SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
SCHEDULE 14A INFORMATION
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____________________
Notice of Annual Meeting of Shareholders
____________________
To the Shareholders of Electro Scientific Industries, Inc.:
1. |
Electing three directors for a term of three years and two directors for a term of one year. |
2. |
Approving amendments to the 2000 Stock Option Incentive Plan. |
3. |
Transacting any other business that properly comes before the meeting. |
Portland, Oregon
September 22, 2003
ELECTRO SCIENTIFIC INDUSTRIES, INC.
PROXY
STATEMENT
SOLICITATION AND REVOCABILITY OF PROXY
MULTIPLE SHAREHOLDERS SHARING THE SAME ADDRESS
PROPOSAL 1: ELECTION OF DIRECTORS
1
possible. As a result, the nominees are for two different classes. Messrs. Ball and Walker are nominees for the class of directors whose three-year term expires in 2004. Accordingly, they will be elected for a one-year term. Messrs. Thomson, Tompkins and Faubert are nominees for the class of directors whose term expires in 2006 and will be elected for a three-year term.
Name, Age, Principal Occupation, and Other Directorships |
Director Since |
Term Expires |
||||||||
---|---|---|---|---|---|---|---|---|---|---|
Nominees |
||||||||||
Frederick A. Ball, 41, was employed with Borland Software Corporation, a provider of enterprise software
development solutions, from September 1999 until July 2003. Beginning in 1999, he was Senior Vice President and Chief Financial
Officer. In October 2002, he was appointed Executive Vice President of Corporate Development and Mergers and Acquisitions. Prior to
his employment with Borland, Mr. Ball served as Vice President, Mergers and Acquisitions for KLA-Tencor Corporation, a manufacturer
of semiconductor equipment. Mr. Ball served as the Vice President of Finance for KLA-Tencor Corporation following KLAs merger
with Tencor Instruments in 1997. Prior to his employment with Tencor Instruments Corporation, Mr. Ball was employed with
PricewaterhouseCoopers LLP. |
2003 | 2003 | ||||||||
Richard J. Faubert, 55, was appointed Chief Executive Officer and President of AmberWave Systems, Inc., a
semiconductor technology company, in August 2003. He served as President, Chief Executive Officer and director of SpeedFam-IPEC,
Inc., a manufacturer of semiconductor equipment, until December 2002. Upon the sale of SpeedFam-IPEC to Novellus Systems, Inc., a
capital equipment manufacturer, he served as Executive Vice President of Novellus until his departure in April 2003. Prior to his
employment with SpeedFam-IPEC, Inc. in 1998, he held executive and management positions at Tektronix, Inc., a test, measurement,
and monitoring company, and GenRad, Inc., an electronics testing and manufacturing company. Mr. Faubert is also on the Board of
Directors of Radisys Corp. and is on the North American Advisory Board of Semiconductor Equipment and Materials
Inc. |
2003 | 2003 | ||||||||
Keith L. Thomson, 64, retired as Vice President and Oregon Site Manager of Intel Corporation, a manufacturer of
chips, computers, networking and communications products, in 1998. Mr. Thomson joined Intel in 1969 and moved to Intels
Oregon operation in 1978. |
1994 | 2003 | ||||||||
Jon D. Tompkins, 63, retired as Chief Executive Officer of KLA-Tencor Corporation, a 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. and Credence
Systems. |
1998 | 2003 |
2
Name, Age, Principal Occupation, and Other Directorships |
Director Since |
Term Expires |
||||||||
---|---|---|---|---|---|---|---|---|---|---|
Robert R. Walker, 53, served as Executive Vice President and Chief Financial Officer for Agilent Technologies,
Inc., an electronic instrument company, from May 2000 until December 2001. From May 1999 until May 2000, he was Senior Vice
President and Chief Financial Officer. During 1997 and 1998, Mr. Walker served as Vice President and General Manager of
Hewlett-Packards Professional Services Business Unit. From 1993 to 1997, he led Hewlett-Packards information systems
function, including as Vice President and Chief Information Officer from 1995 to 1997. Mr. Walker is also a director of Liberate
Technologies. |
2003 | 2003 | ||||||||
Directors Whose Terms Continue |
||||||||||
Larry L. Hansen, 75, retired in 1992 from the position of Executive Vice President and director 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 Micrel, Inc. |
1986 | 2004 | ||||||||
Barry L. Harmon, 49, was appointed President and Chief Executive Officer of ESI in April 2003. From July 2000 until
September 2001, Mr. Harmon served as Senior Vice President West Coast Operations for Avocent Corporation, a provider of KVM
switching and solutions. Avocent is the company resulting from the merger of Apex, Inc. with Cybex Computer Products in 2000. Mr.
Harmon served as Chief Financial Officer of Apex, Inc., also a provider of KVM switching and solutions, from 1999 until its merger
with Cybex. From 1992 to 1999, he was Senior Vice President and Chief Financial Officer of ESI. |
2002 | 2005 | ||||||||
W. Arthur Porter, 62, has served as the Dean of the College of Engineering at the University of Oklahoma since July
1998. He was formerly the President of the Houston Advanced Research Center. Dr. Porter is a director of Stewart Information
Services Corporation, Bookham, Inc. and Critical Technologies, Inc. |
1980 | 2005 | ||||||||
Vernon B. Ryles, Jr., 65, was formerly President and Chief Executive Officer of Poppers Supply Co., a manufacturer
of flavored popcorn snacks and distributor of snack foods and equipment, from 1961 to 2002. Mr. Ryles is also a director of
Northwest Pipe Company. |
1995 | 2004 | ||||||||
Gerald F. Taylor, 63, retired in 1998 as Senior Vice President and Chief Financial Officer of Applied
Materials, Inc., a manufacturer of semiconductor equipment. He was employed by Applied Materials since 1985. He is also a director
of Lithia Motors Inc. |
1998 | 2005 |
BOARD COMPENSATION
3
June 3, 2003, committee members receive $1,000 for each committee meeting that the director attended in person rather than telephonically or by other means of electronic communication. Non-employee directors are also automatically granted an option for 6,000 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. As proposed to be amended, the 2000 Stock Option Incentive Plan will authorize automatic grants to each director who is not a full-time employee of the Company of an option to purchase 30,000 shares of Company Common Stock upon the directors initial election to the Board, vesting over three years, and an option to purchase 10,000 shares of Company Common Stock on July 31 of each year thereafter, vesting over one year.
