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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
SCHEDULE 14A
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No.)
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement.
[ ] CONFIDENTIAL, FOR USE OF THE COMMISSION ONLY (AS PERMITTED BY
RULE 14a-6(e)(2)).
[X] Definitive Proxy Statement.
[ ] Definitive Additional Materials.
[ ] Soliciting Material Pursuant to Section 240.14a-12
Perceptron, Inc.
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(Name of Registrant as Specified In Its Charter)
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(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
1) Title of each class of securities to which transaction applies:
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2) Aggregate number of securities to which transaction applies:
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3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which the
filing fee is calculated and state how it was determined):
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4) Proposed maximum aggregate value of transaction:
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5) Total fee paid:
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[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was
paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
1) Amount Previously Paid:
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2) Form, Schedule or Registration Statement No.:
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3) Filing Party:
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4) Date Filed:
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PERSONS WHO POTENTIALLY ARE TO RESPOND TO THE COLLECTION OF INFORMATION
CONTAINED IN THIS FORM ARE NOT REQUIRED TO RESPOND UNLESS THE FORM DISPLAYS A
CURRENTLY VALID OMB CONTROL NUMBER.
SEC 1913 (02-02)
Page 1
[PERCEPTRON LOGO]
47827 Halyard Drive
Plymouth, Michigan 48170-2461
(734) 414-6100 Facsimile: (734) 414-4700
October 25, 2004
Dear Perceptron Shareholder:
You are cordially invited to attend the 2004 Annual Meeting of Shareholders of
Perceptron, Inc. (the "Company") to be held on Monday, December 6, 2004, at 9:00
a.m., local time, at 47827 Halyard Drive, Plymouth, Michigan 48170.
The attached notice of the meeting and Proxy Statement describe the items of
business to be transacted:
(a) The election of eight directors,
(b) The adoption of the Perceptron, Inc. 2004 Stock Incentive Plan
("2004 Stock Plan"),
(c) The adoption of an amended and restated Employee Stock Purchase Plan
(the "Employee Stock Purchase Plan"), and
(d) Such other business as may properly come before the meeting or any
adjournment thereof.
THE BOARD OF DIRECTORS BELIEVES THAT THESE STOCK PLANS ARE IMPORTANT
MOTIVATIONAL TOOLS TO ATTRACT AND RETAIN KEY EMPLOYEES, AND THAT IT IS OF
CRITICAL IMPORTANCE THAT THE 2004 STOCK PLAN AND THE EMPLOYEE STOCK PURCHASE
PLAN BE ADOPTED. WE NEED YOUR VOTE.
It is also important to note that, following the adoption of the 2004 Stock Plan
by the Shareholders, the 1992 Stock Option Plan and Directors Stock Option Plan
will terminate. The approximately 105,520 shares currently available for grant
under these plans will not be added to the 2004 Stock Plan, and all additional
shares previously granted that expire in the future under these plans without
being exercised will not be added to the 2004 Stock Plan.
The Board of Directors has carefully considered the 2004 Stock Plan and the
Employee Stock Purchase Plan in light of the Company's current growth strategy.
Our growth strategy involves:
- The expansion of our existing markets through the introduction of
additional products, identification of new customers and the
extension of our products into additional applications at existing
customers.
- The development of new markets through the use of value added
resellers to offer our Technology Component products into markets in
which they currently operate.
- The development of new markets that leverage the Company's
technology.
- Growth through selected acquisitions.
To meet the challenges of this growth strategy, the Board of Directors believes
that it is necessary for the Company to continually strengthen its team through
the addition of top quality talent at all levels in the organization and to
motivate its existing team to achieve at the highest levels of performance.
The Board of Directors believes that both of these objectives are enhanced by
providing its team with the opportunity to acquire the Company's Common Stock
through stock incentive plans such as those being proposed
for approval at the Annual Meeting. These plans allow the Company to continue to
provide equity incentives that are competitive with those offered by other
companies with which the Company competes for talent. In addition, the 2004
Stock Plan and Employee Stock Purchase Plan, by encouraging stock ownership,
further align the interests of the Company's team with those of all of us, the
shareholders of the Company.
The Board of Directors believes that the 2004 Stock Plan and the Employee Stock
Purchase Plan will prove to be of significant benefit to the Company for the
following reasons:
- The plans enhance the ability of the Company to attract, motivate
and retain highly competent, effective and loyal team members in
order to drive the Company's growth strategy and create intrinsic
value for shareholders.
- By encouraging the team to acquire an ownership interest in the
Company, these plans further align the team's interests with those
of shareholders.
- The 2004 Stock Plan, by permitting stock awards to be made in many
forms in addition to those permitted under the Company's current
plans, gives the Company's Management Development, Compensation and
Stock Option Committee (the "Management Development Committee")
greater flexibility in designing equity-based compensation to meet
the changing needs of the Company's business over an extended period
of time.
- The 2004 Stock Plan provides the Management Development Committee
with greater opportunities to implement performance based stock
incentive awards, using Company specific performance goals, than is
permitted under the Company's current plans. The Board believes that
these types of alternative stock incentive programs will become
increasingly important to the Company, particularly if the Company
is required to recognize compensation expense in connection with the
issuance of options.
- The Directors Stock Option Plan expires on February 9, 2005 and
currently non-employees directors are not permitted to participate
in any of the Company's other stock incentive plans. As a result, if
the 2004 Stock Plan is not approved by shareholders, non-employee
directors will not be eligible for stock incentive awards and will
no longer be able to elect to receive Common Stock in lieu of their
cash directors fees. The Company believes these stock incentives are
important elements of the Company's efforts to attract and retain
highly qualified outside directors.
- The Employee Stock Purchase Plan is structured as a benefit
available to all eligible team members and encourages increased
Common Stock ownership at all levels within the Company by providing
eligible team members with an incentive to invest in the Company.
- Both the 2004 Stock Plan and Employee Stock Purchase Plan include a
vesting or holding period requirement which require executive
officers, directors and team members to contribute to the Company's
success over an extended period of time in order to benefit from
these plans.
The enclosed Proxy Statement offers a more complete description of the 2004
Stock Plan and the Employee Stock Purchase Plan. The Board of Directors
encourages you to read the Proxy Statement carefully.
After the formal business session, there will be a report to the shareholders on
the progress of the Company along with a discussion period. I look forward to
seeing you at the Annual Meeting and hope you will make plans to attend. Whether
or not you plan to attend the meeting, I urge you to sign, date and return your
proxy in the addressed envelope enclosed for your convenience so that as many
shares as possible may be represented at the meeting. No postage is required if
the envelope is mailed in the United States.
Sincerely,
/s/ Alfred A. Pease
Alfred A. Pease
Chairman of the Board of Directors,
President and Chief Executive Officer
[PERCEPTRON LOGO]
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PERCEPTRON, INC.
NOTICE OF THE 2004 ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD DECEMBER 6, 2004
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The Annual Meeting of Shareholders of Perceptron, Inc., a Michigan
corporation, will be held on Monday, December 6, 2004, at 9:00 a.m., local time,
at 47827 Halyard Drive, Plymouth, Michigan 48170 for the following purposes:
1. To elect eight directors to serve until the 2005 Annual
Meeting of Shareholders and until their successors are elected
and qualified.
2. To adopt the Perceptron, Inc. 2004 Stock Incentive Plan.
3. To approve and adopt the amended and restated Employee Stock
Purchase Plan which includes the following principal
amendments to the Employee Stock Purchase Plan: (a) extend the
expiration date of the plan from May 14, 2005 until May 14,
2015 and (b) increase the total number of shares of the
Company's Common Stock available for purchase under such plan
by 100,000 shares.
4. To transact such other business as may properly come before
the meeting or any adjournments thereof.
The Board of Directors has fixed the close of business on October 15,
2004, as the record date for the determination of shareholders entitled to
notice of and to vote at the meeting. A certified list of shareholders entitled
to vote at the meeting will be available for examination by any shareholder
during the meeting at the corporate offices at 47827 Halyard Drive, Plymouth,
Michigan 48170.
A copy of the 2004 Annual Report for the fiscal year ended June 30, 2004
and Proxy Statement accompanies this notice.
By the Order of the Board of Directors
/s/ Thomas S. Vaughn
Thomas S. Vaughn, Secretary
47827 Halyard Drive
Plymouth, Michigan 48170
October 25, 2004
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THE VOTE OF EVERY SHAREHOLDER IS IMPORTANT, AND YOUR COOPERATION IN
PROMPTLY RETURNING YOUR MARKED, DATED AND SIGNED PROXY WILL BE APPRECIATED. THE
PROXY IS REVOCABLE AND WILL NOT AFFECT YOUR RIGHT TO VOTE IN PERSON IF YOU
ATTEND THE MEETING. YOUR PROXY WILL, HOWEVER, HELP TO ASSURE A QUORUM AND TO
AVOID ADDED PROXY SOLICITATION COSTS.
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PROXY STATEMENT
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PERCEPTRON, INC.
2004 ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD AT 9:00 A.M. ON DECEMBER 6, 2004
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INTRODUCTION
This Proxy Statement and the accompanying Notice of the 2004 Annual
Meeting of Shareholders, 2004 Annual Report and proxy card are furnished in
connection with the solicitation of proxies by the Board of Directors (the
"Board") of Perceptron, Inc., a Michigan corporation (the "Company"). The
proxies are being solicited for use at the 2004 Annual Meeting of Shareholders
of the Company (the "Annual Meeting") to be held at the corporate offices of the
Company on Monday, December 6, 2004, at 9:00 a.m., local time, and at any
adjournment of that meeting. The corporate offices of the Company are located at
47827 Halyard Drive, Plymouth, Michigan 48170, and the Company's telephone
number is (734) 414-6100. The Company expects that this Proxy Statement and the
accompanying materials will be first sent or given to shareholders on or about
November 2, 2004.
Only shareholders of record of the Company's Common Stock, $0.01 par value
(the "Common Stock") at the close of business on October 15, 2004 (the "Record
Date") will be entitled to notice of and to vote at the Annual Meeting or any
adjournments thereof. Shareholders of record on the Record Date are entitled to
one vote per share on any matter that may properly come before the Annual
Meeting. As of the Record Date, there were 8,747,200 shares of Common Stock
outstanding and entitled to vote. The Company has no other class of stock
outstanding. The presence, either in person or by properly executed proxy, of
the holders of a majority of the outstanding shares of Common Stock is necessary
to constitute a quorum at the Annual Meeting. See "Further Information -- Share
Ownership of Management and Certain Shareholders" for a description of the
beneficial ownership of the Common Stock.
Directors, officers and other employees of the Company may solicit,
without additional compensation, proxies by any appropriate means, including
personal interview, mail, telephone, courier service and facsimile
transmissions. Arrangements will also be made with brokerage houses and other
custodians, nominees and fiduciaries which are record holders of the Company's
Common Stock to forward proxy soliciting material to the beneficial owners of
such shares and the Company will reimburse such record holders for their
reasonable expenses incurred in connection therewith. The cost of soliciting
proxies, including the preparation, assembling and mailing of the Notice of the
2004 Annual Meeting of Shareholders, the Proxy Statement, the 2004 Annual Report
and the accompanying proxy card, as well as the cost of forwarding such material
to the beneficial owners of Common Stock, will be borne by the Company. Only one
Proxy Statement and Annual Report will be delivered to multiple shareholders
sharing an address unless the Company has received contrary instructions from
one or more of the shareholders. Upon written or oral request from a shareholder
who shares an address with another shareholder, the Company shall deliver a
separate copy of the Proxy Statement and Annual Report. In the future,
shareholders can call or write the Company for a separate annual report or proxy
statement at (734) 414-6100 or 47827 Halyard Drive, Plymouth, Michigan
48170-2461. Similarly, those shareholders who share an address and wish to
receive only one copy of the annual report or proxy statement when they are
receiving multiple copies can also call or write the Company at the number and
address given above.
Shares represented by a duly executed proxy, unless previously revoked,
will be voted at the Annual Meeting in accordance with the instructions of the
shareholder thereon if the proxy is received by the Company before the close of
business on December 3, 2004. Shares represented by a proxy received after
December 3, 2004 will be voted if the proxy is received by the Company in
sufficient time to permit the necessary examination and tabulation of the proxy
before the vote of shareholders is taken. IF NO INSTRUCTIONS ARE MADE, SUCH
SHARES WILL BE VOTED FOR THE ELECTION OF DIRECTORS NAMED IN THIS PROXY
STATEMENT, FOR THE ADOPTION OF THE 2004 STOCK INCENTIVE PLAN, AND FOR THE
ADOPTION OF THE AMENDED AND RESTATED EMPLOYEE STOCK PURCHASE PLAN. A proxy also
gives Messrs. Pease, Garber and
Vaughn discretionary authority, to the extent permitted by law, to vote all
shares of Common Stock represented by the proxy on any other matter that is
properly presented for action at the meeting; however, the Board of Directors
does not intend to present any other matters at the Annual Meeting. Any proxy
given pursuant to this solicitation may be revoked by the person giving it at
any time before it is voted. Proxies may be revoked by (i) filing with the
Secretary of the Company, at or before the Annual Meeting, a written notice of
revocation bearing a later date than the proxy, (ii) duly executing a subsequent
proxy relating to the same shares and delivering it to the Secretary of the
Company at the Company's corporate offices at or before the Annual Meeting, or
(iii) attending the Annual Meeting and voting in person, if the shareholder is a
shareholder of record (although attendance at the Annual Meeting will not in and
of itself constitute a revocation of a proxy).
Abstentions, and withheld votes with respect to the election of directors,
are counted only for purposes of determining whether a quorum is present at the
2004 Annual Meeting. Withheld votes will be excluded entirely from the vote on
the election of directors and will therefore have no effect on the election. If
a shareholder owns shares through a bank or broker in street name, the
shareholder may instruct his or her bank or broker how to vote such shares.
"Broker non-votes" occur when a bank, broker or other nominee holder has not
received voting instructions with respect to a particular matter and the nominee
holder does not have discretionary power to vote on that matter. The election of
directors is considered a routine matter, so a bank or broker will have
discretionary authority to vote such shares held in street name on that
proposal. The proposals to approve the 2004 Stock Plan and the amended and
restated Employee Stock Purchase Plan are not considered routine matters, so a
bank or broker will not have discretionary authority to vote such shares held in
street name on those proposals. A broker non-vote may also occur if a broker
fails to vote shares for any reason. Directors are elected by a plurality of the
votes cast, so that only votes cast "for" directors are counted in determining
which directors are elected. Approval of the proposals to adopt the 2004 Stock
Plan and the amended and restated Employee Stock Purchase Plan require a
majority of the votes cast on the matters. For purposes of determining the
number of votes cast with respect to the proposals to adopt the 2004 Stock Plan
and the amended and restated Employee Stock Purchase Plan, only those cast "for"
or "against" are included, and abstentions and broker non-votes are not counted
for this purpose.
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MATTERS TO COME BEFORE THE MEETING
PROPOSAL 1 -- ELECTION OF DIRECTORS
At the Annual Meeting, Shareholders will be asked to elect a board of
eight directors to hold office, in accordance with the Bylaws of the Company,
until the 2005 annual meeting and until the election and qualification of their
successors, or until their resignation or removal. The following table sets
forth information regarding the nominees for election to the Company's Board of
Directors. The Board of Directors recommends a vote FOR each of the nominees for
election. The shares represented by properly executed proxies will be voted in
accordance with the specifications made therein. PROXIES WILL BE VOTED "FOR" THE
ELECTION OF SUCH NOMINEES UNLESS THE SPECIFICATION IS MARKED ON THE PROXY
INDICATING THAT AUTHORITY TO DO SO IS WITHHELD. If a nominee is unable to serve
or, for good cause, will not serve, the proxy confers discretionary authority to
vote with respect to the election of any person to the Board. The nominees
receiving a plurality of votes cast at the Annual Meeting will be elected to the
Board of Directors. Shares may not be voted cumulatively for the election of
directors.
The nominees named below have been selected by the Board of Directors of
the Company. Each of the nominees is currently a director of the Company. The
following information with regard to business experience has been furnished by
the respective nominees for director.
POSITION, PRINCIPAL OCCUPATIONS
NAME AND AGE AND OTHER DIRECTORSHIPS
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David J. Beattie, 62....... Director since 1997. Mr. Beattie has been President
of McNaughton - McKay Electric Company ("MME")
since February 2001, and prior to that time, from
September 2000 to February 2001, was Chief
Operating Officer of MME. From February 1997 to
September 2000, he was Senior Vice President, Sales
and Marketing of MME. MME is a distributor of
industrial automation products and services.
Kenneth R. Dabrowski, 61... Director since 1999. Mr. Dabrowski has been
President of the Durant Group, L.L.C., a management
consulting firm, since December 2000, and has been
a member of the faculty at Massachusetts Institute
of Technology since June 1999. Mr. Dabrowski was
Vice President, Quality and Process Leadership,
Ford Automotive Operations of Ford Motor Company
from September 1996 to January 1999 where he had
global responsibility for Information Technology,
Process Reengineering, corporate and supplier
quality and customer satisfaction.
Philip J. DeCocco, 66...... Director since 1996. Mr. DeCocco has been President
of Sturges House, Inc., a company founded by Mr.
DeCocco, since 1983. Sturges House, Inc. offers
executive recruiting and management consulting
services in human resources, strategic planning,
executive development and organization design and
development to various companies.
W. Richard Marz, 61........ Director since 2000. Mr. Marz has been Executive
Vice President, Worldwide Strategic Marketing, LSI
Logic Corporation ("LSI"), since December 2003, and
prior to that time, from February 2002 to December
2003, he was Executive Vice President,
Communications and ASIC Technology, of LSI, from
July 2001 to February 2002, he was Executive Vice
President, ASIC Technology, of LSI, and from May
1996 to July 2001, he was Executive Vice President,
Geographic Markets, of LSI. LSI is a semiconductor
manufacturer.
Robert S. Oswald, 63....... Director since 1996. Mr. Oswald has been Chairman,
Bendix Commercial Vehicle Systems, LLC, a
manufacturer of air brakes and other safety
systems, since October 2003 and served as Chairman
and Chief Executive Officer from March 2002 to
September 2003. Mr. Oswald was Chairman, President
and Chief Executive Officer of Robert Bosch
Corporation, a manufacturer of automotive
components and systems, and a member of the Board
of Management of Robert Bosch, GmbH from July 1996
to December 2000.
Alfred A. Pease, 58........ Director since 1996 and Chairman of the Board since
July 1996. Since February 1996, Mr. Pease has been
President and Chief Executive Officer of the
Company.
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James A. Ratigan, 56....... Director since 2003. Since August 2003, Mr. Ratigan
has been an independent consultant providing
consultative services to several specialty
pharmaceutical and biotechnology companies,
including OraPharma, Inc. From June 1997 to August
2003, Mr. Ratigan was Executive Vice President,
Chief Financial Officer and Secretary of Orapharma,
Inc., a specialty pharmaceutical company that was
acquired by Johnson and Johnson, Inc. Mr. Ratigan
was a director of the Company from 1989 to 1996 and
served as the Company's Chief Operating Officer
from May 1994 to April 1996 and Chief Financial
Officer from December 1993 to June 1996.
Terryll R. Smith, 54....... Director since 1996. Mr. Smith has been President
and Chief Executive Officer of Novation
Environmental Technologies Inc., a water
purification company, since January 2000. From
December 1998 to August 1999, Mr. Smith was
President and Chief Executive Officer of
picoNetworks, an integrated circuits and software
services company.
BOARD OF DIRECTORS AND COMMITTEES
The Board of Directors is responsible for direction of the overall affairs
of the Company. Directors of the Company are elected to serve until their
successors are elected. The Board of Directors and each committee thereof meet
formally from time to time and also take action by consent resolutions. During
the fiscal year ended June 30, 2004, the Board of Directors met a total of four
times. All of the current directors who are standing for re-election attended at
least 75% of the total meetings of the Board of Directors, and of any committee
on which they served, held during the period in fiscal year 2004 in which they
served as directors or members of any such committees. The Company's policy is
that each director is strongly encouraged to attend the Annual Meeting of
Shareholders if reasonably possible. All of the directors, except two, attended
the 2003 Annual Meeting of Shareholders.
The Board of Directors has delegated certain authority to an Audit
Committee, a Management Development, Compensation and Stock Option Committee and
a Nominating and Corporate Governance Committee to assist it in executing its
duties. The Board has adopted charters for each of these Committees. The
charters are available on the Company's website at www.perceptron.com. The Board
determined that all of the directors, other than Mr. Pease, are "independent
directors" as defined in Marketplace Rule 4200(a)(15) of The NASDAQ Stock
Market, Inc. ("NASDAQ"). The composition and principal functions of each
Committee are as follows:
Audit Committee. The Audit Committee is currently comprised of three
outside members of the Board of Directors: Messrs. Oswald, Ratigan and Smith.
The Board determined that all of the members of the Audit Committee are
independent as required by the rules of the Securities and Exchange Commission
("SEC") and NASDAQ listing standards for audit committee members. In addition,
the Board determined that Mr. Ratigan qualified as an "audit committee financial
expert" as defined by applicable SEC rules and that each of the Audit Committee
members satisfies all other qualifications for Audit Committee members set forth
in the applicable NASDAQ rules. The Audit Committee held six meetings in fiscal
year 2004.
On February 9, 2004, the Board approved and adopted the Audit Committee's
revised charter, which is attached to this Proxy Statement as Appendix A. The
Audit Committee's primary responsibilities include the following: (i) oversee
the Company's financial reporting process on behalf of the Board; (ii) review,
appoint, compensate, retain and oversee the accounting firm to be appointed as
the Company's independent auditors; (iii) review in advance the nature and
extent of all services provided to the Company by its independent auditors; (iv)
review of the independence of the Company's independent auditors; (v) review the
scope, purpose and procedures of the audit; (vi) review the Company's annual
earnings press release, the audited financial statements and the proposed
footnotes to be included in the Company's Annual Report on Form 10-K with
management and the auditors and report annually to the Board whether the Audit
Committee recommends to the Board that the audited financial statements be
included in the Company's Annual Report on Form 10-K for filing with the SEC;
(vii) review with such auditors its experience, findings and recommendations
upon completion of the audit and receive from the auditors their required
communications under generally accepted auditing standards; (viii) review of the
Company's quarterly earnings releases and financial statements with management
and the auditors; (ix) review the adequacy of the Company's internal accounting
procedures and financial controls and management's report on internal control
over financial reporting required by applicable SEC rules; (x) oversee
compliance by the Company with legal and regulatory requirements; (xi) establish
procedures for receipt, retention and handling of complaints and concerns
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regarding financial matters; (xii) act as the Qualified Legal Compliance
Committee; (xiii) review and approve any related party transactions; (xiv)
monitor the Company's risk management activities; (xv) review performance of
finance and account department; and (xvi) review and reassess annually the
adequacy of the Audit Committee's charter and performance.
Management Development, Compensation and Stock Option Committee. The
Management Development, Compensation and Stock Option Committee ("Management
Development Committee") is currently comprised of two outside members of the
Board of Directors: Messrs. Beattie and DeCocco. The Management Development
Committee's primary responsibilities include the following: (i) review the
Company's compensation programs; (ii) establish and administer the compensation
programs for the Company's officers; (iii) administer the Company's stock-based
compensation plans; (iv) review and recommend compensation for service on the
Board; (v) provide a committee report for inclusion in the Company's proxy
statement; (vi) monitor the Company's succession planning; and (vii) review and
reassess annually the adequacy of the Management Development Committee's charter
and performance. The Management Development Committee held three meetings in
fiscal year 2004.
Nominating and Corporate Governance Committee. The Nominating and
Corporate Governance Committee ("Nominating Committee") is currently comprised
of three outside members of the Board of Directors: Messrs. DeCocco, Dabrowski
and Marz. The Board determined that all members of the Nominating Committee are
independent as required by the NASDAQ listing standards for nominating committee
members.
The Nominating Committee's primary responsibilities include the following:
(i) establish criteria for the selection of new Board members; (ii) conduct
searches and interviews for individuals qualified to become Board members; (iii)
make recommendations to the Board regarding director nominees to stand for
election as directors at each annual meeting of shareholders or to fill
vacancies on the Board; (iv) recommend to the Board the directors to serve on
the standing committees of the Board and the structure and functions of such
committees; (v) develop policies and procedures for Board consideration of
shareholder recommendations of Board nominees and handling of shareholder
proposals; (vi) develop a process for shareholders to communicate with the
Board; (vii) advise Board on corporate governance matters, including
development, review and assessment of corporate governance principles; (viii)
oversee the Board and committee self evaluation process; (ix) evaluate
independence of each Board member and (x) review and reassess annually the
adequacy of the Nominating Committee's charter and performance.
The Nominating Committee may use various methods to identify director
candidates, including recommendations from existing Board members, management,
shareholders, professionals and other sources outside the Company, which could
include third party search firms. The Nominating Committee will evaluate and
screen the list of potential nominees and narrow the list to individuals they
believe best satisfy the needs of the Company, with a strong preference given to
the continuation of the current Board members. The Nominating Committee will
conduct interviews and gather additional information concerning the individuals.
Based on the foregoing, the Nominating Committee will recommend to the Board the
number of members of the Board to be elected at the next annual meeting of
shareholders of the Company and the persons to be nominated for election to the
Board. Director candidates need not possess any specific minimum qualifications.
Rather, a candidate's suitability for nomination and election to the Board will
be evaluated in light of the portfolio of skills, experience, perspective and
background required for the effective functioning of the Board. Among the
desired qualities that the Nominating Committee will consider are: (i) high
ethical character; (ii) practical intelligence and judgment, an inquiring mind
and a good range of problem solving skills; (iii) independence; (iv) ability to
work in a collaborative culture; (v) high-level leadership experience and
personal achievement; (vi) prior Board experience or experience advising or
reporting to Boards preferably of a publicly traded company; (vii) sufficient
personal commitment and time to devote to responsibilities as a director; and
(viii) capacity and desire to represent the balanced best interests of the
shareholders as a whole.
The Nominating Committee will consider candidates recommended by
shareholders using the same procedures and standards utilized for evaluating
candidates recommended by other sources except that the Nominating Committee
will not consider a director nominee proposed by a shareholder if (i) the
shareholder does not submit the required information timely (see "Shareholder
Proposals and Nominees for 2005 Annual Meeting - Shareholder Nominees"); (ii)
the shareholder or group of shareholders proposing the director nominee do not
beneficially own, in the aggregate, more than 5% of the Company's Common Stock,
with the Common Stock used to satisfy this
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requirement owned for at least one year prior to the date of the recommendation,
or (iii) the shareholder proposes as the nominee himself or herself, or an
affiliate or affiliated party. See "Shareholder Proposals and Nominees for 2005
Annual Meeting - Shareholder Nominees" for a description of the procedures to be
used by shareholders to submit recommendations of possible director nominees to
the Nominating Committee. The Nominating and Corporate Governance Committee held
two meetings in fiscal year 2004.
SHAREHOLDER COMMUNICATIONS WITH THE BOARD OF DIRECTORS
Shareholders desiring to communicate with the Board of Directors or any
individual director may send communications to the Board of Directors in writing
by mail addressed to the Board of Directors or an individual director, c/o
General Counsel, Perceptron, Inc., 47827 Halyard Drive, Plymouth, Michigan 48170
or by e-mail addressed to boardofdirectors@perceptron.com.
CODE OF ETHICS
The Company has adopted a Code of Business Conduct and Ethics ("Code of
Ethics") that applies to the Company's directors, executive officers and other
employees. The Code of Ethics is available on the Company's website at
www.perceptron.com. Shareholders may also obtain a written copy of the Code of
Ethics, without charge, by sending a written request to the Investor Relations
Department, Perceptron, Inc., 47827 Halyard Drive, Plymouth, Michigan 48170. The
Company will disclose any amendments to, or waivers from, the provisions of the
Code of Ethics applicable to the directors or executive officers on the
Company's website.
Certain information relating to corporate governance matters can be viewed
at www.perceptron.com. There the Company makes available, free of charge, its
(i) charters for the Audit Committee, Management Development, Compensation and
Stock Option Committee and Nominating and Corporate Governance Committee and
(ii) Code of Ethics. The Company intends to post additional information on this
website from time to time as the Board adopts or revises policies and
procedures. The information found on the Company's website is not part of this
or any report the Company files with, or furnishes to, the SEC.
AUDIT COMMITTEE REPORT
In accordance with its revised charter, which was approved and adopted by
the Board of Directors on February 9, 2004 and is attached to this Proxy
Statement as Appendix A, the Audit Committee provides assistance to the Board in
fulfilling its responsibility to the shareholders, potential shareholders and
investment community relating to corporate accounting, reporting practices of
the Company and the quality and integrity of the financial reports of the
Company. In doing so, it is the responsibility of the Audit Committee to
maintain free and open communication between the Board, the Company's
independent auditors and the financial management of the Company.
The Audit Committee received from the independent auditors and reviewed a
formal written statement describing all relationships between the auditors and
the Company that might bear on the auditors' independence consistent with
Independence Standards Board Standard No. 1 (Independence Discussions with Audit
Committees), as may be modified or supplemented, discussed with the auditors any
relationships that may impact their objectivity and independence and satisfied
itself as to the auditors' independence.
