<PAGE>
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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:
[X] Preliminary Proxy Statement [_] Confidential, for Use of the
Commission Only (as permitted by
Rule 14a-6(e)(2))
[_] Definitive Proxy Statement
[_] Definitive Additional Materials
[_] Soliciting Material Pursuant to Section 240.14a-11(c) or Section 240.14a-12
Etec 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):
[_] No fee required.
[_] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
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(2) Aggregate number of securities to which transaction applies:
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(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which
the filing fee is calculated and state how it was determined):
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(4) Proposed maximum aggregate value of transaction:
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(5) Total fee paid:
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[_] 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:
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(4) Date Filed:
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Notes:
<PAGE>
PRELIMINARY
ETEC SYSTEMS, INC.
26460 Corporate Avenue
Hayward, CA 94545
(510) 783-9210
November 11, 1996
Dear Stockholder:
You are cordially invited to attend the Annual Meeting of Stockholders of
Etec Systems, Inc., which will be held on Monday, December 16, 1996, at 4:00
p.m., at 26460 Corporate Avenue, Building 1, Hayward, California.
The formal notice of the Annual Meeting and the Proxy Statement have been
made a part of this invitation.
After reading the Proxy Statement, please mark, date, sign and return, at an
early date, the enclosed proxy in the prepaid envelope addressed to Corporate
Investor Communications, Inc., our agent, to ensure that your shares will be
represented. YOUR SHARES CANNOT BE VOTED UNLESS YOU SIGN, DATE AND RETURN THE
ENCLOSED PROXY OR ATTEND THE ANNUAL MEETING IN PERSON.
A copy of the Company's 1996 Annual Report to Stockholders is also enclosed.
The Board of Directors and management look forward to seeing you at the
meeting.
Sincerely,
Stephen E. Cooper
Chairman of the Board,
President and Chief Executive
Officer
<PAGE>
PRELIMINARY
ETEC SYSTEMS, INC.
----------------
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD DECEMBER 16, 1996
----------------
To the Stockholders of Etec Systems, Inc.:
The Annual Meeting of Stockholders of Etec Systems, Inc., a Nevada
corporation (the "Company"), will be held on Monday, December 16, 1996, at
4:00 p.m. Pacific Standard Time, at 26460 Corporate Avenue, Building 1,
Hayward, California, for the following purposes:
1.To elect eight directors;
2.To approve an amendment to the Articles of Incorporation to increase
the number of authorized shares;
3.To approve an amendment to the 1995 Omnibus Incentive Plan to increase
the number of available shares;
4.To ratify appointment of Price Waterhouse LLP as the Company's
independent accountants; and
5.To transact such other business as may properly come before the Annual
Meeting and any adjournment of the Annual Meeting.
Stockholders of record as of the close of business on October 21, 1996 are
entitled to notice of and to vote at the Annual Meeting and any adjournment
thereof. A complete list of stockholders entitled to vote will be available
for examination by any stockholder, for any purpose germane to the meeting, at
the Assistant Secretary's office, 26460 Corporate Avenue, Hayward, California,
during ordinary business hours, TEN DAYS before the meeting.
IT IS IMPORTANT THAT YOUR SHARES ARE REPRESENTED AT THIS MEETING. EVEN IF
YOU PLAN TO ATTEND THE MEETING, WE HOPE THAT YOU WILL PROMPTLY MARK, SIGN,
DATE AND RETURN THE ENCLOSED PROXY. THIS WILL NOT LIMIT YOUR RIGHTS TO ATTEND
OR VOTE AT THE MEETING.
By Order of the Board of Directors
Richard S. Grey
Secretary
Hayward, California
November 11, 1996
<PAGE>
ETEC SYSTEMS, INC.
----------------
PROXY STATEMENT
----------------
INFORMATION CONCERNING SOLICITATION AND VOTING
This Proxy Statement is furnished in connection with the solicitation by the
Board of Directors of Etec Systems, Inc., a Nevada corporation (the
"Company"), of proxies in the accompanying form to be used at the Annual
Meeting of Stockholders to be held at 26460 Corporate Avenue, Building 1,
Hayward, California, on Monday, December 16, 1996 and any adjournment thereof
(the "Annual Meeting"). The shares represented by the proxies received in
response to this solicitation and not revoked will be voted at the Annual
Meeting. A proxy may be revoked at any time before it is exercised by filing
with the Secretary of the Company a written revocation or a duly executed
proxy bearing a later date or by voting in person at the Annual Meeting. On
the matters coming before the Annual Meeting for which a choice has been
specified by a stockholder by means of the ballot on the proxy, the shares
will be voted accordingly. If no choice is specified, the shares will be voted
FOR the election of the nominees for directors listed in this Proxy Statement
and FOR approval of Proposals 2, 3 and 4 described in the Notice of Annual
Meeting and in this Proxy Statement.
Stockholders of record at the close of business on October 21, 1996 are
entitled to notice of and to vote at the Annual Meeting. As of the close of
business on such date, the Company had 19,787,025 shares of Common Stock
outstanding and entitled to vote. The presence in person or by proxy of the
holders of a majority of the Company's outstanding shares entitled to vote
constitutes a quorum for the transaction of business at the Annual Meeting.
Each holder of Common Stock is entitled to one vote for each share held as of
the record date.
