SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE SECURITIES
EXCHANGE ACT OF 1934
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Tegal Corporation
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Notes:
TEGAL CORPORATION
2201 SOUTH MCDOWELL BOULEVARD
PETALUMA, CALIFORNIA 94955
------------------------
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
------------------------
SEPTEMBER 23, 1997
The Annual Meeting of Stockholders of Tegal Corporation, a Delaware
corporation (the "Company"), will be held on Tuesday, September 23, 1997, at
1:30 p.m. local time, at the Company's headquarters at 2201 South McDowell
Boulevard, Petaluma, California 94955 (the "Annual Meeting") for the following
purposes:
1. To elect five directors to serve for one year and until their
successors are elected and have qualified. The names of the nominees to the
Board of Directors are set forth in the accompanying Proxy Statement which
is part of this Notice.
2. To transact such other business as may properly come before the
Annual Meeting and any adjournments thereof.
The Board of Directors has fixed the close of business on July 30, 1997 as
the record date for the determination of stockholders entitled to notice of, and
to vote at, the Annual Meeting or at any adjournments thereof.
In order to ensure your representation at the Annual Meeting, you are
requested to sign and date the enclosed proxy as promptly as possible and return
it in the enclosed envelope (to which no postage need be affixed if mailed in
the United States). If you attend the Annual Meeting and file with the Secretary
of the Company an instrument revoking your proxy or a duly executed proxy
bearing a later date, your proxy will not be used.
All stockholders are cordially invited to attend the Annual Meeting.
By Order of the Board of Directors
TEGAL CORPORATION
/s/ DAVID CURTIS
----------------------------------
David Curtis
Secretary
Petaluma, California
August 8, 1997
TEGAL CORPORATION
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PROXY STATEMENT
FOR
ANNUAL MEETING OF STOCKHOLDERS
SEPTEMBER 23, 1997
------------------------
INTRODUCTION
This Proxy Statement is furnished in connection with the solicitation of
proxies in the form enclosed herewith for use at the Annual Meeting of
Stockholders of Tegal Corporation, a Delaware corporation (the "Company"), to be
held at 1:30 p.m. local time on Tuesday, September 23, 1997 (the "Annual
Meeting") and at any adjournments thereof for the purposes of (1) electing five
directors, and (2) to transact such other business as may properly come before
the Annual Meeting and any adjournments thereof. The approximate date when this
Proxy Statement and accompanying proxy are first being sent to stockholders is
August 8, 1997.
This solicitation is made on behalf of the Board of Directors of the
Company. Costs of the solicitation will be borne by the Company. Directors,
officers and employees of the Company and its subsidiaries may also solicit
proxies by telephone, telegraph, fax or personal interview. The Company will
reimburse banks, brokerage firms and other custodians, nominees and fiduciaries
for reasonable expenses incurred by them in sending proxy material to
stockholders.
Holders of record of common stock, par value $0.01 per share (the "Common
Stock"), of the Company as of the close of business on July 30, 1997 are
entitled to receive notice of, and to vote at, the Annual Meeting. The
outstanding Common Stock constitutes the only class of securities of the Company
entitled to vote at the Annual Meeting, and each share of Common Stock entitles
the holder thereof to one vote. At the close of business on July 25, 1997, there
were 10,310,092 shares of Common Stock issued and outstanding. Two or more
stockholders representing a majority of the outstanding shares must be present
in person or by proxy to constitute a quorum for the transaction of business at
the Annual Meeting.
Unless contrary instructions are indicated on the proxy, all shares
represented by valid proxies received pursuant to this solicitation (and not
revoked before they are voted) will be voted FOR the election of all of the
directors nominated below. With respect to any other business which may properly
come before the Annual Meeting and be submitted to a vote of stockholders,
proxies received by the Board of Directors will be voted in accordance with the
best judgment of the designated proxy holders. Any proxy may be revoked at any
time before it is exercised by filing with the Secretary of the Company an
instrument revoking it or by submitting prior to the time of the Annual Meeting
a duly executed proxy bearing a later date. Stockholders who have executed and
returned a proxy and who then attend the Annual Meeting and desire to vote in
person are requested to so notify the Secretary of the Company prior to the time
of the Annual Meeting.
Shares represented by proxies that reflect abstentions or "broker
non-votes" (i.e., shares held by a broker or nominee which are represented at
the Annual Meeting, but with respect to which such broker or nominee is not
empowered to vote on a particular proposal or proposals) will be counted as
shares that are present and entitled to vote for purposes of determining the
presence of a quorum.
In voting for the election of directors each share has one vote for each
position to be filled, and there is no cumulative voting, which means that a
simple majority of the shares voting may elect all of the directors. All
proposals to come before the Annual Meeting require the approval of a majority
of the shares of Common Stock present and entitled to vote at the Annual
Meeting. Therefore, as to the particular proposal, abstentions
will have the same effect as a vote against that proposal, and broker non-votes
will not be counted as votes for or against the proposal, and will not be
included in counting the number of votes necessary for approval of the proposal.
The principal executive offices of the Company are located at 2201 South
McDowell Boulevard, P.O. Box 6020, Petaluma, California 94955-6020. The
Company's telephone number is (707) 763-5600.
GENERAL INFORMATION
The Company was incorporated in Bermuda in December 1989 under the name
Tegal Corporation Limited to acquire the operations of the former Tegal
Corporation, a division of Motorola, in a private investor acquisition. The
Company's current management was recruited in calendar 1991 to lead a
restructuring of the Company. The Company was domesticated in Delaware as Tegal
Corporation in September 1995. Unless the context otherwise requires, all
references in this Proxy Statement to the "Company" refer to Tegal Corporation,
its predecessor, Tegal Corporation Limited, and their consolidated subsidiaries.
ELECTION OF DIRECTORS
The Board of Directors of the Company is currently comprised of five
members. Directors are elected at each Annual Meeting and hold office until
their successors are duly elected and qualified at the next Annual Meeting.
Pursuant to the Company's Bylaws, and a resolution adopted by the Board of
Directors, the authorized number of members of the Board of Directors has been
set at five. The Company's Bylaws require that there be a minimum of two and
maximum of eight members of the Board of Directors.
