<PAGE>
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:
/ / 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 Material Pursuant to Section 240.14a-12
Electro Scientific Industries, Inc.
--------------------------------------------------------------------------------
(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 (set forth the amount on which the
filing fee is calculated and state how it was determined):
------------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
------------------------------------------------------------------------
(5) Total fee paid:
------------------------------------------------------------------------
/ / 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:
------------------------------------------------------------------------
(2) Form, Schedule or Registration Statement No.:
------------------------------------------------------------------------
(3) Filing Party:
------------------------------------------------------------------------
(4) Date Filed:
------------------------------------------------------------------------
<PAGE>
[LOGO]
------------------------
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
------------------------
TO THE SHAREHOLDERS OF ELECTRO SCIENTIFIC INDUSTRIES, INC.:
The Annual Meeting of Shareholders of Electro Scientific Industries, Inc.
(ESI) will be held at ESI's offices, 14100 NW Science Park Drive, Portland,
Oregon, on Friday, September 22, 2000 at 1:00 p.m. Pacific time, for the
following purposes:
1. Electing three directors for a term of three years.
2. Approving the 2000 Stock Option Incentive Plan.
3. Amending the Third Restated Articles of Incorporation to increase the
number of authorized shares of Common Stock from 40,000,000 to
100,000,000.
4. Voting on the selection of independent auditors for the Company.
5. Transacting such other business as may properly come before the meeting.
Only shareholders of record at the close of business on August 3, 2000 will
be entitled to vote at the annual meeting.
You are requested to date and sign the enclosed proxy and return it by mail.
You may attend the meeting in person even though you have sent in your proxy,
since retention of the proxy is not necessary for admission to or identification
at the meeting.
BY ORDER OF THE BOARD OF DIRECTORS
Joseph L. Reinhart
VICE PRESIDENT AND CORPORATE SECRETARY
Portland, Oregon
August 15, 2000
<PAGE>
ELECTRO SCIENTIFIC INDUSTRIES, INC.
PROXY STATEMENT
The mailing address of the principal executive offices of the Company is
13900 NW Science Park Drive, Portland, Oregon 97229-5497. The approximate date
this proxy statement and the accompanying proxy forms are first being mailed to
shareholders is August 15, 2000.
SOLICITATION AND REVOCABILITY OF PROXY
The enclosed proxy is solicited on behalf of the Board of Directors of
Electro Scientific Industries, Inc., an Oregon corporation, for use at the
Annual Meeting of Shareholders to be held on September 22, 2000. The Company
will bear the cost of preparing and mailing the proxy, proxy statement and any
other material furnished to the shareholders by the Company in connection with
the annual meeting. Proxies will be solicited by use of the mails, and officers
and employees of the Company may, without additional compensation, also solicit
proxies by telephone or personal contact. Copies of solicitation materials will
be furnished to fiduciaries, custodians and brokerage houses for forwarding to
beneficial owners of the stock held in their names.
Any person giving a proxy in the form accompanying this proxy statement has
the power to revoke it at any time before its exercise. The proxy may be revoked
by filing an instrument of revocation or a duly executed proxy bearing a later
date with the Corporate Secretary of the Company. The proxy may also be revoked
by affirmatively electing to vote in person while in attendance at the meeting.
However, a shareholder who attends the meeting need not revoke the proxy and
vote in person unless he or she wishes to do so. All valid, unrevoked proxies
will be voted at the Annual Meeting in accordance with the instructions given.
VOTING SECURITIES AND PRINCIPAL SHAREHOLDERS
The Common Stock is the only outstanding authorized voting security of the
Company. The record date for determining holders of Common Stock entitled to
vote at the Annual Meeting is August 3, 2000. On that date there were 26,997,552
shares of Common Stock outstanding, entitled to one vote per share. The Common
Stock does not have cumulative voting rights.
The following table shows ownership of the Common Stock of the Company on
June 3, 2000 by each person who, to the knowledge of the Company, owned
beneficially more than 5 percent of the Common Stock.
<TABLE>
<CAPTION>
NAME AND ADDRESS AMOUNT AND NATURE OF APPROXIMATE
OF BENEFICIAL OWNER BENEFICIAL OWNERSHIP(1) PERCENT
------------------- ----------------------- -----------
<S> <C> <C>
J & W Seligman & Co., Incorporated........... 1,600,500(2) 12.82%
100 Park Avenue, New York, NY 10017
</TABLE>
------------------------
(1) Shares are held directly with sole investment and voting power unless
otherwise indicated.
(2) Based solely on information provided as of May 31, 2000 in a Schedule 13G
filed by the shareholder.
2
<PAGE>
The following table, which was prepared on the basis of information
furnished by the persons described, shows ownership of the Company's Common
Stock as of June 3, 2000, by each Director, each Executive Officer named in the
Summary Compensation Table, and by all Directors and Executive Officers as a
group.
<TABLE>
<CAPTION>
AMOUNT AND NATURE OF APPROXIMATE
NAME OF BENEFICIAL OWNER BENEFICIAL OWNERSHIP(1) PERCENT
------------------------ ----------------------- -----------
<S> <C> <C>
Robert E. Belter............................................ 28,464(2) *
David F. Bolender........................................... 75,280(3) *
Barry A. Glasgow............................................ 11,750(4) *
Larry L. Hansen............................................. 36,974(5) *
John R. Kurdock............................................. 44,950(6) *
Michael J. Murphy........................................... 14,948(7) *
W. Arthur Porter............................................ 6,000(8) *
Vernon B. Ryles, Jr......................................... 17,000(5) *
Gerald F. Taylor............................................ 4,500(9) *
Keith L. Thomson............................................ 17,000(5) *
Jon D. Tompkins............................................. 4,500(9) *
Donald R. VanLuvanee........................................ 273,467(10) 1.0%
18 Directors and executive officers as a group.............. 710,019(11) 2.6%
</TABLE>
------------------------
* Less than 1 percent.
(1) Shares are held directly with sole investment and voting power unless
otherwise indicated. Includes shares awarded as performance-based
restricted stock and time-based restricted stock that are subject to
forfeiture in certain circumstances.
(2) Includes 18,850 shares that are subject to stock options currently
exercisable or exercisable within 60 days of June 3, 2000.
(3) Includes 36,000 shares owned by Mr. Bolender's wife, as to which he
disclaims beneficial ownership, and includes 6,000 shares that are subject
to stock options currently exercisable or exercisable within 60 days of
June 3, 2000.
(4) Includes 8,950 shares that are subject to stock options currently
exercisable or exercisable within 60 days of June 3, 2000.
(5) Includes 17,000 shares that are subject to stock options currently
exercisable or exercisable within 60 days of June 3, 2000.
(6) Includes 29,694 shares that are subject to stock options currently
exercisable or exercisable within 60 days of June 3, 2000.
(7) Includes 11,450 shares that are subject to stock options currently
exercisable or exercisable within 60 days of June 3, 2000.
(8) Includes 6,000 shares that are subject to stock options currently
exercisable or exercisable within 60 days of June 3, 2000.
(9) Includes 4,500 shares that are subject to stock options currently
exercisable or exercisable within 60 days of June 3, 2000.
(10) Includes 193,382 shares that are subject to stock options currently
exercisable or exercisable within 60 days of June 3, 2000.
(11) Includes 404,858 shares that are subject to stock options currently
exercisable or exercisable within 60 days of June 3, 2000.
3
<PAGE>
PROPOSAL 1: ELECTION OF DIRECTORS
Pursuant to the Company's Bylaws, the Board of Directors is divided into
three classes, and the term of office of one class expires each year. The terms
of David F. Bolender, Keith L. Thomson and Jon D. Tompkins expire in 2000.
Mr. Bolender, Mr. Thomson and Mr. Tompkins are nominees for re-election. Under
Oregon law, if a quorum of shareholders is present at the 2000 Annual Meeting,
the three nominees for election as Directors who receive the greatest number of
votes cast at the meeting shall be elected Directors. Abstentions and broker
non-votes will have no effect on the results of the vote. Unless otherwise
instructed, proxy holders will vote the proxies they receive for Mr. Bolender,
Mr. Thomson and Mr. Tompkins. If any of the nominees for Director at the 2000
Annual Meeting becomes unavailable for election for any reason (none being
known), the proxy holders will have discretionary authority to vote pursuant to
the proxy for a suitable substitute or substitutes.
The following table briefly describes the Company's nominees for Directors
and the Directors whose terms will continue. Except as otherwise noted, each has
held his principal occupation for at least five years.
<TABLE>
<CAPTION>
DIRECTOR TERM
NAME, AGE, PRINCIPAL OCCUPATION, AND OTHER DIRECTORSHIPS SINCE EXPIRES
-------------------------------------------------------- -------- --------
<S> <C> <C>
NOMINEES
DAVID F. BOLENDER, 68, in July 1999, Mr. Bolender retired as 1988 2000
CEO of Protocol Systems, Inc., a manufacturer of vital
sign monitoring equipment for the medical industry. He
currently serves as Chairman of the Board of Directors of
Protocol Systems, Inc. Mr. Bolender retired in 1991 from
the position of President of the Electric Operations Group
of PacifiCorp, a diversified public utility located in
Portland, Oregon. In January 1992, Mr. Bolender became
Chairman of the Board of the Company. Mr. Bolender is a
member of the Audit Committee of the Board of Directors.
