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 7, 2006
To our Stockholders:
We are notifying you that the Annual Meeting of Stockholders of Cabot
Microelectronics Corporation will be held on Tuesday, March 7, 2006 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 three directors, each for a term of three years;
2. To ratify the selection of PricewaterhouseCoopers LLP as our independent
auditors for fiscal year 2006; 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 2005 Annual Report. Only
stockholders of record at the close of business on January 17, 2006 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can be withdrawn by you at any time before it is voted.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 24, 2006
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........... 5
Election of Directors.................................................... 5
Ratification of the Selection of Independent Auditors.................... 7
Board Structure and Compensation......................................... 7
Board of Directors and Board Committees........................... 7
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................................................... 14
Summary of Cash and Certain Other Compensation.................... 14
Option Grants..................................................... 17
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........... 22
Certain Relationships and Related Transactions........................... 26
Performance Graph........................................................ 27
2007 Annual Meeting of Stockholders...................................... 28
"Householding" of Proxy Materials........................................ 28
Voting Through the Internet or by Telephone.............................. 28
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 7, 2006 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
24, 2006.
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 three directors
and the ratification of the selection of our independent auditors. In addition,
our management will report on our performance during the fiscal year ended
September 30, 2005 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 17, 2006, are entitled to receive notice of the annual meeting and to
vote the shares of common stock that they held on that date at the meeting, or
any postponements or adjournments of the meeting. Each outstanding share of
common stock entitles its holder to cast one vote, without cumulation, on each
matter to be voted on.
What constitutes a quorum?
If a majority of the shares outstanding on the record date are present at
the annual meeting, either in person or by proxy, we will have a quorum at the
meeting permitting the conduct of business at the meeting. As of the record
date, we had approximately 24,324,616 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 43010, Providence, Rhode Island
02940-3010), 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 three 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?
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 three nominees for director with the most votes will be elected. 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 $7,500. 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 17, 2006 (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. CAM North America, LLC............................. 2,628,553(2) 10.8%
399 Park Avenue
New York, New York 10022
2. Royce & Associates, LLC............................ 2,588,200(3) 10.6%
1414 Ave. of the Americas
New York, New York 10019
3. Kornitzer Capital Management Inc. ................. 1,589,677(4) 6.5%
5420 W. 61st Place
Shawnee Mission, Kansas 66295
4. Snyder Capital Management LP....................... 1,377,147(5) 5.7%
350 California St., Suite 1460
San Francisco, California 94104-1436
5. Sterling Capital Management LLC.................... 1,298,343(6) 5.3%
4064 Colony Road, Suite 300
Charlotte, North Carolina 28211
DIRECTORS AND EXECUTIVE OFFICERS:
William P. Noglows.................................... 337,100(7) 1.4%
Robert J. Birgeneau................................... 10,000(7)(8) *
John P. Frazee, Jr. .................................. 50,605(7) *
H. Laurance Fuller.................................... 54,274(7) *
Edward J. Mooney...................................... 11,602(7)(9) *
Steven V. Wilkinson................................... 50,523(7) *
Albert Y. C. Yu....................................... 10,000(7)(10) *
William S. Johnson.................................... 111,354(7) *
Adam F. Weisman....................................... 26,185(7) *
H. Carol Bernstein.................................... 213,579(7) *
Daniel J. Pike........................................ 240,786(7) *
All directors and executive officers as a group (18 1,486,802(11) 6.1%
persons)............................................
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* = less than 1%
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(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
common stock subject to options, warrants or rights that are currently
exercisable or exercisable within 60 days of January 17, 2006 are deemed
outstanding for computing the ownership percentage of the person holding
such options, warrants or rights, but are not deemed outstanding for
computing the ownership percentage of any other person. The amounts and
percentages are based upon 24,324,616 shares of our common stock
outstanding as of January 17, 2006.
(2) Of the shares reported as beneficially owned, CAM North America, LLC
exercises (a) sole power to vote 0 shares, (b) shared power to vote
2,628,553 shares, (c) sole investment power over 0 shares and (d) shared
investment power over 2,628,553 shares. This information is based on
information reported in Schedule 13G filed by CAM North America, LLC on
January 10, 2006. Based solely on information reported in such Schedule
13G filed by CAM North America, LLC, the shares reported as beneficially
owned by CAM North America, LLC are also partially beneficially owned by
Smith Barney Fund Management LLC and Salomon Brothers Asset Management
Inc.
(3) Of the shares reported as beneficially owned, Royce & Associates, LLC
exercises (a) sole power to vote 2,588,200 shares, (b) shared power to
vote 0 shares, (c) sole investment power over 2,588,200 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 11, 2006.
(4) Of the shares reported as beneficially owned, Kornitzer Capital
Management, Inc. exercises (a) sole power to vote 1,589,677 shares, (b)
shared power to vote 1,589,677 shares, (c) sole investment power over
1,589,677 shares and (d) shared investment power over 0 shares. The
number of shares indicated is based on information reported in the
Schedule 13F Holdings Report filed by Kornitzer Capital Management, Inc.
on November 9, 2005.
(5) Of the shares reported as beneficially owned, Snyder Capital Management
LP exercises (a) sole power to vote 1,223,392 shares, (b) shared power to
vote 112,855 shares and (c) no power to vote 0 shares. The total number
of shares reported as beneficially owned is 1,377,147. The number of
shares indicated is based on information reported in the Schedule 13F
filed by Snyder Capital Management on November 14, 2005.
(6) Of the shares reported as beneficially owned, Sterling Capital Management
LLC exercises (a) sole power to vote 1,034,543 shares, (b) shared power
to vote 0 shares, and (c) no power to vote 263,800 shares. The number of
shares indicated is based on information reported in the Schedule 13F
Holdings Report filed by Sterling Capital Management LLC on November 15,
2005.