In the absence of instructions to the contrary, the persons named as proxy
holders in the accompanying proxy intend to vote in favor of the election of the
five nominees designated below to serve until the 1998 annual meeting of
stockholders and until their respective successors shall have been elected and
qualified. All of the nominees are currently directors of the Company. The Board
of Directors expects that each of the nominees will be available to serve as a
director, but if any such nominee should become unavailable for election, it is
intended that the shares represented by the proxy will be voted for such
substitute nominee as may be designated by the Board of Directors.
NOMINEES FOR ELECTION AS DIRECTOR
DIRECTOR NEW TERM
NAME AGE SINCE WILL EXPIRE
------------------------------------------------- --- -------- -----------
Robert V. Hery................................... 55 1990 1998
Jeffrey M. Krauss................................ 40 1992 1998
Thomas R. Mika................................... 46 1992 1998
Fred Nazem....................................... 56 1995 1998
Edward A. Dohring................................ 64 1996 1998
Robert V. Hery has been a Director of the Company since 1990 and assumed
the additional roles of President and Chief Executive Officer of the Company in
January 1991 and the Chairman of the Board in March 1995. From 1987 to 1990, Mr.
Hery was President and Chief Executive Officer of AMOT Controls Corporation, an
international manufacturer of machinery control components used in explosive and
hazardous areas. From 1985 to 1987, Mr. Hery served as Vice President and
General Manager of KLA Instruments Corporation ("KLA"), a manufacturer of
semiconductor capital equipment, where he started the Wafer Inspection Systems
Division. From 1984 to 1985, Mr. Hery was a consultant to high-technology
start-ups as Acting Chief Executive Officer and marketing troubleshooter. From
1983 to 1984, he served as Vice President of Marketing and New Business
Development, and prior to that, from 1979 to 1983, he served as Vice President
of Operations, responsible for product development, manufacturing, quality and
cost control functions of MAI Basic Four, a manufacturer of minicomputer
equipment. From 1975 to 1979, Mr. Hery was
2
Vice President of Research and Product Development for Dataproducts Corporation,
a manufacturer of computer peripherals equipment. From 1965 to 1975, Mr. Hery
held various management positions in product development with NCR Corporation
and the communications division of Motorola, Inc.
Jeffrey M. Krauss has served as a director of the Company since June 1992.
Mr. Krauss is also a general partner of the general partner of Nazem and Company
III, L.P. and Nazem and Company IV, L.P., venture capital firms, having joined
those firms in 1990. Prior to joining Nazem and Company, Mr. Krauss was a
corporate associate with the law firm of Simpson Thacher & Bartlett, where he
specialized in leveraged buyout transactions. He is also a general partner of
The Transatlantic Fund, a joint venture between Nazem & Company and Banque
Nationale de Paris of France.
Thomas R. Mika has served as a director of the Company since June 1992.
Since January 1982, he has been the Managing Director of International
Management Technology Corporation ("IMTEC"), a private investment firm active in
the management of several companies.
Fred Nazem has served as a director of the Company since March 1995. Since
1981, he has been President of Nazem Inc. and Managing General Partner of the
general partner of, respectively, Nazem & Company, L.P., Nazem & Company II,
L.P., Nazem & Company III, L.P. and Nazem & Company IV, L.P., which are all
affiliated venture capital funds. He is also a general partner of The
Transatlantic Fund, a joint venture between Nazem & Company and Banque Nationale
de Paris of France.
Edward A. Dohring has served as a director of the Company since September
1996. Since October 1994, he has been the President of SVG Lithography Systems,
Inc., a subsidiary of Silicon Valley Group, Inc. From July 1992 to October 1994
he was President of the Track Division of Silicon Valley Group, Inc. Prior to
joining Silicon Valley Group, Inc., Mr. Dohring was the President of Advantage
Production Technology, Inc. from 1991 to 1992, when it was sold to Genus. Mr.
Dohring was a member of the Semiconductor Equipment and Materials International
Board of Directors from 1977 to 1989.
All directors hold office until the next annual meeting of the stockholders
of the Company or until their successors have been duly elected or qualified.
There are no family relationships between any of the directors or executive
officers of the Company.
BOARD OF DIRECTORS AND COMMITTEES OF THE BOARD
In fiscal year 1997, the Board of Directors held nine meetings (including
three written consents in lieu of meetings). Each director attended at least 75%
of the total number of Board meetings and meetings of Board committees on which
the director served during the time he served on the Board or committees.
The Board of Directors has established an Audit Committee and a
Compensation Committee. The Audit Committee, consisting of Messrs. Dohring,
Krauss and Mika, reviews the adequacy of internal controls and the results and
scope of the audit and other services provided by the Company's independent
auditors. The Audit Committee meets periodically with management and the
independent auditors. The Audit Committee held two meetings in fiscal 1997.
The Compensation Committee is comprised of Messrs. Dohring, Mika and Nazem.
The Compensation Committee held six meetings in fiscal 1997, which were held as
part of the meetings of the Board of Directors of the Company. The functions of
the Compensation Committee include establishing salaries, incentives and other
forms of compensation for officers and other employees of the Company and
administering the incentive compensation and benefit plans of the Company.
DIRECTOR COMPENSATION
The Company's directors do not currently receive any cash compensation for
service on the Board of Directors or any committee thereof, but directors may be
reimbursed for certain expenses in connection with attendance at Board and
Committee meetings. In addition, the Company implemented the Stock Option Plan
for Outside Directors pursuant to which non-employee directors receive stock
options for serving on the Company's Board of Directors.
3
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Compensation Committee is comprised of three directors: Messrs.
Dohring, Mika and Nazem. For a description of the background of these directors,
see "Election of Directors."
Mr. Nazem is a General Partner of Nazem and Associates III, L.P., a venture
capital firm, which is the general partner of Nazem and Company III, L.P.,
("Nazem"). In December 1989, the Company sold 2,057,141 shares of Series A
Preferred Stock to Nazem at a price of $2.43 per share and in November 1991, the
Company sold 1,234,258 shares of Series A Preferred Stock to Nazem at the same
price per share. All shares of Series A Preferred Stock sold to Nazem converted
into Common Stock on a 1-for-1 basis effective upon the closing of the Company's
initial public offering (the "IPO").
