SCHEDULE 14A
(RULE 14A-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE SECURITIES
EXCHANGE ACT OF 1934 (AMENDMENT NO. )
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[ ] Confidential, for Use of the Commission
Only (as permitted by Rule 14a-6(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
TEGAL CORPORATION
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(Name of Registrant as Specified In Its Charter)
-----------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
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pursuant to Exchange Act Rule 0-11 (set forth the amount on which
the filing fee is calculated and state how it was determined):
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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.
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TEGAL CORPORATION
2201 SOUTH MCDOWELL BOULEVARD
PETALUMA, CALIFORNIA 94954
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NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
------------------------
SEPTEMBER 25, 2001
The annual meeting of stockholders of Tegal Corporation, a Delaware
corporation, will be held on Tuesday, September 25, 2001, at 1:30 p.m. local
time, at our headquarters at 2201 South McDowell Boulevard, Petaluma, California
94954 for the following purposes:
1. To elect four directors to serve for one year and until their successors
are duly elected and 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 approve an amendment to our stock option plan for outside directors
to (a) permit outside directors to elect to receive their director's fee
in the form of stock options instead of cash compensation and (b)
facilitate changes to the plan by allowing the board of directors to
make certain amendments permitted by law.
3. To transact such other business as may properly come before the annual
meeting and any adjournments of the annual meeting.
The board of directors has fixed the close of business on July 31, 2001 as
the record date for the determination of stockholders entitled to notice of, and
to vote at, the annual meeting or at any adjournments of the annual meeting.
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 Tegal Corporation 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/ Michael L. Parodi
MICHAEL L. PARODI
President and CEO
Petaluma, California
August 15, 2001
TEGAL CORPORATION
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PROXY STATEMENT
FOR
ANNUAL MEETING OF STOCKHOLDERS
SEPTEMBER 25, 2001
------------------------
INTRODUCTION
This proxy statement is furnished in connection with the solicitation of
proxies in the form enclosed for use at the annual meeting of stockholders of
Tegal Corporation, a Delaware corporation, to be held at 1:30 p.m. local time on
Tuesday, September 25, 2001 and at any adjournments of the annual meeting for
the purposes of (1) electing four directors, (2) approving an amendment to our
stock option plan for outside directors to (a) permit outside directors to elect
to receive their director's fee in the form of stock options instead of cash
compensation and (b) facilitate changes to the plan by allowing the board of
directors to make certain amendments permitted by law and (3) to transact such
other business as may properly come before the annual meeting and any
adjournments of the annual meeting. The approximate date when this proxy
statement and accompanying proxy are first being sent to stockholders is August
15, 2001.
This solicitation is made on behalf of our board of directors. Costs of the
solicitation will be borne by us. Our directors, officers and employees and our
subsidiaries may also solicit proxies by telephone, telegraph, fax or personal
interview. We 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 our common stock, par value $0.01 per share, as of the
close of business on July 31, 2001 are entitled to receive notice of, and to
vote at, the annual meeting. The outstanding common stock constitutes the only
class of our securities entitled to vote at the annual meeting, and each share
of common stock entitles the holder to one vote. At the close of business on
July 31, 2001, there were 12,619,087 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; and
- the amendment to our stock option plan for outside directors to (a)
permit outside directors to elect to receive their director's fee in the
form of stock options instead of cash compensation and (b) facilitate
changes to the plan by allowing the board of directors to make certain
amendments permitted by law.
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 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 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. The
amendment to the stock option plan for outside directors requires the approval
of a majority of the shares of common stock present and entitled to vote at the
annual meeting.
Our principal executive offices are located at 2201 South McDowell
Boulevard, Petaluma, California 94954. Our telephone number is (707) 763-5600.
GENERAL INFORMATION
We were formed in December 1989 to acquire the operations of the former
Tegal Corporation, a division of Motorola, Inc. The predecessor company was
founded in 1972 and acquired by Motorola in 1978.
ELECTION OF DIRECTORS
(PROPOSAL NO. 1)
Our board of directors is currently comprised of four 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 our bylaws
and a resolution adopted by our board of directors, the authorized number of
members of the board of directors has been set at six. Our 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
four nominees designated below to serve until the 2002 annual meeting of
stockholders and until their respective successors shall have been duly elected
and qualified. Messrs. Parodi, Krauss, Mika and Dohring are current directors.
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 or
unwilling to stand 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. Because the board of directors remains in the process of
seeking candidates for two vacant positions on the board, we have fewer nominees
named than the number fixed by our bylaws and our board of directors.
Stockholders may not vote for a greater number of persons than the number of
nominees named.
NOMINEES FOR ELECTION AS DIRECTOR
DIRECTOR NEW TERM
NAME AGE SINCE WILL EXPIRE
---- --- -------- -----------
Michael L. Parodi........................................ 52 1997 2002
Jeffrey M. Krauss........................................ 43 1992 2002
Thomas R. Mika........................................... 50 1992 2002
Edward A. Dohring........................................ 68 1996 2002
Michael L. Parodi joined Tegal as director, President and Chief Executive
Officer in December 1997. He was elected to the additional post of Chairman of
the Board in March 1999. From 1991 to 1996, Mr. Parodi was Chairman of the
Board, President and Chief Executive Officer of Semiconductor Systems, Inc., a
manufacturer of photolithography processing equipment sold to the semiconductor
and thin film head markets until Semiconductor Systems, Inc. was merged with FSI
International. Mr. Parodi remained with FSI International as Executive Vice
President and General Manager of Semiconductor Systems, Inc. from the time of
the merger to December 1997, integrating Semiconductor Systems, Inc. into FSI
International. In 1990, Mr. Parodi led the acquisition of Semiconductor Systems,
Inc. from General Signal Corporation. Prior to 1990, Mr. Parodi held various
senior engineering and operations management positions with General Signal
Corporation, Signetics Corporation, Raytheon Company, Fairchild Semiconductor
Corporation and National Semiconductor Corporation. Mr. Parodi currently is a
member of the Semiconductor Equipment and Materials International Board of
Directors.
