Electro Scientific Industries, Inc.
ELECTRO SCIENTIFIC INDUSTRIES INC (Form: DEF 14A, Received: 07/10/2014 16:33:09)


UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
SCHEDULE 14A
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Electro Scientific Industries, Inc.

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Notice of Annual Meeting of Shareholders
 
 
To the Shareholders of Electro Scientific Industries, Inc.:
The Annual Meeting of Shareholders of Electro Scientific Industries, Inc. (ESI) will be held at ESI’s offices, 13900 NW Science Park Drive, Portland, Oregon, on Thursday, August 21, 2014 at 2:30 p.m. Pacific Daylight Time, for the following purposes:
1.
To elect the two directors named in the proxy statement for a term of three years. Edward C. Grady and Barry L. Harmon are nominees for election for three year terms.
2.
To approve an amendment to ESI's 1990 Employee Stock Purchase Plan to increase the shares reserved for issuance thereunder by 1,000,000 shares. Upon approval, the Board of Directors will amend the 2004 Stock Incentive Plan to reduce shares reserved thereunder by 1,000,000 shares.
3.
To ratify the appointment of KPMG LLP as ESI’s independent registered public accounting firm for the fiscal year ending March 28, 2015 .
4.
To approve, on an advisory basis, the compensation of our named executive officers.
5.
To transact any other business that properly comes before the meeting.
Only shareholders of record at the close of business on June 13, 2014 will be entitled to vote at the annual meeting.
Your vote is very important. Whether or not you expect to attend in person, we urge you to vote your shares at your earliest convenience. Promptly voting your shares by phone, via the internet, or by signing, dating, and returning the enclosed proxy card will ensure the presence of a quorum at the meeting. An addressed envelope for which no postage is required if mailed in the United States is enclosed if you wish to vote by mail. Submitting your proxy now will not prevent you from voting your shares at the meeting if you desire to do so, as your proxy is revocable at your option. Retention of the proxy is not necessary for admission to or identification at the meeting.
IMPORTANT NOTICE REGARDING THE INTERNET AVAILABILITY OF PROXY MATERIALS FOR THE ANNUAL MEETING OF SHAREHOLDERS TO BE HELD ON THURSDAY, AUGUST 21, 2014 : This proxy statement and the Company’s 2014 Annual Report to Shareholders are also available at http://investors.esi.com/proxy.cfm.
By Order of the Board of Directors

Paul Oldham
Vice President of Administration, Chief
Financial Officer and Corporate Secretary
Portland, Oregon
July 10, 2014






ELECTRO SCIENTIFIC INDUSTRIES, INC.
PROXY STATEMENT
The mailing address of the principal executive offices of the Company is 13900 NW Science Park Drive, Portland, Oregon 97229-5497. The approximate date this proxy statement and the accompanying proxy forms are first being mailed to shareholders is July 10, 2014 .
SOLICITATION AND REVOCABILITY OF PROXY
The enclosed proxy is solicited on behalf of the Board of Directors of Electro Scientific Industries, Inc., an Oregon corporation, for use at the Annual Meeting of Shareholders to be held on August 21, 2014 . The Company will bear the cost of preparing and mailing the proxy, proxy statement and any other material furnished to the shareholders by the Company in connection with the annual meeting. Proxies will be solicited by use of the mail and the internet, and officers and employees of the Company may, without additional compensation, also solicit proxies by telephone, fax or personal contact. Copies of solicitation materials will be furnished to fiduciaries, custodians and brokerage houses for forwarding to beneficial owners of the stock held in their names.
Any person giving a proxy in the form accompanying this proxy statement has the power to revoke it at any time before its exercise. The proxy may be revoked by filing an instrument of revocation or a duly executed proxy bearing a later date with the Corporate Secretary of the Company. The proxy may also be revoked by affirmatively electing to vote in person while in attendance at the meeting. However, a shareholder who attends the meeting need not revoke the proxy and vote in person unless he or she wishes to do so. All valid, un-revoked proxies will be voted at the Annual Meeting in accordance with the instructions given.
Common Stock is the only outstanding authorized voting security of the Company. The record date for determining holders of Common Stock entitled to vote at the Annual Meeting is June 13, 2014 . On that date there were 30,136,402 shares of Common Stock outstanding, entitled to one vote per share. The Common Stock does not have cumulative voting rights.
MULTIPLE SHAREHOLDERS SHARING THE SAME ADDRESS
If you and other residents at your mailing address each own shares of Common Stock in street name, your broker or bank may have sent you a notice that your household will receive only one annual report and proxy statement. This practice, known as “householding,” reduces the Company’s printing and postage costs. If any shareholder residing at that address wishes to receive a separate annual report or proxy statement, write or telephone the Company as follows: Investor Relations, Electro Scientific Industries, Inc., 13900 NW Science Park Drive, Portland, Oregon 97229-5497, (503) 641-4141. Contact the Company in the same way if you and other residents at your mailing address are receiving multiple copies of the annual report and proxy statement and wish to receive a single copy in the future.








PROPOSAL 1: ELECTION OF DIRECTORS
Pursuant to the Company’s Bylaws, the Board of Directors is divided into three classes, with the term of office of one class expiring each year. The terms of Edward C. Grady and Barry L. Harmon expire in 2014 . Messrs. Grady and Harmon are nominees for re-election. These nominees were recommended by the Corporate Governance and Nominating Committee. Under Oregon law, if a quorum of shareholders is present at the 2014 Annual Meeting, the directors elected will be the two nominees for election as directors for a term ending in 2017 who receive the greatest number of votes cast at the meeting. Abstentions and broker non-votes will have no effect on the results of the vote. Unless otherwise instructed, proxy holders will vote the proxies they receive for Messrs. Grady and Harmon. If any of the nominees for election as director at the 2014 Annual Meeting becomes unavailable for election for any reason (none being known at this time), the proxy holders will have discretionary authority to vote pursuant to the proxy for a substitute or substitutes.
The following table briefly describes the Company’s nominees for directors and the directors whose terms will continue.

Name, Age, Principal Occupation, and Other Directorships
 
Director
Since
 
Term
Expires
Nominees
 
 
 
 
Edward C. Grady , 67, is currently President and Chief Executive Officer (CEO) of the Company and assumed this role in February 2014. He has served on the board of the Company since 2008 and, prior to becoming CEO of the Company, he served as CEO and Chairman at REEL Solar, Inc., a venture funded developer and manufacturer of low cost, high efficiency, thin film solar panels. In February 2014, REEL Solar was sold to a Chinese solar power manufacturer and power provider through an assignment for benefit of creditors process under California law. Prior to that he served as President and CEO of Brooks Automation, a company that offers solutions that optimize productivity for the semiconductor and other industries, including clean tech and data storage. Mr. Grady retired from Brooks Automation in 2007. Prior to joining Brooks in 2003, he ran the wafer inspection and metrology groups at KLA-Tencor Corporation, a manufacturer of semiconductor equipment. Prior to KLA-Tencor, he was Chief Executive Officer of Hoya Micromask, a supplier of photo masks and services to the semiconductor industry. He started his career as an engineer for Monsanto Electronic Materials Company, Inc., a manufacturer of silicon wafers to the semiconductor industry, and eventually rose to the position of Vice President of Worldwide Sales. Mr. Grady is also a member of the board of directors at Advanced Energy Industries, Inc. - a provider of power and control technologies, and Cimetrix Incorporated - a supplier of tool control and interconnectivity software.
Mr. Grady brings to the Board extensive technical knowledge and manufacturing, engineering, sales, business and operations experience in a high-technology environment. He also brings important business development and leadership experience as well as experience as a result of serving on the boards of directors of other public companies.
 
2008

 
2014

Barry L. Harmon , 60, is currently the Chief Financial Officer of glassybaby, LLC, a privately held business in Seattle, Washington, which he joined in February 2012. He served as President and Chief Executive Officer of ESI from April 2003 until January 2004. From July 2000 until September 2001, Mr. Harmon served as Senior Vice President—West Coast Operations for Avocent Corporation, a provider of KVM switching and solutions. Mr. Harmon served as Chief Financial Officer of Apex, Inc., also a provider of KVM switching and solutions, from 1999 until its merger with Cybex to form Avocent in 2000. From 1992 to 1999, he was Senior Vice President and Chief Financial Officer of ESI.
 
As a previous executive at ESI, Mr. Harmon brings to the Board significant senior leadership and business knowledge in the semiconductor industry as well as an important understanding of ESI’s global markets, customers and operations.
 
2002

 
2014







Name, Age, Principal Occupation, and Other Directorships
 
Director
Since
 
Term
Expires
Directors Whose Terms Continue
 
 
 
 
Richard J. Faubert, 66 , retired as President, Chief Executive Officer and Chairman of AmberWave Systems Corporation, a semiconductor technology company, in December 2010, where he had served from September 2003. He served as President, Chief Executive Officer and Director of SpeedFam-IPEC, Inc., a manufacturer of semiconductor equipment, from 1998 through 2002. Upon the sale of SpeedFam-IPEC to Novellus Systems, Inc., a capital equipment manufacturer, he served as Executive Vice President of Novellus until April 2003. Prior to his employment with SpeedFam-IPEC, Inc., he held executive and management positions at Tektronix, Inc., a test, measurement, and monitoring company, and GenRad, Inc., an electronics testing and manufacturing company.
 
Mr. Faubert brings to the Board extensive technology leadership experience in the semiconductor capital equipment industry. He also brings significant manufacturing, engineering, research and development, business and operations experience in a high-technology environment. He also has experience as a result of having served on the board of directors of other public companies.
 
 
2003

 
2015

David Nierenberg, 61 , is the Founder and President of Nierenberg Investment Management Company, Inc. in Camas, Washington, which manages The D3 Family Funds. Prior to founding Nierenberg Investment Management Company in 1996, Mr. Nierenberg was a General Partner at Trinity Ventures, a venture capital fund, where he invested in financial services, healthcare and turnarounds. Prior to 1985, he was a Partner with Bain & Company, a business strategy consulting firm. Mr. Nierenberg is the Chairman of the Advisory Board of the Millstein Center Columbia University Law School. He is a Chairman of PSA Healthcare. He is also a member of the board of directors at Kuni Automotive Group and Whitman College. He also serves on the Washington State Investment Board.
 
Mr. Nierenberg brings significant expertise in strategic planning and corporate governance. He also brings broad-based business knowledge to the board.
 
2010

 
2015

Jon D. Tompkins , 74, (Chairman) retired as Chief Executive Officer of KLA-Tencor Corporation, a manufacturer of semiconductor equipment, in 1998 where he had served as Chief Executive Officer since April 1997. He retired as Chairman of the Board of Directors of KLA-Tencor in 1999. From April 1991 until April 1997, he served as President, Chief Executive Officer and director of Tencor Instruments, a manufacturer of wafer inspection, film measurement and metrology systems for the semiconductor industry. He was appointed Chairman of the Board of Tencor in 1993, a position he held until the merger with KLA in 1997. Prior to that, Mr. Tompkins held various management positions over eighteen years with Spectra-Physics, a leading supplier of commercial lasers, and eventually rose to the position of President and Chief Executive Officer. Mr. Tompkins was a member of the board of directors at Cymer, Inc., a provider of lithography light sources for the semiconductor industry, until its acquisition in May 2013. He has been a member of the board of directors at ESI since 1998 and Chairman of the Board since 2003.
 
