<PAGE>
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of
the Securities Exchange Act of 1934
Filed by the Registrant /X/
Filed by a Party other than the Registrant / /
Check the appropriate box:
/ / Preliminary Proxy Statement
/X/ Definitive Proxy Statement
/ / Definitive Additional Materials
/ / Soliciting Material Pursuant to Section 240.14a-11(c) or Section
240.14a-12
DUPONT PHOTOMASKS, INC.
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
DUPONT PHOTOMASKS, INC.
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement)
Payment of Filing Fee (Check the appropriate box):
/X/ $125 per Exchange Act Rules 0-11(c)(1)(ii), 14a-6(i)(1), or 14a-6(i)(2)
/ / $500 per each party to the controversy pursuant to Exchange Act Rule
14a-6(i)(3).
/ / Fee computed on table below per Exchange Act Rules 14a-6(i)(4)
and 0-11.
1) Title of each class of securities to which transaction applies:
------------------------------------------------------------------------
2) Aggregate number of securities to which transaction applies:
------------------------------------------------------------------------
3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (1)
------------------------------------------------------------------------
4) Proposed maximum aggregate value of transaction:
------------------------------------------------------------------------
(1) Set forth the amount on which the filing fee is calculated and state
how it was determined.
/ / Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
1) Amount Previously Paid:
------------------------------------------------------------------------
2) Form, Schedule or Registration Statement No.:
------------------------------------------------------------------------
3) Filing Party:
------------------------------------------------------------------------
<PAGE>
DuPont Photomasks, Inc.
100 Texas Avenue
Round Rock, Texas 78664
512-388-8859
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD OCTOBER 28, 1996
To the Stockholders of
DuPont Photomasks, Inc.
Notice is hereby given that the 1996 Annual Meeting of Stockholders of
DuPont Photomasks, Inc. (the "Company") will be held in the San Jacinto East
Room of the Four Seasons Hotel, 98 San Jacinto Blvd., Austin, Texas 78701, on
Monday, October 28, 1996 at 10:00 a.m. Austin time, and any adjournment thereof,
for the following purposes:
(1) To elect nine directors to the Board of Directors;
(2) To ratify the selection of independent accountants; and
(3) To transact such other business as may properly come before the meeting
or any adjournment thereof.
The Board of Directors recommends election of the nominees for directors and
the ratification of the selection of independent accountants named in the
accompanying Proxy Statement.
E.I. du Pont de Nemours and Company, through its wholly-owned subsidiary,
DuPont Chemical and Energy Operations, Inc., benefically owned 10,500,000 shares
of Common Stock (approximately 69.5%) on the record date and thus will be able
to elect all of the nominees for directors and to ratify the selection of
independent accountants.
Stockholders of record at the close of business on September 17, 1996 are
entitled to notice of and to vote at the meeting. All stockholders are cordially
invited and urged to attend the meeting. Regardless of whether you expect to
attend the meeting, you are requested to sign, date and return the accompanying
proxy card in the enclosed self-addressed postage-paid envelope. You may still
attend and vote in person at the meeting if you wish, even though you may have
submitted your proxy prior to the meeting. The Bylaws of the Company require
that the holders of a majority of the outstanding shares of Common Stock of the
Company entitled to vote be represented in person or by proxy at the meeting in
order to constitute a quorum for the transaction of business. It is important
that your shares be represented at the meeting in person or by proxy.
Your support for the Company is greatly appreciated.
By order of the Board of Directors
J. MICHAEL HARDINGER
J. Michael Hardinger, Chairman of the
Board and Chief Executive Officer
September 26, 1996
<PAGE>
DUPONT PHOTOMASKS, INC.
100 TEXAS AVENUE
ROUND ROCK, TEXAS 78664
PROXY STATEMENT
1996 ANNUAL MEETING OF STOCKHOLDERS
OF DUPONT PHOTOMASKS, INC.
SOLICITATION, EXERCISE AND REVOCATION OF PROXIES
The accompanying proxy is solicited on behalf of the Board of Directors (the
"Board") of DuPont Photomasks, Inc. (the "Company" or "DPI"), to be voted at the
1996 Annual Meeting of Stockholders of the Company (the "Annual Meeting"). The
Annual Meeting will be held at the time and place and for the purposes set forth
in the accompanying Notice. In addition to the original solicitation by mail,
certain regular employees of the Company may solicit proxies by telephone or
telecopy or in person. No specially engaged employees or solicitors will be
retained for proxy solicitation purposes. All expenses of this solicitation,
including the costs of preparing and mailing this Proxy Statement and the
reimbursement of brokerage firms and other nominees for their reasonable
expenses in forwarding proxy materials to beneficial owners of shares, will be
borne by the Company. You may vote in person at the Annual Meeting, if you wish,
even though you have previously mailed in your proxy. This Proxy Statement and
the accompanying proxy are being mailed to stockholders beginning on or about
September 26, 1996.
All duly executed proxies will be voted in accordance with the instructions
thereon. Stockholders who execute proxies, however, retain the right to revoke
them at any time before they are voted. The revocation of a proxy will not be
effective until written notice thereof has been given to the Secretary of the
Company, unless the stockholder granting such proxy votes in person at the
Annual Meeting.
VOTING OF SECURITIES
The record date for the determination of stockholders entitled to vote at
the Annual Meeting is September 17, 1996. As of such date, the Company had
outstanding 15,100,000 shares of Common Stock, $.01 par value per share (the
"Common Stock"). The Common Stock is the only class of stock of the Company
outstanding and entitled to vote at the Annual Meeting. Each stockholder is
entitled to one vote for each share of Common Stock held. All votes on the
proposals set forth below will be taken by ballot. For purposes of the votes on
all proposals set forth below, the holders of a majority of the shares entitled
to vote, represented in person or by proxy, will constitute a quorum at the
Annual Meeting. The stockholders present at the Annual Meeting may continue to
transact business until adjournment, notwithstanding the subsequent withdrawal
of enough stockholders to leave less than a quorum or the refusal of any
stockholder present in person or by proxy to vote or participate in the Annual
Meeting.
BENEFICIAL OWNERSHIP OF SECURITIES
The following table sets forth certain information regarding the beneficial
ownership, as of the close of business on September 17, 1996, of shares of
Common Stock by each person who is known to the Company to be a beneficial owner
of 5% or more of the Common Stock, each current director (each of whom is a
nominee), each executive officer named in the Summary Compensation Table
hereinafter set forth, and all current directors and executive officers of the
Company as a group. AS OF SEPTEMBER 17, 1996, E.I. DU PONT DE NEMOURS AND
COMPANY ("DUPONT"), THROUGH ITS WHOLLY-OWNED SUBSIDIARY DUPONT CHEMICAL AND
ENERGY OPERATIONS, INC. ("DCEO"), OWNED 10,500,000 SHARES (APPROXIMATELY 69.5%)
OF THE COMMON STOCK. AS A RESULT, DUPONT HAS SUFFICIENT VOTING POWER TO CONTROL
THE DIRECTION AND POLICIES OF THE COMPANY, INCLUDING ANY MERGER, CONSOLIDATION
OR SALE OF ALL OR SUBSTANTIALLY ALL OF THE ASSETS OF THE COMPANY, TO ELECT THE
MEMBERS OF THE BOARD, AND TO PREVENT OR CAUSE A CHANGE IN CONTROL OF THE
COMPANY. The Common Stock is the only class of voting securities outstanding.
Unless otherwise indicated, each person
<PAGE>
or entity set forth in the table has sole investment and voting power with
respect to all shares shown as beneficially owned. Shares are owned beneficially
and of record, unless otherwise specified.
