<PAGE>
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the
Securities Exchange Act of 1934
Filed by the Registrant [X]
Filed by a Party other than the Registrant [_]
Check the appropriate box:
[_] Preliminary Proxy Statement
[_] Confidential, for Use of the Commission Only (as permitted by Rule 14a-
6(e)(2))
[X] Definitive Proxy Statement
[_] Definitive Additional Materials
[_] Soliciting Materials Pursuant to (S) 240.14a-11(c) or (S) 240.14a-12
IRVINE SENSORS CORPORATION
(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)(1) and 0-11.
(1) Title of each class of securities to which transaction applies:
(2) Aggregate number of securities to which transaction applies:
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11:
(4) Proposed maximum aggregate value of transaction:
(5) Total fee paid:
[_] Fee paid previously with preliminary materials.
[_] Check the box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was
paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
(2) Form, Schedule or Registration Statement No.:
(3) Filing Party:
(4) Date Filed:
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IRVINE SENSORS CORPORATION
Notice of Annual Meeting of Stockholders - February 29, 2000
TO THE STOCKHOLDERS OF IRVINE SENSORS CORPORATION:
NOTICE IS HEREBY GIVEN that the Annual Meeting of Stockholders of Irvine
Sensors Corporation, a Delaware corporation (the "Company"), will be held on
Tuesday, February 29, 2000 at 2:00 p.m., California time, at The Center Club,
650 Town Center Drive, Costa Mesa, California for the following purposes:
1. To elect directors to serve for the ensuing year.
2. To amend the Company's Certificate of Incorporation to increase the
authorized number of shares of the Company's common stock from
40,000,000 to 60,000,000.
3. To ratify the appointment of Grant Thornton LLP as independent
accountants of the Company for the fiscal year ending October 1, 2000.
4. To transact such other business as may properly come before the
Meeting or any postponement(s) or adjournment(s) thereof.
The foregoing items of business are more fully described in the Proxy
Statement accompanying this Notice.
The Board of Directors has fixed the close of business on December 27, 1999
as the record date for the determination of stockholders entitled to notice of,
and to vote at, the Annual Meeting and any adjournment or postponement thereof.
All stockholders are cordially invited to attend the Annual Meeting in
person. Whether or not you expect to attend the Annual Meeting in person, in
order to ensure your representation at the Annual Meeting, you are urged to
mark, sign, date and return the enclosed Proxy card as promptly as possible in
the postage-prepaid envelope enclosed for that purpose. Any stockholder
attending the Annual Meeting may vote in person even if he or she returned a
proxy.
By Order of The Board of Directors
/s/ Joanne S. Carson
Joanne S. Carson,
Secretary
Costa Mesa, California
January 31, 2000
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IRVINE SENSORS CORPORATION
3001 Redhill Avenue, Building III
Costa Mesa, California 92626
January 31, 2000
To the StockHolders of Irvine Sensors Corporation:
The Annual Meeting of Stockholders of Irvine Sensors Corporation will be
held at The Center Club, 650 Town Center Drive, Costa Mesa, California, on
Tuesday, February 29, 2000, at 2:00 p.m., California time.
The Annual Report for fiscal 1999 is enclosed herewith. At the
stockholders' meeting, we will discuss in more detail the subjects covered in
the Annual Report as well as other matters of interest to stockholders.
The enclosed proxy statement explains the items of business to come
formally before the Annual Meeting. As a stockholder, it is in your best
interest to express your views regarding these matters by signing and returning
your proxy. This will ensure the voting of your shares if you do not attend the
Annual Meeting.
Your vote is important regardless of the number of shares of the Company's
Stock you own, and all stockholders are cordially invited to attend the Annual
Meeting. To ensure your representation at the Annual Meeting, please mark, sign,
date and mail the enclosed proxy promptly in the return envelope provided, which
requires no postage if mailed in the united states. The giving of a proxy will
not affect your right to vote in person if you attend the Annual Meeting. Please
note, however, that if your shares are held of record by a broker, bank or other
nominee and you wish to vote at the Annual Meeting, you must obtain from the
record holder a proxy issued in your name.
Sincerely yours,
/s/ James Alexiou
James Alexiou
Chairman of the Board
<PAGE>
IRVINE SENSORS CORPORATION
PROXY STATEMENT
INFORMATION CONCERNING SOLICITATION AND VOTING
SOLICITATION AND VOTING RIGHTS
General
The enclosed proxy is solicited by and on behalf of Irvine Sensors
Corporation (the "Company") for use at the Annual Meeting of Stockholders to be
held on Tuesday, February 29, 2000 at 2:00 p.m., California time, or at any
postponements or adjournments thereof, for the purposes set forth herein and in
the accompanying Notice of Annual Meeting of Stockholders. The Annual Meeting
will be held at The Center Club, 650 Town Center Drive, Costa Mesa, California.
All expenses incurred in connection with this solicitation, including postage,
printing, handling and the actual expenses incurred by brokerage houses,
custodians, nominees and fiduciaries in forwarding proxy material to beneficial
owners, will be paid by the Company. In addition to solicitation by mail,
certain officers, directors and regular employees of the Company, who will
receive no additional compensation for their services, may solicit proxies by
telephone, telegram or personal call. These proxy solicitation materials were
mailed on or about January 31, 2000, together with the Company's 1999 Annual
Report to Stockholders, to all stockholders entitled to vote at the Annual
Meeting.
The Company's principal executive offices are located at 3001 Redhill
Avenue, Building III, Costa Mesa, California 92626 and its telephone number is
(714) 549-8211.
Voting of Securities
Irvine Sensors Corporation is a corporation existing and organized under
the laws of the State of Delaware. The Company's Board of Directors has fixed
the close of business on December 27, 1999 as the record date (the "Record
Date") for determining the stockholders of the Company entitled to notice of and
to vote at the Annual Meeting and at any adjournments or postponements thereof.
The Company has authorized two classes of voting securities: Common Stock
(40,000,000 shares authorized) and Preferred Stock (500,000 shares authorized).
As of the Record Date, there are 36,075,400 shares of Common Stock outstanding,
6,400 shares of Series B Preferred Stock outstanding, 3,500 shares of Series C
Preferred Stock outstanding and 2,400 shares of Series D Preferred Stock
outstanding. The presence in person or by proxy of the holders of a majority of
the outstanding shares of Common Stock and Preferred Stock entitled to vote at
the Annual Meeting will constitute a quorum for the purpose of transacting
business at the Annual Meeting.
On each matter that may come before the Annual Meeting, each stockholder is
entitled to one vote for each share of Common Stock and that number of shares of
Common Stock into which the Series B Preferred Stock and Series C Preferred
Stock, as the case may be, are currently convertible. The Series B and C
Preferred convert into 50 shares of Common Stock for each share of Preferred and
the Series D Preferred convert into 100 shares of Common Stock for each share of
Preferred; however, holders of Series D Preferred Stock are not entitled to vote
on any matters being brought before this meeting. As a class, the Preferred
Stock is entitled to 495,000 votes on each matter to come before the Annual
Meeting; however, in all matters to come before the Annual Meeting, the Common
Stock and the Series B and C Preferred Stock will vote together as a single
class. Abstentions and broker-non-votes are counted for purposes of determining
the presence or absence of a quorum for the transaction of business. Abstentions
are counted in tabulations of the votes cast on proposals presented to
stockholders and therefore will have the effect of a negative vote. Broker-non-
votes are not counted for purposes of determining whether a proposal has been
approved.