Mr. Tompkins brings to the Board significant executive management experience and financial management, industry and technical knowledge related to the semiconductor and laser industries. He also has experience as a result of serving on the board of directors of other public companies.
 
1998

 
2015








Name, Age, Principal Occupation, and Other Directorships
 
Director
Since
 
Term
Expires
Directors Whose Terms Continue
 
 
 
 
Frederick A. Ball , 52, was appointed Senior Vice President and Chief Financial Officer of Marketo, a leading revenue performance management company, in May 2011. Prior to joining Marketo, Mr. Ball had been the Chief Financial Officer for a number of private and public technology companies including Webroot Software, Inc., BigBand Networks, Inc., and Borland Software Corporation. Mr. Ball also served as Vice President, Mergers and Acquisitions for KLA-Tencor Corporation, a manufacturer of semiconductor equipment, and prior to that as its Vice President of Finance. Mr. Ball was with PricewaterhouseCoopers LLC for over 10 years. Mr. Ball is a director at Advanced Energy Industries, Inc., a provider of power and control technologies, and is chair of its audit committee.
 
Mr. Ball brings to the Board important financial management experience and financial expertise, having served as Chief Financial Officer of several high-technology companies. He also brings significant experience with mergers and acquisitions within the semiconductor equipment industry as well as experience as a result of serving on the board of directors of another public company.
 
2003

 
2016

Robert R. Walker , 63, is retired from Agilent Technologies, Inc., a measurement company, where he served as Executive Vice President and Chief Financial Officer from May 2000 until December 2001. From May 1999 until May 2000, he was Senior Vice President and Chief Financial Officer. During 1997 and 1998, Mr. Walker served as Vice President and General Manager of Hewlett-Packard Company’s Professional Services Business Unit, a provider of computer and printer products and services. From 1993 to 1997, he led Hewlett-Packard’s information systems function, serving as Vice President and Chief Information Officer from 1995 to 1997. Mr. Walker formerly served as a member of the board of directors for Brocade Communications Systems, Inc., a networking solutions provider, from 2005 until 2008, Liberate Technologies, a supplier of TV set-top box software, from 2003 until 2005, when it became a private company, and InterTrust, a digital rights management company, from 2002 until 2003 when it became a private company.
 
Mr. Walker brings to the Board important financial management experience, financial expertise and industry and technical expertise, having served in several executive financial and operational positions at Agilent and Hewlett Packard. He also brings experience as a result of serving on the board of directors of other public companies.
 
2003

 
2016








CORPORATE GOVERNANCE GUIDELINES AND INDEPENDENCE
The Company’s Board of Directors has approved and adopted the Corporate Governance Guidelines and Governance and Nominating Committee Charter that are on the Company’s website at http://investors.esi.com/governance.cfm. Under the Company’s Corporate Governance Guidelines, which reflect the current standards for “independence” under the NASDAQ Stock Market listing standards and the Securities and Exchange Commission rules, two-thirds of the members of the Board of Directors must be independent as determined by the Board of Directors. The Board of Directors has made the following determinations with respect to each director’s independence:
 
 
 
 
Director
  
Status (1)
Frederick A. Ball
  
Independent
Richard J. Faubert
  
Independent
Edward C. Grady
  
Not Independent (2)
Barry L. Harmon
  
Independent
David Nierenberg
  
Independent
Jon D. Tompkins
  
Independent
Robert R. Walker
  
Independent
 
(1)
The Board’s determination that a director is independent was made on the basis of the standards set forth in the Corporate Governance Guidelines.
(2)
Mr. Grady is President and Chief Executive Officer of ESI and therefore is not independent in accordance with the standards set forth in the Corporate Governance Guidelines.
The Company has also adopted a Code of Conduct and Business Practices applicable to the Company’s directors, officers, employees and agents of ESI and its subsidiaries and a Code of Ethics for Financial Managers. Copies of the Company’s Code of Conduct and Business Practices and Code of Ethics for Financial Managers are available on the Company’s website at http://investors.esi.com/governance.cfm.
BOARD LEADERSHIP STRUCTURE AND RISK OVERSIGHT
Board Leadership
In accordance with our Corporate Governance Guidelines, it is the practice of the Board of Directors to select a director as Chairman of the Board who qualifies as independent as defined in the Corporate Governance Guidelines. If the Chairman of the Board ceases to qualify as independent, the Board of Directors will designate an independent director to serve as Lead Director. The Company believes that this structure enhances the Board’s oversight of management, strengthens the Board’s ability to communicate its views to management, increases the Board’s independence and otherwise enhances our governance.
Risk Oversight
The Board as a whole is responsible for overseeing our risk management function and certain members of the Company’s senior management team are expressly authorized by the Board to be responsible for implementation of the Company’s day-to-day risk management processes. In connection with the Board’s annual strategic and financial plan review, senior management makes a multidisciplinary presentation to the Board on significant strategic, operational, financial, legal and compliance risks facing the Company. At the other three quarterly Board meetings, senior management provides an update to the Board on specific risk-related issues.
Additionally, the Board is actively involved in oversight of certain risk areas conducted primarily through committees of the Board, as described in the charters of each of the committees. The Compensation Committee is responsible for overseeing the management of the Company’s executive compensation plans and incentive arrangements and routinely reviews these programs to ensure that incentives do not present inappropriate risk and are aligned with shareholder interests. The Audit Committee oversees management of financial, financial reporting, information technology, legal and insurance related risks and meets with management on at least a quarterly basis. As frequently as necessary, the Audit Committee Chair meets with senior management, the Company’s outside counsel and the Company’s independent auditors to discuss any hotline complaints, allegations of violations of the Code of Ethics and other ethical, legal or compliance matters. The Nominating and Corporate Governance Committee manages risks associated with the qualifications and independence of the Board of Directors and potential conflicts of interest. The Board satisfies their risk oversight responsibility through reports by each committee chair






regarding the committee’s considerations and actions, as well as through regular reports directly from management responsible for oversight of particular risks within the Company.
FISCAL YEAR
The Company’s fiscal year consists of 52 or 53 weeks ending on the Saturday nearest March 31. Accordingly, all references to fiscal year 2014 in this document are to the 52 -week period ended March 29, 2014 ; references to fiscal year 2013 are to the 52 -week period ended March 30, 2013 and references to fiscal year 2012 are to the 52 -week period ended March 31, 2012 .
BOARD COMPENSATION
During fiscal year 2014 , the Board of Directors was compensated for seven meetings, which included telephonic meetings, and each member of the Board of Directors attended at least 75 percent of the aggregate number of the meetings of the Board of Directors and the committees of which he was a member. All directors were reimbursed for all reasonable expenses incurred in attending meetings. Directors are expected to attend shareholders meetings. All directors then in office attended the 2013 annual meeting of shareholders.
Directors who are not employees of the Company received the following fees to the extent applicable to the individual directors: (a) an annual cash retainer of $60,000 for the service as the Chairman of the Board; (b) an annual cash retainer of $30,000 for (non-Chairman) Board service, plus $1,500 for each Board meeting attended, $1,000 for each Committee meeting attended and $750 for each telephonic meeting attended; and (c) an annual fee of $10,000 for service as chair of the Audit Committee and an annual fee of $8,000 for service as chair of a committee other than the Audit Committee. The Company also provides for reimbursement in the amount of $2,500 every two years for continuing education programs relating to the performance of duties of a director of a public company.
Non-employee directors also receive equity grants as a component of their total compensation. Stock options were granted prior to fiscal year 2007. Beginning in fiscal year 2007, the Company has granted restricted stock units (RSUs) rather than stock options.
On May 9, 2013 , each director who was not a full-time employee of the Company was granted 7,500 restricted stock units under the 2004 Stock Incentive Plan. These units vested one hundred percent on the date of grant.
FISCAL YEAR 2014 DIRECTOR COMPENSATION
The following table shows compensation earned by the Company’s non-employee directors in fiscal year 2014 .
 
Name
 
Fees Earned or
Paid in Cash
($)
 
 
 
Stock
Awards
($) (1)
 
 
 
All Other
Compensation
($) (2)
 
Total
($)
Frederick A. Ball
 
$
42,750

 
  
 
$
83,025

 
(3)
 
$
8,657

 
$
134,432

Richard J. Faubert
 
$
46,000

 
  
 
$
83,025

 
(3)(4) 
 
$
12,844

 
$
141,869

Edward C. Grady (5)
 
$
40,750

 
  
 
$
83,025

 
(3)(4) 
 
$
15,260

 
$
139,035

Barry L. Harmon
 
$
55,500

 
  
 
$
83,025

 
(3)
 
$

 
$
138,525

David Nierenberg
 
$
42,000

 
  
 
$
83,025

 
(3)
 
$

 
$
125,025

Jon D. Tompkins
 
$
85,500

 
  
 
$
83,025

 
(3)
 
$

 
$
168,525

Robert R. Walker
 
$
56,000

 
(4)
 
$
83,025

 
(3)(4) 
 
$
15,260

 
$
154,285

 
(1)
Represents the full grant date fair value of the awards granted to each director in the fiscal year ended March 29, 2014 , computed in accordance with Financial Accounting Standards Board (FASB) Accounting Standards Codification (ASC) Topic 718 “Compensation – Stock Compensation” (ASC Topic 718). Awards are valued at the closing market price of the Company’s common stock on the grant date.
(2)
The reported value is the value of dividend equivalent units relating to restricted stock unit awards that were deferred under the Company’s deferred compensation plan.
(3)
Comprised of a grant of 7,500 restricted stock units on May 9, 2013 , which vested immediately.
(4)
Elected to defer entire amount to the Company’s deferred compensation plan.
(5)
Amounts represent payments earned by Mr. Grady prior to his being appointed President and CEO of the Company.