Frederick A. Ball | 24,000 shares | ||
Richard J. Faubert | 24,000 shares | ||
Jon D. Tompkins | 20,000 shares | ||
Robert R. Walker | 30,000 shares |
BOARD COMMITTEES
RECOMMENDATION BY THE BOARD OF DIRECTORS
4
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Name of Beneficial Owner |
Amount and Nature of Beneficial Owner (1) |
Approximate Percent |
||||||||
---|---|---|---|---|---|---|---|---|---|---|
Frederick A. Ball |
0 | * |
||||||||
David F. Bolender |
111,081 | (2) | * |
|||||||
James T. Dooley |
71,229 | (3) | * |
|||||||
Richard J. Faubert |
0 | * |
||||||||
Larry L. Hansen |
48,974 | (4) | * |
|||||||
Barry L. Harmon |
0 | * |
||||||||
John E. Isselmann, Jr |
13,301 | (5) | * |
|||||||
Gary M. Kapral |
54,922 | (6) | * |
|||||||
John R. Kurdock |
133,919 | (7) | * |
|||||||
W. Arthur Porter |
18,000 | (8) | * |
|||||||
Joseph L. Reinhart |
109,153 | (9) | * |
|||||||
Vernon B. Ryles, Jr |
27,000 | (10) | * |
|||||||
Howard K. Taft, Jr |
32,671 | (11) | * |
|||||||
Gerald F. Taylor |
15,000 | (12) | * |
|||||||
Keith L. Thomson |
29,800 | (4) | * |
|||||||
Jon D. Tompkins |
15,000 | (12) | * |
|||||||
Donald R. VanLuvanee |
843,426 | (13) | 3.03 | % | ||||||
Robert R. Walker |
0 | * |
||||||||
Capital Group International, Inc. 11100 Santa Monica Blvd., Los Angeles, CA 90025 |
2,851,220 | (14) | 10.30 | % | ||||||
Third Avenue Management LLC 767 Third Avenue, New York, NY 10017 |
3,232,600 | (15) | 16.60 | % | ||||||
Franklin Resources, Inc. One Franklin Parkway, San Mateo, CA 94403 |
3,047,569 | (16) | 11.00 | % | ||||||
Private Capital Management 8889 Pelican Bay Blvd., Naples, FL 34108 |
1,866,139 | (17) | 6.70 | % | ||||||
13 Directors and executive officers as a group |
586,445 | (18) | 2.11 | % |
* |
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 that are subject to forfeiture in certain circumstances. |
(2) |
Includes 26,100 shares owned by Mr. Bolenders wife and includes 68,000 shares subject to stock options exercisable within 60 days of May 31, 2003. |
(3) |
Mr. Dooleys employment terminated on June 9, 2003 and he resigned as a director of the Company effective June 9, 2003. Includes 62,450 shares subject to stock options exercisable within 60 days of May 31, 2003. |
(4) |
Includes 29,000 shares subject to stock options exercisable within 60 days of May 31, 2003. |
5
(5) |
Mr. Isselmann resigned as an officer of the Company effective August 5, 2003. Includes 10,250 shares subject to stock options exercisable within 60 days of May 31, 2003. |
(6) |
Mr. Kapral resigned as an officer of the Company effective June 11, 2003. Includes 47,500 shares subject to stock options exercisable within 60 days of May 31, 2003. |
(7) |
Mr. Kurdocks employment terminated on June 9, 2003. Includes 116,360 shares subject to stock options exercisable within 60 days of May 31, 2003. |
(8) |
Includes 18,000 shares subject to stock options exercisable within 60 days of May 31, 2003. |
(9) |
Includes 312 shares and 962 shares held for the benefit of Mr. Reinharts son and daughter, respectively. Includes 85,030 shares subject to stock options exercisable within 60 days of May 31, 2003. |
(10) |
Includes 27,000 shares subject to stock options exercisable within 60 days of May 31, 2003. |
(11) |
Includes 28,532 shares subject to stock options exercisable within 60 days of May 31, 2003. |
(12) |
Includes 15,000 shares subject to stock options exercisable within 60 days of May 31, 2003. |
(13) |
Includes 716,950 shares subject to stock options exercisable within 60 days of May 31, 2003. |
(14) |
Based solely on information set forth in Schedule 13G dated February 10, 2003, filed with the Securities and Exchange Commission. |
(15) |
Based solely on information set forth in Schedule 13G dated January 31, 2003, filed with the Securities and Exchange Commission. |
(16) |
Based solely on information set forth in Schedule 13G dated August 8, 2003, filed with the Securities and Exchange Commission. |
(17) |
Based solely on information set forth in Schedule 13G dated February 14, 2003, filed with the Securities and Exchange Commission. |
(18) |
Does not include shares owned or options exercisable by Mr. Dooley, Mr. Isselmann, Mr. Kapral, Mr. Kurdock, Mr. Reinhart, Mr. Taft or Mr. VanLuvanee because they are not executive officers of the Company. Includes 522,590 shares subject to stock options exercisable within 60 days of May 31, 2003. Also includes 26,100 shares held by Mr. Bolenders wife. |
EXECUTIVE OFFICERS
Name |
Age |
Position |
||||||||
---|---|---|---|---|---|---|---|---|---|---|
Barry L. Harmon |
49 | President and Chief Executive Officer |
||||||||
Robert G. Chamberlain |
63 | Vice President, Customer Operations |
||||||||
J. Michael Dodson |
42 | Vice President of Administration, Chief Financial Officer and Secretary |
6
EXECUTIVE COMPENSATION
|
The three individuals who served as president and chief executive officer during fiscal 2003; and |
|
The four most highly compensated executive officers other than the president and chief executive officer whose total annual salary and bonus exceeded $100,000 and who were serving as executive officers at the end of fiscal 2003. |
|
Two additional individuals for whom disclosure would have been provided but for the fact that these individuals were not serving as executive officers at the end of the last completed fiscal year. |
SUMMARY COMPENSATION TABLE
Annual
Compensation
|
Long-Term
Compensation
|
|||||||||||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Awards
|
Payouts
|
|||||||||||||||||||||||||||||||||