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Under the Company's Certificate of Incorporation, cumulative voting is
permitted in the election of directors. Under cumulative voting rules, every
stockholder voting in the election of directors may cumulate such stockholder's
votes and give one candidate a number of votes equal to the number of directors
to be elected multiplied by the number of votes to which the stockholder's
shares are entitled, or distribute the stockholder's votes on the same principle
among as many candidates as the stockholder thinks fit, provided that votes
cannot be cast for more candidates than are provided for by the By-laws at the
time of voting. However, no stockholder will be entitled to cumulate votes
unless the name of the candidate or candidates for whom such votes would be cast
has been placed in nomination prior to the voting and any stockholder has given
notice, at the Annual Meeting and prior to the commencement of voting, of such
stockholder's intention to cumulate his votes. The candidates receiving the
highest number of votes, up to the number of directors to be elected, shall be
elected.
All votes will be tabulated by the inspector of election appointed for the
Annual Meeting, who will separately tabulate affirmative and negative votes,
abstentions and broker "non-votes."
Revocability of Proxies
At the Annual Meeting, valid proxies will be voted as specified by the
stockholder. Any stockholder giving a proxy in the accompanying form retains the
power to revoke it at any time prior to the exercise of the powers conferred in
the proxy and may do so by taking any of the following actions: (i) delivering
written notice to the Secretary of the Company, (ii) delivering to the Secretary
of the Company a duly executed proxy bearing a later date or (iii) personally
attending the Annual Meeting and revoking the proxy. A stockholder's attendance
at the Annual Meeting will not revoke the stockholder's proxy unless the
stockholder affirmatively indicates at the Annual Meeting the intention to vote
the stockholder's shares in person. Please note, however, that if a
stockholder's shares are held of record by a broker, bank or other nominee and
the stockholder wishes to vote in person at the Annual Meeting, the stockholder
must obtain from the record holder a proxy issued in the stockholder's name.
Deadline for Receipt of Stockholder Proposals
Proposals of stockholders of the Company which are intended to be presented
by such stockholders at the Company's Annual Meeting to be held in 2001 must be
received by the Company no later than September 23, 2000, in order for them to
be considered for inclusion in the Company's Proxy Statement and form of Proxy
relating to that meeting. It is recommended that stockholders submitting
proposals direct them to the Secretary of the Company and utilize certified
mail-return receipt requested in order to provide proof of timely receipt.
No such proposals were received with respect to the Annual Meeting scheduled for
February 29, 2000.
PROPOSAL NO. 1
NOMINATION AND ELECTION OF DIRECTORS
Nominees
Although the By-laws provide for a board of ten directors, the Company
proposes that a board of nine directors be elected at the Annual Meeting. Each
director to be elected will hold office until the next annual meeting of
stockholders and until his or her successor is elected and has qualified, or
until such director's earlier death, resignation or removal. The Board has the
power between meetings of stockholders to elect directors to fill vacancies thus
created, and the Board is presently seeking candidates to fill the existing
vacancy. Unless otherwise instructed, the Proxy holders will vote the Proxies
received by them FOR the Company's nine nominees named below, all of whom are
presently directors of the Company elected by the stockholders. Proxies cannot
be voted for a greater number of persons than the number of nominees named. In
the event that any nominee of the Company is unable or declines to serve as a
director at the time of the Annual Meeting or any postponements or adjournments
thereof, the Proxies will
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be voted for any substitute nominee who shall be designated by the Proxy holders
or Board of Directors to fill the vacancy. In the event that additional persons
are nominated for election as directors, the Proxy holders intend to vote all
Proxies received by them in such a manner in accordance with cumulative voting
as will assure the election of as many of the nominees listed below as possible,
and, in such event, the specific nominees to be voted for will be determined by
the Proxy holders. Accordingly, the Company seeks discretionary authority to
cumulate votes. It is not expected that any nominee will be unable or will
decline to serve as director.
Required Vote
Directors are elected by a plurality of the votes present and in person or
represented by proxy and entitled to vote on the proposal. Votes may be cast in
favor or withheld; votes that are withheld will be excluded entirely from the
vote and will have no effect. A broker-non-vote will not be treated as entitled
to vote on this matter.
The Board recommends voting "FOR" the nine nominees listed below.
The names of the Company's nominees for director, their ages as of February
29, 2000 and certain information about them, are set forth below:
<TABLE>
<CAPTION>
Name Age Position with Company/Principal Occupation
---- --- ------------------------------------------
<S> <C> <C>
James Alexiou(1)(2) 67 Chairman of the Board
James D. Evert 57 President, Chief Executive Officer and a Director
John C. Carson 61 Senior Vice President, Chief Technical Officer and a Director
Joanne S. Carson 61 Director and Secretary
Marc Dumont(1) 56 Director
Walter Garrigan(2) 73 Director
Frank P. Ragano(1) 71 Director
Wolfgang Seidel(1) 57 Director
Vincent F. Sollitto, Jr.(2) 51 Director
</TABLE>
- --------------------
(1) Member of Compensation Committee.
(2) Member of Audit Committee.
Mr. Alexiou is a co-founder of the Company and has served as Chairman of
the Board and a director since its inception in 1974. He also served as the
Company's President from 1974 until September 1992 and its Chief Executive
Officer from 1974 until he retired from this position in September 1994. He was
subsequently re-elected to the positions of President and Chief Executive
Officer in October 1996 but resigned those positions in January 1997. Mr.
Alexiou also serves as Chairman of the Board of MicroSensors, Inc. ("MSI") and
Novalog, Inc. ("Novalog"), subsidiaries of the Company in which the Company is
the majority stockholder (since October 1997 and 1996, respectively). Since
August 1998 Mr. Alexiou has also been a director of Silicon Film Technologies,
Inc. ("Silicon Film"), another subsidiary of the Company in which the Company is
the majority stockholder. Mr. Alexiou holds a B.S. in business management and an
M.A. in economics from Boston University.
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Mr. Evert has been President, Chief Executive Officer and a director of the
Company since February 1997. He also serves in those capacities for Novalog
since February 1997 and as a director of MSI since October 1997 and as a
director of Silicon Film since August 1998. Prior to joining the Company, Mr.
Evert was an independent management consultant. In that role from December 1993
until January 1995, he assisted Fujitsu Microelectronics, Inc. in the formation
of a graphics product subsidiary and subsequently served as Vice-President of
that unit from January 1995 to February 1996. Mr. Evert is a graduate of
Syracuse University with a B.S. degree in Electrical Engineering.
Mr. Carson is a co-founder of the Company and has served as a Senior Vice
President since the Company's inception in 1974 and a director since April 1982.
He was elected Chief Technical Officer in February 1997. Mr. Carson also serves
as a director of MSI (since October 1997). Mr. Carson has been awarded 15
patents for smart sensors, 3D packaging and single processing architectures,
including neural networks. Mr. Carson holds a B S. in Physics from the
Massachusetts Institute of Technology.
Mrs. Carson has been a director of the Company since its inception and
became the Company's Secretary in December 1981. Mrs. Carson holds a degree in
Business from the Chandler School for Woman.
Mr. Dumont became a director of the Company in April 1994. Mr. Dumont has
been an international consultant and investment banker for more than five years.
Mr. Dumont is also on the Board of Directors of Novalog since October 1996. From
January 1981 to March 1995, Mr. Dumont was President of PSA International S.A.,
a PSA Peugeot Citroen Group company. Mr. Dumont is a graduate of the University
of Louvain, Belgium with degrees in Electrical Engineering and Applied Economics
and holds an MBA from the University of Chicago.
Mr. Garrigan served as a director of the Company from February 1989 until
he retired in 1994. He was re-elected to the Board in February 1997. Mr.
Garrigan is a retired investment banker and financial consultant. Mr. Garrigan
holds AB and Juris Doctor degrees from Rutgers University and is a member of the
Bar of the District of Columbia.