Under the deferred compensation plan, directors can generally elect to defer a minimum of 10% and a maximum of 100% of the fees they receive from the Company for their service on the Board. Cash amounts credited to the deferred compensation plan will earn a rate of return based on investment funds selected by the participants from a prescribed menu of investment options. Generally, deferred amounts will be paid in a lump sum upon termination, except in the case of retirement, in which case the deferred amounts will be paid in a lump sum or in annual installments for up to ten years, as elected by the director. Directors may also defer payment of restricted stock units granted to them by the Company. Payment will be in shares of Company common stock under the same terms as cash amounts.
BOARD COMMITTEES
The Company maintains an Audit Committee that currently consists of Robert R. Walker (Chairman), Frederick A. Ball and Richard J. Faubert. All of the members of the Audit Committee are “independent directors” in accordance with the NASDAQ Stock Market listing standards and pursuant to the criteria established in Section 10A(m) of the Securities Exchange Act of 1934, as amended. Each of Messrs. Walker, Ball and Faubert has financial reporting oversight experience, including serving as chief financial officer of a public company in the case of Messrs. Walker and Ball. The Board of Directors has determined that each of Messrs. Walker, Ball and Faubert is an audit committee financial expert as defined in SEC rules. The Audit Committee Charter requires the Audit Committee to review any transaction with a related person or in which a related person has a direct or indirect interest and to determine whether to ratify or approve the transaction, with such ratification or approval to occur only if the Committee determines that the transaction is fair to the Company or otherwise in the interest of the Company. The Audit Committee meets with management and with representatives of ESI’s independent registered public accounting firm, KPMG LLP, including meetings without the presence of management. The Audit Committee met nine times in fiscal year 2014 .
The Company maintains a Compensation Committee that currently consists of Barry L. Harmon (Chairman), David Nierenberg and Jon D. Tompkins. All members of the Compensation Committee have been determined to be independent by the Board of Directors in accordance with the NASDAQ Stock Market listing standards and Securities and Exchange Commission rules. Edward C. Grady served on the Compensation Committee until February 23, 2014 when Mr. Grady was appointed President and Chief Executive Officer of the Company, at which point Mr. Nierenberg replaced Edward C. Grady on the Committee. The Compensation Committee has been delegated authority to set officers’ compensation and to grant awards under the Company’s stock incentive plan. For additional information about the Compensation Committee, see “Compensation Discussion and Analysis,” set forth below. The Compensation Committee met six times in fiscal year 2014 .
The Company maintains a Corporate Governance and Nominating Committee that currently consists of Jon D. Tompkins (Chairman), Barry L. Harmon and David Nierenberg. All members of the Corporate Governance and Nominating Committee have been determined to be independent by the Board of Directors in accordance with the NASDAQ Stock Market listing standards and Securities and Exchange Commission rules. The Corporate Governance and Nominating Committee assists the Board of Directors in fulfilling its oversight responsibilities related to seeking candidates for membership on the Board of Directors, assessing the corporate governance policies and processes of the Board of Directors and reviewing from time to time the policies of the Board of Directors related to director qualifications, compensation, tenure and retirement. The Corporate Governance and Nominating Committee met four times in fiscal year 2014 .
Shareholders may recommend individuals for consideration by the Corporate Governance and Nominating Committee to become nominees for election to the Board of Directors by submitting a written recommendation to the Corporate Governance and Nominating Committee c/o Chairman of the Corporate Governance and Nominating Committee, Electro Scientific Industries, Inc., 13900 NW Science Park Drive, Portland, Oregon 97229-5497. Communications should be sent by overnight or certified mail, return receipt requested. Submissions must include sufficient biographical information concerning the recommended individual, including age, five-year employment history with employer names and a description of the employer’s business, whether the individual can read and understand financial statements, and board memberships, if any, for the Corporate Governance and Nominating Committee to consider. The submission must be accompanied by a written consent of the indiv idual to stand for election if nominated by the Board and to serve if elected by the shareholders. Recommendations received by January 31, 2015 will be considered for nomination for election at the 2015 Annual Meeting of Shareholders. Recommendations received after January 31, 2015 will be considered for nomination for election at the 2016 Annual Meeting of Shareholders. Following the identification of the director candidates, the Corporate Governance and Nominating Committee will meet to discuss and consider each candidate’s qualifications and shall determine by majority vote the candidate(s) whom the Corporate Governance and Nominating Committee believes would best serve the Company. In evaluating director candidates, the Corporate Governance and Nominating Committee will consider a variety of factors, including the composition of the Board as a whole, the characteristics (including independence, age, skills and experience) of each candidate, and the performance and continued tenure of incumbent Board members. The Committee believes that candidates for director should have certain minimum qualifications, including high ethical character, a reputation that enhances the image and reputation of






the Company, being highly accomplished and a leader in his or her respective field, relevant expertise and experience, the ability to exercise sound business judgment and the ability to work with management collaboratively and constructively. The Committee also values diversity. In addition, the Committee believes that at least one member of the Board should meet the criteria for an “audit committee financial expert” as defined by Securities and Exchange Commission rules and that at least two-thirds of the members of the Board should meet the definition of independent under the NASDAQ Stock Market listing standards and Securities and Exchange Commission rules. The Committee also believes the Company’s Chief Executive Officer should participate as a member of the Board. A candidate recommended by a shareholder will be evaluated in the same manner as a candidate identified by the Committee.
COMMUNICATIONS WITH BOARD
Any shareholder who desires to communicate with the Board of Directors, individually or as a group, may do so by writing to the intended member or members of the Board of Directors, c/o Corporate Secretary, Electro Scientific Industries, Inc., 13900 NW Science Park Drive, Portland, Oregon 97229-5497. Communications should be sent by overnight or certified mail, return receipt requested. All communications will be compiled by the Secretary and submitted to the Board of Directors in a timely manner.
RECOMMENDATION BY THE BOARD OF DIRECTORS
The Board of Directors recommends that shareholders vote FOR the election of the nominees named in this Proxy Statement.






SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth information regarding the beneficial ownership of the Common Stock of the Company as of June 13, 2014 by (i) each person known to the Company to be the beneficial owner of more than 5% of the Company’s Common Stock, (ii) each of the Company’s current directors and nominees for director, (iii) each individual named in the Summary Compensation Table and (iv) all directors and executive officers of the Company on June 13, 2014 as a group. Applicable percentage of ownership is based on 30,136,402 shares of Common Stock outstanding as of June 13, 2014 together with applicable options (including stock appreciation rights) and restricted stock units held by such shareholders. Shares of Common Stock subject to options exercisable at June 13, 2014 or exercisable within 60 days after June 13, 2014 and shares of Common Stock underlying restricted stock units vested at June 13, 2014 or vesting within 60 days after June 13, 2014 , are deemed outstanding for computing the percentage ownership of the person holding such options, but are not deemed outstanding for computing the percentage ownership of any other person.
 
Name of Beneficial Owner
 
Amount and Nature of
Beneficial Ownership (1)
 
 
 
Approximate
Percent of Class
Frederick A. Ball
 
85,777

 
(2)
 
*
Richard J. Faubert
 
87,453

 
(3)
 
*
Edward C. Grady
 
91,652

 
(4)
 
*
Barry L. Harmon
 
79,375

 
(5)
 
*
Nicholas Konidaris
 
920,601

 
(6)
 
3.00%
David Nierenberg
 
3,014,164

 
(7)
 
10.00%
Jon D. Tompkins
 
85,162

 
(8)
 
*
Robert R. Walker
 
91,241

 
(9)
 
*
Robert DeBakker
 
292,584

 
(10)
 
*
Kerry Mustoe
 
159,020

 
(11)
 
*
Paul Oldham
 
296,222

 
(12)
 
*
Bing-Fai Wong
 
143,064

 
(13)
 
*
Nierenberg Investment Management Company, Inc.
 
3,014,164

 
(7)
 
10.00%
19605 NE 8 th  Street, Camas, WA 98607
 
 
 
 
 
 
Dimensional Fund Advisors LP
 
2,497,654

 
(14)
 
8.29%
Palisades West, Building One, 6300 Bee Cave Road,
Austin, TX 78746
 
 
 
 
 
 
BlackRock, Inc.
 
2,520,761

 
(15)
 
8.37%
40 East 52 nd  Street, New York, NY 10022
 
 
 
 
 
 
T. Rowe Price Associates, Inc.
 
2,896,100

 
(16)
 
9.61%
100 E. Pratt Street, Baltimore, MD 21202
 
 
 
 
 
 
Investment Counselors of Maryland, LLC

 
1,848,700

 
(17)
 
6.13%
803 Cathedral Street, Baltimore, MD 21201

 
 
 
 
 
 
The Vanguard Group
 
1,770,030

 
(18)
 
5.87%
100 Vanguard Blvd., Malvern, PA 19355
 
 
 
 
 
 
11 directors and executive officers (as of June 13, 2014) as a group
 
4,425,714

 
  
 
14.32%
*
Less than 1 percent.

(1)
Shares are held directly with sole investment and voting power unless otherwise indicated.
(2)
Includes 25,000 shares subject to stock options that were exercisable at or that would become exercisable within 60 days after June 13, 2014 . In addition, includes 27,902 shares deferred under the Company’s deferred compensation plan.
(3)
Includes 25,000 shares subject to stock options that were exercisable at or that would become exercisable within 60 days after June 13, 2014 . In addition, includes 48,778 shares deferred under the Company’s deferred compensation plan.
(4)
Includes 56,852 shares deferred under the Company’s deferred compensation plan.
(5)
Includes 25,000 shares subject to stock options that were exercisable at or that would become exercisable within 60 days after June 13, 2014 .






(6)
Includes 553,000 shares subject to stock options and stock appreciation rights that were exercisable at or that would become exercisable within 60 days after June 13, 2014 . In addition, includes 177,521 shares deferred under the Company’s deferred compensation plan. Also includes 16,820 shares held by the Konidaris Family Trust, for which Mr. Konidaris exercises sole voting power and sole investment power. Mr. Konidaris shares voting and investment rights with his spouse on all other beneficially owned shares. Mr. Konidaris ceased to be an executive officer on February 23, 2014.
(7)
David Nierenberg is the President of Nierenberg Investment Management Company, Inc. (“NIMCO”), an investment manager of several investment funds. David Nierenberg and NIMCO have joint beneficial ownership and shared voting authority over the shares managed by NIMCO. The 3,014,164 shares reported herein are based on information provided by Mr. Nierenberg’s office as of June 13, 2014 .
(8)
Includes 25,000 shares subject to stock options that were exercisable at or that would become exercisable within 60 days after June 13, 2014 .
(9)
Includes 25,000 shares subject to stock options that were exercisable at or that would become exercisable within 60 days after June 13, 2014 . In addition, includes 56,566 shares deferred under the Company’s deferred compensation plan.
(10)
Includes 216,000 shares subject to stock options and stock appreciation rights that were exercisable at or that would become exercisable within 60 days after June 13, 2014 .
(11)
Includes 113,000 shares subject to stock options and stock appreciation rights that were exercisable at or that would become exercisable within 60 days after June 13, 2014 .
(12)
Includes 215,500 shares subject to stock options and stock appreciation rights that were exercisable at or that would become exercisable within 60 days after June 13, 2014 .
(13)
Includes 97,917 shares subject to stock options and stock appreciation rights that were exercisable at or that would become exercisable within 60 days after June 13, 2014 . In addition, includes 2,452 shares deferred under the Company’s deferred compensation plan.
(14)
Based solely on information set forth in a Schedule 13G filed with the Securities and Exchange Commission on February 10, 2014, in which the entity reported its beneficial ownership as of December 31, 2013 as 2,497,654 shares. Dimensional Fund Advisors LP, an investment advisor, reported it has sole voting power with respect to 2,455,571 and dispositive power with respect to 2,497,654 shares.
(15)
Based solely on information set forth in a Schedule 13G filed with the Securities and Exchange Commission on January 29, 2014, in which the entity reported its beneficial ownership as of December 31, 2013 as 2,520,761 shares. BlackRock Inc., an investment advisor, reported it has sole voting power with respect to 2,425,360 and dispositive power with respect to 2,520,761 shares.
(16)
Based solely on information set forth in a Schedule 13G filed with the Securities and Exchange Commission on February 10, 2014, in which the entity reported its beneficial ownership as of December 31, 2013 as 2,896,100 shares. T. Rowe Price Associates, Inc., (Price Associates) an investment advisor, reported it has sole voting power with respect to 1,028,600 shares and sole dispositive power with respect to 2,896,100 shares. These securities are owned by various individual and institutional investors for which Price Associates serves as investment advisor with power to direct investments and/or sole power to vote the securities. For purposes of the reporting requirements of the Securities Exchange Act of 1934, Price Associates is deemed to be a beneficial owner of such securities; however, Price Associates expressly disclaims that it is, in fact, the beneficial owner of such securities.
(17)
Based solely on information set forth in a Schedule 13G filed with the Securities and Exchange Commission on February 12, 2014, in which the entity reported its beneficial ownership as of December 31, 2013 as 1,848,700 shares. Investment Counselors of Maryland reported it has sole voting power with respect to 1,225,500 shares, shared voting power with respect to 623,200 shares and sole dispositive power with respect to 1,848,700 shares.
(18)
Based solely on information set forth in a Schedule 13G filed with the Securities and Exchange Commission on February 12, 2014, in which the entity reported its beneficial ownership as of December 31, 2013 as 1,770,030 shares. The Vanguard Group, an investment management company, reported it has sole voting power with respect to 44,317 shares, sole dispositive power with respect to 1,726,713 shares, and shared dispositive power with respect to 43,317 shares.








