NOVELLUS SYSTEMS, INC.
4000 North First Street
San Jose, California 95131

     April 12, 2001

To the Shareholders of Novellus Systems, Inc.

     You are cordially invited to attend the Annual Meeting of Shareholders of Novellus Systems, Inc. (the “Company”) on May 11, 2001 at 8:00 a.m., California time. The Annual Meeting will be held at the Company’s principal executive offices, 4000 North First Street, San Jose, California 95134.

     A description of the business to be conducted at the Annual Meeting is set forth in the attached Notice of Annual Meeting and Proxy Statement.

     Whether or not you plan to attend the Annual Meeting, please submit your proxy as soon as possible so that your shares can be voted at the meeting in accordance with your instruction. You may submit your proxy (1) over the internet, (2) by telephone, or (3) by signing, dating and returning the enclosed proxy card promptly in the accompanying envelope.If you attend the Annual Meeting and wish to change your proxy vote, you may do so simply by voting in person at the Annual Meeting.

NOVELLUS SYSTEMS, INC.
4000 North First Street
San Jose, California 95131

Notice of Annual Meeting of Shareholders
To Be Held May 11, 2001

To the Shareholders of Novellus Systems, Inc.:

     NOTICE IS HEREBY GIVEN that the Annual Meeting of Shareholders of Novellus Systems, Inc. (the “Company”) will be held on May 11, 2001 at 8:00 a.m., California time, at the Company’s principal executive offices, 4000 North First Street, San Jose, California 95134, for the following purposes:

     The foregoing items of business, including the nominees for directors, are more fully described in the Proxy Statement which is attached hereto and made a part hereof. The Annual Meeting will be open to shareholders of record, proxy holders, and others by invitation only. Beneficial owners of shares held by a broker or nominee must present proof of such ownership to attend the meeting.

     The Board of Directors has fixed the close of business on March 30, 2001 as the Record Date for determining the shareholders entitled to notice of and to vote at the 2001 Annual Meeting and any adjournment or postponement thereof.

San Jose, California
April 12, 2001

YOUR VOTE IS IMPORTANT

To ensure your representation at the meeting, you are urged to submit your proxy as soon as possible sothat your shares can be voted at the meeting in accordance with your instruction. You may submit your proxy (1) over the internet, (2) by telephone, or (3) by signing, dating and returning the enclosed proxy card promptly in the accompanying envelope. If you attend the meeting, you may vote in person even if you returned a proxy.

NOVELLUS SYSTEMS, INC.
4000 North First Street
San Jose, California 95131

PROXY STATEMENT

Annual Meeting of Shareholders
May 11, 2001

General Information

     The enclosed proxy is solicited on behalf of the Board of Directors of Novellus Systems, Inc. (the “Company”) for use at the Annual Meeting of Shareholders to be held on May 11, 2001 at 8:00 a.m., California time (the “Annual Meeting”), or at any adjournment or postponement thereof. The Annual Meeting will be held at the Company’s principal executive offices, 4000 North First Street, San Jose, California 95134.

     This Proxy Statement and the form of proxy are first being mailed to shareholders on or about April 12, 2001.

Revocability of Proxies

     Any proxy given pursuant to this solicitation may be revoked by the person giving it at any time before its use by delivering to the Company (to the attention of Robert H. Smith, Secretary) a written notice of revocation or a duly executed proxy bearing a later date or by attending the meeting and voting in person.

Record Date, Share Ownership and Quorum

     Shareholders of record at the close of business on March 30, 2001 are entitled to vote at the Annual Meeting. At the record date, 141,342,335 shares of the Company’s Common Stock, no par value (the “Common Stock”), were issued and outstanding. The presence of a majority of these shares of Common Stock will constitute a quorum for the transaction of business at the Annual Meeting.

Voting and Solicitation

     Each share outstanding on the record date is entitled to one (1) vote. Under the Company’s cumulative voting provisions, each shareholder may cast his votes for a single nominee for director, or distribute among up to seven nominees a number of votes equal to seven multiplied by the number of shares held by such shareholder. However, cumulative voting will not be available unless, at the meeting, at least one shareholder has given notice of his intention to cumulate votes prior to the voting, and will apply only to those candidates whose names have been placed in nomination prior to the voting.

     The cost of managing the proxy process will be borne by the Company. The Company has retained the services of ADP-Investor Communication Services (“ADP”) to aid in the distribution and voting of proxies from brokers, bank nominees and other institutional owners. The Company estimates that it will pay ADP a fee not to exceed $75,000 for its services and will reimburse ADP for certain out-of-pocket expenses that are usual and proper. In addition, the Company will reimburse brokerage firms and other persons representing beneficial owners of shares for their expenses in forwarding proxy material to such beneficial owners. Proxies may also be solicited by certain of the Company’s directors, officers and regular employees, without additional compensation, personally or by telephone, fax or telegram.

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     Votes cast by proxy or in person at the Annual Meeting will be tabulated by the Inspector of Elections with the assistance of ADP. The Inspector of Elections will also determine whether or not a quorum is present. Except with respect to the election of directors where cumulative voting is invoked and except in certain other specific circumstances, the affirmative vote of a majority of shares represented and voting at a duly held meeting at which a quorum is present (which shares voting affirmatively also constitute at least a majority of the required quorum) is required under California law for approval of proposals presented to shareholders. In general, California law also provides that a quorum consists of a majority of the shares entitled to vote, represented either in person or by proxy. The Inspector of Elections will treat abstentions as shares that are present and entitled to vote for purposes of determining the presence of a quorum but as not voting for purposes of determining the approval of any matter submitted to the shareholders for a vote. Any proxy which is returned using the form of proxy enclosed and which is not marked as to a particular item will be voted FOR the election of directors, FOR approval of the other proposals in the enclosed proxy statement and as the proxy holders deem advisable on other matters that may come before the meeting, as the case may be, with respect to the particular item not marked. If a broker indicates on the enclosed proxy or its substitute that it does not have discretionary authority as to certain shares to vote on a particular matter (“broker non-votes”), those shares will be considered present and entitled to vote for purposes of determining a quorum but as not voting with respect to that matter. While there is no definitive specific statutory or case law authority in California concerning the proper treatment of abstentions and broker non-votes, the Company believes that the tabulation procedures to be followed by the Inspector of Elections are consistent with the general statutory requirements in California concerning voting of shares and determination of a quorum.

Deadline for Receipt of Shareholder Proposals

     Requirements for Shareholder Proposals to be Brought Before an Annual Meeting. For shareholder proposals to be considered properly brought before an annual meeting by a shareholder, the shareholder must have given timely notice therefor in writing to the Secretary of the Company. To be timely for the Company’s 2002 Annual Meeting of Shareholders, a shareholder’s notice must be delivered to or mailed and received at the principal executive offices of the Company between January 27, 2002 and February 26, 2002. A shareholder’s notice to the Secretary shall set forth as to each matter the shareholder proposes to bring before the annual meeting (i) a brief description of the business desired to be brought before the annual meeting and the reasons for conducting such business at the annual meeting, (ii) the name and record address of the shareholder proposing such business, (iii) the class and number of shares of the Company which are beneficially owned by the shareholder, and (iv) any material interest of the shareholder in such business.

