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
CABOT MICROELECTRONICS CORPORATION
870 NORTH COMMONS DRIVE
AURORA, ILLINOIS 60504
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
To be held March 6, 2007
To our Stockholders:
We are notifying you that the Annual Meeting of Stockholders of Cabot
Microelectronics Corporation will be held on Tuesday, March 6, 2007 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 selection of PricewaterhouseCoopers LLP, an independent
registered public accounting firm, as our independent auditors for fiscal year
2007; and
3. To transact other business properly coming before the meeting.
Each of these matters is described in further detail in the enclosed proxy
statement. We also have enclosed a copy of our 2006 Annual Report. Only
stockholders of record at the close of business on January 16, 2007 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can be withdrawn by you at any time before it is voted.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 23, 2007
TABLE OF CONTENTS
About the Meeting........................................................ 1
What is the purpose of the annual meeting?........................ 1
What are our 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........... 6
Election of Directors.................................................... 6
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..................................... 12
Executive Compensation................................................... 13
Summary of Cash and Certain Other Compensation.................... 13
Option Grants..................................................... 16
Option Exercises and Fiscal Year-End Values....................... 18
Executive Officer Deposit Share Plan.............................. 18
Employment, Termination of Employment, and Change in Control
Agreements..................................................... 18
Standard Employee Benefits........................................ 20
CEO Compensation Summary Table.................................... 21
Report of the Compensation Committee on Executive Compensation........... 23
Certain Relationships and Related Transactions........................... 28
Performance Graph........................................................ 29
2008 Annual Meeting of Stockholders...................................... 30
"Householding" of Proxy Materials........................................ 30
Voting Through the Internet or by Telephone.............................. 30
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 6, 2007 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
23, 2007.
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 and
the ratification of the selection of our independent auditors. In addition, our
management will report generally on the fiscal year ended September 30, 2006 and
respond to questions from stockholders.
What are our 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" and
"FOR" the ratification of the selection of our independent auditors.
Who is entitled to vote?
Only stockholders of record at the close of business on the record date,
January 16, 2007, 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 23,907,594 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 our stock records maintained by our stock transfer agent,
Computershare Trust Company, N.A., P.O. Box 43078, Providence, Rhode Island
02940-3078), by telephone or through the Internet. If
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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;" and
- the ratification of the selection of our independent auditors.
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 our Secretary 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?
Our bylaws provide that 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. However, our Corporate Governance Guidelines, which are available
through our website, www.cabotcmp.com, provide that in an uncontested election,
any nominee for director who receives a greater number of votes "withheld" from
his or her election than votes "for" such election (a "Majority Withheld Vote")
shall promptly tender his or her resignation following certification of the
shareholder vote for such election. In this situation, our nominating and
corporate governance committee then shall consider the resignation offer and
recommend to our board of directors whether to accept it. The board of directors
then will act on the nominating and corporate governance committee's
recommendation within ninety (90) days following certification of the
shareholder vote for such election. Thereafter, the board of directors will
promptly disclose its decision whether to accept the director's resignation
offer (and the reasons for rejecting the resignation offer, if applicable), in a
press release to be disseminated in the manner that we typically distribute
press releases. The ratification of the selection of our independent auditors
requires 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, we have hired the firm of D. F. King & Co., Inc. to assist in the
solicitation of proxies at an estimated cost of approximately $8,000. We 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 16, 2007 (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:
1. Legg Mason, Inc. ................................. 2,529,993(2) 10.6%
100 Light Street
Baltimore, Maryland 21202
2. Snyder Capital Management LP...................... 2,338,457(3) 9.8%
350 California St., Suite 1460
San Francisco, California 94104-1436
3. Royce & Associates, LLC........................... 2,189,500(4) 9.2%
1414 Ave. of the Americas
New York, New York 10019
4. Kornitzer Capital Management Inc. ................ 1,744,777(5) 7.3%
5420 W. 61st Place
Shawnee Mission, Kansas 66295
DIRECTORS AND EXECUTIVE OFFICERS:
William P. Noglows................................... 455,329(6) 1.9%
Robert J. Birgeneau.................................. 18,750(6) *
John P. Frazee, Jr. ................................. 57,889(6) *
H. Laurance Fuller................................... 61,800(6) *
Edward J. Mooney..................................... 22,020(6) *
Steven V. Wilkinson.................................. 58,161(6) *
Albert Y. C. Yu...................................... 18,750(6) *
William S. Johnson................................... 154,219(6) *
H. Carol Bernstein................................... 253,700(6) 1.1%
Clifford L. Spiro.................................... 121,498(6) *
Adam F. Weisman...................................... 77,209(6) *
All directors and executive officers as a group (16
persons)........................................... 1,923,139(7) 8.0%
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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
of
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common stock subject to options, warrants or rights that are currently
exercisable or exercisable within 60 days of January 16, 2007 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 23,907,594 shares of our common stock
outstanding as of January 16, 2007.
(2) Of the shares reported as beneficially owned, Legg Mason, Inc. exercises
(a) sole power to vote 2,238,620 shares, (b) shared power to vote 0
shares, (c) no power to vote 291,373 shares, (d) sole investment power
over 0 shares, and (e) shared investment power over 2,529,993 shares.
This information is based on information reported in the Schedule 13F
Holdings Report filed by Legg Mason, Inc. on November 21, 2006. Based
solely on information reported in such Schedule 13F filed by Legg Mason,
Inc., the shares reported as beneficially owned by Legg Mason, Inc. are
also partially beneficially owned by Clearbridge Advisors, LLC, Smith
Barney Fund Management, LLC, Berkshire Asset Management, Inc. and Legg
Mason Investment Counsel & Trust Company, NA.
(3) Of the shares reported as beneficially owned, Snyder Capital Management
LP exercises (a) sole power to vote 44,900 shares, (b) shared power to
vote 2,126,302 shares, and (c) no power to vote 167,255 shares. The
total number of shares reported as beneficially owned is 2,338,457. The
number of shares indicated is based on information reported in the
Schedule 13F Holdings Report filed by Snyder Capital Management on
November 13, 2006.
(4) Of the shares reported as beneficially owned, Royce & Associates, LLC
exercises (a) sole power to vote 2,189,500 shares, (b) shared power to
vote 0 shares, (c) sole investment power over 2,189,500 shares and (d)
shared investment power over 0 shares. The number of shares indicated
is based on information reported in Schedule 13G filed by Royce &
Associates, LLC on January 18, 2007.
(5) Of the shares reported as beneficially owned, Kornitzer Capital
Management, Inc. exercises (a) sole power to vote 1,744,777 shares, (b)
shared power to vote 0 shares, and (c) no power to vote 0 shares. The
total number of shares reported as beneficially owned is 1,744,777. The
number of shares indicated is based on information reported in the
Schedule 13F Holdings Report filed by Kornitzer Capital Management, Inc.
on November 13, 2006.
(6) Includes shares of our common stock that such person has the right to
acquire pursuant to stock options exercisable within 60 days of January
16, 2007, as follows:
UPON EXERCISE
NAME SHARES ISSUABLE
---- ---------------
Mr. Noglows................................................. 406,250
Mr. Birgeneau............................................... 18,750
Mr. Frazee.................................................. 40,000
Mr. Fuller.................................................. 47,500
Mr. Mooney.................................................. 18,750
Mr. Wilkinson............................................... 40,000
Dr. Yu...................................................... 18,750
Mr. Johnson................................................. 139,000
Ms. Bernstein............................................... 242,500
Dr. Spiro................................................... 101,500
Mr. Weisman................................................. 65,000
Also includes restricted shares of common stock awarded to such
executive officer pursuant to the Second Amended and Restated Cabot
Microelectronics Corporation 2000 Equity Incentive Plan, as amended and
restated September 26, 2006 ("2000 Equity Incentive Plan"), on December
1, 2006, as set forth in the table below. On December 1, 2006, as part
of our annual equity incentive award program, we awarded restricted
shares to our executive officers with restrictions that lapse in equal
increments upon each anniversary over four years. The outstanding
restricted stock awards are eligible to receive dividends and have
voting rights. Prior to these awards on December 1, 2006, our
compensation committee had awarded only non-qualified stock option
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grants pursuant to our annual grant program. As permitted by the 2000
Equity Incentive Plan, on December 1, 2006, our compensation committee
decided to award a blend of non-qualified stock option grants and
restricted stock awards (restricted stock units for our non-United
States employees) to all employees who were receiving awards on December
1, 2006, including the named executive officers and other executive
officers, according to approximately a three-to-one ratio of non-
qualified stock options granted to shares of restricted stock awarded.
Our compensation committee made this decision primarily to address
certain issues arising pursuant to a new accounting standard requiring
the expensing of equity-based compensation issued by the Financial
Accounting Standards Board that became applicable to us as of October 1,
2005, as well as to provide a more competitive balance of the types of
equity incentives being awarded to our employees pursuant to the 2000
Equity Incentive Plan.
ANNUAL EQUITY INCENTIVE
NAME PROGRAM RESTRICTED SHARES
---- -------------------------
Mr. Noglows........................................... 19,200
Mr. Johnson........................................... 8,700
Ms. Bernstein......................................... 8,700
Dr. Spiro............................................. 9,500
Mr. Weisman........................................... 9,500
Also includes both restricted shares of common stock that such executive
officer has purchased at fair market value as "deposit shares" and for
which the executive officer has been awarded a matching grant of "award
shares", pursuant to our Executive Officer Deposit Share Plan, as set
forth in the table below. Under this plan, our executive officers are
entitled to voluntarily use all or a portion of their after-tax bonus
compensation to purchase at fair market value shares of restricted stock
awarded under the 2000 Equity Incentive Plan. These shares are retained
on deposit with us 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 us through such date, the
restrictions on the award shares will lapse. Such executive officer has
dividend and voting rights with respect to the restricted shares.
DEPOSIT SHARE PROGRAM
NAME RESTRICTED SHARES
---- ---------------------
Mr. Noglows............................................. 7,454
Mr. Johnson............................................. 2,253
Ms. Bernstein........................................... 727
Dr. Spiro............................................... 8,225
Mr. Weisman............................................. 685
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 16, 2007, as follows:
NAME PHANTOM SHARES
---- --------------
Mr. Birgeneau*.............................................. --
Mr. Frazee.................................................. 7,888
Mr. Fuller.................................................. 7,300
Mr. Mooney.................................................. 3,270
Mr. Wilkinson............................................... 8,801
Dr. Yu*..................................................... --
* Mr. Birgeneau and Dr. Yu do not currently participate in the
Directors' Deferred Compensation Plan.
(7) Includes 1,699,438 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 16, 2007, 100,937 restricted
shares of our common stock held by our executive officers still subject
to restrictions as of January 16, 2007, and 27,259
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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 16, 2007.