Name & Principal Position |
Fiscal Year |
Salary
|
Bonus
|
Other Annual Compen- sation |
Restricted Stock Awards ($) (1) |
Options Granted (#) |
LTIP payouts ($)(2) |
All
Other Compen- sation (3) |
||||||||||||||||||||||||||
Barry
L. Harmon (4) President & Chief Executive Officer |
2003 2002 2001 |
$ |
32,539 |
|
|
|
6,000 |
|
$ | 46,476 |
(5) | |||||||||||||||||||||||
David F. Bolender
(6) Former Chairman of the Board, Former Acting President & Chief Executive Officer |
2003 2002 2001 |
$ $ |
288,044 57,548 |
|
|
|
50,000 6,000 6,000 |
|
$ $ $ |
49,044 126,000 41,000 |
(7) (8) (8) |
|||||||||||||||||||||||
James
T. Dooley (9) Former President & Chief Executive Officer |
2003 2002 2001 |
$ $ $ |
345,833 247,349 204,167 |
$ |
385,300 |
|
$ | 141,200 |
(10) | 150,000 52,000 54,000 |
|
$ $ $ |
6,704 6,574 6,213 |
(11) |
||||||||||||||||||||
Donald R. VanLuvanee (12) | 2003 2002 2001 |
$ $ $ |
475,000 453,750 391,540 |
(13) | $ $ |
485,106 1,250,000 |
(13) | |
|
155,000 138,000 |
$ $ |
515,200 439,475 |
$ $ $ |
4,229 8,781 5,100 |
(14) |
|||||||||||||||||||
John R. Kurdock (15) Vice President |
2003 2002 2001 |
$ $ $ |
275,000 266,250 245,417 |
$ |
374,500 |
|
$ | 61,775 |
(16) | 42,000 29,000 |
$ $ |
162,400 225,875 |
$ $ $ |
5,100 7,822 5,412 |
(17) |
|||||||||||||||||||
Gary M. Kapral (18) Vice President |
2003 2002 2001 |
$ $ $ |
245,000 239,166 229,166 |
$ |
204,700 |
$ |
488,776 |
(19) |
$ | 123,550 |
(20) | 42,000 29,000 |
|
|
$ $ $ |
5,100 5,225 6,875 |
||||||||||||||||||
Joseph L. Reinhart Vice President |
2003 2002 2001 |
$ $ $ |
220,000 211,250 196,533 |
$ |
274,700 |
|
$ | 61,775 |
(21) | 35,000 29,000 |
$ $ |
72,800 137,238 |
$ $ $ |
3,300 4,730 5,287 |
(22) |
|||||||||||||||||||
Howard
K. Taft, Jr (23) Vice President |
2003 2002 2001 |
$ $ $ |
191,666 184,801 140,000 |
$ |
172,301 |
$ $ |
134,514 52,585 |
(24) (24) |
$ | 61,775 |
(25) | 42,000 9,165 |
|
$ $ $ |
4,791 4,062 3,500 |
|||||||||||||||||||
John
E. Isselmann Jr. (26) General Counsel & Corporate Secretary |
2003 2002 2001 |
$ $ $ |
145,000 135,000 125,961 |
$ |
83,750 |
|
$ | 35,300 |
(27) | 10,000 8,000 |
|
$ $ $ |
3,806 4,008 3,781 |
(1) |
The Company does not intend to pay dividends on the restricted stock grants reported in this column. Restricted stock awards granted in fiscal 2003 vest on February 1, 2004 upon continued employment with the Company. |
(2) |
Represents the vesting of performance-based restricted stock grants. |
7
(3) |
Except as otherwise indicated, represents 401(k) matching contributions made by the Company. |
(4) |
Mr. Harmon was appointed President and Chief Executive Officer on April 15, 2003. |
(5) |
Includes $45,500 for Board of Directors retainer and meeting fees paid prior to Mr. Harmons appointment as President and Chief Executive Officer. |
(6) |
Mr. Bolender served as Acting President and Chief Executive Officer from April 17, 2002 until December 12, 2002. |
(7) |
Includes $31,000 paid for services as Chairman of the Board and Board of Directors retainer and meeting fees paid before and after his service as Acting President and Chief Executive Officer, as well as $18,044 for accrued vacation time. |
(8) |
Includes amounts paid for services as Chairman of the Board and Board of Directors retainer and meeting fees as well as $75,000 payment for service during January\-March 2002 as interim Chief Executive Officer. |
(9) |
Mr. Dooley was named President and Chief Executive Officer on December 13, 2002. Mr. Dooleys employment as President and Chief Executive Officer terminated on June 9, 2003. |
(10) |
Reflects an award of 8,000 shares to Mr. Dooley at a per share value of $17.65. This award was cancelled upon Mr. Dooleys termination. |
(11) |
Includes above-market interest in the amount of $953 earned on compensation deferred as part of ESIs Deferred Compensation Plan. |
(12) |
Mr. VanLuvanee resigned as President and Chief Executive Officer of the Company effective April 23, 2002, but remains an employee of the Company. |
(13) |
Represents amount paid by the Company in accordance with the terms of Mr. VanLuvanees Employment and Separation Agreement dated May 22, 2002. |
(14) |
Includes above-market interest in the amount of $5,156 earned on compensation deferred as part of ESIs Deferred Compensation Plan. |
(15) |
Mr. Kurdocks employment as Vice President terminated on June 9, 2003. |
(16) |
Reflects an award of 3,500 shares to Mr. Kurdock at a per share value of $17.65. This award was cancelled upon Mr. Kurdocks termination. |
(17) |
Includes above-market interest in the amount of $3,089 earned on compensation deferred as part of ESIs Deferred Compensation Plan. |
(18) |
Mr. Kapral resigned as Vice President of the Company on June 11, 2003. |
(19) |
In connection with Mr. Kapral joining the Company as Vice President, the Company made payments on his behalf related to the relocation of Mr. Kapral and his family from North Carolina to Oregon. The amounts include relocation expenses, interest and tax payments for his home in North Carolina. |
(20) |
Reflects an award of 8,000 shares to Mr. Kapral at a per share value of $17.65. This award was cancelled upon Mr. Kaprals resignation. |
(21) |
Reflects an award of 3,500 shares to Mr. Reinhart at a per share value of $17.65. |
(22) |
Includes above-market interest in the amount of $1,343 earned on compensation deferred as part of ESIs Deferred Compensation Plan. |
(23) |
Mr. Taft is not an executive officer of the Company. |
(24) |
Represents amounts paid to relocate Mr. Taft from the Companys facilities in Escondido, California to Portland, Oregon. |