The Audit Committee discussed with the independent auditors the matters
required to be discussed by Statement on Auditing Standards No. 61 (Codification
of Statements on Auditing Standards, AU Section 380), as may be amended or
supplemented, and, with and without management present, discussed and reviewed
the results of the independent auditors' examination of the financial
statements.
The Audit Committee reviewed and discussed with management and the
independent auditors the audited financial statements of the Company as of and
for the fiscal year ended June 30, 2004, including the quality of accounting
principles and significant judgments affecting the financial statements.
Based on the above-mentioned reviews and discussions with management and
the independent auditors, the Audit Committee recommended to the Board of
Directors that the Company's audited financial statements be
6
included in its Annual Report on Form 10-K for the year ended June 30, 2004 for
filing with the Securities and Exchange Commission. Further, the Audit Committee
approved the engagement of Grant Thornton LLP as the Company's independent
auditors for the fiscal year ended June 30, 2005.
AUDIT COMMITTEE: James A. Ratigan, Chairman
Robert S. Oswald
Terryll R. Smith
7
PROPOSAL 2 -- APPROVAL OF THE 2004 STOCK INCENTIVE PLAN
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" PROPOSAL 2
The 2004 Stock Incentive Plan ("2004 Stock Plan") was approved, subject to
shareholder approval at the Company's 2004 Annual Meeting, by the Board of
Directors on October 22, 2004. The purpose of the 2004 Stock Plan is to (i)
promote the best interests of the Company and its shareholders by encouraging
team members, consultants, and non-employee directors of the Company and its
subsidiaries to acquire an ownership interest in the Company, and (ii) enhance
the ability of the Company to attract, motivate and retain highly competent,
effective and loyal team members, consultants and non-employee directors in
order to create intrinsic value for shareholders.
The Company believes that equity is a key element of the Company's
compensation package because equity awards encourage loyalty to the Company and
align the interests of team members, consultants and non-employee directors
directly with those of the Company's shareholders. The 2004 Stock Plan will
allow the Company to continue to provide these individuals with equity
incentives that are competitive with those companies with which the Company
competes for talent.
The 2004 Stock Plan, if approved by shareholders, is intended to replace
the 1992 Stock Option Plan (the "1992 Plan") and the Directors Stock Option Plan
(the "Directors Plan"). If the 2004 Stock Plan is approved by shareholders, the
Board of Directors intends to terminate the 1992 Plan and the Directors Plan as
to future grants so that the shares then available for grant under these plans
will no longer be available. A total of 600,000 shares of Common Stock have been
set aside for issuance under the 2004 Stock Plan. Offsetting these shares are
the approximately 105,520 shares of Common Stock currently available for grant
under the 1992 Plan and Directors Plan. In addition, all shares previously
granted as options under the 1992 Plan and Directors Plan that expire in the
future without being exercised will not be added to the 2004 Stock Plan. Without
the 2004 Stock Plan, the Company believes that the number of shares available
under its current stock option plans will not be sufficient to meet its future
anticipated needs for stock incentive awards.
The Company's existing stock incentive plans only permit the grant of
options. The 2004 Stock Plan will also allow for awards of stock appreciation
rights, restricted stock, restricted stock units, performance share awards and
deferred stock units. The Company believes that the 2004 Stock Plan will
therefore enable it to design and grant different types of stock awards that may
be more effective in attracting, motivating and retaining key individuals
essential for the Company's success. A broader plan such as the 2004 Stock Plan
will also give the Company greater flexibility to design and manage equity-based
compensation to meet the changing needs of its business over an extended period
of time.
The Company's current stock plans do not permit the implementation of
performance based stock incentive arrangements, other than options. While
options have an important performance element to them, since they only increase
in value if the Company's Common Stock increases in value, other forms of stock
awards can be designed to provide more direct performance goals, such as stock
awards that are earned only if performance goals are achieved. The 2004 Stock
Plan permits the Management Development Committee to implement a broad range of
such stock incentive programs, based on Company specific performance goals, and
in a fashion not permitted under the Company's current plans. The Board believes
that these types of alternative stock incentive programs will become
increasingly important to the Company, particularly if the Company is required
to recognize compensation expense in connection with the issuance of options. In
addition, the 2004 Stock Plan permits the Company to implement these performance
based stock incentive programs without having payments to the top executive
officers of the Company under such programs subject to the limits on
deductibility under Section 162(m) of the Internal Revenue Code (the "Code").
See "Proposal 2 - Approval of the 2004 Stock Incentive Plan - Federal Income Tax
Consequences."
The Directors Plan expires on February 9, 2005 and non-employees are not
permitted to participate in any of the Company's other stock incentive plans. As
a result, if the 2004 Stock Plan is not approved by shareholders, beginning
February 10, 2005, no further stock incentive awards will be available for
non-employee directors and non-employee directors will no longer be able to
elect to receive Common Stock in lieu of their cash directors fees. The Company
believes these stock incentives are important elements of the Company's
compensation package for non-employee directors and assist the Company in its
efforts to attract and retain highly qualified outside directors.
8
Further, the Company believes that director stock awards and stock purchase
rights align non-employee directors interests and interests of the Company's
shareholders by encouraging non-employee directors to acquire shares of Common
Stock.
The closing price of a share of Common Stock on NASDAQ on October 15, 2004
was $6.55. The proceeds received by the Company upon exercise of the awards of
participants in the 2004 Stock Plan will be used for the general corporate
purposes of the Company.
The 2004 Stock Plan is available on the Company's website at
www.perceptron.com. A copy of the 2004 Stock Plan will be furnished to any
shareholder upon written request to the Secretary of the Company at the
executive offices of the Company in Plymouth, Michigan.
REQUIRED VOTE
Approval of the 2004 Stock Plan requires the affirmative vote of holders
of a majority of the shares properly cast on the matter. Abstentions will have
the effect of a vote against approval of the 2004 Stock Plan and broker
non-votes will have no effect.
PROXIES WILL BE VOTED "FOR" THE APPROVAL OF THE 2004 STOCK PLAN UNLESS
OTHERWISE INDICATED ON THE PROXY.
ELIGIBLE PARTICIPANTS
Participants in the 2004 Stock Plan shall be such employees (including
employees who are directors), non-employee directors or consultants of the
Company and its subsidiaries as the Management Development Committee in its sole
discretion may select from time to time.
SUMMARY OF THE 2004 STOCK PLAN
General. The 2004 Stock Plan provides for the grant of incentive stock
options, nonqualified stock options, indexed options, restricted stock,
restricted stock units, stock appreciation rights, performance share awards,
including cash, director stock purchase rights and deferred stock units at any
time prior to October 22, 2014. A total of 600,000 shares of Common Stock have
been set aside for issuance under the 2004 Stock Plan, all of which may be
granted as incentive stock options. This amount is subject to adjustment for
stock splits and certain other corporate events. Approximately 216 full time
employees and seven (7) non-employee directors of the Company would be eligible
to receive grants under the 2004 Stock Plan, if the Plan were in place today.
Administration. The Management Development, Compensation and Stock Option
Committee (the "Management Development Committee") or, if there is no such
committee or similar committee, the Board of Directors, will administer the 2004
Stock Plan. Unless otherwise specified in the 2004 Stock Plan, the Management
Development Committee has the power to select the recipients of awards and has
broad power to determine the terms of awards and to change such terms in various
ways subsequent to grant, including among others, accelerating the
exercisability or vesting of awards or lapse of transfer restrictions, waiving
or modifying performance conditions and transfer restrictions, and extending the
post-termination exercise period of awards. The Management Development Committee
may delegate to one or more officers or a committee of such officers the
authority to grant awards and to otherwise act with respect to awards made to
participants who are not officers or directors of the Company. In accordance
with current practice, the Management Development Committee intends to delegate
such authority to the President, within parameters to be set by the committee.
REPRICING PROHIBITION
The 2004 Stock Plan does not permit the cancellation of outstanding
options or stock appreciation rights and the grant in substitution therefore of
any new awards under the plan having a lower exercise price or the amendment of
outstanding options or stock appreciation rights to reduce their exercise price
without shareholder approval.
9
TYPES OF AWARDS
Awards under the 2004 Stock Plan may be in the form of stock options
(either incentive stock options, non-qualified options or indexed options),
stock appreciation rights, restricted stock or restricted stock units,
performance share awards, director stock purchase rights and deferred stock
units; or any combination thereof. The terms of awards under the 2004 Stock Plan
will generally be set forth in an agreement between the Company and the
recipient and will be determined by the Management Development Committee, unless
specified in the 2004 Stock Plan.
- Stock Options. Stock options represent the right to purchase shares
of Common Stock within a specified period of time at a specified
price. Options granted under the 2004 Stock Plan may be (i)
incentive stock options under Section 422 of the Code, (ii)
nonqualified stock options or (iii) indexed options which is an
option with an exercise price which either increases by a fixed
percentage over time or changes by reference to a published index,
as determined by the Management Development Committee. The exercise
price for a stock option, other than an indexed option, will be not
less than 100% (110% for an incentive stock option granted to a 10%
or more shareholder) of the fair market value of Common Stock on the
date of grant. The fair market value per share of the Common Stock
on October 15, 2004 was $6.55. Fair market value means for purposes
of determining the value of Common Stock on the grant date the
average of the closing sales prices of the Common Stock on NASDAQ
(or, if there have been no sales on NASDAQ on any such day, the
average of the closing high bid and low asked prices on NASDAQ at
the end of such day) for the five (5) consecutive trading days on
NASDAQ immediately preceding the grant date. The aggregate fair
market value of the stock for which any person may be granted
incentive stock options which become exercisable for the first time
by such person in any calendar year cannot exceed the sum of
$100,000 (determined on the date such option is granted). No
incentive stock option will be granted to a person who is not an
"employee" as defined in the applicable provisions of the Code and
regulations issued thereunder. An incentive stock option shall
expire in ten years (five years in the case of an incentive stock
option granted to a 10% or more shareholder) after the date of
grant. No incentive stock options can be granted under the 2004
Stock Plan after October 22, 2014, but options granted before that
date may be exercised thereafter. Options granted under the 2004
Stock Plan become exercisable and will expire at such times as the
Management Development Committee may determine; provided that
options will expire not later than ten years after grant. The
maximum number of shares that may be subject to option grants under
the 2004 Stock Plan to any participant during any one fiscal year of
the Company is 200,000 shares of Common Stock (subject to adjustment
for stock splits and other corporate events). Payment for shares to
be acquired upon exercise of options granted under the 2004 Stock
Plan may be made (i) in cash, (ii) by check, (iii) at the discretion
of the Management Development Committee, through a cashless exercise
procedure whereby the holder provides an option exercise notice to
the Company and simultaneously irrevocably instructs a broker to
sell a sufficient number of shares from the option exercise to pay
the option exercise price and accompanying taxes, (iv) at the
Management Development Committee's discretion, shares held by the
holder for at least six months may be tendered to the Company to pay
the exercise price and tax withholding obligations, if any, or (v)
other means determined by the Management Development Committee.
- Stock Appreciation Rights. A stock appreciation right is an award
which provides the holder with the ability to profit from the
appreciation in value of a set number of shares of the Common Stock
over a set period of time. The 2004 Stock Plan provides for the
grant of two types of stock appreciation rights: tandem stock
appreciation rights granted in conjunction with a stock option which
entitles the holder to exercise it as an option or as an stock
appreciation right and freestanding stock appreciation rights which
are granted as independent instruments and are not issued in
conjunction with any options. The exercise price for a stock
appreciation right shall not be less than 100% of the fair market
value of the shares of Common Stock covered by the stock
appreciation right on the grant date, except that the exercise price
of a tandem stock appreciation right may be less than the fair
market value on the grant date if the tandem stock appreciation
right is added to an option following the grant date of the option
and the per share exercise price subject to a tandem stock
appreciation right will be the same per share exercise price as the
related option. Stock appreciation rights granted under the 2004
Stock Plan become exercisable at such times as the Management
Development Committee may determine or as set forth in the related
option and shall not have a term of more than ten years. If a tandem
stock appreciation right, a stock appreciation right shall be
10
exercisable only at such times and in such amounts as the related
option may be exercised. A tandem stock appreciation right shall
terminate and cease to be exercisable no later than the date on
which the related option expires or is terminated or canceled. Upon
the exercise of a tandem stock appreciation right with respect to
some or all of the shares subject to such stock appreciation right,
the related option shall be canceled automatically as to the number
of shares with respect to which the tandem stock appreciation right
was exercised. Upon the exercise of an option related to a tandem
stock appreciation right as to some or all of the shares subject to
such Option, the related tandem stock appreciation right shall be
canceled automatically as to the number of shares with respect to
which the related option was exercised. The maximum number of shares
that may be subject to stock appreciation rights under the 2004
Stock Plan granted to any participant during any one fiscal year of
the Company is 200,000 shares of Common Stock (subject to adjustment
for stock splits and other corporate events). Upon exercise of a
stock appreciation right, a participant will be entitled to payment
from the Company, in cash, shares of Common Stock, or partly in
each, as determined by the Management Development Committee in
accordance with any applicable terms of the agreement.
- Restricted Stock Awards and Restricted Stock Units. Restricted stock
is Common Stock that is subject to risk of forfeiture or other
restrictions that will lapse upon satisfaction of specified
conditions. Restricted stock units represent the right to receive
shares of Common Stock, or an equivalent value in cash, in the
future, with the right to future delivery of the shares or cash
subject to a risk of forfeiture or other restrictions that will
lapse upon satisfaction of specified conditions. Restricted shares
and restricted stock units will initially be non-transferable but
will become transferable upon fulfillment of conditions established
by the Management Development Committee at the time of grant. An
award of restricted stock or restricted stock units may also be
subject to vesting or other restrictions, which may include
performance measures. All of the terms relating to vesting or other
restrictions, including performance measures, the length of any
performance period, and the termination of the restriction period
relating to a restricted stock award or restricted stock unit, will
be determined by the Management Development Committee and set forth
in the agreement relating to such restricted stock award or
restricted stock unit. The holder of restricted shares will have
rights as a shareholder of the Company, including the right to vote
and receive dividends with respect to such shares. The holder of
shares subject to a restricted stock unit will have no rights as a
shareholder of the Company until share certificates are issued by
the Company, but, at the discretion of the Management Development
Committee, will have the right to receive a credit equal to the cash
dividends paid on the number of shares subject to the restricted
stock unit, which will be paid in additional shares of restricted
stock ("Dividend Equivalent").
- Performance Share Awards. The 2004 Stock Plan also provides for the
grant of performance share awards. A performance share award is a
right, contingent upon the attainment of performance measures within
a specified performance period, to receive cash, shares of Common
Stock, which may be restricted stock, or a combination of both. All
of the terms relating to the satisfaction of performance measures,
the length of any performance period, the amount of any performance
share award granted, the amount of any payment or transfer to be
made pursuant to any performance share award, and any other terms
and conditions of any performance share award, will be determined by
the Management Development Committee and included in an agreement
between the recipient and the Company. The holder of performance
share awards who receive the award in the form of restricted stock
will have rights as a shareholder of the Company, including the
right to vote and receive dividends with respect to such shares, but
will be prohibited from transferring the stock until the
satisfaction of the performance measures. Performance share awards
may also be granted in the form of units providing the right to
receive shares of Common Stock, or an equivalent in cash, in the
future. The holder of a performance share award unit will have no
right as a shareholder of the Company until share certificates are
issued by the Company and, at the discretion of the Management
Development Committee, will have Dividend Equivalent rights.
- Directors Stock Purchase Rights. The 2004 Stock Plan also permits
non-employee directors to purchase shares of Common Stock through
the 2004 Stock Plan in exchange for all or a portion of the cash
fees payable to them for serving as a director of the Company
("Directors Stock Purchase Rights Option"). Under the terms of the
2004 Stock Plan, eligible non-employee directors are also eligible
for awards under the 2004 Stock Plan in addition to their meeting
fees. See "Further Information - Compensation of Directors and
Executive Officers - Directors."
11
Under the Directors Stock Purchase Rights Option, non-employee
directors may elect to use all or a portion of their annual
directors fees payable in cash to purchase Common Stock in exchange
for all or a portion of director fees payable from December 1 of
that year to December 1 of the next year.
Directors fees are payable in cash on March 1, June 1, September 1
and December 1 of each year. On each of these dates, the Company
will determine the number of shares of the Common Stock each
Director who has elected to participate in the Directors Stock
Purchase Rights Option has earned on that date. This determination
will be made by dividing all director's fees payable on each of
those dates that the Director has elected to exchange for Common
Stock, by the fair market value of the Common Stock on that date.
Any portion of the director's fees payable on each of those dates
that the Director has not elected to receive in Common Stock will be
paid to the Director in cash. The fair market value of the Common
Stock will be determined by using the average of the closing sales
price of the Common Stock on the NASDAQ for the five consecutive
trading days on the NASDAQ immediately preceding the date of
determination. The Company will issue share certificates for all
shares of Common Stock purchased in a calendar year by December 15th
of such year unless a director requests to receive his or her share
certificate at any time during the year by sending written notice to
the Company.
If a director participating in the Directors Stock Purchase Rights
Option dies, becomes disabled, or ceases to be a director of the
Company for any reason, the amount of such director's accrued cash
compensation that has not yet been issued in the form of Common
Stock will be paid to such director or his or her executor or other
legal representative and his or her right to receive further shares
of Common Stock under the Directors Stock Purchase Rights Option
will terminate.
- Deferred Stock Units. The 2004 Stock Plan permits participants
designated by the Management Development Committee who are among a
select group of management or highly compensated team member of the
Company to elect to reduce compensation otherwise payable in cash
and to be granted deferred stock units (subject to minimums and
maximums imposed by the Management Development Committee). Such
participants may also be permitted by the Management Development
Committee to elect to be granted an award of deferred stock units in
lieu of (i) options; (ii) stock appreciation rights; (iii)
restricted stock units; (iv) director stock purchase rights; or (v)
performance share awards. Deferred stock units are not subject to
vesting requirements. Participants have no voting rights with
respect to deferred stock units until the issuance of shares under
the plan. Participants are entitled to Dividend Equivalents with
respect to cash dividends having a record date prior to the date on
which deferred stock units are settled (paid by crediting such
participant with additional deferred stock units). Settlement of
deferred stock units is made by issuance of fully vested Common
Stock.
- Code Section 162(m) Awards and Performance Measures. In its
discretion, the Management Development Committee may designate any
grant of restricted stock, restricted stock units or performance
share award to any 2004 Stock Plan participant as intended to
satisfy the requirements of Section 162(m) of the Code. Restrictions
on transfer relating to such restricted stock, restricted stock
units or performance share awards will lapse upon satisfaction of
written objective performance measures using one or more of the
following criteria: (i) revenue; (ii) gross margin; (iii) operating
margin; (iv) operating income; (v) pre-tax profit; (vi) earnings
before interest, taxes, depreciation and/or depreciation, (vii) net
income; (viii) cash flow; (ix) expenses; (x) stock market price;
(xi) earnings per share; (xii) operating income per share; (xiii)
return on stockholder equity; (xiv) return on capital; (xv) return
on net assets; (xvi) economic value added; (xvii) market share;
(xviii) return on investment; (xix) profit after tax; (xx) product
approval; (xxi) market capitalization; (xxii) new products; and
(xxiii) research and development activity. The restriction or
performance period may be a one, two, three, four or five fiscal
year period, determined by the Management Development Committee. A
performance-based restricted stock award, restricted stock unit or
performance share award shall not be paid until the Management
Development Committee has certified in writing that the applicable
performance measures have been attained. The performance measures
criteria stated above are required to be reapproved by shareholders
of the Corporation, to the extent required by Section 162(m) of the
Code, which currently requires such reapproval at the first
shareholders meeting that occurs in the fifth year following the
effective date of the plan. Dividends paid on Code Section 162(m)
restricted stock or performance share awards shall be automatically
reinvested in additional shares of restricted stock.
12
No participant may be granted a Code Section 162(m) restricted
stock, restricted stock unit, performance share or performance share
award unit during any one fiscal year of the Company for more than
200,000 shares of Common Stock (subject to adjustment for stock
splits and other corporate events), or, if the performance share
award unit is not based upon a set number of shares of Common Stock,
then no participant may receive a performance share award unit that
could result in such participant receiving more than $500,000 for
each fiscal year of the Company covered by the performance period
for the award.
CHANGE IN CONTROL OR TERMINATION OF EMPLOYMENT
Unless otherwise provided in the applicable agreement, any portion of an
option or stock appreciation right which is not yet exercisable, any portion of
a restricted stock grant or restricted stock unit which is not yet transferable
and any portion of a performance share award with respect to which performance
measures have not yet been achieved will be forfeited if the participant
terminates employment or services for any reason.
Participants shall have the right within the period specified in the
applicable agreement to exercise an option or stock appreciation right to the
extent it was exercisable and unexercised on the date of the participant's
termination of employment or services, death, or disability, subject to any
other limitation on exercise in effect on the date of exercise; provided,
however, that the beneficial tax treatment of an incentive stock option may be
forfeited if the option is exercised more than (i) three months after a
participant's termination of employment, or (ii) one year after the
participant's date of death or participant's termination of employment due to
disability.
The Management Development Committee has discretion under the 2004 Stock
Plan to accelerate the exercisability of options and stock appreciation rights,
extend the exercise period of an option or stock appreciation right and waive
the restrictions or conditions applicable to restricted stock, restricted stock
units or performance share awards, in the event of a participant's termination
of employment or services, death or disability.
The Management Development Committee in its discretion may provide in the
applicable agreements with participants or otherwise that in the event of a
change in control of the Company, as defined in the 2004 Stock Plan, or the
occurrence of a change in control and such other event or events as determined
by the Management Development Committee, any or all of the following will occur:
(i) any outstanding option or stock appreciation right granted to participants
immediately shall become fully vested and exercisable in full, regardless of any
installment provision applicable to such option or stock appreciation right;
(ii) the remaining restriction period on any shares of Common Stock subject to a
restricted stock grant or restricted stock unit immediately shall lapse and the
shares shall become fully transferable, subject to any applicable federal or
state securities laws; (iii) all performance goals and conditions shall be
deemed to have been satisfied and all restrictions shall lapse on any
outstanding performance share awards granted to participants, and such awards
shall become payable in full; (iv), for purposes of any deferred stock unit
granted to participants, payments due under the deferred stock unit shall become
immediately payable; or (v) such other treatment as the Management Development
Committee may determine. The Management Development Committee may, in its sole
discretion and without the consent of any participant, determine that, upon the
occurrence of a change in control, each or any option or stock appreciation
right outstanding immediately prior to the change in control shall be canceled
in exchange for a payment with respect to each vested share of Common Stock
subject to such canceled option or stock appreciation right in (i) cash, (ii)
stock of the Company or of a corporation or other business entity a party to the
change in control, or (iii) other property which, in any such case, shall be in
an amount having a fair market value equal to the excess of the fair market
value of the consideration to be paid per share of Common Stock in the change in
control transaction over the exercise price per share under such option or stock
appreciation right (the "Spread"). In the event such determination is made by
the Management Development Committee, the Spread (reduced by applicable
withholding taxes, if any) shall be paid to participants in respect of their
canceled options and stock appreciation rights as soon as practicable following
the date of the change in control.
ASSIGNMENTS
Except as otherwise determined by the Management Development Committee, no
award under the 2004 Stock Plan shall be assignable except by will or the laws
of descent and distribution.
13
ADJUSTMENTS
The shares of Common Stock under the 2004 Stock Plan and subject to any
award under the Plan shall be adjusted pro rata for stock dividends, stock
splits, reverse stock splits and other similar transactions.
In the event of a liquidation of the Company, the Management Development
Committee may provide for outstanding awards to become exercisable in full and
all restrictions on such awards to lapse and for such awards to terminate on the
effective date of the liquidation.
In the event of a merger of the Company in which the Company is not the
survivor, a reverse triangular merger in which the Company becomes a subsidiary
of another company, a sale of all or substantially all of the assets of the
Company or other similar transaction (a "Corporate Transaction"), it is intended
that the awards will be assumed by the acquirer. If the awards are not assumed,
the awards shall become fully exercisable in full and all restrictions on such
awards shall lapse and the Management Development Committee may provide for such
awards to terminate on a date established by the committee.
TERMINATION OR AMENDMENT
The 2004 Stock Plan shall continue in effect until the earlier of October
22, 2014, its termination by the Board or the issuance of all shares under the
plan. The Management Development Committee may at any time discontinue granting
awards under the 2004 Stock Plan.
The Management Development Committee may amend the 2004 Stock Plan, except
that no amendment may adversely affect the rights of any participant without his
or her consent and no amendment will, without the approval of the shareholders
of the Company, materially increase the benefits accruing to participants under
the 2004 Stock Plan, increase the number of shares of Common Stock available
under the 2004 Stock Plan, change the group of persons eligible to receive
awards, permit the repricing of options or stock appreciation rights in a
fashion prohibited as described under "Repricing Prohibition" above, or permit
the granting of options with exercise prices below fair market value (other than
indexed options).
So long as the Common Stock is listed on NASDAQ, the Company will also be
subject to NASDAQ requirements that prohibit the Company from materially
amending the 2004 Stock Plan without the approval of shareholders.
FEDERAL INCOME TAX CONSEQUENCES
The following discussion outlines the current federal income tax
consequences of the 2004 Stock Plan. Applicable tax laws and their
interpretations are subject to change at any time and application of such laws
may vary in individual circumstances. Each participant should rely on his or her
own tax counsel for advice regarding federal income tax treatment under the 2004
Stock Plan. State, local and foreign tax consequences are not addressed.
Incentive Stock Options. A participant who is granted an incentive stock
option does not recognize taxable income upon the grant or exercise of the
option. However, the difference between the fair market value of the Common
Stock received on the date of exercise and the option exercise price is a tax
preference item that may subject the participant to alternative minimum tax. A
participant generally will receive long-term capital gain or loss treatment on
the disposition of shares acquired upon exercise of the option, provided that
the disposition occurs more than two years from the date the option is granted,
and the participant holds the stock acquired for more than one year. A
participant who disposes of shares acquired by exercise prior to the expiration
of the forgoing holding periods recognizes ordinary income upon the disposition
equal to the difference between the option price and the lesser of the fair
market value of the shares on the date of exercise and the disposition price.
Any appreciation between the fair market value of the shares on the date of
exercise and the disposition price is taxed to the participant as long or
short-term capital gain, depending on the length of the holding period. To the
extent that the participant recognizes ordinary income, the Company will receive
a corresponding tax compensation deduction.
14
Nonqualified and Indexed Stock Options. A participant will not recognize
income upon the grant of a nonqualified or indexed stock option. Upon exercise,
the participant will recognize ordinary income equal to the excess of the fair
market value of the Common Stock received on the date of exercise over the price
paid for the stock. The Company is entitled to a tax compensation deduction
equal to the ordinary income recognized by the participant. Any taxable income
recognized by an employee participant in connection with an option exercise is
subject to income and employment tax withholding. When the participant disposes
of shares acquired by the exercise of an option, any amount received in excess
of the fair market value of the shares on the date of exercise will be treated
as long or short-term capital, depending upon the holding period.
Stock Appreciation Rights. A participant will not recognize income upon
the grant of a stock appreciation right. Upon exercise, the participant will
recognize ordinary income equal to the cash or fair market value of the shares
of Common Stock received from the exercise, which will be subject to income and
employment tax withholding for an employee participant. The Company will receive
a tax compensation deduction equal to the ordinary income recognized by the
participant. When the participant disposes of shares acquired by the exercise of
a stock appreciation right, any amount received in excess of the fair market
value of the shares on the date of exercise will be treated as long or
short-term capital gain, depending upon the holding period.
Restricted Stock and Restricted Stock Units. Generally, a participant who
is granted restricted stock or restricted stock units will not be taxed on the
grant. However, the participant will recognize ordinary income equal to the fair
market value of the shares of Common Stock or cash received when the
restrictions lapse, at which time an employee participant also will be subject
to income and employment taxes. The Company will receive a compensation tax
deduction equal to the ordinary income recognized by the participant. If a
participant receives a restricted stock or restricted stock unit award before
the restrictions have lapsed, while the award is subject to a "substantial risk
of forfeiture," as defined in Section 83(b) of the Code, the participant may
elect to accelerate his or her tax obligation by submitting a Code Section 83(b)
election within 30 days after the grant date, pursuant to which the participant
will be taxed on the fair market value of the award as of the grant date, and
the Company will receive a tax compensation deduction as of the grant date equal
to the ordinary income recognized by the participant. Upon disposition of any
shares received from a restricted stock or restricted stock unit award, any
excess over the fair market value of the shares when the restrictions lapsed (or
the fair market value of the shares when a Code Section 83(b) election was
filed) will be subject to long or short-term capital gain, depending upon the
holding period.
Performance Share Awards. Generally, a participant will not be taxed upon
the grant of a performance share award that is subject to restrictions or
performance goals. However, the participant will recognize ordinary income equal
to the cash or fair market value of the Common Stock, or combination thereof,
received when the restrictions or other performance goals have been satisfied,
at which time an employee participant also will be subject to income and
employment tax withholding. The Company will receive a tax compensation
deduction equal to the amount of ordinary income recognized by the participant.
