SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE SECURITIES
EXCHANGE ACT OF 1934
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CABOT MICROELECTRONICS CORPORATION
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(CABOT MICROELECTRONICS LOGO)
CABOT MICROELECTRONICS CORPORATION
870 NORTH COMMONS DRIVE
AURORA, ILLINOIS 60504
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
To be held March 9, 2004
To our Stockholders:
We are notifying you that the Annual Meeting of Stockholders of Cabot
Microelectronics Corporation will be held on Tuesday, March 9, 2004 at 8:00 a.m.
local time at Cabot Microelectronics Corporation, 870 North Commons Drive,
Aurora, Illinois 60504 for the following purposes:
1. To elect two directors, each for a term of three years;
2. To ratify the election of William P. Noglows to the board of directors;
3. To ratify the selection of PricewaterhouseCoopers LLP as the company's
independent auditors for fiscal year 2004;
4. To approve our Second Amended and Restated 2000 Equity Incentive Plan;
and
5. To transact other business properly coming before the meeting.
Each of these matters is described in further detail in the enclosed proxy
statement. We have also enclosed a copy of our 2003 Annual Report. Only
stockholders of record at the close of business on January 20, 2004 are entitled
to vote at the meeting or any postponements or adjournments of the meeting. A
complete list of these stockholders will be available at our principal executive
offices prior to the meeting.
Please use this opportunity to take part in our affairs by voting your
shares. Whether or not you plan to attend the meeting, please complete the
enclosed proxy card and return it in the envelope provided as promptly as
possible or vote electronically through the Internet or by telephone. Your proxy
can be withdrawn by you at any time before it is voted.
By order of the Board of Directors,
/s/ William P. Noglows
William P. Noglows
Chairman of the Board
Aurora, Illinois
January 26, 2004
TABLE OF CONTENTS
About the Meeting........................................... 1
What is the purpose of the annual meeting?............. 1
What are the company's voting recommendations?......... 1
Who is entitled to vote?............................... 1
What constitutes a quorum?............................. 1
How do I vote?......................................... 1
Can I vote by telephone or through the Internet?....... 2
Can I revoke my proxy or change my vote after I return
my proxy card or after I vote electronically or by
telephone?............................................ 2
What vote is required to approve each matter that comes
before the meeting?................................... 2
What happens if additional proposals are presented at
the meeting?.......................................... 2
Who will bear the costs of soliciting votes for the
meeting?.............................................. 2
Stock Ownership............................................. 3
Security Ownership of Certain Beneficial Owners and
Management............................................ 3
Section 16(a) Beneficial Ownership Reporting
Compliance............................................ 5
Election of Directors....................................... 5
Ratification of the Election of William P. Noglows to our
Board of Directors........................................ 7
Ratification of the Selection of Independent Auditors....... 7
Board Structure and Compensation............................ 8
Board of Directors and Board Committees................ 8
Criteria for Nominating Directors...................... 9
Compensation of Directors.............................. 10
Compensation Committee Interlocks And Insider
Participation......................................... 11
Fees of Independent Auditors and Audit Committee Report..... 11
Fees Billed by Independent Auditors.................... 11
Report of the Audit Committee.......................... 11
Executive Compensation...................................... 13
Summary of Cash and Certain Other Compensation......... 13
Option Grants.......................................... 15
Option Exercises and Fiscal Year-End Values............ 16
Executive Officer Deposit Share Plan................... 16
Employment, Termination of Employment, and Change in
Control Agreements.................................... 16
Standard Employee Benefits............................. 18
Report of the Compensation Committee on Executive
Compensation.............................................. 18
Approval of Second Amended and Restated Cabot
Microelectronics Corporation 2000
Equity Incentive Plan..................................... 22
Existing Plan Information.............................. 22
Existing Equity Compensation Plan Information.......... 23
Amended and Restated 2000 Equity Incentive Plan
Benefits.............................................. 23
Description of the Second Amended and Restated 2000
Equity Incentive Plan................................. 24
Certain Relationships and Related Transactions.............. 29
Performance Graph........................................... 30
2005 Annual Meeting of Stockholders......................... 31
"Householding" of Proxy Materials........................... 31
Voting Through the Internet or by Telephone................. 31
CABOT MICROELECTRONICS CORPORATION
870 North Commons Drive
Aurora, Illinois 60504
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PROXY STATEMENT
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The Board of Directors of Cabot Microelectronics Corporation is asking for
your proxy for use at the annual meeting of our stockholders to be held on
Tuesday, March 9, 2004 at 8:00 a.m. local time at Cabot Microelectronics
Corporation, 870 North Commons Drive, Aurora, Illinois 60504 and at any
postponements or adjournments of the meeting. We are initially mailing this
proxy statement and the enclosed proxy to our stockholders on or about January
26, 2004.
ABOUT THE MEETING
What is the purpose of the annual meeting?
At our annual meeting, stockholders will act upon the matters outlined in
the accompanying notice of meeting, including the election of two directors, the
ratification of the election of William P. Noglows to the board of directors,
the ratification of the selection of our independent auditors and the approval
of our Second Amended and Restated 2000 Equity Incentive Plan. In addition, our
management will report on our performance during the fiscal year ended September
30, 2003 and respond to questions from stockholders.
What are the company's voting recommendations?
Our board of directors recommends that you vote your shares "FOR" the
election of each of the nominees named below under "ELECTION OF DIRECTORS",
"FOR" the ratification of the election of William P. Noglows to the board of
directors, "FOR" the ratification of the selection of our independent auditors
and "FOR" the approval of our Second Amended and Restated 2000 Equity Incentive
Plan.
Who is entitled to vote?
Only stockholders of record at the close of business on the record date,
January 20, 2004, are entitled to receive notice of the annual meeting and to
vote the shares of common stock that they held on that date at the meeting, or
any postponements or adjournments of the meeting. Each outstanding share of
common stock entitles its holder to cast one vote, without cumulation, on each
matter to be voted on.
What constitutes a quorum?
If a majority of the shares outstanding on the record date are present at
the annual meeting, either in person or by proxy, we will have a quorum at the
meeting permitting the conduct of business at the meeting. As of the record
date, we had approximately 24,777,886 shares of common stock outstanding and
entitled to vote. Any shares represented by proxies that are marked to abstain
from voting on a proposal will be counted as present for purposes of determining
whether we have a quorum. If a broker, bank, custodian, nominee or other record
holder of our common stock indicates on a proxy that it does not have
discretionary authority to vote certain shares on a particular matter, the
shares held by that record holder (referred to as "broker non-votes") will also
be counted as present in determining whether we have a quorum.
How do I vote?
You may vote in person at the annual meeting or you may vote by proxy. You
may vote by proxy by signing, dating and mailing the enclosed proxy card or if
you are a record holder of our common stock (that is, if you hold your stock in
your own name in the company's stock records maintained by our stock transfer
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agent, Equiserve Trust Company, N.A., P.O. Box 43010, Providence, Rhode Island
02940-3010), by telephone or through the Internet. If you vote by proxy, the
individuals named on the proxy card as proxy holders will vote your shares in
the manner you indicate. If you sign and return the proxy card without
indicating your instructions, your shares will be voted "FOR":
- the election of the two nominees for director named below under "ELECTION OF
DIRECTORS;"
- the ratification of the election of William P. Noglows to the board of
directors;
- the ratification of the selection of our independent auditors; and
- the approval of our Second Amended and Restated 2000 Equity Incentive Plan.
Can I vote by telephone or through the Internet?
If you are a record holder of our common stock, you may vote by telephone
or through the Internet by following the instructions included with your proxy
card.
Can I revoke my proxy or change my vote after I return my proxy card or after I
vote electronically or by telephone?
Yes. Even after you have submitted your proxy, you may revoke your proxy or
change your vote at any time before the proxy is voted at the annual meeting by
delivering to the Secretary of our company a written notice of revocation or a
properly signed proxy bearing a later date, or by attending the annual meeting
and voting in person. (Attendance at the meeting will not cause your previously
granted proxy to be revoked unless you specifically so request.) To revoke a
proxy previously submitted electronically through the Internet or by telephone,
you may simply vote again at a later date, using the same procedures, in which
case the later submitted vote will be recorded and the earlier vote revoked.
What vote is required to approve each matter that comes before the meeting?
Director nominees must receive the affirmative vote of a plurality of the
votes cast at the meeting by stockholders entitled to vote thereon, meaning that
the two nominees for director with the most votes will be elected. The
ratification of the election of William P. Noglows to the board of directors,
the ratification of the selection of our independent auditors and the approval
of our Second Amended and Restated 2000 Equity Incentive Plan require the
affirmative vote of a majority of the votes cast at the meeting in person or by
proxy by stockholders entitled to vote thereon. Abstentions and broker non-votes
will not be counted for purposes of determining whether an item has received the
requisite number of votes for approval.
What happens if additional proposals are presented at the meeting?
Other than the matters described in this proxy statement, we do not expect
any additional matters to be presented for a vote at the annual meeting. If you
vote by proxy, your proxy grants the persons named as proxy holders the
discretion to vote your shares on any additional matters properly presented for
a vote at the meeting.
Who will bear the costs of soliciting votes for the meeting?
Certain directors, officers and employees, who will not receive any
additional compensation for such activities, may solicit proxies by personal
interview, mail, telephone or electronic communication. We will also reimburse
brokerage houses and other custodians, nominees and fiduciaries for their
reasonable out-of-pocket expenses for forwarding proxy and solicitation
materials to our stockholders. In addition to the mailing of these proxy
materials, the company has hired the firm of D. F. King & Co., Inc. to assist in
the solicitation of proxies at an estimated cost of approximately $7,500. The
company shall bear all costs of solicitation.
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STOCK OWNERSHIP
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information regarding the beneficial
ownership of our common stock as of January 20, 2004 (except as indicated below)
by:
- all persons known by us to own beneficially 5% or more of our
outstanding common stock;
- each of our directors;
- each of the named executive officers in the Summary Compensation Table
included in this Proxy Statement; and
- all of our directors and executive officers as a group.
Unless otherwise indicated, each stockholder listed below has sole voting
and investment power with respect to the shares of common stock beneficially
owned by such stockholder.
STOCK OWNERSHIP TABLE
NUMBER OF SHARES
BENEFICIALLY APPROXIMATE
NAME AND ADDRESS OWNED(1) PERCENT OF CLASS(1)
---------------- ---------------- -------------------
CERTAIN BENEFICIAL OWNERS:
Citigroup, Inc.............................................. 3,418,469(2) 13.8%
388 Greenwich Street
New York, New York 10013
Wasatch Advisors, Inc....................................... 2,734,212(3) 11.0%
150 Social Hall Avenue
Salt Lake City, Utah 84111
FMR Corp.................................................... 2,670,877(4) 10.8%
82 Devonshire Street
Boston, Massachusetts 02109
T. Rowe Price Associates, Inc............................... 2,007,371(5) 8.1%
100 E. Pratt Street
Baltimore, Maryland 21202
DIRECTORS AND EXECUTIVE OFFICERS:
Matthew Neville............................................. 171,228(6)(8) *
William P. Noglows.......................................... 16,153(7)(8) *
Juan Enriquez-Cabot......................................... 46,561(8)(9) *
John P. Frazee, Jr.......................................... 34,037(8) *
H. Laurance Fuller.......................................... 14,776(8) *
J. Joseph King.............................................. 12,737(8) *
Ronald L. Skates............................................ 34,366(8) *
Steven V. Wilkinson......................................... 34,580(8) *
Daniel J. Pike.............................................. 73,143(8) *
H. Carol Bernstein.......................................... 59,072(8) *
Stephen R. Smith............................................ 30,000(8) *
J. Michael Jenkins.......................................... 48,541(8) *
All directors and executive officers as a group (17
persons).................................................. 711,129(10) 2.9%
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* = less than 1%
(1) "Beneficial ownership" generally means any person who, directly or
indirectly, has or shares voting or investment power with respect to a
security or has the right to acquire such power within 60 days. Shares
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of common stock subject to options, warrants or rights that are currently
exercisable or exercisable within 60 days of January 20, 2004 are deemed
outstanding for computing the ownership percentage of the person holding
such options, warrants or rights, but are not deemed outstanding for
computing the ownership percentage of any other person. The amounts and
percentages are based upon 24,777,886 shares of our common stock
outstanding as of January 20, 2004.
(2) Of the shares reported as beneficially owned, Citigroup, Inc. exercises (a)
sole power to vote 1,395,345 shares, (b) shared power to vote 0 shares, (c)
sole investment power over 0 shares and (d) shared investment power over
3,418,469 shares. This information is based on information reported in
Schedule 13F Holdings Report filed by Citigroup, Inc. on November 14, 2003.
Based solely on information reported in Amendment No. 2 to Schedule 13G
filed by Citigroup, Inc. on February 7, 2003, the shares reported as
beneficially owned by Citigroup, Inc. are also partially beneficially owned
by Citigroup, Inc.'s wholly-owned subsidiaries Salomon Smith Barney, Inc.,
Salomon Brothers Holding Company Inc., Smith Barney Fund Management LLC and
Salomon Smith Barney Holdings Inc.
(3) Of the shares reported as beneficially owned, Wasatch Advisors, Inc.
exercises (a) sole power to vote 2,734,212 shares, (b) shared power to vote
0 shares, (c) sole investment power over 2,734,212 shares and (d) shared
investment power over 0 shares. The number of shares indicated is based on
information reported in Schedule 13F Holdings Report filed by Wasatch
Advisors, Inc. on November 17, 2003.
(4) Of the shares reported as beneficially owned, Fidelity Management &
Research Company ("Fidelity"), a wholly-owned subsidiary of FMR Corp., is
the beneficial owner of 2,431,577 shares as a result of acting as
investment adviser to various funds. Edward C. Johnson 3d (Chairman of FMR
Corp.) and FMR Corp. ("FMR") each has the power to dispose of the shares
beneficially owned by Fidelity, but neither has the power to vote or direct
the voting of those shares. The power to vote or direct the voting of the
shares resides with the Board of Trustees of the funds. Of the shares
reported as beneficially owned, Fidelity Management Trust Company
("Fidelity Management"), a wholly-owned subsidiary of FMR, is the
beneficial owner of 129,500 shares as a result of its serving as investment
manager of the institutional accounts. Edward C. Johnson 3d and FMR,
through its control of Fidelity Management, each has the dispositive power
and the power to vote or to direct the voting of the shares owned by the
institutional accounts. Of the shares reported as beneficially owned, FMR
beneficially owns 81,800 shares through Strategic Advisers, Inc.
("Strategic Advisers"), a wholly-owned subsidiary of FMR that provides
investment advisory services to individuals. Edward C. Johnson 3d has sole
voting and dispositive power over 28,000 and shared voting and dispositive
power over 0 shares. This information is based solely on information
reported in a Schedule 13G filed by FMR Corp., Edward C. Johnson 3d and
Abigail P. Johnson on December 10, 2003.
(5) Of the shares reported as beneficially owned, T. Rowe Price Associates,
Inc. exercises (a) sole power to vote 350,446 shares, (b) shared power to
vote 0 shares, (c) sole investment power over 2,007,371 shares and (d)
shared investment power over 0 shares. The number of shares indicated is
based on information reported in Schedule 13F Holdings Report filed by T.
Rowe Price Associates, Inc. on November 14, 2003.
(6) Effective November 2, 2003, Mr. Neville resigned as Chairman of the Board
of Directors, President and Chief Executive Officer. At the time of his
resignation, Mr. Neville held 26,228 shares.
(7) Effective November 3, 2003, Mr. Noglows was elected to our Board of
Directors and became the Chairman, President and Chief Executive Officer.
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(8) Includes shares of our common stock that such person has the right to
acquire pursuant to stock options exercisable within 60 days of January 20,
2004, as follows:
SHARES ISSUABLE
NAME UPON EXERCISE
---- ---------------
Mr. Neville................................................. 145,000
Mr. Noglows................................................. --
Mr. Enriquez-Cabot.......................................... 30,000
Mr. Frazee.................................................. 30,000
Mr. Fuller.................................................. 11,250
Mr. King.................................................... 11,250
Mr. Skates.................................................. 30,000
Mr. Wilkinson............................................... 30,000
Mr. Pike.................................................... 65,000
Ms. Bernstein............................................... 58,375
Mr. Smith................................................... 30,000
Mr. Jenkins................................................. 44,375
Also includes phantom shares of our common stock that such non-employee
director has the right to acquire pursuant to the Directors' Deferred
Compensation Plan as of January 20, 2004, as follows:
NAME PHANTOM SHARES
---- --------------
Mr. Enriquez-Cabot.......................................... 1,792
Mr. Frazee.................................................. 2,037
Mr. Fuller.................................................. 1,526
Mr. King.................................................... 1,487
Mr. Skates.................................................. 1,806
Mr. Wilkinson............................................... 2,080
(9) Includes 1,222 shares of our common stock directly owned by Mr.
Enriquez-Cabot's spouse and 588 shares beneficially owned by a child of Mr.
Enriquez-Cabot. Does not include an aggregate of 60,582 shares of our
common stock held in trusts for the benefit of Mr. Enriquez-Cabot and his
children, as to which Mr. Enriquez Cabot has no voting or investment power.
(10) Includes 608,520 shares of our common stock that our directors and
executive officers have the right to acquire pursuant to stock options
exercisable within 60 days of January 20, 2004, and 10,728 phantom shares
of our common stock that our non-employee directors have the right to
acquire pursuant to the Directors' Deferred Compensation Plan as of January
20, 2004.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934 requires our
directors, executive officers and holders of more than 10% of our common stock
to file with the Securities and Exchange Commission reports regarding their
ownership and changes in ownership of our common stock. Based solely on our
review of the reports furnished to us, we believe that all of our directors and
executive officers filed all Form 4s made between June 30, 2002 and June 29,
2003 on time or no later than one business day later than required in accordance
with SEC Release No. 34-47809, and otherwise have complied with all Section
16(a) filing requirements for fiscal year 2003.
ELECTION OF DIRECTORS
Our board of directors is currently comprised of seven directors. The board
of directors is divided into three classes: Class I, whose terms will expire at
the upcoming annual meeting of stockholders; Class II, whose terms will expire
at the annual meeting of stockholders to be held in 2005; and Class III, whose
terms will expire at the annual meeting of stockholders to be held in 2006.
