<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [_]
Check the appropriate box:
[X] Preliminary Proxy Statement
[_] CONFIDENTIAL, FOR USE OF THE
COMMISSION ONLY (AS PERMITTED BY
RULE 14A-6(E)(2))
[_] Definitive Proxy Statement
[_] Definitive Additional Materials
[_] Soliciting Material Pursuant to (S) 240.14a-11(c) or (S) 240.14a-12
DuPont Photomasks, Inc.
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(Name of Registrant as Specified In Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[_] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
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(2) Aggregate number of securities to which transaction applies:
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(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which
the filing fee is calculated and state how it was determined):
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(4) Proposed maximum aggregate value of transaction:
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(5) Total fee paid:
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[_] Fee paid previously with preliminary materials.
[_] Check box if any part of the fee is offset as provided by Exchange
Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee
was paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
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(2) Form, Schedule or Registration Statement No.:
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(3) Filing Party:
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(4) Date Filed:
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Notes:
<PAGE>
DuPont Photomasks, Inc.
131 Old Settlers Boulevard
Round Rock, Texas 78664
512-310-6500
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD OCTOBER 26, 1999
To our Stockholders
Notice is hereby given that our 1999 Annual Meeting of Stockholders will be
held at the Doubletree Hotel, 6505 North IH-35, Austin, Texas 78751, on Tuesday,
October 26, 1999 at 10:00 a.m. local time and any adjournment thereof, for the
following purposes:
(1) To adopt and approve amendments to our Amended and Restated
Certificate of Incorporation which generally impose certain measures
affecting stockholders' rights and certain "anti-takeover" provisions
in connection with changes of control of our company, including:
(A) The division of our Board of Directors into three classes to be
elected for separate terms of office.
(B) Supermajority requirements of 66 2/3% of the voting power of all
issued and outstanding shares of voting stock with respect to the
removal of any director or the entire Board of Directors or the
amendment, change or repeal of certain provisions of the Amended
and Restated Certificate of Incorporation and Bylaws.
(C) Increase the authorized number of shares of our common stock from
25,000,000 to 100,000,000 shares.
(D) Eliminate the existing maximum on the liquidation preference of
any preferred stock that we may issue from time to time.
(E) Eliminate the ability of our stockholders to take action by
written consent.
(F) Special provision governing the election of directors by holders
of our preferred stock that we may issue from time to time.
(2) To elect to our Board of Directors seven directors, to serve until our
2000 annual meeting of Stockholders or until their successors are
elected and qualify, subject to their prior death, resignation or
removal;
(3) To adopt and approve an amendment to our 1997 Stock Option and
Restricted Stock Plan to increase the number of shares of our common
stock authorized for issuance under the plan by 2,000,000 shares;
(4) To ratify the appointment of PricewaterhouseCoopers LLP, as
independent public accountants for our company for the year ending
June 30, 2000; and
(5) To transact such other business as may properly come before the
meeting and any adjournments thereof.
Our Board of Directors recommends an affirmative vote on the items
described above. E.I. du Pont de Nemours and Company beneficially owned
8,400,000 shares (approximately 54.6%) of our common stock on the record date
and thus will be able to control the vote on the items described above. DuPont
has indicated its intention to vote in favor of the items described above.
Only stockholders of record at the close of business on September 7, 1999
are entitled to notice of and to vote at the annual 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 annual meeting if you wish, even
though you may have submitted your proxy prior to the meeting. If you attend the
meeting and vote in person, your proxy will automatically be revoked and only
your vote at the meeting will be counted. Our Bylaws require that the holders of
a majority of the outstanding shares of our common stock 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 us is greatly appreciated.
By order of our Board of Directors
/s/ MARSHALL C. TURNER
Marshall C. Turner
Chairman of our Board and Chief Executive Officer
September 10, 1999
<PAGE>
DUPONT PHOTOMASKS, INC.
131 Old Settlers Boulevard
Round Rock, Texas 78664
PROXY STATEMENT
1999 Annual Meeting of Stockholders
SOLICITATION, EXERCISE AND REVOCATION OF PROXIES
The accompanying proxy is solicited on behalf of our Board of Directors to
be voted at our 1999 Annual Meeting of Stockholders. Our annual meeting will be
held at the Doubletree Hotel, 6505 North IH-35, Austin, Texas 78751, on Tuesday,
October 26, 1999 at 10:00 a.m. local time. In addition to the original
solicitation by mail, certain of our regular employees may solicit proxies by
telephone 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 us. You may vote in person at our 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 27, 1999.
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 Mr. John M. Lynn unless
the stockholder granting such proxy votes in person at our annual meeting.
VOTING OF SECURITIES
The record date for the determination of stockholders entitled to vote at
our annual meeting is September 7, 1999. As of such date, we had outstanding
15,378,623 shares of our common stock, $.01 par value per share. Our common
stock is the only class of our stock outstanding and entitled to vote at our
annual meeting. Each stockholder is entitled to one vote for each share of our
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 our annual meeting. The stockholders present at our
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 our annual meeting. Abstentions and broker non-votes (the
submission of a proxy by a broker or nominee specifically indicating the lack of
discretionary authority to vote on the matter) will be counted as present for
purposes of determining the presence or absence of a quorum for the transaction
of business.
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 ANNUAL MEETING IN PERSON.
DISCLOSURE REGARDING ANTI-TAKEOVER PROPOSALS
Our Board of Directors has approved a proposal to amend our Amended and
Restated Certificate of Incorporation, also referred to or called our Charter,
to include certain provisions available to public companies under Delaware law
that deter hostile take-over attempts, as more particularly described below.
Our Board of Directors has also approved amendments to our Bylaws consistent
with the proposed amendments to our Charter, which are to become effective
simultaneously with the effectiveness of the proposed amendments to our Charter.
If the proposed amendments to our Charter are approved, the Charter and Bylaws,
as so amended, will become the governing instruments of our company and will
differ in several respects from our existing Charter and Bylaws. Some of the
changes will be procedural in nature but others will result in material changes
in stockholders' rights and corporate procedures from those currently provided.
Copies of the proposed amendments to the Charter and Bylaws are attached hereto
as Exhibits A and
<PAGE>
B. Our stockholders should carefully review the proposed amendments to determine
the nature and desirability of the proposed changes.
In considering the proposals, our stockholders should be aware that the
overall effect of the proposed provisions is to make it more difficult for
holders of a majority of the outstanding shares of our common stock to change
the composition of our Board of Directors and to remove existing management in
circumstances where a majority of the stockholders may be dissatisfied with the
performance of the incumbent directors or otherwise desire to make changes.
These provisions, if included in our Charter and Bylaws, could make a proxy
contest a less effective means of removing or replacing existing directors or
could make it more difficult to make a change in control of our company which is
opposed by our Board of Directors. This strengthened tenure and authority of the
Board of Directors could enable it to resist change and otherwise thwart the
desires of a majority of the stockholders. Because these provisions may have the
effect of continuing the tenure of the current directors, our Board of Directors
has recognized that the individual directors have a personal interest in these
provisions that may differ from those of our stockholders. However, our Board of
Directors believes that these provisions' primary purpose is to ensure that it
will have sufficient time to consider fully any proposed takeover attempt in
light of the short-term and long-term benefits and other opportunities available
to our company and, to the extent our Board of Directors determines to proceed
with any takeover, to effectively negotiate terms that would maximize the
benefits to our company and to our stockholders.
A hostile takeover attempt may have a positive or negative effect on a
corporation and its stockholders, depending on the circumstances surrounding a
particular takeover attempt. Takeover attempts that have not been negotiated or
approved by the Board of Directors of a corporation can seriously disrupt the
business and management of a corporation and generally present to the
stockholders the risk of terms which may be less than favorable to all of the
stockholders than would be available in a board-approved transaction. Board-
approved transactions may be carefully planned and undertaken at an opportune
time in order to obtain maximum value for the corporation and all of its
stockholders with due consideration to matters such as the recognition or
postponement of gain or loss for tax purposes, the management and business of
the acquiring corporation and the maximum strategic deployment of corporate
assets. In addition, in the case of a proposal which is presented to a Board of
Directors, there is a greater opportunity for the Board of Directors to analyze
the proposal thoroughly, to develop and evaluate alternatives, to negotiate for
improved terms and to present its recommendations to stockholders in the most
effective manner.
Our Board of Directors recognizes that hostile takeover attempts do not
always have the unfavorable consequences or effects described above and may
frequently be beneficial to stockholders, providing all stockholders with
considerable value for their shares. However, our Board of Directors believes
that the potential disadvantages of unapproved takeover attempts are
sufficiently great such that prudent steps to reduce the likelihood of such
takeover attempts are in the best interests of our company and our stockholders.
Accordingly, our Board of Directors has proposed certain measures for inclusion
in our Charter and Bylaws that may have the effect of discouraging or deterring
hostile takeover attempts.
Notwithstanding the belief of our Board of Directors as to the benefits to
our stockholders of the changes, stockholders should recognize that one of the
effects of such changes may be to discourage a future attempt to acquire control
of our company which is not presented to and approved by our Board of Directors,
but which a substantial number, and perhaps even a majority, of our stockholders
might believe to be in their best interests or in which stockholders might
receive a substantial premium for their shares over the current market price. As
a result, stockholders who might desire to participate in such a transaction may
not have an opportunity to do so.
In addition, by increasing the probability that any person or group seeking
control of our company would be forced to negotiate directly with our Board of
Directors, the proposed takeover defenses could discourage takeover bids by
means of a hostile tender offer, proxy contest or otherwise without the approval
of our Board of Directors. Thus, the principal disadvantages to the stockholders
which result from discouraging such hostile takeover bids would be to (i) reduce
the likelihood that any acquiror would make a hostile tender offer for the
outstanding shares of stock of our company at a premium over the market rate and
(ii) increase the difficulty of removing our existing Board of Directors and
management even if in a particular case removal would be beneficial to
stockholders generally.
It should be noted, however, that our Board of Directors has a fiduciary
duty to our stockholders to negotiate in the best interests of our stockholders
and not for its own interests. Further, while the proposed takeover defenses may
discourage hostile takeover attempts, these provisions would not prevent a
hostile acquisition of our company.
<PAGE>
Our Board of Directors has considered the potential disadvantages and
believes that the potential benefits of the provisions described below outweigh
the possible disadvantages. In particular, our Board of Directors believes that
the benefits associated with enabling our Board of Directors to fully consider
and negotiate proposed takeover attempts make these proposals beneficial to our
company and to our stockholders.
The proposal to include these anti-takeover provisions in our Charter and
Bylaws does not reflect knowledge on the part of our Board of Directors or
management of any proposed takeover or other attempt to acquire control of our
company. Management may in the future propose or adopt other measures designed
to discourage takeovers apart from those proposed in this Proxy Statement, if
warranted, from time to time in the judgment of our Board of Directors, although
there is no such intention at the present time.
Summary of Anti-Takeover Proposals
The anti-takeover proposals are summarized in the chart below. The
following chart does not purport to be an exhaustive discussion. It is qualified
in its entirety by reference to the Delaware General Corporation Law, our
Charter and Bylaws, as presently in effect, and our Charter and Bylaws as
proposed to be amended. Our stockholders are requested to read this chart in
conjunction with the discussions and proposals following this summary. It should
be noted that all of these proposals are submitted for single consideration and
vote by our stockholders, and no proposal will be adopted unless all these
proposals are adopted.
<TABLE>
<CAPTION>
Present Amended and Restated Certificate of Incorporation, as
Issue Certificate of Incorporation Proposed to be Amended
----- ---------------------------- --------------------------------
<S> <C> <C>
Classified Board............................ Each member of the Board of The Board of Directors is divided
Directors is elected annually. into three classes, designated
Class I, Class II and Class III.
Class I directors will hold
office until the 2000 annual
meeting; Class II directors will
hold office until the 2001 annual
meeting; and Class III directors
will hold office until the 2002
annual meeting. After each
election, the directors shall
serve in succeeding terms of
three years.
Supermajority Voting Requirement ........... (i) Directors may be removed (i) Directors may only be
with or without cause by a removed for cause by a 66 2/3%
majority vote of the stockholders. vote of the stockholders.
(ii) Any provision of the (ii) Certain provisions of the
Amended and Restated Certificate Amended and Restated Certificate
of Incorporation may be amended of Incorporation may not be
or repealed by a majority vote of amended or repealed without a 66
the stockholders. 2/3% vote of the stockholders.
