OPTICAL COATING LABORATORY, INC.
1999 Notice of ANNUAL MEETING OF STOCKHOLDERS and PROXY STATEMENT
L E T T E R T O S T O C K H O L D E R S
March 4, 1999
Dear Fellow Stockholders:
We cordially invite you to attend our 1999 Annual Meeting of
Stockholders. The meeting will be held on THURSDAY, APRIL 1, 1999, AT
3:30 P.M. at OCLI's corporate offices located at 2789 Northpoint
Parkway, Santa Rosa, California.
At the meeting, we will elect seven directors, vote on the approval of
the 1999 Employee Stock Purchase Program, the approval of the 1999
Incentive Compensation Plan and ratification of the appointment of
Deloitte & Touche LLP as the Company's independent auditors. Following
the Annual Meeting, we will report on our performance in 1998 and
answer your questions. Product exhibits will be on display at the
meeting.
Enclosed with this Proxy Statement is your proxy voting card and OCLI's
1998 Annual Report.
We look forward to seeing you on April 1 and would like to take this
opportunity to remind you that your vote is important.
Sincerely,
Herbert M. Dwight, Jr. Charles J. Abbe
Chairman of the Board President and Chief Executive
Officer
T A B L E O F C O N T E N T S
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS........................... 3
PROXY STATEMENT.................................................... 4
Questions and Answers.............................................. 4
Proposals to be Voted Upon......................................... 7
Information about the Nominees for Director........................ 15
Board Compensation................................................. 17
Board Meetings and Committees...................................... 18
Compensation Committee Interlocks and Insider Participation........ 18
Beneficial Ownership............................................... 19
Executive Compensation............................................. 21
Summary Compensation Table................................... 21
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Option Grants in Last Fiscal Year Table...................... 22
Option Exercises and Year-End Value Table.................... 23
Report of the Compensation and Stock Option Committee.............. 24
Five-Year Performance Graph........................................ 28
Other Information.................................................. 29
Section 16(a) Beneficial Ownership Reporting Compliance............ 30
Other Business..................................................... 31
APPENDIX A _ 1999 EMPLOYEE STOCK PURCHASE PLAN..................... 32
APPENDIX B _ 1999 INCENTIVE COMPENSATION PLAN...................... 44
N O T I C E O F T H E 1 9 9 9 A N N U A L M E E T I N G
O F S T O C K H O L D E R S
The Annual Meeting of Stockholders of Optical Coating Laboratory, Inc.
(OCLI or the Company) will be held on THURSDAY, APRIL 1, 1999, AT 3:30
P.M. at OCLI's Corporate Offices located at 2789 Northpoint Parkway,
Santa Rosa, California, for the following purposes:
1. Election of seven directors: Herbert M. Dwight, Jr.; Charles
J. Abbe; Douglas C. Chance; Shoei Kataoka; John McCullough;
Julian Schroeder; and Renn Zaphiropoulos, each to serve until
the next Annual Meeting of Stockholders.
2. Approval of the 1999 Employee Stock Purchase Plan.
3. Approval of the 1999 Incentive Compensation Plan.
4. Ratification of Deloitte & Touche LLP as independent auditors for
1999.
5. To transact any other business properly brought before the Annual
Meeting.
Your Board of Directors recommends a vote FOR each of the four
proposals.
Stockholders owning Company shares at the close of business on February
5, 1999 are entitled to attend and vote at the meeting.
Whether or not you plan to attend the Annual Meeting, please review
this material, decide how you wish to vote and either execute the
enclosed proxy card and return it promptly in the envelope provided or
follow the telephone voting instructions at the bottom of your proxy
card. If a sufficient number of Stockholders vote prior to the Annual
Meeting, the necessity for expensive and time-consuming additional
solicitation will be avoided.
This Proxy Statement is being sent to the Stockholders in connection
with OCLI Management's solicitation of proxies to be voted at the 1999
Annual Meeting of Stockholders on behalf of the Board of Directors.
This Proxy Statement, proxy card and OCLI's 1998 Annual Report to
Stockholders are being distributed on or about March 4, 1999.
By Order of the Board of Directors,
_____________________
Joseph Zils
Corporate Secretary
Santa Rosa, California
March 4, 1999
1 9 9 9 P R O X Y S T A T E M E N T
QUESTIONS AND ANSWERS
------------------------
Q: WHY AM I RECEIVING THIS PROXY STATEMENT AND PROXY CARD?
A: You are receiving a Proxy Statement and proxy card from us because
you own shares of Common Stock in Optical Coating Laboratory, Inc.
(OCLI or the Company) as of the close of business on February 5,
1999 (the "Record Date") and are entitled to vote at the 1999 Annual
Meeting. Each share of OCLI Common Stock is entitled to one vote.
The Proxy Statement describes issues on which we would like you, as
a Stockholder, to vote. It also gives you information about these
issues so that you can make an informed decision.
Q: WHAT AM I VOTING ON?
A: You are being asked to vote on the election of seven directors,
approval of the 1999 Employee Stock Purchase Plan, approval of the
1999 Incentive Compensation Plan and ratification of Deloitte &
Touche LLP as independent auditors for fiscal 1999. The section
entitled "Proposals to be Voted Upon" gives you more information on
these proposals.
Q: HOW DO I VOTE?
A: YOU MAY VOTE BY MAIL. You do this by signing and dating your proxy
card and mailing it in the enclosed, prepaid envelope. If you mark
your voting instructions on the proxy card, your shares will be
voted as you instruct.
If you return a signed card but do not provide voting instructions,
your shares will be voted FOR each of the proposals.
YOU MAY VOTE BY TELEPHONE. You do this by following the "Vote by
Telephone" instructions you will find on the bottom of your proxy card.
If you vote by telephone, you do not have to mail in your proxy card.
(Some Stockholders may not be able to vote by telephone.)
YOU MAY VOTE IN PERSON AT THE MEETING. We will pass out written ballots
to anyone who wants to vote at the meeting. If you hold your shares in
street name, you must request a legal proxy from your stockbroker in
order to vote at the meeting.
Q: WHAT IF I CHANGE MY MIND AFTER I RETURN MY PROXY?
A: You may revoke your proxy and change your vote at any time before
the polls close at the meeting. You may do this by:
. signing another proxy with a later date,
. voting by telephone, or
. voting again at the meeting.
Q: WHO WILL COUNT THE VOTES?
A: Representatives of ChaseMellon Shareholder Services, L.L.C. will
tabulate the votes and act as Inspector of Election.
Q: IS MY VOTE CONFIDENTIAL?
A: Yes. Proxy cards, ballots and voting tabulations that identify
individual Stockholders are confidential. Only the Inspector of
Election, and certain employees associated with processing proxy
cards and counting the vote, have access to your card.
Additionally, all comments directed to Management (whether written
on the Proxy Card or elsewhere) will remain confidential unless you
ask that your name be disclosed.
Q: WHAT DOES IT MEAN IF I GET MORE THAN ONE PROXY CARD?
A: It is an indication that your shares are registered differently and
are in more than one account, or you are an employee Stockholder
with shares held in the OCLI 401(k) Plan and also own shares held in
a personal account. Sign and return all proxy cards to ensure that
all of your shares are voted. To provide better Stockholder
services, we encourage all non-employee Stockholders to have your
accounts registered in the same name and address. You may do this
by contacting our transfer agent, ChaseMellon Shareholder Services,
L.L.C. at (800) 237-9980 or by visiting their web site at
www.chasemellon.com.
Q: HOW MANY VOTES ARE NEEDED TO HOLD THE MEETING?
A: Shares are counted as present at the meeting if the Stockholder
either:
. is present and votes in person at the meeting, or
. has properly submitted a proxy card or voted by telephone.
A majority of the outstanding shares as of the Record Date must be
present at the meeting in order to hold the meeting and conduct
business. This is called a quorum. As of the Record Date, 12,215,820
shares of OCLI Common Stock were issued and outstanding. If you submit
a properly executed proxy card or vote by telephone, then you will be
considered part of the quorum.
Q: WHO CAN ATTEND THE ANNUAL MEETING?
A: All Stockholders as of the Record Date can attend the Annual
Meeting.
Q: WERE ANY STOCKHOLDER PROPOSALS SUBMITTED FOR 1999?
A: No Stockholder proposals were received for presentation at the
Annual Meeting for 1999.
Q: WHEN ARE THE YEAR 2000 STOCKHOLDER PROPOSALS DUE?
A: In order to be considered for inclusion in next year's Proxy
Statement, Stockholder proposals must be submitted in writing by
November 4, 1999, to Joseph Zils, Esq., Corporate Secretary, Optical
Coating Laboratory, Inc., 2789 Northpoint Parkway, Santa Rosa, CA
95407-7397.
Q: HOW DOES A STOCKHOLDER NOMINATE SOMEONE TO BE A DIRECTOR?
A: OCLI's By-Laws state that written notice of any nominations for
director of a person other than the nominees listed on pages 15 and
16, must have been received by the Board of Directors at least 90
<PAGE>
days before the Record Date of OCLI's previous year's Annual
Meeting. Accordingly, notice of an individual's candidacy must have
been received by OCLI by November 8, 1998. No such notice was
received.
Q: WHO PAYS FOR THIS PROXY SOLICITATION?
A: The expense of soliciting proxies will be paid by OCLI. In addition
to the original mailing and any follow-on mailings of the proxies
and soliciting materials. The solicitation of proxies may be made by
mail, telephone, facsimile or in person by employees of OCLI who
will not receive any additional compensation for such solicitation
activities. OCLI will request brokerage houses and other custodians,
nominees and fiduciaries to forward the proxies and soliciting
materials to persons for whom they hold shares of OCLI Common Stock
and to request authority for the exercise of proxies. OCLI will
reimburse such holders for their reasonable out-of-pocket expenses.
OCLI has also hired ChaseMellon Shareholder Services, L.L.C. to
assist us in the distribution of proxy materials and solicitation of
votes. OCLI will pay ChaseMellon Shareholder Services, L.L.C. a fee
of $6,500, plus expenses, for their services.
Q: WHERE DO I FIND THE VOTING RESULTS OF THE MEETING?
A: We will announce preliminary voting results at the meeting. We will
publish the final results in our quarterly report on Form 10-Q for
the second quarter of 1999. We will file that report with the
Securities and Exchange Commission, and you can get a copy by
contacting our Investor Relations Hotline at 707-525-7065 or the
Securities and Exchange Commission at (800) SEC-0330 for the
location of the nearest public reference room, or through the EDGAR
database at www.sec.gov.
P R O P O S A L S T O B E V O T E D U P O N
1. ELECTION OF DIRECTORS
Nominees for election this year are:
. Herbert M. Dwight, Jr.
. Charles J. Abbe
. Douglas C. Chance
. Shoei Kataoka
. John McCullough
. Julian Schroeder
. Renn Zaphiropoulos
Each nominee is presently a director of the Company.
Biographical summaries of the nominees for director begin on page 15
of this Proxy Statement. Information regarding the number of shares
of OCLI Common Stock beneficially owned by each of the nominees,
directly or indirectly, as of the Record Date, appears on pages 19
and 20 of this Proxy Statement.
We need the affirmative vote of a majority of the outstanding shares
of OCLI Common Stock present in person or by proxy and entitled to
vote at the meeting in order to elect the nominees for director.
Abstentions and votes withheld for directors will have the same
effect as votes against.
The Board recommends a vote FOR the nominees for director.
2. APPROVAL OF THE 1999 EMPLOYEE STOCK PURCHASE PLAN
<PAGE>
The Board of Directors recommends that the Stockholders approve the
Optical Coating Laboratory, Inc. 1999 Employee Stock Purchase Plan (the
"Purchase Plan") for the reasons set forth below. The full text of the
Purchase Plan is attached to this Proxy Statement as Appendix A, and
you are urged to refer to it for a complete description of the Purchase
Plan. The summary of the principal features of the Purchase Plan,
which follows, is qualified by such reference.
The purpose of the Purchase Plan is to provide employees of the Company
and the Company's designated subsidiaries ("Subsidiaries") with an
opportunity to purchase shares of OCLI Common Stock through payroll
deductions.
The Company has reserved 400,000 shares of OCLI Common Stock for
issuance under the Purchase Plan subject to Stockholder approval.
PRINCIPAL FEATURES OF THE PURCHASE PLAN ADMINISTRATION. The Board may
administer the Purchase Plan or appoint a committee composed of directors
who are not eligible to participate in the Plan to administer it. All
questions of interpretation or application of the Purchase Plan are
determined by the Board or its appointed committee, and its decisions
are final, conclusive and binding upon all participants.
ELIGIBILITY. Each employee of the Company or any Company subsidiary
designated by the Board (the "Subsidiary"), whose customary employment
with the Company or the Subsidiary is at least 20 hours per week, is
eligible to participate in the Purchase Plan. However, no employee will
be granted a right to purchase shares of OCLI Common Stock under the
Purchase Plan that:
. would result in the employee owning 5% or more of either the
voting power or value of the stock of the Company or of any
Subsidiary immediately following the grant, or
. allow he or she to purchase, under all employee stock purchase
plans of the Company or of any Subsidiary, in excess of $25,000 worth
of OCLI Common Stock (determined at the fair market value of the
shares at the time the option is granted) for each calendar year.
Eligible employees become participants in the Purchase Plan by filing a
subscription agreement with the Company authorizing payroll deductions
prior to the beginning of each Offering Period (as defined below),
unless a later time for filing the subscription agreement has been set
by the Board or its committee. As of February 5, 1999, approximately
1,340 Company and Subsidiary employees would be eligible to participate
in the Purchase Plan.
PARTICIPATION IN AN OFFERING. The Purchase Plan is implemented by
consecutive offering periods each lasting for 12 months (an "Offering
Period") with a new Offering Period commencing every six months. The
first Offering Period under the Purchase Plan will commence on June 1,
1999. OCLI Common Stock may be purchased under the Purchase Plan every
six months during the Offering Period (a "Purchase Period"), unless the
participant withdraws or terminates employment before the end of the
Purchase Period. The Board or its committee may change the duration of
a Purchase Period or the length or date of commencement of an Offering
Period. To participate in the Purchase Plan, each eligible employee
must authorize payroll deductions pursuant to the Purchase Plan. Such
<PAGE>
payroll deductions may not exceed 10% of a participant's compensation.
