Unassociated Document
UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
SCHEDULE
14A
Proxy
Statement Pursuant to Section 14(a) of the Securities
Exchange
Act of 1934 (Amendment No.
)
Filed
by
Registrant x
Filed
by
a Party other than the Registrant o
Check
the
appropriate box:
o
Preliminary
Proxy Statement
x
Definitive
Proxy
Statement
o
Definitive Additional Materials
o
Soliciting
Material Pursuant to §240.14a-12
Advanced
Photonix, Inc.
(Name
of
Registrant as Specified in its Charter)
(Name
of
Person(s) Filing Proxy Statement, if other than the Registrant)
Payment
of filing fee (Check the appropriate box):
x
No
fee required.
o
Fee
computed on table below per Exchange Act Rules 14a-6(i)(1) and
0-11.
1)
Title
of each class of securities to which transaction applies:
2)
Aggregate number of securities to which transaction applies:
3)
Per
unit price or other underlying value of transaction computed pursuant to
Exchange Act Rule 0-11 (set forth the amount on which the filing fee is
calculated and state how it was determined):
4)
Proposed maximum aggregate value of transaction:
5)
Total
fee paid:
o
Fee paid
previously with preliminary materials:
o
Check
box if any part of the fee is offset as provided by Exchange Act Rule 0-11(a)(2)
and identify the filing for which the offsetting fee was paid previously.
Identify the previous filing by registration statement number, or the Form
or
Schedule and the date of its filing.
1)
Amount
previously paid:
2)
Form,
Schedule or Registration Statement No.:
3)
Filing
party:
4)
Date
filed:
TABLE
OF CONTENTS
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Page
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NOTICE
OF ANNUAL MEETING OF STOCKHOLDERS
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iii
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PROXY
STATEMENT
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1
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Voting
Securities
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1
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Security
Ownership of Certain Beneficial Owners and Management
Section
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3
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Proposal
1: Election of Directors
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4
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Corporate
Governance
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6
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Board
Meetings and Committees
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6
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Executive
Compensation
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8
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Certain
Relationships and Related Transactions
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20
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Audit
Committee Report
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22
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Proposal
2: Adoption of the 2007 Equity Incentive Plan
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22
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Miscellaneous
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28
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2007
Equity Incentive Plan
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Appx.
A
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ADVANCED
PHOTONIX, INC.
Notice
of Annual Meeting of Stockholders
To
Be Held
August
24, 2007
To
the
Stockholders of Advanced Photonix, Inc.:
You
are
invited to attend the Annual Meeting of Stockholders (the Annual Meeting) of
Advanced Photonix, Inc., which will be held at our Michigan office, 2925
Boardwalk, Ann Arbor, Michigan, at 10:00 a.m., Eastern Time, on August 24,
2007,
to consider the following matters:
(1) The
election of six directors to hold office until the next Annual Meeting or until
their respective successors are duly elected and qualified. The persons
nominated by the Board of Directors are Richard D. Kurtz, Robin F. Risser,
M.
Scott Farese, Lance Brewer, Donald Pastor and Stephen P. Soltwedel;
(2) The
adoption of the 2007 Equity Incentive Plan; and
(3) Such
other matters as may properly be brought before the Annual Meeting.
The
Board
of Directors has fixed the close of business on June 29, 2007 as the record
date
for the Annual Meeting. Only stockholders who owned our Common Stock at the
close of business on June 29, 2007 will be entitled to notice of, and to
vote at, the Annual Meeting or any adjournments or postponements thereof. Shares
of Common Stock can be voted at the Annual Meeting only if the holder is present
or represented by proxy.
The
Board
of Directors solicits the accompanying form of proxy. Reference is made to
the
attached Proxy Statement for further information with respect to the business
to
be transacted at the Annual Meeting.
A
complete list of stockholders entitled to vote at the Annual Meeting shall
be
open to the examination of any stockholder, for any purpose relevant to the
Annual Meeting, during ordinary business hours, for a period of at least ten
days prior to the Annual Meeting, at our principal office, 2925 Boardwalk,
Ann
Arbor, Michigan 48104.
Stockholders
are cordially invited to attend the Annual Meeting. Whether or not you expect
to
attend the Annual Meeting in person, please complete, date and sign the
accompanying proxy card and return it without delay in the enclosed postage
prepaid envelope. Your proxy will not be used if you are present and prefer
to
vote in person or if you revoke your proxy before its
exercise.
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By
Order of the Board of Directors,
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16, 2007 |
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Robin
F. Risser
Secretary
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Proxy
Statement
Annual
Meeting of Stockholders
August
24, 2007
This
Proxy Statement is furnished in connection with the solicitation of proxies
by
the Board of Directors (the Board) of Advanced Photonix, Inc. a Delaware
corporation (the Company) for use at the 2007 Annual Meeting and for any
adjournments or postponements thereof
to be
held at the Company's Michigan office, 2925 Boardwalk, Ann Arbor, Michigan,
at
10:00 a.m., Eastern time, on August 24, 2007, for the purposes set forth in
the
accompanying Notice of Annual Meeting of Stockholders (the Notice). A Board
of
Directors' proxy (the Proxy) for the Annual Meeting is enclosed, by means of
which you may vote as to the proposals described in this Proxy
Statement.
Two
proposals are scheduled for a vote at the Annual Meeting: (1) the election
of
six directors to serve until the next Annual Meeting of Stockholders in 2008
and
(2) the adoption of the 2007 Equity Incentive Plan. The Board
recommends a vote FOR
the
election of the six nominees to the Board and FOR
the
adoption of the 2007 Equity Incentive Plan as described in this Proxy Statement.
All Proxies that are properly completed, signed and returned to the Company
prior to the Annual Meeting, and which have not been revoked, will be voted
in
accordance with the stockholder's
instructions contained in such Proxy. In the absence of instructions, shares
represented by such Proxy will be voted FOR
the
election of the six
nominees
to the Board and FOR
the
adoption of the 2007 Equity Incentive Plan as described herein. The Board is
not
aware of any business to be presented at the Annual Meeting except the matters
set forth in the Notice and described in the Proxy Statement. If any other
matters properly
come
before the Annual Meeting, the persons named in the accompanying Proxy will
vote
on those matters in accordance with their discretion. A stockholder may vote
before the Annual Meeting by mail by filling in, signing and returning the
enclosed Proxy. A stockholder may vote “For” all the nominees to the Board of
Directors or may withhold authority to vote for any nominee(s) specified. With
respect to the adoption of the 2007 Equity Incentive Plan, a stockholder my
vote
“For” or “Against” or abstain from voting. A stockholder may vote at the Annual
Meeting if he or she attends the meeting in person. Even
if you plan to attend the meeting, the Company recommends that you also submit
your Proxy or voting instructions via the mail so that all votes are counted
if
you later decide not to attend the Annual Meeting.
A
stockholder
may
revoke or change his or her Proxy at any time before it is exercised by filing
with the Secretary of the Company at its offices at 2925 Boardwalk,
Ann
Arbor,
Michigan, 48104, either a written notice of revocation or a duly executed Proxy
bearing a later date, or by appearing in person at the Annual Meeting and
expressing a desire to vote his or her shares in person. A stockholder may
receive more than one set of proxy materials, including multiple copies of
this
Proxy Statement and multiple Proxies or voting instruction cards. For example,
if a stockholder holds shares in more than one brokerage account, he or she
may
receive a separate voting instruction card for each brokerage account in which
shares are held. If a stockholder is of record and his or her shares are
registered in more than one name, he will receive more than one Proxy. Please
complete, sign, date and return each Proxy received to ensure that all shares
are voted.
This
Proxy Statement and the accompanying Notice, the Proxy and the 2007 Annual
Report to Stockholders are being sent to Stockholders on or about July 16,
2007.
VOTING
SECURITIES
The
Company has fixed June 29,
2007 as
the record date for the determination of Stockholders entitled to notice of
and
to vote at the Annual Meeting or any adjournment or postponement thereof. As
of
that date, the Company had outstanding 19,226,006 shares of Class A and Class
B
Common Stock, $.001 par value, (the Common Stock) which vote together as a
single class. A quorum,
representing a majority of the total outstanding shares of Common Stock, must
be
established for the meeting to be held and any action to be taken. The presence,
in person or by proxy, of stockholders entitled to cast a majority of votes
will
constitute a quorum for the Annual Meeting. Holders of Class A and Class B
Common Stock are entitled to one vote for each share owned.
Brokers
holding shares for beneficial owners (shares held in “street name”) must vote
those shares according to the specific instructions they receive from beneficial
owners. If specific instructions are not received, brokers may vote those shares
in their discretion, depending on the type of proposal involved. The Company
believes that, in accordance with the rules applicable to such voting by
brokers, brokers will have discretionary authority to vote on the election
of
directors and will not have discretionary authority to vote for the adoption
of
the 2007 Equity Incentive Plan. Shares as to which brokers have not exercised
such discretionary authority or received instructions from beneficial owners
are
considered “broker non-votes.”
For
Proposal 1, the six nominees for election as directors who receive the highest
number of “FOR” votes will be elected as directors. As
a
plurality of votes cast is required for the election of directors, abstentions
and broker non-votes will have no effect on the outcome of the election.
For
Proposal 2, the approval of the 2007 Equity Incentive Plan, the Proposal must
receive the “FOR” vote of a majority of the shares present at the Annual Meeting
in person or by Proxy and entitled to vote on the matter. Abstentions will
have
the same effect as a vote against Proposal 2 and broker non-votes will have
no
effect on the outcome of the vote.
Votes
will be counted by the Company’s independent inspectors of election appointed
for the Annual Meeting. The Company will pay for the entire cost of preparing,
assembling, printing, soliciting and mailing proxies. The Company will request
banks and brokers to solicit their customers who beneficially own shares listed
of record in names of nominees, and will reimburse banks and brokers for the
cost of forwarding proxy materials to beneficial owners. In addition, our
directors and employees may solicit proxies in person, by telephone, by
Internet, or by other means of communication. Directors and employees will
not
be paid any additional compensation for soliciting proxies. Preliminary voting
results will be announced at the Annual Meeting. Final voting results will
be
published in our Quarterly Report on Form 10-Q for the period ending September
30, 2007.
SECURITY
OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The
following table sets forth as of June 29, 2007 certain information
concerning the holdings of each person who was known by the Company to be the
beneficial owner of more than five percent (5%) of the outstanding shares of
Common Stock of the Company, by each director and executive officer named in
the
Summary Compensation Table and by all directors and officers as a
group.
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Number
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Shares
Underlying
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of
Shares
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Exercisable
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Percent
of
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Name
& Address of Beneficial Owner
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Owned
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Options/Warrants
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Class1
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5%
Stockholders2
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Smithfield
Fiduciary LLC
C/O
Highbridge Capital Management
9
West 57th
Street, 27th
Floor
New
York, NY 10019
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—
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3,953,3173
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20.6
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%
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Potomac
Capital Management LLC
825
Third Avenue, 33rd Floor
New
York, NY 10022
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1,245,619
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6.5
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%
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Named
Executive Officers and Directors
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Steven
Williamson
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1,716,667
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60,0004
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9.2
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%
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Robin
F. Risser
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868,333
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60,0004
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4.8
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%
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Richard
D. Kurtz
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75,000
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545,0004
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3.2
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%
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M.
Scott Farese
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45,100
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414,0004
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2.4
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%
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Stephen
P. Soltwedel
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14,000
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425,0004
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2.3
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%
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Donald
Pastor
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2,000
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60,0004
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0.3
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%
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L
Lance Brewer
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60,0004
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0.3
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%
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Paul
Ludwig
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76,689
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0.4
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%
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Directors
& Officers as a Group
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2,797,789
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1,624,000
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23.0
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%
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1
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Represents
percentage of issued and outstanding shares of the Company’s Common Stock,
assuming the beneficial owner exercises all options and warrants
which are
exercisable within 60 days of June 29, 2007, but no other
options and warrants are exercised.
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2
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Based
upon information set forth in an Information Statement on Schedule
13G
filed by the beneficial owner with the SEC.
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3
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Represents
1,276,234 shares underlying warrants which are currently exercisable
and
2,677,083 shares which are issuable upon conversion of convertible
notes.
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4
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Includes
shares underlying options exercisable on June 29, 2007 and options,
which
become exercisable within 60 days
thereafter.
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Section
16(a) Beneficial Ownership Reporting Compliance
Federal
securities laws require our executive officers and directors and persons owning
more than 10% of our Common Stock to file certain reports on ownership and
changes in ownership with the Securities and Exchange Commission (SEC). Based
on
a review of our records and other information, we believe that during the fiscal
year ended March 31, 2007, our executive officers, directors and persons holding
more than 10% of our Common Stock inadvertently filed late the following Section
16(a) reports: one late report by each of Messrs. Farese and Soltwedel on Form
4
relating to an option grant for services as a director; one late report by
Mr.
Pastor on Form 5 relating to his statement of initial holdings upon appointment
as a director and the initial option grant made in connection with such
appointment; and one late report by Mr. Kurtz on Form 4 relating to an option
exercise and stock sale.
PROPOSAL
1 - ELECTION OF DIRECTORS
A
Board
of six Directors of the Company is to be elected at the Annual Meeting, each
to
serve, subject to the provisions of the Company's by-laws, until the next Annual
Meeting or until his successor is duly elected and qualified. It is management's
recommendation that the accompanying form of Proxy be voted FOR
the
election of each of the six nominees named below, all of whom are currently
Directors of the Company and two of whom are currently executive officers of
the
Company. The Board believes that the nominees named below are willing to serve
as Directors, however, in the event that any of the nominees should become
unable or unwilling to serve as a Director, the Proxy will be voted for the
election of such person or persons as shall be designated by the Board pursuant
to the recommendation of the Company’s Nominating and Governance Committee. Each
of the nominees listed below is an incumbent director whose nomination to serve
for a one-year term was recommended by our Nominating and Governance Committee
and approved by the Board.
The
following persons are nominees for election as Directors:
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Name
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Age
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Position
or Principal Occupation
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Director
Since
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Richard
D. Kurtz
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55
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Chairman
of the Board, President
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2000
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and
Chief Executive Officer
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Robin
F. Risser
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56
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Chief
Financial Officer, Secretary
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2005
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and
Director
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M.
Scott Farese*
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50
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Director
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1998
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Stephen
P. Soltwedel*
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60
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Director
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2000
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Lance
Brewer*
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49
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Director
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2005
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Donald
Pastor*
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53
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Director
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2005
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*
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Represents
the Board’s determination that this Director is “independent” within the
meaning of Rule 10A-3 of the Security Exchange Act of 1934 as amended
(Rule 10A-3) and within the applicable American Stock Exchange (AMEX)
definition.
