[GRAPHIC OMITTED]
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NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
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TO THE SHAREHOLDERS OF ELECTRO SCIENTIFIC INDUSTRIES, INC.:
The Annual Meeting of Shareholders of Electro Scientific Industries,
Inc. (ESI) will be held at ESI's Offices, 14000 NW Science Park Drive, Portland,
Oregon, on Thursday, September 30, 1999 at 1:00 p.m. Pacific time, for the
following purposes:
1. Electing two directors for a term of three years.
2. Voting on the selection of independent auditors for the
Company.
3. Transacting such other business as may properly come before
the meeting.
Only shareholders of record at the close of business on August 3, 1999
will be entitled to vote at the annual meeting.
You are requested to date and sign the enclosed proxy and return it by
mail. You may attend the meeting in person even though you have sent in your
proxy, since retention of the proxy is not necessary for admission to or
identification at the meeting.
BY ORDER OF THE BOARD OF DIRECTORS
Joseph L. Reinhart
Vice President and Corporate Secretary
Portland, Oregon
August 10, 1999
ELECTRO SCIENTIFIC INDUSTRIES, INC.
PROXY STATEMENT
The mailing address of the principal executive offices of the Company
is 13900 NW Science Park Drive, Portland, Oregon 97229-5497. The approximate
date this proxy statement and the accompanying proxy forms are first being
mailed to shareholders is August 10, 1999.
SOLICITATION AND REVOCABILITY OF PROXY
The enclosed proxy is solicited on behalf of the Board of Directors of
Electro Scientific Industries, Inc., an Oregon corporation, for use at the
Annual Meeting of Shareholders to be held on September 30, 1999. The Company
will bear the cost of preparing and mailing the proxy, proxy statement and any
other material furnished to the shareholders by the Company in connection with
the annual meeting. Proxies will be solicited by use of the mails, and officers
and employees of the Company may, without additional compensation, also solicit
proxies by telephone or personal contact. Copies of solicitation materials will
be furnished to fiduciaries, custodians and brokerage houses for forwarding to
beneficial owners of the stock held in their names.
Any person giving a proxy in the form accompanying this proxy statement
has the power to revoke it at any time before its exercise. The proxy may be
revoked by filing an instrument of revocation or a duly executed proxy bearing a
later date with the Corporate Secretary of the Company. The proxy may also be
revoked by affirmatively electing to vote in person while in attendance at the
meeting. However, a shareholder who attends the meeting need not revoke the
proxy and vote in person unless he or she wishes to do so. All valid, unrevoked
proxies will be voted at the Annual Meeting in accordance with the instructions
given.
VOTING SECURITIES AND PRINCIPAL SHAREHOLDERS
The Common Stock is the only outstanding authorized voting security of
the Company. The record date for determining holders of Common Stock entitled to
vote at the Annual Meeting is August 3, 1999. On that date there were 13,139,874
shares of Common Stock outstanding, entitled to one vote per share. The Common
Stock does not have cumulative voting rights.
The following table shows ownership of the Common Stock of the Company
on May 31, 1999 by each person who, to the knowledge of the Company, owned
beneficially more than 5 percent of the Common Stock.
NAME AND ADDRESS AMOUNT AND NATURE OF APPROXIMATE
OF BENEFICIAL OWNER BENEFICIAL OWNERSHIP(1) PERCENT
------------------- ----------------------- -------
EQSF Advisors, Inc. 1,605,300(2) 14.07%
767 Third Avenue, New York, NY 10017
J & W Seligman & Co., Incorporated 1,219,600(3) 9.39%
100 Park Avenue, New York, NY 10017
The Parnassus Fund 600,000(4) 5.2%
One Market, Steuart Tower, Ste 1600, San Francisco, CA 94105
- --------------------------
(1) Shares are held directly with sole investment and voting power unless
otherwise indicated.
(2) Based solely on information provided as of February 12, 1999 in a
Schedule 13G filed by the shareholder.
(3) Based solely on information provided as of April 30, 1999 in a Schedule
13G filed by the shareholder.
(4) Based solely on information provided as of February 10, 1999 in a
Schedule 13G filed by the shareholder.