     Requirements for Shareholder Proposals to be Considered for Inclusion in the Company’s Proxy Materials. Shareholder proposals submitted pursuant to Rule 14a-8 under the Securities Exchange Act of 1934 and intended to be presented at the Company’s 2002 Annual Meeting of Shareholders must be received by the Company not later than December 13, 2001 in order to be considered for inclusion in the Company’s proxy materials for that meeting.

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PROPOSAL NO. 1

ELECTION OF DIRECTORS

     As set by the Board of Directors (the “Board” or “Board of Directors”) pursuant to the Bylaws of the Company, the authorized number of directors is currently set at seven. Seven directors will be elected at the Annual Meeting. The seven nominees receiving the highest number of affirmative votes will be elected as directors. Unless otherwise instructed, the proxy holders will vote the proxies they receive for the seven nominees of the Board of Directors named below. In the event that any nominee of the Board is unable or declines to serve as a director at the time of the Annual Meeting, the proxies will be voted for any nominee designated by the present Board of Directors to fill the vacancy. It is not expected that any nominee will be unable or will decline to serve as a director. In the event that additional persons are nominated for election as directors, the proxy holders intend to vote all proxies received by them in such a manner in accordance with cumulative voting as will assure the election of as many of the nominees listed below as possible, with any required selection among such nominees to be determined by the proxy holders.

The Board of Directors recommends a vote FOR the nominees listed below.

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     The term of office of each person elected as a director will continue until the next Annual Meeting of Shareholders or until his successor has been elected and qualified. The Company’s Bylaws provide that no person may be elected or run for reelection to the Board of Directors after having attained the age of 70 years. There is no family relationship between any director and any other director or executive officer of the Company.

     Mr. Hill has been the Chief Executive Officer and member of the Board of Directors of the Company since December 1993. In May 1996, he was appointed Chairman of the Board of Directors. From 1981 to 1993, Mr. Hill was employed by Tektronix, Inc., an electronics company, where he held positions such as President of the Tektronix Development Company, Vice President of the Test &Measurement Group, and President of Tektronix Components Corporation. Prior to joining Tektronix, Mr. Hill held engineering management positions at General Electric, Motorola and Hughes Aircraft Company. Mr. Hill is also a member of the Board of Directors of Speedfam International, Inc. and Luminent, Inc.

     Mr. Guzy joined the Board of Directors in January 1990. Presently Mr. Guzy is the Chairman of both SRC Computer Corporation and PLX Technology, Inc. Since 1969, he has also served as the President of the Arbor Company, a limited partnership engaged in the electronics and computer industries. Mr. Guzy is also a director of Intel Corporation, Cirrus Logic, Inc., Micro Component Technology, Inc., Davis Selected Group of Mutual Funds and Alliance Capital Management Technology Fund.

     Dr. Litster joined the Board of Directors in February 1998. Dr. Litster is Vice President for Research at the Massachusetts Institute of Technology (“MIT”). He was the director of the MIT Center for Materials Science and Engineering from 1983 through 1988 and director of the Francis Bitter National Magnet Laboratory at MIT from 1988 through 1992. Dr. Litster is a fellow of the American Physical Society, the American Academy of Arts and Sciences and the American Association for the Advancement of Science. In 1993, Dr. Litster was awarded the Irving Langmuir Prize by the American Physical Society. Dr. Litster holds a bachelor’s degree in engineering from McMaster University in Hamilton Ontario, Canada, and a Ph.D. in Physics from MIT.

     Dr. Long joined the Board of Directors in May 1995. Dr. Long currently is the Director of Business Development of Planar Systems, Inc. From October 1994 to June 1999, Dr. Long served as Director of Product Development of Planar Systems Display Manufacturing. From August 1991 to October 1994, Dr. Long retired from business to pursue personal goals. Prior to August 1991, Dr. Long served as the Vice President and Chief Technical Officer of Tektronix, Inc. for seven years. Dr. Long is also a director of Network Elements, Inc.

     Dr. Possley joined the Board of Directors in July 1991. He is currently a managing general partner at Glen-Ore Associates. From October 1997 through December 1999, Dr. Possley was an associate consultant at N-Able Group. From March 1994 to September 1997, Dr. Possley was President of SubMicron Technology, PCL., a semiconductor wafer manufacturing company. From April 1992 to May 1994, he was Senior Vice President of Manufacturing at Ramtron International, a semiconductor company. From January 1991 to March 1992, he was Vice President, Operations at Sandisk Inc., a manufacturer of solid state memory systems. From January 1986 to December 1990, Dr. Possley was Senior Vice President of Manufacturing for Philips Semiconductor Inc., a semiconductor company. Prior to joining Philips, he was Vice President, Wafer Fabrication and Research and Development at United Technologies Mostek, and held management and engineering positions with Motorola Inc., Texas Instruments, Inc., Fairchild Camera and Instrument Corporation and the semiconductor division of General Electric Company. Dr. Possley is also a director of Catalyst Semiconductor, Inc.

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     Mr. Smith joined the Board of Directors in May 1995. In October 1996, Mr. Smith became the Executive Vice President, Finance and Administration and Chief Financial Officer and Secretary of the Company. Mr. Smith had been an industry consultant since 1990. From June 1994 through September 1994, Mr. Smith was the Chairman of the Board of Directors of Micro Component Technology, Inc., a semiconductor test equipment manufacturer. From 1988 through 1990, Mr. Smith was the President of Maxwell Graphics, Inc., a printing company. From 1982 through 1988, Mr. Smith held Chief Financial Officer positions with Maxwell Communications of North America Corporation and R.R. Donnelley and Sons, printing companies. Mr. Smith also serves on the Board of Directors of Cirrus Logic, Inc.

     Dr. Spivey joined the Board of Directors in May 1998. He is currently the President, Chief Executive Officer and a Director of Luminent, Inc. From 1997 to 2000, he was the Group President, Network Products Group of Lucent Technologies. From 1994 to 1997, he was Vice President of the Systems and Components Group of AT&T. From 1991 to 1994, he was the President of Tektronix Development Company and Group President at Tektronix, Inc. Previously, Dr. Spivey held various managerial positions at Honeywell, Inc. and General Electric Corporation. Dr. Spivey also serves on the Board of Directors of Cascade Microtech, Inc., Raytheon Company and Lyondell Chemical Company and is an Advisory Board Member for Maristeth Ventures, LLC.