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Set
forth
below is certain information relating to the Directors and executive officers
of
the Company. Directors serve annual terms until the next annual meeting of
stockholders or until their successors are duly elected and qualified. Officers
serve at the pleasure of the Board of Directors.
Richard
D. Kurtz - Chairman of the Board, President and Chief Executive
Officer
Mr.
Kurtz
became a director of the Company in February 2000, was elected Chairman of
the
Board in July 2000, and was appointed Chief Executive Officer in February 2003.
In June 2006, Mr. Kurtz was appointed to serve as President of the Company.
Prior to joining API in February 2003, he was Director of Client Services and
Strategic Planning for Quantum Compliance Systems Inc. a privately owned
software company specializing in the development and installation of
Environmental Health and Safety Management systems. Prior to joining Quantum
in
June 2001, Mr. Kurtz served as Vice President of Sales and Marketing for
Filtertek Inc. an ESCO Technology company for more than thirteen years.
Robin
F. Risser - Chief Financial Officer and Director
Mr.
Risser joined the Company through the acquisition of Picometrix, Inc., and
was
appointed Chief Financial Officer of the Company in May 2005 and became a
director of the Company in July 2005. Prior to joining the Company, Mr. Risser
served as the Chief Executive Officer and a member of the board of directors
of
Picometrix, Inc. since 1992, the year in which he co-founded Picometrix. Mr.
Risser is also a member of the Optical Society of America. Mr. Risser is a
licensed certified public accountant and holds an MBA from the University of
Michigan.
M.
Scott Farese - Director
Mr.
Farese became a director of the Company in August 1998. He is currently CEO
of
Memacin, Inc. a firm specializing in the manufacturing of Dietary Supplements
and Nutracueticals. Prior to founding Memacin, Mr. Farese was and continues
to
be President of Chelsea Investments, a firm specializing in facilitating private
investments in privately held companies since December 2003. For the thirteen
years prior to the establishment of Chelsea Investments, Mr. Farese was employed
by Filtertek, Inc., most recently holding the position of Business Unit
Director. Filtertek, a subsidiary of ESCO Technology, a producer of custom
filtration products and fluid control devices and a manufacturer of custom
molded filter elements.
Stephen
P. Soltwedel - Director
Mr.
Soltwedel became a director of the Company in February 2000. In May 2007 he
retired as President of Filtertek, Inc., where he had been employed since 1972
and had previously held the position of Vice President and Chief Financial
Officer. Prior to joining Filtertek, Mr. Soltwedel was employed by the public
accounting firm of Baillies Denson Erickson & Smith in Lake Geneva,
Wisconsin.
Lance
Brewer - Director
Mr.
Brewer became a director of the Company in July 2005. He is a partner at Brewer
& Brewer Law firm since 1989 the year in which he co-founded the firm.
Brewer & Brewer is headquartered in Newport Beach, California and
specializes in representation of financial institutions, business acquisitions
and litigation and insurance defense.
Donald
Pastor - Director
Mr.
Pastor became a director of the Company in July 2005 and is currently the
Executive Vice President and Chief Financial Officer of Telephonics Corporation.
In addition, Mr. Pastor serves as the Chief Executive Officer of TLSI, a wholly
owned subsidiary of Telephonics. For the past thirty years, Mr. Pastor has
held
a variety of financial, administrative and operational positions in high
technology and defense related industries.
Steven
Williamson (Age 53) - Chief Technology Officer
Mr.
Williamson joined the Company in May 2005 through the acquisition of Picometrix,
Inc. Prior to joining the Company, Mr. Williamson served as the president,
chief
technology officer and a member of the board of directors of Picometrix, Inc.
since 1992, the year in which he co-founded Picometrix. Mr. Williamson earned
his B.A. in Physics (Optics) from the University of Rochester, has 35
publications in the field of ultra fast optics and optoelectronics and holds
twelve patents.
CORPORATE
GOVERNANCE
The
Company seeks to follow best practices in corporate governance in a manner
that
is in the best interests of our business and our stockholders. We are in
compliance with the corporate governance requirements imposed by the
Sarbanes-Oxley Act, the SEC and the AMEX and will continue to review our
policies and practices to meet ongoing developments in this area.
Code
of Ethical Conduct
The
Company has adopted a Code of Ethical Conduct applicable to its Chief Executive
Officer (CEO) and President and Chief Financial Officer (CFO) pursuant to the
Sarbanes-Oxley Act of 2002. In addition the Company has adopted a Code of
Business Conduct and Ethics applicable to all employees and Directors, including
the above officers. Both Codes of Ethics are published on the Company's web
site, www.advancedphotonix.com under the “Corporate Governance” link on the
Investors page. Both Codes of Ethics are also available in print to any
requesting stockholder. We will post any amendments to or waivers of both Codes
of Ethics on the Company’s website.
BOARD
MEETINGS AND COMMITTEES
Board
Meetings, Annual Meeting and Attendance of Directors
The
Board
of Directors held five meetings and acted by unanimous written consent two
times
during the fiscal year ended March 31, 2007.
Each
person who served as a director during the 2007 fiscal year attended at least
75% or more of the aggregate of (i) the total number of meetings of the
Board held while such person was a director, and (ii) the total number of
meetings held by all committees of the Board on which such person served while
such person was a member of such committee. As a matter of policy, members
of
the Board are required to make every reasonable effort to attend the Annual
Meeting. All members of the Board attended the Company’s 2006 Annual Meeting of
Stockholders held on August 27, 2006.
Director
Independence
The
Board
has affirmatively determined that the following directors have no material
relationship with the Company and are independent within the meaning of Rule
10A-3 and within the AMEX definition of “independence”: M. Scott Farese, Stephen
P. Soltwedel, Lance Brewer and Donald Pastor. Independent directors receive
no
compensation from the Company for service on the Board or the Committees other
than directors’ fees and options granted under our 2000 stock option plan.
Executive
Sessions
As
required by the AMEX listing standards, our non-management directors meet in
executive sessions with only non-management directors present at least once
annually.
Communications
with Directors
You
may
contact the entire Board of Directors, any Committee, the non-management
directors as a group or any individual director by calling the Company’s hotline
at 800-785-1003 (U.S. and Canada) which is administered by the third party
service provider, Lighthouse Services. Lighthouse Services collects all requests
for contact and delivers them to the appropriate director or group of directors.
The contact information for our hotline is also located on our website at
www.advancedphotonix.com under the “Investor Inquiries” link on the Investors
page. Stockholders are also welcome to communicate directly with the Board
at
its Annual Meeting.
Committees
of the Board
The
Board
has three standing committees: the Audit Committee, the Compensation Committee
and the Nominating and Governance Committee. All of the members of the Audit
Committee, the Compensation Committee and the Nominating and Governance
Committee are independent directors within the applicable definitions of the
AMEX listing standards and Rule 10A-3. Each of the Committees has the authority
to retain independent advisors and consultants, with all fees and expenses
to be
paid by the Company. The charters for the Audit Committee, the Compensation
Committee and the Nominating Governance Committee have been approved by the
Board of Directors and are posted on the Company’s website,
www.advancedphotonix.com under the “Corporate Governance” link on the Investors
page. The charters are also available in print to any requesting
stockholder.
As
set
forth in the Audit Committee Charter, the Audit Committee's primary
responsibilities are to: (1) oversee the Company's financial reporting
principles and policies including review of the financial reports and other
financial and related information released by the Company to the public, or
in
certain circumstances governmental bodies; (2) review of the Company’s system of
internal controls regarding finance, accounting, business conduct and ethics
and
legal compliance that management and the Board have established; (3) review
of
the Company’s accounting and financial reporting processes; (4) review and
appraisal with management of the performance of the Company’s independent
auditors; and (5) provide an open avenue of communication between the
independent auditors and the Board of Directors. The Audit Committee held four
meetings during the fiscal year ended March 31, 2007. During the 2007 fiscal
year, the Audit Committee consisted of Messrs. Farese, Pastor and Soltwedel,
all
of whom are independent within the meaning of Rule 10A-3 and within the
applicable AMEX definition of independence. The Board has determined that
Stephen P. Soltwedel and Donald Pastor qualify as "audit committee financial
experts" under the regulations promulgated by the SEC. None of the independent
directors receives compensation from the Company for service on the Board or
its
Committees other than directors' fees and option grants under the Company's
2000
Stock Option Plan.
Compensation
Committee.
The
Compensation Committee evaluates directors and management compensation plans
as
well as the Company's equity incentive plans. The Compensation Committee met
six
times during the 2007 fiscal year. The members of the Compensation Committee
are
Messrs. Farese, Brewer and Soltwedel, all of whom are independent under the
applicable AMEX definitions. Pursuant to the Compensation Committee Charter,
the
Committee is responsible for (i) discharging the Board’s responsibilities
relating to compensation of the Company’s executive officers and
(ii) reviewing and approving an annual report on executive compensation
prepared by the Company’s CFO for inclusion in the Proxy Statement in accordance
with applicable rules and regulations. The Committee made recommendations
concerning annual base salary and bonus for our executive officers for the
2007
calendar year and made recommendations as to the grant of stock options to
these
executive officers.
Nominating
and Governance Committee.
The
Nominating and Governance Committee identifies individuals qualified to become
members of the Board and its Committees and addresses the Company’s demands for
governance. The Nominating and Governance Committee met once in executive
session during the 2007 fiscal year; all other discussions were conducted in
connection with regular Board meetings. The members of the Nominating and
Governance Committee are Messrs. Farese, Brewer and Pastor, all of whom are
independent under the applicable AMEX definition.
The
Committee’s responsibilities include (i) identifying individuals qualified to
become Board members, (ii) recommending individuals to the Board as director
nominees and recommending directors to serve as members of the Board’s
committees, and (iii) developing and recommending to the Board a set of
Corporate Governance Guidelines.
Nomination
Procedures
The
Nominating & Governance Committee of the Board identifies, investigates and
recommends prospective directors to the Board with the goal of creating a
balance of knowledge, experience and diversity. In conducting this assessment,
the Nominating and Governance Committee considers, among other things, skills,
expertise, integrity, character, judgment, independence, corporate experience,
length of service, willingness to serve, conflicts and commitments (including,
among other things, the number of other public and private company boards on
which a director candidate serves), and such other factors as it deems
appropriate to maintain a balance of knowledge, experience and capability on
the
Company’s Board. The Committee also considers whether a prospective nominee has
appropriate business experience, as well as the ability to make independent,
analytical judgments, the ability to be an effective communicator and the
ability and willingness to devote the time and effort to be an effective and
contributing member of the Board.
In
the
case of incumbent directors whose terms of office are set to expire, the
Committee reviews such directors' overall service to the Company during their
terms, including the number of meetings attended, level of participation and
quality of performance. Consideration of new director nominee candidates
typically involves a series of internal discussions, review of information
concerning candidates and interviews with selected candidates. The Committee
identifies potential new director candidates by recommendations from its
members, other Board members, Company management and stockholders, and may,
if
necessary or appropriate, utilize the services of a professional search
firm.
The
Nominating & Governance Committee considers recommendations for director
candidates submitted by stockholders using the same criteria that it applies
to
recommendations from the Committee, directors and members of management. In
order to be considered, a recommendation from a stockholder must be submitted
to
the Secretary of the Company in accordance with the director nomination
procedures set forth in our by-laws and the applicable rules of the SEC. See
the
section to this proxy under the heading "Proposals of
Stockholders."
The
Company has not made any changes to the procedures by which stockholders may
recommend nominees to the Company's Board of Directors since the Company’s last
proxy statement.
EXECUTIVE
COMPENSATION
Compensation
Discussion and Analysis
This
Compensation Discussion and Analysis provides information on the compensation
program in place for the Company’s Chief Executive Officer, Chief Financial
Officer, President1
and
Chief
Technology Officer (the Named Executive Officers or NEOs).
Compensation
Philosophy and Objectives.
The
Company compensates its NEOs with a mix of base salary, bonus and equity
compensation designed to be competitive with the compensation offered by other
companies of comparable quality, size and performance. In general, the Company’s
executive compensation program is designed to achieve the following objectives:
| |
·
|
Pay
for Performance.
Motivate executive officers to achieve strategic business objectives
and
to sustain high levels of performance by tying a significant portion
of
their compensation to the achievement of the Company’s financial goals and
pre-established strategic and individual
objectives;
|
1 Until his resignation in June 2006, Paul
Ludwig served as President of the Company. Following his resignation, the
position of president was combined with the CEO. All references in this
discussion relating to compensation setting practices for the position of
President applied to Mr. Ludwig.
| |
·
|
Align
Interests of Executives with Long-Term Interests of
Stockholders.
Provide equity-based incentives, the value of which, over time, depends
upon the market value of the Company’s stock;
and
|
| |
·
|
Attract
and Retain Talented and Experienced Executives.
Create a compensation program that is competitive with companies
in the
Company’s market sector that compete with it for executive talent and
experience by gathering benchmarking data regarding compensation
plans and
levels.
|
Board
Process.
The
Compensation Committee reports to the Board of Directors (the Board) and is
responsible for setting and administering the Company’s compensation program
policies as well as monitoring the Company’s compensation philosophy and
objectives.
In
advance of each fiscal year, the Compensation Committee reviews and recommends
to the Board of Directors for approval all compensation awards, including
bonuses payable for the prior year and creation of the bonus targets for the
next fiscal year, to all executive officers, including the chief executive
officer (CEO), the chief financial officer (CFO), the President, the chief
technology officer (CTO) and each person in senior management who has a total
compensation level greater than $100,000. Generally, on its own initiative
the
Compensation Committee reviews the performance and compensation of the CEO,
and,
following discussions with him, and other advisors where it deems appropriate,
establishes the compensation level to be recommended to the Board. In this
context, the Compensation Committee evaluates the CEO’s performance in light of
agreed upon objectives, his contribution to the Company’s performance and other
leadership accomplishments. With respect to the other NEOs, the Compensation
Committee receives recommendations and performance evaluations from the CEO
and
CFO (with respect to all NEOs other than himself), and exercises its judgment
in
establishing its recommendations to the Board taking into account such
recommendations and evaluations. As with the CEO, such performance evaluations
are based on achievement of pre-agreed objectives by the executive and his
contribution to the Company’s overall performance.
With
respect to equity compensation awarded to NEOs, the Compensation Committee
establishes recommendations for option grants to the NEOs to be approved by
the
Board. In making such recommendations, the Compensation Committee considers
the
long-term incentive practices of comparable companies, the goals of the
Company’s long term incentive program, recommendations of the CEO and as
applicable reports received from its independent compensation consultant.
