SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [_]
Check the appropriate box:
[X] Preliminary Proxy Statement [_] Confidential, for Use of the
Commission Only (as permitted by
Rule 14a-6(e)(2))
[_] Definitive Proxy Statement
[_] Definitive Additional Materials
[_] Soliciting Material Pursuant to Section 240.14a-11(c) or Section 240.14a-12
NEWPORT CORPORATION
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
N/A
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required
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[_] Fee paid previously with preliminary materials.
[_] Check box if any part of the fee is offset as provided by Exchange
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Notes:
NEWPORT CORPORATION
1791 Deere Avenue
Irvine, California 92606
---------------------------
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
May 30, 2001
---------------------------
To the Stockholders of Newport Corporation:
NOTICE IS HEREBY GIVEN that the Annual Meeting of Stockholders of Newport
Corporation will be held at the Corporate Headquarters, 1791 Deere Avenue,
Irvine, California, on May 30, 2001, at 10:00 a.m., for the purpose of
considering and acting upon the following:
1. To elect two Class I Directors to serve for four years.
2. To amend the Articles of Incorporation to increase the number of authorized
common shares to 200 million from 75 million.
3. To amend the Articles of Incorporation to authorize a class of preferred
stock, to consist of 10,000,000 shares.
4. To approve the Company's 2001 Stock Incentive Plan.
5. To approve an amendment to the Company's Employee Stock Purchase Plan to
accelerate the eligibility date for employee participation under the Plan.
6. To ratify the appointment of Ernst & Young LLP as the Company's independent
auditors for the year ending December 31, 2001.
7. To transact such other business as may properly come before the meeting or
any adjournment thereof.
The foregoing items of business are more fully described in the Proxy
Statement accompanying this Notice.
Only stockholders of record at the close of business April 13, 2001, will be
entitled to notice of and to vote at the meeting.
All stockholders are cordially invited to attend the meeting. However, to
assure your representation at the meeting, you are urged to mark, sign, date and
return the enclosed proxy as promptly as possible in the enclosed envelope. Any
stockholder attending the meeting may vote in person even if he or she has
returned a proxy.
By order of the Board of Directors
Patricia M. Clemens
Secretary
Irvine, California
April 27, 2001
Please sign and return the enclosed Proxy promptly.
NEWPORT CORPORATION
1791 Deere Avenue
Irvine, California 92606
---------------------------
PROXY STATEMENT
---------------------------
Solicitation and Revocation of Proxies
The enclosed Proxy is solicited by the Board of Directors of Newport
Corporation (the "Company" or "Newport") for use in connection with the Annual
Meeting of Stockholders to be held at the Corporate Headquarters, 1791 Deere
Avenue, Irvine, California on Wednesday, May 30, 2001, at 10:00 a.m., and at any
and all adjournments thereof for the purposes set forth herein and in the
accompanying Notice of Annual Meeting of Stockholders.
The persons named as proxies were designated by the Board of Directors (the
"Board") and are officers or directors of the Company. Any Proxy may be revoked
or superseded by executing a later Proxy or by giving notice of revocation in
writing prior to, or at, the Annual Meeting, or by attending the Annual Meeting
and voting in person. Attendance at the meeting will not in and of itself
constitute revocation of the Proxy. All Proxies that are properly completed,
signed and returned to the Company prior to the meeting, and not revoked, will
be voted in accordance with the instructions given in the Proxy. If a choice is
not specified in the Proxy, the Proxy will be voted FOR election of the director
nominees listed below (Proposal 1); FOR the amendment to the Articles of
Incorporation to increase authorized common shares to 200 million from 75
million (Proposal 2); FOR the amendment to the Articles of Incorporation to
authorize a class of preferred stock, to consist of 10,000,000 shares (Proposal
3); FOR approval of the Company's 2001 Stock Incentive Plan (Proposal 4); FOR
approval of the amendment to the Company's Employee Stock Purchase Plan to
accelerate the eligibility date for employee participation (Proposal 5); and FOR
ratification of the Company's appointment of Ernst & Young LLP as independent
auditors for the year ending December 31, 2001 (Proposal 6). An automated
system administered by the Company's transfer agent will tabulate votes cast for
the Annual Meeting. A majority of shares entitled to vote, represented in
person or by proxy, will constitute a quorum at the Annual Meeting. Abstentions
and broker non-votes are each included in the determination of the number of
shares present and voting for the purpose of determining whether a quorum is
present, and each is tabulated separately. In determining whether a proposal
has been approved, abstentions are counted as votes against a proposal and
broker non-votes are not counted.
If any other matters are properly presented at the Annual Meeting for action,
the persons named in the enclosed form of proxy will have discretion to vote on
such matters in accordance with their best judgment. The Company does not know
of any matters other than those set forth above that will be presented at the
Annual Meeting.
This Proxy Statement and the accompanying Proxy are being mailed to
stockholders on or about April 27, 2001. The entire cost of the solicitation of
Proxies will be borne by the Company. It is contemplated that this solicitation
will be primarily by mail. In addition, some of the officers, directors and
employees of the Company may solicit Proxies personally or by telephone, fax,
telegraph or cable. The Company has retained D.F. King & Co. to assist in the
solicitation of Proxies for a fee of $5,500, plus out-of-pocket expenses. In
addition, the Company has agreed to indemnify D.F. King & Co. against any losses
or liabilities arising out of D.F. King & Co.'s fulfillment of the contract,
except for such losses or liabilities arising out of D.F. King & Co.'s own
negligence or willful misconduct.
Voting at the Meeting
As of April 13, 2001, the record date of the meeting, the Company had
outstanding 36,346,832 shares of Common Stock. Each share of Common Stock is
entitled to one vote. A majority of the shares of the Company's Common Stock
present or represented and entitled to vote at the meeting is required to
approve each proposal presented at the meeting.
2
PROPOSAL ONE
ELECTION OF DIRECTORS
The Articles of Incorporation (the "Articles") of the Company provide that the
members of the Company's Board be divided into four classes serving staggered
four-year terms. The Articles also provide that there shall be not less than
five and not more than nine directors, with the exact number to be fixed from
time to time by the Board of Directors. The current authorized number is seven.
One class of directors is elected each year for a term extending to the fourth
succeeding Annual Meeting after such election.
At the 2001 Annual Meeting, two directors, constituting the Class I directors,
will be elected to hold office for a term expiring at the Annual Meeting in
2005. John T. Subak, one of the current Class I directors, has informed the
Company that he will retire from the Board of Directors at the Annual Meeting.
The Board of Directors has nominated William R. Rauth III to fill the resulting
vacancy in Class I.
It is the intention of the persons named in the enclosed Proxy to vote to
elect Robert G. Deuster and William R. Rauth III as the Class I directors to
serve for a term expiring at the Annual Meeting in 2005. The five remaining
directors will continue in office, in accordance with their previous elections,
until the expirations of the terms of the classes at the 2002, 2003 or 2004
Annual Meetings, as the case may be.
The holders of a plurality of the shares of the Company's Common Stock present
or represented and entitled to vote at the meeting shall have the right to elect
the directors. The Proxies may not be voted for a greater number of persons
than the number of nominees named.
The nominees have indicated that they are willing and able to serve as
directors if elected. If the nominees should become unable or unwilling to
serve, it is the intention of the persons designated as proxies to vote instead,
in their discretion, for such other persons as may be designated as nominees by
the Board.
The Board of Directors recommends a vote "FOR" the nominees listed below.
Class I
(Directors nominated for office with term expiring in 2005)
Name Principal Occupation Age Director Since
---- -------------------- ----- --------------
Robert G. Deuster Chairman, President and Chief 50 1996
Executive Officer
William R. Rauth III General Partner, Investment 57 --
Group of Santa Barbara
Mr. Deuster joined the Company as President and Chief Executive Officer in May
1996 and, in June 1997, became Chairman of the Board. From 1985 to 1996 Mr.
Deuster served in various senior management positions at Applied Power, Inc., an
international manufacturer of electrical and hydraulic products, serving as
Senior Vice President of the Distributed Products Group from 1994 to 1996,
President of the Barry Controls Division from 1989 to 1994, President of the
APITECH Division from 1986 to 1989 and Vice President of Sales and Marketing of
the Enerpac Division from 1985 to 1986. From 1975 to 1985, he held engineering
and marketing management positions at General Electric Company's Medical Systems
Group.
Mr. Rauth is a general partner of the Investment Group of Santa Barbara, a
privately-held investment company, and is a founder and secretary of
GlobalEnglish Corporation, a privately-held company providing online English
language instruction services. Mr. Rauth is a founder of and has served as
counsel for Stradling Yocca Carlson & Rauth, corporate counsel to the Company,
since 1975.
3
Biographical Information for Directors Continuing in Office
Biographical information follows for each of the other directors of the
Company whose present terms will continue after the 2001 Annual Meeting.
Class II
(Director continuing in office with term expiring in 2002)
Name Principal Occupation Age Director Since
---- -------------------- ----- --------------
Robert L. Guyett President and Chief Executive 64 1990
Officer, Crescent Management
Enterprises, LLC
Since April 1996, Mr. Guyett has been President and Chief Executive Officer of
Crescent Management Enterprises, LLC, a financial management and investment
advisory services firm. From May 1995 to December 1996, he was a consultant to
Engelhard Corporation, an international specialty chemical and precious metals
company. Between September 1991 and May 1995, Mr. Guyett served as Senior Vice
President and Chief Financial Officer and a member of the Board of Directors of
Engelhard Corporation. From January 1987 to September 1991 he was the Senior
Vice President and Chief Financial Officer and a member of the Board of
Directors of Fluor Corporation, an international engineering and construction
firm. Mr. Guyett also currently serves as the Treasurer and a Director of the
Christopher Reeve Paralysis Foundation.
Class III
(Directors continuing in office with term expiring in 2003)
Name Principal Occupation Age Director Since
---- -------------------- ----- --------------
C. Kumar N. Patel Professor of Physics, 62 1986
University of California
at Los Angeles
Kenneth F. Potashner President, Chief Executive 43 1998
Officer and Chairman, S3
Incorporated
Dr. Patel was elected to the Board in January 1986. Dr. Patel was Vice
Chancellor-Research, University of California at Los Angeles from 1993 to 1999,
and in January 2000 he was appointed to the position of Professor of Physics.
Previously he was Executive Director - Research, Materials Science, Engineering
and Academic Affairs Division at AT&T Bell Laboratories, a telecommunications
corporation, since 1987 and for six years previously was Executive Director,
Physics and Academic Affairs Division. He joined Bell Laboratories in 1961.
Mr. Potashner was appointed to the Board in October 1998. He has held his
current position with S3 Incorporated, a supplier of multimedia acceleration
hardware and associated software, since November 1998. Mr. Potashner is also
Chairman of the Board of Directors of Maxwell Technologies, Inc., a manufacturer
of pulsed power based systems and components. From 1996 to October 1998 he was
also President and Chief Executive Officer of Maxwell Technologies. Mr.
Potashner was Executive Vice President and General Manager of Disk Drive
Operations for Conner Peripherals, a storage system corporation, from 1994 to
1996. From 1991 to 1994, he was Vice President, Worldwide Product Engineering
for Quantum Corporation, a disk drive corporation. From 1981 to 1991, he held
various engineering management positions with Digital Equipment Corporation, a
computer corporation, culminating in the position as Vice President of Worldwide
Product Engineering in 1991.
Class IV
(Directors continuing in office with term expiring in 2004)
Name Principal Occupation Age Director Since
---- -------------------- ----- --------------
R. Jack Aplin Independent Investor 69 1986
Richard E. Schmidt Independent Investor 69 1999
From 1989 to the present Mr. Aplin has been an independent investor. Mr.
Aplin was Chairman of the Board, President and Chief Executive Officer of
Spectramed, Inc., an international medical products company, from 1986 to 1989.
4
Mr. Schmidt joined the Company as Chairman and Chief Executive Officer in
September 1991. From August 1993 until February 1995 and from November 1995
until May 1996, he held the additional position of President. Mr. Schmidt
retired from the positions of President and Chief Executive Officer in May 1996
and from the position of Chairman in June 1997. In September 1984, he left
Warner-Lambert Company, an international medical and consumer products company,
to become President and Chief Executive Officer of Milton Roy Company, an
international manufacturer of measuring instruments and systems and, in 1986, he
became Chairman. He held that position until December 1990 when Milton Roy was
acquired by Sundstrand Corporation, an aerospace and power transmission
corporation. Prior to joining the Company he served as a consultant to
Sundstrand Corporation.
The following directors presently serve as directors of the following public
corporations:
Robert L. Guyett Maxwell Technologies, Inc.
Kenneth F. Potashner S3 Incorporated; and Maxwell Technologies, Inc.
Richard E. Schmidt Hycor Biomedical Inc., a manufacturer of
medical diagnostic products; and
Labconco Corporation, a manufacturer of
laboratory equipment and ventilation
products
Stockholders may recommend nominees for election as directors by writing to
the Chief Executive Officer of the Company.
Committees and Meetings of the Board
The Board held four meetings during 2000. Each of the directors attended at
least 75% of the meetings of the Board and the committees of the Board on which
such director served during 2000.
