SCHEDULE 14A
(Rule 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the
Securities Exchange
Act of 1934 (Amendment No. )
Filed by the Registrant
[X]
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Filed by a Party other than
the Registrant [ ]
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Check the appropriate
box:
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[ ]
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Preliminary Proxy
Statement
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Soliciting Material Under Rule
14a-12
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Confidential, For Use of
the
Commission Only (as permitted
by Rule 14a-6(e)(2))
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[X]
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Definitive Proxy
Statement
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Definitive Additional
Materials
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PHOTRONICS,
INC.
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(Name of Registrant as
Specified In Its Charter)
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(Name
of Person(s) Filing Proxy Statement, if Other Than the
Registrant)
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Payment of Filing Fee (Check
the appropriate box):
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No fee required.
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Fee computed on
table below per Exchange Act Rules 14a-6(i)(4) and
0-11.
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Title of each class of
securities to which transaction applies:
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Aggregate number of
securities to which transaction applies:
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Per unit price or
other underlying value of transaction computed pursuant to Exchange Act
Rule 0-11 (set forth the amount on which the filing fee is calculated and
state how it was determined):
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was paid previously. Identify the previous filing by registration
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1)
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Amount previously
paid:
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Form, Schedule or Registration
Statement No.:
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Filing Party:
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Date Filed:
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PHOTRONICS,
INC.
15 Secor Road
Brookfield,
Connecticut 06804
(203) 775-9000
NOTICE OF ANNUAL MEETING OF
SHAREHOLDERS
TO BE HELD ON MARCH 28,
2012
___________________________________________________________
TO THE SHAREHOLDERS OF PHOTRONICS,
INC.:
Notice is hereby given that the Annual
Meeting of Shareholders of Photronics, Inc. will be held at NASDAQ OMX, 4 Times
Square, Second Floor, New York, NY 10036, at 10:30 a.m. Eastern Time, for the
following purposes:
1)
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To elect 6 members of the Board
of Directors;
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2)
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To ratify the selection of
Deloitte & Touche LLP as independent registered public accounting firm
for the fiscal year ending October 28, 2012;
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3)
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To approve an amendment to the
Photronics, Inc. Employee Stock Purchase Plan to increase the number of
authorized shares of Common Stock available for issuance from 1,200,000 to
1,500,000;
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4)
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To approve, by non-binding vote,
the compensation of our named executive officers;
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5)
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To transact such other business
as may properly come before the meeting or any adjournments or
postponements thereof.
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The Board of Directors has fixed February
9, 2012, as the record date for determining the holders of common stock entitled
to notice of and to vote at the meeting.
YOUR VOTE IS IMPORTANT. WHETHER OR NOT YOU
PLAN TO ATTEND THE MEETING, YOU ARE REQUESTED TO COMPLETE, DATE, SIGN AND RETURN
THE ENCLOSED PROXY IN THE ENCLOSED ENVELOPE. NO POSTAGE IS REQUIRED FOR MAILING
IN THE UNITED STATES.
By Order of the Board of
Directors,
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/s/ Richelle E.
Burr
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Richelle E. Burr
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General Counsel and
Secretary
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February 23, 2012
PHOTRONICS, INC.
15 Secor
Road
Brookfield, Connecticut 06804
(203)
775-9000
_____________________________________
PROXY STATEMENT
For the Annual Meeting of
Shareholders
to be held on March 28, 2012
GENERAL INFORMATION
The enclosed proxy is solicited by the
Board of Directors (the Board or Board of Directors) of Photronics, Inc.
(the Company), to be voted at the Annual Meeting of Shareholders to be held on
March 28, 2012 at 10:30 a.m. Eastern Time at NASDAQ OMX, 4 Times Square, Second
Floor, New York, NY 10036, or any adjournments or postponements thereof (the
Annual Meeting). This proxy statement and the enclosed proxy card are first
being sent or given to shareholders on or about February 21, 2012.
The persons named as proxies on the
accompanying proxy card have informed the Company of their intention, if no
contrary instructions are given, to vote the shares of the Companys common
stock (Common Stock) represented by such proxies FOR Proposals 1, 2, 3 and
4, and in accordance with their best judgment on any other matters which may
come before the Annual Meeting. The Board of Directors does not know of any
business to be brought before the Annual Meeting other than as set forth in the
Notice of Annual Meeting of Shareholders.
Any shareholder who executes and delivers
a proxy may revoke it at any time prior to its use upon (a) receipt by the
Secretary of the Company of written notice of such revocation; (b) receipt by
the Secretary of the Company of a properly executed proxy bearing a later date;
or (c) appearance by the shareholder at the Annual Meeting and his or her
request to revoke the proxy. Any such notice or proxy should be sent to
Photronics, Inc., 15 Secor Road, Brookfield, Connecticut 06804, Attention:
Secretary. Appearance at the Annual Meeting without a request to revoke a proxy
will not revoke a previously executed and delivered proxy.
QUORUM; REQUIRED VOTES
Only shareholders of record at the close
of business on February 9, 2012, are entitled to notice of and to vote at the
Annual Meeting. As of February 9, 2012, there were 60,344,376 shares of Common
Stock issued and outstanding, each of which is entitled to one vote. At the
Annual Meeting, the presence in person or by proxy of the holders of a majority
of the total number of shares of outstanding Common Stock will be necessary to
constitute a quorum. Assuming a quorum is present, the matters to come before
the Annual Meeting that are listed in the Notice of Annual Meeting of
Shareholders require the following votes to be approved: (1)
Proposal 1
(Election of Directors) a plurality of the votes cast by the shareholders
entitled to vote at the Annual Meeting is required to elect 6 members of the
Board of Directors; (2)
Proposal 2
(Ratification of Selection of Independent
Registered Public Accounting Firm for the Fiscal Year Ending October 28, 2012) a
majority of the votes cast by the shareholders entitled to vote at the Annual
Meeting is required to ratify the selection of Deloitte & Touche LLP; (3)
Proposal 3
(To approve an amendment to the Photronics, Inc. Employee Stock
Purchase Plan to increase the number of authorized shares of Common Stock
available for issuance from 1,200,000 to 1,500,000) a majority of the votes cast
by the shareholders entitled to vote at the Annual Meeting is required to
approve an amendment to the Photronics, Inc, Employee Stock Purchase Plan; (4)
Proposal 4
(Executive Compensation) a majority of the votes cast by the
shareholders entitled to vote at the Annual Meeting is required to approve the
non-binding resolution approving the compensation of the named executive
officers as described in the Compensation Discussion and Analysis and the
narrative disclosure as included in this proxy statement. Abstentions will be
considered as present but will not be considered as votes in favor of any
matter; broker non-votes will not be considered as present for the matter as to
which the shares are not voted.
2
Neither the approval nor the disapproval
of Proposal 4 will be binding on the Company or the Board of Directors or will
be construed as overruling a decision by the Company or the Board of Directors.
Neither the approval nor the disapproval of Proposal 4 will create or imply any
change to our fiduciary duties or create or imply any additional fiduciary
duties for the Company or the Board of Directors. However, the Company will
consider the results of these advisory votes in making future decisions on the
Companys compensation policies, and the compensation of the Companys named
executive officers.
Pursuant to the rules that govern brokers
and nominees who have record ownership of shares that are held in street name
for account holders (who are the beneficial owners of the shares), brokers and
nominees typically have the discretion to vote such shares on routine matters,
but not on non-routine matters. If a broker or nominee has not received voting
instructions from an account holder and does not have discretionary authority to
vote shares on a particular item because it is a non-routine matter, a
broker-non-vote occurs. Under the rules governing brokers, an uncontested
director election is considered a non-routine matter for which brokers do not
have discretionary authority to vote shares held by an account holder.
Additionally, as required by Section 957 of the recently adopted Dodd-Frank Wall
Street Reform and Consumer Protection Act of 2010 (the Dodd-Frank Act),
advisory votes on executive compensation and on the frequency of such votes are
also considered non-routine matters for which brokers do not have discretionary
authority to vote shares held by account holders. Only the ratification of our
independent registered public accounting firm under Proposal 2 is considered a
routine matter.
Shareholders who hold their shares through
a broker (in street name) must provide specific instructions to their brokers
as to how to vote their shares, in the manner prescribed by their
broker.
CORPORATE GOVERNANCE AND
ETHICS
Photronics is committed to the values of
effective corporate governance and high ethical standards. Our Board believes
that these values are conducive to long-term performance and periodically
reevaluates our policies to ensure they meet the Companys needs. Set forth
below are a few of the corporate governance practices and policies that we have
adopted.
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Related Party Transaction Policy.
Our Audit Committee is responsible for
approving or ratifying transactions
involving
the Company and related parties and determining if such transactions are, or
are not, consistent with the
best interests of
the Company and our shareholders.
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Executive Sessions.
The Companys Board of Directors meetings regularly include executive
sessions without the
presence of management,
including the Chairman and Chief Executive Officer.
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Shareholders Rights Plan Policy.
The Company does not have a shareholders
rights plan and is not currently
considering
adopting one. The Board of Directors position is that it will only adopt a
shareholders rights plan if the
Board of
Directors determines that it is in the best interests of the Company, taking
into consideration all factors that
it deems
advisable and appropriate.
3
BOARD OF DIRECTORS POLICIES AND
COMMITTEE CHARTERS
The Company has adopted a code of ethics
and corporate governance policy to assist the Board and its committees in the
exercise of their responsibilities. The code of ethics and corporate governance
policies apply generally to the Board and the Companys named executive
officers. Each of the Board committees has a written charter that sets forth the
goals and responsibilities of the committee. Each of the charters can be found
on the Companys website at www.photronics.com.
The number of directors on our Board will
be no less than three nor more than fifteen members. Currently the Board has
fixed the number of directors at six members. The Board is responsible for
nominating members to the Board and for filling vacancies on the Board that may
occur between annual meetings of shareholders, in each case upon the
recommendation of the Nominating Committee. The Nominating Committee seeks input
from other Board members and senior management and may engage a search firm to
identify and evaluate potential candidates. The Board and each of the committees
of the Board conduct annual self-assessments to determine their effectiveness.
Additionally, each committee reviews the adequacy of its charter annually and
considers any proposed changes.
The Board of Directors believes that the
current Board leadership structure, in which the roles of Chairman and Chief
Executive Officer are held by one person, is appropriate for the Company and its
shareholders at this time. The current Board leadership structure is believed to
be appropriate because it demonstrates to our employees, suppliers, customers,
and other shareholders that the Company is under strong leadership, with a
single person setting the tone and having primary responsibility for managing
the Companys operations. Having a single leader for both the Company and the
Board reduces the potential for confusion or duplication of efforts, and
provides clear leadership for the Company.
The Board will continue to reexamine our
corporate governance policies and leadership structure on an ongoing basis to
ensure that they continue to meet the Companys needs.
THE BOARD OF DIRECTORS ROLE IN RISK
OVERSIGHT AND ASSESSMENT
The Company has a risk management program
overseen by senior management and approved by the Board of Directors. Risks are
identified and prioritized by senior management and each prioritized risk is
assigned to either a Board committee or the full Board for oversight. For
example, strategic risks are overseen by the full Board; financial and business
conduct risks are overseen by the Audit Committee or the full Board; risks
related to related party transactions are overseen by the Audit Committee and
compensation risks are overseen by the Compensation Committee. Management
regularly reports on enterprise risks to the relevant committee or the Board.
Additional review or reporting on enterprise risk is conducted as needed or as
requested by the Board or relevant committee.
COMPENSATION RELATED
RISK
The Company regularly assesses the risks
related to our compensation programs, including our executive compensation
programs and does not believe that the risks arising from our compensation
policies and practices are reasonably likely to have a material effect on the
Company. Incentive award targets and opportunities are reviewed annually
allowing the Compensation Committee to maintain an appropriate balance between
rewarding high performance without encouraging excessive risk as the Companys
business evolves.
4
OWNERSHIP OF COMMON
STOCK BY
DIRECTORS, OFFICERS
AND CERTAIN
BENEFICIAL OWNERS
The following table sets forth certain
information on the beneficial ownership of the Companys Common Stock as of
February 9, 2012, by: (i) beneficial owners of more than five percent of the
Common Stock; (ii) each director; (iii) each named executive officer named in
the summary compensation table set forth below; and (iv) all directors and
currently employed named executive officers of the Company as a
group.
Name and Address of Beneficial Owner
(1)
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Amount and Nature of
Beneficial Ownership (2)
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Percentage of Class
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Waddell & Reed
Financial, Inc.
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6300 Lamar
Avenue
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Overland Park, KS
66202
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5,459,359
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9.1%(3)
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Donald Smith & Co., Inc.
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152 West 57
th
Street
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New York, NY 10019
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5,340,834
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8.87%(4)
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Dimensional Fund
Advisors
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Palisades West,
Building One
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6300 Bee Cove
Road
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Austin, Texas
78746
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4,290,091
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7.34%(5)
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Letko, Brosseau & Ass.
Inc.
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1800 McGill College Ave.
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Suite 2510
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Montreal, QC H3A 356
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Canada
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4,050,638
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6.77%(6)
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Black Rock,
Inc.
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40 East 52
nd
Street
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New York, NY
10022
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3,170,442
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5.30%(7)
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Walter M. Fiederowicz
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101,583
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(8)
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*
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Joseph A. Fiorita,
Jr.