Once an employee becomes a participant in the Purchase Plan, the
employee will automatically participate in each successive Offering
Period until such time as the employee withdraws from the Purchase Plan
or the employee's employment with the Company or the Subsidiary
terminates. At the beginning of each Offering Period, each participant
is automatically granted rights to purchase shares of OCLI Common
Stock. The right expires at the end of the Purchase Period or upon
termination of employment, whichever is earlier, but is exercised at
the end of each Purchase Period to the extent of the payroll deductions
accumulated during such Purchase Period.
PURCHASE PRICE, SHARES PURCHASED. Shares of OCLI Common Stock may be
purchased under the Purchase Plan at a price not less than 85% of the
lesser of the fair market value of OCLI Common Stock on (i) the first
day of the Offering Period or (ii) the last day of the Purchase Period.
The "fair market value" of OCLI Common Stock on any relevant date will
be determined based on the closing price of OCLI Common Stock for such
date as reported on Nasdaq. The number of shares of OCLI Common Stock a
participant purchases in each Purchase Period is determined by dividing
the total amount of payroll deductions withheld from the participant's
compensation during that Offering Period by the purchase price.
TERMINATION OF EMPLOYMENT. Termination of a participant's employment
for any reason, including disability or death, or the failure of the
participant to remain in the continuous scheduled employ of the Company
or the Subsidiary for at least 20 hours per week, cancels his or her
right and participation in the Purchase Plan immediately. In such
event, the payroll deductions credited to the participant's account
will be returned to him or her or, in the case of death, to the person
or persons entitled to them as provided in the Purchase Plan.
ADJUSTMENT UPON CHANGE IN CAPITALIZATION, CHANGE IN CONTROL. In the
event that OCLI Common Stock is changed by reason of any stock split,
reverse stock split, stock dividend, combination, reclassification or
other change in the capital structure of the Company effected without
the receipt of consideration, appropriate proportional adjustments will
be made in the number and class of shares of stock subject to the
Purchase Plan, the number and class of shares of stock subject to
rights outstanding under the Purchase Plan, and the exercise price of
any outstanding rights. The Board, whose determination will be
considered conclusive, will make any adjustment. Notwithstanding the
above, in connection with the Company's merger with or acquisition of
all or substantially all of the Company's assets by another
corporation, the successor corporation will assume or substitute
outstanding rights under the Purchase Plan. If such rights are not
assumed or substituted, then any Offering Periods or Purchase Periods
then in progress will be shortened to a new exercise date and the Board
will notify each participant that his or her right will be exercised
automatically on the new exercise date, unless prior to such date the
participant has withdrawn from the Offering Period.
AMENDMENT AND TERMINATION OF THE PLAN. The Board may at any time
terminate or amend the Purchase Plan if the Board determines that
termination of the Purchase Plan is in the best interests of the
Company and its Stockholders. No amendment will be effective unless it
<PAGE>
is approved by the holders of a majority of the votes cast at a duly
held Stockholders' meeting, if such amendment would require Stockholder
approval in order to comply with Section 423 of the Internal Revenue
Code. If not terminated earlier by the Board, the Purchase Plan will
terminate on February 16, 2009.
WITHDRAWAL. Generally, a participant may withdraw from an Offering
Period at any time without affecting his or her eligibility to
participate in future Offering Periods. However, once a participant
withdraws from a particular offering, that participant may not
participate again in the same offering.
FEDERAL TAX INFORMATION FOR PURCHASE PLAN
The Purchase Plan, and the right of participants to make purchases
thereunder, is intended to qualify under the provisions of Sections 421
and 423 of the Code. Under these provisions, no income will be taxable
to a participant until the shares purchased under the Purchase Plan are
sold or otherwise disposed of. Upon sale or other disposition of the
shares, the participant will generally be subject to tax and the amount
of the tax will depend upon the holding period. If the shares are sold
or otherwise disposed of more than two years from the first day of the
Offering Period and more than one year from the date of transfer of the
stock to the participant, then the participant will recognize ordinary
income measured as the lesser of (i) the excess of the fair market
value of the shares at the time of such sale or disposition over the
purchase price, or (ii) an amount equal to 15% of the fair market value
of the shares as of the first day of the Offering Period. Any
additional gain will be treated as long-term capital gain. If the
shares are sold or otherwise disposed of before the expiration of this
holding period, the participant will recognize ordinary income
generally measured as the excess of the fair market value of the shares
on the date the shares are purchased over the purchase price. Any
additional gain or loss on such sale or disposition will be long-term
or short-term capital gain or loss, depending on the holding period.
The Subsidiary is not entitled to a deduction for amounts taxed as
ordinary income or capital gain to a participant except to the extent
ordinary income is recognized by participants upon a sale or
disposition of shares prior to the expiration of the holding period(s)
described above.
THE FOREGOING IS ONLY A SUMMARY OF THE EFFECT OF FEDERAL INCOME
TAXATION UPON THE PARTICIPANT AND THE SUBSIDIARY WITH RESPECT TO THE
SHARES PURCHASED UNDER THE PURCHASE PLAN. REFERENCE SHOULD BE MADE TO
THE APPLICABLE PROVISIONS OF THE CODE. IN ADDITION, THE SUMMARY DOES
NOT DISCUSS THE TAX CONSEQUENCES OF A PARTICIPANT'S DEATH OR THE INCOME
TAX LAWS OF ANY STATE OR FOREIGN COUNTRY IN WHICH THE PARTICIPANT MAY
RESIDE.
NEW PLAN BENEFITS
Because levels of participation, rates of deferral and the eventual
purchase price are not presently known, the future benefits to be
distributed under the Purchase Plan are not determinable at this time.
VOTES REQUIRED AND BOARD RECOMMENDATION
The Purchase Plan provides employees of the Company and its
Subsidiaries with an opportunity to purchase the shares of OCLI Common
Stock through payroll deductions. The Board of Directors believes that
ownership of OCLI Common Stock by its employees will provide incentives
<PAGE>
for the employees to contribute materially to the continued success of
the Company. The favorable vote of a majority of shares present and
voting at the Annual Meeting on this proposal (as long as those shares
voting affirmatively also constitute a majority of the required quorum)
is required for approval of the Purchase Plan.
The Board recommends a vote FOR approval of the 1999 Employee Stock
Purchase Plan.
3. APPROVAL OF THE 1999 INCENTIVE COMPENSATION PLAN
The Board recommends that the Stockholders approve the Optical Coating
Laboratory, Inc. 1999 Incentive Compensation Plan (the "Plan") for the
reasons set forth below. The full text of the Plan is attached to this
Proxy Statement as Appendix B, and you are urged to refer to it for a
complete description of the proposed Plan. The summary of the principal
features of the Plan, which follows, is qualified entirely by such
reference.
The purpose of the Plan is to encourage OCLI Common Stock ownership in
the Company by personnel whose long-term employment is considered
essential to the Company's continued progress, thereby providing them
with an additional incentive to continue in the employ of the Company
or its Subsidiaries. The Board has determined that the additional
incentive provided by the Plan to those employees whose efforts have
the most effect on the Company's success will promote the welfare of
the Company's Stockholders generally.
The Company has reserved a total of 600,000 shares of OCLI Common Stock
to be issued pursuant to the Plan, at least 50% of which must be
awarded to employees who are not officers or directors of the Company.
PRINCIPAL FEATURES OF THE PLAN
ADMINISTRATION. The Plan is administered by a Committee appointed by
the Board and is composed of directors who are not eligible to
participate in the Plan. All questions of interpretation or application
of the Plan are determined by the Board or its appointed Committee, and
its decisions are final, conclusive and binding upon all participants.
ELIGIBILITY. Under the Plan, all employees of the Company and its
Subsidiaries are eligible to receive periodic awards as incentives to
continued employment with and commitment to the Company. The amount of
any such award will be based on each employee's potential to contribute
to the long-term success of the Company and, in turn, promote the
welfare of the Stockholders. As of February 5, 1999, approximately
1,340 Company and Subsidiary employees are eligible to participate in
the Plan.
AWARDS. Awards may be in the form of stock options, unrestricted stock
bonuses, restricted stock bonuses, stock paid for with a recourse or
non-recourse promissory note ("loan stock"), or any combination
thereof. Stock bonuses may be restricted against sale for varying
periods, as determined by the Committee. Upon award of restricted stock
or loan stock, certificates for such shares will be deposited in escrow
with the Company's Secretary. The employee will retain voting and
dividend rights with respect to the shares, but will not have the right
<PAGE>
to transfer the shares until all restrictions pertaining to the shares
have terminated or until payment of the promissory note.
An employee who has been granted restricted stock, stock options or
loan stock may also be permitted under the Plan to elect that the tax
liability (as described below) arising from the lapse of restrictions
on restricted stock, exercise of stock options, or payment of a non-
recourse note used to purchase loan stock be satisfied by the Company
withholding from the shares to be delivered to the employee that number
of shares the fair market value of which is closest to, without
exceeding, such tax liability. For these purposes, "tax liability"
means the minimum federal and state income taxes required to be
withheld, or, in the Company's discretion, any greater amount of taxes
(including taxes other than income taxes) required to be withheld.
Stock options granted under the Plan will be designated either as
incentive stock options ("ISO's") eligible for special tax treatment
under Section 422 of the Code or as non-qualified options. The option
price of each option issued under the Plan will be the fair market
value of the OCLI Common Stock subject to the option on the date of
grant. The Committee shall determine fair market value, for purposes of
the Plan. The term of the options cannot exceed 10 years, and in all
other respects, the material terms of the options will be similar to
options granted under the Company's existing Stock Option Plans.
MODIFICATION OF THE PLAN
The Board of Directors or the Committee will be authorized to suspend
or discontinue the Plan or modify or amend it in any respect
whatsoever.
FEDERAL TAX INFORMATION FOR THE PLAN
There are no tax consequences to the employee or the Company upon grant
of a stock option. Upon exercise of an option not qualified as an ISO,
the employee will be required to recognize taxable income equal to the
difference between the exercise price and the fair market value of the
shares on the date of exercise (the "spread"), and the Company will be
entitled to a federal income tax deduction equal to the income
recognized by the employee. Except for inclusion of the spread as an
item of tax preference for alternative minimum tax purposes, there are
no federal tax consequences for the employee or the Company upon
exercise of an ISO. Moreover, if the employee holds the shares
purchased through the exercise of an ISO for more than one year from
the date of exercise and two years from the date the option was granted
(the "required holding period"), the spread and all other appreciation
in the shares over the exercise price will be long-term capital gain at
the time the shares are sold. The Company will not receive a deduction
if an employee holds stock acquired through the exercise of an ISO for
the required holding period. If the employee sells such stock before
the expiration of the required holding period, the employee will be
required to recognize taxable income equal to the lesser of the spread
or the difference between the amount realized and the employee's basis
in the stock. The Company will receive a deduction equal to the taxable
income recognized by the employee.
<PAGE>
Recipients of unrestricted stock bonuses will be taxed on an amount
equal to the fair market value of the shares at the time of grant. The
Company will receive a federal tax deduction equal to the amount of
income recognized by recipients of unrestricted stock bonuses.
Recipients of loan stock purchased with a recourse note will not be
taxed upon grant of the loan stock if the fair market value of the loan
stock on the date it is granted equals the face amount of the
promissory note used by the recipient to purchase the loan stock.
Moreover, recipients of loan stock purchased with a non-recourse note
will be taxed only as the note is paid off and then only to the extent
that the fair market value of the shares corresponding to the paid off
principal portion of the note exceeds such principal portion.
A recipient of a restricted stock bonus will recognize taxable income
equal to the fair market value of the shares at the time the
restrictions lapse. However, the employee may elect to include in
income for the year of the award the fair market value of the
restricted stock at the time of grant. If the election is made, any
subsequent appreciation recognized on eventual sale or disposition of
the shares will be capital gain. If the shares are forfeited following
such an election, the recipient obtains no tax benefit with respect to
the forfeiture or prior tax payment. The Company will be entitled to a
federal tax deduction equal to the amount of income recognized by the
employee either when the employee makes such an election or, if no
election is made, if and when the restrictions on the stock lapse.
THE FOREGOING IS ONLY A SUMMARY OF THE EFFECT OF FEDERAL INCOME
TAXATION UPON THE PARTICIPANT WITH RESPECT TO THE SHARES AWARDED UNDER
THE PLAN. REFERENCE SHOULD BE MADE TO THE APPLICABLE PROVISIONS OF THE
CODE. IN ADDITION, THE SUMMARY DOES NOT DISCUSS THE TAX CONSEQUENCES OF
A PARTICIPANT'S DEATH OR THE INCOME TAX LAWS OF ANY STATE OR FOREIGN
COUNTRY IN WHICH THE PARTICIPANT MAY RESIDE.
NEW PLAN BENEFITS
As the receipt and extent of any award is dependent on many different
factors, including continued employment with the Company, the duties
and responsibilities of an employee and the potential of an employee to
impact the long-term success of the Company, which are presently
unknown, the future benefits to be distributed under the Plan are not
determinable. Notwithstanding, the Plan does require that at least 50%
of all awards made under the Plan be granted to employees who are not
officers or directors of the Company.
VOTES REQUIRED AND BOARD RECOMMENDATION
The Board of Directors believes that the grant of stock options and
stock awards will provide significant incentives to employees who
contribute and are expected to contribute materially to the continued
success of the Company. Stockholder approval for the Plan is being
sought in order that ISO's eligible for special tax treatment under
Section 423 of the Code may be granted pursuant to the ISO provisions
of the Plan. Stockholder approval of the Plan is not required for the
grant of non-qualified options under the Plan. In the event the
Stockholders fail to approve the Plan, the Company will be prohibited
from granting ISO's. The Company's granting of or the validity of any
non-qualified options granted under the Plan will not be affected by a
failure to approve the Plan. The favorable vote of a majority of
<PAGE>
shares present and voting at the Annual Meeting on this proposal (as
long as those shares voting affirmatively also constitute a majority of
the required quorum) is required for approval of the ISO provisions of
the Plan.