(25) |
Reflects an award of 3,500 shares to Mr. Taft at a per share value of $17.65. |
(26) |
Mr. Isselmann resigned as General Counsel & Corporate Secretary of the Company on August 5, 2003. |
(27) |
Reflects an award of 2,000 shares to Mr. Isselmann at a per share value of $17.65. This award was cancelled upon Mr. Isselmanns resignation. |
8
STOCK OPTION GRANTS IN FISCAL 2003
Option
Grants in Last Fiscal Year
|
||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Potential
Realizable Value at Assumed Annual Rates of Stock Price Appreciation for Option Term |
||||||||||||||||||||||||
Name |
Options Granted (1) (#) |
%
of Total Options Granted to Employees in Fiscal Year (2) |
Exercise Price ($/Sh) |
Expiration Date (3) |
5%
|
10%
|
||||||||||||||||||
Barry L. Harmon |
6,000 | 1.7 | % | $ | 17.96 | 7/30/2012 | $ | 67,769 | $ | 171,742 | ||||||||||||||
David F. Bolender |
50,000 | (4) | 14.2 | % | $ | 16.35 | 9/17/2012 | $ | 514,121 | $ | 1,302,884 | |||||||||||||
James T. Dooley |
150,000 | 42.6 | % | $ | 21.441 | 12/12/2012 | $ | 2,022,619 | $ | 5,125,715 | ||||||||||||||
Donald R. VanLuvanee |
0 | 0 | | | | | ||||||||||||||||||
John R. Kurdock |
0 | 0 | | | | | ||||||||||||||||||
Gary M. Kapral |
0 | 0 | | | | | ||||||||||||||||||
Joseph L. Reinhart |
0 | 0 | | | | | ||||||||||||||||||
Howard K. Taft, Jr. |
0 | 0 | | | | | ||||||||||||||||||
John E. Isselmann, Jr. |
0 | 0 | | | | |
(1) |
All option grants were made pursuant to the Companys 2000 Stock Option Incentive Plan. Unless otherwise noted, 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. Except for the options granted to Mr. Harmon, all options become fully exercisable upon termination of the optionees employment within one year after a change in control of the Company as defined in the 2000 Stock Option Incentive 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 Companys Common Stock and (b) the election of a new majority of the Companys directors without the approval of the incumbent directors. |
(2) |
In fiscal 2003, the Company granted to employees options for a total of 340,000 shares of the Companys Common Stock under the 2000 Stock Option Incentive Plan and 11,700 shares of the Companys Common Stock under the 2000 Stock Option Plan and those numbers were used in calculating the percentages set forth in this column. |
(3) |
Options expire prior to this date (i) if the optionees employment (or service as a director, as applicable) is terminated for any reason (other than death or disability), in which case options vested but unexercised at the date of termination may be exercised at any time prior to the expiration date of the options or the expiration of three months after the date of termination, whichever is the shorter period, or (ii) if employment (or service as a director, as applicable) terminates because of death or disability, in which case options vested but unexercised at the date of termination may be exercised at any time prior to the expiration date of the options or the expiration of 12 months after the date of termination, whichever is the shorter period. If employment (or service as a director, as applicable) is terminated by death of the optionee, the options generally may be exercised by persons to whom the optionees rights pass by will or the laws of descent or distribution. Remaining vested but unexercised options terminate at the end of the earliest of the above described periods, as applicable. |
(4) |
Options became exercisable for 100% of the shares on December 13, 2002. |
9
OPTION EXERCISES AND FISCAL YEAR-END OPTION VALUE TABLE
Options Exercised During Year Ended May 31, 2003 |
Number of Unexercised Options at May 31, 2003 |
Value of Unexercised In-the-Money Options at May 31, 2003 (1) |
|||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Name |
Shares Acquired on Exercise |
Value Realized |
Exercisable |
Unexercisable |
Exercisable |
Unexercisable |
|||||||||||||||||||||
Barry L. Harmon |
0 | | 0 | 6,000 | $ | 0 | $ | 0 | |||||||||||||||||||
David F. Bolender |
0 | | 68,000 | 9,000 | $ | 23,302 | $ | 0 | |||||||||||||||||||
James T. Dooley |
0 | | 62,450 | 217,950 | $ | 36,110 | $ | 0 | |||||||||||||||||||
Donald R. VanLuvanee |
620 | $ | 5,425 | 716,950 | 304,000 | $ | 621,858 | $ | 0 | ||||||||||||||||||
John R. Kurdock |
0 | | 116,360 | 55,500 | $ | 34,286 | $ | 0 | |||||||||||||||||||
Gary M. Kapral |
0 | | 47,500 | 53,500 | $ | 0 | $ | 0 | |||||||||||||||||||
Joseph L. Reinhart |
1,000 | $ | 16,030 | 85,030 | 50,250 | $ | 13,461 | $ | 0 | ||||||||||||||||||
Howard K. Taft, Jr. |
0 | | 28,532 | 38,033 | $ | 3,546 | $ | 0 | |||||||||||||||||||
John E. Isselmann, Jr. |
0 | | 10,250 | 12,750 | $ | 0 | $ | 0 |
(1) |
Options are in-the-money at the fiscal year-end if the fair market value of the underlying securities on such date exceeds the exercise price of the option. The amounts set forth represent the difference between the fair market value of the securities underlying the options on May 31, 2003 based on the closing sale price of $15.04 per share of Common Stock on that date (as reported on the Nasdaq National Market) and the exercise price of the options, multiplied by the applicable number of shares. |
EQUITY COMPENSATION PLAN INFORMATION
Plan Category |
Number
of securities to be issued upon exercise of outstanding options, warrants and rights |
Weighted-average exercise price of outstanding options, warrants and rights |
Number
of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column (a)) |
|||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|