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191,483
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(8)(9)
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*
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L. C. Hsia
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8,000
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*
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Soo Hong
Jeong
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438,527
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(8)
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*
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Peter Kirlin
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72,500
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(8)
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*
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Constantine S.
Macricostas
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1,323,649
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(8)(10)
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*
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George Macricostas
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51,874
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(8)
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*
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Christopher J.
Progler
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213,293
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(8)
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*
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Sean T. Smith
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329,565
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(8)
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*
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Mitchell G.
Tyson
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107,750
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(8)
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*
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Directors and Named Executive
Officers
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as a group (10 persons)
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2,838,224
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(11)
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*
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* Less than 5%
(1)
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The address for all officers and directors is 15 Secor
Road, Brookfield, Connecticut 06804.
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(2)
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Except as otherwise indicated, the named person has the
sole voting and investment power with respect to the shares of Common
Stock set forth opposite such persons name.
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(3)
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According to Schedule 13G filed February 14, 2012,
Waddel & Reed Financial, Inc. has sole voting and dispositive power
over 5,459,359 shares of Common Stock as of December 31,
2011.
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(4)
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According to Schedule 13G filed February 13, 2012,
Donald Smith & Co., Inc. has sole voting and dispositive power over
5,340,834 shares of Common Stock as of December 31, 2011.
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(5)
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According to Schedule 13G filed on February 14, 2012,
Dimensional Fund Advisors, has sole voting and dispositive power over
4,290,091 shares of Common Stock as of December 31,
2011.
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5
(6)
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According to Schedule 13G filed
February 14, 2012, Letko Brosseau & Ass. Inc. has sole voting and
dispositive power over 4,050,638 shares of Common Stock as of December 31,
2011.
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(7)
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According to Schedule 13G filed
February 9, 2012, Black Rock, Inc. has sole voting and dispositive power
over 3,170,442 shares of Common Stock as of December 31,
2011.
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(8)
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Includes shares of Common Stock
subject to stock options exercisable as of February 9, 2012, (or within 60
days thereof), as follows: Mr. Fiederowicz: 80,833; Mr. Fiorita: 81,900;
Dr. Jeong: 280,627; Dr. Kirlin: 52,500; Mr. Constantine Macricostas:
270,625; Mr. George Macricostas: 33,750; Dr. Progler 165,493; Mr. Smith:
247,950; and Mr. Tyson: 53,750.
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(9)
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Includes 300 shares owned by the
wife of Mr. Fiorita as to which shares he disclaims beneficial
ownership.
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(10)
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Includes 34,568 shares held by
the wife of Mr. Macricostas as to which shares he disclaims beneficial
ownership.
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(11)
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Includes the shares listed in
notes (8), (9) and (10) above.
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PROPOSAL 1
ELECTION OF DIRECTORS
The Board has nominated 6 directors to be
elected at the 2012 Annual Meeting to serve for a one year term. Each of the 6
directors of the Company that is elected at the Annual Meeting will serve until
the 2013 Annual Meeting of Shareholders and until their successors are elected
and qualified. Each nominee is currently a director of the Company and has
agreed to serve if elected. The names of, and certain information with respect
to, the nominees for election as directors are set forth below.
The Company is open and receptive to
shareholder communication. Last year some shareholders communicated their
desire to see the Board appoint a Director with technical and semiconductor
industry experience as well as someone of Asian descent. In January of 2012 the
Company announced that Dr. L.C. Hsia, a Taiwanese national, with many years of
experience in the semiconductor industry has joined the Board.
If, for any reason, any of the nominees
shall become unable to stand for election, the individuals named in the enclosed
proxy may exercise their discretion to vote for any substitutes chosen by the
Board of Directors, unless the Board of Directors should decide to reduce the
number of directors to be elected at the Annual Meeting. The Company has no
reason to believe that any nominee will be unable to serve as a
director.
The Board of Directors recommends that
you vote FOR the election of each of the following nominees:
Nominees:
Name and
(Age)
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Director Since
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Position with the
Company
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Walter M. Fiederowicz
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1984
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Director
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(65 years)
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Joseph A. Fiorita, Jr.
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1987
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Director
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(67 years)
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Dr. L. C. Hsia
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2012
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Director
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(63 years)
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Constantine S. Macricostas
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1974
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Chairman of the Board
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(76 years)
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George Macricostas
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2002
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Director
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(42 years)
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Mitchell G. Tyson
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2004
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Director
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(57 years)
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Messrs. Fiederowicz, Fiorita, Hsia, and
Tyson qualify as independent under applicable NASDAQ National Market (NASDAQ)
rules.
6
In addition to the information set forth
in the table above, the following provides certain information about each
nominee for election as director, including his principal occupation for at
least the past five years. Also set forth below is a brief discussion of the
specific experience, qualifications, attributes or skills that led to the
conclusion that each nominee and director should serve as a director as of the
date of this proxy statement, in light of the Companys business and
structure.
Walter M. Fiederowicz has been a private
investor and consultant since August 1997. During 2011, he served as Managing Director of Painter Hill Ventures and Painter Hill Venture Fund, entities that invest in financial services and technology companies. Mr.
Fiederowicz is Chairman of the Compensation Committee, and Vice Chairman of the
Audit Committee. Mr. Fiederowicz brings to the Board of Directors substantial
experience in analyzing and forecasting economic conditions both domestically
and internationally. Through his service on the
boards of other companies, he also gained extensive experience in leadership,
risk oversight and corporate governance matters.
Joseph A. Fiorita, Jr., CPA, has been a
partner since 1973 at Fiorita, Kornhaas & Company, P.C., an independent
certified public accounting firm located in Danbury, Connecticut. He is a member
of the Connecticut Society of Certified Public Accountants (CSCPA) and American
Institute of Certified Public Accountants (AICPA). He serves as an advisory
board member of various closely-held companies and charitable organizations. He
is also a Corporator for Newtown Savings Bank. Mr. Fiorita is Chairman of the
Audit Committee and Vice Chairman of the Compensation Committee. Mr. Fiorita
qualifies as an audit committee financial expert under applicable Securities and
Exchange Commission (SEC) audit committee rules. Mr. Fiorita brings to the
Board of Directors broad experience in corporate finance, and is highly
qualified in the fields of accounting and internal controls, both of which
contribute to effective service on the Board of Directors. Through his service
on the board of directors of other companies, he has gained additional
experience in risk management and corporate governance.
Liang-Choo Hsia, was formerly Senior Vice
President and Senior Technical Advisor at Global Foundries. He joined Global
Foundries as a result of the acquisition of Chartered Semiconductor
Manufacturing where, for over ten years, he played a pivotal role in defining
roadmaps for advanced node migration and oversaw the companys participation in
the Joint Development Alliance with IBM for advanced manufacturing to the
22/20nm nodes. He joined Chartered after serving for three years as Director of
Technology Development of United Microelectronics Corporation in Taiwan. Prior
to that, he spent over a decade with IBM as an advisory scientist in various
divisions. Dr. Hsia has authored or co-authored over 100 papers and over 50
patents. He resides in Taiwan and has offices in Taiwan and Singapore. Dr. Hsia
is Chairman of the Strategy and Technology Committee and is a member of the
Nominating Committee.
Constantine S. Macricostas is Chairman of
the Board, Chief Executive Officer and President. From July 20, 2008, Mr.
Macricostas assumed the responsibility of Interim Chief Executive Officer and on
April 3, 2009 he became Chief Executive Officer and President. From February 23,
2004 to June 7, 2005, Mr. Macricostas also served as Chief Executive Officer.
Mr. Macricostas also served as Chief Executive Officer of the Company from 1974
until August 1997. Mr. Macricostas is a founder, Vice Chairman of the Board and
a director of RagingWire Enterprise Solutions, Inc., (RagingWire). Mr.
Macricostas is the father of George Macricostas. Mr. Macricostas knowledge of
the Company and its operations is invaluable to the Board of Directors in
evaluating and directing the Companys future. Through his long service to the
Company and experience in the industry, he has developed extensive knowledge in
the areas of leadership, safety, risk oversight, management and corporate
governance, each of which provides great value to the Board of
Directors.
George Macricostas is the Executive
Chairman of the Board and founder of RagingWire, a company that provides secure
managed information technology services and data center infrastructure to data
intensive enterprise companies. Mr. Macricostas is a member of the Strategy and
Technology Committee of the Company. Mr. Macricostas is a member of the Board of
Directors of the Jane Goodall Institute, and was a finalist in the 2007 Ernst
and Young Entrepreneur of the Year program. From November 2005 to January 2007,
Mr. Macricostas was Executive Vice Chairman of RagingWire. From May 2000 through
November 2010, Mr. Macricostas was Chief Executive Officer of RagingWire. Prior
to the founding of RagingWire, from February 1996 until April 2000, Mr.
Macricostas was a senior vice president of the Company, where he was responsible
for all aspects of the Companys global information technology infrastructure.
Mr. Macricostas brings over 20 years of technical and business management
experience in operations and information technology to the Board of Directors.
Through his service on the Board, he has gained additional experience in risk
management and corporate governance.
7
Mitchell G. Tyson is an independent
business strategy and clean energy consultant and serves on multiple industry, government and corporate boards of directors. He is also an Adjunct Professor at the Brandeis International
Business School. Until October 2010, he was the
Chief Executive Officer and a Director of Advanced Electron Beams. Advanced
Electron Beams compact electron beam emitters replace thermal and chemical
processes for cleaner, more efficient, lower cost manufacturing. Prior to
joining Advanced Electron Beams in 2005, Mr. Tyson was a corporate consultant
and lecturer. Previously, Mr. Tyson served as the Chief Executive Officer of
PRI Automation, a publicly traded corporation that supplied automation systems
including hardware, software and services for the semiconductor industry. From
1987 to 2002, he held positions of increasing management responsibility and
helped transform PRI Automation from a small robotics manufacturer to the
worlds leading supplier of semiconductor fab automation systems. Prior to
joining PRI Automation, Mr. Tyson worked at GCA Corporation from 1985 to 1987 as
Director of Product Management and served as science advisor and legislative
assistant to the late U.S. Senator Paul Tsongas from1979 to 1985. Mr. Tyson is
Chairman of the Nominating Committee and a member of the Audit Committee of the
Company.
MEETINGS AND COMMITTEES OF THE
BOARD
The Board of Directors met 5 times during
the 2011 fiscal year. During fiscal 2011, each director attended 100% of the
total number of meetings of the Board of Directors and 100% of committee
meetings of the Board on which such director served.
The Companys Board of Directors has
Audit, Compensation, Nominating and Strategy and Technology Committees.
Membership of the Audit, Compensation and Nominating Committees is comprised of
independent, non-employee directors.
The Audit Committees functions include
the appointment of the Companys independent registered public accountants,
reviewing with such accountants the plan for and results of their auditing
engagement and the independence of such accountants. Messrs. Fiederowicz,
Fiorita and Tyson are members of the Audit Committee. All members of this
Committee are independent, non-employee directors under applicable NASDAQ rules.
Mr. Fiorita qualifies as an audit committee financial expert under applicable
SEC audit committee rules. The Audit Committee held 9 meetings during the 2011
fiscal year.
The Compensation Committees functions
include establishing compensation policies and programs for the executive
officers of the Company and administration of the Companys stock plans. Messrs.
Fiederowicz and Fiorita are members of the Compensation Committee. All members
of this Committee are independent, non-employee directors under applicable
NASDAQ rules. The Compensation Committee held 5 meetings during the 2011 fiscal
year.
The Nominating Committees functions
include the consideration and nomination of candidates for election to the
Board. Messrs. Tyson and Hsia are members of the Nominating Committee. All
members of this Committee are independent, non-employee directors under
applicable NASDAQ rules. This Committee held 2 meetings during the 2011 fiscal
year.
The minimum qualifications for nominees to
be considered by the Nominating Committee are experience as a business or
technology leader, possession of the qualities or skills necessary and the
ability to deliver value and leadership to the Company and the ability to
understand, in a comprehensive manner, the technology utilized by the Company
and its customers for the production of photomasks and flat panel displays. If
an opening for a Director arises, the Board will conduct a search for qualified
candidates. The Nominating Committee utilizes its network of contacts to compile
a list of potential candidates, but may also engage, if it deems appropriate, a
professional search firm. The Nominating Committee will also consider qualified
candidates for Director suggested by shareholders in written submissions to
Photronics, Inc., 15 Secor Road, Brookfield, Connecticut 06804, Attention:
Secretary. The Nominating Committee also considers the diversity of backgrounds
and expertise represented in the Boards composition and whether a nominee is
qualified to serve may depend in part on the backgrounds of the other directors,
so that the Board of Directors as a whole has an appropriate mix of backgrounds
and breadth of experience. The Nominating Committee reviews its effectiveness in
balancing these considerations through its ongoing consideration of directors
and nominees, as well as the Nominating Committees annual self-evaluation
process. The Nominating Committee does not intend to alter the manner in which
it evaluates candidates, whether the candidate was recommended by a shareholder
or not.
The Nominating Committee did not receive
any recommendations for nomination of a Director from a shareholder or group
who, individually or in the aggregate, beneficially owned greater than 5 percent
of the Companys voting Common Stock for at least one year.
8
The Board provides a process for
shareholders to send communications to the Board or to any Director
individually. Shareholders may send written communications to the Board or to
any Director c/o Photronics, Inc., 15 Secor Road, Brookfield, Connecticut 06804,
Attention: Secretary. All communications will be compiled by the Secretary and
submitted to the Board, or the individual Directors, on a periodic
basis.