(7) Includes shares of our common stock that such person has the right to
acquire pursuant to stock options exercisable within 60 days of January
17, 2006, as follows:
UPON EXERCISE
NAME SHARES ISSUABLE
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Mr. Noglows.............................................. 312,500
Mr. Birgeneau............................................ 10,000
Mr. Frazee............................................... 35,000
Mr. Fuller............................................... 42,500
Mr. Mooney............................................... 10,000
Mr. Wilkinson............................................ 35,000
Dr. Yu................................................... 10,000
Mr. Johnson.............................................. 107,000
Mr. Weisman.............................................. 25,000
Ms. Bernstein............................................ 212,250
Mr. Pike................................................. 231,500
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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 17, 2006, as follows:
NAME PHANTOM SHARES
---- --------------
Mr. Birgeneau*........................................... --
Mr. Frazee............................................... 5,605
Mr. Fuller............................................... 4,774
Mr. Mooney............................................... 1,602
Mr. Wilkinson............................................ 6,163
Dr. Yu*.................................................. --
* Mr. Birgeneau and Dr. Yu do not currently participate in the Directors'
Deferred Compensation Plan.
(8) Mr. Birgeneau was elected as a Class II director at our annual meeting of
stockholders in March 2005.
(9) Mr. Mooney was elected as a Class I director in March 2005 by the board
of directors.
(10) Dr. Yu was elected as a Class III director in March 2005 by the board of
directors.
(11) Includes 1,383,938 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 17, 2006, and 18,144 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 17, 2006.
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 2005.
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 annual meeting of stockholders to be held in 2007; 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 upcoming annual meeting of stockholders.
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.
On March 7, 2005, the board of directors elected Edward J. Mooney as a
director in Class I and Albert Y. C. Yu as a director in Class III effective
March 8, 2005.
Effective March 10, 2005, Juan Enriquez-Cabot resigned from our board of
directors. Mr. Enriquez-Cabot resigned because he was elected on March 10, 2005
to the board of directors of Cabot Corporation, a material supplier of key raw
materials to our company, and believed that in accordance with the principles of
good corporate governance and to maintain the independent status of our non-
employee directors, it was appropriate to resign from our board.
In January 2005, Ronald L. Skates, who had been a Class II director,
decided not to stand for re-election when his term expired on March 8, 2005. As
a result of Mr. Skates' decision not to stand for re-election to our board of
directors, his term expired at last year's annual meeting on March 8, 2005. Mr.
Birgeneau was nominated a successor to Mr. Skates and was elected. On December
10, 2004, Mr. King, who had been a Class II director, resigned as a member of
our board of directors effective on such date. At that time, our board of
directors determined not to nominate a successor to Mr. King.
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
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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 three nominees named below for terms of office ending in 2009.
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 2009:
John P. Frazee, Jr., 61, was elected a director of our company in April
2000. Mr. Frazee 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, 47, has served as our Chairman, President and Chief
Executive Officer since November 3, 2003. From 1984 through 2003, Mr. Noglows
served in various management positions at Cabot Corporation, culminating in
serving as an executive vice president and general manager. While at Cabot
Corporation, he was one of the primary founders of our company and was
responsible for identifying and encouraging the development of the CMP
application. 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, 64, was elected as director of our company in March
2005. He also is a director of Preferred Bank and of PDF Solutions, Inc. 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.Sc. in electrical engineering from the California
Institute of Technology, and a M.Sc. and Ph.D., also in electrical engineering,
from Stanford University.
Directors whose terms continue until 2007:
H. Laurance Fuller, 67, 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 Mooney, 64, was elected a director of our company in March 2005. He
also serves on the boards of directors of FMC Corporation, FMC Technologies,
Inc., and the Northern Trust Company. 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.Sc. in
chemical engineering and a J.D. from the University of Texas.
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Directors whose term continues until 2008:
Robert J. Birgeneau, 63, 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.Sc. in mathematics from the University of Toronto and
his Ph.D. in physics from Yale University.
Steven V. Wilkinson, 64, 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 BA in economics
from DePauw University and his MBA from the University of Chicago.
RATIFICATION OF THE SELECTION OF INDEPENDENT AUDITORS
PricewaterhouseCoopers LLP audited our financial statements for fiscal year
2005, and has been selected by the audit committee of our board of directors to
audit our financial statements for fiscal year 2006. 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 2005 and fiscal
year 2004, see "FEES OF INDEPENDENT AUDITORS AND AUDIT COMMITTEE REPORT -- Fees
Billed by Independent Auditors," below.
OUR BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE "FOR" THE RATIFICATION OF
THE SELECTION OF OUR INDEPENDENT AUDITORS.
BOARD STRUCTURE AND COMPENSATION
BOARD OF DIRECTORS AND BOARD COMMITTEES
Our board of directors has a standing audit committee, a standing
compensation committee and a standing nominating and corporate governance
committee to assist the board of directors in the discharge of its
responsibilities. Our board of directors has adopted the Cabot Microelectronics
Corporation Corporate Governance Guidelines, which are available on our website,
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 2005, our board of directors held ten meetings and took action by written
consent once. Each of our directors serving at the time attended our annual
meeting of stockholders in fiscal year 2004. Each of our directors serving at
the time attended our annual meeting of stockholder in fiscal year 2005, except
Dr. Yu who had been elected on the day preceding such annual meeting of
stockholders effective on such day. 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 2005. Since fiscal year end, the board of directors has met four
times. 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' listing standards and as defined in
applicable rules by the
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Securities and Exchange Commission ("SEC"). Our independent directors hold
regularly scheduled meetings in executive session, at which only independent
directors are present. The Chairman of the nominating and corporate governance
committee serves as chairman of the meetings of the independent directors in
executive session, and performs other responsibilities such as working with the
Chairman of the board of directors to plan and set the agenda for meetings of
the board of directors. During fiscal year 2005, our independent directors met
in executive sessions eight times. Since fiscal year end, our independent
directors have met in executive sessions two times. 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.
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 2005 and currently:
- is an "independent" director as defined in Rule 4200(a)(15) of the
National Association of Securities Dealers' listing standards;
- 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.
Until their resignation from our board in March, 2005 and December, 2004,
respectively, Messrs. Enriquez-Cabot and King were also members of the audit
committee and also met these criteria. Mr. Fuller joined the Audit Committee in
March of 2005.
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. The audit committee met eight times during
fiscal year 2005 and has met twice since fiscal year end with respect to the
audit of our fiscal year 2005 financial statements and related matters. In
fulfillment of the audit committee's responsibilities for fiscal year 2005, Mr.