The Board recommends a vote FOR approval of the 1999 Incentive
Compensation Plan.
4. RATIFICATION OF DELOITTE & TOUCHE LLP AS INDEPENDENT AUDITORS
The Board of Directors, upon the recommendation of the Audit
Committee, has appointed Deloitte & Touche LLP as OCLI's independent
auditors to audit OCLI's consolidated financial statements for the
1999 fiscal year. The ratification of this appointment by the
Stockholders is being sought as a matter of good corporate practice,
although it is not required. In the event the Stockholders fail to
ratify the appointment, the Board of Directors will reconsider its
appointment of Deloitte & Touche LLP. Even if the selection is
ratified, the Board, at its discretion, can direct the appointment
of a different accounting firm at any time during the year if it is
determined that such a change would be in the best interests of OCLI
and its Stockholders.
Representatives of Deloitte & Touche LLP are expected to be present
at the meeting. They will have the opportunity to make a statement
if they desire to do so and will be available to respond to
appropriate questions.
The favorable vote of a majority of shares present and voting at the
Annual Meeting is required to ratify the appointment of Deloitte &
Touche LLP as OCLI's independent auditors for 1999.
The Board recommends a vote FOR ratification of the appointment of
Deloitte & Touche LLP as independent auditors for 1999.
I N F O R M A T I O N A B O U T T H E
N O M I N E E S F O R D I R E C T O R
HERBERT M. DWIGHT, JR. DIRECTOR SINCE 1991
Mr. Dwight, age 68, is Chairman of the Board of OCLI. Mr. Dwight
served as President of OCLI from August 19, 1991 to October 31, 1997
and Chief Executive Officer of OCLI from August 19, 1991 to April 1,
1998. From December 1993 to April 1995, Mr. Dwight also served as Chief
Financial Officer. Mr. Dwight was a founder of Spectra Physics Inc., a
leading manufacturer and developer of commercial laser products. He
served as Chief Executive Officer of Spectra Physics from 1967 to 1988.
Mr. Dwight was Chairman, President and Chief Executive Officer of
Superconductor Technologies, Inc. from 1988 through August 1991 and
continued to serve as Chairman from 1991 until May 1994. Mr. Dwight is
also a director of Applied Materials, Inc., Applied Magnetics
Corporation and Advanced Fibre Communications, Inc.
CHARLES J. ABBE DIRECTOR SINCE 1997
Mr. Abbe, age 57, is President (since November 1997) and Chief
Executive Officer (since April 1998) of OCLI. He served as Vice
President and General Manager of OCLI's Santa Rosa Division from April
1996 through October 1997 when he was appointed President, Chief
Operating Officer and director. Prior to joining OCLI, Mr. Abbe held
various senior management positions with Raychem Corporation from 1989
to 1996. From 1971 to 1989, he was employed at McKinsey & Company,
Inc., one of the pre-eminent management consulting firms in the world,
where he last served as senior partner at their San Francisco office.
DOUGLAS C. CHANCE DIRECTOR SINCE 1973
Mr. Chance, age 56, is President and Chief Executive Officer of Wyse
Technology. Mr. Chance served as President, Chief Executive Officer and
director of Octel Communications Corporation from October 1990 to
November 1993. Following his resignation as President and Chief
Executive Officer, Mr. Chance served as a consultant and director of
Octel Communications Corporation until November 1994 when he joined
Wyse Technology. Mr. Chance was Executive Vice President of the
Networked Systems Sector at Hewlett-Packard Company from May 1987 to
October 1990 and held various executive and administrative positions
with Hewlett-Packard Company from 1966 to 1987. Mr. Chance is also a
director of Centigram Communications Corporation.
SHOEI KATAOKA, D. SC., DR. ENG. DIRECTOR SINCE 1996
Dr. Kataoka, age 69, serves as an outside consultant for Sharp
Corporation in Japan following his retirement effective October 31,
1998 as corporate consultant where he has been retained since 1995. He
is also Chairman of the TC100 (multi-media) Committee of the
Electronics Industries Association of Japan. Dr. Kataoka was previously
Executive Director and Division General Manager of Sharp Corporation's
Tokyo Branch and held various senior level management and technical
positions with Sharp Corporation since joining them in 1985.
JOHN MCCULLOUGH DIRECTOR SINCE 1985
Mr. McCullough, age 65, is a director of OCLI. Effective April 1,
1998, Mr. McCullough retired as Vice President of OCLI. Mr. McCullough
served as Executive Vice President of OCLI from December 1988 to
January 1992 and as Senior Vice President of OCLI from 1978 to December
1988.
JULIAN SCHROEDER DIRECTOR SINCE 1989
Mr. Schroeder, age 51, is director of the high yield department,
international research, for Schroder & Co., Inc. in New York City. Mr.
Schroeder was President, Chief Executive Officer and Director of
Research of B D S Securities Corporation from 1995 to 1997. He served
as Vice President, Corporate Finance of B D S Securities Corporation
from March 1989 to May 1995. Mr. Schroeder was a principal of Schroeder
Consulting Company, a financial consulting firm, from January 1985 to
February 1989. Mr. Schroeder is also a director of Versus Technology.
RENN ZAPHIROPOULOS DIRECTOR SINCE 1988
Mr. Zaphiropoulos, age 72, is a frequent lecturer on management
subjects, with audiences at Harvard Business School, Columbia
University and Stanford University. Mr. Zaphiropoulos formerly was
President and Chief Executive Officer of Versatec, Inc. (a Xerox
Company), which he co-founded in 1969, and where he served until his
retirement on January 1, 1988. Mr. Zaphiropoulos is also a retired
corporate Vice President of Xerox Corporation where he served from 1984
<PAGE>
to January 1, 1988. Mr. Zaphiropoulos currently serves on the board of
directors of Osicom Technologies, Inc., CalComp Technology, Inc. as
well as private companies Enfish Technology, Visual Edge, Pacific
Access Computer, IES and NETsilicon, Inc.
B O A R D C O M P E N S A T I O N
RETAINER AND MEETING FEES
Directors who are employees of OCLI receive no additional compensation
other than their normal salary for serving on the board or its
committees.
Non-employee directors are paid an annual retainer of $12,000 and
$1,250 for each meeting attended. In addition, they are paid $500 for
participation in telephonic meetings of the board or its committees and
are reimbursed for out-of-pocket expenses.
In fiscal 1998, non-employee directors received $83,750 as a group in
retainer and meeting fees.
ANNUAL STOCK AWARD PROGRAM
Non-employee directors also participate in an Annual Stock Award
Program. Under this program, 1,000 shares of OCLI Common Stock, plus
payment of associated withholding taxes, are awarded annually to each
of the non-employee directors as part of their compensation for
services as directors. The term of the award program is five years
beginning April 1997 and expiring April 2002.
For fiscal 1998, Directors Chance, Kataoka, McCullough, Schroeder and
Zaphiropoulos were each awarded 1,000 shares of OCLI Common Stock,
which had a fair market value of $17,250.00 at the time of the award,
plus payment of related withholding taxes.
B O A R D M E E T I N G S A N D C O M M I T T E E S
During fiscal 1998, the Board held four regularly scheduled meetings.
Attendance by each director at the meetings of the Board and its
Committees during fiscal 1998 was 100%.
AUDIT COMMITTEE
The Audit Committee consists of three non-employee directors: Julian
Schroeder (Chairman), Douglas C. Chance and Renn Zaphiropoulos. The
Audit Committee meets independently with representatives of OCLI's
independent auditors and with representatives of Management. The
Committee recommends the engagement of OCLI's independent auditors,
consults with the auditors as to the adequacy of OCLI's internal
accounting procedures and reviews and approves OCLI's financial
statements and reports. The Audit Committee met three times in fiscal
1998.
COMPENSATION AND STOCK OPTION COMMITTEE
The Compensation and Stock Option Committee consists of three non-
employee directors: Renn Zaphiropoulos (Chairman), Douglas C. Chance
and Julian Schroeder. The Committee reviews and reports to the Board on
<PAGE>
recommended annual compensation for OCLI's officers, including
salaries, bonuses, Management Incentive Plan and other forms of
compensation and remuneration. The Committee is also responsible for
reviewing and reporting to the Board on incentive compensation plans,
stock option grants and the administration of OCLI's various incentive
compensation and stock option plans. The Committee met four times
during fiscal 1998.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
No member of the Compensation and Stock Option Committee is a former or
current officer or employee of OCLI or any of its subsidiaries.
EXECUTIVE COMMITTEE
The Executive Committee consists of three directors: Herbert M. Dwight,
Jr. (Chairman), Douglas C. Chance and Charles J. Abbe. OCLI's By-Laws
give the Executive Committee all the powers and authority of the Board
of Directors in the management of the business and affairs of OCLI,
except those powers which by law cannot be delegated by the Board of
Directors. The Executive Committee did not meet during fiscal 1998.
There is no nominating committee of the Board or any committee
performing the functions of such a committee.
B E N E F I C I A L O W N E R S H I P
The following table provides certain information as of the Record Date
regarding beneficial ownership of OCLI Common Stock by (i) each person
or group who, to OCLI's knowledge, beneficially owns more than 5% of
the outstanding shares of OCLI Common Stock; (ii) each director; (iii)
the Chief Executive Officer and each of OCLI's four other most highly
compensated executive officers (the "Named Executive Officers"); and
(iv) all directors and executive officers as a group:
DIRECTORS, OFFICERS AND 5% STOCKHOLDERS
- ---------------------------------------
COMMON STOCK
-------------------------------------
NUMBER OF SHARES PERCENT OF
BENEFICIALLY OWNED OUTSTANDING SHARES
------------------ ------------------
PRINCIPAL STOCKHOLDERS:
OCLI 401(k) Plan (1) 1,503,654 11.0%
c/o Optical Coating Laboratory, Inc.
2789 Northpoint Parkway
Santa Rosa, California 95407-7397
T. Rowe Price Associates, Inc. (2) 968,900 7.4%
100 East Pratt Street
Baltimore, MD 21202
Hakuto Co., Ltd. 657,440 5.1%
1-13 Shinjuku 1-Chome
Shinjuku-ku, Tokyo 150, Japan
Dimensional Fund Advisors Inc. (3) 625,080 5.0%
1299 Ocean Avenue, 11th Floor
Santa Monica, CA 90401
DIRECTORS (OTHER THAN THOSE INCLUDED IN
THE NAMED EXECUTIVE OFFICERS GROUP):
Douglas C. Chance 21,200 .2%
Shoei Kataoka 2,000 --
John McCullough(4) 30,106 .3%
Julian Schroeder 29,000 .2%
Renn Zaphiropoulos 10,000 .1%
NAMED EXECUTIVE OFFICERS:
Charles J. Abbe(5) 199,770 1.6%
Herbert M. Dwight, Jr.(6) 696,876 5.4%
Klaus F. Derge(7) 31,071 .3%
Joseph Zils(8) 54,186 .4%
Kenneth D. Pietrelli (9) 81,808 .7%
Stephen E. Myers(10) 38,599 .3%
All Directors and Executive Officers
as a group (16 persons)(11) 1,420,433 10.4%
____________________________________
(1) Under the terms of the Trust Agreement between the OCLI 401(k)
Plan (the "Plan") and T. Rowe Price, Trustee for the Plan (the
"Trustee"), the Trustee votes the shares held in the Plan upon
instructions given by individual participants as to their vested
shares, and in the discretion of the Trustee otherwise.
(2) These securities are owned by various individual and institutional
investors which T. Rowe Price Associates, Inc. (Price Associates)
serves as investment adviser with power to direct investments and/or
sole power to vote the securities. For purposes of the reporting
requirements of the Securities Exchange Act of 1934, Price Associates
is deemed to be a beneficial owner of such securities as of December
31, 1998; however, Price Associates expressly disclaims that it is, in
fact, the beneficial owner of such securities.
(3) Dimensional Fund Advisors Inc. ("Dimensional"), a registered
investment advisor, is deemed to have beneficial ownership of 625,080
shares of Optical Coating Laboratory, Inc. stock as of December 31,
1998, all of which shares are held in portfolios of DFA Investment
Dimensions Group Inc., a registered open-end investment company, or in
series of the DFA Investment Trust Company, a Delaware business trust,
or the DFA Group Trust and DFA Participation Group Trust, investment
vehicles for qualified employee benefit plans, all of which Dimensional
Fund Advisors Inc. serves as investment manager. Dimensional disclaims
beneficial ownership of all such shares.
(4) Includes 10,106 shares held for the benefit of Mr. McCullough in
the OCLI 401(k) Plan.
(5) Includes 189,770 shares under options exercisable within 60 days
of the Record Date for Mr. Abbe.
(6) Includes 29,334 shares under options exercisable within 60 days of
the Record Date and 9,913 shares held for the benefit of Mr. Dwight in
the OCLI 401(k) Plan.
<PAGE>
(7) Includes 12,834 shares under options exercisable within 60 days
of the Record Date for Mr. Derge.
(8) Includes 46,692 shares under options exercisable within 60 days
of the Record Date and 2,494 shares held for the benefit of Mr. Zils in
the OCLI 401(k) Plan.
(9) Includes 54,237 shares under options exercisable within 60 days
of the Record Date and 10,626 shares held for the benefit of Mr.
Pietrelli under the OCLI 401(k) Plan.
(10) Includes 38,433 shares under options exercisable within 60 days
of the Record Date and 166 shares held for the benefit of Mr. Myers
under the OCLI 401(k) Plan.
(11) Includes 569,061 shares under options exercisable within 60 days
of the Record Date and 52,936 shares held for the benefit of all
officers and directors in the OCLI 401(k) Plan.
