<PAGE> 1
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 the Party other than the Registrant |_|
Check the appropriate box:
[ ] Preliminary Proxy Statement [ ] Confidential, for Use of
[X] Definitive Proxy Statement the Commission Only (as
[ ] Definitive Additional Materials permitted by Rule 14a-6(e)(2))
[ ] Soliciting Material Pursuant to
Rule 14a-11(c) or Rule 14a-12
AG ASSOCIATES, INC.
(Name of Registrant as Specified in Its Charter)
----------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1)
and 0-11.
1) Title of each class of securities to which transaction applies:
_______________________________________________________________
2) Aggregate number of securities to which transaction applies:
_______________________________________________________________
3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which
the filing fee is calculated and state how it was determined):
_______________________________________________________________
4) Proposed maximum aggregate value of transaction:
_______________________________________________________________
5) Total fee paid:
_______________________________________________________________
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange
Act Rule 0-11(a)(2) and identify the filing for which the
offsetting fee was paid previously. Identify the previous filing
by registration statement number, or the Form or Schedule and the
date of its filing.
1) Amount Previously Paid:
_______________________________________________________________
2) Form, Schedule or Registration Statement No.:
_______________________________________________________________
3) Filing Party:
_______________________________________________________________
4) Date Filed:
_______________________________________________________________
<PAGE> 2
AG ASSOCIATES, INC.
4425 FORTRAN DRIVE
SAN JOSE, CALIFORNIA 95134-2300
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO OUR SHAREHOLDERS:
Notice is hereby given that the Annual Meeting of Shareholders of AG
Associates, Inc. (the "Company") will be held at the Westin Hotel, 5101 Great
America Parkway, Santa Clara, California 95054 on Thursday, January 30, 1997 at
4:00 p.m. for the following purposes:
1. To elect five directors of the Company, with each director to serve until
the next Annual Meeting of Shareholders and until his or her successor
has been elected or until his or her earlier resignation, death or
removal. The Company's Board of Directors has nominated the following
individuals to serve:
Arnon Gat, Anita Gat, Norio Kuroda, John C. Moore and Cecil Parker.
2. To ratify the selection of Deloitte & Touche LLP as independent
accountants for the Company for the fiscal year ending September 30,
1997.
3. To transact any other business as may properly come before the meeting or
any adjournment thereof.
The foregoing items of business are more fully described in the Proxy
Statement accompanying this Notice. Only shareholders of record at the close of
business on December 2, 1996 are entitled to notice of and to vote at the
meeting and any adjournment thereof. WHETHER OR NOT YOU PLAN TO ATTEND THE
MEETING IN PERSON, YOU ARE URGED TO SIGN AND PROMPTLY MAIL THE ENCLOSED PROXY IN
THE RETURN ENVELOPE PROVIDED SO THAT YOUR SHARES WILL BE REPRESENTED AT THE
MEETING.
BY ORDER OF THE BOARD OF DIRECTORS
/s/ Anita Gat
-------------------------
San Jose, California ANITA GAT
December 27, 1996 Vice President and Secretary
<PAGE> 3
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
VOTING RIGHTS AND SOLICITATIONS OF PROXIES................................................... 1
REVOCABILITY OF PROXIES...................................................................... 1
PROPOSAL NO. 1 - ELECTION OF DIRECTORS....................................................... 2
Directors/Nominees...................................................................... 2
Board of Directors' Meetings and Committees............................................. 3
Directors' Compensation................................................................. 3
PROPOSAL NO. 2 - RATIFICATION OF SELECTION OF INDEPENDENT PUBLIC ACCOUNTANTS 5
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT 5
EXECUTIVE OFFICERS........................................................................... 7
EXECUTIVE COMPENSATION....................................................................... 9
Compensation of Named Officers.......................................................... 9
Compensation Committee Interlocks and Insider Participation 11
Employment Agreement.................................................................... 11
Report of the Compensation Committee Regarding Executive Compensation 12
COMPARISON OF SHAREHOLDER RETURN............................................................. 15
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS...............................................
Canon Sales Co., Inc.................................................................... 15
Voting Agreements....................................................................... 16
Agreements Between AG Israel and the Company............................................ 16
16
COMPLIANCE WITH SECTION 16(A) OF THE SECURITIES EXCHANGE ACT OF 1934 17
SHAREHOLDER PROPOSALS........................................................................ 17
OTHER BUSINESS............................................................................... 17
</TABLE>
<PAGE> 4
AG ASSOCIATES, INC.
4425 FORTRAN DRIVE
SAN JOSE, CALIFORNIA 95134-2300
PROXY STATEMENT
December 27, 1996
The accompanying proxy (the "Proxy") is solicited on behalf of the Board of
Directors of AG Associates, Inc., a California corporation ("AG Associates" or
the "Company"), for use at the Annual Meeting of Shareholders of the Company to
be held on Thursday, January 30, 1997 at 4:00 p.m. (the "Annual Meeting"). The
Annual Meeting will be held at the Westin Hotel, 5101 Great America Parkway,
Santa Clara, California 95054. Only holders of record of the Company's Common
Stock at the close of business on December 2, 1996 will be entitled to vote. At
the close of business on that date, the Company had 5,945,264 shares of Common
Stock outstanding and entitled to vote. The presence of a majority of these
shares of Common Stock will constitute a quorum for the transaction of business
at the Annual Meeting. This Proxy Statement and the Proxy will be first mailed
to shareholders on or about December 27, 1996.
VOTING RIGHTS AND SOLICITATION OF PROXIES
Holders of Common Stock are entitled to one vote for each share held as
of the above record date, except that in the election of directors each
shareholder has cumulative voting rights and is entitled to a number of votes
equal to the number of shares held by such shareholder multiplied by the number
of directors to be elected (five). The shareholder may cast these votes all for
a single candidate or distribute the votes among any or all of the candidates.
No shareholder will be entitled to cumulate votes for a candidate, however,
unless that candidate's name has been placed in nomination prior to the voting
and the shareholder, or any other shareholder, has given notice at the Annual
Meeting, prior to the voting, of an intention to cumulate votes. In such an
event, the Proxy holder may allocate the votes represented by Proxies among the
nominees of the Board of Directors in the Proxy holder's sole discretion.
Unless otherwise noted herein, each of the Company's proposals
described in this Proxy Statement requires the affirmative vote of the holders
of a majority of the shares of the Company's Common Stock represented and voting
at the Annual Meeting if a quorum is present. Unless otherwise instructed, each
valid returned Proxy in the form accompanying this Proxy Statement that is not
revoked will be voted in the election of directors "FOR" the nominees of the
Board of Directors and "FOR" Proposal Number 2 described in this Proxy
Statement, and at the Proxy holder's discretion, on such other matters, if any,
that may come before the Annual Meeting (including any proposal to adjourn the
Annual Meeting).
The expenses of soliciting Proxies in the enclosed form will be paid by the
Company. Following the original mailing of the Proxy and other soliciting
materials, the Company will request brokers, custodians, nominees and other
record holders to forward copies of the Proxy and other soliciting materials to
persons for whom they hold shares of Common Stock and to request authority for
the exercise of Proxies. In such cases, the Company, upon the request of the
record holders, will reimburse such holders for their reasonable expenses.