KEITH L. THOMSON, 61, retired as Vice President of Intel 1994 2000
Corporation and Oregon Site Manager in 1998. Mr. Thomson
joined Intel in 1969 and moved to Intel's Oregon operation
in 1978. Prior to that he worked for Lockheed Missiles and
Space Corporation, and the Semiconductor Division of
Fairchild Camera and Instruments. Mr. Thomson was elected
to the Board of Directors in 1994 and is the Chairman of
the Compensation Committee of the Board of Directors.
JON D. TOMPKINS, 60, retired as CEO of KLA-Tencor 1998 2000
Corporation, a manufacturer of semiconductor equipment, in
1998 and retired as Chairman of the Board of Directors of
KLA-Tencor in June 1999. He remains a member of the Board
of Directors of KLA-Tencor. In addition, Mr. Tompkins is
on the Board of Directors of Cymer, Inc., and Credence
Systems. Mr. Tompkins is a member of the Compensation
Committee of the Board of Directors.
DIRECTORS WHOSE TERMS CONTINUE
LARRY L. HANSEN, 71, retired in 1992 from the position of 1986 2001
Executive Vice President of Tylan General Inc., a
manufacturer of high technology components for industrial
processes located in San Diego, California. Prior to
December 1988, he was Executive Vice President and a
director of Varian Associates, Inc., an electronics
manufacturer located in Palo Alto California. Mr. Hansen
is also a director of Signal Technology Corp. and Micrel,
Inc. Mr. Hansen is a member of the Compensation Committee
of the Board of Directors.
</TABLE>
4
<PAGE>
<TABLE>
<CAPTION>
DIRECTOR TERM
NAME, AGE, PRINCIPAL OCCUPATION, AND OTHER DIRECTORSHIPS SINCE EXPIRES
-------------------------------------------------------- -------- --------
<S> <C> <C>
W. ARTHUR PORTER, 59, in July 1998, Dr. Porter was appointed 1980 2002
the Dean of the College of Engineering at the University
of Oklahoma. He was formerly the President of the Houston
Advanced Research Center. Dr. Porter is a director of
Stewart Information Services Corporation, Medici Medical
Group Inc. and Bookham, Inc. Dr. Porter, formerly Chairman
of the Board of Directors, serves as Chairman of the Audit
Committee of the Board of Directors.
VERNON B. RYLES, JR., 62, President and CEO of Poppers 1995 2001
Supply Co., a manufacturer of popcorn snacks and
jobber/distributor of recreational food and equipment. In
addition, Mr. Ryles is on the Board of Directors of
Northwest Pipe and Casing, a manufacturer of steel pipe.
He is a director and former Board Chairman of the National
Association of Concessionaires and on the Advisory Council
of the Oregon State University Agricultural Trade and
Marketing Program. Mr. Ryles is a member of the
Compensation Committee of the Board of Directors.
GERALD F. TAYLOR, 60, retired in 1998 as Senior Vice 1998 2002
President and CFO of Applied Materials, Inc., a
manufacturer of semi-conductor equipment. He is also a
director of Lithia Motors Inc. Mr. Taylor is a member of
the Audit Committee of the Board of Directors.
DONALD R. VANLUVANEE, 56, President and CEO of ESI since 1992 2001
July 1992. From 1991 to July 1992, Mr. VanLuvanee was
President, Chief Executive Officer, and a director at
Mechanical Technology Incorporated (MTI), a supplier of
contract research and development services and a
manufacturer of technologically advanced equipment. Mr.
VanLuvanee is also a director of FEI Company, which
designs, manufactures and markets focused ion beam
workstations, and Micro Component Technology, Inc., a
leading manufacturer of automated test handling equipment.
</TABLE>
BOARD COMPENSATION
The Board of Directors met five times during the last fiscal year, of which
one was a telephone meeting. Each director attended at least 75 percent of the
aggregate of the meetings of the Board of Directors and the committees of which
he was a member. Each director who is not an employee of the Company receives an
annual retainer of $10,000, plus $1,000 for each board meeting attended, $500
for each committee meeting attended and $500 for each telephone meeting when
formal business is conducted. Non-employee directors are also automatically
granted an option for 6,000 shares of Common Stock on July 31 of each year, with
an option price equal to the closing market price on the date of grant, a
ten-year term and a four-year vesting schedule.
BOARD COMMITTEES
The Board of Directors has standing Audit and Compensation Committees. The
Compensation Committee makes recommendations to the Board of Directors
concerning officers' compensation and has been delegated authority to grant
options and other awards under the Company's stock option plans and stock
incentive plan. It met six times in fiscal year 2000. The Audit Committee meets
with management and with representatives of ESI's outside auditing firm, Arthur
Andersen LLP, including meetings without the presence of management. The Audit
Committee met four times in fiscal year 2000 to review the scope, timing and
fees for the annual audit and the results of the audit.
Shareholders who wish to submit names for consideration for Board membership
should do so in writing addressed to the Board of Directors, c/o Chairman of the
Board, Electro Scientific Industries, Inc., 13900 NW Science Park Drive,
Portland, Oregon 97229-5497.
5
<PAGE>
EXECUTIVE COMPENSATION
The following table shows, as to the Chief Executive Officer and each of the
next four most highly compensated executive officers of the Company, information
concerning compensation paid for services to the Company in all capacities
during the fiscal year ended June 3, 2000, as well as total compensation paid to
each such individual for the Company's two previous fiscal years (if such person
was the Chief Executive Officer or an executive officer, as the case may be,
during any part of such fiscal year):
I. SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM COMPENSATION
-------------------------------------------
AWARDS PAYOUTS
ANNUAL COMPENSATION ------------- --------
-------------------------------------- OPTIONS LTIP
NAME & PRINCIPAL FISCAL OTHER ANNUAL GRANTED(2) PAYOUTS ALL OTHER
POSITION YEAR SALARY BONUS COMPENSATION(1) (#) ($) COMPENSATION(3)
---------------- -------- -------- -------- ---------------- ------------- -------- ----------------
<S> <C> <C> <C> <C> <C> <C> <C>
Donald R. VanLuvanee............ 2000 $383,333 --(4) -- 475,000 $181,640 $ 4,612
Chief Executive 1999 $359,666 $200,000 -- 106,600 -- $ 4,000
Officer and President 1998 $312,750 $443,000 $57,000 53,800 -- $ 4,000
John R. Kurdock................. 2000 $226,250 $175,545 -- 38,000 -- $ 4,581
Vice President 1999 $202,500 $ 35,000 -- 33,800 -- $ 4,000
1998 $166,667 $ 29,926 -- 12,200 -- $177,552(5)
Robert E. Belter................ 2000 $196,250 $153,135 -- 38,000 -- $ 4,525
Vice President 1999 $184,167 $ 20,000 -- 25,800 -- $ 4,000
1998 $177,083 $ 23,814 -- 4,800 -- $ 4,000
Barry A. Glasgow................ 2000 $260,920(6) $ 58,100 -- 32,000 -- $ 5,040
Vice President 1999 $184,032(7) $ 11,000 -- 35,800 -- $ 79,026(8)
1998 -- -- -- -- -- --
Michael J. Murphy............... 2000 $184,166 $110,390 -- 32,000 -- $142,997(9)
Vice President 1999 $ 15,000 -- -- 45,800 -- $ 187
1998 -- -- -- -- -- --
</TABLE>
------------------------------
1) Represents amounts paid by the Company to cover taxes due on the vesting of
restricted stock awards.
2) Reflects adjustment for 2-1 stock split payable on February 24, 2000.
3) Except as otherwise indicated, represents 401(k) matching contributions made
by the Company.
4) Fiscal year 2000 bonus to be determined at September 2000 Board of Directors
Meeting.
5) Includes $173,552 in relocation expenses.
6) Includes $66,753 in commissions.
7) Includes $20,538 in commissions.
8) Includes $75,026 in relocation expenses.
9) Includes $140,109 in relocation expenses.
II. OPTIONS TABLE
The following table sets forth details regarding stock options granted to
the named executive officers in fiscal year 2000. In addition, there are shown
the hypothetical gains or "option spreads" that would exist
6
<PAGE>
for the respective options, assuming rates of annual compound stock appreciation
of 5% and 10% from the date the options were granted over the full option term.
