SCHEDULE 14A INFORMATION

 

Proxy Statement Pursuant to Section 14(a) of the Securities

Exchange Act of 1934 (Amendment No.     )

 

 

 

Check the appropriate box:

 

MKS Instruments, Inc.

(Name of Registrant as Specified In Its Charter)

 

(Name of Person(s) Filing Proxy Statement)

 

Payment of Filing Fee (Check the appropriate box):

þ No fee required.

o Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.

 

    1) Title of each class of securities to which transaction applies:

 

    2) Aggregate number of securities to which transaction applies:

 

    3) Per unit price or other underlying value of transaction computed pursuant to Exchange Act Rule 0-11 (Set forth the amount on
      which the filing fee is calculated and state how it was determined):

 

    4) Proposed maximum aggregate value of transaction:

 

    5) Total fee paid:

 

o Fee paid previously with preliminary materials.

 

o Check box if any part of the fee is offset as provided by Exchange Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee
    was paid previously. Identify the previous filing by registration statement number, or the Form or Schedule and the date of its filing.

 

    1) Amount Previously Paid:

 

    2) Form, Schedule or Registration Statement No.:

 

    3) Filing Party:

 

    4) Date Filed:

 

 

 

MKS INSTRUMENTS, INC.
2 TECH DRIVE, SUITE 201
ANDOVER, MASSACHUSETTS 01810

 

March 23, 2009

 

Dear shareholder:

 

You are cordially invited to attend the 2009 Annual Meeting of Shareholders of MKS Instruments, Inc. to be held on Monday, May 4, 2009, at 10:00 a.m. at the Wyndham Boston Andover Hotel, 123 Old River Road, Andover, Massachusetts 01810.

 

The enclosed notice of Annual Meeting and proxy statement describe the business to be transacted at the Annual Meeting and provide additional information about us that you should know when voting your shares. The principal business at the Annual Meeting will be to elect Class I Directors, amend the 2004 Stock Incentive Plan to allow for a one-time option exchange program, amend the Employee Stock Purchase Plan and the International Employee Stock Purchase Plan to increase the number of shares available thereunder, and to ratify the selection of the independent registered public accounting firm for fiscal 2009.

 

Whether or not you plan to attend the Annual Meeting, please complete, date, sign and return your Proxy Card promptly in the enclosed envelope, which requires no postage if mailed in the United States. If you attend the Annual Meeting, you may vote in person if you wish, even if you have previously returned your Proxy Card.

 

On behalf of MKS, I would like to express our appreciation for your continued interest in our company.

 

Sincerely,

 

LEO BERLINGHIERI

Chief Executive Officer and President

 

 

MKS INSTRUMENTS, INC.
2 TECH DRIVE, SUITE 201
ANDOVER, MASSACHUSETTS 01810

 

NOTICE OF 2009 ANNUAL MEETING OF SHAREHOLDERS
AND INTERNET AVAILABILITY OF PROXY MATERIALS
TO BE HELD ON MAY 4, 2009

 

To the shareholders:

 

NOTICE IS HEREBY GIVEN that the 2009 Annual Meeting of Shareholders of MKS INSTRUMENTS, INC., a Massachusetts corporation (the “Company”), will be held on Monday, May 4, 2009 at 10:00 a.m. at the Wyndham Boston Andover Hotel, 123 Old River Road, Andover, Massachusetts 01810. At the meeting, shareholders will consider and vote on the following matters:

 

 

The shareholders will also act on any other business as may properly come before the meeting.

 

The Board of Directors has fixed the close of business on March 6, 2009 as the record date for the determination of shareholders entitled to notice of, and to vote at, the Annual Meeting and any adjournment or adjournments thereof. Our stock transfer books will remain open for the purchase and sale of our Common Stock.

 

A copy of our Annual Report to Shareholders for the year ended December 31, 2008, which contains consolidated financial statements and other information of interest to shareholders, accompanies this Notice and the enclosed Proxy Statement. These materials may also be accessed on our website at www.mksinstruments.com/AnnualMeetingMaterials or by calling (800) 227-8766 ext. 5576.

 

If you would like to attend the Annual Meeting and your shares are held by a broker, bank or other nominee, you must bring to the Annual Meeting a letter from the nominee confirming your beneficial ownership of such shares. In order to vote your shares at the Annual Meeting, you must obtain from the nominee a proxy issued in your name. You must also bring a form of personal identification.

 

By Order of the Board of Directors,

 

RICHARD S. CHUTE

Secretary

 

Andover, Massachusetts

March 23, 2009

MKS INSTRUMENTS, INC.
2 TECH DRIVE, SUITE 201
ANDOVER, MASSACHUSETTS 01810

 

PROXY STATEMENT

 

This Proxy Statement is furnished in connection with the solicitation of proxies by the Board of Directors of MKS Instruments, Inc., a Massachusetts corporation, for use at the 2009 Annual Meeting of Shareholders to be held on May 4, 2009, at 10:00 a.m. at the Wyndham Boston Andover Hotel, 123 Old River Road, Andover, Massachusetts 01810, and at any adjournment or postponement thereof (the “Annual Meeting”). References in this proxy statement to “we,” “us,” the “Company” or “MKS” refer to MKS Instruments, Inc. and its consolidated subsidiaries.

 

All proxies will be voted in accordance with the shareholders’ instructions. If no choice is specified in the proxy, the shares will be voted in favor of the matters set forth in the accompanying Notice of 2009 Annual Meeting of Shareholders. Any proxy may be revoked by a shareholder at any time before its exercise by delivery of written revocation to the Secretary of MKS. Attendance at the Annual Meeting will not in itself be deemed to revoke a proxy unless the shareholder gives affirmative notice at the Annual Meeting that the shareholder intends to revoke the proxy and vote in person.

 

VOTING SECURITIES AND VOTES REQUIRED

 

At the close of business on March 6, 2009, the record date for the determination of shareholders entitled to notice of and to vote at the Annual Meeting, there were issued and outstanding and entitled to vote 49,602,890 shares of our common stock, no par value per share (the “Common Stock”). Each outstanding share entitles the record holder to one vote on each matter submitted at the Annual Meeting.

