SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934
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Filed by the Registrant
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Filed by a Party other than the Registrant
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Check the appropriate box:
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Preliminary Proxy Statement
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Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)(2))
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Definitive Proxy Statement
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Definitive Additional Materials
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Soliciting Material Pursuant to Rule 14a-12
IRIDEX CORPORATION
(Name of Registrant as Specified In Its Charter)
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
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No fee required.
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Fee computed on table below per Exchange Act Rules 14a-6(i)(1) 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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4)
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Proposed maximum aggregate value of transaction:
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Fee paid previously with preliminary materials.
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Check box if any part of the fee is offset as provided by
Exchange Act Rule 0-11(a)(2) and identify the filing for which
the offsetting fee was paid previously. Identify the previous
filing by registration statement number, or the Form or
Schedule and the date of its filing.
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1)
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Amount Previously Paid:
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2)
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Form, Schedule or Registration Statement
No.:
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IRIDEX CORPORATION
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
To Be Held on June 2, 2004
TO THE STOCKHOLDERS:
NOTICE IS HEREBY GIVEN that the Annual Meeting of Stockholders of IRIDEX
Corporation, a Delaware corporation (the Company), will be held on June 2,
2004 at 10:00 a.m., Pacific Daylight Savings Time, at the Companys principal
executive offices located at 1212 Terra Bella Avenue, Mountain View, California
94043 for the following purposes:
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To elect six (6) directors to serve for the ensuing year or
until their successors are elected and qualified (Proposal 1);
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2.
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To approve the amendment of the Companys 1998 Stock Plan to
increase the number of shares of Common Stock reserved for issuance
thereunder by 200,000 shares, from 1,500,000 shares to 1,700,000
shares (Proposal 2);
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3.
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To approve the adoption of the Companys 2005 Employee Stock
Purchase Plan with 30,000 shares of Common Stock reserved for
issuance thereunder (Proposal 3);
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4.
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To approve the amendment of the Companys 1995 Director Option
Plan to increase the number of shares of Common Stock reserved for
issuance thereunder by 40,000 shares, from 180,000 shares to 220,000
shares (Proposal 4);
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5.
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To ratify the appointment of PricewaterhouseCoopers LLP as
independent accountants of the Company for the fiscal year ending
January 1, 2005 (Proposal 5); and
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6.
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To transact such other business as may properly be brought
before the meeting and any adjournment(s) thereof.
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Stockholders of record at the close of business on April 9, 2004 shall be
entitled to notice of and to vote at the Annual Meeting.
All stockholders are cordially invited to attend the meeting. However, to
ensure your representation at the Annual Meeting, please vote as soon as
possible using one of the following methods: (1) by using the Internet as
instructed on the enclosed proxy card, (2) by telephone by calling the
toll-free number as instructed on the enclosed proxy card or (3) by mail by
completing, signing, dating and returning the enclosed paper proxy card in the
postage-prepaid envelope enclosed for that purpose. Any stockholder attending
the meeting may vote in person even if he or she has previously voted using the
Internet, telephone or proxy card.
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By Order of the Board of Directors of IRIDEX
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Corporation,
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Mountain View, California
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Theodore A. Boutacoff
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April 30, 2004
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President and Chief Executive Officer
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YOUR VOTE IS IMPORTANT
IN ORDER TO ENSURE YOUR REPRESENTATION AT THE ANNUAL MEETING, WHETHER OR NOT
YOU PLAN TO ATTEND THE ANNUAL MEETING, PLEASE VOTE BY (1) TELEPHONE, (2) USING
THE INTERNET OR (3) COMPLETING AND RETURNING THE ENCLOSED PROXY CARD AS
PROMPTLY AS POSSIBLE IN THE ENCLOSED ENVELOPE.
TABLE OF CONTENTS
IRIDEX CORPORATION
1212 Terra Bella Avenue
Mountain View, CA 94043
PROXY STATEMENT
FOR THE 2004 ANNUAL MEETING OF STOCKHOLDERS
INFORMATION CONCERNING SOLICITATION AND VOTING
General
The accompanying Proxy is solicited on behalf of the Board of Directors
(the Board) of IRIDEX Corporation, a Delaware corporation (the Company or
IRIDEX), for use at the Annual Meeting of Stockholders (the Annual Meeting)
to be held at the principal executive offices of the Company located at 1212
Terra Bella Avenue, Mountain View, California 94043 on Wednesday, June 2, 2004,
at 10:00 a.m., Pacific Daylight Savings Time, and at any adjournment(s)
thereof, for the purposes set forth herein and in the accompanying Notice of
Annual Meeting of Stockholders. The Companys telephone number is (650)
940-4700.
These proxy solicitation materials and the Annual Report on Form 10-K for
the fiscal year ended January 3, 2004, including financial statements, were
mailed on or about April 30, 2004 to all stockholders entitled to vote at the
meeting.
Record Date and Share Ownership
Stockholders of record at the close of business on April 9, 2004 (the
Record Date) are entitled to notice of and to vote at the meeting and at any
adjournment(s) thereof. At the Record Date, 7,180,757 shares of the Companys
Common Stock, par value $0.01 per share, were issued and outstanding and held
of record by approximately 77 stockholders.
Revocability of Proxies
Any proxy given pursuant to this solicitation may be revoked by the person
giving it at any time before its use by (a) delivering to the Company at its
principal offices to the attention of Chief Financial Officer a written notice
of revocation or a duly executed proxy bearing a later date or (b) attending
the meeting and voting in person.
Voting
Each stockholder is entitled to one vote for each share of Common Stock
held by such stockholder. Holders of the Companys Common Stock are the only
securityholders of the Company entitled to vote at the Annual Meeting. The
stockholders may not cumulate votes in the election of directors.
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Solicitation of Proxies
The cost of this solicitation will be borne by the Company. The Company
has retained the services of Skinner & Co., Inc. (the Agent) to perform a
search of brokers, bank nominees and other institutional owners and to solicit
proxies. The Company estimates that it will pay the Agent a fee of $5,000 for
its services and out-of-pocket expenses. In addition, the Company may
reimburse brokerage firms and other persons representing beneficial owners of
shares for their expenses in forwarding solicitation material to such
beneficial owners. Proxies may also be solicited by certain of the Companys
directors, officers and regular employees, without additional compensation,
personally or by telephone or other electronic means.
Quorum; Abstentions; Broker Non-Votes
Votes cast by a properly submitted proxy card, or voted by telephone or by
using the Internet or in person at the Annual Meeting will be tabulated by the
Inspector of Elections (the Inspector). Holders of a majority of shares
entitled to vote must be present at the meeting or represented by a properly
submitted proxy card, or voted by telephone or by using the Internet in order
for a quorum to exist. The Inspector will also determine whether or not a
quorum is present. Except with respect to the Election of Directors under
Proposal One, which will be decided by a plurality vote of the votes duly cast
at a duly held meeting at which a quorum is present, the affirmative vote of a
majority of the votes duly cast at a duly held meeting at which a quorum is
present is required under Delaware law and the Companys Bylaws for approval of
all proposals presented to stockholders.
Shares that are timely voted by telephone, the Internet or a properly
dated, executed and returned proxy card will be voted at the Annual Meeting in
accordance with the instructions of the stockholder. If no specific
instructions are given, the shares will be voted (i) FOR the election of the
nominees for directors set forth herein; (ii) FOR the approval of an amendment
to the Companys 1998 Stock Plan to increase the number of shares reserved for
issuance thereunder by 200,000 shares; (iii) FOR the adoption of the Companys
2005 Employee Stock Purchase Plan with 30,000 shares reserved for issuance
thereunder; (iv) FOR the approval of an amendment to the 1995 Directors Option
Plan to increase the number of shares reserved for issuance thereunder by
40,000 shares; (v) FOR the ratification of PricewaterhouseCoopers LLP as
independent auditors of the Company for the fiscal year ending January 1, 2005;
and (vi) in the proxy holders discretion, upon such other business as may
properly come before the Annual Meeting or any adjournment thereof.
Pursuant to Delaware law, the Inspector will treat shares that are voted
FOR, AGAINST WITHHELD or ABSTAIN as being present and entitled to vote
for purposes of determining the presence of a quorum and as shares entitled to
vote (the Votes Cast) on the subject matter at the Annual Meeting with
respect to such matter. With respect to broker non-votes, although broker
non-votes will be counted for purposes of determining the presence or absence
of a quorum for the transaction of business, broker non-votes will not be
counted for purposes of determining the number of Votes Cast with respect to
the particular proposal on which the broker has expressly not voted and,
accordingly, will not affect the determination as to whether the requisite
majority of Votes Cast has been obtained with respect to a particular matter.
If you hold your shares through a broker, bank or other nominee and you do
not instruct them how to vote, your broker, bank or other nominee may have
authority to vote your shares on your behalf. However, the New York Stock
Exchange has adopted new regulations that prohibit brokers and other nominees
that are NYSE member organizations, from voting on proposals relating to equity
compensation plans unless they receive specific instructions from the
beneficial owner of such shares to vote the shares on such matters. As a
result, shares held through a broker or other nominee that is an NYSE member
organization will only be
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voted in favor of Proposals 2, 3 and 4 if the holder of such shares has
provided specific voting instructions to its broker or other nominee to vote in
favor of such proposals.
Deadline for Receipt of Stockholder Proposals to be Presented at the Next
Annual Meeting
Stockholders of the Company may submit proposals on matters appropriate
for stockholder action at meetings of the Companys stockholders, including
nominations for the election of directors, in accordance with Rule 14a-8
promulgated under the Securities Exchange Act of 1934, as amended (the
Exchange Act). The deadline for submitting all proposals by any stockholder
to be presented at the 2005 Annual Meeting of Stockholders must be received by
the Company at its principal executive offices, attention: Chief Financial
Officer, no later than December 31, 2004 and must otherwise be in compliance
with applicable laws and regulations in order to be considered for inclusion in
the proxy statement and form of proxy relating to that meeting.
In addition, the Companys Bylaws establish an advance notice procedure
with regard to certain matters, including stockholder proposals not included in
the Companys proxy statement, to be brought before an annual meeting of
stockholders. To be properly brought before an annual meeting of stockholders
outside the processes of Rule 14a-8, notice of nominations for the election of
directors or other business proposals must be delivered in writing to the Chief
Financial Officer of the Company at the principal executive offices of the
Company no later than March 16, 2005. However, in the event the date of the
2005 Annual Meeting of Stockholders is more than 30 days before or after (other
than as a result of adjournment) the one year anniversary of the 2004 Annual
Meeting of Stockholders, notice by the stockholder to be timely must be
delivered in writing not later than (i) 60 days before the 2005 Annual Meeting
of Stockholders, or (ii) 10 days after the day on which a public announcement
of the date of such meeting is first made.
If a stockholder intends to submit a proposal at the Companys 2005 Annual
Meeting of Stockholders which is not eligible for inclusion in the proxy
statement relating to the meeting, and the stockholder fails to give the
Company notice of the proposal on or prior to March 16, 2005 and in accordance
with the requirements set forth in the Exchange Act, then the proxy holders
will be allowed to use their discretionary authority with regard to proxies
delivered in connection with the 2005 Annual Meeting of Stockholders when and
if the proposal is raised at the Companys Annual Meeting in 2005.
Stockholder Information
A copy of the Companys Annual Report on
Form 10-K
for the year ended
January 3, 2004, including financial statements and schedules, is enclosed with
these proxy solicitation materials. In compliance with Rule 14a-3 promulgated
under the Exchange Act, the Company hereby undertakes to provide without charge
to each person upon written request, a copy of the Companys Annual Report on
Form 10-K for the year ended January 3, 2004, including the financial
statements and financial schedules thereto. Requests for such copies should be
directed to IRIDEX Corporation, 1212 Terra Bella Avenue, Mountain View,
California 94043, Attention: Investor Relations.
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PROPOSAL ONE
ELECTION OF DIRECTORS
Nominees
A board of six directors is to be elected at the Annual Meeting. Unless
otherwise instructed, the proxy holders will vote the proxies received by them
for the election of the six nominees named below, all of whom are presently
directors of the Company. Each nominee has consented to be named a nominee in
this Proxy Statement and to continue to serve as a director if elected. Should
any nominee become unable or decline to serve as a director or should
additional persons be nominated at the Annual Meeting, the proxy holders intend
to vote all proxies received by them in such a manner as will assure the
election of as many nominees listed below as possible (or, if new nominees have
been designated by the Board of Directors, in such a manner as to elect such
nominees) and the specific nominees to be voted for will be determined by the
proxy holders. The Company is not aware of any reason that any nominee will be
unable or will decline to serve as a director. Each director elected at the
Annual Meeting will serve until the next Annual Meeting of Stockholders or
until such directors successor has been elected and qualified. There are no
arrangements or understandings between any director or executive officer and
any other person pursuant to which he is or was to be selected as a director or
officer of the Company. There is no family relationship between any director
or executive officer of the Company.
The names of the nominees and certain information about them, are set
forth below:
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Name of Nominee
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Age
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Principal Occupation
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Director Since
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Theodore A. Boutacoff
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57
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President, Chief
Executive Officer and
Director of the
Company
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1989
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James L. Donovan
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66
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Vice President,
Corporate Business
Development and
Director of the
Company
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1989
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Donald L. Hammond, D.Sc. (1)(4)
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77
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Director of the
Company, Chairman of
the Board
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1990
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Joshua Makower, M.D. (1)(2)(4)
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40
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Director of the
Company and President
and Chief Executive
Officer of ExploraMed,
Inc.
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1997
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Robert K. Anderson (1)(2)
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68
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Director of the Company
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1999
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Sanford Fitch (1)(2)(3)
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63
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Director of the Company
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2004
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(1)
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Board has made affirmative determination that member is independent as
defined under the listing standards of the Nasdaq Stock Market.
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(2)
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Member of the Audit and Corporate Governance Committee.
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(3)
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Audit committee financial expert as defined in the rules of the
Securities and Exchange Commission.
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(4)
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Member of the Compensation and Nominating Committee.
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Theodore A. Boutacoff
co-founded the Company and since February 1989 has
served as its President, Chief Executive Officer and a member of its Board of
Directors. He received a B.S. in Civil Engineering from Stanford University.
James L. Donovan
co-founded the Company, has been a director of the
Company since 1989 and has served as the Companys Vice President, Corporate
Business Development since October 1997. Mr. Donovan also served as Chief
Financial Officer of the Company from February 1989 to October 1997, except
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during the period from June 1996 to November 1996. Mr. Donovan received a
B.S. in Business Administration from Southern Oregon University.
Donald L. Hammond, D.Sc.
, has served as a director of the Company since
1990. Mr. Hammond has been retired since 1989. From 1966 to 1989, Mr. Hammond
was the Director of Hewlett-Packard Laboratories, a computer and instrument
company. Mr. Hammond received a B.S., an M.S. and an (Hon) D.Sc. in Physics
from Colorado State University.
Joshua Makower, M.D.
, has served as a director of the Company since 1997.
Since September 1995, Dr. Makower has served as Chief Executive Officer of
ExploraMed, Inc., a medical device company for the treatment of incontinence
and gastro-esophageal reflux. Dr. Makower also served as Chief Executive
Officer of TransVascular, Inc., a medical device company for the treatment of
vascular and other diseases, from March 1996 until April 2000. From April 2000
to October 2003, Mr. Makower served as Chairman of the Board and Chief
Technical Officer of TransVascular, Inc. He received a B.S. in Bio-Mechanical
Engineering from the Massachusetts Institute of Technology, an M.D. from New
York University School of Medicine and an M.B.A. from Columbia Business School.
Robert K. Anderson
has served as a director of the Company since 1999.
Mr. Anderson co-founded Valleylab, Inc., a manufacturer of surgical equipment,
in 1969 and served as its Chairman and Chief Executive Officer until 1986. In
1983, Valleylab, Inc. was acquired by Pfizer, Inc. and Mr. Anderson remained as
Chairman until 1996. Mr. Anderson has been retired since 1996. Mr. Anderson
received a B.E.E. in Electrical Engineering from University of Minnesota.
Sanford Fitch
has served as a director of the Company since 2004. Mr.
Fitch currently serves as a director of Ozone International, Inc. a privately
held technology company. Mr. Fitch served as a director and Audit Committee
Chairman of Conceptus Inc., a medical device company, from December 1994 until
April 2004. Mr. Fitch was Chief Financial Officer and Senior Vice President of
Operations of Conceptus from December 1994 through October 1998 and took the
company public in 1996. Mr. Fitch served as Chief Financial Officer of several
start-up technology companies from 1998 until 2002. From December 1990 to
January 1994, Mr. Fitch served as Chief Financial Officer of SanDisk Corp., a
manufacturer of flash memory devices. From 1983 through 1989, Mr. Fitch was the
Chief Financial Officer of Komag Inc., a manufacturer of rigid thin film media
for the disk drive industry and took the company public in 1987. Mr. Fitch
holds a B.S. in Chemistry and an M.B.A. from Stanford University.
Vote Required
Directors will be elected by a plurality vote of the shares of the
Companys Common Stock present or represented and entitled to vote on this
matter at the meeting. Accordingly, the six candidates receiving the highest
number of affirmative votes of shares represented and voting on this proposal
at the meeting will be elected directors of the Company. Votes withheld from a
nominee and broker non-votes will be counted for purposes of determining the
presence or absence of a quorum but because directors are elected by a
plurality vote, will have no impact once a quorum is established. See
Information Concerning Solicitation and Voting Quorum; Abstentions; Broker
Non-Votes.
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THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT STOCKHOLDERS
VOTE FOR THE NOMINEES LISTED ABOVE
Board Meetings and Committees
The Board held a total of five meetings during the fiscal year ended
January 3, 2004. No director serving during the fiscal year attended fewer
than 75% of the aggregate of all meetings of the Board and the committees of
the Board upon which such director served. The Board has two standing
committees, the Audit and Corporate Governance Committee and the Compensation
and Nominating Committee.
Audit and Corporate Governance Committee
. The Audit Committee of the
Board consisted of Messrs. Anderson, Makower and John M. Nehra during the
fiscal year ended January 3, 2004. Mr. Nehra is not standing for re-election
at the Annual Meeting. The Audit Committee held eight meetings during the last
fiscal year. On April 5, 2004, the Board established the Audit and Corporate
Governance Committee, consisting of Messrs. Anderson, Makower and Fitch. Mr.
Fitch is chairman of the Audit and Corporate Governance Committee. The Board
has determined that each member of the Audit and Corporate Governance Committee
is independent as defined under the listing standards of The Nasdaq Stock
Market and that Mr. Fitch is an audit committee financial expert as defined
in rules of the Securities and Exchange Commission (the SEC). Among other
things, the Audit and Corporate Governance Committee reviews and advises the
Board regarding the Companys accounting matters and is responsible for
appointing and overseeing the work of the independent public accountants,
pre-approving audit and non-audit services to be provided by the independent
public accountants, reviewing and evaluating the accounting principles being
applied to the Companys financial reports, reviewing and making
recommendations regarding the composition and mandate of Board committees,
developing overall governance guidelines, and overseeing the performance and
compensation of the Board. The Audit and Corporate Governance Committee
adopted a written charter in April 2004. A copy of the Audit and Corporate
Governance Committee Charter is attached to this Proxy Statement as Appendix A.
Compensation and Nominating Committee
. The Compensation Committee of the
Board, which consisted of Messrs. Hammond and Makower during the fiscal year
ended January 3, 2004, held three meetings during the last fiscal year. On
April 5, 2004, the Board established the Compensation and Nominating Committee,
consisting of Messrs. Hammond and Makower. Mr. Hammond is chairman of the
Compensation and Nominating Committee. Messrs. Hammond and Makower are
independent as defined under the listing standards of The Nasdaq Stock Market.
Among other things, the Compensation and Nominating Committee reviews and
advises the Board regarding all forms of compensation to be provided to the
officers, employees, directors and consultants of the Company, develops general
criteria regarding the qualifications and selection of Board members, and
recommends candidates for election to the Board. It is the policy of the
Compensation and Nominating Committee to consider nominees for the Board
submitted by the stockholders of the Company. For more information regarding
the submission of nominees for the Board, see the discussion in Corporate
Governance Matters. The Compensation and Nominating Committee adopted a
written charter in April 2004. A copy of the Compensation and Nominating
Committee Charter is attached to this Proxy Statement as Appendix B.
Compensation and Nominating Committee Interlocks and Insider Participation
The Compensation Committee consisted of Messrs. Hammond and Makower during
the fiscal year ended January 3, 2004. Mr. Boutacoff also participates in
discussions regarding salaries and incentive compensation for all employees
(including officers) and consultants to the Company, except that Mr. Boutacoff
is excluded from discussions regarding his own salary and incentive
compensation. Except as set forth above, none of the members of the
Compensation and Nominating Committee is currently or has
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been, at any time since the formation of the Company, an officer or
employee of the Company. No member of the Compensation and Nominating
Committee or executive officer of the Company serves as a member of the board
of directors or compensation committee of any entity that has one or more
executive officers serving as a member of the Companys Board or its
Compensation and Nominating Committee.
Director Compensation
As of June 1, 2004, members of the Board of Directors will receive $1,500
per Board meeting attended. The Chairman of the Board will receive $2,000 per
Board meeting attended. Members of the Audit and Corporate Governance
Committee and the Compensation and Nominating Committee will receive $1,000 per
committee meeting attended, and the Chairman of each of these committees will
receive $1,500 per committee meeting attended. In addition, directors are also
reimbursed for reasonable out-of-pocket expenses incurred by them in attending
such meetings.
The Companys 1995 Director Option Plan (the Director Plan) was adopted
by the Board in October 1995 and approved by the stockholders in January 1996.
A total of 180,000 shares of Common Stock are reserved for issuance thereunder.
As of April 9, 2004, options to purchase 225,000 shares have been issued under
the Director Plan and 14,928 shares are available for future issuance
thereunder. The Director Plan provides for the automatic and nondiscretionary
grant of a nonstatutory stock option to purchase 11,250 shares of the Companys
Common Stock to each non-employee director on the date on which such person
first becomes a director (the First Option). The First Option becomes
exercisable as to one-twelfth (1/12) of the shares subject to the option each
quarter and vests over a three-year period. Thereafter, each non-employee
director is automatically granted an option to purchase 3,750 shares of Common
Stock on July 1
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of each year, if on such date he or she has served on the
Board for at least six months (the Subsequent Option). The Subsequent Option
becomes exercisable as to one-fourth (1/4) of the shares subject to the option
each quarter, commencing one quarter after the First Option and any previously
granted Subsequent Option have become fully exercisable. The Director Plan
provides that the exercise price shall be equal to the fair market value of the
Companys Common Stock as of the date of grant.
