<PAGE>
DUPONT PHOTOMASKS, INC.
100 TEXAS AVENUE
ROUND ROCK, TEXAS 78664
512-310-6559
------------------------
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD OCTOBER 27, 1997
------------------------
To the Stockholders of
DUPONT PHOTOMASKS, INC.
Notice is hereby given that the 1997 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 27, 1997 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 approve the adoption of the 1997 Stock Option and Restricted Stock
Plan;
(3) To ratify the selection of independent accountants; and
(4) 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,
the approval of the adoption of the 1997 Stock Option and Restricted Stock Plan
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., beneficially owned 10,500,000
shares of Common Stock (approximately 69.3% of the outstanding shares of Common
Stock) on the record date and thus will be able to elect all of the nominees for
directors, approve the adoption of the 1997 Stock Option and Restricted Stock
Plan and to ratify the selection of independent accountants.
Stockholders of record at the close of business on September 8, 1997 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
/S/ J. MICHAEL HARDINGER
--------------------------------------
J. Michael Hardinger
CHAIRMAN OF THE BOARD AND CHIEF
EXECUTIVE OFFICER
September 15, 1997
<PAGE>
DUPONT PHOTOMASKS, INC.
100 TEXAS AVENUE
ROUND ROCK, TEXAS 78664
------------------------
PROXY STATEMENT
1997 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
1997 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, 1997.
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 8, 1997. As of such date, the Company had
outstanding 15,154,600 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 8, 1997, 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 8, 1997, 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 69.3%) 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 or entity set forth
<PAGE>
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) 69.3%
1007 Market Street
Wilmington, Delaware 19898
J. Michael Hardinger................................................................... 41,460 *
John L. Doyle.......................................................................... 6,250 *
John C. Hodgson........................................................................ 10,500,500(4) 69.3%
Charles O. Holliday.................................................................... 10,501,000(4) 69.3%
Peter G. Kehoe......................................................................... 10,501,000(4) 69.3%
Gary W. Pankonien...................................................................... 8,250 *
John C. Sargent........................................................................ 10,500,300(4) 69.3%
Marshall C. Turner..................................................................... 3,550 *
Susan A. Vladuchick.................................................................... 10,502,000(4) 69.3%
Preston M. Adcox....................................................................... 713 *
Gerard Cognie.......................................................................... 30,916(5) *
David S. Gino.......................................................................... 9,537 *
Kenneth A. Rygler...................................................................... 5,537 *
All executive officers and directors as a group (15 persons)........................... 10,621,824(4) 70.1%
</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 8,
1997 pursuant to options granted, and shares of restricted stock granted but
not issued as of September 8, 1997, to directors and named executive
officers under the Company's stock plans, as follows:
<TABLE>
<CAPTION>
RESTRICTED
EXECUTIVE OFFICER OR DIRECTOR OPTION SHARES STOCK
- ------------------------------------------------------------------ ------------- ---------------
<S> <C> <C>
J. Michael Hardinger.............................................. 109,381 14,236
John L. Doyle..................................................... 9,750 --
Gary W. Pankonien................................................. 9,750 --
Marshall C. Turner................................................ 9,750 --
Preston M. Adcox.................................................. 66,366 8,824
Gerard Cognie..................................................... 22,248 3,577
David S. Gino..................................................... 26,660 2,843
Kenneth A. Rygler................................................. 26,660 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 20,000 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 8, 1997) and
current position with the Company of each person who is a nominee for election
as a director of the Company.
<TABLE>
<CAPTION>
NAME AGE CURRENT POSITION WITH THE COMPANY
- ------------------------------------------ --- -------------------------------------------
<S> <C> <C>
J. Michael Hardinger...................... 50 Chairman of the Board and Chief Executive
Officer
John L. Doyle............................. 66 Director
John C. Hodgson........................... 53 Director
Charles O. Holliday, Jr................... 49 Director
Peter G. Kehoe............................ 53 Director
Gary W. Pankonien......................... 47 Director
John C. Sargent........................... 59 Director
Marshall C. Turner........................ 55 Director
Susan A. Vladuchick....................... 49 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. Mr. Hardinger is also
a member of the Texas Commerce Bank Austin Advisory Board of Directors.
3
<PAGE>
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 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. and Analog Devices, Inc. He became a director of the
Company in April 1996.
JOHN C. HODGSON is the Vice President and General Manager, Photopolymer and
Electronic Materials of DuPont, a position he assumed in 1996. He has been with
DuPont for 31 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 Photopolymer and 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 a
member of the DuPont Board of Directors and 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. Mr. Holliday also serves as a director of Analog
Devices, Inc. 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 over 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. and a director of Alliance Technology Fund, Inc., two privately held
companies, the Public Broadcasting Service, the George Lucas Educational
Foundation and the National Museum of Natural History. He is a past director of
ten venture backed technology companies. From 1987 to 1992, he served as a
director, and Chairman for two years, of the Corporation For Public
Broadcasting; and from 1993 to 1995 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 and Personnel
Relations at DuPont since March 1995. She joined DuPont in 1969 and has held a
variety of management positions 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 chairperson
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., Gary W.
Pankonien, Marshall C. Turner, and Susan A. Vladuchick, who serves as
chairperson of the committee. 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
plans and bonus plan.
During the Company's fiscal year ended June 30, 1997, the Board held seven
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 one time during
fiscal 1997. During the 1997 fiscal year, the Compensation Committee held five
meetings and the Audit Committee held four meetings. Each of the incumbent
directors who was a director during the 1997 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, 1995 and 1996 of approximately
$13.1 million and $7.3 million. 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 Notes"). The Company borrowed funds for acquisitions, capital
expenditures and working capital from DuPont pursuant to the Master Notes. 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 Notes were consolidated into a single Master Note
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 addition to the transfer of the assets related to the photomask
business in Korea, Photomasks Korea also
6
<PAGE>
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. 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 FrF (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, converted into
1,025,640 shares of Etec common stock. As of June 30, 1997, the Company had sold
its entire investment in the Etec common stock.
ADMINISTRATIVE SERVICE 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 service agreements, each effective as of January 1, 1996
(collectively, the "Administrative Service Agreements"), pursuant to which
DuPont will continue to provide various services to the Company, including tax
administration, computer and information systems, telecommunications and
employee benefits administration.
Each service under the Administrative Service 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 Service Agreement at any time upon 45 days prior written notice.
Each Administrative Service Agreement shall terminate upon the later of (i)
January 1, 1999 or (ii) the date upon which DuPont owns less than 50% of the
outstanding Common Stock of the Company. During 1997, the Company exercised its
right to extend the period during which DuPont provides any service for an
additional twelve months. 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 Service Agreements.
7
<PAGE>
The Company and its subsidiaries will be obligated to pay fees established
in the Administrative Service Agreements based upon the type and amount of
services rendered. It is estimated that DuPont will charge an annual fee of
approximately $4 million for all of the services that it will provide under the
Administrative Service 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 $3.9 million for services
provided under the Administrative Service Agreements in fiscal 1997. With the
exception of the Administrative Service 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
Service Agreements is limited to payments made to DuPont thereunder. With
respect to the Administrative Service 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 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%.
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.
8
<PAGE>
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. No
claims relating to the Environmental Indemnification Agreement have been made to
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 new credit agreement (the "Credit
Agreement"), pursuant to which DCEO has agreed to provide a credit facility to
the Company in an aggregate amount of $100 million. The Credit Agreement has a
term of 48 months and loans thereunder will bear interest at LIBOR plus 25 basis
points. At the Company's option, advances under the Credit Agreement are
convertible into term loans with maturities up to 7 years. The amounts loaned
under the Credit Agreement are unsecured and the Credit Agreement contains
various representations, covenants and events of default typical for financings
of a similar size and nature. For example, the Credit Agreement provides that,
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 $50 million
in the aggregate. No amounts have been borrowed or are outstanding under the
Credit Agreement.
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.
9
<PAGE>
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 1997 and
thereafter, Forms 5 and amendments thereto furnished to the Company with respect
to its fiscal year 1997, 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 1997 except as described below.
Initial Forms 3 were filed late by Mr. Arthur W. Launder, Executive Vice
President--North American Photomask Operations and Mr. John M. Lynn, Executive
Vice President, General Counsel and Secretary. Messrs. Hardinger; Adcox; Cognie;
Gino; Rygler; Charles M. Beaston, former Executive Vice President--
Administration and Van H. Leichliter, former Executive Vice President, General
Counsel and Secretary each failed to timely file a single stock option grant in
June 1996 under the Company's Stock Performance Plan. Messrs. Doyle, Pankonien
and Turner each failed to timely file stock option grants in June 1996 and
November 1996 under the Company's Non-Employee Directors' Stock Option Plans.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Compensation Committee is composed of Charles O. Holliday, Jr., Gary W.
Pankonien, Marshall C. Turner, and Susan A. Vladuchick, who serves as
chairperson of the Committee. 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 DuPont Board of Directors, 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 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 stock option and restricted stock grants, and administers the
Company's stock 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 has reviewed its compensation programs in comparison with similarly
situated companies and amended the plans accordingly to assure that the
10
<PAGE>
Company's compensation programs are competitive within the industry and carry
out the objectives of the Company. The amendments were approved by the
Compensation Committee at various meetings during the course of the fiscal year
ended June 30, 1997.