A participant who receives a performance share award that is subject to a
"substantial risk of forfeiture," as defined in Section 83 of the Code, may
elect to accelerate his or her tax obligation by submitting a Code Section 83(b)
election within 30 days after the grant date, pursuant to which the participant
will be taxed on the fair market value of the award as of the date of grant, and
the Company will receive a tax compensation deduction as of the grant date equal
to the ordinary income recognized by the participant.
Deferred Stock Units. Generally, a participant will not be taxed on the
grant of a deferred stock unit. When a deferred stock unit ultimately is settled
in shares or cash and distributed from the 2004 Stock Plan, a participant will
recognize ordinary income in the year of settlement equal to the fair market
value of the Common Stock or cash received, and an employee participant will be
subject to income and employment tax withholding on such amount at the time of
settlement. The Company will receive s tax compensation deduction equal to the
ordinary income recognized by the participant. Upon the sale of any shares
received, any excess over the fair market value of the shares on the settlement
date will taxed to the participant as long or short-term capital gain, depending
on the holding period.
Directors Stock Purchase Rights. A Director who elects to purchase shares
of Common Stock under the 2004 Stock Plan using all or a part of his or her cash
directors' fees will recognize ordinary income at each quarterly payment date
equal to the fair market value of the shares received, which generally will
equal the cash directors' fees used to purchase the shares. The Company will
receive a tax compensation deduction equal to the ordinary income recognized by
the Director. Upon the sale of shares received, any excess over the fair market
value of the
15
shares recognized on the original quarterly payment date will be taxed to the
Director as long or short-term capital gain, depending on the holding period.
Code Section 162(m). Code Section 162(m) denies a federal income tax
deduction for certain compensation in excess of $1,000,000 per year paid to the
Chief Executive Officer and the four other most highly-paid executive officers
of a publicly traded corporation. Certain types of compensation, including
compensation based on performance targets that are approved in advance by
shareholders, are excluded from the deduction limit. Awards of options and stock
appreciation rights under the 2004 Stock Plan are intended to be exempt from the
deduction limits under Code Section 162(m). At the discretion of the Management
Development Committee, restricted stock, restricted stock units and performance
share awards may be granted under the 2004 Stock Plan in a manner that exempts
them from Code Section 162(m).
NEW INCENTIVE PLAN BENEFITS
The future benefits or amounts that would be received under the 2004 Stock
Plan by executive officers and other employees are discretionary and are
therefore not determinable at this time. In addition, the benefits or amounts
which would have been received by or allocated to such persons for the last
completed fiscal year if the 2004 Stock Plan had been in effect cannot be
determined.
16
PROPOSAL 3
APPROVAL OF THE AMENDED AND RESTATED EMPLOYEE STOCK PURCHASE PLAN
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" PROPOSAL 3
PROPOSED AMENDMENTS TO THE EMPLOYEE STOCK PURCHASE PLAN
The Company proposes to amend and restate the Employee Stock Purchase Plan
(the "Employee Stock Purchase Plan") to (i) extend the expiration date of the
Employee Stock Purchase Plan from May 14, 2005 to May 14, 2015; (ii) increase
the total number of shares of Common Stock available for purchase under such
plan by 100,000 shares, from 150,000 to 250,000; and (iii) to revise the
definition of "Fair Market Value" to provide that if the Common Stock is no
longer traded on The NASDAQ or a stock exchange, then Fair Market Value will be
determined by reference to bid and asked prices on the OTC Bulletin Board
("Proposed Employee Stock Purchase Plan Amendments").
The proposed amendments to the Employee Stock Purchase Plan are
necessitated by the fact that the Employee Stock Purchase Plan currently expires
on May 14, 2005 and there are insufficient shares of Common Stock currently
available under the Employee Stock Purchase Plan to meet the Company's future
anticipated needs for shares under the plan. If the Employee Stock Purchase Plan
is not extended, no further purchases of Common Stock by team members of the
Company will be permitted under the Employee Stock Purchase Plan beginning May
15, 2005. The Employee Stock Purchase Plan, which was originally approved by
shareholders at the 1995 Annual Meeting of Shareholders, has not been previously
amended to add additional shares to the Employee Stock Purchase Plan.
The Board of Directors believes that the extension of the expiration date
of the Employee Stock Purchase Plan for an additional ten years and the increase
in shares available under the Employee Stock Purchase Plan will assist the
Company in its efforts to encourage increased ownership of the Company's Common
Stock by team members of the Company, including its executive officers, thereby
aligning team member interests with those of the shareholders. The Board also
believes that the Employee Stock Purchase Plan operates as an incentive program
by providing eligible team members of the Company with the means to purchase,
through payroll deductions, shares of Common Stock at a discount of 15% from
market prices. In addition, such purchases are made directly from the Company,
thus avoiding brokerage fees and commissions.
The Employee Stock Purchase Plan was structured to encourage long-term
investment by team members in Common Stock by imposing a one-year holding period
on Common Stock issued under the Employee Stock Purchase Plan. The Employee
Stock Purchase Plan was also structured as a qualified employee stock plan under
Section 423 of the Code. As a result, the most favorable tax treatment is
accorded team members who hold Common Stock purchased under the plan for two
years from the date of grant.
In addition, as of October 15, 2004, 61,602 shares are available for
future purchases by team members under the Employee Stock Purchase Plan, which
the Company does not believe is sufficient to meet the Company's future
anticipated needs for shares under the Employee Stock Purchase Plan.
REQUIRED VOTE
Approval of the Employee Stock Purchase Plan, as amended and restated,
requires the affirmative vote of holders of a majority of the shares properly
cast on the matter. Abstentions will have the effect of a vote against approval
of the Employee Stock Purchase Plan, as amended and restated, and broker
non-votes will have no effect.
PROXIES WILL BE VOTED "FOR" THE APPROVAL OF THE AMENDED AND RESTATED
EMPLOYEE STOCK PURCHASE PLAN UNLESS OTHERWISE INDICATED ON THE PROXY.
THE EMPLOYEE STOCK PURCHASE PLAN
The Employee Stock Purchase Plan was adopted by the Board of Directors on
May 15, 1995 and approved by the shareholders on June 23, 1995. The Employee
Stock Purchase Plan, as amended and restated to reflect the
17
Proposed Employee Stock Purchase Plan Amendments, was approved by the Board on
October 22, 2004. The Employee Stock Purchase Plan, as amended and restated, is
being submitted to the shareholders for approval at the Annual Meeting. A copy
of the Employee Stock Purchase Plan, as amended and restated, which contains the
proposed amendments, will be furnished to any shareholder upon written request
to the Secretary of the Company at the executive offices of the Company in
Plymouth, Michigan.
The Employee Stock Purchase Plan is administered by the Management
Development Committee. The Employee Stock Purchase Plan, as amended and
restated, provides eligible team members of the Company with a means to
purchase, through payroll deductions, shares of the Company's Common Stock. The
Management Development Committee from time to time may grant to all eligible
team members of the Company and its subsidiaries the right to purchase shares of
Common Stock at a discount of up to 15% from the Fair Market Value of the Common
Stock. For purposes of the Employee Stock Purchase Plan, the Fair Market Value
of the Common Stock is defined as the closing price on the NASDAQ on the date of
grant. The date of grant is the first day of the Purchase Period (as defined
below). As of the close of business on October 15, 2004, the price per share of
Common Stock as quoted on the NASDAQ was $6.55.
Following the designation and announcement by the Management Development
Committee of an offering under the Employee Stock Purchase Plan, a team member
may elect to participate in the offering by presenting an election form and
payroll deduction form specifying the percentage of his or her cash compensation
that the Company is authorized to withhold, up to 10% of his or her after-tax
base salary (not including overtime or bonus payments). Payroll deductions will
be made in installments over a six-month purchase period, unless terminated
earlier as a result of an extraordinary corporate event (the "Purchase Period").
The minimum payroll deduction that a participating team member may authorize in
any Purchase Period is 1% of his or her after-tax base salary (not including
overtime or bonus payments). Team members may not accrue rights to purchase more
than $25,000 in Common Stock under the Employee Stock Purchase Plan (and any
future plan qualified under Section 423 of the Code) in any calendar year, based
upon the fair market value of the Common Stock to be purchased as of the
beginning of each Purchase Period. Purchase Periods are from January 1 to June
30 and July 1 to December 31.
Eligible team members may not sell Common Stock purchased under the
Employee Stock Purchase Plan for one year from the exercise date, which is the
last day of the Purchase Period. The Management Development Committee may waive
this holding period in the event of hardship as determined by such committee in
its sole discretion.
Participants shall acquire whole shares of Common Stock from the Company
with all payroll deductions made during the Purchase Period as of the last
business day of the Purchase Period. In the event that there are insufficient
shares available for purchase under the Employee Stock Purchase Plan at the end
of a Purchase Period, the shares available for purchase will be allocated to
participants in the same proportion that each such participant's base salary
paid by the Company for the Purchase Period bears to the total of such base
salaries paid by the Company to all participants during the same period.
Eligible team members may terminate an election during a Purchase Period
at any time by written notice to the Company. Funds withheld prior to
withdrawal, but not yet applied to the purchase of Common Stock, may, at the
eligible team member's election, be applied to the purchase of Common Stock at
the end of the Purchase Period or be paid to the eligible team member. Eligible
team members may waive their right to withdraw at any time.
In the event of changes in the Common Stock due to a stock dividend, stock
split, recapitalization, reorganization, merger, consolidation, combination,
exchange or other relevant change in the capital structure of the Company, an
appropriate adjustment will be made by the Committee in the number of shares and
kind of stock or other securities which may be purchased under the Employee
Stock Purchase Plan and the price therefore, to the end that the participant's
proportionate interests shall be maintained as before the occurrence.
In the event of a merger or share exchange in which the Company is the
surviving corporation, a team member shall be entitled to acquire the number of
shares of stock or other securities which such team member would have been
entitled to receive if at the time of merger or share exchange such team member
had been a holder of record of the number of shares of Common Stock the
participant would otherwise acquire at the end of the Purchase Period. In
addition, if any person or entity becomes the beneficial owner of more than 50%
of the number of shares then
18
issued and outstanding, whether in connection with such merger or share exchange
or otherwise, or upon any sale by the Company of all or substantially all of its
assets, the Committee may terminate the Purchase Period as of such date, and, if
so terminated, each participant shall, immediately prior to such merger, share
exchange acquisition or sale of assets, acquire shares to the extent payroll
deductions were made prior thereto. If the Company is liquidated or dissolved or
is not the surviving corporation in the event of a merger or share exchange
(other than merger with a wholly-owned subsidiary of the Company formed for the
purpose of changing the Company's corporate domicile), the Purchase Period shall
terminate as of the date of the aforementioned event and each participant shall,
immediately prior to such dissolution, liquidation, merger or share exchange,
acquire shares to the extent payroll deductions were made prior thereto.
Upon termination of employment of an eligible team member, for any reason
including death or disability, all withheld funds not yet applied to purchase
Common Stock may, at the eligible team member's election, be applied to the
purchase of Common Stock at the end of the Purchase Period or returned to the
eligible team member.
ELIGIBLE PARTICIPANTS
Subject to the limited exceptions described below, all team members of the
Company and its subsidiaries (as determined in accordance with Section 423 of
the Code with at least six months of service at the Company are eligible to
participate in the Employee Stock Purchase Plan. Team members who customarily
work 20 hours per week or less or five months a year or less, and team members
who own or hold outstanding Common Stock (including all outstanding stock
options granted to them, whether or not currently exercisable) totaling 5% or
more of the outstanding Common Stock may not participate in the Employee Stock
Purchase Plan. In addition, the Company's non-employee directors are not
eligible to participate in the Employee Stock Purchase Plan. As of October 15,
2004, there were approximately 216 team members eligible to participate in the
Employee Stock Purchase Plan.
AMENDMENT OR TERMINATION
Unless previously terminated, no Purchase Periods will begin under the
Employee Stock Purchase Plan, as amended and restated, after May 14, 2015. The
Board may, at any time prior to that date, terminate or discontinue the Employee
Stock Purchase Plan, or from time to time alter, amend or modify the Employee
Stock Purchase Plan, provided, however, that the Board may not, without the
approval of the shareholders of the Company, amend the Employee Stock Purchase
Plan in a manner that would disqualify the Employee Stock Purchase Plan under
Section 423 of the Code or Rule 16b-3 under the Securities Exchange Act of 1934,
as amended (the "Exchange Act").
FEDERAL INCOME TAX CONSEQUENCES
The Employee Stock Purchase Plan is not a retirement plan qualified under
Section 401 of the Code, but is intended to be a qualified employee stock
purchase plan under Section 423 of the Code. A team member will not recognize
taxable income prior to the sale or other disposition of the shares of Common
Stock purchased. If the Common Stock has been held by the team member for two
years from the date of grant and one year from the date of transfer (the
"Holding Period"), upon the sale or other disposition of such Common Stock, the
team member will recognize ordinary income in an amount equal to the difference
between the purchase price and the lower of (i) the fair market value of the
Common Stock on the date of grant or (ii) the disposition price. The team member
will recognize capital gain on the amount by which the disposition price exceeds
the fair market value of the Common Stock on the date of purchase, if any. If
the disposition price is less than the purchase price, the team member will not
recognize ordinary income and will have a capital loss in the amount of the
difference between the disposition price and the purchase price. If the team
member disposes of the shares prior to satisfying the Holding Period
requirements, the team member will recognize ordinary income on the difference
between the purchase price and the fair market value of the shares on the date
of exercise. Any amount received on disposition in excess of the fair market
value of the Common Stock on the date of exercise will be taxed to the team
member as capital gain. In the event the team member recognizes ordinary income
as described above upon the disposition of Common Stock, the Company will
receive a corresponding compensation tax deduction.
19
FURTHER INFORMATION
EQUITY COMPENSATION PLAN INFORMATION
The following table gives information about the Company's Common Stock
that may be issued upon the exercise of options, warrants and rights under all
of the Company's existing equity compensation plans as of June 30, 2004,
including the 1992 Stock Option Plan, the Directors Stock Option Plan, the 1998
Global Team Member Stock Option Plan and the Employee Stock Purchase Plan
(together, the "Option Plans"):
NUMBER OF SECURITIES
NUMBER OF SECURITIES WEIGHTED-AVERAGE REMAINING AVAILABLE FOR
TO BE ISSUED UPON EXERCISE PRICE OF FUTURE ISSUANCE UNDER
EXERCISE OF OUTSTANDING EQUITY COMPENSATION PLANS
OUTSTANDING OPTIONS, OPTIONS, WARRANTS (EXCLUDING SECURITIES
PLAN CATEGORY WARRANTS AND RIGHTS AND RIGHTS REFLECTED IN COLUMN (a))
------------- ------------------- ---------- ------------------------
(a) (b) (c)
Equity compensation plans approved by
shareholders:
1992 Plan 1,310,363 $ 9.63 310,520
Directors Stock Option Plan 195,500 (1) 12.75 -
Employee Stock Purchase Plan 3,111 (2) 6.19 61,602
--------- --------
Total of equity compensation plans
approved by shareholders 1,508,974 10.03 372,122
Equity compensation plans not approved by
shareholders: 1998 Global Team Member
Stock Option Plan 677,019 3.66 238,351
--------- -------
Total: 2,185,993 8.06 610,473
========= =======
(1) Does not include 7,808 shares purchased under the Directors Stock Purchase
Plan but not yet issued.
(2) Does not include an undeterminable number of shares subject to a payroll
deduction election under the Employee Stock Purchase Plan for the period
from July 1, 2004 until December 31, 2004, which will not be issued until
January 2005.
1998 GLOBAL TEAM MEMBER STOCK OPTION PLAN
On February 26, 1998, the Company's Board approved the 1998 Global Team
Member Stock Option Plan (the "1998 Plan"), pursuant to which non-qualified
stock options may be granted to employees who are not officers or directors or
subject to Section 16 of the Exchange Act. The 1998 Plan has been amended by the
Board on several occasions thereafter.
The purpose of the 1998 Plan is to promote the Company's success by
linking the personal interests of non-executive employees to those of the
Company's shareholders and by providing participants with an incentive for
outstanding performance. The 1998 Plan authorizes the granting of non-qualified
stock options only. The President of the Company administers the 1998 Plan and
has the power to set the terms of any grants under the 1998 Plan. The exercise
price of an option may not be less than the fair market value of the underlying
stock on the date of grant and no option may have a term of more than ten years.
All of the options that are currently outstanding under the 1998 Plan become
exercisable ratably over a four-year period beginning at the grant date and
expire ten years from the date of grant. If, for any reason, an option lapses,
expires or terminates without having been exercised in full, the unpurchased
shares covered thereby are again available for grants of options under the 1998
Plan. In addition, if the option is exercised by delivery to the Company of
shares previously acquired pursuant to options granted under the 1998 Plan, then
shares of Common Stock delivered in payment of the exercise price of an option
will again be available for grants of options under the 1998 Plan.
The exercise price is payable in full in cash at the time of exercise; or
in shares of Common Stock, (but generally, only if such shares have been owned
for at least six months or, if they have not been owned by the optionee for at
least six months, the optionee then owns, and has owned for at least six months,
at least an equal number of shares of Common Stock as the option shares being
delivered); or the exercise price may be paid by
20
delivery to the Company of a properly executed exercise notice, together with
irrevocable instructions to the participant's broker to deliver to the Company
sufficient cash to pay the exercise price and any applicable income and
employment withholding taxes, in accordance with a written agreement between the
Company and the brokerage firm ("cashless exercise" procedure).
Generally, if the employment by the Company of any optionee who is an
employee terminates for any reason, other than by death or total and permanent
disability, any option which the optionee is entitled to exercise on the date of
employment termination may be exercised by the optionee at any time on or before
the earlier of the expiration date of the option or three months after the date
of employment termination, but only to the extent of the accrued right to
purchase at the date of such termination. In addition, the President of the
Company has the discretionary power to extend the date to exercise beyond three
months after the date of employment termination. If the employment of any
optionee who is an employee is terminated because of total and permanent
disability, the option may be exercised by the optionee at any time on or before
the earlier of the expiration date of the option or one year after the date of
termination of employment, but only to the extent of the accrued right to
purchase at the date of such termination. If any optionee dies while employed by
the Company and, if at the date of death, the optionee is entitled to exercise
an option, such option may be exercised by any person who acquires the option by
bequest or inheritance or by reason of the death of the optionee, or by the
executor or administrator of the estate of the optionee, at any time before the
earlier of the expiration date of the option or one year after the date of death
of the optionee, but only to the extent of the accrued right to purchase at the
date of death.
The 1998 Plan provides for acceleration of vesting of awards in the event
of a change of control of the Company. See "Further Information - Compensation
of Directors and Executive Officers - Termination of Employment and Change of
Control Arrangements" for a definition of change of control. The 1998 Plan will
terminate automatically on February 25, 2008. However, the Board may amend or
terminate the 1998 Plan at any time without shareholder approval, but no
amendment or termination of the 1998 Plan or any award agreement may adversely
affect any award previously granted under the 1998 Plan without the consent of
the participant. The NASDAQ listing requirements prohibit the Company from
amending the 1998 Plan to add additional shares of Common Stock without
shareholder approval.
EXECUTIVE OFFICERS
The officers listed below were appointed by the Board of Directors and
serve in the capacities indicated. Executive officers are normally appointed
annually by the Board of Directors and serve at the pleasure of the Board.
NAME AND AGE POSITION AND PRINCIPAL OCCUPATIONS
------------ ----------------------------------
Alfred A. Pease, 58........ President and Chief Executive Officer since February
1996. Mr. Pease's business experience is described
under "Proposal 1-- Election of Directors."
Wilfred J. Corriveau, 51 .. Mr. Corriveau has been Senior Vice President - Global
Automotive Business of the Company since September
2000. Prior to that, he was, from February 1996 to
September 2000, the Director of the Global
Automotive Business of Rockwell Automation whose
principal business is the manufacture of automation
systems and services.
John J. Garber, 62......... Mr. Garber has been Vice President - Finance and
Chief Financial Officer of the Company since
February 1999. Prior to that, he was, from
September 1991 to February 1999, the Chief
Financial Officer of Newcor, Inc., whose principal
business is the precision machining of components
for the automotive, medium and heavy duty truck and
agricultural industries.
Harry T. Rittenour, 58..... Mr. Rittenour has been Senior Vice President - Product
Production and Quality since May 2001. Prior to
that, he was Senior Vice President - Industrial
Businesses Segment from May 2000 until May 2001 and
Vice President - Quality Assurance from January
1997 until May 2000.
21
SHARE OWNERSHIP OF MANAGEMENT AND CERTAIN SHAREHOLDERS
PRINCIPAL SHAREHOLDERS
The following table sets forth information with respect to beneficial
ownership of the Common Stock by each person known by management of the Company
to be the beneficial owner of more than five percent of its outstanding Common
Stock. The number of shares reported is as of the dates indicated in the
footnotes below. The percentage of class is based on 8,747,200 shares of Common
Stock outstanding on October 15, 2004. The information as to each person has
been furnished by such person and, except as where otherwise indicated, each
person has sole voting power and sole investment power with respect to all
shares beneficially owned by such person.
NAME AND ADDRESS AMOUNT AND NATURE OF PERCENT
OF BENEFICIAL OWNER BENEFICIAL OWNERSHIP OF CLASS
------------------- -------------------- --------
Dimensional Fund Advisors Inc.
1299 Ocean Avenue, 11th Floor
Santa Monica, California 90401......................................... 600,886(1) 6.87
FMR Corp., Fidelity Management & Research Company, Fidelity Low
Priced Stock Fund, Edward C. Johnson 3d and Abigail P. Johnson
82 Devonshire Street
Boston, Massachusetts 02109............................................ 857,723(2) 9.81
Alfred A. Pease
47827 Halyard Drive
Plymouth, Michigan 48170............................................... 547,553(3) 5.95
Royce & Associates, Inc.,
1414 Avenue of the Americas
New York, New York 10019............................................... 546,300(4) 6.25
------------
(1) Based upon its statement on Schedule 13G dated and filed with the SEC on
February 6, 2004, Dimensional Fund Advisors Inc. has sole power to vote
and dispose of 600,886 shares of Common Stock. Further, based upon its
statement on Schedule 13G, the shares of Common Stock are beneficially
owned by investment companies, trusts and accounts which are advised by
Dimensional Fund Advisors Inc. and none of which own more than 5% of the
shares of Common Stock. Dimensional Fund Advisors Inc. disclaims
beneficial ownership of such shares of Common Stock.
(2) Based upon its statement on Schedule 13G dated February 16, 2004 and filed
with the SEC on February 17, 2004, Fidelity Management & Research Company
("Fidelity"), a wholly-owned subsidiary of FMR Corp. and an investment
adviser, is the beneficial owner of 857,723 shares of Common Stock as a
result of acting as an investment adviser to various investment companies.
Further, based upon its statement on Schedule 13G, the shares of Common
Stock are owned by one investment company, Fidelity Low Priced Stock Fund.
Edward C. Johnson 3d, FMR Corp., through its control of Fidelity, and the
Fidelity Low Priced Stock Fund each has sole power to dispose of the
857,723 shares of Common Stock. Neither FMR Corp. nor Edward C. Johnson
3d, Chairman of FMR Corp., has the sole power to vote or direct the voting
of the shares owned directly by the Fidelity Low Priced Stock Fund, which
power resides with the Fund's Board of Trustees. Fidelity carries out the
voting of the shares of Common Stock under written guidelines established
by the Fund's Board of Trustees. Edward C. Johnson 3d and Abigail P.
Johnson each own in excess of 10% of the aggregate outstanding voting
stock of FMR Corp.
(3) Includes options to purchase 455,034 shares of Common Stock, which are
presently exercisable or which are exercisable within 60 days of October
15, 2004.
(4) Based upon its statement on Schedule 13G dated and filed with the SEC on
February 5, 2004, Royce & Associates, Inc. ("Royce") has sole power to
vote and dispose of 546,300 shares of Common Stock.
BENEFICIAL OWNERSHIP BY DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth information with respect to beneficial
ownership of the Common Stock by each of the directors and director nominees,
the persons named in the Summary Compensation Table and by all directors
22
and executive officers as a group as of October 15, 2004, unless otherwise
indicated. The information as to each person has been furnished by such person
and, except as where otherwise indicated, each person has sole voting power and
sole investment power with respect to all shares beneficially owned by such
person.
AMOUNT AND NATURE
NAME OF BENEFICIAL OWNER (1) OF BENEFICIAL OWNERSHIP PERCENT OF CLASS
---------------------------- ----------------------- ----------------
David J. Beattie (2)(3).............................. 23,600 *
Kenneth R. Dabrowski (2)(4).......................... 67,553 *
Philip J. DeCocco (2)(5)............................. 63,944 *
W. Richard Marz (2)(6)............................... 42,985 *
Robert S. Oswald (2)(7).............................. 78,591 *
Alfred A. Pease (2)(8)............................... 547,553 5.95%
James A. Ratigan (2)(9).............................. 15,000 *
Terryll R. Smith (2)(10)............................. 21,000 *
Wilfred J. Corriveau (11)............................ 111,590 1.27%
John J. Garber (12).................................. 81,206 *
Harry T. Rittenour (13).............................. 95,450 1.08%
Directors and executive officers as a group
(11 persons)(14)................................ 1,148,472 12.00%
-----------
* Less than 1% of class
(1) To the best of the Company's knowledge, based on information reported by
such directors and officers or contained in the Company's shareholder
records.
(2) Serves as a member of the Board of Directors of the Company.
(3) Includes options to purchase 22,500 shares of Common Stock, which are
presently exercisable or which are exercisable within 60 days of October
15, 2004.
(4) Includes options to purchase 24,000 shares of Common Stock, which are
presently exercisable or which are exercisable within 60 days of October
15, 2004.
(5) Includes options to purchase 37,000 shares of Common Stock, which are
presently exercisable or which are exercisable within 60 days of October
15, 2004.
(6) Includes options to purchase 21,000 shares of Common Stock, which are
presently exercisable or which are exercisable within 60 days of October
15, 2004.
(7) Includes options to purchase 31,000 shares of Common Stock, which are
presently exercisable or which are exercisable within 60 days of October
15, 2004.
(8) Includes options to purchase 455,034 shares of Common Stock, which are
presently exercisable or which are exercisable within 60 days of October
15, 2004.
(9) Represents options to purchase 15,000 shares of Common Stock, which are
presently exercisable or which are exercisable within 60 days of October
15, 2004.
(10) Represents options to purchase 21,000 shares of Common Stock, which are
presently exercisable or which are exercisable within 60 days of October
15, 2004.
(11) Includes options to purchase 45,000 shares of Common Stock, which are
presently exercisable or which are exercisable within 60 days of October
15, 2004.
(12) Includes options to purchase 56,750 shares of Common Stock, which are
presently exercisable or which are exercisable within 60 days of October
15, 2004.
(13) Includes options to purchase 95,250 shares of Common Stock, which are
presently exercisable or which are exercisable within 60 days of October
15, 2004.
(14) Includes options to purchase 823,534 shares of Common Stock, which are
presently exercisable or which are exercisable within 60 days of October
15, 2004.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Under the securities laws of the United States, the Company's directors,
its executive (and certain other) officers, and any persons holding more than
ten percent of the Common Stock are required to report their ownership of the
Common Stock and any changes in that ownership to the SEC. Directors, officers
and greater than ten percent shareholders are required by the SEC to furnish the
Company with copies of all Section 16(a) reports they file. Specific due dates
for these reports have been established and the Company is required to report in
this proxy statement any failure to file by these dates during the Company's
last fiscal year. To the Company's knowledge, all
23
of these filing requirements were satisfied during the Company's last fiscal
year by the Company's officers, directors and ten percent shareholders, except
to the extent previously reported in a Company proxy statement. In making this
statement, the Company has relied solely on the written representations of its
directors, officers and ten percent shareholders and copies of the reports that
have been filed with the SEC.
COMPENSATION OF DIRECTORS AND EXECUTIVE OFFICERS
DIRECTORS
All of the members of the Board of Directors who are not employed by the
Company (the "Eligible Directors") will receive an annual retainer of $20,000,
paid quarterly in the amount of $5,000. All Eligible Directors receive $1,250
for each Board meeting attended. In addition, directors are reimbursed for their
out-of-pocket expenses incurred in attending Board and committee meetings.
Directors are also eligible to participate in the Company's 1992 Stock Option
Plan (the "1992 Plan") and will be eligible to participate in the 2004 Stock
Plan if Proposal 2 is adopted by the shareholders.