During the Companys 2003 fiscal year, Messrs. Anderson, Hammond, Makower
and Nehra each received automatic and non-discretionary grants of nonstatutory
stock options to purchase 3,750 shares of the Companys Common Stock under the
Director Plan as compensation for their services as directors. These stock
options were granted with an exercise price of $3.75 per share, are subject to
vesting as described in the previous paragraph and have a term of 10 years. On
April 5, 2004, the date on which he first became a director, Mr. Fitch received
an automatic and non-discretionary grant of a nonstatutory stock option to
purchase 11,250 shares of the Companys Common Stock under the Director Plan.
This stock option was granted with an exercise price of $9.06, is subject to
vesting as described in the previous paragraph and has a term of 10 years. In
addition, on July 1, 2004, Messrs. Hammond, Makower and Anderson will each
automatically be granted a Subsequent Option to purchase 3,750 shares of Common
Stock at an exercise price equal to the fair market value on the date of grant
provided that each is a director at such time.
Corporate Governance Matters
Independence of the Board of Directors
. The Board has determined that,
with the exception of Mr. Boutacoff, who is the President and Chief Executive
Officer of the Company, and Mr. Donovan, who is the Vice President, Corporate
Business Development of the Company, all of its members are independent
directors as defined in the listing standards of The Nasdaq Stock Market.
Contacting the Board of Directors
. Any stockholder who desires to contact
our Chairman of the Board or the other members of our Board may do so
electronically by sending an email to the following
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address: BOD@iridex.com. Alternatively, a stockholder can contact our
Chairman of the Board or the other members of the Board by writing to: Board of
Directors, c/o Chairman of the Board, IRIDEX Corporation, 1212 Terra Bella
Avenue, Mountain View, CA 94043. Communications received electronically or in
writing will be distributed to the Chairman of the Board or the other members
of the Board as appropriate depending on the facts and circumstances outlined
in the communication received.
Attendance at Annual Stockholder Meetings by the Board of Directors
. The
Company has adopted a formal policy regarding attendance by members of the
Board at the Companys annual meeting of stockholders. The Companys policy is
that it encourages, but does not require, directors to attend. Messrs.
Boutacoff, Hammond and Makower attended the Companys 2003 Annual Meeting of
Stockholders; the other Board members did not attend.
Process for Recommending Candidates for Election to the Board of
Directors
. The Compensation and Nominating Committee is responsible for, among
other things, determining the criteria for membership to the Board and
recommending candidates for election to the Board of Directors. It is the
policy of the Committee to consider recommendations for candidates to the Board
from stockholders. Stockholder recommendations for candidates to the Board
must be directed in writing to IRIDEX Corporation, Corporate Secretary, 1212
Terra Bella Avenue, Mountain View, CA 94043 and must include the candidates
name, home and business contact information, detailed biographical data and
qualifications, information regarding any relationships between the candidate
and the Company within the last three years, and evidence of the nominating
persons ownership of the Companys Common Stock.
The Committees general criteria and process for evaluating and
identifying the candidates that it recommends to the full Board for selection
as director nominees, are as follows:
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The Committee regularly reviews the current composition
and size of the Board.
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In its evaluation of director candidates, including the
members of the Board eligible for re-election, the Committee seeks
to achieve a balance of knowledge, experience and capability on
the Board and considers (1) the current size and composition of
the Board and the needs of the Board and the respective committees
of the Board, (2) such factors as issues of character, judgment,
diversity, age, expertise, business experience, length of service,
independence, other commitments, and (3) such other factors as the
Committee may consider appropriate.
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While the Committee has not established specific minimum
qualifications for director candidates, the Committee believes
that candidates and nominees must reflect a Board of Directors
that is comprised of directors who (1) are predominantly
independent, (2) are of high integrity, (3) have qualifications
that will increase overall Board of Directors effectiveness and
(4) meet other requirements as may be required by applicable
rules, such as financial literacy or financial expertise with
respect to audit and corporate governance committee members.
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In evaluating and identifying candidates, the Committee
has the authority to retain and terminate any third-party search
firm that is used to identify director candidates, and has the
authority to approve the fees and retention terms of any search
firm.
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With regard to candidates who are properly recommended by
stockholders or by other means, the Committee will review the
qualifications of any such candidate, which review may, in the
Committees discretion, include interviewing references for the
candidate, direct interviews with the candidate, or other actions
that the Committee deems necessary or proper.
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-8-
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The Committee will apply these same principles when
evaluating Board of Directors candidates who may be elected
initially by the full Board of Directors to fill vacancies or add
additional directors prior to the annual meeting of stockholders
at which directors are elected.
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After such review and consideration, the Committee
selects, or recommends that the Board of Directors selects, the
slate of director nominees, either at a meeting of the Committee
at which a quorum is present or by unanimous written consent of
the Committee.
|
Code of Business Conduct and Ethics
. The Companys policy is to conduct
its operations in compliance with all applicable laws and regulations and to
operate its business under the fundamental principles of honesty, integrity and
ethical behavior. This policy can be found in the Companys Code of Business
Conduct and Ethics, which is applicable to all of our directors, officers and
employees. Such Code of Business Conduct and Ethics incorporates the Code of
Ethics required by Section 406 of the Sarbanes-Oxley Act of 2002 and Item 406
of Regulation S-K. The Code of Business Conduct and Ethics also complies with
the listing standards of The Nasdaq Stock Market.
The Code of Business Conduct and Ethics is designed to promote honest and
ethical conduct, the compliance with all applicable laws, rules and regulations
and to deter wrongdoing. The Code of Business Conduct and Ethics is also aimed
at ensuring that information we provide to the public (including our filings
with and submissions to the SEC) is accurate, complete, fair, relevant, timely
and understandable. A copy of the Code of Business Conduct and Ethics is
attached to this Proxy Statement as Appendix C. We intend to disclose future
amendments to certain provisions of the Code of Business Conduct and Ethics, or
waivers of such provisions granted to directors and executive officers, on our
web site at www.iridex.com pursuant to applicable requirements of the SEC and
the Nasdaq Stock Market.
-9-
PROPOSAL TWO
AMENDMENT OF THE 1998 STOCK PLAN
Introduction
The 1998 Stock Plan (the 1998 Plan) was adopted by the Board in February
1998 and was approved by the stockholders in June 1998. The 1998 Plan provides
for the grant of options and stock purchase rights to purchase shares of the
Companys Common Stock to employees and consultants of the Company. A total of
250,000 shares of Common Stock was initially reserved for issuance under the
1998 Plan. The Board has amended the 1998 Plan each year since 1998 to reserve
additional shares of the Companys Common Stock under the 1998 Plan and the
stockholders approved each annual increase at that years annual meeting of
stockholders. In April 2004, the Board authorized an amendment to the 1998
Plan, subject to stockholder approval, to increase the number of shares of
Common Stock reserved for issuance thereunder by 200,000 shares, from 1,500,000
shares to an aggregate of 1,700,000 shares. The stockholders are being asked
to approve this amendment to increase the number of shares reserved under the
1998 Plan from 1,500,000 shares to an aggregate of 1,700,000 shares at the
Annual Meeting. As of the Record Date, options to purchase an aggregate of
1,140,918 shares of Common Stock were outstanding under the 1998 Plan with a
weighted average exercise price of $4.98 per share, options to purchase an
aggregate of 88,584 shares of Common Stock had been exercised and options to
purchase an aggregate of 270,498 shares of Common Stock were available for
grant. On the Record Date, the closing price in the Nasdaq National Market for
the Companys Common Stock was $8.77 per share. The Companys executive
officers named in the Summary Compensation Table have an interest in this
proposal because they are eligible to participate in the 1998 Plan.
The 1998 Plan is structured to allow the Board broad discretion in
creating equity incentives in order to assist the Company in attracting,
retaining and motivating the best available personnel for the successful
conduct of the Companys business. In addition, the Company believes that
linking employee compensation to corporate performance motivates employees to
improve stockholder value. The Company has, therefore, consistently included
equity incentives as a significant component of compensation for its employees.
The Board believes that the number of shares reserved under the 1998 Plan
will be inadequate to satisfy the equity needs of the Company and that the
proposed increase in the number of shares of Common Stock reserved under the
1998 Plan is in the best interests of the Company and its stockholders.
The material features of the 1998 Plan are outlined below.
Summary of the 1998 Plan
General
. The 1998 Plan provides for the grant of options to purchase
shares of the Companys Common Stock. Options granted under the Plan may
either be incentive stock options as defined in Section 422 of the Internal
Revenue Code of 1986 (the Code), or nonstatutory stock options. The
administrator of the 1998 Plan also has the discretion to grant stock purchase
rights.
Purpose
. The purposes of the 1998 Plan are to attract and retain the best
available personnel and to provide incentive to key employees and consultants
to promote the success of the Companys business.
Administration
. The 1998 Plan is administered by the Board or one or more
committees designated by the Board (the Administrator), as may be necessary
to comply with the applicable rules, including rules governing plans intended
to qualify plans under Rule 16b-3 or to qualify options as performance-based
-10-
compensation under Section 162(m) of the Internal Revenue Code of 1986
(the Code). The Administrator has complete authority to construe, interpret,
and administer the provisions of the 1998 Plan and the provisions of the
agreements governing awards granted thereunder. The Administrator has the
authority to prescribe, amend and rescind rules and regulations pertaining to
the 1998 Plan and to make all other determinations necessary or deemed
advisable in the administration of the 1998 Plan. The determinations and
interpretations made by the Administrator are final and binding.
Grant Limitation
. The 1998 Plan provides that no optionee may be granted
options to purchase more than 150,000 shares of Common Stock in any fiscal
year, except that in connection with an optionees initial service, an optionee
may be granted options to purchase an additional 100,000 shares.
Eligibility
. Nonstatutory options may be granted to employees, directors
and consultants of the Company and its subsidiaries or a parent of the Company.
Incentive stock options may be granted only to employees of the Company and
its subsidiaries. The Administrator selects the employees, consultants and
directors who will be granted options and determines the number of shares to be
subject to each option. The actual number of individuals who will receive an
award cannot be determined in advance because the Administrator has the
discretion to select the recipients of awards granted under the 1998 Plan. The
Company does not typically grant options under the 1998 Plan to consultants or
non-employee directors, although such grants are permitted under the 1998 Plan.
Exercise of Options and Stock Purchase Rights
. Options and stock purchase
rights become exercisable at such times as are determined by the Administrator
as set forth in the individual agreements. In the case of stock purchase
rights, the Company has a repurchase option exercisable upon the termination of
the purchasers employment, unless the Administrator determines otherwise at
the time of grant. The Companys repurchase option lapses at a rate determined
by the Administrator. The purchase price for the shares so repurchased is the
original price paid by the purchaser.
An option or stock purchase right is exercised by giving written notice to
the Company specifying the number of full shares of Common Stock to be
purchased and tendering payment of the purchase price to the Company. The form
of consideration for exercising an option or stock purchase right, including
the method of payment, is determined by the Administrator.
Exercise Price
. The exercise price of incentive stock options granted
under the 1998 Plan is determined by the Administrator and must not be less
than 100% of the fair market value of the Companys Common Stock at the time of
grant; provided, however, that incentive stock options or stock purchase rights
granted to stockholders owning more than 10% of the voting stock of the
Company, if any, are subject to the additional restriction that the exercise
price per share of each option must be at least 110% of the fair market value
per share on the date of grant. The exercise price of nonstatutory options is
determined by the Administrator. In order to qualify as performance-based
compensation within the meaning of Section 162(m) of the Code an option may
not be granted at less than 100% of the fair market value of the Common Stock
on the date of grant.
Termination
. The 1998 Plan gives the Administrator authority to vary the
terms of the individual option agreements. However, generally, if the optionee
ceases to be an employee or consultant, the optionee shall have the right to
exercise the vested portion of an unexercised option within thirty (30) days
after the date of termination, unless otherwise specified in the option
agreement. If such termination is due to death or disability the optionee (or
the optionees legal representative) shall have the right to exercise the
vested portion of an unexercised option at any time within twelve (12) months
of the termination date, unless otherwise specified in the option agreement.
In no event shall an option be exercisable beyond its term.
-11-
Term of Options
. Options granted under the 1998 Plan expire as determined
by the Administrator, but in no event later than ten (10) years after the date
of grant. However, incentive stock options granted to stockholders owning more
than 10% of the Companys outstanding voting stock may not have a term of more
than five (5) years. Stock purchase rights granted under the 1998 Plan expire
as determined by the Administrator. No option or stock purchase right may be
exercised by any person after its expiration.
Non-Transferability
. Unless determined otherwise by the Administrator,
options and stock purchase rights are not transferable by the optionee other
than by will or the laws of descent and distribution, and are exercisable
during the lifetime of the optionee or grantee only.
Adjustments Upon Change in Capitalization
. The number of shares covered
by each outstanding option, and the exercise price thereof, shall be
proportionately adjusted for any increase or decrease in the number of issued
shares resulting from a change in the Companys capitalization, such as a stock
dividend, stock split, reverse stock split, combination, reclassification, or
like change in the capital structure of the Company.
Transfer of Control
. In the event the Company is a participant in any
merger or consolidation, each outstanding, unexercised option or stock purchase
right shall be assumed or substituted by the surviving corporation. If such
options or stock purchase rights are not assumed, they become fully exercisable
or the repurchase right applicable to them fully lapses, respectively, for a
period of fifteen (15) days following the Administrators notice.
Dissolution or Liquidation.
In the event of a dissolution or liquidation
of the Company, any outstanding option or stock purchase right shall terminate.
However, the Administrator may provide that any option be fully exercisable
until ten (10) days prior to such event. In addition, the Administrator may
provide that the Companys repurchase option with respect to any stock purchase
right shall fully lapse prior to such event.
Amendment or Termination of the 1998 Plan
. The Administrator may at any
time amend, alter, suspend or terminate the 1998 Plan; provided that no
amendment, alteration, suspension or termination may impair the rights of any
optionee, unless mutually agreed otherwise.
Federal Income Tax Consequences
The following is a summary of the general federal income tax consequences
to U.S. taxpayers and the Company of awards granted under the 1998 Plan. Tax
consequences for any particular individual may be different.
Incentive Stock Options.
An optionee who is granted an incentive stock
option does not recognize taxable income at the time the option is granted or
upon its exercise, although the exercise is an adjustment item for alternative
minimum tax purposes and may subject the optionee to the alternative minimum
tax. Upon a disposition of the shares more than two years after grant of the
option and one year after exercise of the option, any gain or loss is treated
as long-term capital gain or loss. Net capital gains on shares held more than
12 months may be taxed at a maximum federal rate of 20%. Capital losses are
allowed in full against capital gains and up to $3,000 against other income.
If these holding periods are not satisfied, the optionee recognizes ordinary
income at the time of disposition equal to the difference between the exercise
price and the lower of (i) the fair market value of the shares at the date of
the option exercise or (ii) the sale price of the shares. Any gain or loss
recognized on such a premature disposition of the shares in excess of the
amount treated as ordinary income is treated as long-term or short-term capital
gain or loss, depending on the holding period. A different rule for measuring
ordinary income upon such a premature disposition may apply if the
-12-
optionee is also an officer, director, or 10% shareholder of the Company.
Unless limited by Section 162(m) of the Code, the Company is entitled to a
deduction in the same amount as the ordinary income recognized by the optionee.
Nonstatutory Stock Options.
An optionee does not recognize any taxable
income at the time he or she is granted a nonstatutory stock option. Upon
exercise, the optionee recognizes taxable income generally measured by the
excess of the then fair market value of the shares over the exercise price.
Any taxable income recognized in connection with an option exercise by an
employee of the Company is subject to tax withholding by the Company. Unless
limited by Section 162(m) of the Code, the Company is entitled to a deduction
in the same amount as the ordinary income recognized by the optionee. Upon a
disposition of such shares by the optionee, any difference between the sale
price and the optionees exercise price, to the extent not recognized as
taxable income as provided above, is treated as long-term or short-term capital
gain or loss, depending on the holding period. Net capital gains on shares
held more than 12 months may be taxed at a maximum federal rate of 20%.
Capital losses are allowed in full against capital gains and up to $3,000
against other income.
Restricted Stock.
Stock purchase rights will generally be taxed in the
same manner as nonstatutory stock options. However, restricted stock is
subject to a substantial risk of forfeiture within the meaning of Section 83
of the Code, because the Company may repurchase the stock when the purchaser
ceases to provide services to the Company. As a result of this substantial
risk of forfeiture, the purchaser will not recognize ordinary income at the
time of purchase. Instead, the purchaser will recognize ordinary income on the
dates when the stock is no longer subject to a substantial risk of forfeiture
(i.e., when the Companys right of repurchase lapses). The purchasers
ordinary income is measured as the difference between the purchase price and
the fair market value of the stock on the date the stock is no longer subject
to right of repurchase.
The purchaser may accelerate to the date of purchase his or her
recognition of ordinary income, if any, and begin his or her capital gains
holding period by timely filing (i.e., within thirty days of purchase), an
election pursuant to Section 83(b) of the Code. In such event, the ordinary
income recognized, if any, is measured as the difference between the purchase
price and the fair market value of the stock on the date of purchase, and the
capital gain holding period commences on such date. The ordinary income
recognized by a purchaser who is an employee will be subject to tax withholding
by the Company. Different rules may apply if the purchaser is also an officer,
director, or 10% shareholder of the Company.
The foregoing summary of the effect of the United States federal income
taxation laws upon the optionee and the Company with respect to the options
under the 1998 Plan does not purport to be complete, and reference should be
made to the applicable provisions of the Code. In addition, this summary does
not discuss the provisions of the income tax laws of any municipality, state or
foreign country in which the participant may reside.
Amended and New Plan Benefits
The grant of options under the 1998 Plan to directors and executive
officers, including the officers named in the Summary Compensation Table below,
is subject to the discretion of the Administrator. As of the date of this
Proxy Statement, there has been no determination by the Administrator with
respect to future awards under the 1998 Plan. Accordingly, future awards are
not determinable. The following table sets forth (a) the aggregate number of
shares subject to options granted under the 1998 Plan during the last fiscal
year, and (b) the average per share exercise price of such options.
-13-
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Name of Individual or
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Number of Options
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Average Per Share
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Group
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Granted
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Exercise Price
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Theodore A. Boutacoff
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60,000
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$
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5.39
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Eduardo Arias
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15,000
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$
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4.74
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Larry Tannenbaum
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60,000
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$
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3.30
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Timothy S. Powers
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15,000
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$
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4.74
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All executive
officers, as a group
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153,750
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$
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4.40
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All directors who are
not executive
officers, as a group
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All employees who are
not executive
officers, as a group
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226,250
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$
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3.46
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Required Vote
If a quorum is present, the affirmative vote of a majority of the Votes
Cast will be required to approve the amendment of the 1998 Plan. Votes
withheld and broker non-votes will be counted for purposes of determining the
presence or absence of a quorum, but will not be counted as Votes Cast on this
subject. Broker non-votes may be prohibited from voting in favor of this
proposal under proposed NYSE regulations unless the holder of such shares
specifically instructs the broker or other nominee to vote in favor of the
amendment to the 1998 Stock Plan. See Information Concerning Solicitation and
Voting Quorum; Abstentions; Broker Non-Votes.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT THE
STOCKHOLDERS VOTE FOR THE AMENDMENT OF THE 1998 STOCK PLAN
-14-
PROPOSAL THREE
APPROVAL OF THE 2005 EMPLOYEE STOCK PURCHASE PLAN
Introduction
The stockholders are being asked to approve our 2005 Employee Stock
Purchase Plan (the 2005 ESPP). The Board approved the 2005 ESPP on April 5,
2004, subject to stockholder approval. Approval of the 2005 ESPP requires the
affirmative vote of the holders of a majority of the Votes Cast. The
Companys 1995 Employee Stock Purchase Plan (the 1995 ESPP) is scheduled to
terminate, by its terms, during the 2005 calendar year. If approved, the 2005
ESPP will replace the 1995 ESPP. As such, if approved, the 1995 ESPP will
terminate by its terms in calendar year 2005 and the 2005 ESPP will become
effective as of February 15, 2005. The Companys executive officers named in
the Summary Compensation Table have an interest in this proposal because they
are eligible to participate in the 2005 ESPP.
As of the Record Date, 71,623 shares were available for purchase under the
1995 ESPP. On the Record Date, the closing price on the Nasdaq National Market
for the Companys Common Stock was $8.77 per share. Assuming our stockholders
approve the 2005 ESPP, any shares of Common Stock that have been reserved but
not issued under our 1995 ESPP as of the date of its termination will be
reserved for issuance under the 2005 ESPP.
The Board believes that the 2005 ESPP is an important factor in creating
equity incentives to assist the Company in attracting, retaining and motivating
the best available personnel for the successful conduct of the Companys
business. The Company believes that linking employee compensation to corporate
performance motivates employees to improve stockholder value. The Company has,
therefore, consistently included equity incentives as a significant component
of compensation for its employees.
The material features of the Purchase Plan are outlined below.
Summary of the 2005 Employee Stock Purchase Plan
Purpose.
The purpose of the 2005 ESPP is to provide eligible employees of
the Company and its participating subsidiaries with the opportunity to purchase
shares of common stock of the Company through accumulated payroll deductions.
The 2005 ESPP is intended to qualify as an employee stock purchase plan under
Section 423 of the Internal Revenue Code of 1986, as amended.
Eligibility to Participate.
Most employees of the Company and its
participating subsidiaries are eligible to participate in the 2005 ESPP.
However, an employee is not eligible if he or she has the right to acquire five
percent or more of the voting stock of the Company or of any subsidiary of the
Company, or if he or she normally is scheduled to work less than or equal to
twenty hours per week or five months per calendar year. Approximately 106
employees are currently eligible to participate in the 2005 ESPP.
Administration, Amendment and Termination.
The Board or a committee of
members of the Board, who are appointed from time to time by, and who serve at
the pleasure of, the Board (the Administrator) administers the 2005 ESPP.
Subject to the terms of the 2005 ESPP, the Administrator has all discretion and
authority necessary or appropriate to control and manage the operation and
administration of the 2005 ESPP. The Administrator may make whatever rules,
interpretations, and computations, and take any other actions to administer the
2005 ESPP that it considers appropriate to promote the Companys best
interests, and to ensure that the 2005 ESPP remains qualified under Section 423
of the Internal Revenue Code. The Administrator, in
-15-
its sole discretion and on such terms and conditions as it may provide,
may delegate to one or more individuals all or any part of its authority and
powers under the Plan. Every finding, decision and determination made by the
Administrator (or its designee) is, to the full extent permitted by law, final
and binding on all parties.