BASE SALARY
At May 1, 1997, the base salaries for Messrs. Hardinger, Adcox, Cognie,
Gino, and Rygler were increased to $315,000, $260,004, 1,054,495 FrF
(approximately $182,000), $160,008, and $171,000, respectively. These increases
reflect the Company's objective of structuring its compensation programs
competitively with similarly situated companies.
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 Bonus Plan was amended on October
28, 1996 to, among other things, allow bonuses to be paid in Common Stock.
The Compensation Committee authorized, at the recommendation of the Chairman
of the Board, bonuses to be awarded to selected employees, including executive
officers, aggregating $4.9 million for the fiscal year ended June 30, 1997.
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 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.
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 recommendation 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, to approximately 1,225 employees of the Company including Messrs.
Hardinger, Adcox, Cognie, Gino and Rygler. The Compensation Committee
11
<PAGE>
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. However, the Compensation Committee, during its periodic review
of the Company's compensation program, determined to make additional grants in
July 1997. During the year ended June 30, 1997, stock options to purchase a
total of 86,976 shares and 4,744 shares of restricted stock were granted to new
Company employees.
On June 9, 1997, the Compensation Committee recommended, and the Board
approved, an amendment to the Stock Performance Plan, which among other things,
limited the aggregate number of shares of stock of the Company which may be
subject to option or restriction to the existing outstanding commitments as of
June 9, 1997. In effect, the Stock Performance Plan is frozen and has been
replaced by the 1997 Stock Option and Restricted Stock Plan.
1997 STOCK OPTION AND RESTRICTED STOCK PLAN
Also on June 9, 1997, the Compensation Committee recommended, and the Board
adopted, the 1997 Stock Option and Restricted Stock Plan (the "1997 Plan") to
continue to provide incentive to those officers and employees of the Company and
its subsidiaries primarily responsible for the success of the Company and to
continue to closely identify their interests with those of the stockholders.
Under the 1997 Plan, grants of stock options, incentive stock options,
restricted stock or combinations of the above may be awarded to employees
(including officers), consultants, directors and other individuals. The
aggregate number of shares of stock of the Company which may be made subject to
option or restriction under the 1997 Plan may not exceed 3,000,000 shares.
The 1997 Plan is administered by the Compensation Committee, which
determines the timing and size of grants, the individuals, if any, who receive
grants and the terms and conditions of such grants. 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. Effective as of July 28,
1997, the Compensation Committee granted stock options and incentive stock
options to purchase a total of 470,885 shares, at an exercise price of $52.75
per share, to approximately 192 employees of the Company and others including
Messrs. Hardinger, Adcox, Cognie, Gino and Rygler.
COMPENSATION OF CHIEF EXECUTIVE OFFICER
As discussed below under "Employment Contracts", DuPont entered into an
agreement with Mr. Hardinger, dated as of September 21, 1995, whereby he agreed
to serve as the Chairman of the Board and Chief Executive Officer of the Company
in exchange for a specific compensation package. The compensation paid to Mr.
Hardinger for fiscal 1996 and 1997 was in accordance with the terms of this
agreement. Any future increases in salary or discretionary bonuses will be
determined in accordance with the Company's executive compensation program,
based upon Mr. Hardinger's performance and comparisons with executive
compensation at appropriate companies.
COMPENSATION COMMITTEE
Charles O. Holliday, Jr.
Gary W. Pankonien
Marshall C. Turner
Susan A. Vladuchick, Chairperson
12
<PAGE>
EXECUTIVE COMPENSATION AND OTHER INFORMATION
SUMMARY COMPENSATION TABLE
The following table sets forth for the fiscal years ended June 30, 1995,
1996, and 1997 the compensation paid to the Company's chief executive officer
and the four other most highly compensated executive officers (the "Named
Officers") for the fiscal year ended June 30, 1997.
<TABLE>
<CAPTION>
LONG-TERM COMPENSATION AWARDS
------------------------------------
ANNUAL COMPENSATION(1) RESTRICTED SECURITIES
--------------------------------- STOCK UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS(2) AWARDS($)(3) OPTIONS(#)(4) COMPENSATION(5)
- ----------------------------- --------- --------- ----------- --------------- ------------------- ----------------
<S> <C> <C> <C> <C> <C> <C>
J. Michael Hardinger......... 1997 $ 294,170 $ 441,000 -- -- $ 17,528
Chairman and CEO 1996 218,350 218,500 $ 242,000 145,841 6,573
1995 194,000 157,000 -- 16,000 5,824
Preston M. Adcox............. 1997 230,834 316,000 -- -- 13,700
President and COO 1996 170,350 143,550 150,000 88,488 5,115
1995 152,920 66,000 -- 6,500 4,579
Gerard Cognie(6)............. 1997 161,049 164,200 -- --
EVP-European Operations 1996 161,091 65,733 60,800 29,644 --
1995 156,573 42,933 -- 1,600 13,315
David S. Gino................ 1997 147,498 121,500 -- -- 8,781
EVP-Finance and CFO 1996 121,783 69,300 48,330 35,547 3,651
1995 106,750 36,900 -- 1,600 5,262
Kenneth A. Rygler............ 1997 168,500 109,350 -- -- 9,555
EVP-Worldwide Marketing 1996 134,500 73,900 56,000 35,547 3,945
and Strategic Planning 1995 122,750 47,050 -- 3,400 3,685
</TABLE>
- ------------------------------
(1) Represents compensation earned by the Named Officers for the fiscal year.
Prior to the Offering, compensation was paid to certain 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.
All shares of restricted stock granted effective June 13, 1996 will vest in
full on June 13, 1998. The number and value of the aggregate restricted
shares held as of June 30, 1997 for the Named Officers are as follows:
<TABLE>
<CAPTION>
NAMED OFFICER RESTRICTED STOCK VALUE
- ------------------------------------------------------------------------- ----------------- ---------
<S> <C> <C>
J. Michael Hardinger..................................................... 14,236 $ 768,744
Preston M. Adcox......................................................... 8,824 476,496
Gerard Cognie............................................................ 3,577 193,158
David S. Gino............................................................ 2,843 153,522
Kenneth A. Rygler........................................................ 3,295 177,930
</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. All DuPont
common stock share amounts have been adjusted to reflect DuPont's
two-for-one stock split which was effective May 15, 1997. Amounts indicated
for fiscal 1996 relate to options to purchase shares of Common Stock granted
by the Company during that year.
(5) Prior to the Offering, represents matching contributions made by DuPont
pursuant to DuPont's savings and thrift plan. Subsequent to the Offering,
represents matching contributions made by the Company pursuant to its
savings and thrift plan and contributions made by the Company pursuant to
its defined contribution plan.
(6) Mr. Cognie is paid in French Francs. The figures shown were calculated using
an exchange rate for 1997 of 5.8 Francs to the dollar, for 1996 of 5.2
Francs to the dollar, and for 1995 of 5.0 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(1) 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.......... 48,306 1,436,789 16,400 -- $ 577,625 --
Preston M. Adcox.............. 23,300 169,836 10,900 -- 390,438 --
Gerard Cognie................. -- -- 2,000 -- 71,825 --
David S. Gino................. 3,000 48,431 -- -- -- --
Kenneth A. Rygler............. 3,960 89,798 7,280 -- 264,585 --
</TABLE>
- ------------------------
(1) The closing price per share of DuPont common stock on June 30, 1997 was
$62.88. All DuPont common stock share amounts have been adjusted to reflect
DuPont's two-for-one stock spilt which was effective May 15, 1997.
None of the Named Officers received any options to purchase shares of
DuPont's common stock in fiscal 1996 or in fiscal 1997. None of the Named
Officers have received any stock appreciation rights from DuPont.
INFORMATION REGARDING COMPANY STOCK OPTIONS
OPTION GRANTS IN LAST FISCAL YEAR
The Company did not grant any options to purchase shares of Common Stock to
the Named Officers during fiscal 1997. Also, the Company has not granted any
stock appreciation rights.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUES
The following table sets forth information regarding the exercisable and
unexercisable options to acquire Common Stock granted to the Named Officers.
<TABLE>
<CAPTION>
VALUE OF IN-THE-MONEY
NUMBER OF UNEXERCISED UNEXERCISED OPTIONS
OPTIONS AT YEAR-END AT JUNE 30, 1996(1)
--------------------------------- ------------------------------
NAME EXERCISABLE(#) UNEXERCISABLE(#) EXERCISABLE($) UNEXERCISABLE($)
- ----------------------------------------------- --------------- ---------------- ------------- ---------------
<S> <C> <C> <C> <C>
J. Michael Hardinger........................... 36,460 109,381 $ 1,349,020 $ 4,047,097
Preston M. Adcox............................... 22,122 66,366 818,514 2,455,542
Gerard Cognie.................................. 7,411 22,233 274,207 822,621
David S. Gino.................................. 8,887 26,660 328,819 986,420
Kenneth A. Rygler.............................. 8,887 26,660 328,819 986,420
</TABLE>
- ------------------------
(1) The closing price per share of the Common Stock on June 30, 1997 was $54.00.
No Named Officer exercised options to purchase Common Stock in fiscal 1996
or fiscal 1997.
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 or 1997. However, each of the Named Officers have been
credited with years of service under the DuPont Pension
14
<PAGE>
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
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. Each of John L. Doyle, Gary W. Pankonien, and Marshall C.
Turner were granted options to purchase 3,000 shares of Common Stock under the
Directors' Plan on November 1, 1996 at an exercise price of $35.56, the average
of the high and low sales price of the Common Stock, as quoted on the Nasdaq
National Market, on the date of the grant. The Non-Employee Director's Stock
Option Plan was amended by the Board on June 9, 1997 to, among other things,
allow for limited transferability of the granted options.