<TABLE>
<CAPTION>
OPTION GRANTS IN LAST FISCAL YEAR
------------------------------------------------- POTENTIAL REALIZABLE VALUE AT
% OF TOTAL ASSUMED ANNUAL RATES OF
OPTIONS EXERCISE STOCK PRICE APPRECIATION FOR
OPTIONS GRANTED TO OR BASE OPTION TERM
GRANTED(1) EMPLOYEES IN PRICE EXPIRATION ------------------------------
NAME (#) FISCAL YEAR ($/SH) DATE 5% 10%
---- ---------- ------------ -------- ---------- ------------- --------------
<S> <C> <C> <C> <C> <C> <C>
Donald R. VanLuvanee............... 300,000 19.37% $26.64 9/29/2009 $5,024,498 $12,732,064
175,000 11.30% $52.75 4/13/2010 $5,803,473 $14,705,982
John R. Kurdock.................... 38,000 2.45% $52.75 4/13/2010 $1,260,182 $ 3,193,299
Robert E. Belter................... 38,000 2.45% $52.75 4/13/2010 $1,260,182 $ 3,193,299
Barry A. Glasgow................... 32,000 2.06% $52.75 4/13/2010 $1,061,206 $ 2,689,094
Michael J. Murphy.................. 32,000 2.06% $52.75 4/13/2010 $1,061,206 $ 2,689,094
</TABLE>
------------------------
1) All options become exercisable for 25 percent of the shares covered by the
option on each of the first four anniversaries of the grant date. The grant
dates for the options shown in the table above were September 30, 1999 and
April 14, 2000. All options become fully exercisable upon termination of the
optionee's employment within one year after a "change in control" of the
Company as defined in the 1989 Stock Option Plan. Unless the transaction is
approved by the Board of Directors, a "change in control" generally includes
(a) the acquisition by any person of 20 percent or more of the Company's
Common Stock and (b) the election of a new majority of the Company's
directors without the approval of the incumbent directors.
III. OPTION EXERCISES AND FISCAL YEAR-END OPTION VALUE TABLE
The following table sets forth information with respect to the named
executive officers concerning options exercised and the status of exercisable
and unexercisable options held as of June 3, 2000.
<TABLE>
<CAPTION>
OPTIONS EXERCISED DURING
YEAR ENDED JUNE 3, 2000 VALUE OF UNEXERCISED IN-THE-
------------------------- NUMBER OF UNEXERCISED MONEY OPTIONS AT JUNE 3,
SHARES OPTIONS AT JUNE 3, 2000 2000
ACQUIRED VALUE --------------------------- ----------------------------
NAME ON EXERCISE REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ----------- ----------- ----------- ------------- ------------ -------------
<S> <C> <C> <C> <C> <C> <C>
Donald R. VanLuvanee........... -- $ 0 193,382 585,188 $8,434,775 $11,610,567
John R. Kurdock................ 5,000 $ 261,875 29,694 76,166 $1,103,152 $ 1,340,155
Robert E. Belter............... 5,000 $ 124,208 18,850 64,750 $ 674,803 $ 1,923,175
Barry A. Glasgow............... 2,500 $ 75,427 6,450 58,850 $ 218,093 $ 938,329
Michael J. Murphy.............. -- $ 0 11,450 66,350 $ 387,939 $ 1,163,819
</TABLE>
IV. SEVERANCE AGREEMENTS
In July 1991, the Board of Directors of the Company approved the Company's
entry into severance agreements with executive officers of the Company. These
agreements generally provide for the payment upon the termination of the
employee's employment by the Company without cause or by the employee for "good
reason" (as defined in the severance agreement) within two years following a
change of control of the Company of an amount equal to three times the
employee's annual salary and three years continued coverage under life, accident
and health plans. The benefit is capped as necessary to prevent any portion of
the benefit from being subject to excise tax. Each employee is obligated under
the severance agreement to remain in the employ of the Company for a period of
270 days following a "potential change in control" (as defined in the severance
agreements). All executive officers of the Company have executed severance
agreements.
7
<PAGE>
V. PERFORMANCE GRAPH
INDEXED STOCK PRICE PERFORMANCE
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
ESIO INDEX S&P 500 INDEX S&P TECHNOLOGY INDEX
<S> <C> <C> <C>
5/31/1995 100.00 100.00 100.00
5/31/1996 108.70 125.44 131.53
5/30/1997 155.87 159.03 184.70
5/29/1998 129.20 204.50 233.23
5/28/1999 153.81 244.06 370.41
6/2/2000 432.22 276.95 608.88
</TABLE>
Assumes that $100.00 was invested on May 31, 1995 in Electro Scientific
Industries, Inc. (ESIO) Common Stock, the S&P 500 and the S&P Technology Index,
and that all dividends were reinvested. (adjusted for 2-1 stock split payable on
February 24, 2000)
<TABLE>
<CAPTION>
ESIO INDEX S&P 500 INDEX S&P TECHNOLOGY INDEX
-------- -------- -------- -------- -------------- --------
<S> <C> <C> <C> <C> <C> <C>
5/31/1995............................ $12.19 100.00 533.40 100.00 354.09 100.00
5/31/1996............................ $13.25 108.70 669.12 125.44 465.73 131.53
5/30/1997............................ $19.00 155.87 848.28 159.03 653.99 184.70
5/29/1998............................ $15.75 129.20 1090.82 204.50 825.86 233.23
5/28/1999............................ $18.75 153.81 1301.84 244.06 1311.57 370.41
6/2/2000............................. $52.69 432.22 1477.26 276.95 2156.00 608.88
</TABLE>
8
<PAGE>
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
The Compensation Committee of the Board of Directors makes recommendations
to the Board regarding the general compensation policies for ESI, including
salaries and incentives for executive officers. The Committee also has general
authority to make option grants and other awards under the Company's 1989 Stock
Option Plan, the 2000 Stock Option Plan and 1996 Stock Incentive Plan. The
Committee is composed of four directors.
The Compensation Committee's executive compensation recommendations and
actions during the 2000 fiscal year were in three areas: (1) compensation
adjustments for the chief executive and other executive officers of the Company;
(2) the key employee cash incentive bonus program; and (3) the key employee long
term incentive program.
The Compensation Committee policies for compensation of ongoing executive
officers are designed to fairly compensate the Company's executives and to
provide incentives for the officers to manage and operate the Company for long
term success. The Compensation Committee recommends, and the Board of Directors
determines, based on such recommendation, compensation for the Chief Executive
Officer. The Compensation Committee also recommends compensation levels for the
remaining executive officers of the Company based on the recommendations of the
Chief Executive Officer.
The total compensation of the executive officers takes into account several
factors, including competitive compensation in the electronics industry,
individual experience and performance, and the performance of the Company. The
Committee does not assign a specific weight to these factors. The Company
operates in marketplaces which are global, cyclical and subject to technology
shifts. The Committee's evaluations of individual performance considers each
individual's contribution toward achieving the Company's corporate objectives.
The objectives include: (1) adequate return on, and efficient use of, invested
capital and (2) generating positive earnings throughout the entire range of
business conditions.
The methodology used in determining salary, cash incentive bonus and
long-term incentive grants is as follows:
Target compensation for each executive is set annually by the Compensation
Committee. These targets are based on the results of periodic salary surveys of
comparable-sized companies in the electronics industries conducted by the
Company's independent compensation consultants and on the level of individual
responsibility and job complexity. The Company's target is to pay executives at
the mid-point based on the surveys.
Base salaries are determined annually for each executive officer with
reference to the target level for the individual. Salary increases are given
when warranted by individual performance and when base salary levels are
relatively low as compared to companies that compete with the Company for
executive talent to keep base salaries competitive.
The Chief Executive's base salary was $383,333 during fiscal year 2000,
representing an increase of $23,667 from the prior year and a level at
approximately the mid-point of salary survey data.
Cash incentives in the form of cash bonuses are paid at the discretion of
the Compensation Committee to executive officers who the Committee determines
have made substantial contributions to the profits of the Company in the
preceding fiscal year. At the beginning of each fiscal year, the Board of
Directors approves the business plan for the year, including sales and pre-tax
profit goals. At the same time, the Board of Directors approves a target bonus
percentage for executive officers if the established goals are met. If the goals
are met, the Compensation Committee determines the extent to which an officer
will be awarded the target bonus. Factors considered include individual
performance, responsibility and contribution to profits.
The amount of bonus for the CEO for fiscal year 2000 has not been
determined, but is expected to be determined by the Compensation Committee and
approved by the Board of Directors in September 2000.
9
<PAGE>
The Company uses stock options and performance-based restricted stock grants
to reward senior management and to link executive compensation to shareholder
interests reflected in increases in share value. By using a combination of
annual options and restricted stock awards, the Company intends to provide a
potential level of incentive compensation to executive officers equal to
competitive levels as determined by the Company's compensation consultant,
without excessive shareholder dilution. In determining the size of option grants
and restricted stock awards, the Compensation Committee takes into account the
executive's position and job responsibilities. All options are granted at an
exercise price equal to the fair market value of the shares on the date of
grant, and vest in 25 percent annual increments during the four year period
following the date of grant. The number of options granted to executive officers
in fiscal year 2000 was 756,000, including 475,000 to Donald R. VanLuvanee.