<TABLE>
<CAPTION>
SHARES BENEFICIALLY OWNED
----------------------------
NAME AND ADDRESS OF BENEFICIAL OWNER (1) NUMBER (2) PERCENT
- ----------------------------------------------------------------------------- --------------- -----------
<S> <C> <C>
E.I. du Pont de Nemours and Company.......................................... 10,500,000(3) 69.5%
1007 Market Street
Wilmington, Delaware 19898
J. Michael Hardinger......................................................... 5,000 *
John L. Doyle................................................................ 3,000 *
John C. Hodgson.............................................................. 10,500,500(4) 69.5%
Charles O. Holliday.......................................................... 10,501,000(4) 69.5%
Peter G. Kehoe............................................................... 10,501,000(4) 69.5%
Gary W. Pankonien............................................................ 5,000 *
John C. Sargent.............................................................. 10,500,300(4) 69.5%
Marshall C. Turner........................................................... 300 *
Susan A. Vladuchick.......................................................... 10,502,000(4) 69.5%
Preston M. Adcox............................................................. 650 *
Gerard Cognie................................................................ 31,500(5) *
David S. Gino................................................................ 650 *
Kenneth A. Rygler............................................................ 650 *
All executive officers and directors as a group (14 persons)................. 10,552,200(4) 69.9%
</TABLE>
- ------------------------
* Less than 1%.
(1) The address for all officers and directors is 100 Texas Avenue, Round Rock,
Texas 78664.
(2) Does not include shares purchasable more than 60 days after September 17,
1996 pursuant to options granted, and shares of restricted stock granted but
not issued as of September 17, 1996, to directors and named executive
officers under the Company's Stock Performance Plan, as follows:
<TABLE>
<CAPTION>
RESTRICTED
EXECUTIVE OFFICER OR DIRECTOR OPTION SHARES STOCK
- -------------------------------------------------------- ------------- ---------------
<S> <C> <C>
J. Michael Hardinger.................................... 145,841 14,236
John L. Doyle........................................... 10,000 0
Gary W. Pankonien....................................... 10,000 0
Marshall C. Turner...................................... 10,000 0
Preston M. Adcox........................................ 88,488 8,824
Gerard Cognie........................................... 29,664 3,577
David S. Gino........................................... 35,547 2,843
Kenneth A. Rygler....................................... 35,547 3,295
</TABLE>
(3) All 10,500,000 shares are held by DuPont's wholly-owned subsidiary, DCEO.
(4) Includes the 10,500,000 shares beneficially owned by DuPont, which Messrs.
Hodgson, Holliday, Kehoe and Sargent and Ms. Vladuchick share the right to
vote.
(5) Includes 25,000 shares held by Mr. Cognie's spouse, as to which Mr. Cognie
has disclaimed beneficial ownership.
2
<PAGE>
ELECTION OF DIRECTORS
(PROPOSAL 1)
GENERAL INFORMATION
Nine directors are proposed to be elected at the Annual Meeting, all of whom
currently are directors of the Company. The Bylaws of the Company provide for a
Board of Directors of not less than one nor more than fifteen directors, with
the current number set at nine. Each director will serve until the next annual
meeting of stockholders or until his successor is elected and has qualified.
Vacancies on the Board may be filled by the majority vote of directors then in
office or by the sole remaining director.
The persons named in the accompanying proxy may act with discretionary
authority to vote for a new management nominee should any nominee named in this
Proxy Statement become unavailable for election, although management is unaware
of any circumstances likely to render any nominee unavailable for election.
Unless the stockholder has specified otherwise, the persons named in the
accompanying proxy will vote such stockholder's shares of Common Stock in favor
of the nominees listed below.
The Certificate of Incorporation of the Company does not permit cumulative
voting. A plurality of the votes of the holders of the outstanding shares of
Common Stock of the Company represented at the Annual Meeting at which a quorum
is present will elect all nine directors.
BOARD RECOMMENDATION
The Board believes that the election of the persons listed below as
directors of the Company is in the best interest of the Company and its
stockholders. The Board therefore recommends that you vote FOR the nominees and
it is intended that the proxies not marked to the contrary will be so voted.
NOMINEES FOR DIRECTOR
The following table sets forth the name, age (as of September 17, 1996) and
current position with the Company of each person who is a nominee for election
as a director of the Company.
<TABLE>
<CAPTION>
CURRENT POSITION WITH THE
NAME AGE COMPANY
- ---------------------------------------------------------- --- --------------------------------
<S> <C> <C>
J. Michael Hardinger...................................... 49 Chairman of the Board and
Chief Executive Officer
John L. Doyle............................................. 65 Director
John C. Hodgson........................................... 52 Director
Charles O. Holliday, Jr................................... 48 Director
Peter G. Kehoe............................................ 52 Director
Gary W. Pankonien......................................... 46 Director
John C. Sargent........................................... 58 Director
Marshall C. Turner........................................ 54 Director
Susan A. Vladuchick....................................... 48 Director
</TABLE>
J. MICHAEL HARDINGER is Chairman of the Board of Directors and Chief
Executive Officer of the Company, positions he assumed on January 1, 1996 as a
part of the global realignment of the photomask business of DuPont. He joined
DuPont in 1970 and served in a number of management positions with DuPont,
including Vice President and General Manager of DuPont's Acrylics and Consumer
Products Business from 1990 until 1993. He was Vice President--DuPont Corporate
Sourcing prior to assuming his position with the Company.
JOHN L. DOYLE is a private consultant, having retired from the
Hewlett-Packard Company in 1991. At the time of his retirement, he was Executive
Vice President, Business Development with responsibility for
3
<PAGE>
Hewlett-Packard's integrated circuit facilities as well as acquisitions,
mergers, planning, corporate purchasing, manufacturing and engineering. He was
also a member of the Executive Committee. Mr. Doyle was Co-Chief Executive
Officer of Hexcel Corp. from July 1993 to December 1993. Hexcel Corp. filed for
bankruptcy under Chapter 11 of the United States Bankruptcy Code in December
1993. He is currently a director of Xilinx, Inc., Analog Devices, Inc. and
Silicon Valley Research. He became a director of the Company in April 1996.
JOHN C. HODGSON is the Vice President and General Manager, Photopolymers and
Electronic Materials of DuPont, a position he assumed in 1996. He has been with
DuPont for 29 years and has served in a variety of management positions in the
X-Ray, Electronics and Diagnostic businesses in the United States and in Geneva,
Switzerland. He became a director of the Company in April 1996.
CHARLES O. HOLLIDAY, JR. has been a member of the Office of the Chief
Executive of DuPont and an Executive Vice President with global responsibility
for Electronic Materials, White Pigments & Mineral Products, Nonwovens, Advanced
Fibers Systems, Printing and Publishing, Polymers and Industrial Packaging and
Agricultural Products, since October 1995. He is also Chairman of DuPont Asia
Pacific. Since joining DuPont in 1970 he has held a variety of management
positions in a number of DuPont's businesses. He became a director of the
Company in April 1996.
PETER G. KEHOE is Worldwide Business Director Pressroom Systems of DuPont.
From June 1995 through June 1996, Mr. Kehoe had responsibility for the initial
public offering of the photomasks business now conducted by the Company. He
joined DuPont in 1973 and since then he has held a wide variety of technology,
manufacturing and business management responsibilities. He became a director of
the Company in December 1995.
GARY W. PANKONIEN is the President and Chief Operating Officer of Tanisys
Technology a computer engineering design and manufacturing company. He spent
seven years at Compaq Computer Corporation where he served as the Notebook
Computer Design and Operations Manager for three years. He co-developed and
currently holds the patent for the first notebook computer as well as several
other patents. Mr. Pankonien has 20 years of management experience in the
electronics industry and has extensive experience in off-shore operations. He
became a director of the Company in April 1996.
JOHN C. SARGENT is the Vice President and Treasurer of DuPont. He joined the
Treasury Department of Conoco in 1964 and worked in a number of financial
management positions with Conoco both in the United States and Europe. He became
Vice President and Treasurer of Conoco in 1981 and also served as Assistant
Treasurer and Director of the Treasury Division of DuPont after Conoco was
acquired by DuPont in 1982. He assumed his present position at DuPont in 1992.
He became a director of the Company in December 1995.