The Audit Committee Charter, the
Compensation Committee Charter, the Nominating Committee Charter and the
Strategy and Technology Committee Charter are posted on the Companys website at
www.photronics.com.
It is the Companys policy that the
Directors who stand for election at the Annual Meeting attend the Annual Meeting
unless the Director has an irreconcilable conflict and attendance has been
excused by the Board. All of the nominees who were Directors during the last
fiscal year and who are standing for election at the 2012 Annual Meeting of
Shareholders attended the 2011 Annual Meeting of Shareholders with the exception
of George Macricostas and Mitch Tyson who were excused. Dr. Hsia was not at the
2011 Annual Meeting as he became a director on January 3, 2012.
AUDIT COMMITTEE REPORT
The Audit Committee is composed of three
directors, each of whom meets the independence requirements of the applicable
NASDAQ and SEC rules. The Audit Committee operates under a written charter
adopted by the Board of Directors of the Company. The Audit Committee Charter
can be found on the Companys website at www.photronics.com. The Audit Committee
also undertakes a written performance evaluation of the Committee on an annual
basis.
The Audit Committee held 9 meetings during
the 2011 fiscal year. For the fiscal year ended October 30, 2011, the Audit
Committee reviewed and discussed the audited financial statements with
management, discussed with the independent auditors the matters required to be
discussed by Statement on Auditing Standards No. 61 (communication with Audit
Committees) as amended, as adopted by PCAOB in Rule 3200T. In addition, the
Audit Committee has the letter from Deloitte & Touche LLP required by the
applicable requirement of PCAOB regarding Deloitte & Touche LLPs
communication with the Audit Committee concerning independence and has discussed
with them their independence from the Company and its management. The Audit
Committee reviewed and discussed with management and the independent auditors,
as appropriate, (1) the audited financial statements and (2) managements report
on internal control over financial reporting and the independent accounting
firms related opinions. The Committee considered whether the provision of
non-audit services by Deloitte & Touche LLP to the Company is compatible
with maintaining the independence of Deloitte & Touche LLP and concluded
that the independence of Deloitte & Touche LLP was not compromised by the
provision of such services. The Audit Committee met with management periodically
during the fiscal year to review the Companys Sarbanes-Oxley Section 404
compliance efforts related to internal controls over financial reporting.
Additionally, the Audit Committee pre-approved all audit and non-audit services
provided to the Company by Deloitte & Touche LLP. Based on the foregoing
meetings, reviews and discussions, the Audit Committee recommended to the Board
of Directors that the audited financial statements for fiscal 2011 be included
in the Companys Annual Report on Form 10-K for filing with the Securities and
Exchange Commission.
In 2003, the Audit Committee adopted a
formal complaint procedure for accounting and auditing matters and violations of
Company policy.
9
Fees Paid to the Independent Registered
Public Accounting Firm
For the fiscal years ended October 31,
2010 and October 30, 2011, the aggregate fees for professional services rendered
by D&T were as follows:
|
|
Fiscal 2010
|
|
Fiscal
2011
|
Audit Fees (a)
|
|
$
|
970,367
|
|
$
|
1,150,487
|
Audit-Related Fees (b)
|
|
|
13,378
|
|
|
20,375
|
Tax Fees (c)
|
|
|
44,275
|
|
|
142,172
|
All Other Fees
|
|
|
0
|
|
|
0
|
|
|
|
|
|
|
|
Total
|
|
$
|
1,028,020
|
|
$
|
1,313,034
|
|
(a)
|
|
Represents aggregate fees in
connection with the audit of the Companys annual financial statements,
internal controls over financial reporting and review of the Companys
quarterly financial statements or services normally provided by D&T,
including, among other items, fees related to the Companys issuance of
convertible securities.
|
|
|
|
(b)
|
|
Represents assurance and other
activities not directly related to the audit of the Companys financial
statements.
|
|
|
|
(c)
|
|
Represents aggregate fees in
connection with tax compliance, tax advice and tax
planning.
|
This report is submitted by:
Joseph A.
Fiorita, Jr.
Chairman
Walter M. Fiederowicz
Mitchell G. Tyson
EXECUTIVE OFFICERS
The names of the executive officers (the Named Executive Officers) of the
Company are set forth below together with the positions held by each person in
the Company. All executive officers are elected annually by the Board of
Directors and serve until their successors are duly elected and
qualified.
Name and
Age
|
|
|
Position
|
|
|
Served as an Officer
Since
|
|
Richelle E. Burr, 48
|
|
Vice President, General Counsel
|
|
|
2010
|
|
|
|
and Secretary
|
|
|
|
|
|
|
Soo Hong Jeong, 56
|
|
Chief Operating Officer,
|
|
|
2001
|
|
|
|
President, Asia Operations
|
|
|
|
|
|
|
Peter S. Kirlin, 51
|
|
Senior Vice President, US and
|
|
|
2008
|
|
|
|
Europe
|
|
|
|
|
|
|
Constantine S. Macricostas, 76
|
|
Chief Executive Officer and
|
|
|
2008
|
|
|
|
President
|
|
|
|
|
|
|
Christopher J. Progler, 48
|
|
Vice President, Chief Technology
|
|
|
2004
|
|
|
|
Officer and Strategic Planning
|
|
|
|
|
|
|
Sean T. Smith, 51
|
|
Senior Vice President,
|
|
|
2000
|
|
|
|
Chief Financial Officer
|
|
|
|
|
10
Richelle E. Burr
joined Photronics in 2003 as Corporate Counsel and was
appointed General Counsel in January 2010. She was promoted to Vice President,
Associate General Counsel in 2008 and was appointed Secretary in April of 2009
prior to her election as General Counsel in January 2010.
Dr. Soo Hong Jeong
was appointed Chief Operating Officer on June 21, 2006, and
continues to serve as President of Asia Operations, a position he has served in
since March 22, 2004. Prior to that, Dr. Jeong served as a Vice President of the
Company and President and Chief Executive Officer of PK, Ltd. (PKL), since
August 2001.
Dr. Peter S. Kirlin
joined Photronics in August, 2008 as Senior Vice President, US
and Europe. Prior to joining Photronics, Dr. Kirlin was Executive Chairman of
Akrion, Inc. from January 2007 to July 2008. Prior to that Dr. Kirlin was Vice
President of Business Development at Entegris, Inc. from May 2004 to September
2006. Prior to that Dr. Kirlin was Chairman and Chief Executive Officer of
DuPont Photomask, Inc.
Constantine S. Macricostas
has served as Chief Executive Officer and President
since April 3, 2009. Prior to that he served as Interim Chief Executive Officer
from July 20, 2008 to April 3, 2009. From February 23, 2004 to June 7, 2005, he
also served as Chief Executive Officer. From January 2002 through March 2002, he
temporarily assumed the position of President. Mr. Macricostas also served as
Chief Executive Officer of the Company from 1974 until August 1997.
Dr. Christopher J. Progler
became an executive officer on June 21, 2006. Dr.
Progler has been employed by Photronics since 2001 starting with the position of
Corporate Chief Scientist. He was promoted to Vice President and Chief
Technology Officer in 2004. In 2011 Dr. Progler assumed the added responsibility
of Strategic Planning for the Company. Dr. Progler is a Fellow and Board
Member of SPIE - The International Society for Optical Engineering. He is
Co-Chair of SPIE Advanced Lithography Symposium and Associate Editor for the
SPIE Journal of Microlithography, Microfabrication and Microsystems.
Sean T. Smith
was promoted to Senior Vice President on January 25, 2005, and
continues to serve as Chief Financial Officer. In March 2002, Mr. Smith was
promoted to Vice President and Chief Financial Officer. Prior to that Mr. Smith
had been Vice President-Controller. He joined Photronics in April
2000.
COMPENSATION DISCUSSION AND
ANALYSIS
The Compensation Committee of the Board of
Directors (the Compensation Committee) was established in 1992 and is
comprised of two of the independent, non-employee members of the Board of
Directors. Neither of these individuals was an officer or employee of the
Company at any time during fiscal year 2011 or at any other time, and neither of
them have interlocking relationships as described in Item 407 of Regulation S-K.
The Compensation Committee is responsible for setting and administering the
policies governing compensation of executive officers. The key objectives of the
Compensation Committee are to provide competitive compensation to attract and
retain talented employees, to advance the goals of the Company by aligning
executive compensation with shareholder interests and minimizing risks
associated with compensation. The Compensation Committee reviews and approves,
among other things, overall annual performance for the Named Executive Officers
as well as all participants in the Companys 2011 Executive Incentive
Compensation Plan. The Compensation Committee considers each executive officers
performance and makes recommendations regarding his/her base salary, annual cash
incentive and stock-based awards to the full Board of Directors. The
Compensation Committee periodically reviews its approach to executive
compensation and makes changes when appropriate.
Philosophy
The Companys philosophy is that executive
compensation must be competitive with other comparable employers to insure that
qualified employees can be attracted and retained and that the Companys
compensation practices should provide incentives for creating a return to the
Companys shareholders. The Compensation Committee uses three components to
achieve these goals: base salary, annual cash incentives and stock-based awards.
The Companys executive officer compensation program is designed so that:
compensation is competitive; pay is aligned with creating shareholder value and
compensation risks are assessed and managed appropriately in the context of the
Companys business strategy. When determining compensation, the Compensation
Committee assesses the overall performance
11
of the Company, the Named Executive
Officers role in that performance, the compensation previously received by the
Named Executive Officers and the compensation of similarly situated executive
officers working for peer group companies. The Compensation Committee also uses
a subjective approach when linking the Companys performance and the total
compensation of the Named Executive Officers.
Total Direct Compensation
Chief Executive Officer
|
|
Total Compensation All Other Named
Executive Officers
|
Elements of
Compensation
In establishing compensation levels for
the Named Executive Officers of the Company, identified in the Summary
Compensation Table, the Compensation Committee considers compensation at fifteen
publicly traded companies in the semiconductor/electronics industries with
similar levels of sales and capital. These companies are Advanced Energy
Industries, Inc., ATMI, Inc., Axcelis Technologies, Inc., Brooks Automation,
Inc., Cabot Microelectronics Corp., Credence Systems Corp., Cymer, Inc.,
Entegris, Inc., FEI Co, Kulicke & Soffa Industries, Inc., MEMC Electronic
Materials, Inc., Novellus Systems, Inc., Varian Semiconductor Equipment
Associates, Inc., and Veeco Instruments, Inc. The Compensation Committee adjusts
executive compensation in connection with this review. Generally, the
Compensation Committee believes that the compensation of its executive officers
should be set near the median compensation of this comparison group; however it
is also important to the Compensation Committee that compensation reflect
individual performance and that may warrant compensation up to 20% above or
below the median. The Compensation Committee believes that the three components
of the Companys compensation: base salary, annual cash incentives and
stock-based awards result in a compensation program which is competitive and
aligns the Named Executive Officers interests with shareholder value creation.
Actual base salary increases, annual cash incentive and stock-based award
compensation vary based on an individuals experience, job responsibilities,
performance, the Companys financial results, and the discretion of the
Compensation Committee. The Compensation Committee does not use tally sheets or
any formulas in determining executive compensation. The Compensation Committee
does not believe that there are any risks arising from the Companys
compensation policies and practices for its employees that are reasonably likely
to have a material adverse effect on the Company. The benefits program enjoyed
by the Companys Named Executive Officers is the same as that offered to all
other domestic employees. Dr. Jeong, Mr. Smith, Dr. Kirlin, Dr. Progler and Ms. Burr have
employment agreements that outline the terms and provisions of their employment.
Each agreement covers title, duties and responsibilities, stipulates
compensation terms and provides for post-termination compensation in certain
circumstances.
Base Salary
The Compensation Committee evaluates and
establishes base salary levels in light of economic conditions (generally and in
the regions where executives work) and comparisons to other similarly situated
companies. Base salary is designed to recognize an executives knowledge,
skills, abilities and ongoing performance. The Compensation Committee targets
base salary for all executives to be at a level consistent with our assessment
of their value relative to their peers in the labor market, while also taking
into account our need to maintain costs in light of business conditions and the
challenging economic times. Any recommendations for salary changes (other than
the Chief Executive Officer) are made by the Chief Executive Officer and
presented to the Compensation Committee for approval.
12
Annual Incentives
The Company had record revenue for the
second quarter, third quarter and for the year ended October 30, 2011. The
Company also ended the fiscal year with 20% year over year sales growth. The
Compensation Committee met on December 9, 2011, and based on the performance
results of the Company for fiscal year 2011, the Compensation Committee set
$600,000 (or 3.7% of fiscal 2011 net income attributable to the Company) as an
available pool for cash bonuses for the Named Executive Officers. Furthermore,
the Compensation Committee used its subjective discretion to determine an
appropriate amount of a cash bonus for the Chief Executive Officer. The
Compensation Committee, together with the recommendations of the Chief Executive
Officer, determined an appropriate amount for a cash bonus for each of the other
Named Executive Officers to receive.