Directors are elected by a plurality vote. The other matters submitted for
stockholder approval at this Annual Meeting will be decided by the affirmative
vote of a majority of shares present in person or represented by proxy and
entitled to vote on each such matter. Abstentions with respect to any matter
are treated as shares present or represented and entitled to vote on that
matter and thus have the same effect as negative votes. If a broker who is the
record holder of certain shares indicates on a proxy that he or she does not
have discretionary authority to vote on a particular matter as to such shares,
or if shares are not voted in other circumstances in which proxy authority is
defective or has been withheld with respect to any matter, these non-voted
shares will be counted for quorum purposes but are not deemed to be present or
represented for purposes of determining whether stockholder approval of a
particular matter has been obtained.
The expense of printing and mailing proxy materials will be borne by the
Company. In addition to the solicitation of proxies by mail, solicitation may
be made by certain directors, officers and other employees of the Company by
personal interview, telephone or facsimile. No additional compensation will be
paid to such persons for such solicitation. The Company will reimburse
brokerage firms and others for their reasonable expenses in forwarding
solicitation materials to beneficial owners of the Company's Common Stock. The
Company has retained Corporate Investor Communications, Inc. to assist in the
solicitation of proxies at a cost of approximately $5000.
This Proxy Statement and the accompanying form of proxy are being mailed to
stockholders on or about November 11, 1996.
IMPORTANT
PLEASE MARK, SIGN AND DATE THE ENCLOSED PROXY AND RETURN IT AT YOUR
EARLIEST CONVENIENCE IN THE ENCLOSED POSTAGE-PREPAID RETURN ENVELOPE SO
THAT, WHETHER YOU INTEND TO BE PRESENT AT THE ANNUAL MEETING OR NOT,
YOUR SHARES CAN BE VOTED. THIS WILL NOT LIMIT YOUR RIGHTS TO ATTEND OR
VOTE AT THE ANNUAL MEETING.
<PAGE>
PROPOSAL 1--ELECTION OF DIRECTORS
NOMINEES
The Board of Directors proposes the election of eight directors of the
Company for a term of one year. Directors are elected to serve until the next
annual meeting of stockholders and until their successors are elected and
qualified. If any nominee is unable or declines to serve as director at the
time of the Annual Meeting, an event not now anticipated, proxies will be
voted for any nominee designated by the Board of Directors to fill the
vacancy.
Names of the nominees and certain biographical information about them are
set forth below:
MR. STEPHEN E. COOPER, age 50, joined the Company as President and Chief
Operating Officer in January 1993 and was named Chief Executive Officer in
July 1993. He was initially appointed to the Board of Directors in March
1993 and became the Chairman of the Board in April 1995. Before joining the
Company, Mr. Cooper served as President and Chief Executive Officer of
Bipolar Integrated Technology, a manufacturer of bipolar emitter coupled
logic semiconductors, from 1987 to 1990. From 1980 to 1987, Mr. Cooper held
various positions, including President and Chief Operating Officer, with
Silicon Systems, Inc., a manufacturer of analog/digital semiconductors.
From 1973 to 1980, Mr. Cooper held various engineering and management
positions at Intel Corporation, including Engineering Manager and Wafer
Fabrication Manager. Mr. Cooper holds a B.S.E.E. from the University of
California at Santa Barbara. He is also a director of Vivid Semiconductor.
MR. TAKESHI (JOHN) SUZUKI, age 57, has been a director of the Company
since May 1994. Mr. Suzuki has been President and a director of Etec Japan
since May 1990. He founded Etec Japan in 1977. Mr. Suzuki has worked in the
electronics industry since 1962 and has extensive international trade
experience.
MR. EDWARD L. GELBACH, age 65, has been a director of the Company since
June 1995. He has been a private investor for more than the past five years
and also serves as a director of Richey Electronics Inc. and Bell
Microproducts. Mr. Gelbach held various positions at Intel Corporation,
including Senior Vice President Corporate Marketing, from 1971 to 1989. He
held various positions at Texas Instruments, including National Sales
Manager, from 1965 through 1971.
MS. CATHERINE P. LEGO, age 40, has been a director of the Company since
September 1991. From June 1992 to the present, Ms. Lego has been self-
employed as a financial consultant. From July 1981 to May 1992, Ms. Lego
held various positions with Oak Management Corp., a venture capital firm.
Ms. Lego was a general partner of the following venture capital
partnerships until May 1992: Oak Investment Partners V from November 1991,
Oak Investment Partners IV from November 1988, and Oak Investment Partners
III from January 1985. Ms. Lego is also a director of Uniphase Corp., Zitel
and SanDisk Corporation.
MR. JACK H. KING, age 61, has been a director of the Company since April
1990. He has been President and Chief Executive Officer of Zitel, a
manufacturer of high performance storage subsystems, since October 1986.
Mr. King was named a director of Zitel in January 1987. Prior to joining
Zitel, Mr. King served as President and Chief Executive Officer of Dynamic
Disk, Inc., a manufacturer of thin film media, from 1984 to 1986. From 1981
to 1984, he served as President and Chief Operating Officer of Data
Electronics, Inc., a cartridge tape drive manufacturer. Mr. King also
served as Group President of the Computer Media Group of Memorex
Corporation.
MR. JOHN MCBENNETT, age 57, has been a director of the Company since
December 1994. Mr. McBennett has been the Corporate Controller of Perkin-
Elmer, which manufactures analytical instrumentation, since 1977. He has
been a corporate officer of Perkin-Elmer since 1993.
2
<PAGE>
MR. THOMAS M. TRENT, age 50, has been a director of the Company since
December 1994. From 1986 through 1996, Mr. Trent was a Vice President of
Micron, a semiconductor manufacturer. He joined Micron as an integrated
circuit design engineer in 1980. Previously, Mr. Trent worked in Motorola
Inc.'s semiconductor research and development department.