Messrs. Enriquez-Cabot and Fuller are currently in Class I, Messrs. King, Skates
and Wilkinson are currently in Class II, and Messrs. Frazee and Noglows are
currently in Class III.
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As of November 2, 2003, Mr. Neville, who had been a Class III director and
who was Chairman of the Board, resigned as a director. Effective as of November
3, 2003, our board of directors elected Mr. Noglows to succeed Mr. Neville as a
Class III director and as Chairman of the Board.
At each annual meeting of stockholders, the successors to directors whose
terms will then expire will be elected to serve from the time of election and
qualification until the third annual meeting following election. Our certificate
of incorporation provides that the authorized number of directors may be changed
only by resolution of the board of directors. Any additional directorships
resulting from an increase in the number of directors will be distributed among
the three classes so that, as nearly as possible, each class will consist of
one-third of the total number of directors. Our certificate of incorporation
also provides that our board of directors may fill any vacancy created by the
resignation of a director or the increase of the size of the board of directors.
The board of directors has nominated and urges you to vote "FOR" the
election of the two nominees named below for terms of office ending in 2007.
Proxies will be so voted unless stockholders specify otherwise in their proxies.
In the event a nominee is not available to serve for any reason when the
election occurs, it is intended that the proxies will be voted for the election
of the other nominee and may be voted for any substitute nominee. Our board of
directors has no reason to believe that either nominee will not be a candidate
or, if elected, will be unable or unwilling to serve as a director. In no event
will the proxies be voted for a greater number of persons than the number of
nominees named.
OUR BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE "FOR" THE ELECTION TO THE BOARD
OF EACH OF THE NOMINEES NAMED BELOW.
Nominees for election at this meeting for terms expiring in 2007:
Juan Enriquez-Cabot, 44, was elected a director of our company in April
2000. Since 2003, Mr. Enriquez-Cabot has served as the Chairman and Chief
Executive Officer of Biotechonomy, a life sciences research and investment firm.
Mr. Enriquez-Cabot also served as the Director of the Life Science Project at
the Harvard Business School from 2001-2003. From 1997 until 2001, Mr.
Enriquez-Cabot was a researcher at Harvard University's David Rockefeller
Center. From 1996 to 1997, he was a senior researcher at the Harvard Business
School and a fellow at Harvard University's Center for International Affairs. He
received both his bachelor and MBA degrees from Harvard University.
H. Laurance Fuller, 65, was elected a director of our company in June 2002.
He is a director of Abbott Laboratories and of Motorola, Inc. Mr. Fuller retired
from the position of Co-Chairman of BP Amoco, p.l.c., a global petroleum and
petrochemicals company, in 2000 after serving as Chairman and Chief Executive
Officer of Amoco Corporation since 1991 and President since 1983. Mr. Fuller
received his B.S. in chemical engineering from Cornell University.
Directors whose terms continue until 2005:
J. Joseph King, 59, was elected a director of our company in September
2002. Since 2001, he has served as Vice Chairman and Chief Executive Officer of
Molex, Inc. Prior to 2001, Mr. King served as President and Chief Operating
Officer of Molex and held various other executive positions at Molex. Mr. King
received his master of engineering science degree from the National University
of Ireland in Cork and his master of industrial engineering degree from the
National University of Ireland in Galway.
Ronald L. Skates, 62, was elected a director of our company in April 2000.
He has been a private investor since 1999. From 1989 to 1999, Mr. Skates served
as President and Chief Executive Officer and as a director of Data General
Corporation, a computer systems company. Mr. Skates is also a director of State
Street Corporation, Courier Corporation and Raytheon Corporation. He received
both his bachelor and MBA degrees from Harvard University.
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Steven V. Wilkinson, 62, was elected a director of our company in April
2000. He has been retired since 1998. Prior to retirement, he worked for Arthur
Andersen LLP, where he became a partner in 1974. Mr. Wilkinson is also a
director of Entergy Corporation. Mr. Wilkinson received his BA in economics from
DePauw University and his MBA from the University of Chicago.
Directors whose terms continue until 2006:
John P. Frazee, Jr., 59, was elected a director of our company in April
2000. He has been a private investor since 2001. From 1999 until 2001, he served
as Chairman and Chief Executive Officer of Vast Solutions, Inc., a provider of
wireless data products and services. From 1999 to 2000, he served as Chairman
and Chief Executive Officer of Paging Network, Inc. From 1997 to 1999, he served
as Chairman, President and Chief Executive Officer of Paging Network. From 1993
until 1997, Mr. Frazee managed investments as a private investor. During 1993,
he was President and Chief Operating Officer of Sprint Corporation. Prior to
that, he was Chairman and Chief Executive Officer of Centel Corporation. In
addition to serving on our board, Mr. Frazee also serves on the board of EMS
Technologies, Inc. Mr. Frazee received his bachelor's degree in political
science from Randolph-Macon College.
William P. Noglows, 45, has served as our Chairman, President and Chief
Executive Officer since November 3, 2003. From 1984 through 2003, Mr. Noglows
served in various management positions at Cabot Corporation, culminating in
serving as an executive vice president and general manager. While at Cabot
Corporation, he was one of the primary founders of our company and was
responsible for identifying and encouraging the development of the CMP
application, which is the core technology of our company. Mr. Noglows had
previously served as a director of our company from December, 1999 until April
2002. Mr. Noglows received his degree in Chemical Engineering from the Georgia
Institute of Technology.
RATIFICATION OF THE ELECTION OF WILLIAM P. NOGLOWS
TO OUR BOARD OF DIRECTORS
As of November 2, 2003, Mr. Neville, who had been a Class III director and
who was Chairman of the Board, resigned as a director. Effective as of November
3, 2003, as permitted by our by-laws and charter, our board of directors elected
Mr. Noglows to succeed Mr. Neville as a Class III director and as Chairman of
the Board.
Stockholder ratification of the election of Mr. Noglows to our board of
directors or other elections or appointments to our board of directors is not
required by our by-laws or otherwise. Our board is submitting the election of
Mr. Noglows to our board of directors to our stockholders for ratification as a
matter of good corporate practice as Mr. Noglows has become our Chief Executive
Officer and Chairman of the Board of Directors. We do not intend to and in the
future we will not necessarily ratify elections or appointments made pursuant to
our bylaws to our board of directors. If our stockholders fail to ratify the
election, our board of directors intends to reconsider the matter. Even if the
election is ratified, our board of directors, in its discretion and pursuant to
our bylaws and charter, may appoint a different chairman at any time if it
determines that such a change would be in the best interests of our company and
our stockholders.
OUR BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE "FOR" THE RATIFICATION OF THE
ELECTION OF MR. NOGLOWS TO OUR BOARD OF DIRECTORS.
RATIFICATION OF THE SELECTION OF INDEPENDENT AUDITORS
PricewaterhouseCoopers LLP audited our financial statements for fiscal year
2003, and has been selected by the audit committee of our board of directors to
audit our financial statements for fiscal year 2004. A representative of
PricewaterhouseCoopers LLP is expected to attend the annual meeting, where he or
she will have the opportunity to make a statement, if desired, and will be
available to respond to appropriate questions.
Stockholder ratification of the selection of PricewaterhouseCoopers LLP as
our independent auditors is not required by our by-laws or otherwise. However,
our board is submitting the selection of PricewaterhouseCoopers
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LLP to our stockholders for ratification as a matter of good corporate practice.
If our stockholders fail to ratify the selection, our audit committee will
review its future selection of auditors. Even if the selection is ratified, the
audit committee in its discretion may direct the appointment of different
independent auditors at any time during the year if it determines that such a
change would be in the best interests of our company and our stockholders.
For information regarding audit and other fees billed by
PricewaterhouseCoopers LLP for services rendered in fiscal year 2003, see "FEES
OF INDEPENDENT AUDITORS AND AUDIT COMMITTEE REPORT -- Fees Billed by Independent
Auditors," below.
OUR BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE "FOR" THE RATIFICATION OF THE
SELECTION OF OUR INDEPENDENT AUDITORS.
BOARD STRUCTURE AND COMPENSATION
BOARD OF DIRECTORS AND BOARD COMMITTEES
Our board of directors has a standing audit committee, a standing
compensation committee and a standing nominating and corporate governance
committee to assist the board of directors in the discharge of its
responsibilities. Our board of directors has adopted the Cabot Microelectronics
Corporation Corporate Governance Guidelines, which are available on our website
at www.cabotcmp.com along with other corporate governance materials, such as
board of directors committee charters and our Code of Business Conduct. During
fiscal year 2003, the board of directors held five meetings and did not take
action by written consent. Each of our directors attended our annual meeting of
stockholders in fiscal years 2002 and 2003 and at least 75% of all the meetings
of the board and those committees on which he served during fiscal year 2003.
Since fiscal year end, the board of directors has met three times and has taken
action by written consent twice. Third parties may communicate with our board of
directors through the Chairman of the Board, c/o the Secretary of our company at
our offices at 870 North Commons Drive, Aurora, Illinois 60504.
INDEPENDENT DIRECTORS. The board of directors has determined that six of
our seven directors, Messrs. Enriquez-Cabot, Frazee, Fuller, King, Skates and
Wilkinson, are "independent" directors as defined in Rule 4200 of the National
Association of Securities Dealers' marketplace rules and as defined in
applicable rules by the SEC. Our independent directors hold regularly scheduled
meetings in executive session, at which only independent directors are present.
The Chairman of the nominating and corporate governance committee serves as
chairman of the meetings of the independent directors in executive session, and
performs other responsibilities such as working with the Chairman of the board
of directors to plan and set the agenda for meetings of the board of directors.
Third parties may communicate with our independent directors through the
Chairman of the nominating and corporate governance committee, c/o the Secretary
of our company at our offices at 870 North Commons Drive, Aurora, Illinois
60504. During fiscal year 2003, our independent directors have met in such
executive sessions six times. Since fiscal year end, our independent directors
have met in such executive sessions nine times.
AUDIT COMMITTEE. The functions of the audit committee include selecting,
appointing, compensating, retaining and overseeing our auditors, deciding upon
and approving in advance the scope of audit and non-audit assignments and
related fees, reviewing accounting principles we use in financial reporting,
internal auditing procedures, and reviewing the adequacy of our internal control
procedures. The members of the audit committee are Messrs. Enriquez-Cabot,
Frazee, King and Wilkinson (Chairman), each of whom:
- is an "independent" director as defined in Rule 4200(a)(15) of the
National Association of Securities Dealers' marketplace rules;
- meets the criteria for independence as required by applicable rules
adopted by the Securities and Exchange Commission (SEC);
- has not participated in the preparation of our financial statements or
the financial statements of any of our current subsidiaries at any time
during the past three years; and
- is able to read and understand fundamental financial statements.
-8-
Our board of directors has determined that the audit committee has at least
one member who qualifies as an Audit Committee Financial Expert, as defined by
relevant SEC rules, and has designated Mr. Wilkinson, the Chairman of the
committee, as such Audit Committee Financial Expert. As previously stated, Mr.
Wilkinson is an independent director. The audit committee operates under a
written charter, a current copy of which is attached to this proxy statement as
Appendix A and is available on our website at www.cabotcmp.com. The audit
committee has established procedures for the receipt, retention, and treatment
of complaints received regarding accounting, internal accounting controls or
auditing matters, which are also available on our website www.cabotcmp.com. The
audit committee met four times during fiscal year 2003 and has met once since
fiscal year end with respect to the audit of our fiscal year 2003 financial
statements and related matters. In fulfillment of the audit committee's
responsibilities for fiscal year 2003, Mr. Wilkinson, the audit committee
Chairman, reviewed our Annual Report on Form 10-K for the fiscal year ended
September 30, 2003 (as did the other members of the committee and board of
directors), and our Quarterly Reports on Form 10-Q before we filed them, and
reviewed quarterly earnings announcements before we released them.
COMPENSATION COMMITTEE. The functions of the compensation committee
include reviewing and approving the compensation and benefits for our employees,
evaluating and deciding upon the compensation of our chief executive officer,
evaluating and deciding upon the compensation of our other executive officers,
which is done following consultation with our chief executive officer,
administering our employee benefit plans, authorizing and ratifying stock option
grants and other incentive arrangements, and authorizing employment and related
agreements. Our chief executive officer is neither present for voting or
deliberation on, nor votes upon decisions relating to his compensation. In
addition, our chief executive officer does not vote upon decisions related to
the compensation of our other executive officers. During fiscal year 2003, the
compensation committee was comprised of Messrs. Frazee, Fuller, King, Skates
(Chairman) and Wilkinson, each of whom is an "independent" director as defined
in Rule 4200(a)(15) of the National Association of Securities Dealers'
marketplace rules and as defined in applicable rules adopted by the SEC. The
compensation committee operates under a written charter that addresses
compensation matters, a current copy of which is available on our website at
www.cabotcmp.com. The compensation committee met three times and took action by
written consent twice during fiscal year 2003. The compensation committee has
met once and has taken action by written consent four times since the fiscal
year end with respect to 2003 annual bonuses, salary increases, stock option
grants and other matters.
NOMINATING AND CORPORATE GOVERNANCE COMMITTEE. The functions of the
nominating and corporate governance committee include reviewing and recommending
a slate of nominees for the election of directors, recommending changes in the
number, classification and term of directors, reviewing nominations by
stockholders with regard to the nomination process, reviewing and recommending
compensation and other matters for our directors, and attending to general
corporate governance matters. The members of the nominating and corporate
governance committee are Messrs. Enriquez-Cabot, Frazee (Chairman), Fuller and
Skates, each of whom is an "independent" director as defined in Rule 4200(a)(15)
of the National Association of Securities Dealers' marketplace rules and as
defined in applicable rules adopted by the SEC. The nominating and corporate
governance committee operates under a formal charter that addresses the
nominations process and such related matters as may be required under the
federal securities laws and Nasdaq listing requirements, a current copy of which
is available on our website at www.cabotcmp.com. The nominating and corporate
governance committee met four times during fiscal year 2003, has taken action by
written consent once and has met twice since fiscal year end. The nominating and
corporate governance committee acted unanimously to recommend the nomination of
the Class I director nominees to the board of directors, subject to stockholder
approval, as discussed in "ELECTION OF DIRECTORS," above.
CRITERIA FOR NOMINATING DIRECTORS
The nominating and corporate governance committee considers candidates to
fill new directorships created by expansion and vacancies that may occur and
makes recommendations to the board of directors with respect to such candidates.
The nominating and corporate governance committee considers suggestions from
many sources regarding possible candidates for director and will consider
nominees recommended by stockholders. Any such stockholder nominations, together
with appropriate biographical information, should
-9-
be submitted to the Chairman of the nominating and corporate governance
committee, c/o the Secretary of our company at our offices at 870 North Commons
Drive, Aurora, Illinois 60504. To be included in the proxy statement, such
nomination must be received by the Secretary of our company not later than the
120th day prior to the first anniversary of the date of the preceding year's
proxy statement for such nomination.
In fiscal year 2003, the company did not pay a fee to any third party to
identify or evaluate potential director nominees; however, our directors play a
critical role in guiding our strategic direction and overseeing the management
of the company and accordingly, in the future we may pay a fee to a third party
to identify or evaluate potential director nominees if the need arises.
Board candidates are selected based upon various criteria including their
character, business experience and acumen. Some of the factors that are
considered in evaluating candidates for the board of directors include
experience in areas such as technology, manufacturing, marketing, finance,
strategy, international business, and academia, as well as geographic and
cultural diversity. Board members are expected to prepare for, attend, and
participate in all board of directors and applicable committee meetings, and our
annual meetings of stockholders. The nominating and corporate governance
committee considers a director's past attendance record, participation and
contribution to the board of directors in considering whether to recommend the
reelection of such director.
COMPENSATION OF DIRECTORS
A director who is also our employee receives no additional compensation for
his services as a director. Each of our directors who is not an employee of ours
currently receives the following:
- upon his original appointment or election as a director, options to
purchase 15,000 shares of our common stock which vest over a three year
period;
- on an annual basis, options to purchase 7,500 shares of our common stock
which vest over a four year period;
- a $20,000 annual fee;
- a $1,000 fee for attendance at each meeting of our board of directors or
a committee of the board; and
- reimbursement of travel and other out-of-pocket costs incurred in
attending meetings.
Additionally, the audit committee chairman receives an additional $10,000
annual fee for serving as the audit committee chairman.
Under our Directors' Cash Compensation Umbrella Program, which only applies
to non-employee directors, each non-employee director may choose to receive his
compensation either in cash, in fully vested restricted stock under our Amended
and Restated Cabot Microelectronics Corporation 2000 Equity Incentive Plan (as
of the date the fees are earned, the fees would be converted into the equivalent
number of fully vested restricted shares, which would be beneficially owned and
reported on Form 4 filings), or as deferred compensation under our Directors'
Deferred Compensation Plan. At present, each of our non-employee directors has
elected to defer his compensation to future periods under the Directors'
Deferred Compensation Plan, which became effective in March 2001. Under the
plan, as amended in June 2003, deferred amounts are payable only in the form of
our common shares. A participating director is required to elect a date on which
deferred compensation will begin to be distributed, which date generally must be
at least two years after the end of the year deferrals are made. As of the date
the shares are earned, the fees are converted into the right to acquire the
equivalent number of shares of common stock at the end of the deferral period.
These rights to acquire shares under the Directors' Deferred Compensation Plan
are reported as beneficially owned on Form 4 filings for each participating
director. As of January 20, 2004, an aggregate of approximately $552,832, of
directors' compensation was deferred under the plan.
-10-
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
None of the current or former members of the compensation committee are or
have been our employees.
FEES OF INDEPENDENT AUDITORS AND AUDIT COMMITTEE REPORT
FEES BILLED BY INDEPENDENT AUDITORS
During fiscal years 2002 and 2003, the audit committee pre-approved all
audit and non-audit services provided by our independent auditors. The following
table presents fees for audit services rendered by PricewaterhouseCoopers LLP
for the audit of the company's annual financial statements for the fiscal year
ended September 30, 2003, and September 30, 2002, and fees billed for other
services rendered by PricewaterhouseCoopers LLP during those periods. Certain
amounts for 2002 have been reclassified to conform to the 2003 presentation.