Mr. Mika is the Managing Director of IMTEC. Pursuant to a consulting
agreement between the Company and IMTEC, the Company paid IMTEC $30,000 upon the
closing of the IPO for services rendered relating to the Company's financing
activities. As payment for certain services provided by IMTEC pursuant to a
prior consulting arrangement, which has been terminated, the Company issued
IMTEC an aggregate of 83,971 shares of Common Stock in fiscal 1993, fiscal 1994
and fiscal 1995. Robert V. Hery serves as a member of the compensation committee
of the board of directors of Soupmasters International, Inc., of which Mr. Mika
is the President and Chief Executive Officer. See "Certain Transactions."
COMPENSATION COMMITTEE REPORT
The information set forth below shall not be deemed incorporated by
reference by any general statement incorporating by reference this Proxy
Statement into any filing under the Securities Act of 1933, as amended (the
"Securities Act"), or under the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), except to the extent the Company specifically incorporates this
information by reference, and shall not otherwise be deemed filed under such
Acts.
* * * * *
The Compensation Committee of the Board of Directors (the "Committee") has
furnished the following report on executive compensation.
OVERALL POLICY
In formulating the executive compensation program, the Committee's
objectives were (1) to attract and retain competent executive talent and
motivate executive officers to perform to the full extent of their abilities,
(2) to tie a significant portion of executive compensation to the achievement of
specified performance goals for the Company, and (3) to link executive and
stockholder interests through equity based plans.
The key elements of the Company's executive compensation program consist of
base salary, cash bonuses and stock options.
BASE SALARY
Each executive's base salary is reviewed annually, but as a general rule,
significant base salary increases are limited to promotions, while lesser
adjustments are made as appropriate after taking into account such factors as
internal equity and increases in levels of responsibility. All salaries are
based on sustained individual performance toward the Company's goals and
objectives.
Pursuant to an offer letter between the Company and Stephen P. DeOrnellas,
the Company's Vice President, Technology and Corporate Development and Chief
Technical Officer, if the Company terminates Mr. DeOrnellas' employment without
cause, the Company will be obligated to continue to pay Mr. DeOrnellas' base
salary and certain benefits for a period of six months.
Pursuant to an offer letter between the Company and Mark L. Siegel, the
Company's Vice President, Customer Support and Operations, if the Company
terminates Mr. Siegel's employment without cause during
4
the first 24 months from his date of first employment of June 3, 1996, the
Company will be obligated to continue to pay Mr. Siegel's base salary and
certain benefits for a period of twelve months or until Mr. Siegel obtains
employment elsewhere, whichever occurs earlier.
Pursuant to an offer letter between the Company and James D. McKibben, the
Company's Vice President, Worldwide Sales, if the Company terminates Mr.
McKibben's employment without cause during the first 18 months from his date of
first employment of June 26, 1996, the Company will be obligated to continue to
pay Mr. McKibben's base salary and certain benefits for a period of six months.
On June 11, 1996, the Board of Directors approved a severance arrangement
in the event of a change of control of the Company. If an executive officer is
terminated as a result of a change of control, the Company shall continue to pay
such executive officer's base salary and certain benefits for a period of twelve
months.
BONUS PROGRAMS
In fiscal 1997, the Company's Board of Directors concluded that the Company
was not providing competitive compensation packages for a number of its
executive and management employees without offering an annual incentive bonus
plan. In order to reinforce and motivate the attainment of the Company's annual
goals and to enhance the Company's ability to attract and retain key managerial
employees through a competitive compensation package, the Board approved the
adoption of an annual performance bonus plan for executives and managers
designated by the Chief Executive Officer and approved by the Board of
Directors. Each designated position has an annual bonus incentive target
expressed as a percentage of that executive's or manager's base salary. The
attainment of the target bonus is determined by the degree to which an
individual achieves specific annual objectives determined annually and reviewed
and approved by the Board of Directors for all executives who report directly to
the Chief Executive Officer, and by the degree to which the Company achieves its
annual financial plan. No bonuses will be paid unless the Company realizes a
minimum of 5 percent profit before taxes as a percent of revenue. Incentives are
prorated if the Company exceeds or falls short of its annual financial plan
goals, with the incentive maximums capped at 250% of target bonus accounts.
STOCK OPTIONS
The Company's Amended and Restated Equity Incentive Plan (the "Equity
Plan") gives the Board of Directors authority to grant stock options as well as
other types of awards. Stock options are designed to align the interests of
executives and key personnel with those of the stockholders. The Board of
Directors believes that significant equity interests in the Company held by the
Company's management serve to retain and motivate management.
The Board of Directors' decision whether to grant options and the number of
options are based primarily on the individual executive's responsibility,
performance and existing stock ownership. In fiscal 1997, the Board of Directors
made awards based on the Board of Directors' assessment of the individual
executive's contribution to the Company's success in meeting its financial
goals. This assessment was based primarily on the earnings of the Company and
the level of the executive's responsibility. The awards also were made based on
non-financial performance measures such as individual performance, the
recommendations of the Chief Executive Officer of the Company and the success in
implementing the Company's long-term strategic plan. It is expected that most
awards under the Equity Plan will be stock options which will be granted with an
exercise price equal to the market price of the Common Stock on the date of
grant and will be subject to the Company's right of repurchase.
CHIEF EXECUTIVE OFFICER COMPENSATION
The Compensation Committee is charged with establishing the objectives and
compensation of Robert V. Hery, the Chief Executive Officer of the Company, who
is responsible for the strategic and financial performance of the Company. The
Compensation Committee determines Mr. Hery's compensation package based upon the
general factors discussed above and upon an evaluation of compensation paid to
chief executive officers at comparable public companies and other companies in
the Company's industry.
5
During fiscal 1997, Mr. Hery received a base salary of $191,531 in return
for Mr. Hery's services as the Chief Executive Officer. In addition, Mr. Hery is
eligible to receive a maximum bonus of $60,000, in cash or in Common Stock of
the Company, at the option of Mr. Hery. The Board of Directors determines the
actual bonus payable based upon the recommendation of the Compensation
Committee. Such recommendation by the Compensation Committee is based on the
overall performance of the Company against specific strategic and financial
goals of the Company which are determined in the beginning of the fiscal year.