During 2000 the Audit Committee, comprised of Messrs. Guyett (Chairman), Patel
and Subak, met two times. None of the members of the Audit Committee are or
have been officers or employees of the Company and each member meets all of the
qualifications prescribed by the rules of NASDAQ for members of audit
committees. The Audit Committee operates under a written charter adopted by the
Board. The Audit Committee has the responsibility to review and approve the
scope and results of the annual audit; to recommend to the Board the appointment
of the independent auditors; to review with the independent auditors the
Company's financial staff and the adequacy and effectiveness of the Company's
systems and internal financial controls; to discuss with management and the
independent auditors the content of financial statements presented to
stockholders; to review significant changes in accounting policies; to
investigate reports of illegal acts involving the Company; and to provide
sufficient opportunity for the independent auditors to meet with the committee
without management present. A copy of the current charter of the Audit
Committee is attached hereto as Appendix A.
The Compensation Committee, comprised of Messrs. Aplin (Chairman), Subak and
Potashner, held two meetings during 2000. The Compensation Committee has the
responsibility for oversight of the Company's stock option plans, reviewing and
evaluating the Company's compensation programs and plans, and making
recommendations concerning compensation for key personnel and amendments to the
stock option and certain compensation plans.
The Nominating Committee, comprised of Messrs. Deuster (Chairman), Guyett,
Potashner and Schmidt, met once in 2000. The Nominating Committee has the
responsibility for considering, nominating and electing candidates for the
Company's Board of Directors. The Nominating Committee will consider nominees of
stockholders, but has no formal procedure to be followed by stockholders in
submitting such recommendations.
5
EXECUTIVE OFFICERS
The Company currently has eight executive officers elected on an annual basis
to serve at the pleasure of the Board:
Robert G. Deuster President and Chief Executive Officer
William R. Abbott Vice President and Corporate Controller
Charles F. Cargile Vice President and Chief Financial Officer
Alain Danielo Vice President and General Manager,
Industrial and Scientific Technologies Division,
European Operations
Mark V. Edwards Vice President and General Manager, Industrial
Metrology Systems Division
Dan A. Petrescu Vice President and General Manager, Fiber Optics
and Photonics Division
Robert J. Phillippy Vice President and General Manager, Industrial and
Scientific Technologies Division, U.S. Operations
Gary J. Spiegel Vice President, Sales
A biographical summary regarding Mr. Deuster has been presented earlier.
Biographical information on the other executive officers follows:
Names and Principal Occupation Age
------------------------------ ---
William R. Abbott 44
Mr. Abbott joined the Company in March 1997 as Corporate Controller, and
in August 1999 was appointed to the additional position of Vice President.
Prior to joining the Company, Mr. Abbott was Vice President and Corporate
Controller for Sunclipse, Inc., an international manufacturer and
distributor of packaging materials, from 1993 to 1997.
Charles F. Cargile 36
Mr. Cargile joined the Company in October 2000 as Vice President and
Chief Financial Officer. Prior to joining the Company, Mr. Cargile was
Vice President, Finance and Corporate Development for York International
Corporation, a manufacturer of air conditioning and refrigeration products.
He joined York in 1998, and served in a number of executive positions,
including Corporate Controller and Chief Accounting Officer, until his
promotion to Vice President, Finance and Corporate Development in 2000.
Prior to joining York, Mr. Cargile was employed by Flowserve Corporation,
a manufacturer of highly-engineered pumps, seals and valves primarily for
the petroleum and chemical industries, in various positions, most recently
as Corporate Controller and Chief Accounting Officer from 1996 to 1998.
Alain Danielo 55
Mr. Danielo joined the Company in January 1995 as President and General
Manager of the Company's French subsidiary Micro-Controle S.A. In November
1995 he was elected Vice President with responsibility for the Company's
Europe Operations. In August 1999 he was appointed to the position of
Vice President and General Manager, Industrial and Scientific Technologies
Division, European Operations. Prior to joining the Company, Mr. Danielo
was Managing Director of the Electronics Division of Valeo S.A., an
automobile parts company, from 1989 to 1995. From 1985 to 1989 he was
General Manager of Molex France S.A.R.L., a manufacturer of electronic
components.
Mark V. Edwards 39
Mr. Edwards joined the Company in February 2000 as Vice President and
General Manager of the Company's Video Metrology Division (now the
Industrial Metrology Systems Division). Prior to joining the Company,
Mr. Edwards was director of the Controls, Measurement and Sensing Division
of Giddings & Lewis, a manufacturer of metrology equipment, from 1997 to
6
2000. Prior to joining Giddings & Lewis he was a Vice President with
Professional Manufacturing, Inc., a manufacturer of protective headgear,
from 1995 to 1997. From 1990 to 1995 he was Vice President of Plastic
Trim, Inc., an automotive parts supplier. From 1986 to 1990 he held
various positions at Koch Protective Treatments, Inc., an automotive
specialty chemicals supplier.
Dan A. Petrescu 49
Mr. Petrescu joined the Company in February 2000 as Vice President and
General Manager of the Company's Fiber Optics and Photonics Division.
Prior to joining the Company, Mr. Petrescu was director of manufacturing
operations for Nortel Networks, Inc., a global leader in telephony, data,
eBusiness, and wireless solutions for the Internet. He joined Nortel in
1985 and held various management positions at that company until his
promotion to manufacturing operations director in June 1999.
Robert J. Phillippy 40
Mr. Phillippy joined the Company in April 1996 as Vice President and
General Manager of the Company's Science and Laboratory Products Division.
In August 1999 he was appointed to the position of Vice President and
General Manager, Industrial and Scientific Technologies, U.S. Operations.
Prior to joining the Company, Mr. Phillippy was Vice President of Channel
Marketing at Square D Company, an electrical equipment manufacturer, from
1994 to 1996. He joined Square D Company in 1984 as a sales engineer and
held various sales and marketing management positions with that company
prior to his election as Vice President in 1994.
Gary J. Spiegel 50
Mr. Spiegel was elected Vice President with responsibility for domestic
sales in June 1992. He assumed responsibility for the sales of
MikroPrecision Instruments, Inc. a subsidiary to the Company acquired in
January 1996. During 1997 he was assigned additional responsibility for
export sales including the company's sales subsidiaries in Canada and
Taiwan. Since that time he has assumed responsibility for sales from
each of the Company's subsequent acquisitions. Prior to joining the
Company, Mr. Spiegel was Vice President of Sales and Marketing for
Klinger Scientific, a subsidiary of Micro-Controle SA, which the Company
acquired in 1991.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
In connection with Mr. Cargile joining the Company as Vice President and Chief
Financial Officer in October 2000, the Company extended a loan to Mr. Cargile in
the amount of $150,000 pursuant to a promissory note. The loan, which was at an
interest rate of 6.06% per annum, was repaid in full by Mr. Cargile on December
29, 2000. The largest amount owed by Mr. Cargile during 2000 was $151,344.82.
7
PRINCIPAL STOCKHOLDERS AND MANAGEMENT
The following table sets forth certain information as of April 13, 2001, with
respect to all those known by the Company to be the beneficial owners of more
than 5% of its outstanding common stock, each director, each executive officer
named in the Summary Compensation Table and all directors and current executive
officers of the Company as a group.
Amount and nature of Percent
Name and address of beneficial owners beneficial ownership(1) of Class
- ------------------------------------- ----------------------- --------
Oppenheimer Funds, Inc.................... 3,662,725 (2) 10.1%
Two World Trade Center, 34th Floor
New York, New York 10048-0203
T. Rowe Price Associates, Inc............. 2,261,900 (2) 6.2%
100 E. Pratt Street
Baltimore, Maryland 21202
R. Jack Aplin............................. 51,000 (3) *
Alain Danielo............................. 159,000 (4) *
Robert G. Deuster......................... 663,700 (5) 1.8%
Robert L. Guyett.......................... 116,000 (6) *
Robert L. Hewitt.......................... 19,021 *
C. Kumar N. Patel......................... 137,949 (7) *
Dan A. Petrescu........................... 84,000 (8) *
Robert J. Phillippy....................... 123,282 (9) *
Kenneth F. Potashner...................... 31,426 (10) *
William R. Rauth III...................... -- --
Richard E. Schmidt........................ 328,762 (11) *
Gary J. Spiegel........................... 129,062 (12) *
John T. Subak............................. 67,700 (13) *
All 14 directors and executive officers
of the Company as a group............... 1,923,441 (14) 5.1%
- ----------------------
* Less than one percent.
(1) This column lists voting securities, including restricted stock held by
executive officers over which the officers have voting power but no
investment power. Otherwise, each beneficial owner has sole voting and
investment power with respect to the shares shown as beneficially owned by
him, subject to community property laws where applicable, the information
contained in the footnotes to this table or otherwise as noted herein.
(2) The information is based upon data provided to the Company including
filings made with the Securities and Exchange Commission on Schedules 13D
or 13G.
(3) Consists of 51,000 shares for options exercisable within 60 days.
(4) Includes 129,000 shares for options exercisable within 60 days.
(5) Includes 544,000 shares for options exercisable within 60 days.
(6) Includes 96,000 shares for options exercisable within 60 days.
(7) Includes 96,000 shares for options exercisable within 60 days.
(8) Includes 24,000 shares for options exercisable within 60 days.
(9) Includes 71,250 shares for options exercisable within 60 days.
(10) Includes 24,000 shares for options exercisable within 60 days.
(11) Includes 188,000 shares for options exercisable within 60 days.
(12) Includes 63,250 shares for options exercisable within 60 days.
(13) Includes 54,000 shares for options exercisable within 60 days.
(14) Includes 1,340,500 shares for options exercisable within 60 days.
8
EXECUTIVE COMPENSATION AND OTHER
TRANSACTIONS WITH MANAGEMENT
Remuneration of Officers
The following table and narrative text discusses compensation paid in the
years ended December 31, 2000, 1999 and 1998 to the Company's Chief Executive
Officer and the four other executive officers whose salary and bonus exceeded
$100,000 for the year ended December 31, 2000 and one additional individual that
was an executive officer during, but not at the end of, such year
(collectively, the "Named Executive Officers").
SUMMARY COMPENSATION TABLE
Annual Long-Term
Compensation Compensation Awards
----------------------------------------------------------------------
Securities All Other
Restricted Underlying Compen-
Name and Salary Bonus Stock Awards Options sation
Principal Position Year ($) ($) ($) (1) (#) ($) (2)
- --------------------------------------------------------------------------------------------------------------------------
Robert G. Deuster 2000 333,462 573,000 -- 180,000 11,000
- ----------------- 1999 294,481 100,000 -- -- 9,600
Chairman, President and Chief 1998 281,904 160,000 -- 300,000 9,600
Executive Officer
Alain Danielo 2000 142,219 128,124 -- 60,000 --
- ------------- 1999 162,078 15,747 -- -- --
Vice President and General Manager, 1998 161,883 13,500 -- 90,000 --
Industrial and Scientific
Technologies Division, European
Operations
Dan A. Petrescu 2000 165,385 94,000 2,307,500 60,000 --
- --------------- 1999 -- -- -- -- --
Vice President and General Manager, 1998 -- -- -- -- --
Fiber Optics and Photonics Division
Robert J. Phillippy 2000 184,204 132,000 -- 60,000 10,700
- ------------------- 1999 163,978 69,427 -- -- 9,600
Vice President and General Manager, 1998 156,904 69,115 133,750 75,000 9,600
Industrial and Scientific
Technologies Division, US Operations
Gary J. Spiegel 2000 174,385 133,000 -- 60,000 10,750
- --------------- 1999 158,688 51,719 -- -- 9,600
Vice President, Sales 1998 151,269 35,000 -- 90,000 9,600
Robert C. Hewitt (3) 2000 189,799 141,000 -- 60,000 10,900
- -------------------- 1999 184,461 37,670 -- -- 9,600
Vice President, Chief Financial 1998 176,826 51,691 -- 90,000 9,600
Officer and Secretary (through
October 16, 2000)
- --------------------------------------------------------------------------------------------------------------------------
9
(1) Restricted stock was granted on February 21, 2000, November 16, 2000 and
January 2, 1998 and vests 25% two years after the grant and 25% per year
thereafter; except for Mr. Petrescu, whose restricted stock vests 50% after
1 year and 100% after 2 years. Amounts represent fair market value on grant
dates. Dividends totaling $0.01 per share were paid on the restricted stock
during 2000, the same rate as on the Common Stock. The number of shares and
value of restricted stock holdings at December 31, 2000, based on fair
market value of $78.61 per share, are as shown below:
Number of Share Value at
Shares Outstanding December 31, 2000
------------------ -----------------
Robert G. Deuster 30,000 $2,358,281
Alain Danielo 9,375 736,963
Robert C. Hewitt 6,750 530,618
Dan A. Petrescu 60,000 4,716,563
Robert J. Phillippy 27,000 2,122,453
Gary J. Spiegel 5,750 452,008
(2) All other compensation for 2000 consists of contribution by the Company to
the 401(k) plan for each Executive Officer, as well as premiums paid by the
Company for term life insurance for the benefit of the officers.
(3) Mr. Hewitt stepped down from his positions as Vice President and Chief
Financial Officer effective October 16, 2000, and retired from the Company
on January 5, 2001.
OPTION GRANTS IN LAST FISCAL YEAR
The following table sets forth certain information concerning grants of
options to the Named Executive Officers during the year ended December 31, 2000.
The amounts shown as potential realizable values on these options are based on
arbitrarily assumed annualized rates of appreciation in the price of Newport
Common Stock of five percent and ten percent over the term of the options, as
set forth in Securities and Exchange Commission ("SEC") rules, and there can be
no assurance that such rates will be achieved.