Board Meetings and Committees

     The Board of Directors of the Company held five (5) meetings during 2000. During the last year, no incumbent director attended fewer than seventy-five percent (75%) of the meetings of the Board of Directors and its committees on which he served that were held during the period in which he was a director. The Board of Directors has an Audit Committee and a Stock Option and Compensation Committee. It does not have a nominating committee or a committee performing the functions of a nominating committee. Although there are no formal procedures for shareholders to recommend nominations, the Board will consider shareholder recommendations. Such recommendations should be addressed to Robert H. Smith, the Company’s Secretary, at the Company’s principal executive offices.

     Audit Committee. During 2000, Mr. Guzy and Drs. Long and Spivey served on the Audit Committee. The Audit Committee held four meetings during 2000. The primary function of the Audit Committee is to assist the Board of Directors in overseeing management’s conduct of the Company’s (1) financial reporting process, including the financial reports and other financial information provided to the public; (2) systems of internal controls; and (3) annual independent audit of the Company’s financial statements. See “REPORT OF THE AUDIT COMMITTEE OF THE BOARD OF DIRECTORS.” The Board adopted and approved a charter for the Audit Committee in April 2000, a copy of which is attached hereto as Appendix A. The Board has determined that all members of the Audit Committee are “independent“as that term is defined in Rule 4200 of the listing standards of the National Association of Securities Dealers.

     Stock Option and Compensation Committee. During 2000, Mr. Guzy and Drs. Long, Possley, Litster and Spivey served on the Stock Option and Compensation Committee. The Stock Option and Compensation Committee held two (2) meetings during 2000. The Stock Option and Compensation Committee administers the issuance of stock and the granting of options to purchase stock of the Company pursuant to the Company’s stock plans and, in accordance with the terms of the respective stock plans, determines the terms and conditions of such issuances and grants. In addition, it reviews and approves the Company’s executive compensation policy.

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Director Compensation

     Directors who are not employees of the Company (“Outside Directors”) received, during fiscal year 2000, a $6,000 quarterly retainer and a $1,000 fee for attendance at each Board meeting. In fiscal year 2001, Outside Directors will receive a $7,500 quarterly retainer and a $1,500 fee for attendance at each Board meeting. In addition, Outside Directors received in fiscal 2000 and will receive in fiscal 2001, a $500 fee for attendance at each committee meeting attended which was not held on the same day as a Board meeting.

     Outside Directors were automatically granted an option to purchase 18,000 shares of Common Stock of the Company on the day immediately following the date of the 2000 Annual Meeting of Shareholders of the Company. On the day immediately following the 2001 Annual Meeting of Shareholders, Outside Directors will automatically be granted an option to purchase 10,000 shares of Common Stock of the Company. The exercise price per share of such options will equal one hundred percent (100%) of the fair market value of the Common Stock on the date of grant of the option. Options granted have a maximum term of five (5) years and are immediately exercisable. Pursuant to this policy regarding the granting of stock options to Outside Directors, Mr. Guzy and Drs. Long, Possley, Litster and Spivey were each granted an option to purchase 18,000 shares of Common Stock at an exercise price of $48.875 per share on May 15, 2000.

PROPOSAL NO. 2

APPROVAL OF THE NOVELLUS SYSTEMS, INC.
2001 STOCK INCENTIVE PLAN

General

     The Company’s shareholders are being asked to approve the adoption of the Company’s 2001 Stock Incentive Plan (the “2001 Plan”) as a supplement to the Company’s Amended and Restated 1992 Stock Option Plan (the “1992 Plan”). The Company will continue to issue new options from the 1992 Plan until all available shares have been issued, which is expected to occur in calendar year 2001. Subsequently, new Awards will be issued from the 2001 Plan. Capitalized terms used in this Proposal No. 2 shall have the same meaning as in the 2001 Plan unless otherwise indicated.

     The 2001 Plan is intended to enable the Company and its Related Entities to attract and retain the best available personnel for positions, to provide additional incentive to Employees, Directors and Consultants and to promote the success of the Company’s business. The Board believes that the Company’s long term success is dependent upon the ability of the Company and its Related Entities to attract and retain superior individuals who, by virtue of their ability and qualifications, make important contributions to the Company and its Related Entities.

     Initially, a total of 6,360,000 shares of Common Stock (the “Shares”) have been reserved for issuance under the 2001 Plan. The 2001 Plan will terminate on March 16, 2011, unless earlier terminated by the Board. Of the total Shares reserved for issuance under the 2001 Plan, a maximum of ten percent (10%) of such Shares may be awarded as grants of Restricted Stock.

     New Plan Benefits.As of the date of this Proxy Statement, no Outside Directors and no associate of any Director or Officer has been granted any Options subject to shareholder approval of the proposed 2001 Plan. The benefits to be received pursuant to the 2001 Plan by the Company’s Directors, Officers and Employees are not determinable at this time.

     The affirmative vote of a majority of the shares present in person or by proxy at the Annual Meeting and entitled to vote is required for adoption of Proposal No. 2.

The Board of Directors recommends a vote FOR approval of the 2001 Plan.

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     A general description of the principal terms of the 2001 Plan as proposed is set forth below. This description is qualified in its entirety by the terms of the 2001 Plan, a copy of which is attached to this Proxy Statement as Appendix B and is incorporated by reference herein.

General Description

     The 2001 Plan provides for the grant of Options and Restricted Stock. The maximum number of Shares with respect to which options may be granted to a Grantee during a fiscal year of the Company is 600,000 Shares. In addition, in connection with a Grantee’s commencement of Continuous Service to the Company, a Grantee may be granted Options for up to an additional 1,200,000 Shares which shall not count against the limit set forth in the previous sentence.

     The 2001 Plan is administered, with respect to grants to Directors, Officers, Consultants, and other Employees, by the plan administrator (the “Administrator”), defined as the Board or one (1) or more committees designated by the Board. With respect to grants to Officers and Directors, the committee shall be constituted in such a manner as to satisfy Applicable Laws, including Rule 16b-3 promulgated under the Exchange Act and Section 162(m) of the Code.

     The Board may at any time amend, suspend or terminate the 2001 Plan. To the extent necessary to comply with applicable provisions of federal securities laws, state corporate and securities laws, the Internal Revenue Code of 1986, as amended (the “Code”) the rules of any applicable stock exchange or national market system, and the rules of any foreign jurisdiction applicable to Awards granted to residents therein the Company shall obtain shareholder approval of any such amendment to the 2001 Plan in such a manner and to such a degree as required. In addition, shareholder approval is required for any amendment to the 2001 Plan that would do any of the following: expand the classes of persons to whom Awards may be issued; increase the number of Shares authorized for issuance under the 2001 Plan (excluding increases due to changes in capitalization of the Company); increase the number of Shares with respect to which Options may be granted to any Grantee (excluding increases due to changes in capitalization of the Company); increase the percentage of Shares available for Awards of Restricted Stock; permit unrestricted Shares to be granted other than in lieu of cash payments under other incentive plans and programs of the Company and its Related Entities, excluding any such incentive plan or program that is a “Retirement Plan“or “Welfare Plan“under the Employee Retirement Income Security Act of 1974, as amended; allow the creation of additional types of Awards; permit decreasing the exercise price of any Option outstanding under the 2001 Plan; or change any of the provisions of the section of the 2001 Plan relating to amending the 2001 Plan.