FISCAL YEAR ENDED FISCAL YEAR ENDED
FEES SEPTEMBER 30, 2003 ($) SEPTEMBER 30, 2002 ($)
---- ---------------------- ----------------------
Audit Fees(1)................................. 521,240 458,980
Audit-Related Fees(2)......................... 50,483 31,540
Tax Fees(3)................................... 336,526 309,441
All Other Fees(4)............................. 0 0
------- -------
Total....................................... 908,249 799,961
---------------
(1) Audit Fees include fees for services that normally would be provided by
PricewaterhouseCoopers LLP in connection with statutory and regulatory
filings or engagements. In addition to including fees for services necessary
to perform an audit or review in accordance with GAAP, this category also
may include services that generally only PricewaterhouseCoopers LLP
reasonably can provide, such as comfort letters, statutory audits, attest
services, consents and assistance with and review of documents filed with
the SEC.
(2) Audit Related Fees include assurance and related services (e.g., due
diligence services) traditionally performed by PricewaterhouseCoopers LLP
including employee benefit plan audits, due diligence related to mergers and
acquisitions, accounting consultations and audits in connection with
acquisitions, internal control reviews, attest services that are not
required by statute or regulation and consultation concerning financial
accounting and reporting standards.
(3) Tax Fees include all services performed by professional staff in
PricewaterhouseCoopers LLP's tax division except those services related to
the audit, including fees for tax compliance, tax planning, and tax advice.
Tax compliance generally involves preparation of original and amended tax
returns, claims for refund and tax payment-planning services. Tax planning
and tax advice encompass a diverse range of services, including assistance
with tax audits and appeals, tax advice related to mergers and acquisitions,
employee benefit plans and requests for rulings or technical advice from
taxing authorities.
(4) All Other Fees includes fees related to financial information systems
implementation and design services. Our independent auditors did not render
any such services to us in fiscal year 2003 or any prior year.
REPORT OF THE AUDIT COMMITTEE
The following report of the audit committee does not constitute soliciting
material and should not be deemed filed or incorporated by reference into any
other of our filings under the Securities Act of 1933 or the Securities Exchange
Act of 1934, except to the extent we specifically incorporate this report by
reference therein.
The audit committee of the board of directors is responsible for providing
independent, objective 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 the selection, appointment, retention, compensation and
oversight of the performance of the company's independent auditors. The audit
committee is comprised of
-11-
independent directors and operates under a written charter, a current copy of
which is attached to this proxy statement as Appendix A and is also available on
our website at www.cabotcmp.com.
Management is responsible for the company's internal controls and the
financial reporting process. The independent auditors are responsible for
performing an independent audit of the company's financial statements in
accordance with generally accepted auditing standards and issuing a report on
those financial statements. The audit committee monitors and oversees these
processes.
In this context, the audit committee reviewed and discussed the audited
financial statements for fiscal year 2003 with management and with the
independent auditors. Specifically, the audit committee has discussed with the
independent auditors the matters required to be discussed by Statement on
Auditing Standards No. 61 (Communications with Audit Committees), which include,
among other things:
- methods used to account for any significant and unusual transactions;
- the effect of any significant accounting policies in controversial or
emerging areas for which there is a lack of authoritative guidance or
consensus;
- the process used by management in formulating any particularly sensitive
accounting estimates and the basis for the auditors' conclusions
regarding the reasonableness of those estimates; and
- any disagreements with management over the application of accounting
principles, the basis for management's accounting estimates, and the
disclosures in the financial statements.
The audit committee believes strongly in the principles underlying the
requirement that independent auditors maintain their independence in strict
compliance with applicable independence rules. The audit committee has received
the written disclosures and the letter from the independent auditors required by
Independence Standards Board Standard No. 1 (Independence Discussions With Audit
Committees) and has discussed with the independent auditors the issue of the
independent auditors' independence from the company and management. In addition,
in accordance with the Securities and Exchange Commission's auditor independence
requirements, the audit committee has considered whether the independent
auditors' provision of non-audit services to the company is compatible with
maintaining the independence of the auditors and has concluded that it is.
Based on its review of the audited financial statements and the various
discussions noted above, the audit committee recommended to the board of
directors that the audited financial statements be included in the company's
Annual Report on Form 10-K for the fiscal year ended September 30, 2003.
Respectfully submitted by the audit committee,
Juan Enriquez-Cabot
John P. Frazee, Jr.
J. Joseph King
Steven V. Wilkinson, Chairman
-12-
EXECUTIVE COMPENSATION
SUMMARY OF CASH AND CERTAIN OTHER COMPENSATION
The following table sets forth certain compensation information for the
Chief Executive Officer and our four other executive officers who were the most
highly compensated for the fiscal year ended September 30, 2003 (together, the
"named executive officers"). All of the information in this table reflects
compensation earned by the named executive officers for services rendered to us.
SUMMARY COMPENSATION TABLE
-------------------------------------------------------------------------------------------------------------------------
ANNUAL LONG-TERM
COMPENSATION COMPENSATION AWARDS
------------------------------- ----------------------------
OTHER
ANNUAL SECURITIES ALL OTHER
NAME AND FISCAL COMPEN- RESTRICTED STOCK UNDERLYING COMPEN-
PRINCIPAL POSITION YEAR SALARY($) BONUS($) SATION($) AWARD(S)($) OPTIONS(#) SATION($)(4)
-------------------------------------------------------------------------------------------------------------------------
Matthew Neville(1) 2003 393,750 300,000 -- -- 100,000(3) 35,753
Former President and 2002 368,750 260,000 -- -- 100,000 36,942
Chief Executive Officer 2001 325,000 310,000 -- -- 100,000 36,247
-------------------------------------------------------------------------------------------------------------------------
William P. Noglows(2) 2003 -- -- -- -- --(3) --
President and 2002 -- -- -- -- --(2) --
Chief Executive Officer 2001 -- -- -- -- --(2) --
-------------------------------------------------------------------------------------------------------------------------
Daniel J. Pike 2003 247,875 150,000 -- -- 54,000(3) 23,832
Vice President 2002 236,250 107,000 -- -- 50,000 23,989
of Operations 2001 211,250 120,000 -- -- 54,000 22,151
-------------------------------------------------------------------------------------------------------------------------
H. Carol Bernstein 2003 227,500 140,000 8,000(6) -- 47,500(3) 24,279
Vice President, Secretary 2002 217,500 96,000 8,000(6) -- 42,000 22,803
and General Counsel 2001 207,500 112,000 8,000(6) -- 47,000 19,819
-------------------------------------------------------------------------------------------------------------------------
Stephen R. Smith 2003 208,625 125,000 670(6) -- 57,000(3) 20,617
Vice President of 2002 185,640 128,000(5) 58,168(6) -- 27,000 19,118
Marketing and Sales 2001 -- -- -- -- -- --
-------------------------------------------------------------------------------------------------------------------------
J. Michael Jenkins 2003 201,750 90,000 -- -- 47,500 21,696
Vice President of 2002 174,057 85,000 -- -- 42,000 20,520
Human Resources 2001 168,625 96,000 -- -- 45,000 21,825
-------------------------------------------------------------------------------------------------------------------------
-------------------------
(1) Mr. Neville resigned from his position as our President and Chief Executive
Officer, effective as of November 2, 2003.
(2) Mr. Noglows joined us as our new President and Chief Executive Officer
effective November 3, 2003. Mr. Noglows had previously served as an outside
director of our company from the time of our initial public offering in
April 2000 through April 2002, after first having been appointed a director
in December, 1999. These amounts do not include options to acquire 7,500
shares granted to Mr. Noglows in March 2001 and options to acquire 7,500
shares granted to Mr. Noglows in March 2002 as compensation for his service
on our board of directors. Upon his resignation from our board of directors
in April 2002, any such options, as well as options that he had been granted
for service as a director in April 2000, that were unvested, terminated in
accordance with their terms.
(3) These amounts do not include options granted to certain of our named
executive officers after the end of fiscal year 2003. On November 3, 2003,
as part of Mr. Noglows' employment agreement to join the company, we granted
him 250,000 options at an exercise price of $55.37 that expire on November
3,
-13-
2013. On December 11, 2003, we granted options to certain of our named executive
officers that have an exercise price of $48.91 and expire December 11, 2013 in
the amounts set forth in the table below:
SECURITIES
UNDERLYING
OPTIONS
NAME (#)
---- ----------
Mr. Neville................................................. 0
Mr. Noglows................................................. 0
Mr. Pike.................................................... 60,000
Ms. Bernstein............................................... 60,000
Mr. Smith................................................... 60,000
Mr. Jenkins................................................. 0
(4) The information in the column headed "All Other Compensation" includes
matching contributions to our tax-qualified savings plans (collectively
referred to as "401(k) Plan") and accruals under our non-qualified
supplemental savings plans (collectively referred to as "Supplemental Plan")
for fiscal year 2003 on behalf of the named executive officers in the
following amounts:
401(k) SUPPLEMENTAL
NAME PLAN PLAN
---- ----------- -----------------
Mr. Neville................................................. $17,000 $18,150
Mr. Noglows................................................. 0 0
Mr. Pike.................................................... 17,454 5,880
Ms. Bernstein............................................... 18,942 4,880
Mr. Smith................................................... 16,276 3,920
Mr. Jenkins................................................. 17,910 3,380
In fiscal year 2003, we provided each of our named executive officers with
basic life insurance and accidental death and dismemberment insurance
coverage that was provided on the same basis to all of our employees. There
is no cash surrender value associated with this insurance coverage. The
value paid for this coverage attributable to each named executive officer
(Mr. Neville, $603; Mr. Noglows, $0; Mr. Pike, $497; Ms. Bernstein, $457;
Mr. Smith, $420 and Mr. Jenkins, $406) is also reflected in the column
headed "All Other Compensation" for fiscal 2003.
In addition, adjustments were made to correct amounts of contributions to
accounts of certain named executive officers that are reflected in the "All
Other Compensation" amounts for fiscal years 2001 and 2002. None of the
adjustments were material.
(5) These figures include a sign-on bonus of $30,000 paid to Mr. Smith in fiscal
year 2002. Mr. Smith's hire date was October 29, 2001.
(6) These figures reflect transportation allowances paid to Ms. Bernstein for
fiscal years 2001, 2002 and 2003, and reimbursement of relocation expenses
paid to Mr. Smith in fiscal year 2002 and 2003.
-14-
OPTION GRANTS
The following table sets forth the number of shares of our common stock
underlying the options granted to the named executive officers during the fiscal
year ended September 30, 2003.
OPTION GRANTS IN LAST FISCAL YEAR
-----------------------------------------------------------------------------------------------------------------------
PERCENT OF
NUMBER TOTAL OPTIONS GRANT
OF SHARES GRANTED TO EXERCISE DATE
UNDERLYING EMPLOYEES IN PRICE EXPIRATION PRESENT
NAME OPTIONS GRANTED FISCAL YEAR PER SHARE($) DATE VALUE($)(1)
-----------------------------------------------------------------------------------------------------------------------
Matthew Neville 100,000(2) 10.9% $51.37 12/11/12 3,254,541
-----------------------------------------------------------------------------------------------------------------------
William P. Noglows --(3) -- -- -- --
-----------------------------------------------------------------------------------------------------------------------
Daniel J. Pike 54,000(2)(3) 5.9% $51.37 12/11/12 1,757,452
-----------------------------------------------------------------------------------------------------------------------
H. Carol Bernstein 47,500(2)(3) 5.2% $51.37 12/11/12 1,545,907
-----------------------------------------------------------------------------------------------------------------------
Stephen R. Smith 57,000(2)(3) 6.2% $51.37 12/11/12 1,855,089
-----------------------------------------------------------------------------------------------------------------------
J. Michael Jenkins 47,500(2)(3) 5.2% $51.37 12/11/12 1,545,907
-----------------------------------------------------------------------------------------------------------------------
-------------------------
(1) These values were estimated using the Black-Scholes option pricing formula
on the basis of the following assumptions: expected volatility: 76.0%; risk
free rate of return: 3.0%; annualized dividend yield: 0.0%; and expected
time until exercise: 5.0 years.
(2) These options have a term of ten years, expiring December 11, 2012, vesting
in equal amounts annually over a four-year period, within the first quarter.
(3) This table does not include options granted to certain of our named
executive officers after the end of fiscal year 2003. On November 3, 2003,
as part of Mr. Noglows' employment agreement to join our company, we granted
to him 250,000 options that vest in equal increments upon each anniversary
over four years and have a term of ten years, expiring November 3, 2013, at
an exercise price of $55.37. For fiscal year 2004, on December 11, 2003, we
granted 60,000 options to each Mr. Pike, Ms. Bernstein, and Mr. Smith. These
options have an exercise price of $48.91, vest in equal increments upon each
anniversary over four years, and have a term of ten years, expiring December
11, 2013.
-15-
OPTION EXERCISES AND FISCAL YEAR-END VALUES
The following table sets forth information with respect to the number of
unexercised stock options held by the named executive officers on September 30,
2003, and the value of the unexercised in-the-money stock options on that date.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND
FISCAL YEAR-END OPTION VALUES
NUMBER OF SECURITIES
SHARES UNDERLYING UNEXERCISED VALUE OF UNEXERCISED
ACQUIRED OPTIONS IN-THE-MONEY OPTIONS AT
UPON VALUE AT FISCAL YEAR END (#) FISCAL YEAR-END ($)(1)
NAME EXERCISES (#) REALIZED ($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
-------------------------------------------------------------------------------------------------------------------------------
Matthew Neville 15,000 480,815 150,000 225,000 2,818,000 863,250
-------------------------------------------------------------------------------------------------------------------------------
William P. Noglows(2) 40,000 1,575,544 -- -- -- --
-------------------------------------------------------------------------------------------------------------------------------
Daniel J. Pike 25,000 1,040,813 51,500 118,500 500,435 448,665
-------------------------------------------------------------------------------------------------------------------------------
H. Carol Bernstein 5,000 55,720 46,500 102,500 140,965 385,995
-------------------------------------------------------------------------------------------------------------------------------
Stephen R. Smith -- -- 11,750 72,250 21,863 308,408
-------------------------------------------------------------------------------------------------------------------------------
J. Michael Jenkins 20,500 378,645 32,500 101,500 356,300 385,995
-------------------------------------------------------------------------------------------------------------------------------
-------------------------
(1) We determined the value of unexercised in-the-money options as of September
30, 2003 by taking the difference between the fair market value of a share
of our common stock on September 30, 2003 of $55.63 and the option exercise
price of the applicable in-the-money option grant multiplied by the number
of shares underlying those options as of that date.
(2) While employed by Cabot Corporation through August, 2003, Mr. Noglows
exercised options that had been granted to him at the time of our initial
public offering for his service as an employee of Cabot Corporation
according to their terms.
EXECUTIVE OFFICER DEPOSIT SHARE PLAN
Our executive officers are eligible to participate in the Executive Officer
Deposit Share Plan, which was adopted by the board of directors in March 2000.
Under this plan, our executive officers are entitled to convert all or a portion
of their bonus compensation into shares of restricted stock awarded under the
2000 Equity Incentive Plan. These shares are retained on deposit with our
company until the third anniversary of the date of deposit ("deposit shares"),
and our company matches the deposit with a restricted stock grant equal to 50%
of the shares deposited by the participant ("award shares"). If the participant
is employed by our company on the third anniversary of the deposit date and the
deposit shares have remained on deposit with our company through such date, the
restrictions on the award shares will lapse. Five individuals are currently
participating in the deposit share plan, and 2,542 shares (including award
shares) are currently on deposit under that plan.
EMPLOYMENT, TERMINATION OF EMPLOYMENT, AND CHANGE IN CONTROL AGREEMENTS
Effective November 2, 2003, Mr. Neville resigned from our board of
directors and as our Chairman, President and Chief Executive Officer. On
November 3, 2003, we entered into an Employment and Transition Agreement with
Mr. Neville, our former President and Chief Executive Officer that provided for
the continuation of his employment with our company until November 3, 2005. In
consideration of Mr. Neville continuing to provide advice to the new leadership
of our company and of the other terms of the agreement, including those relating
to a non-competition, confidentiality, and a general release from claims, we
agreed to pay Mr. Neville a bonus of $300,000 for fiscal year 2003, which
already has been paid, and to continue his annual base salary of $400,000 for
the remainder of his employment with us. As part of the agreement,
-16-
Mr. Neville's Change in Control Severance Protection Agreement terminated on
November 3, 2003, and subject to its terms, all provisions cease as of November
3, 2004. If any payments become due under the Change in Control Severance
Protection Agreement, Mr. Neville will not receive any remaining payments under
the Employment and Transition Agreement.
On November 2, 2003, we entered into an employment agreement with Mr.
Noglows to become our Chairman, President and Chief Executive Officer. Pursuant
to this employment agreement, among other terms, we agree to pay Mr. Noglows an
annual base salary of $450,000 and a cash bonus for fiscal year 2004 that will
not be less than $160,000, following the end of fiscal year 2004. Additionally,
we granted Mr. Noglows an option to purchase 250,000 shares of our common stock
at an exercise price of $55.63 that vests in four equal annual installments on
each subsequent anniversary of November 3, 2003, and that expires on November 3,
2013. We also have agreed to pay Mr. Noglows one year's base salary if we
terminate his employment without cause and to provide certain relocation and
other reimbursements.
Mr. Jenkins recently informed us that he intends to resign his employment
as Vice President of Human Resources, effective as of February 29, 2004. We have
agreed to pay to Mr. Jenkins, subject to the satisfaction of certain conditions,
the sum of one-year's salary of $204,000, which will be paid in twelve equal
monthly installments, and a fiscal year 2003 bonus of $90,000, which already has
been paid. Mr. Jenkins also will be eligible to receive reimbursement for costs
associated with certain relocation and outplacement services.
Jeremy K. Jones, who has served as the Vice President of New Business
Development, also has recently decided to resign from the company, effective as
of January 31, 2004. We have agreed to pay to Mr. Jones, subject to the
satisfaction of certain conditions, the sum of one-year's salary of $188,200,
which will be paid in twelve equal monthly installments, and a fiscal year 2003
bonus of $40,000, which already has been paid. Mr. Jones will also be eligible
to receive reimbursement for costs associated with certain outplacement
services.
In consideration of the amounts to be paid to each of Messrs. Jenkins and
Jones pursuant to the arrangements described above, each executive will be
required to adhere to certain non-competition and confidentiality terms and to
provide to us a general release from claims.