Jeffrey M. Krauss has served as a director of Tegal since June 1992. Since
April 2000, Mr. Krauss has been a Managing Member of Psilos Group Managers, a
New York venture capital firm that is the general
2
partner of Psilos Group Partners I, L.P. From 1990 until April 2000, Mr. Krauss
was a general partner of the general partner of Nazem & Company III, L.P. and
Nazem & Company IV, L.P., both venture capital funds. He was also a general
partner of The Transatlantic Fund, a joint venture between Nazem & Company and
Banque Nationale de Paris of France. Prior to joining Nazem & Company, Mr.
Krauss was a corporate attorney with the law firm of Simpson Thacher & Bartlett,
where he specialized in leveraged buyout transactions.
Thomas R. Mika has served as a director of Tegal since June 1992. Since
January 1982, he has been the Managing Director of IMTEC, a private investment
firm. Since January 1995, he has been the President and Chief Executive Officer
of Soupmasters International, Inc. In May 2000, Soupmasters International, Inc.
filed for Chapter 11 protection and on July 12, 2001, that company's plan of
reorganization was confirmed by the Federal Bankruptcy Court.
Edward A. Dohring has served as a director of Tegal since September 1996.
From October 1994 through December 1998, he was 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. He currently serves on the
Board of Directors of MTI, is Chairman and President of MTI Instruments and is a
Trustee of the SUNY Maritime College.
All directors hold office until our next annual meeting of the stockholders
or until their successors have been duly elected or qualified. There are no
family relationships between any of our directors or executive officers.
BOARD OF DIRECTORS AND COMMITTEES OF THE BOARD
In fiscal year 2001, the board of directors held ten meetings (including
six written consents in lieu of meetings). All directors 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 a standing audit committee and a
standing compensation committee. The board does not have a standing nomination
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 our independent auditors. The audit committee
meets periodically with management and the independent auditors. The audit
committee held four meetings in fiscal 2001. In June 2000, the audit committee
adopted an audit committee charter, a copy of which is attached to this Proxy
Statement as Appendix B.
For fiscal 2001, the compensation committee was comprised of Messrs.
Dohring, Mika and Krauss. The compensation committee held two meetings in fiscal
2001. The functions of the compensation committee include establishing salaries,
incentives and other forms of compensation for our officers and other employees
and administering our incentive compensation and benefit plans.
DIRECTOR COMPENSATION
Our outside directors currently receive an annual $12,000 retainer for
service on the board of directors, meeting fees of $1,500 per board meeting
($750 per meeting for special meetings held telephonically) and $1,125 per
committee meeting not held in conjunction with a full board meeting ($500 per
meeting for committee meetings held telephonically). Furthermore, directors may
be reimbursed for certain expenses in connection with attendance at board and
committee meetings. In addition, we provide the Stock Option Plan for Outside
Directors, pursuant to which non-employee directors receive stock options for
serving on our board of directors.
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COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
For fiscal 2001, the compensation committee was comprised of three
directors: Messrs. Dohring, Mika and Krauss. Mr. Krauss is a Managing Member of
Psilos Group Managers, a venture capital firm. Mr. Mika is the Managing Director
of IMTEC, a private investment firm, and the President and Chief Executive
Officer of Soupmasters International Inc. Mr. Dohring is the retired President
of SVG Lithography Systems, Inc., a subsidiary of Silicon Valley Group, Inc. For
a more detailed description of each of these individuals' background, see
"Election of Directors."
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 we specifically incorporate this
information by reference, and shall not otherwise be deemed filed under such
Acts.
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The compensation committee of the board of directors has furnished the
following report on executive compensation.
OVERALL POLICY
In formulating the executive compensation program, the compensation
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 Tegal, and (3) to link executive
and stockholder interests through equity based plans.
The key elements of our 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, comparable market salaries paid to individuals of comparable
responsibility and company size and increases in levels of responsibility. All
salaries are based on sustained individual performance toward our goals and
objectives.
Pursuant to an employment agreement dated December 16, 1997 between Tegal
and Stephen P. DeOrnellas, our Vice President, Technology and Corporate
Development and Chief Technical Officer, Mr. DeOrnellas received a base salary
of $165,000, and certain other benefits set forth in the DeOrnellas Agreement.
The DeOrnellas employment agreement expired on December 16, 2000. In November
2000, Mr. DeOrnellas took a leave of absence as an officer and has agreed to
work as a consultant on a part-time basis during his leave of absence.
See -- "Chief Executive Officer Compensation" regarding the employment agreement
of the Chief Executive Officer.
On June 11, 1996, the board of directors approved a severance arrangement
in the event of a change of control of Tegal. If an executive officer is
terminated as a result of a change of control, we shall continue to pay such
executive officer's base salary and certain benefits for a period of twelve
months.
BONUS PROGRAMS
In order to motivate executives and managers in the attainment of our
annual goals and to enhance our ability to attract and retain key managerial
employees through a competitive compensation package, we have adopted an annual
performance bonus plan for executives and managers designated by the Chief
Executive
4
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
we achieve our annual financial plan. No bonuses are to be paid unless we
realize a minimum of 5 percent profit before taxes as a percent of revenue.
Incentives are prorated if we exceed or fall short of our annual financial plan
goals, with the incentive maximums capped at 250% of target bonus amounts.
STOCK OPTIONS
We provide long-term incentive compensation through our equity plan which
generally 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 Tegal held by our
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 2001, the board of directors
considered awards based on the board of directors' assessment of the individual
executive's contribution to our success in meeting our financial goals. This
assessment was based primarily on our earnings and the level of the executive's
responsibility. The awards also were considered based on non-financial
performance measures such as individual performance, the recommendations of the
Chief Executive Officer of Tegal and the success in implementing our long-term
strategic plan. It is expected that most awards under the 1998 equity plan will
be stock options which will generally be granted with an exercise price equal to
the market price of the common stock on the date of grant.