(iii) Any provision of the (iii) No provision of the Bylaws
may be adopted, amended or may be adopted, amended or
repealed by a majority vote of repealed without a 66 2/3% vote
the Board of Directors. of the stockholders.
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C>
Increase in Number of Authorized
Shares of Common Stock...................... 25,000,000 shares of authorized 100,000,000 shares of
common stock authorized common stock
Preferred Stock
Liquidation Preference...................... Holders of preferred stock may At the time any series of
not receive more than $100 per preferred stock is
share plus accrued dividends designated, the Board of
if there is a voluntary Directors will have
liquidation, dissolution complete discretion to
or winding up of our company. determine the amounts, if
any, the holders of such
preferred stock will receive
if there is a voluntary
liquidation, dissolution or
winding up of our company.
Stockholder Action by
Written Consent............................. Stockholders may take action Stockholder action may be
by written consent or at a taken only at a duly called
meeting of stockholders. annual or special meeting of
stockholders.
Election of Directors by
Preferred Stockholders...................... Directors elected by The term of directors elected
preferred stockholders will by preferred stockholders will
serve for the period for end when preferred stockholders
which they are elected. are divested of their right to
elect such directors.
</TABLE>
<TABLE>
<CAPTION>
Bylaws, as Proposed to be
Present Bylaws Amended
-------------- -------------------------
<S> <C> <C>
Stockholder Meeting Protocol................ No provisions pertaining to Authority in the chairman of any
conduct of stockholder stockholder meeting to prescribe
meetings. rules for the conduct of such meeting,
including: (i) establishment of an agenda;
(ii) procedures to maintain order at the
meeting; (iii) attendance limited to
stockholders of recordd; (iv) restrictions on
entry after commencement of the meeting; and
(v) time limits for questions or comments by
participants.
Advance Notice Requirements
for Stockholders' Proposals
at Stockholder Meetings..................... No provisions pertaining to Provisions for director
nominations to the Board of nominations and for the
Directors or submission of submission of new business,
business to be considered by including: (i) may be made only
stockholders at the annual at the annual meeting by the
meeting. board or any stockholder; (ii)
timely notice must be given prior
to such meeting; (iii) the
nomination for director must set
forth the person proposed for
election; (iv) submission of new
business must set forth a brief
description of such business; and
(v) chairman of the meeting may
determine whether a nomination or
submission of new business was
made in accordance with these
procedures.
Authority to Call Special
Meetings of Stockholders.................... By the Board of Directors or Only by the Board of Directors
by holders of at least 25% of
our outstanding common stock
</TABLE>
APPROVAL OF ANTI-TAKEOVER PROVISIONS
(Proposal 1)
Our Board of Directors has proposed amendments to our Charter to
incorporate certain measures designed to protect our stockholders' interests in
the event of hostile takeover attempts against our company. Our Board of
Directors has also approved amendments to our Bylaws consistent with the
proposed amendments to our Charter, which are to become effective simultaneously
with the effectiveness of the proposed amendments to our Charter. Our Board of
Directors believes that these measures will enable it to more effectively
consider any proposed takeover attempt and to negotiate terms that maximize the
benefit to our company and to our stockholders.
<PAGE>
Stockholder Approval
Each of the proposed amendments to our Charter described in Proposals 1A,
1B, 1C, 1D, 1E and 1F below are conditioned upon stockholder approval of the
other proposed amendments to our Charter. None of the proposed amendments to our
Charter will be adopted unless all are approved by our stockholders. The
proposed amendments to our Bylaws described herein similarly are conditioned
upon approval of the proposed amendments to our Charter.
The affirmative vote of a majority of the outstanding shares of our common
stock is required for approval of each proposed amendment to our Charter.
Abstentions and broker non-votes will be counted towards the tabulation of votes
cast on each proposal and will have the same effect as negative votes. If all of
the proposed amendments to our Charter are approved at the annual meeting, they
would become effective upon filing a certificate of amendment to our Charter
with the Secretary of State of Delaware, which filing is expected to take place
shortly after such stockholder approval.
Board Recommendation
Our Board of Directors believes that approval of each Proposals 1A, 1B, 1C,
1D, 1E and 1F is in the best interests of our company and our stockholders. Our
Board of Directors, therefore, recommends that you vote FOR each such proposal;
and it is intended that proxies not marked to the contrary will be so voted.
AMENDMENTS TO OUR CHARTER
Classified Board of Directors Removable Only for Cause
(Proposal 1A)
A classified Board of Directors divides directors into two or three
"classes" elected for staggered "terms" of two or three years. The
classification system of electing directors may tend to maintain the incumbency
of the Board of Directors as it generally makes it more difficult for
stockholders to change a majority of the directors. A classified Board of
Directors may also contribute to the continuity and stability of leadership and
policy. Classification of the Board of Directors might make it more difficult
for a person acquiring shares to take immediate control of the Board of
Directors.
Delaware law permits the adoption of a classified Board of Directors with
staggered terms. A maximum of three classes of directors is permitted by
Delaware law, with members of one class to be elected each year for a maximum
term of three years. Our present Charter currently does not provide for a
classified Board of Directors. Our Board of Directors has proposed an amendment
to our Charter to incorporate provisions establishing a classified Board of
Directors removable only for cause, as discussed below, the Classified Board
Provisions.
Under the Classified Board Provisions, the Board of Directors will be
divided into three classes, designated Class I, Class II and Class III, upon
stockholder approval of the proposed amendment to our Charter. The directors in
Class I will hold office until our 2000 annual meeting; the directors in Class
II will hold office until our 2001 annual meeting; and the directors in Class
III will hold office until our 2002 annual meeting (and, in each case, until
their successors are duly elected and qualified or until their earlier
resignation, removal from office or death). After each such election, the
directors shall then serve in succeeding terms of three years and until their
successors are duly elected and qualified.
Under Delaware law, a director on a classified Board of Directors can be
removed from office during his term by stockholders only for cause unless the
Certificate of Incorporation provides otherwise. Our Board of Directors has
proposed that the amendment to our Charter provide that our directors may be
removed from office only for cause by a vote of at least 66 2/3% in voting power
of the then-outstanding shares of our voting stock entitled to vote in the
election of directors, voting together as a single group.
With the Classified Board Provisions proposed for inclusion in our Charter,
unless directors are removed for cause, it will require at least two annual
meetings of stockholders for a majority of stockholders to make a change in
control of the Board of Directors, since only a portion of the directors will be
elected at each meeting. A significant effect of a classified Board of Directors
may be to deter hostile takeover attempts because an acquirer would experience
delay in replacing a majority of the directors. However, a classified Board of
Directors also makes it more difficult for stockholders to effect a change in
control of the Board of Directors, even if such a change in control is sought
due to dissatisfaction with the performance of the company's directors.
Super-Majority Vote Requirement for Amendment of Provisions
of our Amended and Restated Certificate of Incorporation
(Proposal 1B)
Generally, our Charter may be amended following the approval of the Board
of Directors and by a majority of the outstanding shares. Our Board of Directors
has proposed an amendment to our Charter to require that two-thirds (66 2/3%) of
the then outstanding shares would be necessary for the stockholders to adopt,
amend or repeal: (i) any provision of the Charter governing the election and
removal of directors; (ii) any provision of the Bylaws; (iii) any
<PAGE>
provision of the Charter prohibiting stockholder actions by written consent; and
(iv) any provision of the Charter referred to in clauses (i), (ii) and (iii).
In the event this proposal is not approved by the requisite vote of our
stockholders, any provision of the Charter may be amended by action of our Board
of Directors, with the affirmative vote of a majority of our common
stockholders, and the Bylaws may be adopted, amended or repealed by action of
our Board of Directors or by the affirmative vote of a majority of our common
stockholders. In the event our stockholders approve this proposal, the Charter
will include the super-majority voting provisions.
Increase in the Number of Shares of Common Stock Authorized for Issuance
(Proposal 1C)
The present capital structure of our company authorizes 25,000,000 shares
of common stock. Our Board of Directors believes that this capital structure is
inadequate for the present and future needs of our company. Therefore, our Board
of Directors has approved the amendment of our Charter to increase the
authorized number of shares of our common stock to 100,000,000 shares. Our Board
of Directors believes this capital structure more appropriately reflects the
present and future needs of our company.
As of September 7, 1999, 15,378,623 shares of common stock were outstanding
and 6,937,304 shares were reserved for issuance pursuant to various benefit
plans, resulting in 2,684,073 shares remaining available for future needs.
Pending stockholder approval of this proposal to increase the authorized number
of shares of common stock to 100,000,000 shares and Proposal 3 to increase the
number of shares of our common stock reserved for issuance under the 1997 Stock
Option and Restricted Stock Plan by 2,000,000 shares, our company will have
reserved 8,937,304 shares for issuance pursuant to various benefit plans and
will have 75,684,073 authorized shares of common stock available for future
needs.
Authorizing additional shares of common stock would give our Board of
Directors the authority, without further action of our stockholders, to issue
such common stock from time to time as it deems necessary. Our Board of
Directors believes it is necessary to have the ability to issue such additional
shares of common stock for general corporate purposes. Potential uses of the
additional authorized shares may include acquisition transactions, equity
financings, stock dividends or distributions, in each case without further
action by the stockholders, unless such stockholder action is specifically
required by applicable law or the rules of the Nasdaq National Market or any
stock exchange on which our company's securities may then be listed. Our company
has no current plans to issue such additional authorized shares of common stock.
The proposed increase in the authorized number of shares of common stock
could have a number of effects on our company's stockholders depending upon the
exact nature and circumstances of any actual issuances of authorized but
unissued shares. The increase could have an anti-takeover effect, in that the
additional shares could be issued (within the limits imposed by applicable law)
in one or more transactions that could make a change in control or takeover of
our company more difficult. For example, additional shares could be issued by
our company so as to dilute the stock ownership or voting rights of persons
seeking to obtain control of our company. Similarly, the issuance of additional
shares to certain persons allied with our management could have the effect of
making it more difficult to remove our company's current management by diluting
the stock ownership or voting rights of persons seeking to cause such removal.
Our Board of Directors is not aware of any attempt, or contemplated attempt to
acquire control of our company.
Amendment of Preferred Shares Liquidation Preference
(Proposal 1D)
Our Charter authorizes our Board of Directors to issue up to 5,000,000
shares of preferred stock. The preferred stock may be issued from time to time
in one or more series, and our Board of Directors, without further approval of
our stockholders, is authorized to fix the relative rights, preferences,
privileges and restrictions applicable to each such series of preferred stock.
Our Board of Directors has no current plans, commitments or other arrangements
to issue any preferred stock.
Our present Charter provides that in the event of a voluntary liquidation,
dissolution or winding up of our company, the holders of preferred stock may not
receive an amount greater than $100 per share plus accrued dividends (the
"liquidation preference"). The proposed amendment to our Charter removes the
liquidation preference limit of $100 and allows our Board of Directors to
determine, in its sole discretion, what amounts, if any, the holders of
preferred stock will receive if there is a voluntary liquidation, dissolution or
winding up of our company.
An effect of the removal of the liquidation preference limit may be to
deter hostile takeover attempts because the remuneration payable to holders of
preferred stock by an acquiror would not be limited to $100.
Elimination of Stockholder Action by Written Consent
(Proposal 1E)
<PAGE>
Under Delaware law, stockholders may execute an action by written consent
in lieu of a stockholder meeting. Delaware law permits a corporation to
eliminate such actions by written consent in its certificate of incorporation.
Our Board of Directors proposes to include a provision in our Charter which
would eliminate the right of our stockholders to act by written consent.
Elimination of such stockholders' right to act by written consent may
lengthen the amount of time required to take stockholder actions because certain
actions by written consent are not subject to the minimum notice requirement of
a stockholders' meeting. The elimination of stockholders' right to act by
written consent may deter hostile takeover attempts because of the lengthened
stockholder approval process. Without the ability to act by written consent, a
holder or group of holders controlling a majority in interest of our common
stock will not be able to amend our Charter or remove directors pursuant to a
written consent. Any such holder or group of holders would have to wait until a
stockholders' meeting was held to take any such action. Our Board of Directors
believes this provision would enhance its and our stockholders' opportunity to
fully consider stockholder proposals at a meeting where all views can be heard.
In the event that this proposal is not approved by the requisite vote of
the stockholders, our stockholders will continue to be able to act by written
consent, subject to the requirements of the Nasdaq National Market and any other
stock exchange on which our securities may be listed. In the event the proposal
is approved our Charter will include a provision which eliminates our
stockholders' right to act by written consent.