MR. ROBERT L. WEHRLI, age 74, joined the Company's Board of Directors in
April 1995. Since 1977, Mr. Wehrli has been owner and Chief Executive
Officer of Chronometry, Inc., a consulting firm. Mr. Wehrli has been
Chairman of the Board of Siliconix, Inc., a manufacturer of power
semiconductors, since 1990, and a director of Siliconix since 1981. He is
also a director of PECO Controls Co.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR ELECTION FOR DIRECTOR OF THE
NOMINEES SET FORTH ABOVE.
BOARD MEETINGS AND COMMITTEES
The Board of Directors held seven meetings during the fiscal year ended July
31, 1996. All directors attended at least 75% of the aggregate number of
meetings of the Board of Directors and of the committees on which such
directors serve.
The Board of Directors has appointed a Compensation Committee and an Audit
Committee. The Compensation Committee and Audit Committee are comprised
entirely of independent directors.
The members of the Compensation Committee during fiscal 1996 were Jack H.
King, Thomas M. Trent and Robert L. Wehrli. The Compensation Committee held
six meetings during fiscal 1996. The Compensation Committee's functions are to
review and approve salaries and incentive compensation of the executive
officers of the Company, and to administer the Company's incentive
compensation and benefit plans.
The members of the Audit Committee during fiscal 1996 were Catherine P. Lego
and John McBennett. The Audit Committee held eight meetings during fiscal
1996. The Audit Committee's functions are to review the results and the scope
of the annual audit and the other services provided by the Company's
independent auditors, and monitor the effectiveness of the Company's internal
financial and accounting organization and controls and financial reporting.
DIRECTORS' COMPENSATION
Employee directors (including Messrs. Cooper and Suzuki) receive no
additional compensation for service on the Board of Directors. Non-employee
directors of the Company are eligible to receive $1,500 for each Board meeting
and $500 for each Board committee meeting attended in person. Directors are
also reimbursed for their expenses for each meeting attended in person and are
eligible to participate in the Company's 1995 Directors' Stock Option Plan
(the "1995 Directors' Plan").
Under the terms of the 1995 Directors' Plan, upon appointment to the Board,
each non-employee director receives an option to purchase 8,000 shares of
Common Stock. These one-time grants vest in two installments, with half of the
shares vesting six months after the grant date and the other half vesting on
the first anniversary of the grant date. In addition, during his or her
tenure, each non-employee director receives an annual grant (upon the
anniversary of such director's initial grant of options) of options to
purchase 3,000 shares. Annual grants of options vest on the first anniversary
of the grant date. Under the 1995 Directors' Plan, each option's exercise
price is 100% of the fair market value of the underlying shares on the grant
date.
3
<PAGE>
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information as of October 21, 1996,
as to shares of the Company's Common Stock beneficially owned by: (i) each of
the Company's executive officers, including those named in the Summary
Compensation Table, (ii) each of the Company's directors, (iii) all directors
and executive officers of the Company as a group, and (iv) each person who is
known by the Company to own beneficially more than 5% of the Company's Common
Stock.
<TABLE>
<CAPTION>
SHARES PERCENTAGE
BENEFICIALLY BENEFICIALLY
OWNED(1) OWNED(1)(2)
------------ ------------
<S> <C> <C>
Frank E. Abboud(3)................................... 26,012 *%
Stephen E. Cooper(3)................................. 155,964 *
Trisha A. Dohren(3).................................. 28,500 *
Roy A. Earle (3)..................................... 20,500 *
Edward L. Gelbach(3)................................. 18,000 *
Mark A. Gesley(3).................................... 4,154 *
Philip J. Koen, Jr................................... 39,634 *
Jack H. King(3)(4)................................... 9,000 *
Catherine P. Lego(3)................................. 18,000 *
John McBennett(5).................................... 0 *
Takeshi (John) Suzuki(3)............................. 30,667 *
Thomas M. Trent(6)................................... 0 *
Paul A. Warkentin(3)................................. 25,299 *
Robert L. Wehrli(3).................................. 8,000 *
All directors and executive officers as a group (14
persons)(3)......................................... 383,730 1.96
The Perkin-Elmer Corporation(7)
761 Main Avenue
Norwalk, CT 06859................................... 994,534 5.1
Dupont Photomasks, Inc.(8)
One Financial Center
Round Rock, TX 78664................................ 1,025,640 5.2
International Business Machines(9)
Old Orchard Road
Armonk, NY 10504.................................... 1,167,821 6.0
</TABLE>
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*Amount represents less than 1% of the Company's Common Stock.
(1) To the Company's knowledge, the persons named in the table have sole
voting and investment power with respect to all shares of Common Stock
shown as beneficially owned by them, subject to community property laws
where applicable and the information contained in the footnotes to this
table.
(2) For purposes of computing the percentage of outstanding shares held by
each person or group of persons named above on a given date, shares which
such person or group has the right to acquire within 60 days after such
date are deemed to be outstanding, but are not deemed to be outstanding
for the purposes of computing the percentage ownership of any other
person.
(3) Includes shares issuable upon exercise of options within 60 days of
October 21, 1996 as follows: Mr. Abboud, 23,512, Mr. Cooper, 23,500, Ms.