DEDUCTIBILITY OF COMPENSATION. Section 162(m) of the Internal Revenue Code
of 1986 limits to $1,000,000 per person the amount that the Company may deduct
for compensation paid to any of its most highly compensated officers in any
year. The levels of salary and bonus generally paid by the Company do not exceed
this limit. Substantially all of the options granted under the Company's 1989
Stock Option Plan have been Incentive Stock Options. The Company receives no tax
deduction from the exercise of an Incentive Stock Option unless the optionee
disposes of the acquired shares before satisfying certain holding periods. Under
IRS regulations, the $1,000,000 cap on deductibility applies to compensation
recognized by an optionee upon such an early disposition, as well as
compensation recognized upon the exercise of a Nonstatutory Stock Option, unless
the option meets certain requirements. It is the Company's policy generally to
grant options that meet the requirements of the IRS regulations so that any such
compensation recognized by an optionee will be fully deductible. The Committee
believes that the grant of Incentive Stock Options, despite the general
nondeductibility, benefits the Company by encouraging the long-term ownership of
Company stock by officers and other employees. Performance-based restricted
stock awards are also intended to be granted in compliance with the IRS
regulations so that any compensation recognized on vesting of such awards will
be fully deductible.
By the Compensation Committee: Keith L. Thomson, Chairman; Larry L. Hansen,
Vernon B. Ryles, Jr., and Jon D. Tompkins.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Compensation Committee consists of Directors Keith L. Thomson, Larry L.
Hansen, Vernon B. Ryles, Jr., and Jon D. Tompkins. No Compensation Committee
member is or has been an employee of the Company.
PROPOSAL 2: APPROVE 2000 STOCK OPTION INCENTIVE PLAN
The Board of Directors has adopted, subject to shareholder approval, the
Company's 2000 Stock Option Incentive Plan (the "Option Plan"). A copy of the
Option Plan is attached to this Proxy Statement as Appendix A.
IMPORTANCE OF STOCK OPTIONS TO THE COMPANY
As described under "Executive Compensation" the Company maintains stock
option and incentive plans for the benefit of officers and other employees. The
Board of Directors believes that the availability of stock incentives is an
important factor in the Company's ability to attract and retain experienced and
competent officers and to provide an incentive for them to exert their best
efforts on behalf of the Company. As of June 3, 2000, 628,687 shares were
available for grant to officers and directors under the Company's existing
plans. At that date, an additional 336,245 shares were available for grant to
employees who are not officers or directors. The Board of Directors believes
that additional shares are needed to provide option grants to officers during
the next one to two years. In addition, additional shares are needed for the
automatic annual stock option grants to non-employee directors. Accordingly, the
Board of
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Directors approved the 2000 Stock Option Incentive Plan, subject to shareholder
approval, and reserved 2,000,000 shares for use under the Plan.
DESCRIPTION OF THE OPTION PLAN
ADMINISTRATION. The Option Plan is administered by the Board of Directors,
which has general responsibility to interpret and administer the Option Plan.
The Board of Directors may delegate authority to administer the Option Plan to a
committee of the Board of Directors or specified officers of the Company, or
both, except that only the Board of Directors may amend, modify or terminate the
Option Plan. The Board of Directors has delegated to the Compensation Committee
of the Board (the "Committee") general authority for making option grants. The
Committee determines individuals to whom option grants are made under the Option
Plan and the price and terms of any such grants.
ELIGIBILITY. Only employees of the Company or its subsidiaries (including
employees who are directors) are eligible to receive option grants under the
Option Plan. In addition, non-employee directors are eligible only for the
automatic annual option grants discussed herein.
SHARES AVAILABLE. The Option Plan reserves 2,000,000 shares of Common Stock
(subject to adjustment for changes in capitalization) plus any shares that are
available or become available for grant under the Company's 1989 Stock Option
Plan. An aggregate of 4,400,000 shares of Common Stock were reserved for
issuance under the 1989 Stock Option Plan. The Option Plan permits the grant of
incentive stock options and nonstatutory stock options.
TERM OF PLAN. The Option Plan will remain in effect indefinitely until
options have been granted and exercised with respect to all reserved shares.
INCENTIVE STOCK OPTIONS. The Option Plan authorizes the Board of Directors
to grant Incentive Stock Options, as defined in Section 422 of the Internal
Revenue Code of 1986, on terms and conditions it deems appropriate, subject to
the following: (1) the option price per share may not be less than 100 percent
of the fair market value of the Common Stock on the date the option is granted,
(2) the term of the option may not exceed 10 years from the date the option is
granted, (3) the purchase price of Common Stock on exercise of an option will be
paid in cash or by surrender to the Company of shares of previously acquired
Common Stock valued at fair market value on the date of the option exercise,
(4) an option will expire on the earlier of (i) the expiration of the term for
which it was granted, (ii) one year after termination of an Optionee's
employment due to death or total disability, or (iii) three months after
termination of an Optionee's employment for any reason other than death or total
disability, and (5) no Optionee may be granted Incentive Stock Options for
Common Stock such that the aggregate fair market value (determined on the date
of grant) of shares with respect to which Incentive Stock Options are
exercisable for the first time by that Optionee during any calendar year under
the Option Plan or any other stock option plan of the Company or any subsidiary
of the Company exceeds $100,000.
NONSTATUTORY STOCK OPTIONS. The Board of Directors may authorize the grant
of Nonstatutory Stock Options. The option price may not be less than
100 percent of the fair market value of the Common Stock on the date the option
is granted, the purchase price must be paid as described in clause (3) above and
the period of time for exercise is as referred to in clause (4) above. The term
of the option is determined by the Board of Directors.
In the case of both Incentive Stock Options and Nonstatutory Stock Options,
upon termination of an Optionee's employment following a change of control, any
option held by the Optionee may be exercised for all the remaining shares
subject to the option, free of any limitation on the number of shares for which
the option may be exercised in any one year. In such a case, the option may be
exercised at any time before its expiration or the expiration of three months
after the date of termination of employment, whichever period is shorter. A
change of control is defined to include a change of control of a nature that
would be required to be reported in response to Item 6(e) of Schedule 14A of
Regulation 14A, including but not
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limited to the following events: the acquisition by any person of 20 percent or
more of the Company's outstanding voting securities or the replacement within a
two-year period of a majority of the members of the Company's Board of Directors
by persons other than incumbent directors or persons approved by at least
two-thirds of the incumbent directors.
In addition, no employee may be granted options (Incentive or Nonstatutory)
for more than 500,000 shares in any fiscal year.
NON-EMPLOYEE DIRECTOR OPTIONS. Each director who is not a full-time
employee of the Company is automatically granted an option to purchase 6,000
shares of Company Common Stock on July 31 of each year. These automatic options
have an exercise price equal to 100% of fair market value on the date of grant
and a term of 10 years, and become exercisable for 25% of the shares on each of
the first four anniversaries of the grant date.
MATERIAL FEDERAL INCOME TAX CONSEQUENCES. Certain options authorized to be
granted under the Option Plan are intended to qualify as Incentive Stock Options
for federal income tax purposes. The following discussion of the federal income
tax consequences of Incentive Stock Options applies to optionees who have been
employed by the Company or a subsidiary at all times from the date of grant
through the date three months before exercise. Under federal income tax law
currently in effect, an employee will recognize no income upon grant or exercise
of an Incentive Stock Option. However, the amount by which the market value of
the option shares on the date of exercise exceeds the exercise price may be
taxable to the employee under the alternative minimum tax. If an employee
exercises an Incentive Stock Option and does not dispose of any of the option
shares within two years following the date of grant and within one year
following the date of exercise, then any gain realized upon subsequent
disposition of the shares generally will be taxable to the employee as capital
gain and the Company will not be allowed any deduction for federal income tax
purposes. If an employee disposes of shares acquired upon exercise of an
Incentive Stock Option before the expiration of either the one-year holding
period or the two-year waiting period (a "disqualifying disposition"), the
employee generally will recognize ordinary compensation income equal to the
excess of the market value of the shares on the date of exercise over the
exercise price. If, however, the disqualifying disposition is by sale or
exchange, the amount of ordinary compensation income recognized by the employee
generally will be limited to the amount of gain, if any, realized by the
employee on the sale or exchange. Gain realized on a disqualifying disposition,
to the extent not taxed as ordinary compensation income, generally will be
taxable to the employee as capital gain. The Company will not be allowed any
deduction for federal income tax purposes at either the time of the grant or
exercise of an Incentive Stock Option. Upon any disqualifying disposition by an
employee, the Company generally will be entitled to a deduction equal to the
amount of ordinary compensation income recognized by the employee on the
disposition, provided the Company is able to timely report the disposition to
the Internal Revenue Service.
Certain options authorized to be granted under the Option Plan will be
treated as Nonstatutory Stock Options for federal income tax purposes. Under
federal income tax law currently in effect, no income is recognized by the
grantee of a Nonstatutory Stock Option until the option is exercised. When the
Nonstatutory Stock Option is exercised, the optionee will recognize ordinary
compensation income, and the Company generally will be entitled to a deduction,
equal to the amount by which the market value of the option shares on the date
of exercise exceeds the exercise price. If the optionee is an employee of the
Company or a subsidiary, the amount of ordinary compensation income recognized
by the optionee on exercise of a Nonstatutory Stock Option will be subject to
income tax withholding and employment tax. Upon the sale of shares acquired upon
exercise of a Nonstatutory Stock Option, the excess of the amount realized from
the sale over the market value of the shares on the date of exercise generally
will be taxable to the optionee as capital gain.