General Ragano became a director of the Company in June 1985. General
Ragano has been Chairman since July 1999 and a Director since November 1997 of
SkyLynk Communications, Inc., a wireless communications company. From December
1988 until November 1998, General Ragano was Chairman and Chief Executive
Officer of CMS, Inc., a manufacturer of defense munitions. General Ragano is
also on the Board of Directors of MSI (since October 1997). General Ragano holds
a B.S. degree from Duquesne University and an MBA from Syracuse University.
Mr. Sollitto has been a director of the Company since October 1997. He is
Chief Executive Officer of Photon Dynamics, Inc., a position he has held since
June 1996. Prior to joining Photon Dynamics, Mr. Sollitto was with Fujitsu
Microelectronics, Inc. from September 1993 to February 1996 as General Manager
of its Business Unit Operations. A graduate of Tufts College, Mr. Sollitto holds
a B.S. degree in Electrical Engineering.
Directors and officers are elected on an annual basis. The term of each
director expires at the Company's next annual meeting of stockholders or at such
time as his or her successor is duly elected and qualified. Officers serve at
the discretion of the Board of Directors.
There are no family relationships between any director, executive officer
or other key personnel and any other director, executive officer or other key
personnel of the Company, other than between John C. Carson and Joanne S.
Carson, who are husband and wife.
Compensation of Directors
Directors who are employees of the Company are not separately compensated
for their services as directors or as members of committees of the Board of
Directors. During fiscal 1999, directors who were not employees of the Company
received $2,000 for each board meeting attended and were reimbursed for
reasonable travel and other expenses. No compensation is paid for attendance at
meetings of the committees of the Board of Directors.
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Board Meetings and Committees
The Board of Directors held a total of four meetings during the fiscal year
ended October 3, 1999. No director attended fewer than 75% of the meetings of
the Board of Directors or committees of which he or she was a member during the
fiscal year ended October 3, 1999.
The Audit Committee of the Board of Directors met twice during the fiscal
year ended October 3, 1999. This Committee reviews the independence of the
Company's independent certified public accountants, recommends the engagement
and discharge of independent accountants and reviews accounting policies,
internal accounting controls and results of audit engagements. During fiscal
1999, neither the Board of Directors nor the Company's independent certified
public accountants raised any issues with respect to matters which required
formal review.
The Compensation Committee of the Board of Directors met four times during
the fiscal year ended October 3, 1999. This Committee makes recommendations to
the Board of Directors as to the salaries of officers, administers the Company's
executive bonus programs and recommends to the Board the award of stock options
to key employees, officers and directors.
The Company does not have a nominating committee or any committee
performing the functions of a nominating committee.
Executive Officers
The names of the Company's executive officers who are not also directors of
the Company and certain information about each of them are set forth below:
Mr. John J. Stuart, age 60, joined the Company in January 1983 as its
Manager of Special Projects and Communications, became the Company's Chief
Financial Officer and Treasurer in July 1985, a Vice President in June 1995 and
Senior Vice President in November 1998. He relinquished the position of
Treasurer in February 1995. Effective November 1998, Mr. Stuart re-assumed the
position of Treasurer in addition to his other responsibilities. Mr. Stuart is
also a member of the Board of Directors and is Vice President of Finance and
Chief Financial Officer of both Novalog (since October 1995) and MSI (since
October 1997). He was also Chief Financial Officer of Silicon Film from its
organization in August 1998 until May 1999. Mr. Stuart holds a B.S. in
Industrial Management from the Massachusetts Institute of Technology.
Mr. Floyd Eide, age 62, joined the Company in August 1997 as Vice President
and General Manager - MicroElectronics Products Division. From November 1987 to
August 1997, Mr. Eide was Chief Operating Officer and Vice President,
Engineering of Dense-Pac Microsystems Inc. He is a graduate of Fairleigh
Dickenson University with a M.S. in Solid State Physics and a B.S. in Physics.
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PROPOSAL NO. 2
AMENDMENT TO CERTIFICATE OF INCORPORATION TO INCREASE
THE AUTHORIZED NUMBER OF SHARES OF THE COMPANY'S COMMON STOCK
The Board of Directors has recommended and declared advisable the adoption
of a resolution to amend the Certificate of Incorporation of the Company to
increase the number of shares of Common Stock, $0.01 par value, that the Company
is authorized to issue from 40,000,000 shares to 60,000,000 shares, $0.01 par
value, and other terms applicable to the existing Common Stock (the "Share
Increase Amendment"). As discussed below, the adoption of this proposal will not
only increase the authorized number of shares of Common Stock by 20,000,000, it
will also enable the Company to honor subscription obligations arising out of a
recent private financing and to permit exercise of the 1989 RDL option.
If adopted, the first paragraph of Article IV of the Certificate of
Incorporation will be amended to read substantially in the form set forth in
Appendix A hereto. If changes are required in the Share Increase Amendment by
the Delaware Secretary of State, the officers of the Company shall be
authorized, by the approval given by the stockholders for the Share Increase
Amendment, to make any such necessary changes in the language of the Amendment
as required by the Delaware Secretary of State.
Under the present Certificate of Incorporation, the total number of shares
of all classes of capital stock that the Company has authority to issue is
40,500,000 shares, divided into 500,000 shares of Preferred Stock, $0.01 par
value and 40,000,000 shares of Common Stock, $0.01 par value. On the Record
Date, there were 36,075,400 shares of Common Stock issued and outstanding and an
aggregate of 3,593,800 shares were reserved for issuance upon conversion of
convertible securities, and upon exercise of outstanding warrants, stock options
and other employee benefit plans. The number of shares reserved as of the Record
Date does not include any shares issuable upon exercise of the RDL option or the
issuance of the shares subject to subscription rights from the December 1999
private financing, as discussed below.
Therefore, on the Record Date 330,800 shares of Common Stock were
unreserved and available for issuance. If the proposed Share Increase Amendment
is approved, in the aggregate there will be 20,330,800 shares of Common Stock
available for issuance, of which the Company intends to reserve (i) 1,000,000
shares issuable upon exercise of the RDL option, originally issued in October
1989 to retire royalty obligations and purchase patent rights pursuant to a
License Agreement and (ii) an approximate 3,750,000 shares to consummate a
contingent financing subscribed for in December 1999. The number of authorized
Preferred Stock will not be changed by the proposed Share Increase Amendment.
The Board of Directors believes that it is desirable to have a sufficient
number of additional shares of Common Stock available, as the occasion may
arise, for possible future financing and acquisition transactions, stock
dividends or splits, stock issuances pursuant to employee benefit plans and
other proper corporate purposes. Having such additional shares available for
issuance in the future would give the Company greater flexibility and allow
shares of Common Stock to be issued without the expense and delay of a special
stockholders meeting. In addition, this proposal would give the Board greater
flexibility in responding to unsolicited takeover attempts. If the Board were to
oppose such a takeover attempt, it could (within the limits imposed by
applicable law and any applicable rules of any stock exchange on which the
Company's Common Stock may then be listed) issue shares of authorized and
unissued Common Stock in one or more transactions or it could issue authorized
and unissued shares of Preferred Stock with terms, provisions and rights that
would make a takeover of the Company more difficult and, therefore, less likely.
Any such issuance of additional stock could be used to dilute the stock
ownership of persons seeking to obtain control of the Company. The additional
shares of Common Stock would be available for issuance without further action by
the stockholders of the Company, unless such action is required by applicable
law or under the rules of any stock exchange on which the Company's Common Stock
may then be listed.