MARSHALL C. TURNER is a venture capital investor and consultant specializing
in technology companies. He is General Partner of Taylor & Turner Associates,
Ltd., Principal of Turner Venture Associates and a director of Alliance
Technology Fund, Inc., Remanco International, Inc., the Public Broadcasting
Service and the George Lucas Educational Foundation. From 1983 until 1995, he
was a director of six privately held technology companies in which Taylor &
Turner was an investor, and from 1987 to 1992, he served as a director and two
years as Chairman of the Corporation For Public Broadcasting. He has taught
entrepreneurial management as an adjunct faculty member at the Stanford
University School of Engineering. Mr. Turner became a director in April 1996.
SUSAN A. VLADUCHICK has been the Director of Human Development, Staffing and
Personnel Relations at DuPont since March 1995. She joined DuPont in 1969 and
has worked in research and development, human resources and manufacturing during
the course of her career. She became a director of the Company in April 1996.
4
<PAGE>
BOARD COMMITTEES
The Board has appointed from among its members two standing committees of
the Board.
The Audit Committee is composed of John L. Doyle, who serves as chairman of
the committee, Marshall C. Turner and John C. Sargent. No member of the Audit
Committee may be an employee or officer of the Company or any of its
subsidiaries. The functions of the Audit Committee include meeting with the
independent public accountants to discuss the scope and results of their
examination of the books and records of the Company and to review the internal
audit department's activities, if and when established, and to discuss the
adequacy of the Company's accounting and control systems, reviewing the audit
schedule, and considering any issues raised by its members, the independent
public accountants, the internal audit staff, the legal staff or management.
Each year the Audit Committee will recommend to the full Board the name of an
accounting firm to audit the financial statements of the Company.
The Compensation Committee is composed of Charles O. Holliday, Jr., who
serves as chairman of the committee, Gary W. Pankonien, Marshall C. Turner and
Susan A. Vladuchick. No member of the Compensation Committee may be an employee
or officer of the Company or any of its subsidiaries. The principal function of
the Compensation Committee is to review and approve the corporate organization
structure, review performance of corporate officers, establish overall employee
compensation policies and recommend to the Board major compensation programs.
The Compensation Committee also reviews and approves compensation of directors
and corporate officers, including salary, bonus awards and stock option and
restricted stock grants and administers the Company's stock performance plans
and bonus plan.
During the Company's fiscal year ended June 30, 1996, the Board held three
meetings in person or by telephone. Members of the Board are provided with
information between meetings regarding the operations of the Company and are
consulted on an informal basis with respect to pending business. Such
consultation from time to time leads to director action between meetings by
unanimous written consent of the directors, which occurred four times during
fiscal 1996. During the 1996 fiscal year, the Compensation Committee held two
meetings and the Audit Committee held no meetings. Each of the incumbent
directors who was a director during the 1996 fiscal year attended no fewer than
75% of the total number of meetings of the Board and the total number of
meetings held by all committees of the Board on which such director served
during the year.
TRANSACTIONS AND RELATIONSHIP BETWEEN THE COMPANY AND DUPONT
The Company and DuPont have entered into a number of agreements for the
purpose of defining certain past, present and prospective arrangements and
transactions between them. These agreements were negotiated in the context of a
parent-subsidiary relationship and therefore are not the result of negotiations
between independent parties. It is the intention of the Company and DuPont that
such agreements and the transactions provided for therein, taken as a whole,
should accommodate the parties' interests in a manner that is fair to both
parties, while continuing certain mutually beneficial joint arrangements.
However, because of the complexity of the various relationships between the
Company and DuPont (including their subsidiaries), there can be no assurance
that each of such agreements, or the transactions provided for therein, were
effected on terms at least as favorable to the Company as could have been
obtained from unaffiliated third parties. The Company is only entitled to the
ongoing assistance of DuPont for a limited time.
Additional or modified arrangements and transactions may be entered into by
the Company, DuPont and their respective subsidiaries in the future. Any such
future arrangements and transactions will be determined through negotiation
between the Company and DuPont or their respective subsidiaries, as the case may
be. The Company has adopted a policy that all future agreements between the
Company and DuPont and their subsidiaries will be on terms that the Company
believes are no less favorable to the Company than the terms the Company
believes would be available from unaffiliated parties. In that regard, the
Company intends to follow the procedures provided by the Delaware General
Corporation
5
<PAGE>
Law, which includes a vote to affirm any such future agreements by a majority of
the Company's directors who are not employees of DuPont (even though such
directors may be less than a quorum).
The following is a summary of certain past, present and prospective
arrangements and transactions between the Company and DuPont.
HISTORICAL TRANSACTIONS
Prior to the Realignment (as defined below), DuPont's U.S. photomask
operations were conducted by DuPont Photomasks, Inc., a Texas corporation.
European photomask operations were conducted by separate, wholly-owned
subsidiaries of DuPont in their respective countries. Photomask operations in
Korea were conducted by DuPont Korea, Ltd., which was 31% owned by DuPont
Photomasks, Inc. and 69% owned by DuPont and which also conducted DuPont's other
non-photomask business.
DuPont provided significant management functions and services, including
cash management, tax administration, accounting, legal, data processing, benefit
administration and other support services. The Company was charged and/or
allocated expenses for the years ended June 30, 1994, 1995 and 1996 of
approximately $12.5 million, $13.1 million and $7.3 million, respectively. The
costs of these services have been directly charged and/or allocated using
methods that DuPont management believed were reasonable. Such charges and
allocations are not necessarily indicative of the costs the Company would have
incurred to obtain these services had it been a separate entity. The Company has
not made a study or any attempt to obtain estimates from third parties to
determine what the cost of obtaining such services from such parties may have
been.
The Company participated in DuPont's centralized cash management system
prior to the Realignment. In general, the cash funding requirements of the
Company were met by, and all cash generated by the Company was transferred to,
DuPont. In the U.S. and France, this was accomplished under the terms of
interest-bearing loan arrangements between the Company and DuPont (collectively,
the "Master Note"). The Company borrowed funds for acquisitions, capital
expenditures and working capital from DuPont pursuant to the Master Note. The
interest rate charged was equal to the rate DuPont paid for its commercial paper
borrowings.
REALIGNMENT OF PHOTOMASK BUSINESS
In connection with the consummation of the initial public offering of the
Company's Common Stock (the "Offering"), which occurred on June 13, 1996 (the
"Offering Date"), DuPont realigned its global photomask business, pursuant to
which certain transactions were undertaken so that DuPont's foreign photomask
operations would reside in subsidiaries wholly owned by the Company (the
"Realignment"). The Company was reincorporated in Delaware on December 31, 1995.
On May 14, 1996, the Company issued one million shares of Common Stock to DCEO
for a nominal amount.
On November 9, 1995, the Company incorporated a new subsidiary in Delaware,
DuPont Photomasks Delaware, Inc. ("Photomasks Delaware") and as of March 29,
1996, the Company had contributed approximately $37 million to Photomasks
Delaware. Photomasks Delaware used such contribution to make loans to Photomasks
Korea, Photomasks Germany and Photomasks France (each, as defined below) in
order to complete the Realignment. In addition, the amounts owed to DuPont by
the Company under the Master Note were consolidated on February 22, 1996. Of the
proceeds from the Offering, $67 million was used to repay the Master Note. The
remaining balance under the Master Note was contributed as equity capital to the
Company by DCEO.
On August 31, 1995, the Company incorporated a new wholly owned subsidiary
in Korea, DuPont Photomasks Korea, Ltd. ("Photomasks Korea"), and on January 30,
1996, DuPont Korea, Ltd. transferred all of its assets (except for cash)
relating to the photomask business to Photomasks Korea for approximately $37
million, which was based upon an appraisal conducted by an independent third
party. In
6
<PAGE>
addition to the transfer of the assets related to the photomask business in
Korea, Photomasks Korea also assumed all of the liabilities relating to the
photomask business, including trade payables, any liabilities relating to
photomask product warranties, and any employee related liabilities or other
claims with regard to employees transferred by DuPont Korea, Ltd. to Photomasks
Korea. While the manufacturing operations and the title to approximately 75% of
the real property at the Korean manufacturing facility has been transferred to
Photomasks Korea, certain real property at this manufacturing site that is not
used for manufacturing purposes has yet to be transferred pending local
government review. On May 31, 1996, the Company sold its 31% equity interest in
DuPont Korea, Ltd. to DuPont for $26.6 million. The proceeds from the sale were
principally used to reduce the balance under the Master Note.