All Eligible Directors participate in the Directors Stock Option Plan (the
"Directors Plan"). If the 2004 Stock Plan is approved by shareholders, the Board
of Directors intends to terminate the Directors Plan as to future grants so that
the shares currently available for grants or purchases under the plan, if any,
would no longer be available. Any Eligible Director who is first elected or
appointed after February 9, 1995 will receive an Option to purchase 15,000
shares of Common Stock on the date of his or her election or appointment
("Initial Option"). In addition, each Eligible Director who has been a director
for six months before the date of each Annual Meeting of Shareholders held
during the term of the Directors Plan automatically will be granted, as of the
date of such Annual Meeting, an option to purchase an additional 3,000 shares of
Common Stock (an "Annual Option"). The Directors Plan expires on February 9,
2005. The exercise price of options granted under the Directors Plan is
determined by using the average of the closing sales price of the Common Stock
on the NASDAQ for the last five (5) consecutive trading days on the NASDAQ
immediately preceding the date of grant. Each option granted under the Directors
Plan as an Initial Option becomes exercisable in full on the first anniversary
of the date of grant. Options granted as Annual Options become exercisable in
three annual increments of 33?% of the shares subject to the option. The
exercisability of such options is accelerated in the event of the occurrence of
certain changes in control of the Company. All options granted under the Plan
are exercisable for a period of ten years from the date of grant, unless earlier
terminated due to the termination of the Eligible Director's service as a
director of the Company.
The Directors Plan also permits Eligible Directors to purchase shares of
Common Stock through the Directors Plan in exchange for all or a portion of the
cash fees payable to them for serving as a director of the Company ("Directors
Stock Purchase Rights Option"). By December 31 of each year, a director must
make his or her election to purchase shares of Common Stock in exchange for all
or a portion of a director's fees payable from December 1 of that year to
December 1 of the next year.
Directors fees are payable in cash on March 1, June 1, September 1 and
December 1 of each year. On each of these dates, the Company will determine the
number of shares of Common Stock each Director who has elected to participate in
the Directors Stock Purchase Rights Option has earned on that date. This
determination will be made by dividing all director's fees payable on each of
those dates which the Director has elected to exchange for Common Stock, by the
fair market value of the Common Stock on that date. Any portion of the
director's fees payable on each of those dates which the Director has not
elected to receive in Common Stock will be paid to the Director in cash. The
fair market value of the Common Stock will be determined by using the average of
the closing sales price of the Common Stock on the NASDAQ for the five
consecutive trading days immediately preceding the date of determination. The
Company will issue share certificates for all shares of Common Stock purchased
in a calendar year by December 15th of such year unless a director requests by
written notice to the Company to receive his or her share certificate at any
time during the year.
24
EXECUTIVE OFFICERS
SUMMARY COMPENSATION TABLE
The following table sets forth certain information as to compensation paid
by the Company for services rendered in all capacities to the Company and its
subsidiaries during the fiscal years June 30, 2004, June 30, 2003 and June 30,
2002 to (i) the Company's Chief Executive Officer and (ii) the Company's
executive officers at June 30, 2004 (other than the Chief Executive Officer)
whose aggregate annual salary and bonus exceeded $100,000.
SUMMARY COMPENSATION TABLE
LONG-TERM
COMPENSATION
ANNUAL COMPENSATION AWARDS
------------------------------------------------------- ------
NAME AND OTHER ANNUAL ALL OTHER
PRINCIPAL POSITION YEAR SALARY ($) BONUS ($) COMPENSATION ($)(1) OPTIONS (#) COMPENSATION ($)
------------------ ---- ---------- --------- ------------------- ----------- ----------------
Alfred A. Pease, President, 2004 292,250 182,493 0 100,000 14,752(2)
Chief Executive Officer and 2003 277,500 178,463 0 50,000 13,142(3)
Chairman of the Board........... 2002 260,000 0 0 120,000 3,723(4)
Wilfred J. Corriveau, 2004 208,500 118,294 0 30,000 9,718(2)
Senior Vice President Global 2003 195,750 133,255(5) 0 25,000 8,720(3)
Automotive Business (5)........ 2002 180,000 20,000(5) 0 25,000 2,718(4)
John J. Garber, Vice 2004 179,500 104,553 0 20,000 9,693(2)
President Finance and Chief 2003 173,875 104,446 0 15,000 8,693(3)
Financial Officer............... 2002 166,000 0 0 15,000 2,193(4)
Harry T. Rittenour, 2004 161,000 92,007 0 30,000 2,833(2)
Senior Vice President 2003 152,250 88,087 0 25,000 2,383(3)
Product Production and Quality.. 2002 140,000 0 0 18,000 1,183(4)
--------------
(1) Perquisites and other personal benefits were provided to all of the
persons named in the Summary Compensation Table. Disclosure of such
amounts is not required because such amounts were less than 10% of the
total annual salary and bonuses reported for each of the respective
individuals for each period presented.
(2) "All Other Compensation" is comprised of (i) contributions made by the
Company to the accounts of the named executive officers under the
Company's 401(k) Plan with respect to the fiscal year ended June 30, 2004
as follows: Mr. Pease $8,000; Mr. Corriveau $7,000; Mr. Garber $7,500; and
Mr. Rittenour $1,650; and (ii) the dollar value of any life insurance
premiums paid by the Company in the fiscal year ended June 30, 2004 with
respect to term life insurance for the benefit of the named executives as
follows: Mr. Pease $6,752; Mr. Corriveau $2,718; Mr. Garber $2,193; and
Mr. Rittenour $1,183.
(3) "All Other Compensation" is comprised of (i) contributions made by the
Company to the accounts of the named executive officers under the
Company's 401(k) Plan with respect to the fiscal year ended June 30, 2003
as follows: Mr. Pease $7,500; Mr. Corriveau $6,002; Mr. Garber $6,500; and
Mr. Rittenour $1,200; and (ii) the dollar value of any life insurance
premiums paid by the Company in the fiscal year ended June 30, 2003 with
respect to term life insurance for the benefit of the named executives as
follows: Mr. Pease $5,642; Mr. Corriveau $2,718; Mr. Garber $2,193; and
Mr. Rittenour $1,183.
(4) "All Other Compensation" consists of the dollar value of any life
insurance premiums paid by the Company in the fiscal year ended June 30,
2002 with respect to term life insurance for the benefit of the named
executives. The Company made no contributions to the accounts of the named
executive officers under the Company's 401(k) Plan during the fiscal year
ended June 30, 2002.
(5) Mr. Corriveau's bonus amount includes $20,000 that represents the last
installment on a $60,000 signing bonus that was payable $20,000 at hire
date and $20,000 at each of the next two employment anniversary dates when
he became Senior Vice President -- Global Automotive Business in August
2000.
GRANTS OF OPTIONS
The following tables set forth certain information concerning individual
grants of stock options to each of the persons named in the Summary Compensation
Table made during the fiscal year ended June 30, 2004. All grants described in
the following tables were made under the Company's 1992 Stock Option Plan and
contain the
25
Option Acceleration Provision (as defined under "Further Information --
Compensation of Directors and Officers -- Executive Officers -- Termination of
Employment and Change of Control Arrangements").
OPTION GRANTS IN LAST FISCAL YEAR
POTENTIAL REALIZABLE
INDIVIDUAL GRANTS VALUE AT ASSUMED
--------------------------------------- ANNUAL RATES OF STOCK
NUMBER OF PERCENT OF TOTAL PRICE APPRECIATION FOR
SECURITIES OPTIONS GRANTED TO EXERCISE OR OPTION TERM (3)
UNDERLYING OPTION EMPLOYEES IN BASE PRICE EXPIRATION -----------------------
NAME GRANTED (#) FISCAL YEAR (1) ($/SH) DATE (2) 5%($) 10%($)
---- ----------- --------------- ------ -------- ----- ------
Alfred A. Pease......... 100,000(4) 25.60 6.50 9/1/13 408,640 1,035,492
Wilfred J. Corriveau 30,000(5) 7.68 6.50 9/1/13 122,593 310,651
John J. Garber.......... 20,000(6) 5.12 6.50 9/1/13 81,728 207,098
Harry T. Rittenour...... 30,000(7) 7.68 6.50 9/1/13 122,592 310,648
----------
(1) Options to purchase a total of 390,600 shares of Common Stock were
granted to team members in the fiscal year ended June 30, 2004.
(2) Options expire on the date indicated, or, if earlier, one year after the
optionee's death or permanent disability or three months after the
optionee's termination of employment.
(3) Represents the value of such options at the end of its ten year term
(without discounting to present value) assuming the market prices of the
Common Stock appreciates from the grant date at an annually compounded
rate of 5% or 10%. These amounts represent rates of appreciation only.
Actual gains, if any, will be dependent on overall market conditions and
on the future performance of the Common Stock. There can be no assurance
that the amounts reflected in this table will be achieved.
(4) Consists of 77,686 nonqualified options and 22,314 incentive stock
options. Nonqualified options become exercisable in two annual
installments of 25,000 shares of Common Stock beginning on September 2,
2004, one installment of 18,070 shares of Common Stock on September 2,
2006 and one installment of 9,616 shares of Common Stock beginning on
September 2, 2007. The Incentive Stock Options become exercisable in one
installment of 6,930 shares of Common Stock on September 2, 2006 and one
installment of 15,384 shares of Common Stock on September 2, 2007.
(5) Consists of 750 shares of nonqualified options and 29,250 incentive stock
options. Nonqualified options become exercisable in one installment of 750
shares of Common Stock on September 2, 2004. The Incentive Stock Options
become exercisable in one installment of 6,750 shares of Common Stock on
September 2, 2004 and three annual installments of 7,500 shares of Common
Stock beginning September 2, 2005.
(6) Consists of 20,000 incentive stock options. The Incentive Stock Options
become exercisable in four annual installments of 5,000 shares of Common
Stock beginning September 2, 2004.
(7) Consists of 30,000 incentive stock options. The Incentive Stock Options
become exercisable in four annual installments of 7,500 shares of Common
Stock beginning September 2, 2004.
EXERCISE AND VALUE OF OPTIONS
The following tables set forth certain information concerning exercises of
stock options during the fiscal year ended June 30, 2004 by each of the persons
named in the Summary Compensation Table and the number of and the value of
unexercised stock options held by such persons as of June 30, 2004 on an
aggregated basis.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUES
NUMBER OF
SECURITIES UNDERLYING VALUE OF UNEXERCISED
UNEXERCISED OPTIONS AT IN-THE-MONEY OPTIONS AT
SHARES FISCAL YEAR-END (#) FISCAL YEAR-END ($)(1)
ACQUIRED ON VALUE --------------------------- -----------------------------
NAME EXERCISE (#) REALIZED ($)(2) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ------------ --------------- ----------- ------------- ----------- -------------
Alfred A. Pease........ 47,466 296,663 417,534 235,000 886,965 835,825
Wilfred J. Corriveau... 25,000 130,563 25,000 73,750 98,750 247,738
John J. Garber......... 0 0 50,000 41,250 138,350 134,188
Harry T. Rittenour..... 9,500 64,790 81,500 64,000 207,108 212,693
26
----------
(1) Represents the total gain which would have been realized if all such
options had been exercised on June 30, 2004.
(2) Represents the fair market value of the shares of Common Stock relating to
exercised options, as of the date of exercise, less the exercise price of
such options.
EMPLOYMENT AGREEMENTS, TERMINATION OF EMPLOYMENT AND CHANGE OF CONTROL
ARRANGEMENTS
Mr. Pease serves in his present capacity pursuant to the terms of an
employment agreement. Mr. Pease's agreement provides for an annual base salary,
subject to increase at the discretion of the Management Development Committee,
reimbursement of reasonable monthly club dues, benefits comparable to the
Company's other executive officers, including life, disability and health
insurance and the use of a Company leased automobile and an annual performance
bonus target level of 60% of his base salary. In the event Mr. Pease's
employment is terminated without cause, his salary and benefits will continue
for twelve months and he will earn a pro rata portion of any bonus that would
have been earned in the year of the termination.
In the event Mr. Corriveau's employment is terminated without cause, his
salary and benefits will continue for six months and he will earn a pro rata
portion of any bonus that would have been earned in the year of the termination.
Agreements relating to stock options granted under the 1992 Plan to each
of the executive officers named in the Summary Compensation Table, as well as
certain other officers of the Company, also provide that such options become
immediately exercisable in the event that the optionee's employment is
terminated without cause, or there is a diminishment of the optionee's
responsibilities, following a Change of Control of the Company or, if, in the
event of a Change of Control, such options are not assumed by the person
surviving the Change of Control or purchasing the assets in the Change of
Control. A "Change of Control" is generally defined as a merger of the Company
in which the Company is not the survivor, certain share exchange transactions,
the sale or transfer of all or substantially all of the assets of the Company,
or any person or group of persons (as defined by Section 13(d) of the Exchange
Act) acquires more than 50% of the Common Stock ("Option Acceleration
Provision").
MANAGEMENT DEVELOPMENT, COMPENSATION AND STOCK OPTION COMMITTEE INTERLOCKS AND
INSIDER PARTICIPATION
The Management Development, Compensation and Stock Option Committee of the
Board of Directors ("Management Development Committee") currently consists of
Messrs. Beattie and DeCocco. Mr. Ratigan served on the Management Development
Committee from December 2003 to October 2004. During fiscal year 2004, no member
of the Management Development Committee served as an officer or employee of the
Company or any of its subsidiaries nor had any member of the Management
Development Committee formerly served as an officer of the Company or any of its
subsidiaries, other than Mr. Ratigan, who served as an officer of the Company
from December 1993 to June 1996. See "Proposal 1 - Election of Directors".
During fiscal year 2004, none of the executive officers of the Company served on
the board of directors or on the compensation committee of any other entity, any
of whose executive officers served either on the Board of Directors or on the
Management Development Committee of the Company.
REPORT OF THE MANAGEMENT DEVELOPMENT,
COMPENSATION AND STOCK OPTION COMMITTEE
The Management Development Committee is responsible for the planning,
review and administration of the Company's executive compensation program and
the Company's stock-based executive compensation programs, including the 1992
Stock Option Plan. During the fiscal year ended June 30, 2004, all members of
this Committee were non-employee directors of the Company.
The Company's objective is to provide a superior return to its
shareholders. To support this objective, the Company believes it must attract,
retain and motivate top quality executive talent. The Company's executive
compensation program is a critical tool in this process.
27
The Company's executive compensation program has been designed to link
executive compensation to Company performance through at-risk compensation
opportunities, providing significant reward to executives who contribute to the
Company's success. The Company's executive compensation program consists of base
salary, annual cash profit sharing incentive opportunities and long-term
incentives represented by stock options. Further, the Company believes that
stock option grants to team members, in addition to providing an incentive for
their continued employment, more closely align their interests with those of the
Company and its shareholders.
The base salary, annual cash profit sharing incentive opportunity, stock
option and other compensation terms of new executive officers are established
based upon each executive's qualifications, position and level of responsibility
as compared with the Company's other executives.
BASE SALARY
The Management Development Committee recognizes the importance of a
competitive compensation structure in retaining and attracting valuable senior
executives. Executive salary levels are reviewed and established annually. The
salaries received by the Company's executives generally reflect their levels of
responsibility, the profitability of the Company and other factors, such as
assessments of individual performance.
Because of the Company's significantly improved financial performance in
fiscal year 2003, the Management Development Committee increased the base salary
of Alfred A. Pease, Chairman of the Board, President and Chief Executive Officer
of the Company, by $14,000, or 5.0% calculated on an annualized basis, in the
first quarter of fiscal year 2004.
In fiscal year 2004, the Management Development Committee approved
annualized increases in the base salaries of the Company's other executive
officers of between 3.7% and 6.1%. The increases took affect at various times in
fiscal year 2004. The Management Development Committee approved the increases in
recognition of the Company's significantly improved financial performance during
fiscal year 2003 and continued strong performance in fiscal year 2004. The size
of the percentage increases were determined based on the Committee's evaluation
of the contributions made by each of the executive officers to improving the
Company's operating performance.
ANNUAL PROFIT SHARING
The Company's executive officers are eligible for annual cash profit
sharing incentive opportunities. Generally, at the beginning of each year, the
Management Development Committee develops a profit sharing plan applicable to
all executives of the Company, including the Chief Executive Officer of the
Company.
For fiscal year 2004, the Management Development Committee adopted the
Fiscal Year 2004 Profit Sharing Plan, which applied to all team members of the
Company, including Mr. Pease and the other executive officers.
Initially, the Fiscal Year 2004 Profit Sharing Plan provided that the
Company would make matching contributions to the Company's Employees' 401(k)
Plan ("401(k) Plan") and a profit sharing payout only if the Company achieved
earnings per share ("EPS") in excess of the Fiscal Year 2004 Profit Plan
established by the Board. For performance in excess of that level, a portion of
each dollar of Company pre-tax earnings above progressive earnings share targets
would be added to the 401(k) Plan match/profit sharing pool. One half of the
pool was to be used to match any 401(k) Plan contributions made by team members,
up to 50% of their contributions, and the remainder to be used to fund the
profit sharing pool.
In December 2003, the Management Development Committee (i) revised the
Fiscal Year 2004 Profit Sharing Plan to eliminate the 401(k) match portion of
the plan, (ii) restored the Company's historical practice of matching 50% of the
team members contributions to the 401(k) Plan, and (iii) reset the EPS targets
for the Fiscal Year 2004 Profit Sharing Plan to reflect the anticipated cost of
those matching contributions. The Management Development Committee took these
actions because of the negative impact discontinuation of the matching
contribution in May 2001 had placed on the Company's efforts to retain and
recruit team members. In addition, the full amount of the matching contribution
had been earned in fiscal year 2003 under a plan similar to the Fiscal Year 2004
Profit
28
Sharing Plan and the full amount of the matching contribution provided under the
2004 Fiscal Year Profit Sharing Plan was likely to be earned in fiscal year 2004
because of the Company's year-to-date performance.
The actual profit sharing pool earned under the Fiscal Year 2004 Profit
Sharing Plan was divided among team members in relation to their profit sharing
potential for the year. Each team member's profit sharing potential for the year
was stated as a percentage of their base salary. The level was 60% for Mr. Pease
and 55% for the other executive officers.
During fiscal year 2004, the profit sharing pool earned under the Fiscal
Year 2004 Profit Sharing Plan was 108.6% of the team members' aggregate
potential payout. Mr. Pease received a profit sharing payment of 65.2% of his
base salary level as of June 30, 2003 and the other executive officers received
profit sharing payments of 59.7% of their base salary level as of June 30, 2003.
No discretionary bonuses were paid to Mr. Pease or the other executive
officers in fiscal year 2004.
STOCK OPTIONS
Stock option grants have historically been utilized by the Company as part
of its compensation program for all levels of team members, including the
Company's executives. The Company's stock option program permits team members to
buy a specific number of shares of Common Stock in the future, at the fair
market value of such shares on the date the option is granted. Since stock
options gain value only if the price of the Common Stock increases above the
option exercise price, this use of stock option grants reflects the Company's
philosophy of linking compensation to performance. In addition, the Committee
believes that stock option grants to team members help to provide an incentive
for their continued employment and otherwise more closely align their interests
with those of the Company and its shareholders. The Company also utilizes stock
options as part of its standard compensation package developed to attract highly
qualified candidates to the Company.
Mr. Pease was granted options under the 1992 Stock Option Plan to purchase
100,000 shares of Common Stock in fiscal year 2004. The grant reflected the
Management Development Committee's evaluation of Mr. Pease's performance in
fiscal year 2003. The Management Development Committee noted in particular the
dramatic improvement in the Company's financial performance during the year. The
Company's net sales increased by 24% during fiscal year 2003 as compared to
fiscal year 2002 and basic earnings per share from continuing operations
increased from $0.11 per share in fiscal year 2002 to $0.43 per share in fiscal
year 2003. In fiscal year 2003, Mr. Pease lead the team that implemented the
business plan that returned the Company to sustained profitability and provided
the Company with the opportunity for continued future growth. The Committee also
believed that an additional option grant at the 100,000 share level was
appropriate to more closely align the interests of Mr. Pease with those of the
Company and its shareholders.
In fiscal year 2004, the Management Development Committee also granted
options to purchase shares of Common Stock under the 1992 Stock Option Plan to
the other executive officers of the Company. The Company's executive officers
each received grants of options to purchase between 20,000 and 30,000 shares of
Common Stock. The grants reflected the significant improvements in the Company's
financial performance and operations during fiscal year 2003. The size of the
grants was made based on the Committee's evaluation of the contributions made by
each of the executive officers to improving the Company's operating performance.
Options granted to Mr. Pease and the other executive officers in fiscal
year 2004 become exercisable in four equal annual installments, beginning one
year from their date of grant, at an exercise price equal to the fair market
value of the Common Stock on the date of the grant, which was $6.50.
DEDUCTIBILITY OF EXECUTIVE COMPENSATION
The Board of Directors of the Company has reviewed the provisions of the
Internal Revenue Code and related regulations of the Internal Revenue Service
which restrict deductibility of executive compensation paid to the chief
executive officer and any of the four most highly compensated executive officers
at the end of the fiscal year to the extent such compensation exceeds $1,000,000
in any year.
29
The Board of Directors of the Company has established certain restrictions
on the granting of options under the Company's 1992 Stock Option Plan so that
compensation realized in connection with the exercise of options granted under
such plan would be exempt from the restrictions on deductibility described
above. The 1992 Stock Option Plan restricts to 200,000 the number of shares of
Common Stock that may be subject to options granted to any salaried employee in
any fiscal year. It is important to note that while this restriction allows the
Management Development Committee continuing discretion in establishing executive
officer compensation, it does limit such discretion by restricting the size of
option awards which the Management Development Committee may grant to any single
individual. The permitted size of the option award to a single individual was
established based on the Committee's determination of the maximum number of
option shares which would be required to be granted in any fiscal year to retain
or attract a chief executive officer of the Company.
The Board of Directors does not believe that other components of the
Company's compensation program are likely to result in payments to any executive
officer in any year which would be subject to the restriction on deductibility,
and therefore concluded that no further action with respect to qualifying such
compensation for deductibility was necessary at this time. The Board of
Directors will continue to evaluate the advisability of qualifying future
executive compensation programs for deductibility under the Internal Revenue
Code.
MANAGEMENT DEVELOPMENT, Philip J. DeCocco, Chairman
COMPENSATION AND STOCK OPTION David J. Beattie
COMMITTEE
30
STOCK PRICE PERFORMANCE GRAPH
Set forth below is a graph comparing the cumulative total shareholder
return on the Common Stock from June 30, 1999, through June 30, 2004 with an
index consisting of returns from a peer group of companies, consisting of Cognex
Corp., Cyberoptics Corporation, Integral Vision, Inc. (formerly Medar, Inc.),
PPT Vision, Inc. (formerly Pattern Processing Technology) and Robotic Vision
Systems Inc. (the "Peer Group Index") and The Nasdaq Stock Market Composite
Index (the "Nasdaq Composite Index"). The returns of each company in the Peer
Group Index have been weighted according to their respective stock market
capitalization. The graph assumes that the value of the investment in the
Company's Common Stock, the Peer Group Index and the Nasdaq Composite Index was
$100 on June 30, 1999 and that all dividends were reinvested.
COMPARISON OF CUMULATIVE TOTAL RETURN AMONG
PERCEPTRON, INC., THE PEER GROUP AND THE NASDAQ COMPOSITE INDEX
[PERFORMANCE GRAPH]
CUMULATIVE TOTAL RETURN
-----------------------
6/30/99 6/30/00 6/30/01 6/30/02 6/30/03 6/30/04
------- ------- ------- ------- ------- ------
Perceptron, Inc. 100 75 30 34 132 156
Peer Group 100 197 98 59 61 114
NASDAQ Composite 100 148 81 55 61 78
The graph displayed above is presented in accordance with applicable legal
requirements. Shareholders are cautioned against drawing any conclusions from
the data contained in the graph, as past results are not necessarily indicative
of future performance. The graph in no way reflects the Company's forecast of
future financial performance.
31
INDEPENDENT ACCOUNTANTS
GENERAL
The accounting firm of Grant Thornton LLP ("Grant Thornton") has been
appointed by the Audit Committee to audit the consolidated financial statements
for the Company for the fiscal year ended June 30, 2005. Grant Thornton has
served as the Company's independent accountants since March 8, 2002.
Representatives of Grant Thornton are expected to be at the Annual Meeting and
to be available to respond to appropriate questions. Such representatives will
have the opportunity to make a statement at such meeting if they desire to do
so.
POLICY FOR PRE-APPROVAL OF AUDIT AND NON-AUDIT SERVICES
The Audit Committee has adopted a policy regarding audit and non-audit
services that may be provided by the Company's independent accountants. The
policy sets forth the procedures and conditions pursuant to which services
proposed to be performed by the independent accountants may be pre-approved. The
policy provides that the Audit Committee will consider whether services to be
performed by the independent accountant are consistent with the SEC's rules on
auditor independence. In particular, the policy expressly names all services the
independent accountant may not perform and requires the Audit Committee to
consider whether the independent auditor is the best positioned to provide the
most effective and efficient service.
The policy provides that the Audit Committee will review and pre-approve
annually, and periodically thereafter as required, the services proposed to be
provided by the independent accountant in the categories of audit services,
audit related services, tax services and all other services. In addition, the
Audit Committee is to determine the appropriate ratio of audit, audit related
and tax services to all other services. The Audit Committee has delegated to the
chairman of the Audit Committee and, if he or she is unavailable, another member
of the Audit Committee, authority to pre-approve audit and non-audit services
proposed to be performed by the independent auditors not previously approved by
the Audit Committee. Under the policy, the Audit Committee is to be informed on
a timely basis of services actually rendered by the independent accountant,
including those pre-approved by a member of the Audit Committee. The chief
financial officer of the Company is to immediately report to the Chairman of the
Audit Committee any breach of the policy.
All of the services described below under audit fees, audit-related fees,
tax fees and all other fees arising on or after May 6, 2003 were approved by the
Audit Committee pursuant to its pre-approval policies and procedures prior to
the service being provided. None of the audit-related fees or tax fees described
below arising on or after May 6, 2003 were approved by the Audit Committee after
the initiation of such services pursuant to an exemption from the SEC's
requirements relating to approval of these types of services by the Audit
Committee prior to the provision of the service under Section 2.01(c)(7)(i)(C)
of SEC Regulation S-X.
FEES PAID TO INDEPENDENT AUDITORS
AUDIT FEES. The aggregate fees billed by Grant Thornton for professional
services rendered for the audit of the Company's annual consolidated financial
statements and the reviews of the consolidated financial statements included in
the Company's Forms 10-Q and other regulatory filings were $103,250 during
fiscal year ended June 30, 2004 and $89,673 during fiscal year ended June 30,
2003.
AUDIT RELATED FEES. The aggregate fees billed by Grant Thornton for
professional services rendered for audit-related fees were $8,000 during fiscal
year 2004 and $7,790 during fiscal year 2003 related to the audit of the
Company's 401(k) Plan.
TAX FEES. The aggregate fees billed by Grant Thornton for preparation of
federal and state tax returns and miscellaneous tax-related services and advice
were $53,686 during fiscal year 2004 and $50,200 during fiscal year 2003.
ALL OTHER FEES. Grant Thornton did not render any such services in fiscal
years 2004 and 2003.
The Audit Committee of the Board of Directors does not consider the
provision of the services described above by Grant Thornton to be incompatible
with the maintenance of Grant Thornton's independence.
32
SHAREHOLDER PROPOSALS AND NOMINEES FOR 2005 ANNUAL MEETING
SHAREHOLDER PROPOSALS
Shareholder proposals intended to be presented at the 2005 annual meeting
which are eligible for inclusion in the Company's proxy statement for that
meeting under Rule 14a-8 promulgated under the Exchange Act, must be received by
the Secretary of the Company at 47827 Halyard Drive, Plymouth, Michigan 48170,
no later than July 1, 2005 in order to be considered for inclusion in the
Company's Proxy Statement relating to that meeting. In order to curtail
controversy as to the date on which a proposal was received by the Company, it
is suggested that proposals be submitted by certified mail, return receipt
requested.
Shareholder proposals intended to be presented at the 2005 annual meeting
which are not eligible for inclusion in the Company's proxy statement for that
meeting under Rule 14a-8 are considered untimely under Rule 14a-5 promulgated
under the Exchange Act unless received by the Secretary of the Company at the
Company's offices no later than September 19, 2005 and the Company expects the
persons named as proxies for the 2005 annual meeting to use their discretionary
voting authority, to the extent permitted by law, with respect to any proposal
considered untimely at the 2005 annual meeting.
SHAREHOLDER NOMINEES
Shareholders desiring to recommend candidates for consideration and
evaluation by the Nominating and Corporate Governance Committee for the 2005
Annual Meeting should submit such recommendations in writing to the Nominating
and Corporate Governance Committee, c/o General Counsel, Perceptron, Inc., 47827
Halyard Drive, Plymouth, Michigan 48170 no later than June 3, 2005.