The
Compensation Committee is composed of three directors, all of whom are
independent under the applicable AMEX definitions. The Compensation Committee
held six meetings
during the 2007 fiscal year. The Compensation Committee reports to the Board
on
its actions and recommendations following each meeting and is responsible for
periodically updating the Board about Compensation Committee activities and
actions.
Compensation
Setting Principles and Methodologies. In
order
to establish the cash component of an NEO’s compensation, the Compensation
Committee establishes targeted overall cash compensation for each of its NEOs
and then allocates the total amount among base salary and short term incentives.
At the NEO level, the Compensation Committee designs the short term incentives
to reward company-wide performance through tying awards primarily to revenues
and earnings. With respect to non-executive employees, the Company designs
short
term incentive compensation to reward the achievement of specific operational
goals within areas under the control of the relevant employees, although
company-wide performance is also a factor. In addition to cash compensation,
NEO
compensation typically includes an equity component which furthers the Company’s
interest in providing a long term incentive to its executives. In determining
awards of equity based incentive compensation, the Compensation Committee takes
into account company performance, as well as an individual’s scope of
responsibility, the importance to stockholders of such person’s continued
service, and the Company’s interest in aligning management and stockholder
interests.
Targeted
Overall Cash Compensation.
The
Compensation Committee uses the concept of “targeted overall cash compensation”
to establish the cash and bonus compensation levels for each NEO. “Targeted
overall cash compensation” is the aggregate level of compensation that the
Company would pay if performance goals are fully met. For purposes of
establishing the targeted overall cash compensation for its NEOs for the 2006
fiscal year, the Compensation Committee engaged an independent consulting firm
specializing in compensation analysis to perform a study of the compensation
program for the top executive officers. This study remains relevant to the
determination of NEO compensation for the 2007 fiscal year since NEO
compensation was not increased for the 2007 fiscal year, except for a change
in
the CEO’s bonus matrix as described below. In establishing the compensation
levels for the 2007 fiscal year, the Compensation Committee relied on the
compensation consulting firm’s report prepared for the 2006 fiscal year, and its
own review of the NEO’s and the Company’s performance.
The
independent consulting firm’s study prepared in fiscal year 2006 analyzed
compensation practices as reported in the proxy statements of twenty-one (21)
public companies that were selected as industry peer companies of comparable
size to the Company.2
To
ensure that the executive officer compensation is competitive in the market,
the
Compensation Committee has used this study to evaluate the Company’s
compensation structure in relation to its industry peer group. In addition,
the
study developed a correlation between revenue and compensation for the four
highest paid positions, regardless of title. Following completion of the study,
the independent compensation consultant presented to the Compensation Committee
peer group benchmarking data and made recommendations regarding target levels
for total compensation for senior executives which the Compensation Committee
reviewed and considered.
In
addition to reviewing the peer group data results from the study and the
recommendations made by the CEO, the Compensation Committee also looked
extensively at a number of other factors, particularly projected net income,
and
revenue growth for the fiscal year 2006 business plan. In the case of
compensation for the Company’s CEO, it also considered the Company’s performance
during the past four years.
In
allocating the elements of compensation between salary and bonus, the
Compensation Committee believes that since members of management have the
greatest ability to influence the Company’s performance, the ratio of bonus to
salary should be higher with respect to NEO compensation than the ratio used
for
the rest of the employee population. Accordingly, the Compensation Committee
has
allocated approximately one-third of the CEO’s, and one quarter of the CFO’s and
CTO’s cash compensation to incentive compensation. In making this allocation,
the Compensation Committee relied in part upon the advice of its independent
consulting firm, and the compensation study prepared by the firm, which
benchmarked target compensation levels against the industry peer groups.
Elements
of Executive Compensation. The
elements of the compensation program for executive officers consist of the
following:
Base
Salaries.
The
Compensation Committee believes in providing senior management with a level
of
cash compensation in the form of a base salary that reflects the individual’s
experience and performance, including achievement of financial and strategic
objectives and is appropriate for a company of its size in its market sector.
The Compensation Committee reviews salaries at the end of each fiscal year
and
adjusts them as warranted to reflect sustained individual performance. Base
salaries are kept within a competitive range for each position based on the
Compensation Committee’s review of benchmark data regarding target ranges for
executive officer compensation at industry peer companies. Factors considered
in
decisions to materially increase or decrease compensation are based on Company
performance, accomplishment of objectives by the senior executive, and changes
in the responsibilities assigned to the executive officer.
2
The peer group reviewed by the Compensation Committee’s independent compensation
consultant consisted of the following companies:
ADE
Corp,
California Micro Devices Corp, Catalyst Semiconductor Inc., Exar Corp., Form
Factor Inc., IMP Inc., International Display Works, Leadis Technology Inc.,
Micropac Industries Inc., OPTI Inc., Porta Player Inc., Rudolph Technologies,
Sirenza Microdevices Inc. Solitron Devices, SPIRE Corp., SRS Labs Inc. Staktek
Holdings Inc., Supertex Inc., Tessera Technologies Inc. Trident Microsystems
Inc. TVIA Inc. Ultra Clean Holdings, Virage Logic Corp.
Based
upon its evaluation of the above factors and taking into account recommendations
of the independent compensation consultant as well as the fiscal year 2006
projections and budget, the Compensation Committee recommended and the Board
approved a base salary for the CEO of $185,000 for the fiscal year 2006, which
was within the range of salaries paid by similarly situated public
companies.
With
respect to the other NEOs, the Compensation Committee recommended and the Board
concluded that a base salary of $185,000 was also appropriate for the President,
CFO and CTO after a similar review, taking into account the benchmarks for
compensation for officers at this level in comparable companies, and the CEO’s
recommendation that total compensation for NEOs be equal in order to foster
and
continue to attract and retain a strong management group.
For
fiscal year 2007, the Board determined not to increase the NEOs’ base salaries,
as recommended to the Board by the Compensation Committee and the CEO, and
based
upon the projected loss of income sustained for the first year following the
acquisition of Picometrix, which closed in May 2005.
Cash
Incentive Bonuses.
The
Company’s practice is to award cash bonuses based upon performance objectives.
At the beginning of each fiscal year, the Compensation Committee establishes
targeted bonuses for each NEO and approves a matrix of performance objectives
which are tied to sales revenues and net income under the 2007 fiscal year
plan
(the 2007 Plan). At the end of each fiscal year, the Compensation Committee
reviews the Company’s actual performance as compared to the targeted performance
under the 2007 Plan and recommends a bonus for each NEO based on the matrix.
The
Compensation Committee may make a discretionary bonus when results are outside
the scope of the matrix due to extraordinary circumstances during the
year.
Targeted
Bonus.
In
establishing the NEO bonuses, the Compensation Committee used the study prepared
by its independent compensation consultant. The study outlined a company bonus
package range of 35% to 50% of base salary comparable to the range offered
by
other companies in its peer group. The Compensation Committee used these results
as its starting point to establish the targeted bonus for each NEO. The
Compensation Committee then reviewed the Company’s performance objectives as
described in the 2007 Plan and each NEO’s performance during the prior fiscal
year. For the fiscal year 2007, the Compensation Committee recommended and
the
Board approved the following target bonuses: the CEO’s targeted bonus is 50% of
his base compensation ($92,500) and the CFO’s and CTO’s targeted bonus is 35% of
their base compensation ($64,750).
Bonus
Matrix.
The
Company’s incentive compensation program is based on a bonus matrix designed to
reward its NEOs with annual cash awards for achieving targeted Company
performance objectives. The performance awards range from 20% to 200% of the
individual’s targeted bonus and are based on the achievement of targeted sales
and revenues and targeted income adjusted for non-cash expenses under the
applicable budget and plan. The Compensation Committee and the Board believe
these factors form the most appropriate metric for the Company given its debt,
capital structure and its projected revenue growth and income. The actual
targets for the performance goals are based on the Company’s confidential
strategic plans, and accordingly are not publicly disclosed for competitive
reasons. The Compensation Committee believes that the targeted goals are
realistic but challenging, and motivate the NEOs to promote the achievement
of
the Company’s financial and strategic goals.
Equity
Compensation.
Historically, the primary form of equity compensation that the Company awarded
consisted of non-qualified stock options. The Company selected this form because
of the favorable accounting and tax treatments and the near universal
expectation by employees in its industry that they would receive stock options.
However, beginning in 2006 the accounting treatment for stock options changed
as
a result of Statement of Financial Accounting Standards No. 123(R), making
the
accounting treatment of stock options less attractive. As a result, in July
2007, the Board adopted a new equity compensation plan which provides for grants
of stock in addition to options. If the stockholders approve the 2007 Equity
Incentive Plan at the annual meeting, the Company will have the ability to
issue
stock options and stock grants, which will be subject to time based or
performance based vesting depending on the terms of the grant. The Company
does
not have a definitive strategy for making stock grants to employees under this
plan; however, the Board believes that the ability to grant equity awards other
than incentive stock options is important because the value of the stock grant
will correspond more closely with the expense of the award.
Stock
Options. Stock
options are awarded based on attracting talent and retaining that talent based
on the vesting period of the stock option award. Stock options have value only
if the stock price increases over time. As the Company’s stock options have a
ten-year term, the options focus employees on long-term growth and align
employee incentives with stockholders. The granting of stock options is a
discretionary process which takes into account studies of the option grant
practices of the Company’s peer group, NEO’s individual performance and
achievements as well as the tax and accounting treatment of option grants.
The
Board reviews and approves the overall stock option pool for participating
employees and recommendations of the Compensation Committee for individual
option grants to executive officers. The Compensation Committee is also
responsible for administering the stock option plan.
With
the
exception of significant promotions and new hires, the Board generally grants
stock options at the first meeting of the Compensation Committee each year
following the availability of the financial results for the prior year. The
Compensation Committee grants options at this time because it enables the
Committee to consider prior year performance of the Company and the potential
recipients and expectations for the current year. The awards also are made
as
early as practicable in the fiscal year in order to maximize the time period
for
the incentives associated with the awards. The Board’s meeting schedule is
determined several months in advance, and the proximity of any awards to
earnings announcements or other market events is coincidental. In establishing
awards levels, the Compensation Committee may consider any or all aspects of
equity ownership levels of the recipients or prior awards that are fully vested.
No options were granted in with respect to the 2007 fiscal year.
Stock
Grants. The
Board
is submitting for approval at the 2007 Annual Meeting of Stockholders an equity
compensation plan which will enable the Company to award stock grants as well
as
options. The Board contemplates that stock grants will be available for grant
to
all employees and directors of the Company, including the Company’s NEOs. As
stock grants generally vest over multiple years, the grants intend to align
the
interests of the recipient with the long-term interests of the stockholders
by
creating an incentive for employees to maximize the Company’s total stockholder
value. The 2007 Equity Incentive Plan also plan also provides for the grant
of
Stock Grants subject to performance based vesting, which will enable the
Compensation Committee to reward participants for specific achievement of
financial and strategic goals.
A
full
description of the 2007 Equity Incentive Plan is set forth in this proxy
statement under “Proposal 2 - Adoption of 2007 Equity Incentive
Plan”.
Severance
Benefits.
Currently
there are only two executive officers that have employment agreements, Mr.
Robin
Risser, the Company’s CFO and Mr. Steven Williamson, the Company’s CTO. These
employment agreements were entered into in connection with the acquisition
of
Picometrix and will expire on May 2, 2008. The agreements provide for a base
salary of $185,000 and eligibility to participate in the bonus matrix, as
described above.
On
June
6, 2006, the Company entered into a separation agreement and general release
with Mr. Paul Ludwig, former President and Director of the Company, who
resigned as an employee of the Company effective August 31, 2006 and as the
President and Director of the Company effective immediately. The Company took
into consideration his past service to the Company and personal matters that
prevented him from relocating from Madison, Wisconsin to the new corporate
headquarters in Ann Arbor, Michigan. Under this separation and general release
agreement, the Company agreed to pay Mr. Ludwig the following separation
payments after August 31, 2006: (a) $123,344 representing approximately
eight months of Mr. Ludwig’s base salary, payable in eight substantially equal
installments of $15,418 each, with the first installment to be mailed on or
about October 3, 2006 and an additional installment to be mailed on or about
the
third day of each of the next seven months with the last installment to be
mailed on or about May 2, 2007; (b) a lump sum payment of $10,160.88
representing approximately eight months of the Company’s group health insurance
subsidy; and (c) the full amount, if any, of any accrued and unpaid vacation.
All of Mr. Ludwig’s currently outstanding stock option grants as of the date
would become fully vested and exercisable in accordance with and subject to
their terms. In addition, Mr. Ludwig was entitled to receive outplacement
assistance services up to a maximum cost of $20,000. Further, the Company paid
on behalf of Mr. Ludwig $18,325.86 in connection with the Company’s benefit
plans and 401(k) retirement plan for the fiscal year ended March 31, 2006.
In
consideration for the separation payments outlined above, Mr. Ludwig agreed
to
certain conditions, including the following: (a) release and discharge the
Company from all claims, (b) not to solicit any person who is, or within the
preceding twelve months was, a Company employee for a period of two years
following the separation date of August 31, 2006; and (c) abide by certain
continued confidentiality and non-disparagement obligations.
Change
in Control Arrangements and Agreements. The
Company does not have any change in control agreements or arrangements in place
for any of its executive officers. Under the Company’s 2000 Stock Option Plan
and the Proposed 2007 Equity Incentive Plan, the Board may decide in its sole
discretion to accelerate vesting of options and Stock Grants granted to
employees in connection with a change in control. Relative to the overall value
of the Company, these potential changes in control benefits are relatively
minor, but appropriate in order to further align the interests of management
with those of the stockholders.
Health
Benefits.
The
Company provides coverage for the CEO, CFO and CTO under a supplemental long
term disability plan which is greater than that offered by it to other
employees. The amount which the Company pays for this benefit is set forth
on
the Summary Compensation Table under the category of “All Other Compensation.”
Except for this coverage, all NEOs are eligible under the same health benefit
plans as all other employees for medical, dental, disability and life insurance.
These benefits are a necessary element of compensation to attract and retain
employees and are competitive with benefits offered in the Company’s
industry.
Retirement
Plans.
In the
interest of providing a reasonable level of retirement income, the Company
maintains a traditional 401(k) plan pursuant to which it matches 100% of the
first 3% of the employee’s pretax contributions and 50% of the next 2% of the
employee’s pretax contributions. Executive officers are covered by the same plan
on the same terms as provided to all salaried employees.
Perquisites
and Other Benefits.
The
only perquisites offered by the Company are relocation benefits, which are
individually negotiated for each occurrence. No relocation benefits were paid
to
any NEOs during the 2007 fiscal year.