(a) | (b) | (c) | ||||||||||
Equity compensation plans approved by security holders (1) |
2,705,075 | (2)(3)(4) | $27.12 | 2,260,290
|
(5) | |||||||
Equity compensation plans not approved by security holders (6) |
1,651,352 | $36.43 | 596,236 |
|||||||||
Total |
4,356,427 | $30.71 | 2,856,526 |
|||||||||
(1) |
These plans consist of: (i) the 1989 Stock Option Plan, (ii) the 2000 Stock Option Incentive Plan, (iii) the 1990 Employee Stock Purchase Plan and (iv) the 1996 Stock Incentive Plan. |
(2) |
Includes 2,056 shares subject to employee stock options assumed in the merger with Applied Intelligent Systems, Inc. with a weighted average exercise price of $6.56. |
(3) |
Includes 2,882 shares subject to employee stock options assumed in the merger with Dynamotion, Inc. with a weighted average exercise price of $55.25. |
(4) |
Includes 69,300 restricted shares which will vest only if specific performance or service measures are met. |
(5) |
Includes 305,127 shares available for issuance under the 1990 Employee Stock Purchase Plan. |
(6) |
Consists of the 2000 Stock Option Plan. |
10
EMPLOYMENT CONTRACTS AND SEVERANCE ARRANGEMENTS
Employment Agreements
Change of Control Severance Agreements
11
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
12
incentive compensation to executive officers equal to competitive levels without excessive shareholder dilution. In determining the size of option grants and restricted stock awards, the Compensation Committee takes into account the executives 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. Options to purchase 340,000 shares were granted to executive officers in fiscal 2003, including 50,000 to David F. Bolender, 150,000 to James T. Dooley, and 6,000 to Barry L. Harmon, which was his grant automatically received on July 31, 2002 as a non-employee member of the Board of Directors. The number of shares of restricted stock granted to executive officers in fiscal 2003 was 32,500, including 8,000 to Mr. Dooley.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
REPORT OF THE AUDIT COMMITTEE
13
Internal Investigation
1. |
Lack of complete sales documentation, particularly as it relates to customer specified acceptance criteria; |
2. |
Lack of adequate job transition/cross training and poorly documented desk processes and procedures in the finance/accounting area; |
3. |
Changes to accounting methodologies without notification to, or proper authorization by, accounting oversight parties (i.e., the audit committee and independent auditors); and |
4. |
Lack of adequate tracking and monitoring of finished goods inventory that was transferred out of the inventory management information system. |
1. |
The appointment of an independent director to be Chairman of the Board in April 2003, who was previously the Chief Executive Officer and Chairman of the Board of KLA-Tencor Corporation; |
2. |
The appointment of a previously independent director to be President and Chief Executive Officer in April 2003, who was previously Chief Financial Officer of Apex, Inc. and was the former Senior Vice President and Chief Financial Officer of ESI for seven years until 1999; |
3. |
The appointment of a new Chief Financial Officer in May 2003, who was previously Chief Financial Officer of SpeedFam-IPEC, Inc. and Vice President and Corporate Controller of Novellus Systems, Inc.; |
4. |
The engagement of outside professionals specializing in accounting and finance to assist management in the collection, substantiation and analysis of the information contained in the Annual Report; and |
14
5. |
The performance of additional procedures designed to ensure that these internal control deficiencies did not lead to material misstatements in the Companys consolidated financial statements. |
1. |
Review and revise its processes and procedures for applying revenue recognition policies, including more formalized training of finance, sales, order management and other staffs; |
2. |
Enhance accounting/finance training programs and desk processes and procedures documentation as well as retain additional full-time experienced accounting/finance personnel including a Chief Accounting Officer; |
3. |
Provide additional management oversight and perform detailed reviews of disclosures and reporting with the assistance of outside legal counsel; |
4. |
Account for all completed systems in the inventory management information system; and |
5. |
Use outside resources, as necessary, to supplement its employees in the preparation of the consolidated financial statements and other reports filed or submitted under the Securities Exchange Act of 1934. |
Conclusion
15
Principal Accounting Firm Fees
Audit Fees |
$ | 608,400 | (1) | |||
Financial Information Systems Design and Implementation Fees |
| |||||
All Other Fees (2) |
$ | 615,098 | ||||
Totals |
$ | 1,223,498 | ||||
(1) |
Includes $153,800 of audit fees for fiscal 2003 which have not yet been billed to the Company. |
(2) |
The Audit Committee has determined that the provision of the services covered by these fees billed by KPMG is compatible with maintaining the principle accountants independence. Other Fees consisted primarily of consulting services for domestic and international tax compliance and tax planning projects. |
Change in Independent Public Accountants
16
PERFORMANCE GRAPH
COMPARISON OF 5 YEAR CUMULATIVE TOTAL RETURN*
Among Electro Scientific Industries, Inc., the S & P 500
Index and the S & P Information Technology Index
* $100
invested on 5/29/98 in stock or index-including reinvestment of dividends.