Proxies may also be solicited by certain of the Company's directors, officers
and regular employees, without additional compensation, in person or by
telephone or telegram.
REVOCABILITY OF PROXIES
Any person signing a Proxy in the form accompanying this Proxy
Statement has the power to revoke it prior to the Annual Meeting or at the
Annual Meeting prior to the vote pursuant to the Proxy. A Proxy may be revoked
by a writing delivered to the Secretary of the Company stating that the Proxy is
revoked, by a subsequent Proxy that is signed by the person who signed the
earlier Proxy and is presented at the meeting or by attendance at the meeting
and voting in person. Please note, however, that if a shareholder's shares are
held of record by a broker, bank or other nominee and that shareholder wishes to
vote at the Annual Meeting, the shareholder must bring to the Annual Meeting a
letter from the broker, bank or other nominee confirming that shareholder's
beneficial ownership of the shares.
<PAGE> 5
PROPOSAL NO. 1 - ELECTION OF DIRECTORS
The Board of Directors of the Company (the "Board" or "Board of Directors")
has nominated for election as directors each of the following persons to serve
until the next annual meeting of shareholders and until his or her successor has
been elected or until his or her earlier resignation, death or removal: Arnon
Gat, Anita Gat, Norio Kuroda, John C. Moore and Cecil Parker. Unless otherwise
instructed, the Proxy holders will vote the Proxies received by them for the
Company's nominees named above. The five nominees for election as directors who
receive the greatest number of votes cast for the election of directors at the
Annual Meeting, a quorum being present, will become directors at the conclusion
of the tabulation of votes. In the event that any nominee is unable or declines
to serve as a director at the time of the Annual Meeting, the Proxies will be
voted for any nominee who shall be designated by the present Board of Directors
to fill the vacancy. It is not expected that any nominee will be unable, or will
decline, to serve as a director. In the event that additional persons are
nominated for election as directors, the Proxy holders intend to vote all
Proxies received by them in such a manner in accordance with cumulative voting
as will assure the election of as many of the nominees listed below as possible,
and, in such event, the specific nominees to be voted for under the Proxies will
be determined by the Proxy holders. See "Certain Relationships and Related
Transactions -- Voting Agreements" for a description of arrangements pursuant to
which certain individuals may be selected as directors or nominees.
DIRECTORS/NOMINEES
The names of the current members of the Board, as well as Company's
nominees for the Board, and certain information about them as of December 2,
1996 (including their terms of service), are set forth below:
<TABLE>
<CAPTION>
Name of Nominee Age Principal Occupation Director Since
- - --------------- --- -------------------- --------------
<S> <C> <C>
Arnon Gat................................... 48 Chairman of the Board of Directors 1981
and Chief Executive Officer of the
Company
Anita Gat................................... 56 Vice President Administration, 1981
Director Corporate
Communications and Secretary of
the Company
Norio Kuroda (2)............................ 55 Managing Director and Group 1995
Chief Executive, Optical Products
Group, Canon Sales Co., Inc.
John C. Moore (1)(2)........................ 52 President, Humphrey Instruments, 1988
Inc.
Cecil Parker (1)............................ 55 Managing General Partner, Cecil 1995
Parker Associates
</TABLE>
- - --------------------------
(1) Member of the Compensation Committee.
(2) Member of the Audit Committee.
Each of the nominees, if elected, will serve as a director until the next
Annual Meeting of Shareholders and until his or her successor has been elected
and qualified or until his or her earlier resignation, death or removal.
Vacancies on the Board occurring prior to an annual meeting may be filled by the
Board.
Arnon Gat co-founded the Company in October 1981. He has served as Chairman
of the Board, Chief Executive Officer and a director of the Company since
December 1981. From December 1981 to May 1994, he also served as Chief Financial
Officer of the Company, and from May 1996 to December 1996, he served as Acting
Chief Financial Officer of the Company. Prior to founding the Company, he was a
consultant at Coherent, Inc., a developer of industrial and scientific laser
technology. He holds a B.S. in electrical engineering from Israel Institute of
Technology (Technion) and an M.S. and a Ph.D. in electrical engineering from
Stanford University. While he was at Stanford, Dr. Gat was instrumental in
beginning the research and development program for laser technology and its
application to semiconductor technology. His research at Stanford is the basis
of the Company's technology. A member of the American Physical Society, the
Electromechanical Society and Metallurgic Society of the AIME, Dr. Gat has been
widely published and holds several patents in rapid thermal processing of
semiconductors. Dr. Gat is the spouse of Anita Gat.
- 2 -
<PAGE> 6
Anita Gat, a co-founder of the Company, has served as Secretary and a
director of the Company since December 1981 and as Vice President Administration
since October 1996. From January 1993 until October 1996 Ms. Gat served as Vice
President Human Resources. She also served as Director of Corporate
Communications of the Company from its formation to October 1996. Ms. Gat is the
spouse of Arnon Gat. She attended the University of Arizona.
Norio Kuroda has served as a director of the Company since May 1995. He has
served in various capacities with Canon Sales Co., Inc. ("Canon") and its
affiliates since 1964. Canon is the exclusive distributor for all Canon products
such as copiers and cameras in Japan. Canon also imports and sells semiconductor
capital equipment. Mr. Kuroda is currently Managing Director and Group Chief
Executive Officer of Canon's Optical Products Group. From 1993 to February 1995,
Mr. Kuroda served as Managing Director and Group Chief Executive Officer of
Canon's BC Sales Group. Mr. Kuroda graduated from Tokyo University of Foreign
Studies.
John C. Moore has served as a director of the Company since February 1988.
He has been President of Humphrey Instruments, Inc., a medical instrument
manufacturing company, since December 1991. From September 1988 to December
1991, Mr. Moore served as Vice President of the Surgical Products Division of
Coherent, Inc., a laser systems company. He holds a B.S. in chemistry from the
University of Rochester.
Cecil Parker has served as a director of the Company since December 1995.
He has been a Managing General Partner of Cecil Parker Associates, a consulting
practice focused on high-tech clients, since February 1988. From December 1988
to May 1989, Mr. Parker served as Vice President of Human Resources of Sematech,
the high-tech manufacturing consortium. He also served as Vice President of
Human Resources at Compaq Computer Corporation from February 1983 to January
1988. Mr. Parker holds a B.A. in business administration from the University of
Texas at Austin.
BOARD OF DIRECTORS' MEETINGS AND COMMITTEES
The Board of Directors met six times and acted by unanimous written consent
nine times during the year ended September 30, 1996 ("fiscal 1996"). No
incumbent director, with the exception of Norio Kuroda, attended fewer than 75%
of the total number of meetings of the Board of Directors and of the committees
of the Board on which he or she served. Standing committees of the Board
currently include an Audit Committee and a Compensation Committee. The Board
does not have a nominating committee or a committee performing a similar
function.
Messrs. Kuroda and Moore are the current members of the Audit Committee.
The Audit Committee met two times during fiscal 1996. The Audit Committee
exercises the following powers: (1) nominates the independent auditors of the
Company to be approved by the Board of Directors; (2) meets with the independent
auditors to review the annual audit; (3) assists the full Board in evaluating
the auditor's performance; and (4) reviews internal audit and control
procedures, related party transactions and, where appropriate, potential
conflict of interest situations.