Wilkinson, the audit committee Chairman, reviewed our Annual Report on Form 10-K
for the fiscal year ended September 30, 2005 (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 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, Frazee, Fuller
(Chairman), Mooney, and Yu, each of whom was during fiscal year 2005 and is now
an "independent" director as defined in Rule 4200(a)(15) of the National
Association of Securities Dealers' listing
-8-
standards and as defined in applicable rules adopted by the SEC. Until March,
2005, Mr. Wilkinson also was a member of the compensation committee and met
these criteria. Until the conclusion of their service as directors in March,
2005 and December, 2004, respectively, Messrs. Skates and King were also members
of the compensation committee and met these criteria; Mr. Skates was chairman of
the committee until such time. Messrs. Birgeneau, Mooney and Yu joined the
compensation committee in March of 2005. 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 two times during fiscal year 2005. The compensation committee
has met once and has taken action by written consent once since the fiscal year
end with respect to 2005 annual bonuses, salary increases, stock option grants
and other matters.
NOMINATING AND CORPORATE GOVERNANCE COMMITTEE. The functions of the
nominating and corporate governance committee include reviewing and recommending
a slate of nominees for the election of directors, recommending changes in the
number, classification and term of directors, reviewing nominations by
stockholders with regard to the nomination process, reviewing and recommending
compensation and other matters for our directors, and attending to general
corporate governance matters. The members of the nominating and corporate
governance committee are Messrs. Frazee (Chairman), Fuller and Wilkinson, each
of whom was during fiscal year 2005 and is now an "independent" director as
defined in Rule 4200(a)(15) of the National Association of Securities Dealers'
listing standards and as defined in applicable rules adopted by the SEC. Until
the conclusion of their service as directors in March, 2005, Messrs. Enriquez-
Cabot and Skates were members of the nominating and corporate governance
committee and also met these criteria. In March, 2005, Mr. Wilkinson joined the
nominating and governance committee. 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 2005, has taken action by written consent once
and has met once since fiscal year end. The nominating and corporate governance
committee acted unanimously to recommend the nomination of the Class III
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.
In fiscal year 2005, 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.
-9-
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. On March 7, 2005, our board of directors approved a
revised compensation program for our non-employee directors. Adoption of the
revised compensation program was the result of a review of our non-employee
director compensation policies by the Nominating and Corporate Governance
Committee and the Committee's compensation consultant. Effective as of such date
and coinciding with the date of our 2005 annual meeting of stockholders on March
8, 2005, 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 (previously $20,000)............................. $ 35,000
COMMITTEE AND BOARD MEETING FEES, for attendance at each
meeting of the board and committee of the board
(previously $1,000)...................................... $ 1,500
COMMITTEE CHAIR ANNUAL RETAINER FEES:
Audit Committee Chairperson (no change).................. $ 20,000
Compensation Committee Chairperson (new)................. $ 10,000
Nominating and Corporate Governance Chairperson (new).... $ 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 (no
change).................................................. 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 (no change)................................. 15,000 options
Non-employee directors continue to be 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 ("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.
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, which is filed as an exhibit to our Quarterly Report on Form
10-Q filed with the SEC on August 11, 2003. 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, as amended in June 2003,
deferred amounts are payable only in the form of our common shares. A
participating director is required to elect a date on which deferred
compensation will begin to be distributed, which date generally must be at least
two years after the end of the year deferrals are made 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 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 17, 2006, an
aggregate of approximately $705,000 of directors' compensation was deferred
under the plan. The American Jobs Creation Act, a law containing provisions
affecting deferred compensation plans, was enacted in 2004 with an effective
date of January, 2005. We believe we are currently operating in compliance with
the new law and plan to
-10-
amend the Directors' Deferred Compensation Plan to the extent necessary to
comply with such law pursuant to, and according to the time frame established
by, relevant United States Department of the Treasury guidance.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
None of the current or former members of the compensation committee are or
have been our employees.
FEES OF INDEPENDENT AUDITORS AND AUDIT COMMITTEE REPORT
FEES BILLED BY INDEPENDENT AUDITORS
During fiscal years 2004 and 2005, the audit committee pre-approved 100% of
all audit and non-audit services provided by our independent auditors. For such
pre-approval of services, the audit committee follows its policy for the pre-
approval of services provided by our independent auditors, a current copy of
which is attached to this proxy statement as Appendix B and also is available on
our web-site, www.cabotcmp.com. The following table presents fees for audit
services rendered by PricewaterhouseCoopers LLP for the audit of our annual
financial statements for the fiscal year ended September 30, 2005, and September
30, 2004, and fees billed for other services rendered by PricewaterhouseCoopers
LLP during those periods.
FISCAL YEAR ENDED FISCAL YEAR ENDED
FEES SEPTEMBER 30, 2005($) SEPTEMBER 30, 2004($)
---- --------------------- ---------------------
Audit Fees(1)(5)........................... 1,289,895 614,359
Audit-Related Fees(2)...................... 59,789 54,304
Tax Fees(3)................................ 293,107 266,609
All Other Fees(4).......................... 2,750 1,500
Total(5)................................. 1,645,541 936,772
--------
(1) Audit Fees include fees for professional services rendered by
PricewaterhouseCoopers LLP for the audit of our annual financial
statements (including services incurred with rendering an opinion under
Section 404 of the Sarbanes-Oxley Act of 2002, which first was required
for our company for fiscal year 2005) 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 GAAS, this
category also may include services that generally only
PricewaterhouseCoopers LLP reasonably can provide, such as comfort
letters, statutory audits, attest services, consents and assistance with
and review of documents filed with the SEC.
(2) Audit-Related Fees include assurance and related services (e.g., due
diligence services) traditionally performed by PricewaterhouseCoopers LLP
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.
(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 2005, $91,525 out of the total
$293,107 for Tax Fees was for tax compliance services.
(4) All Other Fees include fees related to financial information systems
implementation and design services. Our independent auditors did not
render any such services to us in fiscal year 2005 or any prior year. The
above numbers for All Other Fees for 2005 and 2004 are for access to on-
line accounting research software.