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.
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.
15
<PAGE>
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-Tencor Corporation (Nasdaq-KLAC); Novellus Systems, Inc.
(Nasdaq-NVLS); Photronics, Inc. (Nasdaq-PLAB) and Ultratech Stepper, Inc.
(Nasdaq-UTEK). 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 $100.00 100 100
6/30/96 $120.59 96.69 84.9
6/30/97 $317.66 117.66 173.44
</TABLE>
16
<PAGE>
APPROVAL OF THE ADOPTION OF THE 1997 STOCK OPTION
AND RESTRICTED STOCK PLAN
(PROPOSAL 2)
GENERAL INFORMATION
On June 9, 1997, the Compensation Committee recommended, and the Board
adopted the 1997 Stock Option and Restricted Stock Plan (the "1997 Plan") to
continue to provide incentive to those officers and employees of the Company and
its subsidiaries primarily responsible for the success of the Company and to
continue to closely identify their interests with those of the stockholders.
Under the 1997 Plan, grants of stock options ("NQOs"), incentive stock options
("ISOs"), restricted stock or combinations of the above may be awarded to
employees (including officers), consultants, directors and other individuals.
The aggregate number of shares of Common Stock of the Company which may be
granted under the 1997 Plan may not exceed 3,000,000 shares.
The 1997 Plan is administered by the Compensation Committee which determines
the timing and size of grants, the individuals, if any, who receive grants and
the terms and conditions of such grants. 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.
SUMMARY PLAN DESCRIPTION
THE FOLLOWING DESCRIPTION OF THE 1997 PLAN IS QUALIFIED BY REFERENCE TO THE
COPY OF THE 1997 PLAN ATTACHED TO THIS PROXY STATEMENT AS AN EXHIBIT.
GENERAL. The 1997 Plan provides for grants of NQOs and ISOs as well as
restricted stock grants. ISOs must meet the requirements of Section 422 of the
Internal Revenue Code of 1986, as amended (the "Code") and NQOs need not meet
the requirements of the Code. A restricted stock grant is an award of shares of
Common Stock on which are imposed restriction periods and/or performance based
restrictions which subject the shares to a substantial risk of forfeiture, as
defined in Section 83 of the Code or any successor law. The 1997 Plan is not
subject to the provisions of the Employee Retirement Income Security Act of 1974
(ERISA).
ELIGIBILITY. Under the 1997 Plan, certain employees, consultants, directors
and other individuals as the Compensation Committee from time to time shall
determine are eligible to receive grants of NQOs, ISOs and restricted stock;
provided, however, that ISOs may only be issued to employees of the Company.
ADMINISTRATION. The 1997 Plan is administered by the Compensation
Committee. In accordance with the provisions of the 1997 Plan, the Compensation
Committee has authority to determine the participants to be granted options or
restricted stock, to interpret the 1997 Plan, to prescribe, amend and rescind
any rules and regulations necessary or appropriate for the administration of the
1997 Plan, to determine and interpret the details and provisions of each grant
agreement, to modify or amend any grant agreement, to waive any conditions or
restrictions applicable to any grant and to make all other determinations
necessary or advisable for the administration of the 1997 Plan.
SHARES AVAILABLE. The 1997 Plan has 3,000,000 shares of Common Stock
reserved for issuance. Under the terms of the 1997 Plan, the number of shares of
Common Stock reserved is subject to adjustment by the Company if the number of
outstanding shares of Common Stock is changed as a result of reclassification or
recapitalization. In the event of a stock split, reverse stock split or other
event that is functionally equivalent to a stock split or reverse stock split,
the 1997 Plan provides for automatic proportionate adjustments to the number of
shares granted and to the number of shares of Common Stock authorized for future
grant.
17
<PAGE>
OPTION GRANT TERMS. Option grants shall be subject to a vesting schedule as
determined by the Compensation Committee. Each grant shall be evidenced by an
agreement executed by an authorized officer of the Company and each agreement
shall be in a form approved by the Compensation Committee, shall comply with the
terms and conditions of the 1997 Plan and may contain such other provisions as
the Compensation Committee shall determine. Options granted to all participants
are not exercisable for a period of at least six months from the date of grant.
The exercise price for each option shall be fixed on the grant date and such
exercise price shall, in no event, be less than the par value of the Common
Stock.
In the event that a participant s employment with the Company shall
terminate for reasons other than permanent disability or death, in the case of
ISOs, the participant shall have the right to exercise, to the extent the ISOs
were exercisable on the termination date, at any time during a period of three
months following such termination. In the case of NQOs, the Compensation
Committee may specify the terms and conditions upon which such NQOs shall
terminate. The Committee may, in its discretion, consistent with the terms of
the specific grant, (i) accelerate the exercisability of all or part of the NQOs
not otherwise exercisable or (ii) provide that the NQOs shall remain outstanding
and be exercisable on such other terms and conditions as the Compensation
Committee shall approve.
At the discretion of the Compensation Committee, options awarded under the
1997 Plan may be subject to reload. A reload option is defined as a replacement
option granted upon exercise by the participant of the original option. The
reload option shall be deemed granted to the participant as of the exercise date
of the original option. The exercise price of the reload option shall be 100% of
the market value of the Common Stock on such date. The reload option may be used
or refused with respect to each tranche of options as they vest and is available
on a one-time basis (even if the participant elects to exercise less than the
total number of vested shares). If the participant elects to accept the reload
option, the participant must agree that all shares purchased through the
exercise of the original option must be held for some minimum period of time
established by the Compensation Committee as set forth in the participant's
grant agreement. In no event shall any reload option be granted if it would
cause the number of grants to any executive officer in a year to exceed the
individual limit as outlined in the 1997 Plan.
RESTRICTED STOCK GRANT TERMS. Restricted stock granted by the Compensation
Committee will be subject to such restrictions as the Compensation Committee may
impose thereon, including, but not limited to, continuous employment with the
Company and/or the attainment of specific corporate or individual performance
standards or goals. The restrictions and the period in which such restrictions
apply may differ with respect to each participant. Restricted stock grants will
be subject to forfeiture if certain events specified by the Compensation
Committee fail to occur prior to the lapse of the restrictions.
In connection with each grant of restricted stock, the Compensation
Committee will determine (i) the terms and conditions of the restricted stock
grant agreement evidencing the award, (ii) the restriction period for the grant,
(iii) the restrictions applicable to the grant, (iv) the percentage of the grant
that will vest in the event of such participant's death, disability or
retirement prior to the expiration of the restriction period or the satisfaction
of the restrictions applicable to the grant, and (v) notwithstanding the
restriction period and the restrictions set forth in the restricted stock grant
agreement, whether to shorten the restriction period or waive the restrictions
if the Compensation Committee concludes that it is in the best interests of the
Company to do so. In the event a participant's employment with the Company shall
terminate (for reasons other than the participant's death, permanent disability
or retirement) prior to the satisfaction or occurrence of the restrictions
applicable to all or a portion of a grant, then such portion of the grant shall
be returned to the Company and forfeited by the participant. After satisfaction
or occurrence of all restrictions, a certificate, without a legend shall be
delivered to the participant for the number of shares that are no longer subject
to restrictions.
MISCELLANEOUS. A participant in the 1997 Plan shall have no rights as a
shareholder with respect to shares covered by such participant's option or
restricted stock grant until the date of the issuance of the
18
<PAGE>
shares to the participant. No adjustments shall be made for dividends or other
distributions or rights for which the record date is prior to the date of such
issuance.
All or a portion of the options granted to a participant may, in the
discretion of the Compensation Committee, be on terms that permit transfer
without consideration by such participant to (i) the participant's spouse,
children or grandchildren, ("Immediate Family Members"), (ii) a trust or trusts
for the exclusive benefit of such Immediate Family Members, or (iii) a
partnership or other entity in which such Immediate Family Members are the only
partners.
In the event of a change of control (as defined in the 1997 Plan), the
unexercised option grants outstanding will automatically become exercisable in
full and all restrictions and conditions to which any restricted stock grant is
subject shall be deemed satisfied as of the change of control date.
The Compensation Committee may at any time alter, amend, suspend,
discontinue or terminate the 1997 Plan and any grants thereunder; provided,
however, that no such action by the Compensation Committee may, without the
approval of the shareholders of the Company, alter the provisions of the 1997
Plan so as to (i) increase the maximum number of shares of Common Stock that may
be subject to grants; (ii) change the eligibility provisions of the 1997 Plan;
or (iii) change the individual limit of shares that may be granted under the
1997 Plan. For the purposes of granting ISOs, the 1997 Plan shall terminate on
June 8, 2007. No ISOs shall be awarded after such date.
OPTION GRANTS
The following table sets forth information regarding options to purchase
shares of Common Stock granted to the Named Officers subsequent to fiscal 1997.
Because grants under the 1997 Plan are discretionary, future benefits are not
determinable.