In addition to these arrangements, the company has entered into an
employment agreement with Clifford L. Spiro, our Vice President of Research and
Development, under which we would be obligated to pay him one year's base salary
if we terminate his employment without cause. We have not entered into any
employment or termination of employment agreements with any of our other named
executive officers or other executive officers.
The company entered into Change in Control Severance Protection Agreements
("change in control agreements") with each of the named executive officers.
Pursuant to the terms of the Employment and Transition Agreement with Mr.
Neville, Mr. Neville's change in control agreement terminated on November 3,
2003, and subject to its terms, all provisions cease as of November 3, 2004.
Under the change in control agreements, each executive whose employment with our
company terminates, other than for cause, disability, death or certain other
specified reasons, within two years (in the case of Ms. Bernstein, Mr. Jenkins,
Mr. Pike and Mr. Smith) or three years (in the case of Mr. Noglows) after a
"change in control" of our company (as such term is defined in the agreements),
is entitled to a severance benefit. The severance benefit includes accrued and
unpaid salary and bonuses plus two times (in the case of Ms. Bernstein, Mr.
Jenkins, Mr. Pike and Mr. Smith) or three times (in the case of Mr. Neville and
Mr. Noglows) the executive's annual cash compensation (salary plus bonus). The
severance benefit also includes health and welfare benefits for 24 months (in
the case of Ms. Bernstein, Mr. Jenkins, Mr. Pike and Mr. Smith) or 36 months (in
the case of Mr. Neville and Mr. Noglows) following the executive's termination
date. We also have similar change in control severance protection agreements
providing for two times severance benefits in place with our other executive
officers.
-17-
Under the change in control agreements, all amounts accrued or awarded to
the executives under any incentive compensation or benefit plan, including
options and restricted stock granted under the 2000 Equity Incentive Plan, will
immediately vest on each executive's respective termination date.
The change in control agreements provide each executive a full "gross-up
payment" of all excise taxes assessed on amounts received under the change in
control agreements, as well as all other taxes that may become due as a result
of the gross-up payment.
STANDARD EMPLOYEE BENEFITS
We have adopted various employee benefit plans and arrangements for the
purpose of providing compensation and employee benefits to our employees,
including our executive officers. These plans and arrangements include an equity
incentive plan, an employee stock purchase plan, a tax-qualified savings plan
and a non-qualified supplemental savings plan.
REPORT OF THE COMPENSATION COMMITTEE ON EXECUTIVE COMPENSATION
The following report of the compensation committee and the performance graph
included elsewhere in this proxy statement do not constitute soliciting material
and should not be deemed filed or incorporated by reference into any other of
our filings under the Securities Act of 1933 or the Securities Exchange Act of
1934, except to the extent we specifically incorporate this report or the
performance graph by reference therein.
GENERAL. The company's executive compensation program is administered by
the compensation committee of the board of directors, which is composed solely
of independent directors. The compensation committee is responsible for
determining the level of compensation paid to our chairman, president and chief
executive officer and our other executive officers, and determining awards under
and administering the Second Amended and Restated 2000 Equity Incentive Plan
("2000 Equity Incentive Plan"). The compensation committee is also responsible
for reviewing and establishing all other executive compensation plans which the
company may adopt from time to time.
During and for fiscal year 2003, the compensation committee made all
decisions pertaining to the compensation of our former Chairman, President and
Chief Executive Officer, Mr. Matthew Neville, our named executive officers and
our other executive officers. The compensation committee also reviewed and
approved the methodology used for compensation of our general employee
population. The compensation committee, which was established in April 2000
concurrent with the completion of our IPO, has made all decisions pertaining to
the compensation of our executive officers since its creation. In November,
2003, the compensation committee, along with the independent directors of our
board of directors, and in consultation with outside advisors hired by the
committee, made all decisions relating to the Employment and Transition
Agreement with Mr. Neville, who resigned as our Chairman, President and Chief
Executive Officer in November, 2003. In addition, the compensation committee, in
consultation with outside advisors hired by the committee, made all decisions
pertaining to the employment offer and agreement and compensation of our new
Chairman, President and Chief Executive Officer, Mr. William P. Noglows, who was
appointed to these positions in November, 2003.
COMPENSATION POLICY AND OVERALL OBJECTIVES. In determining the amount and
composition of executive compensation, the committee's goal is to provide
compensation that will enable the company to attract and retain talented
executives, align compensation with business objectives and performance, and
link the interests of the company's executives to the interests of the company's
stockholders.
The compensation committee believes that each element of the compensation
program should target compensation levels at rates that take into account
current market practices. Offering market-comparable pay opportunities allows
the company to maintain a stable, successful management team. The company's
market for compensation comparison purposes is comprised of a group of companies
that develop or use semiconductor products and processes, with an emphasis on
chemical mechanical planarization products and processes, as well as companies
that have similar sales volumes, market capitalizations, employment levels, and
geographic
-18-
presence. In evaluating this comparison group for compensation purposes, the
compensation committee exercises its discretion and makes its judgment after
considering all relevant factors.
The key elements of the company's executive compensation program are base
salary, annual bonuses and long-term incentives. Each of these is addressed
separately below. In determining compensation, the compensation committee
considers all elements of an executive's total compensation package, including
change in control arrangements, participation in savings plans and other
benefits.
BASE SALARIES. The compensation committee regularly reviews each executive
officer's base salary. The committee targets the base salary of the company's
executives to be in the 50th to 75th percentile of the salary ranges of
similarly positioned executives in the comparison group of companies.
Base salaries for executive officers are initially determined by evaluating
the executives' levels of responsibility, prior experience, breadth of
knowledge, internal equity issues and external pay practices. Increases to base
salaries are driven primarily by performance, and evaluated based on sustained
levels of contribution to the company in the context of the company's
performance-based management process.
The factors impacting base salary levels are not assigned specific weights.
Rather, the compensation committee reviews all of the factors and makes base pay
determinations that reflect the compensation committee's analysis of the
aggregate impact of these factors.
ANNUAL BONUSES. All employees of the company are eligible to participate in
the company's cash bonus program, with executive employee bonuses determined by
the compensation committee. The compensation committee believes that a cash
bonus program allows the company to communicate specific goals that are of
primary importance during the coming year and motivates executives to achieve
these goals.
Each year, the compensation committee establishes specific performance
goals in accordance with the performance-based management process, the
achievement of which determines the funding of a bonus pool. In turn, the size
of the bonus pool determines the amount of the relative awards to participants.
Accordingly, executives' opportunities to earn bonuses correspond to the degree
to which the pre-established goals are achieved.
In general, the compensation committee targets the bonus awards of the
company's executives to be in the 50th to 75th percentile of the bonus range of
similarly positioned executives in the comparison group of companies. Actual
payouts can be above or below the targeted levels, depending upon performance
relative to the pre-established goals.
At the beginning of fiscal year 2003, the compensation committee
established the specific performance goals upon which annual bonus awards for
services rendered in fiscal year 2003 by our then Chairman, President and Chief
Executive Officer, our other named executive officers, our other executive
officers, and all employees would be based. Upon completion of the fiscal year,
the compensation committee evaluated the performance of our executive officers
in light of the pre-established performance goals and determined the amount of
the bonus award to be paid to each such executive. The performance goals
established by the compensation committee for these executives included the
following criteria: financial goals and business metrics such as revenue, gross
margin, market share and cost management, business growth through market and
technology extension, safety, improvement in technology and quality leadership,
business processes, organizational effectiveness and operational excellence.
LONG-TERM INCENTIVES. Long-term incentives are provided to executives
pursuant to the Amended and Restated 2000 Equity Incentive Plan. The
compensation committee believes that equity-based compensation is an essential
element in the company's overall compensation scheme. Equity-based compensation
is emphasized in the design of the company's executive compensation program
because it involves at-risk components of pay which directly link executives'
interests with those of the company's stockholders.
Initial or "new-hire" options and restricted stock may be granted to
executive officers when they first join the company. Thereafter, options and
restricted stock may be granted to each executive officer annually and from time
to time based on performance. To enhance retention, options and restricted stock
granted to executive officers are subject to vesting restrictions that generally
lapse over a four-year period.
-19-
When determining awards under the Amended and Restated 2000 Equity
Incentive Plan, the compensation committee considers the company's and
individual's performance in the prior year, the executives' levels of
responsibility, prior experience and years of service, historical award data and
compensation practices at the comparison group of companies. In determining
award sizes, the compensation committee does not assign specific weights to
these factors. Rather, the factors are evaluated on an aggregate basis.
In this regard, the compensation committee and the board of directors have
approved the Second Amended and Restated 2000 Equity Incentive Plan which
provides for an increase in the number of shares of common stock available for
issuance under the plan by 3,000,000 shares and recommend that our stockholders
approve the second amended and restated plan at the annual meeting. See
"APPROVAL OF OUR SECOND AMENDED AND RESTATED 2000 EQUITY INCENTIVE PLAN," below.
Our executive officers are also eligible to participate in the Executive
Officer Deposit Share Plan. See "EXECUTIVE COMPENSATION -- Executive Officer
Deposit Share Plan," above.
CEO COMPENSATION. The compensation committee used the executive
compensation practices described above to determine Mr. Neville's compensation
for fiscal year 2003, in consultation with outside advisors hired by the
committee. In addition, in setting both the cash-based and equity-based elements
of Mr. Neville's compensation, the compensation committee made an overall
assessment of Mr. Neville's leadership in establishing and achieving the
company's long-term and short-term strategic, operational and business goals.
Mr. Neville's leadership during fiscal year 2003 that contributed to the
company's continued solid financial results during the prolonged and significant
downturn in both the global economy and semiconductor industry was also taken
into consideration in determining his compensation package. The committee also
considered Mr. Neville's decision to resign from his roles as Chairman,
President and Chief Executive Officer. In addition to these factors, Mr.
Neville's bonus award reflected our performance against certain financial
objectives in fiscal year 2003, which in general met the overall pre-established
goals for fiscal year 2003. Based upon all of these criteria, the compensation
committee awarded Mr. Neville $300,000 as a cash bonus for fiscal year 2003,
pursuant to Mr. Neville's Employment and Transition Agreement with the company,
which together with his $400,000 annual base salary effective January 1, 2003
($393,750 paid over fiscal year 2003), resulted in total cash compensation to
Mr. Neville for fiscal year 2003 equal to $693,750. On December 11, 2002, the
compensation committee had awarded Mr. Neville equity-based compensation in the
form of stock options to purchase an aggregate of 100,000 shares of the
company's common stock that vest in equal increments upon each anniversary over
fours years and have a term of ten years that expires December 11, 2012, at an
exercise price of $51.37; Mr. Neville has not been granted any additional stock
options since this grant in 2002. Aside from the number of options granted, the
terms and conditions of this option grant (and for any other grants that Mr.
Neville had received prior to this grant), are the same as those for grants made
to our other employees, including those that provide that any options that are
not vested at the time of the termination of employment are forfeited.
Since the end of fiscal year 2003, the compensation committee, in
consultation with outside advisors hired by the committee, used the executive
compensation practices described above to determine the terms of Mr. Noglows'
employment offer and compensation for fiscal year 2004. Based upon these
criteria, the compensation committee set Mr. Noglows' base salary at $450,000
and agreed to pay Mr. Noglows a cash bonus for fiscal year 2004 of not less than
$160,000, following the end of fiscal year 2004. In addition, in connection with
Mr. Noglows' joining the company, the compensation committee awarded him
equity-based compensation in the form of stock options to purchase an aggregate
of 250,000 shares of our common stock that vest in equal increments upon each
anniversary of the grant date of November 3, 2003, Mr. Noglows' date of hire,
over four years and that have a term of ten years that expires November 3, 2013,
at an exercise price of $55.37.
INTERNAL REVENUE CODE SECTION 162(M). As one of the factors in its review
of compensation matters, the committee considers the anticipated tax treatment
to our company and to our executives of various payments and benefits. The
deductibility of some types of compensation payments depends upon the timing of
an executive's vesting or exercise of previously granted rights. Furthermore,
interpretations of and changes in the tax laws and other factors beyond the
compensation committee's control also affect the deductibility of
-20-
compensation. For these and other reasons, the compensation committee will not
necessarily limit executive compensation to that deductible under Section 162(m)
of the Internal Revenue Code of 1986, as amended. The compensation committee
will consider various alternatives to preserving the deductibility of
compensation payments and benefits to the extent reasonably practicable and to
the extent consistent with its other compensation objectives. In fiscal year
2001, at our annual meeting of stockholders held on March 13, 2001, our Amended
and Restated 2000 Equity Incentive Plan was submitted to our stockholders for
approval, and our stockholders approved that plan. At our upcoming annual
meeting of stockholders, our Second Amended and Restated 2000 Equity Incentive
Plan will be submitted to our stockholders for approval. The current Amended and
Restated 2000 Equity Incentive Plan and the proposed Second Amended and Restated
2000 Equity Incentive Plan are intended to qualify certain compensation awarded
under that plan for tax deductibility under Section 162(m).
Respectfully submitted by the compensation committee,
John P. Frazee, Jr.
H. Laurance Fuller
J. Joseph King
Ronald L. Skates, Chairman
Steven V. Wilkinson
-21-
APPROVAL OF SECOND AMENDED AND RESTATED CABOT MICROELECTRONICS CORPORATION 2000
EQUITY INCENTIVE PLAN
Our board of directors has approved our Second Amended and Restated Cabot
Microelectronics Corporation 2000 Equity Incentive Plan, which is an amendment
of our Amended and Restated Cabot Microelectronics Corporation 2000 Equity
Incentive Plan, as amended in June 2003 (referred to below as the "Existing
Plan"), for the primary purpose of increasing the number of shares of our common
stock reserved for issuance under the plan from 6,500,000 shares to 9,500,000
shares. The Second Amended and Restated 2000 Equity Incentive Plan is attached
to this Proxy Statement as Appendix B and is sometimes referred to below as the
"Plan." Our board of directors has directed that the Plan be submitted to our
stockholders at this time for their approval for three reasons in particular:
- to comply with Nasdaq rules, which require such approval,
- to ensure that the Plan continues to satisfy the requirements set forth in
Section 162(m) of the Internal Revenue Code of 1986, as amended (the "Code"),
and the related regulations with respect to "qualified performance-based
compensation," and
- to comply with the Existing Plan, which, by its terms, requires such approval.
In order to give the company ongoing flexibility to attract, retain and
reward our employees, directors, consultants and advisors, in addition to the
increase in the number of shares from 6,500,000 shares to 9,500,000 shares, our
board of directors has approved the following material amendments to the
Existing Plan:
- the addition of the ability for the company to make restricted stock unit
grants under the Plan;
- an increase in the number of shares reserved for issuance from 875,000 shares
of restricted stock to 1,900,000 shares of restricted stock or restricted
stock units in the aggregate;
- the addition of the ability for the company to make restricted stock or
restricted stock unit awards that are designed to qualify for the
performance-based exception from the tax deductibility limitations of Section
162(m) of the Code, and any regulations promulgated thereunder, according to
the performance goals described in the Plan; and
- the addition of the ability for participants in the Plan to elect to defer the
delivery of shares of restricted stock or restricted stock units in order that
the participant would not recognize income until the company actually
distributed shares of common stock or cash to the participant.
The other material features of the Existing Plan remain in the Plan, including
such provisions as the specific prohibition on the repricing of options granted
under the Plan. A description of certain features of the Plan, including the
amended features of the Plan, is included below.
EXISTING PLAN INFORMATION
Shown below is information as of January 20, 2004 with respect to the
shares of common stock that may be issued under the Existing Plan. As of January
20, 2004, the closing sale price of our common stock as reported on the Nasdaq
National Market was $57.54 per share.
EXISTING PLAN INFORMATION
NUMBER OF SECURITIES TO BE ISSUED UPON EXERCISE OF NUMBER OF SECURITIES REMAINING AVAILABLE FOR FUTURE
OUTSTANDING OPTIONS, WARRANTS AND RIGHTS ISSUANCE UNDER THE EXISTING PLAN
---------------------------------------------------------------------------------------------------------
4,086,206(1) 1,373,627(2)(3)
---------------------------------------------------------------------------------------------------------
-------------------------
(1) Includes options to purchase 4,082,059 shares of our common stock that have
been granted under the Existing Plan and 4,147 shares of restricted stock
with restrictions that have not yet lapsed that have been awarded under the
Existing Plan.
-22-
(2) Common stock reserved for issuance under the Existing Plan of 6,500,000
shares has been reduced by options to purchase 5,416,611 shares of our
common stock that have been granted under the Existing Plan (of which
options to purchase 312,346 shares have been forfeited and therefore are
available for future grants), and 23,442 shares of restricted stock that
have been awarded under the Existing Plan (of which 1,334 shares of
restricted stock have been forfeited and therefore are available for future
awards).
(3) Does not include the proposed increase of available shares under our Second
Amended and Restated Equity Incentive Plan.
EXISTING EQUITY COMPENSATION PLAN INFORMATION
Shown below is information as of September 30, 2003 with respect to the
shares of common stock that may be issued under our existing equity compensation
plans.
EXISTING EQUITY COMPENSATION PLAN INFORMATION
(C)
(A) (B) NUMBER OF SECURITIES REMAINING
NUMBER OF SECURITIES TO BE WEIGHTED-AVERAGE AVAILABLE FOR FUTURE ISSUANCE
ISSUED UPON EXERCISE OF EXERCISE PRICE OF UNDER EQUITY COMPENSATION PLANS
OUTSTANDING OPTIONS, OUTSTANDING OPTIONS, (EXCLUDING SECURITIES REFLECTED IN
PLAN CATEGORY WARRANTS AND RIGHTS WARRANTS AND RIGHTS COLUMN (A))
-----------------------------------------------------------------------------------------------------------------------------
Equity compensation plans
approved by security
holders 3,145,841(2) $51.50 2,705,399(1)(2)
-----------------------------------------------------------------------------------------------------------------------------
Equity compensation plans
not approved by security
holders -- -- --
-----------------------------------------------------------------------------------------------------------------------------
Total 3,145,841 $51.50 2,705,399
-----------------------------------------------------------------------------------------------------------------------------
-------------------------
(1) Includes 336,830 shares currently available for future issuance under our
Employee Stock Purchase Plan. Does not include the proposed increase of
available shares under our Second Amended and Restated Equity Incentive
Plan.