2
The following table, which was prepared on the basis of information
furnished by the persons described, shows ownership of the Company's Common
Stock as of May 31, 1999, by each Director, each Executive Officer named in
the Summary Compensation Table, and by all Directors and Executive Officers
as a group.
NAME AMOUNT AND NATURE OF APPROXIMATE
OF BENEFICIAL OWNER BENEFICIAL OWNERSHIP(1) PERCENT
- ------------------- ----------------------- -------
Robert E. Belter 9,546 (2) *
David F. Bolender 58,078 (3) *
Barry A. Glasgow 2,650 (4) *
Larry L. Hansen 15,487 (5) *
Jonathan C. Howell 35,588 (6) *
John R. Kurdock 16,181 (7) *
W. Arthur Porter 5,500 (5) *
Vernon B. Ryles, Jr. 5,500 (5) *
Douglas C. Strain 126,191 (8) (5) 1.0%
Gerald F. Taylor 750 (9) *
Keith L. Thomson 5,900 (5) *
Jon D. Tompkins 750 (9) *
Donald R. VanLuvanee 114,691 (10) *
23 Directors and executive officers as a group 824,121 (11) 6.3%
- -----------------------------
*Less than 1 percent
(1) Shares are held directly with sole investment and voting power unless
otherwise indicated. Includes shares awarded as performance-based
restricted stock and time-based restricted stock that are subject to
forfeiture in certain circumstances.
(2) Includes 5,600 shares that are subject to stock options currently
exercisable or exercisable within 60 days of May 31, 1999.
(3) Includes 23,000 shares owned by Mr. Bolender's wife, as to which he
disclaims beneficial ownership and includes 8,140 shares that are subject
to stock options currently exercisable or exercisable within 60 days of
May 31, 1999.
(4) Includes 1,250 shares that are subject to stock options currently
exercisable or exercisable within 60 days of May 31, 1999.
(5) Includes 5,500 shares that are subject to stock options currently
exercisable or exercisable within 60 days of May 31, 1999.
(6) Includes 19,749 shares that are subject to stock options currently
exercisable or exercisable within 60 days of May 31, 1999.
(7) Includes 8,239 shares that are subject to stock options currently
exercisable or exercisable within 60 days of May 31, 1999.
(8) Includes 2,000 shares owned by Mr. Strain's wife and 216 shares owned by
Douglas C. Strain and Leila Cleo Strain Charitable Remainder Trust, as to
which he disclaims beneficial ownership.
(9) Includes 750 shares that are subject to stock options currently
exercisable or exercisable within 60 days of May 31, 1999.
(10) Includes 73,552 shares that are subject to stock options currently
exercisable or exercisable within 60 days of May 31, 1999.
(11) Includes 210,993 shares that are subject to stock options currently
exercisable or exercisable within 60 days of May 31, 1999.
3
PROPOSAL 1: ELECTION OF DIRECTORS
Pursuant to the Company's Bylaws, the Board of Directors is divided
into three classes, and the term of office of one class expires each year.
The terms of W. Arthur Porter, Douglas C. Strain and Gerald F. Taylor expire
in 1999. Mr. Strain is retiring at the end of his term and the number of
directors will thereafter be eight. Dr. Porter and Mr. Taylor are nominees
for re-election. Under Oregon law, if a quorum of shareholders is present at
the 1999 Annual Meeting, the two nominees for election as Directors who
receive the greatest number of votes cast at the meeting shall be elected
Directors. Abstentions and broker non-votes will have no effect on the
results of the vote. Unless otherwise instructed, proxy holders will vote the
proxies they receive for Dr. Porter and Mr. Taylor. If any of the nominees
for Director at the 1999 Annual Meeting becomes unavailable for election for
any reason (none being known), the proxy holders will have discretionary
authority to vote pursuant to the proxy for a suitable substitute or
substitutes.
The following table briefly describes the Company's nominees for
Directors and the Directors whose terms will continue. Except as otherwise
noted, each has held his principal occupation for at least five years.