On January 4, 1996, DuPont purchased all the outstanding shares of DuPont
Photomasks (France) S.A. ("Photomasks France") from DuPont de Nemours (France)
S.A. for 81 million FFr (approximately $16.2 million), which was based on an
appraisal by an independent third party. On January 11, 1996, DuPont contributed
such shares to DCEO, and on January 15, 1996, DCEO contributed such shares to
the Company.
In Germany, DuPont's photomask business had been operated through DuPont
Photomasks GmbH & Co. KG ("Photomasks KG") by DuPont de Nemours (Deutschland)
GmbH ("DuPont Germany") and DuPont Photomasks Verwaltungs GmbH ("Photomasks
Germany"). On December 18, 1995, Photomasks KG distributed DM 4.3 million
(approximately $2.95 million) to DuPont Germany. On March 29, 1996, Photomasks
KG distributed DM 6.4 million (approximately $4.3 million) to DuPont Germany,
and Photomasks Delaware and the Company loaned DM 30.2 million (approximately
$20.3 million) to Photomasks KG. On April 1, 1996, Photomasks KG redeemed the
equity interest in Photomasks KG held by DuPont Germany for DM 30.2 million.
Pursuant to German law, all of the assets and liabilities of Photomasks KG were
assumed by Photomasks Germany. On April 4, 1996, DCEO contributed all of the
outstanding shares of Photomasks Germany to the Company. In April 1996, DM 7.5
million (approximately $5.2 million) of the Company's loan was converted into
equity.
On February 8, 1996, DuPont purchased a 60.5% equity interest in DuPont
Photomasks Company Limited, Shanghai ("Photomasks China") from DuPont China
Holding Company Limited ("DuPont China") for RMB 11.8 million (approximately
$1.4 million). On February 8, 1996, DuPont contributed such equity interest to
DCEO, and DCEO contributed such equity interest to the Company. In connection
with this equity contribution, the Company agreed to guarantee for the benefit
of DuPont all amounts payable in the future by DuPont pursuant to a previous
guarantee DuPont made on behalf of Photomasks China for up to $4.6 million plus
interest and expenses.
On August 28, 1995, DCEO contributed 50,000 shares of Etec Systems Inc.
("Etec") preferred stock to the Company. Etec is a leading supplier of photomask
equipment to the Company. The Etec preferred stock, by its terms, has been
converted into 1,025,640 shares of Etec common stock. As of June 30, 1996, the
value of the Company's investment in the Etec common stock was approximately
$22.8 million, based upon the closing sales price of the Etec common stock on
the Nasdaq National Market on June 28, 1996.
ADMINISTRATIVE SERVICES AGREEMENTS
The Company and its subsidiaries, on the one hand, and DuPont and certain
DuPont subsidiaries, on the other hand, have entered into several transitional
administrative services agreements, each effective as of January 1, 1996
(collectively, the "Administrative Services Agreements"), pursuant to which
DuPont will continue to provide various services to the Company, including cash
management, accounting, computer and information systems, telecommunications and
employee benefits administration.
Each service under the Administrative Services Agreements is provided for a
specified time period, ranging from one to two years. However, the Company and
its subsidiaries may terminate any or all services that it receives under an
Administrative Services Agreement at any time upon 45 days prior written notice.
Each Administrative Services Agreement shall terminate upon the later of (i)
January 1,
7
<PAGE>
1998 or (ii) the date upon which DuPont owns less than 50% of the outstanding
Common Stock of the Company. As long as DuPont owns at least 50% of the
outstanding Common Stock of the Company, the Company or its subsidiaries, as the
case may be, may unilaterally extend the period during which DuPont provides any
service for an additional twelve months by providing DuPont at least 45 days
prior written notice. The Company and its subsidiaries are obligated to take all
steps necessary to obtain their own administrative and support services prior to
the termination of the Administrative Services Agreements.
The Company and its subsidiaries will be obligated to pay fees established
in the Administrative Services Agreements based upon the type and amount of
services rendered. It is estimated that DuPont will charge an annual fee of
approximately $5 million for all of the services that it will provide under the
Administrative Services Agreements. In addition, the Company and its
subsidiaries will reimburse DuPont for any out-of-pocket expenses it incurs in
connection with providing the services. The Company paid DuPont $1.7 million for
services provided under the Administrative Services Agreements in fiscal 1996.
With the exception of the Administrative Services Agreement entered into by the
respective subsidiaries of DuPont and the Company in Korea, in the absence of
gross negligence or willful or reckless misconduct, DuPont's liability for
damages to the Company for any breach of DuPont's obligations under the
Administrative Services Agreements is limited to payments made to DuPont
thereunder. With respect to the Administrative Services Agreement covering the
operations in Korea, DuPont's subsidiary is not required to provide any
guarantee or warranty of any nature and cannot be held liable for any claims,
damages or liabilities of any kind resulting from the furnishing of the services
thereunder.
RESEARCH, DEVELOPMENT AND CONSULTING AGREEMENT
The Company and DuPont have entered into a research, development and
consulting agreement (the "Research, Development and Consulting Agreement")
dated as of January 1, 1996, whereby DuPont will provide to the Company
supplemental technical assistance and consulting with respect to: (i) analytical
support and consulting on an as needed basis ("Analytical Support"), and (ii)
research projects addressing specific Company needs ("Research Project
Support"). In exchange for the Analytical Support, the Company will pay DuPont
$100,000 per calendar year. In the event the costs of these services are
estimated to exceed $100,000, the Company can either agree to pay additional
projected costs or elect not to have DuPont provide these additional services.
Compensation for Research Project Support will be determined at the time each
specific project relating thereto is undertaken. The term of the Research,
Development and Consulting Agreement is five years and shall continue on a year
to year basis thereafter until terminated by either DuPont or the Company
pursuant to certain procedures set forth in the Research, Development and
Consulting Agreement.
TAX INDEMNIFICATION AGREEMENT
The Company, DuPont and DCEO have entered into a tax indemnification
agreement (the "Tax Indemnification Agreement") dated as of May 14, 1996,
pursuant to which the Company will pay DuPont, or DuPont will pay the Company,
as appropriate, amounts in respect of taxes shown as due attributable to the
operations of the Company in DuPont's consolidated federal income tax return for
the period ending on the date on which the Company ceases to be a member of the
DuPont consolidated group. DuPont and DCEO, jointly and severally, will
indemnify the Company and its subsidiaries from liability for certain matters
(net of corresponding tax benefits), including (i) any federal, state or local
income or other taxes attributable to any affiliated or combined group of which
the Company was a member at any time prior to the Offering Date and (ii) any
federal, state or local income or other tax for any period up to and including
the Offering Date. The Company will indemnify DuPont and its subsidiaries from
liability for certain matters, including any federal, state or local income or
other taxes attributable to the operations of the Company following the Offering
Date. In connection with the Company's sale of its 31% equity interest in DuPont
Korea, Ltd. to DuPont, to the extent there is a loss, any tax benefit
attributable to such loss will be for DuPont's benefit at such time as DuPont's
beneficial ownership of the Company falls below 50%.
8
<PAGE>
The Tax Indemnification Agreement will require payments of claims to be made
within 30 days of the date a written demand for the claim is delivered. Interest
accrues on payments that are not made within 10 days of the final due date at
the rate applicable to the underpayments of the applicable tax. Any disputes
concerning the calculation or basis of determination of any payment provided
under the Tax Indemnification Agreement will be resolved by a law firm or a "big
six" accounting firm selected jointly by the parties.