(2) On November 3, 2003, William P. Noglows was elected Chairman, President and
Chief Executive Officer of our company. On that date the compensation
committee of the board of directors approved Mr. Noglows' participation in
the Plan and further approved the grant of 250,000 non-qualified stock
options at an exercise price of $55.37 per share. The options carry a ten
year term and vest equally over a four year period, with the first vesting
on the one year anniversary of the date of the grant.
On December 1, 2003, Clifford L. Spiro was appointed Vice President,
Research and Development of our company. On that date the compensation
committee of the board of directors approved Dr. Spiro's participation in
the Plan and further approved the grant of 50,000 non-qualified stock
options at an exercise price of $54.28 per share. The options carry a ten
year term and vest equally over a four year period, with the first vesting
on the one year anniversary of the date of the grant.
On December 11, 2003, the compensation committee of the board of directors
approved the fiscal year 2004 grants of stock options to certain employees
and executive officers, with 702,200 total options granted at an exercise
price of $48.91. The options carry a ten year term and vest equally over a
four year period, with the first vesting on the one year anniversary of the
date of the grant.
AMENDED AND RESTATED 2000 EQUITY INCENTIVE PLAN BENEFITS
At this time, specific benefits or amounts to be received or allocated to
named executive officers, current executive officers as a group, current
directors who are not executive officers as a group and all employees, including
all current officers who are not executive officers, as a group pursuant to this
Plan are not determinable. However, for the purposes of illustration, the
following table sets forth the benefits and amounts
-23-
that were granted to the named executive officers, current executive officers as
a group, current directors who are not executive officers as a group and all
current employees, including all current officers who are not executive
officers, as a group during the fiscal year ended September 30, 2003 pursuant to
the Existing Plan.
AMENDED AND RESTATED 2000 EQUITY INCENTIVE PLAN BENEFITS
NUMBER OF SHARES OF
DOLLAR NUMBER OF NUMBER OF SHARES OF RESTRICTED STOCK
NAME AND POSITION VALUE (1) ($) OPTIONS RESTRICTED STOCK PAID IN FULL
-----------------------------------------------------------------------------------------------------------------------
Matthew Neville, Former
President and Chief Executive
Officer 621,986 100,000 318 212
-----------------------------------------------------------------------------------------------------------------------
William P. Noglows, President
and Chief Executive Officer -- -- -- --
-----------------------------------------------------------------------------------------------------------------------
Daniel J. Pike, Vice President
of Operations 333,180 54,000 -- --
-----------------------------------------------------------------------------------------------------------------------
H. Carol Bernstein, Vice
President, Secretary and
General Counsel 293,075 47,500 -- --
-----------------------------------------------------------------------------------------------------------------------
Stephen R. Smith, Vice
President of Marketing and
Sales 351,690 57,000 -- --
-----------------------------------------------------------------------------------------------------------------------
J. Michael Jenkins, Vice
President of Human Resources 298,061 47,500 318 212
-----------------------------------------------------------------------------------------------------------------------
All current executive officers
as a group 2,391,714 330,750 318 212
-----------------------------------------------------------------------------------------------------------------------
All current directors who are
not executive officers as a
group 864,000 45,000 -- --
-----------------------------------------------------------------------------------------------------------------------
All current employees,
including current officers who
are not executive officers, as
a group 3,578,311 539,760 318 212
-----------------------------------------------------------------------------------------------------------------------
-------------------------
(1) Dollar Value is based upon the total dollar value for options and restricted
stock. For the purposes of illustration, the dollar value of options has
been computed based upon the difference between the price of our common
stock as of January 20, 2004, which was $57.54, and the exercise price of
the options. The dollar value of restricted stock awards has been computed
based upon the closing price for the shares of common stock on the date of
grant. We ascribe no value to restricted stock in the Executive Officer
Deposit Share Plan for which full value was paid.
DESCRIPTION OF THE SECOND AMENDED AND RESTATED 2000 EQUITY INCENTIVE PLAN
The purposes of the Plan are to enhance our company's ability to (a)
attract and retain employees, directors, consultants and advisors who are in a
position to make significant contributions to the success of our company; (b)
reward these individuals for these contributions; (c) encourage these
individuals to take into account the long-term interests of our company and its
stockholders; and (d) reward individuals who have contributed to our company's
success, in each case, through ownership of shares of our common stock.
Our board of directors and our compensation committee believe that the
grant of equity incentives is an essential component of compensation and is
standard and expected in our industry. They also believe that awards under the
Existing Plan have played an important part in enabling the company to attract,
retain and
-24-
motivate employees in the extremely competitive, high growth industry in which
we operate. The ability to continue to attract new employees and to retain
current employees is a critical element in our strategy for future growth, and
our ability to attract and retain qualified employees could be impeded if
sufficient equity incentives are not available in the future for grant under the
Plan. Furthermore, the ability to motivate and incent employees and senior
management to take into account the long-term interests of our company and its
stockholders is also essential to our future growth, and our ability to so
motivate and incent our employees and senior management could be impeded if
sufficient equity incentives are not available in the future.
With these matters in mind, the board of directors and the compensation
committee engaged an outside advisor to assist in an evaluation of the Existing
Plan, in general, and the adequacy of the number of shares available under the
Existing Plan (prior to the proposed amendment and restatement), in particular.
The advisor conducted a study of the Existing Plan and a comparative analysis of
similar plans of peer companies in our industry. The advisor also evaluated the
adequacy of the number of equity awards available under the Existing Plan to our
executive officers, senior managers and other employees in light of our goals
for attracting, retaining, rewarding and incenting our employees as described
above.
In addition, in the past year, the availability of shares under the plan
has been important in allowing us to attract and incent high quality executives,
such as Mr. Noglows, our new President and Chief Executive Officer, Mr. William
S. Johnson, our Vice President and Chief Financial Officer, and Dr. Spiro, our
Vice President of Research and Development, to join our company. In this regard,
it is especially important that the number of shares available under the Plan be
sufficient to allow us to continue to attract and retain other executive
officers and senior managers, as Mr. Noglows continues to refine the composition
of his executive team.
Based in significant part on all of these factors and the consultant's
conclusions and advice, our board of directors believes that, while the number
of shares available under the Existing Plan (prior to the proposed amendment and
restatement) is expected to be sufficient during the next twelve months,
additional shares will be required soon thereafter to enable the company to
continue realizing the plan's intended benefits. Accordingly, our board of
directors recommends that stockholders approve the Second Amended and Restated
Cabot Microelectronics Corporation 2000 Equity Incentive Plan.
The following description of certain features of the Plan is qualified in
its entirety by reference to the full text of the Plan.
GENERAL; SHARES AVAILABLE FOR ISSUANCE UNDER THE PLAN. The Plan enables us
to make awards of options, restricted stock and restricted stock units to
eligible employees, directors, consultants and advisers of our company and our
affiliates. We believe that the Plan provides us with flexibility in designing
and providing incentive compensation to Plan participants. Subject to adjustment
for stock splits and similar events, the maximum number of shares of common
stock that may be issued under the Plan is 9,500,000 shares. This number does
not include shares that will become available under the Plan because of events
such as forfeitures. In addition, awards granted through the assumption of, or
in substitution or exchange for, similar awards in connection with the
acquisition of another corporation or business entity shall not be counted for
purposes of applying the limitations of this section on the number of shares of
common stock available for awards generally or any particular kind of award
under the Plan.
ADMINISTRATION; ELIGIBLE GRANTEES. The compensation committee of the board
of directors administers the Plan and has the sole discretion to construe and
interpret the Plan and any awards made under the Plan. These interpretations are
binding on our company and on the Plan participants. The compensation committee
also determines the Plan participants who will receive awards, the number of
shares subject to such awards and the terms and conditions of each such award.
It may make any amendment or modification to any award agreement consistent with
the terms of the Plan and relevant rules and regulations. The compensation
committee currently consists of five independent members of our board of
directors, all of whom meet the Nasdaq and SEC criteria for independence and
none of whom are employees of our company. Officers and other employees as well
as our directors, advisors and consultants are eligible to receive awards under
the Plan,
-25-
but no participant may receive awards under the Plan in any calendar year
covering more than 300,000 shares of common stock.
As of January 20, 2004, there were approximately nine officers, 257 other
employees, and six independent, non-employee directors who are participants in
the plan. We estimate that approximately 575 persons are currently eligible to
receive awards under the Plan.
In addition, the compensation committee may grant substitute awards of
"incentive stock options" or "ISOs" as defined in Section 422 of the Code, stock
options that are not intended to qualify under Section 422 of the Code ("NQSOs")
or shares of our restricted stock or restricted stock units to persons who
become our employees in connection with business acquisitions. These substitute
awards would replace equity incentives held by these persons in the acquired
entity or the selling business.
AWARDS. Under the Plan, we are permitted to make awards in the form of
ISOs, NQSOs and shares of restricted common stock and restricted stock units.
STOCK OPTIONS. The compensation committee may grant stock options under
the Plan. Stock options enable the holder of the option to purchase
shares of our common stock at a price specified by the compensation
committee at the time the award is made. The Plan permits the granting
of stock options that qualify as ISOs under Section 422 of the Code as
well as NQSOs. The compensation committee may grant ISOs to purchase up
to 1,750,000 shares of our common stock under the Plan. The compensation
committee determines the exercise price of all stock options which, as a
general rule with respect to ISOs, may not be less than the fair market
value of a share of common stock at the time of grant. In practice, to
date the compensation committee has only granted NQSOs at an exercise
price that is equal to the fair market value of a share of common stock
at the time of grant and has not granted any ISOs. The Plan specifically
prohibits the repricing of options. The compensation committee also
determines when an option may be exercised and its term, which may not
exceed ten years.
RESTRICTED STOCK. The compensation committee also may award up to
1,900,000 shares of restricted stock and restricted stock units ("RSUs")
in the aggregate (see below) under the Plan. In general, an award of
restricted stock entitles the recipient to shares of common stock,
subject to restrictions determined by the compensation committee. The
compensation committee may require the recipient to pay consideration
for the restricted stock as a condition to the grant of the restricted
stock. Restrictions on restricted stock lapse as specified by the
compensation committee at the time of grant. Until the restrictions
lapse, shares of restricted stock are non-transferable. Generally,
recipients of restricted stock have all rights of a stockholder with
respect to the shares, including voting and dividend rights, subject
only to the conditions and restrictions generally applicable to
restricted stock or to other restrictions and conditions specifically
set forth in the award agreement. An award of restricted stock may
provide for the right to receive on the payment date for any dividend on
the stock, cash compensation from the company (a "dividend equivalent")
equal to the dividend that would have been paid on such shares of
restricted stock if such shares had been fully vested and held by the
participant on the record date for payment of such dividend.
RESTRICTED STOCK UNITS. As stated above, the compensation committee also
may award RSUs under the Plan, which together with awards of restricted
stock, may not exceed 1,900,000 units or shares. In general, an award of
RSUs entitles the recipient to a contingent right to receive shares of
common stock (or the cash equivalent) in the future, subject to
restrictions determined by the compensation committee. The compensation
committee may require the recipient to pay consideration for the
restricted stock as a condition to the grant of the RSUs. Restrictions
on RSUs lapse as specified by the compensation committee at the time of
grant. RSUs are non-transferable. The compensation committee will
specify in the award agreement whether the recipient of RSUs has any of
the rights of a stockholder with respect to the RSUs, including voting
and dividend rights. An award of RSUs may provide for the right to
receive on the payment date for any dividend on the common stock
underlying the RSU, cash compensation from the company (a "dividend
equivalent") equal to the dividend that would have been paid on the
shares underlying such RSUs if such shares had been
-26-
issued and outstanding, fully vested and held by the participant on the
record date for payment of such dividend.
EFFECT OF TERMINATION OF SERVICE. As a general rule, a termination of a
Plan participant's service with the company will result in the forfeiture of
unvested options, restricted stock, and restricted stock units, although the
compensation committee may depart from this general rule by providing otherwise
in individual award agreements or by amending existing award agreements. In
particular, the compensation committee has substantial discretion to address the
effect of service termination upon the vesting of stock options (and the period
during which they may be exercised), restricted stock and RSUs. Generally, under
policies established by the compensation committee, in the event of the death or
disability of a Plan participant, we will permit the Plan participant or his or
her heirs up to three years (one year in the case of ISOs) to exercise vested
options following such death or disability, but in any event such exercise must
be made before the expiration of the original term of the award. The
compensation committee may terminate and recover any Plan award if either (1) a
Plan participant provides services to a competitor of the company within six
months of exercising an option or terminating service with the company,
discloses confidential information, engages in conduct that constitutes "Cause"
or other circumstances (as defined in the Plan) for award termination or (2) the
company terminates the Plan participant's service for "Cause." In the case of
any such award termination or recovery, the Plan participant is required to
disgorge his or her gains on the sale of any common stock he or she received as
a result of a Plan award. In general, if a Plan participant terminates service
with the company other than for Cause, disability or death, we will generally
permit such participant from one to three months to exercise vested options
following the date of termination, but in any event such exercise must be made
before the expiration of the original term of the award.
ADJUSTMENTS FOR CHANGES IN CAPITALIZATION; CHANGE IN CONTROL. The
compensation committee may make appropriate adjustments to the number of shares
of our common stock that may be delivered under the Plan and to outstanding
awards to reflect stock dividends, stock splits, and similar changes in our
capitalization. When granting awards under the Plan, the compensation committee
may provide for the accelerated vesting of options, and for the immediate
lapsing of restrictions on restricted stock in the event of a "Change in
Control." The term "Change in Control" is defined in the Plan, and includes:
- the occurrence of a person or entity becoming a beneficial owner of 30% or
more of the voting power of our common stock;
- the merger of our company with another company (except where our stockholders
would hold at least 60% of the voting power of our common stock after such
merger);
- certain significant changes to the composition of our board of directors; and
- the liquidation of our company.
AMENDMENT AND TERMINATION. The compensation committee may at any time
discontinue granting awards under the Plan. Our board of directors may at any
time amend the Plan or terminate the Plan as to any further grants of awards.
However, none of these actions may, without the approval of our stockholders,
increase the maximum number of shares of common stock available under the Plan,
extend the time within which awards may be granted, amend the provisions of the
Plan relating to amendments, or otherwise make any amendments that by rule or
regulation may be made only subject to the approval of stockholders, nor may any
of these actions adversely affect the rights of a holder of any previously
granted award.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES. Following is a brief summary of
the principal federal income tax consequences of awards under the Plan. This
summary is not an exhaustive description and does not describe all applicable
federal, state or local tax laws.
ISOS. A Plan participant is not subject to federal income tax at the
time of either the grant or the exercise of an ISO. In the year in which
an ISO is exercised, however, the amount by which the fair market value
of the shares of common stock received on the exercise of an ISO exceeds
the exercise price will constitute an adjustment to the option holder's
income in computing alternative minimum
-27-
taxable income. If an option holder does not dispose of such shares of
common stock within two years after the ISO was granted or one year
after the ISO was exercised, whichever is later (a "disqualifying
disposition"), then any gain or loss recognized upon such disposition
generally will be treated as long-term capital gain or loss. In such
event, our company will not receive a tax deduction on either the
exercise of the ISO or on the sale of the underlying common stock.
If an option holder makes a disqualifying disposition, he or she will
realize ordinary income in an amount equal to the lesser of (i) the fair
market value of the option shares on the date the ISO is exercised minus
the exercise price, or (ii) the sales price received by the option
holder on the disposition of the option shares minus the exercise price.
In such event, our company will be entitled to a deduction in an amount
equal to the ordinary income realized by the option holder. If a sale is
a disqualifying disposition, the option holder also may realize
short-term or long-term capital gain or loss if such shares constitute
capital assets in his or her hands. The gain or loss will be measured by
the difference between the fair market value of the option shares on the
date of exercise of the ISO and the sales price of the shares.
NQSOS. No income is realized by an option holder upon the grant of an
NQSO. Upon the exercise of an NQSO, however, the amount by which the
fair market value of the option shares on the date of exercise exceeds
the exercise price will be taxed as ordinary income to an option holder
and our company will be entitled to a deduction in an equal amount. Upon
subsequent sales of the option shares, an option holder may realize
short-term or long-term capital gain or loss, depending upon the holding
period of the shares, if such shares constitute capital assets in an
option holder's hands. The gain or loss will be measured by the
difference between the sales price and the tax basis of the shares sold.
The tax basis for this purpose will be the sum of the exercise price and
the amount of ordinary income realized by the option holder as a result
of his or her exercise of the option.
RESTRICTED STOCK. Generally, no income is realized when a Plan
participant is granted restricted stock until the restrictions imposed
lapse and the stock becomes transferable. However, if the Plan
participant makes a Section 83(b) election to have the grant taxed as
compensation income at fair market value on the date of grant, any
future appreciation (or depreciation) in the value of the stock subject
to the grant will be taxed as capital gain (or loss) at the time the
stock is sold.
RESTRICTED STOCK UNITS. Generally, no income is realized when a Plan
participant is granted restricted stock units ("RSUs") or when the RSUs
vest, until the value of the RSUs is distributed to the participant in
cash or common stock.
SECTION 162(M). Section 162(m) of the Code limits the deductibility
(under certain circumstances) of compensation that exceeds $1,000,000
annually that we pay to our chief executive officer and to our four most
highly compensated officers (other than the chief executive officer) as
determined at the end of our taxable year. Section 162(m) and its
regulations provide certain exclusions from the amounts included in the
$1,000,000 limitation, including compensation that is "qualified
performance-based compensation" within the meaning of the regulations.
The Plan generally is intended to satisfy the requirements set forth in
the regulations with respect to "qualified performance-based
compensation" with respect to options that are exercisable at an
exercise price of not less than 100% of the fair market value of a share
of our common stock on the date of grant. However, if an option is
exercisable at a price less than 100% of the price of a share of our
common stock on the date of grant, the compensatory element of such NQSO
(i.e., the excess of such fair market value over the exercise price)
will not constitute "qualified performance-based compensation."