-11-
(5) Our proxy statement for fiscal year 2004 inadvertently incorrectly
reported the Audit Fees for fiscal year 2004 as $585,696. The above number
reflects the corrected Audit Fees amount for fiscal year 2004 of $614,359,
which increases the total fees for fiscal year 2004 to $936,772. The
additional $28,663 reflects certain fees incurred for services rendered by
PricewaterhouseCoopers LLP in connection with work performed in one of our
foreign offices for certain statutory audits and consents related to
regulatory filings.
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 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 2005 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.
-12-
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, 2005.
Respectfully submitted by the audit committee,
John P. Frazee, Jr.
H. Laurance Fuller(1)
Steven V. Wilkinson, Chairman
(1) Member effective March 2005.
-13-
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, 2005 (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)($)(6) OPTIONS(#) SATION($)(9)
---------------------------------------------------------------------------------------------------------------------
William P. Noglows(1) 2005 487,500 275,000 18,501 49,974 250,000(8) 47,616
President and 2004 412,500 425,000 318,765 -- 250,000(7) 27,314
Chief Executive Officer 2003 -- -- -- -- -- --
---------------------------------------------------------------------------------------------------------------------
William S. Johnson(2) 2005 307,500 100,000 250 12,493 68,000(8) 31,416
Vice President and 2004 300,000 200,000 400 9,994 50,000 27,111
Chief Financial Officer 2003 150,000 103,000(4) -- -- 40,000 15,184
---------------------------------------------------------------------------------------------------------------------
Adam F. Weisman(3) 2005 273,750 100,000 -- -- 50,000(8) 25,808
Vice President, 2004 94,091 100,000(4) -- -- 50,000 12,253
Operations 2003 -- -- -- -- -- --
---------------------------------------------------------------------------------------------------------------------
H. Carol Bernstein 2005 270,000 90,000 8,400 3,470 63,000(8) 30,887
Vice President, Secretary 2004 237,500 185,000 8,350 4,973 60,000 24,863
and General Counsel 2003 227,500 140,000 8,350 -- 47,500 24,279
---------------------------------------------------------------------------------------------------------------------
Daniel J. Pike 2005 267,500 90,000 300 -- 54,000(8) 27,069
Vice President of 2004 257,625 130,000 350 -- 60,000 26,653
Corporate Development 2003 247,875 150,000 350 -- 54,000 23,832
---------------------------------------------------------------------------------------------------------------------
--------------
(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) Mr. Johnson joined us as our Vice President and Chief Financial Officer on
April 1, 2003.
(3) Mr. Weisman joined us as our Vice President, Operations on May 26, 2004.
(4) These figures include a sign-on bonus paid to (i) Mr. Johnson in fiscal
year 2003 ($25,000); and (ii) Mr. Weisman in fiscal year 2004 ($40,000).
(5) These figures reflect (i) airline club membership fees for fiscal year
2003 in the amount of $350 for each of Ms. Bernstein and Mr. Pike, for
fiscal year 2004 in the amount of $300 for Mr. Noglows, $400 for Mr.
Johnson and $350 for each Ms. Bernstein and Mr. Pike, and for fiscal year
2005 in the amount of $250 for each Mr. Noglows and Mr. Johnson, $300 for
Mr. Pike, and $400 for Ms. Bernstein; (ii) transportation allowances in
the amount of $8,000 paid annually to Ms. Bernstein for fiscal years 2003,
2004 and 2005; (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 and 2005 in the amounts of $975 and
$4,130, respectively; (vi) payment of $4,635 for an amount of FICA taxes
that we inadvertently overwithheld from Mr. Noglows in fiscal year 2004
(calendar year 2003), and of
-14-
interest of $321 assessed by the IRS; and (vii) the payment of financial
planning fees in the amount of $9,165 on behalf of Mr. Noglows in fiscal
year 2005, as per the terms of his employment agreement.
(6) These amounts 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) 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) 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 are
scheduled to vest December 26, 2006; and
(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 are
scheduled to vest December 26, 2006.
The aggregate restricted stock holdings for the named executive officers
still subject to restrictions as of the end of fiscal 2005 consisted of
2,017 shares worth $59,259 (based upon the closing price of our common
stock as of September 30, 2005 of $29.38). The outstanding restricted
stock awards are eligible to receive dividends.
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 2005. On December 21, 2005, Mr.
Noglows, Mr. Johnson, and Mr. Pike participated in the Deposit Share Plan
receiving 427, 427, and 170 respective award shares on deposit under the
plan. The restrictions on these award shares will lapse on December 21,
2008 if the participant is employed by us at that time and the
corresponding deposit shares have remained on deposit with us through such
date.
(7) 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 of less
than $34.65, which action accelerated the vesting to September 1, 2005 of
187,500 options of this grant to Mr. Noglows.
(8) These amounts do not include options granted to our named executive
officers after the end of fiscal year 2005. On December 9, 2005, we
granted options to our named executive officers that have an exercise
price of $30.51,
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vest in equal increments upon each anniversary over four years and expire
December 9, 2015, in the amounts set forth in the table below:
SECURITIES
UNDERLYING
OPTIONS
NAME (#)
---- ----------
Mr. Noglows...................................................... 125,000
Mr. Johnson...................................................... 60,000
Mr. Weisman...................................................... 60,000
Ms. Bernstein.................................................... 58,000
Mr. Pike......................................................... 55,000
(9) 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 2005, 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.......................................... $18,900 $28,100
Mr. Johnson.......................................... $18,900 $11,900
Mr. Weisman.......................................... $22,985 $ 2,264
Ms. Bernstein........................................ $21,150 $ 9,203
Mr. Pike............................................. $19,125 $ 7,400
In fiscal year 2005, 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; Mr. Weisman, $559; Ms. Bernstein,
$534; Mr. Pike, $544) is also reflected in the column headed "All Other
Compensation" for fiscal year 2005.
-16-
OPTION GRANTS
The following table sets forth the number of shares of our common stock
underlying the options granted to the named executive officers during the fiscal
year ended September 30, 2005.