See Proposal No. 2 for a discussion of the proposed amendment to the Second
Amended and Restated Stock Option Plan for Outside Directors of Tegal
Corporation.
CHIEF EXECUTIVE OFFICER COMPENSATION
The compensation committee is charged with establishing the objectives and
compensation of Michael L. Parodi, the Chief Executive Officer of Tegal, who is
responsible for our strategic and financial performance. Mr. Parodi became the
Chief Executive Officer of Tegal in December 1997. The compensation committee
determines our Chief Executive Officer'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
our industry.
Pursuant to a three-year employment agreement, Mr. Parodi will receive a
base salary of $250,000 or such higher rate as may from time to time be granted
in accordance with our normal review procedures and policies in return for Mr.
Parodi's services as the Chief Executive Officer. Mr. Parodi's current salary is
$266,000. In addition, Mr. Parodi is eligible to receive a maximum bonus of 50%
of his base salary upon the achievement of certain goals established by the
board of directors at the beginning of each fiscal year. For fiscal 2001, Mr.
Parodi did not receive a bonus. 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 our overall performance
against specific strategic and financial goals which are determined at the
beginning of the fiscal year. Pursuant to the employment agreement, Mr. Parodi
was granted (1) an option to purchase 260,000 shares of common stock, subject to
our repurchase rights expiring over a four year period and (2) an option to
purchase 240,000 shares of common stock, subject to our right of repurchase
expiring in installments of 60,000 when the closing price of our common stock
reaches certain prices for ten or more consecutive trading days. In fiscal 2001,
the board granted Mr. Parodi an option to purchase 22,500 shares of common
stock, subject to our repurchase rights expiring over a four year period or
expiring in installments of 5,625 when the closing price of our common stock
reaches certain prices. The board further granted Mr. Parodi an option to
purchase 175,000 shares of common stock which vests 100% upon the second
anniversary of the grant.
5
The compensation committee and Mr. Parodi believe that currently he is
adequately incentivized to enhance profitability and stockholder value through
his compensation package and his ownership of options. The compensation
committee continues to retain the discretion to change the amount and form of
compensation payable to Mr. Parodi.
CONCLUSION
Through the programs described above, a significant portion of the each
executive's compensation is now linked directly to our financial performance.
The policy of these programs is to award bonuses based on our success as well as
to provide incentives to executives to enhance our financial performance and
long-term stockholder value.
Edward A. Dohring
Thomas R. Mika
Jeffrey Krauss
6
EXECUTIVE COMPENSATION
The following table shows, for the fiscal years ended March 31, 1999, 2000
and 2001, the cash compensation paid by us and our 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 Tegal during
fiscal 2001 and the other four most highly compensated executive officers whose
total annual salary and bonus exceeded $100,000 in fiscal 2001.
SUMMARY COMPENSATION TABLE
LONG TERM
COMPENSATION
------------
ANNUAL COMPENSATION SECURITIES
----------------------------- UNDERLYING ALL OTHER(3)
NAME AND PRINCIPAL POSITION YEAR SALARY($) BONUS($) OPTIONS COMPENSATION($)
--------------------------- ---- --------- -------- ------------ ---------------
Michael L. Parodi(1)................ 2001 249,034 -- -- 17,104
Chairman of the Board, President 2000 233,359 -- 197,500 17,134
Chief Executive Officer and 1999 223,348 -- -- 17,109
Colin C. Tierney(2)................. 2001 209,190 -- 20,000 7,843
Vice President, Worldwide 2000 218,074 -- 116,000 8,047
Operations and Customer Support 1999 98,722 80,000 120,000 4,274
James D. McKibben................... 2001 159,378 41,210 -- 6,805
Vice President, Worldwide 2000 153,228 24,198 116,000 80,681
Marketing and Sales 1999 151,073 31,933 100,000 6,776
Stephen P. DeOrnellas............... 2001 159,973 -- -- 403
Vice President, Technology and 2000 158,014 -- 116,000 449
Corporate Development, 1999 156,676 -- 100,000 341
Chief Technical Officer
George Landreth..................... 2001 140,625 -- -- 447
Vice President, Product 2000 122,208 -- 116,000 435
Development 1999 112,683 -- 100,000 389
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(1) Mr. Parodi joined Tegal on December 17, 1997.
(2) Mr. Tierney joined Tegal on September 17, 1998 and received a signing bonus
of $80,000 in connection with commencement of his employment.
(3) For Messrs. DeOrnellas and Landreth, amounts represent contributions made by
us under our 401(k) plan. Other compensation in fiscal 2001 for Messrs.
Parodi, McKibben and Tierney consists of $16,800, $6,180 and $7,200,
respectively, in car allowance paid by us and $304, $625 and $643,
respectively, in 401(k) plan contributions made by us.
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OPTION GRANTS IN 2001 FISCAL YEAR
The following table sets forth information concerning individual grants of
stock options made during fiscal 2001 to each of the individuals identified in
the Summary Compensation Table.
POTENTIAL
INDIVIDUAL GRANTS REALIZABLE
-------------------------------------------------------- VALUE AT ASSUMED
% OF ANNUAL RATES
NUMBER OF TOTAL OF STOCK PRICE
SECURITIES OPTIONS APPRECIATION FOR
UNDERLYING GRANTED IN EXERCISE OPTION TERM(1)
OPTIONS FISCAL PRICE ----------------
NAME GRANTED(#) 2001 ($/SHARE) EXPIRATION DATE 5%($) 10%($)
---- ---------- ---------- --------- --------------- ------ ------
Michael L. Parodi.............. -- -- -- -- -- --
Stephen P. DeOrnellas.......... -- -- -- -- -- --
James D. McKibben.............. -- -- -- -- -- --
Colin C. Tierney............... 20,000 5.82% 3.88 12/12/10 31,835 80,675
George Landreth................ -- -- -- -- -- --
- ---------------
(1) 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 Tegal's stock, among other factors. Accordingly, the amounts shown may
not necessarily be realized.