Section 162(m) of the Internal Revenue Code of 1986, as amended, limits to
$1 million per person the amount the Company may deduct for compensation paid to
certain officers in any taxable year. Under
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current Treasury regulations, compensation received through the exercise of an
option will not be subject to the $1 million limit if the option and the Option
Plan meet certain requirements. One such requirement is shareholder approval of
the Option Plan at least once every five years. Other requirements are that
(1) the Option Plan provide per-employee limits on the number of shares to which
options may be granted during a specified time period, and (2) the option be
granted by a committee comprised solely of two or more "outside directors" and
that the exercise price of the option be not less than the fair market value of
the stock subject to the option on the date of grant. Accordingly, the Company
believes that if this proposal is approved by the shareholders, compensation
received on exercise of options granted under the Option Plan in compliance with
the above requirements will not be subject to the $1 million deduction limit.
RECOMMENDATION BY THE BOARD OF DIRECTORS
The Board of Directors recommends that the Option Plan be approved. The
affirmative vote of the holders of a majority of the shares of common stock
present and entitled to vote on the matter is required to approve this Proposal
2. Abstentions have the same effect as "no" votes in determining whether the
Option Plan is approved. Broker non-votes are counted for purposes of
determining whether a quorum exists at the annual meeting but are not counted
and have no effect on the results of the vote on Proposal 2. The proxies will be
voted for or against the proposal or as an abstention, in accordance with the
instructions specified on the proxy form. If no instructions are given, proxies
will be voted for approval of the Option Plan.
PROPOSAL 3: TO AMEND THIRD RESTATED ARTICLES OF INCORPORATION TO INCREASE NUMBER
OF AUTHORIZED SHARES OF COMMON STOCK
The Board of Directors has adopted resolutions approving and recommending to
the shareholders for their adoption an amendment to Section 1 of Article III of
the Third Restated Articles of Incorporation of the Company (the "Amendment")
which would (1) increase the aggregate number of shares the Company shall have
authority to issue from 41,000,000 to 101,000,000 shares and (2) increase the
Company's authorized Common Stock, without par value, from 40,000,000 to
100,000,000 shares of Common Stock.
The Company effected a 2-for-1 stock split in the form of a stock dividend
payable on February 24, 2000 which increased the Company's outstanding shares of
Common Stock by 13,387,608 shares. As of June 3, 2000, 26,976,052 shares of
Common Stock were issued and outstanding and 1,675,202 shares of Common Stock
were reserved for issuance under the Company's stock option and incentive plans
and employee stock purchase plan. In addition, pursuant to Proposal Number 2
described on pages 10 through 13 of this proxy statement another 2,000,000
shares of Common Stock will be reserved for issuance under the 2000 Stock Option
Incentive Plan. Provided Proposal Number 2 is approved by shareholders at the
annual meeting, there will be approximately 3,675,202 of the Company's presently
authorized shares of Common Stock available for future corporate purposes. The
current Restated Articles authorize issuance of up to 1,000,000 preferred
shares, with certain preferences, limitations and relative rights, and this
authorization will remain in effect.
The Amendment is designed to enable the Board of Directors to issue
additional shares of Common Stock when, in its judgment, such issuance would
benefit the Company, without further action by shareholders. Although the
Company has no specific plans, arrangements or understandings to make use of the
increased authorized shares, management believes that the ability to issue
additional shares without the delay and expense of obtaining shareholder
approval can be an advantage to the Company in pursuing acquisition
opportunities, in financing and in connection with possible stock splits or
stock dividends. If approved, the increased number of authorized shares of
Common Stock will be available for issuance from time to time for such purposes
as the Board of Directors may approve and no further vote of shareholders of the
Company will be required. Holders of the Company's shares do not have preemptive
rights.
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The availability of the additional authorized shares of Common Stock may
have an anti-takeover effect, since the Board of Directors would possess the
ability to dilute the position of a major shareholder by issuing additional
shares of the same class, which may make a takeover more difficult or less
attractive. The Board of Directors is not aware of any effort to obtain control
of the Company, and the proposed Amendment is not part of a plan by management
to adopt a series of anti-takeover measures.
RECOMMENDATION OF BOARD OF DIRECTORS
The Board of Directors recommends that the shareholders vote in favor of the
proposed Amendment to the Third Restated Articles of Incorporation of the
Company. The proposal will be adopted if a quorum is present at the meeting and
more shares are cast for the proposal than are cast against the proposal.
Accordingly, abstentions and broker non-votes will have no effect on the results
of the vote. The enclosed proxy will be voted in accordance with the
instructions specified in the space provided in the proxy form. If no
instructions are given, proxies will be voted for approval of the proposed
Amendment. The Board of Directors has no alternative plans if the proposed
Amendment is not adopted.
PROPOSAL 4: APPROVAL OF SELECTION OF AUDITORS
The Board of Directors has selected Arthur Andersen LLP as the Company's
independent auditors for the fiscal year ending June 2, 2001 and is submitting
the selection to shareholders for approval. Arthur Andersen LLP are independent
certified public accountants and have audited the accounts of the Company and
its subsidiaries since 1983. Proxies will be voted in accordance with the
instructions specified in the proxy form. If no instructions are given, proxies
will be voted for approval of Arthur Andersen LLP as independent auditors.
Representatives of Arthur Andersen LLP are expected to be present at the Annual
Meeting, will be given the opportunity to make a statement if they desire to do
so, and will be available to respond to appropriate questions.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934 requires the Company's
executive officers, directors and persons who own more than ten percent of the
Common Stock to file reports of ownership and changes in ownership with the
Securities and Exchange Commission ("SEC"). Executive officers, directors and
beneficial owners of more than ten percent of the Common Stock are required by
SEC regulations to furnish the Company with copies of all Section 16(a) forms
they file. Based solely on a review of the copies of such forms received by the
Company and on written representations from certain reporting persons that they
have complied with the relevant filing requirements, the Company believes that
all Section 16(a) filing requirements applicable to its executive officers and
directors for transactions during fiscal 2000 were complied with.
DISCRETIONARY AUTHORITY
Although the Notice of Annual Meeting of Shareholders provides for
transaction of any other business that properly comes before the meeting, the
Board of Directors has no knowledge of any matters to be presented at the
meeting other than the matters described in this proxy statement. The enclosed
proxy, however, gives discretionary authority to the proxy holders to vote in
accordance with their judgment if any other matters are presented.
For this year's annual meeting of shareholders, if notice of a shareholder
proposal to be raised at the annual meeting of shareholders is received at the
principal executive offices of the Company after June 20, 2000, proxy voting on
that proposal when and if raised at the annual meeting will be subject to the
discretionary voting authority of the designated proxy holders. For the 2001
annual meeting of shareholders, if notice of a shareholder proposal to be raised
at the meeting is received at the principal executive
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offices of the company after June 25, 2001, proxy voting on that proposal when
and if raised at the annual meeting will be subject to the discretionary voting
authority of the designated proxy holders.
SHAREHOLDER PROPOSALS
Any shareholder proposal to be considered at the Company's 2001 annual
meeting must be received at the principal executive offices of the Company no
later than June 25, 2001. In addition, any shareholder proposal to be considered
for inclusion in proxy materials for the Company's 2001 annual meeting must be
received at the principal executive offices of the Company no later than
April 17, 2001. A shareholder proposal must include the information specified in
the Company's Bylaws, and a copy of the relevant provisions of the Bylaws will
be provided to any shareholder upon written request to the Company's Vice
President and Corporate Secretary.
BY ORDER OF THE BOARD OF DIRECTORS
Joseph L. Reinhart
VICE PRESIDENT AND CORPORATE SECRETARY
Portland, Oregon
August 15, 2000
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APPENDIX A
ELECTRO SCIENTIFIC INDUSTRIES, INC.
2000 STOCK OPTION INCENTIVE PLAN
1. PURPOSE. The purpose of this Stock Option Incentive Plan (the "Plan")
is to enable Electro Scientific Industries, Inc. (the "Company") to attract and
retain the services of selected employees, officers and directors of the Company
or any parent or subsidiary of the Company. For purposes of this Plan, a person
is considered to be employed by or in the service of the Company if the person
is employed by or in the service of the Company or any parent or subsidiary of
the Company (an "Employer").
2. SHARES SUBJECT TO THE PLAN. Subject to adjustment as provided below and
in Section 7, the shares to be offered under the Plan shall consist of Common
Stock of the Company, and the total number of shares of Common Stock that may be
issued under the Plan shall be 2,000,000 shares plus any shares that are
available for grant under the Company's 1989 Stock Option Plan as in effect
June 23, 2000 (the "1989 Plan") or that may subsequently become available for
grant under the 1989 Plan through the expiration, termination, forfeiture or
cancellation of grants. An aggregate of 4,400,000 shares were reserved for
issuance under the 1989 Plan. If an option granted under the Plan expires,
terminates or is cancelled, the unissued shares subject to that option shall
again be available under the Plan.