EXECUTIVE OFFICERS
As of June 13, 2014 , the executive officers of the Company were as follows:
 
Name
 
Age
 
Position
Edward C. Grady
 
67

 
President and Chief Executive Officer
Paul Oldham
 
51

 
Vice President of Administration, Chief Financial Officer and Corporate Secretary
Robert DeBakker
 
56

 
Vice President of Worldwide Operations
Kerry Mustoe
 
57

 
Vice President of Finance, Corporate Controller and Chief Accounting Officer
Bing-Fai Wong
 
55

 
Vice President of Customer Operations
See Mr. Grady’s biography under “Proposal 1: Election of Directors.”
Mr. Oldham joined the Company on January 7, 2008 as Vice President of Administration, Chief Financial Officer and Corporate Secretary. Prior to joining ESI, Mr. Oldham was employed at Tektronix, Inc., a test, measurement, and monitoring company, since 1988, where he held several senior leadership positions including Vice President Finance and Corporate Controller, European Operations Controller, and most recently Vice President Treasurer and Investor Relations.
Mr. DeBakker was appointed Vice President of Worldwide Operations in September 2004. From 2000 to 2004, he was employed with IBM, a provider of business and information technology services, first as Vice President i/p Series Manufacturing, then as Vice President Strategy Integrated Supply Chain and finally as Vice President x Series Integrated Supply Chain. From 1997 to 2000, Mr. DeBakker was Vice President of Operations of Sequent Computer Systems, a manufacturer and provider of information technology solutions.
Ms. Mustoe has served as the Company’s Corporate Controller and Chief Accounting Officer since September 2003. In December 2005, she was appointed Interim Chief Financial Officer and served as such until September 2006. She was appointed Vice President on January 18, 2007. She was appointed Interim Chief Financial Officer again from September 28, 2007 until January 7, 2008. Prior to joining the Company, Ms. Mustoe held director of accounting and finance positions at several technology firms based in Portland, Oregon. Previously, Ms. Mustoe was an audit manager and certified public accountant with PricewaterhouseCoopers LLC in Portland, Oregon.
Mr. Wong was promoted to Vice President of Customer Operations in May 2009 and joined ESI in May 1998 from Giga-tronics, an electronics manufacturer. During his tenure at ESI, Mr. Wong has held a variety of positions including director of sales and service and senior director of marketing. Mr. Wong previously worked for Hewlett-Packard Company, a provider of computer and printer products and services, and began his career at Philips HK Ltd., an electronics manufacturer.






COMPENSATION DISCUSSION AND ANALYSIS
Overview
ESI’s fiscal year 2014 was challenging and the Company’s performance did not meet our plans or expectations. As a result, none of the named executive officers received incentive compensation under ESI's short term incentive plan, and consequently compensation was below fiscal year 2014 target compensation levels. In addition, on February 23, 2014 Mr. Konidaris was removed as President and Chief Executive Officer of the Company, and Mr. Grady was appointed his successor. Mr. Konidaris' termination was a "without cause" termination under his employment agreement with ESI.
Named Executive Officers
The Company's named executive officers for fiscal 2014 were as follows:
Edward C. Grady, President and Chief Executive Officer (appointed February 23, 2014)
Nicholas Konidaris, President and Chief Executive Officer (April 1, 2013 - February 23, 2014)
Paul Oldham, Vice President of Administration, Chief Financial Officer and Corporate Secretary
Robert DeBakker, Vice President of Worldwide Operations
Kerry Mustoe, Vice President of Finance, Corporate Controller and Chief Accounting Officer
Bing-Fai Wong, Vice President of Customer Operations
Compensation Philosophy
The Board of Directors and the Committee believe that the Company's executive compensation programs should be related to both short-term and long-term corporate performance and improvement in shareholder value. The Company has developed a total compensation philosophy that ties a significant portion of executive compensation to achieving pre-established financial and operational results. The overall objectives of the executive compensation program are to:
Attract and retain talented executives;
Motivate executives to execute long-term business strategies while achieving near-term financial targets; and
Align executive performance with the Company's short-term and long-term goals for delivering shareholder value.
The elements of the Company's compensation program for executives are base salary, annual cash incentives, equity incentives and a deferred compensation plan. Performance-based pay is a major element of executive compensation, which includes annual cash incentives and long-term stock-based equity incentives. Additionally, the Company also has an employee stock purchase plan, a 401(k) retirement plan and provides health care and other benefits to executives on the same basis as it does for all other employees. A limited number of key executives have change in control severance agreements, under which they are eligible to receive certain payments and benefits in the event of a termination of employment under certain circumstances following a change in control of the Company. The Company has not provided other perquisites to executive officers.
Each element of the Company's executive compensation program serves a somewhat different purpose, but in combination, the compensation program enables the Company to support its compensation philosophy and to offer compensation competitive with compensation at companies of similar size and complexity within high-technology electronics and similar industries.
The Committee believes that its total compensation philosophy should result in total compensation between the 50th and 75th percentile of similarly-situated executives in the peer group companies, assuming targeted performance results are achieved. Generally, the Committee targets the 50th percentile for solid performance, with the opportunity to achieve total compensation at the 75th percentile of similarly-situated executives for superior performance.
The Compensation Committee of the Board of Directors (the “Committee”) consists entirely of independent non-employee directors as defined by the rules of the NASDAQ Stock Market, the Company's Corporate Governance Guidelines and the Committee's charter. The current members of the Committee are Barry L. Harmon (Chairman), David Nierenberg, and Jon D. Tompkins. Mr. Nierenberg replaced Edward C. Grady on the Committee on February 23, 2014 when Mr. Grady was appointed President and Chief Executive Officer. The Committee's authority and responsibilities are set forth in a charter adopted by the Board of Directors, which the Committee reviews annually. The Charter is available for review on the Company's Web site at www.esi.com .
The Committee reviews and approves the compensation of all of the Company's executives, including the Chief Executive Officer (CEO). The Committee has full authority to determine annual base salary and incentive compensation, equity






incentives and all other compensation for the executives. The Committee reviews and approves all equity grants to executives and annual equity grants to all other employees.
Determinations regarding annual cash incentives, long-term incentives and other elements of compensation were made consistent with the Committee's compensation philosophy and in a manner that the Committee believed to be appropriate and reasonable based on individual and corporate performance.
Base salary and incentive compensation award decisions for all executive officers are made at the first quarterly meeting of the Committee in each fiscal year in conjunction with the annual performance reviews for the prior fiscal year. The Committee reviews a tally sheet, which sets forth historic and current information regarding each element of compensation for each executive. It receives recommendations from the CEO as to compensation of other executives, and the CEO participates in discussions regarding their compensation. The Committee meets in executive session without the CEO to determine his compensation.
The Committee has engaged Compensia Inc., a national compensation consulting firm, as an independent outside compensation consultant with respect to executive and director compensation. The Committee has sole authority to retain and terminate Compensia. Compensia reports solely to the Committee for all services related to executive compensation, and did not provide any other services to the Company for fiscal year 2014, except for those related to executive and director compensation. The Committee has assessed the independence of Compensia taking into account, among other things, the factors set forth in Exchange Act Rule 10C-1 and the rules of the NASDAQ Stock Market, and has concluded that no conflict of interest exists with respect to the work that Compensia performs for the Committee.
Compensation-Related Risks
The Committee believes that the Company's executive incentive compensation arrangements do not encourage executives to take unnecessary or excessive risks that could threaten the value of the Company. For example, a significant portion of the executives' performance-based compensation is in the form of long-term equity incentives which generally vest over a three to four year period of time, thereby focusing the executives on the Company's long-term interests. As a matter of best practice, the Company will continue to monitor its executive compensation program to ensure that it continues to align the interest of executives with those of its long-term shareholders while avoiding unnecessary or excessive risk.
Competitive Positioning
The Committee uses comparative information from a group of similarly-situated business and labor market competitors as well as similarly-sized broad technology industry companies in reviewing the compensation of our executives. The compensation peer group for fiscal 2014 was unchanged from fiscal 2013 and consisted of the following companies:

Advanced Energy Industries, Inc            Nanometrics
Affymetrix                        Newport Corporation
Coherent, Inc.                    Rofin-Sinar Technologies
Cohu, Inc.                        Rudolf Technologies        
Cymer, Inc.                        Ultratech, Inc
FEI Company                    Veeco Instruments, Inc
IPG Photonics                    II-VI
Intevac, Inc.                        

Compensia completed the market analysis for fiscal 2014 executive compensation using publicly available peer group proxy filings, supplemented by the Radford January 2013 Hi-Tech Industry Survey peer company data and the Radford January 2013 High-Tech Industry Survey, broad high-tech industry data for companies with revenue of $200 million to $500 million (median of $329 million). Data points were blended together to create a “market average”. The committee believes that this range reflects the talent pool from which the Company competes for executive talent.
All Committee decisions with regard to executive compensation are made on an annual basis.
Consideration of Say-on-Pay Vote Results
The advisory (non-binding) proposal regarding compensation of the named executive officers submitted to shareholders at the 2013 Annual Meeting of Shareholders was approved by over 60% of the votes cast. The Committee considered this vote to reflect general alignment of the Company's executive compensation program with shareholder interests. In considering potential changes to the executive pay program, the Committee recognized that a significant portion of both short term and long term executive compensation is based on aggressive “stretch” performance goals. The committee considers it unlikely a