 

In order to transact business at the Annual Meeting, we must have a quorum. Under our Amended and Restated By-Laws (the “By-Laws”), the holders of a majority of the shares of Common Stock issued and outstanding and entitled to vote at the Annual Meeting shall constitute a quorum for the transaction of business at the Annual Meeting. Shares of Common Stock present in person or represented by proxy (including “broker non-votes” and shares that abstain or do not vote with respect to a particular proposal to be voted upon) will be counted for purposes of determining whether a quorum exists at the Annual Meeting.

 

The affirmative vote of the holders of a plurality of the shares of Common Stock voting on the matter is required for the election of Directors. The amendments to the 2004 Stock Incentive Plan, Third Restated 1999 Employee Stock Purchase Plan and Second Amended and Restated International Employee Stock Purchase Plan and the ratification of PricewaterhouseCoopers LLP, or PwC, require the approval of the holders of a majority of the shares of Common Stock present or represented by proxy at the Annual Meeting and voting on the matter.

 

Shares held by shareholders who abstain from voting as to a particular matter, and “broker non-votes,” which are shares held in “street name” by banks, brokers or nominees, who indicate on their proxies that they do not have discretionary authority to vote such shares as to a particular matter, will not be counted as votes in favor of such matter, and also will not be counted as shares voting on such matter. Accordingly, abstentions and broker non-votes will have no effect on the voting on a matter that requires the affirmative vote of a certain percentage of the shares voting on the matter. If the shares you own are held in street name by a bank or brokerage firm, your bank or brokerage firm, as the record holder of your shares, is required to vote your shares according to your instructions. In order to vote your shares, you will need to follow the directions your bank or brokerage firm provides you.

 

THE NOTICE OF ANNUAL MEETING, THIS PROXY STATEMENT AND OUR ANNUAL REPORT TO SHAREHOLDERS FOR THE YEAR ENDED DECEMBER 31, 2008 ARE BEING MAILED TO SHAREHOLDERS ON OR ABOUT MARCH 27, 2009. A COPY OF OUR ANNUAL REPORT ON FORM 10-K FOR THE YEAR ENDED DECEMBER 31, 2008 AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION (THE “SEC”), EXCLUDING EXHIBITS, WILL BE FURNISHED WITHOUT CHARGE TO ANY SHAREHOLDER UPON WRITTEN REQUEST TO: INVESTOR RELATIONS DEPARTMENT, MKS INSTRUMENTS, INC., 2 TECH DRIVE, SUITE 201, ANDOVER, MA 01810. EXHIBITS WILL BE PROVIDED UPON WRITTEN REQUEST AND PAYMENT OF AN APPROPRIATE PROCESSING FEE.

 

SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT

 

The following table sets forth certain information with respect to the beneficial ownership of Common Stock by (i) each of our current directors; (ii) the executive officers named in the Summary Compensation Table below; (iii) each shareholder known to us to be the beneficial owner of more than 5% of the outstanding shares of Common Stock; and (iv) all of our directors and executive officers as a group. Unless otherwise indicated in the footnotes to the table, (i) all information set forth in the table is as of January 31, 2009; and (ii) the address for each of our directors and executive officers is: c/o MKS Instruments, Inc., 2 Tech Drive, Suite 201, Andover, Massachusetts 01810.

 

 

 

 

To our knowledge, there are no voting trusts or similar arrangements among any of the foregoing persons or entities with respect to the voting of shares of Common Stock.

 

PROPOSAL ONE

 

ELECTION OF DIRECTORS

 

Our By-Laws provide for a Board of Directors that is divided into three classes. The term of the Class I Directors expires at the 2009 Annual Meeting, the term of the Class II Directors expires at the 2010 Annual Meeting and the term of the Class III Directors expires at the 2011 Annual Meeting. Leo Berlinghieri, Hans-Jochen Kahl and Louis P. Valente are currently proposed for election to serve as Class I Directors for a term to expire at the 2012 Annual Meeting. Each nominee has consented to being named herein, and, if elected, to serve as a director until his successor is duly elected and qualified.

 

Shares represented by all proxies received by the Board of Directors and not so marked as to withhold authority to vote for an individual director will be voted (unless one or more nominees are unable or unwilling to serve) for the election of the nominees named below. The Board of Directors expects that each of the nominees named below will be available for election, but if any of them is not a candidate at the time the election occurs, it is intended that such proxies will be voted for the election of a substitute nominee to be designated by the Board of Directors.

 

BOARD RECOMMENDATION

 

THE BOARD OF DIRECTORS BELIEVES THAT APPROVAL OF THE ELECTION OF LEO BERLINGHIERI, HANS-JOCHEN KAHL AND LOUIS P. VALENTE TO SERVE AS CLASS I DIRECTORS IS IN THE BEST INTERESTS OF MKS AND OUR SHAREHOLDERS AND THEREFORE RECOMMENDS A VOTE “FOR” THIS PROPOSAL.

 

DIRECTORS

 

Set forth below are the names and ages of each member of our Board of Directors (including those who are nominees for election as Class I Directors) and the positions and offices held, principal occupation and business experience during the past five years, the names of other publicly held companies of which the individual serves as a director and the year of commencement of the term as our director. Information with respect to the number of shares of Common Stock beneficially owned by each director, directly or indirectly, as of January 31, 2009, appears in this proxy statement under the heading “Security Ownership of Certain Beneficial Owners and Management.”