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE VALUE
AT ASSUMED ANNUAL RATES OF
% OF TOTAL STOCK PRICE APPRECIATION FOR
OPTIONS GRANTED EXERCISE OPTION TERM
OPTIONS TO COMPANY PRICE EXPIRATION ----------------------------
NAME GRANTED(#)(1) EMPLOYEES ($/SH)(3) DATE 5% 10%
- ------------------------------ ------------- ----------------- ----------- ----------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
J. Michael Hardinger.......... 46,000 9.8% $ 52.75 7/28/2007 $ 1,525,820 $ 3,867,220
Preston M. Adcox.............. 36,750 7.8% 52.75 7/28/2007 1,218,998 3,089,573
Gerard Cognie................. 22,100 4.7% 52.75 7/28/2007 733,057 1,857,947
David S. Gino................. 12,600 2.7% 52.75 7/28/2007 417,942 1,059,282
Kenneth A. Rygler............. 10,800 2.1% 52.75 7/28/2007 358,236 907,956
All executive officers as a
group (7 persons)........... 145,450 30.9% 52.75 7/28/2007 4,824,577 12,227,982
All Grantees.................. 470,885 100.0% 52.75 7/28/2007 15,619,255 39,587,302
</TABLE>
- ------------------------
(1) Stock options become exercisable over a four year period at the rate of 25%
per year and have a term of ten years. Of the options granted Messrs.
Hardinger, Adcox, Gino and Rygler, 7,580 options were ISOs and the remainder
were NQOs.
(2) The exercise price per share is the closing price of the Common Stock, as
quoted on the Nasdaq National Market, on the date of the grant.
CERTAIN U.S. FEDERAL INCOME TAX CONSEQUENCES
The following is a general summary of the U.S. federal income tax
consequences of each type of grant which may be awarded under the 1997 Plan. The
U.S. federal income tax consequences of each type of grant are different for the
participants and for the Company.
19
<PAGE>
INCENTIVE STOCK OPTIONS. For options granted pursuant to the 1997 Plan that
qualify as ISOs, provided that the participant is an employee of the Company (or
defined affiliates) at all times from the grant of the options until three
months prior to exercise, present law provides: (a) the participant will not
realize taxable income upon either the receipt or the exercise of the options,
provided, however, that in connection with the computation of the alternative
minimum tax, the amount by which the fair market value of the Common Stock at
the time of exercise exceeds the exercise price generally will constitute an
adjustment item; (b) any gain or loss upon a disposition constituting a
qualifying disposition of shares acquired pursuant to the exercise of the
options will be treated as capital gain or loss (assuming that such shares are a
capital asset in the hands of the participant); and (c) no deduction will be
allowed at any time to the Company or any parent or subsidiary of the Company
for U.S. federal income tax purposes in connection with the grant or exercise of
the options or a disposition constituting a qualifying disposition of shares
acquired pursuant to the exercise of the options. A disposition of shares
acquired upon exercise of ISOs will constitute a qualifying disposition if it
does not occur within two years of the granting of the options or within one
year after the transfer of substantially all of the incidents of ownership in
the shares to the participant. A disposition not satisfying such holding period
requirements results in a disqualifying disposition. If Common Stock acquired
upon exercise of ISOs is disposed of by the participant in a disqualifying
disposition, the participant will be treated as receiving ordinary income equal
to the difference between the fair market value of the transferred shares on the
date of exercise and the exercise price of such shares, less any decline in
value of the shares from the date of exercise to the date of sale. In the event
the sales price received in a disqualifying disposition of such Common Stock
exceeds the value of the Common Stock on the date of exercise, the disqualifying
disposition also will result in capital gain to the extent of such excess
(assuming that such Common Stock is a capital asset in the hands of the
participant). The amount treated as ordinary income to the participant because
of a disqualifying disposition will normally be allowed as a U.S. federal income
tax deduction to the Company (or any parent or subsidiary of the Company) as
compensation expense.
For purposes of computing a participant's capital gain or loss on the sale
of shares that were acquired under the 1997 Plan pursuant to the exercise of
ISOs, the participant's basis in such shares generally will be equal to any
amount paid by the participant to the Company for the shares plus the amount, if
any, recognized as ordinary income to the participant with respect to the shares
due to a disqualifying disposition. The participant's holding period for such
shares generally should begin at the time of the participant's exercise of an
option. However, solely for purposes of determining whether the stock has a
holding period beginning after December 31, 2000, so that gain on a subsequent
sale of the stock could be eligible for the special reduced capital gains rate
applicable to capital assets held for more than five years, the participant's
holding period is deemed to begin at the grant of an option.
The Company and any parent or subsidiary of the Company will not be liable
to any participant or other person if it is determined for any reason by the
U.S. Internal Revenue Service or any court having jurisdiction that any options
granted pursuant to the 1997 Plan do not qualify for tax treatment as ISOs under
Section 422 of the Code.
NONQUALIFIED STOCK OPTIONS. For options granted pursuant to the 1997 Plan
that do not qualify as ISOs, no taxable income will be realized by the
participant upon the grant of such NQOs. A participant generally will recognize
ordinary taxable income (compensation), subject to withholding, upon exercise of
such NQOs in an amount equal to the excess of the fair market value of the
Common Stock on the date of exercise over the exercise price paid. It is
intended that the Company may deduct such amounts for U.S. federal income tax
purposes.
For purposes of determining gain or loss upon a subsequent disposition of
Common Stock acquired upon the exercise of NQOs, the participant's basis in such
shares will generally be equal to the purchase price paid to the Company for the
Common Stock, increased by the amount, if any, includable in the participant's
taxable income with respect to the Common Stock. The participant's holding
period for determining the rate of capital gains tax on such subsequent
disposition generally begins on the date of
20
<PAGE>
exercise of the option. However, solely for purposes of determining whether the
stock has a holding period beginning after December 31, 2000, so that gain on a
subsequent sale of the stock could be eligible for the special reduced capital
gains rate applicable to capital assets held for more than five years, the
participant's holding period is deemed to begin at the grant of the option.
RESTRICTED STOCK GRANTS. Generally, an employee to whom a grant of
restricted stock is made will recognize ordinary income for federal income tax
purposes in an amount equal to the excess of the fair market value of the shares
of Common Stock received, at the time the shares first become transferable or
are no longer subject to forfeiture, over the purchase price, if any, paid by
the employee for such Common Stock. Such amount will then be deductible for
federal income tax purposes by the Company (subject to the $1,000,000 limitation
on deductibility of compensation paid any one of the five highest paid executive
officers of the Company). For tax purposes, in addition to other restrictions,
the Common Stock is considered to be subject to a substantial risk of forfeiture
as long as the sale of the shares could subject the employee to suit under the
"short swing profit" provisions of Section 16 of the Securities and Exchange Act
of 1934. Alternatively, if the recipient so elects, the recipient will recognize
ordinary income on the date of grant in an amount equal to the excess of the
fair market value of the shares of Common Stock (without taking into account any
lapse restrictions) on such date, over the purchase price, if any, paid by the
employee for such Common Stock, and such amount will then be deductible by the
Company. In the event of the forfeiture of the Common Stock, the employee will
not be entitled to any income tax deduction except to the extent the employee
paid for such Common Stock. Upon a sale of the Common Stock, the employee will
recognize a capital gain or loss, as the case may be, equal to the difference
between the amount realized from such sale and the employee's tax basis for such
shares of Common Stock. The holding period for Common Stock generally begins on
the date on which the participant's rights in the stock are transferable or are
not subject to a substantial risk of forfeiture, whichever occurs earlier.
The foregoing is intended as a summary of the effect of certain U.S. federal
income tax consequences associated with the 1997 Plan and does not purport to be
complete. This summary is based on current law, which is subject to change in
the future, and current interpretations of the law, which may also change. It is
recommended that participants consult their own tax advisors for counseling. The
tax treatment under non-U.S., state or local law is not covered in this summary.
PURPOSE AND EFFECT OF SHAREHOLDER APPROVAL
Shareholder approval of certain provisions of the 1997 Plan is requested in
order to qualify for certain favorable tax federal income tax treatment for
optionees and the Company.
In order to qualify any ISOs granted under the 1997 Plan for favorable tax
treatment under the Code, a majority of votes cast at a shareholders meeting
must approve the aggregate number of shares that can be issued under the plan
(i.e., 3,000,000) and the eligible class of employees under the plan (i.e.,
certain employees of the Company and its subsidiaries) within twelve months of
establishment of the plan.
In addition, the 1997 Plan makes grants of NQOs to certain executive
officers of the Company contingent on shareholder approval of the material terms
of the 1997 Plan. Generally, the Company may not deduct compensation in excess
of $1,000,000 paid to any one of its five highest paid executive officers within
a single fiscal year. The purpose of making these grants contingent on
shareholder approval is to secure the "qualified performance based compensation"
exemption from the $1,000,000 deduction limit so that the Company will be able
to deduct the difference between exercise price and the market value of the
underlying Common Stock on NQOs exercised by any of the five highest paid
executive officers, if any of them has total compensation (with the exercised
NQOS) that would otherwise exceed $1,000,000 in the year of exercise.
The 1997 Plan also contains other provisions designed to secure the
"qualified performance based compensation" exemption, and thus preserve the
Company's tax deduction. Specifically, the maximum number of shares with respect
to which options may be granted to any affected individual executive officer
21
<PAGE>
during any fiscal year is 2,000,000. In addition, the exercise price of any NQOs
granted to an affected officer cannot be less than the market value per share of
the Common Stock on the date of grant.
If shareholder approval is not obtained, all options under the 1997 Plan
must be NQOs and benefits under the Plan cannot be extended to the five highest
paid executive officers of the Company.
BOARD RECOMMENDATION
The Board believes that approval of the adoption of the 1997 Plan is in the
best interest of the Company and its stockholders. The Board therefore
recommends that you vote FOR such approval 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 approval of the adoption of the 1997 Plan.