Director’s
Compensation.
The
table
under the heading “Directors Compensation” in this proxy statement provides the
cash and equity compensation paid to the Company’s independent directors for the
2007 fiscal year.
Base
Compensation.
With
respect to the director’s compensation program, the Compensation Committee also
applied the concept of “targeted overall cash compensation,” or the aggregate
level of cash compensation that the Company would pay each of its independent
Board members. In 2004, the Company engaged an independent consulting firm
to
prepare a study which analyzed the compensation practices for board members
as
reported in the proxy statements of twenty-one (21) public companies that were
selected as industry peer companies of comparable size to the Company.
The
results of the study recommended that each of the Company’s independent
directors receive the following cash compensation: (1) a quarterly retainer
in
the amount of $2,000, (2) a board meeting attendance fee in the amount of
$1,000, and (3) a Committee meeting attendance fee in the amount of $750.
Additionally, given the level of effort necessary for the Audit Committee and
the Compensation Committee chairmanships, the chairs of the Audit Committee
and
the Compensation Committee receive an additional cash retainer of $2,500 and
$1,000, respectively. Employee directors do not receive any compensation for
attending board or Compensation Committee meetings.
The
Compensation Committee reviewed these recommendations for independent director
compensation and submitted proposals to the Board for approval. There have
been
no increases in director cash compensation since fiscal
year ended March
2005, the year in which the study was performed.
Stock
Options.
In
addition to outlining cash compensation practices for the Board, the study
also
provided peer group benchmarking data as to the amount and form of equity
incentives provided to directors, both upon initial election and in connection
with their annual service on the Board. The study recommended that non-employee
directors be granted options to purchase 100,000 shares of stock (the Initial
Grant) upon election, and options to purchase 25,000 shares of stock per year
commencing in the fourth year of service (the Annual Grant). The Initial Grant
vests as to 20% of the shares underlying the grant over a four year period
with
the first installment vesting on the sixth month anniversary and the remaining
installments vesting on the first, second, third and fourth annual anniversaries
of the date of the grant. The Annual Grant is granted at the beginning of the
fiscal year and vests on the six month anniversary of the date of the grant.
The
exercise price of the options is equal to the fair market value of the stock
on
the date of the grant.
Following
recommendation by the Company’s compensation consultant, the Board adopted this
proposal in August 2005. The Company’s option granting practice with respect to
its independent directors has remained the same since that time.
Tax
and Accounting Implications.
The
following is a summary of the tax and accounting treatment of compensation
paid
to the Company’s NEOs.
Nonqualified
Stock Options.
Generally, with respect to nonqualified stock options: (a) at the time of the
nonqualified stock option grant, the option holder does not recognize any
income; (b) at the time of exercise of the nonqualified stock option, the option
holder recognizes ordinary income in an amount equal to the difference between
the option exercise price paid for the shares and the fair market value of
the
shares on the exercise date and the Company is entitled to an income tax
deduction in the same amount; and (c) any gain or loss is treated as capital
gain or loss when the option holder disposes of his shares.
Accounting
for Stock-Based Compensation.
On
April 1, 2006, the Company began accounting for stock-based compensation,
including its Stock Option Plan, in accordance with the FASB Statement 123R
requirements. Once the Company has adopted and implemented the 2007 Equity
Incentive Plan, the Company will also begin accounting for Stock Grants in
accordance with the requirements of FASB Statement 123R.
Compensation
Committee Report*
We
have
reviewed and discussed with management the Compensation Discussion and Analysis
to be included in the Company’s 2007 Stockholder Meeting Schedule 14A Proxy
Statement, filed pursuant to Section 14(a) of the Securities Exchange Act of
1934 (the Proxy). Based on the reviews and discussions referred to above, we
have recommended to the Board of Directors that the Compensation Discussion
and
Analysis referred to above be included in the Company’s Proxy.
Compensation
Committee
M.
Scott
Farese (Chairman)
Lance
Brewer
Stephen
Soltwedel
*
Notwithstanding anything to the contrary set forth in any of our previous or
future filings under the Securities Act of 1933 or the 1934 Act, the Report
on
Executive Compensation by the Compensation Committee shall not be incorporated
by reference in any such filings.
EXECUTIVE
COMPENSATION TABLES AND NARRATIVE DISCLOSURE
The
following tables set forth executive compensation for the Company’s Chief
Executive Officer (CEO) and President, Chief Financial Officer (CFO) and Chief
Technology Officer (CTO) (the Named Executive Officers or NEOs) during the
2007
fiscal year.
Summary
Compensation Table
The
following table sets forth compensation for the Company’s Named Executive
Officers for the fiscal year ended March 31, 2007.
|
Name
& Position
|
|
Year
|
|
Salary
($)
|
|
Option
Awards ($)(1)
|
|
Non-Equity
Incentive Plan Compensation ($)(2)
|
|
All
Other Compensation ($)
|
|
Total
($)
|
|
Richard
Kurtz, Chief Executive Officer and President(3)
|
|
2007
|
|
185,000
|
|
17,406
|
|
64,750
|
|
8,690
|
(4)
|
275,846
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
Robin
Risser, Chief Financial Officer
|
|
2007
|
|
185,000
|
|
17,525
|
|
45,325
|
|
8,682
|
(4) |
256,532
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
Steve
Williamson, Chief Technology Officer
|
|
2007
|
|
185,000
|
|
17,525
|
|
45,325
|
|
8,502
|
(4) |
256,352
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
Paul
Ludwig, President(5)
|
|
2007
|
|
81,695
|
|
5,714
|
|
—
|
|
179,163
|
(6) |
266,572
|
| |
1)
|
Represents
the amount of compensation cost recognized by the Company in fiscal
year
2007 related to stock option awards granted in prior years, as described
in Statement of Financial Accounting Standards No. 123R (SFAS 123R).
For a
discussion of valuation assumptions see Note 1 to the Company’s 2007
Consolidated Financial Statements included in its Annual Report on
Form
10-K for the year ended March 31, 2007.
|
| |
2)
|
Represents
amounts paid under the bonus plan. Mr. Ludwig resigned prior to the
end of
fiscal year 2007 and was not eligible to receive any bonus amount
under
the bonus plan.
|
| |
3)
|
Effective
June 6, 2006, following the resignation of Mr. Ludwig, Mr. Kurtz
took over
the responsibilities of President. Mr. Kurtz does not receive any
additional compensation for such services.
|
| |
4)
|
Amounts
include life insurance premiums, Company matching contributions to
the
401K Savings Plan and long-term disability premiums.
|
| |
5)
|
Mr.
Ludwig resigned as the Company’s President effective June 6, 2006 and
resigned from employment with the Company effective August 31,
2006.
|
| |
6)
|
Represents
prorated amounts of life insurance premiums, Company matching
contributions to the 401K Savings Plan, long-term disability premiums
and
payments relating to Mr. Ludwig’s resignation including severance
($123,344), vacation pay-out ($21,000), outplacement ($20,000) and
a
health insurance subsidy ($10,161).
|
Grants
of Plan-Based Awards Table
The
Company provides for cash incentive awards to its NEOs pursuant to a bonus
plan.
Annually, the Compensation Committee establishes a targeted bonus for each
NEO
based on a percentage of his annual salary. With respect to the 2007 fiscal
year, the CEO’s targeted bonus was 50% of his salary, the CFO’s and the CTO’s
targeted bonus was 35% of their salaries. The Bonus Plan provides for a range
of
bonus awards based on the Company’s achievement of sales and net income results
which are approved by the Committee at the beginning of each fiscal year and
are
set forth in a matrix. NEOs are eligible for bonus awards under the bonus matrix
ranging from 20% to 200% of their targeted bonuses based on the Company’s
achievement of the sales and revenue results as of the fiscal year end. Actual
amounts paid under this incentive plan for the fiscal year 2007 are set forth
in
the “Summary Compensation Table.” A discussion of the Compensation Committee’s
administration of cash incentive bonus plan is provided in the “Compensation
Discussion and Analysis.”
The
following table sets forth the minimum (or Threshold), target, and maximum
awards available to the NEOs under the Company’s non-equity incentive plan for
the fiscal year ended March 31, 2007.
|
Estimated
Future Payout Under Non-Equity Incentive Plan
Awards
|
|
Name
|
|
Threshold
($) (1)
|
|
Target
($) (2)
|
|
Maximum
($) (3)
|
|
|
Richard
Kurtz
|
|
|
18,500
|
|
|
92,500
|
|
|
185,000
|
|
|
Robin
Risser
|
|
|
12,950
|
|
|
64,750
|
|
|
129,500
|
|
|
Steve
Williamson
|
|
|
12,950
|
|
|
64,750
|
|
|
129,500
|
|
|
Paul
Ludwig (4)
|
|
|
12,950
|
|
|
64,750
|
|
|
129,500
|
|
| |
(1)
|
Amount’s
represent 20% of the NEO’s targeted
bonus.
|
| |
(2)
|
Amount’s
represent 100% of the NEO’s targeted
bonus.
|
| |
(3)
|
Amount’s
represent 200% of the NEO’s targeted
bonus.
|
| |
(4)
|
The
targeted bonus and bonus matrix for Mr. Ludwig was established at
the
beginning of the fiscal year, however due to his resignation on August
31,
2006, he was not paid an incentive payment for the 2007 fiscal
year.
|
Narrative
Addendum to the Summary Compensation Table
and
the Grants of Plan-Based Awards Table
The
Named
Executive Officers include the executive officers whose total compensation
exceeds $100,000. Effective June 6, 2006, following Paul Ludwig’s resignation as
President, the position was combined with the CEO, however, since Mr. Ludwig
was
employed by the Company during the fiscal year, he has been included as a Named
Executive Officer in this proxy statement.
Employment
Agreements
The
Company entered into employment agreements with Messrs. Risser and Williamson
to
serve as its Chief Financial Officer and Chief Technical Officer, respectively,
effective May 2, 2005 in connection with the acquisition of Picometrix, Inc.
These employment agreements provide for an annual base salary of $185,000
subject to merit increases at the discretion of the Compensation Committee.
In
addition, Messrs. Risser and Williamson are each eligible to receive an annual
bonus under the bonus plan based on the bonus matrix (as described in the
“Compensation and Analysis Discussion” and in the “Grants of Plan-Based Awards”
table above). Pursuant to the agreement, Messrs. Risser and Williamson are
also
eligible to receive other benefits to the extent provided by the Company to
its
executive officers, including but not limited to, group medical insurance,
group
disability and life insurance.
Messrs.
Risser and Williamson’s employment agreement, each provides for an employment
guarantee for a three year period from the effective date of the agreement
limited to the payment of the agreed compensation and benefits for the remainder
of the three year term. The guarantee is triggered if the executive is
terminated without Cause or upon Good Reason (as defined in the Employment
Agreements). In the event of termination without Cause or upon Good Reason,
the
executive will be paid a lump sum severance equal to his base pay plus any
accrued but unused vacation and sick days, and will be entitled to continue
to
receive all benefits provided to him at the time of his termination during
the
guarantee period. The Company will also pay a health care subsidy for the
executive during the guarantee period. Receipt of benefits under this guarantee
is contingent on the executive’s executing a reciprocal release with the
Company.
Severance
Payment
Paul
Ludwig resigned as the Company’s President effective June 6, 2006 and as an
employee effective August 31, 2006, and executed a Separation and General
Release Agreement with the Company the terms of which are described in the
Compensation Discussion and Analysis. The amounts paid to Mr. Ludwig pursuant
to
this Agreement are set forth in the “All Other Compensation” column in the
“Summary Compensation Table” and in the table under the heading “Post
Termination Benefits and Change in Control” section below.
Option
Plans
The
Company’s 1997 Employee Stock Option Plan (which expired January 13, 2007) and
the 2000 Stock Option Plan (the Option Plans) provide that options may be
granted to employees, including executive officers, to purchase shares of Common
Stock at an exercise price equal to the fair market value of the Company’s
Common Stock on the date of the grant. All of the Company’s employees, its
subsidiaries’ employees, consultants and advisors are eligible to receive
options under the Option Plans. The Option Plans provide that the Board may
determine which employees are granted options and the number of shares subject
to each option. Non-employee directors also participate in the 2000 Stock Option
Plan. The purchase price for shares must be paid in cash or by the tender of
shares of Common Stock having a fair market value, as determined by the Board,
equal to the option exercise price. During the 2007 fiscal year, the Company
did
not grant options to any of its NEOs.
The
Company is proposing for adoption at the Annual Meeting a 2007 Equity Incentive
Plan which, in addition to granting options, would permit the Company to award
Stock Grants. Please see the description in this proxy under the heading
“Proposal 2-Adoption of the 2007 Equity Incentive Plan” for a complete
description of the 2007 Equity Incentive Plan and the awards which will be
available under it.
Outstanding
Equity Awards at Fiscal Year End Table
The
following table sets forth information regarding each unexercised option held
by
each of the Company’s NEOs as of March 31, 2007. Mr. Ludwig is omitted from the
table since all of his options expired prior to March 31, 2007 as a result
of
his resignation from the Company effective August 31, 2006.
|
Name
|
|
Number
of Securities Underlying Unexercised Options (#)
Exercisable
|
|
Number
of Securities Underlying Unexercised Options (#)
Unexercisable
|
|
Option
Exercise Price ($)
|
|
Option
Expiration Date
|
|
|
Richard
Kurtz
|
|
|
25,000
|
|
|
—
|
|
|
5.34
|
|
|
2/22/2010
|
|
| |
|
|
150,000
|
|
|
—
|
|
|
3.19
|
|
|
8/25/2010
|
|
| |
|
|
70,000
|
|
|
—
|
|
|
0.80
|
|
|
4/20/2011
|
|
| |
|
|
25,000
|
|
|
—
|
|
|
0.86
|
|
|
8/17/2011
|
|
| |
|
|
150,000
|
|
|
—
|
|
|
0.67
|
|
|
2/20/2012
|
|
| |
|
|
60,000
|
|
|
30,000
|
(1)
|
|
0.93
|
|
|
5/19/2013
|
|
| |
|
|
16,800
|
|
|
11,200
|
(2)
|
|
2.25
|
|
|
6/10/2014
|
|
| |
|
|
8,400
|
|
|
12,600
|
(3)
|
|
2.32
|
|
|
6/3/2015
|
|
|
Robin
Risser
|
|
|
40,000
|
|
|
60,000
|
(4)
|
|
2.11
|
|
|
5/2/2015
|
|
|
Steve
Williamson
|
|
|
40,000
|
|
|
60,000
|
(4)
|
|
2.11
|
|
|
5/2/2015
|
|
| |
1)
|
The
option was granted on May 19, 2003 and is exercisable as to 20% of
the
shares underlying the option on the six month anniversary and the
first,
second, third and fourth annual
anniversaries.
|
| |
2)
|
The
option was granted on June 10, 2004 and is exercisable as to 20%
of the
shares underlying the option on the six month anniversary and the
first,
second, third and fourth annual
anniversaries.
|
| |
3)
|
The
option was granted on June 3, 2005 and is exercisable as to 20% of
the
shares underlying the option on the six month anniversary and the
first,
second, third and fourth annual
anniversaries.
|
| |
4)
|
The
option was granted on May 2, 2005 and is exercisable as to 20% of
the
shares underlying the option on the six month anniversary and the
first,
second, third and fourth annual
anniversaries.
|
Option
Exercises and Stock Vested Table
The
following table shows the number of shares acquired upon exercise of stock
options by each of the Company’s NEOs during the fiscal year ended March 31,
2007.
| |
|
Option
Awards
|
|
|
Name
|
|
Number
of Shares Acquired on Exercise (#)
|
|
Value
Realized on Exercise ($) (1)
|
|
|
Richard
Kurtz
|
|
|
60,000
|
|
|
58,558
|
|
|
Robin
Risser
|
|
|
—
|
|
|
—
|
|
|
Steve
Williamson
|
|
|
—
|
|
|
—
|
|
|
Paul
Ludwig
|
|
|
150,000
|
|
|
197,000
|
|
| |
1)
|
The
“value realized on exercise” is the difference between the market price of
the underlying security at exercise and the exercise price of the
option.
|
Post-Termination
Benefits and Change in Control
Messrs.