Special Provisions for Directors Elected by Preferred Stockholders
(Proposal 1F)
Our Board of Directors proposes to amend our Charter to make special
provision for any directors elected by the holders of our preferred stock. Under
this proposal, during any period when the holders of any series of preferred
stock have the right to elect additional directors pursuant to our Charter, the
then otherwise total authorized number of directors shall automatically be
increased by such specified number of directors. The proposal also provides that
whenever the holders of any series of preferred stock having such right to elect
additional directors are divested of such right pursuant to the provisions of
such stock, the terms of office of all such additional directors elected by
holders of such stock, shall terminate. As a consequence, directors elected by
the holders of our preferred stock would not become part of the classified
board. In the event that this proposal is not approved by the requisite vote of
the stockholders, our Charter will provide that directors elected by the holders
of our preferred stock will serve for the period for which they are elected.
CHANGES TO BYLAWS
Changes in Stockholder Meeting Protocol
Our Board of Directors has approved amendments to our Bylaws, to become
effective simultaneously with the effectiveness of the proposed amendments to
our Charter, to allow our Board of Directors to adopt rules, regulations and
procedures for the conduct of the meeting of stockholders, including: (i) the
establishment of an agenda or order of business for the meeting; (ii) rules and
procedures for maintaining order at the meeting and the safety of those present;
(iii) limitations on attendance at or participation in the meeting to
stockholders of record of the corporation or their duly authorized and
constituted proxies; (iv) restrictions on entry after the time fixed for the
commencement of the meeting; and (v) limitations on the time allotted to
questions or comments by participants.
<PAGE>
The proposed changes in stockholder meeting protocol could have the effect
of deterring a hostile takeover of our company by restricting the nomination and
election of candidates to our Board of Directors.
Advance Notice Requirements
Our Board of Directors has approved amendments to our Bylaws, to become
effective simultaneously with the effectiveness of the proposed amendments to
our Charter, to incorporate certain procedures regarding nominations to our
Board of Directors and notice of stockholder business, including: (i)
nominations of persons for election to the Board of Directors and the submission
of business to be considered by the stockholders may be made only at the annual
meeting and only by or at the direction of the Board of Directors or by any
stockholder of record; (ii) for nominations or other business to be properly
brought before an annual meeting, timely notice must be given so that such
notice is delivered to the company at least ninety days, but no more than, one
hundred twenty days prior to such meeting; (iii) any notice of nomination shall
set forth the person proposed for election to the Board of Directors; (iv) any
notice of business shall set forth a brief description of the business to be
brought before the meeting, the text of the proposal and the beneficial owner,
if any, on whose behalf the proposal is made; and (v) except as otherwise
provided by law, the chairman of the meeting shall have the power to determine
whether a nomination or any business proposed to be brought before a meeting was
made in accordance with these procedures.
The proposed implementation of advance notice requirements, by prescribing
the types of business that could be presented to stockholders during annual
meetings, could discourage takeover bids initiated by hostile tender offer,
proxy contest or the removal of the existing Board of Directors and management.
Authority to Call Special Meetings of Stockholders
Our Board of Directors has approved amendments to our Bylaws to become
effective simultaneously with the effectiveness of the proposed amendments to
our Charter, to incorporate certain procedures restricting rights of
stockholders to call special meetings. Our present Bylaws allow special meetings
of stockholders to be called by both the Board of Directors and by written
request of at least 25% of the outstanding holders of common stock. The proposed
amendment would allow for special meetings of stockholders to be called by only
the Board of Directors.
The proposed restriction on the authority to call special meetings of
stockholders, by limiting when certain matters could be brought up for
consideration, could discourage takeover bids initiated by proxy contest or
hostile tender offer.
ELECTION OF DIRECTORS
(Proposal 2)
General Information
Seven directors are proposed to be elected at our annual meeting, all of
whom are currently our directors. Our Bylaws provide for a board of not less
than one nor more than fifteen directors, with the current number set at seven.
Vacancies on our board may be filled by the majority vote of directors then in
office or by the sole remaining director.
Our Charter and Bylaws presently provide that each director shall hold
office until the next annual meeting of stockholders or until his or her
successor is elected and has qualified. Assuming that the stockholders approve
Proposal 1, our board will be divided into three classes as nearly equal in size
as is practicable, designated Class I, Class II and Class III. The term of
office of the Class I directors would expire at the 2000 annual meeting, the
term of office of the Class II directors would expire at the 2001 annual meeting
and the term of office of the Class III directors would expire at the 2002
annual meeting. When these initial terms expire, persons nominated to serve as
each class of director shall be elected to hold office for three years. Our
board has assigned each of its nominees for election as director to a particular
class of directorship (assuming stockholder approval of Proposal 1), as
indicated in the table below.
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 our common stock in
favor of the nominees listed below. Proxies cannot be voted for a greater number
of persons than the number of nominees listed below.
Stockholder Approval
The seven nominees receiving the greatest number of votes at our 1999
annual meeting at which a quorum is present shall be elected, even if they
receive less than a majority of the votes. Our Charter does not permit
cumulative voting. Abstentions will not be counted towards the tabulation of
votes cast for the election of any director.
Board Recommendation
Our board believes that the election of the persons listed below as our
directors is in the best interest of our company
<PAGE>
and our stockholders. Our 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 7, 1999) and
current position of each person who is a nominee for election as one of our
directors:
<TABLE>
<CAPTION>
Name Age Current Position Proposed Class of Director
- ---- --- ---------------- --------------------------
<S> <C> <C> <C>
Marshall C. Turner......... 57 Chairman of our Board and Chief Executive Officer Class III
John L. Doyle.............. 68 Director Class I
John W. Himes.............. 54 Director Class I
John C. Hodgson............ 55 Director Class I
Gary W. Pankonien.......... 49 Director Class II
Susan Vladuchick Sam....... 51 Director Class II
John C. Sargent............ 61 Director Class III
</TABLE>
Marshall C. Turner is our Chairman of our Board of Directors and Chief
Executive Officer, positions he assumed on an interim basis in June 1999 until a
permanent replacement is appointed. An independent consultant, he has been a
venture capital principal or operating executive in technology industries for 26
years. From its inception in 1981 through 1998, he was a general partner of
Taylor & Turner Associates, Ltd., the general partner of several venture capital
partnerships. Mr. Turner is Vice-Chairman of the Board of the Public
Broadcasting Service and of the Smithsonian Museum of Natural History. He serves
as a director of Alliance Technology Fund, Splitrock Services, Inc., three
privately held companies and the George Lucas Educational Foundation. He has
been one of our directors since April 1996.
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. He is currently a director of Xilinx, Inc. and Analog
Devices, Inc. He has been one of our directors since April 1996.
John W. Himes is Senior Vice President of Corporate Plans, Investor
Relations and Financial Communications for DuPont. He joined DuPont in 1966 and
has served in a variety of business management positions, including leadership
of Dacron Polyester, Advanced Composites and Industrial Polymers. Mr. Himes was
responsible for Human Resources and later Business Development in Asia for
DuPont. He has been one of our directors since January 1998.
John C. Hodgson is the Vice President/General Manager of the Photopolymer
and Electronic Materials Strategic Business Unit of DuPont, a position he
assumed in 1996. He has been with DuPont for over 30 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. From 1994 until
assuming his current position, Mr. Hodgson served as Managing Director/General
Manager of the Electronic Materials Strategic Business Unit. He has been one of
our directors since April 1996.
Gary W. Pankonien is the Chairman and Chief Executive Officer of 1st TECH
Molding and a private investor. He serves as a director of Tanisys Technology, a
manufacturer of memory modules, 1st TECH Molding and MagRabbit. Mr. Pankonien
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 offshore operations. He has
been one of our directors since April 1996.
Susan Vladuchick Sam is a private consultant, having retired from DuPont in
1999. She joined DuPont in 1969 and held a variety of management positions in
research and development, human resources and manufacturing during the course of
her career, including Director of Operations for DuPont Medical Products from
1993 to 1995, Director of Human Development and Personnel Relations from 1995 to
1997 and Director of Operations - U.S. Region and Vice Chair of the Operations
Network from 1997 to 1999. Ms. Sam currently serves on the College of
Engineering & Science Advisory
<PAGE>
Board for Clemson University and is a past Alumni Trustee for Grove City
College. She has been one of our directors since January 1996.
John C. Sargent is a private consultant, having retired from DuPont in
1998. 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 in
1981 became Assistant Treasurer and Director of the Treasury Division of DuPont
after Conoco was acquired by DuPont. He assumed the position of Vice President
and Treasurer of DuPont in 1992. He has been one of our directors since December
1995.
Board Committees
Our board has appointed from among its members two standing committees:
The Audit Committee is presently composed of John L. Doyle, who serves as
chairperson of the committee, and John C. Sargent. No member of the Audit
Committee may be an employee or officer. Marshall C. Turner previously served as
a member of the committee but resigned from the committee upon becoming an
employee and officer. The functions of the Audit Committee include meeting with
our independent public accountants to discuss the scope and results of their
examination, to review our internal audit activities and to discuss the adequacy
of our accounting and control systems, to review the audit schedule and to
consider any issues raised by its members, our independent public accountants,
our staff or management. Each year the Audit Committee will recommend to the
full board the name of an accounting firm to audit our financial statements.
The Compensation Committee is presently composed of Gary W. Pankonien and
Susan Vladuchick Sam, who serves as chairperson of the committee. No member of
the Compensation Committee may be an employee or officer. Marshall C. Turner
previously served as a member of the committee but resigned from the committee
upon becoming an employee and officer. The principal function of the
Compensation Committee is to review and approve our organization structure,
review performance of our officers, establish overall employee compensation
policies and recommend to our board major compensation programs. The
Compensation Committee also reviews and approves compensation of directors and
corporate officers, including salary, bonus awards, stock options and restricted
stock grants, and administers our stock plans and bonus plan.
During 1999, our board held ten meetings in person or by telephone. Members
of our board are provided with information between meetings regarding our
operations 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 two times
during 1999. During 1999, the Compensation Committee held nine meetings and
acted by unanimous written consent four times and the Audit Committee held three
meetings. Each of the incumbent directors who was a director during the 1999
year attended no fewer than 75% of the total number of meetings of our board and
the total number of meetings held by all committees of our board on which such
director served during the year.
APPROVAL OF THE AMENDMENT TO OUR
1997 STOCK OPTION AND RESTRICTED STOCK PLAN
(Proposal 3)
Stockholders are being asked to approve an amendment to our 1997 Stock
Option and Restricted Stock Plan, the 1997 Plan, that will increase the number
of shares of our common stock available for issuance under the plan from
3,000,000 shares to 5,000,000 shares. Our Board of Directors approved the
2,000,000 share increase on September 2, 1999, subject to stockholder approval
at our annual meeting. The Board of Directors believes it is in the best
interest of the company and its stockholders to increase the share reserve so
that our company can continue to attract and retain the services of those
persons essential to our company's growth and financial success.
Summary Plan Description of the 1997 Stock Option and Restricted Stock Plan
The following is a summary of the principal features of the 1997 Plan. The
summary, however, does not purport to be a complete description of all the
provisions of the 1997 Plan. Any stockholder who wishes to obtain a copy of the
<PAGE>
actual plan document may do so upon written request to the Corporate Secretary
at the company's principal executive offices in Round Rock, Texas.
General. The 1997 Plan provides for grants of nonqualified stock options or
NQOs and incentive stock options or 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 our employees.
Administration. The Compensation Committee administers the 1997 Plan. 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. Assuming stockholder approval of this proposal , the 1997
Plan will have 5,000,000 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 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.
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 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 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, accelerate the
exercisability of all or part of the NQOs not otherwise exercisable or 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
<PAGE>
restrictions as the Compensation Committee may impose thereon, including, but
not limited to, continuous employment 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 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 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, the 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 Transactions
The following table sets forth information regarding options to purchase
shares of common stock granted to the Named Officers during 1999. Because grants
under the 1997 Plan are discretionary, future benefits are not determinable.