For fiscal 1997, the Board of Directors approved the Compensation Committee's
recommendation of a bonus of $45,000 for Mr. Hery. The Compensation Committee
and Mr. Hery believe that currently he is adequately incentivized to enhance
profitability and stockholder value through his compensation package and his
significant ownership interest in the Company (including options). The
Compensation Committee continues to retain the discretion to change the amount
and form of compensation payable to Mr. Hery.
CONCLUSION
Through the programs described above, a significant portion of the each
executive's compensation is now linked directly to the financial performance of
the Company. The policy of these programs is to award bonuses based on the
success of the Company as well as to provide incentives to executives to enhance
the financial performance of the Company and long-term stockholder value.
Edward A. Dohring
Thomas R. Mika
Fred Nazem
6
EXECUTIVE COMPENSATION
The following table shows, for the fiscal years ended March 31, 1995, 1996
and 1997, the cash compensation paid by the Company and its subsidiaries as well
as certain other compensation paid or accrued for those years for services in
all capacities to the person serving as the Chief Executive Officer of the
Company during fiscal 1997 and the other four most highly compensated executive
officers whose total annual salary and bonus exceeded $100,000 in fiscal 1997.
SUMMARY COMPENSATION TABLE
LONG TERM
COMPENSATION
ANNUAL COMPENSATION SECURITIES ALL OTHER
--------------------------- UNDERLYING COMPENSATION
NAME AND PRINCIPAL POSITION YEAR SALARY($) BONUS($) OPTIONS ($)(1)
- --------------------------------------------- ---- --------- -------- ------------ ------------
Robert V. Hery............................... 1997 191,531 45,000 75,100 86
Chairman of the Board, President 1996 199,992 60,000 75,000 924
and Chief Executive Officer 1995 209,222 60,000 -- 86
David Curtis................................. 1997 150,010 17,325 50,100 254
Vice President, Finance and 1996 144,744 -- 20,000 579
Administration, Chief Financial 1995 130,237 -- -- 267
Officer, Secretary and Treasurer
Stephen P. DeOrnellas........................ 1997 148,554 16,975 50,100 409
Vice President, Technology and 1996 136,490 -- 40,000 545
Corporate Development, Chief 1995 136,390 -- -- 378
Technical Officer
James D. McKibben(2)......................... 1997 116,302 26,321 60,100 5,267
Vice President, Worldwide Sales 1996 -- -- -- --
1995 -- -- -- --
Haresh C. Patnaik............................ 1997 150,010 17,325 40,100 323
Vice President, Engineering 1996 154,006 -- 20,000 616
1995 134,326 -- -- 589
- ---------------
(1) For Messrs. Hery, Curtis, DeOrnellas and Patnaik, amounts represent
contributions made by the Company under its 401(k) plan. Other compensation
for Mr. McKibben consists of $4,721 in car allowance paid by the Company and
$546 401(k) plan contribution made by the Company.
(2) Mr. McKibben joined the Company on June 26, 1996.
OPTION GRANTS IN 1997 FISCAL YEAR
The following table sets forth information concerning individual grants of
stock options made during fiscal 1997 to each of the individuals identified in
the Summary Compensation Table.
INDIVIDUAL GRANTS POTENTIAL REALIZABLE
------------------------------------------ VALUE AT ASSUMED
NUMBER OF % OF TOTAL ANNUAL RATES OF STOCK
SECURITIES OPTIONS PRICE APPRECIATION
UNDERLYING GRANTED IN EXERCISE FOR OPTION TERM(2)
OPTIONS FISCAL PRICE EXPIRATION ---------------------
NAME GRANTED(#)(1) 1997 ($/SHARE) DATE 5%($) 10%($)
- ---------------------- ------------- ---------- --------- ---------- ------- ---------
Robert V. Hery........ 75,000 12.61% 5.25 12/12/11 424,828 1,251,041
100 .02% 6.25 03/18/12 674 1,986
David Curtis.......... 50,000 8.41% 5.25 12/12/11 283,219 834,028
100 .02% 6.25 03/18/12 674 1,986
Stephen P.
DeOrnellas.......... 50,000 8.41% 5.25 12/12/11 283,219 834,028
100 .02% 6.25 03/18/12 674 1,986
James D. McKibben..... 60,000 10.09% 5.50 10/28/06 235,835 597,653
100 .02% 6.25 03/18/12 674 1,986
Haresh C. Patnaik..... 40,000 6.73% 5.25 12/12/11 226,575 667,222
100 .02% 6.25 03/18/12 674 1,986
7
- ---------------
(1) Stock acquired pursuant to the exercise of options may be subject to right
of repurchase by the Company upon termination of employment or consulting at
the original exercise price for up to four years from the date the options
were granted, with the Company's right of repurchase partially expiring over
that period of time.
(2) The assumed annual rates of appreciation in the table are shown for
illustrative purposes only pursuant to applicable requirements. Actual
values realized on stock options are dependent on actual future performance
of the Company's stock, among other factors. Accordingly, the amounts shown
may not necessarily be realized.
AGGREGATED OPTION EXERCISES DURING 1997
FISCAL YEAR AND 1997 FISCAL YEAR-END OPTION VALUES
The following table sets forth information concerning exercise of stock
options during fiscal 1997 by each of the individuals identified in the Summary
Compensation Table and the value of options at the end of fiscal 1997.
NUMBER OF SECURITIES
SHARES VALUE UNDERLYING UNEXERCISED VALUE OF UNEXERCISED
ACQUIRED ON REALIZED OPTIONS AT IN-THE-MONEY OPTIONS AT
NAME EXERCISE(#) ($) 1997 YEAR-END(#)(A) 1997 YEAR-END($)(A)(B)
- ----------------------------------- ----------- ------- ---------------------- -----------------------
Robert V. Hery..................... 100,000 475,700 332,384 992,659
David Curtis....................... -- -- 70,100 24,375
Stephen P. DeOrnellas.............. -- -- 202,995 618,885
James D. McKibben.................. -- -- 60,100 7,500
Haresh C. Patnaik.................. -- -- 133,884 397,761
- ---------------
(a) The options are immediately exercisable, but may be subject to the Company's
right of repurchase upon termination of employment or consulting at the
original exercise price for up to four years from the date of grant.