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
present executive officers have complied with all Section 16(a) filing
requirements for fiscal year 2006.
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 2008; and Class III, whose
terms will expire at the annual meeting of stockholders to be held in 2009.
Messrs. Fuller and Mooney are currently in Class I, Messrs. Birgeneau and
Wilkinson are currently in Class II, and Messrs. Frazee, Noglows and Yu are
currently in Class III.
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 in the size of our 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 2010.
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 nominees and may be voted for any substitute nominee. Our board of
directors has no reason to believe that any of the nominees 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 2010:
H. Laurance Fuller, 68, was elected a director of our company in June 2002.
He also 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.
Edward J. Mooney, 65, was elected a director of our company in March 2005.
He also serves on the boards of directors of FMC Corporation, FMC Technologies,
Inc., the Northern Trust Corporation and PolyOne Corporation. Mr. Mooney was the
Delegue General-North America, Suez Lyonnaise des Eaux from March 2000 until his
retirement in March 2001. From 1994 to 2000, he was Chairman and Chief Executive
Officer of Nalco Chemical Company, one of the world's largest providers of water
and chemical treatment technologies and services. Mr. Mooney received both a
B.S. in chemical engineering and a J.D. from the University of Texas.
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Directors whose terms continue until 2008:
Robert J. Birgeneau, 64, was elected a director of our company in March
2005. He has been the Chancellor of the University of California, Berkeley since
September 2004. He also holds a faculty appointment in the department of physics
there. From July 2000 until assuming his current position, Mr. Birgeneau served
as the President of the University of Toronto. Prior to that, Mr. Birgeneau was
the Dean of the School of Science at the Massachusetts Institute of Technology,
and previously had been the chair of the physics department of M.I.T. Mr.
Birgeneau received his B.S. in mathematics from the University of Toronto and
his Ph.D. in physics from Yale University.
Steven V. Wilkinson, 65, was elected a director of our company in April
2000. He is also a director of Entergy Corporation. Mr. Wilkinson has been
retired since 1998. Prior to retirement, he worked for Arthur Andersen LLP,
where he became a partner in 1974. Mr. Wilkinson received his B.A. in economics
from DePauw University and his M.B.A. from the University of Chicago.
Directors whose terms continue until 2009:
John P. Frazee, Jr., 62, 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 1997 to 2000, he served as Chairman
and Chief Executive Officer of Paging Network, Inc. Prior to that he served as
President and Chief Operating Officer of Sprint Corporation, and before that as
Chairman and Chief Executive Officer of Centel Corporation. Mr. Frazee received
his bachelor's degree in political science from Randolph-Macon College.
William P. Noglows, 48, has served as our Chairman, President and Chief
Executive Officer since November 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 of our business. 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.
Dr. Albert Y. C. Yu, 65, was elected as director of our company in March
2005. He also is a director of Preferred Bank, PDF Solutions, Inc., and
Semiconductor Manufacturing International Corporation. Dr. Yu is the Chairman of
OneAngstrom LLC, and prior to that he served as a Senior Vice President and
member of the corporate Management Committee of Intel Corporation, until his
retirement in 2002 following service with Intel for almost thirty years. Dr. Yu
received a B.S. in electrical engineering from the California Institute of
Technology, and a M.S. and Ph.D., also in electrical engineering, from Stanford
University.
RATIFICATION OF THE SELECTION OF INDEPENDENT AUDITORS
PricewaterhouseCoopers LLP, an independent registered public accounting
firm, audited our financial statements for fiscal year 2006, and has been
selected by the audit committee of our board of directors to audit our financial
statements for fiscal year 2007. A representative of PricewaterhouseCoopers LLP
is expected to attend our annual meeting, where he will have the opportunity to
make a statement, if he desires, 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 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 2006 and fiscal
year 2005, 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.
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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,
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 2006, our board of directors held eight meetings and took action by written
consent once. Each of our directors attended our annual meeting of stockholders
in fiscal year 2006. Each of our directors attended at least 75% of all the
meetings of the board and those committees on which he served during fiscal year
2006. Since fiscal year end, the board of directors has met once. Shareholders
and 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, including Messrs. Birgeneau, Frazee, Fuller, Mooney,
Wilkinson and Yu are, "independent" directors as defined in Rule 4200 of the
National Association of Securities Dealers Automated Quotation ("Nasdaq")
Marketplace Rules and as defined in applicable rules by the Securities and
Exchange Commission ("SEC"). In making its determinations of independence, in
addition to consideration of the relevant SEC and Nasdaq rules (according to
which the definition of "independent director" is set forth in our Corporate
Governance Guidelines, which are available on our website www.cabotcmp.com), the
board of directors considered factors for each director such as any other
directorships, any employment or consulting arrangements, and any relationship
with our company's customers or suppliers. With respect to Dr. Yu, the board
specifically considered the fact that Dr. Yu is a director of Semiconductor
Manufacturing International Corporation, a customer of our company through one
of our distributors. 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, currently Mr.
Frazee, 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. Shareholders and 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 2006, our
independent directors met in executive sessions four times. Since fiscal year
end, our independent directors have met in executive session once.
AUDIT COMMITTEE. The functions of the audit committee include selecting,
appointing, retaining, compensating and overseeing our independent 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, and reviewing the adequacy of our internal control
procedures, including the internal audit function. The members of the audit
committee are Messrs. Frazee, Fuller, and Wilkinson (Chairman), each of whom,
during fiscal year 2006 and currently:
- is an "independent" director as defined in Rule 4200(a)(15) of the Nasdaq
Marketplace Rules;
- meets the criteria for independence as required by applicable rules
adopted by the 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.
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, www.cabotcmp.com. The audit
committee reviews and reassesses the adequacy of the audit committee charter on
an annual basis. The audit committee has established procedures for the receipt,
retention, and treatment of complaints received regarding accounting, internal
accounting controls or auditing matters, as well as for the pre-approval of
services provided by our independent auditors, both of which are also available
on our website, www.cabotcmp.com. A current copy of the procedures for the pre-
approval of services provided by our independent auditors is attached to this
proxy statement
-8-
as Appendix B. As set forth in the audit committee charter, the audit committee
is also responsible for the review and approval of any related party transaction
in advance of the company's entering into any such transaction; since April
2002, we have not been engaged in any related party transactions and none have
been proposed to the audit committee for consideration. The audit committee met
eight times during fiscal year 2006 and has met twice since fiscal year end with
respect to the audit of our fiscal year 2006 financial statements and related
matters. In fulfillment of the audit committee's responsibilities for fiscal
year 2006, Mr. Wilkinson, the audit committee Chairman, reviewed our Annual
Report on Form 10-K for the fiscal year ended September 30, 2006 (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 Mr. Wilkinson and other members
of the committee also reviewed quarterly earnings announcements and related
matters 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,
monitoring the administration of our employee benefit plans, authorizing and
ratifying stock option grants, restricted stock awards 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. The members of the compensation committee are Messrs.
Birgeneau, Fuller (Chairman), Mooney, and Yu, each of whom was during fiscal
year 2006 and is now an "independent" director as defined in Rule 4200(a)(15) of
the Nasdaq Marketplace Rules and as defined in applicable rules adopted by the
SEC. Until March 2006, Mr. Frazee also was a member of the compensation
committee and met these criteria. The compensation committee operates under a
written charter that addresses compensation matters, a current copy of which is
available on our website, www.cabotcmp.com. The compensation committee reviews
and reassesses the adequacy of the compensation committee charter on an annual
basis. The compensation committee met four times and took action by written
consent twice during fiscal year 2006. The compensation committee has met three
times since the fiscal year end with respect to 2006 annual bonuses, salary
increases, stock option grants and restricted stock awards, 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. Frazee (Chairman), Fuller and Wilkinson, each
of whom was during fiscal year 2006 and is now an "independent" director as
defined in Rule 4200(a)(15) of the Nasdaq 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, www.cabotcmp.com. The nominating and corporate governance committee
reviews and reassesses the adequacy of the nominating and corporate governance
charter on an annual basis. The nominating and corporate governance committee
met six times during fiscal year 2006 and has met once 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 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.
-9-
In fiscal year 2006, we 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 our
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. All non-employee directors are eligible for the
following compensation:
DESCRIPTION OF DIRECTOR COMPENSATION AMOUNT
------------------------------------ ---------------
ANNUAL RETAINER FEE, as of the effective date of
appointment, and subsequently, at the time of our annual
meeting.................................................. $ 35,000
COMMITTEE AND BOARD MEETING FEES, for attendance at each
meeting of the board and committee of the board.......... $ 1,500
COMMITTEE CHAIR ANNUAL RETAINER FEES:
Audit Committee Chairperson.............................. $ 20,000
Compensation Committee Chairperson....................... $ 10,000
Nominating and Corporate Governance Chairperson.......... $ 10,000
ANNUAL NON-QUALIFIED STOCK OPTION GRANT, which vests over a
four year period, at the effective date of appointment,
and subsequently, at the time of our annual meeting...... 10,000 options
INITIAL NON-QUALIFIED STOCK OPTION GRANT, which vests over
a three year period, at the effective date of appointment
to the board............................................. 15,000 options
Non-employee directors are eligible to choose to receive compensation
either in cash, in fully vested restricted stock under our Second Amended and
Restated Cabot Microelectronics Corporation 2000 Equity Incentive Plan, as
amended and restated September 26, 2006 ("2000 Equity Incentive Plan"), or as
deferred compensation under our Directors' Deferred Compensation Plan, as
described below. Non-employee directors continue to receive their respective
annual retainer fees, committee chair annual retainer fees and annual non-
qualified stock option grants at the time of our annual meeting, or upon the
effective date of a director's original election to the board of directors, if
other than the annual meeting date. Non-employee directors also are eligible for
reimbursement of travel and other out-of-pocket costs incurred in attending
meetings. Non-employee directors are not eligible for any other compensation
arrangement.
Under our Directors' Cash Compensation Umbrella Program, which only applies
to non-employee directors and is filed as an exhibit to our Annual Report on
Form 10-K filed with the SEC on December 10, 2003, each non-employee director
may choose to receive his compensation either in cash, in fully vested
restricted stock under our 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, as amended September 26, 2006, which is filed as an exhibit
to our Annual Report on Form 10-K filed with the SEC on November 29, 2006. At
present, each of our non-employee directors, other than Dr. Yu and Mr.
Birgeneau, has elected to defer his compensation to future periods under the
Directors' Deferred Compensation Plan, which became effective in March 2001.
Under the plan, 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 and no later than the
date of termination. As of the date the compensation is earned, the fees are
converted into the right to acquire the equivalent number of shares of common
stock at the end
-10-
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 16, 2007, an aggregate of
approximately $992,790 of directors' compensation was deferred under the plan.