DIRECTOR TERM
NAME, AGE, PRINCIPAL OCCUPATION, AND OTHER DIRECTORSHIPS SINCE EXPIRES
- -------------------------------------------------------- ----- -------
NOMINEES
W. ARTHUR PORTER, 58, in July 1998, Dr. Porter was appointed the 1980 1999
Dean of the College of Engineering at the University of Oklahoma.
He was formerly the President of the Houston Advanced
Research Center. Dr. Porter is a Director of Stewart Information
Services Corporation, and Medici Medical Group Inc. Dr. Porter,
formerly Chairman of the Board of Directors, serves as Chairman
of the Audit Committee of the Board of Directors.
GERALD F. TAYLOR, 59, retired in 1998 as Senior Vice President and CFO of 1998 1999
Applied Materials, Inc., a manufacturer of semi-conductor equipment.
Mr. Taylor is a member of the Audit Committee of the Board of Directors.
DIRECTORS WHOSE TERMS CONTINUE
DAVID F. BOLENDER, 67, in March 1998, Mr. Bolender became CEO 1988 2000
and Chairman of the Board of Directors of Protocol Systems, Inc.,
a manufacturer of vital sign monitoring equipment for the medical
industry. Mr. Bolender retired in 1991 from the position of
President of the Electric Operations Group of PacifiCorp, a diversified
public utility located in Portland, Oregon. In January 1992,
Mr. Bolender became Chairman of the Board of the Company.
Mr. Bolender is a member of the Audit Committee of the Board of
Directors.
LARRY L. HANSEN, 70, retired in 1992 from the position of Executive 1986 2001
Vice President of Tylan General Inc., a manufacturer of high
technology components for industrial processes located in San Diego,
California. Prior to December 1988 he was Executive Vice President
and a Director of Varian Associates, Inc., an electronics manufacturer
located in Palo Alto, California. Mr. Hansen is also a Director of
Signal Technology Corp., and Micrel, Inc. Mr. Hansen is a member
of the Compensation Committee of the Board of Directors.
4
DIRECTOR TERM
NAME, AGE, PRINCIPAL OCCUPATION, AND OTHER DIRECTORSHIPS SINCE EXPIRES
- -------------------------------------------------------- ----- -------
VERNON B. RYLES, JR., 61, President and CEO of Poppers Supply Co., 1995 2001
a manufacturer of popcorn snacks and jobber/distributor of recreational
food and equipment. In addition, Mr. Ryles is on the Board of Directors of
Northwest Pipe and Casing, a manufacturer of steel pipe. He is a
Director and former Board Chairman of the National Association of
Concessionaires and on the Advisory Council of the Oregon State
University Agricultural Trade and Marketing Program. Mr. Ryles is a
member of the Compensation Committee of the Board of Directors.
KEITH L. THOMSON, 60, retired as Vice President of Intel Corporation and 1994 2000
Oregon Site Manager in 1998. Mr. Thomson joined Intel in 1969 and moved
to the Intel, Oregon operation in 1978. Prior to that he worked for
Lockheed Missiles and Space Corporation, and the Semiconductor
Division of Fairchild Camera and Instruments. Mr. Thomson was
elected to the Board of Directors in 1994 and is the Chairman of the
Compensation Committee of the Board of Directors.
JON D. TOMPKINS, 59, retired as CEO of KLA-Tencor Corporation, a 1998 2000
manufacturer of semiconductor equipment in 1998 and retired as
Chairman of the Board of Directors of KLA - Tencor in June, 1999.
He remains a member of the Board of Directors of KLA-Tencor.
In addition, Mr. Tompkins is on the Board of Directors of Cymer, Inc.,
a manufacturer of excimer laser illumination sources for use in deep
ultraviolet (DUV) photolithography systems located in San Diego, California.
Mr. Tompkins is a member of the Compensation Committee of the Board
of Directors.
DONALD R. VANLUVANEE, 55, President and CEO of ESI since 1992 2001
July 1992. From 1991 to July 1992, Mr. VanLuvanee was President,
Chief Executive Officer, and a Director at Mechanical Technology
Incorporated (MTI), a supplier of contract research and development
services and a manufacturer of technologically advanced equipment.
Mr. VanLuvanee is also a Director of FEI Company, which designs,
manufactures and markets focused ion beam workstations, and Micro
Component Technology, Inc., a leading manufacturer of automated
test handling equipment.