Dohren, 18,000, Mr. Earle, 20,000, Mr. Gelbach, 8,000, Mr. Gesley, 1,921,
Ms. Lego, 8,000, Mr. King, 8,000, Mr. Koen, 33,334 Mr. Suzuki, 17,334, Mr.
Warkentin, 23,284 shares, Mr. Wehrli, 8,000 shares and all executive
officers and directors as a group (14 persons), 192,885.
(4) Excludes 70,063 shares held by Zitel Corporation, of which Mr. King is
President, Chief Executive Officer and a director and may be deemed to
share voting or dispositive power over such shares.
(5) Excludes 994,534 shares held by The Perkin-Elmer Corporation, of which Mr.
McBennett is an officer. Mr. McBennett has indicated to the Company that
he does not have or share voting or dispositive power over such shares.
(6) Excludes 420,512 shares held by Micron Technology, Inc., of which Mr.
Trent was formerly a Vice President. Mr. Trent has indicated to the
Company that he does not have or share voting or dispositive power over
such shares.
4
<PAGE>
EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE
The following table sets forth compensation for services rendered in all
capacities to the Company for the three fiscal years ended July 31, 1996 of
(i) the Company's Chief Executive Officer and (ii) the Company's four other
most highly compensated executive officers whose total annual salary and bonus
for fiscal year 1996 exceeded $100,000 (the "Named Officers").
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
ANNUAL COMPENSATION COMPENSATION
-------------------- ------------
AWARDS
------------
SECURITIES
UNDERLYING
NAME AND PRINCIPAL POSITION YEAR SALARY($) BONUS($) OPTIONS ALL OTHER
--------------------------- ---- ---------- --------- ------------ ---------
<S> <C> <C> <C> <C> <C>
Stephen E. Cooper............ 1996 242,281 123,750 44,000 2,387(1)
Chairman, President and..... 1995 200,655 93,698 44,000 2,006(1)
Chief Executive Officer..... 1994 170,460 21,656 50,000 1,650(1)
Takeshi (John) Suzuki........ 1996 226,120 85,397 12,000 55,787(2)
President, Etec Japan....... 1995 277,610 63,058 16,000 62,710(2)
1994 227,318 -- 13,334 54,549(2)
Philip J. Koen, Jr.(3)....... 1996 178,181 90,000 16,000 1,592(1)
Vice President and Chief.... 1995 150,001 68,144 22,000 1,500(1)
Financial Officer........... 1994 96,508 -- 100,000 462(1)
Paul A. Warkentin............ 1996 141,575 49,500 15,000 1,158(1)
Vice President of Marketing. 1995 110,001 35,776 12,000 1,100(1)
1994 102,693 -- 43,548 1,027(1)
Roy A. Earle(4).............. 1996 139,116 100,000 90,000 572(1)
Vice President, Operations.. 1995 -- -- -- --
1994 -- -- -- --
</TABLE>
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(1) Represents contributions by the Company under its 401(k) plan.
(2) Represents contributions by the Company to a plan which provides for
payments to Mr. Suzuki during his retirement, pursuant to an agreement
between the Company and Mr. Suzuki entered into in fiscal 1994, and for a
housing allowance.
(3) Mr. Koen commenced employment with the Company on December 6, 1993.
(4) Mr. Earle commenced employment with the Company on October 9, 1995.
5
<PAGE>
STOCK OPTIONS
The following table summarizes options granted to the Company's Chief
Executive Officer and the Named Officers during fiscal year 1996.
OPTION GRANTS IN FISCAL YEAR 1996
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS REALIZABLE VALUE
--------------------------------------------------- AT ASSUMED ANNUAL
NUMBER OF % TOTAL RATES OF STOCK
SECURITIES OPTIONS PRICE APPRECIATION
UNDERLYING GRANTED TO FOR OPTION TERM(2)
OPTIONS EMPLOYEES EXERCISE PRICE EXPIRATION -------------------
NAME GRANTED(1) IN FISCAL YEAR PER SHARE(1) DATE 5%($) 10%($)
---- ---------- -------------- -------------- ---------- -------- ----------
<S> <C> <C> <C> <C> <C> <C>
Stephen E. Cooper....... 44,000 6.25% $23.50 7/8/06 650,277 1,647,930
Takeshi (John) Suzuki... 12,000 1.70% $23.50 7/8/06 177,348 449,435
Philip J. Koen, Jr...... 16,000 2.27% $23.50 7/8/06 236,464 599,247
Paul A. Warkentin....... 15,000 2.13% $23.50 7/8/06 221,685 561,794
Roy A. Earle............ 80,000 11.36% $ 7.65 10/9/05 384,884 975,370
Roy A. Earle............ 10,000 1.42% $23.50 7/8/06 147,790 374,529
</TABLE>
- --------
(1) All options were granted with an exercise price at or above fair market
value. During fiscal year 1996, no stock appreciation rights were awarded
to any executive officer.
(2) There can be no assurance provided to any executive officer or any other
holder of the Company's securities that the actual stock price appreciation
over the 10-year option term will be at the 5% and 10% assumed annual rates
of compounded stock price appreciation or at any other defined level.
Unless the market price of the Common Stock appreciates over the option
term, no value will be realized from the option grant made to the Named
Officer.