Messrs. Parker and Moore are the current members of the Compensation
Committee. The Compensation Committee met once and acted by unanimous written
consent 21 times during fiscal 1996. The Compensation Committee administers all
stock and other compensation for the Company's officers. Additionally, the
Compensation Committee administers the Company's 1993 Stock Option Plan,
Employee Stock Purchase Plan and other stock benefit plans for officers and
employees. The Company's 1994 Directors Option Plan is administered by the full
Board.
DIRECTORS' COMPENSATION
Directors do not receive cash compensation for serving as members of the
Company's Board of Directors, but are reimbursed for their expenses in attending
meetings of the Board and of Committees of the Board. Outside Directors
(directors who are not employed by the Company or any of its subsidiaries and
who do not represent a corporate strategic partner of the Company) are eligible
for automatic option grants under the 1994 Directors Stock Option Plan (the
"Directors Plan"). The Directors Plan provides for the automatic grant of an
option for 5,000 shares when an individual first becomes an Outside Director. If
the individual is still an Outside Director on each anniversary of the date he
or she joined the Board, he or she is automatically granted an additional option
for 1,000 shares. All options granted under the Directors Plan have an exercise
price equal to the fair market value of the Company's common stock on the date
of grant, become exercisable at a rate of 25% of the shares each year, and
expire five years after the date of grant. During fiscal 1996, the following
options were granted under the Directors
- 3 -
<PAGE> 7
Plan to Outside Directors of the Company: in December 1995, the Company granted
an option to purchase 5,000 shares to Cecil Parker at the time he joined the
Board; and in February 1996, the Company granted an option to purchase 1,000
shares to John C. Moore. All other options currently held by directors were
granted prior to the time the Directors Plan was adopted.
The following options were held by the Company's directors as of September
30, 1996:
<TABLE>
<CAPTION>
Number of Termination
Name Shares Exercise Price Grant Date Plan Type Date
- - ---- -------- -------------- ---------- --------- ----------
<S> <C> <C> <C> <C> <C>
Arnon Gat.................. 18,750 $3.30 01/14/94 1993 Plan (1) 01/14/99
3,960 $8.36 10/01/94 1993 Plan (2) 10/01/99
Anita Gat.................. 18,750 $3.30 01/14/94 1993 Plan (1) 01/14/99
2,319 $8.36 10/01/94 1993 Plan (2) 10/01/99
6,900 $15.29 12/19/95 1993 Plan (3) 12/19/00
7,800 $7.50 03/18/96 1993 Plan (3) 03/18/01
John C. Moore.............. 2,500 $4.80 07/13/91 Non Plan (4) 07/13/01
1,000 $9.14 02/18/96 Directors Plan (5) 02/18/01
Cecil Parker............... 5,000 $16.71 12/06/95 Directors Plan (5) 12/06/00
</TABLE>
- - ---------------------------
(1) Granted under the Company's 1993 Stock Option Plan. These options vest
as to 50% of the shares subject to the option on May 23, 1996 and at
the rate of 25% of the shares subject to the option annually
thereafter. Since these option holders also hold more than 10% of the
Company's stock, the exercise price was equal to 110% of the fair
market value of the Common Stock on the date of grant as required by
applicable tax laws.
(2) Granted under the Company's 1993 Stock Option Plan. These options are
100% vested. Since these option holders also hold more than 10% of the
Company's stock, the exercise price was equal to 110% of the fair
market value of the Common Stock on the date of grant as required by
applicable tax laws.
(3) Granted under the Company's 1993 Stock Option Plan. These five-year
options vest as to 25% of the shares each year after the date of grant.
Since these option holders also hold more than 10% of the Company's
stock, the exercise price was equal to 110% of the fair market value of
the Common Stock on the date of grant as required by applicable tax
laws.
(4) Granted outside of the terms of any of the Company's stock option
plans. This option vests at the rate of 25% of the shares subject to
the option annually from the date of grant. The exercise price was
equal to the fair market value of the Common Stock on the date of
grant.
(5) Granted under the Directors Plan. These five-year options vest as to
25% of the shares each year after the date of grant.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE ELECTION
OF EACH OF THE NOMINATED DIRECTORS.
-----------------------------------
- 4 -
<PAGE> 8
PROPOSAL NO. 2 - RATIFICATION OF SELECTION OF
INDEPENDENT PUBLIC ACCOUNTANTS
The Audit Committee has nominated and approved, subject to shareholder
approval, Deloitte & Touche LLP as its principal independent accountants to
perform the audit of the Company's financial statements for the fiscal year
ending September 30, 1997 ("fiscal 1997"), and the shareholders are being asked
to ratify such selection. Deloitte & Touche LLP was engaged as the Company's
principal independent accountants in June 1994 and performed the Company's audit
for the year ended September 30, 1995 ("fiscal 1995") and fiscal 1996.
Representatives of Deloitte & Touche LLP will be present at the Annual Meeting,
will be given an opportunity to make a statement at the Annual Meeting if they
desire to do so and will be available to respond to appropriate questions.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR RATIFICATION
OF DELOITTE & TOUCHE LLP AS THE COMPANY'S PRINCIPAL
INDEPENDENT ACCOUNTANTS.
---------------------------------
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information, as of December 2, 1996
with respect to the beneficial ownership of the Company's Common Stock by: (a)
each shareholder known by the Company to be the beneficial owner of more than
five percent of the Company's Common Stock; (b) each director and nominee; (c)
the Chief Executive Officer and the four other most highly compensated executive
officers who were serving as executive officers at the end of fiscal 1996
(together, the "Named Officers"); and (d) all officers and directors as a group.
Unless otherwise noted, the address of each named beneficial owner is that of
the Company.
<TABLE>
<CAPTION>
Name and Address Number of Shares Percent of Beneficial
of Beneficial Owner Owned Ownership (1)
- - ------------------- ---------------- ---------------------
<S> <C> <C>
Arnon and Anita Gat (2)....................................... 1,098,281 18.4%
Investment Company of Bank Hapoalim (3)........................ 717,228 12.1
Norio Kuroda (4)............................................... 604,166 10.2
Canon Sales Co., Inc. (4)...................................... 604,166 10.2
Nippon Typewriter Corporation (4).............................. 604,166 10.2
Clal Electronics Industries Ltd. (5)........................... 550,000 9.3
Yuval Wasserman (6)........................................... 32,839 *
Derek Tomlinson (7)............................................ 30,272 *
Julio Guardado (8)............................................. 25,000 *
Duane McCallister (9).......................................... 4,375 *
John C. Moore (10)............................................. 16,250 *
Cecil Parker (11)............................................ 1,250 *
All current officers and directors
as a group - 11 persons (12)................................... 1,814,183 29.9%
</TABLE>
- - --------------------
* Less than 1%
(1) Unless otherwise indicated below, the persons named in the table have
sole voting and sole investment power with respect to all shares
beneficially owned, subject to community property laws where applicable.
Percentage of beneficial ownership is based on 5,945,264 shares of Common
Stock outstanding as of December 2, 1996.