BOARD COMPENSATION
The Board of Directors met six times during the last fiscal year, of
which two were telephone meetings. Each Director attended at least 75 percent of
the aggregate of the meetings of the Board of Directors and the committees of
which he was a member. Each director who is not an employee of the Company
receives an annual retainer of $10,000, plus $1,000 for each board meeting
attended, $500 for each committee meeting attended and $500 for telephone
meetings when formal business is conducted. Non-employee directors are also
automatically granted an option for 3,000 shares of Common Stock on July 31 of
each year, with an option price equal to the closing market price on the date of
grant, a ten-year term and a four-year vesting schedule.
BOARD COMMITTEES
The Board of Directors has standing Audit and Compensation Committees.
The Compensation Committee makes recommendations to the Board of Directors
concerning officers' compensation and has been delegated authority to grant
options and other awards under the Company's stock option plan and stock
incentive plan. It met four times in fiscal year 1999. The Audit Committee meets
with management, and with representatives of ESI's outside auditing firm, Arthur
Andersen LLP including meetings without the presence of management. The Audit
Committee met four times in fiscal year 1999 to review the scope, timing and
fees for the annual audit and the results of the audit.
5
Shareholders who wish to submit names for consideration for Board
membership should do so in writing addressed to the Board of Directors, c/o
Chairman of the Board, Electro Scientific Industries, Inc., 13900 NW Science
Park Drive, Portland, Oregon 97229-5497.
EXECUTIVE COMPENSATION
The following table shows, as to the Chief Executive Officer and each
of the next four most highly compensated executive officers of the Company,
information concerning compensation paid for services to the Company in all
capacities during the fiscal year ended May 31, 1999, as well as total
compensation paid to each such individual for the Company's two previous fiscal
years (if such person was the Chief Executive Officer or an executive officer,
as the case may be, during any part of such fiscal year):
I. SUMMARY COMPENSATION TABLE
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Annual Compensation Long-Term Compensation
- ----------------------------------------------------------------------------------------------------------------------
Other Annual Restricted Options All Other
Name & Principal Fiscal Compensation Stock Awards Granted Compensation
Position Year Salary Bonus (1) (2) (3) (#) (4)
- ----------------------------------------------------------------------------------------------------------------------
Donald R. VanLuvanee 1999 $358,000 --- --- --- 53,300 $ 4,000
Chief Executive Officer 1998 $312,750 $ 443,000 $57,000 --- 26,900 $ 4,000
and President 1997 $285,000 $ 243,000 --- $ 218,500 6,674 $ 2,098
Jonathan C. Howell 1999 $202,500 --- --- --- 16,900 $ 4,000
Chief Financial Officer 1998 $166,667 $ 75,740 $34,000 --- 6,100 $ 4,000
and Senior Vice 1997 $145,760 $ 43,296 --- $ 133,000 3,430 $ 2,098
President
John R. Kurdock 1999 $202,500 --- --- --- 16,900 $ 4,000
Vice President 1998 $166,667 $ 29,926 --- --- 6,100 $ 177,552 (5)
1997 $ 73,990 $ 26,811 --- --- 13,430 $ 1,850
Robert E. Belter 1999 $184,167 --- --- --- 12,900 $ 4,000
Vice President 1998 $177,083 $ 23,814 --- --- 2,400 $ 4,000
1997 $ 3,125 $ 211 --- --- 10,000
Barry A. Glasgow 1999 $184,032 (6) --- --- --- 7,900 $ 79,026 (7)
Vice President 1998 --- --- --- --- ---
1997 --- --- --- --- --- ---
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1) Bonus for fiscal year 1999 performance has not yet been determined.
2) Represents amounts paid by the Company to cover taxes due on the vesting
of restricted stock awards.
3) Represents the closing market price of the Company's Common Stock on the
date of grant multiplied by the number of shares awarded. Messrs.
VanLuvanee and Howell were awarded stock grants in the amount of 11,500
and 7,000 restricted shares in fiscal year 1997, respectively. Each award
vested for 50% of the shares in April 1997 and for the remaining balance
in April 1998. Performance-based restricted stock awards are not shown
above, but instead are reported in the Long-Term Incentive Plans table
below.