The holders of any of the additional shares of Common Stock issued in the
future would have the same rights and privileges as the holders of the shares of
Common Stock currently authorized and outstanding. The effective date of the
proposed Share Increase Amendment will be the date upon which the required
filing is made in the Office of the Delaware Secretary of State. If the Share
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Increase Amendment is approved by the stockholders, such filing will be made as
soon thereafter as practicable.
In addition to making available additional shares for future uses as
described above, an increase in the authorized shares will enable the Company to
fulfill a subscription obligation arising out of a December 1999 private
financing that it cannot fulfill unless an amendment to the Certificate of
Incorporation increasing the authorized number of shares of Common Stock is
approved by the Company's stockholders. The amendment will also permit the
Company to allow exercise of the option issued to RDL in October 1989 for
deferred royalties and patent purchase rights. Each of these transactions is
discussed below:
Subscription Offering
In December 1999, the Company conducted a private offering of unregistered
securities. The Company offered to a limited number of accredited investors a
subscription right to purchase units consisting of 100 shares of Common Stock
and a warrant to purchase ten shares of common stock at an exercise price of $2
per share. The subscription for a unit was offered for $135 per subscription
unit, which was the equivalent of $1.35 per share of Common Stock. At the time
the offering was priced, this represented approximately a 25% discount from the
fair market value of the Company's Common Stock. This discount reflected the
risk arising out of the insufficient number of authorized shares for the
offering, and the recognition that the Company would have to obtain stockholder
approval to increase the number of authorized shares. The Company received
subscriptions for approximately 30,000 units, with net proceeds of approximately
$3.6 million to be used for general corporate purposes. Immediately prior to the
closing of the offering, the Company had outstanding 36,075,400 shares of Common
Stock and an additional 3,583,800 shares reserved for issuance.
The subscriptions are irrevocable on the part of subscribers, even if the
increase in the authorized shares is not approved by the stockholders.
Subscription proceeds are immediately available for use by the Company.
Subscribers in this offering were advised that, at the date of closing, there
were insufficient shares available to issue all of the shares or to honor the
exercise of the warrants, but the Company agreed to present to the stockholders
at this Annual Meeting a proposal to increase the number of authorized shares in
at least an amount that would be sufficient to issue the shares subscribed for
and to honor the exercise of the warrants. The Company also agreed to file a
registration statement following receipt of this stockholder approval that will
permit the resale of the securities by the participants in the offering. In the
event the Company's stockholders do not approve the proposed amendment to the
Certificate of Incorporation or if the proposed registration statement is not
effective by June 1, 2000, the participants in this offering will begin to
accrue a "registration incentive," which will continued to accrue each month
through the earlier of the effective date of such registration statement or
March 31, 2001. The registration incentive for the period from June 1, 2000
through November 30, 2000 will be 3% per month, pro rated daily; for the period
from December 1, 2000 through January 31, 2001, the registration incentive will
be 6% per month, pro rated daily; and for the period from February 1, 2001
through March 31, 2001, the registration incentive will be 10% per month, pro
rated daily. If the stockholders approve Proposal No. 2, as recommended by the
Board of Directors, the Company intends to file a registration statement as soon
as practicable following the Annual Meeting in order to avoid, if possible, the
payment of any registration incentive fees.
RDL Option
In April 1980, the Company entered into an agreement with R & D Leasing
Ltd. ("RDL"), a limited partnership in which James Alexiou, the Company's
Chairman of the Board (and Chief Executive Officer at the time), and John C.
Carson, its Senior Vice President and a director, were the general partners with
beneficial interests. Under the agreement, RDL was to design an electronic
circuit, develop certain fabrication processes and build equipment for testing
electronic integrated circuits. In connection with the development of the
electronic test equipment under the RDL agreement, certain other proprietary
fabrication processes were developed to which RDL retained ownership. Upon the
occurrence of certain specified events, such as the use of patented fabrication
processes in connection with contracts, the RDL agreement provided that the
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Company would pay a royalty to RDL equal to 3.5% of revenues from sales of the
basic devices using the processes created during the development of this
equipment. Important portions of the Company's basic stacking technology and
fundamental patents resulted from this agreement.
Effective October 20, 1989, the Board of Directors approved an amendment to
the RDL agreement, limiting the royalty fees under certain circumstances and
deferring and subordinating all royalty claims with respect to all other
creditors for an initial period of five years. The amendment allowed the
Company, at RDL's option, to pay up to $250,000 of accrued royalties in shares
of the Company's Common Stock at a price of $0.50 per share. In the event RDL
elected to extend the deferral and subordination to ten years (through October
1999), the deferred royalty amount would be increased to $1,000,000 and the
price would increase to $1.00 per share. RDL did elect to extend the deferral
and subordination agreement, and as a result has an option to purchase 1,000,000
shares of the Company's Common Stock at $1.00 per share, payable in the form of
deferred royalties. The closing bid price of the Company's Common Stock on
October 20, 1989 was $0.25. As such, the RDL option was for a price that
substantially exceeded fair market value on the date of grant. The option
currently expires on April 3, 2000.
Although the option has been outstanding since October 1989, in September
1999, Messrs. Alexiou and Carson voluntarily suspended the right to exercise
this warrant, pending receipt of stockholder approval for the increase in the
authorized shares. As such, Messrs. Carson and Alexiou will directly benefit
from the approval of the Share Increase Amendment by making available authorized
but unissued shares to enable RDL to exercise its option to purchase 1,000,000
shares of Common Stock. If the RDL option is exercised, the Company will receive
no cash proceeds but will retire $1,000,000 of deferred royalties owed to RDL,
resulting in a corresponding increase in the Company's paid-in capital.
Required Vote
The approval of the Share Increase Amendment requires the affirmative vote
of the holders of a majority of the outstanding shares entitled to vote at the
Annual Meeting.
The Board of Directors recommends a vote for the approval of the proposed
Share Increase Amendment to the Company's Certificate of Incorporation to
increase the authorized number of shares of Common Stock from 40,000,000 to
60,000,000 shares. The effect of an abstention is the same as that of a vote
against the approval of the Share Increase Amendment. Unless marked to the
contrary, proxies received will be voted FOR approval of the Share Increase
Amendment.
PROPOSAL NO. 3
RATIFICATION OF APPOINTMENT OF INDEPENDENT ACCOUNTANTS
The Board of Directors has selected the accounting firm of Grant Thornton
LLP to serve as the Company's independent accountants for the fiscal year ending
October 1, 2000. A representative of Grant Thornton LLP is expected to attend
the Annual Meeting and will be available to respond to stockholders' questions
or make a statement if he desires to do so.
Accounting services provided by Grant Thornton LLP in fiscal 1999 included
the examination of the Company's consolidated financial statements for the
fiscal year ended October 3, 1999, the review of quarterly consolidated
financial statements and various other filings with the Securities and Exchange
Commission.
Required Vote
The affirmative vote of the holders of a majority of the voting shares
represented and voting at the Annual Meeting is required to approve the
ratification of appointment of Grant Thornton LLP as the Company's independent
accountants for the fiscal year ending October 1, 2000. Unless marked to the
contrary, proxies received will be voted FOR the ratification of appointment of
Grant Thornton LLP.
The Board of Directors of the Company recommends a vote "FOR" the
ratification of appointment of Grant Thornton LLP as the Company's independent
accountants for the fiscal year ending October 1, 2000.
8
<PAGE>
OTHER INFORMATION
Security Ownership of Certain Beneficial Owners and Management
The following table sets forth as of December 27, 1999, the number and
percentage of Common and Preferred Stock owned by (i) persons known by the
Company to beneficially own more than 5% of an outstanding class of voting
securities, (ii) each director and nominee for director, (iii) each executive
officer named in the Summary Compensation Table located on page 12 of this proxy
statement, and (iv) all directors and executive officers as a group. The Company
knows of no arrangements that will result in a change in control subsequent to
the date hereof. Except as otherwise indicated, each person has sole investment
and voting power with respect to the shares shown, subject to community property
laws, where applicable.