(2) Represents 937,153 shares of Common Stock held jointly by Arnon and
Anita Gat, 62,500 shares held by Arnon Gat as Trustee of a trust
benefiting Dr. Gat's son, 62,500 shares held by Anita Gat as trustee of
a trust benefiting Dr. and Ms. Gat's minor daughter and 36,128 shares
subject to options held by Dr. or Ms. Gat that are exercisable within
60 days
- 5 -
<PAGE> 9
after December 2, 1996. These shares are listed as beneficially owned
by both Arnon and Anita Gat, who disclaim beneficial ownership to all
shares other than those they hold jointly and, as to shares subject to
unexercised options, those each such person has a right to purchase
under his or her options. Does not include 717,228 shares and 550,000
shares held by Investment Company of Bank Hapoalim ("Hapoalim
Investment Co.") and Clal Electronics Industries Ltd. ("Clal
Electronics"), respectively, as to which Dr. and Ms. Gat may be deemed
to share voting power due to the existence of certain voting agreements
but as to which Dr. and Ms. Gat disclaim beneficial ownership. See
"Certain Relationships and Related Transactions -- Voting Agreements,"
below. Dr. Gat is Chairman of the Board of Directors and Chief
Executive Officer of the Company, and Ms. Gat is Vice President
Administration, Secretary and a director of the Company.
(3) Represents 717,228 shares held of record by this shareholder as of
December 2, 1996. Does not include 973,281 shares (including shares
issuable upon exercise of options that are exercisable within 60 days
after December 2, 1996) held by Arnon Gat and Anita Gat, as to which
this shareholder may be deemed to share voting power due to the
existence of certain voting agreements but as to which this shareholder
disclaims beneficial ownership. Does not include 550,000 shares held by
Clal Electronics, as to which this shareholder may be deemed to share
voting power due to the ownership by Bank Hapoalim B.M. ("Bank
Hapoalim") of shares of affiliates of Clal Electronics but as to which
this shareholder disclaims beneficial ownership. Bank Hapoalim has a
partial ownership interest in the Hapoalim Investment Co., and
representatives of Bank Hapoalim serve on the Board of Directors of
Hapoalim Investment Co. Accordingly, Bank Hapoalim may be deemed to
beneficially own the shares of the Company's Common Stock owned by
Hapoalim Investment Co. See "Certain Relationships and Related
Transactions -- Voting Agreements," below. The address of Bank Hapoalim
and Hapoalim Investment Co. is 3 Daniel Frisch St., Tel Aviv 64731,
Israel.
(4) Represents 487,962 shares held by Canon and 116,204 shares held by
Nippon Typewriter Corporation, a subsidiary of Canon. These shares are
listed as beneficially owned by both Canon (for which Norio Kuroda
serves as Managing Director and Group Chief Executive Officer of the
Optical Products Group) and by Nippon Typewriter Corporation. Mr.
Kuroda is a director of the Company. He disclaims beneficial ownership
of these shares. The address for Mr. Kuroda and Canon is 11-28, Mita
3-Chome, Minato-Ku, Tokyo 109, Japan. The address for Nippon Typewriter
Corporation is 11-12, Kyobashi 1-Chome, Chuo-Ku, Tokyo, Japan.
(5) Does not include 973,281 shares (including shares issuable upon
exercise of options that are exercisable within 60 days after December
2, 1996) held by Arnon Gat and Anita Gat, as to which this shareholder
may be deemed to share voting power due to the existence of certain
voting agreements, but as to which this shareholder disclaims
beneficial ownership. See "Certain Relationships and Related
Transactions -- Voting Agreements" below. The address of Clal
Electronics is Clal House 5 Druyanov St., Tel Aviv 63143, Israel.
(6) Represents 1,277 shares held by Mr. Wasserman and 31,562 shares subject
to options exercisable within 60 days after December 2, 1996. Mr.
Wasserman is Vice President Technology of the Company.
(7) Represents 2,460 shares held by Mr. Tomlinson and 27,812 shares subject
to options exercisable within 60 days after December 2, 1996. Mr.
Tomlinson is Vice President Sales and Marketing of the Company.
(8) Represents 25,000 shares subject to options exercisable within 60 days
after December 2, 1996. Mr. Guardado is President and Chief Operating
Officer of the Company.
(9) Represents 4,375 shares subject to options exercisable within 60 days
after December 2, 1996. Mr. McCallister is Vice President Operations of
the Company.
(10) Represents 15,625 shares held by Mr. Moore and 625 shares subject to
options exercisable within 60 days after December 2, 1996. Mr. Moore is
a director of the Company.
(11) Represents 1,250 shares subject to options exercisable within 60 days
after December 2, 1996. Mr. Parker is a director of the Company.
(12) Includes 128,502 shares subject to options exercisable within 60 days
after December 2, 1996 (represented by the options listed in notes 2
and 6 through 11 and an additional 1,750 shares subject to options
exercisable within 60 days after December 2, 1996).
- 6 -
<PAGE> 10
EXECUTIVE OFFICERS
The executive officers of the Company, and their ages as of December, 2,
1996, are as follows:
<TABLE>
<CAPTION>
Name Age Position
- - ---- --- --------
<S> <C> <C>
Arnon Gat................................... 48 Chairman of the Board of Directors and Chief
Executive Officer
Julio L. Guardado........................... 41 President and Chief Operating Officer
Anita Gat................................... 56 Vice President Administration, Secretary and
Director
Dennis Favero............................... 55 Vice President Finance and Chief Financial Officer
Duane "Mac" McCallister..................... 54 Vice President Operations
Derek Tomlinson............................. 34 Vice President Sales and Marketing
Yuval Wasserman............................. 42 Vice President Technology
Robert Bogart............................... 50 Vice President Product Development
</TABLE>
For information regarding the positions and offices with the Company held
by Dr. Gat and Ms. Gat, please refer to the discussion regarding nominees for
election as directors in "Directors/Nominees" under Proposal No. 1 above.
Mr. Guardado joined the Company in July 1995 as its President and Chief
Operating Officer. From July 1991 to July 1994, Mr. Guardado held the position
of Vice President and General Manager of the Monitoring Systems Division of
Nellcor, Inc., a medical instrumentation company. Before joining Nellcor, Mr.
Guardado served as Vice President and General Manager of the Raster Products
Division of CalComp, Inc., a leading supplier of computer graphics peripherals
for CAD engineering applications from October 1990 to July 1991. He received a
B.S. from the University of California Riverside in applied science/computer
science and an M.B.A. from Claremont Graduate School.
Mr. Favero joined the Company in December 1996 as Vice President Finance
and Chief Financial Officer. From October 1995 until joining the Company, Mr.
Favero was an active investor and financial consultant to TriQuest Design
Automation, Inc., a software development company, where he served as Vice
President Operations and Chief Financial Officer from March 1996 to December
1996. Before joining TriQuest Design Automation, Inc. he was Vice President and
Chief Financial Officer of Systems and Networks, a manufacturer of computer
networks, from June 1995 until the company was acquired in October 1995. Mr.