significant portion of those awards will vest and therefore the value of those awards should be deeply discounted in assessing executive compensation levels. In addition, 2013 compensation included the impact of dividend equivalent units related to outstanding restricted stock units associated with the $2.00 per share special dividend issued by the Company, an event that is not expected to recur. As a result, actual compensation levels for 2014 are significantly lower than 2013 and consistent with the overall performance achieved by the Company. Finally, as noted earlier, the board removed Mr. Konidaris as CEO and appointed Mr. Grady. Mr. Grady’s target equity compensation is lower than that of Mr. Konidaris in part due to the board’s assessment of total compensation. As a result of these factors the Committee believes that the executive compensation program is aligned to shareholder interests and did not make any other substantive changes in response to that vote. The Company will conduct a say-on-pay vote annually.
Fiscal Year 2014 Compensation - The Year in Review
In setting executive compensation for fiscal 2014 , the Committee reviewed the Company's existing compensation programs and philosophy in light of current industry compensation practices and trends. Applying this philosophy for each executive officer, the Committee reviewed base salary, annual cash incentives, long-term incentives and all other elements of total compensation and compared these components to comparable elements of compensation at the peer group companies.
Base Salaries
Base salary levels are reviewed annually at the first fiscal quarterly meeting of the Committee. Base salaries for executives are determined by evaluating the responsibilities of the position and the experience of the individual and by reference to the competitive marketplace for corporate executives, including a comparison to base salaries for comparable positions at the compensation peer group as provided by Compensia. The Committee establishes base salary compensation levels for executives, including the named executive officers, generally at levels approximating the 50th percentile of the compensation peer group. Individuals with outstanding performance in any given year may be provided with base pay up to the level of the 75th percentile of the compensation peer group. The Committee believes targeting these salary levels is necessary to attract and retain talented executives.
During fiscal 2014 , Mr. Konidaris' annual base salary was $590,000, a 3.5% increase to his base salary from the prior fiscal year, which placed him at approximately the 50th percentile for chief executive officers relative to the market cash compensation data and peer company proxy data. Mr. Grady was appointed President and Chief Executive Officer during late fiscal 2014 at an annual base salary of $590,000, which the Committee considered appropriate given his overall qualifications, executive level experience and in comparison with market data.
Other named executive officers' received base salary increases ranging from 2% to 6%, which resulted in base salaries, in general, paid at the 50th percentile.
Annual Cash Incentive Compensation
The Company's executives are eligible to participate in an annual cash incentive plan. The performance objectives are established at the beginning of each fiscal year and are comprised of specific financial objectives based on the Company's annual operating plan (as approved by the Board of Directors) as well as individual and shared management objectives. The Company's financial performance objectives for fiscal 2014 were specified levels of revenues, operating income before taxes (OIBT) and gross margins. The OIBT and gross margin objectives are measured on a non-GAAP basis, consistent with the Company's reporting of these measures. The Committee selected these performance objectives because they believe maximizing revenue, operating income, and gross margins are critical to the Company's success. The Committee conditioned payments under the plan on achieving positive OIBT for the year. Because OIBT for fiscal 2014 was negative, none of the named executive officers received payments under the annual cash incentive plan, resulting in actual total direct compensation for fiscal year 2014 below target compensation levels.
The Company's Variable Pay Plans are split between a Management Incentive Plan (MIP) for the executives and most senior management levels and a Profit Sharing Plan (PSP). Participants for each plan were established at approximately 8% of the Company's employees in the Management Incentive Plan and approximately 92% in the Profit Sharing Plan.
Of the total awards available to each executive under the Management Incentive Plan for fiscal 2014, 33% of the award was based on a revenue objective, 33% was based on an OIBT objective, 29% was based on a shared executive objective based on gross profit and 5% was based on the executive's individual objectives (MBOs).
The 33% portion of the plan based on revenue and the 33% portion based on OIBT were designed to motivate and reward sales growth and positive operating income, which the Committee believes are important Company objectives. These objectives were based on achieving specific goals reviewed and approved by the Committee at the beginning of fiscal 2014 .
The 29% portion of the plan based on the shared objective of gross margin improvement was designed to motivate executive teamwork and reward performance relative to one of the most critical Company-level objectives. The gross margin improvement objective was based on achieving specific gross profit levels and was reviewed and approved by the Committee at the beginning of fiscal 2014 . All executives, including the CEO, shared the common gross margin objective.






The 5% portion of the plan related to MBOs was specific to each executive's key business initiatives and categorized by customer targeting, innovation and operational efficiency, as appropriate for the executive's position.
The Committee assigned each executive officer a percentage of base salary (the “targeted amount”) which was to be used to calculate benefits under the MIP. The targeted amount for the CEO was targeted at 100% of base salary and the targeted amount for the other named executive officers ranged from 60%-70% of base salary. The percentage of target for the individual MBOs is determined for each executive separately based upon his or her performance and a review of the objectives as of the end of the fiscal year.
For fiscal year 2014 , the Committee set a baseline plan, a minimum threshold amount and a maximum amount for revenue, OIBT and gross margin objectives for payouts under the MIP and results were calculated quarterly. If the OIBT attainment had exceeded the threshold of 100%, that attainment percentage would be used as a multiplier towards the annual payout based on the non-gross profit related MBO attainment percentage. This multiplier is used to recognize and reward the difficult group and individual stretch goals contained in the MBO portion and to create an upside to the MBO measure when the Company has exceeded the OIBT target. In addition, the Committee set a limit for total payments of cash incentive compensation for fiscal 2014 of 20% of non-GAAP operating income after the annual cash incentive compensation.
For fiscal 2014, the quarterly baseline targets and thresholds for revenue, OIBT and gross profit for the MIP and PSP are provided in the following table:
(In millions)
 
Revenue
 
OIBT
 
Gross Profit
Threshold
$
207.0
$
6.4
$
87.0

Target
 
256.3
 
34.2
 
119.0

Maximum
 
306.6
 
51.1
 
151.0


Mr. Konidaris' MBOs for fiscal year 2014 related to executive team development, improved customer intimacy and competitiveness in the marketplace. Other named executive officers' personal objectives for fiscal 2014 related to growth, innovation, gross margin, market share improvement, globalization, and operational efficiency, as appropriate for the executive's position.
Long-Term Incentive Compensation
To align shareholder and executive interests and to create incentives for improving shareholder value, the long-term incentive compensation component of the Company's fiscal 2014 executive compensation program consisted of a mix of 50% time-based restricted stock unit (TRSU) awards and 50% performance-based RSU (PRSU) awards. The program has two primary objectives: (1) to create incremental shareholder value and (2) to reward and retain high-impact employees.
Equity award amounts are generally established by the Committee at levels approximating the 50th percentile of the compensation peer group. The Committee believes this level of equity is appropriate for attracting and retaining talented executives. The Company determines grant sizes based on assessment of individual performance, current equity holdings and expected future contributions on the grant dates as compared to those of the companies in the compensation peer group.
Time-based Restricted Stock Unit Awards. TRSUs are intended to serve as a retention incentive for all executives. The TRSUs awarded during fiscal 2014 cliff vest on the third anniversary of the grant date, have a “double trigger” in the event of a change in control and are not to be otherwise prorated in the event of termination of employment prior to vesting (except for retirement in accordance with the Company's retirement policy and for the special provision in the event of Mr. Konidaris' earlier retirement described below).
Performance-based Restricted Stock Unit Awards. PRSUs entitle recipients to receive shares of the Company's common stock after a three year performance period. The PRSU’s awarded in fiscal 2014 have revenue attainment measures as set forth in the fiscal 2014 strategic plan, with one third to vest based on attainment of revenues for fiscal 2015 and two-thirds to vest based on attainment of revenues for fiscal 2016. With respect to fiscal 2015, threshold vesting starts at 90% for achievement of 90% of fiscal 2015 plan revenues, and with respect to fiscal 2016, threshold vesting starts at 85% for achievement of 85% of fiscal 2016 revenues. Vesting for both years is 100% at the 100% achievement level of plan revenues and is capped at 200% vesting at the 150% achievement level of plan revenues. Given the aggressive revenue levels associated with the awards compared to current revenue levels, achievement of payout on the awards is not considered likely (see table below):
(In millions, except percentages)
 
2015 Revenue
 
Payout
 
2016 Revenue
 
Payout
Threshold
$
261.0
 
90%
$
284.8
 
85%
Target
 
290.0
 
100%
 
335.0
 
100%
Maximum
 
435.0
 
200%
 
502.5
 
200%







The awards have a “double trigger” in the event of a change in control and are not to be otherwise prorated in the event of termination of employment prior to vesting (except for retirement in accordance with the Company's retirement policy and for the special provision in the event of Mr. Konidaris' earlier retirement described below).
Dividend Equivalents on Restricted Stock Unit Awards (RSUs). Pursuant to the terms of the Company's RSU awards, upon the Company's payment of a dividend on its common stock, the number of units with respect to each award is increased by a number equal to the value of the dividends that would have been paid on the common stock deliverable pursuant to the award, divided by the closing market price of the Company's common stock on the dividend payment date. In fiscal 2014, the Company paid four quarterly dividends of $0.08 each. The shares represented by the dividend are forfeitable if the associated awards do not vest.
During fiscal year 2014 , each of the named executive officers was granted TRSUs and PRSUs, as follows:
Name
 
TRSUs (#)

 
PRSUs (#)

Nicholas Konidaris
 
63,000

 
63,000

Paul Oldham
 
22,500

 
22,500

Robert DeBakker
 
15,000

 
15,000

Kerry Mustoe
 
5,000

 
5,000

Bing-Fai Wong
 
15,000

 
15,000


The number of awards for each executive was intended to provide compensation between the 50th and 75th percentile of similarly situated executives in the peer group. In addition to the TRSUs he was granted as a Board member in early fiscal year 2014 , Mr. Grady received an award of 63,853 Stock-Settled Stock Appreciation Rights (SOSARs) when he was appointed President and Chief Executive Officer. The Committee was advised that this award is commensurate with grants typically made to newly hired chief executives at his salary level.
In accordance with Mr. Konidaris' employment agreement, if he had retired, his PRSUs would have continued to vest for up to three years following his retirement and, with respect to his TRSUs, he would have received upon retirement a number of shares equal to the amount he would have received if he had three years' post-retirement vesting. Because Mr. Konidaris was terminated "without cause" under his employment agreement, his PRSUs continue to vest for two years post-termination based on actual performance, and vesting of his TRSUs will accelerate so that he receives a number of shares equal to the amount he would have received if he had two-years' post-retirement vesting.
Stock Ownership Guidelines
The Company maintains stock ownership guidelines for its executive management and directors.
The stock ownership guidelines for executive management are intended to further motivate executives to focus on company performance, drive high performance among individuals within the organization overall, and support the Company's compensation philosophy. The stock ownership guidelines require executive management to own and hold a specific number of shares of the Company's common stock with a value determined as follows:
3x base salary for CEO
1x base salary for Vice Presidents
The stock ownership guidelines for directors require them to own and hold an amount of common stock determined as a multiple of each director's annual retainer, which is then converted to specific number of shares of the Company's common stock. The guideline for directors is 3x the annual retainer.
Executives will have five years (or more, as may be necessary on a case by case basis) to achieve ownership levels. Shares owned outright, employee stock purchase plan shares, and unvested restricted stock units will be included. Vested or unvested stock options and stock appreciation rights are not included. With the exception of Mr. Grady who was recently appointed President and CEO, each of the Company's named executive officers has satisfied the applicable stock ownership guidelines.
Compensation Recovery
Under the Company's 2004 Stock Incentive Plan, the Board of Directors is permitted to suspend the exercise or vesting of an award if it believes a participant, other than a non-employee director, has engaged in certain acts of misconduct harmful to the Company. If it is determined that one of these acts has been committed by the recipient, no options or stock appreciation rights can be exercised by the participant and the restricted stock or restricted stock unit awards previously granted to the participant will be terminated. In addition, if the Board of Directors determines that an executive officer has engaged in an act