If the compensation committee grants restricted stock or RSU awards that
are designed to qualify for the performance-based exception from the tax
deductibility limitations Section 162(m) of the Code, the compensation
committee may determine the number of shares awarded and/or vesting of
such restricted stock or RSU awards using performance measures, which
may include such measures as financial goals and business metrics such
as revenue, gross margin, net income, operating income, earnings per
share, return on operating assets or capital, cash flow, market share,
-28-
return to shareholders, cost management, business growth through market
and technology extension, safety, improvement in technology and quality
leadership, business processes, organizational effectiveness and
operational excellence and/or other performance measures set by the
board of directors or the compensation committee. In addition, in the
event that the compensation committee determines that it is advisable to
grant restricted stock or RSU awards that may not qualify for the
performance-based exception, the compensation committee may make such
grants without satisfying the requirements of Section 162(m) of the Code
DEFERRAL. A participant may elect to defer the delivery of shares of
restricted stock or RSUs until the termination of his or her service
with the company, or some other date. Generally, if the participant
elects to defer delivery, the participant would not recognize income
until the company actually distributes shares of common stock or cash to
the participant.
MISCELLANEOUS. The Plan is not qualified under Section 401 of the Code. In
addition, the Plan is not subject to any of the provisions of the Employee
Retirement Income Security Act of 1974, as amended.
If the Second Amended and Restated Cabot Microelectronics Corporation 2000
Equity Incentive Plan is not approved by our stockholders, we will continue to
administer and maintain the Existing Plan in its current form.
OUR BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE "FOR" THE APPROVAL OF THE SECOND
AMENDED AND RESTATED CABOT MICROELECTRONICS CORPORATION 2000 EQUITY INCENTIVE
PLAN.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Indemnification
Our bylaws and our certificate of incorporation require us to indemnify our
directors and officers to the fullest extent authorized by the Delaware General
Corporation Law. We have entered into indemnification agreements with all of our
directors and executive officers in which we confirm that we will provide to
them the indemnification rights provided for in our by-laws and agree to
maintain directors' and officers' liability insurance on their behalf.
-29-
PERFORMANCE GRAPH
The following graph illustrates the cumulative total stockholder return on
our common stock during the period from our IPO on April 4, 2000 through
September 30, 2003 and compares it with the cumulative total return on the
NASDAQ Stock Market (U.S.) Index and the Philadelphia Semiconductor Index. The
comparison assumes $100 was invested on April 4, 2000 in our common stock and in
each of the foregoing indices and assumes reinvestment of dividends, if any. The
performance shown is not necessarily indicative of future performance.
COMPARISON OF 42 MONTH CUMULATIVE TOTAL RETURN*
AMONG CABOT MICROELECTRONICS CORPORATION,
THE NASDAQ STOCK MARKET (U.S.) INDEX
AND THE PHILADELPHIA SEMICONDUCTOR INDEX
[PERFORMANCE GRAPH]
CUMULATIVE TOTAL RETURN
---------------------------------------------------------------------------------------
4/4/00 4/00 5/00 6/00 7/00 8/00 9/00 10/00 11/00 12/00
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Cabot Microelectronics
Corporation........................ 100.00 162.50 163.75 228.75 235.00 291.88 240.00 220.94 183.75 259.69
NASDAQ Stock Market (U.S.).......... 100.00 100.00 87.94 103.38 97.77 109.33 95.13 87.32 67.27 63.70
Philadelphia Semiconductor.......... 100.00 100.99 92.83 98.17 93.01 104.81 67.11 66.41 52.69 49.53
CUMULATIVE TOTAL RETURN
------------------------------------------
1/01 2/01 3/01 4/01 5/01
------ ------ ------ ------ ------
Cabot Microelectronics
Corporation........................ 424.07 302.82 221.25 320.10 321.30
NASDAQ Stock Market (U.S.).......... 71.43 55.30 47.55 54.64 54.58
Philadelphia Semiconductor.......... 58.82 43.77 42.84 51.06 45.50
CUMULATIVE TOTAL RETURN
----------------------------------------------------------------------------------------
6/01 7/01 8/01 9/01 10/01 11/01 12/01 1/02 2/02 3/02
------- ------ ------ ------ ------ ------ ------ ------ ------ ------
Cabot Microelectronics Corporation.... 310.00 351.25 350.25 241.55 331.40 346.80 396.25 331.40 275.20 338.25
NASDAQ Stock Market (U.S.)............ 56.04 52.48 46.76 38.88 43.87 50.11 50.54 50.13 44.92 47.86
Philadelphia Semiconductor............ 47.72 48.43 45.36 32.46 38.16 46.69 45.09 48.98 42.88 47.51
CUMULATIVE TOTAL RETURN
---------------------------------------------------
4/02 5/02 6/02 7/02 8/02 9/02
------ ------ ------ ------ ------ ------
Cabot Microelectronics Corporation.... 244.50 243.90 215.80 211.70 212.25 186.20
NASDAQ Stock Market (U.S.)............ 43.89 41.96 38.16 34.67 34.30 34.30
Philadelphia Semiconductor............ 43.89 41.86 31.62 29.34 26.55 21.67
CUMULATIVE TOTAL RETURN
-------------------------------------------------------------------------------
10/02 11/02 12/02 1/03 2/03 3/03 4/03 5/03 6/03
------- ------ ------ ------ ------ ------ ------ ------ ------
Cabot Microelectronics Corporation.... 226.95 301.75 236.00 219.50 210.00 209.70 216.10 231.35 252.15
NASDAQ Stock Market (U.S.)............ 32.36 35.96 32.48 32.13 32.58 32.67 35.64 38.77 39.39
Philadelphia Semiconductor............ 28.24 34.19 25.85 25.15 27.27 26.53 29.72 34.33 33.57
CUMULATIVE TOTAL RETURN
------------------------
7/03 8/03 9/03
------ ------ ------
Cabot Microelectronics Corporation.... 310.55 325.95 278.15
NASDAQ Stock Market (U.S.)............ 42.11 43.94 43.37
Philadelphia Semiconductor............ 37.33 43.44 41.07
-------------------------
* $100 invested on 4/4/00 in stock or index -- including reinvestment of
dividends.
Fiscal year ending September 30.
-30-
2005 ANNUAL MEETING OF STOCKHOLDERS
The 2005 annual meeting of stockholders is presently scheduled to be held
on March 8, 2005. Any proposals of stockholders intended for inclusion in the
proxy statement for our 2005 annual meeting of stockholders must be received by
the Secretary of our company at our offices at 870 North Commons Drive, Aurora,
Illinois 60504, by Tuesday, September 28, 2004. If a stockholder of the company
intends to present a proposal at the 2005 annual meeting of stockholders, such
stockholder must comply with the advance notice provisions of our by-laws. Those
provisions require that such proposal must be received by the Secretary of our
company at our offices at 870 North Commons Drive, Aurora, Illinois 60504, not
earlier than Tuesday, November 9, 2004 and not later than Thursday, December 9,
2004. Subject to certain exceptions set forth in our by-laws, such proposals
must contain specific information concerning the person to be nominated or the
matters to be brought before the meeting and concerning the stockholder
submitting the proposal.
"HOUSEHOLDING" OF PROXY MATERIALS
The SEC has adopted rules that permit companies and intermediaries (e.g.
brokers) to satisfy the delivery requirements for proxy statements with respect
to two or more stockholders sharing the same address by delivering a single
proxy statement addressed to those stockholders. This process, which is commonly
referred to as "householding," potentially means extra convenience for
stockholders and cost savings for companies.
A number of brokers with accountholders who are stockholders will be
"householding" our proxy materials. As indicated in the notice previously
provided by these brokers to stockholders, a single proxy statement will be
delivered to multiple stockholders sharing an address unless contrary
instructions have been received from an affected stockholder. Once you have
received notice from your broker or us that they will be "householding"
communications to your address, "householding" will continue until you are
notified otherwise.
Stockholders who currently receive multiple copies of the proxy statement
at their address and would like to request "householding" of their
communications should contact their broker or, if a stockholder is a direct
holder of shares of our common stock, they should submit a written request to
our transfer agent, Equiserve Trust Company, N.A., at P.O. Box 43010,
Providence, Rhode Island 02940-3010 Attention: Shareholder Inquiries.
VOTING THROUGH THE INTERNET OR BY TELEPHONE
Our stockholders voting through the Internet should understand that there
may be costs associated with electronic access, such as usage charges from
Internet access providers and telephone companies, that must be borne by the
stockholder. Those of our stockholders with shares registered directly with
Equiserve, the company's transfer agent, may vote telephonically by calling
Equiserve at (877) 779-8683, or may vote through the Internet at the following
address on the World Wide Web:
www.eproxyvote.com/ccmp
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[CABOT MICROELECTRONICS LOGO]
APPENDIX A
AUDIT COMMITTEE CHARTER
CABOT MICROELECTRONICS CORPORATION
AUDIT COMMITTEE CHARTER
PURPOSE
The purpose of the Audit Committee (the "Committee") of the Board of
Directors (the "Board") of Cabot Microelectronics Corporation (the "Company") is
to oversee the Company's accounting and financial reporting processes and the
audit of its financial statements. The Committee is responsible for overseeing
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 independent public accountants responsible for the
annual audit and quarterly reviews of the Company's financial statements
("outside auditor"). In so doing, the Committee should endeavor to maintain free
and open means of communication between the members of the Committee, other
members of the Board, the outside auditor, the senior and financial management
of the Company, and with any employees of the Company or other individuals who
desire to bring accounting, internal accounting controls, auditing, or other
matters to the Committee's attention.
In the exercise of its oversight responsibilities, 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 the responsibility 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. Further, nothing contained in
this charter is intended to alter or impair the right of the members of the
Committee under the Delaware General Corporation Law to rely, in discharging
their responsibilities, on the records of the Company and on other information
presented to the Committee, Board or Company by officers of employees or by
outside experts such as the outside auditor.
MEMBERSHIP
The Committee shall consist of at least three members of the Board. The
members shall be appointed by action of the Board and shall serve at the
discretion of the Board. Each Committee member shall satisfy the "independence"
and other requirements of relevant law, including rules adopted by the
Securities and Exchange Commission ("SEC"), and the Nasdaq Stock Market
("Nasdaq"). At least one member of the Committee shall satisfy the "financial
expert" requirements of relevant law, including rules adopted by the SEC, and
Nasdaq. Each member of the Committee shall be able to read and understand
financial statements at the time of his or her appointment.
COMMITTEE ORGANIZATION AND PROCEDURES
1. The Chair of the Committee shall be appointed by the Board by majority
vote. The Chair (or in his or her 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. Members of the Committee may participate telephonically in any meeting.
3. The Committee shall meet as frequently as the Committee in its
discretion deems desirable.
A-1
4. The Committee may, in its discretion, include in its meetings members of
the Company's management, representatives of the outside auditor, outside
counsel, the senior internal audit manager and other personnel employed or
retained by the Company, the Board or the Committee. The Committee may meet with
the outside auditor or the senior internal audit manager, internal audit service
provider, outside counsel or other advisors in separate executive sessions to
discuss any matters that the Committee believes should be addressed privately,
without management's presence. The Committee may likewise meet privately with
management, as it deems appropriate.
5. The Committee may, in its discretion, retain and utilize the services of
the Company's regular corporate legal counsel with respect to legal matters or
its other advisors with respect to other matters or, at its discretion, retain
other legal counsel or other advisors if it determines that such counsel or
advice is necessary or appropriate under the circumstances.
6. The Committee shall have its own funding from the Company to pay for the
services of the Company's outside auditors and any legal counsel or other
advisors that are retained by the Committee.
RESPONSIBILITIES
Outside Auditor
7. The Committee has the sole and direct responsibility for selecting,
appointing, terminating, compensating and overseeing the Company's outside
auditor, as well as for resolving any disagreements between the outside auditors
and management. The Committee shall only retain as outside auditor a firm,
including representatives of the firm responsible for the Company's audit, that
meets the requirements of relevant law, the Public Accounting Oversight Board,
the SEC and Nasdaq. The outside auditor shall be ultimately accountable to the
Committee for all matters, including the audit of the Company's annual financial
statements and related services. The Committee shall select, appoint and
periodically evaluate the performance of the outside auditor and, if necessary,
replace the outside auditor. At the discretion of the Committee or to the extent
required by relevant law, Nasdaq or the SEC, the Committee shall recommend to
the Board the nomination of the outside auditor for stockholder approval at any
meeting of stockholders.
8. The Committee shall approve the fees to be paid to the outside (or
other) auditor(s) and any other terms of the engagement of the outside (or
other) auditor for any and all services (whether audit or non-audit services),
to be provided by the outside (or other) auditor, in advance of such services
being provided. The Committee may delegate such pre-approval of services to the
Committee Chair, and the Committee Chair shall provide subsequent notification
to the Committee of any such pre-approval at scheduled meetings of the
Committee.
9. The Committee shall receive from the outside auditor and review, 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 actively engage in a dialogue 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 take any appropriate action in response to the outside
auditor's report to satisfy itself of the auditor's independence.
Annual Audit
10. The Committee shall meet with the outside auditor and management of the
Company in connection with each annual audit to discuss the scope of the audit
and the procedures to be followed.
11. The Committee shall review and discuss the audited financial statements
with the management of the Company.
12. The Committee shall discuss with the outside auditor the matters
required to be discussed by Statement on Auditing Standards No. 61 as then in
effect including, among others, (i) the methods used to account for any
significant unusual transaction reflected in the audited financial statements;
(ii) the effect of
A-2
significant and critical accounting policies in any controversial or emerging
areas for which there is a lack of authoritative guidance or a consensus to be
followed by the outside auditor; (iii) the process used by management in
formulating particularly sensitive accounting estimates and the basis for the
auditor's conclusions regarding the reasonableness of those estimates; and (iv)
any disagreements with management over the application of accounting principles,
the basis for management's accounting estimates or the disclosures in the
financial statements.
13. The Committee shall, based on the review and discussions in paragraphs
11 and 12 above, and based on the disclosures received from the outside auditor
regarding its independence and discussions with the auditor regarding such
independence in paragraph 9 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
14. The outside auditor is required to 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 SEC,
prior to the filing of the Form 10-Q. The Committee shall discuss with
management and the outside auditor in person, at a meeting, or by conference
telephone call, 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
15. The Committee shall discuss with the outside auditor and the senior
internal audit manager, at least quarterly, the adequacy and effectiveness of
the accounting and financial controls of the Company, and consider any
recommendations for improvement of such internal control procedures.
16. The Committee shall discuss with the outside auditor and with
management any management letter provided by the outside auditor (or other
auditor) and any other significant matters brought to the attention of the
Committee by the outside auditor (or other auditor) as a result of its annual or
other audit. The Committee should allow management adequate time to consider any
such matters raised by the outside auditor.
17. The Committee shall meet with the Company's Chief Executive Officer,
Chief Financial Officer, and other Company management as appropriate and as
required by relevant law, including rules adopted by the SEC and Nasdaq, on a
regular basis to discuss the Company's internal controls structure and
procedures and status, and disclosure controls and procedures and status.
Internal Audit
18. The Committee shall discuss at least quarterly with the senior internal
audit manager and provider of internal audit services the activities and
organizational structure of the Company's internal audit function and the
qualification of the primary personnel performing such function.
19. Management shall furnish to the Committee a copy of each internal audit
report.
20. The Committee shall, at its discretion, meet with the senior internal
audit manager and provider of internal audit services to discuss any reports or
any other matters brought to the attention of the Committee by the senior
internal audit manager.
21. The senior audit manager and provider of internal audit services shall
be granted unfettered access to the Committee.
A-3
Other Responsibilities
22. The Committee shall review and reassess the Committee's charter at
least annually and submit any recommended changes to the Board for its
consideration.
23. 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 SEC.
24. The Committee shall establish procedures in compliance with
requirements of relevant law, including rules adopted by the SEC, and Nasdaq,
for addressing matters and complaints brought to the Committee's attention by
employees of the Company or other individuals regarding accounting, internal
accounting controls, auditing, or other matters, and shall ensure that such
complaints brought by employees are treated confidentially and anonymously to
the extent required by law.
25. The Committee shall be responsible for receiving, dealing with, and
responding to legal compliance reports relating to actual or alleged material
violations of the securities laws, material breaches of fiduciary duties, or
similar material violations.
26. The Committee shall review and approve any related party transaction in
advance of the Company's entering into any such related party transaction, and
shall subsequently inform the Board of any such approval.
27. The Committee, through its Chair, shall report periodically, as deemed
necessary or desirable by the Committee, but at least following its regularly
scheduled meetings, to the full Board regarding the Committee's actions and
recommendations, if any.
A-4
[CABOT MICROELECTRONICS LOGO]
APPENDIX B
SECOND AMENDED AND RESTATED 2000 EQUITY INCENTIVE PLAN
SECOND AMENDED AND RESTATED
CABOT MICROELECTRONICS CORPORATION 2000 EQUITY INCENTIVE PLAN
1. PURPOSE
The purpose of this Second Amended and Restated Cabot Microelectronics
Corporation 2000 Equity Incentive Plan (the "Plan") is to advance the interests
of Cabot Microelectronics Corporation (the "Company") and its stockholders by
enhancing the Company's ability to (a) attract and retain employees, directors,
consultants and advisors who are in a position to make significant contributions
to the success of the Company and its subsidiaries; (b) reward these individuals
for these contributions; (c) encourage these individuals to take into account
the long-term interests of the Company and its stockholders; and (d) reward
individuals who have contributed to the Company's success (including the success
of the Company's initial public offering), in the case of each of (a) through
(d), through ownership of shares of the Company's common stock, par value $.001
per share ("Stock").
2. ADMINISTRATION
(a) The Plan shall be administered by the Compensation Committee of the
Board of Directors (the "Board") of the Company (the "Committee"). The Committee
shall hold meetings at such times as may be necessary for the proper
administration of the Plan. The Committee shall consist of at least two
directors of the Company, each of whom shall be a "Non-Employee Director" as
defined in Rule 16b-3(b)(3) promulgated under Section 16 of the Securities
Exchange Act of 1934, as amended (the "1934 Act"), and (ii) to the extent
necessary for any Award intended to qualify as "qualified performance-based
compensation" under Section 162(m) of the Internal Revenue Code of 1986, as
amended (the "Code"), to so qualify, each member of the Committee shall be an
"outside director" (as defined in Section 162(m) and the regulations promulgated
thereunder). Subject to applicable law, the Committee may delegate its authority
under the Plan to any other person or persons.