 

 

 

 

John R. Bertucci

 

Mr. Bertucci has served as our director since 1974, and has been Chairman of the Board of Directors since November 1995. Mr. Bertucci served as Executive Chairman from July 2005 until December 2006. In connection with his retirement as Executive Chairman, Mr. Bertucci was available for consultation with us for up to ten hours per month until December 2007. Mr. Bertucci served as our Chief Executive Officer from November 1995 to July 2005 and served as President from 1974 to May 1999 and again from November 2001 to April 2004. From 1970 to 1974, he was our Vice President and General Manager. Mr. Bertucci holds an M.S. in Industrial Administration and a B.S. in Metallurgical Engineering from Carnegie Mellon University. Mr. Bertucci is a member of the Board of Trustees of Carnegie Mellon University, past Chairman and a member of the Executive Board of The Massachusetts High Technology Council, and a member of the Board of Trustees of several other non-profit organizations.

 

Cristina H. Amon

 

Ms. Amon has served as our director since 2007. She has served as the Dean, faculty of Applied Science and Engineering, Alumni Chair Professor of Bioengineering and a member of the Department of Mechanical and Industrial Engineering at the University of Toronto since July 2006. Prior to that, Ms. Amon served at Carnegie Mellon University, as Director of the Institute for Complex Engineered Systems from September 1999 until July 2006, and was a Raymond Lane Distinguished Professor, Mechanical Engineering and Biomedical Engineering from September 2001 until July 2006. Ms. Amon is the Nominating Committee Chair for the American Association for the Advancement of Science (AAAS) and Executive Board Member of the American Society of Mechanical Engineers (ASME), Electronic and Photonic Packaging division. She also serves as Executive Board Member of the American Society Engineering Education (ASEE), Engineering Deans Council, serves on the External Advisory Board for the Department of Mechanical and Aerospace Engineering at the University of Texas and is the Chair of the Global Engineering Deans Council (GEDC). She is a member of the National Academy of Engineering (NAE) and Fellow of AAAS, ASEE, ASME, EIC and IEEE.

Robert R. Anderson

 

Mr. Anderson has served as our director since January 2001. Mr. Anderson is a private investor. From October 1998 to October 2000, Mr. Anderson served as Chairman of Yield Dynamics, Inc., a private semiconductor control software company, and served as its CEO from October 1998 to April 2000. Mr. Anderson also served as CEO of Silicon Valley Research, Inc., a semiconductor design automation software company, from December 1996 to August 1998 and as Chairman from January 1994 to January 2001. Mr. Anderson currently serves as a director of Aehr Test Systems, Inc., a manufacturer of semiconductor test and burn-in equipment. He also serves as the President and a director of the Robert Anderson Foundation and as a director of a private company.

 

Gregory R. Beecher

 

Mr. Beecher has served as our director since August 2006. Mr. Beecher has served as CFO of Teradyne, Inc., a semiconductor and system level test equipment provider, since 2001. He is a certified public accountant, and was a Partner with PricewaterhouseCoopers LLP from October 1993 to March 2001, working with numerous semiconductor equipment and instruments providers, along with other technology-related enterprises.

 

Leo Berlinghieri

 

Mr. Berlinghieri has served as our director and as our Chief Executive Officer and President since July 2005. He previously served as President and Chief Operating Officer from April 2004 to July 2005, and as Vice President and Chief Operating Officer from July 2003 until April 2004. From November 1995 to July 2003, he served as Vice President, Global Sales and Service. From 1980 to November 1995, he served in various management positions of MKS, including Manufacturing Manager, Production and Inventory Control Manager, and Director of Customer Support Operations. He also serves as a director of Rudolph Technologies, Inc.

 

Richard S. Chute

 

Mr. Chute has served as our director since 1974. Mr. Chute was a member of the law firm of Hill & Barlow, a Professional Corporation, from 1971 to January 2003, and is currently an attorney in private practice. Mr. Chute serves as a director of two non-profit corporations.

 

Peter R. Hanley

 

Mr. Hanley has served as our director since March 2008. Mr. Hanley served as President of Novellus Systems, Inc. from May 2001 to December 2003. Prior to that, he served as Novellus’ Executive Vice President of Worldwide Sales from June 1992 until May 2001. After his retirement as President, Mr. Hanley served as a part-time employee of Novellus from January 2004 until December 2007. Since January 2008, Mr. Hanley has served as an independent consultant to Novellus, focused on customer sales strategies and executive training.

 

Hans-Jochen Kahl

 

Mr. Kahl has served as our director since January 2001. From June 1994 through September 1996, Mr. Kahl served as a consultant to Ebara, a Japanese manufacturer of industrial water pumps and vacuum process equipment for the semiconductor industry. Mr. Kahl was employed by Leybold AG, formerly Leybold-Heraeus GmbH, a leading international manufacturer of vacuum pumps and other vacuum process equipment for the semiconductor industry, from July 1983 to March 1992, where he served as a managing director and was primarily responsible for sales, marketing and strategic planning. From September 1995 to November 2000, he was a director of Applied Science and Technology, Inc. (ASTeX) which was acquired by MKS. Since November 1996, he has served as a director of Solid State Management, a privately held manufacturer of high precision measurement tools.

 

Louis P. Valente

 

Mr. Valente has served as our director since February 1996. Mr. Valente has served as Chairman of Palomar Medical Technologies, Inc., a company which designs, manufactures and markets cosmetic lasers, since September 1997. He has been a director of Palomar Medical Technologies, Inc. since February 1997 and was its President and

Chief Executive Officer from May 1997 to May 2002. Mr. Valente is also a director of Medical Information Technology, Inc.

 

Agreements as to Nomination

 

Mr. Bertucci resigned from his employment with MKS effective December 31, 2006. Mr. Bertucci’s employment agreement provided that if Mr. Bertucci resigned from his employment, then, subject to applicable law, our By-Laws and articles of organization and the directors’ fiduciary duties, the Board of Directors shall nominate Mr. Bertucci for election as a Class III director and consider Mr. Bertucci for appointment as Chairman of the Board, until such time as Mr. Bertucci is no longer eligible for nomination as a director.

 

CORPORATE GOVERNANCE

 

Board Independence

 

The Board of Directors has determined that all of the members of the Board of Directors, other than Mr. Bertucci and Mr. Berlinghieri, are independent as defined under the rules of the NASDAQ Stock Market.