     Stock options granted under the 2001 Plan may be either Incentive Stock Options under the provisions of Section 422 of the Code, or Nonstatutory Stock Options. Incentive Stock Options may be granted only to Employees. Awards other than Incentive Stock Options may be granted to Employees, Directors and Consultants. Under the 2001 Plan, Awards may be granted to such Employees, Directors or Consultants who are residing in foreign jurisdictions as the Administrator may determine from time to time.

     Under the terms of the 2001 Plan, on the day immediately following the annual meeting of shareholders of the Company, each Outside Director shall be granted an Option to purchase 10,000 Shares of Common Stock. Such Options shall be immediately exercisable, have a term of 5 years and have an exercise price of one hundred percent (100%) of the Fair Market Value on the date of grant of the Option.

     Under the 2001 Plan, Incentive Stock Options may not be sold, pledged, assigned, hypothecated, transferred or disposed of in any manner other than by will or by the laws of descent or distribution and may be exercised during the lifetime of the Grantee only by the Grantee. However, the 2001 Plan permits the designation of beneficiaries by holders of Incentive Stock Options. Other Awards shall be transferable to the extent provided in the Award Agreement.

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     The 2001 Plan authorizes the Administrator to select the Employees, Directors and Consultants of the Company to whom Awards may be granted and to determine the terms and conditions of any Award; however, the term of any Option awarded under the 2001 Plan may not be for more than ten years (or five (5) years in the case of Incentive Stock Options granted to any Grantee who owns stock representing more than ten percent (10%) of the combined voting power of the Company or any Parent or Subsidiary of the Company). The 2001 Plan authorizes the Administrator to grant Awards at an exercise price determined by the Administrator, however, such price must not be less than one hundred percent (100%) (or one hundred ten percent (110%), in the case of Incentive Stock Options granted to any Grantee who owns stock representing more than ten percent (10%) of the combined voting power of the Company or any Parent or Subsidiary of the Company) of the Fair Market Value of the Common Stock on the date the Option is granted. The exercise price is generally payable in cash, check, shares of Common Stock or with respect to Options, payment through a broker-dealer sale and remittance procedure pursuant to which the Grantee (A) shall provide written instructions to a Company designated brokerage firm to effect the immediate sale of some or all of the purchased Shares and remit to the Company, out of the sale proceeds available on the settlement date, sufficient funds to cover the aggregate exercise price payable for the purchased Shares and (B) shall provide written directives to the Company to deliver the certificates for the purchased Shares directly to such brokerage firm in order to complete the sale transaction. The aggregate Fair Market Value of the Common Stock with respect to any Incentive Stock Options that are exercisable for the first time by an eligible Employee in any calendar year may not exceed $100,000.

     The Awards may be granted subject to vesting schedules and restrictions on transfer and repurchase or forfeiture rights in favor of the Company as specified in the Award Agreements to be issued under the 2001 Plan. The Administrator shall have the authority, exercisable either in advance of any actual or anticipated Corporate Transaction or Related Entity Disposition or at the time of an actual Corporate Transaction or Related Entity Disposition and exercisable at the time of the grant of an Award under the Plan or any time while an Award remains outstanding, to provide for the full or partial automatic vesting and exercisability of one or more outstanding unvested Awards under the Plan and the full or partial release from restrictions on transfer and repurchase or forfeiture rights of such Awards in connection with a Corporate Transaction or Related Entity Disposition, on such terms and conditions as the Administrator may specify. The Administrator also shall have the authority to condition any such Award vesting and exercisability or release from such limitations upon the subsequent termination of the Continuous Service of the Grantee within a specified period following the effective date of the Corporate Transaction or Related Entity Disposition. The Administrator may provide that any Awards so vested or released from such limitations in connection with a Related Entity Disposition shall remain fully exercisable until the expiration or sooner termination of the Award.

Certain Federal Tax Consequences

     The following summarizes only the federal income tax consequences of Options and shares of Restricted Stock granted under the 2001 Plan. State and local tax consequences may differ.

     The grant of a Nonstatutory Stock Option under the 2001 Plan will not result in any federal income tax consequences to the Grantee or to the Company. Upon exercise of a Nonstatutory Stock Option, the Grantee is subject to income taxes at the rate applicable to ordinary compensation income on the difference between the option price and the Fair Market Value of the Shares on the date of exercise. This income is subject to withholding for federal income and employment tax purposes. The Company is entitled to an income tax deduction in the amount of the income recognized by the Grantee. Any gain or loss on the Grantee’s subsequent disposition of the Shares of Common Stock will receive long or short-term capital gain or loss treatment, depending on whether the Shares are held for more than one (1) year following exercise. The Company does not receive a tax deduction for any such gain.

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     The grant of an Incentive Stock Option under the 2001 Plan will not result in any federal income tax consequences to the Grantee or to the Company. A Grantee recognizes no federal taxable income upon exercising an Incentive Stock Option (subject to the alternative minimum tax rules discussed below), and the Company receives no deduction at the time of exercise. In the event of a disposition of Shares acquired upon exercise of an Incentive Stock Option, the tax consequences depend upon how long the Grantee has held the Shares. If the Grantee does not dispose of the Shares within two (2) years after the Incentive Stock Option was granted, nor within one (1) year after the Incentive Stock Option was exercised and Shares were purchased, the Grantee will recognize a long-term capital gain (or loss) equal to the difference between the sale price of the Shares and the exercise price. The Company is not entitled to any deduction under these circumstances.

     If the Grantee fails to satisfy either of the foregoing holding periods, he or she must recognize ordinary income in the year of the disposition (referred to as a “disqualifying disposition”). The amount of such ordinary income generally is the lesser of (i) the difference between the amount realized on disposition and the exercise price, or (ii) the difference between the Fair Market Value of the Shares on the exercise date and the exercise price. Any gain in excess of the amount taxed as ordinary income will be treated as a long or short-term capital gain, depending on whether the Shares were held for more than one (1) year. The Company, in the year of the disqualifying disposition, is entitled to a deduction equal to the amount of ordinary income recognized by the Grantee.

     The “spread” under an Incentive Stock Option — i.e., the difference between the Fair Market Value of the Shares at exercise and the exercise price — is classified as an item of adjustment in the year of exercise for purposes of the alternative minimum tax.