<TABLE>
<CAPTION>
Options % of Total Options Granted Exercise Price Expiration
Name Granted (#)(1) to Company Employees ($/Share) Date
- ---- -------------- -------------------------- -------------- ------------
<S> <C> <C> <C> <C>
Marshall C. Turner.... 29,500 3.9% $ 47.37 6/11/2009
J. Michael Hardinger.. 46,000 6.1% 38.81 3/1/2009
J. Michael Hardinger.. 100 * 33.37 7/13/2008
Preston M. Adcox...... 35,000 4.6% 38.81 3/1/2009
Preston M. Adcox...... 100 * 33.37 7/13/2008
Gerard Cognie......... 17,800 2.4% 33.37 (2) 7/13/2008 (2)
David S. Gino......... 17,000 2.3% 33.37 (2) 7/13/2008 (2)
Kenneth A. Rygler..... 13,000 1.7% 33.37 (2) 7/13/2008 (2)
<CAPTION>
Potential Realizable Value at
Assumed Annual Rates of Stock
Price Appreciation for Option term
----------------------------------
Name 5% 10%
- ---- --- ----
<S> <C> <C>
Marshall C. Turner.... $ 878,827 $ 2,227,120
J. Michael Hardinger.. 1,122,740 2,845,245
J. Michael Hardinger.. 2,099 5,318
Preston M. Adcox...... 854,259 2,164,860
Preston M. Adcox...... 2,099 5,318
Gerard Cognie......... 373,555 946,661
David S. Gino......... 356,766 904,114
Kenneth A. Rygler..... 272,821 691,381
</TABLE>
________________________
<PAGE>
* Less than 1%
(1) Options granted to Messrs. Hardinger, Adcox, Cognie, Gino and Rygler are
NQOs that become exercisable over a four-year period at the rate of 25%
per year. Options granted to Mr. Turner are NQOs that become exercisable
six months from the date of grant. The data presented in this table does
not include options received by Mr. Turner as a non-employee director
prior to June 1999.
(2) These options were subject to our stock option re-pricing discussed below.
As a result of the re-pricing, these options have a revised exercise price
of $23.25 and a revised expiration date of 9/21/2008.
New Plan Benefits
As of September 7, 1999, no options or restricted stock had been granted on
the basis of the 2,000,000 share increase which forms a part of this proposal.
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. The following 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.
Options granted under the 1997 Plan may be either ISOs which satisfy the
requirements of Section 422 of the Internal Revenue Code or NQOs which are not
intended to meet such requirements. The U.S. federal income tax treatment for
the two types of options differs as follows:
Incentive Stock Options. No taxable income is recognized by the optionee at
the time of the option grant, and no taxable income is generally recognized at
the time the option is exercised. The optionee will, however, recognize taxable
income in the year in which the purchased shares are sold or otherwise made the
subject of a taxable disposition. For U.S. federal income tax purposes,
dispositions are divided into two categories: qualifying and disqualifying. A
qualifying disposition occurs if the sale or other disposition is made after the
optionee has held the shares for more than two years after the option grant date
and more than one year after the exercise date. If either of these two holding
periods is not satisfied, then a disqualifying disposition will result.
Upon a qualifying disposition, the optionee will recognize long-term
capital gain in an amount equal to the excess of (i) the amount realized upon
the sale or other disposition of the purchased shares over (ii) the exercise
price paid for the shares. If there is a disqualifying disposition of the
shares, then the excess of (i) the fair market value of those shares on the
exercise date over (ii) the exercise price paid for the shares will be taxable
as ordinary income to the optionee. Any additional gain or loss recognized upon
the disposition will be recognized as a capital gain or loss by the optionee.
If the optionee makes a disqualifying disposition of the purchased shares,
then our company will be entitled to an income tax deduction, for the taxable
year in which such disposition occurs, equal to the excess of (i) the fair
market value of such shares on the option exercise date over (ii) the exercise
price paid for the shares. If the optionee makes a qualifying disposition, our
company will not be entitled to any income tax deduction.
Nonqualified Stock Options. No taxable income is recognized by an optionee
upon the grant of a NQO. The optionee will in general recognize ordinary income,
in the year in which the option is exercised, equal to the excess of the fair
market value of the purchased shares on the exercise date over the exercise
price paid for the shares, and the optionee will be required to satisfy the tax
withholding requirements applicable to such income.
If the shares acquired upon exercise of the NQO are unvested and subject to
repurchase by our company in the event of the optionee's termination of service
prior to vesting in those shares, then the optionee will not recognize any
taxable income at the time of exercise but will have to report as ordinary
income, as and when our company's repurchase right lapses, an amount equal to
the excess of (i) the fair market value of the shares on the date the repurchase
right lapses over (ii) the exercise price paid for the shares. The optionee may,
however, elect under Section 83(b) of the Internal Revenue Code to include as
ordinary income in the year of exercise of the option an amount equal to the
excess of (i) the fair market value of the purchased shares on the exercise date
over (ii) the exercise price paid for such shares. If the Section 83(b) election
is made, the optionee will not recognize any additional income as and when the
repurchase
<PAGE>
right lapses.
Our company will be entitled to an income tax deduction equal to the amount
of ordinary income recognized by the optionee with respect to the exercised NQO.
The deduction will in general be allowed for our company's taxable year of in
which such ordinary income is recognized by the optionee.
Restricted Stock Grants. The tax principles applicable to restricted stock
grants under the 1997 Plan will be substantially the same as those summarized
above for the exercise of NQOs.
Deductibility of Executive Compensation
Our company anticipates that any compensation deemed paid in connection
with the disqualifying disposition of incentive stock option shares or the
exercise of nonqualified stock options granted with exercise prices equal to the
fair market value of the shares on the grant date will qualify as performance-
based compensation for purposes of Code Section 162(m) and will not have to be
taken into account for purposes of the $1 million limitation per covered
individual on the deductibility of the compensation paid to certain of our
company's executive officers. Accordingly, all compensation deemed paid under
the 1997 Plan will remain deductible by our company without limitation under
Code Section 162(m).
Accounting Treatment
Option grants with exercise prices less than the fair market value of the
shares on the grant or issue date will result in a direct compensation expense
to our company's earnings equal to the difference between the exercise price and
the fair market value of the shares on the grant date. Such expense will be
accruable by our company over the period that the option shares are to vest.
Option grants at 100% of fair market value will not result in any direct charge
to our company's earnings. However, the fair value of those options is required
to be disclosed in the notes to our company's financial statements, and we must
also disclose, in pro-forma information to our financial statements, the impact
those options would have upon our reported earnings were the value of those
options at the time of grant treated as compensation expense. Whether or not
granted at a discount, the number of outstanding options may be a factor in
determining our company's earnings per share on a diluted basis.
Stockholder Approval
The affirmative vote of a majority of the outstanding shares of our common stock
is required for approval of the amendment to the 1997 Plan increasing the number
of shares of our common stock available for issuance under the plan to 5,000,000
shares. Should such stockholder approval not be obtained, then the 2,000,000
share increase will not be implemented and no additional options will be granted
on the basis of such share increase. The 1997 Plan will, however, continue to
remain in effect, and grants may continue to be made pursuant to the provisions
of the 1997 Plan in effect prior to the amendment summarized in this proposal,
until all the available shares of our common stock available have been issued.
Abstentions will be counted towards the tabulation of votes cast on this
proposal and will have the same effect as negative votes, whereas broker non-
votes will not be counted for purposes of determining whether or not the
proposal has been approved.
Board Recommendation
Our board believes that approval of the amendment to our Amended 1997 Stock
Option and Restricted Stock Plan increasing the number of shares of our common
stock available for issuance under the plan to 5,000,000 shares is in the best
interest of our company and our stockholders. Our 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.
RATIFICATION OF SELECTION OF INDEPENDENT ACCOUNTANTS
(Proposal 4)
General Information
Our Bylaws 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 our books of account, accounting procedures and financial
statements for the year and to perform such other duties as prescribed from time
to time by the Audit Committee.
<PAGE>
During 1999, PricewaterhouseCoopers LLP audited our annual consolidated
financial statements, reviewed financial information in filings with the
Securities and Exchange Commission, and provided various other services.
Subject to ratification by stockholders, the Audit Committee has retained
PricewaterhouseCoopers LLP as independent accountants to perform the examination
of our financial statements for 2000 and to render other services required of
them. Notwithstanding this selection, the Audit Committee may, in its
discretion, direct the appointment of a different independent accounting firm at
any time if the Audit Committee believes that such change would be in the our
company's and our stockholder's best interest.
Representatives of PricewaterhouseCoopers LLP are expected to be present at
our annual meeting on October 26, 1999, 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.
Stockholder Approval
The affirmative vote of a majority of the outstanding shares of our common
stock present or represented and entitled to vote at the annual meeting is
required for approval of the ratification of the selection of
PriceWaterhouseCoopers LLP. Abstentions will be counted towards the tabulation
of votes cast on this proposal and will have the same effect as negative votes,
whereas broker non-votes will not be counted for purposes of determining whether
or not the proposal has been approved.
Board Recommendation
Our board believes that the ratification of PricewaterhouseCoopers LLP as
independent accountants is in the best interest of our company and stockholders.
Our 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.
OTHER BUSINESS
Our board knows of no business to be brought before the meeting other than
the proposals outlined above. If any other proposals properly 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
Under the present rules of the Securities and Exchange Commission and our
present Bylaws, the deadline for stockholders to submit proposals to be
considered for inclusion in our proxy statement for the 2000 annual meeting of
stockholders is expected to be 120 days prior to September 20, 2000. Such
proposals may be considered for inclusion in next year's proxy statement if they
comply with certain rules and regulations promulgated by the Securities and
Exchange Commission and, assuming Proposal 1 is approved at the 1999 annual
meeting, the procedures set forth in our Bylaws, as amended.
The deadline for stockholders to nonetheless submit proposals to be
considered for presentation to stockholders at the 2000 annual meeting, assuming
Proposal 1 is not approved at the 1999 annual meeting, is a reasonable time
prior to the 2000 annual meeting. If Proposal 1 is approved at the 1999 annual
meeting, the deadline is expected to be 90 days prior to October 26, 2000, and
each stockholder proposal must otherwise comply with the procedures set forth in
our Bylaws, as amended.
BENEFICIAL OWNERSHIP OF SECURITIES
As of September 7, 1999, E.I. du Pont de Nemours and Company
("DuPont") beneficially owned 8,400,000 shares (approximately 54.6%) of our
common stock. As a result, DuPont has sufficient voting power to control our
direction and policies including any merger, consolidation or sale of all or
substantially all of our assets, to elect the members of our board and to
prevent or cause a change in our control. DuPont has indicated its intention to
vote in favor of the proposals described above.
<PAGE>
The following table sets forth, as of the close of business on September 7,
1999, certain information regarding beneficial ownership of shares of our common
stock by:
. Each person who is known by us to be a beneficial owner of 5% or more of
our common stock;
. Each current director, each of whom is a nominee for election as a
director;
. Each executive officer named in the summary compensation table included
herein; and
. All our current directors and executive officers as a group.
Our common stock is the only class of voting securities outstanding. Unless
otherwise indicated, each person or entity set forth in the table has sole
investment and voting power with respect to all shares shown as beneficially
owned. Shares are owned beneficially and of record, unless otherwise specified.
<TABLE>
<CAPTION>
Shares Beneficially Owned
-------------------------
Name and Address of Beneficial Owner (1) Number (2) Percent
- ---------------------------------------- ---------- -------
<S> <C> <C>
E.I. du Pont de Nemours and Company........................................ 8,400,000 (3) 54.6%
1007 Market Street
Wilmington, Delaware 19898
Marshall C. Turner......................................................... 12,800 *
John L. Doyle.............................................................. 15,500 *
John W. Himes.............................................................. 8,400,000 (4) 54.6%
John C. Hodgson............................................................ 8,400,500 (4) 54.6%
Gary W. Pankonien.......................................................... 17,500 *
Susan Vladuchick Sam....................................................... 2,000 *
John C. Sargent............................................................ 1,550 *
Preston M. Adcox........................................................... 72,498 *
Gerard Cognie.............................................................. 50,800 (5) *
David S. Gino.............................................................. 37,857 *
Kenneth A. Rygler.......................................................... 31,860 *
All executive officers and directors as a group (14 persons)............... 8,689,171 (4) 56.5%
</TABLE>
___________
* Less than 1%.
(1) The address for all officers and directors is 131 Old Settlers Boulevard,
Round Rock, Texas 78664.