Stock Option Grants in Last Year Fiscal Year
-------------------------------------------------------------------------------------------------------
Number of
Securities Percentage Potential Realizable Value at Assumed
Underlying of Total Exercise Annual Rates of Stock Price Appreciation
Options Options Price per Expiration for Option Term
Name Granted Granted Share Date 5% 10%
- ---------------------------------------------------------------------------------------------------------------------------
Robert G. Deuster 180,000 11.87% $14.31 1/02/2010 $1,620,190 $4,105,879
Alain Danielo 60,000 3.96% $14.31 1/02/2010 $ 540,063 $1,368,626
Robert C. Hewitt 60,000 3.96% $14.31 1/02/2000 $ 540,063 $1,368,626
Dan A. Petrescu 60,000 3.96% $38.46 2/17/2010 $1,451,174 $3,677,561
Robert J. Phillippy 60,000 3.96% $14.31 1/02/2010 $ 540,063 $1,368,626
Gary J. Spiegel 60,000 3.96% $14.31 1/02/2010 $ 540,063 $1,368,626
- -------------------------------------------------------------------------------------------------------------------------
10
AGGREGATED OPTIONS EXERCISED IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUE
The following table sets forth certain information concerning the exercise of
options by the Named Executive Officers during the year ended December 31, 2000,
including the aggregate value of gains on the date of exercise. In addition,
the table includes the number of shares covered by both exercisable and
unexercisable stock options as of December 31, 2000. Also reported are the
values for "in-the-money" options that represent the positive spread between the
exercise price of existing stock options and the closing price of the Company's
Common Stock as of December 31, 2000.
Number of Unexercised Value of Unexercised In-the-
Shares Value Options at Money Options at
Acquired on Realized December 31, 2000 December 31, 2000 ($) (1)
Name Exercise (#) ($) Exercisable Unexercisable Exercisable Unexercisable
---- ------------ ----------- ----------- ------------- ----------- -------------
Robert G. Deuster 71,000 6,441,958 412,750 341,250 30,944,124 23,547,637
Alain Danielo 75,000 2,796,075 85,500 111,000 6,407,977 7,648,766
Robert C. Hewitt 238,500 16,324,750 -- 108,000 -- 1,068,125
Dan A. Petrescu -- -- -- 60,000 -- 2,409,063
Robert J. Phillippy 45,000 2,155,469 33,750 101,250 2,502,598 6,922,324
Gary J. Spiegel 59,000 2,972,146 22,750 108,000 1,686,936 7,421,688
(1) Market value of underlying securities at exercise date or year end, as the
case may be, minus the exercise or base price on "in-the-money" options.
The closing sale price for the Company's Common Stock as of December 31,
2000, on the Nasdaq National Market was $78.61.
PERFORMANCE GRAPH FOR FIVE YEARS ENDED DECEMBER 31, 2000
Comparison of Five Year Cumulative Total Return of
Newport Corporation with the Nasdaq National Market Index and the Scientific
Instruments Index published by Media General Financial Services, Inc.
[PERFORMANCE GRAPH APPEARS HERE]
1995 1996 1997 1998 1999 2000
------ ------ ------ ------ ------ -------
Newport Corporation 100.00 109.71 174.34 209.71 569.62 2939.87
Scientific Instruments Group Index 100.00 116.75 144.51 145.30 234.76 262.74
Nasdaq National Market Index 100.00 124.27 152.00 214.39 378.12 237.66
The graph compares the cumulative total shareholder return on a $100
investment in the Company's Common Stock for the five years ended December 31,
2000, with the cumulative total return on $100 invested in each of (i) the
Nasdaq National Market Index and (ii) the Scientific Instruments Group Index
published by Media General Financial Services, Inc. (A listing of the companies
comprising this index is available from the Company.). The graph assumes all
investments were made at market value
11
on December 31, 1995 and the reinvestment of all dividends.
Compensation of Directors
Each outside director is paid an annual fee of $15,000 and is reimbursed for
expenses incurred in connection with attending Board meetings. In addition,
each outside director is paid $1,000 for each Board meeting attended ($500 for
teleconference sessions) and $1,000 for each committee meeting attended. An
additional $250 is paid to each Committee Chairperson. Also, each outside
director receives annually, on January 1, options for 4,000 shares of common
stock which vest on the anniversary of the grant. Each new outside director
receives options on 16,000 shares upon commencement of service as a director,
which vest at the rate of 25% per year on each anniversary of the grant.
Employment Agreements
The Company has entered into employment agreements with Messrs. Deuster,
Cargile, Danielo, Edwards, Petrescu, Phillippy and Spiegel providing for certain
payments and benefits in the event their employment with the Company is
terminated within two years of a change of control of the Company, unless such
termination is as a result of death, disability or retirement of such officer or
is a termination for cause. In such event, each of these officers may be
entitled to a severance payment of a maximum of twelve months of such officer's
highest salary during the one-year period preceding termination (with the
exception of Mr. Deuster, who may be entitled to twenty-four months severance
payment), plus a bonus payment equal to such officer's incentive compensation
bonus paid under the Company's Incentive Plan, or other bonus plans, assuming
100% satisfaction of all performance goals. In addition, the officer would be
entitled to the continuation of benefits under the Company's medical, dental and
vision plans, and long-term disability insurance for two years, the removal of
all restrictions on restricted stock held by the officer, the acceleration of
vesting of all stock options, the payment of an amount equal to the difference
between the exercise price and fair market price of stock options held by the
officer and certain other benefits, including payment of an amount sufficient to
offset any "excess parachute payment" excise tax payable by the officer pursuant
to the provisions of the Internal Revenue Code or any comparable provision of
state or foreign law. In the event Mr. Phillippy's employment is terminated by
the Company other than for cause, he would be entitled to the same severance
payment as to salary and bonus as in the case of any termination within two
years of a change in control.
Retirement Agreement
Robert C. Hewitt, the Company's former Vice President and Chief Financial
Officer, retired on January 5, 2001. In connection with his retirement, the
Company paid Mr. Hewitt a bonus for 2000 of $141,000 and accelerated the vesting
of 22,500 options granted on January 2, 1998.
Indemnification of Officers and Directors
The Company has entered into agreements (the "Indemnification Agreements")
with each officer and director of the Company providing for contractual
protection of certain rights of indemnification by the Company.
The Indemnification Agreements provide for indemnification of officers and
directors to the fullest extent permitted by its Articles of Incorporation, By-
Laws and applicable law. They cover all fees, expenses, liabilities and losses
(including attorney's fees, judgments, fines, and amounts paid in any settlement
approved by the Company) actually and reasonably incurred in connection with any
investigation, claim, action, suit or proceeding to which the officer or
director is a party by reason of any action or inaction in the officer's or
director's capacity as an officer or director of the Company or by reason of the
fact that the officer or director is or was serving as a director, officer,
employee, agent or fiduciary of the Company, or of any subsidiary or division,
or is or was serving at the request of the Company as the Company's
representative with respect to another entity. Indemnification would not be
available, however, for expenses and the payment of profits arising from the
purchase and sale by the officer or director of securities in violation of
Section 16(b) of the Securities Exchange Act of 1934, as amended.
12
COMPLIANCE WITH SECTION 16(a) OF THE SECURITIES EXCHANGE ACT OF 1934
Section 16(a) of the Securities Exchange Act of 1934 requires the Company's
directors and executive officers and persons who own more than ten percent of a
registered class of the Company's equity securities to file with the SEC initial
reports of ownership and reports of changes in ownership of Common Stock and
other equity securities of the Company. Officers, directors and greater than
ten percent stockholders are required by SEC regulations to furnish the Company
with copies of all Section 16(a) forms they file. To the Company's knowledge,
based solely on the review of copies of such reports furnished to the Company
and written representations that no other reports were required, during fiscal
year 2000, there was compliance with all Section 16(a) filing requirements
applicable to the Company's officers, directors and greater than ten percent
stockholders with the following exceptions: (1) a Statement of Changes in
Beneficial Ownership on Form 4 prepared on behalf of Gary J. Spiegel, an
executive officer of the Company during such fiscal year, to report Mr.
Spiegel's stock sale in November 2000, was not timely filed, and the delinquent
form was subsequently filed in February 2001; and (2) a Statement of Changes in
Beneficial Ownership on Form 4 prepared on behalf of Kenneth F. Potashner, a
director of the Company during such fiscal year, to report Mr. Potashner's stock
sale in February 2000, was not timely filed, and the delinquent form was
subsequently filed in April 2001.
REPORT OF THE COMPENSATION COMMITTEE
OF THE BOARD OF DIRECTORS ON EXECUTIVE COMPENSATION
Committee
The Compensation Committee of the Board of Directors is comprised entirely of
non-employee, independent directors, none of whom serve as an executive officer
of any entity for which any executive officer of the Company serves as a
director or a member of its compensation committee. The Committee is
responsible for reviewing, recommending and approving changes to the Company's
compensation policies and programs, as applicable to the Company's officers and
senior personnel.
Compensation Policy and Objectives
Our primary goal as members of the Compensation Committee is to assure that
the compensation provided to executives is linked to the Company's business
strategies and objectives, thereby aligning the financial interest of senior
management with that of the stockholders. Beyond that, our priorities are to
assure that the executive compensation programs enable the Company to attract,
retain and motivate the high caliber executives required for the success of the
business. These objectives are achieved through a variety of compensation
programs, summarized below, which support the current and long-term performance
of the business. The Company has not paid, and does not expect to pay, any
qualifying compensation under Section 162(m) of the Internal Revenue Code.
Base Salary
Base salaries for executive officers are determined by evaluating the
responsibilities of the position and comparing it with similar executive
positions in other companies in the Company's industry. The Committee reviews
compensation surveys of similar companies and surveys of national scope
encompassing electronics and other high technology organizations. The Company's
compensation levels are set at approximately the 50th percentile, or market
average. Individual salaries vary based upon the individual's performance and
contributions to Company success, time on the job and internal equity. Annual
salary adjustments are determined by individual performance within an annual
budget approved by the Committee. During November 2000, the Committee approved
increases averaging 6.35% which ranged from 4.0% to 8.6% effective January 1,
2001. The CEO's salary increase is separately determined and approved by the
Committee.
Annual Incentives for Officers other than the Chief Executive Officer
Officers have an opportunity to earn annual incentives ("Incentive Plan")
based on performance targets. The Compensation Committee may also award bonuses
in cases where such performance targets are not met if it determines that the
circumstances warrant such action. During 2000, the Committee continued to use
a combined management measure (CMM) that included operating income as the
primary measure and also included a second measure related to working capital.
The intent of the CMM is to provide an incentive for officers to control working
capital. Two executive officers had earnings per share as an additional measure
and four executives had two worldwide sales measures as part of their incentive
plan. Additionally, each officer has a discretionary portion of the annual
incentive linked to achievement of individual non-financial goals which differ
depending on
13
the responsibilities of the respective officer. The target incentives for each
officer range from 25% to 75% of annual salary. For over-achievement of goals,
officers can earn up to 200% of the target incentive. For 2000, the Compensation
Committee awarded incentive payments based upon performance to specific goals
established at the beginning of the year, ranging from 20.0% to 190.0% of the
target incentive to executive officers.
Long-Term Incentives
To further align the interests of stockholders and managers, the Company
grants stock options and restricted stock to its employees, including officers
and executive officers. Stock options for a total of 1,485,000 shares were
granted to approximately 288 employees including officers during 2000. The
number of shares awarded is established based upon broad-based plan guidelines
and a recommendation by the employee's supervisor, and approved by the
Compensation Committee. The exercise price for stock options is the fair market
value of the stock on the date of the grant. Options generally vest at a rate of
25% per year starting on the first anniversary date of the option grant. Options
for a total of 184,000 (post-split) shares (including the grant to Mr. Deuster
described below) were granted on January 2, 2001 to eight officers. In addition,
Mr. Edwards was granted options on 15,000 (pre-split) shares upon commencement
of his employment in February 2000. Upon commencement of Mr. Petrescu's
employment in February 2000 he was granted options on 20,000 (pre-split) shares
and 20,000 (pre-split) shares of restricted stock. Restricted stock generally
vests at a rate of 25% per year starting on the second anniversary date of the
restricted stock grant, however, Mr. Petrescu's restricted stock grant vests at
a rate of 10,000 shares (pre-split) on the first anniversary date of the
restricted stock grant, and the remaining 10,000 (pre-split) shares on the
second anniversary date of the restricted stock grant. In addition, Mr. Cargile
was granted options on 60,000 shares (post-split) in November 2000 in connection
with commencement of his employment in October 2000.
Compensation of the Chief Executive Officer
The Chief Executive Officer participates in the compensation program discussed
above. His base salary is set, in the same way as other executive officers, as
determined by comparable positions in companies of similar size and
profitability to the Company in the marketplace. In November 2000, the
Committee approved a 7.5% increase effective January 1, 2001
Each year the Compensation Committee approves a performance based bonus plan
for the Chief Executive Officer. For 2000, the incentive for Mr. Deuster was
based on CMM, earnings per share targets and over-achievement incentives
established prior to the beginning of the year. He also had a discretionary
portion of the annual incentive linked to achievement of non-financial goals
also determined prior to the beginning of the year. The Compensation Committee
awarded an incentive payment totaling $573,000 based on the fact that Mr.
Deuster had exceeded both the financial targets established as well as the
discretionary portion of the incentive. At its November meeting, the
Compensation Committee awarded Mr. Deuster options for 60,000 shares with a
grant date of January 2, 2001.