During the 2011 Annual Meeting, our
shareholders approved the 2011 Executive Incentive Compensation Plan (the 2011
EICP). Participation in the 2011 EICP is limited to key employees of the
Company as designated by the Compensation Committee. The 2011 EICP is
administered by the Compensation Committee which has full power and authority to
determine which key employees of the Company receive awards under the 2011 EICP,
to set performance goals and bonus targets for each fiscal year, to interpret
and construe the terms of the 2011 EICP and to make all determinations it deems
necessary in the administration of the 2011 EICP, including any determination
with respect to the achievement of performance goals and the application of such
achievement to the bonus targets. The 2011 EICP sets out quantitative and
qualitative categories of business criteria upon which performance goals are
based. The business criteria measures within each category are assigned
different weightings based upon their relative degree of importance as
determined by the Compensation Committee.
In the quantitative category one or more
of the following business criteria may be used as performance measures: (i) net
sales, (ii) operating income, (iii) net income, (iv) earnings per share of
common stock, (v) net cash flows provided by operating activities, (vi) net
increase in working capital, (vii) return on invested capital, (viii) return on
equity and/or (ix) debt reduction. In the qualitative category, the business
criteria relates to objective individual performance, taking into account
individual goals and objectives. The performance goals with respect to each
category of business criteria are established by the Compensation Committee
within ninety days of the commencement of each fiscal year. In addition, within
ninety days of the commencement of the fiscal year, a performance threshold for
each performance goal is established with respect to each participant,
representing the minimum level of achievement that the participant must attain
in order to receive a bonus under the 2011 EICP. Annual bonus targets are either
expressed as a percentage of current salary or a fixed monetary amount with
respect to each category of business criteria applied. At the end of each fiscal
year for which a bonus may be earned, the Compensation Committee determines each
participants level of achievement of the established performance goals.
Consistent with the relevant provisions of the Dodd-Frank Act, the Company will
clawback, or adjust if the relevant performance measures that awards are based
upon are restated or otherwise adjusted in a manner that would reduce the size
of the award or payment. The Compensation Committee may amend or terminate the
2011 EICP at any time provided that no amendment will be effective prior to
approval of the Companys shareholders to the extent such approval is required
to preserve deductibility of compensation paid pursuant to the 2011 EICP under
Section 162(m) of the Code or otherwise required by law.
Because the 2011 EICP was adopted half way
through the 2011 fiscal year, the Compensation Committee will establish defined
quantitative and qualitative business criteria to use for performance measures
for fiscal 2012.
Long Term Equity
Incentives
The Companys long term incentive program
uses restricted stock and stock options. Stock options have an exercise price
equal to the fair market value of our common stock on the date of grant. The
Compensation Committee evaluates the competitiveness of the Companys current
long term incentive program in relationship to our peer group. Each year the
Compensation Committee assesses each element of Photronics executive
compensation including base salary, target total cash compensation (base salary
plus target incentive award opportunity), actual total cash compensation (base
salary plus last bonus paid), long term incentives and actual total direct
compensation.
The Company maintains stock option plans
which allow for the grant of stock options and restricted stock awards to
directors and executive officers of the Company, as well as, other employees of
the Company. The Compensation
13
Committee believes that the grant of stock
options and restricted stock awards provides a strong link between executive
compensation and shareholder return, aligning the long term interests of its
executives with those of the Companys shareholders and thereby promoting
strategic planning while minimizing excessive risk.
In March of 2007, the Company adopted a
Long Term Equity Incentive Plan (LTEIP). In April of 2010, the LTEIP was
amended to increase the number of shares available for issuance under the plan
from 3 million to 6 million and the amount of restricted stock allowed to be
issued thereunder from 10% to 15% of the total shares issued cumulatively. The
LTEIP permits the grant of stock options, restricted stock, stock appreciation
rights, performance shares and performance units as well as restricted stock
units and other equity-based awards. The annual schedule for granting of equity
awards under the LTEIP is decided every December at the Companys Board of
Directors meeting. Grants to executive officers under the LTEIP are based on job
responsibilities and potential for individual contribution impacting the
Companys overall performance. When considering grants, the Compensation
Committee exercises judgment and discretion and also considers previous stock
award grants in order to align generally with its overall compensation
philosophy. For example, the Compensation Committee may consider reducing grants
in a particular year, when a Named Executive Officer has large realizable gains
from stock award grants in previous years. The Company generally provides
restricted stock awards and stock options to the executive officers pursuant to
the terms of the LTEIP.
The annual option granting process
generally begins with the Compensation Committee providing direction to the
Chief Executive Officer as to the total number of shares available for grant for
the year. The Chief Executive Officer then provides individual grant
recommendations to the Compensation Committee (except for his own) for review
and approval. The Chief Executive Officers recommendation is a subjective
evaluation of the Named Executive Officers contribution to the Companys future
success, the level of incentive compensation previously received as well as the
market price of the common stock on the date of grant. The Compensation
Committee considers the aggregate number of shares available, the number of
shares previously awarded and the number of individuals to whom the Company
wishes to grant stock options or restricted stock awards. The Compensation
Committee reserves the right to consider the factors it considers relevant under
the circumstances then prevailing in reaching its determination regarding the
amount of each stock option and/or restricted stock award.
Options awards typically vest 25% per year
beginning one year after the grant date, with full vesting on the fourth
anniversary of the grant date. The term of such options is ten years after which
the options expire, unless the employee separates earlier from the Company, at
which point the options expire 30 days after separation. The exercise price is
established as of the date of grant. Restricted stock awards typically vest 25%
per year beginning one year after the grant date, with full vesting on the
fourth anniversary of the grant date. Any stock not fully vested on the date the
employee separates from the Company are forfeited.
The Chief Executive Officers grant is
determined by the Compensation Committee at its sole discretion, based on the
Compensation Committees evaluation of the Chief Executive Officers expected
contribution to the Companys future success, the level of incentive
compensation previously awarded , the overall performance of the Company, a
review of the Chief Executive Officers peer group compensation as well as the
market price of the Companys common stock on the date of grant.
Health and Welfare and Retirement
Benefits
The Named Executive Officers participate
in a variety of health and welfare and paid time off benefits designed to allow
the Company to retain its workforce. The Company does not have a defined benefit
pension plan or supplemental retirement plan. However, the Company does have a
Profit Sharing and Saving Plan (the Plan). The Plan is a 401(k) compliant plan
which enables participating employees to make contributions from their earnings
and share in the contributions the Company makes to a trust fund maintained by
the trustee. An account in the trust fund is maintained by the trustee for the
Plan. All employees are eligible to participate in the Plan except for
nonresident aliens with no United States earned income from the Company and
temporary employees or interns. The minimum amount that an employee can
contribute is 1% and the maximum amount is 50%. In fiscal year 2011, the Company
provided a matching contribution based on the contributions that participating
employees made to the Plan. Participating employees received a matching
contribution of 50% of the first 4% of their contribution to the
Plan.
14
Dr. Jeong is entitled to participate in
the PKL employee benefit plans and arrangements as may be established from time
to time in Korea (which may include, without limitation, medical plan, dental
plan, disability plan, basic life insurance and business travel accident
insurance plan, as well as the Companys bonus plan(s), and stock award plans or
any successor plans thereto). The Company and PKL have the right to terminate or
change any such plans or programs at any time. Upon termination of Dr. Jeongs
employment with PKL, Dr. Jeong will receive a lump sum payment of U.S. $108,000
multiplied by the total number of years that Dr. Jeong was employed by PKL
(including years prior to the date of this Agreement). The sum of $108,000 shall
be fixed and is not subject to escalation or increase based on any bonus or
salary increase that Dr. Jeong may receive during the term of his
agreement.
Employment
Agreements
In order to retain the Named Executive
Officers and retain continuity of management in the event of an actual or
threatened change of control, the Company has entered into employment agreements
with each of the Named Executive Officers except for Mr. Macricostas. Each
employment agreement sets forth the severance benefits due in the event of a
change in control or termination without cause. These employment agreements are
described below under the caption Certain Agreements. The estimate of the
compensation that would be payable in the event of a change in control or
termination without cause is described below under the caption Potential
Payments Upon Termination or Change in Control. The Compensation Committee
believes that these agreements are a competitive requirement to attract and
retain highly qualified executive officers. Before authorizing the Company to
enter into the employment agreements with the Named Executive Officers, the
Compensation Committee analyzed each of the termination and change in control
arrangements and determined that each arrangement was necessary and appropriate
under the circumstances of the Company and given the circumstances of each of
the individual Named Executive Officers. The Compensation Committee will review
these arrangements again upon the renewal of each employment agreement. Mr.
Macricostas does not have an employment agreement but does have a consulting
agreement with the Company. However, the consulting agreement has been suspended
for the period of time that Mr. Macricostas is an employee of the Company. Mr.
Macricostas became an employee of the Company on November 10, 2008.
The Compensation Committee understands
that excise tax gross up upon a change of control is considered to be a pay
practice that may be unfavored by some shareholders. The Compensation Committee
is evaluating its policy of including this in the Named Executive Officers
employment agreements prospectively.
Tax and Accounting Impact on
Compensation
Financial reporting and income tax
consequences to the Company of individual compensation elements are important
considerations for the Compensation Committee when it is analyzing the overall
level of compensation and the mix of compensation. Overall, the Compensation
Committee seeks to balance its objective of ensuring an effective compensation
package for the Named Executive Officers while attempting to ensure the
deductibility of such compensation while ensuring an appropriate and
transparent impact on reported earnings and other closely followed financial
measures.
Section 162(m) of the Internal Revenue
Code limits the amount of compensation paid to each Named Executive Officer that
may be deducted by the Company to $1 million in any year. There is an exception
to the $1 million limitation for performance-based compensation that meets
certain requirements. Historically, the compensation paid to our executive
officers has not exceeded this limit. To the extent that it is practicable and
consistent with the Companys executive compensation philosophy, the Company
intends to design its executive officer compensation policy to ensure the
deductibility of such compensation under Section 162(m) or if it is determined
not to be in the best interest of stockholders, the Compensation Committee will
abide by its compensation philosophy even if it results in a loss of
deductibility.
15
2011 EXECUTIVE
COMPENSATION
Base salaries for executive officers of
the Company are established primarily upon an evaluation of the executive
officers position in the Company, competitive market practices, individual
performance, level of responsibility and technical expertise. The base salaries
for the Named Executive Officers are set forth in their respective employment
agreements which are described below under the caption Certain Agreements. For
executive officers other than the Chief Executive Officer, changes in base
salary are proposed to the Compensation Committee by the Chief Executive Officer
based on his evaluation of each individuals performance for the year and
expected future contributions as well as target pay position relative to the
peer group and the Companys overall salary budget guidelines. The Chief
Executive Officers recommendations are reviewed and approved by the
Compensation Committee. In December of 2011 (which is part of the Companys
fiscal year 2012), the Named Executive Officers received restricted stock and
stock option awards and also received a cash bonus. Mr. Smith and Ms. Burr each
received a $15,000 salary increase. The Compensation Committee believes that the
salary increases properly align the incumbents with competitive norms
commensurate with their level of accountability.
2011 CHIEF EXECUTIVE OFFICER
COMPENSATION
Mr. Macricostas base compensation as
Chief Executive Officer is $600,000. The Compensation Committee based Mr.
Macricostas 2011 base compensation on competitive chief executive officer
salaries. Mr. Macricostas received a grant of 112,500 options and 56,250 shares
of restricted stock in December of 2011 and also received a cash bonus of
$130,000 in December of 2011. Mr. Macricostas declined a salary increase
recommended by the Compensation Committee in December 2011.
2011 COMPENSATION
DECISIONS
On December 10, 2010, the Compensation Committee awarded Dr. Jeong 16,250
shares of restricted stock and 32,500 options; Mr. Smith 12,500 shares of restricted stock and 25,000 options; Dr. Kirlin
10,000 shares of restricted stock and 20,000 options, Dr. Progler 8,750 shares of restricted stock and 17,500 options and
Ms. Burr 7,500 shares of restricted stock and 15,000 options. The awards were based on recommendations of the Chief Executive
Officer. The awards were made in fiscal 2011 but were made for fiscal 2010 performance.
On December 9, 2011, the Compensation
Committee awarded Dr. Jeong a cash bonus of $75,000; Mr. Smith a cash bonus of
$85,000; Dr. Kirlin a cash bonus of $65,000, Dr. Progler a cash bonus of
$55,000 and Ms. Burr a cash bonus of $40,000 for their 2011 performances. On December 9, 2011, the Compensation
Committee also awarded Dr. Jeong 16,250 shares of restricted stock and 32,500
options; Mr. Smith 12,500 shares of restricted stock and 25,000 options; Dr.
Kirlin 10,000 shares of restricted stock and 20,000 options, Dr. Progler
8,750 shares of restricted stock and 17,500 options and Ms. Burr 7,500 shares of restricted stock and 15,000 options. The awards were based on
recommendations of the Chief Executive Officer. The awards were made in fiscal
2012 but were for fiscal 2011 performance.
When determining 2011 compensation the
Compensation Committee considered the overall performance of the Company, including the
fact that the Company had record revenue for the second quarter, third quarter
and for the year ended October 30, 2011. Additionally, the Company ended the
fiscal year with 20% year over year sales growth. The Compensation Committee
considered each Named Executive Officers role in the Companys performance, the
compensation previously received by each of the Named Executive Officers and the
compensation of similarly situated executive officers working for peer group
companies. The Compensation Committee also used a subjective approach when
linking the performance of the Company with the compensation of the Named
Executive Officers.
16
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
The Compensation Committee, comprised of
independent directors, reviewed and discussed the above Compensation Discussion
and Analysis (CD&A) with the Companys management. Based on the review and
discussions, the Compensation Committee recommended to the Companys Board of
Directors that the CD&A be included in these Proxy Materials.