(b) Potential unrealized value is (i) the fair market value at fiscal 1997
year-end ($5.625 per share) less the exercise price of "in-the-money"
unexercised options times (ii) the number of shares represented by such
options.
COMPENSATION COMMITTEE REPORT ON REPRICING OF OPTIONS
Notwithstanding anything to the contrary set forth in any of the Company's
filings under the Securities Act or the Exchange Act, that might incorporate
other filings, including this Proxy Statement, in whole or in part, the
following Compensation Committee Report on repricing of options shall not be
incorporated into any such filings.
In October and December 1996, the Board, after approval by the Compensation
Committee, approved a program by which six officers of the Company, including
the five executive officers named in the Summary Compensation Table, were
offered the opportunity to exchange the unvested portion of certain outstanding
out-of-the money stock options for replacement options granted as of such date,
with a new exercise price based upon market value at such date of $5.50 and
$5.25 per share, respectively. The expiration schedule of the repurchase rights
of the new options re-commenced as of the new grant date, and these repurchase
rights will expire ratably over four years from the grant date; provided,
however, that in the case of Messrs. Hery, Curtis, DeOrnellas and Patnaik, if
the closing price of the Company's Common Stock meets or exceeds certain prices
(ranging from $12.00 to $24.00) on or before dates specified by the Board, then
such repurchase rights will expire on an accelerated basis approximating the
original unvested options' vesting schedule. The Compensation Committee
recommended to the Board the approval of the repricing program in order to
incentivize such officers of the Company to contribute to the financial
performance of the Company. At the time of the repricing, the exercise prices of
outstanding options were significantly higher than market value at
8
the time of repricing. The six officers who were offered the opportunity to
exchange options were recommended to the Compensation Committee by senior
management based upon management's perception of each officer's prospective
value and potential contribution to the Company. The Compensation Committee
approved such recommendations based in part on the information provided by
senior management and in part on the Compensation Committee's perception of the
officers' potential contributions to the Company.
It is the intended practice of the Compensation Committee to grant initial
and follow-on stock option grants at periodic intervals to key officers to
motivate those officers to remain with the Company and to execute the Company's
business strategy. While ordinarily such equity incentives are intended to be
earned over several years and to be subject to the risk that the value of the
Company's Common Stock will not appreciate, the Compensation Committee concluded
that the issuance of replacement options was warranted by special circumstances
facing the Company. In the case of Messrs. Hery, Curtis, DeOrnellas and Patnaik,
such officers had received follow-on stock option grants as of the Company's IPO
on October 19, 1995 bearing exercise prices of $12.00 per share. By the fall of
1996, the Company's Common Stock was trading at roughly half that price, which
was generally attributed to the excess capacity situation in the semiconductor
industry and not to the Company's specific performance. The repurchase rights on
prior stock option grants to those individuals had either fully expired, or at
the very least had expired 75% by the fall of 1996. As a result, the
Compensation Committee concluded that the out-of-the money stock options were
not functioning as an effective incentive to such officers to remain with the
Company and execute its business strategy. In the case of Messrs. Siegel and
McKibben, those officers joined the Company in June 1996 and were granted
initial stock options to purchase 60,000 shares of the Company's Common Stock at
$8.00 and $7.25, respectively. By the fall of 1996, those options were
substantially out-of-the money, which resulted in equity incentives that the
Compensation Committee believed were inadequate to motivate and encourage
continued service to the Company.
In all instances, the Compensation Committee determined that the most
effective long-term incentive for these officers was through the issuance of
stock options with exercise prices at current market values. The Compensation
Committee concluded that such incentives would better permit the Company to
retain the services of such officers and effectively motivate them to contribute
to building stockholder value over the long term.
Under the program, Robert V. Hery, replaced an option to purchase 56,250
shares of Common Stock with an exercise price of $12.00 per share for an option
to purchase the same number of shares with an exercise price of $5.25 per share;
David Curtis, replaced an option to purchase 15,000 shares of Common Stock with
an exercise price of $12.00 per share for an option to purchase the same number
of shares with an exercise price of $5.25 per share; Stephen P. DeOrnellas,
replaced an option to purchase 30,000 shares of Common Stock with an exercise
price of $12.00 per share for an option to purchase the same number of shares
with an exercise price of $5.25 per share; and Haresh P. Patnaik, replaced an
option to purchase 15,000 shares of Common Stock with an exercise price of
$12.00 per share for an option to purchase the same number of shares with an
exercise price of $5.25 per share
THE COMPENSATION COMMITTEE
Edward A. Dohring
Thomas R. Mika
Fred Nazem
9
TEN-YEAR OPTIONS/SAR REPRICINGS
MARKET
NUMBER OF PRICE OF EXERCISE LENGTH OF
SECURITIES STOCK AT PRICE AT ORIGINAL
UNDERLYING TIME OF TIME OF OPTION TERM
OPTIONS/SARS REPRICING REPRICING NEW REMAINING AT
REPRICED OR OR OR EXERCISE DATE OF
AMENDED AMENDMENT AMENDMENT PRICE REPRICING OR
NAME DATE (#) ($) ($) ($) AMENDMENT(1)
- --------------------------- -------- ------------ --------- --------- -------- ---------------
Robert V. Hery............. 12/12/96 56,250 5.25 12.00 5.25 8 yrs., 10 mos.
David Curtis............... 12/12/96 15,000 5.25 12.00 5.25 8 yrs., 10 mos.
Stephen P. DeOrnellas...... 12/12/96 30,000 5.25 12.00 5.25 8 yrs., 10 mos.
Haresh C. Patnaik.......... 12/12/96 15,000 5.25 12.00 5.25 8 yrs., 10 mos.
James D. McKibben.......... 10/28/96 60,000 5.50 7.25 5.50 9 yrs., 5 mos.