RATIFICATION OF SELECTION OF INDEPENDENT ACCOUNTANTS
(PROPOSAL 3)
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.
During 1997, Price Waterhouse LLP ("Price Waterhouse") audited the Company's
annual consolidated financial statements, reviewed financial information in
filings with the Securities and Exchange Commission, 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, 1998 and to render other services required of them.
Representatives of Price Waterhouse are expected to be present at the Annual
Meeting on October 27, 1997, 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 1998 Annual
Meeting of Stockholders must
be received by the Company on or before May 26, 1998, to be included in the
Proxy Statement and proxy
22
<PAGE>
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 1997 ANNUAL MEETING IN PERSON.
By Order of the Board of Directors
/S/ JOHN M. LYNN
--------------------------------------
John M. Lynn,
EXECUTIVE VICE PRESIDENT,
GENERAL COUNSEL AND SECRETARY
September 15, 1997
23
<PAGE>
DUPONT PHOTOMASKS, INC.
PROXY FOR ANNUAL MEETING OF STOCKHOLDERS OCTOBER 27, 1997
P The undersigned hereby appoints David S. Gino and John M. Lynn, or any
one or more of them, with full power of substitution, the attorneys and
R proxies for the undersigned to vote the shares of common stock of DuPont
Photomasks, Inc., a Delaware corporation (the "Company"), held of record
O by the undersigned at the close of business on September 8, 1997, at the
annual meeting of stockholders of the Company to be held in the San Jacinto
X East Room of the Four Seasons Hotel, 98 San Jacinto Blvd., Austin, Texas
78701, on Monday, October 27, 1997 at 10:00 a.m. Austin time, and at any
Y adjournment thereof, as follows:
-----------------------------------------
COMMENTS/ADDRESS CHANGE: PLEASE MARK |
COMMENTS/ADDRESS CHANGE ON REVERSE SIDE. | (Continued and to be signed on
| other side)
FOLD AND DETACH HERE
<PAGE>
<TABLE>
<S> <C> <C> <C>
(1) Election of Directors 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.
FOR all nominees WITHHOLD
listed to the right VOTE (Instructions: To withhold authority to vote for any individual
(except as marked to the to vote for all nominees nominee, write that nominee's name on the following line.)
contrary) listed to the right
/ / / / -----------------------------------------------------------------
(2) Approval of the adoption of the 1997 Stock (4) As such proxies may in their discretion determine upon
Option and Restricted Stock Plan. such other matters as may properly come before the meeting.
FOR AGAINST ABSTAIN The Board of Directors recommends that the stockholders
/ / / / / / vote FOR the election of the persons set forth
above as directors and the other proposals.
(3) Ratification of Price Waterhouse LLP as
independent accountants This Proxy shall be voted in accordance with the
instructions given, and in the absence of such
FOR AGAINST ABSTAIN -------- 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)
Date:___________________________, 1997
THIS PROXY IS SOLICITED ON BEHALF OF THE
BOARD OF DIRECTORS
- --------------------------------------------------------------------------------------------------------------------------------
FOLD AND DETACH HERE
</TABLE>
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.
<PAGE>
DUPONT PHOTOMASKS, INC
1997 STOCK OPTION AND RESTRICTED STOCK PLAN
1. PURPOSE
The purpose of the DUPONT PHOTOMASKS, INC, 1997 Stock Option and
Restricted Stock Plan (the "PLAN") is to advance the interests of DuPont
Photomasks, Inc. (the "COMPANY") and its Subsidiaries (as defined below) by
providing incentive awards and stock ownership opportunities to certain key
employees (including officers), consultants, directors and other individuals
who contribute significantly to the performance of the Company and its
Subsidiaries. In addition, the Plan is intended to enhance the ability of
the Company and its Subsidiaries to attract and retain individuals of
superior managerial ability and to motivate such key employees to exert their
best efforts towards future progress and profitability of the Company and its
Subsidiaries. Accordingly, the Company may make awards ("Awards") to key
employees, consultants and other individuals in the form of (i) options
("OPTIONS") to purchase shares of the Company's common stock, par value $.01
per share ("COMMON STOCK"), and (ii) shares of Common Stock which are
restricted as provided in Section 7 ("Restricted Stock"). Options may be
either incentive stock options ("ISOs") which are qualified under Section 422
of the Internal Revenue Code of 1986, as amended (the "CODE"), or
nonqualified stock options ("NONQUALIFIED OPTIONS").
For purposes of the Plan, a "SUBSIDIARY" shall be any corporation
in which the Company has a direct or indirect ownership interest of 50% or
more of the total combined voting power of all classes of stock in such
corporation.
2. APPROVAL OF AWARDS
Each Award may be approved in any of the following ways:
A. BOARD/COMMITTEE APPROVAL. The entire Board or the Committee (as
defined below) may vote in advance to approve such Award.
B. SHAREHOLDER APPROVAL/RATIFICATION. In compliance with Section 4
of the Securities Exchange Act of 1934 ("1934 ACT"), a majority of the
shareholders of the Company duly entitled to vote on such matters at meetings
held in accordance with the laws of the State of Delaware may, either in
advance of the Award or no later than the next annual meeting of
shareholders, affirmatively vote to approve such Award.
1
<PAGE>
3. ADMINISTRATION AND INTERPRETATION
A. ADMINISTRATION. The Plan shall be administered by the Compensation
Committee (the "COMMITTEE") of the Board of Directors (the "BOARD") of DuPont
Photomasks, Inc. The Committee may prescribe, amend and rescind rules and
regulations for administration of the Plan and shall have full power and
authority to construe and interpret the Plan. The Committee may correct any
defect or any omission or reconcile any inconsistency in the Plan or, subject
to the requirements of Section 2 herein, in any grant made under the Plan in
the manner and to the extent it shall deem desirable.
Committee members shall be appointed by and shall serve at the pleasure
of the Board. The Board may from time to time appoint members of the
Committee in substitution for or in addition to members previously appointed
and may fill vacancies, however caused, in the Committee.
A majority of the members of the Committee shall constitute a quorum,
and the acts of a majority of the members present at a meeting, or the acts
of a majority of the members evidenced in writing, shall be the acts of the
Committee. Members of the Committee may, in the discretion of the Board,
receive compensation for their services as members, and all expenses and
liabilities they incur in connection with the administration of the Plan
shall be borne by the Company.
The day-to-day administration of the Plan may be carried out by such
officers and employees of the Company or its Subsidiaries as shall be
designated from time to time by the Committee. The Committee may employ
attorneys, consultants, accountants, appraisers, brokers or other persons,
and the Committee, the Company and the officers and employees of the Company
shall be entitled to rely upon the advice, opinions or valuations of any such
persons.
The Committee, the Board, or the shareholders, as the case may be, shall
have concurrent authority to make all decisions concerning specific Awards
granted under the Plan, including without limitation the selection of the
persons to whom Awards are granted, the number of shares of Common Stock
subject to each Award and the terms and conditions of each Award. The
Committee shall construe the terms and provisions of the Plan and the
Agreements and adopt, from time to time, such rules and regulations, not
inconsistent with the terms of the Plan, as it may deem advisable to carry
out the Plan. All decisions by the Committee shall be final. The effective
date of an Award is referred to herein as the "GRANT DATE."
In the Committee's discretion, the Chief Executive Officer of the
Company may be delegated the authority to grant Awards to key employees of
the Company who are neither directors nor executive officers (as such term is
defined under the 1934 Act) of the Company.
In the event one or more members of the Committee do not qualify as
outside directors, the Committee may, in the exercise of its discretion,
appoint a subcommittee comprised solely of two (2) or more outside directors
("Outside Directors Committee") in compliance with Section 162)(m)(4)(C) of
the which shall have the exclusive authority to approve grants under the Plan
to the chief executive officer and to other executive officers whose
compensation may otherwise exceed the deduction limit of Section 162(m) of
the Code ("Executive Officers"). Grants approved by the
2
<PAGE>
Outside Directors Committee shall be subject to ratification by the Committee
as a whole if the appointment by the Committee so provides. Grants to
Executive Officers shall be contingent on shareholder approval of the
material terms of the Plan to the extent required under Section 162(m) of the
Code.
B. INTERPRETATION. The interpretation and construction by the Committee
of any provisions of the Plan or of any grant under the Plan shall be final
and conclusive for all purposes.
C. LIMITATION ON LIABILITY. Neither the Committee nor any member
thereof shall be liable for any act, omission interpretation, construction
or determination made in connection with the Plan in good faith and the
members of the Committee shall be entitled to indemnification and
reimbursement by the Company in respect of any claim, loss, damage or
expense (including counsel fees) arising therefrom to the full extent
permitted by law and the articles of incorporation of the Company. The
members of the Committee, if appointed, shall be named as insureds under
any directors and officers liability insurance coverage that may be in
effect from time to time.