Respectfully submitted,
R. Jack Aplin, Chairman
Kenneth F. Potashner
John T. Subak
REPORT OF THE AUDIT COMMITTEE
OF THE BOARD OF DIRECTORS
The Audit Committee has reviewed and discussed the audited financial
statements of the Company for the fiscal year ended December 31, 2000 with
management. The Audit Committee also has discussed with Ernst & Young LLP, the
Company's independent auditors, the matters required to be discussed by the
Statement on Auditing Standards No. 61 (Communications with Audit Committee).
In addition, the Audit Committee has received the written disclosures and the
letter from Ernst & Young LLP as required by the Independence Standards Board
Standard No. 1 (Independence Discussions with Audit Committees) and the Audit
Committee has discussed the independence of Ernst & Young LLP with that firm.
Based on the Audit Committee's review of the matters noted above and its
discussions with the Company's independent auditors and the Company's
management, the Audit Committee recommended to the Board of Directors that the
Company's financial statements be included in the Company's Annual Report on
Form 10-K.
14
Respectfully Submitted,
Robert L. Guyett, Chairman
C. Kumar N. Patel
John T. Subak
Notwithstanding anything to the contrary set forth in the Company's previous
filings under the Securities Act of 1933, as amended, or the Securities Exchange
Act of 1934, as amended, that might incorporate by reference previous or future
filings, including this Proxy Statement, in whole or in part, the foregoing
Reports of the Compensation Committee and the Audit Committee, the statements
regarding the independence of the Audit Committee members on page 5 and the
performance graph on page 11 shall not be incorporated by reference into any
such filings.
15
PROPOSAL TWO
AMENDMENT TO ARTICLES OF INCORPORATION TO
INCREASE THE NUMBER OF AUTHORIZED COMMON SHARES
The Company's Articles of Incorporation currently authorize the issuance of up
to 75,000,000 shares of Common Stock. The Board of Directors, on February 13,
2001, approved, subject to approval by the Company's stockholders, an amendment
to the Articles of Incorporation to increase the authorized number of shares of
Common Stock to 200,000,000.
As of the record date, the Company had 36,346,832 shares of Common Stock
issued and outstanding, 4,418,667 shares of Common Stock reserved for issuance
pursuant to the exercise of outstanding stock options and 1,454,057 shares of
Common Stock reserved for future issuance under the Company's stock option and
stock purchase plans. This leaves approximately 32,780,444 shares of Common
Stock currently available for other purposes.
The purpose of the proposed increase is to make additional shares of Common
Stock available for issuance from time to time as and when the Board of
Directors deems it advisable. The additional shares of Common Stock, if so
authorized, could be issued at the discretion of the Board of Directors without
any further action by the stockholders, except as required by applicable law or
regulation, in connection with acquisitions, future financings and other
corporate purposes. The additional shares of Common Stock could also be used to
permit a stock split, or a stock dividend, or to render more difficult or
prevent a merger, tender offer, proxy contest or other change in control of the
Company. Such shares will only be issued upon a determination by the Board of
Directors that a proposed issuance is in the best interests of the Company and
its stockholders. The Board of Directors has no immediate plans, intentions, or
commitments to issue additional shares of Common Stock in excess of the
75,000,000 shares currently authorized.
The Company's Common Stock does not have preemptive rights. No change in
total stockholder equity would result from the proposed increase of the number
of authorized shares of Common Stock, however, any future issuance of such
additional shares of Common Stock could, depending on the circumstances, reduce
total stockholder equity, have a dilutive effect on earnings per share, reduce
the voting power of currently issued and outstanding shares of Common Stock, and
have other similar dilutive effects on the currently issued and outstanding
shares of Common Stock.
The Board of Directors recommends a vote "FOR" this proposal.
The Board of Directors recommends a vote "FOR" the proposal to amend the
Company's Articles of Incorporation to increase the number of authorized shares
of Common Stock from 75,000,000 to 200,000,000. The affirmative vote of the
holders of a majority of outstanding shares of Common Stock is necessary for
approval of the proposal. Proxies received in response to this solicitation
will be voted in favor of the amendment to the Company's Articles of
Incorporation unless otherwise specified in the Proxy.
PROPOSAL THREE
AMENDMENT TO ARTICLES OF INCORPORATION TO
AUTHORIZE A CLASS OF PREFERRED STOCK
The Company's Articles of Incorporation currently authorize only one class of
capital stock, namely Common Stock. The Board of Directors has approved,
subject to approval by the Company's stockholders, an amendment to the Articles
of Incorporation to create a class of preferred stock initially consisting of
10,000,000 shares, which shares may be designated and issued in one or more
series with rights, preferences and privileges determined by the Board of
Directors.
Assuming the approval of this proposal and the approval of proposal two
regarding the increase in the number of authorized shares of Common Stock,
Article Fourth of the Articles of Incorporation of the Company, as amended,
would be further amended to read as follows:
FOURTH: The Corporation is authorized to issue Two Hundred Million
(200,000,000) shares of common stock, $0.1167 stated value, and Ten
Million (10,000,000) shares of preferred stock, $0.1167 stated value.
Except as may be determined by the Board of Directors in its discretion,
no holder of shares of the common stock or preferred stock of this
Corporation shall have any preemptive right to acquire unissued shares,
treasury shares, or securities convertible into such shares. The Board
of
16
Directors is authorized, subject to the limitations prescribed by law,
to provide for the issuance of the shares of preferred stock in series,
and by filing a certificate pursuant to the applicable law of the State
of Nevada, to establish from time to time the number of shares to be
included in each such series, to fix the designation, powers, preferences
and rights of the shares of each such series and the qualifications,
limitations or restrictions thereof.
The terms of the shares of preferred stock to be authorized cannot be stated
or estimated presently because the Board of Directors does not contemplate any
offering of such shares of preferred stock in the proximate future, although
further authorization by the stockholders will not be obtained in the event
there is any issuance of such shares of preferred stock by the Board of
Directors. The terms of the shares of preferred stock to be authorized,
including dividend rates, conversion rights, voting rights, redemption prices,
maturity dates, designations, preferences, limitations, restrictions and other
similar matters will be determined by the Board of Directors at a later date,
without the vote or approval of the stockholders. Any future issuance of the
shares of preferred stock to be authorized could, depending on the
circumstances, reduce total stockholder equity, have a dilutive effect on
earnings per share, reduce the voting power of currently issued and outstanding
shares of Common Stock, and have other similar dilutive effects on the currently
issued and outstanding shares of Common Stock. Such shares of preferred stock
will only be issued upon a determination by the Board of Directors that a
proposed issuance is in the best interests of the Company and its stockholders.
The purpose of authorizing the shares of preferred stock is to make an
additional class of shares apart from the shares of Common Stock available for
issuance should the Board of Directors ever deem such an issuance to be
advisable. The Board of Directors believes that the availability of authorized
but unissued shares of preferred stock can be of considerable value by providing
an alternative form of consideration in connection with the raising of capital
or the acquisition of other businesses through the issuance of securities by the
Company, the terms and characteristics of which can be determined by the Board
of Directors at the time of the actual issuance based on market conditions and
to meet other circumstances existing at such time. The shares of preferred
stock to be authorized could also be used to implement a stockholder rights
plan, or issued in order to defeat a hostile takeover attempt. For example, if
the Company were to become the target of a hostile takeover attempt, the Company
could try to prevent the takeover by issuing the shares of preferred stock, the
effect of which would be to reduce the voting power of the then issued and
outstanding shares of Common Stock and increase the cost of the takeover. The
adoption of a stockholder rights plan or the issuance of shares of preferred
stock could make it more difficult for any person to obtain control of the
Company through a merger, tender offer, proxy contest or other means, which
could potentially inhibit stockholders from realizing a higher share price for
their stock than that which would be available in the public markets. However,
the Board of Directors believes that such measures would have the effect of (i)
deterring those transactions in the Company's Common Stock that could lead to a
"creeping" takeover of the Company without the payment of a control premium,
(ii) encouraging prospective acquirors to negotiate with the Board of Directors
and (iii) maximizing stockholder value in the event of a sale of the Company.
The Board of Directors has no knowledge of any current, threatened or
contemplated attempt to take over the control of the Company.
The Board of Directors recommends a vote "FOR" this proposal.
The Board of Directors recommends a vote "FOR" the proposal to amend the
Company's Articles of Incorporation to authorize a class of preferred stock
consisting of 10,000,000 shares. The affirmative vote of the holders of a
majority of outstanding shares of Common Stock is necessary for approval of the
proposal. Proxies received in response to this solicitation will be voted in
favor of the amendment to the Articles of Incorporation unless otherwise
specified in the Proxy.
PROPOSAL FOUR
APPROVAL OF THE 2001 STOCK INCENTIVE PLAN
The Board of Directors approved on February 13, 2001, subject to stockholder
approval, the 2001 Stock Incentive Plan (the "2001 Plan"). The purposes of the
2001 Plan are to enhance the Company's ability to attract, motivate and retain
the services of qualified employees, officers and directors, consultants and
other service providers upon whose judgment, initiative and efforts the
successful conduct and development of the Company's business largely depends, by
providing them with an opportunity to participate in the ownership of the
Company and thereby have an interest in the success and increased value of the
Company.
17
The principal features of the 2001 Plan are summarized below, but the summary
is qualified in its entirety by reference to the 2001 Plan itself, a copy of
which is attached hereto as Appendix B.
Description of the 2001 Plan
The 2001 Plan authorizes the Company to grant options to purchase up to
6,000,000 shares of Common Stock, including such number of shares as was
formerly available for grant under the Company's 1992 Stock Option Plan and 1999
Stock Incentive Plan (the "Prior Plans"), subject to adjustment in the number
and kind of shares subject to the 2001 Plan and to outstanding shares in the
event of stock splits, stock dividends or certain other similar changes in the
capital structure of the Company. Upon the adoption of the 2001 Plan, the Prior
Plans shall be terminated, and no further options will be granted under the
Prior Plans. As of the record date, no options have been granted under the 2001
Plan.
Officers and other key employees of the Company or of any parent or subsidiary
corporation of the Company, whether now existing or hereafter created or
acquired (an "Affiliated Company") (including directors if they also are
employees of the Company or an Affiliated Company), as may be determined by the
Administrator, who qualify for incentive stock options under the applicable
provisions of the Internal Revenue Code of 1986, as amended, will be eligible
for selection to receive incentive options under the 2001 Plan. An employee who
has been granted an incentive option may, if otherwise eligible, be granted an
additional incentive option or options and receive nonqualified options or
restricted shares if the Administrator so determines. No incentive stock
options may be granted to an optionee under the 2001 Plan if the aggregate fair
market value (determined on the date of grant) of the stock with respect to
which incentive stock options are exercisable by such optionee in any calendar
year under the 2001 Plan of the Company and any Affiliated Company exceeds
$100,000.
Officers and other key employees of the Company or of an Affiliated Company,
any member of the Board of Directors, whether or not he or she is employed by
the Company, or consultants, business associates or others with important
business relationships with the Company will be eligible to receive nonqualified
options or restricted shares under the 2001 Plan. An individual who has been
granted a nonqualified option or restricted shares may, if otherwise eligible,
be granted an incentive option or an additional nonqualified option or options
or restricted shares if the Administrator so determines.
In no event may any individual be granted options under the 2001 Plan pursuant
to which the aggregate number of shares that may be acquired thereunder during
any calendar year exceeds 300,000 shares. As of April 13, 2001, approximately
14 officers and directors of the Company, and 1,297 other employees of the
Company were eligible to participate in the 2001 Plan.
The 2001 Plan is to be administered by an "Administrator", which, under the
2001 Plan, shall be either the Board of Directors or a committee appointed by
the Board of Directors (the "Committee"). The Board of Directors has delegated
administration of the 2001 Plan to the Compensation Committee, which is
comprised of three non-employee directors, each of whom is eligible to
participate in the 2001 Plan. Subject to the provisions of the 2001 Plan, the
Committee has full authority to implement, administer and make all
determinations necessary under the 2001 Plan.
The exercise price of incentive stock options shall not be less than the fair
market value of a share of common stock on the date the option is granted.
Nonqualified options shall have an exercise price of not less than 85% of the
fair market value of a share of common stock on the date such option is granted.
The exercise price of any option granted to an optionee that owns at least 10%
of the outstanding Common Stock shall not be less than 110% of the fair market
value of a share of Common Stock on the date of the grant. There is no minimum
purchase price for restricted shares to be issued under the 2001 Plan (provided
that such price shall not be less than fair market value for shares issued to
the Chief Executive Officer or a Named Executive Officer). Without limiting the
generality of the foregoing, the Committee may determine to issue restricted
shares as consideration for continued employment or the achievement of specified
performance goals or objectives.
Payment of the exercise price may be made, in the discretion of the Committee,
in cash, by check, by delivery of shares of the Company's Common Stock, through
the delivery of a promissory note, or any combination of the foregoing methods
of payment or any other consideration or method of payment as shall be permitted
by applicable corporate law. The Committee has the authority to determine the
time or times at which options granted under the 2001 Plan become exercisable,
provided that options must expire no later than ten years from the date of grant
(five years with respect incentive stock options granted to optionees who own at
least 10% of the outstanding common stock). Options are nontransferable, other
than by will and the laws of descent and distribution, and generally may be
exercised only by an employee while employed by the Company or within three
months after termination of employment (one year for termination resulting from
death or disability).