Favero operated his own management and business development consultancy from
June 1993 until October 1995, which included a period as Chief Financial Officer
for Consilium, Inc., a manufacturer of manufacturing systems, and an
international acquisition assignment with SaRonix, Inc., an electronics
components manufacturer. Mr. Favero served as Vice President and Chief Financial
Officer of Quickturn Systems, Inc., a component hardware manufacturer, from 1990
until June 1993. He received a B.B.A. from the University of Notre Dame and an
M.B.A. from the University of Arizona.
Mr. McCallister joined the Company as Vice President Operations in November
1995 and assumed customer support responsibilities in August 1996. From June
1994 until he joined the Company, Mr. McCallister served as President, General
Manager of MacBeck and Ryan Company, an inventory services company. Before
joining MacBeck and Ryan Company, Mr. McCallister served as Director of
Operations at Alesis Studio Electronics, a manufacturer and distributor of
studio recording devices, from April 1993 to June 1994. Prior to joining Alesis
Studio Electronics, Mr. McCallister served at Century Products Co., a
manufacturer and distributor of juvenile products, from May 1989 to June 1992,
most recently as Vice President, Operations. He holds a B.S. in business
administration from the University of California at Berkeley.
Mr. Tomlinson has served as Vice President of Sales and Marketing of the
Company since October 1996. From May 1995 to October 1996, he served as Vice
President Sales and Acting Vice President Marketing of the Company, and from
July 1993 to May 1995, he served as Vice President Sales of the Company. He has
been employed by the Company since September 1986 in various sales and sales
management positions, including: Director of Sales, National/European Sales
Manager, Western Regional Sales Manager and Sales Engineer. Before joining the
Company, Mr. Tomlinson was a Technical Sales Engineer at Airco Special Gases, a
commercial gas supplier. He holds a B.S. in chemical engineering from the
University of New Hampshire.
-7-
<PAGE> 11
Mr. Wasserman has served as Vice President Technology of the Company since
May 1995 and served as Vice President Marketing and Technology of the Company
from December 1993 until May 1995. He served as Director of Marketing and
Technology of the Company from May 1991 to December 1993 and as Director of
Technology of the Company from August 1989 to May 1991. From June 1983 to August
1989, Mr. Wasserman served at National Semiconductor as a process engineer and,
from November 1987 to August 1989, as Engineering Section Manager, Diffusion and
Ion Implementation Section , at a fabrication facility in Israel. He holds a
B.S.C. in chemical engineering from Ben Gurion University in Israel. Mr.
Wasserman has also assumed marketing and sales responsibilities at AG Associates
(Israel) Ltd., the Company's forty-nine percent owned subsidiary ("AG Israel"),
on a consulting basis.
Mr. Bogart has served as Vice President Product Development of the Company
since October 1996 and served as Vice President Programs of the Company from
August 1996 to October 1996. From January 1996 to August 1996, Mr. Bogart served
as Director, New Products of the Company. Prior to joining the Company, Mr.
Bogart served as Principal of COSINE, a consulting practice that provided
management and engineering services to a diverse array of clients, from 1993 to
1995. From 1988 to 1993, Mr. Bogart served as Vice President, Engineering of
Laserscope, a manufacturer of medical electronic equipment. He holds a B.S. in
electrical engineering from Carnegie Mellon University, an M.S. in electrical
engineering from the University of Maryland and an M.S. in administration from
George Washington University.
-8-
<PAGE> 12
EXECUTIVE COMPENSATION
COMPENSATION OF NAMED OFFICERS
The following table sets forth all compensation awarded, earned or paid for
services rendered in all capacities to the Company during fiscal 1995 and fiscal
1996 to the Named Officers. This information includes the dollar values of base
salaries, bonus awards, the number of stock options granted and certain other
compensation, if any, whether paid or deferred. The Company does not grant SARs
and has no long-term compensation benefits other than stock options.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Long-term
Compensation
------------------
Awards
------------------
Annual Compensation Shares
Other Annual Underlying All Other
Fiscal Salary Bonus Compensation Options Compensation
Name and Principal Position Year ($) ($) (1) ($) (#) ($)
- - -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Arnon Gat.......................... 1996 $200,000 $ 21,500 $5,100 (2) -- $ 522 (3)
Chairman of the Board of Directors 1995 142,308 121,136 1,362 (2) 3,960 15,519 (4)
and Chief Executive Officer
Julio Guardado..................... 1996 206,141 (5) 25,104 5,100 (2) 125,000 (7) 306 (3)
President and Chief Operating 1995 30,288 -- -- 100,000 --
Officer
Derek Tomlinson.................... 1996 100,429 75,241 7,260 (6) 18,800 (7) 148 (3)
Vice President Sales and Marketing 1995 81,153 114,653 4,122 (6) 5,000 67 (3)
Yuval Wasserman.................... 1996 140,768 32,581 5,100 (2) 37,000 (7) 310 (3)
Vice President Technology 1995 98,031 65,242 3,762 (2) 5,000 192 (3)
Duane McCallister.................. 1996 136,154 (5) 17,972 4,315 (2) 48,400 (7) 712 (3)
Vice President Operations 1995 -- -- -- -- --
</TABLE>
- - -----------------------------
(1) Includes profit sharing and executive bonuses for services rendered
during fiscal 1995 and executive bonuses for services rendered during
fiscal 1996 but that may have been paid in a different fiscal year.
Profit sharing is paid quarterly to all employees with at least two
months' service with the Company in the quarter, except that officers
did not receive profit sharing during fiscal 1996. The amount to be
paid to each eligible employee equals 10% of the Company's pre-tax
profit for the quarter divided by the number of eligible employees.
(2) Represents car allowance.
(3) Represents group term life insurance paid by the Company.
(4) Includes $15,024 paid for vacation over-accrual and $495 for group term
life insurance paid by the Company.
(5) Includes reimbursement of relocation expenses of $30,000 for Mr.
Guardado and $25,000 for Mr. McCallister.
(6) Includes a car allowance of $5,100 and $3,762 and an office allowance
of $2,160 and $360 for fiscal 1996 and fiscal 1995 respectively.
(7) Includes options granted earlier but repriced during fiscal 1996. See
"Report of the Compensation Committee Regarding Executive Compensation
-- 1996 Option Repricing Program."
-9-
<PAGE> 13
The following table sets forth information concerning option grants during the
fiscal year ended September 30, 1996 to each of the Named Officers.
OPTION GRANTS IN FISCAL 1996
<TABLE>
<CAPTION>
Individual Grants
% of Total Potential Realizable Value
Number of Options at Assumed Annual Rates
Shares Granted to of
Underlying Employees Stock Price Appreciation
Options Granted in Fiscal Exercise Price Expiration for Option Term (3)
(#)(1) Year (2) Per Share ($) Date 5% ($) 10% ($)
-------- ---------- --------------- ------ ------ -------
<S> <C> <C> <C> <C> <C> <C>
Arnon Gat............. -- -- -- -- -- --
Julio Guardado ....... 25,000 2.8% $6.82 03/18/06 $107,227 $ 271,733
100,000 (4) 11.3 7.125 07/26/05 448,087 1,135,542
Derek Tomlinson ...... 13,800 1.6 6.82 03/18/06 59,189 149,997
5,000 (4) 0.6 7.125 05/16/94 22,404 56,777
Yuval Wasserman ...... 12,000 1.4 6.82 03/18/06 51,469 130,432
10,000 (5) 1.1 7.125 12/13/05 44,809 113,554
10,000 (5) 1.1 16.00 12/13/05 100,623 254,999
5,000 (4) 0.6 7.125 09/11/05 22,404 56,777
Duane McCallister .... 8,400 0.9 6.82 03/18/06 36,028 91,302
5,000 0.6 6.00 08/05/06 18,867 47,812
17,500 (5) 2.0 7.125 11/08/05 78,415 198,720
17,500 (5) 2.0 21.25 11/08/05 233,870 592,673
</TABLE>
- - ----------------------------
(1) Options granted in fiscal 1996 vest at the rate of 25% of the shares
subject to the option annually from the date of grant. The exercise
price was equal to the fair market value of the Common Stock on the
date of grant. Under the terms of the option plan, the Compensation
Committee retains discretion, subject to plan limits, to modify the
terms of outstanding options.