 

In determining Mr. Hanley’s independence, the Board of Directors considered Mr. Hanley’s past and current relationship with Novellus, a significant customer of MKS. The Board considered such factors including, but not limited to, the fact that Mr. Hanley is not a significant shareholder of Novellus and has not been an executive officer of Novellus since December 2003, and that Mr. Hanley’s current role and compensation as a consultant to Novellus does not relate in any way to relationships with that company’s suppliers in general or with us in particular.

 

The Board of Directors has selected Mr. Valente to serve as Lead Director of the Board of Directors. The primary role of the Lead Director is to serve as a liaison between the independent directors and the Chairman of the Board and the Chief Executive Officer and to represent the interest of the independent directors, as appropriate.

 

Board of Director Meetings and Committees of the Board of Directors

 

The Board of Directors held four meetings in 2008. Each director attended at least 75% of the aggregate of the total number of meetings of the Board of Directors and the total number of meetings of all committees of the Board of Directors on which he or she served. Pursuant to our Corporate Governance Guidelines, directors are encouraged to attend annual meetings of shareholders. All of the directors then serving on the Board attended the 2008 Annual Meeting of Shareholders.

 

The Board of Directors has established three standing committees — Audit, Compensation and Nominating and Corporate Governance — each of which operates under a charter that has been approved by the Board of Directors. Each committee’s current charter is posted under the Investors link on our website, www.mksinstruments.com, under the heading Corporate Governance.

 

Compensation Committee

 

The Compensation Committee consists of Messrs. Anderson, Kahl, Hanley and Valente (Chairman). The Compensation Committee’s responsibilities include:

 

 

 

The Compensation Committee held four meetings in 2008.

 

Audit Committee

 

The Audit Committee consists of Messrs. Anderson, Beecher (Chairman) and Valente. The Audit Committee’s responsibilities include:

 

 

The Audit Committee held five meetings in 2008.

 

Nominating and Corporate Governance Committee

 

The Nominating and Corporate Governance Committee consists of Ms. Amon, Messrs. Chute (Chairman) and Kahl. The Nominating and Corporate Governance Committee’s responsibilities include:

 

 

The Nominating and Corporate Governance Committee also oversees the annual self-evaluations of the Board of Directors and each of the Board committees. The Nominating and Corporate Governance Committee held two meetings in 2008.

 

For information relating to the nomination of directors, see “Director Candidates” below.

 

Audit Committee Financial Expert

 

The Board of Directors has determined that each of the three members of the Audit Committee is an “audit committee financial expert” as defined in Item 407(d)(5) of Regulation S-K.

Director Candidates

 

The Nominating and Corporate Governance Committee recommended to the Board of Directors that the director nominees be nominated by the Board of Directors for election as Class I directors. The process followed by the Nominating and Corporate Governance Committee to identify and evaluate director candidates includes requests to Board members and others for recommendations, meetings from time to time to evaluate biographical information and background material relating to potential candidates and interviews of selected candidates by members of the Committee and the Board of Directors.

 

In considering whether to recommend any particular candidate for inclusion in the Board of Directors’ slate of recommended director nominees, the Nominating and Corporate Governance Committee applies the criteria attached to the Committee’s charter. These criteria include the candidate’s integrity, business acumen, knowledge of our business and industry, experience, diligence, conflicts of interest and the ability to act in the interests of all shareholders. Nominees should generally be under the age of 75 at the time of nomination. The Committee does not assign specific weights to particular criteria and no particular criterion is a prerequisite for each prospective nominee. We believe that the backgrounds and qualifications of our directors, considered as a group, should provide a composite mix of experience, knowledge and abilities that will allow the Board of Directors to fulfill its responsibilities.

 

Shareholders may recommend individuals to the Nominating and Corporate Governance Committee for consideration as potential director candidates by submitting their names, together with appropriate biographical information and background materials and a statement as to whether the shareholder or group of shareholders making the recommendation has beneficially owned more than 5% of our Company’s Common Stock for at least a year as of the date such recommendation is made, to the Nominating and Corporate Governance Committee, in care of Kathleen F. Burke, Esq., General Counsel, MKS Instruments, Inc., 2 Tech Drive, Suite 201, Andover, MA 01810. Assuming that appropriate biographical and background material has been provided on a timely basis, the Nominating and Corporate Governance Committee will evaluate shareholder-recommended candidates by following substantially the same process, and applying the same criteria, as it does in considering other candidates.

 

Shareholders also have the right under our By-Laws to directly nominate director candidates, without any action or recommendation on the part of the Nominating and Corporate Governance Committee or the Board of Directors, by following the procedures set forth under the heading “Deadline for Submission of Shareholder Proposals for the 2010 Annual Meeting” below.

 

Communications from Shareholders

 

The Board of Directors will give appropriate attention to written communications that are submitted by shareholders, and will respond if appropriate.

 

The Chairman of the Nominating and Corporate Governance Committee, with the assistance of our General Counsel, is primarily responsible for monitoring communications from shareholders and for providing copies or summaries to the other directors as he considers appropriate.

 

Communications are forwarded to all directors if they relate to important substantive matters and include suggestions or comments that the Chairman of the Nominating and Corporate Governance Committee considers to be important for the directors to know. In general, communications relating to corporate governance and long-term corporate strategy are more likely to be forwarded than communications relating to ordinary business affairs, personal grievances and matters as to which we tend to receive repetitive or duplicative communications.

 

Shareholders who wish to send communications on any topic to the Board of Directors should address such communications to the Board of Directors in care of Kathleen F. Burke, Esq., General Counsel, MKS Instruments, Inc., 2 Tech Drive, Suite 201, Andover, MA 01810.

 

Code of Ethics

 

Pursuant to Section 406 of the Sarbanes Oxley Act of 2002, we have adopted a written code of business conduct and ethics that applies to all of our directors, officers and employees (including the principal executive

officer, principal financial officer, principal accounting officer or controller, or persons performing similar functions), which is posted in the Investors link on our website, www.mksinstruments.com, under the heading Corporate Governance. We intend to disclose any amendments to, or waivers from, our code of business conduct and ethics on our website.