Risser and Williamson are entitled to post-termination payments and benefits
pursuant to the terms of their Employment Agreements which were entered into
in
connection with the acquisition of Picometrix, Inc. Mr. Kurtz, the Company’s CEO
and President, is not eligible for any post-termination benefits. In addition
in
connection with Mr. Ludwig’s resignation, the Company entered a Separation and
General Release Agreement providing for certain post-termination benefits.
The
following table sets forth the Company’s reasonable estimate of the potential
payments to each Messrs. Risser and Williamson upon termination as if
termination occurred as of March 31, 2007 and the actual payments payable to
the
Company’s former President, Mr. Ludwig for his resignation as of August 31,
2006. The Company does not have any arrangements in place to make payments
or
provide benefits to its NEOs in connection with a change in control of the
Company.
|
Name
& Position
|
|
Salary
($)
|
|
All
Other Compensation ($)
|
|
Total
($)
|
|
|
Robin
Risser, Chief Financial Officer (1)
|
|
|
201,430
|
(2)
|
|
34,186
|
(3)
|
|
235,616
|
|
|
Steve
Williamson, Chief Technical Officer (1)
|
|
|
201,430
|
(2)
|
|
49,107
|
(3)
|
|
250,537
|
|
|
Paul
Ludwig, President (4)
|
|
|
123,344
|
(5)
|
|
51,509
|
(6)
|
|
174,853
|
|
| |
1)
|
Messrs.
Risser and Williamson are entitled to post-termination benefits pursuant
to their three year employment agreements which expire on May 2,
2008 and
are further described above under the heading “Employment Agreements.”
|
| |
2)
|
Represents
thirteen months of salary through May 2,
2008.
|
| |
3)
|
Amounts
represent estimates of payments over the thirteen month period remaining
under the officer’s employment guarantee relating to life insurance
premiums, health and welfare benefits, short-term and long-term disability
premiums and earned vacation.
|
| |
4)
|
Amounts
disclosed for Mr. Ludwig represent the actual benefits paid to Mr.
Ludwig
pursuant to the Separation and General Release Agreement with Mr.
Ludwig
effective August 31, 2006 the date of Mr. Ludwig’s termination of
employment.
|
| |
5)
|
Pursuant
to the terms of the Separation and General Release Agreement, the
Company
agreed to pay Mr. Ludwig a severance payment consisting of eight
months
base pay totaling $123,344 payable in eight equal installments.
|
| |
6)
|
Represents
include a payment of $21,000 resulting from his accrued unused vacation,
$10,160.88 for eight months of health and welfare insurance subsidy
and
$20,000 for outplacement assistance services.
|
Director
Compensation Table
The
table
below summarizes the compensation paid by the Company to non-employee directors
for the fiscal year ended March 31, 2007.
|
Name
|
|
Fees
Earned or Paid in Cash ($)
|
|
Option
Awards ($) (1)
|
|
Total
($)
|
|
|
M.
Scott Farese
|
|
|
23,750
|
|
|
56,595
|
|
|
80,345
|
|
|
Steve
Soltwedel
|
|
|
20,500
|
|
|
56,595
|
|
|
77,095
|
|
|
Lance
Brewer
|
|
|
19,000
|
|
|
31,783
|
|
|
50,783
|
|
|
Donald
Pastor
|
|
|
20,000
|
|
|
31,783
|
|
|
51,783
|
|
| |
1)
|
Represents
the amount of compensation cost recognized by the Company in fiscal
year
2007 related to stock option awards granted in prior years, as described
in Statement of Financial Accounting Standards No. 123R (SFAS 123R).
For a
discussion of valuation assumptions see Note 1 to the Company’s 2007
Consolidated Financial Statements included in the Company’s Annual Report
on Form 10-K for the year ended March 31, 2007.
|
Director
Fees
During
the fiscal year ended March 31, 2007, each Director was paid an annual retainer
of $8,000 plus a fee of $1,000 for each Board meeting attended. In addition
each
Committee member was paid $750 for each Committee meeting attended, and the
Chairman of the Compensation Committee received $250 per quarter and the
Chairman of the Audit Committee received $625 per quarter.
Director
Equity Compensation
Under
the
Company’s present program, an option covering 100,000 shares of Common Stock is
granted to each of the Company’s non-employee directors upon his initial
appointment to the Board. In addition, any non-employee director who has
commenced his fourth year of service is automatically granted an option to
purchase 25,000 shares of Common Stock once each fiscal year. Messrs. Farese
and
Soltwedel are the only non-employee directors who were eligible for the
automatic grant during the fiscal year ended March 31, 2007. All options granted
to non-employee directors are granted under the 2000 Stock Option Plan and
have
a term of ten years and an exercise price equal to the fair market value of
a
share of Common Stock on the date of grant. All options remain exercisable
for a
six month period following a non-employee director’s cessation of service or the
length of the stated option term, if shorter.
If
the
2007 Equity Incentive Plan is approved by the stockholders at the Annual
Meeting, non-employee directors will no longer be eligible to receive option
grants under the arrangements described above. Pursuant to the 2007 Equity
Incentive Plan, in lieu of receiving options, each non-employee director will
be
granted a Stock Grant under the 2007 Plan for Common Stock having a fair market
value of $25,000 on the date of the grant pro-rated for the period from the
director’s appointment to the following September 1, which Stock Grants will be
subject to a risk of forfeiture for a six month period from the date of grant.
In addition, each incumbent non-employee director will be granted an annual
Stock Grant of that number of shares of Common Stock having a fair market value
of $25,000 on the date of grant. Since an option was granted to the two
non-employee directors who are eligible to receive such annual grants in April,
2007, this Stock Grant will not be awarded until September 1, 2008, at which
time it will only be awarded to the two non-employee directors who would have
been eligible to receive an option grant under the Company’s prior arrangements,
assuming such directors are serving on the Board at such time. The remaining
two
non-employee directors will receive their first annual grant on September 1,
2009 assuming they are providing services at such time, which is when they
would
have been eligible to receive the annual option grant under the Company’s prior
arrangements described above. The annual Stock Grant to the non-employee
directors is subject to forfeiture for the six month period following the date
of the grant. A full description of the 2007 Plan is available under the heading
“Proposal 2—Adoption of 2007 Equity Incentive Plan.”
CERTAIN
RELATIONSHIPS AND RELATED TRANSACTIONS
The
Company is the obligor with respect to a promissory note held by Mr.
Risser, a Director of the Company and its CFO, (the Risser Note), and a
promissory note held by Mr. Williamson, the Company’s CTO, (the Williamson
Note). The notes were entered into in connection with the Company’s acquisition
of Messrs. Risser’s and Williamson’s equity interests in Picometrix, Inc. The
highest amount owing under the Risser Note during the fiscal year was $966,833,
which was the amount owing as of April 1, 2006. The highest amount owing under
the Williamson Note during the fiscal year was $1,933,667, which was the amount
owing as of April 1, 2006. As of March 31, 2007, $800,166 was outstanding under
the Risser Note and $1,600,334 was outstanding under the Williamson Note. Each
promissory note accrues interest at a rate 9.25% per annum payable quarterly.
The principal on each note is payable in annual installments on each anniversary
of the note with final payment due on May 2, 2009. With respect to the fiscal
year ended March 2007, the Company
paid $241,334 in principal and interest under the Risser Note and $482,666
under
the Williamson Note.
RELATIONSHIP
WITH INDEPENDENT AUDITORS
Farber
Hass Hurley & McEwen, LLP (FHH&M), independent auditors, audited the
Company's financial statements for fiscal years 2000 through 2007.
Representatives of FHH&M are expected to be present at the Annual Meeting to
respond to appropriate questions from stockholders and to make a statement
if
they desire to do so.
Independent
Auditor Fees
The
following table sets forth the aggregate fees billed to the Company for the
fiscal years ended March 31, 2006 and March 31, 2007, by the Company's
independent auditor, FHH&M. The following table presents fees for
professional audit services rendered by FHH&M for the audit of the Company's
annual financial statements and review of financial statements included in
the
registrant's quarterly reports on Form 10-Q (Audit Fees) for fiscal 2006 and
2007, and fees billed for other services rendered by FHH&M.
| |
|
2007
|
|
2006
|
|
|
Audit
Fees(1)
|
|
$
|
131,000
|
|
$
|
119,230
|
|
|
Audit
Related Fees (2)(3)
|
|
$
|
3,000
|
|
$
|
9,350
|
|
|
Tax
Fees(4)
|
|
|
—
|
|
$
|
10,970
|
|
|
|
|
|
—
|
|
|
—
|
|
|
Total
|
|
$
|
134,000
|
|
$
|
139,550
|
|
| |
1)
|
The
fees consisted of the audit of the Company's consolidated financial
statements included in the Company's Annual Report on Form 10-K and
reviews of its interim financial statements included in the Company's
Quarterly Reports on Form 10-Q.
|
| |
2)
|
Audit
related fees for the 2006 fiscal year consisted principally of the
audit
of the Company’s benefit plan and consultations regarding acquisitions.
|
| |
3)
|
The
Audit Committee has determined that the provision of all non-audit
services performed for the Company by Farber Hass Hurley & McEwen LLP
is compatible with maintaining that firm’s independence.
|
| |
4)
|
Tax
fees for the 2006 fiscal year consisted primarily of tax return
preparation, state tax matters and tax advisory
services.
|
The
Audit
Committee's policy is to pre-approve all audit services and all non-audit
services that the Company's independent auditor is permitted to perform for
the
Company under applicable federal securities regulations. While it is the general
policy of the Audit Committee to make such determinations at full Audit
Committee Meetings, the Audit Committee may delegate its pre-approval authority
to one or more members of the Audit Committee, provided that all such decisions
are presented to the full Audit Committee at its next regularly scheduled
meeting.
AUDIT
COMMITTEE REPORT*
The
Company's Audit Committee oversees the Company's financial reporting process
on
behalf of the Board of Directors (the Board). The Committee has three members,
each of whom is "independent" as determined under Rule 10A-3 of the Securities
Exchange Act of 1934, as amended, and the rules of the American Stock Exchange.
The Audit Committee operates under a written charter adopted by the
Board.
The
Audit
Committee met and held discussions with management and representatives of Farber
Hass Hurley & McEwen, LLP (FHH&M), the Company’s independent registered
public accounting firm. The Audit Committee reviewed and discussed the audited
consolidated financial statements, as well as the unaudited financial statements
included in Quarterly Reports on Form 10-Q for each of the first three quarters
of the fiscal year, with management and FHH&M. The Audit Committee discussed
with FHH&M the matters required to be discussed by Statement on Auditing
Standards No. 61, as amended. FFH&M also provided the Audit Committee with
the written disclosure required by Standard No. 1, “Independence Discussions
with Audit Committee,” and the Committee discussed with FHH&M its
independence.
Based
on
the reviews and discussions referred to above, the Audit Committee recommended
to the Board of Directors that the audited financial statements be included
in
the Company’s Annual Report on Form 10-K for the year ended March 31, 2007 for
filing with the Securities and Exchange Commission.
Audit
Committee
Donald
Pastor (Chairman)
Stephen
Soltwedel
Martin
S.
Farese
*
Notwithstanding anything to the contrary set forth in any of our previous or
future filings under the Securities Act of 1933 or the 1934 Act, the Report
on
Executive Compensation by the Compensation Committee shall not be incorporated
by reference in any such filings.
PROPOSAL
2 - ADOPTION OF THE 2007 EQUITY INCENTIVE PLAN
The
Board
has adopted, subject to stockholder approval, and recommends the adoption of
the
Company’s proposed 2007 Equity Incentive Plan (2007 Plan), pursuant to which
options and stock grants may be granted (each, an Award).
Purpose
The
purpose of the 2007 Plan is to enable the Company to offer participants a
variety of equity-based incentives, including stock options and stock grants,
which provide an additional incentive for directors and employees to further
the
Company’s growth and success by aligning the participants’ interests with the
Company’s interest through their ownership of Company securities. In addition,
only an aggregate of 85,000 shares of Common Stock remain available for option
grant under the 2000 Stock Option Plan and the 1997 Employee Stock Option Plan
expired during the fiscal year. The Board believes that the 2007 Plan will
provide the Company with more flexibility in creating the equity component
of
compensation, as the proposed 2007 Plan permits time-based and performance-based
vesting for options and stock grants. As a result of the change in the
accounting rules relating to the accounting for stock options, and recognizing
the trend toward granting alternative types of awards, the Company has expanded
the types of awards available under the 2007 Plan to include stock grants.
The
Company believes that the 2007 Plan will enable it to continue to attract,
retain and motivate its directors, employees, consultants and advisors. The
addition of performance-based vesting also supports the Company’s objective to
closely align its employees’ interests with the Company’s performance. In
addition the new forms of equity grants will give the Committee the ability
to
provide equitable and competitive compensation to the participants as well
as
recognize and reward individual contributions and achievements of goals. The
Board believes that the 2007 Plan is necessary to remain competitive and to
promote the Company’s long-term success within the industry.