(2) Does not include shares purchasable more than 60 days after September 7,
1999 pursuant to options granted as of year end to directors and named
executive officers under our stock plans, as follows:
<TABLE>
<CAPTION>
Executive Officer or Director Option Shares
---------------------------- -------------
<S> <C>
Marshall C. Turner.................................................... 38,000
John L. Doyle......................................................... 8,500
Gary W. Pankonien..................................................... 8,500
John C. Sargent....................................................... 3,750
Preston M. Adcox...................................................... 75,572
Gerard Cognie......................................................... 37,341
David S. Gino......................................................... 31,086
Kenneth A. Rygler..................................................... 26,736
</TABLE>
(3) All shares are held by DuPont's wholly owned subsidiary, DuPont Chemical
and Energy Operations, Inc.
(4) Includes the 8,400,000 shares beneficially owned by DuPont, which Messrs.
Himes and Hodgson share the right to vote.
(5) Includes 14,800 shares held by Mr. Cognie's spouse as to which Mr. Cognie
has disclaimed beneficial ownership.
TRANSACTIONS AND RELATIONSHIP BETWEEN US AND DUPONT
We have entered into a number of agreements with DuPont for the purpose of
defining certain past, present and prospective arrangements and transactions.
These agreements were negotiated in the context of a parent-subsidiary
<PAGE>
relationship and, therefore, are not the result of negotiations between
independent parties. It is our intention and the intention of 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 various mutually beneficial joint arrangements. However,
because of the complexity of the various relationships between us and DuPont, we
cannot assure you that all of these agreements, or the transactions provided for
therein, were effected on terms at least as favorable to us as could have been
obtained from unaffiliated third parties. We are only entitled to the ongoing
assistance of DuPont for a limited time.
We and DuPont may enter into additional or modified arrangements and
transactions in the future. Any such future arrangements and transactions will
be determined through negotiation between DuPont and us. We have adopted a
policy that all future agreements between us and DuPont will be on terms that we
believe are no less favorable to us than the terms we believe would be available
from unaffiliated parties. In that regard, we intend to follow the procedures
provided by the Delaware General Corporation Law, which includes a vote to
affirm any such future agreements by a majority of our 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 DuPont and us:
Administrative Service Agreements
We and DuPont have entered into several transitional administrative service
agreements, pursuant to which DuPont will continue to provide various services
to us, including tax compliance, information systems support and workers'
compensation administration.
Each service under the administrative service agreements is provided for a
specified time period, ranging from one to two years. However, we may terminate
any or all services that we receive under an administrative service agreement at
any time upon 45 days prior written notice. Each administrative service
agreement shall terminate on the date upon which DuPont owns less than 50% of
our outstanding common stock. We are obligated to take all steps necessary to
obtain our own administrative and support services prior to the termination of
the administrative service agreements.
We will be obligated to pay fees established in the administrative service
agreements based upon the type and amount of services rendered. In addition, we
will reimburse DuPont for any out-of-pocket expenses it incurs in connection
with providing the services. We paid DuPont $2.4 million for services provided
under the administrative service agreements in 1999. With the exception of the
administrative service agreement entered into by the respective subsidiaries of
DuPont and our company in Korea, in the absence of gross negligence or willful
or reckless misconduct, DuPont's liability for damages to us 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
We have entered into a research, development and consulting agreement with
DuPont whereby DuPont will provide to us supplemental technical assistance and
consulting with respect to analytical support and consulting on an as-needed
basis and research projects addressing our specific needs. In exchange for the
analytical support, we will pay DuPont $100,000 per calendar year. In the event
the costs of these services are estimated to exceed $100,000, we 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 initial term of the research, development and consulting agreement expires
on January 1, 2001 and automatically renews for successive one-year terms until
terminated by either DuPont or us pursuant to certain procedures set forth in
the research, development and consulting agreement.
Tax Indemnification Agreement
We have entered into a tax indemnification agreement with DuPont pursuant
to which we will pay DuPont, or DuPont will pay us, as appropriate, amounts in
respect of taxes shown as due attributable to our operations for the period
<PAGE>
ending on the date on which we cease to be a member of the DuPont consolidated
group. DuPont will indemnify us and our subsidiaries from liability for certain
matters, net of corresponding tax benefits, including any federal, state or
local taxes attributable to any affiliated or combined group of which we were a
member at any time prior to June 13, 1996 and any federal, state or local income
or other tax for any period up to and including June 13, 1996. We will indemnify
DuPont and its subsidiaries from liability for certain matters, including any
federal, state or local income or other taxes attributable to our operations
following June 13, 1996. In connection with the sale of our 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
beneficially owns 50% or less of us.
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 an accounting firm selected jointly by the parties.
Environmental Indemnification Agreement
We have entered into an environmental indemnification agreement with DuPont
pursuant to which DuPont will generally indemnify us against substantially all
liabilities relating to any environmental contamination present on our
manufacturing sites and those of our subsidiaries as of June 13, 1996 or present
on any other site as a result of our manufacturing operations and those of our
subsidiaries prior to June 13, 1996.
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 June 13, 1996, 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 us with regard to
such contamination prior to June 13, 1996; DuPont's liability for claims filed
following June 13, 1996 declines at the rate of 20% per year; and DuPont has no
liability for such claims filed following June 13, 2001.
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 Agreement
We have entered into a credit agreement with DuPont. Pursuant to this
credit agreement, DuPont originally agreed to provide a credit facility in an
aggregate amount of $100.0 million. This credit facility expires in 2001 and any
loans thereunder will bear interest at LIBOR plus 0.25% per annum. At our
option, advances under this credit facility are convertible into term loans with
maturities up to seven years. We have borrowed a maximum of approximately $69
million under this credit facility and, at June 30, 1999, no borrowings were
outstanding under this credit facility. We have amended our credit agreement
with DuPont to add a second credit facility with an additional borrowing
capacity of $100.0 million. The new credit facility has a term of three years
and outstanding amounts bear interest at 0.25% per annum for the first two years
and LIBOR plus 0.25% per annum for the third year. We have borrowed a maximum of
$100.0 million under this credit facility and, at June 30, 1999, borrowings of
$100.0 million were outstanding under this credit facility. The amounts loaned
under the amended credit agreement are unsecured and the amended credit
agreement contains various representations, covenants and events of default. For
example, the amended credit agreement provides that, without DuPont's prior
written consent, we will not incur, create, assume or permit to exist any
indebtedness, including guarantees on indebtedness, in addition to the
indebtedness under the amended credit agreement.
Corporate Tradename and Trademark Agreement
We have entered into a corporate tradename and trademark agreement with
DuPont whereby DuPont licenses to us the following:
. Use of the tradename "DuPont" as part of our corporate name;
<PAGE>
. Use of the tradename "DuPont" as part of the name of our affiliated
companies; and
. Use of the trademark DuPont in Oval as part of our corporate logo.
DuPont may terminate the corporate tradename and trademark agreement upon
two years' prior written notice in the event that DuPont and/or its affiliates
cease to hold 20% of our total outstanding common stock and upon 90 days'
written notice in the event that:
. DuPont ceases to be the largest holder of our common stock;
. We purport to assign or otherwise transfer the corporate tradename
and trademark agreement without DuPont's written consent; or
. We use the tradename "DuPont" other than under the terms of the
corporate tradename and trademark agreement.
In addition, DuPont may terminate the corporate tradename and trademark
agreement upon 90 days' written notice for any reason after January 1, 2008. In
the corporate tradename and trademark agreement, we grant DuPont the right to
inspect and test products manufactured by or for us and intended to be sold
bearing the DuPont in Oval logo to determine uniform quality and compliance with
quality standards of DuPont and agree to hold DuPont harmless from any and all
liabilities arising from the manufacture, sale, transportation, storage or use
of products manufactured by or for us bearing the DuPont in Oval logo. Upon
termination of the corporate tradename and trademark agreement, we will be
obligated to:
. Change our name so that the tradename "DuPont" is omitted;
. Cease to use the tradename "DuPont" or any similar tradename as
part of our corporate name or in any other manner whatsoever; and
. Cease to use the DuPont in Oval logo.
Registration Rights Agreement
Under a registration rights agreement between DuPont and us, DuPont and its
assignees are entitled to certain rights with respect to the registration of
shares they hold under the Securities Act of 1933. Subject to limitations,
including a minimum registration of over 1,000,000 shares, DuPont and its
assignees have the right to require us to register the sale of all or part of
the shares they hold under the Securities Act of 1933. DuPont and its assignees
are entitled to request up to an aggregate of four demand registrations. DuPont
and its assignees are also entitled to include the shares of common stock they
hold in a registered offering of securities by us for their own account, subject
to conditions and restrictions. In addition, the registration rights agreement
contains certain indemnification provisions by us for the benefit of DuPont and
its assignees as well as any potential underwriter and by DuPont and its
assignees for the benefit of us and related persons. DuPont and its assignees
may transfer its registration rights under the registration rights agreement
without our prior approval. The registration rights agreement also provides
that while DuPont owns 50% or more of our common stock, we may not grant
registration rights to any other person without DuPont's prior consent.
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 our 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 our
securities by such persons. Based solely upon a review of Forms 3 and 4 and
amendments thereto furnished to us during 1999 and thereafter, Forms 5 and
amendments thereto furnished to us with respect to 1999, and any written
representations received by us from a director, officer or beneficial owner of
more than 10% of our common stock that no Form 5 is required, we believe that
all reporting persons filed on a timely basis the reports required by Section
16(a) of the Securities Exchange Act of 1934 during 1999.
<PAGE>
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Compensation Committee is composed of Gary W. Pankonien and Susan
Vladuchick Sam, 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, Ms. Sam was the Director of Operations - U.S. Region and
Vice Chair of the Operations Network for DuPont during 1999.
COMPENSATION COMMITTEE REPORT
The Compensation Committee is responsible for reviewing and approving our
organization structure, reviewing performance of our officers, establishing
overall employee compensation policies and recommending to our board major
compensation programs. The Compensation Committee also reviews and approves
compensation for our directors and corporate officers, including salary, bonus
awards and stock option and restricted stock grants, and administers our stock
plans and bonus plan.
The Compensation Committee has designed a compensation program intended to
attract and motivate our employees. The Compensation Committee believes that
compensation should be tied to our long term performance and benefit to our
stockholders. As such, a significant portion of our management's compensation
is tied to the performance of our long-term total stockholder return. The
Compensation Committee periodically reviews our compensation programs in
comparison with similarly situated companies and amended our programs
accordingly to assure that our compensation programs are competitive within the
industry and carry out our objectives.
Base Salaries
Base salaries for our employees are targeted to be competitive with
similarly situated companies. Base salaries are determined by evaluating levels
of responsibility, prior experience and breadth of knowledge, as well as
internal equity issues and external pay practices. Increases to base salaries
are driven primarily by individual employee performance.
At September 1, 1999, the annualized base salaries for Messrs. Turner,
Adcox, Cognie, Gino and Rygler were $259,200, $276,300, 1,126,300 FrF
(approximately $178,800), $200,900, and $189,600. Mr. Turner's compensation
package was calculated on the basis that he devotes approximately 80% of his
time to his position. We have no change-in-control arrangements with any of our
executive officers.
During the year, as a result of the prolonged downturn in the global
photomask market, the Compensation Committee implemented a temporary salary
reduction for certain employees including all of our officers. Salary reductions
of 5% to 15% were in effect from October 1998 to February 1999.
Bonus Plan
We maintain an annual incentive or bonus plan for our employees. Employees
are selected by the Compensation Committee to participate in the bonus plan
based upon the recommendation of our Chief Executive Officer. 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 base salary. The
bonus plan provides that a performance goal based primarily on our earnings will
be set by our board, and the amount of bonus will be calculated based on the
employee's target bonus grant, our performance compared with the performance
goal and individual contributions by the employee.
The Compensation Committee authorized, at the recommendation of our Chief
Executive Officer, bonuses to be awarded to selected employees, including
executive officers, aggregating $3.1 million for 1999.
1997 Stock Option and Restricted Stock Plan
We maintain the 1997 Stock Option and Restricted Stock Plan to provide
incentive to our employees primarily responsible for our success and to closely
identify their interests with those of our stockholders. Under this plan,
grants of stock options, incentive stock options, restricted stock or
combinations of the above may be awarded to employees,
<PAGE>
consultants, directors and other individuals. The aggregate number of shares of
our common stock subject to option or restriction under this plan may not exceed
5,000,000 shares (assuming stockholder approval of Proposal 3).
This 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 reviews
stock option grants and restricted stock grants as part of its periodic review
of our compensation program. Effective as of August 2, 1999, the Compensation
Committee authorized us to grant up to 648,600 stock options and incentive stock
options, at an exercise price of $48.06 per share, to approximately 500
employees of the company and others including executive officers.