     Any grant of Shares of Restricted Stock will subject the recipient to ordinary compensation income on the difference between the amount paid for such Shares and the Fair Market Value of the Shares on the date that the restrictions lapse. This income is subject to withholding for federal income and employment tax purposes. The Company is entitled to an income tax deduction in the amount of the income recognized by the Grantee. Any gain or loss on the Grantee’s subsequent disposition of the Shares will receive long or short-term capital gain or loss treatment depending on whether the Shares are held for more than one (1) year and depending on how long the Shares have been held since the restrictions lapsed. The Company does not receive a tax deduction for any such gain. Grantees of Restricted Stock may make an election under Internal Revenue Code Section 83(b) to recognize as ordinary compensation income in the year that such Restricted Stock is granted the amount equal to the spread between the amount paid for such Restricted Stock and the Fair Market Value on date of the issuance of the Shares. If such an election is made, the Grantee recognizes no further amounts of compensation income upon the lapse of any restrictions and any gain or loss on subsequent disposition will be long or short term capital gain. The Section 83(b) election must be made within thirty days from the time the Restricted Stock is issued.

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PROPOSAL NO. 3

RATIFICATION AND APPROVAL OF APPOINTMENT OF INDEPENDENT AUDITORS

     The Board of Directors has selected Ernst & Young LLP, independent auditors, to audit the financial statements of the Company for 2001 and recommends that the shareholders ratify such selection. In the event that a majority of the outstanding shares are not voted in favor of ratification, the Board will reconsider its selection. Unless otherwise instructed, the proxy holders will vote the proxies they receive for the ratification of Ernst & Young LLP as the independent auditors for 2001. Ratification and approval of this proposal requires the affirmative vote of a majority of the shares of Common Stock voting on the proposal in person or by proxy. Representatives of Ernst & Young LLP will be present at the Annual Meeting, will have the opportunity to make a statement if they so desire and will be available to respond to appropriate questions.

     Ernst & Young LLP has audited the Company’s financial statements since the year ended December 31, 1986.

     Audit Fees: Aggregate fees billed by Ernst & Young LLP for professional services rendered for the audit of the Company’s annual financial statements for 2000 and for the review of the Company’s financial Form 10-K and Forms 10-Q for 2000 were $411,000.

     All Other Fees: Aggregate fees billed by Ernst & Young for all other professional services (other than Audit Fees) for 2000 were $690,000, $141,000 and $733,000 for tax matters, information data processing systems consultation and non-audit related services, respectively.

The Board of Directors recommends a vote FOR the ratification of Ernst & Young LLP as the Company’s independent auditors for 2001.

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OTHER INFORMATION

Executive Officers

     In addition to Messrs. Hill and Smith the other executive officers of the Company as of March 30, 2001, were as follows:

     Mr. Benzing joined the Company in November 1988 as Director of Special Projects. From July 1992 through June 1999, he served as the Company’s Vice President in charge of product development and is currently Executive Vice President, Systems Development, Engineering and Operations. From 1984 to 1988 he was co-founder and Vice President of Engineering of Benzing Technologies. From 1979 to 1984, he held various positions at Hewlett Packard Company.

     Mr. Chenault joined the Company in September 1991 as Vice President, Operations. From April 1993 through April 1996, he served as Vice President, Customer Satisfaction, was the Executive Vice President, Operations from May 1996 to June 1997, and is currently its Executive Vice President, Business Operations. From October 1988 to July 1991, he was the Vice President and General Manager of Veeco Instruments, an electronics company. From 1986 to October 1988, Mr. Chenault was Vice President and General Manager for Carroll Touch, a subsidiary of AMP, Inc., an electronics company. Mr. Chenault has also held various positions with Texas Instruments, Inc. and Recognition Equipment, Inc.

     Dr. Hanley joined the Company as Executive Vice President, Sales and Marketing in June 1992, and currently serves as its Executive Vice President, Worldwide Sales and Service Operations. From 1985 to June 1992, Dr. Hanley held various positions at Applied Materials, Inc., most recently Group Vice President responsible for sales, service and process for all North American accounts. Previously, Dr. Hanley was President of Tegal, a division of Motorola, Inc., an electronics company, and held positions at Varian, Inc.

     Drs. van den Hoek joined the Company in May 1990 as Director of Technology of Nippon Novellus Systems. From June 1997 through June 1999, he served as Vice President, Dielectric Business Unit and is currently the Executive Vice President, Integration and Advanced Development. From 1980 to May 1990, he held a variety of positions at the Philips Research Laboratories in Eindhoven, the Netherlands and Sunnyvale, California. The last position Drs. van den Hoek held at Philips was group manager of the Si Technology Research Group.

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Executive Compensation

Summary Compensation Table

     The following table sets forth certain information concerning compensation of the Chief Executive Officer and the four other most highly compensated executive officers of the Company (collectively, the “named executive officers”).

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Option/SAR Grants in Last Fiscal Year

     The following table provides certain information with respect to stock options granted to the named executive officers in 2000:

Aggregated Option/SAR Exercises in Last Fiscal Year
and Fiscal Year-End Option/SAR Values

     The following table sets forth certain information with respect to stock options exercised by the named executive officers during 2000, including the aggregate value of gains on the date of exercise. In addition, the table sets forth the number of shares covered by stock options as of December 31, 2000, and the value of “in-the-money“stock options, which represents the positive spread between the exercise price of a stock option and the market price of the shares subject to such option on December 31, 2000.

13

Employment Agreements

     Mr. Richard S. Hill. The Company and Richard S. Hill are parties to an employment agreement dated October 1, 1998 and amended December 17, 1999 (the “Hill Agreement”), which provide for an initial employment period of three (3) years which automatically extends for additional one-year periods if Mr. Hill is employed on and after December 31 of each year. Mr. Hill’s annual base salary under the Hill Agreement was initially $382,885. As of January 1, 1999, Mr. Hill’s annual base salary was increased to $525,000. As of December 17, 1999, Mr. Hill’s annual base salary was increased to $615,000. As of December 15, 2000, Mr. Hill’s annual base salary was increased to $750,000. In addition, Mr. Hill is eligible to participate in the Company’s benefit plans and to receive perquisites of employment, as established by the Company. The Company agreed to pay the monthly dues, fees and assessments for Mr. Hill’s membership in a golf club, to be selected by Mr. Hill. In March 2000, Mr. Hill repaid the Company in full for two (2) relocation loans. The accrued interest on those loans was forgiven by the Company.