4. SHARES SUBJECT TO GRANTS UNDER THE PLAN
The aggregate number of shares which may be issued under Awards granted
under the Plan shall not exceed 3,000,000 shares of Common Stock; provided
however, that the number of shares with respect to which Awards may be
granted to any single Executive Officer of the Company during any fiscal year
shall not exceed 2,000,000 shares of Common Stock. Such shares may consist
of authorized but unissued shares of Common Stock or previously issued
shares of Common Stock reacquired by the Company. Until termination of the
Plan, the Company shall at all times make available a sufficient number of
shares to meet the requirements of the Plan and the outstanding Awards. The
aggregate number of shares of Common Stock which are available for Awards
under the Plan shall be decreased by each exercise of an Option, and by each
grant of Restricted Stock. To the extent that such Award lapses the shares
theretofore subject to such Award may again be granted under the Plan. If
any Award, in whole or in part, expires or terminates unexercised or is
canceled or forfeited, the shares covered by such Award may be subject to
another Award granted under the Plan. Nevertheless, an Award that is
canceled, lapses, expires or is forfeited will continue to be counted against
the individual limit on Awards granted to a single Executive Officer in any
fiscal year. The aggregate number of shares which may be issued under awards
granted under the Plan shall be subject to adjustment as provided in Section
8 hereof.
5. ELIGIBILITY
The individuals who shall be eligible to receive Awards under the Plan
shall be such key employees, directors, independent consultants and other
individuals as the Committee from time to time shall determine. However,
only employees of the Company and Subsidiaries shall be eligible to receive
grants of ISOs. In granting Awards, the Board, the Committee or the
shareholders shall take into consideration the contribution an individual has
made or may make to the success of the Company or its Subsidiaries and such
other factors as the Committee shall determine. The Board,
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the Committee or the shareholders shall also have the authority to consult
with and receive recommendations from officers and other employees of the
Company and its Subsidiaries with regard to these matters. In no event shall
any individual or his legal representatives, heirs, legatees, distributees or
successors have any right to participate in the Plan except to such extent,
if any, as the Committee shall determine.
Awards may be granted under the Plan from time to time in substitution
for stock options, restricted stock or other stock-based compensation awards
granted by other corporations where, as a result of a merger or consolidation
of such other corporation, or the acquisition by the Company or a Subsidiary
of stock or other beneficial ownership interest in such other corporation,
the individuals who held such awards become eligible to receive Awards under
the Plan.
6. GRANTS AND TERMS OF OPTIONS
A. GRANTS OF OPTIONS. Grants of Options under the Plan shall be for
such number of shares of Common Stock and shall be subject to such terms and
conditions as the Board, the Committee or the shareholders shall designate.
Options may be granted by the Board, the Committee or the shareholders to any
eligible individual at any time and from time to time.
B. TERMS OF OPTIONS. Each grant of an Option shall be evidenced by an
Agreement executed by an authorized officer of the Company. Each Agreement
shall be in a form approved by the Committee, shall comply with and be
subject to the terms and conditions of the Plan and may contain such other
provisions, consistent with the terms and conditions of the Plan and the
specific Awards, as the Committee shall deem advisable. References herein to
an Agreement shall include, to the extent applicable, any amendment to the
Agreement and any interpretation or construction thereof by the Committee
pursuant to this Plan.
(1) Exercise of Options. Options shall not be exercisable prior to
the date six (6) months following the Grant Date. In the discretion
of the Committee, each Agreement may state that the Option granted
therein may not be exercised in whole or in part for a period or
periods of time specified in such Agreement and may further limit
the exercisability of the Option in such a manner as the Committee
deems appropriate, consistent with the terms of the specific Award.
In addition, the Committee may, by a resolution duly adopted,
suspend the exercisability of all outstanding Options at any time
and from time to time upon a determination, in its discretion that
such suspension is in the best interests of the Company and its
shareholders; provided, that the resolution effecting any such
suspension shall also make provision for the exercise of all
outstanding Options for a reasonable period of time following such
suspension (but in no event less than 30 days). Except as provided
herein or as so specified in the Agreement or in a resolution of the
Committee, any Option may be exercised in whole at any time or in
part from time to time during its term. The Committee may, in its
discretion, consistent with the terms of the specific Award, at any
time and from time to time accelerate the exercisability of all or
part of any Option. A recipient of the Option ("Optionee") may
exercise an Option by providing written notice to the Company at any
time or
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from time to time during the period such Option is exercisable and
by satisfying such other conditions as set forth in the Agreement
relating to the Option, including without limitation satisfying the
requirements for tax withholding with respect to such exercise.
(2) PAYMENT OF OPTION EXERCISE PRICE. Upon exercise of an Option, the full
price per share (the "EXERCISE PRICE") for the shares with respect to which
the Option is being exercised shall be payable to the Company (i) in cash or
by check payable and acceptable to the Company, (ii) by tendering to the
Company shares of Common Stock owned by the Optionee for at least six months,
having an aggregate Market Value Per Share (as defined below) as of the date
of exercise and tender that is not greater than the Exercise Price for the
shares with respect to which the Option is being exercised and by paying any
remaining amount of the Exercise Price as provided above, or (iii) by the
Optionee delivering to the Company a properly executed exercise notice
together with irrevocable instructions to a broker to promptly deliver to the
Company cash or a check payable and acceptable to the Company to pay the
option exercise price, provided that the Optionee and the broker shall comply
with such procedures and enter into such agreements of indemnity as the
Committee may prescribe as a condition of such payment procedure. In lieu of
(ii) above, upon confirming that the Optionee owns the number of additional
shares being tendered, a new certificate may be issued for the number of
shares being acquired pursuant to the exercise of the Option less the number
of shares being tendered upon the exercise and return to the Optionee (or not
require surrender of) the certificate for the shares being tendered upon the
exercise. Payment instruments will be received subject to collection.
(3) NUMBER OF SHARES. Each Agreement shall state the total number of shares
of Common Stock that are subject to the Option, which number shall be subject
to adjustment pursuant to Section 8.
(4) EXERCISE PRICE. The Exercise Price for each Option shall be fixed on,
or in case of ratification by the shareholders as of, the Grant Date. The
Exercise Price may be greater or, other than with respect to an ISO, less
than the Market Value Per Share on the Grant Date, but in no event less than
the par value of the Common Stock; provided that, as to Options awarded to
Executive Officers, the Exercise Price shall be not less than the Market
Value Per Share on the Grant Date. The Exercise Price shall be subject to
adjustment pursuant to Section 8. Nothing contained herein shall prohibit the
Board of Directors or the Committee, in the sound exercise of business
judgment, from canceling outstanding Options and reissuing new Options at a
lower exercise price, in the event that the fair market value per share of
Common Stock at any time prior to the date of exercise falls below the
exercise price of Options granted pursuant to the Plan; provided, however,
that such actions shall only be permitted when approved by a majority of the
disinterested directors on the Board or the Committee as the case may be.
(5) TERM. The term of each Option shall be determined at the Grant Date;
provided, however, that each Option shall expire no later than ten years from
the Grant Date
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and in the event no determination is made to the contrary, shall expire ten
years from the Grant Date (such date, as determined by the Committee or
provided for herein, being referred to hereafter as the "EXPIRATION TIME").
(6) MARKET VALUE PER SHARE. "MARKET VALUE PER SHARE" shall be determined as
of any particular date by any fair and reasonable means determined by the
Board, the Committee or the shareholders, as the case may be.
(7) TERMINATION OF EMPLOYMENT.
(a) ISOs In the event that an Optionee's employment with the Company
shall terminate for reasons other than (i) permanent disability within the
meaning of Code Section 22(e)(3) or (ii) death, the Optionee shall have the
right, subject to subsections (1) and (5) above, to exercise any ISO at any
time during the period of three (3) months following such termination to the
extent the ISO was exercisable on the termination date.
In the event that an Optionee's employment with the Company shall
terminate due to permanent disability, the Optionee shall have the right,
subject to subsections (1) and (5) above, to exercise any ISO at any time
during the period of 12 months following such termination, to the extent such
ISO was exercisable on the termination date. Whether any termination of
employment is due to permanent disability, and whether any authorized leave
of absence or absence on military or government service or for other reasons
shall constitute a termination of employment, for the purposes of the Plan
shall be determined by the Committee.
If an Optionee shall die while entitled to exercise an ISO, the
Optionee's estate, personal representative or beneficiary, as the case may
be, shall have the right, subject to subsections (1) and (5) above, to
exercise any ISO at any time during the period of 12 months following the
date of the Optionee's death, to the extent that such ISO was exercisable on
the date of the Optionee's death.
In the absence of a provision to the contrary contained in the Agreement,
an ISO which has not been exercised during the period of 12 months following
the date of an Optionee's death or permanent disability, shall be and become
a Nonqualified Option exercisable for the remainder of the term of the
Agreement, if not previously expired, to the same extent that such Option was
exercisable during such 12 month period.
The Committee may, in its discretion, consistent with the terms of the
specific grant, (i) accelerate the exercisability of all or part of an ISO
that is not otherwise exercisable or (ii) provide that an ISO shall remain
outstanding and be exercisable following termination of employment (or other
specified events in the case of non-employees) on such other terms and
conditions as the Committee shall approve consistent with the Code and the
regulations promulgated thereunder regarding ISOs.
(b) Nonqualified Options. With respect to Nonqualified Options, the
Board, the Committee or the shareholders, as the case may be, may specify any
terms and conditions
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upon which such Nonqualified Option shall terminate. The Committee may, in
its discretion, consistent with the terms of the specific grant, (i)
accelerate the exercisability of all or part of a Nonqualified Option that is
not otherwise exercisable or (ii) provide that a Nonqualified Option shall
remain outstanding and be exercisable following termination of employment (or
other specified events in the case of non-employees) on such other terms and
conditions as the Committee shall approve. Notwithstanding the above, in the
event an employee ceases to be an employee by reason of retirement or death,
the total number of shares of common stock covered by the Nonqualified Option
shall thereupon become exercisable provided such Nonqualified Option shall
have been granted at least six months prior to such retirement or death.