Amount and Nature of Beneficial Ownership
<TABLE>
<CAPTION>
Sole Voting Shared Voting Percent
Title of or Investment or Investment Aggregate of
Name Class Power Power(1) Amount Class(2)
- --- ------------- ------------------ --------------- ------------- ----------
<S> <C> <C> <C> <C> <C>
FundSelect E Common 3,393,544 - 3,393,544 9.20%
4, rue Alphonse Weicker
L-2721 Luxembourg-Kirchberg
James Alexiou Common 296,035(6) 2,408,523(3) 2,704,558 7.33%
3001 Redhill Ave., Preferred - 9,899 9,899 100.00%
Costa Mesa, California
James D. Evert Common 445,220(9) 2,408,523(3) 2,853,743 7.74%
3001 Redhill Ave., Preferred - 9,899 9,899 100.00%
Costa Mesa, California
John C. Carson (4) Common 92,955(10) 2,408,523(3) 2,501,478 6.78%
3001 Redhill Ave., Preferred - 9,899 9,899 100.00%
Costa Mesa, California
Joanne S. Carson (4) Common 224,876(11) - 224,876 (7)
Marc Dumont Common 148,998(5) - 148,998 (7)
Walter Garrigan Common 9,490(12) - 9,490 (7)
Frank P. Ragano Common 77,501(8) - 77,501 (7)
Wolfgang Seidel Common 214,500 - 214,500 (7)
Vincent F. Sollitto, Jr. Common 25,666(13) - 25,666 (7)
John J. Stuart, Jr. Common 357,266(10) 2,408,523(3) 2,765,789 7.50%
3001 Redhill Ave., Preferred - 9,899 9,899 100.00%
Costa Mesa, California
All directors and
executive officers Common 1,892,507(14) 2,408,523(3) 4,301,030 11.66%
as a group (10 persons) Preferred - 9,899 9,899 100.00%
</TABLE>
____________________
(1) Such shares of Common and Series B and Series C Preferred Stock are held by
the Company's Stock Bonus Plan; the named individual shares the power to
vote and dispose of such shares.
(2) Percentages have been calculated based upon the number of outstanding
shares on December 28, 1998 plus Common Stock deemed outstanding at such
date pursuant to Rule 13d-3(d)(1) under the Securities Exchange Act of
1934.
9
<PAGE>
(3) Includes 1,913,572 shares of Common Stock and 494,964 shares issuable upon
conversion of Series B and Series C Preferred Stock, all of which are held
by the Company's Stock Bonus Plan, by virtue of the named individual's
shared power to vote and dispose of such shares.
(4) The amounts and percentages for each of John C. Carson and Joanne S.
Carson, who are husband and wife, exclude amounts held by the other spouse
as separate property.
(5) Includes 114,998 shares issuable upon exercise of currently exercisable
common stock options.
(6) Includes 81,666 shares issuable upon exercise of currently exercisable
common stock options.
(7) Less than 1%.
(8) Includes 31,666 shares issuable upon exercise of currently exercisable
common stock options.
(9) Includes 399,998 shares issuable upon exercise of currently exercisable
common stock options.
(10) Includes 92,666 shares issuable upon exercise of currently exercisable
common stock options.
(11) Includes 26,666 shares issuable upon exercise of currently exercisable
common stock options.
(12) Includes 5,000 shares issuable upon exercise of currently exercisable
common stock options.
(13) Includes 21,666 shares issuable upon exercise of currently exercisable
common stock options.
(14) Includes 866,992 shares issuable upon exercise of currently exercisable
common stock options - which represents the sum of all such shares issuable
upon exercise of options held by all officers and directors.
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act") requires the Company's executive officers and directors and
persons who own more than ten percent of a class of the Company's equity
securities registered under the Exchange Act, to file with the Commission
reports of ownership and changes in ownership of Common Stock and other equity
securities of the Company. Executive officers, directors and greater than ten
percent stockholders are required by Commission regulations to furnish the
Company with copies of all Section 16(a) forms they file. Based solely on review
of this information, including written representations that no other reports
were required, the Company believes that during the fiscal year ended October 3,
1999, each of the Company's executive officers, directors and holders of ten
percent or more of the Company's Common Stock timely filed all reports required
to be filed pursuant to Section 16(a) of the Exchange Act.
10
<PAGE>
EXECUTIVE COMPENSATION
Compensation of Executive Officers
For fiscal years ended October 3, 1999, September 27, 1998 and September
28, 1997, the compensation awarded or paid to, or earned by the Company's Chief
Executive Officer, and each of the three other executive officers of the Company
whose annual salary and bonus exceeded $100,000 in fiscal 1999 (the "Named
Executive Officers"), is shown in the following table:
Summary Compensation Table
<TABLE>
<CAPTION>
Long Term Compensation
Annual Compensation Awards Payouts
------------------- --------------------- -----------
Other
Name Annual Restricted
and Compen- Stock Options/ All Other
Principal Fiscal sation Awards SARs Compensa-
Position(s) Year Salary($) Bonus($) ($)(1) ($) (1) (#) tions($)(2)
- ------------ ------ --------- -------- -------- ---------- --------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
James D. Evert 1999 200,000 47,760 3,030 - - 18,390
President and Chief 1998 200,000 57,700 1,400 - 200,000 15,970
Executive Officer 1997 92,290 40,000 - 7,500 300,000 8,770
John C. Carson 1999 151,528 7,170 4,730 - 30,000 18,390
Senior Vice President 1998 146,500 14,170 3,230 - 50,000 25,120
1997 146,500 - 3,870 - 100,000 14,260
John J. Stuart, Jr. 1999 135,100 16,770 4,910 - 30,000 18,330
Vice President, Treasurer 1998 120,000 15,520 7,550 - 50,000 12,660
Chief Financial Officer 1997 120,000 - 5,090 - 100,000 11,890
Floyd L. Eide 1999 120,000 5,230 1,110 - 69,800 13,950
Vice President 1998 120,000 18,920 - - - 15,970
1997 13,850 - - - 100,000 950
</TABLE>
___________________________
(1) As permitted by the rules promulgated by the SEC, no amounts are shown
for "perquisites," where such amounts for the Named Executive Officers do not
exceed the lesser of 10% of the sum of such executive bonus salary or $50,000.
(2) Amounts in this column represent the value of shares contributed to the
named individual's account in the Employee Stock Bonus Plan. See "Employee Stock
Bonus Plan".
Employment Agreements
The Company had no employment agreements with any of its executive officers
during the fiscal year ended October 3, 1999 and has not entered into any such
agreements in the current fiscal year.
Option Grants
The following table sets forth certain information regarding grants of
stock options made during the fiscal ended October 3, 1999 to the Named
Executive Officers. No stock appreciation rights ("SARs") were granted during
fiscal 1999.
11
<PAGE>
Options Granted During Last Fiscal Year
<TABLE>
<CAPTION>
Individual Grants Potential Realizable
----------------------------------------------
Value at Assumed
Number of % of Total Annual Rates of Stock
Securities Options Price Appreciation for
Underlying Granted to Exercise or Option Term(3)
Options Employees in Base Price Expiration ----------------------
Name Granted(1) Fiscal Year(2) ($/Share) Date 5%($) 10% ($)
- ---- ------------ -------------- ------------- ------------- ----- -------
<S> <C> <C> <C> <C> <C>
James D. Evert - - - - - -
John C. Carson 30,000 4.5% 1.36 11/05/2002 8,100 17,300
Floyd Eide 69,800 10.4% 1.35 03/30/2003 50,200 59,400
John J. Stuart, Jr. 30,000 4.5% 1.36 11/05/2002 8,100 17,300
</TABLE>
________________________
(1) Options granted become exercisable at the rate of 33% annually over
a three-year period after one year from the date of grant.