3. EFFECTIVE DATE AND DURATION OF PLAN.
(a) EFFECTIVE DATE. The Plan shall become effective as of June 23,
2000. No Incentive Stock Option (as defined in Section 5 below) granted
under the Plan shall become exercisable, however, until the Plan is approved
by the affirmative vote of the holders of a majority of the shares of Common
Stock represented at a shareholders meeting at which a quorum is present,
and the exercise of any Incentive Stock Options granted under the Plan
before approval shall be conditioned on and subject to that approval.
Subject to this limitation, options may be granted under the Plan at any
time after the effective date and before termination of the Plan.
(b) DURATION. The Plan shall continue in effect until all shares
available for issuance under the Plan have been issued. The Board of
Directors may suspend or terminate the Plan at any time except with respect
to options then outstanding under the Plan. Termination shall not affect any
outstanding options.
4. ADMINISTRATION.
(a) BOARD OF DIRECTORS. The Plan shall be administered by the Board of
Directors of the Company, which shall determine and designate the
individuals to whom awards shall be made, the amount of the awards and the
other terms and conditions of the awards. Subject to the provisions of the
Plan, the Board of Directors may adopt and amend rules and regulations
relating to administration of the Plan, advance the lapse of any waiting
period, accelerate any exercise date and make all other determinations in
the judgment of the Board of Directors necessary or desirable for the
administration of the Plan. The interpretation and construction of the
provisions of the Plan and related agreements by the Board of Directors
shall be final and conclusive. The Board of Directors may correct any defect
or supply any omission or reconcile any inconsistency in the Plan or in any
related agreement in the manner and to the extent it deems expedient to
carry the Plan into effect, and the Board of Directors shall be the sole and
final judge of such expediency.
(b) COMMITTEE. The Board of Directors may delegate to any committee of
the Board of Directors (the "Committee") any or all authority for
administration of the Plan. If authority is delegated to the Committee, all
references to the Board of Directors in the Plan shall mean and relate to
the Committee, except (i) as otherwise provided by the Board of Directors
and (ii) that only the Board of Directors may amend or terminate the Plan as
provided in Sections 3 and 9.
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(c) OFFICERS. The Board of Directors may delegate to any officer or
officers of the Company authority to grant awards under the Plan, subject to
any restrictions imposed by the Board of Directors.
5. TYPES OF AWARDS, ELIGIBILITY, LIMITATIONS. The Board of Directors may,
from time to time, take the following action, separately or in combination,
under the Plan: (i) grant Incentive Stock Options, as defined in Section 422 of
the Internal Revenue Code of 1986, as amended (the "Code"), as provided in
Sections 6(a) and 6(b) and (ii) grant options other than Incentive Stock Options
("Non-Statutory Stock Options") as provided in Sections 6(a) and 6(c). Awards
may be made to employees, including employees who are officers or directors
selected by the Board of Directors; provided, however, that only employees of
the Company or any parent or subsidiary of the Company (as defined in
subsections 424(e) and 424(f) of the Code) are eligible to receive Incentive
Stock Options under the Plan. The Board of Directors shall select the
individuals to whom awards shall be made and shall specify the action taken with
respect to each individual to whom an award is made. At the discretion of the
Board of Directors, an individual may be given an election to surrender an award
in exchange for the grant of a new award. No employee may be granted options for
more than an aggregate of 500,000 shares of Common Stock in any calendar year;
provided, however, that to the extent the annual limitation is not fully used in
any year for an employee, any shares not used may be added to the number of
shares for which options may be granted to that employee in any future year.
6. OPTION GRANTS.
(a) GENERAL RULES RELATING TO OPTIONS.
(i) TERMS OF GRANT. The Board of Directors may grant options under
the Plan. With respect to each option grant, the Board of Directors shall
determine the number of shares subject to the option, the exercise price,
the period of the option, the time or times at which the option may be
exercised and whether the option is an Incentive Stock Option or a
Non-Statutory Stock Option. At the time of the grant of an option or at
any time thereafter, the Board of Directors may provide that an optionee
who exercised an option with Common Stock of the Company shall
automatically receive a new option to purchase additional shares equal to
the number of shares surrendered and may specify the terms and conditions
of such new options.
(ii) EXERCISE OF OPTIONS. Except as provided in Section 6(a)(iv) or
as determined by the Board of Directors, no option granted under the Plan
may be exercised unless at the time of exercise the optionee is employed
by or in the service of the Company and shall have been so employed or
provided such service continuously since the date the option was granted.
Except as provided in Sections 6(a)(iv) and 7, options granted under the
Plan may be exercised from time to time over the period stated in each
option in amounts and at times prescribed by the Board of Directors,
provided that options may not be exercised for fractional shares. Unless
otherwise determined by the Board of Directors, if an optionee does not
exercise an option in any one year for the full number of shares to which
the optionee is entitled in that year, the optionee's rights shall be
cumulative and the optionee may purchase those shares in any subsequent
year during the term of the option.
(iii) NONTRANSFERABILITY. Each Incentive Stock Option and, unless
otherwise determined by the Board of Directors, each other option granted
under the Plan by its terms (i) shall be nonassignable and
nontransferable by the optionee, either voluntarily or by operation of
law, except by will or by the laws of descent and distribution of the
state or country of the optionee's domicile at the time of death, and
(ii) during the optionee's lifetime, shall be exercisable only by the
optionee.
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(iv) TERMINATION OF EMPLOYMENT OR SERVICE.
(A) GENERAL RULE. Unless otherwise determined by the Board of
Directors, if an optionee's employment or service with the Company
terminates for any reason other than because of total disability or
death as provided in Sections 6(a)(iv)(B) and (C), his or her option
may be exercised at any time before the expiration date of the option
or the expiration of three months after the date of termination,
whichever is the shorter period, but only if and to the extent the
optionee was entitled to exercise the option at the date of
termination.
(B) TERMINATION BECAUSE OF TOTAL DISABILITY. Unless otherwise
determined by the Board of Directors, if an optionee's employment or
service with the Company terminates because of total disability, his
or her option may be exercised at any time before the expiration date
of the option or before the date 12 months after the date of
termination, whichever is the shorter period, but only if and to the
extent the optionee was entitled to exercise the option at the date
of termination. The term "total disability" means a medically
determinable mental or physical impairment that is expected to result
in death or has lasted or is expected to last for a continuous period
of 12 months or more and that, in the opinion of the Company and two
independent physicians, causes the optionee to be unable to perform
his or her duties as an employee, director, officer or consultant of
the Employer and unable to be engaged in any substantial gainful
activity. Total disability shall be deemed to have occurred on the
first day after the two independent physicians have furnished their
written opinion of total disability to the Company and the Company
has reached an opinion of total disability.
(C) TERMINATION BECAUSE OF DEATH. Unless otherwise determined
by the Board of Directors, if an optionee dies while employed by or
providing service to the Company, his or her option may be exercised
at any time before the expiration date of the option or before the
date 12 months after the date of death, whichever is the shorter
period, but only if and to the extent the optionee was entitled to
exercise the option at the date of death and only by the person or
persons to whom the optionee's rights under the option shall pass by
the optionee's will or by the laws of descent and distribution of the
state or country of domicile at the time of death.
(D) AMENDMENT OF EXERCISE PERIOD APPLICABLE TO TERMINATION. The
Board of Directors may at any time extend the three month and
12-month exercise periods any length of time not longer than the
original expiration date of the option. The Board of Directors may at
any time increase the portion of an option that is exercisable,
subject to terms and conditions determined by the Board of Directors.
(E) FAILURE TO EXERCISE OPTION. To the extent that the option
of any deceased optionee or any optionee whose employment or service
terminates is not exercised within the applicable period, all further
rights to purchase shares pursuant to the option shall cease and
terminate.
(F) LEAVE OF ABSENCE. Absence on leave approved by the Employer
or on account of illness or disability shall not be deemed a
termination or interruption of employment or service. Unless
otherwise determined by the Board of Directors, vesting of options
shall continue during a medical, family, military or other leave of
absence, whether paid or unpaid.
(G) CHANGE OF CONTROL. In the event an optionee's employment by
the Company or by any parent or subsidiary of the Company terminates
within one year after a change in control of the Company for any
reason other than retirement, death, or total disability (as defined
in
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Section 6(a)(iv)(B)), any option held by such optionee may be
exercised with respect to all remaining shares subject thereto, free
of any limitation on the number of shares with respect to which the
option may be exercised in any one year, at any time prior to its
expiration date or the expiration of three months after the date of
such termination of employment, whichever is the shorter period. A
"change in control of the Company" shall mean a change in control of
a nature that would be required to be reported in response to item
6(e) of Schedule 14A of Regulation 14A promulgated under the
Securities Exchange Act of 1934, as amended ("Exchange Act");
provided that, without limitation, such a change in control shall be
deemed to have occurred if (1) any "person" (as such term is used in
Sections 13(d) or 14(d)(2) of the Exchange Act) is or becomes the
beneficial owner, directly or indirectly, of securities of the
Company representing 20 percent or more of the combined voting power
of the Company's then outstanding securities; or (2) during any
period of two consecutive years, individuals who at the beginning of
such period constitute the Board of Directors of the Company cease
for any reason to constitute at least a majority thereof unless the
election, or the nomination for election by the Company's
shareholders, of each new director was approved by a vote of at least
two-thirds of the directors then still in office who were directors
at the beginning of the period. A change in control of the Company
shall not include any change in control pursuant to a written
agreement between the Company and another person, which agreement is
approved and adopted by the Board of Directors of the Company or
pursuant to any tender offer or exchange offer which the Board of
Directors has in any manner recommended acceptance of to the
shareholders of the Company.