AGGREGATED OPTION EXERCISES DURING 2001
FISCAL YEAR AND 2001 FISCAL YEAR-END OPTION VALUES
The following table sets forth information concerning exercise of stock
options during fiscal 2001 by each of the individuals identified in the Summary
Compensation Table and the value of options at the end of fiscal 2001.
NUMBER OF SECURITIES
SHARES VALUE UNDERLYING UNEXERCISED VALUE OF UNEXERCISED
ACQUIRED ON REALIZED OPTIONS AT IN-THE-MONEY OPTIONS
NAME EXERCISE(#) ($) 2001 YEAR-END(#)(A) AT 2001 YEAR-END($)(A)
---- ----------- -------- ---------------------- ----------------------
Michael L. Parodi............. -- -- 697,500 5,625
Stephen P. DeOrnellas......... -- -- 403,995 197,540
James D. McKibben............. -- -- 326,100 79,000
Colin C. Tierney.............. -- -- 236,000 110,820
George Landreth............... -- -- 293,600 80,260
- ---------------
(a) Potential unrealized value is (1) the fair market value at fiscal 2001
year-end ($3 per share) less the exercise price of "in-the-money,"
unexercised options times (2) the number of shares represented by such
options.
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APPROVAL OF THE FIRST AMENDMENT TO
THE SECOND AMENDED AND RESTATED
STOCK OPTION PLAN FOR OUTSIDE DIRECTORS
(PROPOSAL NO. 2)
SECOND AMENDED AND RESTATED STOCK OPTION PLAN FOR OUTSIDE DIRECTORS
On December 12, 2000 the board of directors, subject to stockholder
approval, unanimously adopted the First Amendment to the Second Amended and
Restated Stock Option Plan for Outside Directors of Tegal Corporation, which (a)
permits outside directors to elect to receive their director's fee in the form
of stock options instead of cash compensation and (b) facilitates changes to the
plan by allowing the board of directors to make certain amendments permitted by
law.
The board of directors believes that the directors plan, as amended, is
desirable: (1) to further the growth, development and financial success of the
Company by providing additional incentives to its outside directors who share in
the responsibility for the management of the Company's business by assisting
them to become owners of Common Stock and thus to benefit directly from its
growth, development and financial success, (2) to enable the Company to obtain
and retain the services of the type of outside directors considered essential to
the long-range success of the Company by providing and offering them an
opportunity to become owners of Common Stock and (3) to enable the board to
amend the plan to continue to offer incentives to obtain and retain qualified
outside directors.
Time commitments for service as a director of public companies have
increased in recent years. These increasing demands on directors' time have
greatly increased the competition for potential directors who possess the
talents, skills, judgment, personal attributes and other characteristics of an
outstanding director. This competition is especially keen with respect to
persons who are not officers or employees of the corporation for which they are
asked to serve as directors. The board of directors adopted the amendment to the
directors plan to enhance the Company's ability to attract and retain well
qualified individuals to serve as directors of the Company.
Through July 31, 2001, 600,000 shares of Common Stock were reserved for
issuance upon exercise of options under the directors plan as presently in
effect. As of July 31, 2001, 340,000 shares remain issuable under the directors
plan, and 245,000 shares were subject to outstanding options.
The principal features of the directors plan, as amended, are summarized
below, but the summary is qualified in its entirety by reference to the
directors plan, as amended, which is attached hereto as Appendix A to this Proxy
Statement.
The directors plan is administered by the board of directors. The board has
the power to interpret the directors plan and the options issued thereunder and
to adopt such rules for the administration, interpretation and application of
the directors plan as are consistent therewith and to interpret, amend or revoke
any such rules.
Options will be granted to any member of the board of directors (an
"outside director") who is not an employee of the Company or its subsidiaries as
defined under Section 3401(c) of the Code and who is not legally or
contractually prohibited from receiving and holding personally an option.
A maximum of 600,000 shares of common stock may be issued upon exercise of
options granted under the directors plan. The directors plan provides for the
issuance of equity interests in the Company in the form of stock options that do
not qualify as "incentive stock options," as defined under the Code.
An outside director shall automatically be granted an option to purchase
20,000 shares of Common Stock upon an outside director's election or appointment
to the board of directors (including those outside directors who are nominees
for election as directors in this Annual Meeting) and on each second anniversary
thereafter an option to purchase an additional 20,000 shares of Common Stock
(collectively, the "Directors Option"), provided that such outside director
continues to serve as an outside director as of such date. The Director's Option
shall vest in equal installments on each anniversary of the date of such
option's grant; provided,
9
however, that, at the discretion of the board of directors, the vesting may be
accelerated when the fair market value of the Company's Common Stock equals a
certain price, which price shall be established by the board of directors on the
date of grant of such option.
As amended, outside directors will also have the opportunity to receive
options as payment for their director's fee. Outside directors will be permitted
to elect to receive their director's fee in the form of options instead of cash
compensation. The election must be made at least six months prior to the date
the outside director will receive his director's fee (the "Payment Date") and
will be irrevocable. The election will remain in effect for subsequent years
unless the outside director revokes the election at least six months prior to
the relevant Payment Date.
Notwithstanding the foregoing, an outside director may not exercise an
otherwise exercisable option unless such outside director attended at least 75%
of the meetings of the board of directors during the twelve month period (the
"Attendance Period") preceding the date of exercise of such option; provided,
however, that installments of such option which become exercisable prior to the
commencement of the Attendance Period will remain exercisable by the outside
director. The price of the shares subject to each option will be the fair market
value of such shares on the date such option is granted. Options received in
lieu of cash compensation, however, will be fully vested and exercisable on the
date the option is granted. In addition, the price of the shares subject to each
option received in lieu of cash compensation will be determined using a
Black-Scholes formula.
No option granted under the directors plan may be exercised by anyone after
the first to occur of the following events: (a) the expiration of ten years from
the date an option was granted; (b) the expiration of six months from the date
of the optionee's termination of directorship for any reason other than such
optionee's death unless the optionee dies within said six-month period; or (c)
the expiration of one year from the date of the optionee's death. An option
granted under the directors plan will become exercisable as to all shares
covered thereby upon certain corporate transactions or a change of control, as
more specifically provided in the directors plan.