Respectfully submitted,
Walter M. Fiederowicz, Chairman
Joseph
A. Fiorita, Jr.
17
EXECUTIVE COMPENSATION
The following table sets forth certain
information regarding compensation paid or accrued by the Company for services
rendered for the three-year period ended October 30, 2011, to each of the
individuals who served (i) as the Chief Executive Officer; (ii) Chief Financial
Officer and (iii) the three other most highly compensated executive officers of
the Company whose total salary and bonus exceeded $100,000 (such executives are
collectively referred to as the Named Executive Officers).
SUMMARY COMPENSATION
TABLE
|
|
|
|
|
|
|
|
|
|
|
|
|
|
All
|
|
|
|
|
|
|
|
|
|
|
|
Stock
|
|
|
Option
|
|
|
Other
|
|
|
|
Name and
Principal
|
|
|
|
Salary
|
|
Bonus
|
|
Awards
|
|
|
Awards
|
|
|
Compensation
|
|
|
Total
|
Position
|
|
Year
|
|
($)(1)
|
|
($)
|
|
($)
|
|
|
($)
|
|
|
($)
|
|
|
($)
|
Soo Hong Jeong
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Chief Operating Officer
|
|
2011
|
|
475,000
|
|
75,000
|
|
109,038
|
(2)
|
|
152,555
|
(3)
|
|
108,000
|
(4)
|
|
919,593
|
President, Asia
Operations
|
|
2010
|
|
386,640
|
|
45,000
|
|
0
|
|
|
193,245
|
|
|
153,256
|
|
|
778,141
|
|
|
2009
|
|
367,308
|
|
0
|
|
0
|
|
|
44,000
|
|
|
141,289
|
|
|
552,597
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Peter S. Kirlin
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Senior Vice President,
|
|
2011
|
|
320,000
|
|
65,000
|
|
67,100
|
(2)
|
|
93,880
|
(3)
|
|
17,062
|
(5)
|
|
563,042
|
US and Europe
Operations
|
|
2010
|
|
280,000
|
|
35,000
|
|
0
|
|
|
104,055
|
|
|
17,600
|
|
|
436,655
|
|
|
2009
|
|
266,000
|
|
0
|
|
0
|
|
|
22,000
|
|
|
108,982
|
|
|
396,982
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Constantine S. Macricostas
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Chairman, Chief Executive
|
|
2011
|
|
600,000
|
|
130,000
|
|
377,438
|
(2)
|
|
528,075
|
(3)
|
|
22,296
|
(6)
|
|
1,657,809
|
Officer and
President
|
|
2010
|
|
600,000
|
|
60,000
|
|
0
|
|
|
668,925
|
|
|
923
|
|
|
1,329,848
|
|
|
2009
|
|
516,923
|
|
0
|
|
0
|
|
|
132,000
|
|
|
16,224
|
|
|
665,147
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Christopher J. Progler
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Vice President,
|
|
2011
|
|
285,000
|
|
55,000
|
|
58,713
|
(2)
|
|
82,145
|
(3)
|
|
17,571
|
(7)
|
|
498,429
|
Chief Technology
Officer,
|
|
2010
|
|
243,000
|
|
27,500
|
|
0
|
|
|
104,055
|
|
|
16,860
|
|
|
391,415
|
Strategic Planning
|
|
2009
|
|
230,849
|
|
7,500
|
|
0
|
|
|
22,000
|
|
|
14,170
|
|
|
274,519
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sean T. Smith
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Senior Vice President,
|
|
2011
|
|
360,000
|
|
85,000
|
|
83,875
|
(2)
|
|
117,350
|
(3)
|
|
7,765
|
(8)
|
|
653,990
|
Chief Financial
Officer
|
|
2010
|
|
300,438
|
|
40,000
|
|
0
|
|
|
148,650
|
|
|
8,900
|
|
|
497,988
|
|
|
2009
|
|
285,415
|
|
15,000
|
|
0
|
|
|
28,600
|
|
|
5,081
|
|
|
334,096
|
(1)
|
|
2009 salary reflects a
10% reduction in pay implemented for two quarters of fiscal 2009. There
were no salary increases for fiscal 2010.
|
|
(2)
|
|
The amounts shown in
the Stock Awards column represents the closing price of the Companys
Common Stock on the date of grant multiplied by the amount of the award
granted calculated in accordance with ASC No. 718, Compensation, Stock
Compensation.
|
|
(3)
|
|
The amounts included
in this column represent the grant date fair value of the options
calculated in accordance with ASC No. 718. The assumptions used in
determining the fair value of these options are set forth in Note 10 of
the Companys Annual Report on Form 10-K.
|
|
(4)
|
|
Upon termination of
Dr. Jeongs employment with PKL, Dr. Jeong will receive a lump sum payment
of $108,000 multiplied by the total number of years that Dr. Jeong was
employed by PKL (including years prior to the date of the agreement). The
sum of $108,000 shall be fixed and is not subject to escalation or
increase based on any bonus or salary increase that Dr. Jeong may
receive.
|
|
(5)
|
|
Represents $12,000 car
allowance and $5,062 matching contribution pursuant to the Companys
401(k) Savings and Profit Sharing Plan.
|
|
(6)
|
|
Represents $1059 for
personal use of a Company car. Medical reimbursement for 2010 paid in 2011
of $14,133 and receipt of Company car with value of $7,104
|
|
(7)
|
|
Represents $12,000 car
allowance and $5,571 for matching contribution pursuant to the Companys
401(k) Savings and Profit Sharing Plan.
|
|
(8)
|
|
Represents $2,865 for
personal use of a Company car and $4,900 matching contribution pursuant to
the Companys 401(k) Savings and Profit Sharing
Plan.
|
18
GRANT OF PLAN-BASED AWARDS
TABLE
During the fiscal year ended October
30, 2011, the following plan based awards were granted to the
Named Executive
Officers
|
|
|
|
|
|
|
|
|
|
|
|
Grant Date Fair
|
|
|
|
|
Stock Awards
|
|
All Other Stock
|
|
Value of Stock and
|
|
|
|
|
Shares of Stock or
|
|
Awards: Number of
|
|
Option Awards
|
Name
|
|
Grant Date
|
|
Units (#)
|
|
Shares of
Stock(1)
|
|
$
|
Soo Hong
Jeong
|
|
12/10/2010
|
|
|
16,250
|
|
|
|
32,500
|
|
|
|
261,593
|
|
Peter S. Kirlin
|
|
12/10/2010
|
|
|
10,000
|
|
|
|
20,000
|
|
|
|
160,980
|
|
Constantine S.
Macricostas
|
|
12/10/2010
|
|
|
56,250
|
|
|
|
112,500
|
|
|
|
905,513
|
|
Christopher J. Progler
|
|
12/10/2010
|
|
|
8,750
|
|
|
|
17,500
|
|
|
|
140,858
|
|
Sean T.
Smith
|
|
12/10/2010
|
|
|
12,500
|
|
|
|
25,000
|
|
|
|
201,225
|
|
(1)
|
|
The number of shares
of Common Stock underlying each option is equal to such number of options.
The exercise price of each option awarded is
$6.71.
|
19
OUTSTANDING EQUITY AWARDS AT FISCAL
YEAR-END
OCTOBER 30, 2011
Name
|
|
Option Awards
|
|
Stock Awards
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Market
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
No.
of
|
|
Value
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares
|
|
of
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
or
|
|
Shares
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Units
|
|
or
|
|
|
|
|
No.
of
|
|
No.
of
|
|
|
|
|
|
of
|
|
Units
of
|
|
|
|
|
Securities
|
|
Securities
|
|
|
|
|
|
Stock
|
|
Stock
|
|
|
|
|
Underlying
|
|
Underlying
|
|
|
|
|
|
That
|
|
That
|
|
|
|
|
Unexercised
|
|
Unexercised
|
|
Option
|
|
|
|
Have
|
|
Have
|
|
|
|
|
Options
|
|
Options
|
|
Exercise
|
|
Option
|
|
Not
|
|
Not
|
|
|
|
|
(#)
|
|
(#)
|
|
Price
|
|
Expiration
|
|
Vested
|
|
Vested
|
|
|
Grant
Date
|
|
Exercisable
|
|
Un-exercisable
|
|
($)
|
|
Date
|
|
(#)
|
|
($)
|
(a)
|
|
|
|
(b)
|
|
(c)
|
|
(d)
|
|
(e)
|
|
(f)
|
|
(g)
|
Soo Hong
Jeong
|
|
12/9/2002
|
|
10,002
|
(1)
|
|
0
|
|
|
12.93
|
|
12/09/2012
|
|
|
|
|
|
|
|
2/17/2004
|
|
15,000
|
(1)
|
|
0
|
|
|
19.58
|
|
2/17/2014
|
|
|
|
|
|
|
|
1/17/2005
|
|
125,000
|
(1)
|
|
0
|
|
|
14.56
|
|
1/17/2015
|
|
|
|
|
|
|
|
6/2/2006
|
|
90,000
|
(1)
|
|
0
|
|
|
17.02
|
|
6/02/2016
|
|
|
|
|
|
|
|
11/10/2008
|
|
50,000
|
(1)
|
|
50,000
|
(2)
|
|
0.76
|
|
11/10/2018
|
|
|
|
|
|
|
|
12/21/2009
|
|
16,250
|
(1)
|
|
48,750
|
(2)
|
|
4.42
|
|
12/21/2019
|
|
|
|
|
|
|
|
6/2/2006
|
|
|
|
|
|
|
|
|
|
|
|
11,250
|
(3)
|
|
73,013
|
|
|
1/21/2008
|
|
|
|
|
|
|
|
|
|
|
|
3,750
|
(4)
|
|
24,338
|
|
|
12/10/2010
|
|
|
|
|
|
|
|
|
|
|
|
16,250
|
(4)
|
|
105,463
|
|
|
12/10/2010
|
|
0
|
|
|
32,500
|
(2)
|
|
6.71
|
|
12/10/2020
|
|
|
|
|
|
|
Peter S.
Kirlin
|
|
8/29/2008
|
|
30,000
|
(1)
|
|
20,000
|
(2)
|
|
3.27
|
|
8/29/2018
|
|
|
|
|
|
|
|
11/10/2008
|
|
0
|
|
|
25,000
|
(2)
|
|
0.76
|
|
11/10/2018
|
|
|
|
|
|
|
|
12/21/2009
|
|
8,750
|
(1)
|
|
26,250
|
(2)
|
|
4.42
|
|
12/21/2019
|
|
|
|
|
|
|
|
12/10/2010
|
|
|
|
|
|
|
|
|
|
|
|
10,000
|
(4)
|
|
64,900
|
|
|
12/10/2010
|
|
0
|
|
|
20,000
|
(2)
|
|
6.71
|
|
12/10/2020
|
|
|
|
|
|
|
Constantine S.
Macricostas
|
|
12/3/2001
|
|
60,000
|
(1)
|
|
0
|
|
|
26.95
|
|
12/3/2011
|
|
|
|
|
|
|
|
7/10/2002
|
|
20,000
|
(1)
|
|
0
|
|
|
15.90
|
|
7/10/2012
|
|
|
|
|
|
|
|
2/17/2004
|
|
5,000
|
(1)
|
|
0
|
|
|
19.58
|
|
2/17/2014
|
|
|
|
|
|
|
|
1/17/2005
|
|
25,000
|
(1)
|
|
0
|
|
|
14.56
|
|
1/17/2015
|
|
|
|
|
|
|
|
2/14/2005
|
|
5,000
|
(1)
|
|
0
|
|
|
16.65
|
|
2/14/2015
|
|
|
|
|
|
|
|
11/10/2008
|
|
0
|
|
|
150,000
|
(2)
|
|
0.76
|
|
11/10/2018
|
|
|
|
|
|
|
|
12/21/2009
|
|
56,250
|
(1)
|
|
168,750
|
(2)
|
|
4.42
|
|
12/21/2019
|
|
|
|
|
|
|
|
12/10/2010
|
|
|
|
|
|
|
|
|
|
|
|
56,250
|
(4)
|
|
365,062
|
|
|
12/10/2010
|
|
0
|
|
|
112,500
|
(2)
|
|
6.71
|
|
12/10/2020
|
|
|
|
|
|
|
Christopher J.