OPTION GRANTS IN LAST FISCAL YEAR
NUMBER PERCENT OF
OF SHARES TOTAL OPTIONS EXERCISE
UNDERLYING GRANTED TO PRICE GRANT DATE
OPTIONS EMPLOYEES IN PER EXPIRATION PRESENT
NAME GRANTED FISCAL YEAR SHARE ($) DATE VALUE ($)(1)
---- ---------- ------------- --------- ---------- ------------
William P. Noglows 250,000(2)(3) 21.2% $37.78 12/10/2014 5,698,075
William S. Johnson 68,000(2)(3) 5.8% $37.78 12/10/2014 1,549,876
Adam F. Weisman 50,000(2)(3) 4.2% $37.78 12/10/2014 1,139,615
H. Carol Bernstein 63,000(2)(3) 5.3% $37.78 12/10/2014 1,435,915
Daniel J. Pike 54,000(2)(3) 4.6% $37.78 12/10/2014 1,230,784
--------------
(1) These values were 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.
(2) These options were granted with a term of ten years, an expiration of
December 10, 2014 and vesting in equal amounts annually over a four-year
period, with the first quarter having vested on December 10, 2005.
(3) This table does not include options granted to our named executive
officers after the end of fiscal year 2005. For fiscal year 2006, on
December 9, 2005, we granted 125,000 options to Mr. Noglows, 60,000
options to each of Mr. Johnson and Mr. Weisman, 58,000 options to Ms.
Bernstein, and 55,000 options to Mr. Pike. These options have an exercise
price of $30.51, vest in equal increments upon each anniversary over four
years, and have a term of ten years, expiring December 9, 2015.
To address certain issues arising pursuant to a new rule (at the time
proposed) by the Financial Accounting Standards Board 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 ($34.65), through amendment made and effective as of September 27, 2004 to
the grant agreements for such stock options. Approximately 1.3 million options
with varying remaining vesting schedules of fewer than three years as of
September 1, 2005 were subject to the acceleration provision and became
exercisable as of such date as a result, including for the named executive
officers as set forth below:
NUMBER OF ACCELERATED
NAME OPTIONS (#)
---- ---------------------
Mr. Noglows................................................ 187,500
Mr. Johnson................................................ 37,500
Mr. Weisman................................................ --
Ms. Bernstein.............................................. 79,250
Mr. Pike................................................... 84,500
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OPTION EXERCISES AND FISCAL YEAR-END VALUES
The following table sets forth information with respect to option exercises
in the last fiscal year, the number of unexercised stock options held by the
named executive officers on September 30, 2005, and the value of the unexercised
in-the-money stock options on that date.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND
FISCAL YEAR-END OPTION VALUES
----------------------------------------------------------------------------------------------------------
NUMBER OF SECURITIES
UNDERLYING UNEXERCISED VALUE OF UNEXERCISED
OPTIONS IN-THE-MONEY OPTIONS AT
AT FISCAL YEAR END (#) FISCAL YEAR-END ($) (1)
SHARES ACQUIRED -----------------------------------------------------
UPON VALUE
NAME EXERCISES (#) REALIZED ($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
----------------------------------------------------------------------------------------------------------
William P. Noglows -- -- 250,000 250,000 -- --
----------------------------------------------------------------------------------------------------------
William S. Johnson -- -- 90,000 68,000 -- --
----------------------------------------------------------------------------------------------------------
Adam F. Weisman -- -- 12,500 87,500 -- --
----------------------------------------------------------------------------------------------------------
H. Carol Bernstein -- -- 196,500 63,000 -- --
----------------------------------------------------------------------------------------------------------
Daniel J. Pike 12,000 245,390 218,000 54,000 -- --
----------------------------------------------------------------------------------------------------------
--------------
(1) We determined the value of unexercised in-the-money options as of
September 30, 2005 by taking the difference between the fair market value
of a share of our common stock on September 30, 2005 ($29.38) and the
option exercise price of the applicable in-the-money option grant
multiplied by the number of shares underlying those options as of that
date.
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. Seven individuals currently
participate in the deposit share plan, and 18,303 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, and Mr.
Pike participate with (i) 3,447, (ii) 1,912, (iii) 386, and (iv) 341 respective
deposit shares and (i) 1,723, (ii) 956, (iii) 192, and (iv) 170 respective award
shares on deposit under the plan.
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 officers and
directors, with an option price of less 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 have agreed to provide Mr. Noglows
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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, to pay Mr. Noglows one year's base salary and to
allow any options that would vest during such period to vest during such time.
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
if we terminate his employment without cause. We also had entered into an
agreement with Victoria J. Brush, our Vice President of Human Resources, under
which we would have been obligated to pay her nine months' base salary if we had
terminated her employment without cause within the first nine months of her
employment prior to May 2, 2005. Ms. Brush still serves as our Vice President of
Human Resources and thus, we no longer have any obligation under this agreement.
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.
As of November 3, 2005, Matthew Neville, who had resigned from our board of
directors and as our Chairman, President and Chief Executive Officer on November
3, 2003, and with whom we had entered into an Employment and Transition
Agreement as of such date that provided for the continuation of his employment
with us until November 3, 2005, ceased to be an employee of our company. This
agreement is available as Exhibit 10.37 to our Form 10-Q filed on February 12,
2004. In consideration of Mr. Neville's having continued to provide advice to
the then new leadership of our company and of the other terms of the agreement,
including those relating to non-competition, confidentiality, and a general
release from claims, we had paid Mr. Neville a bonus of $300,000 for fiscal year
2003 and his annual base salary of $400,000 for the remainder of his employment
with us. As part of the agreement, Mr. Neville's Change in Control Severance
Protection Agreement, which contained terms similar to those described for Mr.
Noglows below, terminated on November 3, 2003, and subject to its terms, all
provisions ceased as of November 3, 2004. We also agreed to continue to provide
certain benefits available to all employees according to their standard terms
for the remainder of his employment with us to the extent we still made such
benefits available to all other employees, pay his COBRA premiums for the COBRA
period following his termination of employment, and agreed to make certain non-
material reimbursements, such as a one-time reimbursement for certain attorneys'
fees and airline club membership. Pursuant to the agreement, Mr. Neville was not
eligible for and did not receive any salary increases, bonus awards or stock
option awards for or during fiscal years 2004 or 2005 or otherwise; pursuant to
the terms of his stock option grant agreements, upon the termination of his
employment, Mr. Neville forfeited any non-vested stock options and all of Mr.