The
following description of the 2007 Plan is qualified in its entirety by reference
to the 2007 Plan, a copy of which is attached to this Proxy Statement as
Appendix A and is incorporated by reference herein.
Administration
The
2007
Plan shall be administered by a Committee of independent directors. Subject
to
the terms and conditions of the 2007 Plan, this Committee is authorized to
determine to whom among the eligible persons Awards shall be granted, the number
of Shares covered by an Award, the terms of each Award, and whether any Option
is intended to be an Incentive Stock Option (ISO) or a Non-Incentive Stock
Option (NSO). In addition this Committee has authority to interpret and specify
rules relating to the 2007 Plan.
Eligibility
All
of
our employees, non-employee directors, as well as consultants and advisors
to
the Company are eligible to participate in the 2007 Plan. Currently we have
four
non-employee directors and 162 employees.
To
date,
we have not granted any equity awards to our consultants or advisors. In making
the determination as to the employees to whom Awards shall be granted and as
to
the number of shares of Common Stock (each, a Share) to be covered by such
Awards, the Committee shall take into account the duties of the respective
employees, their present and potential contributions to the success of the
Company and such other factors as the Committee shall deem relevant in
connection with accomplishing the purposes of the 2007 Plan.
Shares
Available for Issuance
If
the
2007 Plan is approved by our stockholders, the number of Shares with respect
to
which Awards may be granted under the 2007 Plan is 2,500,000, which includes
1,500,000 which may be issuable upon the exercise of ISOs granted under the
2007
Plan. In
addition, the following
Shares may also be used for issuance of Awards under the 2007 Plan:
(i) Shares which have been forfeited under a Stock Grant; and
(ii) Shares which are allocable to the unexercised portion of an option
issued under the 2007 Plan which has expired or been terminated.
Per-Person
Award Limitations
Under
the
2007 Plan, the number of Shares with respect to which Awards may be granted
to
any individual may not exceed 500,000 during any calendar year.
Types
and Terms of Awards
The
Committee is authorized to grant the following types of awards under the 2007
Plan: stock options (Options) including ISOs and NSOs and stock grants (Stock
Grants).
Options.
The
Committee is authorized to grant Options, including ISOs which can result in
potentially favorable tax treatment to the option holder and NSOs. The exercise
price of an Option is determined by the Committee at the time of grant and
may
not be less than the fair market value of the Shares on the date the Option
is
granted. The term of Options granted to employees may not exceed ten years.
The
exercise price of Options is payable in cash, in Shares or in a combination
of
the two.
Stock
Grants.
Stock
Grants are awards of stock which may in the discretion of the Committee vest
upon the satisfaction of conditions, which may be based on performance factors
or continued service for a specified period of time as determined by the
Committee and set forth in the individual Award agreement.
Automatic
Stock Grants to Non-Employee Directors.
An
initial Stock Grant equal to that number of shares of Stock having a Fair
Market
Value on the date of grant of $25,000, pro-rated for the period of service
commencing on the date of the non-employee director’s appointment or election to
the Board through the following September 1 will automatically be granted
to
persons who become non-employee directors from and after the approval of
the
2007 Plan by the stockholders. The 2007 Plan also provides for an automatic
annual Stock Grant on September 1 of each year commencing September 1, 2008
to
each then serving non-employee director equal to the number of shares of
Stock
having a Fair Market Value on the date of grant of $25,000, provided however
directors who have an unvested initial option grant under the Company’s prior
arrangements shall not then be eligible to receive a Stock Grant. Each Stock
Grant is subject to the condition that the grantee must continue to serve
as a
non-employee director of the Company for a period of six months following
the
date of grant. Each Stock Grant which is subject to conditions which have
not
been satisfied will be forfeited at the time of the cessation of the director’s
services to the Board.
General
Limitations on Post Termination Exercisability of Employee
Awards.
Unless
otherwise provided by the Committee, in the event of a termination of an
employee’s employment for any reason other than death, Disability or Retirement
(each as defined in the Plan, and all of which are subject to special rules
as
set forth in the Plan), Options to the extent then exercisable will remain
exercisable for three months from the termination date or until the expiration
of the stated term of such Option, if shorter. Unless otherwise provided
by the
Committee, upon a termination of a participant’s service for any reason, Stock
Grants awarded to such participant are forfeited on the date of such termination
to the extent the conditions applicable to such Stock Grant have not been
satisfied.
General
Limitations on Post Termination Exercisability of Consultant and Advisor
Awards.
Unless
otherwise provided by the Committee, upon the termination of a contractual
relationship with a Consultant or Advisor, Options to the extent then
exercisable will remain exercisable for three months from the termination
date
or until the expiration of the stated term of such Option, if shorter. Unless
otherwise provided by the Committee, upon a termination of a contractual
relationship with a Consultant or Advisor, Stock Grants granted to such
participant are forfeited on the date of such termination to the extent the
conditions applicable to such Award have not been satisfied.
Other
Provisions
Mergers
and Consolidations.
In the
event of a sale of all or substantially all of the assets of the Company
or
merger or consolidation, which results in a change of control, the Board
may
during the ten day period prior to the date of any such change in control,
(i) cause each Option to be exchanged or converted into an award of options
to purchase securities of the successor entity, (ii) provide that all then
outstanding Options shall become exercisable in full, or (iii) take such
other
action as it determines appropriate. With respect to Stock Grants which are
not
fully vested, the Board may cause each Stock Grant to be exchanged or converted
into a stock grant covering securities of the successor entity subject to
equivalent time based or performance-based conditions or provide that all
such
conditions are satisfied.
Dissolution.
In the
event of the dissolution of the Company, all Stock Grants to the extent the
applicable conditions have not been satisfied shall be forfeited, and all
outstanding Options shall be exercisable to the extent then exercisable in
accordance with their terms, within a ninety day period and if not so exercised
shall be forfeited.
Amendments,
Adjustments & Termination. The
Board
may modify, amend or terminate the 2007 Plan, so long as that action does
not
impair any participant’s rights under any outstanding Award without the consent
of such affected participant. The Board may not amend the 2007 Plan without
the
approval of the stockholders, to the extent such approval is required under
applicable AMEX and SEC rules. In the event of a change to our capitalization,
the Board has authority to make adjustments, if any, as it deems appropriate
and
pursuant to applicable laws requiring stockholder approval. The 2007 Plan
terminates on July 8, 2017 unless earlier terminated by the Board. No Awards
will be granted under the 2007 Plan after termination however, the term and
exercise of Awards granted before termination may extend beyond the termination
date.
Future Plan Benefits
No
benefits are determinable under the 2007 Plan at this time. Annual automatic
grants to non-employee directors under the 2007 plan will not be effective
until
September 1, 2008 and will only be granted to then serving directors; and
the
automatic initial grant to a non-employee director is triggered upon the
appointment of a new director. In addition, all grants to employees under
the
2007 Plan are subject to the discretion of the Committee that administers
the
2007 Plan.
Federal
Income Tax Consequences
The
following is a general explanation of the U.S. federal income tax consequences
to participants under the 2007 Plan who are subject to tax in the United
States.
The following is intended for the general information of stockholders
considering how to vote with respect to the 2007 Plan and not as tax guidance
to
participants in the 2007 Plan. The following is not intended to be complete
and
does not take into account federal employment taxes or state, local or foreign
tax implications. Tax laws are complex and subject to change and may vary
depending on individual circumstances and from locality to locality. In
addition, different tax rules may apply in light of variations in transactions
that are permitted under the 2007 Plan (such as payment of the exercise price
by
surrender of previously owned shares).
Incentive
Stock Options (ISOs).
Subject
to the limit with respect to the maximum Award that may be granted to any
individual in any calendar year, an individual can receive an unlimited number
of ISOs during any calendar year. However, the aggregate fair market value
(determined at the time of Option grant) of shares with respect to which
ISOs
first become exercisable by a participant during any calendar year (under
all of
the Company’s Plans) cannot exceed $100,000. ISO tax treatment is denied by the
Code to any options in excess of that dollar limit.
The
grant
and exercise of an ISO will generally not result in income for the participant
or an income tax deduction for the Company if the participant is an employee
of
the company or one of its subsidiaries from the date of option grant and
through
the date which is three months after before the exercise date (or one year
before the exercise date if the participant’s employment with the Company
terminated as a result of the participant’s “disability” as defined in the 2007
Plan. (However, the excess of the fair market value of the shares on the
exercise date over the exercise price is an item of adjustment, potentially
subject to the alternative minimum tax.) The sale or other taxable disposition
of shares acquired upon an ISO exercise will not result in ordinary income
by
the participant if the participant does not dispose of the shares within
two
years from the date of option grant or within one year from the date of option
exercise (the Holding Requirements). If the Holding Requirements are met,
gain
realized on the sale or other taxable disposition of the shares will be subject
to tax as long-term capital gain and the Company would not be entitled to
any
income tax deduction.
If
the
participant disposes of shares acquired upon the ISO exercise without
satisfaction of the Holding Requirements, the disposition will be a
“disqualifying disposition” and the participant will recognize at the time of
such disposition (i) ordinary income to the extent of the difference between
the
exercise price and the lesser of (a) the fair market value of the shares
on the
date of exercise or (b) the amount realized on such disposition, and
(ii) short-term or long-term capital gain to the extent of any excess of
the amount realized on the disposition over the fair market value of the
shares
on the date of exercise. Notwithstanding the foregoing, if the participant
dies
prior to the option exercise but the participant was an employee of the Company
or one of its subsidiaries from the date of option grant and through the
date
which is three months before the date of death, then the Holding Requirements
will not apply to a sale or other taxable disposition of the shares by the
estate of the participant or by a person who acquired the option from the
participant by bequest or inheritance. The Company generally will be entitled
to
an income tax deduction equal to the amount of ordinary income recognized
by the
participant at the time such income is recognized.
Non-Incentive
Stock Options (NSOs).
Subject
to the limit with respect to the maximum Award that may be granted to any
individual in any calendar year, there is no limit on the aggregate fair
market
value of stock covered by NSOs that may be granted to an participant or on
the
aggregate fair market value of NSOs that first become exercisable in any
calendar year. Generally, the participant will not recognize income and no
income tax deduction will be allowed to the Company upon the grant of an
NSO.
Upon the exercise of an NSO, the participant will recognize ordinary income
in
an amount equal to the excess of the fair market value of the shares at the
time
of option exercise over the exercise price, and the Company generally will
be
entitled to an income tax deduction in the same amount. The Company will
be
required to ensure that any applicable withholding and payroll tax requirements
are satisfied. Any difference between the higher of such fair market value
or
the option exercise price and the price at which the participant sells the
shares will be taxable as short-term or long-term capital gain or loss.
Stock
Grants.
A
participant receiving a Stock Grant subject to time or performance-based
vesting
conditions will not recognize any income at the time of grant in the absence
of
a Section 83(b) election (described below). The participant generally will
recognize ordinary income at the time the vesting conditions expire, in an
amount equal to the excess of the fair market value of the shares on that
date
over the amount (if any) paid by the participant for the shares. For purposes
of
determining gain on a sale of the shares, (i) the participant's tax basis
in the
shares will be equal to the amount included in income upon the expiration
of the
vesting conditions plus the amount (if any) paid for the shares, and (ii)
the
participant's holding period for the shares will begin when the vesting
conditions expire. Any sale or other disposition of the shares will result
in
long-term or short-term capital gain. With respect to a Stock Grant that
is
subject to time or performance-based vesting conditions, a participant may
be
able to make an election under Section 83(b) of the Code to be taxed at the
time
of the Stock Grant. In that event the participant would recognize as ordinary
income the excess of the fair market value of the shares as of the date of
grant
over the amount (if any) paid by the participant for the shares and the
participant’s holding period would begin at the time of the Award. The Company
generally will be entitled to a corresponding income tax deduction at the
time
ordinary income is recognized by the participant. The Company will be required
to ensure that any applicable withholding and payroll tax requirements are
satisfied.
Section
162(m) Limit. Under
Section 162(m) of the Code, the Company is not entitled to an income tax
deduction for compensation paid to any of the Company’s five most highly
compensated executive officers (including its CEO) that is in excess of $1
million per year, unless such compensation is “performance-based compensation.”
The 2007 Plan has been structured with the intent that Awards granted under
the
2007 Plan may meet the requirements for performance-based compensation under
Section 162(m) of the Code, including compensation derived from the exercise
of
Options (if granted at a fair market value exercise price) and other Awards
that
vest upon the achievement of pre-established, objectively determinable targets
based on performance criteria. Awards which satisfy these standards generally
should be deductible as performance-based compensation and should not be
subject
to the limitation on deductibility under Section 162(m) of the
Code.
Section
409A.
Section
409A of the Code does not apply to ISOs or NSOs that are issued at fair market
value or to Stock Grants (provided there is no deferral of income beyond
the
vesting date).
Other
Tax Issues.
State
and local income tax consequences may, depending on the jurisdiction, differ
from the federal income tax consequences of the granting and exercise of
an
Option or Stock Grant and any later sale by the participant of his or her
Award.
There may also be, again depending on the jurisdiction, transfer or other
taxes
imposed in connection with a disposition, by sale, bequest or otherwise,
of
Awards. Participants should consult their personal tax advisors with respect
to
the specific state, local and other tax effects on them of Awards, exercises
and
stock dispositions.
Plan
Participation Table
Equity
Compensation Plan Information
The
following table sets forth information regarding outstanding options and
shares
reserved for future issuance under the Company’s existing equity compensation
plans as of March 31, 2007.
|
Plan
Category
|
|
Number
of securities to be issued upon exercise of outstanding options,
warrants
and rights
(a)
|
|
Weighted-average
exercise
price of
outstanding
options,
warrants
and rights
(b)($)
|
|
Number
of securities remaining available
for
future issuance
under
equity compensation plans (excluding securities reflected in column
(a))
(c)
|
|
|
2000
Stock Option Plan
|
|
|
2,103,000
|
|
|
1.98
|
|
|
175,000
|
(3)
|
|
1997
Employee Stock Option Plan(1)
|
|
|
203,000
|
|
|
1.61
|
|
|
—
|
|
|
1991
Directors Stock Option Plan(2)
|
|
|
64,000
|
|
|
4.46
|
|
|
—
|
|
|
Total
|
|
|
2,370,000
|
|
|
2.02
|
|
|
175,000
|
|
|
(1)
|
The
1997 Employee Stock Option Plan expired on January 13,
2007.
|
| (2) |
The
1991 Directors Stock Option Plan expired on June 18,
2001.
|
|
(3)
|
Represents
Shares authorized for issuance and not issued as of March 31, 2007
under
our 2000 Stock Option Plan. As of June 29, 2007, there were 85,000
Shares
which remained available for issuance under the 2000 Stock Option
Plan.
|
THE
BOARD RECOMMENDS THAT THE STOCKHOLDERS VOTE IN FAVOR
OF
THE 2007 PLAN.