(b) No member of the Committee shall be liable for any action, failure to
act, determination or interpretation made in good faith with respect to this
Plan or any transaction hereunder. The Company hereby agrees to indemnify each
member of the Committee for all costs and expenses and, to the fullest extent
permitted by applicable law, any liability incurred in connection with defending
against, responding to, negotiating for the settlement of or otherwise dealing
with any claim, cause of action or dispute of any kind arising in connection
with any actions in administering this Plan or in authorizing or denying
authorization to any transaction hereunder.
(c) Subject to the express terms and conditions set forth herein, the
Committee shall have the power from time to time:
(i) to determine the Employees, Directors and/or Advisors to whom
Awards shall be granted under the Plan and the number of shares of Stock
subject to such Awards; to prescribe the terms and conditions (which need
not be identical) of each such Award; and to make any amendment or
modification to any Award Agreement consistent with the terms of the Plan;
(ii) to construe and interpret the Plan and the Awards granted
hereunder; to establish, amend and revoke rules and regulations for the
administration of the Plan, including, but not limited to, correcting
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any defect or supplying any omission, or reconciling any inconsistency in
the Plan or in any Award Agreement, in the manner and to the extent it
shall deem necessary or advisable; to interpret the Plan and applicable
Award Agreements so that the Plan and its operation complies with Section
16 of the 1934 Act, Sections 162(m) and 422 of the Code and other
applicable law; and otherwise to give full effect to the Plan;
(iii) to exercise its discretion with respect to the powers and rights
granted to it as set forth in the Plan; and
(iv) generally, to exercise such powers and to perform such acts as
are deemed by it necessary or advisable to promote the best interests of
the Company with respect to the Plan.
All decisions and determinations of the Committee in the exercise of the
foregoing powers shall be final, binding and conclusive upon the Company and its
subsidiaries and affiliates, all Employees, Directors and Advisors, and all
other persons claiming any interest herein.
3. EFFECTIVE DATE AND TERM OF PLAN
The Plan will become effective on the date on which it is adopted by the
Board, subject to the approval of the Company's stockholders at the Annual
Meeting on March 9, 2004. No Award may be granted under the Plan after the tenth
anniversary of the date on which this Plan was adopted by the Board, but Awards
previously granted may extend beyond that date.
4. SHARES SUBJECT TO THE PLAN
Subject to adjustment as provided in Section 8.6, and subject to the next
following sentence and Section 6.3(a), the maximum number of shares of Stock
that may be delivered under the Plan will be 9,500,000.
In addition, any Stock covered by an Option granted under the Plan, which
is forfeited, cancelled or expires in whole or in part shall be deemed not to be
delivered for purposes of determining the maximum number of shares of Stock
available for grants under the Plan. Any shares of Stock surrendered to the
Company in payment of the exercise price of Options issued under the Plan shall
be deemed not to be delivered for purposes of determining the maximum number of
shares of Stock available for grants under the Plan. Upon forfeiture or
termination of Restricted Stock or Restricted Stock Units prior to vesting, the
shares of Stock subject thereto shall again be available for Awards under the
Plan.
In no event shall the Company issue ISOs (as defined in Section 6.2(a))
under the Plan covering more than 1,750,000 shares of Stock.
Awards granted through the assumption of, or in substitution or exchange
for, similar awards in connection with the acquisition of another corporation or
business entity shall not be counted for purposes of applying the limitations of
this Section on numbers of shares of Stock available for Awards generally or any
particular kind of Award under the Plan.
Stock delivered under the Plan may be either from authorized but unissued
Stock, from treasury shares or from shares of Stock purchased in open-market
transactions and private sales.
5. ELIGIBILITY AND PARTICIPATION
Employees of the Company, its subsidiaries and affiliates ("Employees"),
non-employee members of the board of directors of the Company, its subsidiaries
or affiliates ("Directors"), and consultants and advisors of the Company or any
of its subsidiaries ("Advisors"), who in the opinion of the Committee are in a
position to make a significant contribution to the success of the Company, its
subsidiaries and affiliates, are eligible to receive Awards under the Plan.
For purposes of the Plan, "Service" means the provision of services to the
Company or its subsidiaries or affiliates in the capacity of (i) an Employee,
(ii) a Director, or (iii) an Advisor. An "affiliate" for purposes of
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the Plan is an entity that controls, is controlled by or is under common control
with, the Company. A "subsidiary" for purposes of the Plan is an entity in which
the Company owns, directly or indirectly, equity interests possessing a majority
of the total combined voting power of all classes of equity. The Committee will
from time to time select the Employees, Directors and/or Advisors who are to be
granted Awards ("Participants"), but no Participant shall receive Awards under
the Plan covering more than 300,000 shares of Stock (subject to adjustment as
provided in Section 8.6) in any calendar year.
6. TYPES OF AWARDS
6.1. RESTRICTED STOCK AND RESTRICTED STOCK UNITS.
(a) NATURE OF RESTRICTED STOCK AWARD. An Award of Restricted Stock
entitles the recipient to acquire, at such time or times as the Committee may
determine, shares of Stock subject to the restrictions described in paragraph
(f) below ("Restricted Stock").
(b) RESTRICTED STOCK UNITS. An Award of Restricted Stock Units ("RSUs")
entitles the recipient to acquire, at such time or times as the Committee may
determine, shares of Stock subject to the restrictions described in paragraph
(f) below. An RSU represents a contingent right to receive a Share or an amount
equivalent in value to a Share.
(c) MAXIMUM NUMBER. In no event shall the Company issue more than
1,900,000 shares of Restricted Stock and/or RSUs, in the aggregate, under the
Plan.
(d) PAYMENT FOR RESTRICTED STOCK. The Committee may require, as a
condition to an Award of Restricted Stock or RSUs, that a Participant deliver to
the Company a purchase price in any amount set by the Committee for such
Restricted Stock or RSUs. In the discretion of the Committee, an Award Agreement
evidencing an Award of Restricted Stock or RSUs may permit the Participant to
pay some or all of the purchase price thereof, or to meet any Withholding
Requirements to be met by the Participant in connection therewith, in the form
of a note from the Participant on such terms as the Committee shall determine.
Such terms may include forgiveness of all or a portion of any such note upon
such conditions as the Committee may specify.
(e) RIGHTS AS A STOCKHOLDER. A Participant who receives an Award of
Restricted Stock will have all the rights of a stockholder with respect to the
Stock, including voting and dividend rights, subject to the restrictions
described in paragraph (d) below and any other conditions imposed by the
Committee in the Award Agreement at the time of grant. The Award Agreement
evidencing an Award of RSUs shall specify whether the Participant is entitled to
any voting rights or to receive any dividends on the shares of Stock underlying
the RSUs. An Award of Restricted Stock or RSUs may provide for the right to
receive on the payment date for any dividend on the Stock, cash compensation
from the Company equal to the dividend that would have been paid on such shares
of Restricted Stock or RSUs (or the Fair Market Value of such dividend, if such
dividend would not have been paid in cash), if such shares had been issued and
outstanding, fully vested and held by the Participant on the record date for
payment of such dividend (a "Dividend Equivalent").
(f) RESTRICTIONS. The restrictions on each grant of Restricted Stock or
RSUs will lapse at such time or times, and on such terms and conditions
(including obtaining pre-established performance goals), as the Committee may
specify. Except as otherwise specifically provided by the Plan or by the
Committee in any particular case, until these restrictions lapse, neither
Restricted Stock nor RSUs may be sold, assigned, transferred, pledged or
otherwise encumbered or disposed of, except that Restricted Stock or RSUs may be
pledged as security for the purchase price thereof, or for loans used to fund
any or all of the purchase price thereof or Withholding Requirements met in
connection with the purchase thereof. If the Participant's Service terminates
before such restrictions have lapsed, the Company shall have the right to
repurchase the Restricted Stock for the amount of any consideration (excluding
services) it received for the Restricted Stock plus, if the Committee shall so
determine, an amount equal to the Withholding Requirements met by the
Participant in connection with the sale of the Stock, or for such other
consideration as the Committee shall determine, including for no consideration
if no consideration other than services was paid for such Restricted Stock. The
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Committee shall not accelerate the time at which the restrictions on all or any
part of a grant of Restricted Stock will lapse, except as the Committee may
determine to be appropriate in connection with a Participant's termination of
Service.
(g) DEFERRAL. If a Participant so elects in accordance with such
procedures as the Committee may specify from time to time, the delivery of
Restricted Stock and, if the deferral election so specifies, of the Dividend
Equivalents with respect thereto, shall be deferred until the date or dates
specified in such election.
(h) SECTION 83(B) ELECTION. Under Section 83 of the Code, the difference
between the purchase price paid for the Stock and its Fair Market Value (as
defined in Section 6.2(b)) on the date any restrictions applicable to such
shares lapse will be reportable as ordinary income at that time. A Participant
may elect to be taxed at the time the shares of Stock are acquired hereunder to
the extent the Fair Market Value of the Stock differs from the purchase price
rather than when and as such Stock ceases to be subject to restrictions, by
filing an election under Section 83(b) of the Code with the I.R.S. within thirty
(30) days after the grant date. If the Fair Market Value of the Stock at the
grant date equals the purchase price paid (and thus no tax is payable), the
election must be made to avoid adverse tax consequences in the future. The form
for making this election is available from the Company. The failure to make this
filing within the thirty (30) day period will result in the recognition of
ordinary income by the Participant (in the event the Fair Market Value of the
Stock increases after the grant date) as the restrictions lapse. IT IS THE
PARTICIPANT'S SOLE RESPONSIBILITY, AND NOT THE COMPANY'S, TO FILE A TIMELY
ELECTION UNDER SECTION 83(b). A PARTICIPANT MUST RELY SOLELY ON THE
PARTICIPANT'S OWN ADVISORS WITH RESPECT TO THE DECISION AS TO WHETHER OR NOT TO
FILE AN 83(b) ELECTION.
6.2. OPTIONS.
(a) NATURE OF OPTIONS. An Option is an Award entitling the recipient on
exercise thereof to purchase shares of Stock at a specified exercise price. Both
incentive stock options (as defined in Section 422 of the Code) ("ISOs") and
Options that are not ISOs may be granted under the Plan; provided that the
Committee may award ISOs only to Employees.
(b) EXERCISE PRICE. The exercise price of an Option shall be determined
by the Committee and set forth in an applicable Award Agreement; provided,
however, that the exercise price of an ISO shall not be less than the Fair
Market Value of a share of the Stock on the date the ISO is granted (110% of the
Fair Market Value of a share of Stock on the date of grant in the case of an ISO
granted to an Employee who owns (within the meaning of Section 422(b)(6) of the
Code) stock possessing more than ten percent of the total combined voting power
of all classes of stock of the Company, or of a parent or a subsidiary (such
person, a "Ten Percent Shareholder")). For purposes of this Plan, "Fair Market
Value" on any date means the closing sales price of the Stock on such date on
the principal national securities exchange on which the Stock is listed or
admitted to trading, or, if the Stock is not so listed or admitted to trading,
the average of the per share closing bid price and per share closing asked price
on such date as quoted on the National Association of Securities Dealers
Automated Quotation System or such other market in which such prices are
regularly quoted, or, if there have been no published bid or asked quotations
with respect to shares on such date, the Fair Market Value shall be the value
established by the Board in good faith and, in the case of an ISO, in accordance
with Section 422 of the Code. Except for adjustment as provided in Section 8.6,
any outstanding Options shall not be repriced.
(c) DURATION OF OPTIONS. The latest date on which an Option may be
exercised will be the tenth anniversary of the date the Option was granted (five
years in the case of an ISO granted to a Ten Percent Shareholder), or such
earlier date as may have been specified by the Committee in the Award Agreement
at the time the Option was granted.
(d) EXERCISE OF OPTIONS. An Option will become exercisable at such time
or times, and on such terms and conditions (including obtaining pre-established
performance goals), as the Committee may specify in the Award Agreement for such
Option. The Committee may at any time accelerate the time at which all or any
part of the Option may be exercised.
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Subject to the next following sentence, any exercise of an Option must be
in writing, signed by the proper person and delivered or mailed to the Company,
accompanied by (1) any documents required by the Committee and (2) payment in
full for the number of shares for which the Option is exercised. The exercise
price for any Stock purchased pursuant to the exercise of an Option may, if
permitted under the Award Agreement applicable to the Option, be paid in the
following forms: (a) cash; (b) the transfer, either actually or by attestation,
to the Company of shares of Stock that have been held by the Participant for at
least six months (or such lesser period as may be permitted by the Committee)
prior to the exercise of the Option, such transfer to be upon such terms and
conditions as determined by the Committee; (c) such other methods as the
Committee makes available to Participants from time to time; or (d) a
combination thereof. In addition, Options may be exercised through a registered
broker-dealer pursuant to such cashless exercise procedures which are, from time
to time, deemed acceptable by the Committee. Any shares of Stock transferred to
the Company as payment of the exercise price under an Option shall be valued at
their Fair Market Value on the day of exercise of such Option. If requested by
the Committee, the Participant shall deliver the Award Agreement to the
Secretary of the Company who shall endorse thereon a notation of such exercise
and return such Award Agreement to the Participant. No fractional shares of
Stock (or cash in lieu thereof) shall be issued upon exercise of an Option, and
the number of shares of Stock that may be purchased upon exercise shall be
rounded to the nearest number of whole shares.
(e) EXERCISE LIMIT. To the extent that the aggregate Fair Market Value
(determined as of the date of the grant) of shares of Stock with respect to
which ISOs granted under the Plan and "incentive stock options" (within the
meaning of Section 422 of the Code) granted under all other plans of the Company
or its subsidiaries (in either case determined without regard to this Section
6.2(e)) are exercisable by a Participant for the first time during any calendar
year exceeds $100,000, such ISOs shall be treated as Options that are not ISOs.
In applying the limitation in the preceding sentence in the case of multiple
Options, Options that are intended to be ISOs shall be treated as Options which
are not ISOs according to the order in which they were granted, such that the
most recently granted Options are first treated as Options that are not ISOs.
(f) An ISO must be exercised, if at all, within three months after the
Participant's termination of Service for a reason other than death or Disability
and within twelve months after the Participant's termination of Service for
death or Disability.
6.3. SUBSTITUTE AWARDS.
(a) In connection with any acquisition by the Company or any of its
subsidiaries, the Committee may grant Awards to persons who became Employees,
Directors or Advisors in connection with such acquisition in substitution for
equity incentives held by them in the seller or acquired entity. In such case
the Committee may set the prices and other terms of the substitute Awards at
such amounts and in such manner as it, in its sole discretion, deems appropriate
to preserve for the Participants the economic values of the equity incentives
for which such Awards are substitutes (as determined by the Committee in its
sole discretion) or otherwise to provide such incentives as the Committee may
determine are appropriate.
(b) Unless required by applicable law, any substitute Awards granted
pursuant to Section 6.3 shall not count toward the share limitations set forth
in Section 4.
7. EVENTS AFFECTING OUTSTANDING AWARDS
7.1. TERMINATION OF SERVICE.
Unless otherwise set forth in an Award Agreement, an Award shall
immediately terminate on the date a Participant's Service terminates, and (i)
any Options held by a Participant shall not be exercisable and all rights of the
Participant with respect thereto shall immediately terminate and (ii) any shares
of Restricted Stock or RSU's with respect to which the restrictions have not
lapsed shall be immediately forfeited and must be transferred to the Company in
accordance with Section 6.1.
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7.2 TERMINATION OF AWARD.
The Company may terminate, cancel, rescind or recover an Award immediately
under certain circumstances, including, but not limited to a Participant's:
(a) actions constituting "Cause", which shall have the meaning
provided under an employment, consulting or other agreement between a
Participant and the Company, or if there is no such meaning provided under
such agreement or no such agreement, shall include, but not be limited to,
the: (i) conviction of or entering a guilty plea with respect to a crime,
whether or not connected with the Company; (ii) commission of any act of
fraud with respect to the Company; (iii) theft, embezzlement or
misappropriation of any property of the Company; (iv) excessive absenteeism
(other than as resulting from Disability); (v) failure to observe or comply
with any Company work rules, policies, procedures, guidelines or standards
of conduct which the Company has adopted for the regulation of the general
conduct of its employees, as generally known to the employees of the
Company or evidenced by the terms of any employee handbook, written
memorandums or written policy statements; (vi) continued willful refusal to
carry out and perform the material duties and responsibilities of a
Participant's position, excluding nonperformance resulting from Disability;
or (vii) any other conduct or act determined to be injurious, detrimental
or prejudicial to any interest of the Company, (in each case as determined
in good faith by the Company.);
(b) rendering of services for a competitor prior to, or within six
(6) months after, the exercise of any Option or the termination of
Participant's Service with the Company;
(c) unauthorized disclosure of any confidential/proprietary
information of the Company to any third party;
(d) failure to comply with the Company's policies regarding the
identification, disclosure and protection of intellectual property; or
(e) violation of the Proprietary Rights Agreement/Cabot
Microelectronics Corporation Employee Confidentiality, Intellectual
Property and Non-Competition Agreement for Employees signed by the
Participant.
The existence of any such circumstances shall be determined in good faith
by the Company.
In the event of any termination, cancellation, recision or revocation, the
Participant shall return to the Company any Stock received pursuant to an Award,
or pay to the Company the amount of any gain realized on the sale of any such
Stock, in such manner and on such terms and conditions as may be required, and
the Company shall be entitled to set-off against the amount of any such gain any
amount owed to the Participant by the Company. To the extent applicable, the
Company will refund to the Participant any amount paid for such Stock, including
Withholding Requirements.
7.3 CHANGE IN CONTROL.
The Committee shall have the discretion to provide in applicable Award
Agreements that, in the event of a "Change in Control" (as defined in Appendix
A) of the Company, the following provisions will apply:
(a) Each outstanding Option (or such lesser portion of each Option as
is set forth in an applicable Award Agreement) will immediately become
exercisable in full.
(b) Each outstanding share of Restricted Stock or RSU (or such lesser
number of shares as is set forth in an applicable Award Agreement) will
immediately become free of the restrictions.
(c) In the event of a Change in Control that is a merger or
consolidation in which the Company is not the surviving corporation or that
results in the acquisition of substantially all the Company's outstanding
Stock by a single person or entity or by a group of persons or entities
acting in concert, or in the event of a sale or transfer of all or
substantially all of the Company's assets (a "Covered Transaction"), the
Committee shall have the discretion to provide for the termination of all
outstanding Options as of the effective date of the Covered Transaction;
provided, that, if the Covered Transaction
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follows a Change in Control or would give rise to a Change in Control, no
Option will be so terminated (without the consent of the Participant) prior
to the expiration of 20 days following the later of (i) the date on which
the Award became fully exercisable and (ii) the date on which the
Participant received written notice of the Covered Transaction.