(8) ELIGIBILITY FOR INCENTIVE STOCK OPTIONS. ISOs may be granted to
individuals who are key employees (including officers who are also key
employees) of the Company at the time the ISO is granted. ISOs may be
granted to the same individual on more than one occasion, but in no event
shall an ISO be granted after June 8, 2007.
No employee shall be eligible to receive ISOs that become exercisable for
the first time in any calendar year with respect to stock with an aggregate
fair market value (determined at the Grant Date) in excess of $100,000 (or
such other limits as may be imposed by the applicable laws and regulations
under the Code in effect on the date of grant). This limitation applies to
the aggregate amount of ISOs granted under the Plan and all other option
plans of the Company, its parent and subsidiary corporations
(9) RELOAD OPTIONS. In the event a person who is an active employee of the
Company or a Subsidiary shall exercise an Option (the "ORIGINAL OPTION") by
paying all or a portion of the Exercise Price of the shares of Common Stock
subject to the Original Option by tendering to the Company shares of Common
Stock owned by such person, which have been held by him or her for at least
six months, or an amount in cash equal to the Exercise Price, an Option to
purchase the number of shares of Common Stock, obtained by the employee upon
exercise (the "RELOAD OPTION") shall be deemed granted to the employee as of
the exercise date; provided that a Reload Option has been granted to such
Optionee with respect to such Option, as evidenced in his Agreement and that
the employee does not reject such Reload Option in accordance with this
Section 6. The Exercise Price of the Common Stock subject to the Reload
Option shall be 100% of Market Value Per Share of the Common Stock on such
date, subject to adjustment as provided in Section 8. The Reload Option may
be used or refused with respect to each tranche of options as they vest and
are exercised on a one-time basis, (even if the employee elects to exercise
less than the total number of vested shares). If the employee elects to
accept the Reload Option, the employee must agree that all shares purchased
through the exercise of the original Option must be held for some minimum
period of time established by the Compensation Committee and set forth in the
Employee's Agreement. In no event shall any Reload Options be granted if it
would cause the number of Awards granted to any Executive Officer in a year
to exceed the individual limit in Section 4 above.
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7. RESTRICTED STOCK
A. AWARDS OF RESTRICTED STOCK. Restricted Stock may be awarded to any
individual eligible to receive the same, at any time and from time to
time. The issuance of Restricted Stock to an individual pursuant to an
Award may be made subject to such restrictions and the future
satisfaction or occurrence of terms, conditions or contingencies
(collectively, "Conditions") set when the Award is made, such that
failure of any Condition shall cause all or part of such shares to be
forfeited.
B. DESCRIPTION OF RESTRICTED STOCK. Shares of Restricted Stock may not
be sold, exchanged, pledged, transferred, assigned or otherwise
encumbered or disposed of until the Conditions set at the time of the
Award have been satisfied. A share of Restricted Stock shall be subject
to such restrictions and Conditions as may be established at the time of
the Award, which may include, without limitation, "LAPSE" and "NON-LAPSE"
restrictions (as such terms are defined in regulations promulgated under
Section 83 of the Code) and the achievement of specific goals. The
Committee may, in its discretion, consistent with the terms of the
specific Award, at any time and from time to time accelerate the "lapse"
restrictions or reduce the "non-lapse" restrictions of all or any part of
a Restricted Stock Award.
After the satisfaction or occurrence of the Conditions and the lapse of
all restrictions, a certificate, without a legend shall be delivered to
the recipient for the number of shares that are no longer subject to
restrictions and Conditions. The remaining shares of Restricted Stock
issued with respect to such Award, if any, shall either be returned to
the Company and forfeited by the recipient or, if appropriate under the
terms of the Award applicable to such shares, shall continue to be
subject to the restrictions and Conditions.
C. PAYMENT OF RESTRICTED STOCK. The satisfaction of the Conditions and
the lapse of all actions, and the delivery of a certificate without a
legend for the portion of such award that is no longer subject to
restrictions and Conditions, is hereinafter referred to as the "payment"
of such portion of the Award. Subject to the provisions above, each
Award shall be paid at the time and in the manner specified at the time
of the Award.
D. PAYMENT IN THE EVENT OF TERMINATION OF EMPLOYMENT. In the event a
recipients employment with the Company shall terminate prior to the
satisfaction or occurrence of a Condition applicable to all or a portion
of an Award of Restricted Stock, then such portion of the Award shall be
returned to the Company and forfeited by the recipient; provided,
however, if the termination of employment is due to the employee's death,
permanent disability or retirement, the Committee may, in its sole
discretion, deem the Conditions to have been met for all or part of such
portion of the Award. With respect to the shares of Restricted Stock
granted to an individual who is not an employee of the Company on the
Grant Date, the Committee may specify the circumstances upon which the
shares of Restricted Stock shall be forfeitable prior to the satisfaction
of applicable Conditions.
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If a recipient dies after satisfaction of the Conditions for the
payment of all or a portion of an Award of Restricted Stock but prior to the
actual payment of all or such portion thereof, such payment shall be made to
the recipient's beneficiary or beneficiaries at the time and in the same
manner that such payment would have been made to the recipient.
8. RECAPITALIZATION OR REORGANIZATION
A. The existence of the Plan and the Awards granted hereunder shall not
affect in any way the right or power of the Board or the shareholders of
the company to make or authorize any adjustment, recapitalization,
reorganization or other change in the Company's capital structure or its
business, any merger or consolidation of the Company, any issue of bonds,
debentures, preferred or prior preference stocks ahead of or affecting
Common Stock or the rights thereof, the dissolution or liquidation of the
Company or any sale or transfer of all or any part of its assets or
business, or any other corporate act or proceeding.
B. The shares with respect to which awards may be granted are shares of
Common Stock as presently constituted.
(i) STOCK SPLIT. If, and whenever, prior to the termination of the
Plan or the expiration of an outstanding Option, the Company shall
effect a subdivision of shares of Common Stock or the payment of a
stock dividend on Common Stock without receipt of consideration by the
Company, the remaining shares of Common Stock available under the Plan
and the number of shares of Common Stock with respect to which
outstanding Options may thereafter be exercised shall be
proportionately increased, and the Exercise Price under outstanding
Options shall be proportionately reduced.
(ii) REVERSE STOCK SPLIT. If, and whenever, prior to the termination
of the Plan or the expiration of an outstanding Option, the Company
shall effect a consolidation of shares of Common Stock, the remaining
shares of Common Stock available under the Plan and the number of
shares of Common Stock with respect to which any outstanding Option may
thereafter be exercised shall be proportionately reduced, and the
Exercise Price under the outstanding Options shall be proportionately
increased.
C. Except as may otherwise be expressly provided in the Plan, the
issuance by the Company of shares of stock of any class or securities
convertible into shares of stock of any class, shall not affect Options
granted under this Plan, and no adjustments shall be made to the grants
under this Plan.
D. If the Company effects a recapitalization or otherwise materially
changes its capital structure (both of the foregoing are herein referred
to as a ("FUNDAMENTAL CHANGE") then thereafter upon any exercise of an
Option theretofore granted, the holder shall be entitled to purchase
under such Option, in lieu of the number of shares of Common Stock that
would have been received, the number and class of shares of stock and
securities to which the holder would have been entitled pursuant to the
terms of the Fundamental Change if,
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immediately prior to such Fundamental Change, the Optionee had been
the holder of record of that number of shares of Common Stock.
E. Any adjustment provided for above shall be subject to any required
shareholder action.
9. RECIPIENT'S AGREEMENT; COMPLIANCE WITH SECURITIES REGULATIONS
If, at the time of the exercise of any Option or award of Restricted
Stock, in the opinion of counsel for the Company, it is necessary or
desirable, in order to comply with any then applicable laws or
regulations relating to the sale of securities, for the individual
exercising the Option or receiving the Restricted Stock to agree to hold
any of their shares for investment and without intention to resell or
distribute the shares and to agree to dispose of such shares only in
compliance with such laws and regulations, the individual will, upon the
request of the company, execute and deliver to the Company a further
agreement to such effect.
10. WITHHOLDING FOR TAXES
Any cash payment under the Plan shall be reduced by any amounts
required to be withheld or paid with respect thereto under all present
or future federal, state and local tax and other laws and regulations
that may be in effect as of the date of each such payment ("TAX
AMOUNTS"). Any issuance of Common Stock pursuant to the exercise of an
Option or other distribution of Common Stock under the Plan shall not be
made until appropriate arrangements have been made for the payment of
any amounts that may be required to be withheld or paid with respect
thereto. Such arrangements may, at the discretion of the Committee,
include allowing the participant to tender to the Company shares of
Common Stock owned by the participant, or to request the Company to
withhold a portion of the shares of Common Stock being acquired pursuant
to the exercise or otherwise distributed to the participant, which have
a Market Value Per Share as of the date of such exercise, tender or
withholding that is not greater than the sum of all Tax Amounts,
together with payment of any remaining portion of all Tax Amounts in
cash or by check payable and acceptable to the Company. Payment
instruments will be received subject to collection.