18
The Board of Directors may from time to time alter, amend, suspend or
terminate the 2001 Plan in such respects as the Board of Directors may deem
advisable; provided, however, that no such alteration, amendment, suspension or
termination shall be made that would substantially affect or impair the rights
of any person under any incentive option, nonqualified option or restricted
share theretofore granted to such person without his or her consent. Unless
previously terminated by the Board of Directors, the 2001 Plan will terminate on
February 13, 2011. The vesting of all options granted under the 2001 Plan will
accelerate automatically upon a change in control (as defined in the 2001 Plan)
effective as of immediately prior to the consummation of the change in control
unless the options are to be assumed by the acquiring or successor entity (or
parent thereof) or new options of comparable value are to be issued in exchange
therefore or the options granted under the Plan are to be replaced by the
acquiring or successor entity (or parent thereof) with other incentives under a
new incentive program containing such terms and provisions as the Committee in
its discretion may consider equitable.
New Plan Benefits
The Board of Directors believes that the benefits or amounts that will be
received by any participant under the 2001 Plan cannot be determined. The Board
of Directors also believes that the benefits or amounts that would have been
received by any person or group of persons under the 2001 Plan in fiscal year
ended December 31, 2000, if the 2001 Plan had been in effect during that
period, cannot be determined.
Summary of Federal Income Tax Consequences of the 2001 Plan
The following is a brief summary of certain federal income tax consequences of
participation in the 2001 Plan. The summary should not be relied upon as being
a complete statement of all possible federal income tax consequences. Federal
tax laws are complex and subject to change. Participation in the 2001 Plan may
also have consequences under state and local tax laws which vary from the
federal tax consequences described below. For such reasons, the Company
recommends that each participant consult his or her personal tax advisor to
determine the specific tax consequences applicable to him or her.
Incentive Options. No taxable income will be recognized by an optionee under
the 2001 Plan upon either the grant or the exercise of an incentive option.
Instead, a taxable event will occur upon the sale or other disposition of the
shares acquired upon exercise of an incentive option, and the tax treatment of
the gain or loss realized will depend upon how long the shares were held before
their sale or disposition. If a sale or other disposition of the shares
received upon the exercise of an incentive option occurs more than (i) one year
after the date of exercise of the option and (ii) two years after the date of
grant of the option, the holder will recognize long-term capital gain or loss at
the time of sale equal to the full amount of the difference between the proceeds
realized and the exercise price paid. However, a sale, exchange, gift or other
transfer of legal title of such stock (other than certain transfers upon the
optionee's death) before the expiration of either of the one-year or two-year
periods described above will constitute a "disqualifying disposition." A
disqualifying disposition involving a sale or exchange will result in ordinary
income to the optionee in an amount equal to the lesser of (i) the fair market
value of the stock on the date of exercise minus the exercise price or (ii) the
amount realized on disposition minus the exercise price. If the amount realized
in a disqualifying disposition exceeds the fair market value of the stock on the
date of exercise, the gain realized in excess of the amount taxed as ordinary
income as indicated above will be taxed as capital gain. A disqualifying
disposition as a result of a gift will result in ordinary income to the optionee
in an amount equal to the difference between the exercise price and the fair
market value of the stock on the date of exercise. Any loss realized upon a
disqualifying disposition will be treated as a capital loss. Capital gains and
losses resulting from disqualifying dispositions will be treated as long-term or
short-term depending upon whether the shares were held for more or less than the
applicable statutory holding period (which currently is more than one year for
long-term capital gains). The Company will be entitled to a tax deduction in an
amount equal to the ordinary income recognized by the optionee as a result of a
disposition of the shares received upon exercise of an incentive option.
The exercise of an incentive option may result in items of "tax preference"
for purposes of the "alternative minimum tax." Alternative minimum tax is
imposed on an individual's income only if the amount of the alternative minimum
tax exceeds the individual's regular tax for the year. For purposes of
computing alternative minimum tax, the excess of the fair market value on the
date of exercise of the shares received on exercise of an incentive option over
the exercise price paid is included in alternative minimum taxable income in the
year the option is exercised. An optionee who is subject to alternative minimum
tax in the year of exercise of an incentive option may claim as a credit against
the optionee's regular tax liability in future years the amount of alternative
minimum tax paid which is attributable to the exercise of the incentive option.
This credit is available in the first year following the year of exercise in
which the optionee has regular tax liability.
19
Nonqualified Options. No taxable income is recognized by an optionee upon the
grant of a nonqualified option. Upon exercise, however, the optionee will
recognize ordinary income in the amount by which the fair market value of the
shares purchased, on the date of exercise, exceeds the exercise price paid for
such shares. The income recognized by the optionee who is an employee will be
subject to income tax withholding by the Company out of the optionee's current
compensation. If such compensation is insufficient to pay the taxes due, the
optionee will be required to make a direct payment to the Company for the
balance of the tax withholding obligation. The Company will be entitled to a
tax deduction equal to the amount of ordinary income recognized by the optionee,
provided that certain reporting requirements are satisfied. If the exercise
price of a nonqualified option is paid by the optionee in cash, the tax basis of
the shares acquired will be equal to the cash paid plus the amount of income
recognized by the optionee as a result of such exercise. If the exercise price
is paid by delivering shares of common stock of the Company already owned by the
optionee or by a combination of cash and already-owned shares, there will be no
current taxable gain or loss recognized by the optionee on the already-owned
shares exchanged (however, the optionee will nevertheless recognize ordinary
income to the extent that the fair market value of the shares purchased on the
date of exercise exceeds the price paid, as described above). The new shares
received by the optionee, up to the number of the old shares exchanged, will
have the same tax basis and holding period as the optionee's basis and holding
period in the old shares. The balance of the new shares received will have a
tax basis equal to any cash paid by the optionee plus the amount of income
recognized by the optionee as a result of such exercise, and will have a holding
period commencing with the date of exercise. Upon the sale or disposition of
shares acquired pursuant to the exercise of a nonqualified option, the
difference between the proceeds realized and the optionee's basis in the shares
will be a capital gain or loss and will be treated as long-term capital gain or
loss if the shares have been held for more than the applicable statutory holding
period (which is currently more than one year for long-term capital gains).
Restricted Stock. If no Section 83(b) election is made and repurchase rights
are retained by the Company, a taxable event will occur on each date the
participant's ownership rights vest (e.g., when the Company's repurchase rights
expire) as to the number of shares that vest on that date, and the holding
period for capital gain purposes will not commence until the date the shares
vest. The participant will recognize ordinary income on each date shares vest
in an amount equal to the excess of the fair market value of such shares on that
date over the amount paid for such shares. Any income recognized by a
participant who is an employee will be subject to income tax withholding by the
Company out of the optionee's current compensation. If such compensation is
insufficient to cover the amount to be withheld, the participant will be
required to make a direct payment to the Company for the balance of the tax
withholding obligation. The Company is entitled to a tax deduction in an amount
equal to the ordinary income recognized by the participant. The participant's
basis in the shares will be equal to the purchase price, if any, increased by
the amount of ordinary income recognized.
If a Section 83(b) election is made within 30 days after the date of transfer,
or if no repurchase rights are retained by the Company, then the participant
will recognize ordinary income on the date of purchase in an amount equal to the
excess of the fair market value of such shares on the date of purchase over the
purchase price paid for such shares.
Tax Withholding
Under the 2001 Plan, the Company has the power to withhold, or require a
participant to remit to the Company, an amount sufficient to satisfy Federal,
state and local withholding tax requirements with respect to any options
exercised or restricted stock granted under the 2001 Plan. To the extent
permissible under applicable tax, securities, and other laws, the Committee may,
in its sole discretion, permit a participant to satisfy an obligation to pay any
tax to any governmental entity in respect of any option or restricted stock up
to an amount determined on the basis of the highest marginal tax rate applicable
to such participant, in whole or in part, by (i) directing the Company to apply
shares of Common Stock to which the participant is entitled as a result of the
exercise of an option or as a result of the lapse of restrictions on restricted
stock, or (ii) delivering to the Company shares of Common Stock owned by the
participant.
The Board of Directors recommends a vote "FOR" this proposal.
The Board of Directors recommends a vote "FOR" the proposal to approve the
2001 Plan. The affirmative vote of the holders of a majority of outstanding
shares of Common Stock is necessary for approval of the proposal. Proxies
received in response to this solicitation will be voted in favor of the approval
of the 2001 Plan unless otherwise specified in the Proxy.
20
PROPOSAL FIVE
APPROVAL OF AN AMENDMENT TO THE
EMPLOYEE STOCK PURCHASE PLAN
The Company's Employee Stock Purchase Plan (the "Purchase Plan") was adopted
by the Board of Directors on November 15, 1994 and approved by the Company's
stockholders on June 7, 1995, and amended on May 28, 1997 and March 20, 1998.
The Board of Directors approved on February 13, 2001, subject to stockholder
approval, an amendment to the Purchase Plan that accelerates the eligibility of
Company employees to participate in the Purchase Plan. Currently, the Purchase
Plan requires that a Company employee be employed by the Company for at least
one year before being eligible to participate in the Purchase Plan. The
proposed amendment would, as to each employee, accelerate eligibility under the
Purchase Plan to the first day of each calendar quarter coincident with or next
following the date of commencement of each such employee's employment with the
Company. The Board of Directors believes that the acceleration of the Purchase
Plan eligibility would benefit the Company's hiring and retention efforts, and
would further align the interests of participating employees with those of the
Company and its stockholders.
The purposes of the Purchase Plan are to provide to employees an incentive to
join and remain in the service of the Company and its subsidiaries, to promote
employee morale and to encourage employee ownership of the Company's Common
Stock by permitting them to purchase shares at a discount through payroll
deductions. The Purchase Plan is intended to qualify as an "employee stock
purchase plan" under Section 423 of the Internal Revenue Code of 1986, as
amended. The following description of the Purchase Plan is qualified in all
respects by reference to the Purchase Plan itself, the full text of which may be
obtained from the Company upon written request to the Secretary of the Company.
Description of the Purchase Plan
Assuming approval of the amendment to the Purchase Plan, every employee of the
Company who customarily works more than 30 hours per week will be eligible to
participate in offerings made under the Purchase Plan as of the first day of the
calendar quarter coincident with or next following the date of commencement of
such employee's employment with the Company. Employees of any present or future
subsidiary of the Company may also participate in the Purchase Plan. An employee
may not participate in an offering under the Purchase Plan if immediately after
the purchase the employee would own shares or options to purchase shares of
stock possessing 5% or more of the total combined voting power or value of all
classes of stock of the Company. As of the record date, approximately eight
officers of the Company and 1,270 other employees of the Company were eligible
to participate in the Purchase Plan. The Board of Directors believes that the
benefits or amounts that will be received by any participant under the Purchase
Plan cannot be determined.
The Purchase Plan may be administered by either the Board of Directors or a
committee appointed by the Board of Directors (the "Committee"). The Board of
Directors has delegated administration of the Purchase Plan to the Compensation
Committee, which is comprised of three non-employee directors who are not
eligible to participate in the Purchase Plan. Subject to the provisions of the
Purchase Plan, the Committee has full authority to implement, administer and
make all determinations necessary under the Purchase Plan.
Each offering under the Purchase Plan will commence on the first day of each
calendar quarter (the "Grant Date") and shall continue until the end of the
three-month period (the "Offering Period") ending on the last day of such
calendar quarter.
Eligible employees who elect to participate in an offering will purchase
shares of common stock through regular payroll deductions in an amount
designated by the employee not to exceed 15% of such employee's compensation.
For this purpose, "compensation" means the amount indicated on the Form W-2
issued to the employee by the Company, including any elective deferrals with
respect to a plan of the Company qualified under either Section 125 or Section
401(a) of the Internal Revenue Code of 1986, as amended. Shares of Common Stock
will be purchased automatically on the last day of the Offering Period (the
"Purchase Date") at a price equal to 85% of the fair market value of the shares
on the Grant Date or 85% of the fair market value of the shares as of the
Purchase Date, whichever is lower. A participant may withdraw from an offering
at any time prior to the Purchase Date and receive a refund of his payroll
deductions, without interest. A participant's rights in the Purchase Plan are
nontransferable other than on the death of the participant. The Purchase Plan is
administered in a manner designed to ensure that any affiliate participant's
commencement or discontinuation of participation in the Purchase Plan or
increase or decrease of payroll deductions will be effected in compliance with
the exemptions from liability under Section 16(b) of the Securities Exchange Act
of 1934 as set forth in Rule 16b-3 promulgated thereunder.
21
No employee may purchase stock under the Purchase Plan (and any similar
purchase plans of the Company and any parent and subsidiaries of the Company)
having a fair market value, determined as of each applicable Grant Date which
exceeds $25,000 in any calendar year.
The Board of Directors may at any time amend, suspend or terminate the
Purchase Plan; provided that any amendment that would (i) increase the aggregate
number of shares authorized for sale under the Purchase Plan (except pursuant to
adjustments provided for in the Purchase Plan), (ii) change the standards of
eligibility for participation, or (iii) materially increase the benefits which
accrue to participants under the Purchase Plan, shall not be effective unless
approved by the stockholders within 12 months of the adoption of such amendment
by the Board of Directors. Unless previously terminated by the Board of
Directors, the Purchase Plan will terminate on December 31, 2004 or when all
shares authorized for sale thereunder have been sold, whichever is earlier.
Summary of Federal Income Tax Consequences of the Purchase Plan
No taxable income is recognized by a participant either at the time of
election to participate in an offering under the Purchase Plan or at the time
shares are purchased thereunder.