4) Except as otherwise indicated, represents 401(k) matching contributions
made by the Company.
5) Includes $173,552 in relocation expenses.
6) Includes $20,538 in commissions.
7) Includes $75,026 in relocation expenses.
6
II. OPTIONS TABLE
The following table sets forth details regarding stock options
granted to the named executive officers in fiscal year 1999. In addition,
there are shown the hypothetical gains or "option spreads" that would exist
for the respective options, assuming rates of annual compound stock
appreciation of 5% and 10% from the date the options were granted over the
full option term.
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Potential Realizable Value at Assumed
Option Grants in Last Fiscal Year Annual Rates of Stock Price
Appreciation for Option Term
- --------------------------------------------------------------------------------------------------------------------
% of Total
Options
Granted to Exercise or
Name Options Employees in Base Price Expiration
Granted(1)(#) Fiscal Year ($/Sh) Date 5% 10%
- --------------------------------------------------------------------------------------------------------------------
Donald R. VanLuvanee 53,300 10.77% $37.75 05/06/09 $1,384,761 $3,396,818
Jonathan C. Howell 16,900 3.41% $37.75 05/06/09 $439,070 $1,077,040
John R. Kurdock 16,900 3.41% $37.75 05/06/09 $439,070 $1,077,040
Robert E. Belter 12,900 2.61% $37.75 05/06/09 $335,148 $822,119
Barry A. Glasgow 5,000 1.01% $29.63 06/15/08 $103,311 $252,259
12,900 2.61% $37.75 05/06/09 $335,148 $822,119
- --------------------------------------------------------------------------------------------------------------------
1) All options become exercisable for 25 percent of the shares covered by the
option on each of the first four anniversaries of the grant date. The grant
dates for the options shown in the table above were June 15, 1998 and May
6, 1999. All options become fully exercisable upon termination of the
Optionee's employment within one year after a "change in control" of the
Company as defined in the Stock Option Plan. Unless the transaction is
approved by the Board of Directors, a "change in control" generally
includes (a) the acquisition by any person of 20 percent or more of the
Company's Common Stock and (b) the election of a new majority of the
Company's directors without the approval of the incumbent directors.
III. OPTION EXERCISES AND FISCAL YEAR-END OPTION VALUE TABLE
The following table sets forth information with respect to the named
executive officers concerning options exercised and the status of exercisable
and unexercisable options held as of May 31, 1999.
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Value of Unexercised
Options Exercised During Number of Unexercised Options In-the-Money Options at
Year Ended May 31, 1999 at May 31, 1999 May 31, 1999
- --------------------------------------------------------------------------------------------------------------------
Shares
Acquired Value
Name on Exercise Realized Exercisable Unexercisable Exercisable Unexercisable
- --------------------------------------------------------------------------------------------------------------------
Donald R. VanLuvanee --- $0 73,552 78,233 $1,806,127 $138,830
Jonathan C. Howell --- $0 19,749 24,185 $425,586 $50,686
John R. Kurdock --- $0 8,239 28,191 $83,532 $92,553
Robert E. Belter --- $0 5,600 19,700 $36,250 $36,250
Barry A. Glasgow --- $0 0 17,900 0 $39,350
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7
IV. LONG TERM INCENTIVE PLANS - AWARDS IN LAST FISCAL YEAR
The following table sets forth information with respect to
performance-based restricted stock awards made to named executive officers in
fiscal year 1999.
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Performances or Other Period
Name Number of Shares Until Maturation or Payout (1)
- --------------------------------------------------------------------------------------------------------------------
Donald R. VanLuvanee 5,700 3 to 5 Years
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Jonathan C. Howell 1,800 3 to 5 Years
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John R. Kurdock 1,800 3 to 5 Years
- --------------------------------------------------------------------------------------------------------------------
Robert E. Belter 1,400 3 to 5 Years
- --------------------------------------------------------------------------------------------------------------------
Barry A. Glasgow 1,400 3 to 5 Years
- --------------------------------------------------------------------------------------------------------------------
1) The base price for these awards is $37.75 per share, the closing market
price of the Company's Common Stock on May 6, 1999, the date of grant.