(2) Based on an aggregate of 673,800 options granted under the Company's
option plans in the fiscal year ended October 3, 1999.
(3) Amounts represent hypothetical gains that could be achieved for the
respective options if exercised at the end of the option term. These gains
are based on assumed rates of stock appreciation of 5% and 10% compounded
annually from the date the respective options were granted to their
expiration date and are not intended to forecast possible future
appreciation, if any, in the price of the Common Stock. The gains shown are
net of the option exercise price, but do not include deductions for taxes
or other expenses associated with the exercise of the options or the sale
of the underlying shares. The actual gains, if any, on the stock option
exercises will depend on the future performance of the Common Stock, the
optionholder's continued employment through the option vesting period and
the date on which the options are exercised.
Option Exercises During Last Fiscal Year and Fiscal Year-End Values
The following table contains information relating to the exercise of stock
options granted under the 1991 and 1995 Stock Option Plans by the Named
Executive Officers in fiscal 1999, as well as the number and value of their
unexercised options as of October 3, 1999.
Aggregated Option Exercises During Last Fiscal Year
and Fiscal Year-End Option Values
<TABLE>
<CAPTION>
Number of
Securities Underlying Value of Unexercised
Unexercised Options In-the-Money Options
Shares Value at Fiscal Year End(#)(2) at Fiscal Year End($)(3)
Acquired on Realized ----------------------------- -----------------------------
Name Exercise(#) ($)(1) Exercisable Unexercisable Exercisable Unexercisable
- ---- ----------- -------- ----------- --------------- ----------- ---------------
<S> <C> <C> <C> <C> <C> <C>
James D. Evert - - 175,000 325,000 11,025 1,735
John C. Carson - - 82,666 97,334 39,874 27,684
Floyd Eide 33,333 18,366 73,133 113,334 28,157 22,442
John J. Stuart, Jr - - 82,666 97,334 39,874 27,684
</TABLE>
____________________________
(1) Represents the fair market value of the Company's Common Stock on the date
of exercise (based on the closing sales price reported on the Nasdaq
SmallCap Market or the actual sales price if the shares were sold by the
optionee), less the exercise price, and does not necessarily indicate that
the shares were sold by the optionee.
(2) Includes both in-the-money and out-of-the money options.
12
<PAGE>
(3) Fair market value of the Company's Common Stock on the last trading day of
fiscal 1998 ($1.56 per share), less the applicable exercise prices,
multiplied by the number of options.
Employee Stock Bonus Plan
All of the Company's employees are eligible to participate in the Employee
Stock Bonus Plan, which has been established by the Company in lieu of a
retirement plan. Employees are enrolled in the plan as of the day following the
date on which the employee completes at least one hour of work. In order to
share in the Company's contribution to the Plan in any Plan year, an employee
must have worked a minimum of 1,000 hours during the Plan year, and be employed
by the Company at the end of the Plan year. To date, the Plan has been funded
only with previously unissued shares of the Company's Common and Preferred
stock; thus the Company has not incurred any cash expense in connection
therewith. The Plan's assets are allocated annually to the participating
employees' accounts in the respective ratios that each participating employee's
compensation bears to the total compensation of participating employees. An
employee's participation in the Plan terminates on his retirement, disability or
death, at which time the employee will receive that portion of his account which
has vested. Generally, an employee's account vests at a rate of 20% per year
after completing three years of employment and is 100% vested after seven years
of employment. All executive officers named in the Summary Compensation Table
participate in the Company's Employee Stock Bonus Plan. In the fiscal years
ended October 3, 1999, September 27, 1998 and September 28, 1997 the Company
contributed 330,000, 333,300 and 347,600 shares of Common Stock, respectively,
to the Plan, valued at $500,209, $500,000 and $445,500, respectively, as of the
date of contribution.
The value of contributions to the accounts of the Named Executive Officers
for the fiscal year ended October 3, 1999 has been included in "All Other
Compensation" in the Summary Compensation Table.
The Company maintains an Executive Compensation Retirement Plan wherein
certain executives may receive compensation based on a combination of age,
length of service and a percentage of average salary during the 36 months
preceding their retirement date. Mr. Alexiou was eligible to receive such
compensation in fiscal 1998.
Compensation Committee Interlocks and Insider Participation
During the fiscal year ended October 3, 1999, Messrs. Alexiou, Dumont,
Ragano and Seidel served as members of the Compensation Committee. During fiscal
1999, all of the members of the Compensation Committee were non-employee
directors. None of the Company's executive officers has, during fiscal 1999,
served on the Board of Directors or the compensation committee of any other
entity, any of whose officers served either on the Board of Directors or the
Compensation Committee of the Company.
Compensation Committee Report/1/
- -------------------------
/1/ This Report is not "soliciting material," is not deemed "filed" with
the SEC and is not to be incorporated by reference in any filing of
the Company under the Securities Act of 1933, as amended, or the
Exchange Act, whether made before or after the date hereof and
irrespective of any general incorporation language in any such filing.
13
<PAGE>
The Company's executive compensation philosophy is to attract and retain
executive officers capable of leading the Company to fulfillment of its business
objectives by offering competitive compensation opportunities that in large part
reward individual contributions as well as including a component that recognizes
overall corporate performance. In addition, long-term equity compensation is
awarded to align the interests of management and stockholders. The Company
provides executive officers (and key employees) of the Company with a
substantial economic interest in the long-term appreciation of the Company's
stock through the grant of stock options and participation in the Employee Stock
Bonus Plan, subject to vesting restrictions.
To further these objectives, the compensation program for executive
officers generally consists of four components: (i) base cash salaries, (ii)
annual cash bonus plans (iii) stock options, and (iv) employee retirement plan.
Total compensation paid by the Company to its executive officers is designed to
be competitive with the compensation packages paid to the management of
comparable companies in the electronic manufacturing industry. The Committee
generally evaluates corporate and individual performance based on factors such
as achieving profitability, increasing stockholders' value and continued growth.
As a result, a significant component of the evaluation involves a subjective
assessment of qualitative factors. Moreover, the Committee does not base its
considerations on any single performance factor, nor does it specifically assign
relative weight to factors, but rather considers a mix of factors and evaluates
the Company and individual performance against that mix.
Base Salaries
The Committee approves salary changes for executive officers in accordance
with the salary administrative policy. Salary adjustments are generally made
following the end of the fiscal year. The salary administrative policy is a
long-standing one that is periodically reviewed by the Committee. The policy
reflects both performance objectives and accomplishments and competitive salary
data of other Companies. Adjustments to base salaries are recommended on the
basis of these factors.
Cash Bonuses
Cash bonuses are awarded based on the achievement of corporate and
individual goals recommended by the Chief Executive Officer and approved by the
Compensation Committee and Board of Directors, as well as the financial
condition and prospects for the Company. Under the bonus plan applicable to
executive officers, award levels range from zero to 50% of base salaries. For
the fiscal 1999 year, which ended October 3, 1999 Mr. Evert earned a bonus of
$47,760. See "- Chief Executive Officer Compensation." Other executive officers
earned bonuses for the fiscal 1999 year as follows: Mr. Carson earned a
bonus of $7,170, Mr. Stuart earned a bonus of $16,770, and Mr. Eide
earned a bonus of $5,230.