The recommendation should be accompanied by the following: (i) the name,
address, e-mail address (if any), and telephone number of the shareholder, the
number of shares of the Company's Common Stock beneficially owned by the
shareholder and proof of the shareholder's beneficial ownership of the Company's
Common Stock by one of the means set forth in Item 7(d)(2)(ii)(L) of SEC
Schedule 14A; (ii) the name, address, e-mail address (if any) and telephone
number of the proposed nominee and the number of shares of the Company's Common
Stock beneficially owned by the nominee; (iii) a detailed description of the
proposed nominee's business, professional, public, academic, scientific or
technological experience and other qualifications for Board membership,
including the name and address of other businesses for which the proposed
nominee has provided services, or for which he or she has served as a director,
in the last five years, a description of the proposed nominee's specific
experience in such position and the proposed nominee's academic achievements;
(iv) a description of any potential conflicts between the interests of the
Company and its shareholders and the proposed nominee; (v) a written agreement
by the proposed nominee to serve as a member of the Company's Board of Directors
if nominated and elected; and (vi) a written representation by the shareholder
and the proposed nominee that the proposed nominee is not an affiliate or
affiliated party with respect to the shareholder. The General Counsel will
forward any recommendations to the Nominating and Corporate Governance
Committee. The nominating shareholder and proposed nominee may be requested to
provide additional information regarding the shareholder or the proposed nominee
and to attend one or more interviews, in each case, as requested by the Board or
Nominating and Corporate Governance Committee.
See "Proposal 1 - Election of Directors - Board of Directors and
Committees" for a description of the standards used by the Nominating and
Corporate Governance Committee to evaluate candidates recommended by
shareholders of the Company.
OTHER MATTERS
At the date of this Proxy Statement, the Board of Directors is not aware
of any matters to be presented for action at the Annual Meeting other than those
described above. However, if any other matters requiring a shareholder vote
properly come before the meeting, it is the intention of the persons named in
the accompanying proxy to vote such proxy in accordance with their best
judgment, to the extent permitted by law, on such matters.
Plymouth, Michigan
October 25, 2004
33
APPENDIX A
PERCEPTRON, INC.
CHARTER FOR THE AUDIT COMMITTEE OF THE BOARD OF DIRECTORS
(AS AMENDED AND RESTATED THROUGH FEBRUARY 9, 2004)
I. PURPOSE
The primary purpose of the Audit Committee is to:
1. Oversee the accounting and financial reporting processes of the
Company and the audits of the Company's financial statements.
2. Assist the Board of Directors (the "Board") in overseeing: (A) the
integrity of the Company's financial statements; (B) the Company's
compliance with legal and regulatory requirements; (C) the
independent auditor's qualifications and independence; (D) the
performance of the Company's independent auditors; and (E) the
effectiveness of the Company's internal controls.
3. Prepare the report required by the rules of Securities and Exchange
Commission ("SEC") to be included in the Company's annual proxy
statement.
4. Act as the Company's qualified legal compliance committee ("QLCC").
The Audit Committee will undertake those specific duties and
responsibilities listed below and such other duties as the Board of Directors
may from time to time prescribe.
II. AUTHORITY
The Audit Committee shall have such authority as is required to fulfill
its responsibilities and duties set forth in this charter, including, but
limited to, the following:
1. Sole authority for the appointment, compensation, retention and
oversight of the Company's independent auditors, for the purpose of
preparing or issuing any audit report or performing other audit,
review or attest services.
2. Sole authority to approve in advance all audit services and
permissible non-audit services provided by the independent auditors.
3. Authority to conduct or authorize investigations into any matters
within its scope of responsibility.
4. Authority to engage, and determine funding for, independent counsel
and other advisors, such as accountants, outside advisors,
consultants or others, without Board approval, to assist in the
conduct of an investigation or as the Audit Committee determines
appropriate to advise or assist in the performance of its duties.
5. Authority to meet with and seek any information it requires from
employees or external parties. Employees and external parties will
be directed to cooperate and comply with the Audit Committee's
requests.
6. Authority to take the actions set forth under "Duties,
Responsibilities and Processes - Act as Qualified Legal Compliance
Committee."
III. COMPOSITION
APPOINTMENT.
The members of the Audit Committee shall be appointed annually by the
Board of Directors at its annual meeting or as necessary to fill vacancies in
the interim.
MEMBERSHIP.
The Audit Committee shall be comprised of three or more directors, as
determined by the Board.
A - 1
QUALIFICATIONS.
The Audit Committee members shall be required to meet the following
minimum requirements:
1. Each member of the Audit Committee shall be an "independent
director" as determined under applicable rules of the NASDAQ Stock
Market ("NASDAQ") and SEC. Under the NASDAQ rules, an "independent
director" is a person other than an officer or employee of the
Company or its subsidiaries, or any other individual having a
relationship which, in the opinion of the Board of Directors, would
interfere with the exercise of independent judgment in carrying out
the responsibilities of a director. Directors having certain
relationships specified under applicable NASDAQ and SEC rules are
not independent. Under SEC rules, for a member of the Audit
Committee to be independent, the member may not, other than in the
member's capacity as a member of the board of directors and any
board committee, (i) accept directly or indirectly any consulting,
advisory, or other compensatory fee from the Company or any
subsidiary or (ii) be an affiliated person of the Company or any
subsidiary thereof.
2. Each member of the Audit Committee shall be able to read and
understand fundamental financial statements.
3. At least one member of the Audit Committee shall have financial
sophistication as a result of his or her past employment experience,
professional certification, or other comparable experience or
background.
4. No member of the Audit Committee may have participated in the
preparation of the financial statements of the Company or any
current subsidiary of the Company at any time during the past three
years.
CHAIRMAN OF THE AUDIT COMMITTEE.
Unless a Chair is appointed by the Board of Directors, the members of the
Audit Committee may designate a Chair.
IV. MEETINGS
NUMBER OF MEETINGS.
The Audit Committee shall meet at least four times annually, and more
frequently if circumstances dictate.
EXECUTIVE SESSIONS.
The Audit Committee shall meet at least quarterly with management and the
independent auditors in separate executive sessions to discuss any matters that
the Audit Committee or these groups believe should be discussed privately.
V. FUNDING
The Company shall provide appropriate funding to the Audit Committee, as
determined by the Audit Committee, for payment of:
1. Compensation to any registered public accounting firm engaged for
the purpose of rendering or issuing an audit report or related work
or performing other audit, review or attestation services for the
Company;
2. Any independent counsel or advisors employed by the Audit Committee;
and
3. Ordinary administrative expenses of the Audit Committee that are
necessary or appropriate in carrying out its duties.
VI. DUTIES, RESPONSIBILITIES AND PROCESSES
To fulfill its oversight responsibilities and duties, the Audit Committee
shall perform any activities consistent with this charter, the Company's Bylaws
and governing law, as the Audit Committee or the Board deems necessary or
appropriate. Specifically, the Audit Committee shall:
REVIEW, ENGAGEMENT AND OVERSIGHT OF THE INDEPENDENT AUDITORS.
1. Appoint, compensate, retain and oversee the Company and its
subsidiaries' independent auditors. Selection of the independent
auditors shall occur at least annually, considering their
independence, evaluation of their services, and compensation for
audit and non-audit services.
A - 2
2. Determine appropriate compensation for independent auditors engaged
for the purpose of rendering or issuing an audit report or related
work or performing other audit, review or attestation services for
the Company or any of its subsidiaries.
3. Approve in advance all audit and permissible non-audit services
(other than de minimus non-audit services as defined under SEC rules
and as permitted under Audit Committee policies regarding
preapprovals) to be provided by the independent auditors.
4. Adopt and review annually any Audit Committee policies regarding
preapproval of audit and permissible non-audit services.
5. Ensure that the independent auditors prepare and deliver annually to
the Audit Committee a formal written statement delineating all
relationships between such independent auditors and the Company,
consistent with Independent Standards Board Standard No. 1; actively
engage in a dialogue with the independent auditors with respect to
all relationships or services disclosed in the statement that may
impact the auditors' objectivity and independence; and take, or
recommend that the full Board of Directors take, appropriate action
to satisfy itself of the independent auditors' independence.
6. At least annually, obtain and review a report by the independent
auditors describing the accounting firm's internal quality-control
procedures, and any material issues raised by the most recent
internal quality-control review, or peer review, of the accounting
firm, or by any inquiry or investigation by governmental or
professional authorities, within the preceding five years,
respecting one or more independent audits carried out by the firm,
and any steps taken to deal with any such issues.
REVIEW OF ANNUAL FINANCIAL STATEMENTS AND AUDIT.
7. Review and discuss with the Company's independent auditors, at a
time when the annual audit plan is being developed, its scope,
purpose and procedures to be utilized.
8. Discuss the annual earnings press releases, as well as financial
information and earnings guidance provided to analysts and rating
agencies.
9. Review and discuss with corporate management and the independent
auditors the audited financial statements, the proposed footnotes to
be included in the Company's Annual Report on Form 10-K, the
Company's disclosures under "Management Discussion and Analysis of
Financial Condition and Results of Operations", and any other annual
reports or financial information submitted to any governmental body,
or the public, including any certification, report, opinion or
review rendered by the independent auditors.
10. Discuss matters required to be communicated to the Audit Committee
by the independent auditor under generally accepted auditing
standards. Such matters shall include, but not be limited to the
following:
- Matters required or referred to in SAS 61;
- All critical accounting policies and practices to be used;
- All alternative treatments of financial information within
generally accepted accounting principles that have been
discussed with management, ramifications of the use of such
alternative disclosures and treatments, and the treatment
preferred by the independent auditors; and
- Other material written communications between the registered
public accounting firm and the management, such as any
management letter or schedule of unadjusted differences.
11. Receive reports by each of management and the independent auditors
regarding any significant judgments made in management's preparation
of the financial statements and the view of each as to the
appropriateness of such judgments.
12. In consultation with the independent auditors, review the integrity
of the financial reporting process, both internal and external.
13. Consider the independent auditors' judgments about the quality and
appropriateness of the Company's accounting principles as applied to
its financial reporting.
A - 3
14. Receive, discuss with management and the independent auditors and
approve, if appropriate, any significant changes to the Company's
accounting and auditing principles, practices, policies and
controls.
15. Review any significant disagreement among management and the
independent auditors which, if not resolved to the independent
auditors' satisfaction, would have caused them to issue a qualified
report on the financial statements. "Disagreements" for this purpose
shall be those contemplated by Item 304 of Regulation S-K (or any
successor rule).
16. Review with the independent auditor, upon completion of the annual
audit, its experience, any restrictions on its work, cooperation
received, significant difficulties encountered, its findings and its
recommendations and management's response.
17. Report annually to the Board of Directors whether, based on the
review and discussions noted above, the Audit Committee recommends
to the Board of Directors that the audited financial statements be
included in the Company's Annual Report on Form 10-K for filing with
the SEC.
18. Prepare a Report of the Audit Committee, in accordance with
applicable SEC rules, for inclusion in the Company's Annual Meeting
Proxy Statements.
19. Oversee compliance with the requirements of NASDAQ and the SEC for
disclosure of auditors' services and audit committee members, member
qualifications and activities.
20. Perform the Audit Committee's annual duties and responsibilities
described under "Review, Engagement and Oversight of the Independent
Auditors" and "Review of Internal Controls".
REVIEW OF QUARTERLY FINANCIAL STATEMENTS.
21. Discuss the quarterly earnings press release, as well as quarterly
financial information and earnings guidance provided to analysts and
rating agencies.
22. Discuss matters required to be communicated to the Audit Committee
by the independent auditors under generally accepted auditing
standards. Such matters shall include, but not be limited to the
following:
- All changes to critical accounting policies and practices made
in the quarter, and all new critical accounting policies and
practices adopted in the quarter;
- All alternative treatments of financial information within
generally accepted accounting principles that have been
discussed with management during the quarter, ramifications of
the use of such alternative disclosures and treatments, and
the treatment preferred by the independent auditors; and
- Other material written communications between the registered
public accounting firm and the management relating to the
quarterly financial statements.
23. Receive reports by each of management and the independent auditors
regarding any significant judgments made in management's preparation
of the financial statements and the view of each as to the
appropriateness of such judgments.
24. In consultation with the independent auditors, review the integrity
of the financial reporting process, both internal and external.
25. Consider the independent auditors' judgments about the quality and
appropriateness of the Company's accounting principles as applied to
its financial reporting.
26. Receive, discuss with management and the independent auditors and
approve, if appropriate, all reports regarding any significant
changes to the Company's accounting and auditing principles,
practices, policies and controls.
27. Review any significant disagreement among management and the
independent auditors which, if not resolved to the independent
auditors' satisfaction, would have caused them to issue a qualified
report on the financial statements, if such a report had been
required. "Disagreements" for this purpose shall be those
contemplated by Item 304 of Regulation S-K (or any successor rule).
28. Confirm with the independent auditors their continued independence.
A - 4
29. Perform the Audit Committee's quarterly duties and responsibilities
described under "Review of Internal Controls."
30. Review, in accordance with policies developed by the Audit
Committee, the Company's Quarterly Report on Form 10-Q, including
the quarterly reviewed financial statements.
REVIEW OF INTERNAL CONTROLS.
31. Review on a continuing basis the adequacy of internal controls,
including meeting periodically with management and the independent
auditors to review the adequacy of such controls.
32. Review before release the disclosure regarding the Company's system
of internal controls required under SEC rules to be contained in the
Company's periodic filings.
33. Review before release management's annual report on internal control
over financial reporting required by applicable SEC rules to be
contained in the Company's Annual Report on Form 10-K and the
attestations or reports by the independent auditors relating to such
report.
34. Receive quarterly a report from the Company's Chief Executive
Officer and Chief Financial Officer of the following:
- All significant deficiencies and material weaknesses in the
design or operation of internal control over financial
reporting which are reasonably likely to adversely affect the
registrant's ability to record, process, summarize and report
financial information; and
- Any fraud, whether or not material, that involves management
or other employees who have a significant role in the
registrant's internal control over financial reporting.
IMPLEMENT AND MONITOR PROCESS IMPROVEMENT ACTIVITIES.
35. Review periodically, and at least annually, with the independent
auditors and management changes or improvements in financial or
accounting practices and monitor the extent to which changes or
improvements, as approved by the Audit Committee, have been
implemented.
36. Establish procedures for (a) the receipt and retention of complaints
received by the Company or the Audit Committee regarding accounting,
internal accounting controls, or auditing matters, (b) the
confidential, anonymous submission by employees of the Company of
concerns regarding accounting or auditing matters and (c) the
treatment of such complaints and submissions.
REVIEW LEGAL COMPLIANCE.
37. Review, with company counsel, legal compliance matters, including
corporate securities trading policies.
38. Review, with company counsel, any legal matter that could have a
significant impact on the financial statements.
39. Review systems that management has established to ensure that the
financial statements, reports and other financial information
disseminated to governmental organizations and the public satisfy
all applicable legal requirements.
ACT AS QUALIFIED LEGAL COMPLIANCE COMMITTEE.
40. Adopt written procedures for the confidential receipt, retention,
and consideration of any report by an attorney covered by the
Company's SEC Rule 205 Compliance Policy of evidence of a material
violation by the Company or any of its officers, directors,
employees or agents, of an applicable U.S. federal or state
securities law, a material breach of a fiduciary duty arising under
U.S. federal or state law, or similar material violation of any U.S.
federal or state law.
41. Inform the Company's chief legal officer and chief executive officer
(or the equivalents thereof) of any report of evidence of a material
violation or breach referred to above (unless such report to the
chief legal officer and chief executive officer would be futile).
42. Determine whether an investigation is necessary regarding any report
of evidence of any material violation or breach by the Company, its
officers, directors, employees or agents referred to above and, if
it determines an investigation is necessary or appropriate: (a)
notify the full Board of Directors; (b)
A - 5
initiate an investigation, which may be conducted either by the
chief legal officer (or the equivalent thereof) or by outside
attorneys; and (c) retain such additional expert personnel as the
Committee deems necessary.
43. At the conclusion of an investigation: (a) recommend, by majority
vote, that the issuer implement an "appropriate response" to
evidence of a material violation; and (b) inform the chief legal
officer and the chief executive officer (or the equivalents thereof)
and the Board of Directors of the results of any such investigation
and the appropriate remedial measures to be adopted.
44. Acting by majority vote, take all other appropriate action,
including notifying the SEC if necessary, in the event the Company
fails in any material respect to implement an appropriate response
that the QLCC has recommended the Company take.
OVERSEE RELATED PARTY TRANSACTIONS.
45. Review and approve any related-party transactions required to be
disclosed in the Company's annual proxy statement pursuant to Item
404 of Regulation S-K.
MONITOR RISK MANAGEMENT.
46. Discuss policies with respect to risk assessment and risk
management.
REVIEW OF FINANCE AND ACCOUNTING DEPARTMENT
47. Review annually the performance of the Chief Financial Officer,
Controller and other key finance and accounting personnel as the
Audit Committee determines appropriate, discuss its review with the
employee being reviewed and provide its review to the Management
Development, Compensation and Stock Option Committee.
48. Review annually the Company's finance and accounting resources,
including staffing levels, experience levels, software and other
resources.
49. Set hiring policies for employees or former employees of the
independent auditors.
VII. REPORTING
The Audit Committee shall have the following reporting responsibilities:
1. Maintain minutes of all Audit Committee meetings and submit such
minutes to the Board of Directors.
2. Satisfy its annual reporting requirements to the Board of Directors
as set forth under "Duties, Responsibilities and Processes - Review
of Annual Financial Statements and Audit."
3. Report periodically to the Board of Directors, as it deems
appropriate, concerning the activities of the Audit Committee.
VIII. ANNUAL REVIEW
The Audit Committee shall conduct, on an annual basis:
1. A review and assessment of the adequacy of this charter, and
2. An evaluation of the Audit Committee's performance in carrying out
the duties and responsibilities under this charter.
Based on this annual review, the Audit Committee shall recommend to the
Board of Directors changes in the authority, responsibility or duties of the
Audit Committee and in this charter.
A - 6
PERCEPTRON, INC.
THIS PROXY IS SOLICITED BY THE BOARD OF DIRECTORS OF PERCEPTRON, INC.
The undersigned shareholder hereby appoints ALFRED A. PEASE, JOHN J. GARBER and
THOMAS S. VAUGHN, or any one of them, the attorney and proxies of the
undersigned, with power of substitution, to vote all shares of common stock of
Perceptron, Inc. standing in the name of the undersigned at the close of
business on October 15, 2004 at the Annual Meeting of Shareholders of the
Company to be held on Monday, December 6, 2004 at 9:00 a.m., local time, and at
any and all adjournments thereof, with all the powers the undersigned would
possess if then and there present.
The shareholder instructs the proxies to vote as specified on this proxy on the
matters described in the Proxy Statement dated October 25, 2004. Proxies will be
voted as instructed.
IF NO CHOICE IS SPECIFIED, THIS PROXY WILL BE VOTED FOR THE ELECTION OF THE
COMPANY'S NOMINEES AS DIRECTORS (INCLUDING THE ELECTION OF ANY PERSON FOR THE
BOARD OF DIRECTORS WHERE A NOMINEE NAMED IN THE PROXY STATEMENT IS UNABLE OR,
FOR GOOD CAUSE, WILL NOT SERVE), FOR THE APPROVAL OF THE COMPANY'S 2004 STOCK
INCENTIVE PLAN AND FOR THE APPROVAL OF THE COMPANY'S AMENDED AND RESTATED
EMPLOYEE STOCK PURCHASE PLAN.
DISCRETIONARY AUTHORITY IS HEREBY CONFERRED AS TO ANY OTHER MATTERS AS MAY
PROPERLY COME BEFORE THE ANNUAL MEETING. THE UNDERSIGNED ACKNOWLEDGES RECEIPT OF
THE 2004 ANNUAL REPORT, AND THE PROXY STATEMENT AND NOTICE OF SAID MEETING BOTH
DATED OCTOBER 25, 2004.
(CONTINUED AND TO BE SIGNED ON THE REVERSE SIDE) SEE REVERSE
SIDE
ANNUAL MEETING OF SHAREHOLDERS OF
PERCEPTRON, INC.
DECEMBER 6, 2004
Please date, sign and mail
your proxy card in the
envelope provided as soon
as possible.
- Please detach along perforated line and mail in the envelope provided. -
PLEASE SIGN, DATE AND RETURN PROMPTLY IN THE ENCLOSED ENVELOPE. PLEASE MARK YOUR
VOTE IN BLUE OR BLACK INK AS SHOWN HERE [X]
1. ELECTION OF DIRECTORS Directors recommend a vote for the following
nominees to hold office until the Annual Meeting of Shareholders in 2005.
NOMINEES:
[ ] FOR ALL NOMINEES - David J. Beattie
- Kenneth R. Dabrowski
[ ] WITHHOLD AUTHORITY - Philip J. DeCocco
FOR ALL NOMINEES - W. Richard Marz
- Robert S. Oswald
[ ] FOR ALL EXCEPT - Alfred A. Pease
(See instructions below) - James A. Ratigan
- Terryll R. Smith
INSTRUCTION: To withhold authority to vote for any individual nominee(s), mark
"FOR ALL EXCEPT" and fill in the circle next to each nominee you wish to
withhold, as shown here:
To change the address on your account, please check the box at
right and indicate your new address in the address space above.
Please note that changes to the registered name(s) on the [ ]
account may not be submitted via this method.
FOR AGAINST ABSTAIN
2. APPROVAL OF THE 2004 STOCK INCENTIVE PLAN [ ] [ ] [ ]
Directors recommend the approval of the Perceptron, Inc. 2004 Stock Incentive
Plan, as described in the Notice of Annual Meeting of Shareholders and Proxy
Statement dated October 25, 2004.
FOR AGAINST ABSTAIN
3. APPROVAL OF THE AMENDED AND RESTATED [ ] [ ] [ ]
EMPLOYEE STOCK PURCHASE PLAN
Directors recommend the approval of the Perceptron, Inc. Amended and Restated
Employee Stock Purchase Plan, as described in the Notice of Annual Meeting of
Shareholders and Proxy Statement dated October 25, 2004.
Brokers executing proxies should indicate the number of shares with respect to
which authority is conferred by this Proxy if less than all shares held as
nominees are to be voted.
PLEASE EXECUTE AND RETURN THIS PROXY IN THE ENCLOSED ENVELOPE PROMPTLY.
Signature of Signature of
Shareholder_____________ Date:_________ Shareholder_____________Date:__________
NOTE: Please sign exactly as your name or names appear on this Proxy. When
shares are held jointly, each holder should sign. When signing as executor,
administrator, attorney, trustee or guardian, please give full title as such. If
the signer is a corporation, please sign full corporate name by duly authorized
officer, giving full title as such. If signer is a partnership, please sign in
partnership name by authorized person.
APPENDIX 1
PERCEPTRON, INC.
2004 STOCK INCENTIVE PLAN
I. GENERAL PROVISIONS
1.1 ESTABLISHMENT. On October 22, 2004, the Board of Directors ("Board")
of Perceptron, Inc., a Michigan corporation ("Corporation"), adopted the 2004
Stock Incentive Plan ("Plan").
1.2 PURPOSE. The purpose of the Plan is (i) to promote the best interests
of the Corporation and its shareholders by encouraging Employees, Consultants
and non-employee directors of the Corporation and its Subsidiaries to acquire an
ownership interest in the Corporation through Options, Stock Appreciation
Rights, Restricted Stock, Restricted Stock Units, Performance Share Awards,
Director Stock Purchase Rights and Deferred Stock Units, thus identifying their
interests with those of shareholders, and (ii) to enhance the ability of the
Corporation to attract and retain qualified Employees, Consultants and
non-employee directors. It is the further purpose of the Plan to permit the
granting of Stock Options, Stock Appreciation Rights, Restricted Stock,
Restricted Stock Units and Performance Share Awards that will constitute
performance based compensation, as described in Section 162(m) of the Code, and
regulations promulgated thereunder. After the Effective Date, the Corporation
shall no longer issue any awards under the 1992 Stock Option Plan and the
Directors Stock Option Plan.
1.3 DEFINITIONS. As used in this Plan, the following terms have the
meaning described below:
(a) "Agreement" means the written agreement that sets forth the
terms of a Participant's Option, Stock Appreciation Right, Restricted Stock
grant, Restricted Stock Unit, Performance Share Award, Director Stock Purchase
Right or Deferred Stock Unit.
(b) "Approval Date" means October 22, 2004, the date the Plan was
approved by the Board.
(c) "Award" means Options, Stock Appreciation Rights, Restricted
Stock, Restricted Stock Units, Performance Share Awards, Deferred Stock Units
and Director Stock Purchase Rights.
(d) "Board" means the Board of Directors of the Corporation.
(e) "Change in Control" means (i) a merger involving the Corporation
in which the Corporation is not the surviving corporation (other than a merger
with a wholly-owned subsidiary of the Corporation formed for the purpose of
changing the Corporation's corporate domicile); (ii) a share exchange in which
the shareholders of the Corporation exchange their stock in the Corporation for
stock of another corporation (other than a share exchange in which all or
substantially all of the holders of the voting stock of the Corporation,
immediately prior to the transaction, exchange, on a pro rata basis, their
voting stock of the Corporation for more than 50% of the voting stock of such
other corporation); (iii) the sale of all or substantially all of the assets of
the Corporation; or (iv) any person or group of persons (as defined by Section
13(d) of the Securities Exchange Act of 1934, as amended) (other than any
employee benefit plan or employee benefit trust benefitting the employees of the
Corporation) becoming a beneficial owner, directly or indirectly, of securities
of the Corporation representing more than fifty (50%) percent of either the then
outstanding Common Stock of the Corporation, or the combined voting power of the
Corporation's then outstanding voting securities.
(f) "Code" means the Internal Revenue Code of 1986, as amended.
(g) "Committee" means the Management Development, Compensation and
Stock Option Committee of the Corporation or other committee of the Board duly
appointed to administer the Plan and having such powers as shall be specified by
the Board. If no committee of the Board has been appointed to administer the
Plan, the Board shall exercise all of the powers of the Committee granted
herein, and, in any event, the Board may in its discretion exercise any or all
of such powers. The Committee shall be comprised of two or more members of the
Board.
(h) "Common Stock" means shares of the Corporation's authorized
common stock.
(i) "Consultant" means a person engaged to provide consulting or
advisory services (other than as an Employee or a member of the Board) to the
Corporation, provided that the identity of such person, the nature of such
services or the entity to which such services are provided would not preclude
the Corporation from offering or selling securities to such person pursuant to
the Plan in reliance on a Form S-8 Registration Statement under the Securities
Act.
(j) "Corporation" means Perceptron, Inc. a Michigan corporation.
(k) "Deferred Stock Unit" means a bookkeeping entry representing a
right granted to a Participant pursuant to Article VII of the Plan to receive a
share of Common Stock on a date determined in accordance with the provisions of
Article VII of the Plan.
(l) "Director" means a member of the Corporation's Board of
Directors.
(m) "Director Fee Payment Date" shall mean each March 1, June 1,
September 1 and December 1.
(n) "Director Stock Purchase Right" means an election by a Director
to purchase Common Stock in accordance with Article VI of the Plan.
(o) "Disability" means total and permanent disability, as defined in
Code Section 22(e).
(p) "Dividend Equivalent" means a credit, made at the discretion of
the Committee or as otherwise provided by the Plan, to the account of a
Participant in an amount equal to the cash dividends paid on one share of Common
Stock for each share of Common Stock represented by an Award held by such
Participant.
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(q) "Effective Date" means the day after the Plan is approved by
shareholders of the Corporation.
(r) "Employee" means an individual who has an "employment
relationship" with the Corporation or a Subsidiary, as defined in Treasury
Regulation 1.421-7(h), and the term "employment" means employment with the
Corporation, or a Subsidiary of the Corporation.
(s) "Exchange Act" means the Securities Exchange Act of 1934, as
amended from time to time and any successor thereto.
(t) "Fair Market Value" means for purposes of determining the value
of Common Stock on the Grant Date:
(i) the average of the closing sales prices of the Common
Stock on the principal securities exchange on which the Common Stock may at the
time be listed (or, if there have been no sales on such exchange on any day, the
average of the closing high bid and low asked prices on such exchange at the end
of such day) for the five (5) consecutive trading days on such exchange
immediately preceding the Grant Date; or
(ii) if the Common Stock is not listed on a securities
exchange, the average of the closing sales prices of the Common Stock on The
Nasdaq Stock Market (or, if there have been no sales on The Nasdaq Stock Market
on any such day, the average of the closing high bid and low asked prices on The
Nasdaq Stock Market at the end of such day) for the five (5) consecutive trading
days on The Nasdaq Stock Market immediately preceding the Grant Date; or
(iii) if the Common Stock is not listed on any domestic stock
exchange or The Nasdaq Stock Market, the average of the mean between the closing
high bid and low asked price as reported by the OTC Bulletin Board for the five
(5) consecutive trading days on the OTC Bulletin Board immediately preceding the
Grant Date; or
(iv) if none of the foregoing clauses apply, the fair value as
determined in good faith by the Committee.
Unless otherwise specified in the Plan, "Fair Market Value" for purposes of
determining the value of Common Stock on the date of exercise means the
applicable definitions under (i)-(iv) above, substituting the date of exercise
for the Grant Date, unless otherwise required by applicable law.
(u) "Grant Date" means the date on which the Committee authorizes an
individual Option, Stock Appreciation Right, Restricted Stock grant, Restricted
Stock Unit, Performance Share Award, or a Director Fee Payment Date in the case
of a Director Stock Purchase Right, or such later date as shall be designated by
the Committee.