As amended, the board of directors will be able to amend the plan to (a)
modify the eligibility requirements, (b) increase the number of shares to be
covered by option grants, (c) reduce the option price requirements and (d)
change the exercisability provisions of the plan. However, the board will still
be required to obtain stockholder approval for amendments that (a) increase the
limits imposed on the maximum number of shares which may be issued upon exercise
of options, (b) extend the limit on the period during which options may be
granted or (c) amend or modify the plan in a manner that requires approval under
applicable law.
SECURITIES LAWS AND FEDERAL INCOME TAXES
The following discussion is a general summary of the material federal
income tax consequences to participants in the directors plan. The discussion is
based on the Code, regulations thereunder, rulings and decisions now in effect,
all of which are subject to change. The summary does not discuss all aspects of
federal income taxation that may be relevant to a particular participant in
light of such participant's personal investment circumstances. Also, state and
local income taxes are not discussed and may vary from locality to locality.
Securities Laws. The directors plan is intended to conform to the extent
necessary with all provisions of the Securities Act and the Exchange Act and any
and all regulations and rules promulgated by the Securities and Exchange
Commission thereunder, including, without limitation, Rule 16b-3. The directors
plan will be administered, and options will be granted and may be exercised,
only in such a manner as to conform to such laws, rules and regulations. To the
extent permitted by applicable law, the directors plan and options granted
thereunder shall be deemed amended to the extent necessary to conform to such
laws, rules and regulations.
Nonqualified Stock Options. Participants who hold nonqualified stock
options do not recognize income as a result of the grant of such options, but
normally recognize compensation taxable at ordinary income rates upon the
exercise of such options to the extent that the fair market value of the shares
of Common Stock on
10
the date of the exercise of such options exceeds the option exercise price paid.
However, in the case of a participant subject to Section 16(b) of the Exchange
Act, including, the members of the board of directors of the Company, who has
held a nonqualified stock option for less than six months and exercises such
option, the ordinary income portion generally would be calculated using the fair
market value of the shares upon the lapse of the six-month period from the date
of grant of such option rather than the fair market value on the date of
exercise, unless the participant elects to recognize income immediately upon
exercise in accordance with Section 83(b) of the Code. The Company will be
entitled to a tax deduction in an amount equal to the amount that the
participant is required to include in ordinary income at the time of such
inclusion, and will be required to withhold taxes on such ordinary income. The
participant's initial tax basis for shares of Common Stock acquired upon the
exercise of a nonqualified stock option will be the option exercise price paid
plus the amount of ordinary income recognized by the participant.
NEW PLAN BENEFITS TABLE
The following table shows the determinable benefits that will be received
by each of the designated persons or groups under the directors plan if the
Amendment to the directors plan set forth in this Proxy Statement is approved by
the Company's stockholders.
NEW PLAN BENEFITS
THE DIRECTORS PLAN
DOLLAR NUMBER
NAME AND POSITION VALUE($) OF SHARES
----------------- -------- ---------
Non-Executive Director Group............................. $12,000 7,643
THE BOARD UNANIMOUSLY RECOMMENDS THAT THE STOCKHOLDERS VOTE FOR THE
AMENDMENT TO THE DIRECTORS PLAN.
11
PRINCIPAL STOCKHOLDERS
The following table sets forth information as of July 31, 2001 with respect
to shares of our common stock which are held by persons known by us to be
beneficial owners of more than 5% of such stock based upon information received
from such persons or contained in filings made with the Securities and Exchange
Commission. For purposes of this schedule, 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 PERCENT OF
NAME AND ADDRESS OF BENEFICIAL OWNER BENEFICIAL OWNERSHIP CLASS
------------------------------------ -------------------- ----------
Dimensional Fund Advisors Inc. ............................. 937,000 7.43%
1299 Ocean Avenue, 11th Floor
Santa Monica, California 90401
12
OWNERSHIP OF STOCK BY MANAGEMENT
The following table sets forth information with respect to the beneficial
ownership of shares of our common stock by our directors, the individuals named
in the Summary Compensation Table, and all directors and executive officers as a
group as of July 31, 2001. An asterisk denotes beneficial ownership of less than
1%.
SHARES
BENEFICIALLY PERCENT
NAME OF BENEFICIAL OWNER POSITION OWNED(1) OF CLASS(1)
------------------------ -------- ------------ -----------
Jeffrey M. Krauss(2)............... Director 51,500 *
Thomas R. Mika(3).................. Director 82,100 *
Edward A. Dohring(4)............... Director 50,000 *
Michael L. Parodi(5)............... Chairman of the Board, President, Chief 527,500 4.2
Executive Officer and Director
Stephen P. DeOrnellas(6)........... Vice President, Technology & New 304,132 2.4
Business Development, Chief Technical
Officer
James D. McKibben(7)............... Vice President, Worldwide Marketing & 231,720 1.8
Sales
Colin C. Tierney(8)................ Vice President, Worldwide Operations 136,000 1.1
and Customer Support
George Landreth(9)................. Vice President, Product Development 195,458 1.5
Directors and Executive Officers as
a group (8 persons)(10).......... 1,578,410 12.5
- ---------------
(1) Applicable percentage of ownership is based on 12,619,087 shares of common
stock outstanding as of July 31, 2001. 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 our repurchase rights held by such person or persons
but not for any other person.
(2) Includes options to purchase 50,000 shares of common stock which are
exercisable within 60 days and excludes options to purchase 20,000 shares
which are not so exercisable.
(3) Includes options to purchase 35,000 shares of common stock which are
exercisable within 60 days and excludes options to purchase 20,000 shares
which are not so exercisable.
(4) Includes options to purchase 50,000 shares of common stock which are
exercisable within 60 days and excludes options to purchase 20,000 shares
which are not so exercisable.