If shares are disposed of at least two years after the offering date and at
least one year after the date of purchase, then the lesser of (i) the excess of
the fair market value of the shares at the time of such disposition over the
purchase price of the shares or (ii) the excess of the fair market value of the
shares on the offering date over the purchase price will be treated as ordinary
income to the participant. Any further gain upon such disposition will be taxed
as long-term capital gain. Any long-term capital gain will be taxed as capital
gain at the rates then in effect. If the shares are sold and the sale price is
less than the purchase price, there is no ordinary income and the participant
will have a capital loss equal to the difference between the sale price and the
purchase price. The ability of a participant to utilize such a capital loss will
depend on the participant's other tax attributes and the statutory limitation on
capital loss deductions not discussed herein.
If a participant disposes of the shares before the expiration of the one-year
and two-year holding periods described above (a "disqualifying disposition"),
then upon such disposition the federal income tax consequences will be as
follows: (1) the difference between the purchase price and the fair market value
of the shares on the date of purchase will be taxed to the participant as
ordinary income, and (2) the excess, if any, of the fair market value of the
shares on the date of disposition over their fair market value on the date of
purchase will be taxed as capital gain. If the shares are sold for less than
their fair market value on the purchase date, the same amount of ordinary income
will be attributed to the participant and a capital loss recognized equal to the
difference between the sale price and the value of the shares on such purchase
date. As indicated above, the ability of the participant to utilize such a
capital loss will depend on the participant's other tax attributes and the
statutory limitation on capital losses not discussed herein. The amount of
ordinary income recognized by the participant will be deductible by the Company
for federal income tax purposes.
The Board of Directors recommends a vote "FOR" this proposal.
The Board of Directors recommends a vote "FOR" the proposal for approval of
the amendment to the Purchase Plan. The affirmative vote of the holders of a
majority of outstanding shares of Common Stock is necessary for approval of the
proposal. Proxies received in response to this solicitation will be voted in
favor of the amendment to the Purchase Plan unless otherwise specified in the
Proxy.
PROPOSAL SIX
APPOINTMENT OF INDEPENDENT AUDITORS
Ernst & Young LLP was selected to audit the financial statements of the
Company as of December 31, 2000, and for the year then ended. The Audit
Committee of the Board recommended, and the Board of Directors has approved, the
selection of that firm as the Company's independent auditors for the fiscal year
ending December 31, 2001. Nevada General Corporation Law does not require the
approval of the selection of the independent auditors by the Company's
stockholders, but in view of the importance of the financial statements to
stockholders, the Board of Directors deems it desirable that stockholders pass
upon the selection of auditors.
22
The Board of Directors recommends a vote "FOR" this proposal.
Proxies received in response to this solicitation will be voted in favor of
the approval of such firm unless otherwise specified in the Proxy. A
representative of Ernst & Young LLP will be present at the Annual Meeting and
will be given the opportunity to make a statement if he so desires and will be
available to respond to appropriate questions. If this proposal is not approved
the Audit Committee shall reconsider the proposal and submit its recommendation
to the Board of Directors.
Audit Fees
The aggregate fees billed by Ernst & Young LLP for professional services for
the audit of the Company's annual consolidated financial statements for the
fiscal year ended December 31, 2000 and the review of the consolidated financial
statements included in the Company's Forms 10-Q for fiscal 2000 were $158,000.
Financial Information Systems Design and Implementation Fees
Ernst & Young LLP did not provide, and it did not bill and it was not paid any
fees for, financial information systems design and implementation services in
2000.
All Other Fees
The aggregate fees billed to the Company for all other services rendered by
Ernst & Young LLP to the Company in fiscal 2000, were $347,967.
The Audit Committee has determined that the provision of services, in addition
to audit services, rendered by Ernst & Young LLP and the fees paid therefor in
fiscal 2000 were compatible with maintaining Ernst & Young LLP's independence.
STOCKHOLDER PROPOSALS
Any stockholder desiring to submit a proposal for action at the 2002 Annual
Meeting of Stockholders and presentation in the Company's proxy statement with
respect to such meeting should arrange for such proposal to be delivered to the
Company's offices, 1791 Deere Avenue, Irvine, California 92606, addressed to the
Corporate Secretary, no later than December 28, 2001 in order to be considered
for inclusion in the Company's proxy statement relating to the meeting. Matters
pertaining to such proposals, including the number and length thereof,
eligibility of persons entitled to have such proposals included and other
aspects are regulated by the Securities Exchange Act of 1934, Rules and
Regulations of the Securities and Exchange Commission and other laws and
regulations to which interested persons should refer. The Company anticipates
that its next annual meeting will be held in May 2002.
Under Rule 14a-4, as promulgated under the Securities and Exchange Act of
1934, as amended, if a stockholder fails to notify the Company of a proposal at
least 45 days prior to the month and day of mailing of the prior year's proxy
statement, then the Company will be allowed to use its discretionary voting
authority when the proposal is raised at the meeting, without any discussion of
the matter in the proxy statement. With respect to the Company's 2002 Annual
Meeting of Stockholders, a stockholder proposal not previously submitted for the
Company's proxy statement may be submitted until March 13, 2002; thereafter, the
Company will use its voting authority as described above.
OTHER MATTERS
The Company has enclosed with this Proxy Statement a copy of the Annual Report
to Stockholders for the year ended December 31, 2000.
Management knows of no other matters to come before the meeting. If, however,
any other matter properly comes before the meeting, the persons named in the
enclosed Proxy form will vote in accordance with their judgment upon such
matter.
Stockholders who do not expect to attend in person are urged to promptly
execute and return the enclosed Proxy.
By order of the Board of Directors
23
Patricia M. Clemens
Secretary
Irvine, California
April 27, 2001
24
APPENDIX A
NEWPORT CORPORATION
-------------------
AUDIT COMMITTEE CHARTER
-----------------------
ORGANIZATION
This charter governs the operations of the audit committee. The committee shall
review and reassess the charter at least annually and obtain the approval of the
board of directors. The committee shall be appointed by the board of directors
and shall be comprised of at least three directors. Members of the committee
shall have no relationship that may interfere with the exercise of their
independence from management and the Company, and each member shall meet the
independence standards of Rule 4200(a)(15) of the Nasdaq Marketplace Rules
(during such time as the Company's Common Stock is quoted on the Nasdaq Stock
Market), or of the exchange on which the Company's securities are listed. All
committee members shall be financially literate, or shall become financially
literate within a reasonable period of time after appointment to the committee,
and at least one member shall have prior professional experience in either
finance or accounting, prior professional certification in accounting or other
comparable accounting or related financial management expertise.
STATEMENT OF POLICY
The audit committee shall provide assistance to the board of directors in
fulfilling their oversight responsibility to the shareholders, potential
shareholders, the investment community, and others relating to the Company's
financial statements and the financial reporting process, the systems of
internal accounting and financial controls, the internal audit function, the
annual independent audit of the Company's financial statements, and the legal
compliance and ethics programs as established by management and the board. In
so doing, it is the responsibility of the committee to maintain free and open
communication between the committee, the independent auditors, the internal
auditors and management of the Company. In discharging its oversight role, the
committee is empowered to investigate any matter brought to its attention with
full access to all books, records, facilities, and personnel of the Company and
the power to retain outside counsel or other experts for this purpose.
RESPONSIBILITIES AND PROCESSES
The primary responsibility of the audit committee is to oversee the Company's
financial reporting process on behalf of the board and report the results of
their activities to the board. Management is responsible for preparing the
Company's financial statements, and the independent auditors are responsible for
auditing those financial statements. The committee in carrying out its
responsibilities believes its policies and procedures should remain flexible, in
order to best react to changing conditions and circumstances. The committee
should take the appropriate actions to set the overall corporate "tone" for
quality financial reporting, sound business risk practices, and ethical
behavior.
The following shall be the principal recurring processes of the audit committee
in carrying out its oversight responsibilities. The processes are set forth as
a guide with the understanding that the committee may supplement them as
appropriate.
. The committee shall have a clear understanding with management and the
independent auditors that the independent auditors are ultimately
accountable to the board and the audit committee, as representatives of the
Company's shareholders. The committee shall have the ultimate authority
and responsibility to evaluate and, where appropriate, replace the
independent auditors. The committee shall discuss with the auditors their
independence from management and the Company and the matters included in
the written disclosures required by the Independence Standards Board.
Annually, the committee shall review and recommend to the board the
selection of the Company's independent auditors.
. The committee shall discuss with the internal auditors and the independent
auditors the overall scope and plans for their respective audits including
the adequacy of staffing and compensation. Also, the committee shall
discuss with management, the internal auditors, and the independent
auditors the adequacy and effectiveness of the accounting and financial
controls, including the Company's system to monitor and manage business
risk, and legal and ethical compliance programs. Further, the committee
shall meet separately with the internal auditors and the independent
auditors, with and without management present, to discuss the results of
their examinations.
25
. The committee shall review the interim financial statements with management
and the independent auditors prior to the filing of the Company's Quarterly
Report on Form 10-Q. Also, the committee shall discuss the results of the
quarterly review and any other matters required to be communicated to the
committee by the independent auditors under generally accepted auditing
standards. The chair of the committee may represent the entire committee
for the purposes of this review.
. The committee shall review with management and the independent auditors the
financial statements to be included in the Company's Annual Report on Form
10-K (or the annual report to shareholders if distributed prior to the
filing of From 10-K), including their judgment about the quality, not just
acceptability, of accounting principles, the reasonableness of significant
judgments, and the clarity of the disclosures in the financial statements.
Also, the committee shall discuss the results of the annual audit and any
other matters required to be communicated to the committee by the independent
auditors under generally accepted auditing standards.
. Based upon the foregoing reviews and discussions, the committee shall
recommend to the Board of Directors as to whether the audited financial
statements should be included in the Company's Annual Report on Form 10-K.
. The committee shall supervise the investigation of reports of illegal acts
involving the Corporation detected by the independent accountants or others
and review the actions taken or to be taken by the Company to remediate such
illegal acts, and, if appropriate, shall recommend further action by the
Board of Directors.
. The committee shall establish and review policies and guidelines concerning
investments by the Corporation, and periodically review compliance with
such investment policy.
26
APPENDIX B
NEWPORT CORPORATION
2001 STOCK INCENTIVE PLAN
This 2001 STOCK INCENTIVE PLAN (the "Plan") is hereby established and
adopted as of February 13, 2001 (the "Effective Date") by Newport Corporation, a
Nevada corporation (the "Company").
ARTICLE 1
PURPOSES OF THE PLAN
1.1 Purposes. The purposes of the Plan are (a) to enhance the Company's
ability to attract, motivate and retain the services of qualified employees,
officers, directors, consultants and other service providers (to the extent
qualifying under Article 3 hereof) upon whose judgment, initiative and efforts
the successful conduct and development of the Company's business largely
depends, and (b) to provide additional incentives to such persons or entities to
devote their utmost effort and skill to the advancement and betterment of the
Company, by providing them an opportunity to participate in the ownership of the
Company and thereby have an interest in the success and increased value of the
Company.
ARTICLE 2
DEFINITIONS
For purposes of this Plan, the following terms shall have the meanings
indicated:
2.1 "Administrator" means the Board or, if the Board delegates
responsibility for any matter to the Committee, the term Administrator shall
mean the Committee.
2.2 "Affiliated Company" means any "parent corporation" or "subsidiary
corporation" of the Company, whether now existing or hereafter created or
acquired, as those terms are defined in Sections 424(e) and 424(f) of the Code,
respectively.
2.3 "Board" means the Board of Directors of the Company.
2.4 "Change in Control" shall mean (i) the acquisition, directly or
indirectly, in one transaction or a series of related transactions, by any
person or group (within the meaning of Section 13(d)(3) of the Securities
Exchange Act of 1934, as amended) of the beneficial ownership of securities of
the Company possessing more than fifty percent (50%) of the total combined
voting power of all outstanding securities of the Company; (ii) a merger or
consolidation in which the holders of the outstanding voting securities of the
Company immediately prior to such merger or consolidation hold, in the
aggregate, securities possessing less than fifty percent (50%) of the total
combined voting power of all outstanding voting securities of the surviving or
acquiring entity immediately after such merger or consolidation; (iii) the sale,
transfer or other disposition (in one transaction or a series of related
transactions) of all or substantially all of the assets of the Company;
or (v) the approval by the shareholders of a plan or proposal for the
liquidation or dissolution of the Company.
2.5 "Code" means the Internal Revenue Code of 1986, as amended from time
to time.
2.6 "Committee" means a committee of two or more members of the Board
appointed to administer the Plan, as set forth in Section 7.1 hereof.
2.7 "Common Stock" means the Common Stock, $0.1167 stated value, of the
Company, subject to adjustment pursuant to Section 4.2 hereof.
2.8 "Covered Employee" means the chief executive officer of the Company
(or the individual acting in such capacity) and the four (4) other individuals
that are the highest compensated officers of the Company for the relevant
taxable year for whom total compensation is required to be reported to
shareholders under the Exchange Act. References to a Covered Employee in the
Plan shall apply only at such time that a Company security is Publicly Traded.
2.9 "Disability" means permanent and total disability as defined in
Section 22(e)(3) of the Code. The Administrator's determination of a Disability
or the absence thereof shall be conclusive and binding on all interested
parties.
2.10 "Effective Date" means February 13, 2001, which is the date on which
the Plan was adopted by the Board.
2.11 "Exchange Act" means the Securities and Exchange Act of 1934, as
amended.