 

Compensation Committee Interlocks and Insider Participation

 

In 2008, the Compensation Committee comprised Messrs. Anderson, Kahl, Hanley and Valente. None of the members were, at any time, officers or employees of MKS or our subsidiaries, and none of them had any relationship with us requiring disclosure under Item 404 of Regulation S-K under the Securities Exchange Act of 1934, as amended (the “Exchange Act”). None of our executive officers serves, or has served, as a member of the Board of Directors or Compensation Committee (or other committee serving an equivalent function) of any other entity which has one or more executive officers serving as a member of our Board of Directors or Compensation Committee.

 

EXECUTIVE OFFICERS

 

The following is a brief summary of the background of each of our current executive officers, other than Mr. Berlinghieri, whose background is described under the heading “Directors” above:

 

Gerald G. Colella, Vice President, Chief Business Officer and Acting Group VP, PRG Products, Age 52

 

Mr. Colella has served as our Vice President and Chief Business Officer since April 2005 and as Acting Group Vice President, PRG Products since July 2007. Prior to that, Mr. Colella served as Vice President, Global Business and Service Operations from October 1997 to April 2005. From March 1996 to October 1997, he served as Director of Materials Planning and Logistics, and from February 1994 to March 1996, he served as Materials Planning and Logistics Manager. Mr. Colella joined us in April 1983 as Purchase Contract Administrator. He holds an M.B.A. from Southern New Hampshire University, Manchester, New Hampshire, as well as a B.A. in Secondary Education from the University of Lowell, Lowell, Massachusetts.

 

John T.C. Lee, Group Vice President, CIT Products, Age 46

 

Mr. Lee has served as our Group Vice President, CIT Products since October 2007. Prior to joining us, Mr. Lee served as the Managing Director of Factory Technology and Projects within the Solar Business Group at Applied Materials, Inc. from February 2007 until October 2007. From 2002 until 2007, he served as General Manager of the Cleans Product Group and the Maydan Technology Center at Applied Materials. Prior to Applied Materials, Mr. Lee served from 1997 until 2002 as the Research Director of the Silicon Fabrication Research Department at Lucent Technologies and from 1991 until 1997 as a Member of Technical Staff in the Plasma Processing Research Group within Bell Labs. Mr. Lee holds a Ph.D. in Chemical Engineering from the Massachusetts Institute of Technology. Mr. Lee has also served as a non-executive director to SiXtron Advanced Materials, Inc. since August 14, 2008.

 

John A. Smith, Vice President and Chief Technology Officer, Age 58

 

Dr. Smith has served as our Vice President and Chief Technology Officer since January 2005. From December 2002 to January 2005, Dr. Smith served as Vice President of Technology and General Manager of the Instruments and Control Systems Product Group, which comprises Pressure Measurement and Control, Materials Delivery, Gas Composition and Analysis, and Control and Information Technology products. Prior to this position, Dr. Smith served as Vice President and General Manager of Materials Delivery Products and Advanced Process Control, from February 2002 to December 2002. From July 1994 until February 2002, he was Managing Director of MKS Instruments, U.K. Ltd. Dr. Smith has a Ph.D. in electronic engineering from the University of Manchester, U.K.

William D. Stewart, Group Vice President, Vacuum Products and PFM&C Products, Age 64

 

Mr. Stewart has served as our Group Vice President, Vacuum Products and PFM&C Products since January 2009. From November 1997 to January 2009, he was Vice President and General Manager, Vacuum Products Group and from October 1986 to November 1997, he was President of HPS Products, which we acquired in 1986. Mr. Stewart co-founded HPS in 1976. Mr. Stewart has an M.B.A. from Northwestern University and a B.S. in Business Administration from the University of Colorado. Mr. Stewart also serves on the Board of Directors of the Janus Funds.

 

Ronald C. Weigner, Vice President, Chief Financial Officer and Treasurer, Age 63

 

Mr. Weigner has served as our Vice President and Chief Financial Officer since November 1995, and in addition, has served as our Treasurer since February 2009. From September 1993 until November 1995, he served as Vice President and Corporate Controller, and from 1980 to 1993, he served as Corporate Controller. Mr. Weigner is a certified public accountant and has a B.S. in Business Administration from Boston University.

 

Our executive officers are appointed by the Board of Directors on an annual basis and serve until their successors are duly appointed and qualified. There are no family relationships among any of our executive officers or directors.

 

EXECUTIVE COMPENSATION

 

Compensation Discussion and Analysis

 

Compensation Philosophy and Objectives

 

The primary objective of our executive compensation program is to attract, retain and motivate the critical talent that is required to execute our business strategy and lead us to achieve our long-term growth and earnings goals.

 

As addressed in greater detail below, as part of our effort to reduce costs during the current economic slowdown in the semiconductor manufacturing industry, the Compensation Committee has temporarily reduced the salaries of our Named Executive Officers from their respective 2008 levels. Such reductions shall remain in place until otherwise determined by the Board of Directors or Compensation Committee, as appropriate.

 

Our executive compensation program is guided by the following principles:

 

 

The Company’s executive compensation program is designed to provide an overall compensation package that is competitive, on a position-by-position basis, when benchmarked against that of comparable companies, while factoring in an executive’s individual performance, tenure and potential with the Company. The differentiation in compensation among the executive officers reflects the relative value that the market places on these positions, as well as each individual’s performance, tenure and potential with the Company. Our goal is to use executive compensation programs to closely align the interests of our management with the interests of shareholders so that our management has incentives to achieve short-term performance goals while building long-term value for our shareholders. We will review our executive compensation programs from time to time in order to determine their competitiveness, and to take into account factors that are unique to us.