Awards are subject to forfeiture unless (i) the market price of the Common
Stock increases at a rate in excess of 15% per year, compounded annually,
over a minimum 3-year period following the grant as measured based on the
average closing price of the Company's Common Stock during any one of the
eight fiscal quarters of the Company between June 1, 2002 and May 31, 2004
and (ii) the award recipient is employed by the Company at the time the
performance measure is achieved.
V. SEVERANCE AGREEMENTS
In July 1991, the Board of Directors of the Company approved the
Company's entry into severance agreements with executive officers of the
Company. These agreements generally provide for the payment upon the termination
of the employee's employment by the Company without cause or by the employee for
"good reason" (as defined in the severance agreement) within two years following
a change of control of the Company of an amount equal to three times the
employee's annual salary and three years continued coverage under life, accident
and health plans. The benefit is capped as necessary to prevent any portion of
the benefit from being subject to excise tax. Each employee is obligated under
the severance agreement to remain in the employ of the Company for a period of
270 days following a "potential change in control" (as defined in the severance
agreements). All executive officers of the Company have executed severance
agreements.
VI. PERFORMANCE GRAPH
INDEXED STOCK PRICE PERFORMANCE
[GRAPHIC]
8
Assumes that $100.00 was invested on May 31, 1994 in Electro Scientific
Industries, Inc. (ESIO) Common Stock, the S&P 500 and the S&P High Tech Index,
and that all dividends were reinvested.
ESIO Index S&P 500 Index S&P High Tech Index
---- ----- ------- ----- ------------- -----
5/31/1994 $10.50 100.0 465.50 100.0 248.29 100.0
5/31/1995 $24.38 232.1 533.40 114.5 354.09 142.6
5/31/1996 $26.50 252.3 669.12 143.7 465.73 187.5
5/30/1997 $38.00 361.9 848.28 182.2 653.99 263.4
5/29/1998 $31.50 300.0 1090.82 234.3 825.86 332.6
5/28/1999 $37.50 357.1 1301.84 279.6 1311.57 528.2
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
The Compensation Committee of the Board of Directors makes
recommendations to the Board regarding the general compensation policies for
ESI, including salaries and incentives for executive officers. The Committee
also has general authority to make option grants and other awards under the
Company's 1989 Stock Option Plan and 1996 Stock Incentive Plan. The Committee
is composed of four directors.
The Compensation Committee's executive compensation recommendations
and actions during the 1999 fiscal year were in three areas: (1) compensation
adjustments for the chief executive and other executive officers of the
Company; (2) the key employee cash incentive bonus program; and (3) the key
employee long term incentive program.
The Compensation Committee policies for compensation of ongoing
executive officers are designed to fairly compensate the Company's executives
and to provide incentives for the officers to manage and operate the Company
for long term success. The Compensation Committee recommends, and the Board
of Directors determines, based on such recommendation, compensation for the
Chief Executive Officer. The Compensation Committee also recommends
compensation levels for the remaining executive officers of the Company based
on the recommendations of the Chief Executive Officer.
The total compensation of the executive officers takes into account
several factors, including competitive compensation in the electronics
industry, individual experience and performance, and the performance of the
Company. The Committee does not assign a specific weight to these factors.
The Company operates in marketplaces which are global, cyclical and subject
to technology shifts. The Committee's evaluations of individual performance
considers the leadership of each individual's contribution toward achieving
the Company's corporate objectives. The objectives include: (1) adequate
return on, and efficient use of, invested capital and (2) generating positive
earnings throughout the entire range of business conditions.
The methodology used in determining salary, cash incentive bonus and
long-term incentive grants is as follows:
Target compensation for each executive is set annually by the
Compensation Committee. These targets are based on the results of periodic
salary surveys of comparable-sized companies in the electronics industries
conducted by the Company's independent compensation consultants and on the
level of individual responsibility and job complexity. The Company's target
is to pay executives at the mid-point based on the surveys.
Base salaries are determined annually for each executive officer
with reference to the target level for the individual. Salary increases are
given when warranted by individual performance and when base salary levels
are relatively low as compared to companies that compete with the Company for
executive talent to keep base salaries competitive.