Neville's vested stock options expired unexercised as of December 3, 2005.
We have entered into Change in Control Severance Protection Agreements
("change in control agreements") with each of our named executive officers. 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 whose employment with us terminates, other than for cause, disability,
death or certain other specified reasons, within two years (in the case of Mr.
Johnson, Mr. Weisman, Ms. Bernstein and Mr. Pike) 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 of control or termination occurs or the highest bonus
paid to the executive in the three fiscal years preceding the fiscal year
in which change of control occurs, whichever is higher);
- two times (in the case of Mr. Johnson, Mr. Weisman, Ms. Bernstein and Mr.
Pike) or three times (in the case of Mr. Noglows), the executive's annual
cash compensation (salary plus bonus plus an amount equal to the
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));
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- 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, Mr.
Weisman, Ms. Bernstein and Mr. Pike) 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. Under the change in control agreements, all amounts accrued or awarded
to the executives under any incentive compensation or benefit plan, including
options and restricted stock granted under the 2000 Equity Incentive Plan, will
immediately vest on each executive's respective termination date.
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 the 2000 Equity Incentive Plan, an employee stock purchase plan, the
401(k) Plan, and Supplemental Plan.
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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 year
2005 and 2004, 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 2005 FISCAL YEAR 2004
--------- -------------------- --------------------
Base Salary....................................... $487,500 $412,500
Annual Incentive/Cash Bonus Amount Earned......... $275,000 $425,000
Stock Options(1)
Number granted.................................. 250,000 250,000(2)
Exercise price.................................. $37.78 $55.37
Equally over 4
Vesting......................................... years All vested(2)
Expiration...................................... December 10, 2014 November 3, 2013
Grant date present value........................ $5,698,075(3) $8,405,000(4)
Restricted Stock(5)
Number granted.................................. 1,296 None
Vesting......................................... December 22, 2007 n/a
Grant date present value........................ $49,974 n/a
Performance Shares................................ None None
Deferred Compensation
Tax-qualified 401(k) savings plan contributions
(as applicable to all employees)............. $18,900 $21,450
Accruals under our non-qualified supplemental
savings plan (as applicable to all
employees)................................... $28,100 $5,300
Supplemental Retirement Benefit................... None None
Executive Perquisites
Basic life insurance and accidental death and
dismemberment insurance coverage (as
applicable to all employees)................. $616 $564
Airline club membership fees.................... $250 $300
Business eating club initiation fee............. n/a $8,500
Business eating club membership fees............ $4,130 $975
Relocation expenses and taxes on relocation
expenses..................................... n/a $306,426
Attorneys' fees for employment agreement........ n/a $2,564
Financial planning fees......................... $9,165 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).......... $500,000 $450,000
Post Retirement Package........................... 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........................... $6,571,710 $9,588,579
--------------
(1) This table does not include 125,000 options granted to Mr. Noglows on
December 9, 2005, with an exercise price of $30.51, vesting equally over 4
years, expiring on December 9, 2015, and with a grant date present value
of $2,223,564, 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.
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(2) Granted as of Mr. Noglows' date of hire pursuant to his employment
agreement. These options vested as of September 1, 2005 pursuant to
accelerated vesting applicable to all employees as described elsewhere in
this Proxy Statement. See "EXECUTIVE COMPENSATION -- Options Grants."
(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) Estimated using the Black-Scholes option pricing formula on the basis of
the following assumptions: expected volatility: 71%; risk free rate of
return: 3.3%; annualized dividend yield: 0.0%; and expected time until
exercise: 5.0 years.
(5) 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. These amounts do not include an award share grant to Mr.
Noglows for 427 shares made on December 21, 2005 pursuant to our Executive
Officer Deposit Share Plan that vests on December 21, 2008, assuming the
underlying deposit shares have remained on deposit until such time.
(6) Upon termination without cause not involving a change in control, Mr.
Noglows is entitled to one year's base salary (calculated for the purposes
of this table as of the end of each respective fiscal year) 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."
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 the 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 ("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 2005, 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 executives 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
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stock option grants under the 2000 Equity Incentive Plan 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, exercises its discretion and makes its judgment
after considering all relevant factors.
The key elements of our executive compensation program are base salary,
annual bonuses and long-term incentives. Each of these is addressed separately
below. In determining compensation, the compensation committee considers all
elements of an executive's total compensation package, including change in
control arrangements, participation in savings plans and other benefits.
Base Salaries. The compensation committee regularly reviews each executive
officer's base salary. 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 executives 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 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, executives' opportunities to earn
bonuses correspond to the degree to which the pre-established goals are
achieved.
Actual payouts for 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 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, 2004, the Board of Directors and compensation committee
established the performance goals upon which annual bonus awards for services
rendered in fiscal year 2005 by our Chairman, President and Chief Executive
Officer, our other named executive officers, our other executive officers, and
all employees would be
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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
2005 established by the compensation committee for these executives included:
financial goals that include a specified dollar amount of revenue, gross margin
as a percentage of revenue, earnings per share, and cost of goods sold as a
percentage of revenue; quality and customer relationship goals that include
certain customer satisfaction measures; research and development goals that
include development and advancement of certain products and applications; and,
certain organizational goals.
In December, 2005, the Board 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 2006
are intended to be based. The performance goals for fiscal year 2006 are:
financial goals that include 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 include
development and advancement of certain products and applications; and, certain
new business initiatives. 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 company, as well as the attainment of
individual performance objectives, as assessed by the compensation committee,
using its discretion.
Long-Term Incentives. Long-term incentives are provided to executives
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.
Initial or "new-hire" options and restricted stock may be granted to
executive officers when they join the company. Thereafter, options and
restricted stock may be granted to each executive officer annually and from time
to time based on performance. To enhance retention, options and restricted stock
granted to executive officers are subject to vesting restrictions that generally
lapse over a four-year period.