(5) Includes options to purchase 522,500 shares of common stock which are
currently exercisable and excludes options to purchase 175,000 shares which
are not so exercisable.
(6) Includes 303,995 shares issuable pursuant to stock options which are
currently exercisable and excludes options to purchase 100,000 shares which
are not so exercisable.
(7) Includes 226,100 shares issuable pursuant to stock options which are
currently exercisable and excludes options to purchase 100,000 shares which
are not so exercisable.
(8) Includes 136,000 shares issuable pursuant to stock options which are
currently exercisable and excludes options to purchase 100,000 shares which
are not so exercisable.
(9) Includes 191,200 shares issuable pursuant to stock options which are
currently exercisable and excludes options to purchase 100,000 shares which
are not so exercisable.
(10) Includes 1,514,795 shares issuable pursuant to stock options which are
exercisable within 60 days and excludes options to purchase 635,000 shares
which are not so exercisable.
13
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 we specifically incorporate 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
[PERFORMANCE GRAPH]
NASDAQ STOCK
TEGAL CORPORATION PEER GROUP MARKET (U.S.)
----------------- ---------- -------------
3/96 $100.00 $100.00 $100.00
3/97 72.58 132.02 111.15
3/98 91.13 177.08 168.47
3/99 38.71 280.07 227.62
3/00 85.48 893.63 423.37
3/01 38.71 430.21 169.46
- ---------------
* $100 invested on 3/31/96 in stock or index -- including reinvestment of
dividends. Fiscal year ending March 31.
(1) The graph covers the period from March 31, 1996 through the fiscal year
ended March 31, 2001.
(2) The graph assumes that $100 was invested on March 31, 1996 in our 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 our
common stock.
(3) The peer group chosen by us consists of the following corporations: Applied
Materials Inc., Genus Inc., KLA-Tencor Corp., Lam Research Corp., Mattson
Technology Inc., Novellus Systems Inc. and Trikon Technologies Inc.
14
AUDIT COMMITTEE REPORT
The Audit Committee of our board of directors is comprised of independent
directors as required by the listing standards of the Nasdaq National Market.
The Audit Committee operates pursuant to a written charter adopted by our board
of directors, a copy of which is attached to this Proxy Statement as Appendix B.
The role of the Audit Committee is to oversee our financial reporting
process on behalf of the board of directors. Our management has the primary
responsibility for our financial statements as well as our financial reporting
process, principles and internal controls. The independent auditors are
responsible for performing an audit of our financial statements and expressing
an opinion as to the conformity of such financial statements with generally
accepted accounting principles.
In this context, the Audit Committee has reviewed and discussed our audited
financial statements as of and for the year ended March 31, 2001 with management
and the independent auditors. The Audit Committee has discussed with the
independent auditors the matters required to be discussed by Statement on
Auditing Standards No. 61 (Communication with Audit Committees), as currently in
effect. In addition, the Audit Committee has received the written communication
from the independent auditors required by Independence Standards Board Standard
No. 1 (Independence Discussions with Audit Committees), as currently in effect,
and it has discussed with the auditors their independence from us. The Audit
Committee has also considered whether the independent auditor's provision of
information technology services and other non-audit services to us is compatible
with maintaining the auditor's independence.
The members of the Audit Committee are not engaged in the accounting or
auditing profession and, consequently, are not experts in matters involving
auditing or accounting. In the performance of their oversight function, the
members of the Audit Committee necessarily relied upon the information,
opinions, reports and statements presented to them by our management and by the
independent auditors. As a result, the Audit Committee's oversight and the
review and discussions referred to above do not assure that management has
maintained adequate financial reporting processes, principles and internal
controls, that our financial statements are accurate, that the audit of such
financial statements has been conducted in accordance with generally accepted
auditing standards or that our auditors meet the applicable standards for
auditor independence.
Based on its review of the reports and discussions described above, the
Audit Committee recommended to the board of directors that the audited financial
statements be included in our Annual Report on Form 10-K for the year ended
March 31, 2001, for filing with the Securities and Exchange Commission.
Submitted on August 15, 2001 by the members of the Audit Committee of the
board of directors.
Jeffrey Krauss
Edward Dohring
Thomas Mika
AUDIT FEE DISCLOSURE
AUDIT FEES
The aggregate fees billed for professional services rendered by
PricewaterhouseCoopers LLP for the audit of our annual financial statements for
the fiscal year ended March 31, 2001 and the reviews of the financial statements
included in our quarterly reports on Form 10-Q for the fiscal year ended March
31, 2001 were $141,100.
FINANCIAL INFORMATION SYSTEMS DESIGN AND IMPLEMENTATION FEES
PricewaterhouseCoopers LLP did not render any professional services to us
of the type described in Rule 2-01(c)(4)(ii) of Regulation S-X during the fiscal
year ended March 31, 2001.
15
ALL OTHER FEES
The aggregate fees billed for services rendered by PricewaterhouseCoopers
LLP, other than fees for the services referenced under the captions "Audit Fees"
and "Financial Information Systems Design and Implementation Fees", during the
fiscal year ended March 31, 2001 were $72,000.
PRESENCE AT ANNUAL MEETING
Our board of directors has appointed the firm of PricewaterhouseCoopers
LLP, independent auditors, to audit our financial statements for the fiscal year
ending March 31, 2002. We expect representatives of PricewaterhouseCoopers LLP
will be present at the annual meeting and will have the opportunity to respond
to appropriate questions and to make a statement if they desire.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Exchange Act, requires our officers and directors, and
persons who own more than ten percent of a registered class of our 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 us with copies of all
such forms which they file.
To our knowledge, based solely on our review of such reports or written
representations from certain reporting persons, we believe that all of the
filing requirements applicable to our officers, directors, greater-
than-ten-percent beneficial owners and other persons subject to Section 16 of
the Exchange Act during fiscal 2001 were complied with.