The Administrator may amend or terminate the 2005 ESPP at any time and for
any reason. However, as required by Section 423 of the Internal Revenue Code,
the Companys shareholders must approve certain material amendments.
Number of Shares of Common Stock Available under the 2005 ESPP.
The
number of shares of Common Stock reserved and available for issuance pursuant
to the 2005 ESPP will be equal to the sum of (i) 30,0000 plus (ii) the number
of shares of Common Stock which have been reserved but not issued under the
1995 ESPP at the time that plan is terminated. In the event of any stock
split, stock dividend or other change in the capital structure of the Company,
appropriate adjustments will be made in the number, kind and purchase price of
the shares available for purchase under the 2005 ESPP.
Enrollment and Contributions.
Eligible employees voluntarily elect
whether or not to enroll in the 2005 ESPP. Employees join for an offering
period of six months. Employees who join the 2005 ESPP automatically are
re-enrolled for additional rolling six-month offering periods; provided,
however, that an employee may cancel his or her enrollment at any time (subject
to 2005 ESPP rules).
Employees contribute to the 2005 ESPP through payroll deductions.
Participating employees generally may contribute up to 10% of their eligible
compensation through after-tax payroll deductions.
Purchase of Shares.
On the last business day of each offering period, the
Company uses the accumulated payroll deductions of each participating employee
to purchase shares of common stock for such employees. The price of the shares
equals 85% of the lower of (1) the fair market value of a share of Common Stock
on the first day of the offering period, or (2) the fair market value of a
share of Common Stock on the last day of the offering period. Fair market
value under the 2005 ESPP means the closing sales price per share of the
Companys Common Stock on the Nasdaq National Market for the day in question.
In any single year, no employee may purchase more than $25,000 of Common Stock
(based on the fair market value at the beginning of the applicable offering
period). The maximum number of shares that a participant may purchase during
any offering period is 1,000 shares.
Termination of Participation.
Participation in the 2005 ESPP terminates
when a participating employees employment with the Company (or any
participation subsidiary) ceases for any reason, the employee withdraws from
the 2005 ESPP, or the Company terminates or amends the 2005 ESPP such that the
employee no longer is eligible to participate.
United States Tax Information
Based on managements understanding of current federal income tax laws,
the tax consequences of the purchase of shares of Common Stock under the 2005
ESPP are as follows.
An employee will not have taxable income when the shares of Common Stock
are purchased for him or her, but the employee generally will have taxable
income when the employee sells or otherwise disposes of stock purchased through
the 2005 ESPP.
For shares that the employee does not dispose of until more than 24 months
after the applicable enrollment date and more than 12 months after the purchase
date (the holding period), gain up to the
-16-
amount of the discount (if any) from the market price of the stock on the
enrollment date (or re-enrollment date) is taxed as ordinary income. Any
additional gain above that amount is taxed at long-term capital gain rates.
If, after the holding period, the employee sells the stock for less than the
purchase price, the difference is a long-term capital loss. Shares sold within
the holding period are taxed at ordinary income rates on the amount of discount
received from the stocks market price on the purchase date. Any additional
gain (or loss) is taxed to the stockholder as long-term or short-term capital
gain (or loss). The purchase date begins the period for determining whether
the gain (or loss) is short-term or long-term.
The Company may deduct for federal income tax purposes an amount equal to
the ordinary income an employee must recognize when he or she disposes of stock
purchased under the 2005 ESPP within the holding period. The Company may not
deduct any amount for shares disposed of after the holding period.
Amended and New Plan Benefits
Given that the number of shares that may be purchased under the 2005 ESPP
is determined, in part, on the Common Stocks fair market value at the
beginning of an offering period and at the end of an offering period and
participation in the 2005 ESPP is voluntary on the part of employees, the
actual number of shares that may be purchased by any individual is not
determinable. For illustrative purposes, the following table sets forth (a)
the number of shares of the Companys Common Stock that were purchased during
fiscal 2003 under the 1995 ESPP, and the (b) average price per share purchase
price paid for such shares.
|
|
|
|
|
|
|
|
|
Name of Individual
|
|
Number of Shares
|
|
Average Per Share Purchase
|
or Group
|
|
Purchased
|
|
Price
|
Theodore A. Boutacoff
|
|
|
|
|
|
|
|
|
Eduardo Arias
|
|
|
|
|
|
|
|
|
Larry Tannenbaum
|
|
|
919
|
|
|
$
|
2.9376
|
|
Timothy S. Powers
|
|
|
|
|
|
|
|
|
All executive
officers, as a group
|
|
|
1,681
|
|
|
$
|
2.7122
|
|
All directors who
are not executive
officers, as a group
|
|
|
|
|
|
|
|
|
All employees who
are not executive
officers, as a group
|
|
|
27,807
|
|
|
$
|
2.6328
|
|
Required Vote
If a quorum is present, the affirmative vote of a majority of the Votes
Cast will be required to approve the adoption of the 2005 ESPP. Votes withheld
and broker non-votes will be counted for the purposes of determining the
presence or absence of a quorum, but will not be counted as Votes Cast on the
subject. Broker non-votes may be prohibited from voting in favor of this
proposal, under proposed NYSE regulations, unless the holder of such shares
specifically instructs the broker or other nominee to vote in favor of the
adoption of the 2005 Employee Stock Purchase Plan. See Information Concerning
Solicitation and Voting Quorum; Abstentions; Broker Non-Votes.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT THE STOCKHOLDERS
VOTE FOR THE ADOPTION OF THE 2005 EMPLOYEE STOCK PURCHASE PLAN
-17-
PROPOSAL FOUR
AMENDMENT OF THE 1995 DIRECTOR OPTION PLAN
Introduction
The Companys 1995 Director Option Plan (the Director Plan) was adopted
by the Board in October 1995 and was approved by the stockholders in January
1996. The Director Plan provides for the automatic and nondiscretionary grant
of nonstatutory stock options to purchase 11,250 shares of the Companys Common
Stock to each nonemployee director (an Outside Director) on the later of the
effective date of the Director Plan or the date on which such person becomes a
director. Thereafter, each Outside Director will be automatically granted an
option to purchase 3,750 shares of Common Stock on July 1
st
of each year, if on
such date he or she has served on the Board for at least six months. The
Director Plan provides that the exercise price shall be equal to the fair
market value of the Companys Common Stock as of the date of grant.
Information regarding options granted to Outside Directors during the fiscal
year ended January 3, 2004 is set forth under the headings Election of
Directors Director Compensation and Amended and New Plan Benefits. The
Companys Outside Directors named in the Summary Compensation Table have an
interest in this proposal because they are eligible to participate in the
Director Plan.
A total of 100,000 shares of Common Stock were initially reserved for
issuance under the Director Plan. The Board has amended the Director Plan from
time to time since 1995 to increase the number of shares of Common Stock
reserved for issuance thereunder, the stockholders approved each increase at
that years annual meeting of stockholders. In April 2004, the Board
authorized an amendment to the Director Plan, subject to stockholder approval,
to increase the number of shares of Common Stock reserved for issuance
thereunder by 40,000 shares, from 180,000 shares to an aggregate of 220,000
shares. The stockholders are being asked to approve this amendment to increase
the number of shares reserved under the Director Plan from 180,000 shares to an
aggregate of 220,000 shares at the Annual Meeting. As of the Record Date,
options to purchase an aggregate of 153,750 shares of Common Stock were
outstanding under the Director Plan with a weighted average exercise price of
$6.41 per share, options to purchase an aggregate of 11,322 shares of Common
Stock had been exercised and options to purchase an aggregate of 14,928 shares
of Common Stock were available for grant. On the Record Date, the closing
price in the Nasdaq National Market for the Companys Common Stock was $8.77
per share.
The Board of Directors believes that the Director Plan is an important
factor in attracting and retaining the best available people for service as
directors and provides an effective vehicle to compensate them for their many
hours of service. An adequate reserve of shares available for issuance under
the Director Plan is therefore in the best interests of the Company and the
stockholders.
The material features of the Plan are outlined below.
Summary of the 1995 Director Option Plan
Purpose
. The purposes of the Director Plan are to (i) attract and retain
the best available personnel for service as Outside Directors, (ii) to provide
additional incentive to the Outside Directors to serve as Directors and (iii)
to encourage their continued service on the Board.
-18-
Administration.
The Director Plan is designed as an automatic grant plan
which generally does not require administration. However, if necessary, it
will be administered by a committee designated by the Board.
Eligibility.
The Director Plan provides that Options may be granted only
to Outside Directors. Non-employee directors who were previously employed by
the Company are eligible for participation in the Director Plan. All grants
are automatic and are not subject to the discretion of any person. As of
January 3, 2004, four (4) directors were eligible to participate in the
Director Plan.
Procedure for Grants
. The Director Plan provides for the grant of
nonstatutory options to Outside Directors of the Company. Each such director
is granted an option to purchase 11,250 shares of Common Stock on the date on
which such person first becomes a director, whether through election by the
stockholders of the Company or appointment by the Board to fill a vacancy (the
First Option). Thereafter, each Outside Director will be automatically
granted an option to purchase 3,750 shares annually (the Subsequent Option)
on July 1st of each year provided that he or she has served on the Board for at
least the preceding six months.
Terms of Options
. Options granted under the Director Plan have a term of
ten (10) years. Each option is evidenced by a stock option agreement between
the Company and the director to whom such option is granted.
Exercise of Option.
The First Option becomes exercisable as to
one-twelfth (1/12) of the shares subject to the option for each quarter over a
three-year period. Each Subsequent Option becomes exercisable as to one-fourth
(1/4) of the shares subject to the Subsequent Option for each quarter,
commencing one quarter after the First Option and any previously issued
Subsequent Option have become fully exercisable. An option is exercised by
giving written notice of exercise to the Company, specifying the number of full
shares of Common Stock to be purchased and tendering payment to the Company of
the purchase price. Payment for shares issued upon exercise of an option may
consist of cash, check, exchange of the Companys Common Stock or a combination
thereof.
Option Price
. The option price is 100% of the fair market value of the
Companys Common Stock on the date of grant. The Board determines such fair
market value based upon the closing price of the Common Stock on the Nasdaq
National Market on the date the option is granted.
Termination of Status as a Director.
If an optionee ceases to be a
director of the Company for any reason other than death or disability, vesting
of the option shall cease as of the date of termination. Thereafter, the
option may be exercised within three (3) months as to all or part of the shares
that the optionee was entitled to exercise at the date of termination. If such
termination is due to death or disability, the optionee (or the optionees
legal representative) shall have the right to exercise his or her option, but
only within twelve (12) months following the date of such termination, and only
to the extent that the optionee was entitled to exercise it on the date of such
termination (but in no event later than the expiration of its ten (10) year
term).
Nontransferability of Options
. An option is nontransferable by the
optionee, other than by will or the laws of descent and distribution, and is
exercisable only by the optionee during his or her lifetime.
Adjustments on Changes in Capitalization
. In the event any change is made
in the Companys capitalization, such as a stock split, reverse stock split,
stock dividend, combination or reclassification of
-19-
the Common Stock or any other increase or decrease in the number of issued
shares effected without receipt of consideration by the Company, the number of
shares remaining subject to the Director Plan and the purchase price per share
shall be appropriately adjusted.
Transfer of Control
. In the event of a merger of the Company with or into
another corporation where following such merger the stockholders of the Company
own less than 50% of the voting securities of the surviving corporation or the
sale of all or substantially all of the assets of the Company, each outstanding
option shall become fully vested and exercisable, including as to shares for
which it would not otherwise be exercisable. The Board shall notify the
optionee that the option shall be fully exercisable for a period of thirty (30)
days from the date of such notice, and upon the expiration of such period the
option shall terminate. In the event of a merger with or into another
corporation where there is no change of control of the Company, each
outstanding option may be assumed or equivalent options may be substituted by
the successor corporation or a parent or subsidiary thereof.
Amendment and Termination
. The Board may at any time amend or terminate
the Director Plan, provided, however, that the Director Plan may not be amended
more than once every six (6) months, other than to comport with changes with
respect to applicable laws. The Company shall obtain shareholder approval of
any Director Plan amendment in the manner and to the degree required to the
extent necessary and desirable to comply with Rule 16b-3 under the Exchange Act
or any other applicable law or regulation. The Director Plan will terminate by
its terms in October 2005.
Federal Income Tax Consequences
The following is a summary of the general federal income tax consequences
to U.S. taxpayers and the Company of awards granted under the Director Plan.
Tax consequences for any particular individual may be different.
An optionee does not recognize any taxable income at the time he or she is
granted a nonstatutory stock option. Upon exercise, the optionee recognizes
taxable income generally measured by the excess of the then fair market value
of the shares over the exercise price. Any taxable income recognized in
connection with an option exercise by an employee of the Company is subject to
tax withholding by the Company. Unless limited by Section 162(m) of the Code,
the Company is entitled to a deduction in the same amount as the ordinary
income recognized by the optionee. Upon a disposition of such shares by the
optionee, any difference between the sale price and the optionees exercise
price, to the extent not recognized as taxable income as provided above, is
treated as long-term or short-term capital gain or loss, depending on the
holding period. Net capital gains on shares held more than 12 months may be
taxed at a maximum federal rate of 20%. Capital losses are allowed in full
against capital gains and up to $3,000 against other income.
The foregoing summary of the effect of the United States federal income
taxation laws upon the optionee and the Company with respect to the options
under the Director Plan does not purport to be complete, and reference should
be made to the applicable provisions of the Code. In addition, this summary
does not discuss the provisions of the income tax laws of any municipality,
state or foreign country in which the participant may reside.
Amended and New Plan Benefits
Although the grant of options under the Director Plan to outside directors
is automatic and non-discretionary as described above, the exercise price per
shares of such options cannot be determined until the date of grant, which is
July 1
st
of each year. Accordingly, the value of future awards is not
determinable. The
-20-
following table sets forth (a) the aggregate number of shares subject to
options granted under the Director Plan during the last fiscal year, and (b)
the average per share exercise price of such options. The Companys executive
officers and other employees are not entitled to receive options under the
Director Plan and are instead entitled to receive options under the 1998 Plan.
|
|
|
|
|
|
|
|
|
Name of Individual or
|
|
Number of Options
|
|
Average Per Share
|
Group
|
|
Granted (1)
|
|
Exercise Price
|
Robert K. Anderson
|
|
|
3,750
|
|
|
$
|
3.75
|
|
Donald L. Hammond,
D.Sc
|
|
|
3,750
|
|
|
$
|
3.75
|
|
Joshua Makower, M.D.
|
|
|
3,750
|
|
|
$
|
3.75
|
|
John M. Nehra (2)
|
|
|
3,750
|
|
|
$
|
3.75
|
|
All executive
officers, as a group
|
|
|
|
|
|
|
|
|
All directors who are
not executive
officers, as a group
|
|
|
15,000
|
|
|
$
|
3.75
|
|
All employees who are
not executive
officers, as a group
|
|
|
|
|
|
|
|
|
(1)
|
|
All non-employee directors were granted annual stock options under the
Director Plan.
|
(2)
|
|
Mr. Nehra is not standing for re-election at the Annual Meeting.
|
Required Vote
If a quorum is present, the affirmative vote of a majority of the Votes
Cast will be required to approve the amendment of the Director Plan. Votes
withheld and broker non-votes will be counted for purposes of determining the
presence or absence of a quorum, but will not be counted as Votes Cast on this
subject. Broker non-votes may be prohibited from voting in favor of this
proposal under proposed NYSE regulations unless the holder of such shares
specifically instructs the broker or other nominee to vote in favor of the
amendment to the 1995 Director Option Plan. See Information Concerning
Solicitation and Voting Quorum; Abstentions; Broker Non-Votes.
MANAGEMENT RECOMMENDS THAT THE STOCKHOLDERS VOTE FOR
THE AMENDMENT OF THE 1995 DIRECTOR OPTION PLAN
-21-
Equity Compensation Plan Information
The following table summarizes information, as of January 3, 2004, with
respect to shares of the Companys Common Stock that may be issued under its
existing equity compensation plans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(c)
|
|
|
|
|
|
|
|
|
|
|
Number of
|
|
|
|
|
|
|
|
|
|
|
securities
|
|
|
(a)
|
|
|
|
|
|
remaining available
|
|
|
Number of
|
|
|
|
|
|
for future issuance
|
|
|
securities to be
|
|
(b)
|
|
under equity
|
|
|
issued upon
|
|
Weighted-average
|
|
compensation plans
|
|
|
exercise of
|
|
exercise price of
|
|
(excluding
|
|
|
outstanding
|
|
outstanding
|
|
securities
|
|
|
options, warrants
|
|
options, warrants
|
|
reflected in column
|
Plan Category
|
|
and rights
|
|
and rights
|
|
(a))
|
Equity compensation
plans approved by
stockholders
|
|
|
2,004,283
|
(1)
|
|
$
|
4.91
|
|
|
|
395,634
|
(2)
|
Equity compensation
plans not approved
by stockholders
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
2,004,283
|
|
|
$
|
4.91
|
|
|
|
395,634
|
|
(1)
|
|
Includes options to purchase shares outstanding under the 1998 Stock
Plan, the 1995 Director Option Plan and the Amended and Restated 1989
Incentive Stock Plan.
|
(2)
|
|
Includes options available for future issuance under the 1998 Stock Plan
and the 1995 Director Option Plan and shares issuable under the 1995
Employee Stock Purchase Plan.
|
-22-
PROPOSAL FIVE
RATIFICATION OF APPOINTMENT OF INDEPENDENT ACCOUNTANTS
Introduction
The Audit and Corporate Governance Committee has appointed
PricewaterhouseCoopers LLP, independent accountants, to audit the financial
statements of the Company for the fiscal year ending January 1, 2005, and
recommends that stockholders vote for ratification of such appointment.
PricewaterhouseCoopers LLP, previously Coopers & Lybrand, has served as the
Companys independent auditors since 1989. Representatives of
PricewaterhouseCoopers LLP are expected to be present at the meeting with the
opportunity to make a statement if they desire to do so and are expected to be
available to respond to appropriate questions.
Although action by stockholders is not required by law, the Board has
determined that it is desirable to request approval of this selection by the
stockholders. Notwithstanding the approval of this selection by the
stockholders, the Audit and Corporate Governance Committee, in its discretion,
may direct the appointment of new independent auditors at any time during the
year, if the Audit and Corporate Governance Committee feels that such a change
would be in the best interest of the Company and its stockholders. In the event
of a negative vote on ratification, the Audit and Corporate Governance
Committee will reconsider its selection.
Fees Billed To Company By PricewaterhouseCoopers LLP During Fiscal 2003
The following table presents fees (in thousands) billed for professional
audit services and other services rendered to the Company by
PricewaterhouseCoopers, LLP for the fiscal years ended January 3, 2004 and
December 28, 2002.
|
|
|
|
|
|
|
|
|
|
|
Fiscal 2003
|
|
Fiscal 2002
|
Audit Fees (1)
|
|
$
|
140
|
|
|
$
|
135
|
|
Audit-Related Fees (2)
|
|
|
0
|
|
|
|
0
|
|
Tax Fees (3)
|
|
|
54
|
|
|
|
43
|
|
All Other Fees (4)
|
|
|
0
|
|
|
|
0
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
194
|
|
|
$
|
178
|
|
(1)
|
|
Audit Fees consisted of fees for professional services rendered for the
audit of the Companys annual financial statements included in the
Companys Annual Reports on Form 10-K and for the review of the financial
statements included in the Companys Quarterly Reports on Form 10-Q, as
well as reviews of regulatory and statutory filings.
|
|
(2)
|
|
This category consists of assurance and related services by the Companys
independent auditor that are reasonably related to the performance of the
audit or review of the Companys financial statements and are not reported
above under Audit Fees. PricewaterhouseCoopers LLP did not perform any
such services for the Company in fiscal years 2003 or 2002.
|
|
(3)
|
|
Tax Fees consisted of fees billed for tax compliance and sales tax
consultation services.
|
|
(4)
|
|
All Other Fees consisted of fees attributable to PricewaterhouseCoopers
LLPs review of the Companys previous filings under the Exchange Act,
unrelated to its audit of the Companys financial statements.
|
-23-
Pre-Approval of Audit and Non-Audit Services
The Audit and Corporate Governance Committee has established a policy
governing the Companys use of PricewaterhouseCoopers LLP for non-audit
services. Under the policy, management may use PricewaterhouseCoopers LLP for
non-audit services that are permitted under SEC rules and regulations, provided
that management obtain the Audit and Corporate Governance Committees approval
before such services are rendered.
The Audit and Corporate Governance Committee has determined that the
provision of all fees identified above under the captions Audit-Related Fees,
Tax Fees and All Other Fees that were billed by PricewaterhouseCoopers LLP
is compatible with maintaining PricewaterhouseCoopers LLPs independence and
has approved these non-audit services in accordance with its charter and
applicable laws, rules and regulations.