Stock Options
Long-term equity incentives are granted to executive officers and other
selected employees from time to time on a discretionary basis. Options are
typically granted with an exercise price equal to the Common Stock's market
value on the date of grant, and generally become incrementally exercisable after
one year of continued employment following the grant date and expire three years
thereafter. Options are granted based upon recommendations of management as to
the grantees, number of options that should be granted and other terms. Options
are granted to key employees, including the executive officers, based on current
performance, anticipated future contribution based on that performance and
ability to impact corporate and/or business results. During fiscal 1999,
options to purchase 129,800 shares of common stock were granted to executive
officers.
Employee Retirement Plan
14
<PAGE>
The Company maintains an employee retirement plan which provides for annual
contributions to the Company's Stock Bonus Trust on behalf of the employees,
including executives. At the discretion of the Compensation Committee,
contributions not to exceed 15% of total payroll are made in the Company's
Common Stock at market value. Individual employees gain a vested interest over
a seven-year period of service.
Chief Executive Officer Compensation
The Company's policy is to compensate its officers, including the Chief
Executive Officer, with salary commensurate with the base compensation paid by
competitive employers, supplemented by compensation in recognition of
performance. In January 1997, Mr. James D. Evert was hired as President, Chief
Executive Officer and a member of the Board of Directors. Mr. Evert's
compensation package for fiscal 1999, included a base salary of $200,000. Mr.
Evert is also eligible to receive a supplemental package allowing for the
possibility of bonuses up to 50% of salary based on financial, operational and
strategic objectives for the Company. The Committee based this compensation
package on an assessment of various factors related to the Company and
specifically to Mr. Evert. For fiscal 1999, the Committee established targets
with respect to revenue, results, cash flow and various specific product
development and bookings objectives for the measurement of Mr. Evert's
performance. Upon review of his performance against these objectives, the
Committee authorized payment of a bonus of $47,760 for fiscal 1999, or 24
percent of his base salary. As in previous years, in making its compensation
decisions, the Committee also took into consideration executive compensation
information from other companies in the industry, including industry surveys,
publicly available information and reports from compensation consulting firms.
Section 162(m) of the Internal Revenue Code (the "Code") limits the Company
to a deduction for federal income tax purposes of no more than $1,000,000 of
compensation paid to certain Named Executive Officers in a taxable year.
Compensation above $1,000,000 may be deducted if it is "performance-based
compensation" within the meaning of the Code. The statute containing this law
and the applicable proposed Treasury regulations offer a number of transitional
exceptions to this deduction limit for pre-existing compensation plans,
arrangements and binding contracts. As a result, the Compensation Committee
believes that at the present time it is quite unlikely that the compensation
paid to any Named Executive Officer in a taxable year which is subject to the
deduction limit will exceed $1,000,000. Therefore, the Compensation Committee
has not yet established a policy for determining which forms of incentive
compensation awarded to its Named Executive Officers shall be designed to
qualify as "performance-based compensation." The Compensation Committee intends
to continue to evaluate the effects of the statute and any final Treasury
regulations and to comply with Code Section 162(m) in the future to the extent
consistent with the best interests of the Company.
Compensation Committee of the Board of Directors
James Alexiou
Marc Dumont
General Frank Ragano
Wolfgang Seidel
15
<PAGE>
Stock Performance Graph
The following graph compares the cumulative stockholder returns on the
Company's Common Stock, Nasdaq and the Commercial Physical Research Group Index.
The graph covers the five-year period from October 2, 1994 through October 3,
1999, the end of the Company's last completed fiscal year, and assumes a $100
investment was made on October 2, 1994. Each of the three measures of
cumulative total return assumes reinvestment of dividends. The stock performance
shown on the graph below is not necessarily indicative of future performance.
[Graph]
Assumes $100 invested on October 2, 1994 in Irvine Sensors Corporation Common
Stock, Nasdaq index and Commercial Physical Research Group. Total return
assumes reinvestment of dividends.
<TABLE>
<CAPTION>
10/2/94 10/1/95 9/29/96 9/28/97 9/27/98 10/3/99
-------- -------- --------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Irvine Sensors Corp $ 121 $ 152 $ 42 $ 21 $ 30 $ 21
Nasdaq $ 106 $ 128 $ 150 $ 204 $ 212 $ 144
Peer Group/(1)/ $ 74 $ 117 $ 111 $ 133 $ 107 $ 324
</TABLE>
/(1)/ The Peer Group Index is based on the Commercial Physical
Research Group.
16
<PAGE>
Certain Transactions
In April 1980, the Company entered into an agreement with R & D Leasing
Ltd. ("RDL"), a limited partnership in which the Company's Chairman of the Board
and a Senior Vice-President are general partners with beneficial interests, to
develop certain processes and technology related to chip stacking. The Company
has exclusively licensed this technology from RDL. The Company's exclusive
rights to the technology extend to all uses, both government and commercial.
Since entering into the licensing agreement, the Company has accrued royalty
obligations to RDL at the rate of 3.5 percent of all Company sales of chip
stacks using the licensed technology. In addition, RDL is entitled to receive an
amount equal to 7 percent of all royalties earned by the Company from sales of
any such products by the Company's sublicensees, although to date, no such
sublicensee royalty income has been earned.
In October 1989, RDL agreed to defer its royalty claims and subordinate
them with respect to all other creditors in exchange for options to purchase up
to 1,000,000 shares of the Company's Common Stock, which are exercisable by
applying the deferred royalties to the purchase. The 1,000,000 options are
exercisable at $1.00 each until April 2000. If RDL exercises its option in whole
or in part, title to RDL's technology would transfer to the Company and all
further royalty obligations would cease. If the option expires unexercised, the
subordination provisions would terminate and the accrued royalties would be due
and payable in the same manner as any other corporate obligation. As of October
3, 1999, the Company had accrued $1,000,000 in deferred royalties pursuant to
this agreement. Due to the RDL subordination, royalties accrued, but none were
paid by the Company during fiscal years 1999, 1998 and 1997.
In February 1998, the Company and F. L. Eide ("Eide") a Vice President of
the Company, agreed to an assignment of patent and intellectual rights (the
"Assignment"). As part of his employment agreement, Eide assigned to the Company
all rights and interests to five U.S. Provisional Patent applications owned by
him. In consideration for this Assignment, Eide will receive a 1 percent royalty
on the gross sales revenues of any products incorporating elements of the
assigned technology for the lifetime of any patents resulting from the
Provisional Patent Applications.
In October 1997, the Company entered a License Agreement with Itzhak Sapir.
Pursuant to which Sapir granted a royalty bearing exclusive, worldwide license
under various U.S. and foreign patents owned by Sapir relating to digital
photographic products, principally a product which allows an unmodified 35mm SLR
camera to capture digital images. In connection with a Technology Assignment
Agreement, Silicon Film acquired all of the Company's rights under the License
Agreement, and Sapir entered into an agreement with Silicon Film to such effect.
In February 1999, Sapir became a senior mechanical engineer at Silicon Film.
Effective March 26, 1999, Silicon Film issued Sapir a warrant (which vested in
full upon issuance) to purchase 275,000 share of Silicon Film's common stock at
a price of $1.00 per share in exchange for a reduction in Silicon Film's royalty
obligation to Sapir under the License Agreement from their original levels to
1.5% of all EFS sales.