The following table summarizes exercises of options during fiscal 1996 by the
Company's Chief Executive Officer and the Named Officers and the value of
options held by each such person at the end of fiscal 1996.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
SECURITIES UNDERLYING VALUE OF UNEXERCISED
UNEXERCISED OPTIONS AT IN-THE-MONEY OPTIONS
JULY 31, 1996(#) AT JULY 31, 1996($)(2)
SHARES ACQUIRED VALUE ------------------------- -------------------------
NAME ON EXERCISE(#) REALIZED($)(1) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- --------------- -------------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Stephen E. Cooper....... 55,000 1,087,700 11,000 102,000 214,500 1,219,750
Takeshi (John) Suzuki... 0 0 17,334 24,000 385,349 234,000
Philip J. Koen, Jr...... 0 0 38,833 65,834 881,326 1,107,349
Paul A. Warkentin....... 0 0 29,013 45,772 659,075 677,345
Roy A. Earle............ 0 0 0 90,000 0 1,268,000
</TABLE>
- --------
(1) Calculated on the basis of the fair market value of the underlying
securities at the exercise date minus the exercise price.
(2) Calculated on the basis of the fair market value of the underlying
securities at July 31, 1996 ($23.50 per share) minus the exercise price.
6
<PAGE>
EMPLOYMENT AGREEMENTS AND TERMINATION AGREEMENTS
None of the executive officers named in the Summary Compensation Table has
an employment agreement with the Company, except that Mr. Cooper is entitled
to six months' salary continuance if the Company terminates his employment at
its discretion, and Mr. Koen is entitled to 26 weeks of salary continuance if
the Company terminates his employment other than for cause.
In February 1996, the Company entered into an agreement with William L.
Rumold, former Vice President of Sales and Marketing of the Company, whereby
Mr. Rumold's salary would be continued until August 1996. Mr. Rumold continued
to participate in the Company's health benefit plans but was not eligible to
participate in the Company's stock purchase plans or Senior Management
Incentive Plan during 1996.
PENSION AND LONG-TERM INCENTIVE PLANS
The Company has no pension or long-term incentive plans for its executives,
except that the Company makes an annual contribution to Mr. Suzuki's
retirement plan pursuant to an agreement between the Company and Mr. Suzuki.
REPORT OF THE COMPENSATION COMMITTEE OF THE BOARD OF DIRECTORS ON EXECUTIVE
COMPENSATION
The Compensation Committee of the Company's Board of Directors (the
"Committee") is currently comprised of three non-employee directors, Messrs.
Jack H. King, Thomas M. Trent and Robert L. Wehrli. The Committee meets
regularly, prior to a scheduled meeting of the Board of Directors, and holds
special meetings as required.
The charter of the Compensation Committee is to provide guidance and
leadership to the Chief Executive Officer and the Vice President of Human
Resources to enable them to design and implement executive compensation
packages to enable the Company to attract and retain executive management. The
primary role of the Committee is to review and approve the salary, bonus,
stock options and other benefits, direct or indirect, of the Company's senior
management.
EXECUTIVE COMPENSATION OBJECTIVES
The Company's major objectives in defining executive officer compensation
are to:
. Attract and retain key executive management and leadership to ensure the
success of the Company;
. Align executive compensation targets with the annual as well as long-
term financial, operational and strategic objectives of the Company; and
. Reward key executives for their contribution to the long-term success of
the Company by providing opportunities for them to acquire an ownership
interest in the Company.
COMPONENTS OF EXECUTIVE COMPENSATION
The Committee approved the fiscal year 1996 executive compensation package
upon consideration of base salary, annual cash incentives and long-term stock-
based incentives.
Base Salary. The base salary for executive officers of the Company takes
into account individual performance, the scope of the executive officer's
responsibilities and comparative compensation data for companies of a similar
size and organizational structure that are located in the Northern California
area. In fiscal year 1996 certain executive officers received increases to
their base salaries as a result of changes or increases in management
responsibilities and to reflect adjustments to comparative market data.
7
<PAGE>
Annual Cash Incentives. Annual cash bonuses are earned according to a
formula that was designed to reward key executive officers for the overall
performance of the Company as well as the individual's ability to meet his or
her performance objectives for the fiscal year. The Senior Management
Incentive Program ("SMIP") awards key executives according to a targeted
return on the Company's net capital employed. The maximum payout under the
SMIP was capped at 150% of the fiscal 1996 targeted incentive. The SMIP
provided cash incentive compensation to executives in amounts ranging from 20%
to 40% of the executive's base salary.
The Compensation Committee approves the Senior Management Incentive Program
to ensure that the target financial, operational and performance objectives of
the program are properly aligned with the performance of the Company. In
addition, the Committee approves any changes to participation in the Senior
Management Incentive Program.
Long-Term Stock-Based Incentives. Long-term stock incentives are provided
through periodic stock option grants pursuant to the Company's 1995 Omnibus
Stock Option Plan. The option grants are made based on an exercise price which
is equal to the market price of the Company's outstanding shares at the time
of the grant. The objective of these grants is to ensure that the interests
and objectives of the executive are more closely aligned with the long-term
interests and returns that will be realized by the shareholder. In awarding
option grants, the Committee also considers the vesting schedule of an
executive officer's current options as well as comparable data indicating
long-term awards provided to executive officers of similar industries and
possessing similar responsibilities in the Northern California region.
However, the Committee does not intend to adhere to any specific guidelines
and may elect to vary the size of an option grant to any executive officer in
consideration of their overall option and compensation package.