Copyright © 2002, Standard & Poors, a division of The McGraw-Hill Companies, Inc. All rights reserved.
Cumulative Total Return |
|||||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
5/29/98 |
5/28/99 |
6/2/00 |
6/1/01 |
5/31/02 |
5/30/03 |
||||||||||||||||||||||
ELECTRO SCIENTIFIC INDUSTRIES, INC. |
100.00 | 111.94 | 314.56 | 220.72 | 157.37 | 89.79 | |||||||||||||||||||||
S & P 500 |
100.00 | 121.03 | 133.71 | 119.60 | 103.04 | 94.73 | |||||||||||||||||||||
S & P INFORMATION TECHNOLOGY |
100.00 | 166.02 | 244.87 | 128.88 | 90.49 | 85.49 |
The information contained above under the captions Compensation Committee Report on Executive Compensation, Report of the Audit Committee, and Performance Graph shall not be deemed to be soliciting material or to be filed with the Securities and Exchange Commission, nor shall such information be incorporated by reference into any future filing under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended, except to the extent that the Company specifically incorporates it by reference into such filing.
17
PROPOSAL 2: APPROVE AMENDMENT TO 2000 STOCK OPTION INCENTIVE PLAN
Description Of The Option Plan
18
Name |
Grants (1) |
|||||
---|---|---|---|---|---|---|
Frederick A. Ball |
34,000 shares | (2) | ||||
Richard J. Faubert |
54,000 shares | (2) | ||||
Larry L. Hansen |
10,000 shares | |||||
W. Arthur Porter |
20,000 shares | |||||
Vernon B. Ryles, Jr. |
10,000 shares | |||||
Gerald F. Taylor |
20,000 shares | |||||
Keith L. Thomson |
30,000 shares | |||||
Jon D. Tompkins |
50,000 shares | (3) | ||||
Robert R. Walker |
40,000 shares | (4) | ||||
All non-employee directors as a group (9 persons) |
268,000 shares |
(1) |
Unless otherwise noted, represents the annual grant to non-employee directors on July 31 of each year during the remainder of each directors term (assuming the nominees for director at the 2003 Annual Meeting are elected), subject to shareholder approval of this proposal. |
(2) |
On July 16, 2003, the Board approved options to Mr. Ball and Mr. Faubert to purchase 24,000 shares of Common Stock, subject to shareholder approval of this proposal and their election as directors at the 2003 Annual Meeting. |
(3) |
On July 16, 2003, the Board approved an option to Mr. Tompkins to purchase 20,000 shares of Common Stock, subject to shareholder approval of this proposal. |
(4) |
On August 25, 2003, the Board approved options to Mr. Walker to purchase 30,000 shares of Common Stock, subject to shareholder approval of this proposal and his election as a director at the 2003 Annual Meeting. |
19
shares subject to the option, free of any limitation on the number of shares for which the option may be exercised in any one year. In such a case, the option may be exercised at any time before its expiration or the expiration of three months after the date of termination of employment, whichever period is shorter. A change of control is defined to include a change of control of a nature that would be required to be reported in response to Item 6(e) of Schedule 14A of Regulation 14A, including but not limited to the following events: the acquisition by any person of 20 percent or more of the Companys outstanding voting securities or the replacement within a two-year period of a majority of the members of the Companys Board of Directors by persons other than incumbent directors or persons approved by at least two-thirds of the incumbent directors.
20
(a disqualifying disposition), the amount by which the fair market value of the shares on the exercise date exceeds the exercise price will be taxable as ordinary compensation income in the year of such disposition. If, however, the disqualifying disposition is by sale or exchange, the amount of ordinary compensation income recognized by the grantee generally will be limited to the amount of gain, if any, realized by the grantee on the sale or exchange. The Company will not be allowed any deduction for federal income tax purposes at either the time of grant or exercise of an incentive stock option. Upon a disqualifying disposition, however, the Company generally will be entitled to a deduction to the extent the grantee realized ordinary compensation income.
Recommendation By The Board Of Directors
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
21
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
OTHER MATTERS
Shareholder Proposals in the Companys Proxy Statement
Shareholder Proposals not in the Companys Proxy Statement
Shareholder Nominations for Directors
22
in the Companys bylaws for annual meeting nominations. To be timely, the notice must be given not later than 10 days following the day on which public announcement is first made of the date of the special meeting and the nominees proposed by the Board of Directors to be elected at the meeting. The chairman of the meeting of shareholders may, if the facts warrant, determine that a nomination was not made in accordance with the proper procedures. If the chairman does so, the chairman shall so declare to the meeting and the defective nomination shall be disregarded.
Transaction Of Other Business
Portland, Oregon
September 22, 2003
23
APPENDIX A
ELECTRO SCIENTIFIC INDUSTRIES, INC.