(v) PURCHASE OF SHARES. Unless the Board of Directors determines
otherwise, shares may be acquired pursuant to an option granted under the
Plan only upon the Company's receipt of written notice from the optionee
of the optionee's binding commitment to purchase shares, specifying the
number of shares the optionee desires to purchase under the option and
the date on which the optionee is obligated to complete the transaction,
and, if required to comply with the Securities Act of 1933, containing a
representation that it is the optionee's intention to acquire the shares
for investment and not with a view to distribution. Unless the Board of
Directors determines otherwise, on or before the date specified for
completion of the purchase of shares pursuant to an option exercise, the
optionee must pay the Company the full purchase price of those shares in
cash, check or, in whole or in part, in Common Stock of the Company
valued at fair market value, restricted stock or other contingent awards
denominated in either stock or cash, promissory notes and other forms of
consideration. Unless otherwise determined by the Board of Directors, any
Common Stock provided in payment of the purchase price must have been
previously acquired and held by the optionee for at least six months. The
fair market value of Common Stock provided in payment of the purchase
price shall be the closing price of the Common Stock last reported on the
date the option is exercised, if the Common Stock is publicly traded, or
another value of the Common Stock as specified by the Board of Directors.
No shares shall be issued until full payment for the shares has been
made, including all amounts owed for tax withholding. Unless the Board of
Directors determines otherwise, an optionee may request the Company to
apply automatically the shares to be received upon the exercise of a
portion of a stock option (even though stock certificates have not yet
been issued) to satisfy the purchase price for additional portions of the
option. Each optionee who has exercised an option shall, immediately upon
notification of the amount due, if any, pay to the Company in cash or
check amounts necessary to satisfy any applicable federal, state and
local tax withholding requirements. If additional withholding is or
becomes required (as a result of exercise of an option or as a result of
disposition of shares acquired pursuant to exercise of an option) beyond
any amount deposited before delivery of the certificates, the optionee
shall pay such amount, in cash or check, to the Company on demand. If the
optionee fails to pay the amount demanded, the Company or the Employer
may withhold that amount from other amounts payable to the optionee,
including
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<PAGE>
salary, subject to applicable law. Unless the Board of Directors
determines otherwise, an optionee may satisfy this obligation, in whole
or in part, by instructing the Company to withhold from the shares to be
issued upon exercise or by delivering to the Company other shares of
Common Stock; provided, however, that the number of shares so withheld or
delivered shall not exceed the minimum amount necessary to satisfy the
required withholding obligation. Upon the exercise of an option, the
number of shares reserved for issuance under the Plan shall be reduced by
the number of shares issued upon exercise of the option (less the number
of any shares surrendered in payment for the exercise price or withheld
to satisfy withholding requirements).
(b) INCENTIVE STOCK OPTIONS. Incentive Stock Options shall be subject
to the following additional terms and conditions:
(i) LIMITATION ON AMOUNT OF GRANTS. If the aggregate fair market
value of stock (determined as of the date the option is granted) for
which Incentive Stock Options granted under this Plan (and any other
stock incentive plan of the Company or its parent or subsidiary
corporations, as defined in subsections 424(e) and 424(f) of the Code)
are exercisable for the first time by an employee during any calendar
year exceeds $100,000, the portion of the option or options not exceeding
$100,000, to the extent of whole shares, will be treated as an Incentive
Stock Option and the remaining portion of the option or options will be
treated as a Non-Statutory Stock Option. The preceding sentence will be
applied by taking options into account in the order in which they were
granted. If, under the $100,000 limitation, a portion of an option is
treated as an Incentive Stock Option and the remaining portion of the
option is treated as a Non-Statutory Stock Option, unless the optionee
designates otherwise at the time of exercise, the optionee's exercise of
all or a portion of the option will be treated as the exercise of the
Incentive Stock Option portion of the option to the full extent permitted
under the $100,000 limitation. If an optionee exercises an option that is
treated as in part an Incentive Stock Option and in part a Non-Statutory
Stock Option, the Company will designate the portion of the stock
acquired pursuant to the exercise of the Incentive Stock Option portion
as Incentive Stock Option stock by issuing a separate certificate for
that portion of the stock and identifying the certificate as Incentive
Stock Option stock in its stock records.
(ii) LIMITATIONS ON GRANTS TO 10 PERCENT SHAREHOLDERS. An Incentive
Stock Option may be granted under the Plan to an employee possessing more
than 10 percent of the total combined voting power of all classes of
stock of the Company or any parent or subsidiary (as defined in
subsections 424(e) and 424(f) of the Code) only if the option price is at
least 110 percent of the fair market value, as described in
Section 6(b)(iv), of the Common Stock subject to the option on the date
it is granted and the option by its terms is not exercisable after the
expiration of five years from the date it is granted.
(iii) DURATION OF OPTIONS. Subject to Sections 6(a)(ii),
6(a)(iv) and 6(b)(ii), Incentive Stock Options granted under the Plan
shall continue in effect for the period fixed by the Board of Directors,
except that by its terms no Incentive Stock Option shall be exercisable
after the expiration of 10 years from the date it is granted.
(iv) OPTION PRICE. The option price per share shall be determined
by the Board of Directors at the time of grant. Except as provided in
Section 6(b)(ii), the option price shall not be less than 100 percent of
the fair market value of the Common Stock covered by the Incentive Stock
Option at the date the option is granted. The fair market value shall be
the closing price of the Common Stock last reported on the date the
option is granted, if the stock is publicly traded, or another value of
the Common Stock as specified by the Board of Directors.
(v) LIMITATION ON TIME OF GRANT. No Incentive Stock Option shall be
granted on or after the tenth anniversary of the last action by the Board
of Directors approving an increase in the
20
<PAGE>
number of shares available for issuance under the Plan, which action was
subsequently approved within 12 months by the shareholders.
(vi) EARLY DISPOSITIONS. If within two years after an Incentive
Stock Option is granted or within 12 months after an Incentive Stock
Option is exercised, the optionee sells or otherwise disposes of Common
Stock acquired on exercise of the Option, the optionee shall within
30 days of the sale or disposition notify the Company in writing of
(i) the date of the sale or disposition, (ii) the amount realized on the
sale or disposition and (iii) the nature of the disposition (e.g., sale,
gift, etc.)
(c) NON-STATUTORY STOCK OPTIONS. Non-Statutory Stock Options shall be
subject to the following terms and conditions, in addition to those set
forth in Section 6(a) above:
(i) OPTION PRICE. The option price for Non-Statutory Stock Options
shall be determined by the Board of Directors at the time of grant but
shall not be less than 100% of the fair market value of the Common Stock
covered by the Non-Statutory Option on the date the option is granted.
(ii) DURATION OF OPTIONS. Non-Statutory Stock Options granted under
the Plan shall continue in effect for the period fixed by the Board of
Directors.
7. CHANGES IN CAPITAL STRUCTURE.
(a) STOCK SPLITS, STOCK DIVIDENDS. If the outstanding Common Stock of
the Company is hereafter increased or decreased or changed into or exchanged
for a different number or kind of shares or other securities of the Company
by reason of any stock split, combination of shares, dividend payable in
shares, recapitalization or reclassification, appropriate adjustment shall
be made by the Board of Directors in the number and kind of shares available
for grants under the Plan and in all other share amounts set forth in the
Plan. In addition, the Board of Directors shall make appropriate adjustment
in the number and kind of shares as to which outstanding options, or
portions thereof then unexercised, shall be exercisable, so that the
optionee's proportionate interest before and after the occurrence of the
event shall be maintained as before the occurrence of such event. Such
adjustment in outstanding options shall be made without change in the total
price applicable to the unexercised portion of any option and with a
corresponding adjustment in the option price per share. Notwithstanding the
foregoing, the Board of Directors shall have no obligation to effect any
adjustment that would or might result in the issuance of fractional shares,
and any fractional shares resulting from any adjustment may be disregarded
or provided for in any manner determined by the Board of Directors. Any such
adjustments made by the Board of Directors shall be conclusive.
(b) MERGERS, REORGANIZATIONS, ETC. In the event of a merger,
consolidation, plan of exchange, acquisition of property or stock, split-up,
split-off, spin-off, reorganization or liquidation to which the Company is a
party or a sale of all or substantially all of the Company's assets (each, a
"Transaction"), the Board of Directors shall, in its sole discretion and to
the extent possible under the structure of the Transaction, select one of
the following alternatives for treating outstanding options under the Plan:
(i) Outstanding options shall remain in effect in accordance with
their terms.