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 executives' levels of responsibility, prior experience and
years of service, historical award data and compensation practices at the
comparison group of companies. In determining award sizes, the compensation
committee does not assign specific weights to these factors. Rather, the factors
are evaluated on an aggregate basis.
Our executive officers are also eligible to participate in the Executive
Officer Deposit Share Plan. See "EXECUTIVE COMPENSATION -- Executive Officer
Deposit Share Plan," above.
CEO Compensation. 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 2005, 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 2005, a non-qualified stock option grant in
December, 2005 as part of the annual grant cycle for which all employees were
eligible, and a salary increase effective on January 1, 2006. In addition, in
setting both the cash-based and equity-based elements of Mr. Noglows'
compensation, the compensation committee made an overall
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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 2005, which was 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 2005,
and the aspects of the overall pre-established goals for fiscal year 2005 that
were met, as assessed by the compensation committee, using its discretion. Based
upon all of these criteria, the compensation committee awarded Mr. Noglows
$275,000 as a cash bonus for fiscal year 2005, which together with his $500,000
annual base salary effective as of January 1, 2005 ($487,500 paid during fiscal
year 2005), resulted in total cash compensation to Mr. Noglows for fiscal year
2005 of $762,500; this was $75,000 less than the $837,500 in total cash
compensation that Mr. Noglows received for fiscal year 2004. The committee also
set Mr. Noglows' base salary, effective January 1, 2006, at $520,000. In
addition, on December 9, 2005, the compensation committee awarded Mr. Noglows
equity-based compensation in the form of stock options to purchase an aggregate
of 125,000 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 9, 2015, at an exercise price of $30.51. Aside from the number of
options granted, the terms and conditions of this option grant are the same as
those for grants made to our other employees, including those that provide that
any options that are not vested at the time of termination of employment are
forfeited.
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(1)
John P. Frazee, Jr.
H. Laurance Fuller, Chairman(2)
Edward J. Mooney(1)
Albert Y. C. Yu(1)
(1) Member effective March 2005.
(2) Chairman effective March 2005.
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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.
Option Agreement Amendments
Mr. Skates decided not to stand for re-election to the Board of Directors
at last year's annual meeting on March 8, 2005. Accordingly, his term as a
director expired on the annual meeting date of March 8, 2005. Because last
year's annual meeting date, and Mr. Skates' termination of service date,
occurred one, two, three and four days, respectively, ahead of the anniversary
of prior annual meeting dates and the dates upon which a total of 8,125 options
of Mr. Skates' options would otherwise vest, on January 17, 2005, pursuant to
the approval of the board of directors and the nominating and corporate
governance committee of the board, we amended four option grant agreements
between Mr. Skates and our company related to 8,125 options to accelerate the
vesting of these options to March 8, 2005 that would have otherwise vested on
March 9, March 11, March 12 and March 13, 2005. At the time of the amendment,
all accelerated options had an option price greater than the fair market value
of the shares of the company. All other unvested options terminated upon his
termination of service.
Due to Mr. Enriquez-Cabot's resignation, his termination of service date
was March 10, 2005, which occurred one, two, and three days, respectively, ahead
of the dates upon which a total of 5,625 options of Mr. Enriquez-Cabot's options
would otherwise vest. As a result, on January 29, 2005, pursuant to approval of
the board and the nominating and corporate governance committee of the board, we
amended three option grant agreements between Mr. Enriquez-Cabot and our company
to accelerate the vesting of these 5,625 options to March 10, 2005 that would
otherwise have vested on March 11, March 12 and March 13, 2005, in the event of
his resignation as of such date. At the time of the amendment, all accelerated
options had an option price greater than the fair market value of the shares of
the company. All other unvested options terminated upon his termination of
service.
-26-
PERFORMANCE GRAPH
The following graph illustrates the cumulative total stockholder return on
our common stock during the period from September 30, 2000 through September 30,
2005 and compares it with the cumulative total return on the NASDAQ Stock Market
Index and the Philadelphia Semiconductor Index. The comparison assumes $100 was
invested on September 30, 2000 in our common stock and in each of the foregoing
indices and assumes reinvestment of dividends, if any. The performance shown is
not necessarily indicative of future performance.
COMPARISON OF 5 YEAR CUMULATIVE TOTAL RETURN*
AMONG CABOT MICROELECTRONICS CORPORATION,
THE NASDAQ STOCK MARKET (U.S.) INDEX
AND THE PHILADELPHIA SEMICONDUCTOR INDEX
graph
CUMULATIVE TOTAL RETURNS
-------------------------------------------------------------------------------------------
9/00 12/00 3/01 6/01 9/01 12/01 3/02 6/02 9/02 12/02 3/03
------ ------ ----- ------ ------ ------ ------ ----- ----- ----- -----
Cabot Microelectronics
Corporation................. 100.00 108.20 92.19 129.17 100.65 165.10 140.94 89.92 77.58 98.33 87.38
Nasdaq Stock Market (U.S.).... 100.00 67.92 49.54 59.06 40.72 53.57 51.20 41.09 32.86 37.77 38.04
Philadelphia Semiconductor.... 100.00 75.82 71.77 77.67 49.77 79.07 88.60 58.61 34.24 39.01 39.47
CUMULATIVE TOTAL RETURNS
--------------------------------------------------------------------------------
6/03 9/03 12/03 3/04 6/04 9/04 12/04 3/05 6/05 9/05
------ ------ ------ ----- ----- ----- ----- ----- ----- -----
Cabot Microelectronics Corporation.. 105.06 115.90 102.08 87.77 63.77 75.52 83.48 65.38 60.40 61.21
Nasdaq Stock Market (U.S.).......... 45.81 50.65 56.48 56.11 57.77 53.68 61.54 56.38 58.23 60.97
Philadelphia Semiconductor.......... 51.72 62.83 68.98 65.40 62.71 50.47 58.37 57.52 63.27 63.19
--------
* $100 invested on 9/30/00 in stock or index -- including reinvestment of
dividends.
Fiscal year ending September 30.