Elements of Compensation

 

The following summarizes the compensation elements for our principal executive officer, principal financial officer, and each of the three other most highly compensated executive officers (collectively, the “Named Executive Officers”). We benchmark each of the various compensation elements, including salary, short-term incentives, and long-term incentives, to the median levels for the individual position in the market. In considering the compensation of an executive relative to the market level, we look qualitatively at the individual’s overall performance, tenure and potential with the Company. Currently, not taking into account the temporary salary reductions in effect, all of our Named Executive Officers are paid in the range of, or slightly below the range of, their competitive market.

 

Base Salary

 

Base salaries are designed to provide executives with a level of predictability and stability with respect to a portion of their total compensation package. In establishing base salaries for executive officers, the Compensation Committee considers the executive’s responsibilities, performance, historical salary levels, internal equity among executives and the base salaries of executives at comparable companies and, with respect to salaries other than that of the Chief Executive Officer, the Chief Executive Officer’s recommendations. As part of our effort to reduce costs during the current economic slowdown in the semiconductor manufacturing industry, the Compensation Committee has temporarily reduced the salaries of our Named Executive Officers. In August 2008, the base salary of Mr. Berlinghieri, our President and Chief Executive Officer, was decreased by 10% and the base salaries of the other Named Executive Officers were decreased by 5%. In January 2009, the Compensation Committee further reduced the base salary of Mr. Berlinghieri, resulting in an aggregate reduction of 20% from its original 2008 level, and further reduced the salaries of the other Named Executive Officers, resulting in an aggregate reduction of 10% from their respective original 2008 levels. The Compensation Committee sought to make the temporary reductions reasonable in light of the current economic circumstances, in order to align Named Executive Officers’ incentives with the interests of shareholders, while not sacrificing the retentive value of the overall long-term compensation package. Such reductions shall remain in place until otherwise determined by the Board of Directors or Compensation Committee, as appropriate.

 

Short-term Incentives

 

Our Management Incentive Bonus Plan provides a short-term incentive to reward management for reaching our overall earnings goals and those of certain product groups and to reinforce our pay-for-performance philosophy. We believe that our bonus plan provides significant incentive to the executive officers to exceed our financial goals. Because of the unique market conditions in 2009 caused by the global economic crisis, we have elected not to implement our Management Incentive Bonus Plan in 2009. However, in typical years, each executive would be eligible for an annual performance bonus calculated based on a specified target percentage of base salary, called an “Individual Incentive Target.” In 2008, the Individual Incentive Targets were 100% of base salary for Mr. Berlinghieri, 65% of base salary for Mr. Colella, and 50% of base salary for Messrs. Smith, Stewart and Weigner. The maximum bonus payout possible was 200% of this Individual Incentive Target and the minimum payout was zero, with incremental pay-outs for performance between these levels. For Named Executive Officers other than Mr. Stewart, annual performance bonuses are based solely upon achievement of specific corporate pro-forma pre-tax earning goals. In 2008, participants would not receive any portion of their corporate-based bonus if operating income after bonus and before tax was $80,000,000 or less, and participants would receive the maximum amount of their corporate-based bonus if such pro-forma operating income was $227,666,000 or more.

 

For Mr. Stewart, who was the Vice President of a product group, 70% of his bonus was based on the achievement of the corporate objective, while 30% was based on the achievement of annual earnings goals for his product group. The purpose of the product group targets is to create an incentive for the executive officer to maximize the performance of his product group, while balancing the overall interests of the corporation as a whole. Achievement of the portion of the bonus based on product group targets has fluctuated significantly in the three years since these incentives were first initiated. Mr. Stewart’s achievement of the product group based portion of his bonus was at the maximum of 200% in 2006, 58% in 2007 and 0% in 2008.

The corporate element of the bonus plan formula is calculated as follows:

 

Base Salary x Individual Incentive Target x Corporate Performance Multiplier    

 

The product group element of the bonus plan formula is calculated as follows:

 

Base Salary x Individual Incentive Target x Product Group Performance Multiplier

 

Each of the “Corporate Performance Multiplier” and “Product Group Performance Multiplier” ranged from 0% for achievement below a specified minimum corporate or product group goal, respectively, up to 200% for achievement of a maximum corporate or product group goal. Accordingly, the maximum payout possible for each executive was 200% of his Individual Incentive Target and the minimum payout is zero, with incremental payouts for performance between these levels.

 

For 2008, we paid no bonus under the Management Incentive Bonus Plan to the Named Executive Officers.

 

Long-Term Incentive Compensation

 

We provide executives with long-term incentive compensation, in the form of stock options, restricted stock and RSUs in order to:

 

 

Prior to 2006, we issued primarily stock options. In 2006, we issued restricted stock and in 2007, we began to issue RSUs. We believe that RSUs are attractive because they help ensure executives’ interests are aligned with shareholders in both an increasing and declining stock market. We believe RSUs are preferable to options, which have a relatively high accounting cost as compared to their potential value to the executive and preferable to restricted stock, which gives the executive voting rights prior to full vesting. In 2008, the Named Executive Officers received 50% of their total equity grant value in the form of performance-based RSUs and 50% in the form of time-based RSUs to further our pay-for-performance philosophy. These RSUs vest in equal annual installments over three years, subject to achievement of the performance goal with respect to the performance-based portion.

 

When establishing equity grant levels, the Compensation Committee considers general corporate performance and material economic conditions, comparable company grants to comparable executives, executive seniority and experience, the dilutive impact of the grants, previous grant history for each executive, vesting schedules of outstanding equity-based grants, the current stock price and individual contributions to our financial, operational and strategic objectives and, with respect to grants made to individuals other than the Chief Executive Officer, the Chief Executive Officer’s recommendations.

 

It is our practice to make an initial equity-based grant to all executives at the time they commence employment, in an amount that is consistent with those granted to executive officers in the industry at similar levels of seniority. In addition, we typically make an annual grant of equity-based compensation to executives during the first fiscal quarter of each year. Discretionary equity-based grants may be made throughout the year to provide an incentive to achieve a specific goal or to reward a significant achievement.