9
The Chief Executive's base salary was $358,000 during the fiscal
year, representing an increase of $45,250 from the prior year and a level at
approximately the mid-point of salary survey data.
Cash incentives in the form of cash bonuses are paid at the
discretion of the Compensation Committee to executive officers who the
Committee determines have made substantial contributions to the profits of
the Company in the preceding fiscal year. At the beginning of each fiscal
year, the Board of Directors approves the business plan for the year,
including sales and pre-tax profit goals. At the same time, the Board of
Directors approves a target bonus percentage for executive officers if the
established goals are met. If the goals are met, the Compensation Committee
determines, on an individual basis, the extent to which the officer will be
awarded the target bonus. Factors considered include individual performance,
responsibility and contribution to profits.
The amounts of bonuses for officers for fiscal year 1999 have not
been determined, but are expected to be determined by the Compensation
Committee and approved by the Board of Directors in September 1999.
The Company uses stock options and performance-based restricted
stock grants to reward senior management and to link executive compensation
to shareholder interests reflected in increases in share value. By using a
combination of annual options and restricted stock awards, the Company
intends to provide a potential level of incentive compensation to executive
officers equal to competitive levels as determined by the Company's
compensation consultant, without excessive shareholder dilution. In
determining the size of option grants and restricted stock awards, the
Compensation Committee takes into account the executive's position and job
responsibilities. All options are granted at an exercise price equal to the
fair market value of the shares on the date of grant, and vest in 25 percent
annual increments during the four year period following the date of grant.
The number of options granted to executive officers in fiscal year 1999 was
222,600 including 53,300 to Donald R. VanLuvanee. Fiscal year 1999 stock
option grants include a special one-time stock option award for the purpose
of retaining and providing incentives to senior management. The total number
of options granted to the executive officers under this one-time award was
116,300 shares including 32,300 to Donald R. VanLuvanee. The number of shares
of performance-based restricted stock granted to executive officers in fiscal
year 1999, was 19,300 including 5,700 to Mr. VanLuvanee.
DEDUCTIBILITY OF COMPENSATION. Section 162(m) of the Internal
Revenue Code of 1986 limits to $1,000,000 per person the amount that the
Company may deduct for compensation paid to any of its most highly
compensated officers in any year. The levels of salary and bonus generally
paid by the Company do not exceed this limit. Substantially all of the
options granted under the Company's 1989 Stock Option Plan have been
Incentive Stock Options. The Company receives no tax deduction from the
exercise of an Incentive Stock Option unless the optionee disposes of the
acquired shares before satisfying certain holding periods. Under IRS
regulations, the $1,000,000 cap on deductibility applies to compensation
recognized by an optionee upon such an early disposition, as well as
compensation recognized upon the exercise of a Nonstatutory Stock Option,
unless the option meets certain requirements. It is the Company's policy
generally to grant options that meet the requirements of the IRS regulations
so that any such compensation recognized by an optionee will be fully
deductible. The Committee believes that the grant of Incentive Stock Options,
despite the general nondeductibility, benefits the Company by encouraging the
long-term ownership of Company stock by officers and other employees.
Performance-based restricted stock awards are also intended to be granted in
compliance with the IRS regulations so that any compensation recognized on
vesting of such awards will be fully deductible.
By the Compensation Committee: Keith L. Thomson, Chairman; Larry L. Hansen,
Vernon B. Ryles, Jr., and Jon D. Tompkins.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Compensation Committee consists of Directors Keith L. Thomson,
Larry L. Hansen, Vernon B. Ryles, Jr., and Jon D. Tompkins. No Compensation
Committee member is or has been an employee of the Company.