Progler
|
|
12/3/2001
|
|
12,500
|
(1)
|
|
0
|
|
|
26.95
|
|
12/3/2011
|
|
|
|
|
|
|
|
7/10/2002
|
|
3,750
|
(1)
|
|
0
|
|
|
15.90
|
|
7/10/2012
|
|
|
|
|
|
|
|
12/9/2002
|
|
2,368
|
(1)
|
|
0
|
|
|
12.93
|
|
12/09/2012
|
|
|
|
|
|
|
|
1/17/2005
|
|
35,000
|
(1)
|
|
0
|
|
|
14.56
|
|
1/17/2015
|
|
|
|
|
|
|
|
6/2/2006
|
|
80,000
|
(1)
|
|
0
|
|
|
17.02
|
|
6/02/2016
|
|
|
|
|
|
|
|
11/10/2008
|
|
10,000
|
(1)
|
|
25,000
|
(2)
|
|
0.76
|
|
11/10/2018
|
|
|
|
|
|
|
|
12/21/2009
|
|
8,750
|
(1)
|
|
26,250
|
(2)
|
|
4.42
|
|
12/21/2019
|
|
|
|
|
|
|
|
6/2/2006
|
|
|
|
|
|
|
|
|
|
|
|
11,250
|
(3)
|
|
94,350.00
|
|
|
1/21/2008
|
|
|
|
|
|
|
|
|
|
|
|
2,500
|
(4)
|
|
31,450.00
|
|
|
12/10/2010
|
|
|
|
|
|
|
|
|
|
|
|
8,750
|
(4)
|
|
56,787
|
|
|
12/10/2010
|
|
0
|
|
|
17,500
|
(2)
|
|
6.71
|
|
12/10/2020
|
|
|
|
|
|
20
Name
|
|
Option Awards
|
|
|
Stock Awards
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Market
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
No.
of
|
|
Value
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares
|
|
of
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
or
|
|
Shares
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Units
|
|
or
|
|
|
|
|
No. of
|
|
No.
of
|
|
|
|
|
|
|
of
|
|
Units
of
|
|
|
|
|
Securities
|
|
Securities
|
|
|
|
|
|
|
Stock
|
|
Stock
|
|
|
|
|
Underlying
|
|
Underlying
|
|
|
|
|
|
|
That
|
|
That
|
|
|
|
|
Unexercised
|
|
Unexercised
|
|
Option
|
|
|
|
Have
|
|
Have
|
|
|
|
|
Options
|
|
Options
|
|
Exercise
|
|
Option
|
|
Not
|
|
Not
|
|
|
|
|
(#)
|
|
(#)
|
|
Price
|
|
Expiration
|
|
Vested
|
|
Vested
|
|
|
Grant
Date
|
|
Exercisable
|
|
Un-exercisable
|
|
($)
|
|
Date
|
|
(#)
|
|
($)
|
(a)
|
|
|
|
(b)
|
|
(c)
|
|
(d)
|
|
(e)
|
|
(f)
|
|
(g)
|
Sean T.
Smith
|
|
12/3/2001
|
|
|
4,401
|
(1)
|
|
|
0
|
|
|
|
26.95
|
|
|
12/3/2011
|
|
|
|
|
|
|
|
12/3/2001
|
|
|
8,099
|
(1)
|
|
|
0
|
|
|
|
26.95
|
|
|
12/3/2011
|
|
|
|
|
|
|
|
7/10/2002
|
|
|
17,758
|
(1)
|
|
|
0
|
|
|
|
15.90
|
|
|
7/10/2012
|
|
|
|
|
|
|
|
7/10/2002
|
|
|
7,242
|
(1)
|
|
|
0
|
|
|
|
15.90
|
|
|
7/10/2012
|
|
|
|
|
|
|
|
12/9/2002
|
|
|
10,450
|
(1)
|
|
|
0
|
|
|
|
12.93
|
|
|
12/9/2012
|
|
|
|
|
|
|
|
1/17/2005
|
|
|
75,000
|
(1)
|
|
|
0
|
|
|
|
14.56
|
|
|
1/17/2015
|
|
|
|
|
|
|
|
6/2/2006
|
|
|
90,000
|
(1)
|
|
|
0
|
|
|
|
17.02
|
|
|
6/2/2016
|
|
|
|
|
|
|
|
11/10/2008
|
|
|
0
|
|
|
|
32,500
|
(2)
|
|
|
0.76
|
|
|
11/10/2018
|
|
|
|
|
|
|
|
6/2/2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
15,000
|
(3)
|
|
97,350
|
|
|
1/21/2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,125
|
(4)
|
|
20,281
|
|
|
12/21/2009
|
|
|
12,500
|
(1)
|
|
|
37,500
|
(2)
|
|
|
4.42
|
|
|
12/21/2019
|
|
|
|
|
|
|
|
12/10/2010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12,500
|
(4)
|
|
81,125
|
|
|
12/10/2010
|
|
|
0
|
|
|
|
25,000
|
(2)
|
|
|
6.71
|
|
|
12/10/2020
|
|
|
|
|
|
(1)
|
|
The options are fully
vested and exercisable.
|
|
(2)
|
|
The options vest 25%
over 4 years on the anniversary date of the grant.
|
|
(3)
|
|
Represents restricted
stock award which vests 12.5% over 8 years on the anniversary date of the
grant.
|
|
(4)
|
|
Represents restricted
stock award which vests 25% over 4 years on the anniversary date of the
grant.
|
OPTION EXERCISES AND STOCK
VESTED
FISCAL YEAR ENDED OCTOBER 30, 2011
|
|
Option
Awards
|
|
Stock
Awards
|
|
|
No. of
|
|
|
|
No. of
|
|
|
|
|
Shares
|
|
Value
|
|
Shares
|
|
Value
|
|
|
Acquired
|
|
Realized
|
|
Acquired
|
|
Realized
|
|
|
on Exercise
|
|
on Exercise
|
|
on Vesting
|
|
on Vesting
|
Name
|
|
(#)
|
|
($)
|
|
(#)
|
|
($)
|
(a)
|
|
(b)
|
|
(c)
|
|
(d)
|
|
(e)
|
Soo Hong Jeong
|
|
0
|
|
|
|
0
|
|
|
7,500
|
|
|
60,563
|
|
|
|
Peter S. Kirlin
|
|
30,000
|
|
|
|
142,565
|
|
|
0
|
|
|
0
|
|
|
|
12,500
|
|
|
|
76,000
|
|
|
0
|
|
|
0
|
|
|
|
Constantine S. Macricostas
|
|
150,000
|
|
|
|
1,050,000
|
|
|
0
|
|
|
0
|
|
|
|
Christopher J. Progler
|
|
2,500
|
|
|
|
12,250
|
|
|
6,250
|
|
|
52,538
|
|
|
|
Sean T. Smith
|
|
16,250
|
|
|
|
98,432
|
|
|
8,125
|
|
|
68,713
|
|
21
PENSION BENEFITS
The Company does not have a Defined
Benefit Pension Plan that the Named Executive Officers participate
in.
CERTAIN AGREEMENTS
Mr. Constantine Macricostas, Chairman of
the Board of the Company and the Company entered into a 7 year consulting
agreement dated July 11, 2005. Mr. Macricostas became Interim Chief Executive
Officer on July 20, 2008, and became an employee of the Company on November 10,
2008. Mr. Macricostas became Chief Executive Officer and President on April 3,
2009. Mr. Macricostas receives a base salary of $600,000 as Chief Executive
Officer. The consulting agreement between the Company and Mr. Macricostas is
suspended for the period of time that Mr. Macricostas is an employee of the
Company; however the term of the consulting agreement will be extended for the
period of time that Mr. Macricostas is Chief Executive Officer and an employee
of the Company. The Company also provides Mr. Macricostas with supplemental
health insurance, provided the premiums do not exceed $15,000 per year, and use
of an automobile owned by the Company. In Fiscal 2011, Mr. Macricostas was given
a bonus of $130,000.00. He was also given his company car as a bonus as well.
The value of his Company car was $7,104.
On January 1, 2011, the Company and Dr.
Jeong entered into a 3 year employment agreement. The agreement provided for a
base salary of $475,000. During the term of the agreement, and for a period of 2
years thereafter, Dr. Jeong has agreed not to engage in any activity that
competes with the Company or a subsidiary of the Company. Dr. Jeong shall be
entitled to participate in the PKL employee benefit plans and arrangements as
may be established from time to time in Korea (which may include, without
limitation, medical, dental, disability plans, basic life insurance and business
travel accident insurance plans, and the Companys bonus plan(s), or stock award
plans or any successor plans thereto). The Company or PKL shall have the right
to terminate or change any such plans or programs at any time. Upon termination
of Dr. Jeongs employment with PKL, Dr. Jeong will receive a lump sum payment of
U.S. $108,000 multiplied by the total number of years that Dr. Jeong was
employed by PKL (including years prior to the date of the agreement). The sum of
$108,000 shall be fixed, and is not subject to escalation or increase based on
any bonus or salary increase that Dr. Jeong may receive during the term of the
agreement. During the term of the agreement, the Company shall provide Dr. Jeong
with a company car and driver, as is customary in Korea. The Company will pay
the annual membership fee on behalf of Dr. Jeong to two country clubs in Korea
that Dr. Jeong has membership to and uses for business purposes as is customary
in Korea. Dr. Jeong received a bonus of $75,000 for fiscal 2011.
Dr. Kirlin and the Company entered into a
3 year employment agreement dated May 21, 2010. The agreement provided for a
base salary of $280,000. The Compensation Committee or the Board of Directors
reviews Dr Kirlins base salary from time to time in accordance with normal
business practices of the Company and as a result of such review may increase
his base salary. Dr. Kirlins current base salary is $320,000. Dr. Kirlin
received a bonus of $65,000 for fiscal 2011. The agreement is automatically
extended for consecutive 1 year periods unless the Company gives at least 30
days notice of its intent not to renew. Dr. Kirlin is entitled to participate in
employee benefit plans and arrangements as established by the Company for
similarly situated executives. Dr. Kirlin is also entitled to receive an
automobile allowance or company car in accordance with the Companys policies
and provisions applicable to other similarly situated executives of the Company.
If the agreement is terminated by the Company for reasons other than for
cause, or Dr. Kirlin resigns for good reason (good reason being defined as
the relocation of the Companys principal executive offices outside the United
States without Dr. Kirlins consent or any reduction in his salary, or health
benefits without Dr. Kirlins consent), Dr. Kirlin will receive a payment equal
to 100% of his base salary paid out over 12 months. The agreement also provides
severance payments for 18 months in the event of involuntary termination other
than for cause (including a resignation for good reason) following a change
in control and Dr. Kirlins stock options or similar rights will become
immediately vested. The agreement also provides that the Company will pay Dr.
Kirlin a gross up amount under certain circumstances if taxes are imposed
pursuant to Sections 280G and 4999 of the Internal Revenue Code. Dr. Kirlin has
agreed not to engage in any activity that competes with the Companys business
during the term of his employment agreement and for 12 months
thereafter.
Mr. Smith and the Company entered into a 3
year employment agreement dated February 20, 2003. The agreement provided for a
base salary of $210,000. The Compensation Committee or the Board of Directors
reviews Mr. Smiths base salary from time to time in accordance with normal
business practices of the Company, and as a result of such
22
reviews may increase his base salary. Mr.
Smiths current base salary is $375,000. Mr. Smith received a bonus of $85,000
for fiscal 2011. The agreement is automatically extended for consecutive 1 year
periods unless the Company gives at least 30 days notice of its intent not to
renew. Mr. Smith is entitled to participate in employee benefit plans and
arrangements as established by the Company for similarly situated executives.
Mr. Smith is also entitled to receive an automobile allowance or company car in
accordance with the Companys policies and provisions applicable to other
similarly situated executives of the Company. If the agreement is terminated by
the Company for reasons other than for cause, or Mr. Smith resigns for good
reason (good reason being defined as the relocation of the Companys
principal executive offices outside the United States without Mr. Smiths
consent or any reduction in his salary, or health benefits without Mr. Smiths
consent), Mr. Smith will receive a payment equal to 100% of his base salary paid
out over 12 months. The agreement also provides severance payments for 18 months
in the event of involuntary termination other than for cause (including a
resignation for good reason) following a change in control and Mr. Smiths
stock options or similar rights will become immediately vested. The agreement
also provides that the Company will pay Mr. Smith a gross up amount under
certain circumstances, if taxes are imposed pursuant to Sections 280G and 4999
of the Internal Revenue Code. Mr. Smith has agreed not to engage in any activity
that competes with the Companys business during the term of his employment
agreement and for 12 months thereafter.
Dr. Progler and the Company entered into a
3 year employment agreement dated September 10, 2007. The agreement provides for
a base salary of $243,000 per year. The Compensation Committee or the Board of
Directors reviews Dr. Proglers base salary from time to time in accordance with
normal business practices of the Company, and as a result of such reviews may
increase his base salary. Dr. Proglers current base salary is $285,000. Dr.
Progler received a bonus of $55,000 for fiscal 2011. The agreement is
automatically extended for consecutive 1 year periods unless the Company gives
at least 30 days notice of its intent not to renew. Dr. Progler is entitled to
participate in employee benefit plans and arrangements as established by the
Company for similarly situated executives. Dr. Progler is also entitled to
receive an automobile allowance or company car in accordance with the Companys
policies and provisions applicable to other similarly situated executives of the
Company. If the agreement is terminated by the Company for reasons other than
for cause, or Dr. Progler resigns for good reason (good reason being
defined as the relocation of the Companys principal executive offices outside
the United States without Dr. Proglers consent or any reduction in his salary,
or health benefits without Dr. Proglers consent), Dr. Progler will receive a
payment equal to 100% of his base salary paid out over 12 months. The agreement
also provides severance payments for 18 months in the event of involuntary
termination other than for cause (including a resignation for good reason)
following a change in control and Dr. Proglers stock options or similar
rights will become immediately vested. The agreement also provides that the
Company will pay Dr. Progler a gross up amount under certain circumstances if
taxes are imposed pursuant to Sections 280G and 4999 of the Internal Revenue
Code. Dr. Progler has agreed not to engage in any activity that competes with
the Companys business during the term of his employment agreement and for 12
months thereafter.