Re-pricing of Stock Options
In 1999, the Compensation Committee considered the options held by our
executive officers and employees and the fact that a broad decline in the price
of our common stock had resulted in a substantial number of stock options
granted pursuant to the 1997 Stock Option and Restricted Stock Plan having
exercise prices well above the recent historical trading prices of the common
stock. Our management advised the Compensation Committee that it believed
employee turnover was likely to increase in part because our company's total
compensation package for long-term employees, which included substantial options
with exercise prices well above the then current trading price, was less
attractive than compensation offered by other companies in the same geographic
location, since options granted to new hires at other companies would be granted
at current trading prices.
The Compensation Committee determined (i) that our company's success
in the future would depend in large part on its ability to retain a number of
its highly skilled technical and managerial personnel, (ii) that competition for
such personnel would be intense, (iii) that the loss of key employees could have
a significant adverse impact on our company's business, (iv) that it would be
important and cost-effective to provide equity incentives to employees and
executive officers of our company to improve the performance and the value of
our company for its stockholders, and (v) that the morale of long-term employees
holding stock options with exercise prices well below the current trading price
would decrease as more recently hired employees are granted options with
exercise prices set at current, lower market prices. The Compensation Committee
recognized that an exchange of existing options with exercise prices higher than
fair market value for options granted at fair market value would restore
incentives to our employees because of the increased potential for appreciation.
The Compensation Committee also recognized that it could require the new options
to be subject to restrictions on exercise so that optionees participating in the
exchange would have incentives to remain with the company. Considering these
factors, the Compensation Committee determined it to be in the best interests of
the company and its stockholders to restore the incentives for employees and
certain executive officers to remain as employees of the company and to exert
their maximum efforts on behalf of the company by granting replacement stock
options under the 1997 Stock Option and Restricted Stock Plan at the optionee's
election, with exercise restrictions and with exercise prices equal to the then
current market value.
Accordingly, on September 21, 1998, at the recommendation of the
Compensation Committee, our Board of Directors approved a resolution authorizing
the re-pricing of substantially all of the company's then outstanding vested and
unvested employee stock options with an exercise price in excess of $23.25 per
share. Messrs. Hardinger and Adcox did not participate in the re-pricing. This
re-pricing included stock options granted under the 1997 Stock Option and
Restricted Stock Plan. As part of the re-pricing, the ten-year term of the
options and the four-year vesting period were restarted as of September 21,
1998, and the exercise price on the options was revised to $23.25 per share.
This resolution resulted in the re-pricing of 968,993 options.
Employee Stock Purchase Plan
We maintain an employee stock purchase plan that qualifies under Section
423 of the Internal Revenue Code and permits substantially all of our U.S.
employees to purchase shares of our common stock. Participating employees may
purchase our common stock at a purchase price equal to 85% of the lower of the
fair market value of our common stock at the beginning of an offering period or
on the exercise date. Employees may designate up to 15% of their base
compensation for the purchase of our common stock under this plan.
<PAGE>
Retirement and Profit Sharing Plans
We maintain a plan that complies with the provisions of Section 401(k) of
the Internal Revenue Code. Substantially all U.S. employees are eligible to
participate in this plan, and eligibility for participation commences upon
hiring. Under the terms of this plan, we match a percentage of each employee
participant's voluntary contributions, subject to a maximum company contribution
of 4% of the employee's compensation. We also maintain retirement plans for
certain non-U.S. employees. Obligations under these plans are determined in
accordance with local regulations and customs. Additionally, we maintain profit
sharing plans covering substantially all of our active U.S. employees and
certain non-U.S. employees. Profit sharing payments are made periodically in
accordance with the terms of the various plans.
Compliance with Internal Revenue Code Section 162(m)
Section 162(m) of the Internal Revenue Code, enacted in 1993, generally
disallows a tax deduction to publicly held companies for compensation exceeding
$1 million paid to employees. The limitation applies only to compensation that
is not considered to be performance-based compensation. Compensation that
qualifies as performance-based compensation will not have to be taken into
account for purposes of this limitation. The 1997 Stock Option and Restricted
Stock Plan contains certain provisions which are intended to assure that any
compensation deemed paid in connection with the exercise of stock options
granted under that plan with an exercise price equal to the market price of the
option shares on the grant date will qualify as performance-based compensation.
The non-performance based compensation to be paid to our executive officers for
1999 did not exceed the $1 million limit per officer, nor is it expected that
the non-performance based compensation to be paid to our executive officers for
2000 will exceed that limit. Because it is very unlikely that the compensation
payable to any of our employees in the foreseeable future will approach the $1
million limit, the Compensation Committee has decided not to take any other
action to limit or restructure the elements of cash compensation. The
Compensation Committee will reconsider this decision should the individual
compensation of any employee ever approach the $1 million level.
Compensation of Chief Executive Officer
The compensation paid to our Chief Executive Officers in 1999 was in
accordance with our compensation programs. Any future modifications in Chief
Executive Officer compensation will also be in accordance with our compensation
programs.
Respectfully submitted by The Compensation Committee,
Gary W. Pankonien
Susan Vladuchick Sam, Chairperson
EXECUTIVE COMPENSATION AND OTHER INFORMATION
Summary Compensation Table
The following table sets forth, for the years ended June 30, the
compensation paid to our named officers, a group consisting of our chief
executive officers and our four other most highly compensated executive officers
for the year ended June 30, 1999.
<PAGE>
<TABLE>
<CAPTION>
Long-term
Annual Compensation Compensation Awards
------------------- -------------------
Securities Underlying All Other
Name and Principal Position Year Salary Bonus Options (#) Compensation (3)
- --------------------------- -------- -------- -------- ----------- ----------------
<S> <C> <C> <C> <C> <C>
Marshall C. Turner (1).............................. 1999 $ 16,780 29,500
Chairman and CEO
J. Michael Hardinger (2)............................ 1999 297,695 $225,000 46,100 $11,737
Former Chairman and CEO 1998 316,034 46,000 9,071
1997 294,170 441,000 17,528
Preston M. Adcox.................................... 1999 246,100 116,000 35,100 8,754
President and COO 1998 261,038 36,750 7,296
1997 230,834 316,000 13,700
Gerard Cognie (4)................................... 1999 163,082 75,000 17,800
EVP-European Operations 1998 176,629 22,100
1997 161,049 164,200
David S. Gino....................................... 1999 166,764 80,000 17,000 5,727
EVP-Finance and Chief Financial Officer 1998 163,708 12,600 4,296
1997 147,498 121,500 8,781
Kenneth A. Rygler................................... 1999 167,702 61,000 13,000 5,549
EVP-Worldwide Marketing and Strategic Planning 1998 173,034 10,800 4,700
1997 168,500 109,350 9,555
</TABLE>
___________
(1) Mr. Turner joined us as an employee in June 1999. The data presented in
this table does not include compensation received by Mr. Turner as a non-
employee director prior to June 1999. Mr. Turner's compensation package was
calculated on the basis that he devotes approximately 80% of his time to
his position.
(2) Mr. Hardinger stepped down as our Chief Executive Officer and Chairman of
our Board in June 1999.
(3) Matching contributions made by us pursuant to our defined contribution
retirement plans.
(4) Mr. Cognie is paid in French Francs. The figures shown were calculated
using an exchange rate for 1999 of 6.3 Francs to the dollar, for 1998 of
6.0 Francs to the dollar and for 1997 of 5.8 Francs to the dollar.
Information Regarding Stock Options
Option Grants in Last Year
The following table sets forth information regarding options to purchase
shares of our common stock granted to our named officers in 1999. We have not
granted any stock appreciation rights.
<TABLE>
<CAPTION>
Potential Realizable Value at
Assumed Annual Rates of Stock
Options % of Total Options Granted Exercise Price Expiration Price Appreciation for Option term
----------------------------------
Name Granted (#)(1) to Company Employees ($/Share) Date 5% 10%
- ---- -------------- -------------------- --------- ---- --------- ----------
<S> <C> <C> <C> <C> <C> <C>
Marshall C. Turner.... 29,500 3.9% $47.37 6/11/2009 $ 878,827 $2,227,120
J. Michael Hardinger.. 46,000 6.1% 38.81 3/1/2009 1,122,740 2,845,245
J. Michael Hardinger.. 100 * 33.37 7/13/2008 2,099 5,318
Preston M. Adcox...... 35,000 4.6% 38.81 3/1/2009 854,259 2,164,860
Preston M. Adcox...... 100 * 33.37 7/13/2008 2,099 5,318
Gerard Cognie......... 17,800 2.4% 33.37 (2) 7/13/2008 (2) 373,555 946,661
David S. Gino......... 17,000 2.3% 33.37 (2) 7/13/2008 (2) 356,766 904,114
Kenneth A. Rygler..... 13,000 1.7% 33.37 (2) 7/13/2008 (2) 272,821 691,381
</TABLE>
___________
* Less than 1%
(1) Options granted to Messrs. Hardinger, Adcox, Cognie, Gino and Rygler are
non-qualified stock options that become exercisable over a four-year period
at the rate of 25% per year. Options granted to Mr. Turner are non-
qualified stock options that become exercisable six months from the date of
grant. The data presented in this table does not include options received
by Mr. Turner as a non-employee director prior to June 1999.
(2) These options were subject to our stock option re-pricing discussed above.
As a result of the re-pricing, these options have a revised
<PAGE>
exercise price of $23.25 and a revised expiration date of 9/21/2008.
Aggregated Option Exercises in Last Year
and Year-End Option Values
The following table sets forth information regarding the exercisable and
unexercisable options to acquire our common stock granted to our named officers.
<TABLE>
<CAPTION>
Value of
Shares Acquired Number of Unexercised In-The-Money
on Value Options at Year-End Unexercised Options
------------------- at Year-End (1)
-------------------
Name Exercise (#) Realized ($) Exercisable (#) Unexercisable (#) Exercisable ($) Unexercisable ($)
- ---- ------------ ------------ --------------- ---------------- --------------- -----------------
<S> <C> <C> <C> <C> <C> <C>
Marshall C. Turner.......... 9,750 40,750 $ 252,334 $ 192,779
J. Michael Hardinger........ 120,881 117,060 3,377,138 1,544,143
Preston M. Adcox............ 53,495 84,785 1,367,979 1,001,742
Gerard Cognie............... 22,248 47,316 686,907 1,211,507
David S. Gino............... 26,661 38,486 823,158 1,003,255
Kenneth A. Rygler........... 22,661 32,686 699,658 860,430
</TABLE>
___________
(1) The closing price per share of our common stock on June 30, 1999 was
$47.875.
Ten - Year Option Re-pricings
The following table sets forth information regarding re-pricings of options
to acquire our common stock involving our named officers.
<TABLE>
<CAPTION>
Securities
Underlying Length of Original
Number of Market Price of Exercise Price at Option Term
Options Stock at Time of Time of Re-pricing Remaining at Date
Repriced or Re-pricing or or New Exercise Re-pricing or
Name Date Amended (#) Amendment ($) Amendment ($) Price ($) Amendment
- ---- ---- ------------ ---------------- ------------------ ------------ ----------------
<S> <C> <C> <C> <C> <C> <C>
Marshall C. Turner (1)......
J. Michael Hardinger (2)....
Preston M. Adcox (2)........
Gerard Cognie............... 9/21/1998 22,100 $23.25 $52.75 $23.25 8.8 years
Gerard Cognie............... 9/21/1998 17,800 23.25 33.37 23.25 9.8 years
David S. Gino............... 9/21/1998 12,600 23.25 52.75 23.25 8.8 years
David S. Gino............... 9/21/1998 17,000 23.25 33.37 23.25 9.8 years
Kenneth A. Rygler........... 9/21/1998 10,800 23.25 52.75 23.25 8.8 years
Kenneth A. Rygler........... 9/21/1998 13,000 23.25 33.37 23.25 9.8 years
</TABLE>
___________
(1) Mr. Turner joined us as an employee in June 1999.
(2) Messrs. Hardinger and Adcox did not participate in our September 21, 1998
option re-pricing.
Long-Term Incentive Programs
We have no long-term incentive programs.
Pension Plans
We have no defined benefit or actuarial pension plans. However, each of our
named officers except Mr. Turner has been credited with years of service under
the DuPont defined benefit pension plan. Their participation in this plan ended
in June 1996. Upon termination, they received either a reduced pension
immediately or a full pension at a deferred date.