Required Vote
If a quorum is present, the affirmative vote of a majority of the Votes
Cast will be required to approve the ratification of the appointment of
PricewaterhouseCoopers LLP. Votes withheld and broker non-votes will be
counted for the purposes of determining the presence or absence of a quorum,
but will not be counted as Votes Cast on the subject. See Information
Concerning Solicitation and Voting Quorum; Abstentions; Broker Non-Votes.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT STOCKHOLDERS
VOTE FOR RATIFICATION OF THE APPOINTMENT OF
PRICEWATERHOUSECOOPERS LLP
-24-
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information known to the Company
regarding the beneficial ownership of the Companys Common Stock as of the
Record Date by (i) each person (or group of affiliated persons) who is the
beneficial owner of more than 5% of the Companys Common Stock, (ii) each
director and nominee for director, (iii) each of the Companys executive
officers named in the Summary Compensation Table appearing herein, and (iv) all
of the Companys directors and executive officers as a group.
|
|
|
|
|
|
|
|
|
|
|
Beneficial Ownership(1)
|
Name and Address
|
|
Number of Shares
|
|
Percent of Total
|
Wasatch Advisors, Inc.
|
|
|
1,002,125
|
|
|
|
13.96
|
%
|
150 Social Hall Avenue
|
|
|
|
|
|
|
|
|
Salt Lake City, UT 84111 (2)
|
|
|
|
|
|
|
|
|
Wellington Management Company, LLP
|
|
|
668,000
|
|
|
|
9.30
|
%
|
75 State Street
|
|
|
|
|
|
|
|
|
Boston, MA 02109 (3)
|
|
|
|
|
|
|
|
|
David W. Tice & Associates, LLC
|
|
|
374,241
|
|
|
|
5.21
|
%
|
Prudent Bear Funds, Inc.
|
|
|
|
|
|
|
|
|
8140 Walnut Hill Lane, Suite 300
|
|
|
|
|
|
|
|
|
Dallas, TX 75231 (4)
|
|
|
|
|
|
|
|
|
Dimensional Fund Advisors Inc.
|
|
|
318,900
|
|
|
|
4.44
|
%
|
1299 Ocean Ave.
|
|
|
|
|
|
|
|
|
11
th
Floor
|
|
|
|
|
|
|
|
|
Santa Monica, CA 90401(5)
|
|
|
|
|
|
|
|
|
T. Rowe Price Associates, Inc.
|
|
|
300,000
|
|
|
|
4.18
|
%
|
T. Rowe Price Small-Cap Value Fund, Inc.
|
|
|
|
|
|
|
|
|
100 E. Pratt Street
|
|
|
|
|
|
|
|
|
Baltimore, MD 21202 (6)
|
|
|
|
|
|
|
|
|
Gruber and McBaine Capital Management, LLC and its affiliates
|
|
|
278,500
|
|
|
|
3.88
|
%
|
50 Osgood Place, Penthouse
|
|
|
|
|
|
|
|
|
San Francisco, CA 94133 (7)
|
|
|
|
|
|
|
|
|
Theodore A. Boutacoff (8)
|
|
|
289,945
|
|
|
|
3.99
|
%
|
Eduardo Arias (9)
|
|
|
234,772
|
|
|
|
3.24
|
%
|
John Nehra (10)
|
|
|
170,108
|
|
|
|
2.36
|
%
|
Robert K. Anderson (11)
|
|
|
167,078
|
|
|
|
2.32
|
%
|
James Donovan (12)
|
|
|
116,837
|
|
|
|
1.62
|
%
|
Timothy S. Powers (13)
|
|
|
100,073
|
|
|
|
1.37
|
%
|
Donald L. Hammond (14)
|
|
|
64,328
|
|
|
|
*
|
|
Larry Tannenbaum (15)
|
|
|
15,919
|
|
|
|
*
|
|
Joshua Makower (16)
|
|
|
23,078
|
|
|
|
*
|
|
Sanford Fitch
|
|
|
|
|
|
|
*
|
|
All directors and executive officers as a group (10 persons) (17)
|
|
|
1,157138
|
|
|
|
15.57
|
%
|
*
|
|
Represents beneficial ownership of less than 1%.
|
|
(1)
|
|
Applicable percentage ownership is based on 7,180,757 shares of Common
Stock outstanding as of the Record Date together with applicable options
for such stockholder. Beneficial ownership is determined in accordance
with the rules of the Securities and Exchange Commission (the
Commission), and includes voting and investment power with respect to
shares. Shares of Common Stock subject to options currently exercisable or
exercisable within 60 days after the Record Date are deemed outstanding
for computing the percentage ownership of the person holding such options,
but are not deemed outstanding for computing the percentage of any other
person. Except as noted in the footnotes to this table, and subject to
applicable community property laws, the persons named in the table have
|
-25-
|
|
sole voting and investment power with respect to all shares of the Companys
Common Stock shown as beneficially owned by them.
|
|
(2)
|
|
Based solely on information provided pursuant to Schedules 13G and 13G/A
filed with the Commission for calendar year 2003. In its role as
investment advisor, Wasatch Advisors, Inc. may be deemed to beneficially
own 1,002,125 shares by reason of its sole voting and dispositive power
with respect to these shares.
|
|
(3)
|
|
Based solely on information provided pursuant to Schedules 13G and 13G/A
filed with the Commission for calendar year 2003. In its role as
investment advisor, Wellington Management Company, LLP may be deemed to
beneficially own 668,000 shares by reason of its shared voting power with
respect to 570,000 shares and shared dispositive power with respect to
668,000 shares.
|
|
(4)
|
|
Based solely on information provided pursuant to Schedule 13G and 13G/A
filed with the Commission for calendar year 2003. David W. Tice and
Associates, LLC and President Bear Funds, Inc. share beneficial ownership
of 374,241 shares. David W. Tice and Associates, LLC may be deemed to
beneficially own 374,241 shares by reason of its sole dispositive power
with respect to these shares. Prudent Bear Funds, Inc. may be deemed to
beneficially own 374,241 shares by reason of its sole voting with respect
to these shares.
|
|
(5)
|
|
Based solely on information provided pursuant to Schedules 13G and 13G/A
filed with the Commission for calendar year 2003. In its role as
investment advisor or manager, Dimensional Fund Advisors Inc. exercises
sole voting and dispositive power with respect to 318,900 shares, but
disclaims beneficial ownership of all 318,900 shares.
|
|
(6)
|
|
Based solely on information provided pursuant to Schedule 13G and 13G/A
filed with the Commission for calendar year 2003. T. Rowe Price
Associates, Inc., and T. Rowe Price Small-Cap Value Fund, Inc. share
beneficial ownership of 300,000 shares. In its role as investment
advisor, T. Rowe Price Associates, Inc. may be deemed to beneficially own
300,000 shares by reason of its sole voting power with respect to these
shares.
|
|
(7)
|
|
Based solely on information provided pursuant to Schedules 13G and 13G/A
filed with the Commission for calendar year 2003. In its role as
investment advisor, Gruber and McBaine Capital Management, LLC may be
deemed to beneficially own 278,500 shares by reason of its shared voting
and dispositive power. Jon D. Gruber, J. Patterson McBaine and Eric B.
Swergold are deemed to beneficially own 208,200 shares by reason of their
shared voting and dispositive power with respect to such shares and Mr.
Gruber and Mr. McBaine additionally exercise voting and dispositive power
with respect to 47,400 shares and 22,900 shares, respectively, and are
deemed to beneficially own such shares.
|
|
(8)
|
|
Includes 85,000 shares subject to stock options held by Mr. Boutacoff
that are exercisable within 60 days of the Record Date.
|
|
(9)
|
|
Includes 165,200 shares held by the Arias Trust, dated October 19, 1994,
over which Mr. Arias exercises voting and dispositive power and 69,572
shares subject to stock options held by Mr. Arias that are exercisable
within 60 days of the Record Date.
|
|
(10)
|
|
Includes 27,348 shares held by Mr. Nehras spouse as separate property,
as to which shares Mr. Nehra disclaims beneficial ownership. Also includes
39,328 shares subject to stock options held by Mr. Nehra that are
exercisable within 60 days of the Record Date.
|
|
(11)
|
|
Includes 15,578 shares subject to stock options held by Mr. Anderson that
are exercisable within 60 days of the Record Date.
|
|
(12)
|
|
Includes 91,839 shares held by the Donovan Trust dated March 14, 1978,
over which Mr. Donovan exercises voting and dispositive power, and 24,998
shares subject to stock options that are exercisable within 60 days of the
Record Date.
|
|
(13)
|
|
Consists of 100,073 shares subject to stock options held by Mr. Powers
that are exercisable within 60 days of the Record Date.
|
|
(14)
|
|
Includes 12,500 shares held by the Hammond Marital Trust UA 8/30/95 and
12,500 shares held by the Hammond Survivors Trust UA 8/30/95, over which
Mr. Hammond exercises voting and dispositive power. Also includes 39,328
shares subject to stock options held by Mr. Hammond that are exercisable
within 60 days of the Record Date.
|
|
(15)
|
|
Consists of 15,000 shares subject to stock options held by Mr. Tannenbaum
that are exercisable within 60 days of the Record Date.
|
|
(16)
|
|
Consists of 23,078 shares subject to stock options held by Dr. Makower
that are exercisable within 60 days of the Record Date.
|
|
(17)
|
|
Includes 411,955 shares subject to stock options that are exercisable
within 60 days of the Record Date. See footnotes (8) through (16) above.
|
-26-
EXECUTIVE OFFICERS
The following tables sets forth certain information with respect to our
current executive officers, including their ages.
|
|
|
|
|
|
|
Name
|
|
Age
|
|
Position
|
Theodore A. Boutacoff
|
|
|
57
|
|
|
President and Chief Executive Officer
|
Eduardo Arias
|
|
|
59
|
|
|
Senior Vice President, International Sales
and Business Development
|
James L. Donovan
|
|
|
64
|
|
|
Vice President, Corporate Business Development
|
Larry Tannenbaum
|
|
|
52
|
|
|
Chief Financial Officer and Senior Vice
President, Finance and Administration
|
Timothy S. Powers
|
|
|
43
|
|
|
Vice President, Operations
|
Theodore A. Boutacoff
co-founded the Company and since February 1989 has
served as its President, Chief Executive Officer and a member of its Board of
Directors. He received a B.S. in Civil Engineering from Stanford University.
Eduardo Arias
co-founded the Company and, from April 1989 to September
1991, Mr. Arias served as a Vice President, Sales & Marketing and, since
September 1991, served as of Senior Vice President, International Worldwide
Sales. He was promoted to his current position, Senior Vice President,
International Sales and Business Development in January 2002. Mr. Arias
completed programs in Industrial and Military Electronics at the National Radio
Institute and Strategic Marketing at Stanford University, as well as management
seminars through the American Management Association and scientific seminars
sponsored by Varian, Inc. and Coherent, Inc.
James L. Donovan
co-founded the Company, has been a director of the
Company since 1989 and has served as the Companys Vice President, Corporate
Business Development since October 1997. Mr. Donovan also served as Chief
Financial Officer of the Company from February 1989 to October 1997, except
during the period from June 1996 to November 1996. Mr. Donovan received a B.S.
in Business Administration from Southern Oregon University.
Larry Tannenbaum
joined the Company in May 2003 as our Chief Financial
Officer and Senior Vice President, Finance and Administration. From April 2001
to April 2003, Mr. Tannenbaum served as the Senior Vice President and Chief
Financial Office of Metrika, a manufacturer of diabetes monitoring products.
From 1998 to 2000, Mr. Tannenbaum served as the Senior Vice President and Chief
Financial Officer of LJL Biosystems, which was acquired by Molecular Devices
Corporation, a supplier of devices for drug and life sciences research. Mr.
Tannenbaum has also served as Chief Financial Officer at SinoGen, ArthroCare
and Target Therapeutics. Mr. Tannenbaum received an M.B.A. from the University
of Utah and a B.S. in Political Science from Arizona State University.
Timothy S. Powers
joined the Company in July 1997 as our Vice President of
Operations and has continued to serve in that capacity to the present. Mr.
Powers received a B.S. in Industrial Technology and an M.M.S. in Manufacturing
Engineering, both from the University of Lowell.
-27-
EXECUTIVE COMPENSATION
Summary Compensation
The following table shows, as to the Companys Chief Executive Officer and
each of its other three most highly compensated executive officers earning more
than $100,000 in salary and bonus (the Named Executive Officers), information
concerning compensation awarded to, earned by or paid for their services to the
Company in all capacities during 2003, 2002 and 2001. The entries under the
column heading All Other Compensation in the table represent the cost of term
life insurance and 401(k) matching contributions for each Named Executive
Officer, except as otherwise noted.
Summary Compensation Table
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-Term
|
|
|
|
|
|
|
|
|
Annual Compensation
|
|
Compensation Awards
|
|
|
|
|
|
|
|
|
|
|
Securities
|
|
|
Name and
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other Annual
|
|
Underlying Options
|
|
All Other
|
Principal Position
|
|
Year
|
|
Salary($)
|
|
Bonus($)
|
|
Compensation ($)
|
|
(#)
|
|
Compensation ($)
|
Theodore A. Boutacoff
|
|
|
2003
|
|
|
$
|
240,000
|
|
|
|
|
|
|
|
|
|
|
|
60,000
|
|
|
$
|
2,152
|
|
President and Chief
|
|
|
2002
|
|
|
|
240,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,371
|
|
Executive Officer
|
|
|
2001
|
|
|
|
228,462
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,179
|
|
Eduardo Arias
|
|
|
2003
|
|
|
|
164,300
|
|
|
|
|
|
|
|
63,334
|
(2)
|
|
|
15,000
|
|
|
|
2,001
|
|
Senior Vice President,
|
|
|
2002
|
|
|
|
164,300
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,194
|
|
International Sales and
|
|
|
2001
|
|
|
|
157,146
|
|
|
|
|
|
|
|
29,788
|
(2)
|
|
|
10,000
|
|
|
|
1,037
|
|
Business Development
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Larry Tannenbaum (1)
|
|
|
2003
|
|
|
|
106,616
|
|
|
|
|
|
|
|
|
|
|
|
60,000
|
|
|
|
1,432
|
|
Chief Financial Officer,
|
|
|
2002
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
and Senior Vice President
|
|
|
2001
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Administration
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Timothy S. Powers
|
|
|
2003
|
|
|
|
167,400
|
|
|
|
|
|
|
|
|
|
|
|
15,000
|
|
|
|
804
|
|
Vice President, Operations
|
|
|
2002
|
|
|
|
167,400
|
|
|
|
|
|
|
|
|
|
|
|
10,000
|
|
|
|
962
|
|
|
|
|
2001
|
|
|
|
157,862
|
|
|
|
|
|
|
|
|
|
|
|
20,000
|
|
|
|
817
|
|
(1)
|
|
Mr. Tannenbaum joined the Company in May 2003.
|
|
(2)
|
|
Represents amounts earned as commissions.
|
-28-
Stock Option Grants and Exercises During Last Fiscal Year
The following table sets forth certain information for each grant of
options to purchase the Companys Common Stock during fiscal 2003 to each of
the Named Executive Officers. Each of these options granted by the Company was
granted under the 1998 Plan. Each option has a term of 10 years, subject to
earlier termination in the event optionees services to the Company cease. In
accordance with the rules of the Commission, also shown below is the potential
realizable value over the term of the option (the period from the grant date to
the expiration date) based on assumed rates of stock appreciation of 5% and
10%, compounded annually. These amounts are mandated by the Commission and do
not represent the Companys estimate of future stock price. Actual gains, if
any, in stock option exercises, will depend on the future performance of the
Companys Common Stock.
Option Grants in Fiscal 2003
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Individual Grants
|
|
Potential Realizable Value
|
|
|
|
|
of Assumed Annual Rates
|
|
|
Number of
|
|
% of Total
|
|
|
|
|
|
|
|
|
|
of Stock Price
|
|
|
Securities
|
|
Options
|
|
|
|
|
|
|
|
|
|
Appreciation for Option
|
|
|
Underlying
|
|
Granted to
|
|
Exercise
|
|
|
|
|
|
Term(7)
|
Name and
|
|
Options
|
|
Employees in
|
|
Price
|
|
Expiration
|
|
|
Principal Position
|
|
Granted(#)
|
|
Fiscal Year(4)
|
|
($/Sh)(5)
|
|
Date(6)
|
|
5%($)
|
|
10%($)
|
Theodore A. Boutacoff (1)
|
|
|
60,000
|
|
|
|
17.7
|
%
|
|
$
|
5.39
|
|
|
|
11/10/13
|
|
|
$
|
203,385
|
|
|
$
|
515,416
|
|
President and Chief
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Executive Officer
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Eduardo Arias (2)
|
|
|
15,000
|
|
|
|
4.4
|
%
|
|
|
4.74
|
|
|
|
9/22/13
|
|
|
|
44,714
|
|
|
|
113,315
|
|
Senior Vice President
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
International Sales and
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Business Development
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Larry Tannenbaum (3)
|
|
|
60,000
|
|
|
|
17.7
|
%
|
|
|
3.30
|
|
|
|
5/18/13
|
|
|
|
124,521
|
|
|
|
315,561
|
|
Chief Financial Officer
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
and Senior Vice President,
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Administration
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Timothy S. Powers (2)
|
|
|
15,000
|
|
|
|
4.4
|
%
|
|
|
4.74
|
|
|
|
9/22/13
|
|
|
|
44,714
|
|
|
|
113,315
|
|
Vice President, Operations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
|
The options granted to Mr. Boutacoff vest in full on the earlier of the
fourth anniversary of the date of grant or the achievement of certain
milestones related to the Companys financial performance in fiscal year
2005.
|
|
(2)
|
|
The options granted to Messrs. Arias and Powers vest at the rate of
1/48
th
of the shares subject to the option each month following the date
of grant.
|
|
(3)
|
|
The options granted to Mr. Tannenbaum vest at the rate of 25% after the
first year, and then 1/48
th
of the shares subject to the option each month
thereafter.
|
|
(4)
|
|
Based upon an aggregate of 338,552 options granted to employees and
consultants, including the Named Executive Officers, in fiscal 2003.
|
|
(5)
|
|
Options were granted at an exercise price equal to the fair market value
of the Companys Common Stock, as determined by reference to the closing
price reported on the Nasdaq National Market on the date of grant.
|
|
(6)
|
|
Options may terminate before their expiration dates if the optionees
status as an employee is terminated or upon the optionees death or
disability.
|
|
(7)
|
|
The potential realizable value is net of exercise price before taxes and
calculated assuming that the fair market value of the Common Stock on the
date of grant appreciates at the indicated annual rate compounded annually
for the entire term of the option (10 years) and that the option is
exercised and sold on the last day of its term for the appreciated stock
price.
|
-29-
Aggregated Option Exercises in Last Fiscal Year and Year-End Option Values
The following table shows, as to the Named Executive Officers, the number
of options exercisable and unexercisable at January 3, 2004, information
concerning stock options exercised during the fiscal year ended January 3, 2004
and the value of unexercised options as of January 3, 2004.
Aggregated Option Exercises in Fiscal 2003 and
Fiscal 2003 Year-End Option Values
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of Securities
|
|
|
|
|
|
|
|
|
|
|
|
|
Underlying Unexercised
|
|
Value of Unexercised
|
|
|
|
|
|
|
|
|
Options at
|
|
In-the-Money Options at
|
Name and
|
|
Shares
Acquired on
|
|
Value Realized
|
|
January 3, 2004 (#)
|
|
January 3, 2004 ($)(1)
|
Principal Position
|
|
Exercise(#)
|
|
($)
|
|
Exercisable
|
|
Unexercisable
|
|
Exercisable
|
|
Unexercisable
|
Theodore A. Boutacoff
|
|
|
|
|
|
|
|
|
|
|
95,000
|
|
|
|
60,000
|
|
|
$
|
116,000
|
|
|
$
|
600
|
|
President and Chief
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Executive Officer
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Eduardo Arias
|
|
|
|
|
|
|
|
|
|
|
66,968
|
|
|
|
18,032
|
|
|
|
75,822
|
|
|
|
15,978
|
|
Senior Vice President,
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
International Sales and
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Business Development
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Larry Tannenbaum
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Chief Financial Officer
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
60,000
|
|
|
|
|
|
|
|
126,000
|
|
and Senior Vice
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
President,
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Administration
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Timothy S. Powers
|
|
|
|
|
|
|
|
|
|
|
95,384
|
|
|
|
27,616
|
|
|
|
58,882
|
|
|
|
31,018
|
|
Vice President,
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
|
Calculated by determining the difference between the fair market value of
the securities underlying the options at year-end ($5.40 per share) and
the exercise price of the options.
|
Employment Agreements
The Company entered into a change of control agreement with Mr.
Tannenbaum, which provides that one-half of the unvested portion of Mr.
Tannenbaums options will vest if Mr. Tannenbaum is involuntarily terminated or
terminated without cause within nine months of a change of control of the
Company. Other than its agreement with Mr. Tannenbaum, the Company has no
employment contracts with any of its officers and has no compensatory plans or
arrangements that are activated upon resignation, termination or retirement of
any such officer upon a change in control of the Company. The 1998 Plan and
the Director Plan provide for the accelerated vesting of all outstanding
options upon a change in control, but, in the case of the 1998 Plan, only if
the option is not assumed or substituted.
Other Employee Benefit Plans
4
01(k)
Plan
The Company sponsors a 401(k) Plan under which eligible employees may
contribute, on a pre-tax basis, up to 15% of the employees total annual income
from the Company, excluding bonuses, subject to certain IRS limitations. The
Company matches 50% of the employees contribution up to a maximum amount. The
maximum Company match in fiscal year 2003 was $1,000 per employee and in fiscal
year 2004 is $1,000 per employee. All full-time employees who have attained
age 18 are eligible to participate in the
-30-
plan. All contributions are allocated to the employees individual
account and, at the employees election, are invested in one or more investment
funds available under the plan. Contributions are fully vested and not
forfeitable.
1995 Employee Stock Purchase Plan
The Companys Purchase Plan permits employees, including the Companys
officers, who are employed for at least twenty hours per week to purchase
Common Stock of the Company, through payroll deductions at the lower of 85% of
the fair market value of the Common Stock at the beginning or at the end of
each six-month offering period. Payroll deductions may not exceed 10% of an
employees compensation. Notwithstanding the foregoing, no employee may be
granted the right to purchase more than $25,000 worth or more than 1,000 shares
of Common Stock annually. The Purchase Plan provides for two offering periods
during each fiscal year, each having a duration of six months, and has such
other features as described previously.
REPORT OF THE COMPENSATION COMMITTEE
OF THE BOARD OF DIRECTORS
General
For the fiscal year ended January 3, 2004, the Compensation Committee of
the Board of Directors established the overall executive compensation
strategies of the Company and approved compensation elements for the Companys
Chief Executive Officer and other executive officers. On April 5, 2004, the
Board established the Compensation and Nominating Committee. Among other
things, the Compensation and Nominating Committee reviews and advises the Board
regarding all forms of compensation to be provided to the officers, employees,
directors and consultants of the Company, develops general criteria regarding
the qualifications and selection of Board members, and recommends candidates
for election to the Board. The Compensation and Nominating Committee is
comprised of two independent, nonemployee members of the Board of Directors,
neither of whom has interlocking relationships as defined by the Commission.
The Compensation and Nominating Committee has available to it such external
compensation advice and data as the Compensation and Nominating Committee deems
appropriate to obtain.
The compensation philosophy of the Compensation and Nominating Committee
is to provide a comprehensive compensation package for each executive officer
that is competitive with those offered by companies of similar type and size,
in the same geographical area and whose executives perform similar skills to
those performed by the executives of the Company. Accordingly, the
Compensation and Nominating Committee follows a compensation strategy that has
used vesting terms to incentivize and reward executives as the Company
addresses the challenges associated with growth. As the Compensation and
Nominating Committee applies this compensation philosophy in determining
appropriate executive compensation levels and other compensation factors, the
Compensation and Nominating Committee reaches its decisions with a view towards
the Companys overall financial performance. The Compensation and Nominating
Committee strives to structure each officers overall compensation package to
enable the Company to attract, retain and reward personnel who contribute to
the success of the Company.
Committee Charter
The Compensation and Nominating Committee adopted its written charter in
April 2004. A copy of the Compensation and Nominating Committee charter is
attached to this Proxy Statement as Appendix B.
-31-
Executive Officer Compensation
The objectives of the executive officer compensation program are to
attract, retain, motivate and reward key personnel who possess necessary
leadership and management skills through competitive base salary, annual cash
bonus incentives, long-term incentive compensation in the form of stock
options, and various benefits generally available to employees of the Company.