     The Hill Agreement may be terminated by the Company or Mr. Hill at any time. If the Hill Agreement is terminated by the Company for “Cause” (as defined therein) or by Mr. Hill “Not for Cause” (as defined therein), no further rights to compensation or benefits accrue to Mr. Hill. However, in the event Mr. Hill terminates his employment “Not for Cause,” Mr. Hill (and his qualified dependents) shall receive continued health insurance coverage under the Company’s officer retirement health benefit program, without regard to any age or length of service limitations for that program. If the Hill Agreement is terminated by reason of Mr. Hill’s death, the Company shall continue to pay Mr. Hill’s salary and benefits to Mr. Hill’s estate through the second full month after Mr. Hill’s death. If the Hill Agreement is terminated by reason of Mr. Hill’s disability (as defined therein), the Company shall continue to employ Mr. Hill at sixty-six and two-thirds percent (66-2/3%) of his base salary at the time of disability and shall include Mr. Hill in the Company’s health insurance benefit plans until he reaches age 65. If the Hill Agreement is terminated by the Company “Not for Cause” or if Mr. Hill resigns for “Good Reason” (as defined therein), Mr. Hill will receive (i) the greater of a severance payment equal to two (2) years of his then current base salary, or his base salary through the expiration date of the Agreement, which will be paid to Mr. Hill in the form of salary continuation for two (2) years (the “Severance Period”) payable on the Company’s normal payroll schedule; (ii) annual bonus payments equal to one hundred fifty percent (150%) of his then current base annual salary during the Severance Period, payable in any year in which any bonus payments are made by the Company to any other employees; (iii) payment of health insurance premiums in accordance with the Company’s officer retirement health benefit program without regard to any age or length of service limitations for that program; (iv) continued vesting of his stock options through the Severance Period, with vested options to be exercised within three (3) years following the end of the Severance Period (during which time Mr. Hill will serve as a consultant to the Company); and (v) immediate vesting of his restricted stock award such that the Company’s right to repurchase such restricted stock shall immediately lapse.

     Payments during the Severance Period are conditioned upon Mr. Hill’s observance of certain obligations not to compete with the Company.

     Dr. Peter Hanley.In June 1992, the Company entered into an employment agreement with Peter Hanley pursuant to which the Company retained Dr. Hanley as its Executive Vice President, Sales and Marketing for an annual salary (subject to adjustment) of $200,000, plus a bonus to be determined by the Board of Directors. In the event the Company terminates Dr. Hanley’s employment without cause, the Company is required to pay Dr. Hanley up to twelve months of salary after the six-month notice period and provide continued life, disability and medical benefits during such period. In the event Dr. Hanley voluntarily terminates his employment, unless he commences employment with a competitor, the Company is required to pay his salary and provide continued benefits during the six-month notice period. In the event of termination of Dr. Hanley’s employment, certain adjustments will be made to the vesting schedule for Dr. Hanley’s options.

14

Certain Relationships and Related Transactions

     In July 1997, the Company made a relocation loan to Mr. Hill, the Company’s Chairman of the Board and Chief Executive Officer, in the aggregate amount of $1.5 million. The loan was evidenced by two (2) promissory notes (the “Notes”). The Notes incurred interest at a rate not to exceed six percent (6%) per year and were repayable on July 1, 2000. The Notes were secured by a first priority lien on a Deed of Trust and Assignment of Rents and interest in Mr. Hill’s property. The accrued interest on the Notes was forgiven by the Company in connection with the repayment of the notes by Mr. Hill in March 2000.

15

     Notwithstanding anything to the contrary set forth in any of the Company’s previous filings under the Securities Act of 1933 or the Securities Exchange Act of 1934 that might incorporate future filings, including this Proxy Statement, in whole or in part, the following reports and Performance Graph shall not be deemed to be filed with the Securities and Exchange Commission nor incorporated by reference into any such filings.

COMPENSATION COMMITTEE AND STOCK OPTION COMMITTEE REPORT ON EXECUTIVE COMPENSATION

Compensation Philosophy

     The Company applies a consistent philosophy to compensation for all employees, including senior management. This philosophy is to recognize effort, but pay for performance. The Company establishes aggressive goals and objectives at the beginning of each year, and incentivizes its employees and management by awarding a percentage of their compensation based on achieving these goals and objectives. By linking compensation to performance, the Company seeks to ensure that the interests of its employees are closely aligned with those of its shareholders.

     The Company recognizes that competition for qualified personnel within the semiconductor industry is intense. A competitive total compensation package is necessary to attract, motivate, and retain employees of the highest caliber.

Compensation Vehicles

     Compensation at the Company has three (3) principal components: Salary, Cash Bonuses, and Stock Options.

     Salary

     The Company targets base salaries at the 50th percentile of comparable companies within the semiconductor industry as well as other high-technology firms. To ensure this position, the Company consults surveys that track other leading companies, many of whom are included in the Hambrecht &Quist Technology Index.

     Cash Bonuses

     The Company includes all of its employees in the rewards of achieving its financial targets. Profit Sharing is paid to all employees not participating in a separate cash incentive program. Bonus participation is targeted at top management performers within the Company, and payments are designed to be a significant part of compensation. Bonuses are based upon achievement of corporate goals and individual objectives. Corporate goals are expressed in a financial plan containing growth and profitability targets. Individual objectives depend on the role of each employee, and include such matters as sales within a particular market or to specific customers, inventory turns and technological achievements. Upon the accomplishment of the growth and profitability goals, bonuses are approved by the Board of Directors and distributed to the participating executive officers and employees based on the achievement of their individual performance objectives.

16

     Stock Options

     In addition to cash bonuses, the Company intends to utilize grants of Restricted Shares and awards of stock bonuses to provide additional long-term incentives for the named executive officers and other employees. Stock option grants offer wealth creation and option guidelines are reviewed annually to ensure their competitiveness. An individual’s participation in the program is based on industry competitive practices, an employee’s individual performance, and the employee’s ranking within the Company. The Company offers these incentives to participating employees in a manner that is consistent with the Company’s long-term goals and objectives through equity ownership.

Performance Measures and CEO Compensation

     The bonus awarded to Richard Hill, the Company’s Chairman and Chief Executive Officer, is based on the same criteria as bonuses for the Company’s other executive officers (namely achievement of corporate goals). Mr. Hill received an annual bonus in 2000 equal to approximately four hundred twenty-two percent (422%) of his base salary. The criteria for payment of bonuses for fiscal 2000 was calculated based upon a twenty-three percent (23%) after-tax profit margin and a three-year rolling average revenue growth of fifty-two percent (52%).

     As part of an evaluation of Mr. Hill’s compensation, in December 2000, the Company awarded an option grant to Mr. Hill and amended his employment agreement to provide for an increase in base compensation. In addition, Mr. Hill will continue to be provided health benefits upon termination of his employment without regard to his age or length of service with the Company. Mr. Hill currently has no outstanding loans to the Company.