(v) "Incentive Stock Option" means an Option that is intended to
meet the requirements of Section 422 of the Code.
(w) "Indexed Option" means an Option with an exercise price which
either increases by a fixed percentage over time or changes by reference to a
published index, as determined by the Committee.
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(x) "Nonqualified Stock Option" means an Option that is not intended
to constitute an Incentive Stock Option.
(y) "Option" means either an Incentive Stock Option, a Nonqualified
Stock Option or an Indexed Option.
(z) "Participant" means an Employee or non-employee director or
Consultant designated by the Committee to participate in the Plan.
(aa) "Performance Measures" shall mean the measures of performance
of the Corporation and its Subsidiaries used to determine a Participant's
entitlement to an award under the Plan. Performance Measures shall have the same
meanings as used in the Corporation's financial statements, or, if such terms
are not used in the Corporation's financial statements, they shall have the
meaning applied pursuant to generally accepted accounting principles, or as used
generally in the Corporation's industry. Performance Measures shall be
calculated with respect to the Corporation and each Subsidiary consolidated
therewith for financial reporting purposes or such division or other business
unit as may be selected by the Committee. For purposes of the Plan, the
Performance Measures shall be calculated in accordance with generally accepted
accounting principles, but, unless otherwise determined by the Committee, prior
to the accrual or payment of any award under this Plan for the same performance
period and excluding the effect (whether positive or negative) of any change in
accounting standards or any extraordinary, unusual or nonrecurring item, as
determined by the Committee, occurring after the establishment of the
performance goals. Performance Measures may be one or more of the following, or
a combination of the any of the following, as determined by the Committee:
(i) revenue;
(ii) gross margin;
(iii) operating margin;
(iv) operating income;
(v) pre-tax profit;
(vi) earnings before interest, taxes and depreciation;
(vii) net income;
(viii) cash flow;
(ix) expenses;
(x) the market price of the Common Stock;
(xi) earnings per share;
(xii) operating income per share
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(xiii) return on stockholder equity;
(xiv) return on capital;
(xv) return on net assets;
(xvi) economic value added;
(xvii) market share;
(xviii) return on investment;
(xix) profit after tax;
(xx) product approval;
(xxi) market capitalization;
(xxii) new products; and
(xxiii) research and development activity.
Performance measures are required to be reapproved by shareholders of the
Corporation, to the extent required by Section 162(m) of the Code, which
currently requires such reapproval at the first shareholders meeting that occurs
in the fifth year following the Effective Date.
(bb) "Performance Share Award" means a performance share award that
is granted in accordance with Article V of the plan.
(cc) "Performance Share Award Unit" means a Performance Share Award
described in Section 5.2(d)(ii).
(dd) "Plan" means the Perceptron, Inc. 2004 Stock Incentive Plan,
the terms of which are set forth herein, and amendments thereto.
(ee) "Restriction Period" means the period of time during which a
Participant's Restricted Stock or Restricted Stock Unit grant is subject to
restrictions and is nontransferable.
(ff) "Restricted Stock" means Common Stock that is subject to
restrictions.
(gg) "Restricted Stock Unit" means a right granted pursuant to
Article IV to receive Restricted Stock or an equivalent value in cash pursuant
to the terms of the Plan and the related Agreement.
(hh) "Retirement" means termination of employment on or after the
attainment of age 65 and completion of three (3) years of service with the
Corporation.
(ii) "Securities Act" means the Securities Act of 1933, as amended.
5
(jj) "Stock Appreciation Right" means the right to receive a cash or
Common Stock payment from the Corporation, in accordance with Article III of the
Plan.
(kk) "Subsidiary" means a corporation or other entity defined in
Code Section 424(f).
(ll) "Tandem Stock Appreciation Right" means a Stock Appreciation
Right granted in tandem with an Option.
(mm) "Vested" means the extent to which an Option or Stock
Appreciation Right granted hereunder has become exercisable in accordance with
this Plan and the terms of the respective Agreement pursuant to which such
Option or Stock Appreciation Right was granted.
1.4 ADMINISTRATION.
(a) The Plan shall be administered by the Committee. At all times it
is intended that the directors appointed to serve on the Committee shall be
"disinterested persons" (within the meaning of Rule 16b-3 promulgated under the
Exchange Act) and "outside directors" (within the meaning of Code Section
162(m)); however, the mere fact that a Committee member shall fail to qualify
under either of these requirements shall not invalidate any award made by the
Committee if the award is otherwise validly made under the Plan. The members of
the Committee shall be appointed by, and may be changed at any time and from
time to time, at the discretion of the Board.
(b) The Committee shall interpret the Plan, prescribe, amend, and
rescind rules and regulations relating to the Plan, and make all other
determinations necessary or advisable for its administration. The decision of
the Committee on any question concerning the interpretation of the Plan or its
administration with respect to any Option, Stock Appreciation Right, Restricted
Stock grant, Restricted Stock Unit, Performance Share Award or Deferred Stock
Unit granted under the Plan or any Director Stock Purchase Right shall be final
and binding upon all Participants. No member of the Committee shall be liable
for any action or determination made in good faith with respect to the Plan or
any grant or award hereunder.
(c) In addition to any other powers set forth in the Plan and
subject to the provisions of the Plan, but, in the case of Options, Stock
Appreciation Rights and other Awards designated as Awards under Code Section
162(m), subject to the requirements of Code Section 162(m), the Committee shall
have the full and final power and authority, in its discretion:
(i) to amend, modify, extend, cancel or renew any Option,
Stock Appreciation Right, Restricted Stock grant, Restricted Stock Unit,
Performance Share Award, Deferred Stock Unit or Director Stock Purchase Right or
to waive any restrictions or conditions applicable to any Option, Stock
Appreciation Right, Restricted Stock grant, Restricted Stock Unit, Performance
Share Award, Deferred Stock Unit or Director Stock Purchase Right or any shares
acquired pursuant thereto;
(ii) to accelerate, continue, extend or defer the
exercisability or vesting of any Option, Stock Appreciation Right, Restricted
Stock grant, Restricted Stock Unit, Performance Share Award, Deferred Stock Unit
or Director Stock Purchase Right or any shares acquired pursuant thereto,
including with respect to the period following a Participant's termination of
employment with the Corporation;
6
(iii) to authorize, in conjunction with any applicable
deferred compensation plan of the Corporation, that the receipt of cash or
Common Stock subject to any Option, Stock Appreciation Right, Restricted Stock
grant, Restricted Stock Unit, Performance Share Award, Deferred Stock Unit or
Director Stock Purchase Right under this Plan may be deferred under the terms
and conditions of such deferred compensation plan;
(d) To the extent permitted by applicable law, the Committee may
delegate to one or more officers of the Corporation or a committee of such
officers, the authority, subject to such terms and limitations as the Committee
shall determine, to grant Options, Stock Appreciation Rights, Restricted Stock,
Restricted Stock Units, Performance Share Awards and Deferred Stock Units to, or
to cancel, modify, waive rights with respect to, alter, discontinue or terminate
any of the foregoing, held by Participants who are not officers or directors of
the Corporation for purposes of Section 16 of the Exchange Act.
1.5 PARTICIPANTS. Participants in the Plan shall be such Employees
(including Employees who are directors), non-employee directors of, or
Consultants to, the Corporation and its Subsidiaries as the Committee in its
sole discretion may select from time to time. The Committee may grant Options,
Stock Appreciation Rights, Restricted Stock, Restricted Stock Units, Performance
Share Awards and Deferred Stock Units to an individual upon the condition that
the individual become an Employee of the Corporation or of a Subsidiary,
provided that the Option, Stock Appreciation Right, Restricted Stock, Restricted
Stock Unit, Performance Share Award or Deferred Stock Unit shall be deemed to be
granted only on the date that the individual becomes an Employee. Awards covered
by Code Section 162(m) shall be made to key Employees designated by the
Committee.
1.6 STOCK. The Corporation has reserved 600,000 shares of the
Corporation's Common Stock for issuance in conjunction with all Options and
other stock-based awards to be granted under the Plan. All of the 600,000 shares
of the Corporation's Common Stock so reserved may be granted as ISOs. Shares
subject to any unexercised portion of a terminated, cancelled or expired Option,
Stock Appreciation Right, Restricted Stock grant, Restricted Stock Unit, or
Performance Share Award granted hereunder may again be subjected to grants and
awards under the Plan. In the event that an Option granted under the Plan is
exercised by delivering shares of Common Stock that previously were acquired by
exercising Options granted under the Plan, such shares of previously-acquired
Common Stock so delivered to the Corporation may again be subject to grants
under the Plan. Shares of Common Stock shall not be deemed to have been granted
pursuant to the Plan (a) with respect to any portion of an Award that is settled
in cash or (b) to the extent such shares are withheld in satisfaction of tax
withholding obligations pursuant to Section 10.6. Upon payment in shares of
Common Stock pursuant to the exercise of a Stock Appreciation Right, the number
of shares available for grant under the Plan shall be reduced only by the number
of shares actually issued in such payment. All provisions in this Section 1.6
shall be adjusted, as applicable, in accordance with Article VIII.
1.7 NO REPRICING. Without the affirmative vote of holders of a majority of
the shares of Common Stock cast in person or by proxy at a meeting of the
shareholders of the Corporation at which a quorum representing a majority of all
outstanding shares of Common Stock is present or represented by proxy, the Board
shall not approve a program providing for either (a) the cancellation of
outstanding Options and/or Stock Appreciation Rights and the grant in
substitution therefore of any new awards under the Plan having a lower exercise
price or (b) the amendment of outstanding Options and/or Stock Appreciation
Rights to reduce the exercise price thereof. This paragraph shall
7
not be construed to apply to "issuing or assuming a stock option in a
transaction to which section 424(a) applies," within the meaning of Section 424
of the Code.
II. STOCK OPTIONS
2.1 GRANT OF OPTIONS. The Committee, at any time and from time to time,
subject to the terms and conditions of the Plan, may grant Options to such
Participants and for such number of shares of Common Stock (whole or fractional)
as it shall designate; provided, however, that no Participant may be granted
Options during any one fiscal year of the Corporation to purchase more than
200,000 shares of Common Stock. Any Participant may hold more than one Option
under the Plan and any other Plan of the Corporation or Subsidiary. The
Committee shall determine the general terms and conditions of exercise,
including any applicable vesting requirements, which shall be set forth in a
Participant's Option Agreement. The Committee may designate any Option granted
as either an Incentive Stock Option or a Nonqualified Stock Option, or the
Committee may designate a portion of an Option as an Incentive Stock Option or a
Nonqualified Stock Option. At the discretion of the Committee, an Option may be
granted in tandem with a Stock Appreciation Right. Options are intended to
satisfy the requirements of Code Section 162(m) and the regulations promulgated
thereunder, to the extent applicable. No Option shall be granted with an
exercise term that extends beyond ten (10) years from the Grant Date.
2.2 INCENTIVE STOCK OPTIONS. Any Option intended to constitute an
Incentive Stock Option shall comply with the requirements of this Section 2.2.
An Incentive Stock Option may only be granted to an Employee. No Incentive Stock
Option shall be granted with an exercise price below the Fair Market Value of
Common Stock on the Grant Date nor with an exercise term that extends beyond ten
(10) years from the Grant Date. An Incentive Stock Option shall not be granted
to any Participant who owns (within the meaning of Code Section 424(d)) stock of
the Corporation or any Subsidiary possessing more than 10% of the total combined
voting power of all classes of stock of the Corporation or a Subsidiary unless,
at the Grant Date, the exercise price for the Option is at least 110% of the
Fair Market Value of the shares subject to the Option and the Option, by its
terms, is not exercisable more than five (5) years after the Grant Date. The
aggregate Fair Market Value of the underlying Common Stock (determined at the
Grant Date) as to which Incentive Stock Options granted under the Plan
(including a plan of a Subsidiary) may first be exercised by a Participant in
any one calendar year shall not exceed $100,000. To the extent that an Option
intended to constitute an Incentive Stock Option shall violate the foregoing
$100,000 limitation (or any other limitation set forth in Code Section 422), the
portion of the Option that exceeds the $100,000 limitation (or violates any
other Code Section 422 limitation) shall be deemed to constitute a Nonqualified
Stock Option.
2.3 OPTION PRICE. The Committee shall determine the per share exercise
price for each Option granted under the Plan; provided, however, that the option
price of an option shall not be less than 100% of the Fair Market Value of the
shares of Common Stock covered by the Option on the Grant Date. Notwithstanding
anything to the contrary in this Section 2.3, in the case of an Indexed Option,
the Committee shall determine the exercise price of such Indexed Option and the
terms and conditions that affect, if any, any adjustments to the exercise price
of such Indexed Option. Notwithstanding the foregoing, an Option may be granted
with an exercise price lower than the minimum exercise price set forth above if
such Option is granted pursuant to an assumption or substitution for another
option in a manner qualifying under the provisions of Section 424(a) of the
Code. The option price will be subject to adjustment in accordance with the
provisions of Section 9.1 of this Plan.
8
2.4 PAYMENT FOR OPTION SHARES. The purchase price for shares of Common
Stock to be acquired upon exercise of an Option granted hereunder shall be paid
in full in cash or by personal check, bank draft or money order at the time of
exercise; provided that the Committee may (but is not obligated to) permit
payment to be made by (a) delivery to the Corporation of outstanding shares of
Common Stock on such terms and conditions as may be specified in the optionee's
Agreement, (b) by delivery to the Corporation of a properly executed exercise
notice, acceptable to the Corporation, together with irrevocable instructions to
the Participant's broker to deliver to the Corporation sufficient cash to pay
the exercise price and any applicable income and employment withholding taxes,
in accordance with a written agreement between the Corporation and the brokerage
firm ("cashless exercise procedure"), (c) other means determined by the
Committee, or (d) any combination of the foregoing. Shares of Common Stock
surrendered upon exercise shall be valued at Fair Market Value as of the date of
exercise, and the certificate(s) for such shares, duly endorsed for transfer or
accompanied by appropriate stock powers, shall be surrendered to the
Corporation. Participants who are subject to short swing profit restrictions
under the Exchange Act and who exercise an Option by tendering
previously-acquired shares shall do so only in accordance with the provisions of
Rule 16b-3 of the Exchange Act. Notwithstanding the foregoing, an Option may not
be exercised by delivery to the Corporation of shares of Common Sock to the
extent such delivery would constitute a violation of the provisions of any law,
regulation or agreement restricting the redemption of the Corporation's stock.
Until the optionee has been issued a certificate or certificates for the shares
of Common Stock so purchased, he or she shall possess no rights as a record
holder with respect to any such shares. In the event any Common Stock is
delivered to or retained by the Corporation to satisfy all or any part of the
purchase price, the part of the purchase price deemed to have been satisfied by
such Common Stock shall be equal to the product derived by multiplying the Fair
Market Value as of the date of exercise times the number of shares of Common
Stock delivered to or retained by the Corporation. The number of shares of
Common Stock delivered to or retained by the Corporation in satisfaction of the
purchase price shall not be a number which when multiplied by the Fair Market
Value as of the date of exercise would result in a product greater than the
purchase price. No fractional shares of Common Stock shall be delivered to or
retained by the Corporation in satisfaction of the purchase price. In the event
that an optionee exercises both an Incentive Stock Option and a Nonqualified
Stock Option, separate share certificates shall be issued for shares acquired
pursuant to the Incentive Stock Option and for shares acquired pursuant to the
Nonqualified Stock Option.
III. STOCK APPRECIATION RIGHTS
3.1 GRANT OF STOCK APPRECIATION RIGHTS. Stock Appreciation Rights may be
granted, held and exercised in such form and upon such general terms and
conditions as determined by the Committee on an individual basis. A Stock
Appreciation Right may be granted to a Participant with respect to such number
of shares of Common Stock of the Corporation as the Committee may determine;
provided, however, that no Participant may be granted a Stock Appreciation Right
during any one fiscal year of the Corporation for more than 200,000 shares of
Common Stock. A Stock Appreciation Right may be granted on a stand-alone basis
or as a Tandem Stock Appreciation Right. If a Tandem Stock Appreciation Right,
the number of shares covered by the Stock Appreciation Right shall not exceed
the number of shares of stock which the Participant could purchase upon the
exercise of the related Option. Stock Appreciation Rights are intended to
satisfy the requirements of Code Section 162(m) and the regulations promulgated
thereunder, to the extent applicable. No Stock Appreciation Right shall be
granted with an exercise term that extends beyond ten (10) years from the Grant
Date.
9
3.2 EXERCISE PRICE. The Committee shall determine the per share exercise
price for each Stock Appreciation Right granted under the Plan; provided,
however, that (i) the exercise price of a Stock Appreciation Right shall not be
less than 100% of the Fair Market Value of the shares of Common Stock covered by
the Stock Appreciation Right on the Date such Stock Appreciation Right is
granted, except that the exercise price of a Tandem Stock Appreciation Right may
be less than the Fair Market Value on the date of grant if the Tandem Stock
Appreciation Right is added to an Option following the date of grant of the
Option; and (ii) the per share exercise price subject to a Tandem Stock
Appreciation Right shall be the per share exercise price under the related
Option.
3.3 EXERCISE OF STOCK APPRECIATION RIGHTS. A Stock Appreciation Right
shall be deemed exercised upon receipt by the Corporation of written notice of
exercise from the Participant. Except as permitted under Rule 16b-3, notice of
exercise of a Stock Appreciation Right by a Participant subject to the insider
trading restrictions of Section 16(b) of the Securities Exchange Act of 1934,
shall be limited to a period determined by the Committee or, if no period is so
determined, the period beginning on the second day following the release of the
Corporation's quarterly or annual summary of earnings and ending on the 15th day
of the third month of the calendar quarter in which such release is made. The
exercise term of each Stock Appreciation Right shall be limited to such period
as set by the Committee or in a related Option. If a Tandem Stock Appreciation
Right, a Stock Appreciation Right shall be exercisable only at such times and in
such amounts as the related Option may be exercised. A Tandem Stock Appreciation
Right shall terminate and cease to be exercisable no later than the date on
which the related Option expires or is terminated or canceled. Upon the exercise
of a Tandem Stock Appreciation Right with respect to some or all of the shares
subject to such Stock Appreciation Right, the related Option shall be canceled
automatically as to the number of shares with respect to which the Tandem Stock
Appreciation Right was exercised. Upon the exercise of an Option related to a
Tandem Stock Appreciation Right as to some or all of the shares subject to such
Option, the related Tandem Stock Appreciation Right shall be canceled
automatically as to the number of shares with respect to which the related
Option was exercised.
3.4 STOCK APPRECIATION RIGHT ENTITLEMENT. Upon exercise of a Stock
Appreciation Right, a Participant shall be entitled to payment from the
Corporation, in cash, shares of Common Stock, or partly in each (as determined
by the Committee in accordance with any applicable terms of the Agreement), of
an amount equal to the difference between the aggregate Fair Market Value on the
date of exercise for the specified number of shares being exercised and the
aggregate exercise price of the Stock Appreciation Right being exercised. If the
Stock Appreciation Right is granted in tandem with an Option, the payment shall
be equal to the difference between:
(a) the Fair Market Value of the number of shares subject to
the Stock Appreciation Right on the exercise date; and
(b) the option price of the associated Option multiplied by
the number of shares available under the Option.
3.5 MAXIMUM STOCK APPRECIATION RIGHT AMOUNT PER SHARE. The Committee may,
at its sole discretion, establish (at the time of grant) a maximum amount per
share which shall be payable upon the exercise of a Stock Appreciation Right,
expressed as a dollar amount or as a percentage or multiple of the Option price
of a related Option.
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IV. RESTRICTED STOCK GRANTS AND UNITS
4.1 GRANT OF RESTRICTED STOCK AND RESTRICTED STOCK UNITS. Subject to the
terms and conditions of the Plan, the Committee, at any time and from time to
time, may grant shares of Restricted Stock and Restricted Stock Units under this
Plan to such Participants and in such amounts as it shall determine.
4.2 RESTRICTED STOCK AGREEMENT. Each grant of Restricted Stock or
Restricted Stock Units shall be evidenced by an Agreement that shall specify the
terms of the restrictions, including the Restriction Period, or periods, the
number of Common Stock shares subject to the grant or units, the purchase price
for the shares of Restricted Stock, if any, the form of consideration that may
be used to pay the purchase price of the Restricted Stock, including those
specified in Section 2.4, and such other general terms and conditions, including
performance goals, as the Committee shall determine.
4.3 TRANSFERABILITY. Except as provided in this Article X, Section 10.4 or
Section 10.5 of the Plan, the shares of Common Stock subject to a Restricted
Stock grant or Restricted Stock Unit hereunder may not be transferred, pledged,
assigned, or otherwise alienated or hypothecated until the termination of the
applicable Restriction Period or for such period of time as shall be established
by the Committee and as shall be specified in the applicable Agreement, or upon
the earlier satisfaction of other conditions as specified by the Committee in
its sole discretion and as set forth in the applicable Agreement.
4.4 OTHER RESTRICTIONS. The Committee shall impose such other restrictions
on any shares of Common Stock subject to a Restricted Stock grant or Restricted
Stock Unit under the Plan as it may deem advisable including, without
limitation, restrictions under applicable federal or state securities laws, and
may legend the certificates representing such shares to give appropriate notice
of such restrictions.
4.5 CERTIFICATE LEGEND. In addition to any legends placed on certificates
pursuant to Sections 4.3 and 4.4, each certificate representing shares of Common
Stock subject to a Restricted Stock grant or Restricted Stock Unit shall bear
the following legend:
The sale or other transfer of the shares of stock represented by
this certificate, whether voluntary, involuntary or by operation of law,
is subject to certain restrictions on transfer set forth in the
Perceptron, Inc. 2004 Stock Incentive Plan ("Plan"), rules and
administrative guidelines adopted pursuant to such Plan and an Agreement
dated___________. A copy of the Plan, such rules and such Agreement may be
obtained from the Secretary of Perceptron, Inc.
4.6 REMOVAL OF RESTRICTIONS. Except as otherwise provided in this Article
IV of the Plan, and subject to applicable federal and state securities laws,
shares of Common Stock subject to a Restricted Stock grant or Restricted Stock
Unit under the Plan shall become freely transferable by the Participant after
the last day of the Restriction Period. Once the shares are released from the
restrictions, the Participant shall be entitled to have the legend required by
Section 4.5 of the Plan removed from the applicable Common Stock certificate.
Provided further, except as set forth in Section 4.9, the Committee shall have
the discretion to waive the applicable Restriction Period with respect to all or
any part of the Common Stock subject to a Restricted Stock grant or Restricted
Stock Unit.
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4.7 VOTING RIGHTS.
(a) During the Restriction Period, Participants holding shares of
Common Stock subject to a Restricted Stock grant hereunder may exercise full
voting rights with respect to the Restricted Stock.
(b) Participants shall have no voting rights with respect to shares
of Common Stock represented by Restricted Stock Units until the date of the
issuance of such shares (as evidenced by the appropriate entry on the books of
the Corporation or of a duly authorized transfer agent of the Corporation).
4.8 DIVIDENDS AND OTHER DISTRIBUTIONS.
(a) Except as otherwise provided in Section 4.9 or in the
Participant's Agreement, during the Restriction Period, a Participant shall be
entitled to receive all dividends and other distributions paid with respect to
shares of Common Stock subject to a Restricted Stock grant. If any dividends or
distributions are paid in shares of Common Stock during the Restriction Period,
the dividend or other distribution shares shall be subject to the same
restrictions on transferability as the shares of Common Stock with respect to
which they were paid.
(b) The Committee, in its discretion, may provide in the Agreement
evidencing any Restricted Stock Unit that the Participant shall be entitled to
receive Dividend Equivalents with respect to the payment of cash dividends on
Common Stock having a record date prior to date on which Restricted Stock Units
held by such Participant are settled. Such Dividend Equivalents, if any, shall
be paid by crediting the Participant with additional whole Restricted Stock
Units as of the date of payment of such cash dividends on Common Stock. The
number of additional Restricted Stock Units (rounded to the nearest whole
number) to be so credited shall be determined by dividing (a) the amount of cash
dividends paid on such date with respect to the number of shares of Common Stock
represented by the Restricted Stock Units previously credited to the Participant
by (b) the Fair Market Value per share of Common Stock on such date. Such
additional Restricted Stock Units shall be subject to the same terms and
conditions and shall be settled in the same manner and at the same time (or as
soon thereafter as practicable) as the Restricted Stock Units originally subject
to the Restricted Stock Unit. In the event of a dividend or distribution paid in
shares of Common Stock or any other adjustment made upon a change in the capital
structure of the Corporation as described in Section 9.1, appropriate
adjustments shall be made in the Participant's Restricted Stock Unit so that it
represents the right to receive upon settlement any and all new, substituted or
additional securities or other property (other than normal cash dividends) to
which the Participant would entitled by reason of the shares of Common Stock
issuable upon settlement of the Restricted Stock Unit, and all such new,
substituted or additional securities or other property shall be immediately
subject to the same restrictions as are applicable to the Restricted Stock Unit.
4.9 RESTRICTED STOCK GRANTS AND UNITS UNDER CODE SECTION 162(M). The
Committee, at its discretion, may designate certain Restricted Stock grants or
Restricted Stock Units as being granted pursuant to Code Section 162(m). Such
Restricted Stock and Restricted Stock Units must comply with the following
additional requirements, which override any other provision set forth in this
Article IV:
(a) Each Code Section 162(m) Restricted Stock Award or Restricted
Stock Unit shall be based upon pre-established, objective performance goals that
are intended to satisfy the
12
performance-based compensation requirements of Code Section 162(m) and the
regulations promulgated thereunder. Further, at the discretion of the Committee,
a Restricted Stock Award or Restricted Stock Unit also may be subject to goals
and restrictions in addition to the performance requirements.
(b) Each Code Section 162(m) Restricted Stock Award or Restricted
Stock Unit shall be based upon the attainment of specified levels of Corporation
or Subsidiary performance during a specified performance period, as measured by
any or all of the Performance Measures.
(c) For each designated performance period, the Committee shall (i)
select those Employees who shall be eligible to receive a Restricted Stock Award
or Restricted Stock Unit, (ii) determine the performance period, which may be a
one to five fiscal year period, (iii) determine the target levels of Corporation
or Subsidiary performance, and (iv) determine the number of shares subject to a
Restricted Stock Award or Restricted Stock Unit to be paid to each selected
Employee. Unless otherwise permitted in compliance with the requirements under
Section 162(m) with respect to "performance-based compensation," the Committee
shall establish the performance goal(s) applicable to each Restricted Stock
grant or Restricted Stock Unit no later than the earlier of (a) the date ninety
(90) days after the commencement of the applicable performance period or (b) the
date on which 25% of the performance period has elapsed, and, in any event, at a
time when the outcome of the performance goals remains substantially uncertain,
or such other period as is permitted by Code Section 165(m).
(d) For each performance period, the Committee shall certify, in
writing: (i) if the Corporation has attained the performance targets, and (ii)
the number of shares pursuant to the Code Section 162(m) Restricted Stock Award
or Restricted Stock Unit that are to become freely transferable. The Committee
shall have no discretion to waive all or part of the conditions, goals and
restrictions applicable to the receipt of full or partial payment of a Code
Section 162(m) Restricted Stock Award or Restricted Stock Unit. Any certificate
for shares under a Code Section 162(m) Restricted Stock Unit shall be issued
only after the Committee certifies in writing that the performance goals and
restrictions have been satisfied.
(e) No shares under a Code Section 162(m) Restricted Stock Award or
Restricted Stock Unit shall become transferable until the Committee certifies in
writing that the performance goals and restrictions have been satisfied. Any
dividends paid during the Restriction Period automatically shall be reinvested
on behalf of the Employee in additional shares of Common Stock under the Plan,
and such additional shares shall be subject to the same performance goals and
restrictions as the other shares under the Code Section 162(m) Restricted Stock
Award or Restricted Stock Unit.
(f) Except as otherwise provided in this Article X, Section 10.4 and
Section 10.5 of the Plan, and subject to applicable federal and state securities
laws, shares covered by each Code Section 162(m) Restricted Stock Award or
Restricted Stock Unit made under the Plan may not be transferred, pledged,
assigned, or otherwise alienated or hypothecated until the applicable
performance targets and other restrictions are satisfied, as shall be certified
in writing by the Committee. At such time, shares covered by the Code Section
162(m) Restricted Stock Award or Restricted Stock Unit shall become freely
transferable by the Employee. Once the shares are released from the
restrictions, the Employee shall be entitled to have the legend required by
Section 4.5 of the Plan removed from the applicable Common Stock certificate.
13
(g) No Participant may be granted a Code Section 162(m) Restricted
Stock Award or Restricted Stock Units during any one fiscal year of the
Corporation for more than 200,000 shares of Common Stock.