Base Salary
. Base salary levels for the Companys executive officers are
generally targeted to be competitive with companies in the same stage of
development and in the same industry and geographic area. In determining
salaries, the Committee also takes into account the Chief Executive Officers
recommendations, individual experience, contributions to corporate goals and
the Companys performance.
Incentive Bonuses.
The Compensation and Nominating Committee believes
that a cash incentive bonus plan can serve to motivate the Companys executive
officers and management to address annual performance goals, using more
immediate measures for performance than those reflected in the appreciation in
value of stock options. In 2003, the Companys goals were targeted toward
profitability and longer-term objectives for corporate development. As a
consequence, the Company did not have an incentive bonus plan for executive
officers in fiscal 2003.
Stock Option Grants.
Stock options are granted to executive officers and
other employees under the Companys Option Plans. Stock option grants are
intended to focus the recipient on the Companys long-term performance to
improve stockholder value and to retain the services of executive officers in a
competitive job market by providing significant long-term earning potential.
To this end, stock options generally vest over a four-year period, based on
continued employment. Factors considered in granting stock options to
executive officers of the Company are the duties and responsibilities of each
individual, such individuals contributions to the success of the Company and
other relevant factors. The Company views stock options as an important
component of long-term compensation for executive officers since options
motivate executive officers to manage the Company in a manner that is
consistent with the interests of stockholders.
CEO Compensation
Compensation for the Chief Executive Officer is consistent with the
philosophies and practices described above for executive officers in general.
Mr. Boutacoffs salary was not increased in 2003. Mr. Boutacoff was granted
options in fiscal year 2003 to purchase 60,000 shares of the Companys Common
Stock. The options granted to Mr. Boutacoff vest in full on the earlier of the
fourth anniversary of the date of grant or the achievement of certain
milestones related to the Companys financial performance in fiscal year 2005.
COMPENSATION AND NOMINATING COMMITTEE OF THE
BOARD OF DIRECTORS
Donald L. Hammond
Joshua Makower
-32-
REPORT OF THE AUDIT COMMITTEE
OF THE BOARD OF DIRECTORS
General
For the fiscal year ended January 3, 2004, the Audit Committee of the
Board of Directors oversaw the accounting and financial reporting processes of
the Company and audits of the financial statements of the Company and assisted
the Board with the oversight and monitoring of the integrity of the Companys
financial statements, the Companys compliance with legal and regulatory
requirements, the independent accountants qualifications, independence and
performance, and the Companys internal accounting and financial controls. For
the fiscal year ended January 3, 2004, the Audit Committee was comprised of the
three directors named below. Each member of the Audit Committee is an
independent director as defined by the Sarbanes-Oxley Act of 2002 and the
listing standards of the National Association of Securities Dealers, as
determined by our Board.
Committee and Charter
On April 5, 2004, the Board established the Audit and Corporate Governance
Committee and appointed Messrs. Fitch, Anderson and Makower as its members.
The Audit and Corporate Governance Committee adopted its written charter in
April 2004. A copy of the Audit and Corporate Governance Committee charter is
attached to this Proxy Statement as Appendix A.
The Board has determined that each member of the Audit and Corporate
Governance Committee is independent as defined under the listing standards of
The Nasdaq Stock Market and that Mr. Fitch is an audit committee financial
expert as defined in rules of the SEC.
Review with Management
The Audit Committee reviewed and discussed our audited financial
statements for the fiscal year ended January 3, 2004 and the notes thereto,
with management, which has primary responsibility for the financial statements.
PricewaterhouseCoopers LLP, our independent auditors, is responsible for
expressing an opinion on the conformity of the Companys audited financial
statements with generally accepted accounting principles.
Review and Discussions with Independent Auditors
The Audit Committee discussed with PricewaterhouseCoopers LLP, our
independent auditors, the matters required to be discussed by the Statement on
Accounting Standards No. 61 (Communications with Audit Committees), as may be
modified or supplemented, (Codification of Statements on Auditing Standards)
which includes, among other items, matters related to the conduct of the audit
of our financial statements.
The Audit Committee also received written disclosures and the letter from
PricewaterhouseCoopers, LLP, required by Independence Standards Board Standard
No. 1 (Independence Discussions with Audit Committees), which relates to the
accountants independence from us and our related entities and has discussed
with PricewaterhouseCoopers LLP that firms independence from us. The Audit
Committee also concluded that PricewaterhouseCoopers LLPs provision of
non-audit services, as described previously, to the Company is compatible with
PricewaterhouseCoopers LLPs independence.
-33-
Conclusion
Based on the review and discussions referred to above, the Audit Committee
recommended to the Board that our audited financial statements be included in
our Annual Report on Form 10-K for the fiscal year ended January 3, 2004 for
filing with the Commission.
AUDIT COMMITTEE OF THE BOARD OF
DIRECTORS
John M. Nehra
Robert K. Anderson
Joshua Makower
COMPANY STOCK PRICE PERFORMANCE
The following graph demonstrates a comparison of cumulative total
stockholder returns for the period shown based on the assumption that $100 had
been invested in the Companys stock on January 2, 1999 and each of the Russell
2000 Index and the Standard and Poors 500 Index and that all dividends were
reinvested, as required by the Commission. No dividends have been declared or
paid on the Companys Common Stock during such period. The stock price
performance shown on the graph below is not necessarily indicative of future
price performance. The graph reflects the Companys stock price performance
and the value that such investments would have had on January 3, 2004.
IRIDEX Corporation
Company Stock Price Performance
-34-
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Since the beginning of the Companys last fiscal year, there has not been
nor is there currently proposed any transaction or series of similar
transactions to which the Company was or is to be a party in which the amount
involved exceeds $60,000 and in which any director, executive officer, holder
of more than 5% of the Common Stock of the Company or any member of the
immediate family of any of the foregoing persons had or will have a direct or
indirect material interest, other than indemnification agreements between the
Company and each of its directors and officers.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Exchange Act requires the Companys executive
officers and directors, and persons who own more than 10% of a registered class
of the Companys equity securities to file reports of ownership and changes in
ownership with the Commission and the National Association of Securities
Dealers, Inc. Such executive officers, directors and greater than 10%
stockholders are also required by SEC rules to furnish the Company with copies
of all forms that they file pursuant to Section 16(a). Specific due dates have
been established by the Commission, and the Company is required to disclose in
this Proxy Statement any failure to file by those dates. Based solely on its
review of the copies of such forms received by it, or written representations
from certain reporting persons that no filings were required for such persons,
the Company believes that all reports required to be filed under Section 16(a)
have been filed on a timely basis during the Companys 2003 fiscal year.
OTHER MATTERS
The Board of Directors does not know of any other matters to be presented
at this meeting. If any other matters properly come before the meeting, it is
the intention of the persons named in the enclosed form of Proxy to vote the
shares they represent as the Board may recommend.
THE BOARD OF DIRECTORS
Dated: April 30, 2004
-1-
APPENDIX A
CHARTER FOR THE AUDIT AND CORPORATE GOVERNANCE COMMITTEE
OF THE BOARD OF DIRECTORS
OF
IRIDEX CORPORATION
1. Purpose.
The purpose of the Audit and Corporate Governance Committee of the Board
of Directors (the
Board
) of IRIDEX Corporation (the
Company
) shall be to:
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provide oversight of the Companys accounting and financial
reporting processes and the audit of the Companys financial
statements;
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assist the Board in oversight of (1) the integrity of the
Companys financial statements, (2) the Companys compliance with
legal and regulatory requirements, (3) the independent auditors
qualifications, independence and performance, and (4) the Companys
internal accounting and financial controls;
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provide to the Board such information and materials as it may
deem necessary to make the Board aware of significant financial
matters that require the attention of the Board;
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review and make recommendations to the Board regarding matters
concerning corporate governance;
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review the composition and evaluate the performance of the
Board;
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review the composition of committees of the Board and recommend
persons to be members of such committees; and
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review conflicts of interest of members of the Board and
corporate officers.
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In addition, the Audit and Corporate Governance Committee will undertake
those specific duties and responsibilities listed below and such other duties
as the Board may from time to time prescribe.
2. Membership and Organization.
Composition.
The Audit and Corporate Governance Committee members will be
appointed by, and will serve at the discretion of, the Board. The Audit and
Corporate Governance Committee will consist of at least three members of the
Board. Members of the Audit and Corporate Governance Committee must meet the
following criteria (as well as any criteria required by the Securities and
Exchange Commission (the
SEC
)):
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each member will be an independent director in accordance with
(1) the audit committee requirements of the Nasdaq Stock Market, Inc.
Marketplace Rules (the
Nasdaq Rules
) and (2) the rules of the SEC;
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each member will be able to read and understand fundamental
financial statements, in accordance with the audit committee
requirements of the Nasdaq Rules;
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at least one member will have past employment experience in
finance or accounting, requisite professional certification in
accounting, or other comparable experience or background, including a
current or past position as a principal financial officer or other
senior officer with financial oversight responsibilities; and
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at least one member will be an audit committee financial
expert as defined in the rules of the SEC.
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Meetings and Reports.
The Audit and Corporate Governance Committee will
meet at least four (4) times annually. The Audit and Corporate Governance
Committee may establish its own meeting schedule. The Audit and Corporate
Governance Committee will meet separately with the Chief Executive Officer and
separately with the Chief Financial Officer of the Company, at such times as
are appropriate to review the financial affairs of the Company. The Audit and
Corporate Governance Committee will meet separately with the independent
auditors of the Company, at such times as it deems appropriate, but not less
than quarterly.
The Audit and Corporate Governance Committee will maintain written minutes
of its meetings, which minutes will be filed with the minutes of the meetings
of the Board.
Compensation.
Members of the Audit and Corporate Governance Committee
shall receive such fees, if any, for their service as Audit and Corporate
Governance Committee members as may be determined by the Board. Members of the
Audit and Corporate Governance Committee may not receive any compensation from
the Company except the fees that they receive for service as a member of the
Board or any committee thereof.
3. Responsibilities and Duties.
The responsibilities and duties of the Audit and Corporate Governance
Committee shall include:
Review Procedures
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reviewing the reports of management and the independent
auditors concerning the design, implementation and maintenance of the
Companys internal controls and procedures for financial reporting,
including meeting periodically with the Companys management and the
independent auditors to review their assessment of the adequacy of
such controls, and to review before release the disclosure regarding
such system of internal controls required under SEC rules to be
contained in the Companys periodic filings and the attestations or
reports by the independent auditors relating to such disclosure;
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reviewing and providing guidance with respect to the external
audit by (1) reviewing the independent auditors proposed audit scope
and approach, (2) discussing with the Companys independent auditors
the financial statements and audit findings, including any
significant adjustments, management judgments and accounting
estimates, significant new accounting policies and disagreements with
management and any other matters described in SAS No. 61, and (3)
reviewing reports submitted to the Audit and Corporate Governance
Committee by the independent auditors in accordance with applicable
SEC requirements;
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conducting a post-audit review of the financial statements and
audit findings, including any suggestions for improvements provided
to management by the independent auditors, and managements response
to such suggestions;
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reviewing and discussing with management and the independent
auditors the annual audited financial statements and quarterly
unaudited financial statements, including the Companys disclosures
under Managements Discussion and Analysis of Financial Condition
and Results of Operations, prior to filing the Companys Annual
Report on Form 10-K and Quarterly Reports on Form 10-Q, respectively,
with the SEC;
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directing the Companys independent auditors to review before
filing with the SEC the Companys interim financial statements
included in Quarterly Reports on Form 10-Q, using professional
standards and procedures for conducting such reviews;
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reviewing before release the unaudited quarterly operating
results in the Companys quarterly earnings release;
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providing oversight and review at least annually of the
Companys risk management policies, including its investment
policies;
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reviewing and approving in advance any proposed related party
transactions;
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reviewing, in conjunction with counsel, any legal matters that
could have a significant impact on the Companys financial
statements;
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Independent Auditors
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appointing, compensating and overseeing the work of the
independent auditors (including resolving disagreements between
management and the independent auditors regarding financial
reporting) for the purpose of preparing or issuing an audit report or
related work;
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reviewing the independence of the outside auditors, including
(1) obtaining on a periodic basis a formal written statement from the
independent auditors regarding relationships and services with the
Company that may impact independence, as defined by applicable
standards and SEC requirements, (2) presenting this statement to the
Board, and (3) to the extent there are relationships, monitoring and
investigating them;
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pre-approving audit and permissible non-audit services provided
to the Company by the independent auditors, except where pre-approval
is not required because such non-audit services are de minimis under
the rules of the SEC, in which case subsequent approval may be
obtained. The Audit and Corporate Governance Committee may delegate
to one or more designated
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members of the Audit and Corporate Governance Committee the authority
to pre-approve audit and permissible non-audit services, provided such
pre-approval decision is presented to the full Audit and Corporate
Governance Committee at its scheduled meetings;
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Corporate Governance and Regulatory Compliance
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overseeing compliance with the requirements of the SEC for
disclosure of auditors services and Audit and Corporate Governance
Committee members, member qualifications and activities;
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reviewing managements monitoring of compliance with the Foreign Corrupt Practices Act;
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reviewing, approving and monitoring the Companys Code of Business Conduct and Ethics;
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providing a report for inclusion in the Companys proxy
statement in accordance with the rules and regulations of the SEC;
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establishing procedures for receiving, retaining and treating
complaints received by the Company regarding accounting, internal
accounting controls or auditing matters and procedures for the
confidential, anonymous submission by employees of concerns regarding
questionable accounting or auditing matters;
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developing principles of corporate governance and recommending
them to the Board for its consideration and approval;
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reviewing annually the principles of corporate governance
approved by the Board to ensure that they remain relevant and are
being complied with;
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overseeing the evaluation of the Companys management;
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reviewing this charter and this committees processes and procedures at least annually;
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recommending ways to enhance communications and relations with stockholders;
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reviewing periodically the succession planning for the Chief
Executive Officer and other executive officers, reporting its
findings and recommendations to the Board, and working with the Board
in evaluating potential successors to these executive management
positions;
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overseeing compliance by the Board and its committees with
applicable laws and regulations, including the Nasdaq Rules and
regulations promulgated by the SEC;
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Board of Directors and Committees of the Board of Directors
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conducting an annual evaluation of the Board as a whole, and
evaluating the performance of individual members of the Board
eligible for re-election;
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reviewing periodically the composition of each committee of the
Board and making recommendations to the Board for the creation of
additional committees or the change in mandate or dissolution of
committees;
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recommending to the Board persons to be members of the various
committees;
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-4-
Conflicts of Interest
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considering questions of possible conflicts of interest of
members of the Board and of corporate officers; and
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reviewing actual and potential conflicts of interest of members
of the Board and corporate officers, and clearing any involvement of
such persons in matters that may involve a conflict of interest.
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In addition, the Audit and Corporate Governance Committee shall have the
resources as determined by the Audit and Corporate Governance Committee and the
authority appropriate to discharge its duties and responsibilities, including
the authority to select, retain, terminate and approve fees and other retention
terms, as appropriate, of outside legal, accounting or other advisors to advise
or assist the Audit and Corporate Governance Committee in the performance of
any of the responsibilities and duties set forth above without seeking approval
of the Board or management.
-5-
APPENDIX B
CHARTER FOR THE COMPENSATION AND NOMINATING COMMITTEE
OF THE BOARD OF DIRECTORS
OF
IRIDEX CORPORATION
1. Purpose.
The purpose of the Compensation and Nominating Committee of the Board of
Directors (the
Board
) of IRIDEX Corporation (the
Company
) shall be to:
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provide oversight of the Companys compensation policies, plans and
benefits programs;
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assist the Board in discharging its responsibilities relating
to (i) oversight of the compensation of the Companys Chief Executive
Officer (the
CEO
) and other executive officers (including officers
reporting under Section 16 of the Securities Exchange Act of 1934, as
amended), and (ii) approving and evaluating the executive officer
compensation plans, policies and programs of the Company;
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assist the Board in administering the Companys equity compensation plans for its employees;
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select, or recommend for the selection of the Board of Directors, director nominees; and
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evaluate director compensation.
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The compensation programs for the Companys executive officers shall be
(i) designed to attract, motivate and retain talented executives responsible
for the success of the Company, (ii) determined within a competitive framework
and (iii) based on the achievement of the Companys overall financial results
and individual contributions.
In furtherance of these purposes, the Compensation and Nominating
Committee will undertake those specific duties and responsibilities listed
below and such other duties as the Board may from time to time prescribe.
2. Membership and Organization.
Composition.
The Compensation and Nominating Committee members shall be
appointed by, and shall serve at the discretion of, the Board. The
Compensation and Nominating Committee shall consist of no fewer than two
members of the Board. The Board may designate one member of the Compensation
and Nominating Committee as its chair. The Compensation and Nominating
Committee may form and delegate authority to subcommittees when appropriate.
Members of the Compensation and Nominating Committee must meet the following
criteria:
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the independence requirements of the Nasdaq Stock Market, Inc.
Marketplace Rules (the
Nasdaq Rules
);
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the non-employee director definition of Rule 16b-3 promulgated
under Section 16 of the Securities Exchange Act of 1934, as amended;
and
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the outside director definition of Section 162(m) of the
Internal Revenue Code of 1986, as amended.
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Meetings and Reports
.
It is anticipated that the Compensation and
Nominating Committee will meet at least three (3) times each year and at such
other times deemed necessary to fulfill its responsibilities. The Compensation
and Nominating Committee may establish its own meeting schedule, which it will
provide to the Board, and shall make regular reports to the Board. The CEO may
not be present during voting or deliberations regarding CEO compensation.
The Compensation and Nominating Committee will maintain written minutes of
its meetings, which minutes will be filed with the minutes of the meetings of
the Board.
Compensation
.
Members of the Compensation and Nominating Committee shall
receive such fees, if any, for their service as Compensation and Nominating
Committee members as may be determined by the Board in its sole discretion.
3. Responsibilities and Duties.
The responsibilities and duties of the Compensation and Nominating
Committee shall include:
Executive and Other Compensation
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annually reviewing and approving for the CEO and the executive
officers of the Company (i) the annual base salary, (ii) the annual
incentive bonus, including the specific goals and amount, (iii)
equity compensation, (iv) any employment agreement, severance
arrangement and change in control agreement/provision, (v) any
signing bonus or payment of relocation costs and (vi) any other
benefits, compensation or arrangements. One of the Committees
objectives shall be to use compensation to align the interests of the
executive officers with the long-term interests of the Companys
stockholders, thereby incentivizing management to increase
stockholder value;
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specifically with respect to the CEO, reviewing and approving
corporate goals and objectives relevant to the compensation of the
CEO, evaluating his performance in light thereof, and considering
factors related to the performance of the Company, including
accomplishment of the Companys long-term business and financial
goals;
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acting as Administrator of the Companys employee stock
purchase plan, director option plan and the stock option plan;
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providing oversight of the Companys overall compensation plans
and benefits programs and making recommendations to the Board with
respect to improvements or changes to such plans or the adoption of
new plans when appropriate;
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evaluating, on a periodic basis, the competitiveness of (i) the
compensation of the CEO and the executive officers of the Company and
(ii) the Companys overall compensation plans;
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Related Duties and Authority
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reviewing this charter and this committees processes and procedures at least annually;
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consulting with the Human Resources department and, when
appropriate, with outside consultants to assist in the evaluation of
executive officer compensation and approving the consultants fees
and other retention terms. The Compensation and Nominating Committee
may also obtain advice and assistance from internal or external
legal, accounting or other advisors;
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producing a report on executive compensation for inclusion in
the Companys annual proxy statement that complies with the rules and
regulations of the Securities and Exchange Commission and any other
applicable rules and regulations;
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Composition of the Board of Directors, Evaluation and Nominating
Activities
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reviewing the composition and size of the Board and determining
the criteria for membership on the Board, including issues of
character, judgment, independence, diversity, age, expertise,
corporate experience, length of service, other commitments and the
like;
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identifying, considering and selecting, or recommending for the
selection of the Board, candidates to fill new positions or vacancies
on the Board;
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selecting, or recommending for the selection of the Board, the
director nominees for election to the Board by the stockholders at
the annual meeting of stockholders;
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reviewing any candidates for the Board recommended by
stockholders, provided such recommendations are submitted in
compliance with the Companys policies and procedures for
consideration of candidates for the Board;
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reviewing the disclosure included in the Companys proxy
statement regarding the Companys policies and procedures for the
Compensation and Nominating Committees consideration of candidates
for the Board;
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evaluating director compensation, consulting with outside
consultants and/or with the Human Resources department when
appropriate, and make recommendations to the Board regarding director
compensation; and
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reviewing and making recommendations to the Board with respect
to the director option plan and any proposed amendments thereto,
subject to obtaining stockholder approval of any amendments as
required by law or the Nasdaq Rules.
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In addition, in performing its duties, the Compensation and Nominating
Committee shall have the authority to obtain advice, reports or opinions from
internal or external legal counsel and expert advisors, including any search
firm to be used to identify candidates for the Board, and shall have sole
authority to approve such experts fees and other retention terms.
-3-
APPENDIX C
IRIDEX CORPORATION
CODE OF BUSINESS CONDUCT AND ETHICS
April 5, 2004
-4-
TABLE OF CONTENTS
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Page
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INTRODUCTION
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1
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YOUR RESPONSIBILITIES
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1
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GENERAL STANDARDS OF CONDUCT
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2
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Overview
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2
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Compliance with law
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2
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No discrimination or harassment
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3
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Health and safety
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3
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AVOIDING CONFLICTS OF INTERESTS
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3
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Overview
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3
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Outside employment and directorships
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3
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Financial interests in other companies
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3
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Transactions with related parties
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4
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Corporate opportunities
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4
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Loans by the company
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4
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Improper benefits
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4
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Election or appointment to public office
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4
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Guidance and approvals
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4
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PUBLIC COMMUNICATIONS
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4
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Public communications and filings
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4
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Communication procedures
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5
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FINANCIAL REPORTING
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5
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Overview
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5
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Compliance with rules, controls and procedures
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5
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Accuracy of records and reports
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6
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Intentional misconduct
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6
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Dealing with auditors
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6
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Obligation to investigate and report potential violations
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7
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Keeping the Audit and Corporate Governance Committee informed
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7
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SAFEGUARDING COMPANY ASSETS
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8
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Overview
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8
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Protecting the companys information
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8
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Prohibition on insider trading
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9
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Maintaining and managing records
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9
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RESPONSIBILITIES TO OUR CUSTOMERS, SUPPLIERS AND COMPETITORS
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10
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Overview
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10
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Improper payments
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10
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Gifts and entertainment
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10
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TABLE OF CONTENTS
(continued)
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Page
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Selecting suppliers
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11
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Handling the nonpublic information of others
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11
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Improperly obtaining or using assets or information
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11
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Free and fair competition
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11
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WORKING WITH GOVERNMENTS
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12
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Overview
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12
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Government contracts
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12
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Requests by regulatory authorities
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12
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Improper payments to government officials
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13
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Political contributions
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13
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Lobbying
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13
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Trade restrictions
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13
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PROCEDURAL MATTERS
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14
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Distribution
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14
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Acknowledgment
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14
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Approvals and waivers
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14
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Reporting violations
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14
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Investigations
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15
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Disciplinary action
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15
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ADDITIONAL INFORMATION
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16
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INTRODUCTION
This Code of Business Conduct and Ethics is designed to deter wrongdoing
and to promote:
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honest and ethical conduct, including the ethical handling of
actual or apparent conflicts of interest between personal and
professional relationships;
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full, fair, accurate, timely and understandable disclosure in
reports and documents we file with or submit to the U.S. Securities
and Exchange Commission and in our other public communications;
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compliance with applicable laws, rules and regulations;
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the prompt internal reporting of violations of this Code; and
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accountability for adherence to this Code.