Mark L. Siegel............. 10/28/96 60,000 5.50 8.00 5.50 9 yrs., 5 mos.
- ---------------
(1) Remaining lengths of option terms to the nearest month.
EMPLOYMENT AGREEMENTS
Pursuant to an offer letter between the Company and Stephen P. DeOrnellas,
if the Company terminates Mr. DeOrnellas' employment without cause, the Company
will be obligated to continue to pay Mr. DeOrnellas' base salary and certain
benefits for a period of six months.
Pursuant to an offer letter between the Company and Mark L. Siegel, if the
Company terminates Mr. Siegel's employment without cause during the first 24
months from his date of first employment of June 3, 1996, the Company will be
obligated to continue to pay Mr. Siegel's base salary and certain benefits for a
period of twelve months or until Mr. Siegel obtains employment elsewhere,
whichever occurs earlier.
Pursuant to an offer letter between the Company and James D. McKibben, if
the Company terminates Mr. McKibben's employment without cause during the first
18 months from his date of first employment of June 26, 1996, the Company will
be obligated to continue to pay Mr. McKibben's base salary and certain benefits
for a period of six months.
On June 11, 1996, the Board of Directors approved a severance arrangement
in the event of a change of control of the Company. If an executive officer is
terminated as a result of a change of control, the Company shall continue to pay
such executive officer's base salary and certain benefits for a period of twelve
months.
10
PRINCIPAL STOCKHOLDERS
The following table sets forth information as of June 30, 1997 with respect
to shares of the Company's Common Stock which are held by persons known to the
Company to be beneficial owners of more than 5% of such stock based upon
information received from such persons. For purposes of this Proxy Statement,
beneficial ownership of securities is defined in accordance with the rules of
the Securities and Exchange Commission and means generally the power to vote or
dispose of securities, regardless of any economic interest therein.
COMMON STOCK BENEFICIALLY
OWNED
-------------------------
AMOUNT AND
NATURE OF
BENEFICIAL PERCENT OF
NAME AND ADDRESS OF BENEFICIAL OWNER OWNERSHIP CLASS
-------------------------------------------------------------- ---------- ----------
Nazem and Company, L.P. III(1)................................ 3,291,399 32.0%
645 Madison Avenue
New York, New York 10022
Fred Nazem(2)
Jeffrey Krauss(2)
Benefit Capital Management Corporation(3)..................... 1,745,813 17.0%
39 Old Ridgebury Road
Danbury, Connecticut 06817
- ---------------
(1) The general partner of Nazem and Company, L.P. III is Nazem and Associates
III, L.P.
(2) For information regarding Messrs. Nazem and Krauss, see "Ownership of Stock
by Management."
(3) Benefit Capital Management Corporation, as investment manager for an account
held by The Prudential Insurance Company of America ("Prudential") Separate
Account No. VCA-GA-5298 on behalf of the Union Carbide Retirement Plan (the
"Plan"), has voting power as to the shares of Common Stock held by it.
Benefit Capital is a wholly-owned subsidiary of Union Carbide Corporation, a
New York corporation ("UCC"). The Plan was established by UCC to provide
retirement benefits for employees of UCC and its participating subsidiaries.
In connection with the purchase of certain annuities by the Plan, Prudential
has established a separate insurance account with respect to the Plan.
Prudential disclaims beneficial ownership of the shares of Common Stock held
by Benefit Capital on behalf of the Plan. Excludes 1,028,891 shares held of
record by Nazem which are attributable to Benefit Capital's limited
partnership interest in Nazem; Benefit Capital disclaims beneficial interest
of such shares as it has no voting or dispositive power over any of such
shares.
11
OWNERSHIP OF STOCK BY MANAGEMENT
The following table sets forth information with respect to the beneficial
ownership of shares of Common Stock by the Company's directors, the individuals
named in the Summary Compensation Table, and all directors and executive
officers as a group as of June 30, 1997. An asterisk denotes beneficial
ownership of less than 1%.
SHARES PERCENT
BENEFICIALLY OF
NAME OF BENEFICIAL OWNER POSITION OWNED(1) CLASS(1)
- ----------------------------------- ------------------------------------------------ ------------ ---------
Fred Nazem(2)...................... Director 3,328,066 32.2%
Jeffrey M. Krauss(3)............... Director 3,292,899 31.9
Thomas R. Mika(4).................. Director 38,767 *
Edward A. Dohring(5)............... Director 0 *
Robert V. Hery(6).................. Chairman of the Board, President and Chief 482,384 4.5
Executive Officer
David Curtis(7).................... Vice President, Finance and Administration, 150,647 1.5
Chief Financial Officer, Secretary and Treasurer
Stephen P. DeOrnellas(8)........... Vice President, Technology and Corporate 208,117 2.0
Development, Chief Technical Officer
James D. McKibben(9)............... Vice President, Worldwide Sales 60,664 *
Haresh C. Patnaik(10).............. Vice President, Engineering 133,884 1.3
Directors and Executive Officers as
a group (12 persons)(11)......... 4,583,887 40.5%
- ---------------
(1) Applicable percentage of ownership is based on 10,309,892 shares of Common
Stock outstanding as of June 30, 1997. The number of shares of Common Stock
beneficially owned and calculation of percent ownership of each person or
group of persons named above, in each case, takes into account those shares
underlying stock options that are currently exercisable, but which may or
may not be subject to repurchase rights of the Company held by such person
or persons but not for any other person.
(2) Includes 3,291,399 shares held by Nazem. Mr. Nazem is a general partner of
Nazem and Associates III, L.P., the general partner of Nazem. Mr. Nazem
disclaims beneficial ownership of shares held by Nazem except to the extent
of his ownership interest in Nazem. Includes options to purchase 16,667
shares of Common Stock which are exercisable within 60 days and excludes
options to purchase 13,333 shares which are not so exercisable.
(3) Includes 3,291,399 shares held by Nazem. Mr. Krauss is a general partner of
Nazem and Associates III, L.P., the general partner of Nazem. Mr. Krauss
disclaims beneficial ownership of shares held by Nazem, except to the
extent of his ownership interest in Nazem. Excludes options to purchase
30,000 shares of Common Stock which are not exercisable within 60 days.