4.10 SETTLEMENT OF RESTRICTED STOCK UNIT AWARDS. If a Restricted Stock
Unit is payable in Common Stock, the Corporation shall issue to a Participant on
the date on which Restricted Stock Units subject to the Participant's Restricted
Stock Unit vest or on such other date determined by the Committee, in its
discretion, and set forth in the Agreement, one (1) share of Common Stock
(and/or any other new, substituted or additional securities or other property
pursuant to an adjustment described in Section 4.8 or Section 9.1) for each
Restricted Stock Unit then becoming vested or otherwise to be settled on such
date, subject to the withholding of applicable taxes. Notwithstanding the
foregoing, if permitted by the Committee and set forth in the Agreement, the
Participant may elect in accordance with terms specified in the Agreement to
defer receipt of all or any portion of the shares of Common Stock, cash or other
property otherwise issuable to the Participant pursuant to this Section 4.10.
V. PERFORMANCE SHARE AWARDS
5.1 GRANT OF PERFORMANCE SHARE AWARDS. The Committee, at its discretion,
may grant Performance Share Awards to Participants and may determine, on an
individual or group basis, the performance goals to be attained pursuant to each
Performance Share Award.
5.2 TERMS OF PERFORMANCE SHARE AWARDS.
(a) Performance Share Awards shall consist of rights to receive
cash, Common Stock or a combination of each, if designated performance goals are
achieved.
(b) The terms of a Participant's Performance Share Award shall be
set forth in his or her individual Performance Share Agreement. Each Agreement
shall specify the performance goals applicable to a particular Participant or
group of Participants, the period over which the targeted goals are to be
attained, the payment schedule if the goals are attained, and any other general
terms and conditions applicable to an individual Performance Share Award as the
Committee shall determine.
(c) Except as set forth in Section 5.3 of the Plan, the Committee,
at its discretion, may waive all or part of the conditions, goals and
restrictions applicable to the receipt of full or partial payment of a
Performance Share Award.
(d) Performance Share Awards may be granted in two different forms,
at the discretion of the Committee as follows:
(i) Under one form, the Participant shall receive a
Performance Share Award that consists of a legended certificate of Common Stock,
restricted from transfer prior to the satisfaction of the designated performance
goals and restrictions, as determined by the Committee and specified in the
Participant's Performance Share Agreement.
(ii) Under the second form (a "Performance Share Award Unit"),
the Participant shall receive a Performance Share Agreement from the Committee
that specifies the performance goals and restrictions that must be satisfied
before the Corporation shall issue the
14
payment, which may be cash, a designated number of shares of Common Stock or a
combination of the two.
(e) Each certificate representing shares under a Performance Share
Award shall bear the following legend:
The sale or other transfer of the shares of stock represented
by this certificate, whether voluntary, involuntary or by operation
of law, is subject to certain restrictions on transfer set forth in
the Perceptron, Inc. 2004 Stock Incentive Plan ("Plan"), rules and
administrative guidelines adopted pursuant to such Plan and a
Performance Share Agreement dated_________ . A copy of the Plan,
such rules and such Performance Share Agreement may be obtained from
the Secretary of Perceptron, Inc.
(f) In its discretion, the Committee may, either at the time it
grants a Performance Share Award or at any time thereafter, provide for the
positive or negative adjustment of the performance goals applicable to a
Performance Share Award granted to any Participant whose Performance Share Award
has not been designated as a Code Section 162(m) Performance Share Award to
reflect such Participant's individual performance in his or her position with
the Corporation or such other factors as the Committee may determine.
(g) An Agreement may provide for deferred payment in a lump sum or
in installments. If any payment is to be made on a deferred basis, the Committee
may, but shall not be obligated to, provide for the payment during the deferral
period of Dividend Equivalents or interest.
(h) If payment is to be made in shares of Common Stock, the number
of such shares shall be determined by dividing the final value of the
Performance Share Award by the value of a share of Common Stock determined by
the method specified in the Agreement.
(i) Participants holding Performance Share Awards or Performance
Share Award Units shall have the same voting rights and rights to dividends and
other distributions as would Participants holding Restricted Stock or Restricted
Stock Units under Article IV.
5.3 PERFORMANCE SHARE AWARDS GRANTED UNDER CODE SECTION 162(M). The
Committee, at its discretion, may designate certain Performance Share Awards as
granted pursuant to Code Section 162(m). Such Performance Share Awards must
comply with the following additional requirements, which override any other
provision set forth in this Article V:
(a) The Committee, at its discretion, may grant Code Section 162(m)
Performance Share Awards based upon pre-established, objective performance goals
that are intended to satisfy the performance-based compensation requirements of
Code Section 162(m) and the regulations promulgated thereunder. Further, at the
discretion of the Committee, a Performance Share Award also may be subject to
goals and restrictions in addition to the performance requirements.
(b) Each Code Section 162(m) Performance Share Award shall be based
upon the attainment of specified levels of Corporation or Subsidiary performance
during a specified performance period, as measured by any or all of the
Performance Measures.
15
(c) For each designated performance period, the Committee shall (i)
select those Employees who shall be eligible to receive a Code Section 162(m)
Performance Share Award, (ii) determine the performance period, which may be a
one to five fiscal year period, (iii) determine the target levels of Corporation
or Subsidiary performance, and (iv) determine the Performance Share Award to be
paid to each selected Employee. Unless otherwise permitted in compliance with
the requirements under Section 162(m) with respect to "performance-based
compensation," the Committee shall establish the performance goal(s) applicable
to each Performance Share Award no later than the earlier of (a) the date ninety
(90) days after the commencement of the applicable performance period or (b) the
date on which 25% of the performance period has elapsed, and, in any event, at a
time when the outcome of the performance goals remains substantially uncertain,
or such other period as is permitted by Code Section 165(m).
(d) For each performance period, the Committee shall certify, in
writing: (i) if the Corporation has attained the performance targets; and (ii)
the cash or number of shares (or combination thereof) pursuant to the Code
Section 162(m) Performance Share Award that shall be paid to each selected
Employee (or the number of shares that are to become freely transferable, if a
Code Section 162(m) Performance Share Award is granted subject to attainment of
the designated performance goals). The Committee shall have no discretion to
waive all or part of the conditions, goals and restrictions applicable to the
receipt of full or partial payment of a Code Section 162(m) Performance Share
Award. Any certificate for shares under a Code Section 162(m) Performance Share
Award Unit shall be issued only after the Committee certifies in writing that
the performance goals and restrictions have been satisfied.
(e) No shares under a Code Section 162(m) Performance Share Award
shall become transferable until the Committee certifies in writing that the
performance goals and restrictions have been satisfied.
(f) Except as otherwise provided in this Article V or Section 10.4
of the Plan, and subject to applicable federal and state securities laws, shares
covered by each Code Section 162(m) Performance Share Award made under the Plan
may not be transferred, pledged, assigned, or otherwise alienated or
hypothecated until the applicable performance targets and other restrictions are
satisfied, as shall be certified in writing by the Committee. At such time,
shares covered by the Code Section 162(m) Performance Share Award shall become
freely transferable by the Participant. Once the shares are released from the
restrictions, the Employee shall be entitled to have the legend required by
Section 5.2(e) removed from the applicable Common Stock certificate.
(g) Participants holding Code Section 162(m) Performance Awards or
Performance Share Award Units shall have the same voting rights and rights to
dividends and other distributions as would Participants holding Code Section
162(m) Restricted Stock or Restricted Stock Units under Article IV.
(h) No Participant may be granted a Code Section 162(m) Performance
Share Award during any one fiscal year for more than 200,000 shares of Common
Stock, except that if a Performance Share Award Unit payout is not based upon a
set number of shares of Common Stock for achievement of the performance goals,
then no Employee may receive a Code Section 162(m) Performance Share Award Unit
which could result in such Employee receiving more than Five Hundred Thousand
Dollars ($500,000) for each fiscal year of the Corporation contained in the
performance period for such Award. No Employee may be granted more than one
Performance Share Award for the same performance period.
16
(i) If permitted under the Employee's Agreement, the Committee shall
have the discretion, on the basis of such criteria as may be established by the
Committee, to reduce some or all of the value of the Code Section 162(m)
Performance Share Award that would otherwise be paid to the Employee upon its
settlement notwithstanding the attainment of any performance goal. No such
reduction may result in an increase in the amount payable upon settlement of
another Participant's Code Section 162(m) Performance Share Award.
VI. DIRECTOR STOCK PURCHASE RIGHTS
6.1 ELIGIBILITY. A Director of the Corporation may elect to purchase
shares of Common Stock under the Plan using all or a portion of his or her cash
fees received for services as a director of the Corporation for which the
Director has not yet received payment (including but not limited to, quarterly
retainer and Board/Committee meeting fees).
6.2 ELECTIONS. Elections to purchase Common Stock under the Plan in lieu
of cash compensation may be submitted to the Corporation annually, prior to the
end of December of each calendar year or such other period established by the
Committee. An election shall cover director cash compensation payable in the
next calendar year.
6.3 PURCHASE PRICE. Common Stock purchased by a Director hereunder shall
have a purchase price equal to 100% of the Fair Market Value of the
Corporation's Common Stock on the first day of the month in which the quarterly
Director Fee Payment Date falls.
6.4 TERMINATION OF SERVICES. If a Director ceases to remain on the Board
for any reason, including but not limited to, voluntary or forced resignation,
removal, failure to be re-elected as a director, death, Disability or
retirement, the Director (or executor, administrator or legal representative, if
applicable) shall receive share certificates for all cash director fees earned
prior to the Director's departure from the Board for which the Director elected
to receive Common Stock pursuant to this Article VI, but for which the Director
has not yet received a share certificate. Such share certificates shall be
issued following the next quarterly Director Fee Payment Date.
6.5 NON-ASSIGNABILITY. Any Common Stock purchase right granted hereunder
shall be exercised by the Director only and is nontransferable. Upon the death
of a Director, any earned, but unpaid cash director fees for which the Director
elected to receive Common Stock pursuant to this Article VI, shall be paid in
the form of share certificates to the Director's executor, administrator or
legal representative in accordance with Section 6.4 above.
6.6 ADJUSTMENTS. The total amount of Common Stock to be received by a
Director at the time of any issuance of a share certificate shall be
appropriately adjusted for any increase or decrease in the number of outstanding
shares of Common Stock resulting from stock dividends, stock splits,
recapitalizations, reorganizations, mergers, combinations, exchanges or other
relevant changes in the capital structure of the Corporation occurring from the
Director Fee Payment Date on which such shares of Common Stock were earned to
the date of issuance of the share certificate for such shares. The foregoing
adjustments and the manner of application of the foregoing provisions shall be
determined by the Board in its sole discretion.
6.7 RULE 16b-3 REQUIREMENTS. Notwithstanding any provision of the Plan,
the Committee may impose such conditions on the purchase of shares of Common
Stock hereunder as may be required to satisfy the requirements of Rule 16b-3 of
the Exchange Act, as amended from time to
17
time (or any successor rule). Notwithstanding any provision in the Plan to the
contrary, the Committee shall have no discretion with respect to the terms of
purchase made pursuant to this Article VI, except to the extent such discretion
would not result in the purchase or the Plan failing to qualify for the
exemption provided under Rule 16b-3.
6.8 DELIVERY OF SHARES; RIGHTS PRIOR TO DELIVERY OF SHARES. By December
15th of each year, Directors electing to receive Common Stock will receive share
certificates for shares earned during the year. A Director may request to
receive Common Stock at any or each quarterly Director Fee Payment Date. No
Participant shall have any rights as a shareholder with respect to shares of
Common Stock covered by a purchase right until the issuance of a stock
certificate. No adjustment shall be made for dividends or other rights with
respect to such shares for which the record date is prior to the date the
certificate is issued.
VII. DEFERRED STOCK UNITS
7.1 ESTABLISHMENT OF DEFERRED STOCK UNIT PROGRAM. The Committee, in its
discretion and upon such terms and conditions as it may determine, may establish
one or more programs pursuant to the Plan under which:
(a) Participants designated by the Committee who are among a select
group of management or highly compensated Employees may irrevocably elect, prior
to a date specified by the Committee, to reduce such Participant's compensation
otherwise payable in cash (subject to any minimum or maximum reductions imposed
by the Committee) and to be granted automatically at such time or times as
specified by the Committee one or more awards of Deferred Stock Units with
respect to such numbers of shares of Common Stock as determined in accordance
with the rules of the program established by the Committee and having such other
terms and conditions as established by the Committee.
(b) Participants designated by the Committee who are among a select
group of management or highly compensated Employees may irrevocably elect, prior
to a date specified by the Committee, to be granted automatically an award of
Deferred Stock Units with respect to such number of shares of Common Stock and
upon such other terms and conditions as established by the Committee in lieu of:
(i) shares of Common Stock otherwise issuable to such
Participant upon the exercise of an Option;
(ii) cash or shares of Common Stock otherwise issuable to such
Participant upon the exercise of a Stock Appreciation Right;
(iii) shares of Common Stock otherwise issuable to such
Participant upon the settlement of a Restricted Stock Unit;
(iv) cash or shares of Common Stock otherwise issuable to such
Participant upon the settlement of a Performance Share Award; or
(v) shares of Common Stock otherwise issuable in connection
with a Director Stock Purchase Right.
18
7.2 TERMS AND CONDITIONS OF DEFERRED STOCK UNITS. Deferred Stock Units
granted pursuant to this Section 7.2 shall be evidenced by Agreements in such
form as the Committee shall from time to time establish. No such Deferred Stock
Unit or purported Deferred Stock Unit shall be a valid and binding obligation of
the Corporation unless evidenced by a fully executed Agreement. Agreements
evidencing Deferred Stock Units may incorporate all or any of the terms of the
Plan by reference and shall comply with and be subject to the following terms
and conditions:
(a) Deferred Stock Units shall not be subject to any vesting
conditions.
(b) Participants shall have no voting rights with respect to shares
of Common Stock represented by Deferred Stock Units until the date of the
issuance of such shares (as evidenced by the appropriate entry on the books of
the Corporation or of a duly authorized transfer agent of the Corporation).
However, a Participant shall be entitled to receive Dividend Equivalents with
respect to the payment of cash dividends on Common Stock having a record date
prior to date on which Deferred Stock Units held by such Participant are
settled. Such Dividend Equivalents shall be paid by crediting the Participant
with additional whole and/or fractional Deferred Stock Units as of the date of
payment of such cash dividends on Common Stock. The method of determining the
number of additional Deferred Stock Units to be so credited shall be specified
by the Committee and set forth in the Agreement. Such additional Deferred Stock
Units shall be subject to the same terms and conditions and shall be settled in
the same manner and at the same time (or as soon thereafter as practicable) as
the Deferred Stock Units originally subject to the Deferred Stock Unit award. In
the event of a dividend or distribution paid in shares of Common Stock or any
other adjustment made upon a change in the capital structure of the Corporation
as described in Section 9.1, appropriate adjustments shall be made in the
Participant's Deferred Stock Unit so that it represents the right to receive
upon settlement any and all new, substituted or additional securities or other
property (other than normal cash dividends) to which the Participant would be
entitled by reason of the shares of Common Stock issuable upon settlement of the
award.
(c) A Participant electing to receive an award of Deferred Stock
Units pursuant to this Section 7.2, shall specify at the time of such election a
settlement date with respect to such award. The Corporation shall issue to the
Participant as soon as practicable following the earlier of the settlement date
elected by the Participant or the date of termination of the Participant's
employment, a number of whole shares of Common Stock equal to the number of
whole Deferred Stock Units subject to the Deferred Stock Unit Award. Such shares
of Common Stock shall be fully vested, and the Participant shall not be required
to pay any additional consideration (other than applicable tax withholding) to
acquire such shares. Any fractional Deferred Stock Unit subject to the Deferred
Stock Unit Award shall be settled by the Corporation by payment in cash of an
amount equal to the Fair Market Value as of the payment date of such fractional
share.
VIII. TERMINATION OF EMPLOYMENT OR SERVICES
8.1 OPTIONS AND STOCK APPRECIATION RIGHTS.
(a) If, prior to the date that an Option or Stock Appreciation Right
first becomes Vested, a Participant terminates employment or services for any
reason, the Participant's right to exercise the Option or Stock Appreciation
Right shall terminate and all rights thereunder shall cease.
(b) If, on or after the date that an Option or Stock Appreciation
Right first becomes Vested, a Participant terminates employment or services for
any reason other than death or
19
Disability, the Participant shall have the right within the period specified in
the Participant's Agreement to exercise the Option or Stock Appreciation Right
to the extent that it was exercisable and unexercised on the date of the
Participant's termination of employment or services, subject to any other
limitation on the exercise of the Option or Stock Appreciation Right in effect
on the date of exercise; provided, however, that the beneficial tax treatment of
an Incentive Stock Option may be forfeited if the Option is exercised more than
three months after a Participant's termination of employment.
(c) If, on or after the date that an Option or Stock Appreciation
Right first becomes Vested, a Participant terminates employment or services due
to death while an Option or Stock Appreciation Right is still exercisable, the
person or persons to whom the Option or Stock Appreciation Right shall have been
transferred by will or by the laws of descent and distribution, shall have the
right within the exercise period specified in the Participant's Agreement to
exercise the Option or Stock Appreciation Right to the extent that it was
exercisable and unexercised on the Participant's date of death, subject to any
other limitation on exercise in effect on the date of exercise; provided,
however, that the beneficial tax treatment of an Incentive Stock Option may be
forfeited if the Option is exercised more than one year after a Participant's
date of death. If the Participant dies after termination of employment or
services while the Option or Stock Appreciation Right is still exercisable, the
Option or Stock Appreciation Right shall be exercisable in accordance with the
terms of paragraph (c) above.
(d) If, on or after the date that an Option or Stock Appreciation
Right first becomes Vested, a Participant terminates employment or services due
to Disability, the Participant shall have the right, within the exercise period
specified in the Participant's Agreement to exercise the Option or Stock
Appreciation Right to the extent that it was exercisable and unexercised on the
date of the Participant's termination of employment or services, subject to any
other limitation on the exercise of the Option or Stock Appreciation Right in
effect on the date of exercise; provided, however, that the beneficial tax
treatment of an Incentive Stock Option may be forfeited if the Option is
exercised more than one year after a Participant's termination of employment due
to Disability.
(e) The Committee may designate in a Participant's Agreement that an
Option or Stock Appreciation Right shall terminate at an earlier or later time
than set forth above.
(f) The Committee, at the time of a Participant's termination of
employment or services, may accelerate a Participant's right to exercise an
Option or extend the exercise period of an Option or Stock Appreciation Right
(but in no event past the tenth anniversary of the Grant Date of such Option or
Stock Appreciation Right); provided, however that the extension of the exercise
period for an Incentive Stock Option may cause such Option to forfeit its
preferential tax treatment.
(g) Shares subject to Options and Stock Appreciation Rights that are
not exercised in accordance with the provisions of paragraph (a) through (f)
above shall expire and be forfeited by the Participant as of their expiration
date and, subject to Section 1.6, shall become available for new grants and
awards under the Plan as of such date.
8.2 RESTRICTED STOCK GRANTS AND UNITS. If a Participant terminates
employment or services for any reason, the Participant's rights to shares of
Common Stock subject to a Restricted Stock grant or Restricted Stock Unit that
are still subject to the Restriction Period automatically shall terminate and be
forfeited by the Participant (or, if the Participant was required to pay a
purchase price for the Restricted Stock, other than the performance of services,
the Corporation shall have the option to
20
repurchase for the purchase price paid by the Participant any shares acquired by
the Participant which are still subject to the Restriction Period) and, subject
to Section 1.6, said shares shall be available for new grants and awards under
the Plan as of such termination date; provided, however, that the Committee, in
its sole discretion, may include a provision in a Participant's Restricted Stock
or Restricted Stock Unit Agreement providing for the continuation of a
Restricted Stock grant or Restricted Stock Unit after a Participant terminates
employment or services or waiving or changing the remaining restrictions or
adding additional restrictions with respect to any Restricted Stock grant or
Restricted Stock Unit that would otherwise be forfeited, as it deems
appropriate, or may otherwise waive or change all or part of the remaining
restrictions or add additional restrictions to any such Restricted Stock grant
or Restricted Stock Unit. Notwithstanding the foregoing, the Committee shall not
waive any restrictions on a Code Section 162(m) Restricted Stock Award or
Restricted Stock Unit, but the Committee may include a provision in an
Employee's Code Section 162(m) Restricted Stock or Restricted Stock Unit
Agreement stating that upon the Employee's termination of employment due to (i)
death, (ii) Disability, or (iii) involuntary termination by the Corporation
without cause (as defined in such agreement) prior to the attainment of the
associated performance goals and the termination of the Restriction Period, that
the performance goals and restrictions shall be deemed to have been satisfied on
terms determined by the Committee.
8.3 PERFORMANCE SHARES. Performance Share Awards shall expire and be
forfeited by a Participant upon the Participant's termination of employment or
services for any reason, and, subject to Section 1.6, such shares shall be
available for new grants and awards under the Plan as of such termination date;
provided, however, that the Committee, in its discretion, may include a
provision in a Participant's Performance Share Award Agreement providing for the
continuation of a Performance Share Award after a Participant terminates
employment or services or waiving or changing all or part of the conditions,
goals and restrictions applicable to the receipt of full or partial payment of a
Performance Share Award or may otherwise waive or change all or part of the
conditions, goals and restrictions applicable to such Performance Share Award.
Notwithstanding the foregoing, the Committee shall not waive any restrictions on
a Code Section 162(m) Performance Share Award, but the Committee may include a
provision in an Employee's Code Section 162(m) Performance Share Agreement
stating that upon the Employee's termination of employment due to (i) death,
(ii) Disability, or (iii) involuntary termination by the Corporation without
cause (as defined in such Agreement) prior to the attainment of the associated
performance goals and restrictions, that the performance goals and restrictions
shall be deemed to have been satisfied on terms determined by the Committee.
8.4 OTHER PROVISIONS. The transfer of an Employee from one corporation to
another among the Corporation and any of its Subsidiaries, or a leave of absence
under the leave policy of the Corporation or any of its Subsidiaries, shall not
be a termination of employment for purposes of the Plan, unless a provision to
the contrary is expressly stated by the Committee in a Participant's Agreement
issued under the Plan.
IX. ADJUSTMENTS AND CHANGE IN CONTROL
9.1 ADJUSTMENTS.
(a) The total amount of Common Stock for which Options, Stock
Appreciation Rights, Restricted Stock, Restricted Stock Units, Performance Share
Awards, Director Stock Purchase Rights and Deferred Stock Units may be issued
under the Plan, the number of shares subject to any such grants, awards or
purchases (both as to the number of shares of Common Stock
21
and exercise price), and the limit on the number of shares that can be included
in an Award under Sections 2.1, 3.1, 4.9(g) and 5.3(h), shall be adjusted pro
rata for any increase or decrease in the number of outstanding shares of Common
Stock resulting from payment of a stock dividend on Common Stock, a subdivision
or combination of shares of Common Stock, a reclassification of Common Stock or
other similar transaction determined by the Committee to be covered by this
Section 9.1(a); provided, however, in each case, that, with respect to Incentive
Stock Options, any such adjustment shall be made in accordance with Section 422
of the Code or any successor provision thereto to the extent that such Option is
intended to remain an Incentive Stock Option. Such adjustment shall be made by
the Committee or the Board, whose determination in that respect shall be final,
binding and conclusive.
(b) In the event of a proposed dissolution or liquidation of the
Corporation, the Committee shall notify each Participant as soon as practicable
prior to the effective date of such proposed transaction. The Committee in its
discretion may provide for a Participant to have the right to exercise his or
her Option, Stock Appreciation Right, Restricted Stock grant, Restricted Stock
Units, Performance Share Award or Deferred Stock Unit in full for a period
specified by the Committee as to all of the shares of Common Stock covered
thereby, including shares as to which the Option, Stock Appreciation Right,
Restricted Stock grant, Restricted Stock Unit, Performance Share Award or
Deferred Stock Unit would not otherwise be exercisable, subject to the proposed
dissolution or liquidation taking place at the time and in the manner
contemplated. In addition, the Committee may provide that any re-purchase option
of the Corporation applicable to the shares purchased upon exercise of an
Option, Stock Appreciation Right, Restricted Stock grant, Restricted Stock Unit,
Performance Share Award, Director Stock Purchase Rights or Deferred Stock Unit
shall lapse as to all such shares, provided that the proposed dissolution or
liquidation takes place at the time and in the manner contemplated. To the
extent it has not been previously exercised, an Option, Stock Appreciation
Right, Restricted Stock grant, Restricted Stock Unit, Performance Share Award or
Deferred Stock Unit shall terminate immediately prior to the consummation of the
proposed dissolution or liquidation.
(c) In the event of a merger of the Corporation with or into another
corporation where the Corporation is not the surviving corporation, a reverse
triangular merger where the Corporation is the surviving corporation, but its
stock is exchanged for stock of the parent company of the other party to the
merger, the sale of substantially all of the assets of the Corporation, the
reorganization of the Corporation or other similar transaction determined by the
Committee to be covered by this Section 9.1(c), it is intended that each
outstanding Option, Stock Appreciation Right, Restricted Stock grant, Restricted
Stock Unit, Performance Share Award, Director Stock Purchase Right or Deferred
Stock Unit shall be assumed or an equivalent option or right substituted by the
successor corporation, the parent or a subsidiary of the successor corporation
or the parent of the Corporation following a reverse triangular merger. In the
event that such successor corporation (or the parent or a subsidiary thereof or
the parent of the Corporation following a reverse triangular merger) refuses to
assume or substitute for the Option, Stock Appreciation Right, Restricted Stock
grant, Restricted Stock Unit, Performance Share Award, Deferred Stock Unit, or
Director Stock Purchase Right, the Participant shall fully vest in and have the
right to exercise the Option, Stock Appreciation Right, Restricted Stock grant,
Restricted Stock Unit, Performance Share Award or Deferred Stock Unit in full,
including shares which would not otherwise be vested or exercisable, and the
Participant shall have his or her Director Stock Purchase Right paid in full in
Common Stock for services through the date of the consummation of the
transaction. If an Option, Stock Appreciation Right, Restricted Stock grant,
Restricted Stock Unit, Performance Share Award or Deferred Stock Unit becomes
fully vested and exercisable in lieu of assumption or substitution in the event
of a
22
merger, sale of assets, reorganization or other transaction, the Committee shall
notify the Participant in writing or electronically that the Option, Stock
Appreciation Right, Restricted Stock grant, Restricted Stock Unit, Performance
Share Award or Deferred Stock Unit shall be fully vested and exercisable for a
period specified by the Committee from the date of such notice, provided that if
such period expires prior to the consummation of the merger, sale of assets,
reorganization or other transaction, any exercise shall be subject to the
proposed merger, sale of assets or other transaction taking place, and the
Option, Stock Appreciation Right, Restricted Stock grant, Restricted Stock Unit,
Performance Share Award or Deferred Stock Unit shall terminate upon the
expiration of such period (or the consummation of the merger, sale of assets,
reorganization or other transaction, if later). For the purposes of this
paragraph, the Option, Stock Appreciation Right, Restricted Stock grant,
Restricted Stock Unit, Performance Share Award or Deferred Stock Unit shall be
considered assumed if, following the merger, sale of assets, reorganization or
other transaction, the option or right confers the right to purchase or receive,
for each share covered by the Participant's Option, Stock Appreciation Right,
Restricted Stock grant, Restricted Stock Unit, Performance Share Award or
Deferred Stock Unit immediately prior to such transaction, the consideration
(whether stock, cash, or other securities or property) received in the merger,
sale of assets, reorganization, or other transaction, by holders of Common Stock
for each share held on the effective date of the transaction (and if holders
were offered a choice of consideration, the type of consideration determined by
the Committee); provided, however, that if such consideration received in the
merger, sale of assets, reorganization, or other transaction, is not solely
common stock of the successor corporation (or the parent or a subsidiary
thereof), the Committee may, with the consent of the successor corporation,
provide for the consideration to be received upon the exercise of the Option,
Stock Appreciation Right, Restricted Stock grant, Restricted Stock Unit,
Performance Share Award or Deferred Stock Unit, for each share of Common Stock
subject to the Option, Stock Appreciation Right, Restricted Stock grant,
Restricted Stock Unit, Performance Share Award or Deferred Stock Unit to be
solely (i) common stock of the successor corporation (or the parent or a
subsidiary thereof) equal in Fair Market Value to the per share consideration
received by holders of Common Stock in the merger, sale of assets,
reorganization or other transaction, or (ii) cash.
(d) In the event of a proposed spin-off or a transfer by the
Corporation of a portion of its assets resulting in the employment of certain
Participants by the spin-off entity or the entity acquiring assets of the
Corporation, the Committee may make whatever adjustments it determines
appropriate with respect to such terminating Participants.
(e) The foregoing adjustments shall be made by the Committee. Any
such adjustment may provide for the elimination of any fractional share which
might otherwise become subject to an Option, Stock Appreciation Right,
Restricted Stock grant, Restricted Stock Unit, Performance Share Award, Director
Stock Purchase Right or Deferred Stock Unit. The Committee need not make the
same adjustments for each Participant.