ENVIRONMENTAL INDEMNIFICATION AGREEMENT
The Company and DuPont have entered into an environmental indemnification
agreement (the "Environmental Indemnification Agreement") dated as of April 30,
1996, pursuant to which DuPont will generally indemnify the Company against
substantially all liabilities relating to any environmental contamination
present on the manufacturing sites of the Company and its subsidiaries as of the
Offering Date or present on any other site as a result of the manufacturing
operations of the Company and its subsidiaries prior to the Offering Date.
In the event that the parties cannot determine with reasonable certainty,
following good faith negotiations, whether the contamination was caused by
activities occurring before or after the Offering Date, the Environmental
Indemnification Agreement provides for a mechanism whereby the liability
associated with any such claim is allocated according to the following: DuPont
bears 100% of the liability associated with claims filed by the Company with
regard to such contamination prior to the first anniversary of the Offering
Date; DuPont's liability for claims filed following the first anniversary of the
Offering Date declines at the rate of 20% per year; and DuPont has no liability
for such claims filed following the fifth anniversary of the Offering Date.
The Environmental Indemnification Agreement includes procedures for notice
and payment of indemnification claims and generally provides that the party
bearing the majority of the liability will assume the defense of such claim and
will control any negotiation or remediation activities.
CREDIT FACILITY
The Company and DCEO have entered into a credit agreement effective as of
January 1, 1996 (the "Credit Agreement"), pursuant to which DCEO provides a
revolving credit facility (the "Credit Facility") to the Company in an aggregate
amount of up to $30 million. The Credit Facility has a term of 24 months, and
any loans thereunder will bear interest at the six-month London Interbank
Offered Rate (LIBOR) plus 50 basis points, adjusted every six months. The
amounts loaned under the Credit Agreement are secured by all the Company's (i)
equipment, (ii) accounts receivable, (iii) instruments, documents and securities
owned by the Company and in the possession of DCEO, and (iv) the proceeds of the
foregoing. The Credit Facility can provide financing for capital spending,
general corporate purposes and ongoing working capital needs.
The Credit Agreement contains various representations, covenants and events
of default typical for financings of a similar size and nature. In addition to
restrictive covenants limiting the ability of the Company and its subsidiaries
to enter into leases and pledge its assets, the Credit Agreement contains the
following restrictive covenants. Without DCEO's prior written consent, the
Company will not incur, create, assume or permit to exist any indebtedness,
including guarantees on indebtedness (in addition to the indebtedness under the
Credit Facility), in excess of $30 million in the aggregate. In addition,
without DCEO's prior written consent, which may not be unreasonably withheld,
the Company may not (i) change its capital structure, (ii) merge or consolidate
with any corporation, (iii) amend or change its charter or bylaws or (iv) sell,
transfer or otherwise dispose of all or any substantial part of its assets,
whether now owned or hereafter acquired, except for sales of inventory in the
ordinary course of business.
9
<PAGE>
CORPORATE TRADENAME AND TRADEMARK AGREEMENT
The Company and DuPont have entered into a corporate tradename and trademark
agreement (the "Corporate Tradename Agreement") dated as of May 16, 1996,
whereby DuPont licenses to the Company (i) use of the tradename "DuPont" as part
of the Company's name and (ii) use of the trademark DuPont in Oval as part of
the Company's corporate logotype. DuPont may terminate the Corporate Tradename
Agreement upon 90 days written notice in the event that (i) DuPont and/or its
affiliates cease to hold 51% of the total outstanding Common Stock of the
Company, (ii) the Company purports to assign or otherwise transfer the Corporate
Tradename Agreement without DuPont's written consent, or (iii) the Company uses
the tradename "DuPont" other than under the terms of the Corporate Tradename
Agreement. In addition, DuPont may terminate the Corporate Tradename Agreement
upon 90 days written notice for any reason after January 1, 2000. Upon
termination of the Corporate Tradename Agreement, the Company will be obligated
to: (i) change its name so that the tradename "DuPont" is omitted therefrom;
(ii) cease to use the tradename "DuPont" or any similar tradename as part of its
corporate name or in any other manner whatsoever; and (iii) cease to use the
DuPont in Oval trademark.
DISTRIBUTOR AGREEMENTS
The Company has entered into separate distributor agreements, each effective
as of January 1, 1996 (the "Distributor Agreements") with DuPont K.K., a
Japanese subsidiary of DuPont, and DuPont Taiwan Limited, a Taiwanese subsidiary
of DuPont (collectively, the "Distributors"). Pursuant to the Distributor
Agreements, the Company has appointed the Distributors to sell the Company's
products in their respective countries. The products will be sold to the
Distributors at a discount, which shall permit the Distributors to earn a
pre-tax profit between 2% and 4%. The Distributor Agreements have a term of two
years but may be terminated without cause upon six months' prior written notice.
COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT
Under Section 16(a) of the Securities Exchange Act of 1934, directors,
certain officers, and beneficial owners of 10% or more of the Company's Common
Stock are required from time to time to file with the Securities and Exchange
Commission reports on Forms 3, 4 or 5, relating principally to transactions in
Company securities by such persons. Based solely upon a review of Forms 3 and 4
and amendments thereto furnished to the Company during its fiscal year 1996 and
thereafter, Forms 5 and amendments thereto furnished to the Company with respect
to its fiscal year 1996, and any written representations received by the Company
from a director, officer or beneficial owner of more than 10% of the Common
Stock ("reporting persons") that no Form 5 is required, the Company believes
that all reporting persons filed on a timely basis the reports required by
Section 16(a) of the Securities Exchange Act of 1934 during the Company's fiscal
year 1996.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Compensation Committee is composed of Charles O. Holliday, Jr., who
serves as chairman of the Compensation Committee, Gary W. Pankonien, Marshall C.
Turner and Susan A. Vladuchick. No member of the Compensation Committee is an
employee or officer of the Company or any of its subsidiaries. However, Mr.
Holliday is a member of the Office of the Chief Executive of DuPont and is an
Executive Vice President of DuPont, and Ms. Vladuchick is the Director of Human
Development, Staffing and Personnel Relations at DuPont.
COMPENSATION COMMITTEE REPORT
The Compensation Committee is responsible for reviewing and approving the
corporate organization structure, reviewing performance of corporate officers,
establishing overall employee compensation policies and recommending to the
Board major compensation programs. The Compensation Committee also reviews and
approves compensation of directors and corporate officers, including salary,
bonus awards and
10
<PAGE>
stock option and restricted stock grants, and administers the Company's stock
performance plans and bonus plan. Prior to the Offering, the functions of the
Compensation Committee were performed by DuPont.
The Company has designed an executive compensation program intended to
attract and motivate officers and key employees of the Company. The Company
believes that executive compensation should be tied to the Company's long term
performance and benefit to its stockholders. As such, a significant portion of
executive management's compensation is tied to the performance of the Company's
long term total stockholder return. Prior to the Offering, the Company adopted
various compensation plans to be administered by the Compensation Committee. The
Company is now reviewing, and expects to review periodically, its compensation
programs in comparison with similarly situated companies to assure that the
Company's compensation programs are competitive within the industry and carry
out the objectives of the Company.
BASE SALARY
At May 1, 1996, the base salaries for Messrs. Hardinger, Adcox, Cognie, Gino
and Rygler were increased to $290,000, $225,000, 910,000 FFr (approximately
$180,000), $145,000 and $168,000, respectively. These increases reflected the
increased responsibility of these executive officers related to the then
anticipated initial public offering.
BONUS PLAN
The Company adopted, effective January 1, 1996, an annual incentive plan
(the "Bonus Plan") for officers and employees of the Company and its
subsidiaries. Employees are selected by the Compensation Committee to
participate in the Bonus Plan based upon the recommendation of the Chairman of
the Board. The Bonus Plan provides for target bonus grants to be established
based on the position of the employee and to be computed as a percentage of the
employee's salary. The Bonus Plan provides that a performance goal based
primarily on the Company's earnings and cash flow will be set by the Board, and
the amount of bonus will be calculated based on the employee's target bonus
grant, the performance of the Company compared with the performance goal and
individual contributions by the employee.