8. GENERAL PROVISIONS
8.1. DOCUMENTATION OF AWARDS.
Awards will be evidenced by written instruments prescribed by the Committee
from time to time (each such instrument, an "Award Agreement"). Award Agreements
may be in the form of agreements, to be executed by both the Participant and the
Company, or certificates, letters or similar instruments, acceptance of which
will evidence agreement to the terms thereof and hereof.
8.2. RIGHTS AS A STOCKHOLDER; DIVIDEND EQUIVALENTS.
Except as specifically provided by the Plan, the receipt of an Award will
not give a Participant rights as a stockholder, and the Participant will obtain
such rights, subject to any limitations imposed by the Plan or the Award
Agreement, upon actual receipt of Stock. However, the Committee may, on such
conditions as it deems appropriate, provide in an Award Agreement that a
Participant will receive a benefit in lieu of cash dividends that would have
been payable on any or all Stock subject to the Participant's Award had such
Stock been outstanding. Without limitation, the Committee may provide for
payment to the Participant of amounts representing such dividends, either
currently or in the future, or for the investment of such amounts on behalf of
the Participant.
8.3 CONDITIONS ON DELIVERY OF STOCK.
The Company will not be obligated to deliver any shares of Stock pursuant
to the Plan or to remove any restriction from shares of Stock previously
delivered under the Plan (a) until all conditions of the Award have been
satisfied or removed, (b) until, in the opinion of the Company's counsel, all
applicable federal and state laws and regulations have been complied with, (c)
if the outstanding Stock is at the time listed on any stock exchange, until the
shares to be delivered have been listed or authorized to be listed on such
exchange upon official notice of notice of issuance and (d) until all other
legal matters in connection with the issuance and delivery of such shares have
been approved by the Company's counsel. If the sale of Stock has not been
registered under the Securities Act of 1933, as amended, the Company may
require, as a condition to exercise of the Award, such representations or
agreements as counsel for the Company may consider appropriate to avoid
violation of such Act and may require that the certificates evidencing such
Stock bear an appropriate legend restricting transfer.
8.4. TAX WITHHOLDING.
The Company will withhold from any payment made pursuant to an Award an
amount as may be necessary sufficient to satisfy all minimum federal, state and
local withholding tax requirements (the "Withholding Requirements").
The Committee will have the right to require that the Participant or other
appropriate person remit to the Company an amount sufficient to satisfy the
Withholding Requirements, or make other arrangements satisfactory to the
Committee with regard to such requirements, prior to the delivery of any Stock.
If and to the extent that any such withholding is required, the Committee may
permit the Participant or such other person to elect at such time and in such
manner as the Committee provides to have the Company hold back from the shares
to be delivered, or to deliver to the Company, Stock having a value calculated
to satisfy the Withholding Requirements.
If at the time an ISO is exercised the Committee determines that the
Company could be liable for Withholding Requirements with respect to a
disposition of the Stock received upon exercise, the Committee may require as a
condition of exercise that the person exercising the ISO agree (a) to inform the
Company
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promptly of any disposition of Stock received upon exercise of the ISO, and (b)
to give such security as the Committee deems adequate to meet the potential
liability of the Company for the Withholding Requirements and to augment such
security from time to time in any amount reasonably deemed necessary by the
Committee to preserve the adequacy of such security.
8.5. NONTRANSFERABILITY OF AWARDS.
No Option shall be transferable by a Participant otherwise than by will or
by the laws of descent and distribution or, in the case of an Option other than
an ISO, pursuant to a domestic relations order (within the meaning of Rule
16a-12 promulgated under the Exchange Act), and an Option shall be exercisable
during the lifetime of such Participant only by such Participant or such
Participant's executor or administrator or by the person or persons to whom the
Option is transferred by will or the applicable laws of descent and distribution
(such person, the Participant's "Legal Representative"). Notwithstanding the
foregoing sentence, the Committee may set forth in an Award Agreement evidencing
an Option (other than an ISO), that the Option may be transferred to members of
the Participant's immediate family, to trusts solely for the benefit of such
immediate family members and to partnerships in which such family members and/or
trusts are the only partners, and for purposes of this Plan, such a transferee
of an Option shall be deemed to be the Participant. For this purpose, "immediate
family" shall refer only to the Participant's spouse, parents, children,
stepchildren and grandchildren and the spouses of such parents, children,
stepchildren and grandchildren. The terms of an Option shall be final, binding
and conclusive upon the beneficiaries, executors, administrators, heirs and
successors of the Participant.
8.6. ADJUSTMENTS IN THE EVENT OF CERTAIN TRANSACTIONS.
In the event that the outstanding shares of Stock are changed into or
exchanged for a different number or kind of shares of stock, other securities or
other property of the Company, an affiliate or another legal entity, whether
through merger, consolidation, reorganization, recapitalization, stock dividend,
stock split-up or other substitution of securities of the Company, an affiliate
or another entity, the Committee shall make appropriate adjustments to the
maximum number and kind of shares of stock or other equity interest as to which
Awards may be granted under the Plan and the number and kind of shares of stock
or other equity interest with respect to which Awards have been granted under
the Plan, the exercise prices for such shares or other equity interest subject
to Options and any other economic terms of Awards granted under the Plan; and
provided, that, in the event of a merger of the Company with or into another
entity, any adjustment provided for in the applicable agreement and plan of
merger (or similar document) shall be conclusively deemed to be appropriate for
purposes of this Section 8.6. The Committee's adjustment shall be final and
binding for all purposes of the Plan and each Award Agreement entered into under
the Plan. Unless the Committee otherwise determines, no adjustment provided for
in this Section 8.6 shall require the Company to issue a fractional share, and,
in such event, with respect to each Award Agreement the total adjustment as to
the number of shares for which Awards have been granted shall be effected by
rounding down to the nearest whole number of shares.
8.7. PARTICIPANT'S RIGHTS.
Neither the adoption of the Plan nor the grant of Awards will confer upon
any person any right to continued employment or Service with the Company or any
subsidiary or affiliate or affect in any way the right of the Company any
subsidiary or affiliate to terminate an employment or Service relationship at
any time.
8.8. PAYMENT FOR STOCK; LOANS.
Stock awarded under this Plan as Restricted Stock or received upon exercise
of an Option may be paid for with such legal consideration as the Committee may
determine. If and to the extent authorized by the Committee, the Company may
permit Participants to pay for Stock with promissory notes, and may make loans
to Participants of all or a portion of any Withholding Requirements to be met in
connection with the grant, exercise or vesting of any Award. Any such extensions
of credit may be secured by Stock or other collateral, or may be made on an
unsecured basis, as the Committee may determine.
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8.9. SUCCESSORS.
All obligations of the Company under the Plan or any Award Agreement will
be binding on any successor to the Company, whether the existence of the
successor results from a direct or indirect purchase of all or substantially all
of the Company's shares, or a merger, consolidation, or otherwise.
8.10. SEVERABILITY.
If any provision of the Plan is held illegal or invalid for any reason, the
illegality or invalidity will not affect the remaining parts of the Plan, and
the Plan will be construed and enforced as if the illegal or invalid provision
had not been included.
8.11. REQUIREMENTS OF LAW.
The granting of Awards and the issuance of Share and/or cash payouts under
the Plan will be subject to all applicable laws, rules, and regulations, and to
any approvals by governmental agencies or national securities exchanges as may
be required.
8.12. SECURITIES LAW COMPLIANCE.
As to any individual who is, on the relevant date, an officer, director or
ten percent beneficial owner of any class of the Company's equity securities
that is registered pursuant to Section 12 of the Exchange Act, all as defined
under Section 16 of the Exchange Act, transactions under this Plan are intended
to comply with all applicable conditions of Rule 16b-3 under the Exchange Act,
or any successor rule. To the extent any provision of the Plan or action by the
Board fails to so comply, it will be deemed null and void, to the extent
permitted by law and deemed advisable by the Board.
8.13. AWARDS TO FOREIGN NATIONALS AND EMPLOYEES OUTSIDE THE UNITED STATES.
To the extent the Board deems it necessary, appropriate or desirable to
comply with foreign law or practice and to further the purposes of this Plan,
the Board may, without amending the Plan, (i) establish rules applicable to
Awards granted to Participants who are foreign nationals, are employed or
providing Service outside the United States, or both, including rules that
differ from those set forth in this Plan, and (ii) grant Awards to such
Participants in accordance with those rules that would require the application
of the law of any other jurisdiction.
8.14. GOVERNING LAW.
To the extent not preempted by federal law, the Plan and all agreements
hereunder will be construed and enforced in accordance with, and governed by,
the laws of the State of Delaware, without giving effect to its conflicts of
laws principles that would require the application of the law of any other
jurisdiction.
9. PERFORMANCE-BASED RESTRICTED STOCK AWARDS.
If the Committee makes Restricted Stock or RSU Awards that are designed to
qualify for the performance-based exception from the tax deductibility
limitations of Code Section 162(m) and any regulations promulgated thereunder,
the Committee will determine the number of shares awarded and/or vesting of such
Restricted Stock or RSU Awards using performance measures, which may include
such measures as financial goals and business metrics such as revenue, gross
margin, net income, operating income, earnings per share, return on operating
assets or capital, cash flow (e.g., operating cash flow, free cash flow,
discounted cash flow return on investment) market share, return to shareholders,
cost management, business growth through market and technology extension,
safety, improvement in technology and quality leadership, business processes,
organizational effectiveness and operational excellence (all e.g., absolute or
peer-group comparative), and/or other performance measures set by the Board or
Committee.
The Committee shall have the discretion to adjust the determinations of the
degree of attainment of the preestablished performance objectives to reflect
accounting changes or other events. In addition, in the event
B-9
that the Committee determines that it is advisable to grant Restricted Stock or
RSU Awards that may not qualify for the performance-based exception, the
Committee may make such grants without satisfying the requirements of Code
Section 162(m).
10. DISCONTINUANCE, CANCELLATION, AMENDMENT AND TERMINATION
The Committee may at any time discontinue granting Awards under the Plan.
The Board may at any time or times amend the Plan and, with the consent of the
holder thereof, any outstanding Award. The Committee may at any time terminate
the Plan as to any further grants of Awards, provided that (except to the extent
expressly required or permitted by the Plan) no such amendment will, without the
approval of the stockholders of the Company, (a) increase the maximum number of
shares available under the Plan, (b) extend the time within which Awards may be
granted, or (c) amend the provisions of this Section 10, and no amendment or
termination of the Plan may adversely affect the rights of any Participant
(without his or her consent) under any Award previously granted.
CABOT MICROELECTRONICS CORPORATION
BY:
--------------------------------------
ITS:
--------------------------------------
B-10
APPENDIX A TO SECOND AMENDED AND RESTATED CABOT
MICROELECTRONICS CORPORATION 2000 EQUITY INCENTIVE PLAN
A "Change in Control" shall be deemed to have occurred if:
(a) any "person" as such term is used in Sections 13(d) and 14(d) of
the 1934 Act (other than (i) the Company, (ii) any subsidiary of the
Company, (iii) any trustee or other fiduciary holding securities under an
employee benefit plan of the Company or of any subsidiary of the Company,
or (iv) any company owned, directly or indirectly, by the stockholders of
the Company in substantially the same proportions as their ownership of
stock of the Company), is or becomes the "beneficial owner" (as defined in
Section 13(d) of the 1934 Act), together with all Affiliates and Associates
(as such terms are used in Rule 12b-2 of the General Rules and Regulations
under the 1934 Act) of such person, directly or indirectly, of securities
of the Company representing thirty percent (30%) or more of the combined
voting power of the Company's then outstanding securities; or
(b) the stockholders of the Company approve a merger or consolidation
of the Company with any other company, other than (i) a merger or
consolidation which would result in the voting securities of the Company
outstanding immediately prior thereto continuing to represent (either by
remaining outstanding or by being converted into voting securities of the
surviving entity), in combination with the ownership of any trustee or
other fiduciary holding securities under an employee benefit plan of the
Company or any subsidiary of the Company, at least sixty percent (60%) of
the combined voting power of the voting securities of the Company or such
surviving entity outstanding immediately after such merger or consolidation
or (ii) a merger or consolidation effected to implement a recapitalization
of the Company (or similar transaction) after which no "person" (with the
method of determining "beneficial ownership" used in clause (a) of this
definition) owns more than thirty percent (30%) of the combined voting
power of the securities of the Company or the surviving entity of such
merger or consolidation; or
(c) during any period of two consecutive years (not including any
period prior to the execution of the Plan), individuals who at the
beginning of such period constitute the Board, and any new director (other
than a director designated by a person who has conducted or threatened a
proxy contest, or has entered into an agreement with the Company to effect
a transaction described in clause (a), (b) or (d) of this definition) whose
election by the Board or nomination for election by the Company's
stockholders was approved by a vote of at least two-thirds ( 2/3) of the
directors then still in office who either were directors at the beginning
of the period or whose election or nomination for election was previously
so approved cease for any reason to constitute at least a majority thereof;
or
(d) the stockholders of the Company approve a plan of complete
liquidation of the Company or an agreement for the sale or disposition by
the Company of all or substantially all of the Company's assets.
B-11
DETACH HERE IF YOU ARE RETURNING YOUR PROXY CARD BY MAIL
ZCBM52
PROXY
CABOT MICROELECTRONICS CORPORATION
ANNUAL MEETING OF STOCKHOLDERS - MARCH 9, 2004
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF THE COMPANY
The undersigned stockholder of CABOT MICROELECTRONICS CORPORATION, a Delaware
corporation (the "Company"), hereby appoints William P. Noglows and H. Carol
Bernstein, and each of them, proxies and attorneys-in-fact of the undersigned,
each with full power of substitution, to attend and act for the undersigned at
the Annual Meeting of Stockholders to be held on Tuesday, March 9, 2004 at 8:00
a.m. local time at Cabot Microelectronics Corporation, 870 North Commons Drive,
Aurora, Illinois 60604, and at any adjournments or postponements thereof, and in
connection therewith to vote and represent all of the shares of common stock of
the Company which the undersigned would be entitled to vote.
Each of the above named proxies at said meeting, either in person or by
substitute, shall have and exercise all of the powers of said proxies hereunder.
In their discretion, each of the above-named proxies is authorized to vote upon
such other business incident to the conduct of the Annual Meeting as may
properly come before the meeting or any postponements or adjournments thereof.
The undersigned hereby revokes all prior proxies given by the undersigned to
vote at said meeting.
IF NO INSTRUCTIONS ARE INDICATED HEREIN, THIS PROXY WILL BE TREATED AS A GRANT
OF AUTHORITY TO VOTE FOR THE PROPOSALS AND ANY OTHER MATTERS TO BE VOTED UPON AT
THE ANNUAL MEETING OR AT ANY POSTPONEMENTS OR ADJOURNMENTS THEREOF.
SEE REVERSE CONTINUED AND TO BE SIGNED ON REVERSE SIDE SEE REVERSE
SIDE SIDE
CABOT MICROELECTRONICS CORPORATION
C/O EQUISERVE TRUST COMPANY N.A.
P.O. BOX 8694
EDISON, NJ 08818-8694
--------------------
--------------------
YOUR VOTE IS IMPORTANT. PLEASE VOTE IMMEDIATELY.
VOTE-BY-INTERNET [GRAPHIC OF COMPUTER] VOTE-BY-TELEPHONE [GRAPHIC OF TELEPHONE]
OR
LOG ON TO THE INTERNET AND GO TO CALL TOLL-FREE
HTTP://WWW.EPROXYVOTE.COM/CCMP. 1-877-PRX-VOTE (1-877-779-8683)
IF YOU VOTE OVER THE INTERNET OR BY TELEPHONE,
PLEASE DO NOT MAIL YOUR CARD.
DETACH HERE IF YOU ARE RETURNING YOUR PROXY CARD BY MAIL ZCBM51
/X/ PLEASE MARK | 1995
VOTES AS IN |__
THIS EXAMPLE.
Our board of directors recommends that you vote your shares "FOR" the election of each of the nominees named below under
Proposal 1, "FOR" the ratification of the election of William P. Noglows to the company's board of directors under Proposal 2,
"FOR" the ratification of the selection of PricewaterhouseCoopers LLP as the company's independent auditors for fiscal 2004
under Proposal 3 and "FOR" the Second Amended and Restated 2000 Equity Incentive Plan under Proposal 4.
FOR AGAINST ABSTAIN
1. Approval of the election to the board of directors of (01) 2. Ratification of the / / / / / /
Juan Enriquez-Cabot and (02) H. Laurance Fuller for terms election of William P.
expiring in 2007. Noglows to the company's
board of directors for
FOR BOTH / / / / WITHHOLD the term expiring in 2006.
(EXCEPT AS MARKED AUTHORITY
TO THE CONTRARY) FOR BOTH 3. Ratification of the / / / / / /
selection of
/ / __________________________________ PricewaterhouseCoopers LLP
INSTRUCTION: TO WITHHOLD AUTHORITY as the company's independent
TO VOTE FOR EITHER NOMINEE, MARK auditors for fiscal 2004.
THE BOX ABOVE AND WRITE THAT NOMINEE'S
NAME IN THE SPACE PROVIDED ABOVE. 4. Approval of Second / / / / / /
Amended and Restated
2000 Equity Incentive
Plan.
The persons named in this proxy also may vote, in
their discretion, upon such other matters as may
properly come before the meeting or any postponement
or adjournment thereof.
MARK HERE FOR ADDRESS CHANGE AND NOTE AT LEFT / /
PLEASE COMPLETE, SIGN, AND MAIL THIS PROXY PROMPTLY
IN THE ENCLOSED ENVELOPE. NO POSTAGE IS REQUIRED FOR
MAILING IN THE UNITED STATES.
IMPORTANT: Please date this proxy and sign exactly
as your name appears on this proxy. If shares are
held by joint tenants, both must sign. When signing
as attorney, executor, administrator, trustee or
guardian, please give title as such. If a
corporation, please sign in full corporate name by
president, or authorized officer. If a partnership,
please sign in partnership name by authorized
person.
Signature: ___________________________________ Date: ___________ Signature: __________________________________ Date: ___________