common Stock issuable upon such
exercise, based, in each case, on the Fair Market Value of the Common Stock
on the last trading date preceding the date of exercise. Upon payment in
full of the option price and satisfaction of the other conditions provided
herein, a stock certificate representing the number of shares of Common
Stock to which the Participant is entitled shall be issued and delivered to
the Participant.
(f) Death. Unless otherwise determined by the Board on or after the
date of grant, if a Participant ceases to be a member of the Board by
reason of Death, any Stock Option held by such Participant at the date of
death may thereafter be exercised by the legal representative of the
Participant's estate until the end of the Option Term of such Stock Option.
B-1
<PAGE>
(g) Disability. Unless other otherwise determined by the Board on or
after the date of grant, if a Participant ceases to be a member of the
Board by reason of a disability that prevents him or her from performing
the duties of a director, any Stock Option held by such Participant may be
exercised the Participant or, in the event of the death of the Participant,
by the legal representative of the Participant's estate, until the end of
the Option Term of such Stock Option.
(h) Other Termination. Unless other otherwise determined by the Board
on or after the date of grant, if a Participant ceases to be a member of
the Board for any reason other than death or disability, any Stock Option
held by such Participant may be exercised until the end of the Option Term
of such Stock Option.
(i) Non-Transferability of Options. No Stock Option shall be
transferable by the Participant otherwise than by will or by the laws of
descent and distribution, to the extent consistent with the terms of the
Plan and the Option, and all Stock Options shall be exercisable, during the
Participant's lifetime, only by the Participant.
B-2
<PAGE>
PROXY
CFM TECHNOLOGIES, INC.
1336 Enterprise Drive
West Chester, PA 19380
ANNUAL MEETING OF SHAREHOLDERS - MARCH 4, 1999
The undersigned shareholder of CFM Technologies, Inc. (the "Company")
hereby appoints Lorin J. Randall and Joseph E. Boyer, and each of them,
attorneys and proxies, with power of substitution in each of them, to vote and
to act for and on behalf of the undersigned at the Annual Meeting of
Shareholders to be held on March 4, 1999 and at all postponements and
adjournments thereof, according to the number of shares which the undersigned
would be entitled to vote if then personally present upon the matters described
on the reverse, hereby revoking any proxy heretofore executed by the undersigned
(i) as specified by the undersigned on the reverse and (ii) in the discretion of
any proxy upon such other business as may properly come before the meeting, all
as set forth in the notice of the meeting and in the proxy statement furnished
herewith, copies of which have been received by the undersigned, and hereby
ratifies and confirms all that said attorneys and proxies may do or cause to be
done by virtue hereof.
PLEASE SIGN AND DATE THIS PROXY ON THE REVERSE SIDE
<PAGE>
1. ELECTION OF DIRECTORS.
[ ] FOR all nominees listed below (except as marked to the contrary)
[ ] VOTE WITHHELD
NOMINEES:
Christopher F. McConnell, Chairman of the Board of Directors
Roger A. Carolin, President, Chief Executive Officer and Director
James J. Kim, Director
Brad S. Mattson, Director
Milton S. Stearns, Jr., Director
To withhold a vote for any of the nominees listed above,
strike a line through that nominee's name.
2. Approval of an amendment to the Amended and Restated 1995 Incentive Plan.
[ ] FOR
[ ] AGAINST
[ ] ABSTAIN
3. Approval of an amendment to the Amended and Restated Non-Employee
Directors' Stock Option Plan.
[ ] FOR
[ ] AGAINST
[ ] ABSTAIN
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS, WHICH
RECOMMENDS A VOTE "FOR" THE ABOVE MATTERS.
WHEN PROPERLY EXECUTED, THIS PROXY WILL BE VOTED AS DIRECTED HEREIN. IF NO
DIRECTION IS GIVEN, THIS PROXY WILL BE VOTED "FOR" THE ABOVE MATTERS.
PLEASE SIGN AND DATE THIS PROXY AND RETURN IT PROMPTLY.
______________________________________ ___________________________________
Signature Signature
Dated:__________________________, 1999
IMPORTANT: Please date this proxy and sign exactly as your name or names
appear on the certificate(s) representing your shares of Common Stock of the
Company. If shares are registered in more than one name, all owners should sign.
When signing as an executor, administrator, trustee, guardian or in another
representative capacity, please give your full title(s). If this proxy is
submitted by a corporation or partnership, it should be executed in the full
corporate or partnership name by a duly authorized person.