E X E C U T I V E C O M P E N S A T I O N
I. SUMMARY COMPENSATION TABLE
The following table discloses compensation received by OCLI's Chief
Executive Officer(s) and the four other most highly paid executive
officers for the three fiscal years ended October 31, 1998:
LONG-TERM
ANNUAL COMPENSATION COMP. AWARDS
- ------------------------- ------------
NAME & PRINCIPAL SALARY BONUS OTHER ANNUAL OPTIONS ALL OTHER
POSITION YEAR ($) ($) COMP.($)(1) (#) COMP. (2)
- ---------------- ---- -------- -------- ------------ ------- ---------
Charles J. Abbe 1998 $279,232 $ 81,273 $ 0 100,000 $ 3,998
President and 1997 199,992 59,725 11,822 75,000 3,271
CEO 1996 111,534 -- -- 150,000 1,817
Herbert M. Dwight, Jr.
Retired CEO 1998 $207,692 $124,185 $ 45 -- $ 9,286
1997 325,998 128,117 1,710 -- 14,058
1996 325,998 -- 4,018 100,000 12,897
Klaus F. Derge(3) 1998 $195,600 $46,746 $ 2,994 10,000 --
VP, Europe 1997 183,321 24,380 2,687 -- --
1996 208,134 -- 3,087 10,000 --
Joseph Zils(4) 1998 $228,883 $59,150 $ 1,807 10,000 $ 10,913
Vice President, 1997 162,011 48,323 4,193 25,000 2,312
Legal Counsel & 1996 150,389 5,000 1,515 10,000 2,802
Corp. Secretary
Kenneth D. Pietrelli
VP, Corp Svcs 1998 $157,694 $47,393 $ 403 3,000 $ 4,592
1997 150,009 49,970 4,510 25,000 2,822
1996 132,246 -- 3,587 15,000 12,500
Stephen E. Myers(5)
VP & General 1998 $161,541 42,356 $30,785 20,000 $ 7,207
Manager, Info. 1997 147,125 10,293 2,000 40,000 1,352
Industries Div. 1996 -- -- -- -- --
_________________
(1) Included for each of the Named Executive Officers is a medical
expense reimbursement benefit paid in fiscal 1998, 1997 and 1996.
(2) For fiscal 1998, 1997 and 1996 for each of the Named Executive
Officers, with the exception of Mr. Derge, is a life insurance benefit
and matching contributions made by OCLI under the OCLI 401(k)/ESOP Plan
LIFE INSURANCE OCLI 401(K)/ESOP
FOR FISCAL 1998: PREMIUM CONTRIBUTION
------- ------------
Charles J. Abbe $3,998 --
Herbert M. Dwight, Jr. 6,886 $2,400
Klaus F. Derge -- --
Joseph Zils 912 1,636
Kenneth D. Pietrelli 1,419 3,173
Stephen E. Myers 2,371 2,932
(3) Mr. Derge's compensation was paid in Deutsche marks. For
presentation in the Proxy Statement, his compensation has been
converted to U.S. dollars. The exchange rates used for fiscal years
1998, 1997 and 1996 were $.60, $.59 and $.67, respectively.
(4) In fiscal 1998, Mr. Zils received an automobile allowance of
$8,365, which is included under "All Other Compensation".
(5) Mr. Myers received a payout of $1,904 for vacation hours accrued
prior to his becoming an executive officer, which is reflected under
"All Other Compensation". Mr. Myers also received $30,441 for
reimbursement of relocation expenses in fiscal 1998, which is included
under "Annual Compensation".
II. OPTION GRANTS IN LAST FISCAL YEAR TABLE
The following table sets forth certain information regarding stock
options granted during fiscal year 1998 to the Named Executive
officers. 5% and 10% assumed rates of appreciation are stipulated by
the Securities and Exchange Commission. There is no assurance provided
to any executive officer or any other holder of OCLI's securities that
the actual stock price appreciation over the option term will be at the
assumed levels or at any other defined level. Unless the market price
of OCLI's Common Stock does, in fact, appreciate over the option term,
no value will be realized from the option grants.
INDIVIDUAL GRANTS
----------------------------------------------
POTENTIAL
REALIABLE
NUMBER OF PERCENT OF VALUE AT
SECURITIES TOTAL OPTIONS ASSUMED RATES
UNDERLYING GRANTED TO OF STOCK PRICE
OPTIONS OPTIONEES EXERCISE OR EXPIR. APPRECIATION
NAME GRANTED(1) FY (2) BASE PRICE DATE FOR OPTION TERM
- ---- ---------- ------------- ----------- ------ ---------------
(#) ($/SHARE) 5% 10%
Charles J. Abbe 100,000 19.8% $14.33 12/16/02 $395,773 $874,556
Herbert M. Dwight, Jr.-- -- -- -- -- --
Klaus F. Derge 10,000 2.0% $14.33 12/16/02 $ 39,577 $ 87,456
Joseph Zils 10,000 2.0% $14.33 12/16/02 $ 39,577 $ 87,456
Kenneth D. Pietrelli
3,000 .6% $14.33 12/16/02 $ 11,873 $ 26,237
Stephen E. Myers 20,000 4.0% $14.33 12/16/02 $ 79,155 $174,911
(1) The option awards shown in the above table Were granted under OCLI's
1996 Incentive Compensation Plan. The options vest in thirds over the first
three years of the grant with one-third vesting twelve months from the date
of grant and the remaining two-thirds vesting on a monthly basis over the
next twenty-four months. The options have a maximum term of five years.
(2) OCLI granted options totaling 506,000 shares to employees, including
the Named Executive Officers, in fiscal 1998.
III. OPTION EXERCISES AND YEAR-END VALUE TABLE
The following table provides information on option exercises in fiscal
1998 by the Named Executive Officers and the value of such officers'
unexercised options at October 31, 1998.
<PAGE>
VALUE OF
NUMBER OF UNEXERCISED
SEC. UNDERLYING IN-THE-MONEY
UNEXER. OPTIONS OPTIONS AT
AT FY END FY END(1)
SHARES ACQUIRED VALUE EXERCISABLE/ EXERCISABLE/
NAME ON EXERCISE (#) REALIZED ($) UNEXERCISABLE UNEXERCISABLE
- ---------- --------------- ------------ ------------- -------------
(#) ($)
Charles J. Abbe 0 $ 0.0 116,958/ $789,878/
208,042 $968,247
Herbert M. Dwight, Jr.
770,666 $4,342,832 18,667/ $109,669/
10,667 $ 62,669
Klaus F. Derge 15,000 $ 115,223 9,000/ $ 52,875/
11,000 $ 28,875
Joseph Zils 10,000 $ 72,601 38,066/ $298,666/
21,934 $ 99,022
Kenneth D. Pietrelli 17,500 $ 134,123 47,883/ $378,920/
15,117 $ 83,605
Stephen E. Myers 0 $ 0.0 24,600/ $156,825/
35,400 $144,175
(1) OCLI's fiscal year ended October 31, 1998. The closing price of
OCLI's Common Stock as reported on the Nasdaq National Market System on
October 30, 1998, the last trading day in the month, was $16.625 per
share.
R E P O R T O F T H E C O M P E N S A T I O N A N D
S T O C K O P T I O N C O M M I T T E E
WHAT IS OUR COMPENSATION PHILOSOPHY?
The Compensation and Stock Option Committee has two principal
objectives in determining executive compensation policies. The first
objective is to attract, develop, reward and retain key executive
talent. The second objective is to motivate executive officers to
perform to the best of their abilities and to achieve short-term and
long-term corporate objectives that will contribute to the overall goal
of enhancing stockholder value. The Compensation and Stock Option
Committee has adopted the following executive compensation policies in
the furtherance of these objectives:
.OCLI will compensate competitively with the practices of other
leading technology companies of similar size.
.Performance at the corporate, division and individual executive
officer level will determine the bonus portion of compensation.
.The attainment of realizable but challenging objectives will
determine performance-based compensation.
.OCLI will encourage executive officers to hold substantial,
long-term equity stakes in OCLI so that the interests of
executive officers will be aligned with the interests of
stockholders. Accordingly, stock or stock options will
constitute a portion of compensation.
Each of the foregoing policies assists the Compensation and Stock
Option Committee in the determination of appropriate compensation for
its executive officers. The policy relating to competitive
compensation with other leading companies provides one objective
standard with which OCLI's compensation practices can be compared.
OCLI's emphasis on stock based performance provides the single most
<PAGE>
important link between executive compensation, stockholder return and
Company performance since the effects of changes in OCLI's performance
are ultimately reflected in the market value of OCLI's stock.
HOW THE ELEMENTS OF EXECUTIVE COMPENSATION ARE DETERMINED:
. HOW ARE BASE SALARIES DETERMINED?
In establishing base salaries for OCLI's executive officers, the
Committee compares salary levels in effect for comparable positions
with other U.S. technology companies of similar size using data from
the Radford Benchmark Salary Survey and the American Electronics
Association (AEA) Executive Compensation Survey. In addition, the
Committee gives consideration to the specific functional
responsibilities of the position. OCLI's executive officers' base
salaries are currently set near the median range of the comparison
groups for officers.
The Committee believes that the comparison of base compensation for
executive officers to the indices of the Radford Benchmark Salary
Survey and AEA Executive Compensation Survey groups is applicable since
OCLI competes against this broader group of companies for executive
management talent. The Committee believes that OCLI's most direct
competitors for executive talent are not necessarily just the companies
that would be included in a peer group established to compare
stockholder returns. In recruiting executive management personnel, OCLI
searches for executives with experience in innovative and advanced
management practices of outstanding companies in different industries.
Thus, the compensation comparison groups are not the same as the peer
group companies used in the Comparison of Five Year Cumulative Total
Return graph included in this Proxy Statement.
The Committee reviews executive officers' base salaries annually, and
adjustments are made on the basis of the executive officers' personal
performance for the year, the overall financial performance of OCLI and
changes in the general level of base salaries of persons in comparable
positions in the comparison groups surveyed. In determining increases
in base salaries for executive officers, the Committee places the
greatest weight on the individual's personal performance against
previously established objectives and the performance of OCLI for the
fiscal year. For fiscal 1998, the Committee established a company-wide
wage and salary budget consisting of an average of 4.5% for merit
increases.
. HOW ARE BONUSES DETERMINED?
OCLI's executive officers and managers participate in a Management
Incentive Plan approved annually by the Compensation and Stock Option
Committee. The objectives of the 1998 Management Incentive Plan (the
"Plan" or "1998 Plan") were established:
_ to motivate key managers to achieve pre-established financial and
operational objectives for OCLI.
_ to reward key managers and employees who contribute significantly
towards the achievement of OCLI's financial and operational
objectives.
_ to stay within the fiscal 1998 budget for meeting plan at target.
Under the 1998 Plan, the Compensation and Stock Option Committee
approved a quantitative pool established as a function of the
<PAGE>
participants' salaries factored by the target percentage of base salary
for each level. The pool was generated using the consolidated company
operating profit (COP) performance versus plan for half of the award
and return on net assets (RONA) performance versus plan for the other
half of the award. The qualitative portion of the pool was established
at 20% of the targeted annual awards based on an individual's
performance.
Performance levels attained in the following areas determined the
extent to which participants of the bonus plan were eligible for bonus
awards:
a) OCLI Consolidated COP Performance Awards -- OCLI must have
achieved a minimum of 80% of planned COP performance for participants
to qualify for awards in this area of the plan.
b) Division COP Performance Awards -- OCLI's Divisions must
have achieved a minimum of 80% of planned COP performance for
participants to qualify for awards in this area of the plan.
c) OCLI Consolidated RONA Performance Awards -- OCLI must have
achieved a minimum of 80% of planned RONA performance for participants
to qualify for awards in this area of the Plan. OCLI Consolidated RONA
Performance was calculated by dividing net after tax earnings by
average assets.
d) Division RONA Performance Awards -- OCLI's Divisions must
have achieved a minimum of 80% of planned RONA performance to qualify
for awards in this area of the Plan. Division ROA Performance for the
bonus year was calculated by dividing each Division's consolidated net
after tax earnings by the average assets of the Division.
e) Individual Qualitative Performance Awards -- Individual
performance is defined as each participant's performance rating for
the bonus year. Individual performance awards are separate from
payments based upon COP or RONA performance and may be paid in part
or in whole based on OCLI's and the Divisions' performance and/or
ability to pay. The Individual Qualitative Performance bonus is
a maximum of 20% of the planned target payout. Any unallocated
amounts go to a discretionary pool to be allocated back to Plan
participants, and all other employees, or rolled over into the
subsequent bonus year. Unallocated amounts are not rolled over
for more than one year.
. HOW ARE STOCK OPTION AWARDS DETERMINED?
OCLI's stock option program was established to increase the commitment
of employees to the success of OCLI, to align their interests with
those of other Stockholders and to provide incentives to them for
superior performance. Annual stock option grants to officers and
employees, other than the chief executive officer, are approximately 3%
of total outstanding shares, and are reviewed by the Compensation and
Stock Option Committee. Recommended awards to executive officers, and
other eligible participants (the "Participants"), are calculated by
multiplying the mid-point of the Participant's salary range by a
constant factor, which results in an "option dollar value." The option
dollar value is then adjusted for the number of shares available for
grant under the option Plans and to meet the guidelines of OCLI's Stock
Option Policy. The actual number of options granted to a Participant is
adjusted by evaluating the potential impact of the individual's
performance on the overall performance of the Company. OCLI also uses
stock option awards when recruiting for certain positions.
In determining stock option awards for OCLI's chief executive officer,
the Compensation and Stock Option Committee awards a significantly
<PAGE>
higher number of stock options than policy guidelines suggest in order
to increase his ownership and long-term commitment to OCLI.
OCLI's 1999 Incentive Compensation Plan (the "1999 Plan"), under which
future stock options may be granted to officers and directors of the
Company, is intended to be more broadly based than past stock option
plans in that all employees are eligible to receive stock option grants
and, in any event, at least 50% of all stock awards granted under the
1999 Plan must be granted to employees who are not officers or
directors of the Company.
. HOW WAS THE COMPENSATION OF OUR CEOS DETERMINED?