CHIEF EXECUTIVE OFFICER (CEO) COMPENSATION
The compensation payable to Mr. Stephen E. Cooper, the Chief Executive
Officer during fiscal year 1996 was determined by the Board of Directors in
consideration of comparable base salary levels in effect for chief executive
officers of similar sized companies in similar industries and in the same
geographic location. Mr. Cooper's compensation package was designed to provide
a competitive base compensation level as well as to subject a significant
portion of his compensation to the annual and long-term performance of the
Company. The factors utilized in determining Mr. Cooper's overall compensation
for fiscal year 1996 were similar to those described previously as applied to
other executive officers. For the fiscal year 1996 Mr. Cooper met each of his
performance objectives. These objectives included:
. Target level attainment of revenue, earnings per share and return on net
capital employed;
. Introduction of new products outside of the semi-conductor mask pattern
generation market. The acquisition of Polyscan was completed in February
1996;
. Raising capital to support the Company's future growth through a
successful public offering;
. Improving customer satisfaction; and
. Increasing market share in the mask pattern generation market.
Mr. Cooper received an increase in base salary from $165,000 to $226,800 in
fiscal year 1995. The increase was to ensure a competitive base salary level
as described previously. No adjustment in base salary was made in fiscal year
1996. An annual cash incentive of $123,750 during fiscal year 1996 was made to
Mr. Cooper as derived from the Senior Management Incentive Plan.
8
<PAGE>
COMPLIANCE WITH INTERNAL REVENUE CODE SECTION 162(M)
Section 162(m) of the Internal Revenue Code, enacted in 1993, generally
disallows a tax deduction to a publicly-held company for compensation in
excess of $1 million paid or accrued to certain executive officers in any
year. The compensation paid to the Company's executive officers for the 1996
fiscal year did not exceed $1 million for any executive officer. It is not
expected that the compensation paid in fiscal year 1997 will exceed the $1
million limit for any executive officer of the Company.
Submitted by the Compensation Committee of the Company's Board of Directors:
Jack H. King
Thomas M. Trent
Robert L. Wehrli
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Compensation Committee is comprised of Messrs. Jack H. King, Thomas M.
Trent, and Robert L. Wehrli. None of these individuals were at any time during
fiscal year 1996, 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 other entity that has one or more
executive officers serving as a member of the Company's Board of Directors or
Compensation Committee.
CERTAIN TRANSACTIONS
DuPont Photomasks, Inc. ("DuPont") is a five percent stockholder. DuPont has
supplied photomasks to the Company for use by the Company in developing
products. In fiscal 1996, the Company purchased approximately $323,000 of
photomasks from DuPont.
The Company believes that the transactions with DuPont were in its best
interests. It is the Company's current policy that it will enter into
transactions with officers, directors, five percent stockholders and their
affiliates only if such transactions are approved by a majority of the
disinterested independent directors, are on terms no less favorable to the
Company than could be obtained from unaffiliated parties and are reasonably
expected to benefit the Company.
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<PAGE>
STOCK PRICE PERFORMANCE GRAPH
The following graph compares the cumulative total stockholder return of the
Company's Common Stock with The Nasdaq Stock Market Index (U.S.) and Hambrecht
& Quist Semiconductor Index. The comparison assumes the investment of $100 on
October 24, 1995 (the date the Company's Common Stock became registered under
Section 12 of the Securities Exchange Act of 1934) based on the initial public
offering price of such stock on that date and that dividends were reinvested
when paid. The comparisons in the graph are required by the Securities and
Exchange Commission and are not intended to forecast or be indicative of
possible future performance of the Company's Common Stock.
COMPARISON OF CUMULATIVE TOTAL RETURN AMONG ETEC SYSTEMS, INC., THE NASDAQ
STOCK MARKET
INDEX (U.S.) AND THE HAMBRECHT & QUIST SEMICONDUCTOR INDEX
COMPARISON OF 5-YEAR CUMULATIVE TOTAL RETURN
AMONG ETEC SYSTEMS INC.
S&P 500 INDEX AND S&P FINANCIAL INDEX
PERFORMANCE GRAPH APPEARS HERE
<TABLE>
<CAPTION>
Measurement Period ETEC
(Fiscal Year Covered) SYSTEMS, INC. NASDAQ IHQS
- --------------------- --------------- --------- ----------
<S> <C> <C> <C>
Measurement Pt-10/31/1996 $100.00 $100.00 $100.00
FYE 07/31/1996 $235.00 $105.00 $ 63.00
</TABLE>
10
<PAGE>
PROPOSAL 2--TO APPROVE AN AMENDMENT TO THE ARTICLES OF
INCORPORATION OF ETEC SYSTEMS, INC.
PROPOSAL 2
The stockholders are being asked to approve an amendment to the Company's
Articles of Incorporation to increase the authorized number of shares of
Common Stock from 30,000,000 to 40,000,000 shares. The Board of Directors
authorized the amendment on August 20, 1996.
The Articles of Incorporation presently provide that the Company is
authorized to issue two classes of stock, consisting of Common Stock and
Preferred Stock. On October 21, 1996, 19,787,025 shares of Common Stock were
issued and outstanding, and 1,521,099 shares of Common Stock were reserved for
issuance upon the exercise of outstanding options. The remaining number of
authorized but unissued shares of Common Stock are not reserved for any
specific use and are available for future issuance.
The proposed amendment will authorize additional shares of Common Stock to
provide the Company with the flexibility to issue Common Stock as may be
necessary to complete strategic acquisitions or other corporate transactions.
The proposed amendment would enable the Company to accomplish its business and
strategic objectives in an expeditious manner without any undue delay of
obtaining further shareholder approval except as may be otherwise required.