DIRECTOR COMPENSATION
<PAGE>
Directors who are one of our officers receive no additional compensation
for serving on our board. All other directors who are not employed by DuPont
receive an annual fee of $20,000. Mr. Doyle is party to an arrangement with us
whereby he provides consulting services in the area of human resource management
and principles at a fee of $3,500 per day, not to exceed five days per year.
There were no payments to Mr. Doyle in 1999 under this agreement. In February
1999, the board approved payment of one-time additional compensation of $14,000
to Mr. Pankonien and $26,000 to Mr. Turner for services they rendered in their
role as directors.
Second Amended and Restated Non-Employee Directors' Stock Option Plan
The purpose of the Second Amended and Restated Non-Employee Directors' Stock
Option Plan is to allow us to recruit and retain qualified outside directors to
serve on our board. Under this plan, each director who was not an employee, and
who is not precluded by his or her employer from receiving such grant, receives
a one-time grant of options to purchase 12,000 shares of our common stock upon
first joining our board. Thereafter, each non-employee director receives,
during his or her tenure as a director, an annual grant of options covering
5,000 shares as of the first day of the month following our annual meeting of
stockholders. Directors who are first elected to our board within the 60 day
period immediately preceding our annual meeting of stockholders and who at the
time of their election received the one-time grant of options to purchase 12,000
shares described above, will not, under the terms of this plan, receive an
additional grant of 5,000 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 this
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 this plan. Under this
plan, prior to its amendment, Messrs. Doyle, Pankonien, and Turner were granted
options to purchase 3,000 shares of our common stock, at $35.56 per share, on
November 1, 1996 and 3,000 shares of our common stock, at $44.81 per share, on
November 1, 1997. Further, Messrs. Doyle, Pankonien, Sargent and Turner were
granted options to purchase 5,000 shares of our common stock, at $32.81 per
share, on November 2, 1998. Options granted under this plan were not subject to
our September 21, 1998 option re-pricing.
PERFORMANCE GRAPH
The graph set forth below compares the cumulative total return as of the end
of the company's most recent year on $100 invested in our 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: Align-Rite
International, Inc. (Nasdaq - MASK); Electroglas, Inc. (Nasdaq - EGLS); Etec
Systems (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.
6/14/96 6/30/96 6/30/97 6/30/98 6/30/99
DPI 100 120.59 317.66 202.95 281.62
Nasdaq Composite Index 100 96.69 117.66 154.59 219.16
Industry Peer Group 100 84.9 173.44 119.5 212.27
<PAGE>
EXHIBIT A
AMENDMENTS TO THE AMENDED AND RESTATED CERTIFICATE OF INCORPORATION
-------------------------------------------------------------------
1. Amend the first sentence of paragraph (a) of Article FOURTH of the
Amended and Restated Certificate of Incorporation so as to read in its entirety
as follows:
The aggregate number of shares of stock that the Corporation shall have
authority to issue is 105,000,000 shares, consisting of 100,000,000 shares
designated "Common Stock" and 5,000,000 shares designated "Preferred
Stock".
2. Amend subparagraph (b)(5) of Article FOURTH of the Amended and
Restated Certificate of Incorporation so as to read in its entirety as follows:
the amount or amounts, if any, payable upon shares of such class or
series upon, and the rights of the holders of such class or series in,
the voluntary or involuntary liquidation, dissolution or winding up,
or on any distribution of the assets, of the Corporation;
3. Amend the first sentence of paragraph (f) of Article FOURTH of the
Amended and Restated Certificate of Incorporation so as to read in its entirety
as follows:
In the event of the voluntary or involuntary liquidation, dissolution
or winding up of the Corporation, holders of shares of each series of
Preferred Stock will be entitled to receive the amount fixed for such
series upon any such event plus, in the case of any series on which
dividends will have been determined by the Board of Directors to be
cumulative, an amount equal to all dividends accumulated and unpaid
thereon to the date of final distribution whether or not earned or
declared before any distribution shall be paid, or set aside for
payment, to holders of Common Stock.
4. Amend Article FOURTH of the Amended and Restated Certificate of
Incorporation by deleting paragraph (l) thereof in its entirety.
5. Amend Article SIXTH of the Amended and Restated Certificate of
Incorporation so as to read in its entirety as follows:
(a) The business and affairs of the Corporation shall be managed by,
or under the direction of, the Board of Directors of the Corporation.
Except as otherwise provided for or fixed pursuant to the provisions of
paragraph (b) of Article FOURTH of the Amended and Restated Certificate of
Incorporation of the Corporation relating to the rights of the holders of
any series of Preferred Stock to elect additional directors, the total
number of directors shall be determined from time to time by resolution of
the Board of Directors.
(b) The Board of Directors (other than those directors elected by the
holders of any series of Preferred Stock provided for or fixed pursuant to
the provisions of paragraph (b) of Article FOURTH of the Amended and
Restated Certificate of Incorporation of the Corporation (the "Preferred
Stock Directors")) shall be divided into three classes, as nearly equal in
number as possible, designated Class I, Class II and Class III. Class I
directors shall initially serve until the first annual meeting of
stockholders next succeeding the date of this Certificate of Amendment;
Class II directors shall initially serve until the second annual meeting of
stockholders next succeeding the date of this Certificate of Amendment; and
Class III directors shall initially serve until the third annual meeting of
stockholders next succeeding the date of this Certificate of Amendment.
Commencing with the first annual meeting of stockholders next succeeding
the date of this Certificate of Amendment, directors of each class the term
of which shall then expire shall be elected to hold office for a three-year
term and until the election and qualification of their respective
successors in office. In case of any increase or decrease, from time to
time, in the number of directors (other than Preferred Stock Directors),
the number of directors in each class shall be apportioned as nearly equal
as possible.
<PAGE>
(c) Subject to the rights of the holders of any one or more series of
Preferred Stock then outstanding, newly created directorships resulting
from any increase in the authorized number of directors or any vacancies in
the Board of Directors resulting from death, resignation, retirement,
disqualification, removal from office or other cause shall be filled solely
by the affirmative vote of a majority of the remaining directors then in
office, even though less than a quorum of the Board. Any director so chosen
shall hold office until the next election of the class for which such
directors shall have been chosen and until his successor shall be elected
and qualified. No decrease in the number of directors shall shorten the
term of any incumbent director.
(d) Except for such additional directors, if any, as are elected by
the holders of any series of Preferred Stock as provided for or fixed
pursuant to the provisions of paragraph (b) of Article FOURTH of the
Amended and Restated Certificate of Incorporation of the Corporation, any
director, or the entire Board, may be removed from office at any time, but
only for cause and only by the affirmative vote of at least 66 2/3% in
voting power of the then outstanding shares of capital stock of the
Corporation entitled to vote generally in the election of directors, voting
together as a single class.
(e) During any period when the holders of any series of Preferred
Stock have the right to elect additional directors as provided for or fixed
pursuant to the provisions of paragraph (b) of Article FOURTH hereof, then
upon commencement and for the duration of the period during which such
right continues: (i) the then otherwise total authorized number of
directors of the Corporation shall automatically be increased by such
specified number of directors, and the holders of such Preferred Stock
shall be entitled to elect the additional directors so provided for or
fixed pursuant to said provisions, and (ii) each such additional director
shall serve until such director's successor shall have been duly elected
and qualified, or until such director's right to hold such office
terminates pursuant to said provisions, whichever occurs earlier, subject
to his earlier death, disqualification, resignation or removal. Except as
otherwise provided by the Board of Directors of the Corporation in the
resolution or resolutions establishing such series, whenever the holders of
any series of Preferred Stock having such right to elect additional
directors are divested of such right pursuant to the provisions of such
stock, the terms of office of all such additional directors elected by the
holders of such stock, or elected to fill any vacancies resulting from the
death, resignation, disqualification or removal of such additional
directors, shall forthwith terminate and the total and authorized number of
directors of the Corporation shall be reduced accordingly.
(f) Unless and except to the extent that the bylaws of the
Corporation shall so require, the election of directors of the Corporation
need not be by written ballot.
6. Amend Article SEVENTH of the Amended and Restated Certificate of
Incorporation by adding a second sentence thereto which shall read in its
entirety as follows:
Notwithstanding any other provision of the Amended and Restated
Certificate of Incorporation of the Corporation or any provision of
law which might otherwise permit a lesser vote, but in addition to any
affirmative vote of the holders of any particular class or series of
the stock required by law or the Amended and Restated Certificate of
Incorporation of the Corporation, the affirmative vote of the holders
of at least 66 2/3% in voting power of the then outstanding shares of
voting stock of the Corporation, voting together as a single class,
shall be required in order for the stockholders of the Corporation to
adopt, alter, amend or repeal any bylaw of the Corporation.
7. Amend the Amended and Restated Certificate of Incorporation by adding
a new Article thereto, Article ELEVENTH, which shall read in its entirety as
follows:
Any action required or permitted to be taken by the stockholders of
the Corporation must be effected at a duly called annual or special
meeting of stockholders of the Corporation and may not be effected by
any written consent of stockholders in lieu of a meeting of
stockholders.
<PAGE>
8. Amend Article EIGHTH of the Amended and Restated Certificate of
Incorporation by adding a third sentence thereto which shall read in its
entirety as follows:
Notwithstanding any other provision of the Amended and Restated
Certificate of Incorporation of the Corporation or any provision of
law which might otherwise permit a lesser vote, but in addition to any
affirmative vote of the holders of any particular class or series of
the stock required by law or the Amended and Restated Certificate of
Incorporation, any amendment, alteration or repeal of, or the adoption
of any provision inconsistent with the provisions of, Article SIXTH,
Article SEVENTH, Article ELEVENTH or this Article EIGHTH shall require
the affirmative vote of the holders of at least 66 2/3% in voting
power of the then outstanding voting stock of the Corporation, voting
together as a single class.
<PAGE>
EXHIBIT B
AMENDMENTS TO THE BYLAWS
------------------------
1. Amend the first sentence of Section 3.03 of the Bylaws so as to read in
its entirety as follows:
Special meetings of the stockholders may be called at any time by
resolution of the board of directors, which may fix the date, time and
place of the meeting.
2. Amend Section 3.05 of the Bylaws so as to add the following at the end
thereof:
The date and time of the opening and the closing of the polls for each
matter upon which the stockholders will vote at a meeting shall be announced at
the meeting by the person presiding over the meeting. The board of directors
may adopt by resolution such rules and regulations for the conduct of the
meeting of stockholders as it shall deem appropriate. Except to the extent
inconsistent with such rules and regulations as adopted by the board of
directors, the person presiding over any meeting of stockholders shall have the
right and authority to convene and to adjourn the meeting, to prescribe such
rules, regulations and procedures and to do all such acts as, in the judgment of
such chairman, are appropriate for the proper conduct of the meeting. Such
rules, regulations or procedures, whether adopted by the board of directors or
prescribed by the presiding officer of the meeting, may include, without
limitation, the following: (i) the establishment of an agenda or order of
business for the meeting; (ii) rules and procedures for maintaining order at the
meeting and the safety of those present; (iii) limitations on attendance at or
participation in the meeting to stockholders of record of the corporation, their
duly authorized and constituted proxies or such other persons as the chairman of
the meeting shall determine; (iv) restrictions on entry to the meeting after the
time fixed for the commencement thereof; and (v) limitations on the time
allotted to questions or comments by participants. Unless and to the extent
determined by the board of directors or the person presiding over the meeting,
meetings of stockholders shall not be required to be held in accordance with the
rules of parliamentary procedure.
3. Amend Article III of the Bylaws so as to add a new section thereto,
Section 3.09, which shall read in its entirety as follows:
SECTION 3.09. Notice of Stockholder Business and Nominations.
----------------------------------------------
(A) Annual Meetings of Stockholders. (1) Nominations of persons for
-------------------------------
election to the board of directors of the corporation and the proposal
of business to be considered by the stockholders may be made at an
annual meeting of stockholders only (a) pursuant to the corporation's
notice of meeting (or any supplement thereto), (b) by or at the
direction of the board of directors or (c) by any stockholder of the
corporation who was a stockholder of record of the corporation at the
time the notice provided for in this Section 3.09 is delivered to the
Secretary of the corporation, who is entitled to vote at the meeting
and who complies with the notice procedures set forth in this Section
3.09.