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This Code applies to all directors, officers and employees of the company
and its subsidiaries, who, unless otherwise specified, will be referred to
jointly as employees. Agents and contractors of the company are also expected
to read, understand and abide by this Code.
This Code should help guide your conduct in the course of our business.
However, many of the principles described in this Code are general in nature,
and the Code does not cover every situation that may arise. Use common sense
and good judgment in applying this Code.
If you have any questions about
applying the Code, it is your responsibility to seek guidance.
This Code is not the exclusive source of guidance and information
regarding the conduct of our business. You should consult applicable policies
and procedures in specific areas as they apply. The Code is intended to
supplement, not replace, the employee handbook and the other policies and
procedures of the company.
We are committed to continuously reviewing and updating our policies and
procedures. The company therefore reserves the right to amend, alter or
terminate this Code at any time and for any reason, subject to applicable law.
YOUR RESPONSIBILITIES
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You are expected to read and understand this Code of Business Conduct
and Ethics.
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You must uphold these standards in day-to-day activities and comply
with all applicable policies and procedures in the Code.
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Part of your job and ethical responsibility is to help enforce this
Code. You should be alert to possible violations and promptly report
violations or suspected violations of this Code to the Chief Financial
Officer or the Director of Human Resources. If your situation requires
that your identity be kept secret, your anonymity will be preserved to
the greatest extent reasonably possible. If you wish to remain
anonymous, send a letter addressed to the Chief Financial Officer or the
Director of Human Resources at IRIDEX Corporation, 1212 Terra Bella
Avenue, Mountain View, CA 94043. If you
make an anonymous report, please provide as much detail as possible,
including copies of any documents that you believe may be relevant to the
issue.
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If your concerns relate to accounting, internal controls or auditing
matters, or if the human resource department is implicated in any
violation or suspected violation, you may also contact the Audit and
Corporate Governance Committee of the Board of Directors at Audit and
Corporate Governance Committee, IRIDEX Corporation, 1212 Terra Bella
Avenue, Mountain View, CA 94043.
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You must cooperate with investigations into possible Code violations
and be truthful and forthcoming in the course of these investigations.
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Reprisals, threats, retribution or retaliation against any person who
has in good faith reported a violation or a suspected violation of law,
this Code or other company policies, or against any person who is
assisting in good faith in any investigation or process with respect to
such a violation, is prohibited.
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In trying to determine whether any given action is appropriate, keep these steps in mind:
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Obtain all relevant facts.
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Assess the responsibilities and roles of those involved.
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Using your judgment and common sense, evaluate whether
the action seems unethical or improper.
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Seek guidance.
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If you are unsure about any situation or any provision of the Code,
discuss the matter with your manager or responsible employees in the
Human Resources Department or with the Chief Financial Officer.
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GENERAL STANDARDS OF CONDUCT
Overview
Honest and ethical conduct is critical to our business. All employees,
agents and contractors have a duty to comply with applicable law and to act in
an honest and ethical manner.
Compliance with law
You are responsible for complying with all laws, rules, regulations and
regulatory orders applicable to the conduct of our business. If you are located
or engaging in business outside of the United States, you must comply with
laws, rules, regulations and regulatory orders of the United States, including
the Foreign Corrupt Practices Act and U.S. export rules and regulations, in
addition to the applicable laws of other jurisdictions. If compliance with the
Code should ever conflict with law, you must comply with the law.
You should undertake to acquire knowledge of the legal requirements
relating to your duties sufficient to enable you to recognize potential dangers
and to know when to seek advice from managers or other appropriate personnel.
Violations of laws, rules, regulations and orders may subject you to
individual criminal or civil liability, in addition to discipline by the
company. Violations may also subject the company to civil or criminal liability
or the loss of business.
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No discrimination or harassment
The company is committed to providing a work environment that is free of
discrimination and harassment. The company is an equal opportunity employer and
makes employment decisions on the basis of merit and business needs. In
addition, the company strictly prohibits harassment of any kind, including
harassment on the basis of race, color, veteran status, religion, gender, sex,
sexual orientation, age, mental or physical disability, medical condition,
national origin, marital status or any other characteristics protected under
federal or state law or local ordinance.
Health and safety
You are responsible for using good judgment to help ensure a safe and
healthy workplace for all employees.
AVOIDING CONFLICTS OF INTERESTS
Overview
Your decisions and actions in the course of your employment with the
company should be based on the best interest of the company, and not based on
personal relationships or benefits. You should seek to avoid situations where
your personal activities and relationships conflict, or appear to conflict,
with the interests of the company, except under guidelines approved by the
Board of Directors. This includes situations where you may have or appear to
have an indirect conflict through, for example, a significant other or a
relative or other persons or entities with which you have a relationship. A
conflict may also arise when you take actions or have interests that make it
difficult for you to perform your work for the company objectively and
effectively. You must disclose to your manager, or if you are an officer or
director of the Company, to the Audit and Corporate Governance Committee of the
Board of Directors, any interest that you have that may, or may appear to,
conflict with the interests of the company.
There are a variety of situations in which a conflict of interest may
arise. While it would be impractical to attempt to list all possible
situations, some common types of conflicts are discussed below.
Outside employment and directorships
Unless you are a non-employee director of the company, you may not perform
services as a director, employee, agent or contractor for a customer, a
supplier or any other entity that has a business relationship with the company
without approval from the company. Non-employee directors of the company must
promptly inform the company of any such service. You may not perform
services as a director, employee, agent or contractor for any competitor of the
company.
Financial interests in other companies
You should not have a financial interestincluding an indirect interest
through, for example, a relative or significant otherin any organization if
that interest would give you or would appear to give you a conflict of interest
with the company. You should be particularly sensitive to financial interests
in competitors, suppliers, customers, distributors and strategic partners.
-3-
Transactions with related parties
If you have a significant financial interest in a transaction between the
company and a third partyincluding an indirect interest through, for example,
a relative or significant otheryou must disclose that interest, and that
interest must be approved by the company. We encourage you to seek guidance if
you have any questions as to whether an interest in a transaction is
significant. If it is determined that the transaction is required to be
reported under SEC rules, the transaction will be subject to review and
approval by the Audit and Corporate Governance Committee of the Board of
Directors. Any dealings with a related party must be conducted in such a way
that no preferential treatment is given to this business.
Corporate opportunities
You may not directly or indirectly exploit for personal gain any
opportunities that are discovered through the use of corporate property,
information or position unless the opportunity is disclosed fully in writing to
the Board of Directors or its designated committee and the Board of Directors
or its designated committee declines to pursue the opportunity.
Loans by the company
Loans from the company to directors and executive officers are prohibited.
Loans from the company to other officers and employees must be approved in
advance by the Board of Directors or its designated committee.
Improper benefits
You may not receive any improper benefit as a result of your position with
the company.
Election or appointment to public office
You may serve in an elected or appointed public office provided that the
position does not create or appear to create a conflict of interest.
Guidance and approvals
Evaluating whether a conflict of interest exists, or may appear to exist,
requires the consideration of many factors. We encourage you to seek guidance
and approval in any case where you have any questions or
doubts. The company may at any time rescind prior approvals to avoid a
conflict of interest, or the appearance of a conflict of interest, for any
reason deemed to be in the best interests of the company.
PUBLIC COMMUNICATIONS
Public communications and filings
The company files reports and other documents with regulatory authorities,
including the U.S. Securities and Exchange Commission and the Nasdaq National
Market. In addition, from time to time the company makes other public
communications, such as issuing press releases.
Depending upon your position with the company, you may be called upon to
provide information to help assure that the companys public reports and
communications are complete, fair, accurate and understandable.
-4-
You are
expected to use all reasonable efforts to provide complete, accurate,
objective, relevant, timely and understandable answers to inquiries related to
the companys public disclosures.
Individuals involved in the preparation of public reports and
communications must use all reasonable efforts to comply with our disclosure
controls and procedures, which are designed to ensure full, fair, accurate,
timely and understandable disclosure in our public reports and communications.
If you believe that any disclosure is materially misleading or if you
become aware of any material information that you believe should be disclosed
to the public, it is your responsibility to bring this information to the
attention of the Chief Financial Officer. If you believe that questionable
accounting or auditing conduct or practices have occurred or are occurring, you
should notify the Audit and Corporate Governance Committee of the Board of
Directors.
Communication procedures
You may not communicate externally on behalf of the company unless you are
authorized to do so. The company has established specific policies regarding
who may communicate information to the public, the press, market professionals
(such as securities analysts, institutional investors, investment advisors,
brokers and dealers) and security holders on behalf of the company:
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Our President, Chief Financial Officer and investor relations
personnel, and their authorized designees, are our official
spokespeople for financial matters.
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Our President and corporate communications personnel, and their
authorized designees, are our official spokespeople for public
comment, press, marketing, technical and other such information.
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You should refer all calls or other inquiries from the press, market
professionals or security holders to the Investor Relations Department, which
will see that the inquiry is directed to the appropriate persons within the
company.
All communications made to public audiences on behalf of the company,
including formal communications and presentations made to investors, customers
or the press, require prior approval of the Chief Financial Officer.
FINANCIAL REPORTING
Overview
As a public company, we are required to follow strict accounting
principles and standards, to report financial information accurately and
completely in accordance with these principles and standards, and to have
appropriate internal controls and procedures to ensure that our accounting and
financial reporting complies with law. The integrity of our financial
transactions and records is critical to the operation of our business and is a
key factor in maintaining the confidence and trust of our employees, security
holders and other stakeholders.
Compliance with rules, controls and procedures
It is important that all transactions are properly recorded, classified
and summarized in our financial statements, books and records in accordance
with our policies, controls and procedures, as well as all
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generally accepted
accounting principles, standards, laws, rules and regulations for accounting
and financial reporting. If you have responsibility for or any involvement in
financial reporting or accounting, you should have an appropriate understanding
of, and you should seek in good faith to adhere to, relevant accounting and
financial reporting principles, standards, laws, rules and regulations and the
companys financial and accounting policies, controls and procedures. If you
are a senior officer, you should seek to ensure that the internal controls and
procedures in your business area are in place, understood and followed.
Accuracy of records and reports
It is important that those who rely on records and reportsmanagers and
other decision makers, creditors, customers and auditorshave complete,
accurate and timely information. False, misleading or incomplete information
undermines the companys ability to make good decisions about resources,
employees and programs and may, in some cases, result in violations of law.
Anyone involved in preparing financial or accounting records or reports,
including financial statements and schedules, must be diligent in assuring that
those records and reports are complete, accurate and timely. Anyone
representing or certifying as to the accuracy of such records and reports
should make an inquiry or review adequate to establish a good faith belief in
their accuracy.
Even if you are not directly involved in financial reporting or
accounting, you are likely involved with financial records or reports of some
kinda voucher, time sheet, invoice or expense report. In addition, most
employees have involvement with product, marketing or administrative
activities, or performance evaluations, which can affect our reported financial
condition or results. Therefore, the company expects you, regardless of whether
you are otherwise required to be familiar with finance or accounting matters,
to use all reasonable efforts to ensure that every business record or report
with which you deal is accurate, complete and reliable.
Intentional misconduct
You may not intentionally misrepresent the companys financial performance
or otherwise intentionally compromise the integrity of the companys reports,
records, policies and procedures. For example, you may not:
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report information or enter information in the companys books,
records or reports that fraudulently or intentionally hides,
misrepresents or disguises the true nature of any financial or
non-financial transaction or result;
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establish any undisclosed or unrecorded fund, account, asset or
liability for any improper purpose;
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enter into any transaction or agreement that accelerates,
postpones or otherwise manipulates the accurate and timely recording
of revenues or expenses;
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intentionally misclassify transactions as to accounts, business units or accounting periods; or
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knowingly assist others in any of the above.
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Dealing with auditors
Our auditors have a duty to review our records in a fair and accurate
manner. You are expected to cooperate with independent and internal auditors in
good faith and in accordance with law. In addition, you
-6-
must not fraudulently
induce or influence, coerce, manipulate or mislead our independent or internal
auditors regarding financial records, processes, controls or procedures or
other matters relevant to their engagement. You may not engage, directly or
indirectly, any outside auditors to perform any audit, audit-related, tax or
other services, including consulting, without written approval from the Chief
Financial Officer and the Audit and Corporate Governance Committee of the Board
of Directors.
Obligation to investigate and report potential violations
You should make appropriate inquiries in the event you may see, for example:
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financial results that seem inconsistent with underlying business performance;
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inaccurate financial records, including travel and expense reports, time sheets or invoices;
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the circumventing of mandated review and approval procedures;
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transactions that appear inconsistent with good business economics;
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the absence or weakness of processes or controls; or
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persons within the company seeking to improperly influence the
work of our financial or accounting personnel, or our external or
internal auditors.
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Dishonest or inaccurate reporting can lead to civil or even criminal
liability for you and the company and can lead to a loss of public faith in the
company. You are required to promptly report any case of suspected financial or
operational misrepresentation or impropriety.
Keeping the Audit and Corporate Governance Committee informed
The Audit and Corporate Governance Committee of the Board of Directors
plays an important role in ensuring the integrity of our public reports. If you
believe that questionable accounting or auditing conduct or practices have
occurred or are occurring, you should notify the Audit and Corporate Governance
Committee of the Board of Directors. In particular, the Chief Executive Officer
and senior financial officers such as the Chief Financial Officer and the
Controller should promptly bring to the attention of the Audit and Corporate
Governance Committee of the Board of Directors any information of which he or
she may become aware concerning, for example:
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the accuracy of material disclosures made by the company in its
public filings;
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significant deficiencies in the design or operation of internal
controls or procedures that could adversely affect the companys
ability to record, process, summarize or report financial data;
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any evidence of fraud that involves an employee who has a
significant role in the companys financial reporting, disclosures or
internal controls or procedures; or
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any evidence of a material violation of the policies in this
Code regarding financial reporting.
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SAFEGUARDING COMPANY ASSETS
Overview
All employees, agents and contractors are responsible for the proper use
of company assets. This responsibility applies to all of the companys assets,
including your time, work and work product; cash and accounts; physical assets
such as inventory, equipment, vehicles, computers, systems, facilities and
supplies; intellectual property, such as patents, copyrights, trademarks and
trade secrets; and other proprietary or nonpublic information.
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You should use all reasonable efforts to safeguard company
assets against loss, damage, misuse or theft.
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You should be alert to situations that could lead to loss,
damage, misuse or theft of company assets, and should report any
loss, damage, misuse or theft as soon as it comes to your attention.
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You should not use, transfer, misappropriate, loan, sell or
donate company assets without appropriate authorization.
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You must take reasonable steps to ensure that the company
receives good value for company funds spent.
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You may not use company assets in a manner that would result in
or facilitate the violation of law.
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You should use and safeguard assets entrusted to the companys
custody by customers, suppliers and others in the same manner as
company assets.
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Protecting the companys information
In the course of your involvement with the company, you may come into
possession of information that has not been disclosed or made available to the
general public. This nonpublic information may include, among other things:
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financial data and projections;
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proprietary and technical information, such as trade secrets,
patents, inventions, product plans and customer lists;
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information regarding corporate developments, such as business
strategies, plans for acquisitions or other business combinations,
divestitures, major contracts, expansion plans, financing
transactions and management changes;
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personal information about employees; and
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nonpublic information of customers, suppliers and others.
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If you have any questions as to what constitutes nonpublic information,
please consult the Chief Financial Officer.
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All nonpublic information must only be used for company business purposes.
You have an obligation to use all reasonable efforts to safeguard the companys
nonpublic information. You may not disclose nonpublic information to anyone
outside of the company, except when disclosure is required by law or when
disclosure is required for business purposes and appropriate steps have been
taken to prevent misuse of that information. This responsibility includes not
disclosing nonpublic information in Internet discussion groups, chat rooms,
bulletin boards or other electronic media. In cases where disclosing nonpublic
information is required or necessary, you should coordinate with the Chief
Financial Officer. The misuse of nonpublic information is contrary to company
policy and may also be a violation of law.
Each employee is required to sign an Employment, Confidential Information,
Invention Assignment, and Arbitration Agreement that addresses the use and
disclosure of confidential information of the company.
Prohibition on insider trading
You may not directly or indirectlythrough, for example, significant
others, family members or controlled entitiesbuy or sell stocks or other
securities of the company or any other company based on nonpublic information
obtained from your work at the company. In addition, you may not tip others
by providing them nonpublic information under circumstances that suggest that
you were trying to help them make an investment decision. These obligations are
in addition to your obligations with respect to nonpublic information
generally, as discussed above.
Under U.S. securities laws, it is unlawful for any person who has
material nonpublic information about a company to trade in the stock or other
securities of that company or to disclose such information to others who may
trade. Material nonpublic information is information about a company that is
not known to the general public and that a typical investor would consider
important in making a decision to buy, sell or hold securities. Violations of
U.S. securities laws may result in civil and criminal penalties, including
disgorgement of profits, civil judgments, fines and jail sentences.
You should be aware that stock market surveillance techniques are becoming
increasingly sophisticated, and the probability that U.S. federal or other
regulatory authorities will detect and prosecute even small-level trading is
significant. Insider trading rules are strictly enforced, even in instances
when the financial transactions seem small.
If you have any questions at all regarding trading in the companys
securities, contact the Chief Financial Officer for guidance and also refer to
the Companys insider trading policy dated September 19, 2002.
Maintaining and managing records
The company is required by local, state, federal, foreign and other
applicable laws, rules and regulations to retain certain records and to follow
specific guidelines in managing its records. Records include paper documents,
email, compact discs, computer hard drives, floppy disks, microfiche, microfilm
and all other recorded information, regardless of medium or characteristics.
Civil and criminal penalties for failure to comply with such guidelines can be
severe for employees, agents, contractors and the company.
You should consult with the Chief Financial Officer regarding the
retention of records in the case of actual or threatened litigation or
government investigation. The Chief Financial Officer will notify you if a
legal hold is placed on records for which you are responsible. A legal hold
suspends all document destruction procedures in order to preserve appropriate
records under special circumstances, such as litigation or government
investigations. The Chief Financial Officer determines and identifies what
types of records or
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documents are required to be placed under a legal hold. If
a legal hold is placed on records for which you are responsible, you must
preserve and protect the necessary records in accordance with instructions from
the Chief Financial Officer.
Records or supporting documents that are subject
to a legal hold must not be destroyed, altered or modified under any
circumstance.
A legal hold remains effective until it is officially released in
writing by the Chief Financial Officer. If you are unsure whether a document
has been placed under a legal hold, you should preserve and protect that
document while you check with the Chief Financial Officer.
RESPONSIBILITIES TO OUR CUSTOMERS, SUPPLIERS AND COMPETITORS
Overview
You should respect the rights of, and deal fairly with, the companys
customers, suppliers, business partners and competitors in compliance with law.
You should not take unfair advantage of anyone through deception,
misrepresentation, manipulation, coercion, abuse of privileged information or
any intentional unfair business practice.
Improper payments
You should not authorize, offer, promise or give, or solicit or accept,
money, gifts, entertainment, privileges, gratuities, benefits or other items of
value intended to improperly influence, directly or indirectly, any business
decision or that otherwise violate law or create the appearance of impropriety.
You should contact the Chief Financial Officer if you have any questions as to
whether a payment is proper.
Gifts and entertainment
You may, from time to time, provide or accept business amenities to aid in
building legitimate business relationships. Business amenities may include
gifts, meals, services, entertainment, reimbursements, loans, favors,
privileges or other items of value.
Any business amenity should be consistent with customary business practice
and reasonable and appropriate for the circumstance. Business amenities should
not be lavish or excessive. Business amenities should not violate law or create
an appearance of impropriety. You should avoid providing or accepting any cash
payment, or other business amenity that can be construed as a bribe or payoff.
All company funds expended for business amenities must be accurately recorded
in the companys books and records. We encourage you to contact the Chief
Financial Officer if you have any questions as to whether a business amenity is
permissible.
In some business situations outside of the United States, it is customary
and lawful for business executives to present gifts to representatives of their
business partners. These gifts may be of more than a nominal value, and under
the circumstances, returning the gifts or paying for them may be an affront to
the giver. If you find yourself in such a situation, you must report the gift
to the Chief Financial Officer. In some cases, you may be required to turn the
gift over to the company.
Special restrictions apply when dealing with government employees. For
more information, see the next section on Working with Governments.
-10-
Selecting suppliers
The companys policy is to select suppliers based on the merits of their
products, services and business practices and to purchase supplies based on
need, quality, service, price and other terms and conditions of sale. You may
not establish a business relationship with any supplier if you know that its
business practices violate applicable laws.
Handling the nonpublic information of others
You must handle the nonpublic information of others responsibly and in
accordance with our agreements with them. Nonpublic information of others
includes notes, reports, conclusions and other materials prepared by a company
employee based on the nonpublic information of others.
You should not knowingly accept information offered by a third party,
including a customer, supplier or business partner, that is represented as
nonpublic, or that appears from the context or circumstances to be nonpublic,
unless an appropriate nondisclosure agreement has been signed with the party
offering the information. You should contact the Chief Financial Officer to
coordinate the appropriate execution of nondisclosure agreements on behalf of
the company.
Even after a nondisclosure agreement is in place, you should accept only
the information that is necessary or appropriate to accomplish the purpose of
receiving it, such as a decision on whether to proceed to negotiate a
commercial or other business arrangement between the third party and the
company. If more detailed or extensive information is offered and it is not
necessary or appropriate for your immediate purposes, it should be refused. If
any such information is inadvertently received, it should be transferred to the
Chief Financial Officer for appropriate disposition.