During fiscal 1998, Herbert M. Dwight, Jr., OCLI's President and Chief
Executive Officer since 1991 announced his retirement. The Board of
Directors appointed Charles J. Abbe as President and Chief Executive
Officer effective April 1, 1998. Mr. Dwight has retained his position
as Chairman of the Board of Directors of OCLI.
At the beginning of fiscal 1998, the Committee members voted to
increase Mr. Dwight's base salary to $350,000, bringing his salary in
line with Radford and AEA compensation survey data of individuals in
similar positions and similar size companies as OCLI. No stock options
were awarded to Mr. Dwight in fiscal 1998. In April 1998, the Committee
reviewed Mr. Dwight's compensation following his announcement to retire
as Chief Executive Officer. The Committee looked at Mr. Dwight's
continuing roles as Chairman of the Board of Directors of OCLI and
OCLI's subsidiary, Flex Products, Inc. (Flex), and at specific
assignments Mr. Dwight agreed to undertake on behalf of OCLI and Flex.
The Committee elected to pay Mr. Dwight a monthly salary of $8,000 per
month beginning April 1, 1998. The Committee also elected to preserve
Mr. Dwight's medical coverage under OCLI's medical plans and to provide
him with $10,000 annual coverage under a special medical expense
reimbursement program. The Committee also determined that Mr. Dwight
would be eligible to participate in the 1998 Management Incentive Plan
with a bonus opportunity of 35% based on the annual salary awarded to
him at the beginning of fiscal 1998.
Also during fiscal 1998, the Committee approved an arrangement with Mr.
Dwight for the exercise of his vested stock options totaling 770,666
shares of the common stock of the Company. The Company was issued a
full recourse promissory note by Mr. Dwight for payment of the $5.8
million exercise price of the options, and Mr. Dwight turned in 117,296
shares for payment of withholding taxes. Mr. Dwight repaid the
promissory note, with interest at 7.5%, in fiscal 1998.
Mr. Abbe was appointed Chief Executive Officer of OCLI on April 1,
1998. The Committee established Mr. Abbe's annual base salary for
fiscal 1998 at $315,000 effective with his appointment. The Committee
placed Mr. Abbe in the 35% bonus range under OCLI's Management
Incentive Plan beginning April 1, 1998. Mr. Abbe receives a special
medical expense reimbursement annual benefit of up to $2,000 and
payment of an excess life insurance policy. Mr. Abbe also participates
in the standard employee benefit programs of OCLI.
<PAGE>
COMPENSATION AND STOCK OPTION COMMITTEE
Renn Zaphiropoulos, Chairman
Douglas C. Chance
Julian Schroeder
F I V E - Y E A R P E R F O R M A N C E G R A P H
The graph below compares the cumulative total return of OCLI's Common
Stock with the cumulative total return of the Nasdaq Stock Market
(U.S.) Index and a Peer Group. In establishing the Peer Group, OCLI has
selected public companies which are competitors or manufacture products
or serve markets in which OCLI participates and which have a market
valuation similar in range to that of OCLI's. The Peer Group consists
of Donnelly Corporation, which is traded on the American Stock
Exchange, and Coherent, Inc., Newport Corporation, Southwall
Technologies, Inc. and Zygo Corporation, all of which are traded on the
Nasdaq National Market System.
COMPARISON OF FIVE YEAR CUMULATIVE TOTAL RETURN*
Oct-93 Oct-94 Oct-95 Oct-96 Oct-97 Oct-98
OCLI 100.00 91.83 203.27 170.40 190.20 252.34
Peer Group 100.00 100.42 173.87 217.74 281.86 167.99
Nasdaq Stock
Market (U.S.) 100.00 100.55 135.43 159.82 210.34 235.87
*$100 Invested on 10/31/93 in stock or index-including reinvestment
of dividends. Information presented is as of the end of each fiscal
year ended October 31.
O T H E R I N F O R M A T I O N
CERTAIN TRANSACTIONS
OCLI's subsidiary in Germany, OCLI Optical Coating Laboratory GmbH, is
located in an office suite in Reinheim, Germany, that is leased by Mr.
Klaus F. Derge, OCLI's Vice President, Europe, for Mr. Derge's personal
business use. OCLI utilizes the office space and pays Mr. Derge for its
occupancy and for office services. Under this arrangement, OCLI paid
Mr. Derge approximately $99,000 in fiscal 1998. It is the Company's
opinion that the terms of this arrangement are as fair as could have
been obtained from unaffiliated persons.
During fiscal 1998, Herbert M. Dwight, Jr., the Company's Chairman of
the Board and former Chief Executive Officer exercised options totaling
770,666 shares of common stock of the Company and turned in 117,296
shares for payment of withholding taxes. The $5.8 million exercise
price of the options was paid with a full recourse promissory note to
the Company that was repaid, with interest at 7.5%, in fiscal 1998.
INDEMNIFICATION AGREEMENTS
OCLI has entered into indemnification agreements with each of its
directors and officers. The agreements require OCLI to indemnify the
directors and officers to the full extent permitted by Delaware law if
certain claims are brought against them in their capacities with OCLI.
CHANGE IN CONTROL EMPLOYMENT AGREEMENTS AND SEVERANCE ARRANGEMENTS
Effective November 20, 1997, OCLI entered into Change in Control
Agreements (the "Agreements") with the executive officers of OCLI.
Similar Agreements have been in effect since 1987. The Agreements have
a two-year term from November 20, 1997 to November 20, 1999. Each of
<PAGE>
the Named Executive Officers and all other executive officers of OCLI
are currently covered by these Agreements. The Agreements, among other
things, provide that the executive officer has the right to terminate
his employment at any time during the period beginning three months
after the occurrence of a "Change in Control"1 or a "Hostile Change in
Control"2 (hereinafter "Change in Control"), as defined below, and
ending twelve months after the occurrence of a Change in Control and
upon such termination shall be paid an amount equal to eighteen months
of his maximum salary in effect within twelve months of the
termination. Except in the case of a termination by OCLI for cause or a
voluntary termination, if at any time within two years after the
occurrence of a Change in Control either (i) OCLI terminates the
employment of an executive officer who is party to an Agreement or (ii)
such executive officer terminates his employment following a
"Constructive Dismissal"3 by OCLI, then that executive officer shall be
paid an amount equal to thirty-six months of the executive officer's
maximum salary in effect within twelve months of termination. The
Employment Agreements provide that no amount shall be paid under the
Change in Control Agreements which would be classified as an "excess
parachute payment" within the meaning of Section 280G(b)(1) of the
Internal Revenue Code. The Agreements also provide that in the event of
a Change in Control of OCLI, all unvested options held by the executive
officer will immediately vest.
ARRANGEMENT WITH JOHN MCCULLOUGH
Effective May 1, 1998, John McCullough, retired Vice President of OCLI,
entered into an arrangement with OCLI under which he will continue to
serve as a director of OCLI and of Flex, will continue to serve as a
member of the Flex Strategic Technical Advisory Committee ("STAC
Committee") and will be retained as a consultant to work on special
projects for OCLI and Flex. Under the arrangement, Mr. McCullough will
receive the standard retainer fees, annual stock award and meeting fees
that are paid to OCLI's outside directors. In addition, he will be paid
a retainer fee of $1,000 per month from OCLI for his services as a
director of Flex and member of the STAC Committee. From this amount,
premiums for medical, dental and vision insurance will be deducted.
The arrangement also provides for compensation at the rate of $160
hour, or $1,600 per day, whichever is less, for any variable tasks that
OCLI retains Mr. McCullough to perform. Mr. McCullough will also
receive $250,000 coverage under OCLI's Business Travel Accident
Insurance policy.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities and Exchange Act of 1934, as amended
(the "Exchange Act") requires OCLI's executive officers, its directors
and persons who own more than ten percent of OCLI Common Stock to file
reports of ownership on Form 3 and changes in ownership on Forms 4 and
5 with the Securities and Exchange Commission (the "SEC").
The Company believes that during 1998, all filings of its officers,
directors and 10% stockholders with the SEC complied with requirements
for reporting ownership and changes in ownership of OCLI Common Stock
pursuant to Section 16(a) of the Exchange Act, except that Charles J.
Abbe, James W. Seeser and Kenneth D. Pietrelli each filed one late
report.
<PAGE>
_______________
(1) "Change in Control" is defined in the Agreements to mean the
occurrence of any of the events described in subparagraphs (i) or (ii)
below:
(i) The acquisition of more than fifty percent (50%) of the
shares of Common Stock of OCLI then outstanding by an Acquiring Person,
alone or together with such person's Affiliates or Associates,
including any such acquisitions pursuant to a "reorganization" within
the meaning of Section 181 of the California Corporations Code; or
(ii) The failure of a majority of the members of the Board of
Directors of OCLI to be Continuing Directors.
(2) "Hostile Change in Control" is defined in the Agreements to mean the
acquisition of more than twenty percent (20%) of the shares of Common
Stock of OCLI then outstanding by an Acquiring Person, alone or
together with such person's Affiliates or Associates, including any
such acquisitions pursuant to a "reorganization" within the meaning of
Section 181 of the California Corporations Code, and (B) the adoption
by OCLI's Board of Directors of a resolution (i) disapproving the
acquisition or (ii) declaring operative the provisions of this
Agreement pertaining to a Hostile Change in Control.
(3) "Constructive Dismissal" shall occur if OCLI demotes an employee,
reduces an employee's duties, decreases an employee's benefits or
compensation or relocates an employee to a location outside of the
community where the employee is employed as of the date of a Change in
Control.
O T H E R B U S I N E S S
Management does not intend to bring any other business before the
meeting, and so far as is known to Management, no matters are to be
brought before the meeting except as specified in the notice of the
meeting. However, as to any other business that may properly come
before the meeting, it is intended that proxies in the form enclosed
will be voted in respect thereof, in accordance with the judgment of
the persons voting such proxies.
March 4, 1999
Santa Rosa, California
By Order of the Board of Directors,
Joseph Zils
Corporate Secretary
<PAGE>
APPENDIX A
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O P T I C A L C O A T I N G L A B O R A T O R Y, I N C .
1 9 9 9 E M P L O Y E E S T O C K P U R C H A S E P L A N
The following constitute the provisions of the 1999 Employee Stock
Purchase Plan of Optical Coating Laboratory, Inc. ("OCLI").
1. PURPOSE. The purpose of the Plan is to provide employees of
OCLI and its Designated Subsidiaries with an opportunity to purchase
Common Stock through accumulated payroll deductions. It is the
intention of OCLI to have the Plan qualify as an "Employee Stock
Purchase Plan" under Section 423 of the Internal Revenue Code of 1986,
as amended. The provisions of the Plan, accordingly, shall be construed
so as to extend and limit participation in a manner consistent with the
requirements of that section of the Code.
2. DEFINITIONS.
(a) "Board" shall mean the Board of Directors of OCLI.
(b) "Code" shall mean the Internal Revenue Code of 1986, as amended
(c) "Committee" shall mean a committee of members of the Board
appointed by the Board who are not eligible to participate in the Plan.
(d) "Common Stock" shall mean OCLI Common Stock.
(e) "Company" shall mean OCLI, a Delaware corporation.
(f) "Compensation" shall mean all salary, wages (including
amounts elected to be deferred by the employee, that would otherwise
have been paid, under any cash or deferred arrangement established by
the Company), overtime pay, commissions, bonuses and any other
remuneration paid directly to the employee, but excluding profit
sharing, the cost of employee benefits paid for by the Company,
education or tuition reimbursements, imputed income arising under any
Company group insurance or benefit program, traveling expenses,
business and moving expense reimbursements, income recognized in
connection with stock options, contributions made by the Company under
any employee benefit plan, and similar items of compensation.
(g) "Designated Subsidiary" shall mean any Subsidiary which
has been designated by the Board or the Committee from time to time in
its sole discretion as eligible to participate in the Plan.
(h) "Employee" shall mean any individual who is an Employee of
the Company or a Designated Subsidiary for tax purposes whose customary
employment is at least twenty (20) hours per week. For purposes of the
Plan, the employment relationship shall be treated as continuing intact
while the individual is on sick leave or other leave of absence
approved by the Company.
(i) "Enrollment Date" shall mean the first day of each Offering
Period.
(j) "Exercise Date" shall mean the last day of each Purchase
Period.
(k) "Fair Market Value" on a given date shall be determined by
the Committee or Board in its discretion based on the closing price of
the Common Stock for such date (or, in the event that the Common Stock
is not traded on such date, on the immediately preceding trading date),
as reported by the Nasdaq National Market System or, if such price is
not reported, the mean of the bid and asked prices per share of the
Common Stock as reported by Nasdaq or, in the event the Common Stock is
listed on a stock exchange, the Fair Market Value per share shall be
the closing price on such exchange on such date (or, in the event that
the Common Stock is not traded on such date, on the immediately
preceding trading date), as reported in The Wall Street Journal.
(l) "Offering Periods" shall mean the periods of approximately
twelve (12) months during which an option granted pursuant to the Plan
may be exercised, commencing on the first Trading Day on or after June
1 and December 1 of each year and terminating on the last Trading Day
in the periods ending twelve months later (May 31 and November 30,
respectively). The duration and timing of Offering Periods may be
changed pursuant to Section 4 of this Plan.
(m) "Plan" shall mean this Employee Stock Purchase Plan.
(n) "Purchase Price" shall mean an amount equal to 85% of the
Fair Market Value of a share of Common Stock on the Enrollment Date or
on the Exercise Date, whichever is lower.
(o) "Purchase Period" shall mean the approximately six month
period commencing after one Exercise Date and ending with the next
Exercise Date. Purchase Periods under the Plan will end on the last
Trading Day in the period ending on or about November 30 and May 31
each year.
(p) "Reserves" shall mean the number of shares of Common Stock
covered by each option under the Plan which have not yet been exercised
and the number of shares of Common Stock which have been authorized for
issuance under the Plan but not yet placed under option.