(2) Percent of total options granted to employees in fiscal year is based
on a total of 885,063 options granted to employees during fiscal 1996,
including options granted earlier but repriced during fiscal 1996.
(3) In accordance with the rules of the Securities and Exchange Commission
(the "Commission"), the table sets forth the hypothetical gains or
"option spreads" that would exist for the options at the end of their
respective terms. These gains are based on assumed rates of annual
compound stock price appreciation of 5% and 10% from the date the
option was granted to the end of the option term. The 5% and 10%
assumed annual compound rates of stock price appreciation are mandated
by the rules of the Commission and do not represent the Company's
estimate or projection of future Common Stock prices. Actual gains, if
any, on option exercises are dependent on the future performance of the
Company's Common Stock.
(4) Represents options granted earlier but repriced during fiscal 1996. See
"Report of the Compensation Committee Regarding Executive Compensation
-- 1996 Option Repricing Program."
(5) Represents options granted and later repriced during fiscal 1996. See
"Report of the Compensation Committee Regarding Executive Compensation
-- 1996 Option Repricing Program."
-10-
<PAGE> 14
The following table sets forth the number of shares of Common Stock represented
by outstanding stock options held by each of the Named Officers as of September
30, 1996 and the value of such options based on the closing price of the
Company's Common Stock at fiscal year-end ($6.75). None of the Named Officers
exercised stock options during fiscal 1996.
FISCAL 1996 YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
Value of Securities
Number of Shares Unexercised
Underlying Unexercised In-the-Money Options
Options at Fiscal Year-End(#) at Fiscal Year-End ($)(1)
Name Exercisable Unexercisable Exercisable Unexercisable
<S> <C> <C> <C> <C>
Arnon Gat ............ 13,335 9,375 $32,344 $32,344
Julio Guardado ....... 25,000 100,000 -- --
Derek Tomlinson ...... 23,125 26,925 80,735 35,153
Yuval Wasserman ...... 24,375 35,125 72,963 35,153
Duane McCallister .... -- 30,900 -- 3,750
</TABLE>
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Since December 1995, the Compensation Committee of the Board of Directors
has consisted of Messrs. Moore and Parker, neither of whom has been, or is, an
officer or an employee of the Company. From May 1995 to December 1995, the
Compensation Committee consisted of Messrs. Kuroda and Moore, neither of whom
has been, or is, an officer or an employee of the Company. Prior to that time
the members of the Compensation Committee were Arnon Gat and Anita Gat, both of
whom are executive officers of the Company. No past or current member of the
Compensation Committee has ever had a relationship that would constitute an
interlocking relationship with the Company and executive officers or directors
of another entity.
EMPLOYMENT AGREEMENT
The Company has entered into an employment agreement with one of its
officers - Julio Guardado.
The agreement with Mr. Guardado, dated July 20, 1995, specifies that he
will be paid a base salary of $14,585 per month (calculating to $175,000
annually) and will be eligible for a bonus of up to 45% of annual base salary
based on the Company meeting performance goals to be agreed upon by Mr. Guardado
with the Company's Chief Executive Officer prior to the beginning of each fiscal
year. In addition, pursuant to the agreement, the Company has reimbursed Mr.
Guardado $30,000 for his actual and reasonable expenses to relocate to the San
Jose area. If Mr. Guardado resigns within 18 months after his hire date, he will
be obligated to return a portion of the expenses reimbursed based on the length
of his employment. The Company and Mr. Guardado must each give the other six
months' notice of termination of Mr. Guardado's employment. In addition to other
fringe benefits offered to the Company's employees generally and pursuant to the
terms of Mr. Guardado's employment agreement, in July 1995, Mr. Guardado was
granted an option to purchase up to 100,000 shares of the Company's Common Stock
under the 1993 Plan exercisable at $21.63 per share. In June 1996, this option
grant was repriced and is now exercisable at $7.125 per share. In connection
with Mr. Guardado's employment agreement, in August 1995, the Company advanced
Mr. Guardado $60,000 pursuant to a promissory note that bears interest at the
rate of 8.75% per annum. Mr. Guardado has paid down the note, and the remaining
balance of $25,655 plus accrued interest of $2,085 is due in July 1997.
-11-
<PAGE> 15
REPORT OF THE COMPENSATION COMMITTEE
REGARDING EXECUTIVE COMPENSATION
The Compensation Committee of the Board of Directors, comprised of two
non-employee directors, determines and administers the Company's executive
compensation policies and programs.
Compensation Policy
The Company applies a consistent philosophy to compensation for all
employees, including senior management. The premise of this philosophy is to pay
for performance. The Committee's primary objectives in determining compensation
policies are: (1) to maintain competitive, progressive programs to attract and
retain key executive talent and foster teamwork and to motivate executive
officers by appropriately rewarding such individuals for their achievements; and
(2) to provide incentives which focus executive efforts on short-term and
long-term strategic goals for the Company by closely aligning their financial
interests with shareholder interests. To attain these goals, the Committee has
designed the Company's executive compensation program to include salary, an
executive incentive plan, stock options and participation in benefit plans
generally available to other employees.
The Compensation Committee of the Board reviews base salary levels for officers
annually. The Compensation Committee establishes the general compensation policy
of the Company for all executive officers and sets specific salary and stock
option levels.
To arrive at total compensation, the Company's human resources department
provides the Compensation Committee with market data from published surveys
which track high technology companies. The Company's executive level positions,
including the Chief Executive Officer ("CEO"), were matched to comparable survey
positions and competitive market compensation levels to determine base salary,
target incentives and target total cash compensation. A custom analysis of
market stock option practices of select industry group companies was provided to
the Compensation Committee. The analysis provided the database of companies
constituting the industry group, an overview of market practices and option
grants in equivalent shares for new hire and ongoing grants.
The executive compensation survey data are reviewed with the CEO for each
executive level position and, with respect to the CEO's compensation, are
reviewed by the Board. The CEO's salary was based on competitive market
conditions as described below.
Fiscal Year 1996 Executive Compensation
The practice of the Company during fiscal 1996 has been to establish
base salaries at the approximate median of comparative positions included in the
executive compensation survey data. The foregoing information, along with the
CEO's recommendations of base salary for fiscal 1996 for each executive officer,
was presented to the Compensation Committee at the time salary levels were
approved and again for particular executive officers at various times throughout
the year when the executive officer was promoted or other changes in the
officer's status were made. At that time, the Committee reviewed the
recommendations outlined above and established a base salary level for the
executive officer in question.