The American Jobs Creation Act, a law containing provisions affecting deferred
compensation plans, was enacted in 2004 with an effective date of January, 2005.
We believe we are currently operating in compliance with the new law and plan to
amend the Directors' Deferred Compensation Plan to the extent necessary to
comply with such law pursuant to, and according to the time frame established
by, relevant United States Department of the Treasury guidance.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
None of the current or former members of the compensation committee are or
have been our employees.
FEES OF INDEPENDENT AUDITORS AND AUDIT COMMITTEE REPORT
FEES BILLED BY INDEPENDENT AUDITORS
During fiscal years 2005 and 2006, the audit committee pre-approved 100% of
all audit and non-audit services provided by our independent auditors,
PricewaterhouseCoopers LLP, an independent registered public accounting firm.
For such pre-approval of services, the audit committee follows its policy for
the pre-approval of services provided by our independent auditors, a current
copy of which is attached to this proxy statement as Appendix B and also is
available on our web-site, www.cabotcmp.com. The following table presents fees
for audit services rendered by PricewaterhouseCoopers LLP for the audit of our
annual financial statements for the fiscal year ended September 30, 2006, and
September 30, 2005, and fees billed for other services rendered by
PricewaterhouseCoopers LLP during those periods.
FISCAL YEAR ENDED FISCAL YEAR ENDED
FEES SEPTEMBER 30, 2006($) SEPTEMBER 30, 2005($)
---- --------------------- ---------------------
Audit Fees(1).............................. 1,085,434 1,289,895
Audit-Related Fees(2)...................... 40,345 59,789
Tax Fees(3)................................ 243,978 293,107
All Other Fees(4).......................... 13,000 2,750
Total(5)................................. 1,382,757 1,645,541
--------
(1) Audit Fees include fees for professional services rendered by
PricewaterhouseCoopers LLP for the audit of our annual financial
statements and review of financial statements included in our Form 10-Q
and 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 generally
accepted auditing standards, 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 traditionally
performed by PricewaterhouseCoopers LLP that are reasonably related to
the performance of the audit or review of our financial statements and
not reported under the "Audit Fee" heading, 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. The above numbers for Audit-Related Fees for
fiscal year 2006 include the audit of our 401(k) Plan, and for fiscal
year 2005, for the audit of our 401(k) plan and other internal control
and attest services.
(3) Tax Fees include all services performed by professional staff in
PricewaterhouseCoopers LLP's and its foreign affiliates' tax divisions
except those services related to the audit, and include 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. For fiscal year 2006, $104,195 out of the total
$243,978 for Tax Fees was for tax compliance services.
-11-
(4) All Other Fees include fees related to financial information systems
implementation and design services. PricewaterhouseCoopers LLP did not
render any such services to us in fiscal year 2006 or any prior year. The
above numbers for All Other Fees for fiscal year 2006 are for access to
on-line accounting and human resources research software tools, and for
fiscal year 2005 are for access to on-line accounting research software
tools.
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 our accounting and system of internal
controls, the quality and integrity of our financial reports, and the
independence and the selection, appointment, retention, compensation and
oversight of the performance of our independent auditors. The audit committee is
composed of independent directors and 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, www.cabotcmp.com. The audit committee reviews and
reassesses the adequacy of the audit committee charter on an annual basis. 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.
Management is responsible for our internal controls and the financial
reporting process. The independent auditors are responsible for performing an
independent audit of our 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 2006 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 independent 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 independent 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 our Annual Report
on Form 10-K for the fiscal year ended September 30, 2006.
Respectfully submitted by the audit committee,
John P. Frazee, Jr.
H. Laurance Fuller
Steven V. Wilkinson, Chairman
-12-
EXECUTIVE COMPENSATION
SUMMARY OF CASH AND CERTAIN OTHER COMPENSATION
The following table sets forth certain compensation information for our
Chief Executive Officer and our four other executive officers who were the most
highly compensated for the fiscal year ended September 30, 2006 (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($) SATION($)(5) AWARD(S)($)(6) OPTIONS(#) SATION($)(11)
-----------------------------------------------------------------------------------------------------------------------------
William P. Noglows(1) 2006 515,000 367,400 14,603 12,490(7) 125,000(7) 43,081
President and 2005 487,500 275,000 18,501 49,974 250,000 47,616
Chief Executive
Officer 2004 412,500 425,000 318,765 -- 250,000(8) 27,314
-----------------------------------------------------------------------------------------------------------------------------
William S. Johnson 2006 317,500 150,700 353 12,490(7) 60,000(7) 28,320
Vice President and 2005 307,500 100,000 250 12,493 68,000 31,416
Chief Financial
Officer 2004 300,000 200,000 400 9,994 50,000 27,111
-----------------------------------------------------------------------------------------------------------------------------
H. Carol Bernstein 2006 287,500 136,600 8,503 --(7) 58,000(7) 26,574
Vice President,
Secretary 2005 270,000 90,000 8,400 3,470 63,000 30,887
and General Counsel 2004 237,500 185,000 8,350 4,973 60,000 24,863
-----------------------------------------------------------------------------------------------------------------------------
Clifford L. Spiro(2) 2006 276,250 145,100 403 33,374(7) 70,000(7) 26,927
Vice President,
Research 2005 239,792 100,000 300 49,974 68,000 28,477
and Development 2004 187,500 165,000 -- -- 50,000(9) 17,260
-----------------------------------------------------------------------------------------------------------------------------
Adam F. Weisman(3) 2006 282,500 134,200 103 --(7) 60,000(7) 25,977
Vice President,
Business 2005 273,750 100,000 -- -- 50,000 25,808
Operations 2004 94,091 100,000(4) -- -- 50,000(10) 12,253
-----------------------------------------------------------------------------------------------------------------------------
--------------
(1) Mr. Noglows joined us as our President and Chief Executive Officer
effective November 3, 2003. Mr. Noglows had previously served as one of
our outside directors from the time of our initial public offering in
April 2000 through April 2002, after first having been appointed a
director in December 1999.
(2) Dr. Spiro joined us as our Vice President of Research and Development on
December 1, 2003.
(3) Mr. Weisman joined us as our Vice President, Operations on May 26, 2004,
and became our Vice President, Business Operations in September 2006.
(4) This figure includes a sign-on bonus paid to Mr. Weisman in fiscal year
2004 of $40,000.
(5) These figures reflect (i) airline club membership fees for fiscal year
2004 in the amount of $300 for Mr. Noglows, $400 for Mr. Johnson and
$350 for Ms. Bernstein, for fiscal year 2005 in the amount of $250 for
each Mr. Noglows and Mr. Johnson, $400 for Ms. Bernstein, and $300 for
Dr. Spiro, and for fiscal year 2006 in the amount of $300 for Mr.
Noglows, $250 for Mr. Johnson, $400 for Ms. Bernstein, and $300 for Dr.
Spiro; (ii) transportation allowances in the amount of $8,000 paid
annually to Ms. Bernstein for fiscal years 2004, 2005 and 2006; (iii)
reimbursement of relocation expenses in accordance with our standard
relocation reimbursement policy in the amount of $272,276, and an
additional $34,150 of tax assistance for taxes assessed on the amount of
such relocation expense, as per the terms of Mr. Noglows' employment
agreement attributable to fiscal year 2004; (iv) attorneys' fees in the
amount of $2,564 paid on behalf of Mr. Noglows in fiscal year 2004 in
connection with the negotiation of his employment agreement, as provided
in such agreement; (v) business eating club membership for Mr. Noglows,
including an initiation fee of $8,500 in fiscal year 2004 and membership
fees for fiscal years 2004, 2005 and 2006 in the amounts of $975,
$4,130, and $4,200, respectively; (vi) payment of $4,635 for an amount
of FICA taxes that we inadvertently overwithheld
-13-
from Mr. Noglows in fiscal year 2004 (calendar year 2003), and of
interest of $321 assessed by the IRS; (vii) the payment of financial
planning fees on behalf of Mr. Noglows in the amount of $9,165 and
$10,000 in fiscal year 2005 and 2006, respectively, as per the terms of
his employment agreement; and (viii) the payment of $103 to each Messrs.
Noglows, Johnson, Spiro and Weisman and Ms. Bernstein, in fiscal year
2006 in the same manner and amount as made to all other of our United
States employees related to the demutualization of shares from an
insurance company that had provided basic life and accidental death and
dismemberment insurance to them on behalf of our company.
(6) These amounts in the column headed "Restricted Stock Award(s)"
correspond to matching grants of "award shares" of restricted stock made
pursuant to our Executive Officer Deposit Share Plan, which is described
in more detail below. Under this plan, our executive officers are
entitled to voluntarily use all or a portion of their after-tax bonus
compensation to purchase at fair market value shares of restricted stock
awarded under the 2000 Equity Incentive Plan. These shares are retained
on deposit with us 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 us through such date, the
restrictions on the award shares will lapse.
"Restricted Stock Award(s)" includes award shares but does not include
deposit shares as these amounts were purchased by the participant after-
tax from amounts that were already disclosed in the "Bonus" column.
Specifically included in "Restricted Stock Award(s)" are:
(i) 427 award shares granted to Mr. Noglows on December 21, 2005 worth
$12,490 (based upon the closing price of our common stock as of
December 21, 2005 of $29.25 per share), that are scheduled to vest
December 21, 2008, and 1,296 award shares granted to Mr. Noglows on
December 22, 2004 worth $49,974 (based upon the closing price of our
common stock as of December 22, 2004 of $38.56 per share), that are
scheduled to vest December 22, 2007;
(ii) 427 award shares granted to Mr. Johnson on December 21, 2005 worth
$12,490 (based upon the closing price of our common stock as of
December 21, 2005 of $29.25 per share), that are scheduled to vest
December 21, 2008, 324 award shares granted to Mr. Johnson on
December 22, 2004 worth $12,493 (based upon the closing price of
our common stock as of December 22, 2004 of $38.56 per share), that
are scheduled to vest December 22, 2007 and 205 award shares
granted to Mr. Johnson on December 26, 2003 worth $9,994 (based
upon the closing price of our common stock as of December 26, 2003
of $48.75 per share), that vested December 26, 2006;
(iii) 90 award shares granted to Ms. Bernstein on December 22, 2004
worth $3,470 (based upon the closing price of our common stock as
of December 22, 2004 of $38.56 per share), that are scheduled to
vest December 22, 2007, and 102 award shares granted to Ms.