(4) Includes options to purchase 16,667 shares of Common Stock which are
exercisable within 60 days and excludes options to purchase 13,333 shares
which are not so exercisable.
(5) Excludes options to purchase 30,000 shares which are not exercisable within
60 days.
(6) Includes 332,384 shares issuable pursuant to stock options which are
currently exercisable, 139,586 of which were subject to repurchase rights
as of June 30, 1997.
(7) Includes 70,100 shares issuable pursuant to stock options which are
currently exercisable, 65,000 of which were subject to repurchase rights as
of June 30, 1997 and 5,014 outstanding shares of Common Stock which were
subject to repurchase rights as of June 30, 1997.
(8) Includes 202,995 shares issuable pursuant to stock options which are
currently exercisable, 84,148 of which were subject to repurchase rights as
of June 30, 1997.
(9) Includes 60,100 shares issuable pursuant to stock options which are
currently exercisable, 45,000 of which were subject to repurchase rights as
of June 30, 1997.
(10) Includes 133,884 shares issuable pursuant to stock options which are
currently exercisable, 59,426 of which were subject to repurchase rights as
of June 30, 1997.
(11) Includes (i) 1,010,697 shares issuable pursuant to stock options which are
currently exercisable, 549,767 of which were subject to repurchase rights
as of June 30, 1997, and (ii) 5,014 outstanding shares of Common Stock, all
of which were subject to repurchase rights as of June 30, 1997. Excludes
options to purchase 86,666 shares of Common Stock which are not exercisable
within 60 days.
12
PERFORMANCE GRAPH
The information set forth below shall not be deemed incorporated by
reference by any general statement incorporating by reference this Proxy
Statement into any filing under the Securities Act or under the Exchange Act,
except to the extent the Company specifically incorporates this information by
reference, and shall not otherwise be deemed filed under such Acts.
COMPARISON OF CUMULATIVE TOTAL RETURN(1)(2)(3)
AMONG TEGAL CORPORATION, THE NASDAQ STOCK MARKET-US INDEX
AND A PEER GROUP
MEASUREMENT PERIOD TEGAL NASDAQ STOCK
(FISCAL YEAR COVERED) CORPORATION PEER GROUP MARKET (U.S.)
10/19/95 100 100 100
3/31/96 61 63 106
3/31/97 44 85 118
- ---------------
(1) The graph covers the period from October 19, 1995, the date the Company's
IPO commenced trading through the fiscal year ended March 31, 1997.
(2) The graph assumes that $100 was invested on October 19, 1995 in the
Company's Common Stock, the Nasdaq Stock Market - U.S. Index and a peer
group, and that all dividends were reinvested. No cash dividends have been
declared on the Company's Common Stock.
(3) The peer group chosen by the Company consists of the following corporations:
Applied Materials Inc., Gasonics International Corp., Genus Inc., KLA
Instruments Inc., Lam Research Corp., Mattson Technology Inc., Novellus
Systems Inc., Ontrak Systems Inc., Trikon Technologies Inc., and Submicron
Systems Corp.
COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT
Section 16(a) of the Exchange Act, requires the Company's officers and
directors, and persons who own more than ten percent of a registered class of
the Company's equity securities, to file reports of ownership and changes in
ownership (Forms 3, 4 and 5) with the Securities and Exchange Commission.
Officers, directors and greater-than-ten-percent holders are required to furnish
the Company with copies of all such forms which they file.
13
To the Company's knowledge, based solely on the Company's review of such
reports or written representations from certain reporting persons, the Company
believes that all of the filing requirements applicable to its officers,
directors, greater-than-ten-percent beneficial owners and other persons subject
to Section 16 of the Exchange Act during fiscal 1997 were complied with, except
for the one late filing by each of Mark L. Siegel, Vice President, Customer
Support and Operations and James D. McKibben, Vice President, Worldwide Sales on
Form 3 in connection with initial stock option grants.
CERTAIN TRANSACTIONS
The Company was formed in December 1989 to acquire substantially all of the
assets of the former Tegal Corporation (the "Predecessor Company"), then a
wholly-owned subsidiary of Motorola, in a private investor acquisition (the
"Acquisition") primarily funded by Nazem and Company III, L.P. ("Nazem"). In
December 1989, in connection with the Acquisition, the Company sold 2,057,141
shares of Series A Preferred Stock to Nazem at a price of $2.43 per share and in
November 1991, the Company sold 1,234,258 shares of Series A Preferred Stock to
Nazem at the same price per share. Nazem converted all such shares of Series A
Preferred Stock into Common Stock on a 1-for-1 basis upon the closing of the IPO
in October 1995.
In December 1989, in connection with the Acquisition, Benefit Capital
Management Corporation ("Benefit Capital"), as an investment manager for a
separate account, provided the Company a term loan in the aggregate principal
amount of $8.0 million, and in partial consideration for such loan, the Company
granted Benefit Capital, through the investment manager, a warrant to purchase
228,571 shares of Series A Preferred Stock at an exercise price of $2.43 per
share (the "Series A Warrant"). In November 1991, the Company issued Benefit
Capital, on behalf of such account, 822,838 shares of Series A Preferred Stock
for $2.0 million, or $2.43 per share. In March 1993, the Company and Benefit
Capital, on behalf of such account, converted the $8.0 million term loan and
approximately $1.2 million of accrued and unpaid interest thereon into 876,190
shares of Series C Preferred Stock and 876,190 shares of Series D Preferred
Stock. Benefit Capital converted all shares of Series A, Series C and Series D
Preferred Stock held by it on behalf of such account into shares of Common Stock
on a 1-for-1 basis upon the closing of the IPO in October 1995. In December
1994, the Company and Benefit Capital agreed that the Company would issue to
Benefit Capital, on behalf of such account, 154,285 shares of Common Stock in
exchange for the cancellation of the Series A Warrant.
In connection with his employment, the Company provided Stephen P.