MISCELLANEOUS
Annual
Report
The
Company’s 2007 Annual Report is being mailed to stockholders contemporaneously
with this Proxy Statement.
Form
10-K
AT
YOUR WRITTEN REQUEST, WE WILL PROVIDE WITHOUT CHARGE A COPY OF OUR ANNUAL
REPORT
ON FORM 10-K AS FILED WITH THE SEC FOR THE FISCAL YEAR ENDED MARCH 31, 2007.
PLEASE MAIL YOUR REQUEST TO THE SECRETARY, 2925 BOARDWALK, ANN ARBOR,
MICHIGAN 48104. YOU MAY ALSO ACCESS OUR 10-K UNDER THE “INVESTORS” LINK ON OUR
WEBSITE AT WWW.ADVANCEDPHOTONIX.COM.
Proposals
of Stockholders; Stockholder Business
If
you
wish to submit a proposal for consideration at our 2008 Annual Meeting of
Stockholders, you should submit the proposal in writing to the Secretary
of the
Company at the address set forth on the Notice page of this Proxy Statement.
Proposals must be received by us on or before March 22, 2008, for inclusion
in
next year’s proxy materials. If you submit a proposal you must, in all other
respects, comply with Rule 14a-8 under the Securities Exchange Act of 1934.
If
you intend to present a proposal at our 2008 Annual Meeting without inclusion
of
the proposal in our proxy materials, you are required to provide notice of
the
presenting proposal to the Company in accordance with our By-Laws no later
than
June 25, 2008 nor earlier than May 26, 2008.
Your
vote is important. We urge you to vote without delay.
| |
|
|
| |
By
Order of the Board of Directors,
|
| |
|
|
| |
|
|
| |
ROBIN
F. RISSER,
|
| Dated:
July 16,
2007 |
Secretary |
Appendix
A
ADVANCED
PHOTONIX, INC.
2007
EQUITY INCENTIVE PLAN
1.
The Plan.
This
2007 Equity Incentive Plan (the “Plan”) is intended to encourage ownership of
stock of Advanced Photonix, Inc. (the “Corporation”) by employees and
non-employee directors of, and consultants and advisors to, the Corporation
and
its subsidiaries and to provide additional incentive for them to promote
the
success of the business of the Corporation.
2.
Types of Awards. The
following types of awards (each, an “Award”) may be granted: (a) options
intended to qualify as incentive stock options (“ISOs”) within the meaning of
Section 422 of the Internal Revenue Code of 1986, as amended (the “Code”), (b)
options not intended to qualify as ISOs (“NSOs” and together with ISOs,
“Options”) and (c) restricted stock grants (“Stock Grants”).
3.
Stock Subject to the Plan.
Subject
to the provisions of Section 10 hereof, the total number of shares of Class
A
Common Stock, par value $.001 per share, of the Corporation (the “Stock”) which
may be issued pursuant to Awards issued under the Plan is 2,500,000, of which
a
maximum of 1,500,000 may be issued upon the exercise of ISOs. Shares issued
under the Plan may be authorized but unissued shares of Stock or Stock held
as
treasury stock. The following shares of Stock may be used for further issuance
of Awards under the Plan: (i) shares of Stock which have been forfeited under
a
Stock Grant, and (ii) shares of Stock which are allocable to the unexercised
portion of an Option which has expired or been terminated.
4.
Administration. The
Plan
shall be administered by a committee (the “Committee”) composed of no fewer than
three (3) members of the Board of Directors of the Corporation (the “Board”)
each of whom meets the definition of “outside director” under the provisions of
Section 162(m) of the Code and the definition of “non-employee director” under
the provisions of the Securities Exchange Act of 1934, as amended (the “Exchange
Act”) or rules and regulations promulgated thereunder. Except as otherwise
provided herein, the Committee shall have plenary authority, in its discretion,
to determine to whom among the eligible persons Awards shall be granted,
the
number of shares of Stock subject to each Award, the terms of each Award
including the option exercise price and the vesting schedule of each option,
and
whether any Option is intended to be an ISO or an NSO. The Committee shall
have
plenary authority, subject to the express provisions of the Plan, to interpret
the Plan, to prescribe, amend and rescind any rules and regulations relating
to
the Plan and to take such other action in connection with the Plan as it
deems
necessary or advisable. The interpretation, construction and administration
by
the Committee of any provisions of the Plan or of any Award granted hereunder
shall be final and binding on recipients of Awards hereunder and no member
of
the Board or the Committee shall be liable for any action or determination
made
in good faith with respect to the Plan or any Award granted thereunder by
the
Committee.
5.
Eligibility.
All
employees and non-employee directors of, and consultants and advisors to,
the
Corporation and its subsidiaries (including subsidiaries which become such
after
adoption of the Plan) shall be eligible for Awards under the Plan. In making
the
determination as to persons to whom Awards shall be granted and as to the
number
of shares of Stock to be covered by such Awards, the Committee shall take
into
account the duties of the respective persons, their present and potential
contributions to the success of the Corporation and such other factors as
the
Committee shall deem relevant in connection with accomplishing the purpose
of
the Plan. The adoption of the Plan shall not be deemed to give any employee,
non-employee director, consultant and/or advisor any right to an Award, except
to the extent and upon such terms and conditions as may be determined by
the
Committee. Neither the Plan nor any Award granted hereunder is intended to
or
shall confer upon any Awardee any right with respect to continuation of any
employment, consulting or advisory relationship with the Corporation or any
of
its subsidiaries.
6.
Stock Grant to Non-Employee Directors.
(a)
Grant
upon Initial Election.
A Stock
Grant equal to that number of shares of Stock as determined in accordance
with
this Section 6(a) shall automatically be granted under the Plan to each
non-employee director who is first appointed or elected to the Board on or
after
the Effective Date (as such term is defined in Section 11 below) and prior
to
the expiration of the Plan on the date of such appointment or election of
such
non-employee director. The number of shares of Stock subject to the Stock
Grant
made pursuant to this Section 6(a) shall be determined by (i) dividing $25,000
by the Fair Market Value of a share of Stock on the date of the grant, and
(ii)
multiplying such amount by a fraction having a numerator equal to the number
of
days elapsed between the date of the director’s initial appointment or election
and the following September 1st and having a denominator equal to 365, and
(iii)
rounding the resulting number to the nearest whole number of shares.
(b)
Annual
Grant.
Commencing September 1, 2008 and annually thereafter on September 1 of each
year, each then serving non-employee director shall be automatically granted
a
Stock Grant equal to that number of shares of Stock as determined by dividing
$25,000 by the Fair Market Value of a share of Stock on the date of the grant
(rounded to the nearest whole number of shares), provided that any non-employee
director who received an initial option grant under any plan or arrangement
of
the Corporation or its subsidiaries in effect prior to the Effective Date,
which
option is not fully vested on the date of the Annual Grant, shall not be
entitled to receive an annual Stock Grant pursuant to this Section 6(b).
(c)
Terms
of Director Grants.
Each
Stock Grant made pursuant to this Section 6 shall conform in all respects
to the
provisions of Section 9 below, provided that (i) Section 9(e)(ii) shall not
apply to any such Stock Grant and (ii) the only Condition to which such Stock
Grant shall be subject is that the Grantee must continue to serve as a
non-employee director of the Corporation for a period of six months following
the date of grant.
(d)
Termination
of Previous Automatic Option Grants.
From
and after the Effective Date no options or stock grants shall be made to
any
non-employee director pursuant to any plan or arrangement of the Corporation
or
its subsidiaries in effect prior to the Effective Date.
7.
Certain Limits on Awards.
(a)
Limit
on ISOs.
The
aggregate Fair Market Value (determined as of the date of the Option grant)
of
Stock with respect to which ISOs granted to an employee (whether under the
Plan
or under any other stock option plan of the Corporation or its subsidiaries)
become exercisable for the first time in any calendar year may not exceed
$100,000 (or such other amount as the Internal Revenue Service may decide
from
time to time for purposes of Section 422 of the Code). If any grant of Options
is made to an Awardee in excess of the limits provided in the Code, the excess
shall automatically be treated as an NSO. Only employees of the Corporation
or
any of its subsidiaries shall be eligible to receive the grant of an ISO.
(b)
Limit
on all Awards.
The
number of shares of Stock for which an Awardee may be granted Awards under
the
Plan during any calendar year shall not exceed 500,000 subject to the provision
of Section 10.
8.
Terms and Conditions of Options. Options
shall be granted subject to the following terms and conditions and such other
terms and conditions as the Committee may prescribe:
(a)
Form
of Option.
Each
Option granted pursuant to the Plan shall be evidenced by an agreement (the
“Option Agreement) which shall clearly identify the status of the Option granted
(i.e., whether an ISO or an NSO) and which shall be in such form as the
Committee shall from time to time approve. The Option Agreement shall comply
in
all respects with the terms and conditions of the Plan and may contain such
additional provisions, including, without limitation, provisions for permitting
the exercise of the Option over time or subject to performance conditions,
and
other restrictions upon the exercise of the Option, as the Committee shall
deem
advisable.
(b)
Stated
Term.
The
term of each Option granted shall be for a maximum of ten years from the
date of
granting thereof, or a maximum of five years in the case of an ISO granted
to a
10% Holder (as such term is defined in Section 15), but may be for a lesser
period or be subject to earlier termination as provided by the Committee
or the
provisions of the Plan or the Option Agreement.
(c)
Option
Exercise Price.
Each
Option shall state a per share option exercise price, which shall be not
less
than 100% of the Fair Market Value of a share of Stock on the date of the
Option
grant, nor less than 110% of such Fair Market Value in the case of an ISO
granted to a 10% Holder. The Fair Market Value of shares of Stock shall be
determined by the Committee based upon (i) the mean between the highest and
lowest selling prices of the Stock on the American Stock Exchange (or such
other
exchange on which the Stock is listed) on the date of the granting of the
Award,
or (ii) if the Stock did not trade on such date, the mean between the high
bid
and low asked prices, or (iii) such other measure of Fair Market Value as
may reasonably be determined by the Board (but consistent with the rules
under
Section 409A of the Code). “Fair Market Value” as used throughout the Plan shall
mean the fair market value as determined in accordance with this Section
8(c).
(d)
Exercise
of Options.
An
Option may be exercised from time to time as to any part or all of the Stock
as
to which it is then exercisable in accordance with its terms, provided, however,
that an Option may not be exercised as to fewer than 100 shares at any time
(or
for the remaining shares then purchasable under the Option, if fewer than
100
shares). In addition, except as otherwise permitted by the Committee, Options
granted hereunder may not be exercised prior to the expiration of six months
from the date of Option grant. The Option exercise price shall be paid in
full
at the time of the exercise thereof (i) in cash, (ii) by the transfer to
the
Corporation of shares of Stock with a Fair Market Value equal to such exercise
price, provided that such shares of Stock have been owned by the Optionee
for
six months, or (iii) by a combination of cash and the transfer of shares
of
Stock pursuant to clause (ii) above. The holder of an Option shall not have
any
rights as a stockholder with respect to the Stock issuable upon exercise
of an
Option prior to the date of exercise.
(e)
Non-Transferability
of Options.
Except
as provided in the following sentence, an Option shall not be transferable
other
than by will or the laws of descent and distribution and shall be exercisable
during the lifetime of the Optionee only by him or his legal representative.
If
permitted by the Committee in its sole discretion, NSOs may be transferred
by
the Optionee by gift to members of the Optionee's immediate family, including
trusts for the benefit of such family members and partnerships or limited
liability companies in which such family members are the only owners. A
transferred NSO shall be subject to all of the same terms and conditions
of the
Plan and the Option Agreement as if such NSO had not been
transferred.
(f)
Cessation
of Service.
(i) Cessation
of Service.
For
purposes of this Section 8(f) and Section 9(e), the phrase “cessation of
service” or any variation thereof shall mean (A) with respect to an employee of
the Corporation, such employee’s ceasing to be employed by the Corporation or
any of its subsidiaries, (B) with respect to a non-employee director, such
director’s ceasing to be a member of the Board, or (C) with respect to a
consultant or an advisor, termination of the contractual relationship between
such consultant or advisor and the Corporation, in each instance for any
reason,
including in the case of employees, termination as a result of Retirement
or
Disability. The phrase “Termination Date” shall mean the date of any cessation
of service.
(ii) Treatment
of Employee Options.
(A)
Death
or Disability.
In the
event an employee ceases to provide services to the Corporation or any of
its
subsidiaries as a result of Disability, Options granted to such employee
which
are subject solely to time based conditions shall continue to vest in accordance
with their terms as if such employee continued to provide services to the
Corporation and shall continue to be exercisable for their stated term, provided
that such employee was employed by the Corporation or any of its subsidiaries
for a period of at least one year following the grant of the Option and prior
to
the Termination Date. In the event of an employee’s death (1) while
providing services to the Corporation or any of its subsidiaries or (2)
following a cessation of service due to Disability, the Option shall become
fully exercisable by the employee’s estate and shall remain exercisable for the
remainder of the Option term as set forth in the Option Agreement, provided
that
such employee was employed by the Corporation or any of its subsidiaries
for a
period of at least one year following the grant of the Option and prior to
the
Termination Date.
(B)
Other
Cessation of Service.
Except
as otherwise set forth in Section 8(f)(ii)(A) or in the Option Agreement,
the
number of shares of Stock which may be purchased upon the exercise of an
Option
shall not exceed the number of shares of Stock as to which such Option was
exercisable pursuant to the Plan and the Option Agreement as of the Termination
Date. If the employee’s cessation of service was as a result of the employee’s
Retirement, the Option shall remain exercisable for the balance of its stated
term, provided that such employee was employed by the Corporation or any
of its
subsidiaries for a period of at least one year following the grant of the
Option
and prior to the Termination Date. Except as otherwise set forth in this
Section
8(f) or in the Option Agreement, an Option granted to an employee shall remain
exercisable for three (3) months following the Termination Date (or, if shorter,
the remainder of the Option term as set forth in the Option Agreement). For
purposes of the previous sentence only, with respect to NSO grants only,
an
employee who continues to provide services to the Corporation as a non-employee
director of the Corporation or as a consultant to the Corporation following
termination of his employment by the Corporation or any of its subsidiaries
shall be deemed to continue to be an employee of the Corporation for the
period
during which he provides services as a director or consultant. Notwithstanding
anything to the contrary herein, the Committee
may, in its sole discretion when it finds that such an action would be in
the
best interests of the Corporation, accelerate or waive in whole or in part
any
or all remaining time based restrictions with respect to all or part of an
Option Grant.