2.12 "Exercise Price" means the purchase price per share of Common Stock
payable upon exercise of an Option.
2.13 "Fair Market Value" on any given date means the value of one share of
Common Stock, determined as follows:
(a) If the Common Stock is then listed or admitted to trading on a
Nasdaq market system or a stock exchange which reports closing sale prices, the
Fair Market Value shall be the closing sale price on the date of valuation on
such Nasdaq market system or principal stock exchange on which the Common Stock
is then listed or admitted to trading, or, if no closing sale price is quoted on
such day, then the Fair Market Value shall be the closing sale price of the
Common Stock on such Nasdaq market system or such exchange on the next preceding
day on which a closing sale price is quoted.
(b) If the Common Stock is not then listed or admitted to trading
on a Nasdaq market system or a stock exchange which reports closing sale prices,
the Fair Market Value shall be the average of the closing bid and asked prices
of the Common Stock in the over-the-counter market on the date of valuation.
(c) If neither (a) nor (b) is applicable as of the date of
valuation, then the Fair Market Value shall be determined by the Administrator
in good faith using any reasonable method of evaluation, which determination
shall be conclusive and binding on all interested parties.
2
2.14 "Incentive Option" means any Option designated and qualified as an
"incentive stock option" as defined in Section 422 of the Code.
2.15 "Incentive Option Agreement" means an Option Agreement with respect
to an Incentive Option.
2.16 "NASD Dealer" means a broker-dealer that is a member of the National
Association of Securities Dealers, Inc.
2.17 "Nonqualified Option" means any Option that is not an Incentive
Option. To the extent that any Option designated as an Incentive Option fails in
whole or in part to qualify as an Incentive Option, including, without
limitation, for failure to meet the limitations applicable to a 10% Stockholder
or because it exceeds the annual limit provided for in Section 5.6 below, it
shall to that extent constitute a Nonqualified Option.
2.18 "Nonqualified Option Agreement" means an Option Agreement with
respect to a Nonqualified Option.
2.19 "Option" means any option to purchase Common Stock granted pursuant
to the Plan.
2.20 "Option Agreement" means the written agreement entered into between
the Company and the Optionee with respect to an Option granted under the Plan.
2.21 "Optionee" means a Participant who holds an Option.
2.22 "Participant" means an individual or entity who holds an Option or
Restricted Stock under the Plan.
2.23 "Publicly Traded" means any security of the Company that is listed
(or approved for listing upon notice of issuance) on any securities exchange or
designated (or approved for designation upon notice of issuance) as a national
market security on an interdealer quotation system if such securities exchange
or interdealer quotation system has been certified in accordance with the
provisions of Section 25100(o) of the California Corporate Securities Law of
1968.
2.24 "Purchase Price" means the purchase price per share of Restricted
Stock.
2.25 "Restricted Stock" means shares of Common Stock issued pursuant to
Article 6 hereof, subject to any restrictions and conditions as are established
pursuant to such Article 6.
2.26 "Service Provider" means a consultant or other person or entity the
Administrator authorizes to become a Participant in the Plan and who provides
services to (i) the Company, (ii) an Affiliated Company, or (iii) any other
business venture designated by the Administrator in which the Company (or any
entity that is a successor to the Company) or an Affiliated Company has a
significant ownership interest.
2.27 "Stock Purchase Agreement" means the written agreement entered into
between the Company and a Participant with respect to the purchase of Restricted
Stock under the Plan.
2.28 "10% Stockholder" means a person who, as of a relevant date, owns
or is deemed to own (by reason of the attribution rules applicable under Section
424(d) of the Code) stock possessing
3
more than 10% of the total combined voting power of all classes of stock of the
Company or of an Affiliated Company.
ARTICLE 3
ELIGIBILITY
3.1 Incentive Options. Subject to Section 3.4, only employees of the
Company or of an Affiliated Company (including members of the Board if they are
employees of the Company or of an Affiliated Company) are eligible to receive
Incentive Options under the Plan.
3.2 Nonqualified Options and Restricted Stock. Subject to Section 3.4,
employees of the Company or of an Affiliated Company, members of the Board
(whether or not employed by the Company or an Affiliated Company), and Service
Providers are eligible to receive Nonqualified Options or acquire Restricted
Stock under the Plan.
3.3 Limitation on Shares. In no event shall any Participant be granted
Options in any one calendar year pursuant to which the aggregate number of
shares of Common Stock that may be acquired thereunder exceeds 300,000 shares,
subject to adjustment as to the number and kind of shares pursuant to Section
4.2 hereof.
3.4 Restrictions. Notwithstanding Sections 3.1 and 3.2 above or any
other provision of this Plan to the contrary, (i) no Incentive Options shall be
issued under the Plan and (ii) no director or officer of the Company or any
Affiliated Company shall be eligible to receive an Option or acquire Restricted
Stock, or any right to receive the same, pursuant to this Plan unless and until
this Plan has been approved by a majority of the shares present and entitled to
vote at a meeting of the Company's stockholders.
ARTICLE 4
PLAN SHARES
4.1 Shares Subject to the Plan. The number of shares of Common Stock
that may be issued under the Plan shall be equal to six million (6,000,000)
shares, subject to adjustment as to the number and kind of shares pursuant to
Section 4.2 hereof. For purposes of this limitation, in the event that (a) all
or any portion of any Option granted under the Plan can no longer under any
circumstances be exercised, or (b) any shares of Common Stock are reacquired by
the Company pursuant to an Incentive Option Agreement, Nonqualified Option
Agreement or Stock Purchase Agreement, the shares of Common Stock allocable to
the unexercised portion of such Option or the shares so reacquired shall again
be available for grant or issuance under the Plan.
4.2 Changes in Capital Structure. In the event that the outstanding
shares of Common Stock are hereafter increased or decreased or changed into or
exchanged for a different number or kind of shares or other securities of the
Company by reason of a recapitalization, stock split, combination of shares,
reclassification, stock dividend, or other change in the capital structure of
the Company, then appropriate adjustments shall be made by the Administrator to
the aggregate number and kind of shares subject to this Plan, the number and
kind of shares and the price per share subject to outstanding Option Agreements
and Stock Purchase Agreements and the limit on the number of
4
shares under Section 3.3, all in order to preserve, as nearly as practical, but
not to increase, the benefits to Participants.
ARTICLE 5
OPTIONS
5.1 Option Agreement. Each Option granted pursuant to this Plan shall be
evidenced by an Option Agreement which shall specify the number of shares
subject thereto, vesting provisions relating to such Option, the Exercise Price
per share, and whether the Option is an Incentive Option or Nonqualified Option.
As soon as is practical following the grant of an Option, an Option Agreement
shall be duly executed and delivered by or on behalf of the Company to the
Optionee to whom such Option was granted. Each Option Agreement shall be in
such form and contain such additional terms and conditions, not inconsistent
with the provisions of this Plan, as the Administrator shall, from time to time,
deem desirable, including, without limitation, the imposition of any rights of
first refusal and resale obligations upon any shares of Common Stock acquired
pursuant to an Option Agreement. Each Option Agreement may be different from
each other Option Agreement.
5.2 Exercise Price. The Exercise Price per share of Common Stock
covered by each Option shall be determined by the Administrator, subject to the
following: (a) the Exercise Price of an Incentive Option shall not be less than
100% of Fair Market Value on the date the Incentive Option is granted, (b) the
Exercise Price of a Nonqualified Option shall not be less than 85% of Fair
Market Value on the date the Nonqualified Option is granted, except for
Nonqualified Options granted to Covered Employees where in such case the
Exercise Price shall not be less than 100% of Fair Market Value on such date,
and (c) if the person to whom an Option is granted is a 10% Stockholder on the
date of grant, the Exercise Price shall not be less than 110% of Fair Market
Value on the date the Option is granted.
5.3 Payment of Exercise Price. Payment of the Exercise Price shall be
made upon exercise of an Option and may be made, in the discretion of the
Administrator, subject to any legal restrictions, by: (a) cash; (b) check; (c)
the surrender of shares of Common Stock owned by the Optionee (provided that
shares acquired pursuant to the exercise of options granted by the Company must
have been held by the Optionee for the requisite period necessary to avoid a
charge to the Company's earnings for financial reporting purposes), which
surrendered shares shall be valued at Fair Market Value as of the date of such
exercise; (d) the Optionee's promissory note in a form and on terms acceptable
to the Administrator; (e) the cancellation of indebtedness of the Company to the
Optionee; (f) the waiver of compensation due or accrued to the Optionee for
services rendered; (g) provided that a public market for the Common Stock
exists, a "same day sale" commitment from the Optionee and an NASD Dealer
whereby the Optionee irrevocably elects to exercise the Option and to sell a
portion of the shares so purchased to pay for the Exercise Price and whereby the
NASD Dealer irrevocably commits upon receipt of such shares to forward the
Exercise Price directly to the Company; (h) provided that a public market for
the Common Stock exists, a "margin" commitment from the Optionee and an NASD
Dealer whereby the Optionee irrevocably elects to exercise the Option and to
pledge the shares so purchased to the NASD Dealer in a margin account as
security for a loan from the NASD Dealer in the amount of the Exercise Price,
and whereby the NASD Dealer irrevocably commits upon receipt of such shares to
forward the Exercise Price directly to the
5
Company; or (i) any combination of the foregoing methods of payment or any other
consideration or method of payment as shall be permitted by applicable corporate
law.
5.4 Term and Termination of Options. The term and termination of each
Option shall be as fixed by the Administrator, but no Option may be exercisable
more than ten (10) years after the date it is granted. An Incentive Option
granted to a person who is a 10% Stockholder on the date of grant shall not be
exercisable more than five (5) years after the date it is granted.
5.5 Vesting and Exercise of Options. Each Option shall vest and become
exercisable in one or more installments at such time or times and subject to
such conditions, including without limitation the achievement of specified
performance goals or objectives, as shall be determined by the Administrator.
5.6 Annual Limit on Incentive Options. To the extent required for
"incentive stock option" treatment under Section 422 of the Code, the aggregate
Fair Market Value (determined as of the time of grant) of the Common Stock shall
not, with respect to which Incentive Options granted under this Plan and any
other plan of the Company or any Affiliated Company become exercisable for the
first time by an Optionee during any calendar year, exceed $100,000.
5.7 Nontransferability of Options. No Option shall be assignable or
transferable except by will or the laws of descent and distribution, and during
the life of the Optionee shall be exercisable only by such Optionee; provided,
however, that, in the discretion of the Administrator, any Option may be
assigned or transferred in any manner unless such assignment or transfer is not
permitted under the Code.
5.8 Rights as Stockholder. An Optionee or permitted transferee of an
Option shall have no rights or privileges as a Stockholder with respect to any
shares covered by an Option until such Option has been duly exercised and
certificates representing shares purchased upon such exercise have been issued
to such person.
5.9 Unvested Shares. The Administrator shall have the discretion to
grant Options that are exercisable for unvested shares of Common Stock provided
that the Company retains the right to repurchase, at the exercise price paid per
share, any or all of those unvested shares if the Optionee's service to the
Company terminates before all the shares become vested. The terms upon which
such repurchase right shall be exercisable (including the period and procedure
for exercise and the appropriate vesting schedule for the purchased shares)
shall be established by the Administrator and set forth in the document
evidencing such repurchase right.
ARTICLE 6
RESTRICTED STOCK
6.1 Issuance of Restricted Stock. The Administrator shall have the
right to issue, at a Purchase Price determined by the Administrator (provided
that such Purchase Price shall not be less than Fair Market Value for shares
issued to a Covered Employee), shares of Common Stock subject to such terms,
restrictions and conditions as the Administrator may determine at the time of
grant ("Restricted Stock"). Such conditions may include, but are not limited to,
continued employment or the achievement of specified performance goals or
objectives.
6
6.2 Restricted Stock Purchase Agreements. A Participant shall have no
rights with respect to the shares of Restricted Stock covered by a Stock
Purchase Agreement until the Participant has paid the full Purchase Price to the
Company in the manner set forth in Section 6.3 hereof and has executed and
delivered to the Company the Stock Purchase Agreement. Each Stock Purchase
Agreement shall be in such form, and shall set forth the Purchase Price and such
other terms, conditions and restrictions of the Restricted Stock, not
inconsistent with the provisions of this Plan, as the Administrator shall, from
time to time, deem desirable. Each Stock Purchase Agreement may be different
from each other Stock Purchase Agreement.
6.3 Payment of Purchase Price. Subject to any legal restrictions,
payment of the Purchase Price may be made, in the discretion of the
Administrator, by: (a) cash; (b) check; (c) the surrender of shares of Common
Stock owned by the Participant (provided that shares acquired pursuant to the
exercise of options granted by the Company shall have been held by the
Participant for the requisite period necessary to avoid a charge to the
Company's earnings for financial reporting purposes), which surrendered shares
shall be valued at Fair Market Value as of the date of such acceptance; (d) the
Participant's promissory note in a form and on terms acceptable to the
Administrator; (e) the cancellation of indebtedness of the Company to the
Participant; (f) the waiver of compensation due or accrued to the Participant
for services rendered; or (g) any combination of the foregoing methods of
payment or any other consideration or method of payment as shall be permitted by
applicable corporate law.
6.4 Rights as a Stockholder. Upon complying with the provisions of
Section 6.2 hereof, a Participant shall have the rights of a stockholder with
respect to the Restricted Stock purchased pursuant to a Stock Purchase
Agreement, including voting and dividend rights, subject to the terms,
restrictions and conditions as are set forth in such Stock Purchase Agreement.