11. DESIGNATION OF BENEFICIARY
Each individual to whom an Award has been made under this Plan may
designate a beneficiary or beneficiaries (which beneficiary may be an
entity other than a natural person) to receive any payment that under
the terms of such Award may become payable on or after the individual's
death. At any time, and from time to time, any such designation may be
changed or canceled by the individual without the consent of any such
beneficiary. Any such designation, change or cancellation must be on a
form provided for that purpose by the Committee and shall not be
effective until received by the Committee. If no beneficiary has been
named by a deceased participant, or the designated beneficiaries have
predeceased the individual, the beneficiary shall be the individual's
estate. If an individual designates more
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than one beneficiary, any payments under this Plan to such beneficiaries
shall be made in equal shares unless the individual has designated
otherwise, in which case the payments shall be made in the shares
designated by the individual.
12. CHANGE OF CONTROL
A. Notwithstanding anything in this Plan to the contrary, in the event
of a Change of Control, the unexercised Options outstanding under this
Plan will automatically become exercisable in full and all Conditions to
which any Restricted Stock is subject shall be deemed satisfied as of
the Change of Control Date. The existence of this Plan or of Options
granted hereunder shall not in any way prevent any Change of Control
transaction and no holder of Options granted under this Plan shall have
the right to prevent any such transaction.
B. For purposes of the Plan, the term "CHANGE OF CONTROL" shall mean
the occurrence of any one or more of the following events:
(1) any corporation (other than the Company or a Subsidiary),
person or group (within the meaning of Sections 13(d) or 14(d)(2) of the
1934 Act) makes a tender or exchange offer which, if consummated, would
make such corporation, person or group the beneficial owner (within the
meaning of Rule 13d-3 under the 1934 Act) of voting securities of the
Company representing more than 25% of the total number of votes eligible
to be cast at any election of directors of the Company and, pursuant to
such offer, purchases are made (an "OFFER");
(2) the shareholders of the Company approve an agreement to merge
or consolidate the Company with or into another corporation or to sell,
lease or otherwise dispose of all or substantially all of its assets, or
adopt a plan of liquidation;
(3) any corporation, person or group (within the meaning of
Sections 13(d) and 14(d)(2) of the 1934 Act), other than E. I. Du Pont
de Nemours and Company or their affiliates, becomes the beneficial owner
(within the meaning of Rule 13d-3 under the 1934 Act) of voting
securities of the Company representing more than 25% of the total number
of votes eligible to be cast at any election of directors of the
Company; or
(4) those persons who constitute the Directors at the beginning of
any one-year period cease to constitute a majority of the Board at any
time during such one-year period; provided that changes in board
membership among the employees or consultants of E. I. du Pont de
Nemours and Company who are Directors or nominees of the Company shall
not be considered in determining whether this event has occurred.
As used herein, the term ("CHANGE OF CONTROL DATE") means the first
purchase of voting securities of the Company pursuant to an Offer, the
date of any shareholder approval or adoption of an agreement or plan
referred to in Section 12.B.(2), the date on which the event described
in Section 12.B.(3) occurs, or the date on which the change in
constituency of the Board, described in Section 12.B.(4) occurs, as the
case may be.
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C. In the event that the Compensation Committee determines that an
"excess parachute payment" (as defined in Code Sec. 280G) would result
if the full acceleration Provision in this Section occurred (when added
to any other payments or benefits under any other agreements,
arrangements or plans that are contingent on a Change of Control or that
would otherwise constitute "parachute payments" as defined in Code Sec.
280G) then the number of shares as to which exercisability is
accelerated shall be reduced at the election of the Compensation
Committee to the minimum extent necessary to prevent any "excess
parachute payment" from occurring ("the limitation"). Notwithstanding
the above, if, in the opinion of the Compensation Committee, the total
"parachute payments" (reduced by the amount of excise tax imposed on the
employee under Code Section 4999 and by the state and federal income
taxes on all such payments in excess of such limitation) would exceed
such total amounts payable if such limitation were applied, the
Compensation Committee shall not reduce the number of accelerated shares.
D. In the event of a dissolution or liquidation of the Company or a
merger or consolidation in which the Company is not the surviving
corporation or becomes the wholly-owned subsidiary of another
corporation, any outstanding options hereunder may be terminated by the
Company as of the effective date of such dissolution, liquidation,
merger or consolidation by giving notice to each holder thereof of its
intention to do so not less than (10) days preceding such effective date
and permitting the exercise until such effective date, or the Expiration
Date if earlier, of all such outstanding Options. Notwithstanding the
preceding sentence, if the Company is not the surviving corporation or
becomes the wholly owned subsidiary of another corporation as a result
of the Company being reorganized or merged or consolidated with another
corporation while unexercised options are outstanding under this Plan,
the surviving or parent corporation, as the case may be, may either (1)
assume the unexercised options outstanding under this Plan; or (2)
substitute new options in the surviving corporation or parent
corporation, as the case may be, for the outstanding Options. The
latter alternative can be used only if the excess of the aggregate fair
market value of the securities subject to the options immediately after
the substitution or assumption over the aggregate option price of such
shares is not less than the excess of the aggregate fair market value of
the Common Stock subject to the outstanding Option immediately before
such substitution or assumption over the aggregate option price of such
Common Stock, and that the vesting status of any substituted options
duplicates as nearly as practicable the vesting status of the old
options.
13. MISCELLANEOUS
A. NO EMPLOYMENT CONTRACT. Nothing contained in the Plan shall be
construed as conferring upon any employee the right to continue in the
employ of the Company or any Subsidiary.
B. EMPLOYMENT WITH SUBSIDIARIES. For purposes of determining
employment with respect to ISOs, employment by the Company shall be
deemed to include employment by, and to continue during any period in
which an employee is in the employment of any Subsidiary.
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C. NO RIGHTS AS A SHAREHOLDER. A participant shall have no rights as a
shareholder with respect to shares covered by such participant's Option
or Restricted Stock award until the date of the issuance of shares to
the employee pursuant thereto. No adjustment will be made for dividends
or other distributions or rights for which the record date is prior to
the date of such issuance.
D. NO RIGHT TO CORPORATE ASSETS. Nothing contained in the Plan shall
be construed as giving any participant, such participant's beneficiaries
or any other person any equity or other interest of any kind in any
assets of the Company or any Subsidiary or creating a trust of any kind
or a fiduciary relationship of any kind between the Company or a
Subsidiary and any such person, except to the extent such person is a
holder of shares of Common Stock issued pursuant to the Plan.
E. NO RESTRICTION ON CORPORATE ACTION. Nothing contained in the Plan
shall be construed to prevent the Company or any Subsidiary from taking
any corporate action that is deemed by the Company or such Subsidiary to
be appropriate or in its best interest, whether or not such action would
have an adverse effect on the Plan or any award made under the Plan. No
participant, beneficiary or other person shall have any claim against
the Company or any Subsidiary as a result of any such action.
F. ASSIGNABILITY. All or a portion of the Nonqualified Options and
Restricted Stock to be granted to an Optionee may, in the discretion of
the Committee (or the Board of Directors, as the case may be), be on
terms that permit transfer without consideration by such Optionee to:
(i) the spouse, children or grandchildren of the Optionee
("Immediate Family Members"),
(ii) a trust or trusts for the exclusive benefit of such Immediate
Family Members (including a custodian under a Uniform Gifts to
Minors Act for the benefit of a child or grandchild), or
(iii) a partnership or other entity in which such Immediate Family
Members are the only partners, PROVIDED that (A) the stock option
agreement pursuant to which such Nonqualified Options or
Restricted Stock are granted must be approved by the Committee,
and must expressly provide for transferability in a manner
consistent with this Section, and (B) subsequent transfers of
transferred Options or Restricted Stock shall be prohibited
except by will or the laws of descent and distribution.
Following transfer, any such Options or Restricted Stock shall
continue to be subject to the same terms and conditions as were
applicable immediately prior to transfer, provided that for
purposes of each Agreement and Sections 6.B(2) and 10 hereof the
term "Optionee" shall be deemed to refer to the transferee
(however, the events of termination of employment of Section 7.D
hereof shall continue to be applied with respect to the original
Optionee). Except as set forth above, Options and
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Restricted Stock may not be transferred except by will or the
laws of descent and distribution.
G. APPLICATION OF FUNDS. The proceeds received by the Company from the
sale of shares of Common Stock pursuant to the Plan will be used for
general corporate purposes.
H. GOVERNING LAW; CONSTRUCTION. All rights and obligations under the
Plan shall be governed by, and the Plan shall be construed in accordance
with, the laws of the State of Delaware without regard to the principles
of conflicts of laws. Titles and headings to Sections herein are for
purposes of reference only, and shall in no way limit, define or
otherwise affect the meaning or interpretation of any provisions of the
Plan.
I. AMENDMENT AND TERMINATION. The Committee may from time to time and
at any time alter, amend, suspend, discontinue or terminate this Plan
and any Awards hereunder; provided, however, that no such action of the
Committee may, without the approval of the shareholders of the Company,
alter the provisions of the Plan so as to (i) increase the maximum
number of shares of Common Stock that may be subject to Awards and
distributed in the payment of Awards and exercises under the Plan
(except as provided in Section 8); (ii) change the eligibility
provisions of the Plan; or (iii) change the individual limit in Section
4 above. For the purposes of awarding ISOs, the Plan shall terminate on
June 8, 2007, and no ISOs shall be awarded after such date.
J. PREEMPTION BY APPLICABLE LAWS AND REGULATIONS. Notwithstanding the
above, if the issuance or other distribution of shares of Common Stock
or Restricted Stock would cause a breach of any applicable law or
regulation, absent some act by the individual or the Company, the
issuance or distribution of such shares, as the case may be, shall be
deferred until such action shall have been taken.
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