Compensation Policy Regarding Deductibility

     It is the Company’s policy to make reasonable efforts to cause executive compensation to be eligible for deductibility under section 162(m) of the Internal Revenue Code. Section 162(m) of the Code limits the deduction of compensation, except for certain performance-based compensation, paid or accrued with respect to each covered employee to $1 million in any taxable year. In the past, qualifying executive compensation, other than immaterial amounts paid in 1997, has not been limited under section 162(m) of the Code. It is possible however, based on the performance of the Company’s Common Stock, that the compensation of one or more of the Company’s executive officers could exceed $1 million in any taxable year and thus limit the deductibility by the Company of a portion of such compensation.

     To insure that executive compensation to be paid under the Senior Executive Bonus Plan is deductible for the purposes of section 162(m), the shareholders of the Company approved the Senior Executive Bonus Plan in 1998. The Company does not expect cash compensation paid to officers subject to section 162(m) to exceed the limitations of section 162(m) for fiscal 2001, and therefore expects all such cash compensation to be deductible.

17

REPORT OF THE AUDIT COMMITTEE OF THE BOARD OF DIRECTORS

     The purpose of the Audit Committee is to assist the Board of Directors in its general oversight of the Company’s financial reporting, internal control and audit functions. Management is responsible for the preparation, presentation and integrity of the Company’s financial statements, accounting and financial reporting principles, internal controls and procedures designed to assure compliance with accounting standards, applicable laws and regulations. The Company’s independent auditing firm is responsible for performing an independent audit of the consolidated financial statements in accordance with generally accepted auditing standards.

     The Audit Committee members are not professional accountants or auditors and their functions are not intended to duplicate or to certify the activities of management and the independent audit, nor can the Committee certify that the independent auditor is “independent“under applicable rules. The Committee serves a board-level oversight role where it provides advice, counsel and direction to management and the auditors on the basis of the information it receives, discussions with the auditors and the experience of the Committee’s members in business, financial and accounting matters.

Review with Management

     The Audit Committee has reviewed and discussed the Company’s audited financial statements with management.

Review and Discussions with Independent Auditors

     The Audit Committee reviewed with the independent auditors, who are responsible for expressing an opinion on the conformity of the Company’s audited financial statements with generally accepted accounting principles, their judgments as to the quality, not just the acceptability, of the Company’s accounting principles and such other matters as are required to be discussed with the Audit Committee under generally accepted auditing standards. In addition, the Audit Committee has discussed with the independent auditors the auditors’independence from management and the Company, including the matters in the written disclosures required by the Independence Standards Board, and considered the compatibility of non-audit services with the auditors’independence.

     The Audit Committee discussed with the Company’s independent auditors the overall scope and plans for their audit. The Audit Committee meets with the independent auditors, with and without management present, to discuss the results of the independent auditors’examination, their evaluation of the Company’s internal controls, and the overall quality of the Company’s financial reporting.

18

Conclusion

     Based on the review and discussions referred to above, the Audit Committee recommended to the Company’s Board that the Company’s audited financial statements be included in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2000.

Performance Graph

     The following line graph compares the yearly percentage change in (i) the cumulative total shareholder return on the Company’s Common Stock since December 31, 1995 with (ii) the cumulative total shareholder return on (a) the Nasdaq Stock Market (U.S. Index) and (b) the JP Morgan H &Q Technology Index. The comparison assumes an investment of $100 on December 31, 1995 and reinvestment of dividends, if any. The stock price performance shown on the graph is not necessarily indicative of future price performance.

19

Security Ownership of Certain Beneficial Owners and Management

     The following table sets forth the beneficial ownership of the Company’s Common Stock as of March 30, 2001 as to (a) each director and nominee, (b) each named executive officer, (c) all directors and officers as a group, and (d) each person known by the Company, as of December 31, 2000, to beneficially own more than five percent (5%) of the outstanding shares of its Common Stock.

20

21

OTHER MATTERS

Section 16(a) Beneficial Ownership Reporting Compliance

     Section 16(a) of the Exchange Act requires the Company’s executive officers and directors, and persons who own more than ten percent (10%) of a registered class of the Company’s equity securities, to file an initial report of ownership on Form 3 and changes in ownership on Form 4 or 5 with the Securities and Exchange Commission (the “SEC”) and The Nasdaq Stock Market. Such officers, directors and ten percent (10%) shareholders are also required by SEC rules to furnish the Company with copies of all Section 16(a) forms they file.

     Based solely on its review of the copies of such forms received by it, or written representations from certain reporting persons that no Forms 5 were required for such persons, the Company believes that its executive officers, directors and ten percent (10%) shareholders complied with all Section 16(a) filing requirements applicable to them.

Other Business

     The Company knows of no other matters to be submitted to the meeting. If any other matters properly come before the meeting, it is the intention of the persons named in the enclosed form of proxy to vote the shares they represent as the Board of Directors may recommend.

     Whether or not you expect to attend the Annual Meeting of shareholders in person, you are urged to submit your proxy as soon as possible so that your shares can be voted at the meeting in accordance with your instruction. You may submit your proxy (1) over the internet, (2) by telephone, or (3) by signing, dating and returning the enclosed proxy card and mailing in the postage-prepaid envelope provided to ensure your representation and the presence of a quorum at the annual meeting. If you send in your proxy card or submit your proxy over the internet or by telephone and then decide to attend the annual meeting to vote your shares in person, you may still do so. Your proxy is revocable in accordance with the procedures set forth in the proxy statement.

Dated: April 12, 2001

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Appendix A

CHARTER OF THE AUDIT COMMITTEE

PURPOSE:

     The Audit Committee will make such examinations as are necessary to monitor Novellus Systems, Inc. and its subsidiaries’(the “Company”) systems of internal control, corporate financial reporting and its internal and external audits, to provide to the Board of Directors the results of its examinations and recommendations derived therefrom, to outline to the Board of Directors improvements made, or to be made, in internal accounting controls, to nominate independent auditors, and to provide to the Board of Directors such additional information and materials as it may deem necessary to make the Board of Directors aware of significant financial matters that require the Board of Directors’attention.

     In addition, the Audit Committee will undertake those specific duties and responsibilities listed below and such other duties as the Board of Directors from time to time prescribe.

MEMBERSHIP:

     The Audit Committee members will be appointed by, and will serve at the discretion of, the Board of Directors and will consist of at least three (3) members of the Board of Directors, each of whom:

RESPONSIBILITIES:

     The responsibilities of the Audit Committee shall include:

A-1

     In addition to the above responsibilities, the Audit Committee will undertake such other duties as the Board of Directors delegates to it, and will report, at least annually, to the Board regarding the Committee’s examinations and recommendations.

MEETINGS:

     The Audit Committee will meet at least two (2) times each year. The Audit Committee may establish its own schedule which it will provide to the Board of Directors in advance.

     The Audit Committee will meet separately with the Chief Executive Officer and separately with the Chief Financial Officer of the Company at least annually to review the financial affairs of the Company. The Audit Committee will meet with the independent auditors of the Company, at such times as it deems appropriate, to review the independent auditor’s examination and management report.