of embezzlement, fraud, or breach of fiduciary duty that contributed to an obligation to restate the Company's financial statements, the executive officer will be required to repay proceeds from the sale of equity awards within the 12-month period following the first public issuance or filing with the SEC of the financial statements required to be restated.
Anti-Hedging/Anti-Pledging Policy
The Company has adopted an insider trading policy which incorporates anti-hedging and anti-pledging provisions. Consequently, no employee, executive officer or director may enter into a hedge or pledge of the Company's common stock.
Change In Control and Severance Agreements
The Company entered into an employment agreement containing change in control and severance provisions with Mr. Konidaris in connection with his appointment as CEO of the Company in 2004. The Company also has change in control severance agreements in place for Messrs. DeBakker and Oldham entered into in 2006 and 2008, respectively. The Committee believes that these agreements could be an important factor in maintaining stability of the management team at a time when there is uncertainty about their continued employment by the Company.
The terms of the change in control severance agreements for these executive officers were established by the Committee to provide what it believes to be reasonable payments and benefits in the event of termination of employment following a change in control of the Company. These three agreements include gross-up provisions in the event the change in control payment triggers excise tax. At the time these agreements were entered into, the Committee believed that the gross-up provision was fair to executives in that it ensures the excise tax neither undoes the intended economic goals of the severance arrangement nor results in worse outcome for those executives who have deferred the exercise of options as compared to those who have exercised prior to a change of control. It was also viewed as an incentive for executives to stay through any transaction. See “Potential Payments upon Termination or Change in Control” in this proxy statement for more information regarding these agreements. The Company's current policy is not to provide for excise tax gross-ups in change in control agreements with executives. While the Company has change in control agreements with certain other executives, none provide for an excise tax gross-up.
Deferred Compensation Plan
Executives can generally elect to defer receipt of up to 50% of their base salary and 100% of their cash incentive compensation. Cash amounts credited to the deferred compensation plan will earn a rate of return based on investment funds selected by the participants from a prescribed menu of investment options. Generally, deferred amounts will be paid in a lump sum upon the date six months after termination of employment, except in the case of retirement, in which case the deferred amounts will be paid in a lump sum or in annual installments for five or 10 years, as elected by the executive. The Company sets aside deferred cash amounts in a grantor trust to cover the Company's obligation to pay deferred compensation.
Directors of the Board, Executive officers and other eligible employees may defer payment of RSUs granted to them by the Company. Issuance of shares of common stock is under the same terms as cash amounts.
The deferred compensation plan is offered to executives to allow them to defer more compensation than they otherwise would be permitted to defer under a tax-qualified retirement plan, such as the Company's 401(k) retirement plan. The Company offers the deferred compensation plan as a supplement to the 401(k) plan where employee contributions are limited and as a competitive practice to enable it to attract and retain top talent.
Other Benefits
The Company's executive officers are eligible to participate in the 401(k) retirement plan, employee stock purchase plan and health and welfare plans on the same basis as other employees. For 2014 the Company’s policy was to match 50% of the first 6% of employee contributions, subject to Company profitability, on a quarterly basis. Because the Company was profitable in the second quarter but not the first, third and fourth quarters, the Company match was provided to employees who made contributions only during one quarter of 2014 . The Company has not provided any other perquisites to its executive officers.
Deductibility of Compensation
It is the Company's policy to make reasonable efforts to cause executive compensation to be eligible for deductibility under Section 162(m) of the Internal Revenue Code. Under Section 162(m), the federal income tax deductibility of compensation paid to the Company's chief executive officer and to each of its three other most highly compensated executive officers other than its chief financial officer may be limited to the extent that such compensation exceeds $1.0 million in any taxable year. Under Section 162(m), the Company may deduct compensation in excess of $1.0 million if it qualifies as “performance-based compensation,” as defined in Section 162(m).
It is possible that non-qualifying compensation paid to the Company's executives, such as salary and time-based restricted stock awards, may exceed $1.0 million in a taxable year and therefore limit the deductibility by the Company of a portion of such compensation. The Company believes that all of the stock options, stock appreciation rights and performance-based restricted stock units granted to its executives under its shareholder approved plans should qualify under Section 162(m)






as performance-based compensation. The Committee may, from time to time, award compensation that will not be deductible for purposes of Section 162(m) if determined to be in the best interests of the Company and its stockholders.








EXECUTIVE COMPENSATION
The following table sets forth information concerning compensation paid to the following officers for services provided to the Company, as well as the aggregate grant date fair value of all equity awards granted in fiscal years 2014 , 2013 and 2012 :
The Company’s chief executive officer (appointed February 23, 2014);
The Company’s former chief executive officer (April 1, 2013 - February 23, 2014);
The Company’s chief financial officer; and
The three other individuals who were serving as executive officers of the Company at the end of fiscal year 2014 .
The above individuals are referred to hereafter as the “named executive officers.”
SUMMARY COMPENSATION TABLE
Name and Principal Position
 
Fiscal
Year
(1)
 
Salary
 
Bonus
 
Stock
Awards
(2)
 
 
Option
Awards
(3)
 
Non-Equity
Incentive Plan
Compensation
(4)
 
All  Other
Compensation
(5)
 
Total
Edward C. Grady
 
2014
 
$
60,512

 
$

 
$

 
 
$
187,881

 
$

 
$

 
$
248,393

President and Chief Executive Officer

 
2013
 
NA

 
NA

 
NA

 
 
NA

 
NA

 
NA

 
NA

2012
 
NA

 
NA

 
NA

 
 
NA

 
NA

 
NA

 
NA

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Nicholas Konidaris
 
2014
 
$
586,667

 
$

 
$
697,410

(6)
 
$

 
$

 
$
93,446

 
$
1,377,523

Former President and Chief Executive Officer
 
2013
 
$
570,000

 
$

 
$
829,917

(7)(8)
 
$

 
$
240,016

 
$
542,443

 
$
2,182,376

2012
 
$
565,667

 
$

 
$
1,243,632

(9)(10)
 
$
555,654

 
$
188,039

 
$
25,174

 
$
2,578,166

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Paul Oldham
 
2014
 
$
338,333

 
$

 
$
249,075

(11)
 
$

 
$

 
$
28,489

 
$
615,897

Vice President Administration, Chief Financial Officer and Corporate Secretary
 
2013
 
$
329,167

 
$

 
$
221,940

(12)(13)
 
$

 
$
160,969

 
$
202,028

 
$
914,104

2012
 
$
323,333

 
$

 
$
351,811

(9)(14)
 
$
156,278

 
$
67,742

 
$
10,361

 
$
909,525

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Robert DeBakker
 
2014
 
$
277,167

 
$

 
$
166,050

(15)
 
$

 
$

 
$
18,427

 
$
461,644

Vice President of Worldwide Operations
 
2013
 
$
271,667

 
$

 
$
119,896

(16)(17)
 
$

 
$
114,931

 
$
125,230

 
$
631,724

2012
 
$
263,667

 
$

 
$
159,696

(9)(18)
 
$
69,457

 
$
48,457

 
$
8,443

 
$
549,720

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Kerry Mustoe
 
2014
 
$
207,167

 
$

 
$
55,350

(19)
 
$

 
$

 
$
12,831

 
$
275,348

Vice President of Finance, Corporate Controller and Chief Accounting Officer
 
2013
 
$
202,167

 
$

 
$
77,406

(20)(21)
 
$

 
$
83,551

 
$
114,768

 
$
477,892

2012
 
$
196,667

 
$

 
$
157,085

(9)(22)
 
$
69,457

 
$
35,105

 
$
7,273

 
$
465,587

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Bing-Fai Wong
 
2014
 
$
262,500

 
$

 
$
166,050

(23)
 
$

 
$

 
$
17,217

 
$
445,767

Vice President of Customer Operations
 
2013
 
$
247,500

 
$

 
$
133,796

(24)(25)
 
$

 
$
99,495

 
$
121,681

 
$
602,472

2012
 
$
232,500

 
$

 
$
234,976

(9)(26)
 
$
104,185

 
$
37,456

 
$
6,884

 
$
616,001


(1)
The Company’s fiscal year consists of the 52 or 53 weeks ending on the Saturday nearest March 31. Accordingly, references in this table to fiscal year 2014 are to the 52 -week period ended March 29, 2014 ; references to fiscal year 2013 are to the 52 -week period ended March 30, 2013 ; and references to fiscal year 2012 are to the 52 -week period ended March 31, 2012 .
(2)
Represents the aggregate grant date fair value of stock awards computed in accordance with Financial Accounting Standards Board (FASB) Accounting Standards Codification (ASC) Topic 718 “Compensation – Stock Compensation” (ASC Topic 718). Awards are valued at the closing market price of the Company’s common stock on the grant date.
(3)
Represents the aggregate grant date fair value of option and stock appreciation right awards computed in accordance with ASC Topic 718. The fair value of options and stock appreciation rights is estimated using the Black-Scholes option pricing model. The assumptions made in determining the grant date fair value of options and stock appreciation rights under ASC Topic 718 are disclosed in the Notes to Consolidated Financial Statements in the Company’s Annual Report on Form 10-K for the fiscal year ended March 29, 2014 . In all fiscal years presented, stock appreciation rights were issued in lieu of options and are explained in the Long-Term Incentive Compensation section of the Compensation Discussion and Analysis.
(4)
Represents payments under the Company’s annual cash incentive plan.
(5)
Except as otherwise indicated, represents the value of dividend equivalent units issued pursuant to the Company’s restricted stock unit awards and 401(k) retirement plan matching contributions made by the Company. The Company suspended the 401(k) retirement plan match effective March 1, 2009 and reinstated it effective January 1, 2011 on a quarterly basis, subject to






Company profitability. In May of 2014, the Company reinstated the 401(k) retirement plan match effective July 1, 2014, without regard to profitability.
(6)
Represents the aggregate grant date fair value of time-based restricted stock unit awards only; performance-based restricted stock awards granted in fiscal year 2014 are calculated at a 0% attainment rate based on the estimated likelihood of achievement. The maximum grant date fair value which may be attained for this award is $1,394,820.
(7)
Represents the aggregate grant date fair value of time-based restricted stock unit awards only; performance-based restricted stock awards granted in fiscal year 2013 are calculated at a 0% attainment rate based on the estimated likelihood of achievement. The maximum grant date fair value which may be attained for this award is $1,395,480.
(8)
Includes $23,717 in grant date fair value for the additional 5.4% beyond 100% attainment earned on the performance-based restricted stock units granted in fiscal year 2011 based on actual performance and which vested at the end of fiscal year 2013.
(9)
Represents the aggregate grant date fair value of time-based restricted stock unit awards only; no performance-based restricted stock awards were granted in fiscal year 2012.
(10)
Includes $39,152 in grant date fair value for the additional 15.8% beyond 100% attainment earned on the performance-based restricted stock units granted in fiscal year 2010 based on actual performance and which vested at the end of fiscal year 2012.
(11)
Represents the aggregate grant date fair value of time-based restricted stock unit awards only; performance-based restricted stock awards granted in fiscal year 2014 are calculated at a 0% attainment rate based on the estimated likelihood of achievement. The maximum grant date fair value which may be attained for this award is $498,150.
(12)
Represents the aggregate grant date fair value of time-based restricted stock unit awards only; performance-based restricted stock awards granted in fiscal year 2013 are calculated at a 0% attainment rate based on the estimated likelihood of achievement. The maximum grant date fair value which may be attained for this award is $360,900.
(13)
Includes $13,440 in grant date fair value for the additional 5.4% beyond 100% attainment earned on the performance-based restricted stock units granted in fiscal year 2011 based on actual performance and which vested at the end of fiscal year 2013.
(14)
Includes $13,051 in grant date fair value for the additional 15.8% beyond 100% attainment earned on the performance-based restricted stock units granted in fiscal year 2010 based on actual performance and which vested at the end of fiscal year 2012.
(15)
Represents the aggregate grant date fair value of time-based restricted stock unit awards only; performance-based restricted stock awards granted in fiscal year 2014 are calculated at a 0% attainment rate based on the estimated likelihood of achievement. The maximum grant date fair value which may be attained for this award is $332,100.
(16)
Represents the aggregate grant date fair value of time-based restricted stock unit awards only; performance-based restricted stock awards granted in fiscal year 2013 are calculated at a 0% attainment rate based on the estimated likelihood of achievement. The maximum grant date fair value which may be attained for this award is $192,480.
(17)
Includes $8,696 in grant date fair value for the additional 5.4% beyond 100% attainment earned on the performance-based restricted stock units granted in fiscal year 2011 based on actual performance and which vested at the end of fiscal year 2013.
(18)
Includes $9,136 in grant date fair value for the additional 15.8% beyond 100% attainment earned on the performance-based restricted stock units granted in fiscal year 2010 based on actual performance and which vested at the end of fiscal year 2012.
(19)
Represents the aggregate grant date fair value of time-based restricted stock unit awards only; performance-based restricted stock awards granted in fiscal year 2014 are calculated at a 0% attainment rate based on the estimated likelihood of achievement. The maximum grant date fair value which may be attained for this award is $110,700.
(20)
Represents the aggregate grant date fair value of time-based restricted stock unit awards only; performance-based restricted stock awards granted in fiscal year 2013 are calculated at a 0% attainment rate based on the estimated likelihood of achievement. The maximum grant date fair value which may be attained for this award is $120,300.
(21)
Includes $7,906 in grant date fair value for the additional 5.4% beyond 100% attainment earned on the performance-based restricted stock units granted in fiscal year 2011 based on actual performance and which vested at the end of fiscal year 2013.
(22)
Includes $6,525 in grant date fair value for the additional 15.8% beyond 100% attainment earned on the performance-based restricted stock units granted in fiscal year 2010 based on actual performance and which vested at the end of fiscal year 2012.
(23)
Represents the aggregate grant date fair value of time-based restricted stock unit awards only; performance-based restricted stock awards granted in fiscal year 2014 are calculated at a 0% attainment rate based on the estimated likelihood of achievement. The maximum grant date fair value which may be attained for this award is $332,100.
(24)
Represents the aggregate grant date fair value of time-based restricted stock unit awards only; performance-based restricted stock awards granted in fiscal year 2013 are calculated at a 0% attainment rate based on the estimated likelihood of achievement. The maximum grant date fair value which may be attained for this award is $216,540.
(25)
Includes $8,696 in grant date fair value for the additional 5.4% beyond 100% attainment earned on the performance-based restricted stock units granted in fiscal year 2011 based on actual performance and which vested at the end of fiscal year 2013.
(26)
Includes $9,136 in grant date fair value for the additional 15.8% beyond 100% attainment earned on the performance-based restricted stock units granted in fiscal year 2010 based on actual performance and which vested at the end of fiscal year 2012.