9.2 CHANGE IN CONTROL.
(a) The Committee in its discretion may provide in a Participant's
Agreement or otherwise, notwithstanding anything contained herein to the
contrary, that in the event of a Change in Control, or the occurrence of a
Change in Control and such other event or events as determined by the Committee,
any or all of the following will occur: (i) any outstanding Option or Stock
Appreciation Right granted to such Participant hereunder immediately shall
become fully Vested and exercisable in full, regardless of any installment
provision applicable to such Option or Stock Appreciation Right; (ii) the
remaining Restriction Period on any shares of Common Stock subject to
23
a Restricted Stock grant or Restricted Stock Unit hereunder immediately shall
lapse and the shares shall become fully transferable, subject to any applicable
federal or state securities laws; (iii) all performance goals and conditions
shall be deemed to have been satisfied and all restrictions shall lapse on any
outstanding Performance Share Awards granted to such Participant hereunder, and
such Awards shall become payable in full; (iv), for purposes of any Deferred
Stock Unit granted to such Participant hereunder, payments due under the
Deferred Stock Unit should become immediately payable; or (v) such other
treatment as the Committee may determine.
(b) The Committee may, in its sole discretion and without the
consent of any Participant, determine that, upon the occurrence of a Change in
Control, each or any Option or Stock Appreciation Right outstanding immediately
prior to the Change in Control shall be canceled in exchange for a payment with
respect to each vested share of Common Stock subject to such canceled Option or
Stock Appreciation Right in (i) cash, (ii) stock of the Corporation or of a
corporation or other business entity a party to the Change in Control, or (iii)
other property which, in any such case, shall be in an amount having a Fair
Market Value equal to the excess of the Fair Market Value of the consideration
to be paid per share of Common Stock in the Change in Control over the exercise
price per share under such Option or Stock Appreciation Right (the "Spread"). In
the event such determination is made by the Committee, the Spread (reduced by
applicable withholding taxes, if any) shall be paid to Participants in respect
of their canceled Options and Stock Appreciation Rights as soon as practicable
following the date of the Change in Control.
X. MISCELLANEOUS
10.1 PARTIAL EXERCISE/FRACTIONAL SHARES. The Committee may permit, and
shall establish procedures for, the partial exercise of Options and Stock
Appreciation Rights granted under the Plan. No fractional shares shall be issued
in connection with the exercise of an Option, a Stock Appreciation Right or
Director Stock Purchase Right or payment of a Restricted Stock award, Restricted
Stock Unit, Performance Share Award or Deferred Stock Unit; instead, the Fair
Market Value of the fractional shares shall be paid in cash, or at the
discretion of the Committee, the number of shares shall be rounded down to the
nearest whole number of shares and any fractional shares shall be disregarded,
and, in the case of an Option, the number of shares subject to the Option shall
be rounded down to the nearest whole number of shares and any fractional shares
shall be disregarded.
10.2 RULE 16b-3 REQUIREMENTS. Notwithstanding any other provision of the
Plan, the Committee may impose such conditions on the exercise of an Option or
Stock Appreciation Right (including, without limitation, the right of the
Committee to limit the time of exercise to specified periods), the grant of
Restricted Stock or Restricted Stock Unit, the payment of a Performance Share
Award or Deferred Stock Unit, or a Director Stock Purchase Right, as may be
required to satisfy the requirements of Rule 16b-3 of the Exchange Act.
10.3 RIGHTS PRIOR TO ISSUANCE OF SHARES. No Participant shall have any
rights as a shareholder with respect to shares covered by an Option, Stock
Appreciation Right, Restricted Stock grant, Restricted Stock Unit, Performance
Share Award, Director Stock Purchase Right, or Deferred Stock Unit until the
issuance of a stock certificate for such shares. Except as otherwise provided in
the Plan, no adjustment shall be made for dividends or other rights with respect
to such shares for which the record date is prior to the date the certificate is
issued.
10.4 NON-ASSIGNABILITY. Except as otherwise determined by the Committee in
its discretion, the following restrictions on assignability of any award under
the Plan shall apply to all
24
Participants: (i) no Option, Stock Appreciation Right, Restricted Stock grant,
Restricted Stock Unit, Performance Share Award, Director Stock Purchase Right or
Deferred Stock Unit shall be transferable by a Participant except by will or the
laws of descent and distribution; (ii) during the lifetime of a Participant, an
Option, Stock Appreciation Right, Restricted Stock grant, Restricted Stock Unit,
Director Stock Purchase Right or Deferred Stock Unit shall be exercised only by
the Participant, except in the event of the Participant's Disability, in which
case the Participant's legal guardian or the individual designated in the
Participant's durable power of attorney may exercise the Option, Stock
Appreciation Right, Restricted Stock grant, Restricted Stock Unit, Director
Stock Purchase Right or Deferred Stock Unit; and (iii) any transferee of the
Option, Stock Appreciation Right, Restricted Stock grant, Restricted Stock Unit,
Performance Share Award, Director Stock Purchase Right or Deferred Stock Unit
shall take the same subject to the terms and conditions of this Plan. No
transfer of an Option, Stock Appreciation Right, Restricted Stock grant,
Restricted Stock Unit, Performance Share Award, Director Stock Purchase Right or
Deferred Stock Unit by will or the laws of descent and distribution, or as
otherwise permitted by the Committee, shall be effective to bind the Corporation
unless the Corporation shall have been furnished with written notice thereof and
a copy of the will and/or such evidence as the Corporation may deem necessary to
establish the validity of the transfer and the acceptance by the transferee or
transferees of the terms and conditions of the Option, Stock Appreciation Right,
Restricted Stock grant, Restricted Stock Unit, Performance Share Award, Director
Stock Purchase Right or Deferred Stock Unit.
10.5 SECURITIES LAWS.
(a) Anything to the contrary herein notwithstanding, the
Corporation's obligation to sell and deliver Common Stock pursuant to the
exercise of an Option or Stock Appreciation Right or deliver Common Stock
pursuant to a Restricted Stock grant, Restricted Stock Unit, Performance Share
Award, Director Stock Purchase Rights or Deferred Stock Unit is subject to such
compliance with federal and state laws, rules and regulations applying to the
authorization, issuance or sale of securities as the Corporation deems necessary
or advisable. The Corporation shall not be required to sell and deliver or issue
Common Stock unless and until it receives satisfactory assurance that the
issuance or transfer of such shares shall not violate any of the provisions of
the Securities Act of 1933 or the Securities Exchange Act of 1934, or the rules
and regulations of the Securities Exchange Commission promulgated thereunder or
those of The Nasdaq Stock Market or any stock exchange, recognized trading
market or quotation system on which the Common Stock may be listed or traded, or
the provisions of any state securities laws, or that there has been compliance
with the provisions of such acts, rules, regulations and laws.
(b) The Committee may impose such restrictions on any shares of
Common Stock acquired pursuant to the exercise of an Option, Stock Appreciation
Right or a Deferred Stock Unit, the grant of Restricted Stock or a Restricted
Stock Unit, the payment of a Performance Share Award or pursuant to a Director
Stock Purchase Right under the Plan as it may deem advisable, including, without
limitation, restrictions (i) under applicable federal securities laws, (ii)
under the requirements of The Nasdaq Stock Market or any other securities
exchange, recognized trading market or quotation system upon which such shares
of Common Stock are then listed or traded, and (iii) under any state securities
laws applicable to such shares. No shares shall be issued until counsel for the
Corporation has determined that the Corporation has complied with all
requirements under appropriate securities laws.
25
10.6 WITHHOLDING TAXES.
(a) The Corporation shall have the right to withhold from a
Participant's compensation or require a Participant to remit sufficient funds to
satisfy applicable withholding for income and employment taxes upon the exercise
of an Option or Stock Appreciation Right, the lapse of the Restriction Period on
shares of Common Stock subject to a Restricted Stock grant or Restricted Stock
Unit or the payment of a Performance Share Award, Director Stock Purchase Right
or Deferred Stock Unit, to the extent the Corporation is required to withhold
such taxes. The Committee may permit a Participant to make a written election to
tender previously-acquired shares of Common Stock or have shares of stock
withheld from the exercise to satisfy applicable withholding for income and
employment taxes associated with an Award under this Plan; provided that the
shares have an aggregate Fair Market Value sufficient to satisfy in whole or in
part the applicable withholding taxes. The Committee may permit a Participant to
use the cashless exercise procedure of Section 2.4 to satisfy the withholding
requirements related to the exercise of an Option. At no point shall the
Corporation withhold more shares than are necessary to meet the established tax
withholding requirements of federal, state and local obligations.
(b) A Participant subject to the insider trading restrictions of
Section 16(b) of the Exchange Act may use Common Stock to satisfy the applicable
withholding requirements only if such disposition is approved in accordance with
Rule 16b-3 of the Exchange Act. Any election by a Participant to utilize Common
Stock for withholding purposes is further subject to the discretion of the
Committee.
10.7 TERMINATION AND AMENDMENT.
(a) The Plan shall continue in effect until the earlier of October
22, 2014, its termination by the Board or the date on which all of the shares of
Common Stock available for issuance under the Plan have been issued and all
restrictions on such shares under the terms of the Plan and the agreements
evidencing Awards granted under the Plan have lapsed. The Board may terminate
the Plan, the granting of Options, Stock Appreciation Rights, Restricted Stock,
Restricted Stock Units, Performance Share Awards or Deferred Stock Units under
the Plan, or purchases of Common Stock pursuant to the Director Stock Purchase
Rights, at any time.
(b) The Board may amend or modify the Plan at any time and from time
to time, but no amendment or modification shall, without the approval of the
shareholders of the Corporation, (i) materially increase the benefits accruing
to Participants under the Plan; (ii) increase the amount of Common Stock for
which grants and awards may be made under the Plan, except as permitted under
Sections 1.6 and 9.1; (iii) change the provisions relating to the eligibility of
individuals to whom grants and awards may be made under the Plan; (iv) permit
the repricing of Options or Stock Appreciation Rights as prohibited by Section
1.7; or (v) permit the granting of Options (other than Indexed Options) with
exercise prices less than Fair Market Value on the date of grant. In addition,
so long as the Corporation's Common Stock is listed on The Nasdaq Stock Market
or another stock exchange, the Board may not amend the Plan in a fashion
requiring approval of the shareholders of the Corporation under the rules of The
Nasdaq Stock Market or such other stock exchange, without obtaining the approval
of the shareholders.
26
(c) No amendment, modification, or termination of the Plan shall in
any manner affect (i) any Option, Stock Appreciation Right, Restricted Stock
grant, Restricted Stock Unit, Performance Share Award or Deferred Stock Unit
granted under the Plan without the consent of the Participant holding the
Option, Stock Appreciation Right, Restricted Stock grant, Restricted Stock Unit,
Performance Share Award or Deferred Stock Unit, except as set forth in any
Agreement relating to such Option, Stock Appreciation Right, Restricted Stock
grant, Restricted Stock Unit, Performance Share Award or Deferred Stock Unit
granted under the Plan or (ii) any election to purchase Common Stock pursuant to
a Director Stock Purchase Right made prior to such amendment, modification or
termination of the Plan, without the consent of the Participant who made such
election.
10.8 EFFECT ON EMPLOYMENT. Neither the adoption of the Plan nor the
granting of any Option, Stock Appreciation Right, Restricted Stock, Restricted
Stock Unit, Performance Share Award, Director Stock Purchase Right or Deferred
Stock Unit pursuant to the Plan shall be deemed to create any right in any
individual to be retained or continued in the employment, or as a non-employee
director or Consultant, of the Corporation or a Subsidiary.
10.9 USE OF PROCEEDS. The proceeds received from the sale of Common Stock
pursuant to the Plan will be used for general corporate purposes of the
Corporation.
10.10 REPURCHASE RIGHTS. Shares of Common Stock issued under the Plan may
be subject to one or more repurchase options, or other conditions and
restrictions, as determined by the Committee in its discretion at the time the
Award is granted. The Corporation shall have the right to assign at any time any
repurchase right it may have, whether or not such right is then exercisable, to
one or more persons as may be selected by the Corporation. Upon request by the
Corporation, each Participant shall execute any agreement evidencing such
transfer restrictions prior to the receipt of shares of Common Stock hereunder
and shall promptly present to the Corporation any and all certificates
representing shares of Common Stock acquired hereunder for the placement on such
certificates of appropriate legends evidencing any such transfer restrictions.
10.11 SEVERABILITY. If any one or more of the provisions (or any part
thereof) of this Plan or of any Agreement issued hereunder, shall be held to be
invalid, illegal or unenforceable in any respect, such provision shall be
modified so as to make it valid, legal and enforceable, and the validity,
legality and enforceability of the remaining provisions (or any part thereof) of
the Plan or of any Agreement shall not in any way be affected or impaired
thereby. The Corporation may, without the consent of any Participant, and in a
manner determined necessary solely in the discretion of the Corporation, amend
the Plan and any outstanding Agreement as the Corporation deems necessary to
ensure the Plan and all Awards remain valid, legal or enforceable in all
respects.
10.12 BENEFICIARY DESIGNATION. Subject to local laws and procedures, each
Participant may file with the Corporation a written designation of a beneficiary
who is to receive any benefit under the Plan to which the Participant is
entitled in the event of such Participant's death before he or she receives any
or all of such benefit. Each designation will revoke all prior designations by
the same Participant, shall be in a form prescribed by the Corporation, and will
be effective only when filed by the Participant in writing with the Corporation
during the Participant's lifetime. If a married Participant designates a
beneficiary other than the Participant's spouse, the effectiveness of such
designation may be subject to the consent of the Participant's spouse. If a
Participant dies without an effective designation of a beneficiary who is living
at the time of the Participant's death, the Corporation will pay any remaining
unpaid benefits to the Participant's legal representative.
27
10.13 UNFUNDED OBLIGATION. Participants shall have the status of general
unsecured creditors of the Corporation. Any amounts payable to Participants
pursuant to the Plan shall be unfunded and unsecured obligations for all
purposes, including, without limitation, Title I of the Employee Retirement
Income Security Act of 1974. The Corporation shall not be required to segregate
any monies from its general funds, or to create any trusts, or establish any
special accounts with respect to such obligations. The Corporation shall retain
at all times beneficial ownership of any investments, including trust
investments, which the Corporation may make to fulfill its payment obligations
hereunder. Any investments or the creation or maintenance of any trust or any
Participant account shall not create or constitute a trust or fiduciary
relationship between the Committee or the Corporation and a Participant, or
otherwise create any vested or beneficial interest in any Participant or the
Participant's creditors in any assets of the Corporation. The Participants shall
have no claim against the Corporation for any changes in the value of any assets
which may be invested or reinvested by the Corporation with respect to the Plan.
10.14 APPROVAL OF PLAN. Unless this Plan has been approved by the
shareholders of the Corporation within 12 months after adoption of the Plan by
the Board, as required by Section 422 of the Code, this Plan, and any grants or
awards made hereunder, shall be of no further force or effect.
IN WITNESS WHEREOF, this 2004 Stock Incentive Plan has been executed on
behalf of the Corporation on the 22nd day of October, 2004.
PERCEPTRON, INC.
By: /s/ Alfred A. Pease
---------------------------------------
Alfred A. Pease,
President and Chief Executive Officer
BOARD OF DIRECTORS APPROVAL: 10/22/04
SHAREHOLDER APPROVAL:
28
APPENDIX 2
PERCEPTRON, INC.
EMPLOYEE STOCK PURCHASE PLAN
(AMENDED AND RESTATED OCTOBER 22, 2004)
1. Purpose. The purpose of the Perceptron, Inc. Employee Stock Purchase
Plan (the "Plan") is to promote the best interests of Perceptron, Inc. (the
"Company") and its shareholders by encouraging employees of the Company and its
subsidiaries to acquire a proprietary interest in the Company, thus identifying
their interests with those of shareholders and encouraging the employees to make
even greater efforts on behalf of the Company. The Plan is intended to
constitute an "employee stock purchase plan" under Section 423 of the Internal
Revenue Code of 1986, as amended (the "Code").
2. Certain Definitions. As used in this Plan, the term "subsidiary" of the
Company means any "subsidiary corporation" as defined in Section 424(f) of the
Code; the term "employee" means an individual with an "employment relationship"
with the Company or any subsidiary as defined in Regulation 1.421-7(h) of the
Income Tax Regulations; the term "employment" means employment with the Company,
or a subsidiary of the Company; and the term "Purchase Period" means a six-month
offering period commencing each January 1 and July 1.
3. Stock. The stock subject to option and purchase under the Plan shall be
the Common Stock of the Company (the "Common Stock"). The total amount of Common
Stock on which options may be granted under the Plan shall not exceed 250,000
shares, subject to adjustment in accordance with Section 12 of the Plan. Shares
of Common Stock subject to any unexercised portion of a terminated, cancelled or
expired option granted under the Plan may again be used for option grants under
the Plan.
4. Administration. The Plan shall be administered by a Committee (the
"Committee") of the Board of Directors ("Board"). The Committee may prescribe
rules and regulations from time to time for the administration of the Plan and
may decide questions which may arise with respect to its interpretation or
application. The decisions of the Committee in interpreting the Plan shall be
final, conclusive and binding on all persons, including the Company, its
subsidiaries, employees and optionees. The Committee, from time to time, shall
grant to eligible employees on a uniform basis, options to purchase Common Stock
pursuant to the terms and conditions of the Plan. In the event of insufficient
shares during a Purchase Period, the Committee shall allocate the right to
purchase shares to each participant in the same proportion that such
participant's total current base salary paid by the Company for the Purchase
Period bears to the total of such base salaries paid by the Company to all
participants during the same period. All excess funds withheld, as a result of
insufficient shares, shall be returned to the participant employees.
5. Participants. Except as provided in Section 6 of the Plan, any employee
who is in the employ of the Company or any subsidiary of the Company on the
offering dates (i) whose
customary employment with the Company or a subsidiary is more than 20 hours per
week, (ii) who works more than five months a year and (iii) who have been
employed by the Company or a subsidiary for at least six months, is eligible to
participate in the Plan in accordance with its terms.
6. Ownership and Purchase Limitations. Notwithstanding anything herein to
the contrary, no employee shall be entitled to participate in an offering under
the Plan if such employee, immediately after a grant under this Plan, would, in
the aggregate, own, and/or hold options to purchase, shares of Common Stock
equal to or exceeding five percent (5%) or more of the total combined voting
power or value of all classes of stock of the Company or of its subsidiary
corporations. The rules of Section 424(d) of the Code shall apply for the
purpose of determining such stock ownership. With respect to individual
employees, Section 424(d) of the Code provides that an employee shall be
considered as owning the stock owned directly or indirectly, by or for his
brothers and sisters (whether by the whole or half blood), spouse, ancestors,
and lineal descendants. No employee shall be granted an option under the Plan
which, together with options granted under all employee stock purchase plans
(qualified under Section 423 of the Code) of the Company and its subsidiaries
permits the employee to accrue option rights to purchase shares in any calendar
year in excess of $25,000 of fair market value of such shares (determined at the
time an option is granted). For purposes of this Plan, the "grant date" shall be
the first day of each Purchase Period, as defined in Section 2 of the Plan.
7. Option Price. The exercise price of each option granted under the Plan
shall be equal to the "Discount" multiplied by the fair market value per share
of the Common Stock on the grant date. The term "Discount" shall mean a
percentage not less than 85%. The Discount shall be 85% unless otherwise
determined by the Committee in its sole discretion on or before the grant date.
For purposes of this Plan, the fair market value per share shall be deemed to
be:
(a) the average of the closing sales prices of the Common Stock on
the principal securities exchange on which the Common Stock may at the time be
listed (or, if there have been no sales on such exchange on any day, the average
of the closing high bid and low asked prices on such exchange at the end of such
day) for the five (5) consecutive trading days on such exchange immediately
preceding the grant date; or
(b) if the Common Stock is not listed on a securities exchange, the
average of the closing sales prices of the Common Stock on The Nasdaq Stock
Market (or, if there have been no sales on The Nasdaq Stock Market on any such
day, the average of the closing high bid and low asked prices on The Nasdaq
Stock Market at the end of such day) for the five (5) consecutive trading days
on The Nasdaq Stock Market immediately preceding the grant date; or
(c) if the Common Stock is not listed on any domestic stock exchange
or The Nasdaq Stock Market, the average of the mean between the closing high bid
and low asked price as reported by the OTC Bulletin Board for the five (5)
consecutive trading days on the OTC Bulletin Board immediately preceding the
grant date; or
(d) if none of the foregoing clauses apply, the fair value as
determined in good faith by the Committee.
2
8. Payment for Option Shares.
(a) Shares Under Option. An eligible employee may elect to
participate in an offering by delivering to the Company an election to
participate and a payroll deduction form within a certain period of time, which
period shall be designated by the Committee prior to each offering date (the
"Election Period") and which election shall become irrevocable as to the
applicable Purchase Period at the end of the Election Period. An eligible
employee's election to participate and payroll deduction form from the preceding
Election Period automatically shall carry over to the next Election Period
unless affirmatively revoked in writing by the employee. An employee who elects
to participate may not authorize payroll deductions which, in the aggregate, are
more than ten percent (10%) of the employee's after-tax base salary (not
including overtime and bonus payments). Only whole shares of Common Stock may be
purchased under the Plan.
(b) A participating employee may not authorize payroll deductions
for less than an entire Purchase Period. An employee may suspend payroll
deductions during a Purchase Period at any time, and all funds withheld prior to
such suspension, which have not yet been applied to the purchase of Common
Stock, shall, at the employee's election, be used to exercise the option on the
Purchase Date to the extent payroll deductions were made prior to such
suspension or be returned by the Company to the employee as soon as practicable.
(c) Payroll deductions shall commence on the first payroll date in
the Purchase Period and shall continue until the last payroll date in the
Purchase Period; provided, however, that unless an election is revoked, such
election shall continue into successive six month Purchase Periods.
(d) A participating employee's option shall be deemed to have been
exercised at the close of business on the last business day of the Purchase
Period, to the extent of the payroll deductions withheld during such Purchase
Period, which shall be the earlier of (i) the last day in the six month period
following the grant date or (ii) the date on which the Purchase Period is
terminated pursuant to Section 13.
(e) The Company retains the right to designate an exclusive broker
to handle the Common Stock transactions under the Plan. As soon as practicable
after the end of the Purchase Period, the Company shall deliver to each employee
or a designated brokerage account, through a certificate or electronic transfer,
the shares of Common Stock that such employee has purchased. Unless otherwise
determined by the Committee, any amount that has been deducted and withheld in
excess of the option price automatically shall be paid by check to the
participating employee promptly following the end of the Purchase Period in
which withheld.
(f) Unless otherwise determined by the Committee, no interest shall
accrue or be paid on any amounts paid by payroll deduction by any participating
employee.
9. Non-Transferability. No option shall be transferable by an employee
other than by will or the laws of descent and distribution, and an option shall
be exercised during an employee's life time only by an employee.
3
10. Restriction on Transfers of Shares. Shares issued pursuant to the
exercise of an option under the Plan may not be disposed of by the employee
until the expiration of one (1) year after the exercise date. Such restriction
on transfer may be waived by the Committee in the event of extreme hardship, as
determined by the Committee in its sole discretion.
11. Termination of Employment, Unpaid Leave of Absence or Layoff. If a
participating employee ceases to be employed by the Company for any reason (with
or without severance pay), including but not limited to, voluntary or forced
resignation, retirement, death, layoff, or if an employee is on an unpaid leave
of absence for more than 60 days, or during any period of severance, payroll
deductions with respect to such employee shall cease and all funds withheld
prior to such termination, which have not yet been applied to the purchase of
Common Stock, shall, at the employee's election, be used to exercise the option
on the Purchase Date to the extent payroll deductions were made prior to such
termination or be returned by the Company to the employee (or his or her estate
or heirs) as soon as practicable.
12. Adjustments. In the event of changes in the outstanding Common Stock
by reason of stock dividends, stock splits, recapitalizations, reorganizations,
mergers, consolidations, combinations, exchanges or other relevant changes in
the capital structure of the Company, an appropriate adjustment shall be made by
the Committee in the number of shares and kind of stock or other securities for
which options may be or may have been granted under the Plan, and the exercise
price related thereto, to the end that the proportionate interests shall be
maintained as before the occurrence of such an event. Any of the foregoing
adjustments may provide for the elimination of any fractional share which might
otherwise become subject to any option.
13. Change of Control.
(a) After any merger of one or more corporations into the Company in
which the Company shall be the surviving corporation or any share exchange in
which the Company is a constituent corporation, each participant shall, at no
additional cost, be entitled upon the exercise of an option, to receive (subject
to any required action by shareholders), in lieu of the number of shares of
Common Stock for which such option shall then be exercisable, the consideration
which such participant would have been entitled to receive pursuant to the terms
of the agreement of merger or share exchange if at the time of such merger or
share exchange such participant had been a holder of record of a number of
shares of Common Stock equal to the number of shares then underlying the option.
In addition, if any person or entity becomes the beneficial owner of more than
fifty percent (50%) of the number of shares then issued and outstanding, whether
in connection with such merger or share exchange or otherwise, or upon any sale
by the Company of all or substantially all of its assets, the Committee shall
have the right to terminate the Purchase Period as of such date, and, if so
terminated, each participant shall be deemed to have exercised, immediately
prior to such merger, share exchange, acquisition or sale of assets, his or her
option to the extent payroll deductions were made prior thereto. Comparable
rights shall accrue to each participant in the event of successive mergers or
consolidations of the character described above.
(b) Notwithstanding anything contained herein to the contrary, upon
the dissolution or liquidation of the Company or upon any merger or share
exchange in which the
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Company is not the surviving corporation (other than a merger with a
wholly-owned subsidiary of the Company formed for the purpose of changing the
Company's corporate domicile where the Plan is assumed by the survivor), the
Purchase Period for any option granted under this Plan shall terminate as of the
date of the aforementioned event, and each participant shall be deemed to have
exercised, immediately prior to such dissolution, liquidation, merger or share
exchange, his or her option to the extent payroll deductions were made prior
thereto.
(c) The foregoing adjustments and the manner of application of the
foregoing provisions shall be determined by the Committee in its sole
discretion. Any such adjustment may provide for the elimination of any
fractional share which might otherwise become subject to an option.
14. Termination and Amendment. The Board may terminate the Plan, or the
granting of options under the Plan, at any time. No option shall be granted
under the Plan after May 14, 2015.
The Board may amend or modify the Plan at any time and from time to time,
but no amendment or modification shall disqualify the Plan under Section 423 of
the Code, or Rule 16b-3 under the Securities Exchange Act of 1934, as amended
(the "Exchange Act"), as amended from time to time (or any successor rule),
without shareholder approval.
No amendment, modification, or termination of the Plan shall in any manner
affect any option granted under the Plan without the consent of the participant
holding the option.
15. Rule 16b-3 Requirements. Notwithstanding any other provision of the
Plan, the Committee may impose such conditions on the exercise of an option as
may be required to satisfy the requirements of Rule 16b-3 of the Exchange Act,
as amended from time to time (or any successor rule).
16. Rights Prior to Delivery of Shares. No participant shall have any
rights as a shareholder with respect to shares covered by an option until the
issuance of a stock certificate or electronic transfer to the employee or the
employee's brokerage account of such shares. No adjustment shall be made for
dividends or other rights with respect to such shares for which the record date
is prior to the date the certificate is issued or the shares electronically
delivered to a brokerage account.
17. Securities Laws. Anything to the contrary herein notwithstanding, the
Company's obligation to sell and deliver stock pursuant to the exercise of an
option is subject to such compliance with federal and state laws, rules and
regulations applying to the authorization, issuance or sale of securities as the
Company deems necessary or advisable. The Company shall not be required to sell
and deliver stock unless and until it receives satisfactory assurance that the
issuance or transfer of such shares will not violate any of the provisions of
the Securities Act of 1933 or the Exchange Act, or the rules and regulations of
the Securities and Exchange Commission promulgated thereunder or those of any
stock exchange on which the stock may be listed and the provisions of any state
laws governing the sale of securities, or that there has been compliance with
the provisions of such acts, rules, regulations and laws.
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The Board may impose such restrictions on any shares of Common Stock
acquired pursuant to the exercise of an option under the Plan as it may deem
advisable, including, without limitation, restrictions (a) under applicable
federal securities laws, (b) under the requirements of any stock exchange or
other recognized trading market upon which such shares of Common Stock are then
listed or traded, and (c) under any blue sky or state securities laws applicable
to such shares. No shares shall be issued until counsel for the Company has
determined that the Company has complied with all requirements under appropriate
securities laws.
18. Approval of Plan. The Plan shall be subject to the approval of the
holders of at least a majority of the Common Stock of the Company present and
entitled to vote at a meeting of shareholders of the Company held within 12
months after adoption of the Plan by the Board. If not approved by shareholders
within such 12-month period, the Plan and any options granted hereunder shall
become void and of no effect.
19. Effect on Employment. Neither the adoption of the Plan nor the
granting of an option pursuant to it shall be deemed to create any right in any
employee to be retained or continued in the employment of the Company, parent or
a subsidiary.
20. Use of Proceeds. The proceeds received from the sale of shares
pursuant to the Plan shall be used for corporate purposes by the Company.
BOARD OF DIRECTORS APPROVAL: 5/15/95, 6/23/95, 10/31/96, 10/22/04
SHAREHOLDER APPROVAL: 6/23/95
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