 

Retirement Benefits

 

Pursuant to employment agreements, we provide supplemental retirement benefits to certain executives, including Messrs. Berlinghieri, Colella, Smith and Weigner. These supplemental benefits are designed to reward long service with us and to serve as a significant incentive for these executives to remain with us. In addition, these benefits are designed to provide for supplemental retirement benefits for executives that are not available under our company-wide employee benefit plans due to regulatory limitations on benefit accruals.

In addition, we also provide retiree medical benefits to Messrs. Stewart and Weigner, and their respective spouses, for their lifetimes, upon meeting specified criteria. This benefit was designed to retain Messrs. Stewart and Weigner over the long-term because it is contingent upon the executive maintaining his employment with us until age 62, with specified exceptions.

 

Perquisites

 

We offer certain perquisites to the Named Executive Officers to allow executives to focus on corporate strategy and enhancing shareholder value, to provide competitive pay packages and, in certain circumstances, to entertain customers. Examples of these perquisites are car payments, health cost reimbursements and club memberships.

 

Severance and Change-in-Control Provisions

 

We have entered into employment agreements with each of the Named Executive Officers, providing for certain severance provisions and benefits associated with various termination scenarios and restricting the officers’ ability to compete with us. In addition, restricted stock agreements and RSU agreements with the Named Executive Officers provide for certain vesting acceleration in the event of a change-in-control. The severance and change-in-control provisions are designed to be competitive in the marketplace, and provide security for Named Executive Officers in the event that we are acquired and his respective position is impacted. They are also intended to protect us from competitive harm by compensating the Named Executive Officers for agreeing to substantial non-compete provisions after termination.

 

Engagement of Compensation Consultant; Market Comparison

 

In 2008, the Compensation Committee engaged a compensation consultant, Radford Surveys and Consulting, to serve as an independent advisor to the Compensation Committee regarding compensation for the Board of Directors and executives. The compensation consultant prepared for the Compensation Committee a competitive compensation analysis for each executive on a position-by-position basis. The consultant utilized both an analysis of comparable peer company compensation data, as well as size and industry-appropriate broad survey data. In 2008, we benchmarked against the following comparable peer companies:

 

 

We will review the companies used for benchmarking each year and may change from year-to-year depending on changes in the marketplace, acquisitions, divestitures and business focus of us or comparable companies. The Compensation Committee may elect to engage a compensation consultant from time to time in the future.

 

Role of Company Executives

 

The Chief Executive Officer reviews executive performance with the Compensation Committee and makes recommendations relating to executive compensation. Management develops proposed goals for review and approval by the Compensation Committee for the annual performance bonus and performance-based equity, develops proposals relating to potential changes in compensation programs for review and approval by the Compensation Committee and provides the Compensation Committee and advisors with information necessary to evaluate and implement compensation proposals and programs.

Impact of Accounting and Tax on the Form of Compensation

 

Impact of Code Section 162(m)

 

Section 162(m) of the Internal Revenue Code of 1986, as amended (the “Code”), generally disallows a tax deduction to public companies for certain compensation in excess of $1.0 million paid to such company’s chief executive officer and other executive officers whose compensation is required to be reported to shareholders pursuant to the Exchange Act by reason of being among the four most highly paid executive officers. Certain compensation, including qualified performance-based compensation, will not be subject to the deduction limit if certain requirements are met. The Compensation Committee reviews the potential effect of Section 162(m) periodically and generally seeks to structure the compensation granted to its executive officers in a manner that is intended to avoid disallowance of deductions under Section 162(m). However, because neither our 2004 Stock Incentive Plan (other than with respect to stock options) nor our Management Incentive Bonus Plan is designed to qualify as performance-based compensation under Section 162(m), it is possible that a portion of any bonus payable to, or compensation arising under equity awards (other than stock options) granted to, the Chief Executive Officer and certain other executives will not be deductible for federal income tax purposes. The Compensation Committee reserves the right to use its judgment to authorize compensation payments which may be in excess of the Section 162(m) limit when the Committee believes such payments are appropriate, after taking into consideration changing business conditions or the officer’s performance, and are in the best interests of the shareholders.

 

Impact of SFAS 123R

 

The Compensation Committee has considered the impact of the Statement on Financial Accounting Standards No. 123R, “Share-Based Payment” (“SFAS 123R”), on our use of equity incentives as a key retention tool. Because of the significant cost associated with options under SFAS 123R as compared to the potential value delivered, the Compensation Committee elected to grant more efficient equity instruments instead of stock options. Accordingly, it granted to executives restricted stock in 2006 and RSUs beginning in 2007. The Compensation Committee will regularly review its choice of equity instruments taking into account both tax and accounting considerations.

 

COMPENSATION COMMITTEE REPORT

 

In 2008, the Compensation Committee comprised Messrs. Anderson, Kahl, Hanley (who joined the Committee on May 5, 2008) and Valente. None of the members were, at any time, officers or employees of us or our subsidiaries, and none of them had any relationship with us requiring disclosure under Item 404 of Regulation S-K under the Exchange Act. None of our executive officers serves, or has served, as a member of the board of directors or compensation committee (or other committee serving an equivalent function) of any other entity which has one or more executive officers serving as a member of our Board of Directors or Compensation Committee.

 

The Compensation Committee has reviewed and discussed the “Compensation Discussion and Analysis” required by Item 402(b) of Regulation S-K with management. Based on such review and discussions, the Committee recommended to the Board of Directors that the “Compensation Discussion and Analysis” be included in this proxy statement on Schedule 14A.

 

Respectfully submitted,

 

Louis P. Valente, Chairman
Robert R. Anderson
Peter R. Hanley
Hans-Jochen Kahl

 

The Report of the Compensation Committee and related disclosure shall not be deemed incorporated by reference by any general statement incorporating this proxy statement into any filing under the Securities Act of 1933 or under the Exchange Act, except to the extent that we specifically incorporate this information by reference, and shall not otherwise be deemed filed under such Acts.

Summary Compensation Table

 

The following table sets forth the aggregate amounts of compensation earned by our Named Executive Officers in the years ended December 31, 2008, 2007 and 2006.