(q) "Subsidiary" shall mean a corporation, domestic or foreign,
of which not less than 50% of the voting shares are held by the Company
or a Subsidiary, whether or not such corporation now exists or is
hereafter organized or acquired by the Company or a Subsidiary.
(r) "Trading Day" shall mean a day on which the Nasdaq is open
for trading.
<PAGE>
3. ELIGIBILITY.
(a) Any Employee who shall be employed by the Company or a
Designated Subsidiary on a given Enrollment Date shall be eligible to
participate in the Plan.
(b) Any provisions of the Plan to the contrary notwithstanding,
no Employee shall be granted an option under the Plan (i) to the extent
that, immediately after the grant, such Employee (or any other person
whose stock would be attributed to such Employee pursuant to Section
424(d) of the Code) would own capital stock of the Company and/or hold
outstanding options to purchase such stock possessing five percent (5%)
or more of the total combined voting power or value of all classes of
the capital stock of the Company or of any Subsidiary, or (ii) to the
extent that his or her rights to purchase stock under all employee
stock purchase plans of the Company and its subsidiaries accrues at a
rate which exceeds twenty-five thousand dollars ($25,000) worth of
stock (determined at the fair market value of the shares at the time
such option is granted) for each calendar year in which such option is
outstanding at any time.
4. OFFERING PERIODS. The Plan shall be implemented by consecutive,
overlapping Offering Periods with a new Offering Period commencing on
the first Trading Day on or after June 1 and December 1 each year, or
on such other date as the Board or the Committee shall determine, and
continuing thereafter until terminated in accordance with Section 20
hereof. The Board or the Committee shall have the power to change the
duration of Offering Periods (including the commencement dates thereof)
with respect to future offerings without stockholder approval if such
change is announced at least five (5) days prior to the scheduled
beginning of the first Offering Period to be affected thereafter.
5. PARTICIPATION.
(a) An eligible Employee may become a participant in the Plan
by completing a subscription agreement authorizing payroll deductions
<PAGE>
in the form provided by the Company and filing it with the Company's
Office of Human Resources prior to the applicable Enrollment Date.
(b) Payroll deductions for a participant shall commence on the
first payroll following the Enrollment Date and shall end on the last
payroll in the Offering Period to which such authorization is
applicable, unless sooner terminated by the participant as provided in
Section 10 hereof.
6. PAYROLL DEDUCTIONS.
(a) At the time a participant files his or her subscription
agreement, he or she shall elect to have payroll deductions made on
each pay day during the Offering Period in an amount not exceeding ten
percent (10%) of the Compensation which he or she receives on each pay
day during the Offering Period; provided, however, that the aggregate
of such payroll deductions during the Offering Period shall not exceed
ten percent (10%) of the participant's aggregate Compensation during
said Offering Period.
(b) All payroll deductions made for a participant shall be
credited to his or her account under the Plan and shall be withheld in
whole percentages only. A participant may not make any additional
payments into such account.
(c) A participant may discontinue his or her participation in
the Plan as provided in Section 10 hereof, or may increase or decrease
the rate of his or her payroll deductions during the Offering Period by
completing or filing with the Company a new subscription agreement
authorizing a change in payroll deduction rate. The Company may, in its
discretion, limit the number of participation rate changes during any
Purchase Period. The change in rate shall be effective with the first
full payroll period following five (5) business days after the
Company's receipt of the new subscription agreement unless the Company
elects to process a given change in participation more quickly. A
participant's subscription agreement shall remain in effect for
successive Purchase Periods unless terminated as provided in Section 10
hereof.
(d) Notwithstanding the foregoing, to the extent necessary to
comply with Section 423(b)(3) and (8) of the Code and Section 3(b)
hereof, a participant's payroll deductions may be decreased to zero
percent (0%) at any time during a Purchase Period. Payroll deductions
shall recommence at the rate provided in such participant's
subscription agreement at the beginning of the first Purchase Period
which is scheduled to end in the following calendar year, unless
terminated by the participant as provided in Section 10 hereof.
(e) At the time the option is exercised, in whole or in part,
or at the time some or all of the Company's Common Stock issued under
the Plan is disposed of, the participant must make adequate provision
for the Company's federal, state, or other tax withholding obligations,
if any, which arise upon the exercise of the option or the disposition
of the Common Stock. At any time, the Company may, but shall not be
obligated to, withhold from the participant's compensation the amount
necessary for the Company to meet applicable withholding obligations,
including any withholding required to make available to the Company any
tax deductions or benefits attributable to sale or early disposition of
Common Stock by the Employee.
7. GRANT OF OPTION. On the Enrollment Date of each Offering
Period, each eligible Employee participating in such Offering Period
shall be granted an option to purchase on each Exercise Date during
such Offering Period (at the applicable Purchase Price) up to a number
<PAGE>
of shares of the Company's Common Stock determined by dividing such
Employee's payroll deductions accumulated prior to such Exercise Date
and retained in the participant's account as of the Exercise Date by
the applicable Purchase Price; provided that such purchase shall be
subject to the limitations set forth in Sections 3(b) and 12 hereof.
Exercise of the option shall occur as provided in Section 8 hereof,
unless the participant has withdrawn pursuant to Section 10 hereof.
8. EXERCISE OF OPTION. Unless a participant withdraws from the
Plan as provided in Section 10 hereof, his or her option for the
purchase of shares shall be exercised automatically on the Exercise
Date, and the maximum number of full shares subject to option shall be
purchased for such participant at the applicable Purchase Price with
the accumulated payroll deductions in his or her account. No fractional
shares shall be purchased; any payroll deductions accumulated in a
participant's account which are not sufficient to purchase a full share
shall be retained in the participant's account for the subsequent
Purchase Period of Offering Period, subject to earlier withdrawal by
the participant as provided in Section 10 hereof. Any other monies left
over in a participant's account after the Exercise Date shall be
returned to the participant. During a participant's lifetime, a
participant's option to purchase shares hereunder is exercisable only
by him or her.
9. DELIVERY. As promptly as practicable after each Exercise Date
on which a purchase of shares occurs, the Company shall arrange the
delivery to each participant (or his or her brokerage account), of a
certificate representing the shares purchased upon exercise of his or
her option, or the Company shall establish some other means for such
participants to receive ownership of the
shares.
10. WITHDRAWAL.
(a) A participant may withdraw all but not less than all the
payroll deductions credited to his or her account and not yet used to
exercise his or her option under the Plan at any time by giving written
notice to the Company in the form to be provided by the Company. All of
the participant's payroll deductions credited to his or her account
shall be paid to such participant promptly after receipt of notice of
withdrawal and such participant's option for the Offering Period shall
be automatically terminated, and no further payroll deductions for the
purchase of shares shall be made for such Offering Period. If a
participant withdraws from an Offering Period, payroll deductions shall
not resume at the beginning of the succeeding Offering Period unless
the participant delivers to the Company a new subscription agreement.
(b) A participant's withdrawal from an Offering Period shall
not have any effect upon his or her eligibility to participate in any
similar plan which may hereafter be adopted by the Company or in
succeeding Offering Periods which commence after the termination of the
Offering Period from which the participant withdraws.
11. TERMINATION OF EMPLOYMENT. Upon a participant's ceasing to be
an Employee, for any reason, he or she shall be deemed to have elected
to withdraw from the Plan and the payroll deductions credited to such
participant's account during the Offering Period but not yet used to
exercise the option shall be returned to such participant or, in the
case of his or her death, to the person or persons entitled thereto
<PAGE>
under Section 15 hereof, and such participant's option shall be
automatically terminated.
12. INTEREST. No interest shall accrue on the payroll deductions
of a participant in the Plan.
13. STOCK.
(a) The maximum number of shares of the Company's Common Stock
which shall be made available for sale under the Plan shall be 400,000
shares, subject to adjustment upon changes in capitalization of the
Company as provided in Section 19 hereof. If, on a given Exercise Date,
the number of shares with respect to which options are to be exercised
exceeds the number of shares then available under the Plan, the Company
shall make a pro rata allocation of the shares remaining available for
purchase in as uniform a manner as shall be practicable and as it shall
determine to be equitable.
(b) The participant shall have no interest or voting right in
shares covered by his option until such option has been exercised.
(c) Shares to be delivered to a participant under the Plan
shall be registered in the name of the participant or in the name of
the participant and his or her spouse.
14. ADMINISTRATION. The Board or the Committee shall administer
the Plan. The Board or the Committee shall have full and exclusive
discretionary authority to construe, interpret and apply the terms of
the Plan, to determine eligibility and to adjudicate all disputed
claims filed under the Plan. Every finding, decision and determination
made by the Board or the Committee shall, to the full extent permitted
by law, be final and binding upon all parties.
15. DESIGNATION OF BENEFICIARY.
(a) A participant may file a written designation of a
beneficiary who is to receive any shares and cash, if any, from the
participant's account under the Plan in the event of such participant's
death subsequent to an Exercise Date on which the option is exercised
but prior to delivery to such participant of such shares and cash. In
addition, a participant may file a written designation of a beneficiary
who is to receive any cash from the participant's account under the
Plan in the event of such participant's death prior to exercise of the
option. If a participant is married and the designated beneficiary is
not the spouse, spousal consent shall be required for such designation
to be effective.
(b) Such designation of beneficiary may be changed by the
participant at any time by written notice. In the event of the death of
a participant and in the absence of a beneficiary validly designated
under the Plan who is living at the time of such participant's death,
the Company shall deliver such shares and/or cash to the executor or
administrator of the estate of the participant, or if no such executor
or administrator has been appointed (to the knowledge of the Company),
the Company, in its discretion, may deliver such shares and/or cash to
the spouse or to any one or more dependents or relatives of the
participant, or if no spouse, dependent or relative is known to the
Company, then to such other person as the Company may designate.
16. TRANSFERABILITY. Neither payroll deductions credited to a
participant's account nor any rights with regard to the exercise of an
option or to receive shares under the Plan may be assigned,
transferred, pledged or otherwise disposed of in any way (other than by
will, the laws of descent and distribution or as provided in Section 15
hereof) by the participant. Any such attempt at assignment, transfer,
<PAGE>
pledge or other disposition shall be without effect, except that the
Company may treat such act as an election to withdraw funds from an
Offering Period in accordance with Section 10 hereof.
17. USE OF FUNDS. The Company may use all payroll deductions
received or held by the Company under the Plan for any corporate
purpose, and the Company shall not be obligated to segregate such
payroll deductions.
18. REPORTS. Individual accounts shall be maintained for each
participant in the Plan. Statements of account shall be given to
participating Employees at least annually, which statements shall set
forth the amounts of payroll deductions, the Purchase Price, the number
of shares purchased and the remaining cash balance, if any.
19. ADJUSTMENTS UPON CHANGES IN CAPITALIZATION, DISSOLUTION,
LIQUIDATION, MERGER OR ASSET SALE.
(a) Changes in Capitalization. Subject to any required action
by the stockholders of the Company, the Reserves, the maximum number of
shares each participant may purchase each Purchase Period (pursuant to
Section 7), as well as the price per share and the number of shares of
Common Stock covered by each option under the Plan which has not yet
been exercised shall be proportionately adjusted for any increase or
decrease in the number of issued shares of Common Stock resulting from
a stock split, reverse stock split, stock dividend, combination or
reclassification of the Common Stock, or any other increase or decrease
in the number of shares of Common Stock effected without receipt of
consideration by the Company; provided, however, that conversion of any
convertible securities of the Company shall not be deemed to have been
"effected without receipt of consideration". Such adjustment shall be
made by the Board, whose determination in that respect shall be final,
binding and conclusive. Except as expressly provided herein, no
issuance by the Company of shares of stock of any class, or securities
convertible into shares of stock of any class, shall affect, and no
adjustment by reason thereof shall be made with respect to, the number
or price of shares of Common Stock subject to an option.
(b) Dissolution or Liquidation. In the event of the proposed
dissolution or liquidation of the Company, the Offering Period then in
progress shall be shortened by setting a new Exercise Date (the "New
Exercise Date"), and shall terminate immediately prior to the
consummation of such proposed dissolution or liquidation, unless
provided otherwise by the Board. The New Exercise Date shall be before
the date of the Company's proposed dissolution or liquidation. The
Board shall notify each participant in writing, at least ten (10)
business days prior to the New Exercise Date, that the Exercise Date
for the participant's option has been changed to the New Exercise Date
and that the participant's option shall be exercised automatically on
the New Exercise Date, unless prior to such date the participant has
withdrawn from the Offering Period as provided in Section 10 hereof.
(c) Merger or Asset Sale. In the event of a proposed sale of
all or substantially all of the assets of the Company, or the merger of
the Company with or into another corporation, each outstanding option
shall be assumed or an equivalent option substituted by the successor
corporation or a parent or Subsidiary of the successor corporation. In
the event that the successor corporation refuses to assume or
substitute for the option, any Purchase Periods then in progress shall
be shortened by setting a new Exercise Date (the "New Exercise Date")
and any Offering Periods then in progress shall end on the New Exercise
Date. The New Exercise Date shall be before the date of the Company's
<PAGE>
proposed sale or merger. The Board shall notify each participant in
writing, at least ten (10) business days prior to the New Exercise
Date, that the Exercise Date for the participant's option has been
changed to the New Exercise Date and that the participant's option
shall be exercised automatically on the New Exercise Date, unless prior
to such date the participant has withdrawn from the Offering Period as
provided in Section 10 hereof.
20. AMENDMENT OR TERMINATION.
(a) The Board may at any time and for any reason terminate or
amend the Plan. Except as provided in Section 19 hereof, no such
termination can affect options previously granted, provided that an
Offering Period may be terminated by the Board on any Exercise Date if
the Board determines that the termination of the Plan is in the best
interests of the Company and its stockholders. Except as provided in
Section 19 hereof, no amendment may make any change in any option
theretofore granted which adversely affects the rights of any
participant. To the extent necessary to comply with Section 423 of the
Code (or any successor rule or provision or any other applicable law,
regulation or stock exchange rule), the Company shall obtain
stockholder approval in such a manner and to such a degree as required.