Bernstein on December 26, 2003 worth $4,973 (based upon the
closing price of our common stock as of December 26, 2003 of
$48.75 per share), that vested December 26, 2006; and
(iv) 1,141 award shares granted to Dr. Spiro on December 21, 2005 worth
$33,374 (based upon the closing price of our common stock as of
December 21, 2005 of $29.25 per share), that are scheduled to vest
December 21, 2008, and 1,296 award shares granted to Dr. Spiro on
December 22, 2004 worth $49,974 (based upon the closing price of
our common stock as of December 22, 2004 of $38.56 per share), that
are scheduled to vest December 22, 2007.
The aggregate restricted stock holdings for the named executive officers
still subject to restrictions as of the end of fiscal 2006 consisted of
5,308 shares worth $152,977 (based upon the closing price of our common
stock as of September 30, 2006 of $28.82). The outstanding restricted
stock awards are eligible to receive dividends and have voting rights.
These amounts do not include award share grants made pursuant to our
Executive Officer Deposit Share Plan to certain of our named executive
officers after the end of fiscal year 2006. On December 13, 2006, Mr.
Noglows, Ms. Bernstein, Dr. Spiro and Mr. Weisman participated in the
Deposit Share Plan receiving 761, 152, 304 and 228 respective award
shares on deposit under the plan. The restrictions on these award shares
will lapse on December 13, 2009 if the participant is employed by us at
that time and the corresponding deposit shares have remained on deposit
with us through such date.
-14-
(7) These amounts in the column headed "Restricted Stock Award(s)" do not
include restricted shares awarded to our named executive officers after
the end of fiscal year 2006. On December 1, 2006, as part of our annual
equity incentive award program, we awarded restricted shares to our
named executive officers with a fair market value based on the closing
price of our stock on the award date of $31.57 per share that lapse in
equal increments upon each anniversary over four years, in the amounts
set forth in the table below:
RESTRICTED
STOCK
NAME AWARDS (#)
---- ----------
Mr. Noglows.................................................... 19,200
Mr. Johnson.................................................... 8,700
Ms. Bernstein.................................................. 8,700
Dr. Spiro...................................................... 9,500
Mr. Weisman.................................................... 9,500
These amounts in the column headed "Securities Underlying Options" do
not include options granted to our named executive officers after the
end of fiscal year 2006. On December 1, 2006, as part of our annual
equity incentive award program, we granted options to our named
executive officers that have an exercise price of $31.57, vest in equal
increments upon each anniversary over four years and expire December 1,
2016, in the amounts set forth in the table below:
SECURITIES
UNDERLYING
NAME OPTIONS (#)
---- -----------
Mr. Noglows................................................... 57,500
Mr. Johnson................................................... 26,000
Ms. Bernstein................................................. 26,000
Dr. Spiro..................................................... 28,500
Mr. Weisman................................................... 28,500
Prior to these fiscal year 2007 awards and grants on December 1, 2006
made as part of our annual equity incentive award program, our
compensation committee had awarded only non-qualified stock option
grants pursuant to our annual grant program. As permitted by the 2000
Equity Incentive Plan, on December 1, 2006, our compensation committee
decided to award a blend of non-qualified stock option grants and
restricted stock awards (restricted stock units for our non-United
States employees) to all employees who were receiving awards on December
1, 2006, including the named executive officers and other executive
officers, according to approximately a three-to-one ratio of non-
qualified stock options granted to restricted stock awarded. Our
compensation committee made this decision primarily to address the
financial impact of the expensing of equity-based compensation now
required pursuant to a new accounting standard issued by the Financial
Accounting Standards Board that became applicable to us as of October 1,
2005, as well as to more competitively balance the types of equity
incentives being awarded to our employees pursuant to the 2000 Equity
Incentive Plan.
(8) These amounts include options to acquire 250,000 shares granted to Mr.
Noglows on November 3, 2003 as part of his employment agreement to join
our company. These options were granted with an exercise price of
$55.37, vesting in equal increments upon each anniversary over four
years, a term of ten years and an expiration of November 3, 2013. As
described in greater detail below, to address certain new accounting
rules, on September 27, 2004, the compensation committee accelerated the
vesting to September 1, 2005 of all options granted previously to all
employees, including executive officers and directors, with an option
price greater than $34.65, which action accelerated the vesting to
September 1, 2005 of 187,500 options of this grant to Mr. Noglows.
(9) These amounts include options to acquire 50,000 shares granted to Dr.
Spiro on December 1, 2003 as part of his employment offer to join our
company. These options were granted with an exercise price of $54.28,
vesting in equal increments upon each anniversary over four years, a
term of ten years and an expiration of December 1, 2013. As described in
greater detail below, to address certain new accounting rules, on
-15-
September 27, 2004, the compensation committee accelerated the vesting
to September 1, 2005 of all options granted previously to all employees,
including executive officers and directors, with an option price greater
than $34.65, which action accelerated the vesting to September 1, 2005
of 37,500 options of this grant to Dr. Spiro.
(10) These amounts include options to acquire 50,000 shares granted to Mr.
Weisman on May 26, 2004 as part of his employment offer to join our
company. These options were granted with an exercise price of $30.10,
vesting in equal increments upon each anniversary over four years, a
term of ten years and an expiration of May 26, 2014.
(11) The information in the column headed "All Other Compensation" includes
contributions (both "matching" and "safe-harbor") made by us to our tax-
qualified savings plan (the "401(k) Plan") and accruals under our non-
qualified supplemental savings plan (the "Supplemental Plan") according
to the standard terms of each of these plans as apply to all of our
employees. For the 401(k) Plan, this means that we contribute the
equivalent of 4% of each employee's eligible compensation (up to the
I.R.S. eligible compensation limit) to the plan on the employee's
behalf, regardless of whether the employee makes a contribution to the
plan ("'safe-harbor' contribution"). In addition, we make a matching
contribution on the employee's behalf of 100% of the first 4%, and 50%
of the next 2%, that the employee contributes to the 401(k) Plan
("matching contribution"). With respect to the Supplemental Plan, which
applies to all employees at such time as they reach the I.R.S. eligible
compensation limit, employees are presently not able to make
contributions to the plan, but we continue to make the "safe harbor"
contribution of the equivalent of 4% of each employee's eligible
compensation (over the I.R.S. eligible compensation limit) to the
Supplemental Plan on the employee's behalf. For fiscal year 2006,
contributions as such to the 401(k) Plan and the Supplemental Plan on
behalf of the named executive officers were made in the following
amounts:
NAME 401(K) PLAN SUPPLEMENTAL PLAN
---- ----------- -----------------
Mr. Noglows........................................ $19,661 $22,804
Mr. Johnson........................................ $19,800 $ 7,904
Ms. Bernstein...................................... $19,584 $ 6,400
Dr. Spiro.......................................... $20,394 $ 5,967
Mr. Weisman........................................ $19,397 $ 6,000
In fiscal year 2006, 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. Noglows, $616; Mr. Johnson, $616; Ms.
Bernstein, $590; Dr. Spiro, $567; Mr. Weisman, $580) is also reflected
in the column headed "All Other Compensation" for fiscal year 2006.
OPTION GRANTS
The following table sets forth the number of shares of our common stock
underlying the options granted to the named executive officers during the fiscal
year ended September 30, 2006.
OPTION GRANTS IN LAST FISCAL YEAR
NUMBER PERCENT OF
OF SHARES TOTAL OPTIONS EXERCISE
UNDERLYING GRANTED TO PRICE GRANT DATE
OPTIONS EMPLOYEES IN PER EXPIRATION PRESENT
NAME GRANTED(2)(3) FISCAL YEAR SHARE ($) DATE VALUE ($)(1)
---- ------------- ------------- --------- ---------- ------------
William P. Noglows 125,000 12.7% $30.51 12/9/2015 2,223,563
William S. Johnson 60,000 6.1% $30.51 12/9/2015 1,067,310
H. Carol Bernstein 58,000 5.9% $30.51 12/9/2015 1,031,733
Clifford L. Spiro 70,000 7.1% $30.51 12/9/2015 1,245,195
Adam F. Weisman 60,000 6.1% $30.51 12/6/2015 1,067,310
-16-
--------------
(1) These values were estimated using the Black-Scholes option pricing
formula on the basis of the following assumptions: expected volatility:
56%; risk free rate of return: 4.5%; annualized dividend yield: 0.0%; and
expected time until exercise: 6.25 years.
(2) These options were granted with a term of ten years, an expiration of
December 9, 2015 and vesting in equal amounts annually over a four-year
period, with the first quarter having vested on December 9, 2006.
(3) This table does not include options granted to certain of our named
executive officers after the end of fiscal year 2006. For fiscal year
2007 as part of our annual equity incentive award program, on December 1,
2006, we granted 57,500 options to Mr. Noglows, 26,000 options to each of
Mr. Johnson and Ms. Bernstein, and 28,500 options to each of Dr. Spiro
and Mr. Weisman. These options have an exercise price of $31.57, vest in
equal increments upon each anniversary over four years, and have a term
of ten years, expiring December 1, 2016. As with all other grants of
stock options and awards of restricted stock to our named executive
officers and other executive officers, other than the number of options
or restricted stock awarded, the terms and conditions of these stock
option grants are the same as those made to all other employees. This
includes a provision that if a participant retires (defined as the
voluntary termination of employment, where no circumstances for
termination for cause exist, upon the participant's achievement of at
least 55 years of age and five years of service), then the participant
may retain any option previously vested throughout the term of such
option; as with our other option grants, any options that have not yet
vested as of termination are forfeited.
Prior to these option grants on December 1, 2006 made as part of our
annual equity incentive award program, our compensation committee had
awarded only non-qualified stock option grants pursuant to our annual
grant program. As permitted by the 2000 Equity Incentive Plan, on
December 1, 2006, our compensation committee decided to award a blend of
non-qualified stock option grants and restricted stock awards (restricted
stock units for our non-United States employees) to all employees who
were receiving awards on December 1, 2006, including the named executive
officers and other executive officers, according to approximately a
three-to-one ratio of non-qualified stock options granted to restricted
stock awarded. Our compensation committee made this decision primarily to
address the financial impact of the expensing of equity-based
compensation now required pursuant to a new accounting standard issued by
the Financial Accounting Standards Board that became applicable to us as
of October 1, 2005, as well as to more competitively balance the types of
equity incentives being awarded to our employees pursuant to the 2000
Equity Incentive Plan. On December 1, 2006, we awarded 19,200 restricted
shares to Mr. Noglows, 8,700 restricted shares to each of Mr. Johnson and
Ms. Bernstein, and 9,500 restricted shares to each of Dr. Spiro and Mr.
Weisman. These restricted shares have a fair market value based on the
closing price of our stock on the award date of $31.57 per share, and
lapse in equal increments upon each anniversary over four years.