FISCAL YEAR 2014 GRANTS OF PLAN-BASED AWARDS
The following table contains information concerning fiscal year 2014 incentive opportunities for the named executive officers and the restricted stock units granted to the named executive officers in fiscal year 2014 .
 
Name
 
Grant
Date
 
Estimated Future Payouts
Under Non-Equity Incentive
Plan Awards (1)
 
Estimated Future Payouts
Under Equity Incentive Plan
Awards (2)
 
All
Other
Stock
Awards:
Number
of Shares
of Stock
or Units
(#)
 
 
All Other
Option
Awards:
Number
of
Securities
Underlying
Options
(#)
 
 
Exercise
or Base
Price of
Option
Awards
($/Share)
 
Grant
Date
Fair
Value
($)
Threshold
($)
 
Target
($)
 
Maximum
($)
 
Threshold
(#)
 
Target
(#)
 
Maximum
(#)
 
Edward C. Grady
 

 
$

 
$

 
$

 

 

 

 
 
 
 

 
 

 

2/23/14

 

 

 

 

 

 

 

 
 
63,853

(3
)
 
$
9.24

 
$
187,881

 
 

 

 

 

 

 

 

 
 

 
 

 

Nicholas Konidaris
 

 
$
1,995

 
$
586,667

 
$
1,173,334

 

 

 

 

  
 

 
 

 

5/9/13

 

 

 

 

 

 

 
63,000

(4)
 

 
 

 
$
697,410

5/9/13

 

 

 

 
54,600

 
63,000

 
126,000

 

 
 

 
 

 

Paul Oldham
 

 
$
805

 
$
236,833

 
$
473,666

 

 

 

 

  
 

 
 

 

5/9/13

 

 

 

 

 

 

 
22,500

(4)
 

 
 

 
$
249,075

5/9/13

 

 

 

 
19,500

 
22,500

 
45,000

 

 
 

 
 

 

Robert DeBakker
 

 
$
565

 
$
166,300

321,200

$
332,600

 

 

 

 

  
 

 
 

 

5/9/13

 

 

 

 

 

 

 
15,000

(4)
 

 
 

 
$
166,050

5/9/13

 

 

 

 
13,000

 
15,000

 
30,000

 

 
 

 
 

 

Kerry Mustoe
 

 
$
423

 
$
124,300

 
$
248,600

 

 

 

 

  
 

 
 

 

5/9/13

 

 

 

 

 

 

 
5,000

(4)
 

 
 

 
$
55,350

5/9/13

 

 

 

 
4,333

 
5,000

 
10,000

 

 
 

 
 

 

Bing-Fai Wong
 

 
$
536

 
$
157,500

 
$
315,000

 

 

 

 

  
 

 
 

 

5/9/13

 

 

 

 

 

 

 
15,000

(4)
 

 
 

 
$
166,050

5/9/13

 

 

 

 
13,000

 
15,000

 
30,000

 

 
 

 
 

 

 
(1)
Represents the incentive for fiscal year 2014 under the Company’s annual executive team bonus plan and estimated payouts at threshold, target and maximum levels of performance. As the threshold was not reached, no incentive payouts were earned for fiscal year 2014 .
(2)
Represents performance-based restricted stock unit awards (PRSUs). Vesting under these awards is based on two performance goals. Vesting of one-third of the restricted stock units awarded is based on the Company's sales in fiscal 2015 as compared to the revenue goals for that year set forth in the Company’s current three-year strategic plan and two-thirds vest based on the Company’s sales in fiscal 2016 as compared to the revenue goals for that year set forth in the Company’s current three-year strategic plan. Of the PRSUs vesting based on fiscal 2015 sales, 100% vest on sales equal to the Company's revenue goal, with additional vesting in 20% increments for each 10% increment in sales above that amount, up to a maximum of 200% vesting on sales of 150% of the revenue goal. For sales below the revenue goal, 90% vest on sales equal to 90% of the goal and vest linearly up to 100%. There is no vesting if sales are below 90% of goal. Of the PRSUs vesting based on fiscal 2016 sales, 100% vest on sales equal to the Company's revenue goal for fiscal 2016, with additional vesting in 20% increments for each 10% increment in sales above that amount, up to a maximum of 200% vesting on sales of 150% of the revenue goal. For sales below the revenue goal, 85% vest on sales of 85% of the goal and vest linearly up to 100%. There is no vesting if sales are below 85% of the goal. The Company currently estimates both fiscal 2015 and 2016 targets will not be attained and has reflected a 0% attainment as the grant date fair value.
(3)
Represents stock-settled stock appreciation right granted on February 23, 2014 that vests annually on first three anniversaries of grant date, subject to employment criteria.
(4)
Represents restricted stock units granted on May 9, 2013 that vest 100% on May 9, 2016, subject to employment criteria.








OUTSTANDING EQUITY AWARDS AT END OF FISCAL YEAR 2014
The following table sets forth the information concerning outstanding options (which includes stock appreciation rights) and unvested restricted stock units held by the named executive officers at March 29, 2014 .
 
 
Option Awards
 
Stock Awards
Name
 
Number of
Securities
Underlying
Unexercised
Options
Exercisable
(#)
 
Number of
Securities
Underlying
Unexercised
Options
Unexercisable
(#)
 
Equity Incentive  Plan
Awards: Number of
Securities Underlying
Unexercised
Unearned Options (#)
 
Option
Exercise
Price  ($)(1)
 
Option
Expiration
Date
 
Number of
Shares or
Units of Stock
That Have
Not Vested (#)
 
Market Value of
Shares  or Units
of Stock That
Have Not
Vested ($)(2)
 
Equity Incentive
Plan Awards:
Number of
Unearned Shares,
Units or Other
Rights That Have
Not Vested (#)
 
Equity Incentive
Plan Awards:
Market or Payout
Value of
Unearned Shares,
Units or Other
Rights That Have
Not Vested ($)(2)
Edward C. Grady
 

 
 
63,853

(3)
 
 
 
$
9.24

 
2/22/2024
 

 
 
$

 

 
 
$

Nicholas Konidaris
 
40,000

(4)
 

  
 
 
$
24.70

 
7/13/2014
 
32,086

(12)
 
$
317,331

 
64,971

(17)
 
$
642,563

 
100,000

(5)
 

  
 
 
$
18.62

 
7/21/2015
 
38,503

(13)
 
$
380,795

 
73,526

(18)
 
$
727,172

 
70,000

(6)
 

  
 
 
$
19.20

 
5/24/2016
 
82,141

(14)
 
$
812,374

 

  
 
$

 
40,000

(7)
 

  
 
 
$
21.86

 
7/25/2017
 
74,046

(15)
 
$
732,315

 

  
 
$

 
40,000

(8)
 

 
 
 
$
15.78

 
5/14/2018
 
64,971

(16)
 
$
642,563

 

  
 
$

 
150,000

(9)
 

 
 
 
$
7.26

 
5/13/2019
 

 
 
$

 

  
 
$

 
48,750

(10)
 
16,250

(10)
 
 
$
13.84

 
5/12/2020
 

  
 
$

 

  
 
$

 
32,000

(11)
 
32,000

(11)
 
 
$
18.02

 
5/11/2021
 

  
 
$

 

  
 
$

Paul Oldham
 
80,000

(19)
 

  
 
 
$
18.11

 
1/6/2018
 
12,834

(12)
 
$
126,928

 
19,015

(17)
 
$
188,058

15,000

(8)
 

 
 
 
$
15.78

 
5/14/2018
 
6,417

(13)
 
$
63,464

 
23,204

(18)
 
$
229,488

90,000

(9)
 

 
 
 
$
7.26

 
5/13/2019
 
23,102

(14)
 
$
228,479

 

  
 
$

12,750

(10)
 
4,250

(10)
 
 
$
13.84

 
5/12/2020
 
19,150

(15)
 
$
189,394

 

  
 
$

9,000

(11)
 
9,000

(11)
 
 
$
18.02

 
5/11/2021
 
23,204

(16)
 
$
229,488

 

  
 
$

Robert DeBakker
 
50,000

(20)
 

  
 
 
$
16.52

 
9/26/2014
 
10,268

(12)
 
$
101,551

 
10,142

(17)
 
$
100,304

38,000

(21)
 

  
 
 
$
19.04

 
7/20/2015
 
6,417

(13)
 
$
63,464

 
15,469

(18)
 
$
152,988

35,000

(6)
 

  
 
 
$
19.20

 
5/24/2016
 
10,268

(14)
 
$
101,551

 

  
 
$

14,000

(22)
 

  
 
 
$
22.03

 
7/24/2017
 
10,213

(15)
 
$
101,007

 

  
 
$

12,000

(8)
 

 
 
 
$
15.78

 
5/14/2018
 
15,469

(16)
 
$
152,988

 

  
 
$

50,000

(9)
 

 
 
 
$
7.26

 
5/13/2019
 

 
 
$

 

  
 