(2) For nominations or other business to be properly brought
before an annual meeting by a stockholder pursuant to clause (c) of
paragraph (A)(1) of this Section 3.09, the stockholder must have given
timely notice thereof in writing to the Secretary of the corporation
and any such proposed business other than the nominations of persons
for election to the board of directors must constitute a proper matter
for stockholder action. To be timely, a stockholder's notice shall be
delivered to the Secretary at the principal executive offices of the
corporation not later than the close of business on the ninetieth day
nor earlier than the close of business on the one hundred twentieth day
prior to the first anniversary of the preceding year's annual meeting
(provided, however, that in the event that the date of the annual
meeting is more than thirty days before or more than seventy days after
such anniversary date, notice by the stockholder must be
<PAGE>
so delivered not earlier than the close of business on the one hundred
twentieth day prior to such annual meeting and not later than the close
of business on the later of the ninetieth day prior to such annual
meeting or the tenth day following the day on which public announcement
of the date of such meeting is first made by the corporation). In no
event shall the public announcement of an adjournment or postponement
of an annual meeting commence a new time period (or extend any time
period) for the giving of a stockholder's notice as described above.
Such stockholder's notice shall set forth: (a) as to each person whom
the stockholder proposes to nominate for election as a director all
information relating to such person that is required to be disclosed in
solicitations of proxies for election of directors in an election
contest, or is otherwise required, in each case pursuant to Regulation
14A under the Securities Exchange Act of 1934, as amended (the
"Exchange Act") and Rule 14a-11 thereunder (and such person's written
consent to being named in the proxy statement as a nominee and to
serving as a director if elected); (b) as to any other business that
the stockholder proposes to bring before the meeting, a brief
description of the business desired to be brought before the meeting,
the text of the proposal or business (including the text of any
resolutions proposed for consideration and in the event that such
business includes a proposal to amend the bylaws of the corporation,
the language of the proposed amendment), the reasons for conducting
such business at the meeting and any material interest in such business
of such stockholder and the beneficial owner, if any, on whose behalf
the proposal is made; and (c) as to the stockholder giving the notice
and the beneficial owner, if any, on whose behalf the nomination or
proposal is made (i) the name and address of such stockholder, as they
appear on the corporation's books, and of such beneficial owner, (ii)
the class and number of shares of capital stock of the corporation
which are owned beneficially and of record by such stockholder and such
beneficial owner, (iii) a representation that the stockholder is a
holder of record of stock of the corporation entitled to vote at such
meeting and intends to appear in person or by proxy at the meeting to
propose such business or nomination, and (iv) a representation whether
the stockholder or the beneficial owner, if any, intends or is part of
a group which intends (a) to deliver a proxy statement and/or form of
proxy to holders of at least the percentage of the corporation's
outstanding capital stock required to approve or adopt the proposal or
elect the nominee and/or (b) otherwise to solicit proxies from
stockholders in support of such proposal or nomination. The corporation
may require any proposed nominee to furnish such other information as
it may reasonably require to determine the eligibility of such proposed
nominee to serve as a director of the corporation.
(3) Notwithstanding anything in the second sentence of paragraph
(A)(2) of this Section 3.09 to the contrary, in the event that the
number of directors to be elected to the board of directors of the
corporation at an annual meeting is increased and there is no public
announcement by the corporation naming the nominees for the additional
directorships at least one hundred days prior to the first anniversary
of the preceding year's annual meeting, a stockholder's notice required
by this Section 3.09 shall also be considered timely, but only with
respect to nominees for the additional directorships, if it shall be
delivered to the Secretary at the principal executive offices of the
corporation not later than the close of business on the tenth day
following the day on which such public announcement is first made by
the corporation.
(B) Special Meetings of Stockholders. Only such business shall be
--------------------------------
conducted at a special meeting of stockholders as shall have been
brought before the meeting pursuant to the corporation's notice of
meeting. Nominations of persons for election to the board of directors
may be made at a special meeting of stockholders at which directors are
to be elected pursuant to the corporation's notice of meeting (1) by or
at the direction of the board of directors or (2) provided that the
board of directors has determined that directors shall be elected at
such meeting, by any stockholder of the corporation who is a
stockholder of record at the time the notice provided for in this
Section 3.09 is delivered to the Secretary of the corporation, who is
entitled to vote at the meeting and upon such election and who complies
with the notice procedures set forth in this Section 3.09. In the event
the corporation calls a special meeting of stockholders for the purpose
of electing one or more directors to the board of directors, any such
stockholder entitled to vote in such election of directors may nominate
a person or persons (as
<PAGE>
the case may be) for election to such position(s) as specified in the
corporation's notice of meeting, if the stockholder's notice required
by paragraph (A)(2) of this Section 3.09 shall be delivered to the
Secretary at the principal executive offices of the corporation not
earlier than the close of business on the one hundred twentieth day
prior to such special meeting and not later than the close of business
on the later of the ninetieth day prior to such special meeting or the
tenth day following the day on which public announcement is first made
of the date of the special meeting and of the nominees proposed by the
board of directors to be elected at such meeting. In no event shall the
public announcement of an adjournment or postponement of a special
meeting commence a new time period (or extend any time period) for the
giving of a stockholder's notice as described above.
(C) General. (1) Only such persons who are nominated in accordance
-------
with the procedures set forth in this Section 3.09 shall be eligible to
be elected at an annual or special meeting of stockholders of the
corporation to serve as directors and only such business shall be
conducted at a meeting of stockholders as shall have been brought
before the meeting in accordance with the procedures set forth in this
Section 3.09. Except as otherwise provided by law, the chairman of the
meeting shall have the power and duty (a) to determine whether a
nomination or any business proposed to be brought before the meeting
was made or proposed, as the case may be, in accordance with the
procedures set forth in this Section 3.09 (including whether the
stockholder or beneficial owner, if any, on whose behalf the nomination
or proposal is made solicited (or is part of a group which solicited)
or did not so solicit, as the case may be, proxies in support of such
stockholder's nominee or proposal in compliance with such stockholder's
representation as required by clause (A)(2)(c)(iv) of this Section
3.09) and (b) if any proposed nomination or business was not made or
proposed in compliance with this Section 3.09, to declare that such
nomination shall be disregarded or that such proposed business shall
not be transacted.
(2) For purposes of this Section 3.09, "public announcement"
shall include disclosure in a press release reported by the Dow Jones
News Service, Associated Press or comparable national news service or
in a document publicly filed by the corporation with the Securities and
Exchange Commission pursuant to Section 13, 14 or 15(d) of the Exchange
Act.
(3) Notwithstanding the foregoing provisions of this Section
3.09, a stockholder shall also comply with all applicable
requirements of the Exchange Act and the rules and
regulations thereunder with respect to the matters set forth
in this Section 3.09. Nothing in this Section 3.09 shall be
deemed to affect any rights (a) of stockholders to request
inclusion of proposals in the corporation's proxy statement
pursuant to Rule 14a-8 under the Exchange Act or (b) of the
holders of any series of Preferred Stock to elect directors
pursuant to any applicable provisions of the certificate of
incorporation.
4. Amend the first sentence of Section 4.02 of the Bylaws so as to read in
its entirety as follows:
Except as otherwise provided for or fixed pursuant to the provisions of
the certificate of incorporation relating to the rights of the holders
of any series of Preferred Stock of the corporation to elect additional
directors, the total number of directors shall be determined from time
to time by resolution of the board of directors.
5. Amend Section 4.03 of the Bylaws so as to read in it entirety as
follows:
Intentionally omitted.
6. Amend Section 4.05 of the Bylaws so as to read in its entirety as
follows:
Intentionally omitted.
<PAGE>
7. Amend the second sentence of Section 7.04 of the Bylaws so as to read
in its entirety as follows:
Such determination shall be made:
(1) by a majority vote of the directors who are not parties to
such third party or corporate proceeding, even though less than a
quorum; or
(2) by a committee of such directors designated by majority
vote of such directors, even though less than a quorum; or
(3) if there are no such directors, or if such directors so
direct, by independent legal counsel in a written opinion; or
(4) by the stockholders.
8. Amend Section 8.07 of the Bylaws so as to read in its entirety as
follows:
Theses by laws may be altered, amended or repealed or new bylaws may
be adopted in accordance with the provisions of the certificate of
incorporation.
<PAGE>
EXHIBIT C
DUPONT PHOTOMASKS, INC
AMENDED 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.
<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
<PAGE>
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 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 5,000,000 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
<PAGE>
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, 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
<PAGE>
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 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
<PAGE>
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 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
<PAGE>
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 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
<PAGE>
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.
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
<PAGE>
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
<PAGE>
of applicable Conditions.
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.
<PAGE>
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,
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,
<PAGE>
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 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
<PAGE>
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.
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
<PAGE>
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.
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
<PAGE>
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 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.
<PAGE>
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.
<PAGE>
DUPONT PHOTOMASKS, INC.
PROXY FOR ANNUAL MEETING OF STOCKHOLDERS OCTOBER 26, 1999
PROXY
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 proxies for
the undersigned to vote the shares of common stock of DuPont Photomasks, Inc., a
Delaware corporation, held of record by the undersigned at the close of business
on September 7, 1999, at the annual meeting of stockholders of the company to be
held at the Doubletree Hotel, 6505 North IH-35, Austin, Texas 78751, on Tuesday,
October 26, 1999 at 10:00 a.m. local time, and at any adjournment thereof, as
follows:
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COMMENTS/ADDRESS CHANGE: PLEASE MARK
COMMENT/ADDRESS CHANGE ON REVERSE SIDE.
(Continued and to be signed on other side)
- --------------------------------------------------------------------------------
- FOLD AND DETACH HERE -
PLEASE BE ADVISED THAT OUR TRANSFER AGENTS IS:
FIRST CHICAGO TRUST COMPANY, A DIVISION OF EQUISERVE
P.O. BOX 2500
JERSEY CITY, N.J. 07303-2506
1-800-446-2617
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[X] PLEASE MARK YOUR
VOTES AS IN THIS
EXAMPLE.
THE BOARD OF DIRECTORS RECOMMENDS THAT THE STOCKHOLDERS VOTE FOR THE ELECTION OF
THE PERSONS SET FORTH HEREIN AS DIRECTORS AND THE OTHER PROPOSALS.
<TABLE>
<CAPTION>
<S> <C> <C> <C>
1. To approve certain measures
affecting stockholders' rights
and certain "anti-takeover"
provisions, including:
(A) Classified Board of
Directors Removable / / / / / /
Only for Cause.
(B) Super-Majority Vote
Requirements for Amendment / / / / / /
of Provisions of our Amended
and Restated Certificate of
Incorporation and Bylaws
(C) Increase in the Number of
Shares of Common Stock / / / / / /
Authorized for Issuance.
(D) Amendment of Preferred Stock
Liquidation Preference. / / / / / /
(E) Elimination of Stockholder
Action by Written Consent. / / / / / /
(F) Special provision for Directors
Elected by Preferred / / / / / /
Stockholders.
FOR all nominees listed to WITHHOLD VOTE NOMINEES: John L. Doyle,
the right (except as marked to vote for all nominees John W. Himes, John C. Hodgson,
to the contrary) listed to the right Gary W. Pankonien, Susan
Vladuchick Sam, John C. Sargent,
and Marshall C. Turner
</TABLE>
2. Election of Directors / / / /
(Instructions: To withhold authority to vote for any individual nominee, write
that nominee's name on the following line.)_____________________________________
<TABLE>
<CAPTION>
FOR AGAINST ABSTAIN
<S> <C> <C> <C>
3. Approval of the adoption of the
Amendment to the 1997 Stock / / / / / /
Option and Restricted Stock Plan
</TABLE>
<PAGE>
4. Ratification of PricewaterhouseCoopers / / / / / /
LLP as independent accountants
5. As such proxies may in their discretion
determine upon such other matters as may
properly come before the meeting.
THIS PROXY SHALL BE VOTED IN ACCORDANCE WITH THE INSTRUCTIONS GIVEN, AND IN THE
ABSENCE OF SUCH INSTRUCTIONS, THE PROXIES SHALL VOTE FOR THE ELECTION OF THE
NOMINEES NAMED ABOVE, ALL OF THE PROPOSALS SET FORTH ABOVE AND SUCH OTHER
MATTERS AS MAY PROPERLY COME BEFORE THE MEETING.
-----------------------------------------------------------
-----------------------------------------------------------
SIGNATURE(S) DATE
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
- --------------------------------------------------------------------------------
-FOLD AND DETACH HERE -
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 JOHN L. DOYLE, JOHN W. HIMES, JOHN C. HODGSON, GARY W. PANKONIEN,
SUSAN VLADUCHICK SAM, JOHN C. SARGENT, AND MARSHALL C. TURNER, 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.
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