The Committee believes that the compensation of the CEO and other
executive officers should be influenced by the Company's overall performance. As
a result, once base salary was determined, an additional portion of the
compensation of each executive was contingent upon corporate and individual
performance under the Company's bonus compensation plan for each officer. Under
these plans, cash awards may be made to employees based upon the Company's
overall performance measured by the Company's pre-tax income and based upon
individual performance in achieving certain milestones set by the officer and
the CEO (in the case of the CEO, set by the CEO and the Compensation Committee).
Executive officer bonus distributions for fiscal 1996 have, together, been
approximately 2.9% of the Company's pre-tax income.
-12-
<PAGE> 16
Finally, the Committee believes that stock options play an important
role in attracting and retaining qualified personnel because they provide
personnel with a reward directly tied to increased stock values. Stock options
are granted at fair market value to executive officers when they first join the
Company. During fiscal 1996, options were initially granted to two executive
officers for the purchase in the aggregate of up to 24,500 shares of the
Company's Common Stock. In individual cases, follow-on options are granted,
again at fair market value on the date of grant, to executives after the initial
options are partially or fully vested. Both initial and follow-on options are
granted based upon the Committee's analysis of equity incentives offered to
executives in equivalent positions by similar companies with whom the Company
competes for available executive talent and, with respect to follow-on options,
the CEO's determination of whether or not the executive officer's performance
warrants an additional grant. Eight follow-on options, excluding repriced
options, were granted in fiscal 1996. In addition, the Committee approved and
the Company implemented an option repricing program in fiscal 1996. See "1996
Option Repricing Program," below.
CEO Compensation
The Committee applies the foregoing principles and policies in
determining the compensation of the Chief Executive Officer, Dr. Arnon Gat. In
determining Dr. Gat's base salary and bonus, the Committee examined compensation
levels for other chief executive officers in high technology firms within and
outside the industry.
Dr. Gat received a salary of $200,000 during fiscal 1996, a time period
in which the Company's earnings decreased to $2.7 million from $9.8 million and
revenue grew to $71.1 million from $62.7 million in the prior year. The
Committee believes that for the near term increases in revenue and net earnings
are the primary metrics for the Chief Executive Officer. Based on reports of
compensation levels for chief executive officers in similar sized companies, the
Committee set Dr. Gat's bonus target at 45% of his annual salary. During fiscal
1996, the Company did not meet Dr. Gat's bonus target for the combination of
increases in revenue and net earnings due to lower than anticipated revenue and
net earnings. Based on the Company's performance, the Committee approved the
payment to Dr. Gat of a cash bonus for fiscal 1996 of $19,000, which equals 9.5%
of his fiscal 1996 salary. In addition, Dr. Gat received an executive bonus
payment of $2,500 for fiscal 1996 in lieu of his participation in the Company's
profit sharing program.
1996 Option Repricing Program
Competition for skilled engineers and other key employees in the rapid
thermal processing industry is intense, and the use of significant stock options
for retention and motivation of such personnel is widespread in the high
technology industries. The Compensation Committee believes that stock options
are a critical component of the compensation offered by the Company to promote
long-term retention of key employees, motivate high levels of performance and
recognize employee contributions in the success of the Company. The market price
of the Company's common stock decreased substantially from a high of $36.81 in
July 1995 to a low of $6.38 in March 1996. In light of this substantial decline
in the market price, the Compensation Committee believed that the large numbers
of outstanding stock options with an exercise price in excess of the actual
market price were no longer an effective tool to encourage employee retention or
to motivate high levels of performance. As a result, the Compensation Committee
approved on June 21, 1996 an option repricing program.
All executive officers who were not directors and all other employees
were eligible to participate in the option repricing program. Under the program,
all options with an exercise price above $7.125 that were held by eligible
optionees were amended such that the exercise price of each option would
thereafter be equal to the closing market price of the Company's Common Stock
($7.125) on June 21, 1996, the trading date preceding the date on which the
Compensation Committee approved the repricing plan.
-13-
<PAGE> 17
Options repriced from May 15, 1995, the date the Company first became a
reporting company pursuant to Section 13(a) or 15(a) of the Securities Exchange
Act of 1934, as amended, through September 30, 1996 for each of the Company's
executive officers at the end of fiscal 1996 are listed in the following table:
<TABLE>
<CAPTION>
LENGTH OF
NUMBER OF ORIGINAL
SECURITIES MARKET PRICE OPTION TERM
UNDERLYING OF STOCK AT EXERCISE PRICE REMAINING AT
OPTIONS TIME OF AT TIME OF NEW EXERCISE DATE OF
NAME DATE REPRICED (#) (1) REPRICING ($) REPRICING ($) PRICE ($) REPRICING
---- ---- ---------------- ------------- ------------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Julio L. Guardado, 6/21/96 100,000 $7.125 $21.63 $7.125 8 yr 11 mo
President and Chief
Operating Officer
Duane McCallister, 6/21/96 17,500 7.125 22.89 7.125 9 yr 5 mo
Vice President
Operations
Derek Tomlinson, 6/21/96 5,000 7.125 30.50 7.125 9 yr 3 mo
Vice President Sales
and Marketing
Yuval Wasserman, 6/21/96 5,000 7.125 8.00 7.125 8 yr 9 mo
Vice President 6/21/96 10,000 7.125 16.96 7.125 9 yr 6 mo
Technology
Robert Bogart, 6/21/96 7,000 7.125 19.00 7.125 9 yr 6 mo
Vice President
Product Development
</TABLE>
- - ----------------
(1) Reflects all stock splits of the Company to date.
COMPENSATION COMMITTEE
John C. Moore
Cecil Parker
-14-
<PAGE> 18
COMPARISON OF SHAREHOLDER RETURN
The graph below compares the cumulative shareholder return on the Common
Stock of the Company from the first date the Company's Common Stock was publicly
traded (May 16, 1995) to September 30, 1996 with the cumulative return on the
Nasdaq Market Index (U.S. Companies) and the H&Q Semiconductor Index over the
same period (assuming the investment of $100 in the Company's Common Stock and
in each of the indexes on the first date the Company's Common Stock was publicly
traded and reinvestment of all dividends).
COMPARISON OF CUMULATIVE TOTAL RETURN SINCE MAY 1995
<TABLE>
<CAPTION>
Cumulative Total Return
-------------------------
5/16/95 9/95 9/96
<S> <C> <C> <C> <C>
Ag Assocs Inc AGAI 100 158 42
NASDAQ STOCK MARKET- US INAS 100 121 143
HAMBRECHT & QUIST SEMICONDUCTOR IHQS 100 128 96
</TABLE>
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
See "Proposal No. 1 - Election of Directors" above for a description of
directors' compensation arrangements and "Executive Compensation -- Employment
Agreement" above for a description of a compensation-related agreement entered
into by the Company with one of its officers.