-27-
2007 ANNUAL MEETING OF STOCKHOLDERS
The 2007 annual meeting of stockholders is presently scheduled to be held
on Tuesday, March 6, 2007. Any proposals of stockholders intended for inclusion
in the proxy statement for our 2007 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 Wednesday, September 27, 2006. If a
stockholder of the company intends to present a proposal at the 2007 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 8, 2006 and not later than Friday, December
8, 2006. 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
-28-
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 ("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 senior internal audit manager 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
senior internal audit manager, internal audit service provider, outside counsel
or other advisors in separate executive sessions to discuss any matters that the
Committee believes should be addressed privately, without management's presence,
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
(or other) auditor(s) and any other terms of the engagement of the independent
(or other) auditor for any and all services (whether auditing services, audit-
related services, internal control-related services, tax services or permitted
non-audit services), to be provided by the independent (or other) auditor, in
advance of such services being provided. The Committee may delegate such pre-
approval of services to the Committee Chair, and the Committee Chair shall
provide subsequent notification to the Committee of any such pre-approval at 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 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 and 12 above, and based on the disclosures received from the independent
auditor regarding its independence and discussions with the auditor regarding
such independence in paragraph 9 above, recommend to the Board whether the
audited financial statements should be included in the Company's Annual Report
on Form 10-K for the fiscal year subject to the audit.
15. The Committee shall review and discuss with management, including the
senior internal audit manager and 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 senior
internal audit manager, 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 discuss with the independent auditor and with
management any material written communications between the independent auditor
and management, including any 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.
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 senior internal audit manager. The Committee shall review and
preapprove the selection of the Company's provider of internal audit services
(if any). The Chair may represent the entire Committee for purposes of these
matters.
21. The Committee shall discuss at least quarterly with the senior internal
audit manager and provider of internal audit services the activities and
organizational structure of the Company's internal audit function and the
qualification of the primary personnel performing such function.
22. Management shall furnish to the Committee a copy of each internal audit
report.
A-3
23. The Committee shall, at its discretion, meet with the senior internal
audit manager and provider of internal audit services to discuss any reports or
any other matters brought to the attention of the Committee by the senior
internal audit manager.
24. The senior internal audit manager and provider of internal audit
services 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.
31. 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)
1995-PS-06
DETACH HERE IF YOU ARE RETURNING YOUR PROXY CARD BY MAIL
PROXY
CABOT MICROELECTRONICS CORPORATION
ANNUAL MEETING OF STOCKHOLDERS - MARCH 7, 2006
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 7, 2006 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 of said proxies hereunder.
In their discretion, each of the above-named proxies is authorized to vote upon
such other business incident to the conduct of the Annual Meeting as may
properly come before the meeting or any postponements or adjournments thereof.
The undersigned hereby revokes all prior proxies given by the undersigned to
vote at said meeting.
IF NO INSTRUCTIONS ARE INDICATED HEREIN, THIS PROXY WILL BE TREATED AS A GRANT
OF AUTHORITY TO VOTE FOR THE PROPOSALS AND ANY OTHER MATTERS TO BE VOTED UPON AT
THE ANNUAL MEETING OR AT ANY POSTPONEMENTS OR ADJOURNMENTS THEREOF.
SEE REVERSE CONTINUED AND TO BE SIGNED ON REVERSE SIDE SEE REVERSE
SIDE SIDE
CABOT MICROELECTRONICS
CORPORATION
C/O COMPUTERSHARE
P.O. BOX 8694
EDISON, NJ 08818-8694
YOUR VOTE IS IMPORTANT. PLEASE VOTE IMMEDIATELY.
VOTE-BY-INTERNET VOTE-BY-TELEPHONE
LOG ON TO THE INTERNET AND GO TO (COMPUTER GRAPHIC) OR CALL TOLL-FREE (TELEPHONE GRAPHIC)
HTTP://WWW.EPROXYVOTE.COM/CCMP 1-877-PRX-VOTE (1-877-779-8683)
IF YOU VOTE OVER THE INTERNET OR BY TELEPHONE, PLEASE DO NOT MAIL YOUR CARD.
DETACH HERE IF YOU ARE RETURNING YOUR PROXY CARD BY MAIL
PLEASE MARK
[X] VOTES AS IN 1995
THIS EXAMPLE.
OUR BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE YOUR SHARES "FOR" THE ELECTION OF EACH OF THE NOMINEES NAMED BELOW UNDER PROPOSAL 1
AND "FOR" THE RATIFICATION OF THE SELECTION OF PRICEWATERHOUSECOOPERS LLP AS THE COMPANY'S INDEPENDENT AUDITORS FOR FISCAL YEAR 2006
UNDER PROPOSAL 2.
FOR AGAINST ABSTAIN
1. Approval of the election to the board of directors of 2. Ratification of the selection of [ ] [ ] [ ]
(01) John P. Frazee, Jr., (02) William P. Noglows, and PricewaterhouseCoopers LLP as the
(03) Albert Y.C. Yu for terms expiring in 2009. company's independent auditors for
fiscal year 2006.
FOR ALL WITHHOLD
(EXCEPT AS MARKED [ ] [ ] AUTHORITY
TO THE CONTRARY) FOR ALL
[ ] INSTRUCTION: TO WITHHOLD AUTHORITY TO VOTE FOR MARK HERE FOR ADDRESS CHANGE AND NOTE AT LEFT [ ]
ANY NOMINEE, MARK THE BOX ABOVE AND WRITE THAT
NOMINEE'S NAME IN THE SPACE PROVIDED ABOVE.
THE persons named in this proxy also may vote, in their discretion,
upon such other matters as may properly come before the meeting or
any postponement or adjournment thereof.
PLEASE COMPLETE, SIGN, AND MAIL THIS PROXY PROMPTLY IN THE ENCLOSED
ENVELOPE. NO POSTAGE IS REQUIRED FOR MAILING IN THE UNITED STATES.
IMPORTANT: Please date this proxy and sign exactly as your name
appears on this proxy. If shares are held by joint tenants, both must
sign. When signing as attorney, executor, administrator, trustee or
guardian, please give title as such. If a corporation, please sign in
full corporate name by president, or authorized officer. If a
partnership, please sign in partnership name by authorized person.
Signature:____________________________ Date: __________________ Signature:____________________________ Date: __________________