The Company was a wholly owned subsidiary of DuPont until June 13, 1996.
While the Company's fiscal year ended on June 30, 1996, DuPont pays salary and
awards bonuses on a calendar year basis. The Company's executive officers were
awarded bonuses by DuPont for the 1995 calendar year. Because the Company was a
wholly owned subsidiary of DuPont for substantially the entire 1996 fiscal year,
the Board elected to award bonuses for 1996 based upon performance goals
established under DuPont's bonus plan. The Chairman of the Board recommended to
the Compensation Committee that bonuses be awarded to executive officers other
than Messrs. Hardinger and Adcox for the last two quarters of the 1996 fiscal
year based on profit objectives established for the Company while it was a
wholly owned subsidiary of DuPont. The Compensation Committee determined that
this method recognized the Company's performance while it was a wholly owned
subsidiary of DuPont. The Compensation Committee authorized the Chairman of the
Board to award bonuses to executive officers other than Messrs. Hardinger and
Adcox using this method. Using this same method, the Compensation Committee
recommended, and the Board approved, a bonus of $135,000 for Mr. Hardinger for
the last two quarters of fiscal 1996. The Compensation Committee also approved a
bonus of $100,000 to Mr. Adcox based upon his substantial contribution to the
performance of the Company.
STOCK PERFORMANCE PLAN
Effective on the Offering Date, the Company adopted a Stock Performance Plan
to provide additional incentive to those officers and employees of the Company
and its subsidiaries primarily responsible for the success of the Company and to
closely identify their interests with those of the stockholders. Under the Stock
Performance Plan, grants of stock options, restricted stock or combinations of
the two may be
11
<PAGE>
awarded to employees (including those who are directors of the Company) and to
individuals performing services for the Company on a consulting basis. The
aggregate number of shares of stock of the Company which may be made subject to
option or restriction under the Stock Performance Plan may not exceed 2,000,000
shares of which only 300,000 shares may be subject to restricted stock grants.
Grantees of restricted stock have the right to dividends (unless otherwise
restricted).
The Stock Performance Plan is administered by the Compensation Committee,
which determines the timing and size of stock option or restricted stock grants,
the individuals, if any, who receive grants and the terms and conditions of such
grants. In certain circumstances, the Compensation Committee may establish
conditions under which the Company may elect to make a cash payment to an
employee exercising an option equal to the difference between the option price
and the fair market value of the stock in lieu of executing the option. Under
the terms of the Stock Performance Plan, no more than 25% of the total number of
shares of stock granted under option may become exercisable in any given year
following the grant. Restrictions on restricted stock granted under the Stock
Performance Plan may not lapse before the second anniversary of the date of
grant. Grants to individuals who are not members of the Board may be made by the
Compensation Committee based on the recommendations of the Chairman of the
Board. Grants to eligible members of the Board are based on the recommendation
of the Compensation Committee.
The Compensation Committee granted, effective as of the Offering Date, stock
options to purchase a total of 953,784 shares at an exercise price of $17.00 per
share, the Offering price, to approximately 1,225 employees of the Company,
including Messrs. Hardinger, Adcox, Cognie, Gino and Rygler. The Compensation
Committee also granted, effective as of the Offering Date, a total of 94,913
shares of restricted stock to approximately 40 employees of the Company
including Messrs. Hardinger, Adcox, Cognie, Gino and Rygler. The grants
discussed above were intended to represent compensation expected to be paid to
such executive officers under the Stock Performance Plan during the two years
following the Offering Date. The Compensation Committee expects to review stock
option grants and restricted stock grants as part of its periodic review of the
Company's compensation program.
COMPENSATION OF CHIEF EXECUTIVE OFFICER
As discussed below under "Employment Contracts," DuPont entered into an
agreement with Mr. Hardinger, dated as of September 21, 1995, whereby he agreed
to serve as the Chairman of the Board and Chief Executive Officer of the Company
in exchange for a specific compensation package. The compensation paid to Mr.
Hardinger for fiscal 1996 was in accordance with the terms of this agreement.
Any future increases in salary or discretionary bonuses will be determined in
accordance with the Company's executive compensation program, based upon Mr.
Hardinger's performance and comparisons with executive compensation at
appropriate companies.
COMPENSATION COMMITTEE
Charles O. Holliday, Jr., Chairman
Gary W. Pankonien
Marshall C. Turner
Susan A. Vladuchick
12
<PAGE>
EXECUTIVE COMPENSATION AND OTHER INFORMATION
SUMMARY COMPENSATION TABLE
The following table sets forth for the fiscal years ended June 30, 1995 and
1996 the compensation paid to the Company's chief executive officer and the four
other most highly compensated executive officers (the "Named Officers") for the
fiscal year ended June 30, 1996.
<TABLE>
<CAPTION>
LONG-TERM COMPENSATION AWARDS
------------------------------
ANNUAL COMPENSATION (1) RESTRICTED SECURITIES
--------------------------------- STOCK UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS (2) AWARDS ($)(3) OPTIONS (#)(4) COMPENSATION (5)
- ----------------------------------- --------- --------- ----------- ------------- --------------- -------------------
<S> <C> <C> <C> <C> <C> <C>
J. Michael Hardinger............... 1996 $ 218,350 $ 218,500 $ 242,000 145,841 $ 6,573
Chairman and CEO 1995 194,000 157,000 -- 8,000 5,824
Preston M. Adcox................... 1996 170,350 143,550 150,000 88,488 5,115
President and COO 1995 152,920 66,000 -- 3,250 4,579
Gerard Cognie (6).................. 1996 161,091 65,733 60,800 29,644 --
EVP--European Operations 1995 156,573 42,933 -- 800 13,315
David S. Gino...................... 1996 121,783 69,300 48,330 35,547 3,651
EVP--Finance and CFO 1995 106,750 36,900 -- 800 5,262
Kenneth A. Rygler.................. 1996 134,500 73,900 56,000 35,547 3,945
EVP--Marketing and Sales 1995 122,750 47,050 -- 1,700 3,685
</TABLE>
- ------------------------------
(1) Represents compensation earned by the Named Officers for the fiscal year.
Prior to the Offering, compensation was paid to Named Officers by DuPont.
While the Company's fiscal year ends on June 30, DuPont pays salary and
awards bonuses on a calendar year basis. For purposes of this table, total
compensation paid by DuPont has been allocated ratably over the 1995 and
1996 fiscal years, regardless of when actually paid. Bonus amounts for
fiscal year 1996 also include bonuses paid by the Company for the last two
quarters of fiscal 1996.
(2) Of the bonuses paid by DuPont in 1995 and 1996, approximately 25% were paid
in the form of unrestricted shares of DuPont common stock.
(3) Represents the fair market value of the restricted stock at date of grant.
Dividends, if any, will be paid on the restricted stock. All shares of
restricted stock were granted effective June 13, 1996, and will vest in full
on June 13, 1998. The number and value of the aggregate restricted shares
held as of June 30, 1996 for the Named Officers are as follows:
<TABLE>
<CAPTION>
RESTRICTED
NAMED OFFICER STOCK VALUE
- ------------------------------------------------------------ --------------- -----------
<S> <C> <C>
J. Michael Hardinger........................................ 14,236 $ 291,838
Preston M. Adcox............................................ 8,824 180,892
Gerard Cognie............................................... 3,577 73,329
David S. Gino............................................... 2,843 58,282
Kenneth A. Rygler........................................... 3,295 67,548
</TABLE>
(4) Amounts indicated for fiscal 1995 relate to options to purchase shares of
DuPont's common stock granted by DuPont during that fiscal year. Amounts
indicated for fiscal 1996 relate to options to purchase shares of Common
Stock granted by the Company during that year.