DeOrnellas with certain special compensation relating to Mr. DeOrnellas'
relocation. In fiscal 1992, the Company paid Mr. DeOrnellas $116,518 related to
losses suffered by Mr. DeOrnellas in selling his home, $2,950 for tax return
preparation fees, and $71,406 to cover federal income taxes due on these payment
amounts. In fiscal 1994, the Company forgave a $97,502 principal amount bridge
loan to Mr. DeOrnellas made in connection with his relocation and paid Mr.
DeOrnellas $78,816 to cover the federal income taxes due on this payment. No
further reimbursable relocation expenses are owed to Mr. DeOrnellas by the
Company.
Mr. Thomas R. Mika, a director of the Company, was retained by the Company
as a consultant to assist the Company in his capacity as the Managing Director
of IMTEC, a consulting and investment banking firm that specialized in
facilitating strategic alliances between U.S. and Japanese technology-based
companies. Pursuant to a consulting agreement between the Company and IMTEC, the
Company paid IMTEC $30,000 upon the closing of the IPO for services rendered
relating to the Company's financing activities. As payment for certain services
provided by IMTEC pursuant to a prior consulting arrangement, which has been
terminated, the Company issued IMTEC an aggregate of 83,971 shares of Common
Stock in fiscal 1993, fiscal 1994 and fiscal 1995.
The Company believes that the foregoing transactions were in its best
interests. It is the Company's policy that all transactions by the Company with
officers, directors, 5% stockholders and their affiliates will in the future be
entered into 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.
14
For further information regarding certain additional transactions with
directors, see "Director Compensation" and "Compensation Committee Interlocks
and Insider Participation."
RELATIONSHIP WITH INDEPENDENT ACCOUNTANTS
Price Waterhouse LLP ("Price Waterhouse") audited the Company's financial
statements for the fiscal year ended March 31, 1997. In connection with its
audit of the Company's consolidated financial statements for the fiscal year
ended March 31, 1997, Price Waterhouse reviewed the Company's Annual Report to
Stockholders, its filings with the Securities and Exchange Commission and its
unaudited quarterly financial information. Representatives of Price Waterhouse
are expected to be present at the meeting and will be given the opportunity to
make a statement if they desire to do so. It is expected that they will be
available to respond to appropriate questions from the stockholders at the
meeting.
DEADLINE FOR SUBMISSION OF STOCKHOLDER PROPOSALS
FOR THE 1998 ANNUAL MEETING
The proxy rules adopted by the Securities and Exchange Commission provide
that certain stockholder proposals must be included in the proxy statement for
the Company's annual meetings of stockholders. A proposal to be presented at the
1998 annual meeting must be received at the Company's principal executive
offices no later than April 10, 1998 in order to be considered for inclusion in
the proxy materials to be disseminated by the Board of Directors for such annual
meeting. To be eligible for inclusion in such proxy materials, such proposals
must conform to the requirements set forth in Regulation 14A under the Exchange
Act as well as in the Company's Bylaws.
OTHER MATTERS
The Company is not aware of any matters that may come before the meeting
other than those referred to in the Notice of Annual Meeting of Stockholders. If
any other matter shall properly come before the Annual Meeting, however, the
persons named in the accompanying proxy intend to vote all proxies in accordance
with their best judgment.
The Company's 1997 Annual Report for the fiscal year ended March 31, 1997
has been mailed with this Proxy Statement.
By Order of the Board of Directors
TEGAL CORPORATION
/s/ DAVID CURTIS
---------------------------------
David Curtis
Secretary
Petaluma, California
August 8, 1997
STOCKHOLDERS OF RECORD ON JULY 30, 1997 MAY OBTAIN COPIES OF THE COMPANY'S
ANNUAL REPORT ON FORM 10-K (EXCLUDING EXHIBITS) FILED WITH THE SECURITIES AND
EXCHANGE COMMISSION BY WRITING TO INVESTOR RELATIONS, TEGAL CORPORATION, 2201
SOUTH MCDOWELL BOULEVARD, P.O. BOX 6020, PETALUMA, CALIFORNIA 94955-6020.
15
APPENDIX A
PROXY TEGAL CORPORATION PROXY
THIS PROXY IS SOLICITED BY AND ON BEHALF OF THE BOARD OF DIRECTORS
FOR THE ANNUAL MEETING OF STOCKHOLDERS ON SEPTEMBER 23, 1997.
The undersigned hereby appoints Robert V. Hery and David Curtis, and each of
them, with full power of substitution in each, as Proxies, and hereby authorizes
them to represent and to vote, as designated below, all shares of Common Stock
of Tegal Corporation which the undersigned may be entitled to vote at the Annual
Meeting of Stockholders to be held on September 23, 1997, and any and all
adjournments thereof.
THIS PROXY WILL BE VOTED AS DIRECTED. IF NO CONTRARY INSTRUCTION IS
INDICATED, THIS PROXY WILL BE VOTED FOR THE ELECTION OF THE FIVE NOMINEES LISTED
BELOW.
The Board of Directors recommends that you vote FOR the nominees in Proposal
1.
1. Election of Directors: Robert V. Hery, Jeffrey M. Krauss, Thomas R. Mika,
Fred Nazem and Edward A. Dohring
[ ] FOR all nominees listed [ ] WITHHOLD AUTHORITY to vote INSTRUCTIONS: To withhold
(except as marked to the for all nominees listed authority to vote for any
contrary) individual nominee, strike a
line through the nominee's name
in the list above.
(CONTINUED AND TO BE SIGNED ON THE REVERSE SIDE)
2. In their discretion, the Proxies are authorized to vote upon such other
business as may properly come before the Annual Meeting and adjournments
thereof.
ANY PREVIOUS PROXY EXECUTED
BY THE UNDERSIGNED IS HEREBY
REVOKED.
Receipt of the notice of the
Annual Meeting and the Proxy
Statement is hereby
acknowledged.
Dated , 1997
Signature of Stockholder
Note: Please sign exactly as
addressed hereon. Joint
owners should each sign.
Executors, administrators,
trustees, guardians and
attorneys should so indicate
when signing. Attorneys
should submit powers of
attorney. Corporations and
partnerships should sign in
full corporate or
partnership name by an
authorized officer.
PLEASE MARK, SIGN, DATE AND RETURN THE PROXY CARD PROMPTLY USING THE ENCLOSED
ENVELOPE