(c)
Definitions.
The
term “Retirement” as used in this Section 8(f)(ii) means the termination of the
employment of a Optionee with the Corporation or its subsidiary on or after
(A) the Optionee’s 65th birthday or (B) the Optionee’s 55th birthday if the
Optionee has completed ten years of service with the Corporation or a subsidiary
of the Corporation. The term “Disability” as used in this Section 8(f) shall
have the meaning set forth in Section 22(e)(3) of the Code.
(iii) Treatment
of Consultant and Advisor Options.
Except
as otherwise set forth in the Option Agreement, in the event of a cessation
of
service of a consultant or advisor, the number of shares of Stock which may
be
purchased upon the exercise of an Option shall not exceed the number of shares
of Stock as to which such Option was exercisable pursuant to the Plan and
the
Option Agreement as of the Termination Date. Except as otherwise set forth
in
the Option Agreement, an Option granted to a consultant or advisor shall
remain
exercisable by such consultant or advisor for a period of three (3) months
following the Termination Date (or, if shorter, the remainder of the Option
term
as set forth in the Option Agreement).
(iv) Other
Limitations.
Notwithstanding anything to the contrary in this Section 8(f), if the cessation
of service is as a result of gross misconduct, including without limitation,
violations of applicable Corporation policies or legal or ethical standards,
as
determined by the Corporation, all rights under the Option shall terminate
on
the Termination Date. In addition to the foregoing, the Committee may impose
such other limitations and restrictions on the exercise of an Option following
the Termination Date as it deems appropriate, including a provision for the
termination of an Option in the event of the breach by the Optionee of any
of
his contractual or other obligations to the Corporation.
9.
Terms and Conditions of Stock Grants.
The
Committee may in its discretion grant Stock Grants, which shall be made subject
to the following terms and conditions and such other terms and conditions
as the
Committee may prescribe:
(a)
Form
of Grant.
Each
Stock Grant shall be evidenced by an agreement (the “Restricted Stock
Agreement”) executed by the Corporation and the Grantee, in such form as the
Committee shall approve, which Agreement shall be subject to the terms and
conditions set forth in this Section 9 and shall contain such additional
terms
and conditions not inconsistent with the Plan as the Committee shall
prescribe.
(b)
Number
of Shares Subject to an Award; Consideration.
The
Restricted Stock Agreement shall specify the number of shares of Stock subject
to the Stock Grant. A Stock Grant shall be issued for such consideration
as the
Committee may determine appropriate and may be issued for no cash consideration
or for such minimum cash consideration as may be required by applicable law.
(c)
Conditions.
Each
Stock Grant shall be subject to such conditions as the Committee shall establish
(the “Conditions”), which may include, but not be limited to, conditions which
are based upon the continued employment or service of the Grantee over a
specified period of time, or upon the attainment by the Corporation of one
or
more measures of the Corporation’s operating performance, such as earnings,
revenue, operating or net cash flows, financial return ratios, total shareholder
return or such other measures as may be determined by the Committee (the
“Performance Conditions”), or upon a combination of such factors. Measures of
performance may be based upon the performance of the Corporation or upon
the
performance of a defined business unit or function for which the Grantee
has
responsibility or over which the Grantee has influence. The Grantee shall
have a
vested right to the Stock subject to the Stock Grant to the extent that the
Conditions applicable to such Stock Grant have been satisfied. A Grantee
shall
forfeit all of his right, title and interest in and to any Stock subject
to a
Stock Grant in the event that (and to the extent that) such Conditions are
not
satisfied.
(d)
Limitations
on Transferability.
As used
herein, the term “Restricted Period” means, with respect to any shares of Stock
subject to a Stock Grant, the period beginning on the Award Date and ending
on
the date on which the Conditions applicable to the Stock Grant have been
satisfied. During the Restricted Period, the Grantee will not be permitted
to
sell, transfer, exchange, pledge, assign or otherwise dispose of any shares
of
Stock subject to the Stock Grant (except for shares of Stock as to which
the
Grantee’s rights have vested); provided, however, that the Committee in its
discretion may permit the transfer by the Grantee by gift of shares of Stock
to
members of the Grantee’s immediate family, including trusts for the benefit of
such family members and partnerships or limited liability companies in which
such family members are the only owners, it being understood that any shares
of
Stock so transferred shall remain subject to all of the terms and conditions
of
the Plan and the applicable Restricted Stock Agreement as if the shares of
Stock
had not been transferred. Except as provided in the preceding sentence, any
attempt to transfer shares of Stock subject to a Stock Grant prior to the
Conditions applicable to such Stock Grant being satisfied shall be
ineffective.
(e)
Cessation
of Service.
(i) Upon
cessation of service for any reason during the Restricted Period, all shares
of
Stock subject to a Stock Grant as to which the Conditions have not lapsed
or
been satisfied or waived shall be forfeited by the Grantee and will be treated
as owned by the Corporation.
(ii) In
the
event of the Grantee’s cessation of service for any reason, the Committee may,
in its sole discretion when it finds that such an action would be in the
best
interests of the Corporation, accelerate or waive in whole or in part any
or all
time-based or continuous service Conditions or Performance Conditions with
respect to all or part of such Grantee’s Stock Grant, except as to any Stock
Grant that is intended to constitute “performance-based compensation” under
Section 162(m) of the Code.
(f)
Rights
as a Stockholder.
Except
as otherwise provided herein or as the Committee may otherwise determine,
a
Grantee shall have all of the rights of a stockholder of the Corporation,
including the right to vote the shares subject to a Stock Grant and to receive
dividends and other distributions thereon, provided that distributions in
the
form of stock shall be subject to all of the terms and conditions of the
Plan
and the Restricted Stock Agreement.
10.
Changes in Capitalization, Liquidations and Mergers.
(a)
Changes
in Capitalization.
In the
event of a stock dividend, recapitalization, reclassification, split-up or
combination of shares, any extraordinary cash dividend or other similar
corporate transaction or event, the Committee shall have the power to make
appropriate adjustments of the exercise price under Options and of the number
and kind of shares as to which such Options are then exercisable, to the
end
that the Grantee’s proportionate interest shall be maintained as before the
occurrence of such event. An appropriate adjustment shall also be made in
the
total number and kind of shares of Stock reserved for the future granting
of
Awards under this Plan (and to the maximum number of Awards, including ISOs,
that may be granted). Any such adjustment made by the Committee pursuant
to this
Plan shall be binding upon the holders of Awards hereunder for all purposes
under the Plan.
(b)
Mergers,
Consolidation, Reorganization, Etc.
In the
event of a sale of all or substantially all of the assets of the Corporation
or
in the event of a merger or consolidation of the Corporation into or with
another company (a “Merger”) in circumstances in which the shareholders of the
Corporation immediately prior to the Merger do not own a majority of the
securities of the successor entity entitled to vote generally in the election
of
the directors, board of managers, or persons performing similar functions,
for
the successor entity, the Board at its election shall as of a date not later
than ten days prior to the date of any such Merger: (i) with respect to
outstanding Options, make such arrangements as it determines appropriate
(A) to cause each Option to be exchanged or converted into an award of
options to purchase securities of the successor entity having an equivalent
value as the Option to be converted, or (B) to provide that all then outstanding
Options shall become exercisable in full, or (C) to take such other action
as it
determines appropriate; (ii) with respect to outstanding Stock Grants which
are not fully vested and are subject solely to continuous service Conditions,
make arrangements as it determines appropriate (A) to cause each Stock Grant
to
be exchanged or converted into a restricted stock grant covering securities
of
the successor entity having an equivalent value to the unvested portion of
the
Stock Grant to be converted, or (B) to provide that all such Conditions to
which such Stock Grants are subject are satisfied; and (iii) with respect
to Stock Grants which are not fully vested and are subject to Performance
Conditions, make arrangements as it determines appropriate (A) to cause each
such Stock Grant to be exchanged or converted into a restricted stock grant
covering securities of the successor entity having an equivalent value of
the
unvested portion of the Stock Grant and to amend the applicable Performance
Conditions as appropriate, including by converting such Performance Conditions
to continuous service Conditions, or (B) to provide that all such Conditions
to
which such Stock Grants are subject are satisfied or waived.
(c)
Dissolution
of the Corporation.
(i) In
the
event of the dissolution of the Corporation, whether voluntary or otherwise,
(A)
all Stock Grants to the extent the applicable Conditions have not been met
by
the date specified in subsection (ii) below shall be forfeited, and (B) all
Options outstanding under the Plan shall be exercised, if at all, within
the
ninety day period commencing on the date specified in subsection (ii) below
and
shall be exercisable to the extent only of, and with respect to, any or all
shares of Stock for which they could have been exercised immediately prior
to
the date specified in subsection (ii). All Options not exercisable immediately
prior to the date specified in subsection (ii) shall terminate upon such
date,
and all Options exercisable immediately prior to such date shall, to the
extent
not exercised within the ninety-day period commencing on such date, terminate
at
the end of such ninety-day period.
(ii) The
date
specified in this subsection (ii) is the date of the earliest to occur of
the
following events: (A) The entry, in a court having jurisdiction, of an order
that the Corporation be liquidated or dissolved; (B) Adoption by the
shareholders of the Corporation of a resolution resolving that the Corporation
be dissolved voluntarily; or (C) Adoption by the shareholders of the
Corporation of a resolution to the effect that the Corporation cannot, by
reason
of its liabilities, continue its business and that it is advisable to dissolve
the Corporation.
(d)
No
Constraint on Corporate Action.
Nothing
in the Plan shall be construed (i) to limit or impair or otherwise affect
the Corporation’s right or power to make adjustments, reclassifications,
reorganizations or changes of its capital or business structure, or to merge
or
consolidate, dissolve or sell or transfer all or any part of its business
or
assets, or (ii) except as provided in Section 13, to limit the right or power
of
the Corporation or any subsidiary to take any action which such entity deems
to
be necessary or appropriate.
(e)
Limitation
on Adjustments to Awards.
Notwithstanding anything to the contrary in this Section 10, (i) no adjustments
shall be made with respect to an Award to an employee covered under Section
162(m) of the Code to the extent such adjustment would cause an Award intended
to qualify as “performance-based compensation” under that Section of the Code to
fail to so qualify; and (ii) no adjustment pursuant to this Section 10 shall
be
made with respect to any Option which is an ISO without the consent of the
Optionee, if such adjustment would be a modification of such Option within
the
meaning of Section 424(h) of the Code.
11.
Stockholder Approval. The
Plan
is subject to the approval by the affirmative vote of a majority of the shares
of Stock present in person or represented by proxy at a duly held meeting
of the
stockholders of the Corporation within twelve months after the date of the
adoption of the Plan by the Board (the date of which approval is the “Effective
Date”). No Award granted under the Plan shall vest prior to the Effective Date.
If the Effective Date shall not occur on or before July 8, 2008, the Plan
and
all then outstanding Awards made hereunder shall automatically terminate
and be
of no further force and effect.
12.
Term of Plan.
The
Plan, if approved by the Corporation’s stockholders, will be effective July 9,
2007. The Plan shall terminate on July 8, 2017 and no Awards shall be granted
after such date, provided that the Board may at any time terminate the Plan
prior thereto. Except as provided in Section 10, the termination of the Plan
shall not affect the rights of Awardees under Awards previously granted to
them
and all Awards shall continue in full force and effect after termination
of the
Plan, except as such Awards may lapse or be terminated by the terms of the
Plan,
the Option Agreement or the Restricted Stock Agreement.
13.
Amendment of the Plan. The
Board
shall have complete power and authority to modify or amend the Plan (including
the forms of Option Agreement and Restricted Stock Agreement) from time to
time
in such respects as it shall deem advisable; provided, however, that the
Board
shall not, without approval by the affirmative vote of a majority of the
shares
of Stock present in person or represented by proxy at a duly held meeting
of the
stockholders of the Corporation, (i) increase the maximum number shares of
Stock
which in the aggregate are subject to Awards or which may be granted pursuant
to
Options under the Plan (except as provided by Section 10), (ii) extend the
term
of the Plan or the period during which Awards may be granted or Options
exercised, (iii) reduce the Option exercise price below 100% (110% in the
case
of an ISO granted to a 10% Holder) of the Fair Market Value of the Stock
issuable upon exercise of the Option at the time of the granting thereof,
other
than to change the manner of determining the Fair Market Value thereof
(consistent with the rules under Section 409A of the Code), (iv) except as
provided by Section 10, increase the maximum number of shares of Stock for
which an Awardee may be granted an Award during any calendar year under the
Plan
pursuant to Section 7(b), (v) materially increase the benefits accruing to
participants under the Plan, (vi) modify the requirements as to eligibility
for
participation in the Plan, or (vii) with respect to Options which are
intended to qualify as ISOs, amend the Plan in any respect which would cause
such Options to no longer qualify for ISO treatment pursuant to the Code.
No
amendment of the Plan shall, without the consent of the Awardee, adversely
affect the rights of such Awardee under any outstanding Option Agreement
or
Restricted Stock Agreement.
The
Plan
is intended to comply with the requirements of Section 409A of the Code,
without
triggering the imposition of any tax penalty thereunder. To the extent necessary
or advisable, the Board may amend the Plan or any Award Agreement to delete
any
conflicting provision and to add such other provisions as are required to
fully
comply with the applicable provisions of Section 409A of the Code and any
other
legislative or regulatory requirements applicable to the Plan.
14.
Taxes. The
Corporation may make such provisions as it deems appropriate for the withholding
of any income, employment or other taxes which it determines is required
in
connection with any Award made under the Plan, including requiring the Awardee
to make a cash payment to the Corporation equal to the Corporation’s withholding
obligation or deducting such amount from any payment of any kind otherwise
due
to the Awardee. The Corporation may further require notification from the
Optionee upon any disposition of Stock acquired pursuant to the exercise
of
Options granted hereunder.
15.
Code References and Definitions. Whenever
reference is made in the Plan to a section of the Code, the reference shall
be
to said section as it is now in force or as it may hereafter be amended.
The
term “subsidiary” shall have the meaning given to the term “subsidiary
corporation” by Section 424(f) of the Code. The terms “Incentive Stock Option”
and “ISO” shall have the meanings given to them by Section 422 of the Code. The
term “10% Holder” shall mean any person who, for purposes of Section 422 of the
Code, beneficially owns more than 10% of the total combined voting power
of all
classes of Stock of the Corporation or of any subsidiary of the Corporation.
The
term “Optionee” means the holder of an Option granted hereunder, the term
“Grantee” means the recipient of a Stock Grant made hereunder, and the term
“Awardee” means an Optionee or a Grantee.