DEADLINE FOR SUBMISSION OF STOCKHOLDER PROPOSALS
FOR THE 2002 ANNUAL MEETING
Stockholder proposals to be presented at the 2002 annual meeting must be
received at our principal executive offices no later than April 17, 2002 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 our bylaws.
Stockholder proposals to be presented at the 2002 annual meeting must be
received at our principal executive offices no later than July 1, 2002 in order
to be considered for inclusion on the 2002 annual meeting agenda. To be eligible
for inclusion on the agenda, such proposals must conform to the requirements set
forth in Regulation 14A under the Exchange Act as well as in our bylaws.
16
OTHER MATTERS
We are 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.
Our 2001 annual report for the fiscal year ended March 31, 2001 has been
mailed with this proxy statement.
By Order of the Board of Directors
TEGAL CORPORATION
/s/ Michael L. Parodi
MICHAEL L. PARODI
President and CEO
Petaluma, California
August 15, 2001
STOCKHOLDERS OF RECORD ON JULY 31, 2001 MAY OBTAIN COPIES OF TEGAL'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, PETALUMA, CALIFORNIA 94954.
17
APPENDIX A
FIRST AMENDMENT TO THE
SECOND AMENDED AND RESTATED
STOCK OPTION PLAN FOR OUTSIDE DIRECTORS
OF TEGAL CORPORATION
WHEREAS, Tegal Corporation, a Delaware Corporation (the "Company"), has
established and maintains the Amended and Restated Stock Option Plan for Outside
Directors of Tegal Corporation (the "Plan"), for the benefit of Outside
Directors sitting on the Company's Board of Directors (the "Board");
WHEREAS, the Company wishes to amend the Plan to allow outside directors to
receive options in lieu of cash compensation as payment for a quarterly
director's fee;
WHEREAS, pursuant to Section 7.2 of the Plan, the Board has the power to
wholly or partially amend the Plan at any time or from time to time; and
NOW, THEREFORE, BE IT RESOLVED, that the Plan is hereby amended subject to
the approval of the Company's shareholders, effective as of July 17, 2001 (the
"Effective Date"), as follows:
1. By adding Section 3.8 to the Plan:
"Section 3.8 -- Options In Lieu Of Cash Compensation
(a) In addition to those Options referenced in Sections 3.3, 3.4
and 3.5, each Outside Director may elect to receive all or any portion
of his or her Director's Fee either (i) in cash or (ii) in the form of
an Option. "Director's Fee" shall mean the amount of compensation set by
the Board from time to time and as payable to a Director for services as
a Director; but shall not include any fees payable by reason of
Committee membership and/or attendance.
(b) In order to receive Director's Fees in the form of an Option in
lieu of cash compensation the Outside Director must elect in writing at
least six months prior to the date of payment of the Director's Fee (the
"Payment Date"). The election shall be irrevocable with respect to the
Payment Date for which it is made, and shall remain in effect for a
subsequent Payment Date unless revoked in writing at least six months
prior to the relevant Payment Date."
2. By substituting the following for Section 4.2(a) of the Plan:
"(a) The price of the shares of Common Stock subject to each Option
shall:
(i) for Options granted under Sections 3.3, 3.4 and 3.5 equal the
fair market value of such shares on the date such Option is granted, and
(ii) for Options granted under Section 3.8 be determined using a
Black-Scholes formula."
3. By adding subsection (d) to Section 4.3 to the Plan:
"(d) Notwithstanding the provisions of Section 4.3(b), all Options
granted under Section 3.8 will be fully vested and exercisable on the date
of Option grant."
4. By substituting the following for the second sentence of subsection (a)
of Section 7.2 of the Plan:
"However, unless otherwise determined by the Board and permitted by
Rule 16b-3 as then in effect, without approval of the Company's
shareholders given within 12 months before or after the action by the
Committee, no action of the Committee may, except as provided in Section
2.3, increase the limits imposed in Section 2.1 on the maximum number of
shares which may be issued on exercise of Options or extend the limit
imposed in this Section 7.2 on the period during which Options may be
granted or amend or modify the Plan in a manner requiring shareholder
approval under Rule 16b-3 or the Code."
RESOLVED, FURTHER, that this First Amendment to the Plan shall be submitted
for approval of the shareholders within twelve (12) months before or after its
adoption by the Board of Directors.
A-1
IN WITNESS WHEREOF, the Company has caused this First Amendment to be
executed by the Board of Directors on this 12th day of December, 2000.
BOARD OF DIRECTORS OF
TEGAL CORPORATION
/s/ MICHAEL L. PARODI
--------------------------------------
By: Michael L. Parodi
--------------------------------------
Its: President and CEO
--------------------------------------
A-2
APPENDIX B
TEGAL CORPORATION
AUDIT COMMITTEE CHARTER
PURPOSE
The purpose of the Audit Committee (the "Committee") is to provide
assistance to the Board of Directors (the "Board") of Tegal Corporation (the
"Company") in fulfilling the Board's oversight of the Company's accounting and
system of internal controls, the quality and integrity of the Company's
financial reports and the independence and performance of the Company's outside
auditor.
In the exercise of its oversight, it is not the duty of the Committee to
plan or conduct audits or to determine that the Company's financial statements
fairly present the Company's financial position and results of operation and are
in accordance with generally accepted accounting principles. Instead, such
duties remain under the oversight of management and the outside auditor. Nothing
contained in this charter is intended to alter or impair the operation of the
"business judgment rule" as interpreted by the courts under the Delaware General
Corporation Law (the "DGCL"). Further, nothing contained in this charter is
intended to alter or impair the right of the members of the Committee under the
DGCL to rely, in discharging their oversight role, on the records of the Company
and on other information presented to the Committee, Board or Company by its
officers or employees or by outside experts such as the outside auditor. It is
acknowledged that all of the areas of oversight listed below may not be relevant
to all of the matters and tasks that the Committee may consider and act upon
from time to time, and the members of the Committee in their judgment may
determine the relevance thereof and the attention such items will receive in any
particular context.