During fiscal 1998, the Company entered into a sale and licensing of
intellectual property rights agreement covering the Company's Electronic Film
System ("EFS") to Advanced Technology Products, LLC ("ATPL"). The Company's
Senior Vice President and Chief Technical Officer, John C. Carson, serves as
Managing Member of ATPL. The Company was the successor to the licensed rights
and future royalty obligations under this agreement until September 1998, when
the Company granted Silicon Film a license to use the technology and
intellectual property rights of the Company that are necessary to Silicon Film's
business. Silicon Film has agreed to prospectively grant, upon the Company's
request, a license to the Company to access Silicon Film's technology and
intellectual property rights when necessary for the Company to participate in
government contracts. In September 1998, another agreement was consummated with
ATPL under which the future royalty obligation was reduced in consideration for
the issuance of 1,222,125 shares of Silicon Film common stock. No value was
recorded by Silicon Film as a result of this transaction due to the uncertainty
related to valuing either the consideration given or received in this exchange.
17
<PAGE>
Relationships with Independent Accountants
On October 1, 1998, the Company dismissed PricewaterhouseCoopers LLP as its
independent accountants effective as of the Company's fiscal year ended
September 27, 1998. The Company's Audit Committee participated in and approved
the decision to change independent accountants.
The report of PricewaterhouseCoopers LLP on the financial statements for
the 1997 fiscal year contained no adverse opinion or disclaimer of opinion and
was not qualified or modified as to uncertainty, audit scope or accounting
principle. In connection with its audit for the 1997 fiscal year and through
October 1, 1998 there were no disagreements with PricewaterhouseCoopers LLP on
any matter of accounting principle or practices, financial statement disclosure,
or auditing scope or procedure, which disagreements if not resolved to the
satisfaction of PricewaterhouseCoopers LLP would have caused them to make
reference thereto in their reports on the financial statements for such fiscal
year. During fiscal year 1997 and through October 1, 1998, there were no
reportable events (as defined in Regulation S-K Item 304(a)(1)(v).
On October 1, 1998, the Company selected Grant Thornton LLP to act as its
independent accountants effective as of the Company's fiscal year ended
September 27, 1998. During fiscal year 1997 and through October 1, 1998, the
Company had not consulted Grant Thornton LLP regarding either (i) the
application of accounting principles to a specified transaction, either
completed or proposed; or the type of audit opinion that might be rendered on
the Company's financial statements, or a written report provided to the Company
or advice provided that Grant Thornton LLP concluded was an important factor
considered by the Company in reaching a decision as to an accounting, auditing
or financial reporting issue; or (ii) any matter that was either the subject of
a disagreement, as that term is defined in Item 304(a)(1)(iv) of Regulation S-K
and the related instructions to Item 304 of Regulation S-K, or a reportable
event, as that term is defined in Item 304(a)(1)(v) of Regulation S-K.
OTHER MATTERS
The Company currently knows of no other matters to be submitted at the
Annual Meeting other than those described herein. If any other matters properly
come before the Annual Meeting, it is the intention of the persons named in the
enclosed Proxy card to vote the shares they represent in accordance with their
respective best judgments.
By Order of The Board of Directors
/s/ Joanne S. Carson
Joanne S. Carson
Secretary
Costa Mesa, California
January 31, 2000
18
<PAGE>
A copy of the Company's Annual Report on Form 10-K for the fiscal year
ended October 3, 1999 is available without charge upon written request to
Investor Relations, Irvine Sensors Corporation, 3001 Redhill Avenue, Building
III, Costa Mesa, California 92626. The Company's Annual Report on Form 10-K,
as well as certain other reports, proxy statements and other information
regarding the Company, is available on the Securities and Exchange Commission's
Web site (http://www.sec.gov).
19
<PAGE>
APPENDIX A
PROPOSED AMENDMENT TO THE
CERTIFICATE OF INCORPORATION
OF
IRVINE SENSORS CORPORATION
PROPOSAL NO. 2
The first paragraph of Article IV of the Certificate of Incorporation is amended
to read as follows:
"The corporation is authorized to issue two classes of capital stock,
designated Common Stock (hereinafter referred to as "Common Stock") and
Preferred Stock (hereinafter referred to as "Preferred Stock"). The amount of
capital stock of the corporation is 60,500,00, consisting of 500,000 shares of
Preferred Stock, $0.01 par value, and 60,000,000 shares of Common Stock. $0.01
par value."
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THIS PROXY WILL BE VOTED AS DIRECTED, OR, IF NO CONTRARY DIRECTION IS
INDICATED, WILL BE VOTED FOR PROPOSALS 1, 2, 3 AND 4. ADDITIONALLY, THE COMPANY
IS GRANTED DISCRETIONARY AUTHORITY TO CUMULATE VOTES.
1. Election of Directors: James Alexiou, Marc Dumont, John C. Carson, James D.
Evert, Joanne S. Carson, Frank P. Ragano, Walter Garrigan, Vincent F. Sollitto,
Jr, Wolfgang Scidel.
FOR WITHHELD FOR ALL
[_] [_]
WITHHELD FOR: (Write that nominee's name in the space provided below).
_______________________________________________________________________________
2. To amend the Company's Certificate of Incorporation to increase the number
of shares of the Company's Common Stock from 40,000,000 to 60,000,000.
FOR AGAINST ABSTAIN
[_] [_] [_]
3. To ratify the appointment of Grant Thornton LLP as the Company's independent
accountants.
FOR AGAINST ABSTAIN
[_] [_] [_]
4. In their discretion, the Proxies are authorized to vote upon such other
business as may properly come before the meeting.
FOR AGAINST ABSTAIN
[_] [_] [_]
ANY ONE OF SUCH ATTORNEYS-IN-FACT OR SUBSTITUTES AS SHALL BE PRESENT AND SHALL
ACT AT SAID MEETING OR ANY ADJOURNMENT(S) THEREOF SHALL HAVE AND MAY EXERCISE
ALL POWERS OF SAID ATTORNEYS-IN-FACT HEREUNDER.
I PLAN TO ATTEND MEETING [_]
COMMENTS/ADDRESS CHANGE
PLEASE MARK THIS BOX IF YOU HAVE
WRITTEN COMMENTS/ADDRESS CHANGE ON
THE REVERSE SIDE [_]
PLEASE MARK, SIGN, DATE AND RETURN THE PROXY CARD PROMPTLY USING THE ENCLOSED
ENVELOPE.
SIGNATURE(S)___________________________________________ DATED______________
NOTE: Please sign exactly as name appears above. When shares are held by joint
tenants, both should sign. When signing as attorney, executor, administrator,
trustee, or guardian, please give full title as such. If a corporation, please
sign in full corporate name by President or other authorized officer. If a
partnership, please sign in partnership name by authorized person.
FOLD AND DETACH HERE
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THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF
IRVINE SENSORS CORPORATION
ANNUAL MEETING OF STOCKHOLDERS-FEBRUARY 29, 2000
The undersigned stockholder of Irvine Sensors Corporation, a Delaware
corporation, hereby acknowledges receipt of the Notice of Annual Meeting of
Stockholders and Proxy Statement each dated January 31, 2000 and Annual Report
to Stockholders for the fiscal year ended October 3, 1999, and hereby appoints
James Alexiou and John C. Carson, and each of them, proxies and
attorneys-in-fact with full power to each of substitution, on behalf and in the
name of the undersigned, to represent the undersigned at the Annual Meeting of
Stockholders of Irvine Sensors Corporation (the "Company") to be held on
February 29, 2000 at 2:00 p.m., California time, at The Center Club, 650 Town
Center Drive, Costa Mesa, California, and at any adjournment or adjournments
thereof, and to vote all shares of Common and Preferred Stock to which the
undersigned would be entitled, if then and there personally present, on the
matters set forth:
- -------------------------------------------------------------------------
COMMENTS/ADDRESS CHANGE: PLEASE MARK COMMENT/ADDRESS BOX ON REVERSE SIDE
(Continued and to be signed on other side)
+ FOLD AND DETACH HERE +