2000 STOCK OPTION
INCENTIVE PLAN
* NOTE: Underlined matter is new, matter in [brackets and italics] is to be deleted.
A-1
* NOTE: Underlined matter is new, matter in [brackets and italics] is to be deleted.
A-2
* NOTE: Underlined matter is new, matter in [brackets and italics] is to be deleted.
A-3
* NOTE: Underlined matter is new, matter in [brackets and italics] is to be deleted.
A-4
* NOTE: Underlined matter is new, matter in [brackets and italics] is to be deleted.
A-5
portions thereof then unexercised, shall be exercisable, so that the optionees proportionate interest before and after the occurrence of the event shall be maintained as before the occurrence of such event. Such adjustment in outstanding options shall be made without change in the total price applicable to the unexercised portion of any option and with a corrresponding adjustment in the option price per share. Notwithstanding the foregoing, the Board of Directors shall have no obligation to effect any adjustment that would or might result in the issuance of fractional shares, and any fractional shares resulting from any adjustment may be disregarded or provided for in any manner determined by the Board of Directors. Any such adjustments made by the Board of Directors shall be conclusive.
* NOTE: Underlined matter is new, matter in [brackets and italics] is to be deleted.
A-6
full-time employee] of [the Company or any of its subsidiaries] grant and has [not been a full-time employee of the Company or any of its subsidiaries within one year of any] served on the Board of Directors for at least the six months preceding that date [as of which a determination of eligibility is made].
[Period of Non-Employee Directors Continuous Services
as a Director of the Company from the Date the Option is Granted] |
[Portion of Total Option Which is Exercisable] |
|||||
---|---|---|---|---|---|---|
[Less than 1 year |
0 | %] | ||||
[After 1 year |
25 | %] | ||||
[After 2 years |
50 | %] | ||||
[After 3 years |
75 | %] | ||||
[After 4 years |
100 | % ] |
* NOTE: Underlined matter is new, matter in [brackets and italics] is to be deleted.
A-7
Commission and any stock exchange on which the Companys shares may then be listed, in connection with the grants under the Plan. The foregoing notwithstanding, the Company shall not be obligated to issue or deliver Common Stock under the Plan if such issuance or delivery would violate state or federal securities laws.
Adopted: June 23, 2000.
Amended: October __, 2003
* NOTE: Underlined matter is new, matter in [brackets and italics] is to be deleted.
A-8
APPENDIX B
CHARTER OF THE AUDIT COMMITTEE OF
THE BOARD OF
DIRECTORS OF ELECTRO SCIENTIFIC INDUSTRIES, INC.
I. PURPOSE
II. COMPOSITION
III. MEETINGS
IV. RESPONSIBILITIES AND DUTIES
Documents/Reports Review
|
Discuss earnings press releases, and financial information and earnings guidance provided to analysts and rating agencies. The Committee may limit its discussion to the types of information to be disclosed and the type of presentation to be made, and it need not discuss these matters in advance of each disclosure. |
|
Discuss and review with senior financial management and the independent accountants before filing the financial information contained in the Companys quarterly reports on Form 10-Q, including: (1) disclosures under Managements Discussion and Analysis of Financial Condition and Results of Operations; (2) the |
B-1
selection, application and disclosure of the critical accounting policies and practices used; and (3) the management certifications.
|
Review with management and the independent accountants at the completion of the annual audit of the Companys consolidated financial statements and before filing of the Annual Report on Form 10-K: |
|
The Companys annual consolidated financial statements and related footnotes; |
|
Disclosures under Managements Discussion and Analysis of Financial Condition and Results of Operations; |
|
The independent accountants audit of the financial statements and their report; |
|
Any significant changes required in the independent accountants audit plan; |
|
Any difficulties or disputes with management encountered during the course of the audit; |
|
The selection, application and disclosure of the critical accounting policies and practices used; |
|
Management certifications; and |
|
Any additional matters related to the conduct of the audit required to be communicated to the Committee under generally accepted auditing standards, including the independent accountants judgment about such matters as the quality (not just the acceptability), of the Companys accounting practices, as well as other items set forth in SAS 61. |
|
Resolve any disputes between management and the independent accountants regarding financial reporting. |
|
Prepare the report required to be included in the Companys proxy statement for each annual shareholders meeting that discloses whether the Committee has reviewed and discussed the audited financial statements with management, has discussed the matters required by SAS 61 and Independence Standards Board Standard No. 1 with the independent accountants, and has recommended to the Board that the consolidated financial statements be included in the Annual Report on Form 10-K. |
|
Review any reports submitted by the independent accountants, including reports relating to: (1) all critical accounting policies and practices used; (2) all alternative treatments of financial information within generally accepted accounting principles that have been discussed with management, ramifications of the use of such alternative disclosures and treatments, and the treatment preferred by the independent accountants; and (3) other material written communications between the independent accountants and management, such as any management letter or schedule of unadjusted differences. |
|
At least annually, obtain and review a report by the independent accountants describing: (1) the independent accountants internal quality control procedures; (2) any material issues raised by the most recent internal quality control review, or peer review, of the independent accountants, or by any inquiry or investigation by governmental or professional authorities, within the preceding five years, respecting one or more independent audits carried out by the independent accountants, and any steps taken to deal with any such issues; and (3) all relationships between the independent accountants and the Company (to assess the independent accountants independence). |
|
Review this Charter at least annually and recommend to the Board appropriate changes to the Charter. |
Control Processes
|