Unless the Administrator shall determine otherwise, certificates evidencing
shares of Restricted Stock shall remain in the possession of the Company until
such shares have vested in accordance with the terms of the Stock Purchase
Agreement.
6.5 Restrictions. Shares of Restricted Stock may not be sold, assigned,
transferred, pledged or otherwise encumbered or disposed of except as
specifically provided in the Stock Purchase Agreement or by the Administrator.
In the event of termination of a Participant's employment, service as a director
of the Company or Service Provider status for any reason whatsoever (including
death or disability), the Stock Purchase Agreement may provide, in the
discretion of the Administrator, that the Company shall have the right,
exercisable at the discretion of the Administrator, to repurchase (i) at the
original Purchase Price, any shares of Restricted Stock which have not vested as
of the date of termination, and (ii) at Fair Market Value, any shares of
Restricted Stock which have vested as of such date, on such terms as may be
provided in the Stock Purchase Agreement.
6.6 Vesting of Restricted Stock. The Stock Purchase Agreement shall
specify the date or dates, the performance goals or objectives which must be
achieved, and any other conditions on which the Restricted Stock may vest.
6.7 Dividends. If payment for shares of Restricted Stock is made by
promissory note, any cash dividends paid with respect to the Restricted Stock
may be applied, in the discretion of the Administrator, to repayment of such
note.
7
ARTICLE 7
ADMINISTRATION OF THE PLAN
7.1 Administrator. Authority to control and manage the operation and
administration of the Plan shall be vested in the Board, which may delegate such
responsibilities in whole or in part to a committee consisting of two (2) or
more members of the Board (the "Committee"). Members of the Committee may be
appointed from time to time by, and shall serve at the pleasure of, the Board.
The Board may limit the composition of the Committee to those persons necessary
to comply with the requirements of Section 162(m) of the Code and Section 16 of
the Exchange Act. As used herein, the term "Administrator" means the Board or,
with respect to any matter as to which responsibility has been delegated to the
Committee, the term Administrator shall mean the Committee.
7.2 Powers of the Administrator. In addition to any other powers or
authority conferred upon the Administrator elsewhere in the Plan or by law, the
Administrator shall have full power and authority: (a) to determine the persons
to whom, and the time or times at which, Incentive Options or Nonqualified
Options or rights to purchase Restricted Stock shall be granted, the number of
shares to be represented by each Option and the number of shares of Restricted
Stock to be offered, and the consideration to be received by the Company upon
the exercise of such Options or sale of such Restricted Stock; (b) to interpret
the Plan; (c) to create, amend or rescind rules and regulations relating to the
Plan; (d) to determine the terms, conditions and restrictions contained in, and
the form of, Option Agreements and Stock Purchase Agreements; (e) to determine
the identity or capacity of any persons who may be entitled to exercise a
Participant's rights under any Option or Stock Purchase Agreement under the
Plan; (f) to correct any defect or supply any omission or reconcile any
inconsistency in the Plan or in any Option Agreement or Stock Purchase
Agreement; (g) to accelerate the vesting of any Option or release or waive any
repurchase rights of the Company with respect to Restricted Stock; (h) to extend
the exercise date of any Option; (i) to provide for rights of first refusal
and/or repurchase rights; (j) to amend outstanding Option Agreements and Stock
Purchase Agreements to provide for, among other things, any change or
modification which the Administrator could have included in the original
Agreement or in furtherance of the powers provided for herein; and (k) to make
all other determinations necessary or advisable for the administration of the
Plan, but only to the extent not contrary to the express provisions of the Plan.
Any action, decision, interpretation or determination made in good faith by the
Administrator in the exercise of its authority conferred upon it under the Plan
shall be final and binding on the Company and all Participants.
7.3 Limitation on Liability. No employee of the Company or member of
the Board or Committee shall be subject to any liability with respect to duties
under the Plan unless the person acts fraudulently or in bad faith. To the
extent permitted by law, the Company shall indemnify each member of the Board or
Committee, and any employee of the Company with duties under the Plan, who was
or is a party, or is threatened to be made a party, to any threatened, pending
or completed proceeding, whether civil, criminal, administrative or
investigative, by reason of such person's conduct in the performance of duties
under the Plan.
8
ARTICLE 8
CHANGE IN CONTROL
8.1 Change in Control. In order to preserve a Participant's rights in
the event of a Change in Control of the Company:
(a) Vesting of all outstanding Options shall accelerate
automatically effective as of immediately prior to the consummation of the
Change in Control unless the Options are to be assumed by the acquiring or
successor entity (or parent thereof) or new options or New Incentives are to be
issued in exchange therefor, as provided in subsection (b) below.
(b) Vesting of outstanding Options shall not accelerate if and to
the extent that: (i) the Options (including the unvested portion thereof) are to
be assumed by the acquiring or successor entity (or parent thereof) or new
options of comparable value are to be issued in exchange therefor pursuant to
the terms of the Change in Control transaction, or (ii) the Options (including
the unvested portion thereof) are to be replaced by the acquiring or successor
entity (or parent thereof) with other incentives under a new incentive program
("New Incentives") containing such terms and provisions as the Administrator in
its discretion may consider equitable. If outstanding Options are assumed, or if
new options of comparable value are issued in exchange therefor, then each such
Option or new option shall be appropriately adjusted, concurrently with the
Change in Control, to apply to the number and class of securities or other
property that the Participant would have received pursuant to the Change in
Control transaction in exchange for the shares issuable upon exercise of the
Option had the Option been exercised immediately prior to the Change in Control,
and appropriate adjustment also shall be made to the Exercise Price such that
the aggregate Exercise Price of each such Option or new option shall remain the
same as nearly as practicable.
(c) The Administrator in its discretion may provide in any Option
Agreement that if such Option is assumed by an acquiring or successor entity (or
parent thereof) or a new option of comparable value or New Incentive is issued
in exchange therefor pursuant to the terms of a Change in Control transaction,
then vesting of the Option, the new option or the New Incentive shall accelerate
if and at such time as the Participant's service as an employee, director,
officer, consultant or other service provider to the acquiring or successor
entity (or a parent or subsidiary thereof) is terminated (involuntarily or
voluntarily terminates such service under certain circumstances) within a
specified period following consummation of the Change in Control, pursuant to
such terms and conditions as shall be set forth in the Option Agreement.
(d) If outstanding Options will accelerate pursuant to subsection
(a) above, the Administrator in its discretion may provide, in connection with
the Change in Control transaction, for the purchase or exchange of each Option
for an amount of cash or other property having a value equal to the difference
(or "spread") between: (x) the value of the cash or other property that the
Participant would have received pursuant to the Change in Control transaction in
exchange for the shares issuable upon exercise of the Option had the Option been
exercised immediately prior to the Change in Control, and (y) the Exercise Price
of the Option.
(e) If a Participant holds shares of Restricted Stock that are not
fully vested at the time a Change in Control occurs, the provisions set forth
above in this Article 8 with respect to the vesting of Options also shall apply
to the vesting of shares of Restricted Stock. Therefore, if the vesting of
outstanding Options does not accelerate because they are assumed or new options
of
9
comparable value or New Incentives are issued in exchange therefor, as
contemplated by Section 8.1(b), then the vesting provisions of the Restricted
Stock shall also continue on a comparable basis following consummation of the
Change in Control. Likewise, if outstanding Options are not assumed and the
vesting of outstanding Options accelerates, as provided in Section 8.1(a), then
the vesting of shares of Restricted Stock also shall accelerate upon
consummation of the Change in Control.
(f) Outstanding Options shall terminate and cease to be exercisable
upon consummation of a Change in Control except to the extent that the Options
are assumed by the successor entity (or parent thereof), or new options of
comparable value or New Incentives are issued in exchange therefor pursuant to
the terms of the Change in Control transaction where in such case, such
Outstanding Options shall terminate and cease to be exercisable upon
consummation of such Change in Control.
ARTICLE 9
AMENDMENT AND TERMINATION OF THE PLAN
9.1 Amendments. The Board may from time to time alter, amend, suspend or
terminate the Plan in such respects as the Board may deem advisable. No such
alteration, amendment, suspension or termination shall be made which shall
substantially affect or impair the rights of any Participant under an
outstanding Option Agreement or Stock Purchase Agreement without such
Participant's consent. The Board may alter or amend the Plan to comply with
requirements under the Code relating to Incentive Options or other types of
options which give Optionee more favorable tax treatment than that applicable to
Options granted under this Plan as of the date of its adoption. Upon any such
alteration or amendment, any outstanding Option granted hereunder may, if the
Administrator so determines and if permitted by applicable law, be subject to
the more favorable tax treatment afforded to an Optionee pursuant to such terms
and conditions.
9.2 Plan Termination. Unless the Plan shall theretofore have been
terminated, the Plan shall terminate on the tenth (10th) anniversary of the
Effective Date and no Options or rights to purchase Restricted Stock may be
granted under the Plan thereafter, but Option Agreements and Stock Purchase
Agreements then outstanding shall continue in effect in accordance with their
respective terms.
ARTICLE 10
CANCELLATION AND RECISSION
10.1 Adverse Acts. Unless otherwise provided in an Option Agreement, the
Administrator may cancel, terminate, rescind, suspend, withhold or otherwise
limit or restrict any unexpired, unpaid, or deferred Options at any time if the
Participant is not in compliance with all applicable provisions of the Option
Agreement and the Plan, or if the Participant engages in any "Adverse Act." For
purposes of this Section 10, an "Adverse Act" shall include: (i) the rendering
of services for any organization or engaging directly or indirectly in any
business which is or becomes competitive with the Company, or which organization
or business, or the rendering of services to such organization or business, is
or becomes otherwise prejudicial to or in conflict with the interests of the
Company; (ii) the disclosure to anyone outside the Company, or the use in other
than the
10
Company's business, without prior written authorization from the Company, of any
confidential information or material relating to the business of the Company,
acquired by the Participant either during or after employment with the Company;
(iii) the failure or refusal to disclose promptly and to assign to the Company
in accordance with the Company's policies and any agreement in effect between
the Company and the Participant pertaining to confidentiality and/or ownership
of intellectual property all right, title and interest in any invention or idea,
patentable or not, made or conceived by the Participant during employment by the
Company, relating in any manner to the actual or anticipated business, research
or development work of the Company; (iv) acts that result in termination of the
Participant's employment for cause; (v) a material violation of any rules,
policies, procedures or guidelines of the Company; or (vi) any attempt directly
or indirectly to induce any employee of the Company to be employed or perform
services elsewhere or any attempt directly or indirectly to solicit the trade or
business of any current or prospective customer, supplier or partner of the
Company.
10.2 Agreement Upon Exercise. Upon exercise, payment or delivery
pursuant to an Option Agreement, the Participant shall certify in a manner
acceptable to the Company that he or she is in compliance with the terms and
conditions of the Plan. In the event a Participant fails to comply with the
provisions of paragraphs (i)-(vi) of Section 10.1 prior to, or during the six
(6) months after, any exercise, payment or delivery pursuant to an Option
Agreement, such exercise, payment or delivery may be rescinded within (2) two
years thereafter. In the event of any such rescission, the Participant shall pay
to the Company the amount of any gain realized or payment received as a result
of the exercise, payment or delivery, in such manner and on such terms and
conditions as may be required, and the Company shall be entitled to set-off
against the amount of any such gain any amount owed to the Participant by the
Company.
ARTICLE 11
TAX WITHHOLDING
11.1 Withholding. The Company shall have the power to withhold, or
require a Participant to remit to the Company, an amount sufficient to satisfy
any applicable Federal, state, and local tax withholding requirements with
respect to any Options exercised or Restricted Stock issued under the Plan. To
the extent permissible under applicable tax, securities and other laws, the
Administrator may, in its sole discretion and upon such terms and conditions as
it may deem appropriate, permit a Participant to satisfy his or her obligation
to pay any such tax, in whole or in part, up to an amount determined on the
basis of the highest marginal tax rate applicable to such Participant, by (a)
directing the Company to apply shares of Common Stock to which the Participant
is entitled as a result of the exercise of an Option or as a result of the
purchase of or lapse of restrictions on Restricted Stock or (b) delivering to
the Company shares of Common Stock owned by the Participant. The shares of
Common Stock so applied or delivered in satisfaction of the Participant's tax
withholding obligation shall be valued at their Fair Market Value as of the date
of measurement of the amount of income subject to withholding.
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ARTICLE 12
MISCELLANEOUS
12.1 Benefits Not Alienable. Other than as provided above, benefits
under the Plan may not be assigned or alienated, whether voluntarily or
involuntarily. Any unauthorized attempt at assignment, transfer, pledge or other
disposition shall be without effect.
12.2 No Enlargement of Employee Rights. This Plan is strictly a voluntary
undertaking on the part of the Company and shall not be deemed to constitute a
contract between the Company and any Participant to be consideration for, or an
inducement to, or a condition of, the employment of any Participant. Nothing
contained in the Plan shall be deemed to give the right to any Participant to be
retained as an employee of the Company or any Affiliated Company or to interfere
with the right of the Company or any Affiliated Company to discharge any
Participant at any time.
12.3 Application of Funds. The proceeds received by the Company from the
sale of Common Stock pursuant to Option Agreements and Stock Purchase
Agreements, except as otherwise provided herein, will be used for general
corporate purposes.
12.4 Annual Reports. During the term of this Plan, the Company will
furnish to each Participant copies of annual financial reports that the Company
distributes generally to its stockholders.
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