To address certain issues arising pursuant to the new accounting standard
issued (at the time proposed) by the Financial Accounting Standards Board
referenced above and as permitted by the 2000 Equity Incentive Plan, on
September 27, 2004, the company with the approval of the compensation committee,
accelerated to September 1, 2005 the vesting of those stock options granted to
all employees, officers and directors under the 2000 Equity Incentive Plan prior
to September 27, 2004 that have an option price equal to or greater than the
fair market value of our shares on September 27, 2004 ($34.65), through
amendment made and effective as of September 27, 2004 to the grant agreements
for such stock options. Approximately 1.3 million options with varying remaining
vesting schedules of fewer than three years as of September 1, 2005 were subject
to the acceleration provision and became exercisable as of such date as a
result, including for the named executive officers as set forth below:
NUMBER OF ACCELERATED
NAME OPTIONS(#)
---- ---------------------
Mr. Noglows............................................. 187,500
Mr. Johnson............................................. 37,500
Ms. Bernstein........................................... 79,250
Dr. Spiro............................................... 50,000
Mr. Weisman............................................. --
-17-
OPTION EXERCISES AND FISCAL YEAR-END VALUES
The following table sets forth information with respect to option exercises
in the last fiscal year, the number of unexercised stock options held by the
named executive officers on September 30, 2006, and the value of the unexercised
in-the-money stock options on that date.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND
FISCAL YEAR-END OPTION VALUES
------------------------------------------------------------------------------------------------------------------
Number of Securities
Underlying Unexercised Value of Unexercised
Options in-the-Money Options at
At Fiscal Year End (#) Fiscal Year-End ($) (1)
------------------------------------------------------------
SHARES ACQUIRED
UPON VALUE
NAME EXERCISES (#) REALIZED ($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
------------------------------------------------------------------------------------------------------------------
William P. Noglows -- -- 312,500 312,500 -- --
------------------------------------------------------------------------------------------------------------------
William S. Johnson -- -- 107,000 111,000 -- --
------------------------------------------------------------------------------------------------------------------
H. Carol Bernstein -- -- 212,250 105,250 -- --
------------------------------------------------------------------------------------------------------------------
Clifford L. Spiro -- -- 67,000 121,000 -- --
------------------------------------------------------------------------------------------------------------------
Adam F. Weisman -- -- 37,500 122,500 -- --
------------------------------------------------------------------------------------------------------------------
--------------
(1) As of September 30, 2006, which was the end of fiscal year 2006, none of
the options held by our named executive officers (or other executive
officers) were in-the-money, based on the fair market value of a share of
our common stock on such date ($28.82).
EXECUTIVE OFFICER DEPOSIT SHARE PLAN
Our executive officers are eligible to participate in the Executive Officer
Deposit Share Plan that our board of directors adopted in March 2000. Under this
plan, our executive officers are entitled to use all or a portion of their
after-tax bonus compensation to purchase at fair market value shares of
restricted stock awarded under the 2000 Equity Incentive Plan. These shares are
retained on deposit with us 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 us on the third anniversary of the deposit
date and the deposit shares have remained on deposit with us through such date,
the restrictions on the award shares will lapse. Ten individuals currently
participate in the deposit share plan, and 23,520 shares (including award
shares) are currently on deposit under that plan for all executive officers. Of
the named executive officers, Mr. Noglows, Mr. Johnson, Ms. Bernstein, Dr. Spiro
and Mr. Weisman participate with (i) 4,970, (ii) 1,502, (iii) 485, (iv) 5,484
and (v) 457 respective deposit shares and (i) 2,484, (ii) 751, (iii) 242, (iv)
2,741 and (v) 228 respective award shares on deposit under the plan. These
amounts do not include the 922 shares (including award shares) no longer under
deposit or subject to restrictions as of December 26, 2006, of which Mr. Johnson
and Ms. Bernstein respectively had (i) 410 and (ii) 205 respective deposit
shares and (i) 205 and (ii) 102 respective award shares.
EMPLOYMENT, TERMINATION OF EMPLOYMENT, AND CHANGE IN CONTROL AGREEMENTS
On November 2, 2003, we entered into an employment agreement with Mr.
Noglows to become our Chairman, President and Chief Executive Officer. This
employment agreement is available as Exhibit 10.38 to our Form 10-Q filed on
February 12, 2004. Pursuant to this employment agreement, among other terms, we
agreed to pay Mr. Noglows an annual base salary of $450,000 and a cash bonus for
fiscal year 2004 that would 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 with an exercise price of $55.37, vesting in
four equal annual installments on each subsequent anniversary of November 3,
2003, and an expiration of November 3, 2013 (As described in greater detail
above, to address certain new accounting rules, on September 27, 2004, the
compensation committee accelerated the vesting to September 1, 2005 of all
options granted previously to all employees, including executive
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officers and directors, with an option price of greater than $34.65, which
action accelerated the vesting to September 1, 2005 of 187,500 of the options
subject to this grant to Mr. Noglows). We also agreed to provide Mr. Noglows
with certain relocation and other reimbursements, to allow Mr. Noglows to
utilize first-class air travel while he is employed by us, and if we terminate
his employment without cause or Mr. Noglows terminates his employment because we
breached the terms of this agreement, to pay Mr. Noglows one year's base salary
over the one year period following such termination and to allow any options
that would vest during such period to vest during such time. Aside from the
requirements set forth in the employment agreement, there are no other material
conditions to receipt by Mr. Noglows of these termination benefits, although Mr.
Noglows still would be subject to the terms of our standard confidentiality,
intellectual property and non-competition agreement, which he entered into when
he joined our company, and of the relevant stock option grant agreements. The
amount and terms of this severance arrangement was determined by our
compensation committee, in consultation with its compensation consultant, and
included consideration of market practices for similar arrangements for other
chief executive officers of comparable companies. Assuming on September 30, 2006
we terminated Mr. Noglows' employment without cause or Mr. Noglows terminated
his agreement because we breached its terms, the estimated value of Mr. Noglows'
severance pursuant to his employment agreement package would be $520,000, which
is his annual base salary; on September 30, 2006, the closing price of our stock
was $28.82, which was below the exercise price of all of Mr. Noglows' options
that were scheduled to vest during the following twelve months.
In addition to our agreement with Mr. Noglows, we have 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
over the one year period following such termination if we terminate his
employment without cause. This employment agreement is available as Exhibit
10.39 to our Form 10-Q filed February 12, 2004. The amount and terms of this
severance arrangement was determined by our compensation committee, in
consultation with its compensation consultant, and included consideration of
market practices for similar arrangements for other similarly-situated
individuals. Aside from the requirements set forth in his employment agreement,
there are no other material conditions to receipt by Dr. Spiro of the one year's
base salary, although Dr. Spiro still would be subject to the terms of our
standard confidentiality, intellectual property and non-competition agreement,
which he entered into when he joined our company. Assuming on September 30, 2006
we terminated Dr. Spiro's employment without cause, the estimated value of Dr.
Spiro's severance would be $280,000. We have not entered into any employment or
termination of employment agreements with any of our other named executive
officers or other executive officers, with the exception of a standard
employment agreement as prescribed by French law for our one executive officer
in France.
We have entered into Change in Control Severance Protection Agreements
("change in control agreements") with each of the named executive officers, our
other executive officers, and certain key employees of our company, because we
believe such agreements are valuable aspects in enabling a smooth transition and
providing continuity of management in the event of a change in control of our
company. The form of change in control agreements is available as Exhibit 10.23
to our Form 10-K filed on December 28, 2000. Under the change in control
agreements, each executive officer, including the named executive officers,
whose employment with us terminates (including an executive's voluntary
termination of employment for either "good reason", as defined in the agreement,
or during the thirty-day period commencing on the first anniversary of a "change
in control"), other than for cause, disability, death, or certain other
specified reasons, within two years (in the case of Mr. Johnson, Ms. Bernstein,
Dr. Spiro and Mr. Weisman) 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 compensation including: base salary, reimbursement for
reasonable and necessary expenses incurred by the executive on our behalf
through the date of termination, vacation pay and bonuses and incentive
compensation;
- a pro-rated bonus (based on the target bonus amount for the fiscal year
in which the change in control or termination occurs or the highest bonus
paid to the executive in the three fiscal years preceding the fiscal year
in which change in control occurs, whichever is higher);
- two times (in the case of Mr. Johnson, Ms. Bernstein, Dr. Spiro and Mr.
Weisman) or three times (in the case of Mr. Noglows), the executive's
annual cash compensation (salary plus bonus plus an amount equal to the
-19-
contributions made or credited by us under all employee retirement plans
for the benefit of the executive for the most recently completed plan
year of each such plan (e.g., the 401(k) Plan and Supplemental Plan)),
payable in a lump sum;
- health and welfare benefits (consistent with health and welfare benefits
available to all employees for which they had been eligible prior to
their termination) for 24 months (in the case of Mr. Johnson, Ms.
Bernstein, Dr. Spiro and Mr. Weisman) or 36 months (in the case of Mr.
Noglows) following the executive's termination date;
- payment or reimbursement for the costs, fees and expense of outplacement
assistance services, up to a maximum of fifteen percent of the
executive's annual base salary; and
- a full "gross-up payment" of any and 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.
We also have similar change in control severance protection agreements
providing for two times severance benefits in place with our other executive
officers (with the exception of our Principal Accounting Officer, Thomas S.
Roman, whose agreement provides for one time severance benefits). Under the
change in control agreements, all amounts accrued or awarded to the executive
officers under any incentive compensation or benefit plan, including options and
restricted stock awarded under the 2000 Equity Incentive Plan, will immediately
vest on each executive's respective termination date.
Our board of directors and compensation committee determined the terms and
conditions of the change in control severance protection agreements, including
the severance benefit payable, and the triggering events for the payment of such
severance benefit, pursuant to such agreement, in consultation with their
compensation consultants and our financial and other advisors, and considered
external practices at similarly situated companies regarding change in control
arrangements.
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. In general, the same terms apply to all of our
employees, including our executive officers. These plans and arrangements
include an equity incentive plan, an employee stock purchase plan, the 401(k)
Plan, and Supplemental Plan.
-20-
CEO COMPENSATION SUMMARY TABLE
The following table sets forth components, and the total value, of certain
compensation earned by Mr. Noglows, our Chief Executive Officer, in fiscal years
2006 and 2005, based on amounts that are included in the Summary Compensation
Table, the Option Grants in Last Fiscal Year table or otherwise described in
this Proxy Statement. Amounts ultimately realized by Mr. Noglows will depend on
a variety of factors, including the length of his employment with us in relation
to the vesting schedules of his stock options and restricted stock and the price
of our common stock in the future, and may be substantially different from the
values shown below.