Once the company has received nonpublic information, you should use all
reasonable efforts to:
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abide by the terms of the relevant nondisclosure agreement,
including any obligations with respect to the return or destruction
of the nonpublic information;
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limit the use of the nonpublic information to the purpose for
which it was disclosed; and
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disseminate the nonpublic information only to those other
company employees, agents or contractors with a need to know the
information to perform their jobs for the company.
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Improperly obtaining or using assets or information
You may not unlawfully obtain or use the materials, products, intellectual
property, proprietary or nonpublic information or other assets of anyone,
including suppliers, customers, business partners and competitors. You may not
coerce or improperly induce past or present employees of other companies to
disclose proprietary or nonpublic information of their former or other
employers.
Free and fair competition
It is our policy to lawfully compete in the marketplace. Our commitment to
fairness includes respecting the rights of our competitors to compete lawfully
in the marketplace and abiding by all applicable laws in the course of
competing.
-11-
Most countries have well-developed bodies of law designed to encourage and
protect free and fair competition. These laws are broad and far-reaching and
regulate the companys relationships with its distributors, resellers,
suppliers and customers. Competition laws generally address the following
areas: pricing practices (including predatory pricing, price fixing and price
discrimination), discounting, terms of sale, credit terms, promotional
allowances, secret rebates, exclusive dealerships or distributorships, product
bundling, restrictions on carrying competing products, termination and many
other practices.
Competition laws also govern, usually quite strictly, relationships
between the company and its competitors. Collusion among competitors is
illegal, and the consequences of a violation are severe. You must not enter
into an agreement or understanding, written or oral, express or implied, with
any competitor concerning prices, discounts or other terms or conditions of
sale; profits or profit margins; costs; allocation of product, customers,
markets or territories; limitations on production or supply; boycotts of
customers or suppliers; or bids or the intent to bid, or even discuss or
exchange information on these subjects.
The company is committed to obeying both the letter and spirit of these
laws, which are often referred to as antitrust, consumer protection,
competition or unfair competition laws. Although the spirit of these laws is
straightforward, their application to particular situations can be quite
complex. To ensure that the company complies fully with these laws, you should
have a basic knowledge of them and should promptly involve our Chief Financial
Officer when questionable situations arise.
WORKING WITH GOVERNMENTS
Overview
Special rules govern our business and other dealings with governments.
Employees, agents and contractors of the company should use all reasonable
efforts to comply with all applicable laws and regulations governing contact
and dealings with governments, government employees and public officials. If
you deal with governments, government employees or public officials, you should
undertake to understand the special rules that apply. If you have any questions
concerning government relations, you should contact the Chief Financial
Officer.
Government contracts
You should use all reasonable efforts to comply with all relevant laws and
regulations that apply to government contracting. You should refer all
contracts with any governmental entity to the Chief Financial Officer for
review and approval.
Requests by regulatory authorities
You must cooperate with appropriate government inquiries and
investigations in accordance with law. It is important, however, to protect the
legal rights of the company with respect to its nonpublic information. All
government requests for company information, documents or investigative
interviews should be referred to the Chief Financial Officer. You should work
with the Chief Financial Officer in responding to requests by
regulatory authorities to ensure adequate and complete responses and to
avoid improper disclosure of attorney-client privileged materials, trade secret
information or other nonpublic information. This policy should not be construed
to prevent an employee from disclosing information to a government or law
enforcement agency, where the employee has reasonable cause to believe that the
information discloses a violation of, or noncompliance with, a state or federal
statute or regulation.
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Improper payments to government officials
You may not offer any payment or business amenity to a public official or
a government employee if doing so could reasonably be construed as having any
connection with the companys business, even if it has a nominal value or no
value at all. You should be aware that what may be permissible in dealings with
commercial businesses may be deemed illegal and possibly criminal in dealings
with the government. You should contact the Chief Financial Officer for
guidance.
Whether you are located in the United States or abroad, you are also
responsible for fully complying with the Foreign Corrupt Practices Act. The
Foreign Corrupt Practices Act makes it illegal to offer, pay, promise to pay or
authorize to pay any money, gift or other item of value to any foreign
official, political party or candidate to assist the company or another to
obtain or retain business. All managers and supervisory personnel are expected
to monitor continued compliance with the Foreign Corrupt Practices Act.
Political contributions
The company reserves the right to communicate its position on important
issues to elected representatives and other government officials. It is the
companys policy to comply fully with all local, state, federal, foreign and
other applicable laws, rules and regulations regarding political contributions.
The companys assetsincluding company funds, employees work time and company
premises and equipmentmust not be used for, or be contributed to, political
campaigns or political activities under any circumstances without prior written
approval.
Lobbying
You must obtain approval from the Chief Financial Officer for any work
activity that requires lobbying communication with any member or employee of a
legislative body or with any government official or employee in the formulation
of legislation. Work activity covered by this policy includes meetings with
legislators or members of their staffs or with senior executive branch
officials on behalf of the company. Preparation, research and other background
activities that are done in support of such lobbying communication are also
covered by this policy even if the communication ultimately is not made.
Trade restrictions
A number of countries maintain controls on the destinations to which
products or software may be exported. Some of the strictest export controls are
maintained by the United States against countries that the U.S. government
considers unfriendly or as supporting international terrorism. The U.S.
regulations are complex and apply both to deemed exports from the United States
and to deemed exports of products from other countries when those products
contain U.S.-origin components or technology. Software created in the United
States is subject to these regulations even if duplicated and packaged abroad.
In some circumstances, an oral presentation containing technical data made to
foreign nationals in the United States or access by foreign nationals to
certain technology may constitute a controlled export. The Chief Financial
Officer can provide you with guidance on which countries are prohibited
destinations for company products or whether a proposed technical presentation
or the provision of controlled technology to foreign nationals may require a
U.S. government license.
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PROCEDURAL MATTERS
Distribution
All employees will receive a copy of this Code at the time they join the
company and will receive periodic updates. Agents and contractors will also be
provided with a copy of the Code.
Acknowledgment
All new employees must sign an acknowledgment form confirming that they
have read the Code and that they understand and agree to comply with its
provisions. Signed acknowledgment forms will be kept in your personnel file.
Failure to read the Code or to sign an acknowledgement form does not excuse any
person from the terms of the Code.
Approvals and waivers
Except as otherwise provided in the Code, the Board of Directors or its
designated committee must review and approve any matters requiring special
permission under the Code for a member of the Board of Directors or an
executive officer. Except as otherwise provided in the Code, the Chief
Financial Officer and the Director of Human Resources must review and approve
any matters requiring special permission under the Code for any other employee,
agent or contractor.
Any waiver of any provision of this Code for a member of the Board of
Directors or an executive officer must be approved in writing by the Board of
Directors or its designated committee and promptly disclosed, along with the
reasons for the waiver, to the extent required by law or regulation. Any waiver
of any provision of this Code with respect to any other employee, agent or
contractor must be approved in writing by the Chief Financial Officer and the
Director of Human Resources.
Copies of approvals and waivers will be retained by the company.
Reporting violations
You should promptly report violations or suspected violations of this Code
to the Chief Financial Officer or Director of Human Resources. If your
situation requires that your identity be kept secret, your anonymity will be
preserved to the greatest extent reasonably possible. If you wish to remain
anonymous, send a letter addressed to the Chief Financial Officer or Director
of Human Resources at IRIDEX Corporation, 1212 Terra Bella Avenue, Mountain
View, CA 94043. If you make an anonymous report, please provide as much detail
as possible, including copies of any documents that you believe may be relevant
to the issue.
If your concerns relate to accounting, internal controls or auditing
matters, or if the Chief Financial Officer or Director of Human Resources is
implicated in any violation or suspected violation, you may also contact the
Audit and Corporate Governance Committee of the Board of Directors at Audit and
Corporate Governance Committee, IRIDEX Corporation, 1212 Terra Bella Avenue,
Mountain View, CA 94043.
Reprisals, threats, retribution or retaliation against any person who has
in good faith reported a violation or a suspected violation of law, this Code
or other company policies, or against any person who is assisting in any
investigation or process with respect to such a violation, is prohibited.
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Investigations
The Board of Directors or its designated committee will be responsible for
investigating violations and determining appropriate disciplinary action for
matters involving members of the Board of Directors or executive officers. The
Board of Directors or its designated committee may designate others to conduct
or manage investigations on its behalf and recommend disciplinary action.
Subject to the general authority of the Board of Directors to administer
this Code, the Chief Financial Officer and the Director of Human Resources will
be jointly responsible for investigating violations and determining appropriate
disciplinary action for other employees, agents and contractors. The Chief
Financial Officer and the Director of Human Resources may designate others to
conduct or manage investigations on their behalf and recommend disciplinary
action. The Chief Financial Officer and the Director of Human Resources will
periodically report Code violations and the corrective actions taken to the
Board of Directors or its designated committee. The Board of Directors reserves
the right to investigate violations and determine appropriate disciplinary
action on its own or to designate others to do so in place of, or in addition
to, the Chief Financial Officer and the Director of Human Resources.
The company will promptly investigate any suspected violations. If it is
determined that evidence of a violation exists, the individual subject to
investigation will be notified. The subject of an investigation will have an
opportunity to respond to any allegations made against that person. A person
suspected of violating the Code may be suspended with or without pay while an
investigation is conducted. The company will follow local grievance procedures
in jurisdictions where such procedures apply.
Disciplinary action
The company will take appropriate action against any employee, agent or
contractor whose actions are found to violate the Code. Disciplinary actions
may include, at the companys sole discretion, oral or written reprimand,
suspension or immediate termination of employment or business relationship, or
any other disciplinary action or combination of disciplinary actions as deemed
appropriate to the circumstances. A record of the disciplinary action will be
retained in the employees personnel file.
In determining what disciplinary action is appropriate in a particular
case, the company will take into account all relevant information, including
the nature and severity of the violation, any history of warnings and
violations, whether the violation appears to have been intentional or
inadvertent and whether the violator reported his or her own misconduct. The
company will strive to enforce the Code in a consistent manner while accounting
for all relevant information. An alleged violator may make a written request
for reconsideration within 14 days of notification of the final disciplinary
decision.
Where the company has suffered a loss, it may pursue its remedies against
the individuals or entities responsible. Certain violations of this Code may
also be subject to civil or criminal prosecution by governmental authorities
and others. Where laws have been violated, the company will report violators to
the appropriate authorities.
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ADDITIONAL INFORMATION
Nothing in this Code of Business Conduct and Ethics creates or implies an
employment contract or term of employment. Employment at the company is
employment at-will. Employment at-will may be terminated with or without cause
and with or without notice at any time by the employee or the company. Nothing
in this Code shall limit the right to terminate employment at-will. No employee
of the company has any authority to enter into any agreement for employment for
a specified period of time or to make any agreement or representation contrary
to the companys policy of employment at-will. Only the Chief Executive Officer
of the company has the authority to make any such agreement, which must be in
writing.
The policies in this Code do not constitute a complete list of company
policies or a complete list of the types of conduct that can result in
discipline, up to and including discharge.
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ACKNOWLEDGMENT
CODE OF BUSINESS CONDUCT AND ETHICS
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I acknowledge that I have received and read the companys Code
of Business Conduct and Ethics.
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I acknowledge that I understand the standards, policies and
procedures contained in the Code of Business Conduct and Ethics and
understand that there may be additional standards, policies,
procedures and laws relevant to my position.
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I agree to comply with the Code of Business Conduct and Ethics.
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I acknowledge that if I have questions concerning the meaning
or application of the Code of Business Conduct and Ethics, any
company policies, or the legal or regulatory requirements applicable
to my position, it is my responsibility to seek guidance from my
manager, the Human Resources Department, the Finance Department or
other relevant individuals or departments.
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I acknowledge that neither this Acknowledgement nor the Code of
Business Conduct and Ethics is meant to vary or supersede the regular
terms and conditions of my employment by the company or to constitute
an employment contract.
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(print name)
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(signature)
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(date)
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Please sign and return this form to the Human Resources Department.
APPENDIX D
IRIDEX CORPORATION
2005 EMPLOYEE STOCK PURCHASE PLAN
The
following constitutes the provisions of the 2005 Employee Stock Purchase Plan of Iridex Corporation.
1. Purpose. The purpose of the Plan is to provide Employees with an
opportunity to purchase Common Stock through accumulated payroll deductions.
It is the intention of the Company to have the Plan qualify as an employee
stock purchase plan under Section 423 of the Code. The provisions of the
Plan, accordingly, shall be construed so as to extend and limit Plan
participation in a manner that is consistent with the requirements of that
section of the Code.
2. Definitions.
(a) Administrator means the Board or any committee thereof designated by
the Board in accordance with Section 14.
(b) Board means the Board of Directors of the Company.
(c) Change of Control means the occurrence of any of the following
events:
(i) Any person (as such term is used in Sections 13(d) and 14(d) of the
Exchange Act) becomes the beneficial owner (as defined in Rule 13d-3 of the
Exchange Act), directly or indirectly, of securities of the Company
representing fifty percent (50%) or more of the total voting power represented
by the Companys then outstanding voting securities; or
(ii) The consummation of the sale or disposition by the Company of all or
substantially all of the Companys assets; or
(iii) The consummation of a merger or consolidation of the Company, with
any other corporation, other than a merger or consolidation which would result
in the voting securities of the Company outstanding immediately prior thereto
continuing to represent (either by remaining outstanding or by being converted
into voting securities of the surviving entity or its parent) at least fifty
percent (50%) of the total voting power represented by the voting securities of
the Company, or such surviving entity or its parent outstanding immediately
after such merger or consolidation.
(iv) A change in the composition of the Board, as a result of which fewer
than a majority of the Directors are Incumbent Directors. Incumbent
Directors means Directors who either (A) are Directors as of the effective
date of the Plan (pursuant to Section 23), or (B) are elected, or nominated for
election, to the Board with the affirmative votes of at least a majority of
those Directors whose election or nomination was not in connection with any
transaction described in subsections (i), (ii) or (iii) or in connection with
an actual or threatened proxy contest relating to the election of Directors of
the Company.
(d) Code means the Internal Revenue Code of 1986, as amended. Any
reference to a section of the Code herein shall be a reference to any successor
or amended section of the Code.
(e) Common Stock means the common stock of the Company.
(f) Company means Iridex Corporation, a Delaware corporation.
(g) Compensation shall mean all base straight time gross earnings and
sales commissions, payments for overtime, shift premium, incentive
compensation, incentive payments, bonuses but exclusive of other compensation.
(h) Designated Subsidiary means any Subsidiary that has been designated
by the Administrator from time to time in its sole discretion as eligible to
participate in the Plan.
(i) Director means a member of the Board.
(j) Employee means any individual who is a common law employee of an
Employer and is customarily employed for at least twenty (20) hours per week
and more than five (5) months in any calendar year by the Employer. For
purposes of the Plan, the employment relationship shall be treated as
continuing intact while the individual is on sick leave or other leave of
absence approved by the Employer. Where the period of leave exceeds ninety
(90) days and the individuals right to reemployment is not guaranteed either
by statute or by contract, the employment relationship shall be deemed to have
terminated on the 91st day of such leave.
(k) Employer means any one or all of the Company and its Designated
Subsidiaries.
(l) Enrollment Date means the first Trading Day of each Offering Period.
(m) Exchange Act means the Securities Exchange Act of 1934, as amended,
including the rules and regulations promulgated thereunder.
(n) Exercise Date means the last day of each Offering Period.
(o) Fair Market Value means, as of any date, the value of Common Stock
determined as follows:
(i) If the Common Stock is listed on any established stock exchange or a
national market system, including without limitation the Nasdaq National Market
or The Nasdaq SmallCap Market of The Nasdaq Stock Market, its Fair Market Value
shall be the closing sales price for the Common Stock (or the closing bid, if
no sales were reported) as quoted on such exchange or system on the date of
determination, as reported in
The Wall Street Journal
or such other source as
the Administrator deems reliable, or;
(ii) If the Common Stock is regularly quoted by a recognized securities
dealer but selling prices are not reported, its Fair Market Value shall be the
mean of the closing bid and asked prices for the Common Stock on the date of
determination, as reported in
The Wall Street Journal
or such other source as
the Administrator deems reliable, or;
(iii) In the absence of an established market for the Common Stock, its
Fair Market Value shall be determined in good faith by the Administrator.
(p) Offering Periods means the periods of approximately six (6) months
during which an option granted pursuant to the Plan may be exercised, (i)
commencing on the first Trading Day on or after
February 15
th
of each year and
terminating on the first Trading Day on or following
August 14
th
, approximately
six (6) months later, and (ii) commencing on the first Trading Day on or after
August 15
th
of
-2-
each year and terminating on the first Trading Day on or following
February 14
th
, approximately six (6) months later. The duration and timing of
Offering Periods may be changed pursuant to Section 4.
(q) Parent means a parent corporation, whether now or hereafter
existing, as defined in Section 424(e) of the Code.
(r) Plan means this 2005 Employee Stock Purchase Plan.
(s) Purchase Price means an amount equal to eighty-five percent (85%) of
the Fair Market Value of a share of Common Stock on the Enrollment Date or on
the Exercise Date, whichever is lower; provided however, that the Purchase
Price may be adjusted by the Administrator pursuant to Section 20.
(t) Subsidiary means a subsidiary corporation, whether now or
hereafter existing, as defined in Section 424(f) of the Code.
(u) Trading Day means a day on which the U.S. national stock exchanges
and the Nasdaq System are open for trading.
3. Eligibility.
(a) Offering Periods. Any individual who is an Employee as of the
Enrollment Date of any Offering Period shall be eligible to participate in such
Offering Period, subject to the requirements of Section 5.
(b) Limitations. Any provisions of the Plan to the contrary
notwithstanding, no Employee shall be granted an option under the Plan (i) to
the extent that, immediately after the grant, such Employee (or any other
person whose stock would be attributed to such Employee pursuant to Section
424(d) of the Code) would own capital stock of the Company or any Parent or
Subsidiary of the Company and/or hold outstanding options to purchase such
stock possessing five percent (5%) or more of the total combined voting power
or value of all classes of the capital stock of the Company or of any Parent or
Subsidiary of the Company, or (ii) to the extent that his or her rights to
purchase stock under all employee stock purchase plans (as defined in Section
423 of the Code) of the Company or any Parent or Subsidiary of the Company
accrues at a rate which exceeds twenty-five thousand dollars ($25,000) worth of
stock (determined at the Fair Market Value of the stock at the time such option
is granted) for each calendar year in which such option is outstanding at any
time.
4. Offering Periods. The Plan shall be implemented by consecutive
Offering Periods with a new Offering Period commencing on the first Trading Day
on or after February 15
th
and August 14
th
of each year, or on such other date
as the Administrator shall determine, and continuing thereafter until
terminated in accordance with Section 20. The Administrator shall have the
power to change the duration of Offering Periods (including the commencement
dates thereof) with respect to future offerings without stockholder approval if
such change is announced prior to the scheduled beginning of the first Offering
Period to be affected thereafter.
5. Participation. An Employee who is eligible to participate in the Plan
pursuant to Section 3 may become a participant by (i) submitting to the
Companys payroll office (or its designee), on or before a date prescribed by
the Administrator prior to an applicable Enrollment Date, a properly completed
subscription agreement authorizing payroll deductions in the form provided by
the Administrator for such purpose, or (ii) following an electronic or other
enrollment procedure prescribed by the Administrator.
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6. Payroll Deductions.
(a) At the time a participant enrolls in the Plan pursuant to Section 5,
he or she shall elect to have payroll deductions made on each payday during the
Offering Period in an amount not exceeding ten percent (10%) of the
Compensation that he or she receives on each such payday.
(b) Payroll deductions authorized by a participant shall commence on the
first payday following the Enrollment Date and shall end on the last payday in
the Offering Period to which such authorization is applicable, unless sooner
terminated by the participant as provided in Section 10.
(c) All payroll deductions made for a participant shall be credited to his
or her account under the Plan and shall be withheld in whole percentages only.
A participant may not make any additional payments into such account.
(d) A participant may discontinue his or her participation in the Plan as
provided in Section 10, or may change the rate of his or her payroll deductions
during the Offering Period by (i) properly completing and submitting to the
Companys payroll office (or its designee), on or before a date prescribed by
the Administrator prior to an applicable Exercise Date, a new subscription
agreement authorizing the change in payroll deduction rate in the form provided
by the Administrator for such purpose, or (ii) following an electronic or other
procedure prescribed by the Administrator; provided, however, that a
participant may only make one payroll deduction change during each Offering
Period. If a participant has not followed such procedures to change the rate of
payroll deductions, the rate of his or her payroll deductions shall continue at
the originally elected rate throughout the Offering Period and future Offering
Periods (unless terminated as provided in Section 10). The Administrator may,
in its sole discretion, limit the nature and/or number of payroll deduction
rate changes that may be made by participants during any Offering Period. Any
change in payroll deduction rates made pursuant to this Section 6(d) shall be
effective as of the first full payroll period following five (5) business days
after the date on which the change is made by the participant (unless the
Administrator, in its sole discretion, elects to process a given change in a
participants payroll deduction rate more quickly).
(e) Notwithstanding the foregoing, to the extent necessary to comply with
Section 423(b)(8) of the Code and Section 3(b), a participants payroll
deductions may be decreased to zero percent (0%) at any time during an Offering
Period. Subject to Section 423(b)(8) of the Code and Section 3(b) hereof,
payroll deductions shall recommence at the rate originally elected by the
participant effective as of the beginning of the first Offering Period which is
scheduled to end in the following calendar year, unless terminated by the
participant as provided in Section 10.
(f) At the time the option is exercised, in whole or in part, or at the
time some or all of the Companys Common Stock issued under the Plan is
disposed of, the participant must make adequate provision for the Companys
federal, state, or other tax withholding obligations, if any, which arise upon
the exercise of the option or the disposition of the Common Stock. At any
time, the Company may, but shall not be obligated to, withhold from the
participants compensation the amount necessary for the Company to meet
applicable withholding obligations, including any withholding required to make
available to the Company any tax deductions or benefits attributable to the
sale or early disposition of Common Stock by the Employee.
7. Grant of Option. On the Enrollment Date of each Offering Period, each
Employee participating in such Offering Period shall be granted an option to
purchase on each Exercise Date during such Offering Period (at the applicable
Purchase Price) up to a number of shares of Common Stock determined by dividing
such participants payroll deductions accumulated prior to such Exercise Date
and retained in the participants account as of the Exercise Date by the
applicable Purchase Price; provided that in no event shall a participant be
permitted to purchase during each Offering Period more than 1000 shares of
Common Stock (subject to
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any adjustment pursuant to Section 19), and provided further that such
purchase shall be subject to the limitations set forth in Sections 3(b) and 13.