MEMBERSHIP
The Committee shall consist of three members of the Board. The members
shall be appointed by action of the Board and shall serve at the discretion of
the Board. The Committee shall satisfy the independence and experience
requirements of The Nasdaq Stock Market, including any exceptions thereto.
COMMITTEE ORGANIZATION AND PROCEDURES
1. The members of the Committee shall appoint a Chair of the Committee by
majority vote. The Chair (or in her or his absence, a member designated by the
Chair) shall preside at all meetings of the Committee.
2. The Committee shall have the authority to establish its own rules and
procedures consistent with the bylaws of the Company for notice and conduct of
its meetings, should the Committee, in its discretion, deem it desirable to do
so.
3. The Committee shall meet at least four times in each fiscal year, and
more frequently as the Committee in its discretion deems desirable.
4. The Committee may include in its meetings members of the Company's
financial management, representatives of the outside auditor and other financial
personnel employed or retained by the Company. The Committee may meet with the
outside auditor in separate executive sessions to discuss any matters that the
Committee believes should be addressed privately, without management's presence.
The Committee may also meet privately with management, as it deems appropriate.
5. The Committee may, in its discretion, retain outside legal counsel if it
determines that such counsel is necessary or appropriate under the
circumstances.
OVERSIGHT
Outside Auditor
6. The outside auditor shall be ultimately accountable to the Committee and
the Board in connection with the audit of the Company's annual financial
statements and related services. The Committee shall review
B-1
and select the outside auditor and, if necessary, recommend that the Board
replace the outside auditor and recommend to the Board the nomination of the
outside auditor for stockholder approval at any meeting of stockholders; and
approve the fees to be paid to the outside auditor and any other terms of the
engagement of the outside auditor.
7. The Committee shall receive from the outside auditor, at least annually,
a written statement delineating all relationships between the outside auditor
and the Company, consistent with Independence Standards Board Standard 1. The
Committee shall discuss with the outside auditor with respect to any disclosed
relationships or services that, in the view of the Committee, may impact the
objectivity and independence of the outside auditor. If the Committee determines
that further inquiry is advisable, the Committee shall recommend that the Board
take any appropriate action in response to the outside auditor's independence.
Annual Audit
8. The Committee shall meet with the outside auditor and management in
connection with each annual audit to discuss the scope of the audit and the
procedures to be followed.
9. The Committee shall meet with the outside auditor and management prior
to the public release of the financial results of operations for the year under
audit and discuss with the outside auditor any matters within the scope of the
pending audit that have not yet been completed.
10. The Committee shall discuss with the outside auditor the matters
required to be discussed by Statement on Auditing Standards No. 61 relating to
the conduct of the annual audit.
11. The Committee shall, based on the review and discussions in paragraphs
9 and 10 above, and based on the disclosures received from the outside auditor
regarding its independence and discussions with the auditor regarding such
independence in paragraph 7 above, recommend to the Board whether the audited
financial statements should be included in the Company's Annual Report on Form
10-K for the fiscal year subject to the audit.
Quarterly Review
12. The outside auditor shall review the interim financial statements to be
included in any Form 10-Q of the Company using professional standards and
procedures for conducting such reviews, as established by generally accepted
auditing standards as modified or supplemented by the Securities and Exchange
Commission and in accordance with Statement on Auditing Standards 71, prior to
the filing of the Form 10-Q. The Committee shall discuss with management and the
outside auditor the results of the quarterly review including such matters as
significant adjustments, management judgments, accounting estimates, significant
new accounting policies and disagreements with management. The Chair may
represent the entire Committee for purposes of this discussion.
Internal Controls
13. The Committee shall discuss with the outside auditor, at least
annually, the adequacy and effectiveness of the accounting and financial
controls of the Company, and consider any recommendations for improvement of
such internal control procedures.
14. The Committee shall discuss with the outside auditor and with
management any management letter provided by the outside auditor and any other
significant matters brought to the attention of the Committee by the outside
auditor as a result of its annual audit.
Miscellaneous
15. The Committee shall review and reassess the Committee's charter at
least annually and submit any recommended changes to the Board for its
consideration.
B-2
16. The Committee shall review legal and regulatory matters that may have a
material impact on the financial statements and related compliance policies and
programs.
17. The Committee shall provide the report for inclusion in the Company's
Annual Proxy Statement required by Item 306 of Regulation S-K of the Securities
and Exchange Commission.
18. The Committee, through its Chair, shall report periodically, as deemed
necessary or desirable by the Committee, but at least annually, to the full
Board regarding the Committee's actions and recommendations, if any.
B-3
APPENDIX C
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 25, 2001.
The undersigned hereby appoints Michael L. Parodi with full power of
substitution, as proxy, and hereby authorizes him 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 25, 2001, and any and all adjournments of the annual meeting.
THIS PROXY WILL BE VOTED AS DIRECTED. IF NO CONTRARY INSTRUCTION IS
INDICATED, THIS PROXY WILL BE VOTED FOR THE ELECTION OF THE FOUR NOMINEES LISTED
BELOW.
The board of directors recommends that you vote FOR the nominees in
Proposal 1, and FOR adoption of Proposal 2.
1. Election of directors: 01 Michael L. Parodi, 02 Jeffrey M. Krauss,
03 Thomas R. Mika and 04 Edward A. Dohring.
[ ] FOR all nominees listed [ ] WITHHOLD AUTHORITY to vote [ ] INSTRUCTIONS: To
(except as marked to the for all nominees listed: withhold authority to
contrary) vote for any individual
nominee, strike a line
through the nominee's
name in the list above.
2. Proposal to adopt the amendment to the directors plan to (a) permit
outside directors to elect to receive their director's fee in the
form of stock options instead of cash compensation and (b)
facilitate changes to the plan by allowing the board of directors to
make certain amendments permitted by law.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
3. In their discretion, the proxies are authorized to vote upon such
other business as may properly come before the annual meeting and
adjournments of the annual meeting.
(Continued and to be signed on the reverse side)
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 , 2001
--------------------------
---------------------------------------
---------------------------------------
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