COMPONENT FISCAL YEAR 2006 FISCAL YEAR 2005
--------- -------------------- --------------------
Base Salary....................................... $515,000 $487,500
Annual Incentive/Cash Bonus Amount Earned......... $367,400 $275,000
Stock Options(1)
Number granted.................................. 125,000 250,000
Exercise price.................................. $30.51 $37.78
Equally over 4 Equally over 4
Vesting......................................... years years
Expiration...................................... December 9, 2015 December 10, 2014
Grant date present value........................ $2,223,563(2) $5,698,075(3)
Restricted Stock(4)(5)
Number granted.................................. 427 1,296
Vesting......................................... December 21, 2008 December 22, 2007
Grant date present value........................ $12,490 $49,974
Performance Shares................................ None None
Deferred Compensation
Tax-qualified 401(k) savings plan contributions
(as applicable to all employees)............. $19,661 $18,900
Accruals under our non-qualified supplemental
savings plan (as applicable to all
employees)................................... $22,804 $28,100
Supplemental Retirement Benefit................... None None
Executive Perquisites
Basic life insurance and accidental death and
dismemberment insurance coverage (as
applicable to all employees)................. $616 $616
Airline club membership fees.................... $300 $250
Business eating club membership fees............ $4,200 $4,130
Financial planning fees......................... $10,000 $9,165
Insurance Demutualization....................... $103 n/a
Severance
Estimated payout amounts for cash, equity and
benefits under termination for cause......... None None
Estimated payout amounts for cash, equity and
benefits under termination without cause not
involving a change in control (6)(7)......... $520,000 $500,000
Post Retirement Package not involving a change in
control......................................... None None
Estimated total of base salary, annual cash bonus,
grant date present value of stock options and
restricted stock, deferred compensation, and
executive perquisites........................... $3,176,137 $6,571,710
--------------
(1) This table does not include 57,500 options granted to Mr. Noglows on
December 1, 2006 as part of our annual equity incentive award program,
with an exercise price of $31.57, vesting equally over 4 years, expiring
on December 1, 2016, and with a grant date present value of $1,042,119,
estimated using the Black-Scholes option pricing formula on the basis of
the following assumptions: expected volatility: 52%; risk free rate of
return: 4.4%; annualized dividend yield: 0.0%; and expected time until
exercise: 6.76 years.
-21-
(2) Estimated using the Black-Scholes option pricing formula on the basis of
the following assumptions: expected volatility: 56%; risk free rate of
return: 4.5%; annualized dividend yield: 0.0%; and expected time until
exercise: 6.25 years.
(3) Estimated using the Black-Scholes option pricing formula on the basis of
the following assumptions: expected volatility: 70%; risk free rate of
return: 3.5%; annualized dividend yield: 0.0%; and expected time until
exercise: 5.0 years.
(4) Includes award share grants equal to 50% of the shares purchased and
deposited by Mr. Noglows under our Executive Officer Deposit Share Plan,
which is applicable to all participating executives. Vesting occurs only
if underlying deposit shares remain on deposit until the third
anniversary of the date of the deposit. The grant date present value is
estimated using the closing price of our common stock as of December 22,
2004 of $38.56 per share and as of December 21, 2005 of $29.25. These
amounts do not include an award share grant to Mr. Noglows for 761 shares
made on December 13, 2006 pursuant to our Executive Officer Deposit Share
Plan that vests on December 13, 2009, assuming the underlying deposit
shares have remained on deposit until such time.
(5) These amounts also do not include 19,200 restricted shares granted to Mr.
Noglows on December 1, 2006, as part of our annual equity incentive award
program, with a grant date present value (fair market value) of $606,144
based on the closing price of our stock on the December 1, 2006 award
date of $31.57 per share, the restrictions on which lapse in equal
increments upon each anniversary over four years. Prior to this fiscal
year 2007 restricted stock award made as part of our annual equity
incentive award program, our compensation committee had awarded only non-
qualified stock option grants pursuant to our annual grant program. As
permitted by the 2000 Equity Incentive Plan, on December 1, 2006, our
compensation committee decided to award a blend of non-qualified stock
option grants and restricted stock awards (restricted stock units for our
non-United States employees) to all employees who were receiving awards
on December 1, 2006, including the named executive officers and other
executive officers, according to approximately a three-to-one ratio of
non-qualified stock options granted to restricted stock awarded. Our
compensation committee made this decision primarily to address the
financial impact of the expensing of equity-based compensation now
required pursuant to a new accounting standard issued by the Financial
Accounting Standards Board that became applicable to us as of October 1,
2005, as well as to more competitively balance the types of equity
incentives being awarded to our employees pursuant to the 2000 Equity
Incentive Plan.
(6) Upon termination without cause not involving a change in control, Mr.
Noglows is entitled to one year's base salary and the continued vesting
of his options according to pre-existing vesting schedules during the
one-year period after termination.
(7) This table does not include a description of the Change in Control
Severance Protection Agreement between Mr. Noglows and us described
elsewhere in this Proxy Statement. See "EXECUTIVE COMPENSATION --
Employment, Termination of Employment, and Change in Control Agreements."
-22-
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. Our executive compensation program is administered by the
compensation committee of our board of directors, which is composed solely of
independent directors. 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 reviews
and reassesses the adequacy of the compensation committee charter on an annual
basis. 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 Cabot Microelectronics Corporation 2000 Equity
Incentive Plan, as amended and restated September 26, 2006 ("2000 Equity
Incentive Plan"). The compensation committee is also responsible for reviewing
and establishing all other executive compensation plans that we may adopt from
time to time.
During and for fiscal year 2006, the compensation committee made all
decisions pertaining to the compensation of our Chairman, President and Chief
Executive Officer, Mr. William P. Noglows, 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.
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 us to attract and retain talented executives,
align compensation with business objectives and performance, and link the
interests of our executive officers to the interests of our stockholders. In
general, executive officers, including our Chairman, President and Chief
Executive Officer, are eligible for, and participate in, our compensation and
benefits programs according to the same general terms as those available to all
of our employees. For example, the terms and conditions of our annual equity
incentive awards under the 2000 Equity Incentive Plan, which traditionally have
consisted of grants of non-qualified stock options but as of our fiscal year
2007 awards that were made on December 1, 2006 now consist of a blend of awards
of non-qualified stock options and restricted stock awards, are the same for our
executive officers as they are for our employees. Similarly, the health and
welfare benefit programs are the same for all of our employees, including our
executive officers; executive officers participate in the same 401(k) Plan and
Supplemental Plan, according to the same terms, as all of our employees. Aside
from the change-in-control severance protection agreements with our named
executive officers and other executive officers, and employment agreements with
Mr. Noglows and Dr. Spiro, all of which are described in greater detail in the
"Executive Compensation" section above, we do not have post-termination of
service agreements with our other executive officers.
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 us
to maintain a stable, successful management team. Our market for compensation
comparison purposes is comprised of a group of companies that develop,
manufacture, supply or use semiconductor products and processes, as well as
companies that have similar sales volumes, market capitalizations, employment
levels and geographic presence. In evaluating this comparison group for
compensation purposes, the compensation committee, in consultation with outside
advisors hired by the committee (currently W.T. Haigh and Associates), exercises
its discretion and makes its judgment after considering all relevant factors.
The key elements of our executive compensation program are base salary,
annual cash bonuses and long-term equity incentives. Each of these is addressed
separately below. In determining initial compensation for executive officers,
the compensation committee considers all elements of an executive officer's
total compensation package in comparison to current market practices, including
change in control arrangements, ability to participate in savings plans and
other benefits. On at least an annual basis, the compensation committee
considers the base salary, annual
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cash bonus, and long-term equity incentive elements, and balance among each of
these elements, of each executive officer's overall compensation.
Base Salaries. The compensation committee regularly reviews each executive
officer's base salary. 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, with particular reference to the comparison group of companies.
Increases to base salaries are driven primarily by performance, and evaluated
based on sustained levels of contribution to the company in the context of its
performance-based management process. In the past several years, depending on
the level of performance of the company and each executive officer, this
generally has meant base salaries in the 50th to 75th percentile of the salary
ranges of similarly positioned executive officers in the comparison group of
companies.
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 Cash Bonuses. All of the company's employees are eligible to
participate in the company's cash bonus program, with executive officer bonuses,
if any, determined by the compensation committee. The compensation committee
believes that a cash bonus program allows us to communicate specific goals that
are of primary importance during each year and motivates executives to achieve
these goals.
Each year, the compensation committee and board of directors establish
specific performance goals in accordance with the performance-based management
process, the achievement of which determines the funding of the bonus pool,
which is approved by the committee for all employees, including executive
officers. In turn, the size of the bonus pool determines the amount of the
relative awards to participants. Accordingly, executive officers' opportunities
to earn bonuses correspond to the degree to which the pre-established goals are
achieved.
Actual payouts for cash bonus awards are determined by the level of
performance of the company and each executive officer, and may be higher or
lower than the established target level depending upon performance relative to
the pre-established goals. The compensation committee, in consultation with its
outside advisors, has established bonus award targets for each executive officer
by evaluating factors such as external pay practices, with particular reference
to the comparison group of companies. In the past several years this generally
has meant a bonus award target for our executives in the 50th to 75th percentile
of the bonus range of similarly positioned executives in the comparison group of
companies.
In December, 2005, the board of directors and compensation committee
established the performance goals upon which annual cash bonus awards for
services rendered in fiscal year 2006 by our 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, using its discretion, evaluated the performance of
our executive officers in light of the pre-established performance goals and the
levels of attainment of the indicated goals by the company, as well as the
attainment of individual performance objectives, by each executive officer, and
determined the amount of the bonus award to be paid to each such executive. The
performance goals for fiscal year 2006 established by the compensation committee
for these executives included: financial goals that included earnings per share,
gross margin as a percentage of revenue, and various growth objectives; certain
productivity, quality and customer satisfaction goals; research and development
goals that included development, introduction, performance and advancement of
certain products and applications; and, certain new business initiatives.
In November, 2006, the board of directors and the compensation committee
approved the performance goals upon which cash bonus awards that may be paid to
our executive officers and other employees under our cash bonus program for
fiscal year 2007 are intended to be based. The performance goals for fiscal year
2007 are: financial goals that include earnings per share, gross margin as a
percentage of revenue, and various revenue objectives; certain productivity,
quality and customer satisfaction goals; product development and
commercialization goals; various growth objectives; and certain organizational
goals. Any cash bonus award amounts pursuant to the cash bonus program will be
determined for each participant based on levels of attainment of the indicated
goals by the
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company, as well as the attainment of individual performance objectives, as
assessed by the compensation committee, using its discretion.