Other than these compensation arrangements, since October 1, 1995, there
has not been, nor is there currently proposed, any transaction or series of
transactions to which the Company was or is to be a party in which the amount
involved exceeds $60,000 and in which any director, executive officer, or holder
of more than 5% of the Company's Common Stock had or will have a direct or
indirect material interest except for the transactions described below.
-15-
<PAGE> 19
CANON SALES CO., INC. ("CANON")
In July 1989, Canon, Appex Corporation and Nippon Typewriter Corporation
(collectively, the "Purchasers") entered into Stock Purchase Agreements with the
Company. Under the Stock Purchase Agreements, the Purchasers acquired
approximately 799,999 shares of the Common Stock of the Company, or 37% of the
then-outstanding shares of the Company's Common and Preferred Stock for an
aggregate purchase price of approximately $3.8 million. In connection with such
purchase, the Purchasers were granted incidental registration rights at the
Purchasers' expense to include their shares in any registration of shares held
by shareholders in an amount up to 37% of the shares registered. See
"Registration Rights" below. Subsequent to the purchase, Norio Kuroda's
predecessor, who was then Managing Director of Canon, was elected to the
Company's Board of Directors. Mr. Kuroda, Managing Director of Canon's Optical
Product Group, now serves on the Company's Board of Directors, although there is
no obligation on the Company's part to nominate a representative of Canon.
In January 1994, the Company entered into an Improvements License Agreement
with Canon under which the Company granted Canon a non-exclusive,
non-transferable (except in a merger or sale of assets), royalty-free, fully
paid license to use the Company's technology (a) to make modifications to rapid
thermal processing ("RTP") systems purchased from the Company and to distribute
such modified units in Japan under any separate distribution arrangement that
may exist between the Company and Canon from time to time and (b) to manufacture
prototypes of component parts of RTP systems but only if such parts are
integrated into a system purchased from the Company. Title to the resulting
modifications is held jointly by Canon and the Company without the right to sell
or transfer rights in the same.
In connection with the 1989 transactions described above, Canon entered
into an agreement (renewed in 1994) to act as the Company's exclusive
distributor in Japan. Sales to Canon amounted to $17.5 million under this
arrangement in fiscal 1996.
VOTING AGREEMENTS
In February 1995, the Company, Arnon Gat and Anita Gat entered into an
agreement with Hapoalim Investment Co. that remains in effect so long as
Hapoalim Investment Co. retains at least 10% of the Company's capital stock. If
required by Hapoalim Investment Co., the agreement obligates Arnon Gat and Anita
Gat to nominate as a director of the Company, and vote for, one representative
specified by Hapoalim Investment Co. This representative may be counted for
purposes of a quorum of the Board of Directors on any matter relating to AG
Israel but may not vote on such matters. The agreement also requires a
coordinated vote of the parties on general matters. Hapoalim Investment Co. is
not currently requiring such a nominee.
An agreement among the Company, Arnon Gat, Anita Gat, AG Israel, Rapro
Technology and Clal Electronics includes the agreement of Arnon Gat and Anita
Gat, commencing in May 1998 and continuing while Clal Electronics holds at least
10% of the Company's voting rights and elects to have board representation, to
nominate one director of the Company specified by Clal Electronics.
AGREEMENTS BETWEEN AG ISRAEL AND THE COMPANY
In March 1996, the Company and AGI, Inc., the wholly owned subsidiary of AG
Israel, have entered into a Transition Services Agreement whereby the Company
provides certain services to AGI, Inc. These services include: (1) providing
employment, operational and human resources services under the direction of AGI,
Inc., utilizing, in all cases, records and procedures separate from those of the
Company; (2) providing accounts payable services to AGI, Inc., and, at the
request of AGI, Inc., collecting accounts receivable and paying accounts payable
for AGI, Inc.; and (3) providing such other services as shall be agreed to by
the parties. As consideration for these services, AGI, Inc. pays to the Company
the incremental direct costs and out-of-pocket expenses derived directly from
the provision of the services. During fiscal 1996, AGI, Inc. paid the Company
$252,000, under the Transition Services Agreement. The Transition Services
Agreement has an indefinite term, but either party may cancel any or all service
or services provided pursuant to the Transition Services Agreement on 90-days
prior notice.
The Company also subleases to AGI, Inc. 3,148 square feet of space that is
part of the Company's principal executive office facility. The rental charge is
$10,000 per month until October 1, 1997, at which time the rent will be adjusted
based on the total facility expenses of the Company under the terms of a
Sublease, dated, for reference purposes only, August 20, 1996, among the
Company, AGI, Inc. and AG Israel as guarantor of AGI, Inc.'s obligations. The
Sublease terminates on November 30, 1998, unless sooner terminated as provided
in the Sublease, except that AGI, Inc. has the option through October 2001 to
extend and renew the Sublease upon the same terms
-16-
<PAGE> 20
and conditions and at the same rental rate (as such may be adjusted) for
consecutive one year additional terms. During fiscal 1996, AGI, Inc. paid the
Company $210,000, under the Sublease.
The Company is in negotiations with AG Israel whereby the Company would
grant to AG Israel a license to use new technology generated under the Company's
next generation rapid thermal processing research and development program.
COMPLIANCE WITH SECTION 16(a) OF THE SECURITIES EXCHANGE
ACT OF 1934
Section 16(a) of the Securities Exchange Act of 1934 requires the Company's
directors and executive officers, and persons who own more than 10% of the
Company's Common Stock ("10% Shareholders"), to file with the Securities and
Exchange Commission ("SEC") initial reports of ownership on a Form 3 and reports
of changes in ownership of Common Stock and other equity securities of the
Company on a Form 4 or Form 5. Officers, directors and 10% Shareholders are
required by SEC regulations to furnish the Company with copies of all Section
16(a) forms they file.
To the Company's knowledge, based solely on review of the copies of such
reports furnished to the Company and written representations from the executive
officers and directors, the Company believes that all Section 16(a) filing
requirements applicable to its officers, directors, and 10% Shareholders were
met during fiscal 1996, except as follows: (i) a Form 4 was filed 3 days late
for Anita Gat with respect to five transactions; and (ii) a Form 4 was filed 3
days late for Arnon Gat with respect to five transactions.
SHAREHOLDER PROPOSALS
Shareholder proposals for inclusion in the Company's Proxy Statement and
form of proxy relating to the Company's 1998 Annual Meeting of Shareholders must
be received by August 29, 1997.
OTHER BUSINESS
The Board of Directors does not presently intend to bring any other
business before the Annual Meeting and, so far as is known to the Board, no
matters are to be brought before the Annual Meeting except as specified in the
notice of such meeting. As to any business that may properly come before the
Meeting, or any adjournment thereof, however, it is intended that Proxies, in
the form enclosed, will be voted in the respect thereof in accordance with the
judgment of the persons voting such Proxies.
WHETHER OR NOT YOU PLAN TO ATTEND THE MEETING IN PERSON, YOU ARE URGED TO SIGN
AND PROMPTLY MAIL THE ENCLOSED PROXY IN THE RETURN ENVELOPE PROVIDED SO THAT
YOUR SHARES WILL BE REPRESENTED AT THE MEETING.
BY ORDER OF THE BOARD OF DIRECTORS
/s/ Anita Gat
----------------------------------
ANITA GAT
Vice President and Secretary
-17-