(ii) Outstanding options shall be converted into options to purchase
stock in one or more of the corporations, including the Company, that are
the surviving or acquiring corporations in the Transaction. The amount,
type of securities subject thereto and exercise price of the converted
options shall be determined by the Board of Directors of the Company,
taking into account the relative values of the companies involved in the
Transaction and the exchange rate, if any, used in determining shares of
the surviving corporation(s) to be held by holders of shares of the
Company following the Transaction. Unless otherwise determined by the
Board of Directors, the
21
<PAGE>
converted options shall be vested only to the extent that the vesting
requirements relating to options granted hereunder have been satisfied.
(iii) The Board of Directors shall provide a period of 30 days or less
before the completion of the Transaction during which outstanding options
may be exercised to the extent then exercisable, and upon the expiration
of that period, all unexercised options shall immediately terminate. The
Board of Directors may, in its sole discretion, accelerate the
exercisability of options so that they are exercisable in full during
that period.
(c) DISSOLUTION OF THE COMPANY. In the event of the dissolution of the
Company, options shall be treated in accordance with Section 7(b)(iii).
(d) RIGHTS ISSUED BY ANOTHER CORPORATION. The Board of Directors may
also grant options under the Plan with terms, conditions and provisions that
vary from those specified in the Plan, provided that any such awards are
granted in substitution for, or in connection with the assumption of,
existing options, granted by another corporation and assumed or otherwise
agreed to be provided for by the Company pursuant to or by reason of a
Transaction.
8. OPTION GRANTS TO NON-EMPLOYEE DIRECTORS.
(a) ANNUAL GRANTS. Each Non-Employee Director shall be automatically
granted an option to purchase 6,000 shares of Common Stock on July 31 of
each year, provided the Non-Employee Director is a director on such date. A
"Non-Employee Director" is a director who is not a full-time employee of the
Company or any of its subsidiaries and has not been a full-time employee of
the Company or any of its subsidiaries within one year of any date as of
which a determination of eligibility is made.
(b) EXERCISE PRICE. The exercise price of the options granted pursuant
to this Section 8 shall be equal to 100 percent of the fair market value of
the Common Stock determined pursuant to paragraph 6(a)(v).
(c) TERM OF OPTION. The term of each option granted pursuant to this
Section 8 shall be 10 years from the date of grant.
(d) EXERCISABILITY. Until an option expires or is terminated and
except as provided in Sections 8(e) and 7, an option granted under this
Section 8 shall be exercisable according to the following schedule:
<TABLE>
<CAPTION>
PERIOD OF NON-EMPLOYEE DIRECTORS' CONTINUOUS SERVICES PORTION OF TOTAL OPTION
AS A DIRECTOR OF THE COMPANY FROM THE DATE THE OPTION IS GRANTED WHICH IS EXERCISABLE
---------------------------------------------------------------- -----------------------
<S> <C>
Less than 1 year.............................................. 0%
After 1 year.................................................. 25%
After 2 years................................................. 50%
After 3 years................................................. 75%
After 4 years................................................. 100%
</TABLE>
(e) TERMINATION AS A DIRECTOR. If an optionee ceases to be a director
of the Company for any reason, other than death or total disability (as
defined in Section 6(a)(iv)(B)), the option may be exercised at any time
prior to the expiration date of the option or the expiration of the three
months after the last day the optionee served as a director, whichever is
the shorter period, but only if and to the extent the optionee was entitled
to exercise the option as of the last day the optionee served as a director.
If an optionee ceases to be a director of the Company as a result of death
or total disability (as defined in Section 6(a)(iv)(B)), the option may be
exercised with respect to all remaining shares subject thereto, free of any
limitation on the number of shares with respect to which the option may be
exercised in any one year, at any time, prior to the expiration date of the
option or the expiration of one year after the last day the optionee served
as a director, whichever is the shorter period.
22
<PAGE>
(f) EXERCISE OF OPTIONS. Options may be exercised upon payment of cash
or shares of Common Stock of the Company in accordance with Section 6.
(g) REPLACES 1989 PLAN. Upon approval of this Option Plan by the
shareholders of the Company, this Section 8 shall replace and supercede
paragraph 16 of the Company's 1989 Stock Option Plan.
9. AMENDMENT OF THE PLAN. The Board of Directors may at any time modify or
amend the Plan in any respect. Except as provided in Section 7, however, no
change in an award already granted shall be made without the written consent of
the holder of the award if the change would adversely affect the holder.
10. APPROVALS. The Company's obligations under the Plan are subject to the
approval of state and federal authorities or agencies with jurisdiction in the
matter. The Company will use its best efforts to take steps required by state or
federal law or applicable regulations, including rules and regulations of the
Securities and Exchange Commission and any stock exchange on which the Company's
shares may then be listed, in connection with the grants under the Plan. The
foregoing notwithstanding, the Company shall not be obligated to issue or
deliver Common Stock under the Plan if such issuance or delivery would violate
state or federal securities laws.
11. EMPLOYMENT AND SERVICE RIGHTS. Nothing in the Plan or any award
pursuant to the Plan shall (i) confer upon any employee any right to be
continued in the employment of an Employer or interfere in any way with the
Employer's right to terminate the employee's employment at any time, for any
reason, with or without cause, or to decrease the employee's compensation or
benefits, or (ii) confer upon any person engaged by an Employer any right to be
retained or employed by the Employer or to the continuation, extension, renewal
or modification of any compensation, contract or arrangement with or by the
Employer.
12. RIGHTS AS A SHAREHOLDER. The recipient of any award under the Plan
shall have no rights as a shareholder with respect to any Common Stock until the
date of issue to the recipient of a stock certificate for those shares. Except
as otherwise expressly provided in the Plan, no adjustment shall be made for
dividends or other rights for which the record date occurs before the date such
stock certificate is issued.
Adopted: June 23, 2000.
23
<PAGE>
<TABLE>
<S><C>
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X Please mark your
votes as in this
example.
FOR WITHHELD FOR AGAINST ABSTAIN
1. Election of 2. Approving the 2000 Stock Option
Directors. Incentive Plan.
(see reverse)
3. Amending the Third Restated Articles
For, except vote withheld from the following nominees(s): of Incorporation to increase the
number of authorized shares of Common
--------------------------------------------------------- Stock from 40,000,000 to 100,000,000.
4. Voting on the selection of independent
auditors for the Company.
Change of address on
reverse side
The proxies may vote in their discretion as to other matters which
may come before the meeting.
Please date and sign exactly as name is imprinted hereon, including
the designation as executor, trustee, etc., if applicable. A
Corporation may sign in its name by the president or other
authorized officer. All co-owners must sign.
----------------------------------------------
----------------------------------------------
SIGNATURE(S) DATE
PLEASE SIGN AND RETURN IMMEDIATELY
------------------------------------------------------------------------------------------------------------------------------------
* Fold and Detach Here *
ELECTRO SCIENTIFIC INDUSTRIES, INC.
Dear Shareholder:
Please take note of the important information enclosed with this proxy. There
are a number of issues related to the Company that require your immediate
attention and approval. These are discussed in detail in the enclosed proxy
statement.
Your vote counts, and you are strongly encouraged to exercise your right to vote
your shares.
Please mark the boxes on the proxy card to indicate how your shares shall be
voted. Then sign and date the card, detach it and return your proxy vote in the
enclosed postage paid envelope.
Your proxy must be received prior to the Annual Meeting of Shareholders to be
held on September 22, 2000.
Thank you in advance for your prompt consideration of these matters.
Sincerely,
ELECTRO SCIENTIFIC INDUSTRIES, INC.
</TABLE>
<PAGE>
<TABLE>
<S><C>
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P
R
O
X
Y
ELECTRO SCIENTIFIC INDUSTRIES, INC.
ANNUAL MEETING SEPTEMBER 22, 2000
PROXY SOLICITED BY THE BOARD OF DIRECTORS
The undersigned hereby appoints David F. Bolender, Donald R. VanLuvanee and Joseph L. Reinhart, and each of them, proxies with power
of substitution to vote on behalf of the undersigned all shares which the undersigned may be entitled to vote at the Annual Meeting
of Shareholders of Electro Scientific Industries, Inc. on September 22, 2000 and any adjournments thereof, with all powers that the
undersigned would possess if personally present, with respect to the matters referred to on this proxy. A majority of the proxies or
substitutes present at the meeting may exercise all powers granted hereby.
Election of Directors - Nominees: CHANGE OF ADDRESS
3 year term: David F. Bolender ________________________________________
Keith L. Thomson ________________________________________
Jon D. Tompkins ________________________________________
________________________________________
(If you have written in the space, please
mark the corresponding box on the reverse
side of this card)
THE PROXIES WILL VOTE THE SHARES REPRESENTED BY THIS PROXY AS SPECIFIED BY YOU ON THE REVERSE SIDE, BUT IF NO SPECIFICATION IS MADE,
THE PROXIES WILL VOTE THE SHARES FOR THE ELECTION OF DIRECTORS AND FOR APPROVAL OF ALL PROPOSALS.
SEE REVERSE
SIDE
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* Fold and Detach Here *
</TABLE>