EQUITY COMPENSATION PLAN
INFORMATION
|
|
No.
of
|
|
|
|
|
No. of
Shares
|
|
|
Shares
to be issued upon
|
|
Weighted-average
|
|
remaining available
|
|
|
exercise
of outstanding
|
|
exercise
price
|
|
for
future issuance
|
|
|
options,
warrants and
|
|
of
outstanding options,
|
|
under
equity compensation plans
|
|
|
rights
|
|
warrants, and rights
|
|
(excluding securities
|
Plan Category
|
|
(a)
|
|
(b)
|
|
reflected in column
(a))
|
Equity Compensation
Plan
|
|
4,288,224
|
|
|
9.25
|
|
|
2,825,598
|
(1)
|
|
Approved by
Shareholders
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity
Compensation
|
|
0
|
|
|
0
|
|
|
0
|
|
|
Plans Not Approved
by
|
|
|
|
|
|
|
|
|
|
|
shareholders
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
4,288,224
|
|
|
9.25
|
|
|
2,825,598
|
|
|
(1)
|
|
Represents 2,651,237 shares of
Photronics Common Stock issuable pursuant to future issuance under the
Companys 2007 Long Term Equity Incentive Plan (the LTEIP) and 174,361
shares available under the Companys Employee Stock Purchase
Plan.
|
23
POTENTIAL PAYMENTS UPON TERMINATION
OR CHANGE IN CONTROL
Dr. Jeong, Dr. Kirlin, Dr. Progler and Mr.
Smith are subject to employment agreements with the Company that provide for
severance payments in the event of termination by the Company without cause,
termination upon a change of control or resignation by such Named Executive
Officer with good reason. The employment agreements are further described above
under the caption Certain Agreements.
Mr. Macricostas does not have an
employment agreement with the Company and, therefore, is not contractually
entitled to severance payments in the event of termination by the Company
without cause, termination upon a change of control or resignation with good
reason. The table below was prepared as if the Named Executives employment was
terminated as of October 28, 2011, the last business day of our 2011 fiscal year
and, if applicable, a change of control occurred on that date. The table also
utilizes the closing share price of Photronics Common Stock on October 28,
2011.
|
|
Severance Payment
|
|
Benefit Plans
|
|
Options
|
|
Restricted
|
|
Excise Tax
|
|
Total
|
Name
|
|
($)(1)
|
|
($)(2)
|
|
($)(3)
|
|
Stock ($)(4)
|
|
Gross up
($)
|
|
($)
|
Soo Hong Jeong (5)
|
Termination without cause or
|
|
|
475,000
|
|
|
|
16,800
|
|
|
|
|
|
|
|
|
|
|
0
|
|
|
491,800
|
|
resignation for good reason.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Termination upon change of
|
|
|
712,500
|
|
|
|
|
|
|
|
707,500
|
|
|
|
202,814
|
|
|
0
|
|
|
1,622,814
|
|
control
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sean T. Smith
|
Termination without cause or
|
|
|
360,000
|
|
|
|
16,800
|
|
|
|
|
|
|
|
|
|
|
0
|
|
|
376,800
|
|
resignation for good reason.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Termination upon change of
|
|
|
540,000
|
|
|
|
16,800
|
|
|
|
289,725
|
|
|
|
198,756
|
|
|
0
|
|
|
1,045,281
|
|
control
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Christopher J. Progler
|
Termination without cause or
|
|
|
285,000
|
|
|
|
16,800
|
|
|
|
|
|
|
|
|
|
|
0
|
|
|
301,800
|
|
resignation for good reason.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Termination upon change of
|
|
|
427,500
|
|
|
|
16,800
|
|
|
|
273,000
|
|
|
|
146,025
|
|
|
0
|
|
|
863,325
|
|
control
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Peter S. Kirlin
|
Termination without cause or
|
|
|
320,000
|
|
|
|
16,800
|
|
|
|
|
|
|
|
|
|
|
0
|
|
|
336,800
|
|
resignation for good reason.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Termination upon change of
|
|
|
480,000
|
|
|
|
16,800
|
|
|
|
376,700
|
|
|
|
64,900
|
|
|
0
|
|
|
938,400
|
|
control
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1.)
|
|
Assumes no bonus will
be paid as part of the severance payment. The calculation was based on
base salary for fiscal 2011.
|
|
(2.)
|
|
Assumes a payment of
$1,400 per month for COBRA premiums for 12 months.
|
|
(3.)
|
|
The value of options
assumes all outstanding option awards that are in the money and as of
October 28, 2011, were immediately vested upon the change of control,
regardless of whether termination of employment, for any reason has
occurred, as provided under the Companys stock incentive plans. The
amount is calculated by multiplying the amount of options granted by the
closing price on the date of grant and then deducting that number from the
number of options granted multiplied by the closing share price on October
28, 2011. The closing price on the date of grant was $3.27 for the award
granted on August 20, 2008, $0.76 for the award granted on November 10,
2008 and $4.42 for the award granted on December 21, 2009. The closing price
on October 28, 2011 was $6.49.
|
|
(4.)
|
|
The value of
restricted stock assumes all outstanding awards as of October 28, 2011,
were immediately vested upon the change of control, regardless of whether
termination of employment, for any reason has occurred, as provided under
the Companys stock incentive plans. In the case of restricted stock the
value is based on the number of outstanding shares that would not
ordinarily have vested on October 28, 2011, multiplied by $6.49, the
applicable closing share price on that date.
|
|
(5.)
|
|
The amount set forth
above does not include the severance payment of $108,000 multiplied by the
number of years that Dr. Jeong was employed by
PKL.
|
24
DIRECTORS
COMPENSATION
Directors who are not employees of the
Company each received an annual retainer of $25,000, in addition to a fee of
$3,500 for each directors meeting attended in fiscal 2011.
Prior to 2006, non-employee directors also
received stock options as part of their annual compensation; however, in 2006,
this practice ceased and the directors were only awarded restricted stock.
Annual grants are generally made on the first Board meeting of the Companys
fiscal year. For fiscal 2010, options were once again granted and each Director
received stock option awards of 15,000 per member plus an additional 20,000 was
awarded to each Executive Committee member. For fiscal 2011 each Director
received a restricted stock award grant of 8,000 shares plus an additional
10,000 shares was awarded to each Executive Committee Member. The restrictions
on the option awards generally lapse quarterly over the one-year service
period.
Directors who are also employees of the
Company are not compensated for serving on the Board.
In fiscal 2011, the Chairman of the Audit
Committee received an additional annual retainer of $40,000 and the Vice
Chairman received an additional annual retainer of $10,000. In fiscal 2011, the
other member of the Audit Committee received an additional annual retainer of
$10,000. Members of the Audit Committee receive a per diem payment of $1,250 for
travel in connection with the Audit Committee and for Board of Director
assignments. The Chairman of the Compensation Committee receives an additional
annual retainer of $25,000 and the Vice Chairman of the Compensation Committee
receives an additional annual retainer of $5,000. From time to time, management
may request the involvement of one or more directors outside of board meetings
in connection with the development or consideration of strategic initiatives.
The directors will earn an additional $2,500 per diem prorated fee for the time
devoted to such matters.
For fiscal 2012, Directors who are not
employees of the Company will receive an annual retainer of $30,000, in addition
to a fee of $4,000 for each directors meeting attended in fiscal 2012. On
January 3, 2012 (the Companys fiscal 2012) each non-employee Director was
granted 8,000 shares of restricted stock for fiscal 2012 plus 12,000
options.
For fiscal 2012, the Chairman of the Audit
Committee will receive an additional annual retainer of $40,000 and the Vice
Chairman will receive an additional annual retainer of $10,000. For fiscal 2012,
the other member of the Audit Committee will receive an additional annual
retainer of $10,000. Members of the Audit Committee will receive a per diem
payment of $1,250 for travel in connection with the Audit Committee and for
Board of Directors assignments. For fiscal 2012, the Chairman of the
Compensation Committee will receive an additional annual retainer of $30,000 and
the Vice Chairman of the Compensation Committee will receive an additional
annual retainer of $10,000. For fiscal 2012, the Chairman of the Strategy and
Technology Committee will receive an additional annual retainer of $15,000 and
the Vice Chairman will receive an additional annual retainer of $5,000. For
fiscal 2012, the Chairman of the Nominating Committee will receive an additional
annual retainer of $15,000 and the Vice Chairman will receive an additional
annual retainer of $5,000. From time to time, management may request the
involvement of one or more directors outside of board meetings in connection
with the development or consideration of strategic initiatives. The directors
will earn an additional $2,500 per diem pro-rated fee for the time devoted to
such matters.
For fiscal 2012, the Company will not have
an Executive Committee of the Board of Directors.
25
DIRECTOR COMPENSATION
TABLE
|
|
Fees
Earned
|
|
|
|
|
|
|
|
|
|
|
|
|
|
or
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Paid in
Cash
|
|
Stock Awards
|
|
Option
Awards
|
|
Total
|
Name
|
|
($)
|
|
($)
|
|
($)
|
|
($)
|
Walter M. Fiederowicz
|
|
|
107,500
|
(1)
|
|
|
|
120,780
|
(2)
|
|
|
0
|
|
|
228,280
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Joseph A. Fiorita
|
|
|
117,500
|
(3)
|
|
|
|
120,780
|
(4)
|
|
|
0
|
|
|
238,280
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
George Macricostas
|
|
|
42,500
|
(5)
|
|
|
|
53,680
|
(6)
|
|
|
0
|
|
|
96,180
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mitchell G. Tyson
|
|
|
52,500
|
(7)
|
|
|
|
53,680
|
(8)
|
|
|
0
|
|
|
106,180
|
|
1.
|
|
Represents $25,000 as
an annual retainer, $25,000 as Chairman of the Compensation Committee;
$30,000 as a member of the Executive Committee; $10,000 as Vice Chairman
of the Audit Committee; and $17,500 for meeting fees (5 meetings at
$3,500).
|
|
2.
|
|
Represents 18,000
shares of restricted stock granted on December 10, 2010.The restricted
stock vests quarterly over a twelve month period.
|
|
3.
|
|
Represents $25,000 as
an annual retainer, $40,000 as Chairman of the Audit Committee; $5,000 as
Vice Chairman of the Compensation Committee and $30,000 as a member of the
Executive Committee and $17,500 for meeting fees (5 meetings at $3,500 per
meeting).
|
|
4.
|
|
Represents 18,000
shares of restricted stock granted on December 10, 2010.The restricted
stock vests quarterly over a twelve month period.
|
|
5.
|
|
Represents $25,000 as
an annual retainer and $17,500 for meeting fees (5 meetings at $3,500 per
meeting).
|
|
6.
|
|
Represents 8,000
shares of restricted stock granted on December 10, 2010.The restricted
stock vests quarterly over a twelve month period.
|
|
7.
|
|
Represents $25,000 as
an annual retainer and $10,000 as a member of the Audit Committee and
$17,500 for meeting fees (5 meetings at $3,500 per meeting).
|
|
8.
|
|
Represents 8,000
shares of restricted stock granted on December 10, 2010.The restricted
stock vests quarterly over a twelve month
period.
|
COMPENSATION COMMITTEE
INTERLOCKS
AND INSIDER PARTICIPATION
During fiscal 2011, no members of the
Compensation Committee were officers or employees of the Company or any of its
subsidiaries. During fiscal 2011, no executive officers of the Company served on
the Compensation Committee or the Board of Directors of another entity whose
executive officers served on the Companys Compensation Committee.
PROPOSAL 2
RATIFICATION OF THE SELECTION OF
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Audit Committee has selected Deloitte
& Touche LLP (D&T), independent registered public accounting firm, to
audit the consolidated financial statements of the Company and its subsidiaries
for the fiscal year ending October 28, 2012. We are asking you to ratify this
selection at the meeting.
A representative of D&T will attend
the meeting to answer appropriate questions and may make a statement.
Approval of this proposal to ratify the
appointment of D&T requires a majority of the votes cast by the shareholders
entitled to vote at the Annual Meeting.
The Board of Directors recommends that
you vote FOR this proposal to ratify the selection of D&T as independent
auditors for Photronics, Inc. and its subsidiaries for the fiscal year ending
October 28, 2012.
26
PROPOSAL 3
TO APPROVE AN AMENDMENT TO THE PHOTRONICS, INC. EMPLOYEE STOCK
PURCHASE PLAN
TO INCREASE THE NUMBER OF AUTHORIZED SHARES OF COMMON STOCK
AVAILABLE FOR
ISSUANCE FROM 1,200,000
TO 1,500,000
For the purpose of aiding the Company and
its subsidiaries in attracting, retaining and motivating personnel and
encouraging stock ownership by employees, the Company has an Employee Stock
Purchase Plan.
The Companys Employee Stock Purchase Plan
(Plan) was approved by the shareholders of the Company at the Annual Meeting
held on March 18, 1992 and was amended as of April 1, 1998, March 24, 2004, and
April 8, 2010. This Proposal No. 3, if approved by the shareholders, would
increase the number of shares of Common Stock available for purchase under the
Plan. There are currently 1,200,000 shares of our Common Stock authorized for
issuance under the Plan. Under the Plan, approximately 1.0 million shares had
been issued through October 30, 2011, and approximately 62,000 shares were
subject to outstanding subscriptions. This amendment would increase the number
of shares of Common Stock authorized for issuance under the Plan from 1,200,000
to 1,500,000 shares. The Board approved this amendment at a meeting held on
December 9, 2011, subject to the approval of the shareholders.
The Board believes the Plan should be
amended to increase the number of shares authorized for issuance in order to
permit employees to purchase shares of Common Stock through payroll deductions.