$

8,250

(10)
 
2,750

(10)
 
 
$
13.84

 
5/12/2020
 

 
 
$

 

  
 
$

4,000

(11)
 
4,000

(11)
 
 
$
18.02

 
5/11/2021
 

  
 
$

 

  
 
$

Kerry Mustoe
 
9,000

(23)
 

  
 
 
$
16.12

 
4/19/2015
 
7,701

(12)
 
$
76,163

 
6,338

(17)
 
$
62,683

15,000

(21)
 

  
 
 
$
19.04

 
7/20/2015
 
6,417

(13)
 
$
63,464

 
5,156

(18)
 
$
50,993

20,000

(6)
 

  
 
 
$
19.20

 
5/24/2016
 
10,268

(14)
 
$
101,551

 

  
 
$

10,000

(22)
 

  
 
 
$
22.03

 
7/24/2017
 
6,383

(15)
 
$
63,128

 

  
 
$

8,000

(8)
 

 
 
 
$
15.78

 
5/14/2018
 
5,156

(16)
 
$
50,993

 

  
 
$

35,000

(9)
 

 
 
 
$
7.26

 
5/13/2019
 

 
 
$

 

  
 
$

7,500

(10)
 
2,500

(10)
 
 
$
13.84

 
5/12/2020
 

 
 
$

 

  
 
$

4,000

(11)
 
4,000

(11)
 
 
$
18.02

 
5/11/2021
 

  
 
$

 

  
 
$

Bing-Fai Wong
 
26,000

(21)
 

  
 
 
$
19.04

 
7/20/2015
 
6,417

(13)
 
$
63,464

 
11,409

(17)
 
$
112,835

8,667

(6)
 

 
 
 
$
19.20

 
5/24/2016
 
15,401

(14)
 
$
152,316

 
15,469

(18)
 
$
152,988

3,250

(8)
 

 
 
 
$
15.78

 
5/14/2018
 
11,490

(15)
 
$
113,636

 

 
 
$

40,000

(9)
 

 
 
 
$
7.26

 
5/13/2019
 
15,469

(16)
 
$
152,988

 

 
 
$

8,250

(10)
 
2,750

(10)
 
 
$
13.84

 
5/12/2020
 

 
 
$

 

 
 
$

6,000

(11)
 
6,000

(11)
 
 
$
18.02

 
5/11/2021
 

 
 
$

 

 
 
$







(1)
The reported option exercise prices reflect an adjustment to outstanding option and SOSAR grants as provided for under the company's 2004 Stock Incentive Plan resulting from the company's issuance of a special one-time dividend of $2.00 per share, paid on December 27, 2012 to shareholders of record as of the close of business on December 13, 2012.  As approved by the Compensation Committee of the Board of Directors of the Company, the option exercise prices of all outstanding awards were adjusted downward on January 30, 2013 to preserve their value. For options with an exercise price of $11.70 or less, the exercise price was reduced by .8786. For options with an exercise price greater than $11.70, the exercise price was reduced by $0.80.  
(2)
Based on closing stock price on March 29, 2014 of $9.89 .
(3)
Stock-settled stock appreciation right granted on February 23, 2014 and becomes exercisable for one third of the shares on each of the first three anniversaries of the grant date, subject to employment criteria.
(4)
Option granted on July 13, 2004 and became exercisable for 25% of the shares on each of the first four anniversaries of the grant date. Effective January 25, 2005, the vesting of the option was accelerated to be 100% vested on January 25, 2005; however, sale was restricted to the original vesting schedule.
(5)
Option granted on July 21, 2005 and became 100% vested on May 26, 2006. The shares underlying the option were restricted from being sold for a period of three years from the grant date.
(6)
Option granted on May 24, 2006 and became 100% vested on May 26, 2006. The shares underlying the option were subject to sale restrictions that lapsed as to one-third of the shares on each of the first three anniversaries of the grant date.
(7)
Option granted on July 26, 2007 and became exercisable for 25% of the shares on each of the first four anniversaries of the grant date.
(8)
Option granted on May 15, 2008 and became exercisable for 25% of the shares on each of the first four anniversaries of the grant date.
(9)
Stock-settled stock appreciation right granted on May 14, 2009 and becomes exercisable for 25% of the shares on each of the first four anniversaries of the grant date, subject to employment criteria.
(10)
Stock-settled stock appreciation right granted on May 13, 2010 and becomes exercisable for 25% of the shares on each of the first four anniversaries of the grant date, subject to employment criteria.
(11)
Stock-settled stock appreciation right granted on May 12, 2011 and becomes exercisable for 25% of the shares on each of the first four anniversaries of the grant date, subject to employment criteria.
(12)
Restricted stock units granted on May 14, 2009 and vest 100% on May 14, 2014, subject to employment criteria. The number of unvested shares includes dividend equivalent restricted stock units issued on the Company’s dividend payment dates pursuant to the terms of the Company’s restricted stock unit awards.
(13)
Restricted stock units granted on May 13, 2010 and vest 100% on May 13, 2015, subject to employment criteria. The number of unvested shares includes dividend equivalent restricted stock units issued on the Company’s dividend payment dates pursuant to the terms of the Company’s restricted stock unit awards.
(14)
Restricted stock units granted on May 12, 2011 and vest 100% on May 12, 2014, subject to employment criteria. The number of unvested shares includes dividend equivalent restricted stock units issued on the Company’s dividend payment dates pursuant to the terms of the Company’s restricted stock unit awards.
(15)
Restricted stock units granted on May 10, 2012 and vest 100% on May 10, 2015, subject to employment criteria. The number of unvested shares includes dividend equivalent restricted stock units issued on the Company’s dividend payment dates pursuant to the terms of the Company’s restricted stock unit awards.
(16)
Restricted stock units granted on May 9, 2013 and vest 100% on May 13, 2016, subject to employment criteria. The number of unvested shares includes dividend equivalent restricted stock units issued on the Company’s dividend payment dates pursuant to the terms of the Company’s restricted stock unit awards.
(17)
Performance-based restricted stock units granted on August 8, 2012 and cliff vest at the end of fiscal year 2015 subject to employment criteria and based on levels of performance achieved as compared to the peer group companies (as described in “Compensation Discussion and Analysis” above). The performance measurement for the vesting of these shares will be determined upon completion of the Company’s fiscal year 2015 audit and will be confirmed by the Company’s Compensation Committee in May 2015. The number of unvested shares is calculated at the 90% threshold performance level and includes dividend equivalent restricted stock units issued on the Company’s dividend payment dates pursuant to the terms of the Company’s restricted stock unit awards.
(18)
Performance-based restricted stock units granted on May 9, 2013 and cliff vest at the end of fiscal year 2016 subject to employment criteria and based on levels of performance achieved as compared to the peer group companies (as described in “Compensation Discussion and Analysis” above). The performance measurement for the vesting of these shares will be determined upon completion of the Company’s fiscal year 2016 audit and will be confirmed by the Company’s Compensation Committee in May 2016. The number of unvested shares is calculated at the 90% threshold performance level and includes dividend equivalent restricted stock units issued on the Company’s dividend payment dates pursuant to the terms of the Company’s restricted stock unit awards.
(19)
Option granted on January 7, 2008 and becomes exercisable for 25% of the shares on each of the first four anniversaries of the grant date.
(20)
Option granted on September 27, 2004 and became exercisable for 25% of the shares on each of the first four anniversaries of the grant date.
(21)
Option granted on July 20, 2005 and became 100% vested on May 26, 2006. The shares underlying the option were restricted from being sold for a period of three years from the grant date.
(22)
Option granted on July 25, 2007 and became exercisable for 25% of the shares on each of the first four anniversaries of the grant date.
(23)
Option granted on April 20, 2005 and became 100% vested on April 20, 2006. The shares underlying the option were restricted from being sold for a period of three years from the grant date.






OPTION EXERCISES AND STOCK VESTED IN FISCAL YEAR 2014
The following table sets forth information with respect to options that were exercised and stock awards that vested with respect to the named executive officers in fiscal year 2014 .
 
 
 
Option Awards
 
Stock Awards
Name
 
Number of
Shares
Acquired
on Exercise
(#)
 
Value Realized
on Exercise
($)
 
Number of
Shares
Acquired
on Vesting
(#)
 
Value
Realized
($)
Nicholas Konidaris
 

 

 
15,000

 
 
$
165,150

Paul Oldham
 

 

 
17,000

 
 
$
187,146

Robert DeBakker
 

 

 
10,000

 
 
$
110,084

Kerry Mustoe
 

 

 
12,000

 
 
$
132,100

Bing-Fai Wong
 

 

 
41,000

 
 
$
451,350

 









FISCAL YEAR 2014 NON-QUALIFIED DEFERRED COMPENSATION
 
Name
 
Executive
Contributions
in Fiscal Year 2014
 
Registrant
Contributions
in Fiscal Year 2014
 
Aggregate
Earnings in Fiscal Year 2014
 
Aggregate
Withdrawals/
Distributions
 
Aggregate
Balance at
3/29/14
($)
 
($)
 
($) (3)
 
($)
 
($)
Edward C. Grady
 
$
83,025

(6)
 

 
$
(42,764
)
 
 

 
$
478,546

 
Nicholas Konidaris
 
$
144,009

(1)
 

 
$
262,731

 
 

 
$
1,751,672

(4)
Paul Oldham
 

  
 

 

 
 

 

  
Robert DeBakker
 

  
 

 

 
 

 

  
Kerry Mustoe
 
$
99,919

(5)
 

 
$
(984
)
 
 

 
$
322,569

(4)
Bing-Fai Wong
 
$
72,399

(2)
 

 
$
16,556

 
 

 
$
334,447

(4)
 
(1)
$144,009 included as part of reported non-equity incentive plan compensation in the Summary Compensation Table for fiscal year 2013.
(2)
$19,899 included as part of reported non-equity incentive plan compensation in the Summary Compensation Table for fiscal year 2013.
(3)
These amounts are not included in the Summary Compensation Table for fiscal year 2014 because plan earnings were not preferential or above market.
(4)
Aggregate balance includes amounts reported as part of non-equity incentive plan compensation in the Summary Compensation Table for previous fiscal years.
(5)
$58,486 included as part of reported non-equity incentive plan compensation in the Summary Compensation Table for fiscal year 2013.
(6)
$83,025 included as part of stock awards compensation in the Director Compensation Table for fiscal year 2014.
Under the Company’s nonqualified deferred compensation plan, executives can generally elect to defer receipt of up to 50% of their salary and 100% of their bonuses. Cash amounts credited to the deferred compensation plan will earn a rate of return based on investment funds selected by the participants from a prescribed menu of investment options. Generally, deferred amounts will be paid in a lump sum upon termination, except in the case of retirement, in which case the deferred amounts will be paid in a lump sum or in annual installments for up to ten years, as elected by the executive. Officers and other eligible employees may also defer payment of restricted stock units granted to them by the Company. Payment will be in shares of Company common stock under the same terms as cash amounts. The Company has set aside amounts in a grantor trust to cover the Company’s obligation to pay deferred compensation.








EQUITY COMPENSATION PLAN INFORMATION
Set forth in the table below is certain information regarding the number of shares of common stock that was subject to outstanding stock options (which includes stock appreciation rights) or other compensation plan grants and awards at March 29, 2014 .
 
Plan Category
 
Number of
Securities to be
Issued upon Exercise
of Outstanding
Options, Warrants
and Rights