 

 

 

 

Grants of Plan-Based Awards in Fiscal Year 2008

 

 

 

 

 

Outstanding Equity Awards at 2008 Fiscal Year-End

 

 

 

 

Option Exercises and Stock Vested in Fiscal Year 2008

 

 

 

 

Equity Compensation Plan Information

 

The following table provides information about the securities authorized for issuance under MKS’ equity compensation plans as of December 31, 2008:

 

 

 

 

Pension Benefits

 

Pursuant to employment agreements, we provide supplemental retirement benefits to certain executives including Messrs. Berlinghieri, Weigner and Colella. These supplemental benefits are designed to reward long service with us and to serve as a significant incentive for these executives to remain with us. In addition, these benefits are designed to provide for supplemental retirement benefits for executives that are not available under our company-wide employee benefits due to regulatory limitations on benefit accruals.

 

The benefits vest upon (a) the employee reaching both (i) specified ages and (ii) 25 years of service with us, in each case while employed with us, or (b) upon the employee’s earlier death, disability, termination without cause (as defined in the employment agreements) or a qualifying termination in connection with a change-in-control (as defined in the agreement), and are forfeited in the event of termination for cause. When vested, the benefits provide for a lump sum payment of an aggregate amount calculated in accordance with actuarial tables, payable not sooner

than six months after the date of termination (except in the case of death or disability). These benefits are not subject to any deduction for social security or other offset amounts. Final average compensation is equal to the average of the respective officer’s three highest years of compensation (salary plus bonus) during the 10 years prior to the officer’s retirement (or other qualifying termination).

 

Subject to the years of service qualifications, Mr. Berlinghieri’s benefits will vest 80%, 90% and 100% upon retirement at the ages of 60, 61 and 62, respectively; Mr. Weigner’s benefits have vested 80% and will vest 90% and 100% upon retirement at the ages of 64 and 65 respectively; and Mr. Colella’s benefits will vest 80%, 90% and 100% upon retirement at the ages of 60, 61 and 62, respectively.

 

The table below summarizes the present value as of December 31, 2008 of the accumulated benefits of our Named Executive Officers under their Supplemental Pension arrangements.

 

PENSION BENEFITS

 

 

 

 

Nonqualified Deferred Compensation

 

We have provided supplemental defined contribution retirement benefits to Mr. Smith. We contribute an annual amount equal to 15% of Mr. Smith’s salary and bonus, and may elect to contribute additional amounts in our sole discretion. These amounts are placed into hypothetical investment instruments in accordance with Mr. Smith’s instruction. These benefits will vest 80%, 90% and 100% upon Mr. Smith retiring at age 63, 64 and 65, respectively. When vested, the benefits provide for a lump sum payment subject to a six month waiting period for the initial payment. Mr. Smith may also elect to defer up to 25% of his base salary and up to 100% of his bonus annually, until a time specified by Mr. Smith. These benefits are not subject to any deduction for social security or other offset amounts.

 

NONQUALIFIED DEFERRED COMPENSATION

 

 

Potential Payments Upon Termination of Employment or Change-in-Control

 

This section summarizes each Named Executive Officers’ estimated payments and other benefits that would be received by the Named Executive Officer or his estate if his employment had terminated on December 31, 2008, under the circumstances set forth below.

 

Mr. Berlinghieri

 

Mr. Berlinghieri’s employment and equity agreements provide for the following:

 

 

 

 

During the term of Mr. Berlinghieri’s employment and for a period of one year thereafter (or two years, if employment was terminated by Mr. Berlinghieri other than for “good reason”), Mr. Berlinghieri may not (i) engage in any competitive business or activity, (ii) work for or become a partner with any of our employees, officers or agents, or (iii) have any financial interest in or be a director, officer, 1% shareholder, partner, employee or consultant to any of our competitors. For a period of two years after termination of employment, Mr. Berlinghieri may not (i) solicit any customer to become a customer, distributor or supplier of any other person or entity or to cease doing business with us, or (ii) solicit or hire any of our employees or agents to terminate such person’s employment or engagement with us or to work for a third party.

 

Other Named Executive Officers

 

All of the other Named Executive Officers’ employment terms are month to month, with termination upon death, disability, or at our election if the employee fails to perform his duties or commits any act not in our best interest. Messrs. Colella, Smith, Stewart and Weigner are entitled to the following benefits under their agreements:

 

 

Messrs. Colella and Weigner also receive gross-up payments for any excise taxes imposed under Code Section 4999 and Messrs. Stewart and Weigner also receive retiree medical benefits.

 

We have provided supplemental retirement benefits to Messrs. Colella and Weigner, as described under the heading Pension Benefits above, and have provided supplemental defined contribution retirement benefits to Mr. Smith as described under the heading Nonqualified Deferred Compensation above.

 

Each of the Named Executive Officers’ employment agreements contains a non-competition provision. With respect to Messrs. Colella, Smith, Stewart and Weigner, such employees may not, during the term of their employment and for the period of one year after termination of employment (or, in the case of Messrs. Weigner and Stewart, two years if employment was terminated by such employee other than for good reason (as defined in the agreement)):

 

 

Each of the employment agreements also contains non-solicitation provisions. During the term of employment and for a period of two years after termination of employment (one year for Messrs. Colella and Smith), the employees may not (i) solicit any customer to become a customer, distributor or supplier of any other person or entity or to cease doing business with us, or (ii) solicit or hire any of our employees or agents to terminate such person’s employment or engagement with us or to work for a third party.

 

Each Named Executive Officer’s RSUs and restricted stock awards provide for 100% acceleration of vesting of all shares if the executive is terminated without cause or resigns with good reason within 24 months of a change-in-control, as defined in the agreement. RSUs typically vest in three equal annual installments, and 50% are generally subject to performance criteria. Restricted stock awards normally vest in full on the third anniversary of the date of grant.

 

Potential Payments Upon Termination or Change-in-Control — Leo Berlinghieri

 

 

 

Potential Payments Upon Termination or Change-in-Control — Ronald C. Weigner