Review with management and the independent accountants on a continuing basis: the adequacy and integrity of the Companys system of accounting procedures; the Companys financial reporting processes, both internal and external; the Companys system of internal controls; and the disclosures regarding internal controls required by SEC rules to be contained in the Companys periodic reports and the attestations or reports relating to such disclosure. |
B-2
|
Review with the independent accountants and management the appropriateness of accounting principles followed by the Company, as well as proposed and adopted changes in accounting principles and their impact on the financial statements. |
Independent Accountants
|
Pre-approve in accordance with SEC and Nasdaq rules all audit and permissible non-audit services provided to the Company by the independent accountants. The Committee may delegate this responsibility to one or more members of the Committee. |
|
Obtain annually from the independent accountants a formal written statement delineating all relationships with the Company, including all non-audit services and associated fees. |
|
Review and discuss with the independent accountants any disclosed relationships or services that might impact the accountants objectivity or independence. |
|
Take appropriate action, if any, to ensure the independence of the independent accountants. |
|
Conduct other reviews, as appropriate, to assist in the Committees oversight of the performance of the independent accountants, including, for example, reviewing the proposed audit plan each year, reviewing the proposed work plans of the independent accountants and reviewing comments from prior periods. |
|
Review any reports submitted to the Committee by the independent accountants. |
Legal and Ethical Compliance
|
Oversee and review periodically with management, outside counsel, and other experts, as appropriate, the programs and policies of the Company designed to ensure compliance with applicable laws and regulations, and the results of these compliance efforts. |
|
Review and approve, where appropriate, all related-party transactions. |
|
Oversee the process for receiving, retaining and treating complaints or concerns, including confidential and anonymous submissions by employees, regarding accounting and auditing matters and internal controls. |
|
Review periodically with management, outside counsel and other experts, as appropriate, any legal and regulatory matters that may have a material impact on the financial statements. |
Other Responsibilities
|
Oversee and review periodically with management the Companys policies relating to finance, capital expenditures, investment, borrowings, currency exposures, share issuance and repurchases, risk management, asset management, information management, and the security of its intellectual and physical assets. |
|
Review and discuss with the independent accountants and management any material financial or non-financial arrangements of the Company that do not appear on the financial statements of the Company. |
|
Review with management funding policies and investment performance of the Companys benefit plans. |
|
Review with management other finance, tax, legal and administrative issues as directed by the Board. |
|
Create and monitor policies for hiring employees or former employees of the independent accountants to avoid independence impairment. |
B-3
|
Make reports and recommendations to the Board of Directors on matters within the scope of its the Committees functions. |
|
Perform a review and evaluation, at least annually, of the performance of the Committee. The Committee shall conduct such review in such manner as it deems appropriate. |
|
Engage independent counsel and other advisors as it deems necessary or appropriate to carry out its duties, with funding provided by the Company. |
|
In addition to the activities described above, perform such other functions as necessary or appropriate under law, the Companys articles of incorporation, bylaws and/or audit committee charter, and the resolutions and other directives of the Board. |
B-4
Please Mark Here [ ] |
1. Election of five directors: | FOR
the nominees listed to the left (except as indicated to the contrary) |
WITHHOLD |
FOR | AGAINST | ABSTAIN | ||||||
NOMINEES FOR THREE-YEAR TERMS: | 2. | Approve
amendments to 2000 Stock Option Incentive Plan. |
[ ] | [ ] | [ ] | ||||||
01 Richard
J. Faubert 02 Keith L. Thomson 03 Jon D. Tompkins |
[ ] | [ ] | |||||||||
3. | In
their discretion, the proxies are authorized to vote upon such other matters
as may properly come before the meeting or any adjournments or postponements thereof. |
||||||||||
NOMINEES FOR ONE-YEAR TERMS: | |||||||||||
04 Frederick
A. Ball 05 Robert R. Walker |
[ ] | [ ] | PLEASE
SIGN, DATE AND RETURN THIS PROXY CARD TODAY, USING THE ENCLOSED ENVELOPE. |
Instruction: |
To withhold authority to vote for any nominee write that nominees name(s) in this space: |
Please
sign below exactly as your name appears on this Proxy Card. If shares are registered in more than one name, all such persons should sign. A corporation should sign in its full corporate name by a duly authorized officer, stating his/her title. Trustees, guardians, executors and administrators should sign in their official capacity giving their full title as such. If a partnership, please sign in the partnership name by authorized persons. |
||||||
If you receive more than one Proxy Card, please sign and return all such cards in the accompanying envelope. |
||||||||
________________________________ |
||||||||
________________________________ Authorized Signature: |
||||||||
________________________________ Title or authority, if applicable: |
||||||||
________________________________ Date: |
FOLD AND DETACH HERE
PROXY
ELECTRO
SCIENTIFIC INDUSTRIES, INC.
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned shareholder of Electro Scientific Industries, Inc., an Oregon corporation (the Company), hereby appoints Barry L. Harmon and J. Michael Dodson, and each of them, with full power of substitution in each, as proxies to cast all votes which the undersigned shareholder is entitled to cast at the Annual Meeting of Shareholders (the Annual Meeting) to be held at 1:00 p.m. on Thursday, October 30, 2003 at the Companys executive offices located at 13900 NW Science Park Drive, Portland, Oregon, and any adjournments or postponements thereof upon the following matters.
THIS PROXY, WHEN PROPERLY EXECUTED, WILL BE VOTED IN THE MANNER DIRECTED HEREIN BY THE UNDERSIGNED SHAREHOLDER. UNLESS DIRECTION IS GIVEN, THIS PROXY WILL BE VOTED FOR THE ELECTION OF THE NOMINEES LISTED IN PROPOSAL 1, FOR PROPOSAL 2 AND IN ACCORDANCE WITH THE RECOMMENDATIONS OF A MAJORITY OF THE BOARD OF DIRECTORS AS TO OTHER MATTERS. The undersigned hereby acknowledges receipt of the Companys Proxy Statement and hereby revokes any proxy or proxies previously given.
(continued and to be signed on other side)
Address Change/Comments (Mark the corresponding box on the reverse side)
FOLD AND DETACH HERE