PROPOSAL 2 AMENDMENT
The amendment, which is subject to stockholder approval, amends and restates
the first paragraph of Article Fourth of the Seventh Amended and Restated
Articles of Incorporation to read as follows:
"FOURTH: The total number of shares of stock which the Corporation shall
have authority to issue is fifty million (50,000,000) shares. Of said
shares, forty million (40,000,000) shares shall be common stock ("Common
Stock") with a par value of $.01 per share and ten million (10,000,000)
shares shall be preferred stock ("Preferred Stock") with a par value of
$.01 per share."
REQUIRED APPROVAL
The affirmative vote of the holders of a majority of shares of Common Stock
represented and voting at a duly held meeting at which a quorum is present is
required to approve the amendment to the Articles of Incorporation. Unless
marked to the contrary, proxies received will be voted "FOR" approval of the
Proposal 2 amendment to the Company's Articles of Incorporation.
THE BOARD OF DIRECTORS OF THE COMPANY RECOMMENDS A VOTE FOR THE APPROVAL OF
THE PROPOSAL 2 AMENDMENT TO THE COMPANY'S ARTICLES OF INCORPORATION.
11
<PAGE>
PROPOSAL 3--TO APPROVE AN AMENDMENT TO THE 1995 OMNIBUS INCENTIVE PLAN
OF ETEC SYSTEMS, INC.
SUMMARY OF THE 1995 OMNIBUS INCENTIVE PLAN
The 1995 Omnibus Incentive Plan of the Company (the "1995 Plan"), which was
adopted by the Board of Directors in July 1995 and approved by the
stockholders in September 1995, became effective upon the consummation of the
Company's initial public offering in October, 1995.
The 1995 Plan provides for awards in the form of restricted shares, stock
units, stock appreciation rights ("SARs") and options. Options issued under
the 1995 Plan may take the form of incentive stock options ("ISOs") intended
to qualify for preferential tax treatment under section 422 of the Internal
Revenue Code (the "Code"), and nonstatutory stock options ("NSOs") that do not
qualify for such treatment. A total of 1,000,000 shares of Common Stock have
been reserved for issuance under the 1995 Plan.
The 1995 Plan is administered by the Compensation Committee of the Board of
Directors, which is comprised of directors of the Company who are
disinterested within the meaning of Rule 16b-3 of the Exchange Act. The Board
of Directors may appoint another committee, which may consist of any two or
more members of the Board of Directors, to administer the 1995 Plan with
respect to employees who are not officers or directors. Subject to the
limitations set forth in the 1995 Plan, the applicable committee has the
authority to determine to whom options will be granted or shares will be sold
or awarded and to determine the terms and conditions of each grant, sale or
award. Options and rights to purchase shares under the 1995 Plan are
nontransferable.
Employees and consultants of the Company are eligible for awards under the
Plan, except that only employees are eligible for the grant of ISOs. No
participant may be granted options covering more than 100,000 shares under the
1995 Plan in any calendar year, and no participant may be awarded more than
100,000 SARs under the 1995 Plan in any calendar year.
Vesting of restricted shares, stock units, SARs or stock options will be
specified in individual agreements. Stock options become immediately
exercisable in the event of death or total and permanent disability, and
vesting of stock options may be accelerated in the event of a merger,
consolidation or sale of substantially all of the assets of the Company that
constitutes a change in the control of the Company, or in the event of the
employee's retirement or any other event determined by the administering
committee.
The committee may grant options that are exercisable prior to becoming
vested, subject to the Company's right to repurchase unvested shares.
The exercise price of NSOs granted under the 1995 Plan may vary in
accordance with a predetermined formula. The exercise price of an ISO cannot
be less than 100% of the fair market value of the Common Stock on the date of
grant and, if the ISO is granted to a holder of more than 10% of the voting
power of the Company, not less than 110% of such fair market value. The
maximum term of an ISO is 10 years and, if the ISO is granted to a holder of
more than 10% of the voting power of the Company, five years.
All existing employees of the Company were eligible for awards under the
1995 Plan. At October 21, 1996, options to purchase 850,264 shares had been
granted under the 1995 Plan. There are currently 138,699 shares available for
future grants under the 1995 Plan. If any restricted shares, stock units or
options granted under the 1995 Plan are forfeited, or if options or SARs
terminate prior to exercise, then they will again become available for awards
under the 1995 Plan. The 1995 Plan automatically terminates 10 years from the
date of shareholder approval.
PROPOSAL 3
The stockholders are being asked to approve an amendment to the Company's
1995 Plan that will increase the number of shares of Common Stock available
for issuance under the 1995 Plan by an additional 975,000 shares. The Board of
Directors approved the amendment to the 1995 Plan on October 22, 1996, subject
to stockholder approval.
12
<PAGE>
The Company believes that approval of the amendment is in the best interests
of the Company and its stockholders because the availability of shares
reserved for issuance under the 1995 Plan and the ability to grant stock
options is a critical factor in its ability to attract, retain and motivate
employees. The Company currently grants options to all employees upon hire,
and periodically, to key employees or in recognition of achievement of certain
performance criteria. In recent years, the Company has experienced revenue
growth from $82,916,000 in 1995 to $145,645,000 in 1996. Consequently, the
number of employees during this time period grew from 469 to 686. Critical
hires were also made at the executive level in manufacturing, operations,
sales and marketing. As a result of the increase in number of employees during
fiscal year 1996, options to purchase 716,273 shares were granted.
The Company believes that the increase in the number of shares available
under the 1995 Plan will enable the Company to provide appropriate incentives
to its current and future employees, and will be sufficient to meet the
Company's option granting requirements for the next year.