(b) Without stockholder consent and without regard to whether
any participant rights may be considered to have been "adversely
affected," the Board (or the Committee) shall be entitled to change the
Offering Periods, limit the frequency and/or number of changes in the
amount withheld during an Offering Period, establish the exchange ratio
applicable to amounts withheld in a currency other than U.S. dollars,
permit payroll withholding in excess of the amount designated by a
participant in order to adjust for delays or mistakes in the Company's
processing of properly completed withholding elections, establish
reasonable waiting and adjustment periods and/or accounting and
crediting procedures to ensure that amounts applied toward the purchase
of Common Stock for each participant properly correspond with amounts
withheld from the participant's Compensation, and establish such other
limitations or procedures as the Board (or the Committee) determines in
its sole discretion advisable which are consistent with the Plan.
21. NOTICES. All notices or other communications by a participant
to the Company under or in connection with the Plan shall be deemed to
have been duly given when received in the form specified by the Company
at the location, or by the person, designated by the Company for the
receipt thereof.
22. CONDITIONS UPON ISSUANCE OF SHARES. Shares shall not be issued
with respect to an option unless the exercise of such option and the
issuance and delivery of such shares pursuant thereto shall comply with
all applicable provisions of law, domestic or foreign, including,
without limitation, the Securities Act of 1933, as amended, the
Securities Exchange Act of 1934, as amended, the rules and regulations
promulgated thereunder, and the requirements of any stock exchange upon
which the shares may then be listed, and shall be further subject to
the approval of counsel for the Company with respect to such
compliance.
As a condition to the exercise of an option, the Company may
require the person exercising such option to represent and warrant at
the time of any such exercise that the shares are being purchased only
for investment and without any present intention to sell or distribute
such shares if, in the opinion of counsel for the Company, such a
<PAGE>
representation is required by any of the aforementioned applicable
provisions of law.
23. TERM OF PLAN. The Plan shall become effective upon its
approval by the stockholders of the Company. It shall continue in
effect for a term of ten (10) years unless sooner terminated under
Section 20 hereof.
OPTICAL COATING LABORATORY, INC.
1999 EMPLOYEE STOCK PURCHASE PLAN
SUBSCRIPTION AGREEMENT
____Original Application Enrollment Date:_________
____Change in Payroll Deduction Rate
____Change of Beneficiary(ies)
1. _____________________ hereby elects to participate in the Optical
Coating Laboratory, Inc. 1999 Employee Stock Purchase Plan (the
"Employee Stock Purchase Plan") and subscribes to purchase shares
of the Company's Common Stock in accordance with this Subscription
Agreement and the Employee Stock Purchase Plan.
2. I hereby authorize payroll deductions from each paycheck in the
amount of ___% of my Compensation on each payday (from 1 to 10%)
during the Offering Period in accordance with the Employee Stock
Purchase Plan. (Please note that no fractional percentages are
permitted.)
3. I understand that said payroll deductions shall be accumulated for
the purchase of shares of Common Stock at the applicable Purchase
Price determined in accordance with the Employee Stock Purchase
Plan. I understand that if I do not withdraw from an Offering
Period, any accumulated payroll deductions will be used to
automatically exercise my option.
4. I have received a copy of the complete Employee Stock Purchase Plan
prospectus. I understand that my participation in the Employee
Stock Purchase Plan is in all respects subject to the terms of the
Plan. I understand that my ability to exercise the option under
this Subscription Agreement is subject to the Company's stockholder
approval of the Employee Stock Purchase Plan.
5. Shares purchased for me under the Employee Stock Purchase Plan
should be issued in the name(s) of (Employee or Employee and Spouse
only):
----------------------------------
----------------------------------
6. I understand that if I dispose of any shares received by me
pursuant to the Plan within 2 years after the Enrollment Date (the
first day of the Offering Period during which I purchased such
shares) or one year after the Exercise Date, I will be treated for
federal income tax purposes as having received ordinary income at
the time of such disposition in an amount equal to the excess of
the fair market value of the shares at the time such shares were
<PAGE>
purchased by me over the price which I paid for the shares. I
HEREBY AGREE TO NOTIFY THE COMPANY IN WRITING WITHIN 30 DAYS AFTER
THE DATE OF ANY DISPOSITION OF MY SHARES AND I WILL MAKE ADEQUATE
PROVISION FOR FEDERAL, STATE OR OTHER TAX WITHHOLDING OBLIGATIONS,
IF ANY, WHICH ARISE UPON THE DISPOSITION OF THE COMMON STOCK. The
Company may, but will not be obligated to, withhold from my
compensation the amount necessary to meet any applicable
withholding obligation including any withholding necessary to make
available to the Company any tax deductions or benefits
attributable to sale or early disposition of Common Stock by me. If
I dispose of such shares at any time after the expiration of the
2-year and 1-year holding periods, I understand that I will be
treated for federal income tax purposes as having received income
only at the time of such disposition, and that such income will be
taxed as ordinary income only to the extent of an amount equal to
the lesser of (1) the excess of the fair market value of the shares
at the time of such disposition over the purchase price which I
paid for the shares, or (2) 15% of the fair market value of the
shares on the first day of the Offering Period. The remainder of
the gain, if any, recognized on such disposition will be taxed as
capital gain.
7. I hereby agree to be bound by the terms of the Employee Stock
Purchase Plan. The effectiveness of this Subscription Agreement is
dependent upon my eligibility to participate in the Employee Stock
Purchase Plan.
8 In the event of my death, I hereby designate the following as my
beneficiary(ies) to receive all payments and shares due me under
the Employee Stock Purchase Plan:
NAME: (Please print)
-------------------------------------------------------
(First) (Middle) (Last)
Relationship:
--------------------------------------
Address:
--------------------------------------
--------------------------------------
--------------------------------------
Employee's Social
Security Number:
--------------------------------------
Employee's Address:
--------------------------------------
--------------------------------------
I UNDERSTAND THAT THIS SUBSCRIPTION AGREEMENT SHALL REMAIN IN EFFECT
THROUGHOUT SUCCESSIVE OFFERING PERIODS UNLESS TERMINATED BY ME.
Dated:
-----------------------
__________________________________
Signature of Employee
----------------------------------
Spouse's Signature
(If beneficiary is other than spouse)
<PAGE>
OPTICAL COATING LABORATORY, INC.
1999 EMPLOYEE STOCK PURCHASE PLAN
NOTICE OF WITHDRAWAL
The undersigned participant in the Offering Period of the Optical
Coating Laboratory, Inc. 1999 Employee Stock Purchase Plan which began
on __________________, 19__ (the "Enrollment Date") hereby notifies
the Company that he or she hereby withdraws from the Offering Period.
The undersigned hereby directs the Company to pay to the undersigned as
promptly as practicable all the payroll deductions credited to his or
her account with respect to such Offering Period. The undersigned
understands and agrees that his or her option for such Offering Period
will be automatically terminated. The undersigned understands further
that no further payroll deductions will be made for the purchase of
shares in the current Offering Period and the undersigned shall be
eligible to participate in succeeding Offering Periods only by
delivering to the Company a new Subscription Agreement.
Name and Address of Participant:
------------------------------------------
------------------------------------------
------------------------------------------
Signature:
------------------------------------------
Date:
------------------------------------------
<PAGE>
APPENDIX B
----------
O P T I C A L C O A T I N G L A B O R A T O R Y, I N C .
1 9 9 9 I N C E N T I V E C O M P E N S A T I O N P L A N
PART 1. PLAN PURPOSE, ADMINISTRATION AND ELIGIBILITY
I. PURPOSE
The purpose of this 1999 Incentive Compensation Plan (the "Plan")
of Optical Coating Laboratory, Inc. (the "Company") is to encourage
ownership in the Company by personnel whose long-term employment is
considered essential to the Company's continued progress and thus to
provide them with a further incentive to continue in the employ of the
Company. In adopting the Plan, the Board of Directors has determined
that the additional incentive provided by the Plan to employees whose
efforts have the most effect on the Company's success will promote the
welfare of the Stockholders in general.
II. ADMINISTRATION
The members of the Compensation and Stock Option Committee, acting
as a separate committee (the "Committee") consisting of three or more
directors of the Company who are not eligible to participate in the
Plan, shall supervise and administer the Plan. The Committee shall,
from time to time, designate the employees of the Company who shall be
granted stock options ("Stock Options") or stock awards ("Stock
Awards") under the Plan and the amount and nature of the award to be
granted to each such employee; provided however, at least 50% of all
stock options and stock awards granted under the Plan shall be made to
employees of the Company who are not officers or directors of the
Company. All questions of interpretation of the Plan or of any Stock
Options or Stock Awards issued under it shall be determined by the
Committee and such determination shall be final and binding upon all
persons having an interest in the Plan. Any or all powers and
discretion vested in the Committee under this Plan may be exercised by
any subcommittee so authorized by the Committee.
III. PARTICIPATION IN THE PLAN
All employees of the Company, including officers and directors,
are eligible to participate in the Plan.
IV. STOCK SUBJECT TO THE PLAN
The maximum number of shares, which may be optioned or awarded
under the Plan, shall be 600,000 shares of OCLI Common Stock. The
limitation on the number of shares that may be optioned or awarded
under the Plan shall be subject to adjustment as provided in Section
XVII of the Plan.
At least 50% of all Stock Options and Stock Awards granted under
the Plan shall be made to employees of the Company who are not officers
or directors of the Company.
The grant of a Stock Award not pursuant to a Stock Option under
the Plan shall be subject to such restrictions as the Committee shall
determine to be appropriate, including but not limited to restrictions
on resale, repurchase provisions, special vesting requirements or
forfeiture provisions.
If any outstanding Stock Option under the Plan for any reason
expires or is terminated without having been exercised in full, or if
any Stock Awards are forfeited, the forfeited share or shares allocable
to the unexercised portion of such Stock Option shall again become
available for grant pursuant to the Plan.
Upon the grant of a Stock Award or the exercise of a Stock Option,
the Company may issue new shares or reissue shares previously
repurchased by or on behalf of the Company.
PART 2. STOCK OPTIONS
V. NON-QUALIFIED STOCK OPTIONS AND INCENTIVE STOCK OPTIONS
Any Stock Option granted under the Plan shall be designated by the
Committee as a non-qualified stock option or as an incentive stock
option ("ISO") within the meaning of Section 422A of the Internal
Revenue Code of 1986, as amended (the "Code").
No ISO shall be granted hereunder unless the Stockholders of the
Company approve the Plan within twelve (12) months before or after the
date the Plan is adopted.
VI. TERMS OF STOCK OPTIONS
Each Stock Option granted under the Plan shall be for a period
determined by the Committee not to exceed ten (10) years from the date
<PAGE>
of grant, shall be evidenced by a stock option agreement between the
Company and the person to whom such Stock Option is granted, and shall
be subject to the following additional terms and conditions:
A. CONTINUATION OF EMPLOYMENT. An employee to whom such Stock
Option is granted must agree in writing, as a condition to the granting
of the Stock Option, that he or she will remain in the employ of the
Company following the date of granting of the Stock Option for a period
of twelve (12) months before any portion of the Stock Option can be
exercised.
B. EXERCISE OF THE STOCK OPTION. Prior to its termination, such
Stock Option may be exercised by the person then entitled to do so, at
such time or times and in such amounts as shall be specified in the
stock option agreement. A Stock Option is exercised (i) by giving
written notice of exercise to the Company, specifying the number of
full shares of Common Stock to be purchased and accompanied by full
payment of the option price therefor; provided, however, that to the
extent authorized by the Committee, an optionee may make all or any
portion of any payment due to the Company upon exercise of a Stock
Option by delivery of any property (including securities of the Company
or promissory notes) other than cash, so long as such property
constitutes valid consideration for the Common Stock under applicable
law; and (ii) by giving assurances satisfactory to the Company that the
shares of Common Stock to be purchased upon such exercise are being
purchased for investment and not with a view to resale in connection
with any distribution of such shares in violation of the Securities Act
of 1933; provided, however, that in the event the Common Stock subject
to the Stock Option is registered under the Securities Act of 1993, as
amended, or in the event a resale of such Common Stock without such
registration would otherwise be permissible, this condition shall be
inoperative if in the opinion of counsel for the Company such condition
is not required under the Securities Act of 1933, or any other
applicable law, regulation or rule of any governmental agency.
C. OPTION PRICE. The option price under each Stock Option shall
be determined by the Committee but shall not be less than one hundred
percent (100%) of the fair market value of the Company's Common Stock
at the time of granting the Stock Option.
D. TERMINATION OF THE STOCK OPTION. To the extent not previously
exercised, each Stock Option shall terminate on the date fixed therefor
in the stock option agreement; provided, however, that (i) in the event
that an employee who has been granted a Stock Option shall cease to be
employed by the Company or a subsidiary for any reason other than
death, the Stock Option shall terminate to the extent such employee
shall fail to exercise such Stock Option within the time period fixed
by the Committee at the time of grant, but only to the extent his or
her rights to exercise such Stock Option have accrued pursuant to the
terms hereof and have not previously been exercised at the date of such
termination; provided, however, that if such employee shall have his
or her employment terminated for cause the Stock Option shall terminate
simultaneously with such employee's effective date of termination, and
any unexercised portion of the Stock Option shall thereupon expire; and
(ii) in the event the employee shall die while in the employ of the
Company or after the termination of his employment for any reason other
than for cause, and shall not have exercised the Stock Option, it shall
be exercisable at any time within the period fixed by the Committee at
the time of its grant, by the executors or administrators of the
employee by bequest or inheritance. Termination of employment "for
<PAGE>
cause", as used herein, shall mean discharge by the Company or any of
its subsidiaries for (i) dishonesty, (ii) commission of a crime, or
(iii) divulging trade secrets to competitors or others not entitled to
receive them. The foregoing provisions shall apply with equal force and
effect and equivalent meaning, with such changes as may be necessary,
to a director who has been granted options hereunder.
E. STOCK OPTIONS NOT TRANSFERABLE. Any Stock Option shall be
nontransferable by the optionee otherwise than by will or the laws of
descent and distribution, and shall be exercisable during the
optionee's lifetime only by the optionee, or in the event of death, by
the optionee's representative or any person designated by the optionee
in his stock option agreement.