(5) Represents matching contributions made by DuPont pursuant to DuPont's
savings and thrift plan.
(6) Mr. Cognie is paid in French Francs. The figures shown were calculated using
the International Monetary Fund average exchange rate for 1996 of 5.1695
Francs to the dollar and an exchange rate for 1995 of 4.9915 Francs to the
dollar.
13
<PAGE>
INFORMATION REGARDING DUPONT STOCK OPTIONS
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUES
The following table sets forth information regarding the exercisable and
unexercisable options to acquire DuPont common stock granted to the Named
Officers.
<TABLE>
<CAPTION>
VALUE OF IN-THE-MONEY
NUMBER OF UNEXERCISED UNEXERCISED OPTIONS
SHARES OPTIONS AT YEAR-END AT JUNE 30, 1996 (1)
ACQUIRED ON VALUE -------------------------------------- ---------------------------------
NAME EXERCISE (#) REALIZED ($) EXERCISABLE (#) UNEXERCISABLE (#) EXERCISABLE ($) UNEXERCISABLE ($)
- --------------------- ------------- ----------- ----------------- ------------------- -------------- -----------------
<S> <C> <C> <C> <C> <C> <C>
J. Michael
Hardinger.......... 10,197 $ 498,755 32,353 -- $1,011,965 --
Preston M. Adcox..... -- -- 17,100 -- 561,864 --
Gerard Cognie........ -- -- 1,000 -- 25,201 --
David S. Gino........ -- -- 1,500 -- 38,514 --
Kenneth A. Rygler.... -- -- 5,620 -- 161,634 --
</TABLE>
- ------------------------------
(1) The closing price per share of DuPont common stock on June 30, 1996 was
$79.125.
None of the Named Officers received any options to purchase shares of
DuPont's common stock in fiscal 1996.
None of the Named Officers have received any stock appreciation rights from
DuPont.
INFORMATION REGARDING COMPANY STOCK OPTIONS
OPTION GRANTS IN LAST FISCAL YEAR
The following table sets forth information regarding options to purchase
shares of Common Stock granted to the Named Officers during fiscal 1996.
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
VALUE AT
ASSUMED ANNUAL
RATES OF
INDIVIDUAL GRANTS STOCK PRICE
----------------------- APPRECIATION
% OF TOTAL OPTIONS EXERCISE FOR OPTION TERM
OPTIONS GRANTED TO COMPANY PRICE EXPIRATION --------------------
NAME GRANTED (#)(1) EMPLOYEES FOR 1995 ($/SH) (3) DATE 5% 10%
- ----------------------------- --------------- ----------------------- ----------- ----------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
J. Michael Hardinger......... 145,841 15.3% $ 17.00 6/13/2006 $1,559,040 $3,950,833
Preston M. Adcox............. 88,488 9.3% 17.00 6/13/2006 945,937 2,397,140
Gerard Cognie................ 29,664 3.1% 17.00 6/13/2006 317,108 803,598
David S. Gino................ 35,547 3.7% 17.00 6/13/2006 379,997 962,968
Kenneth A. Rygler............ 35,547 3.7% 17.00 6/13/2006 379,997 962,968
</TABLE>
- ------------------------------
(1) Includes options to purchase 252 shares of Common Stock granted pursuant to
the Founders Stock Option Plan. Stock options become exercisable over a four
year period at the rate of 25% per year, exercisable twelve months after
their date of grant. All of these options were granted on the Option Date
and have a term of ten years.
(2) The exercise price is the offering price per share of the Common Stock in
the Offering.
The Company has not granted any stock appreciation rights.
14
<PAGE>
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUES
The following table sets forth information regarding the exercisable and
unexercisable options to acquire Common Stock granted to the Named Officers.
<TABLE>
<CAPTION>
VALUE OF IN-THE-MONEY
NUMBER OF UNEXERCISED UNEXERCISED OPTIONS
OPTIONS AT YEAR-END AT JUNE 30, 1996 (1)
-------------------------------- --------------------------------
NAME EXERCISABLE (#) UNEXERCISABLE (#) EXERCISABLE ($) UNEXERCISABLE ($)
- ---------------------------------- -------------- ---------------- -------------- ----------------
<S> <C> <C> <C> <C>
J. Michael Hardinger.............. -- 145,841 -- $ 510,444
Preston M. Adcox.................. -- 88,488 -- 309,708
Gerard Cognie..................... -- 29,644 -- 103,824
David S. Gino..................... -- 35,547 -- 124,415
Kenneth A. Rygler................. -- 35,547 -- 124,415
</TABLE>
- ------------------------
(1) The closing price per share of the Common Stock on June 30, 1996 was $20.50.
No Named Officer exercised options to purchase Common Stock in fiscal 1996.
LONG-TERM INCENTIVE PROGRAM
The Company has no long-term incentive programs.
PENSION PLAN
The Company had no defined benefit or actuarial plan for the fiscal year
ended June 30, 1996. However, each of the Named Officers have been credited with
years of service under the DuPont Pension Plan. Their participation ended on the
Offering Date. Upon termination, they received either a reduced pension
immediately or a full pension at a deferred date.
DIRECTOR COMPENSATION
Directors who are officers of the Company receive no additional compensation
for serving on the Board. All other directors who are not affiliated with DuPont
will receive an annual fee of $20,000.
NON-EMPLOYEE DIRECTORS' STOCK OPTION PLAN
The purpose of the Non-Employee Directors' Stock Option Plan (the
"Directors' Plan") is to allow the Company to recruit and retain qualified
outside directors to serve on the Board. Under the Directors' Plan, each
director who was not an employee of the Company or any of its subsidiaries (and
who is not precluded by his or her employer from receiving such grant) received
a one-time grant of options to purchase 10,000 shares of Common Stock upon the
later of first joining the Board or the Offering Date. Thereafter, each
non-employee director will receive, during his or her tenure as a director, an
annual grant of options covering 3,000 shares as of the first day of the month
following the annual meeting of stockholders of the Company. Directors who are
first elected to the Board within the 60 day period immediately preceding an
annual meeting of stockholders and who at the time of their election received
the one-time grant of options to purchase 10,000 shares described above, will
not, under the terms of the Directors' Plan, receive an additional grant of
3,000 shares as of the first of the month following such annual meeting. Upon
exercise of an option, payments of the purchase price for the stock subject to
the exercise will be made in cash. Under the terms of the Directors' Plan, no
more than 25% of the total number of shares of stock granted under option may
become exercisable in any given year following the grant. Currently, 250,000
shares have been reserved for issuance under the Directors' Plan. Each of John
L. Doyle, Gary W. Pankonien and Marshall C. Turner were granted options to
purchase 10,000 shares of Common Stock under the Directors' Plan effective upon
the Offering Date at an exercise price of $17.00, the price of the Common Stock
in the Offering. Stock options granted under the Directors' Plan
15
<PAGE>
will be exercisable at a price per share equal to the average of the high and
low sale prices of the Common Stock, as quoted on the Nasdaq National Market, on
the date of the grant.
EMPLOYMENT CONTRACTS
DuPont entered into an agreement with Mr. Hardinger, effective on the
Offering Date, whereby he agreed to serve as the Chairman of the Board and Chief
Executive Officer of the Company. The agreement provides Mr. Hardinger with (i)
a minimum annual base salary of at least $290,000, and (ii) a restricted stock
grant of Common Stock valued at ten months' base salary at the Offering Date and
$2,475,000 of stock options priced at $17.00 per share, the Offering price, both
pursuant to the Company's Stock Performance Plan described above. The options
and restricted stock would vest immediately in the event of termination of Mr.
Hardinger without cause or his death. As of September 17, 1996, Mr. Hardinger
had not yet received the shares of restricted stock.
In the event of termination without cause prior to the second anniversary of
the Offering Date, Mr. Hardinger would receive from DuPont the equivalent of
three years' base salary to the extent not paid by the Company. In the event of
termination without cause thereafter, Mr. Hardinger would receive from DuPont a
payment equal to one and one half years' base salary to the extent not paid by
the Company.