10
PROPOSAL 2: APPROVAL OF SELECTION OF AUDITORS
The Board of Directors has selected Arthur Andersen LLP as the
Company's independent auditors for the fiscal year ending May 31, 2000 and is
submitting the selection to shareholders for approval. Arthur Andersen LLP are
independent certified public accountants and have audited the accounts of the
Company and its subsidiaries since 1983. Proxies will be voted in accordance
with the instructions specified in the proxy form. If no instructions are given,
proxies will be voted for approval of Arthur Andersen LLP as independent
auditors. Representatives of Arthur Andersen LLP are expected to be present at
the Annual Meeting, will be given the opportunity to make a statement if they
desire to do so, and will be available to respond to appropriate questions.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934 requires the
Company's executive officers, directors and persons who own more than ten
percent of the Common Stock to file reports of ownership and changes in
ownership with the Securities and Exchange Commission ("SEC"). Executive
officers, directors and beneficial owners of more than ten percent of the Common
Stock are required by SEC regulations to furnish the Company with copies of all
Section 16(a) forms they file. Based solely on a review of the copies of such
forms received by the Company and on written representations from certain
reporting persons that they have complied with the relevant filing requirements,
the Company believes that all Section 16(a) filing requirements applicable to
its executive officers and directors for transactions during fiscal 1999 were
complied with.
DISCRETIONARY AUTHORITY
While the Notice of Annual Meeting of Shareholders provides for
transaction of such other business as may properly come before the meeting, the
Board of Directors has no knowledge of any matters to be presented at the
meeting other than those referred to herein. However, the enclosed proxy gives
discretionary authority to the proxy holders to vote in accordance with the
recommendation of management if any other matters are presented.
SHAREHOLDER PROPOSALS
Any shareholder proposals to be considered for inclusion in proxy
material for the Company's next annual meeting in September 2000 must be
received at the principal executive office of the Company no later than April
12, 2000. In connection with any matter proposed by a shareholder at the 2000
annual meeting, but not proposed for inclusion in Company proxy material, the
Company may exercise discretionary voting authority with respect to proxies
solicited for that meeting if appropriate notice of the shareholder proposal is
not received by the Company at its principal executive office by June 26, 2000.
BY ORDER OF THE BOARD OF DIRECTORS
Joseph L. Reinhart
Vice President and Corporate Secretary
Portland, Oregon
August 10, 1999
11
ELECTRO SCIENTIFIC INDUSTRIES, INC.
ANNUAL MEETING SEPTEMBER 30, 1999
PROXY SOLICITED BY THE BOARD OF DIRECTORS
P The undersigned hereby appoints David F. Bolender, Donald R. VanLuvanee
R and Joseph L. Reinhart, and each of them, proxies with power of substitution
O to vote on behalf of the undersigned all shares which the undersigned may be
X entitled to vote at the Annual Meeting of Share holders of Electro
Y Scientific Industries, Inc. on September 30, 1999 and any adjournments
thereof, with all powers that the undersigned would possess if personally
present, with respect to the matters referred to on this proxy. A majority
of the proxies or substitutes present at the meeting may exercise all powers
granted hereby.
Election of Directors - Nominees: CHANGE OF ADDRESS
3 year term: W. Arthur Porter _________________________________
Gerald F. Taylor
_________________________________
_________________________________
_________________________________
(If you have written in the space,
please mark the corresponding box
on the reverse side of this card)
THE PROXIES WILL VOTE THE SHARES REPRESENTED BY THIS PROXY AS SPECIFIED BY YOU
ON THE REVERSE SIDE, BUT IF NO SPECIFICATION IS MADE, THE PROXIES WILL VOTE THE
SHARES FOR THE ELECTION OF DIRECTORS AND FOR APPROVAL OF ALL PROPOSALS.
------------
SEE REVERSE
SIDE
------------
/x/ Please mark your | 9320
votes as in this --
example.
FOR WITHHELD FOR AGAINST WITHHELD
1. Election of / / / / / / / / / /
Directors. 2. Voting on the
(see reverse) selection of
independent auditors
For, except vote withheld from the for the Company.
following nominee(s):
Change of address on / /
__________________________________ reverse side
The proxies may vote in their
discretion as to other matters which
may come before the meeting.
Please date and sign exactly as name
is imprinted hereon, including the
designation as executor, trustee,
etc., if applicable. A Corporation
may sign in its name by the president
or other authorized officer. All
co-owners must sign.
_____________________________________
_____________________________________
PLEASE SIGN AND RETURN IMMEDIATELY SIGNATURE (S) DATE