Long-Term Equity Incentives. Long-term equity incentives are provided to
executive officers pursuant to the 2000 Equity Incentive Plan. The compensation
committee believes that equity-based compensation is an essential element in our
overall compensation scheme. Equity-based compensation is emphasized in the
design of our executive compensation program because it involves at-risk
components of pay which directly link executives' interests with those of our
stockholders. The compensation committee, in consultation with its outside
advisors, evaluates the balance of equity-based compensation with the base
salary and cash bonus elements of cash compensation by considering factors such
as external pay practices, with particular reference to the comparison group of
companies, the ability to achieve a desired balance between cash and equity-
based compensation, and the financial impact to our company of providing various
kinds and amounts of equity-based compensation to our employees, including
executive officers.
Initial or "new-hire" options and restricted stock may be awarded to
executive officers when they join the company. Thereafter, options and
restricted stock may be awarded to each executive officer annually and from time
to time based on performance. To enhance retention, options and restricted stock
awarded to executive officers, as with awards to all other employees, are
subject to vesting restrictions that generally lapse over a four-year period. In
addition to all other forms of equity-based compensation and non-equity-based
compensation, stock option grants to executive officers, whether "new hire",
occasional, or pursuant to our annual incentive program, may only be made upon
specific approval by the compensation committee. Our stock option grant practice
consistently has been that the exercise price for stock option grants for all of
our stock option grants, including those to our executive officers, is the fair
market value, as represented by the closing price, of our stock on the stock
option grant date, as approved by the compensation committee. For "new hire"
grants, the grant date is the first day of employment for the grant recipient;
for grants made pursuant to our annual grant program or otherwise, the latter of
which has not occurred for any of our executive officers, the grant date is the
date of approval by the compensation committee or a subsequent date set by the
committee in its approval. For our annual grant program, our practice for the
past five annual cycles has been that the one grant date for grants made to all
employees, including our executive officers, occurs within the week of the
compensation committee's meeting (usually late November or early December) to
consider and decide upon performance and compensation-related matters for our
employees, including specific evaluation and decision regarding each of our
executive officers, such as annual bonuses, salary increases, and equity-based
incentive awards following the close of our fiscal year on September 30. It is
not our practice to set a stock option's grant date as a date prior to the date
of approval, or approved, for a grant. In addition, it is not our practice to
make stock option grants while we are in possession, or in coordination with the
release, of material non-public information regarding our company. To our
knowledge, we have followed our stock option grant practices throughout our
history as a publicly-traded company. While we do not have any current plans to
change our stock option grant practices, circumstances may arise such that we
might decide it is in the best interests of our business to do so in the future.
Prior to our fiscal year 2007 awards and grants that the compensation
committee made on December 1, 2006, as part of our annual equity incentive award
program, our compensation committee had awarded only non-qualified stock option
grants pursuant to our annual grant program. As permitted by the 2000 Equity
Incentive Plan, on December 1, 2006, our compensation committee decided to award
a blend of non-qualified stock option grants and restricted stock awards
(restricted stock units for our non-United States employees) to all employees
who were receiving awards on December 1, 2006, including the named executive
officers and other executive officers, according to approximately a three-to-one
ratio of non-qualified stock options granted to restricted stock awarded. Our
compensation committee made this decision primarily to address the financial
impact of the expensing of equity-based compensation now required pursuant to a
new accounting standard issued by the Financial Accounting Standards Board that
became applicable to us as of October 1, 2005, as well as to more competitively
balance the types of equity incentives being awarded to our employees pursuant
to the 2000 Equity Incentive Plan.
When determining awards under the 2000 Equity Incentive Plan, the
compensation committee considers the company's and individual's performance in
the prior year, the executive officers' 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
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factors. Rather, the factors are evaluated on an aggregate basis. In general,
the compensation committee has not considered any actual amounts that may have
been realized from prior equity-based compensation awards in awarding subsequent
equity-based compensation, or other elements of compensation. However, in
considering awards under the 2000 Equity Incentive Plan to our employees,
including executive officers, the compensation committee does consider whether
equity-based awards that previously may have been made to them continue to
fulfill the purposes of motivation and retention.
Our executive officers are also eligible to participate in the Executive
Officer Deposit Share Plan. See "EXECUTIVE COMPENSATION -- Executive Officer
Deposit Share Plan," above. While all of our executive officers have equity
ownership in our company through participation in various equity-based programs
such as our Employee Stock Purchase Program, Executive Officer Deposit Share
Plan, and our annual equity incentive award program, we do not currently have
equity-ownership requirements or guidelines for our executive officers.
CEO Compensation. When Mr. Noglows joined our company in fiscal year 2004,
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 initial compensation,
comprised of base salary, cash bonus and equity-based compensation elements,
which are part of Mr. Noglows' employment agreement with our company, as
described in greater detail in the section entitled "Executive Compensation"
above. As part of the agreement and his joining the company, Mr. Noglows also
entered into a change-in-control severance protection agreement and became
eligible for the reimbursement of certain relocation and other expenses, all of
which are described in greater detail in the section entitled "Executive
Compensation" above.
Upon completion of fiscal year 2006, the compensation committee, in
consultation with outside advisors hired by the committee, used the executive
compensation practices described above, including the performance goals
established by the committee, to determine Mr. Noglows' compensation, composed
of a cash bonus for fiscal year 2006, and a non-qualified stock option grant and
restricted stock award in December 2006 as part of the annual grant cycle for
which all employees were eligible. In addition, in setting both the cash-based
and equity-based elements of Mr. Noglows' compensation, the compensation
committee made an overall assessment of Mr. Noglows' leadership in achieving the
company's long-term and short-term strategic, operational and business goals. In
addition to these factors, Mr. Noglows' bonus award for fiscal year 2006 of
$367,400, which was $92,400 more than the bonus award that he earned for fiscal
year 2005 but $57,600 less than the bonus award that he earned for fiscal year
2004, reflected the company's performance against certain financial and other
objectives in fiscal year 2006, and the aspects of the overall pre-established
goals for fiscal year 2006 that were met, as assessed by the compensation
committee, using its discretion. Based upon all of these criteria, which
included the compensation committee's assessment of the company's and Mr.
Noglows' generally improved performance in various respects in fiscal year 2006
as compared with fiscal year 2005, the compensation committee awarded Mr.
Noglows $367,400 as a cash bonus for fiscal year 2006, which together with his
$520,000 annual base salary effective as of January 1, 2006 ($515,000 paid
during fiscal year 2006), resulted in total cash compensation to Mr. Noglows for
fiscal year 2006 of $882,400; this was $119,900 more than the $762,500 in total
cash compensation that Mr. Noglows received for fiscal year 2005. The committee
decided to retain Mr. Noglows' base salary at $520,000, consistent with its
decision to retain the base salaries of the other named executive officers (with
the exception of Mr. Weisman, who received a base salary increase of $15,000 due
to expanded responsibilities he assumed in September 2006), as well as most of
the other executive officers at their fiscal year 2006 levels. In addition, on
December 1, 2006, the compensation committee awarded Mr. Noglows equity-based
compensation in the form of: (i) non-qualified stock options to purchase an
aggregate of 57,500 shares of the company's common stock that vest in equal
increments upon each anniversary over four years and have a term of ten years
that expires December 1, 2016, at an exercise price of $31.57, which was the
closing price of our stock on the grant date; and (ii) 19,200 shares of
restricted stock with a fair market value based on the closing price of our
stock on the award date of $31.57 per share that lapse in equal increments upon
each anniversary over four years. Aside from the number of options granted and
restricted stock awarded, the terms and conditions of this option grant and
restricted stock award are the same as those for grants and awards made to our
other employees, including those that provide that any options that are not
vested and restricted stock on which restrictions have not lapsed at the time of
termination of employment are forfeited.
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The compensation committee and the board of directors reviews on a periodic
basis the hypothetical costs to the company of Mr. Noglows' change-in-control
severance protection agreement, and those of the company's other executive
officers and key employees who have such agreements.
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 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. At our annual meeting of
stockholders held in March 2004, our 2000 Equity Incentive Plan was submitted to
our stockholders for approval, and our stockholders approved the plan. The 2000
Equity Incentive Plan's predecessor plan, the Amended and Restated Cabot
Microelectronics Corporation 2000 Equity Incentive Plan, previously had been
approved by our stockholders in March 2001. The 2000 Equity Incentive Plan is
intended to qualify certain compensation awarded under that plan for tax
deductibility under Section 162(m).
Respectfully submitted by the compensation committee,
Robert J. Birgeneau
H. Laurance Fuller, Chairman
Edward J. Mooney
Albert Y.C. Yu
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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.
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PERFORMANCE GRAPH
The following graph illustrates the cumulative total stockholder return on
our common stock during the period from September 30, 2001 through September 30,
2006 and compares it with the cumulative total return on the NASDAQ Composite
Index and the Philadelphia Semiconductor Index. The comparison assumes $100 was
invested on September 30, 2001 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 5 YEAR CUMULATIVE TOTAL RETURN*
AMONG CABOT MICROELECTRONICS CORPORATION,
THE NASDAQ COMPOSITE INDEX
AND THE PHILADELPHIA SEMICONDUCTOR INDEX
graph
CUMULATIVE TOTAL RETURNS
---------------------------------------------------------------------------------------------
9/01 12/01 3/02 6/02 9/02 12/02 3/03 6/03 9/03 12/03 3/04
------ ------ ------ ------ ----- ----- ----- ------ ------ ------ ------
Cabot Microelectronics
Corporation................ 100.00 164.04 140.03 89.34 77.09 97.70 86.81 104.39 115.15 101.43 87.21
Nasdaq Composite............. 100.00 130.28 124.99 101.18 80.97 90.93 89.45 108.33 120.85 135.75 137.05
Philadelphia Semiconductor... 100.00 150.15 162.29 104.13 66.35 76.40 78.67 98.25 123.13 143.32 132.40
CUMULATIVE TOTAL RETURNS
---------------------------------------------------------------------------------------
6/04 9/04 12/04 3/05 6/05 9/05 12/05 3/06 6/06 9/06
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Cabot Microelectronics
Corporation.................. 63.36 75.04 82.94 64.96 60.01 60.82 60.63 76.80 62.74 59.66
Nasdaq Composite............... 140.47 131.16 149.73 138.33 141.91 150.08 154.38 164.65 153.40 159.80
Philadelphia Semiconductor..... 129.07 101.33 116.04 113.56 121.76 126.98 130.37 123.58 115.30 122.22
--------
* $100 invested on 9/30/01 in stock or index -- including reinvestment of
dividends.
Fiscal year ending September 30.
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2008 ANNUAL MEETING OF STOCKHOLDERS
The 2008 annual meeting of stockholders is presently scheduled to be held
on Tuesday, March 4, 2008. Any proposals of stockholders intended for inclusion
in the proxy statement for our 2008 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 25, 2007. If a stockholder
of the company intends to present a proposal at the 2008 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 our
Secretary at 870 North Commons Drive, Aurora, Illinois 60504, not earlier than
Wednesday, November 7, 2007 and not later than Friday, December 7, 2007. 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 additional 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, Computershare 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
Computershare, our transfer agent, may vote telephonically by calling
Computershare 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
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
("independent 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 independent 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
independent 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 independent auditor.