A-2

MINUTES:

     The Audit Committee will maintain written minutes of its meetings, which minutes will be filed with the minutes of the meetings of the Board of Directors.

A-3

Appendix B

NOVELLUS SYSTEMS, INC.

2001 STOCK INCENTIVE PLAN

     1.  Purposes of the Plan. The purposes of this Stock Incentive Plan are to attract and retain the best available personnel, to provide additional incentive to Employees, Directors and Consultants and to promote the success of the Company’s business.

     2.   Definitions. As used herein, the following definitions shall apply:

B-1

B-2

B-3

     3.   Stock Subject to the Plan.

     4.   Administration of the Plan.

B-4

     5.  Eligibility. Awards other than Incentive Stock Options may be granted to Employees, Directors and Consultants; provided, however that Outside Directors shall only be eligible to receive Options pursuant to the provisions of Section 6(e), Non-Discretionary Automatic Awards to Outside Directors. Incentive Stock Options may be granted only to Employees of the Company, a Parent or a Subsidiary. An Employee, Director or Consultant who has been granted an Award may, if otherwise eligible, be granted additional Awards. Awards may be granted to such Employees, Directors or Consultants who are residing in foreign jurisdictions as the Administrator may determine from time to time.

B-5

     6.   Terms and Conditions of Awards.

B-6

     7.   Award Exercise or Purchase Price, Consideration and Taxes.

B-7

B-8

     8.   Exercise of Award.

     9.   Conditions Upon Issuance of Shares.

B-9

     10.  Adjustments Upon Changes in Capitalization. Subject to any required action by the shareholders of the Company, the number of Shares covered by each outstanding Award, and the number of Shares which have been authorized for issuance under the Plan but as to which no Awards have yet been granted or which have been returned to the Plan, the exercise or purchase price of each such outstanding Award, the maximum number of Shares with respect to which Options may be granted to any Grantee in any fiscal year of the Company, the number of Shares granted to Outside Directors under Section 6(e), the total number of Shares with respect to which Restricted Stock can be granted under the Plan, as well as any other terms that the Administrator determines require adjustment shall be proportionately adjusted for (i) any increase or decrease in the number of issued Shares resulting from a stock split, reverse stock split, stock dividend, combination or reclassification of the Shares, or similar event affecting the Shares, (ii) any other increase or decrease in the number of issued Shares effected without receipt of consideration by the Company, or (iii) as the Administrator may determine in its discretion, any other transaction with respect to Common Stock to which Section 424(a) of the Code applies or any similar transaction; provided, however that conversion of any convertible securities of the Company shall not be deemed to have been “effected without receipt of consideration.“Such adjustment shall be made by the Administrator and its determination shall be final, binding and conclusive. Except as the Administrator determines, no issuance by the Company of shares of stock of any class, or securities convertible into shares of stock of any class, shall affect, and no adjustment by reason hereof shall be made with respect to, the number or price of Shares subject to an Award.

     11.   Corporate Transactions and Related Entity Dispositions. Except as may be provided in an Award Agreement:

     12.  Effective Date and Term of Plan. The Plan shall become effective upon the earlier to occur of its adoption by the Board or its approval by the shareholders of the Company. It shall continue in effect for a term of ten (10) years unless sooner terminated. Subject to Section 17, below, and Applicable Laws, Awards may be granted under the Plan upon its becoming effective.

B-10

     13.   Amendment, Suspension or Termination of the Plan.

B-11

     14.   Reservation of Shares.

     15.  No Effect on Terms of Employment/Consulting Relationship. The Plan shall not confer upon any Grantee any right with respect to the Grantee’s Continuous Service, nor shall it interfere in any way with his or her right or the Company’s right to terminate the Grantee’s Continuous Service at any time, with or without cause.

     16.  No Effect on Retirement and Other Benefit Plans. Except as specifically provided in a retirement or other benefit plan of the Company or a Related Entity, Awards shall not be deemed compensation for purposes of computing benefits or contributions under any retirement plan of the Company or a Related Entity, and shall not affect any benefits under any other benefit plan of any kind or any benefit plan subsequently instituted under which the availability or amount of benefits is related to level of compensation. The Plan is not a “Retirement Plan” or “Welfare Plan” under the Employee Retirement Income Security Act of 1974, as amended.

     17.  Shareholder Approval. The grant of Incentive Stock Options under the Plan shall be subject to approval by the shareholders of the Company within twelve (12) months before or after the date the Plan is adopted excluding Incentive Stock Options issued in substitution for outstanding Incentive Stock Options pursuant to Section 424(a) of the Code. Such shareholder approval shall be obtained in the degree and manner required under Applicable Laws. The Administrator may grant Incentive Stock Options under the Plan prior to approval by the shareholders, but until such approval is obtained, no such Incentive Stock Option shall be exercisable. In the event that shareholder approval is not obtained within the twelve (12) month period provided above, all Incentive Stock Options previously granted under the Plan shall be exercisable as Nonstatutory Stock Options.

B-12

THIS PROXY CARD IS VALID ONLY WHEN SIGNED AND DATED.

NOVELLUS SYSTEMS, INC.

Authority is hereby given to the proxies identified on the front of this card to vote in their discretion upon such other business as may properly come before the meeting.

(Please sign exactly as your name appears on this proxy card. If shares are held jointly, each holder should sign. When signing as attorney, executor, administrator, corporation, trustee or guardian, please give full title as such. If a corporation please sign in full corporate name by President or other authorized officer. If a partnership, please sign in partnership name by authorized person.)

PLEASE MARK, SIGN, DATE AND RETURN THIS PROXY CARD PROMPTLY USING THE ENCLOSED REPLY ENVELOPE

THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS

NOVELLUS SYSTEMS, INC.

ANNUAL MEETING OF SHAREHOLDERS

May 11, 2001

The undersigned hereby appoints Richard S. Hill and Robert H. Smith and each of them, as proxies, each with the power to appoint his substitute, and hereby authorizes them to represent and to vote as designated below all of the shares of Common Stock of Novellus Systems, Inc. that the undersigned is entitled to vote at the Annual Meeting of Shareholders to be held at 8:00 a.m., local time on May 11, 2001, at the Company's principal executive offices, 4000 North First Street San Jose, California, 95134, or any adjournment or postponement thereof.

THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED AS DIRECTED BY THE UNDERSIGNED SHAREHOLDER. IF NO SUCH DIRECTIONS ARE MADE, THIS PROXY WILL BE VOTED FOR THE ELECTION OF THE NOMINEES LISTED ON THE REVERSE SIDE FOR THE BOARD OF DIRECTORS AND FOR PROPOSALS 2 and 3.

CONTINUED AND TO BE SIGNED ON REVERSE SIDE