Approval of this proposal requires the affirmative vote of the holders of a
majority of the outstanding shares of Common Stock present in person or by proxy
at the Annual Meeting.
The following is a summary of the material
features of the Plan, as amended. The Plan is qualified in its entirety by
reference to the text of the Plan. You may request a copy of the Plan, as
amended, free of charge by writing to: General Counsel, Photronics, Inc., 15
Secor Road, Brookfield, Connecticut, 06804. A copy of the plan is also attached hereto as Annex A.
Administration
The Plan is administered by a plan
committee which consists of two (2) or more members of the Board of Directors,
none of whom are eligible to participate in the Plan. The plan committee is
authorized to determine any questions arising in the administration,
interpretation and application of the Plan, and is authorized to make such
uniform rules as may be necessary to carry out its provisions. The Board of
Directors of the Company may amend the Plan, except that the Board of Directors
may not, without shareholder approval, make any amendment which would increase
the number of shares reserved under the Plan, extend the term during which
offerings may be made under the Plan, or increase the maximum number of shares
which an eligible employee is entitled to purchase.
Plan
Participation
Under the Plan, each person who has been
an employee of the Company for one complete calendar month and whose customary
employment is for more than twenty (20) hours per week and for more than five
(5) months per calendar year is eligible to purchase that number of shares of
Common Stock having a purchase price equal to not more than 5% of the employees
annual compensation. Approximately 630 individuals will be eligible to
participate in the Plan. The purchase price per share shall be an amount equal
to such percentage, not greater than 100% nor less than 85%, as determined by
the plan committee on the offering date, of the fair market value of a share of
Common Stock on one of the following dates, as determined by the plan committee,
the offering date or the purchase date whichever would result in a lower
purchase price for the Common Stock. Any person who, after grant of a right to
purchase, would hold 5% or more of the Common Stock of the Company is not
eligible to make purchases under the Plan. In addition, the granting of a right
to any employee to purchase shares under the Plan and any other stock purchase
plan of the Company and its subsidiaries is limited to $25,000 in fair market
value of such shares (determined as of the date of grant of such right) for each
calendar year.
The total purchase price of the shares of
stock covered by the grants is paid through payroll deductions over a period of
up to twenty-four months. A participating employee has none of the rights or
privileges of a shareholder of the Company (including rights to dividends) until
the shares are fully paid for and issued.
27
It is intended that the rights to purchase
shares of stock to be granted by the Company will constitute options issued
pursuant to an employee stock purchase plan within the meaning of Section 423
of the United States Internal Revenue Code of 1986, as amended (the
Code).
Shares Available
A maximum of one million two hundred
thousand shares (1,200,000) shares of Common Stock may currently be issued under
the Plan. In the event of a stock dividend, share distribution,
recapitalization, merger, consolidation, split-up, spin-off, combination or
exchange of share or similar action with respect to the Common Stock, the Board
makes adjustments to the unissued shares under the Plan to reflect any such
event.
Certain Federal Income Tax
Considerations
The following is a general summary of
certain United States income tax consequences based upon the laws as currently
in effect, and does not purport to cover possible foreign, state, local, estate,
employment or other tax consequences.
The Plan, and the right of participants to
make purchases thereunder, is intended to qualify under the provisions of
Section 421 and 423 of the Code. Under these provisions, no income will be
taxable to a participant at the time of purchase of shares. Upon disposition of
the shares, the participant will be subject to tax and the amount of the tax
will depend on the period of time that the participant holds the shares. If the
shares are disposed of by the participant at least two years after the beginning
of the option period and at least one year from the date the shares are
purchased, the lesser of (a) the excess of the fair market value of the shares
at the time of such disposition over the purchase price, or (b) 15% of the fair
market value of the shares on the first day of the option period, will be
treated as ordinary income and any further gain will be taxed at long-term
capital gain rates. If the shares are sold after such time and the sale price is
less than the purchase price, the participant recognizes no ordinary income but,
instead, a capital loss for the difference between the sale price and the
purchase price.
If the shares are sold or otherwise
disposed of before the expiration of such two-year and one-year periods, the
excess of the fair market value of the shares on the exercise date over the
purchase price will be treated as ordinary income even if no gain is realized on
the sale or if a gratuitous transfer is made. Any additional gain or loss on
such sale or disposition will be long-term or short-term capital gain or loss,
depending on the holding period.
The Company is not entitled to a deduction
for amounts taxed as ordinary income to a participant except to the extent of
ordinary income recognized by participants upon disposition of shares within two
years from the date of grant or within one year of the date of
purchase.
New Plan Benefits
It is not presently possible to determine
the benefits or amounts that will be received by any particular employee or
groups in the future.
PROPOSAL 4
TO APPROVE, BY NON-BINDING VOTE, THE COMPENSATION OF OUR
NAMED
EXECUTIVE OFFICERS
Pursuant to the Dodd-Frank Act, we are
asking our shareholders to provide advisory approval of the compensation of our
Named Executive Officers, as we have described it in the Compensation
Discussion and Analysis section of this proxy statement beginning on page 11.
While this vote is advisory, and not binding on the Company, it will provide
information to our Compensation Committee regarding investor sentiment about our
executive compensation philosophy, policies and practices which the Compensation
Committee will be able to consider when determining executive compensation for
the remainder of fiscal 2012 and beyond. For the reasons stated below, we are
requesting your approval of the following non-binding resolution:
RESOLVED, that
the compensation paid to the Companys Named Executive Officers,
as
disclosed pursuant to Item 402 of Regulation S-K, including the
Compensation Discussion
and Analysis, compensation tables and narrative
discussion is hereby APPROVED.
|
28
The compensation of our Named Executive
Officers and our compensation philosophy policies are comprehensively described
in the Compensation Discussion and Analysis, and its accompanying tables
(including all footnotes).
The Compensation Committee designs our compensation
policies for our Named Executive Officers to create executive compensation
arrangements that are competitive, align pay with creating shareholder value and
balance compensation risk appropriately in the context of the Companys business
strategy. Based on its review of the total compensation of our Named Executive
Officers for fiscal year 2011, the Compensation Committee believes that the
total compensation for each of the Named Executive Officers is reasonable and
effectively achieves the designed objectives of driving Company performance,
attracting, retaining and motivating our people, aligning our executives with
shareholders long-term interests and discourage excessive risk
taking.
Neither the approval nor the disapproval
of this resolution will be binding on us or the Board of Directors or will be
construed as overruling a decision by us or the Board of Directors. Neither the
approval nor the disapproval of this resolution will create or imply any change
to our fiduciary duties or create or imply any additional fiduciary duties for
us or the Board of Directors.
THE BOARD OF DIRECTORS RECOMMENDS
THAT YOU VOTE FOR APPROVING THE
COMPENSATION OF OUR NAMED EXECUTIVE
OFFICERS
CERTAIN RELATIONSHIPS AND RELATED
TRANSACTIONS
The Company has an operating policy the
purpose of which is to ensure that contracts with entities in which any
director, officer or other member of management has a financial interest are
competitively priced and commercially reasonable. Under the policy, any such
contract must be reviewed and approved in advance by the Audit Committee. To the
extent that anyone on the Audit Committee is the person with a financial
interest, the Chief Executive Officer and Chief Financial Officer of the Company
will obtain independent assessment of the commercial reasonableness of the
contract as considered necessary.
The Company believes that the terms of the
transactions described below with affiliated persons were negotiated at arms
length and were no less favorable to the Company than the Company could have
obtained from non-affiliated parties.
The Company is a party to a long-term
service contract entered into in 2002 pursuant to which it outsources the
administration of its global wide area network and related communication
services to RagingWire Enterprise Solutions, Inc. (RagingWire), a supplier of
secure data center facilities and managed information technology services,
located in Sacramento, California. Constantine Macricostas is a founder,
majority shareholder and the Vice Chairman of the Board of Directors of
RagingWire, and his son, George Macricostas is the Executive Chairman of the
Board and founder of RagingWire. The decision to pursue an outsourced solution
to satisfy the Companys network and communication needs was made by our
management, and we obtained bids from and reviewed the service offerings of six
other global and regional vendors before RagingWire was selected as the most
favorably priced solution for its service offerings. During the 2011 fiscal
year, the Company incurred expenses of $1.8 million for services provided to the
Company by RagingWire. As of October 30, 2011, the Company had contracted with
this service provider through 2013 for a cost of approximately $3.2
million.
Dr. Soo Hong Jeong, Chief Operating
Officer of the Company, who also serves as the Chairman, Chief Executive Officer
and President of the Companys majority held subsidiary in Korea, PK Ltd.
(PKL) is also a significant shareholder of S&S Tech which serves as a
supplier of photomask blanks to the Company. In fiscal 2011, the Company
purchased $21.4 million of photomask blanks from S&S Tech of which $2.9
million was owed to S&S Tech as of October 30, 2011.
OTHER MATTERS
We will bear the costs of solicitation of
proxies. We have engaged The Proxy Advisory Group, LLC
®
, to assist us
with the solicitation of proxies and provide related advice and informational
support, for a services fee and the reimbursement of customary disbursements
both of which are not expected to exceed $10,000 in the aggregate. In addition
to solicitations by mail, The Proxy Advisory Group, LLC and certain of our
officers may solicit proxies by
29
telephone, email and personal interviews
without additional remuneration. We will request brokers, custodians and
fiduciaries to forward proxy solicitation material to the owners of shares of
our common stock that they hold in their names. We will reimburse banks and
brokers for their reasonable out-of-pocket expenses incurred in connection with
the distribution of our proxy materials.
As of the date of this proxy statement,
the Board of Directors knows of no matters which will be presented for
consideration at the Annual Meeting of Shareholders other than the proposals set
forth in this Proxy Statement. If any other matters properly come before the
Annual Meeting of Shareholders the persons named in the proxy will act in
respect thereof in accordance with their best judgment.
SECTION 16(A) BENEFICIAL OWNERSHIP
REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange
Act of 1934 requires the Companys executive officers and directors and persons
who beneficially own more than ten percent of a registered class of the
Companys equity securities to file an initial report of beneficial ownership on
Form 3 and changes in beneficial ownership on Form 4 or 5 with the SEC.
Executive officers, directors and greater than ten percent shareholders are also
required by SEC rules to furnish the Company with copies of all Section 16(a)
forms they file. Based solely on its review of the copies of such forms received
by it, or written representations from certain reporting persons, the Company
believes that during the last fiscal year, all filing requirements applicable to
its executive officers, directors and ten percent shareholders were
satisfied.
FORM 10-K AND ADDITIONAL
INFORMATION
The Companys annual report filed with the
SEC on Form 10-K for the year ended October 30, 2011, which includes audited
financial statements and financial statement schedules, will be furnished, free
of charge, upon written request directed to the Secretary, Photronics, Inc., 15
Secor Road, Brookfield, Connecticut 06804 (203-775-9000).
MULTIPLE SHAREHOLDERS SHARING THE
SAME ADDRESS
The Company has adopted a procedure
approved by the SEC called householding which will reduce our printing costs
and postage fees. Under this procedure, multiple shareholders residing at the
same address will receive a single copy of the annual report and proxy statement
unless the shareholder notifies the Company that they wish to receive individual
copies. Shareholders may revoke their consent to householding at any time by
contacting Broadridge Financial Services, either by calling toll-free at (800)
542-1061, or by writing to Broadridge, Householding Department, 51 Mercedes Way,
Edgewood, New York, 11717. The Company will remove you from the householding
program within 30 days of receipt of your response, following which you will
receive an individual copy of our disclosure document.
SHAREHOLDER PROPOSALS
Shareholder proposals intended for
inclusion in the Companys proxy statement for the 2013 Annual Meeting of
Shareholders must be received by the Company no later than October 25, 2012 and
must meet certain requirements of applicable laws and regulations in order to be
considered for possible inclusion in the proxy statement for that meeting. In
addition, for shareholder proposals to be presented at the 2013 Annual Meeting
of Shareholders without inclusion in the Companys proxy statement for that
year, notice of such proposal must be received by the Company no later than
January 6, 2013 to prevent the Company from being able to exercise its
discretionary voting authority with respect to that proposal (subject to the
rights of the Company and the proponent contained in the federal proxy rules).
Proposals may be mailed to Photronics, Inc. to the attention of the Secretary,
15 Secor Road, Brookfield, Connecticut 06804.
30
SOLICITATION OF PROXIES AND COSTS
THEREOF
This proxy solicitation is being made by
the Board of Directors of the Company and the cost of such solicitation of
proxies will be borne by the Company. In addition, employees of the Company,
without extra remuneration, may solicit proxies personally or by telephone or
cable. The Company will reimburse brokerage firms, nominees, custodians and
fiduciaries for their out-of-pocket expenses for forwarding proxy materials to
beneficial owners and seeking instruction with respect thereto.
The graph below presents a five year
comparison of the total cumulative return on the Companys common stock in
comparison to returns on the NASDAQ Composite indices. The comparison assumes an
initial investment of $100 and the reinvestment of dividends. The graph and
other information included under this section should not be deemed to be
soliciting material or be filed with the Securities and Exchange Commission
or subject to Regulation 14A or 14C, or to the liabilities of Section 18 of the
Securities and Exchange Act of 1934, as amended.
Comparison of Five-Year Cumulative
Total Return
Based upon an initial investment of $100 on October 31,
2006
with dividends reinvested
February 23, 2012
31
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