MEMBERSHIP
The Committee shall consist of at least three members of the Board. The
members shall be appointed by action of the Board, upon recommendation of the
Nominating and Corporate Governance Committee, 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 LLC ("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. A
majority of the members of the Committee shall constitute a quorum for the
transaction of business and the action of a majority of the members present at
any meeting at which there is a quorum shall be the act of the Committee.
A-1
3. The Committee shall meet as frequently as the Committee in its
discretion deems desirable.
4. The Committee may, in its discretion, include in its meetings members of
the Company's management, representatives of the independent auditor, outside
counsel, the director of internal audit and other personnel employed or retained
by the Company, the Board or the Committee. The Committee shall meet
periodically and as it deems appropriate with the independent auditor or the
director of internal audit, 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, and also shall meet
periodically and as it deems appropriate in separate executive sessions with the
Company's management.
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 independent auditors and any legal counsel or other
advisors that are retained by the Committee.
7. The Secretary and General Counsel of the Company shall serve as
Secretary of the Committee.
RESPONSIBILITIES
Independent Auditor
8. The Committee has the sole and direct responsibility for selecting,
appointing, terminating, compensating and overseeing the Company's independent
auditor, as well as for resolving any disagreements between the independent
auditors and management. The Committee shall only retain as independent 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 independent 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 independent
auditor and, if necessary, replace the independent 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 independent auditor
for stockholder approval at any meeting of stockholders.
9. The Committee shall pre-approve the fees to be paid to the independent
auditor and any other terms of the engagement of the independent auditor for any
and all services (whether auditing services, audit-related services, internal
control-related services, tax services or permitted other (non-audit) services),
to be provided by the independent 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 the next scheduled meeting of the
Committee.
10. The Committee shall receive from the independent auditor and review, at
least annually, a written statement delineating all relationships between the
independent auditor and the Company, consistent with Independence Standards
Board Standard 1. The Committee shall actively engage in a dialogue with the
independent auditor with respect to any disclosed relationships or services
that, in the view of the Committee, may impact the objectivity and independence
of the independent auditor. If the Committee determines that further inquiry is
advisable, the Committee shall take any appropriate action in response to the
independent auditor's report to satisfy itself of the auditor's independence.
Annual Audit
11. The Committee shall meet with the independent 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.
12. The Committee shall review and discuss the audited financial statements
with the management of the Company.
A-2
13. The Committee shall discuss with the independent 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 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 independent auditor; (iii) the
process used by management in formulating particularly sensitive accounting
estimates and the basis for the independent 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.
14. The Committee shall, based on the review and discussions in paragraphs
11, 12, and 13 above, and based on the disclosures received from the independent
auditor regarding its independence and discussions with the independent auditor
regarding such independence in paragraph 10 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.
15. The Committee shall review and discuss with management, including the
director of internal audit and, at its discretion, any provider of internal
audit services, and the independent auditor the Company's internal controls
report and the independent auditor's attestation of the report prior to the
filing of the Company's Annual Report on Form 10-K for the fiscal year subject
to the audit.
Quarterly Review
16. The independent 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 independent 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
17. The Committee shall discuss with the independent auditor and the
director of internal audit, as well as management, at least quarterly, the
adequacy and effectiveness of the accounting, financial and internal controls of
the Company, and consider any recommendations for improvement of such internal
control procedures.
18. The Committee shall be provided, and discuss with, the independent
auditor and with management any material written communications between the
independent auditor and management, including any summary of aggregated
deficiencies or management letter provided by the independent auditor (or other
auditor) and any other significant matters brought to the attention of the
Committee by the independent 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 independent auditor (or other auditor).
19. 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
20. The Committee shall review and preapprove the selection of the
Company's director of internal audit, and any termination of employment of such
person. The Committee shall be notified in advance of, and at its discretion
review and preapprove, the selection of any other provider of internal audit
services. The Chair may represent the entire Committee for purposes of these
matters.
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21. The Committee shall discuss at least quarterly with the director of
internal audit and, at its discretion other provider(s) of internal audit
services (if any), the activities and organizational structure of the Company's
internal audit function and the qualification of the primary personnel
performing such function.
22. Management shall furnish to the Committee Chairman a copy of each
internal audit report, and provide summaries thereof to the Committee, to whom
it shall furnish a copy of each internal audit report if so requested by the
Committee or any of its members.
23. The Committee shall, at its discretion, meet with the director of
internal audit and other provider(s) of internal audit services (if any) to
discuss any reports or any other matters brought to the attention of the
Committee by the director of internal audit or other provider(s) of internal
audit services (if any).
24. The director of internal audit and other provider(s) of internal audit
services (if any) shall be granted unfettered access to the Committee.
Other Responsibilities
25. The Committee shall review and reassess the Committee's charter at
least annually and submit any recommended changes to the Board for its
consideration.
26. The Committee shall review and assess the Committee's fulfillment of
its responsibilities pursuant to the Committee's charter at least annually and
submit its conclusions in this regard to the Board for its consideration.
27. 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.
28. 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.
29. 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.
30. 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.
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
CABOT MICROELECTRONICS CORPORATION
AUDIT COMMITTEE PRE-APPROVAL POLICY FOR SERVICES TO BE PROVIDED
BY INDEPENDENT AUDITOR
The Audit Committee (the "Committee") of Cabot Microelectronics Corporation
(the "Corporation") has the sole and direct responsibility for selecting,
appointing, terminating, compensating and overseeing the Company's independent
auditor, as well as for resolving any disagreements between the independent
auditors and management. Pursuant to the Committee's Charter, the Committee is
required to pre-approve the audit and non-audit services performed by the
Corporation's independent auditor in order to assure that the provision of such
services does not impair the auditor's independence. Each type of service
provided by the independent auditor will require specific pre-approval at a
particular fee level by the Committee.
The Committee, through the Controller of the Corporation or another
designated individual, will maintain a list of the Audit, Audit-related, Tax and
All Other services that have been pre-approved by the Committee as of the
particular date of the relevant list (the "List"), and will revise the list
periodically, based on subsequent determinations of the Committee. The term of
any pre-approval is twelve (12) months from the date of pre-approval, unless the
Committee specifically provides for a different period.
I. DELEGATION
The Committee has delegated pre-approval authority to the Chairman of the
Committee, and may delegate such pre-approval authority to others members of the
Committee. The Chairman will report any pre-approval decisions to the Committee
no later than at its next scheduled meeting. The Committee does not delegate its
responsibilities to pre-approve services performed by the independent auditor to
management.
II. AUDIT SERVICES
The annual Audit services engagement terms and fees will be subject to the
specific pre-approval of the Committee. The Committee will approve, if
necessary, any changes in terms, conditions and fees resulting from changes in
audit scope or other matters.
In addition to the annual Audit services engagement approved by the
Committee, the Committee may grant pre-approval for other Audit services, which
are those services that only the independent auditor reasonably can provide and
such Audit services will be placed on the List. All other Audit services not on
the List must be separately pre-approved by the Committee.
III. AUDIT-RELATED SERVICES
Audit-related services, including internal control-related services, are
assurance and related services that are reasonably related to the performance of
the audit or review of the Corporation's financial statements and that are
traditionally performed by the independent auditor. The Committee believes that
the provision of Audit-related services does not impair the independence of the
auditor. The List will contain the pre-approved Audit-related services. All
other Audit-related services not on the List, and all internal control-related
services, must be separately pre-approved by the Committee.
B-1
IV. TAX SERVICES
The Committee believes that the independent auditor can provide Tax
services to the Corporation such as tax compliance, tax planning and tax advice
without impairing the auditor's independence. However, the Committee will not
permit the retention of the independent auditor in connection with a transaction
initially recommended by the independent auditor, the tax treatment of which may
not be supported in the Internal Revenue Code and related regulations. The List
will contain those Tax services that the Committee has pre-approved. All other
Tax services not on the List must be separately pre-approved by the Committee.
V. ALL OTHER SERVICES
The Committee may grant pre-approval to those permissible non-audit
services classified as All Other services that it believes are routine and
recurring services, and would not impair the independence of the auditor. The
List will contain All Other services that the Committee has pre-approved.
Permissible All Other services not on the List must be separately pre-approved
by the Committee.
A list of the Security and Exchange Commission's (SEC's) prohibited non-
audit services is attached to this policy as Exhibit 1. The SEC's rules and
relevant guidance should be consulted to determine the precise definitions of
these services and the applicability of exceptions to certain of the
prohibitions.
VI. PRE-APPROVAL FEE LEVELS
At the time of pre-approval of services to be provided by the independent
auditor, the Committee will establish an approved fee level for such services.
Any increase in the fee level for such services will require additional specific
pre-approval by the Committee.
VII. SUPPORTING DOCUMENTATION
With respect to each proposed pre-approved service, the Committee will be
provided with detailed back-up documentation, regarding the specific services to
be provided.
VIII. PROCEDURES
Requests to provide services will be submitted to the Committee by both the
independent auditor and the Corporation's Chief Financial Officer, Treasurer,
Controller, or other designated officer, and each will state whether, in their
view, the request is consistent with the SEC's rules on auditor independence.
B-2
EXHIBIT 1
PROHIBITED NON-AUDIT SERVICES
Bookkeeping or other services related to the accounting records or financial
statements of the audit client*
Financial information systems design and implementation
Appraisal or valuation services*, fairness opinions or contribution-in-kind
reports
Actuarial services*
Internal audit outsourcing services*
Management functions
Human resources
Broker-dealer, investment adviser or investment banking services
Legal services
Expert services unrelated to the audit
(* may be allowed in limited circumstances if reasonable to conclude that the
results of these services will not be subject to audit procedures; check
relevant SEC rules)
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A PROPOSALS -- THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR ALL THE NOMINEES LISTED AND FOR PROPOSAL 2.
1. Election of Directors: FOR WITHHOLD FOR WITHHOLD
01 - H.Laurance Fuller [ ] [ ] 02 - Edward J. Mooney [ ] [ ] +
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[CABOT MICROELECTRONICS LOGO]
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PROXY -- CABOT MICROELECTRONICS CORPORATION
================================================================================
ANNUAL MEETING OF STOCKHOLDERS - MARCH 6, 2007
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 6, 2007 at 8:00
a.m. local time at Cabot Microelectronics Corporation, 870 North Commons Drive,
Aurora, Illinois 60504, 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 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 as 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.
CONTINUED AND TO BE SIGNED ON REVERSE SIDE
SEE REVERSE SEE REVERSE
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