PROPOSED AMENDMENT
The amendment, which is subject to stockholder approval, amends and restates
Article 4.1 of the 1995 Omnibus Incentive Plan to read as follows:
"ARTICLE 4. SHARES AVAILABLE FOR GRANTS
4.1 Basic Limitation. Shares issued pursuant to the Plan shall be
authorized but unissued Shares and Shares acquired in the open market. The
aggregate number of Shares reserved for award as Restricted Shares, Stock
Units, Options and SARs shall be 1,975,000 Shares. Any shares that have
been reserved but not awarded as Restricted Shares, Stock Units, Options or
SARs during any calendar year shall remain available for award in any
subsequent calendar year. The limitation of this Section 4.1 shall be
subject to adjustment pursuant to Article 11."
FEDERAL INCOME TAX CONSEQUENCES
The proposed amendment will have no effect upon the tax consequences.
REQUIRED APPROVAL
The affirmative vote of the holders of a majority of shares of Common Stock
represented and voting at a duly held meeting at which a quorum is present is
required to approve the amendment of the 1995 Omnibus Incentive Plan. Unless
marked to the contrary, proxies received will be voted "FOR" approval of the
amendment to the Company's 1995 Omnibus Incentive Plan.
THE BOARD OF DIRECTORS OF THE COMPANY RECOMMENDS A VOTE FOR THE APPROVAL OF
THE AMENDMENT TO THE COMPANY'S 1995 OMNIBUS INCENTIVE PLAN.
13
<PAGE>
PROPOSAL 4--TO RATIFY THE APPOINTMENT OF INDEPENDENT ACCOUNTANTS
Upon the recommendation of the Audit Committee, the Board of Directors has
appointed the firm of Price Waterhouse LLP as the Company's independent
accountants for the fiscal year ending July 31, 1997, subject to ratification
by the stockholders. Representatives of Price Waterhouse LLP are expected to
be present at the Company's Annual Meeting. They will have an opportunity to
make a statement, if they desire to do so, and will be available to respond to
appropriate questions.
Price Waterhouse LLP has audited the Company's financial statements since
April 10, 1995. Prior to April 10, 1995, KPMG Peat Marwick LLP ("KPMG") had
been the Company's independent accountants. The decision to change independent
accountants was approved by the Company's Board of Directors. In the period
from August 1, 1993 through April 9, 1995 KPMG issued no audit report which
was qualified or modified as to uncertainty, audit scope or accounting
principles, no adverse opinions or disclaimers of opinion on any of the
Company's financial statements, and there were no disagreements with KPMG on
any matter of accounting principles or practices, financial statement
disclosure,or auditing scope or procedures. KPMG has not audited or reported
on any of the Company's financial statements or information included in the
Annual Report to Shareholders for fiscal year 1996. Prior to April 10, 1995
the Company had not consulted with Price Waterhouse LLP on items which
involved the Company's accounting principles or the form of audit opinion to
be issued on the Company's financial statements.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR RATIFICATION OF PRICE
WATERHOUSE LLP AS THE COMPANY'S INDEPENDENT ACCOUNTANTS.
STOCKHOLDER PROPOSALS FOR THE 1997 ANNUAL MEETING
Proposals of stockholders of the Company that are intended to be presented
by such stockholders at the Company's 1997 Annual Meeting must be received by
the Secretary of the Company no later than July 14, 1997 in order that they
may be included in the Company's proxy statement and form of proxy relating to
that meeting.
COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT
Section 16(a) of the Securities Exchange Act of 1934, as amended, requires
the Company's executive officers and directors, and persons who own more than
10 percent of a registered class of the Company's equity securities, to file
reports of ownership on Forms 3, 4 and 5 with the Securities and Exchange
Commission (the "SEC"). Officers, directors and greater than 10 percent
stockholders are required by SEC regulation to furnish the Company with copies
of all Forms 3, 4 and 5 they file.
Based solely on the Company's review of the copies of such forms it has
received and written representations from certain reporting persons that they
were not required to file Forms 5 for specified fiscal years, the Company
believes that all of its officers, directors and greater than 10 percent
beneficial owners complied with all filing requirements applicable to them
with respect to transactions during fiscal year 1996.
14
<PAGE>
OTHER MATTERS
The Company knows of no other business that will be presented at the Annual
Meeting. If any other business is properly brought before the Annual Meeting,
it is intended that proxies in the enclosed form will be voted in accordance
with the judgment of the persons voting the proxies.
Whether or not you intend to be present at the Annual Meeting, we urge you
to return your signed proxy promptly.
By Order of the Board of Directors.
Richard S. Grey
Secretary
Hayward, California
November 11, 1996
UPON WRITTEN REQUEST OF ANY STOCKHOLDER ENTITLED TO RECEIVE THIS PROXY
STATEMENT, THE COMPANY WILL PROVIDE, WITHOUT CHARGE, A COPY OF ITS ANNUAL
REPORT ON FORM 10-K AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION. ANY
SUCH REQUEST SHOULD BE ADDRESSED TO THE COMPANY AT 26460 CORPORATE AVENUE,
HAYWARD, CALIFORNIA 94545, ATTENTION: RAE ANNE CHALMERS, INVESTOR RELATIONS
MANAGER. THE REQUEST MUST INCLUDE A REPRESENTATION BY THE STOCKHOLDER THAT AS
OF OCTOBER 21, 1996, THE STOCKHOLDER WAS ENTITLED TO VOTE AT THE ANNUAL
MEETING.
15