In addition, the other Named Officers and certain other senior management
employees would receive from DuPont in the event of termination without cause
within two years of the Offering Date the equivalent of two years' salary and
target bonus. The Company has no change-in-control arrangements with any of its
executive officers.
PERFORMANCE GRAPH
The graph set forth below compares the cumulative total return as of the end
of the Company's most recent fiscal year on $100 invested in the Common Stock of
the Company, the Nasdaq Composite Index and an industry peer group on June 14,
1996, the first trading date, assuming the reinvestment of all dividends. The
industry peer group used includes the following issuers: AlignRite
International, Inc. (Nasdaq--MASK); Electroglas, Inc. (Nasdaq--EGLS); Etec
(Nasdaq--ETEC); KLA Instruments Corporation (Nasdaq--KLAC); Novellus Systems,
Inc. (Nasdaq--NVLS); Photronics, Inc. (Nasdaq--PLAB); Tencor Instruments, Inc.
(Nasdaq--TNCR); and Ultratech Stepper, Inc. (Nasdaq--UTEK). Because the Common
Stock was publicly traded for only seventeen days prior to the end of fiscal
1996, the stock performance set forth below is not necessarily indicative of
future price performance.
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
DPI NASDAQ COMPOSITE INDEX INDUSTRY PEER GROUP
<S> <C> <C> <C>
6/14/96 $100.00 $100.00 $100.00
6/30/96 $120.59 $96.69 $83.24
</TABLE>
16
<PAGE>
RATIFICATION OF SELECTION OF INDEPENDENT ACCOUNTANTS
(PROPOSAL 2)
The Bylaws of the Company provide that it shall be the duty of the Audit
Committee to employ, subject to stockholder ratification at each annual meeting,
independent accountants to audit the books of account, accounting procedures and
financial statements of the Company for the fiscal year and to perform such
other duties as prescribed from time to time by the Audit Committee. DCEO, as
sole stockholder of the Company prior to the Offering, ratified the appointment
of Price Waterhouse LLP ("Price Waterhouse") to perform the functions assigned
to it in accordance with the Bylaws.
Price Waterhouse has served as independent accountants of DuPont
continuously since 1954. During 1996, Price Waterhouse audited the Company's
annual consolidated financial statements, reviewed financial information in
filings with the Securities and Exchange Commission, including those related to
the Offering, and provided various other services.
Subject to ratification by the holders of the Common Stock, the Audit
Committee has retained Price Waterhouse as independent accountants to perform
the examination of the Company's financial statements for the fiscal year ending
June 30, 1997 and to render other services required of them.
Representatives of Price Waterhouse are expected to be present at the Annual
Meeting on October 28, 1996, with the opportunity to make a statement if they
desire to do so. Such representatives are also expected to be available to
respond to appropriate questions.
BOARD RECOMMENDATION
The Board believes that the ratification of Price Waterhouse as independent
accountants of the Company is in the best interest of the Company and its
stockholders. The Board therefore recommends that you vote FOR such ratification
and it is intended that the proxies not marked to the contrary will be so voted.
The affirmative vote of a majority of the shares represented and entitled to
vote at the Annual Meeting is required for the ratification of the selection of
Price Waterhouse as independent accountants of the Company.
OTHER BUSINESS
Management knows of no business to be brought before the meeting other than
the election of directors. If any other proposals come before the meeting, it is
intended that the shares represented by proxies shall be voted in accordance
with the judgment of the person or persons exercising the authority conferred by
the proxies.
STOCKHOLDER PROPOSALS
Proposals by stockholders intended to be presented at the 1997 Annual
Meeting of Stockholders must be received by the Company on or before May 27,
1997, to be included in the Proxy Statement and proxy for that meeting. The
mailing address of the Company for submission of any such proposal is given on
the first page of this Proxy Statement.
IT IS IMPORTANT THAT PROXIES BE RETURNED PROMPTLY. THEREFORE, STOCKHOLDERS
ARE REQUESTED TO SIGN, DATE AND RETURN THE PROXY CARD AS SOON AS POSSIBLE,
WHETHER OR NOT THEY EXPECT TO ATTEND THE 1996 ANNUAL MEETING IN PERSON.
By Order of the Board of Directors
VAN H. LEICHLITER
Van H. Leichliter,
Secretary
September 26, 1996.
17
<PAGE>
DUPONT PHOTOMASKS, INC.
PROXY FOR ANNUAL MEETING OF STOCKHOLDERS OCTOBER 28, 1996
The undersigned hereby appoints David S. Gino and Van H. Leichliter, or any
one or more of them, with full power of substitution, the attorneys and proxies
to the undersigned to vote the shares of common stock of DuPont Photomasks,
Inc., a Delaware corporation (the "Company"), held of record by the undersigned
at the close of business on September 17, 1996, at the annual meeting of
stockholders of the Company to be held in the San Jacinto East Room of the Four
Seasons Hotel, 98 San Jacinto Blvd., Austin, Texas 78701, on Monday, October
28, 1996 at 10:00 a.m. Austin time, and at any adjournment thereof, as follows:
(1) Election of directors
FOR all nominees listed below WITHHOLD VOTE
(except as marked to the contrary) to vote for all nominees
listed below.
-- --
NOMINEES: J. Michael Hardinger, John L. Doyle, John C. Hodgson, Charles O.
Holliday, Jr., Peter G. Kehoe, Gary W. Pankonien, John C. Sargent, Marshall
C. Turner, and Susan A. Vladuchick.
(Instructions: To withhold authority to vote for any individual nominee, write
that nominee's name on the following line.)
- --------------------------------------------------------------------------------
(2) Ratification of Price Waterhouse LLP as independent accountants
FOR AGAINST ABSTAIN
-- -- --
(3) As such proxies may in their discretion determine upon such other matters
as may properly come before the meeting.
FOR AGAINST
-- --
THE BOARD OF DIRECTORS RECOMMENDS THAT THE STOCKHOLDERS VOTE FOR THE ELECTION OF
THE PERSONS SET FORTH ABOVE AS DIRECTORS AND THE OTHER PROPOSALS.
THIS PROXY SHALL BE VOTED IN ACCORDANCE WITH THE INSTRUCTIONS GIVEN, AND IN THE
ABSENCE OF SUCH INSTRUCTIONS, THE PROXIES SHALL VOTE FOR THE ELECTION OF THE
NOMINEES NAMED ABOVE, ALL OF THE PROPOSALS SET FORTH ABOVE AND SUCH OTHER
MATTERS AS MAY PROPERLY COME BEFORE THE MEETING.
BY:
---------------------------------------
------------------------------------------
(PRINT NAME)
DATED , 1996
------------------
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
<PAGE>
PLEASE NOTE
THIS PROXY IS TO BE VOTED AS DIRECTED. IN THE ABSENCE OF SPECIFIC
DIRECTION, IT IS INTENDED TO VOTE THE SHARES REPRESENTED BY THIS PROXY FOR THE
ELECTION OF J. MICHAEL HARDINGER, JOHN L. DOYLE, JOHN C. HODGSON, CHARLES O.
HOLLIDAY, JR., PETER G. KEHOE, GARY W. PANKONIEN, JOHN C. SARGENT, MARSHALL C.
TURNER, AND SUSAN A. VLADUCHICK, AS DIRECTORS AND FOR THE OTHER PROPOSALS.
You are urged to sign and return your proxy without delay in the return
envelope provided for that purpose, which requires no postage if mailed in the
United States or Canada.
When signing this proxy, please date it and take care to have the signature
conform to the stockholder's name as it appears on this side of the proxy. If
shares are registered in the names of two or more persons, each person should
sign. Executors, administrators, trustees and guardians should so indicate when
signing.
PLEASE SEND IN YOUR PROXY
In order that there may be proper representation
at the Annual Meeting, each stockholder, whether
he or she owns one or more shares, is requested to
sign this proxy and return it promptly in the
enclosed envelope.