F. QUALIFICATION OF STOCK. The right to exercise the Stock
Options shall be further subject to the requirement that if at any time
the Board of Directors shall determine, in its discretion, that the
listing, registration or qualification of the shares covered by the
Stock Option upon any securities exchange or under any state or federal
law, or the consent or approval of any governmental regulatory
authority, is necessary or desirable as a condition of or in connection
with the granting of such Stock Option or the purchase of shares
thereunder, the Stock Option may not be exercised, in whole or in part,
unless and until such listing, registration, qualification, consent or
approval shall have been effected or obtained free of any conditions
not acceptable to the Board of Directors, in its sole discretion.
G. LIMITATION ON INCENTIVE STOCK OPTIONS. No option designated by
the Committee as an ISO entitled to special tax treatment under Code
Section 422A may be granted under the Plan if such grant, together with
any applicable prior grants, would exceed any maximum established under
the Code for ISO's that may be granted to a single employee. Should it
be determined that any such ISO granted under the Plan exceeds such
maximum, the excess portion of such ISO shall be reclassified as a non-
qualified option not entitled to special tax treatment under Section
422A of the Code.
H. PROCEEDS FROM SALE OF STOCK. The proceeds of sale of all
shares of Stock issued from time to time upon the exercise of options
granted pursuant to the Plan shall be added to the general funds of the
Company and as such shall be used from time to time for such corporate
purposes as the Board of Directors of the Company may determine.
I. OTHER PROVISIONS. The stock option agreement may contain such
other terms, provisions and conditions not inconsistent with the Plan
as may be determined by the Committee in its sole discretion.
VII. MODIFICATION, EXTENSION AND RENEWAL OF OPTIONS
Subject to the terms and conditions and within the limitations of
the Plan, the Committee may modify, extend or renew outstanding Stock
Options granted under the Plan, or accept the surrender of outstanding
Stock Options (to the extent not theretofore exercised) and authorize
the granting of new Stock Options in substitution therefor (to the
extent not theretofore exercised). Notwithstanding the foregoing,
however, no modification of any Stock Option shall, without the consent
of the employee, alter or impair any rights or obligations under any
Stock Option theretofore granted under the Plan, and no modification of
or substitution for any Stock Option shall have the effect of reducing
the option exercise price for such Stock Option.
<PAGE>
PART 3. STOCK AWARDS
VIII. STOCK AWARD DETERMINATION
The Committee may grant an eligible employee Stock Awards at such
times and in such amounts as the Committee may designate which in its
opinion fully reflect the performance level and potential of such
employee. Such awards shall be made in accordance with such guidelines
as the Committee may from time to time adopt. Stock Awards shall be
independent of any grant of any Stock Option under this Plan, and shall
be made subject to such restrictions as the Committee may determine to
be appropriate.
IX. PAYMENT OF STOCK AWARDS
A. No employee shall have the right to receive payment of any
Stock Award until notified of the amount of such award, in writing, by
the Committee or its authorized delegate.
B. An award of Common Stock may be subject to restrictions
("Restricted Stock") or acquired by the employee by delivery of a
recourse or non-recourse promissory note ("Loan Stock"), and
certificates for such shares will be deposited in escrow with the
Company's Secretary. The employee shall retain all rights in the
Restricted Stock or Loan Stock while it is held in escrow including,
but not limited to, voting rights and the right to receive dividends,
except that the employee shall not have the right to transfer or assign
such shares until all restrictions pertaining to such shares are
terminated and all loans paid in full, at which time the applicable
stock certificates shall be released from escrow and delivered to the
employee by the Company's Secretary.
C. The Committee may permit, on such terms as it deems
appropriate, use of Restricted Stock or Loan Stock as partial or full
payment upon exercise of a stock option under any stock option of a
Company plan or this Plan. In the event shares of Restricted Stock or
Loan Stock are so tendered as consideration for the exercise of an
option, a number of the shares issued upon the exercise of said option,
equal to the number of shares of Restricted Stock or Loan Stock used as
consideration therefor, shall be subject to the same conditions as the
Restricted Stock or Loan Stock so submitted plus any additional
conditions that may be imposed by the Committee.
X. DURATION OF RESTRICTIONS AND TERMS OF PROMISSORY NOTES
The Committee will establish the period or periods after which the
conditions on Restricted Stock will lapse and the terms of any
promissory notes relating to Loan Stock.
XI. DEATH OR TOTAL AND PERMANENT DISABILITY OF A PARTICIPATING EMPLOYEE
HOLDING RESTRICTED STOCK
By written notice to the Company, an employee who has received a
grant of Restricted Stock may designate one or more persons (and from
time to time change such designation) who, by reason of his death,
shall acquire the right to receive any vested but unpaid Stock Awards
held by the employee at the time of his death. Such Stock Awards shall
be paid to the designated representative at such time and in such
manner as if the employee were living.
In the event of total and permanent disability of an employee who
has participated in the Plan, any unpaid but vested Stock Award shall
be paid to the employee if legally competent or to other legally
designated guardian or representative if the employee is legally
incompetent.
After the death or total and permanent disability of an employee,
the Committee may in its sole discretion at any time terminate
restrictions upon stock awarded to the employee. A request to the
<PAGE>
Committee for the termination of restrictions or the acceleration of
payments not yet due may be made by the employee's beneficiary or
representative, or by a totally and permanently disabled employee.
If at the time of the employee's death, there is no effective
beneficiary designation as to all or some portion of the awards
hereunder, such awards or such portion thereof shall be paid to or on
the order of the legal representative of the employee's estate. In the
event of uncertainty as to the interpretation or effect of any notice
of designation, the Committee's decision with respect thereto shall be
conclusive.
XII. RESTRICTIONS AND FORFEITURE OF STOCK AWARDS
The Company's obligation to deliver stock certificates held in
escrow is subject to the condition that the employee remains an active
employee of the Company for the entire deferral and/or restriction
period, including mandatory and optional deferrals. If the employee
fails to meet this condition, the employee's right to any such unpaid
amounts or undelivered stock certificates shall be forfeited. The
Committee in exceptional circumstances may waive this provision.
PART 4. STOCK WITHHOLDING
XIII. USE OF SHARES TO SATISFY TAX LIABILITY
Agreements with employees implementing this Plan may permit an
employee who has been granted Restricted Stock, Stock Options or Loan
Stock to elect that the tax liability arising from the lapse of
restrictions on Restricted Stock, exercise of Stock Options, or payment
of a non-recourse note used to purchase Loan Stock be satisfied by the
Company's withholding from the shares to be delivered to the employee
that number of shares the fair market value of which is closest to,
without exceeding, such tax liability. For purposes of this paragraph,
"tax liability" shall mean the minimum federal and state income taxes
required to be withheld from such compensation income arising from the
transaction, or, in the discretion of the Company, such greater amount
of taxes (including taxes other than income taxes) that are required to
be withheld from such compensation. An employee's election under an
Agreement with the Company permitting such election shall be made in
writing to the Company at least three (3) days prior to the event
giving rise to the employee's tax liability. An employee who is subject
to the requirements of Section 16(b) of the Securities Exchange Act of
1934 ("Section 16(b)") desiring to elect the treatment provided for
herein shall give such written notice of the same to the Company as
legal counsel for the Company shall determine is required.
PART 5. GENERAL PROVISIONS
XIV. ASSIGNMENTS
The rights and benefits under this Plan may not be assigned except
for the designation of a beneficiary as provided in Sections VI and XI.
XV. TIME FOR GRANTING STOCK OPTIONS OR STOCK AWARDS
All Stock Options and Stock Awards subject to this Plan shall be
granted, if at all, not later than ten (10) years after the adoption of
this Plan by the Company's Board of Directors.
XVI. LIMITATION OF RIGHTS
A. NO RIGHT TO A STOCK OPTION OR STOCK AWARD. Nothing in the
Plan shall be construed to give any employee of the Company any right
to be granted a Stock Option or Stock Award.
B. NO EMPLOYMENT RIGHT. Neither the Plan, nor the granting of a
Stock Option or Stock Award nor any other action taken pursuant to the
<PAGE>
Plan, shall constitute or be evidence of any agreement or
understanding, express or implied, that the Company will employ a
grantee for any period of time or in any position, or at any particular
rate of compensation.
C. NO STOCKHOLDERS' RIGHTS FOR STOCK OPTIONS. An optionee shall
have no rights as a Stockholder with respect to the shares covered by
his or her Stock Options until the date of issuance of a stock
certificate upon exercise of the Stock Option.
XVII. CHANGES IN PRESENT STOCK
In the event of any merger, consolidation, reorganization,
recapitalization, stock dividend, stock split, or other change in the
corporate structure or capitalization affecting the Company's present
Common Stock, appropriate adjustment shall be made by the Board of
Directors, in its sole discretion, in the number and kind of shares
which are or may become subject to Stock Options and Stock Awards
granted or to be granted hereunder, and in the option price of shares
which are subject to Stock Options granted hereunder.
XVIII. EFFECTIVE DATE OF THE PLAN
The Plan shall take effect on the date of adoption by the Board of
Directors of the Company. Stock Options and Stock Awards may be
granted under the Plan at any time after the adoption of the Plan by
the Board of Directors of the Company and prior to the termination of
this Plan; provided, however, no ISO shall be granted under the Plan
unless the Plan is approved by the Stockholders of the Company within
twelve (12) months before or after the date the Plan is adopted.
XIX. AMENDMENT OF THE PLAN
The Board of Directors of the Company may suspend or discontinue
the Plan or revise or amend it in any respect whatsoever, including,
but not limited to, changing the number of shares subject to the Plan,
designating the classification of employees eligible to receive Stock
Options or Stock Awards and materially increasing the benefits accruing
to participants under the Plan.
XX. NOTICE
Any written notice to the Company required by any of the
provisions of this Plan shall be addressed to the Secretary of the
Company and shall become effective when it is received.
XXI. COMPANY BENEFIT PLANS
Nothing contained in this Plan shall prevent the employee prior to
death, or the employee's dependents or beneficiaries after the
employee's death, from receiving, in addition to any awards provided
for under this Plan and any salary, any payments under a Company
retirement plan or which may be otherwise payable or eligible to be
distributed to such employee, or to the employee's dependents or
beneficiaries under any other plan or policy of the Company or
otherwise.
XXII. UNFUNDED PLAN
Insofar as it provides for Stock Awards, this Plan shall be
unfunded. Although bookkeeping accounts may be established with respect
to employees who are granted Stock Awards under this Plan, any such
accounts will be used merely as a bookkeeping convenience. Except for
the holding of Restricted Stock and Loan Stock in escrow pursuant to
Section IX B, the Company shall not be required to segregate any assets
which may at any time be represented by Stock Awards, nor shall this
Plan be construed as providing for such segregation, nor shall the
Company nor the Board nor the Committee be deemed to be a trustee of
shares or cash to be awarded under the Plan. Any liability of the
<PAGE>
Company to any employee with respect to a Stock Award under this Plan
shall be based solely upon any contractual obligations which may be
created by the Plan and any agreement consistent with this Plan; no
such obligation of the Company shall be deemed to be secured by any
pledge or other encumbrance on any property of the Company. Neither the
Company nor the Board nor the Committee shall be required to give any
security or bond for the performance of any obligation that may be
created by this Plan.
XXIII. GOVERNING LAW
This Plan and all determinations made and actions taken pursuant
hereto shall be governed by the laws of the State of California and
construed accordingly.
PROXY PROXY
OPTICAL COATING LABORATORY, INC.
THIS PROXY IS SOLICITED ON BEHALF OF
THE BOARD OF DIRECTORS OF THE COMPANY
The undersigned hereby appoints JOSEPH C. ZILS and AGIE NAVARRO,
and each of them, each with full power of substitution as proxies for
the undersigned, to represent the undersigned at Annual Meeting of
Stockholders of Optical Coating Laboratory, Inc. to be held at the
Corporate Offices of Optical Coating Laboratory, Inc., 2789 Northpoint
Parkway, Santa Rosa, California on April 1, 1999 at 3:30 p.m. (PST) and
any adjournment thereof, and to vote all shares of Common Stock held of
record by the undersigned on February 5, 1999 on the following:
(CONTINUED, AND TO BE SIGNED ON THE OTHER SIDE)
THE MANAGEMENT RECOMMENDS A VOTE FOR ITEMS 1, 2, 3 AND 4.
PLEASE MARK YOUR VOTES AS INDICATED IN THIS EXAMPLE: [X]
ITEM 1. Election of Directors [ ] FOR [ ] WITHHOLD FOR ALL
To withhold authority for any individual nominee, strike
A line through the nominee's name in the list below:
Herbert M. Dwight, Jr.
Charles J. Abbe
Douglas C. Chance
Shoei Kataoka
John McCullough
Julian Schroeder
Renn Zaphiropoulos
ITEM 2. Approval of the 1999 Employee Stock Purchase Plan
[ ] FOR [ ] AGAINST [ ] ABSTAIN
ITEM 3. Approval of the 1999 Incentive Compensation Plan
[ ] FOR [ ] AGAINST [ ] ABSTAIN
ITEM 4. Ratification of Deloitte & Touche as Independent Auditors of
the Company
[ ] FOR [ ] AGAINST [ ] ABSTAIN
In their discretion, the proxies are authorized to vote upon such other
matters as may properly be brought before the meeting or any adjournment
thereof.
THIS PROXY, WHEN PROPERLY EXECUTED, WILL BE VOTED IN
THE MANNER DIRECTED HEREIN BY THE UNDERSIGNED STOCKHOLDER.
IF NO SPECIFICATION IS MADE, THIS PROXY WILL BE VOTED FOR
ITEMS 1, 2, 3 AND 4.
Signature(s)____________________________________ Date____________________
NOTE: Please sign as name appears hereon. Joint owners should each
sign. When signing as a corporation, attorney, executor,
administrator, trustee or guardian, please give full title as such.