The Employee may accept the grant of such option by electing to participate in
the Plan in accordance with the requirements of Section 5. The Administrator
may, for future Offering Periods, increase or decrease, in its absolute
discretion, the maximum number of shares of Common Stock that a participant may
purchase during each Offering Period. Exercise of the option shall occur as
provided in Section 8, unless the participant has withdrawn pursuant to Section
10. The option shall expire on the last day of the Offering Period.
8. Exercise of Option.
(a) Unless a participant withdraws from the Plan as provided in Section
10, his or her option for the purchase of shares of Common Stock shall be
exercised automatically on the Exercise Date, and the maximum number of full
shares subject to option shall be purchased for such participant at the
applicable Purchase Price with the accumulated payroll deductions in his or her
account. No fractional shares of Common Stock shall be purchased; any payroll
deductions accumulated in a participants account which are not sufficient to
purchase a full share shall be retained in the participants account for the
subsequent Offering Period, subject to earlier withdrawal by the participant as
provided in Section 10. Any other monies left over in a participants account
after the Exercise Date shall be returned to the participant. During a
participants lifetime, a participants option to purchase shares hereunder is
exercisable only by him or her.
(b) Notwithstanding any contrary Plan provision, if the Administrator
determines that, on a given Exercise Date, the number of shares of Common Stock
with respect to which options are to be exercised may exceed (i) the number of
shares of Common Stock that were available for sale under the Plan on the
Enrollment Date of the applicable Offering Period, or (ii) the number of shares
of Common Stock available for sale under the Plan on such Exercise Date, the
Administrator may in its sole discretion (x) provide that the Company shall
make a pro rata allocation of the shares of Common Stock available for purchase
on such Enrollment Date or Exercise Date, as applicable, in as uniform a manner
as shall be practicable and as it shall determine in its sole discretion to be
equitable among all participants exercising options to purchase Common Stock on
such Exercise Date, and continue all Offering Periods then in effect, or (y)
provide that the Company shall make a pro rata allocation of the shares of
Common Stock available for purchase on such Enrollment Date or Exercise Date,
as applicable, in as uniform a manner as shall be practicable and as it shall
determine in its sole discretion to be equitable among all participants
exercising options to purchase Common Stock on such Exercise Date, and
terminate any or all Offering Periods then in effect pursuant to Section 20.
The Company may make pro rata allocation of the shares of Common Stock
available on the Enrollment Date of any applicable Offering Period pursuant to
the preceding sentence, notwithstanding any authorization of additional shares
of Common Stock for issuance under the Plan by the Companys stockholders
subsequent to such Enrollment Date.
9. Delivery. As soon as administratively practicable after each Exercise
Date on which a purchase of shares of Common Stock occurs, the Company shall
arrange the delivery to each participant, as appropriate, the shares purchased
upon exercise of his or her option in a form determined by the Administrator
(in its sole discretion) and pursuant to rules established by the
Administrator. No participant shall have any voting, dividend, or other
stockholder rights with respect to shares of Common Stock subject to any option
granted under the Plan until such shares have been purchased and delivered to
the participant as provided in this Section 9.
10. Withdrawal.
(a) Under procedures established by the Administrator, a participant may
withdraw all but not less than all the payroll deductions credited to his or
her account and not yet used to exercise his or her option under the Plan at
any time by (i) submitting to the Companys payroll office (or its designee) a
written
-5-
notice of withdrawal in the form prescribed by the Administrator for such
purpose, or (ii) following an electronic or other withdrawal procedure
prescribed by the Administrator. All of the participants payroll deductions
credited to his or her account shall be paid to such participant as promptly as
practicable after the effective date of his or her withdrawal and such
participants option for the Offering Period shall be automatically terminated,
and no further payroll deductions for the purchase of shares shall be made for
such Offering Period. If a participant withdraws from an Offering Period,
payroll deductions shall not resume at the beginning of the succeeding Offering
Period unless the participant re-enrolls in the Plan in accordance with the
provisions of Section 5.
(b) A participants withdrawal from an Offering Period shall not have any
effect upon his or her eligibility to participate in any similar plan that may
hereafter be adopted by the Company or in succeeding Offering Periods that
commence after the termination of the Offering Period from which the
participant withdraws.
11. Termination of Employment. Upon a participants ceasing to be an
Employee, for any reason, he or she shall be deemed to have elected to withdraw
from the Plan and the payroll deductions credited to such participants account
during the Offering Period but not yet used to purchase shares of Common Stock
under the Plan shall be returned to such participant or, in the case of his or
her death, to the person or persons entitled thereto under Section 15, and such
participants option shall be automatically terminated. The preceding sentence
notwithstanding, a participant who receives payment in lieu of notice of
termination of employment shall be treated as continuing to be an Employee for
the participants customary number of hours per week of employment during the
period in which the participant is subject to such payment in lieu of notice.
12. Interest. No interest shall accrue on the payroll deductions of a
participant in the Plan.
13. Stock.
(a) Subject to adjustment upon changes in capitalization of the Company as
provided in Section 19, the maximum number of shares of Common Stock which
shall be made available for sale under the Plan shall be 30,000 shares of
Common Stock plus the number of shares of Common Stock which have been reserved
but not issued under the Companys 1995 Employee Stock Purchase Plan (the 1995
ESPP) upon the termination of the 1995 ESPP.
(b) Shares of Common Stock to be delivered to a participant under the Plan
shall be registered in the name of the participant or in the name of the
participant and his or her spouse.
14. Administration. The Board or a committee of members of the Board who
shall be appointed from time to time by, and shall serve at the pleasure of,
the Board, shall administer the Plan. The Administrator shall have full and
exclusive discretionary authority to construe, interpret and apply the terms of
the Plan, to determine eligibility, to adjudicate all disputed claims filed
under the Plan and to establish such procedures that it deems necessary for
administration of the Plan (including, without limitation, to adopt such
procedures and sub-plans as are necessary or appropriate to permit the
participation in the Plan by employees who are foreign nationals or employed
outside the United States). The Administrator, in its sole discretion and on
such terms and conditions as it may provide, may delegate to one or more
individuals all or any part of its authority and powers under the Plan. Every
finding, decision and determination made by the Administrator (or its designee)
shall, to the full extent permitted by law, be final and binding upon all
parties.
-6-
15. Designation of Beneficiary.
(a) A participant may designate a beneficiary who is to receive any shares
of Common Stock and cash, if any, from the participants account under the Plan
in the event of such participants death subsequent to an Exercise Date on
which the option is exercised but prior to delivery to such participant of such
shares and cash. In addition, a participant may designate a beneficiary who is
to receive any cash from the participants account under the Plan in the event
of such participants death prior to exercise of the option. If a participant
is married and the designated beneficiary is not the spouse, spousal consent
shall be required for such designation to be effective.
(b) Such designation of beneficiary may be changed by the participant at
any time. In the event of the death of a participant and in the absence of a
beneficiary validly designated under the Plan who is living at the time of such
participants death, the Company shall deliver such shares and/or cash to the
executor or administrator of the estate of the participant, or if no such
executor or administrator has been appointed (to the knowledge of the Company),
the Company, in its discretion, may deliver such shares and/or cash to the
spouse or to any one or more dependents or relatives of the participant, or if
no spouse, dependent or relative is known to the Company, then to such other
person as the Company may designate.
(c) All beneficiary designations under this Section 15 shall be made in
such form and manner as the Administrator may prescribe from time to time.
16. Transferability. Neither payroll deductions credited to a
participants account nor any rights with regard to the exercise of an option
or to receive shares of Common Stock under the Plan may be assigned,
transferred, pledged or otherwise disposed of in any way (other than by will,
the laws of descent and distribution or as provided in Section 15) by the
participant. Any such attempt at assignment, transfer, pledge or other
disposition shall be without effect, except that the Company may treat such act
as an election to withdraw from an Offering Period in accordance with Section
10.
17. Use of Funds. All payroll deductions received or held by the Company
under the Plan may be used by the Company for any corporate purpose, and the
Company shall not be obligated to segregate such payroll deductions. Until
shares of Common Stock are issued under the Plan (as evidenced by the
appropriate entry on the books of the Company or of a duly authorized transfer
agent of the Company), a participant shall only have the rights of an unsecured
creditor with respect to such shares.
18. Reports. Individual accounts shall be maintained for each participant
in the Plan. Statements of account shall be given to participating Employees
at least annually, which statements shall set forth the amounts of payroll
deductions, the Purchase Price, the number of shares of Common Stock purchased
and the remaining cash balance, if any.
19. Adjustments, Dissolution, Liquidation or Change of Control.
(a) Adjustments. In the event that any dividend or other distribution
(whether in the form of cash, Common Stock, other securities, or other
property), recapitalization, stock split, reverse stock split, reorganization,
merger, consolidation, split-up, spin-off, combination, repurchase, or exchange
of Common Stock or other securities of the Company, or other change in the
corporate structure of the Company affecting the Common Stock such that an
adjustment is determined by the Administrator (in its sole discretion) to be
appropriate in order to prevent dilution or enlargement of the benefits or
potential benefits intended to be made available under the Plan, then the
Administrator shall, in such manner as it may deem equitable, adjust the number
and class of Common Stock which may be delivered under the Plan, the Purchase
Price per share and the number of shares of Common Stock covered by each option
under the Plan which has not yet been exercised, and the numerical limits of
Sections 7 and 13.
-7-
(b) Dissolution or Liquidation. In the event of the proposed dissolution
or liquidation of the Company, the Offering Period then in progress shall be
shortened by setting a new Exercise Date (the New Exercise Date), and shall
terminate immediately prior to the consummation of such proposed dissolution or
liquidation, unless provided otherwise by the Board. The New Exercise Date
shall be before the date of the Companys proposed dissolution or liquidation.
The Board shall notify each participant in writing, at least ten (10) business
days prior to the New Exercise Date, that the Exercise Date for the
participants option has been changed to the New Exercise Date and that the
participants option shall be exercised automatically on the New Exercise Date,
unless prior to such date the participant has withdrawn from the Offering
Period as provided in Section 10.
(c) Change of Control. In the event of a merger of the Company with or
into another corporation, or a Change of Control, each outstanding option shall
be assumed or an equivalent option substituted by the successor corporation or
a Parent or Subsidiary of the successor corporation. In the event that the
successor corporation refuses to assume or substitute for the option, any
Offering Period then in progress shall be shortened by setting a new Exercise
Date (the New Exercise Date) and any Offering Period then in progress shall
end on the New Exercise Date. The New Exercise Date shall be before the date
of the Companys proposed Change of Control. The Board shall notify each
participant in writing, at least ten (10) business days prior to the New
Exercise Date, that the Exercise Date for the participants option has been
changed to the New Exercise Date and that the participants option shall be
exercised automatically on the New Exercise Date, unless prior to such date the
participant has withdrawn from the Offering Period as provided in Section 10.
20. Amendment or Termination.
(a) The Administrator may at any time and for any reason terminate or
amend the Plan. Except as provided in Section 19, no such termination can
affect options previously granted under the Plan, provided that an Offering
Period may be terminated by the Administrator on any Exercise Date if the
Administrator determines that the termination or suspension of the Plan is in
the best interests of the Company and its stockholders. Except as provided in
Section 19 and this Section 20, no amendment may make any change in any option
theretofore granted which adversely affects the rights of any participant. To
the extent necessary to comply with Section 423 of the Code (or any successor
rule or provision or any other applicable law, regulation or stock exchange
rule), the Company shall obtain stockholder approval in such a manner and to
such a degree as required.
(b) Without stockholder consent and without regard to whether any
participant rights may be considered to have been adversely affected, the
Administrator shall be entitled to change the Offering Periods, limit the
frequency and/or number of changes in the amount withheld during an Offering
Period, establish the exchange ratio applicable to amounts withheld in a
currency other than U.S. dollars, permit payroll withholding in excess of the
amount designated by a participant in order to adjust for delays or mistakes in
the Companys processing of properly completed withholding elections, establish
reasonable waiting and adjustment periods and/or accounting and crediting
procedures to ensure that amounts applied toward the purchase of Common Stock
for each participant properly correspond with amounts withheld from the
participants Compensation, and establish such other limitations or procedures
as the Administrator determines in its sole discretion advisable which are
consistent with the Plan.
(c) In the event the Administrator determines that the ongoing operation
of the Plan may result in unfavorable financial accounting consequences, the
Board may, in its discretion and, to the extent necessary or desirable, modify
or amend the Plan to reduce or eliminate such accounting consequence including,
but not limited to:
-8-
(i) altering the Purchase Price for any Offering Period including an
Offering Period underway at the time of the change in Purchase Price;
(ii) shortening any Offering Period so that Offering Period ends on a new
Exercise Date, including an Offering Period underway at the time of the Board
action; and
(iii) allocating shares.
Such modifications or amendments with respect to Section 20(c) above shall
not require stockholder approval, to the extent permitted by applicable law, or
the consent of any Plan participants.
21. Notices. All notices or other communications by a participant to the
Company under or in connection with the Plan shall be deemed to have been duly
given when received in the form specified by the Company at the location, or by
the person, designated by the Company for the receipt thereof.
22. Conditions Upon Issuance of Shares. Shares of Common Stock shall not
be issued with respect to an option under the Plan unless the exercise of such
option and the issuance and delivery of such shares pursuant thereto shall
comply with all applicable provisions of law, domestic or foreign, including,
without limitation, the Securities Act of 1933, as amended, including the rules
and regulations promulgated thereunder, the Exchange Act and the requirements
of any stock exchange upon which the shares may then be listed, and shall be
further subject to the approval of counsel for the Company with respect to such
compliance.
As a condition to the exercise of an option, the Company may require the
person exercising such option to represent and warrant at the time of any such
exercise that the shares are being purchased only for investment and without
any present intention to sell or distribute such shares if, in the opinion of
counsel for the Company, such a representation is required by any of the
aforementioned applicable provisions of law.
23. Term of Plan. The Plan shall become effective upon the earlier to
occur of its adoption by the Board or its approval by the stockholders of the
Company, provided, however, that in no event shall it become effective before
February 15, 2005. It shall continue in effect until terminated pursuant to
Section 20.
-9-
[SAMPLE SUBSCRIPTION AGREEMENT]
IRIDEX CORPORATION.
2005 EMPLOYEE STOCK PURCHASE PLAN
SUBSCRIPTION AGREEMENT
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Original Application
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Offering Date:
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Change in Payroll Deduction Rate
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Change of Beneficiary(ies)
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1.
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hereby elects to participate in the Iridex
Corporation 2005 Employee Stock Purchase Plan (the Plan) and subscribes
to purchase shares of the Companys Common Stock in accordance with this
Subscription Agreement and the Plan.
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2.
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I hereby authorize payroll deductions from each paycheck in the amount of
% of my Compensation on each payday (from 0 to 10%) during the
Offering Period in accordance with the Plan. Fractional percentages are
not permitted.
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3.
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I understand that my payroll deductions shall be accumulated for the
purchase of shares of Common Stock at the applicable Purchase Price
determined in accordance with the Plan. I understand that if I do not
withdraw from an Offering Period, any accumulated payroll deductions will
be used to automatically exercise my option to purchase shares of Common
Stock.
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4.
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I have received a copy of the complete Plan. I understand that my
participation in the Plan is in all respects subject to the terms of the
Plan. I understand that my ability to exercise the option under this
Subscription Agreement is subject to stockholder approval of the Plan.
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5.
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Shares of Common Stock purchased for me under the Plan should be issued
in the name(s) of Employee or Employee and Spouse only.
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6.
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I agree to execute and deliver such other agreements as may be reasonably
requested by the Company that are consistent with the foregoing or that
are necessary to give further effect thereto. The obligations described in
this Section shall not apply to a registration relating solely to employee
benefit plans on Form S-8 or similar forms that may be promulgated in the
future, or a registration relating solely to a Commission Rule 145
transaction on Form S-4 or similar forms that may be promulgated in the
future.
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7.
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I understand that if I dispose of any shares received by me pursuant to
the Plan within two (2) years after the Offering Date (the first day of
the Offering Period during which I purchased such shares) or one (1) year
after the Exercise Date, I will be treated for federal income tax purposes
as having received ordinary income at the time of such disposition in an
amount equal to the excess of the fair market value of the shares at the
time such shares were purchased by me over the price which I paid for the
shares. I hereby agree to notify the Company in writing within thirty
(30) days after the date of any disposition of my shares and I will make
adequate provision for federal, state or other tax withholding
obligations, if any, which arise upon the disposition of the Common Stock.
The Company may, but will not be obligated to, withhold from my
compensation the amount necessary to meet any applicable withholding
obligation including any withholding necessary to make available to the
Company any tax deductions or benefits attributable to the sale or early
disposition of Common Stock by me. If I dispose of such shares at any
time after the expiration of the two (2)-year and one (1)-year holding
periods, I understand that I will be treated for federal income tax
purposes as having received income only at the time of such disposition,
and that such income will be taxed as ordinary income only to the extent
of an amount equal to the lesser of (1) the excess of the fair market
value of the shares at the time of such disposition over the purchase
price which I paid for the shares, or (2) fifteen percent (15%) of the
fair market value of the shares on the first day of the Offering Period.
The remainder of the gain, if any, recognized on such disposition will be
taxed as capital gain.
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8.
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I hereby agree to be bound by the terms of the Plan. The effectiveness
of this Subscription Agreement is dependent upon my eligibility to
participate in the Plan.
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9.
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In the event of my death, I hereby designate the individual(s) named
below as my beneficiary(ies) to receive all payments and/or shares due me
under the Plan:
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NAME: (Please print)
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(First)
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(Middle)
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(Last)
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Relationship
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Percentage Benefit
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(Address)
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NAME: (Please print)
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(First)
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(Middle)
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(Last)
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Relationship
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Percentage of Benefit
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(Address)
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Employees Social
Security Number:
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Employees Address:
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I UNDERSTAND THAT THIS SUBSCRIPTION AGREEMENT SHALL REMAIN IN EFFECT THROUGHOUT
SUCCESSIVE OFFERING PERIODS UNLESS TERMINATED BY ME.
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Dated:
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Signature of Employee
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Spouses Signature (If beneficiary other than spouse)
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[SAMPLE WITHDRAWAL NOTICE]
IRIDEX CORPORATION
2005 EMPLOYEE STOCK PURCHASE PLAN
NOTICE OF WITHDRAWAL
The undersigned participant in the Offering Period of the Iridex
Corporation 2005 Employee Stock Purchase Plan, which began on
,
(the Offering Date), hereby notifies the Company that he or she hereby
withdraws from the Offering Period. He or she hereby directs the Company to
pay to the undersigned as promptly as practicable all the payroll deductions
credited to his or her account with respect to such Offering Period. The
undersigned understands and agrees that his or her option for such Offering
Period will be automatically terminated. The undersigned understands further
that no further payroll deductions will be made for the purchase of shares in
the current Offering Period and the undersigned shall be eligible to
participate in succeeding Offering Periods only by delivering to the Company a
new Subscription Agreement.
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Name and Address of Participant:
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Signature:
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IRIDEX CORPORATION
C/O EQUISERVE
P.O. BOX 43068
PROVIDENCE, RI 02940
Your vote is important. Please vote immediately.
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Vote-by-Telephone
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Vote by Internet
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Call Toll-Free
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Log on to the Internet and go to
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1-877-PRX-VOTE (1-877-779-8683)
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OR
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http://www.eproxyvote.com/irix
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Do not return your Proxy Card if you are voting by Telephone or Internet.
DETACH HERE IF YOU ARE RETURNING YOUR PROXY CARD BY MAIL
x
Please mark votes as in this example.
This proxy will be voted as directed or, if no contrary direction is indicated,
will be voted FOR the election of directors, FOR approval of the amendment of
the 1998 Stock Plan, FOR approval of the adoption of the 2005 Employee Stock Purchase Plan, FOR approval of the
amendment of the 1995 Director Option Plan, FOR ratification of the appointment
of the Companys Independent Accountants, and as said proxies deem advisable on
such other matters as may come before the meeting and any adjournment(s)
thereof.
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1.
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Election of Directors.
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Nominees:
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(01) Theodore A. Boutacoff, (02) James L. Donovan,
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(03) ) Donald L. Hammond, (04 Joshua Makower,
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(05) Robert K. Anderson, (06) Sanford Fitch.
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FOR ALL
NOMINEES LISTED
ABOVE (EXCEPT
AS INDICATED)
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o
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WITHHOLD
AUTHORITY TO VOTE
FOR ALL NOMINEES
LISTED ABOVE
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o
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For all nominees except as noted above
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FOR
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AGAINST
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ABSTAIN
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2.
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Proposal to approve the amendment of the
1998 Stock Plan.
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o
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o
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o
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3.
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Proposal to approve the adoption of the
2005 Employee Stock Purchase Plan.
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o
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o
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o
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4.
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Proposal to approve the amendment of the
1995 Director Option Plan.
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o
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o
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o
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5.
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Proposal to ratify the appointment of
PricewaterhouseCoopers LLP as Independent
Accountants.
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o
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o
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o
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In their discretion, upon such other matters which
may properly come before the meeting and any
adjournment(s) thereof.
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MARK HERE FOR ADDRESS CHANGE AND NOTE AT LEFT
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This Proxy should be marked, dated, signed by the stockholder(s) exactly
as his or her name appears hereon, and returned promptly in the
enclosed envelope. Persons signing in a fiduciary capacity should so
indicate. If shares are held by joint tenants or as community property,
both should sign.
Signature:
Date:
Signature:
Date:
DETACH HERE
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF
IRIDEX CORPORATION
2004 ANNUAL MEETING OF STOCKHOLDERS
JUNE 2, 2004
The undersigned stockholder of IRIDEX Corporation, a Delaware corporation,
hereby acknowledges receipt of the Notice of Annual Meeting of Stockholders and
Proxy Statement, and hereby appoints Theodore A. Boutacoff and Larry
Tannenbaum, or either of them, proxies and attorneys-in-fact, with full power
to each of substitution, on behalf and in the name of the undersigned, to
represent the undersigned at the 2004 Annual Meeting of Stockholders of IRIDEX
Corporation to be held on June 2, 2004, at 10:00 a.m., Pacific Daylight Savings
Time, at the principal offices of the Company located at 1212 Terra Bella,
Mountain View, California 94043, and at any adjournment(s) thereof and to vote
all shares of Common Stock which the undersigned would be entitled to vote if
then and there personally present, on the matters set forth on the reverse side
of this Proxy.
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SEE REVERSE
SIDE
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CONTINUED AND TO BE SIGNED ON REVERSE SIDE
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SEE REVERSE
SIDE
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