DEF 14A 1 rtec-def14a_20180418.htm DEF 14A rtec-def14a_20180418.htm

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

SCHEDULE 14A

PROXY STATEMENT PURSUANT TO SECTION 14(a) OF

THE SECURITIES EXCHANGE ACT OF 1934

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Definitive Proxy Statement

Definitive Additional Materials

Soliciting Material Pursuant to (S) 240.11 or (S) 240.14a-12

 

Rudolph Technologies, Inc.

 

 

(Exact name of Registrant as specified in its charter)

 

 

(Name of Person(s) Filing Proxy Statement, if other than the Registrant)

 

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PROXY STATEMENT

TABLE OF CONTENTS

 

 

Page

Proxy Summary

1

Rudolph Technologies Proxy Statement

4

Questions and Answers Regarding the Annual Meeting

4

Corporate Governance Principles and Practices

8

Proposal 1 – Election of Directors

15

Proposal 2 – Advisory Vote on Executive Compensation

24

Proposal 3 – Approval of Rudolph Technologies, Inc. 2018 Stock Plan

25

Proposal 4 – Approval of Rudolph Technologies, Inc. 2018 Employee Stock Purchase Plan

35

Proposal 5 - Ratification of Appointment of Independent Registered Public Accounting Firm

38

Audit Committee Report

41

Executive Compensation

42

Compensation Committee Report on Executive Compensation

65

Executive Compensation Tables

66

CEO Pay Ratio

80

Security Ownership

81

Section 16(a) Beneficial Ownership Reporting Compliance

82

Other Matters

82

Additional Information

83

 

 

 

 

 


 

 

 

 

 

 

April 18, 2018

 

 

From the Chairman’s Desk,

Rudolph Technologies’ Board of Directors is committed to increasing stockholder value while positioning the Company for sustainable growth. The Company’s focus is to deliver high value solutions to high growth markets. We seek to strengthen our offerings by investing in research and development for our existing markets, while exploring potential adjacent markets and acquisition opportunities for new technologies.

Growth in revenue and profitability are directly linked to increasing stockholder value. We believe we can achieve this growth through continued execution of process innovation and quality of our products and services that drive higher yields and lower manufacturing costs for our customers. We believe our customers see our innovation and execution excellence as indicators that we are the best partner to help them reach their continuously higher yield targets.

Our employees are the core strength of Rudolph Technologies, providing inspiration for new solutions and product innovation, while working to ensure the quality of products and services that are provided every day.  Furthermore, our customer-facing organization interacts with Rudolph Technologies’ customer base and exemplifies the core values of our Company.  As Rudolph Technologies continues to grow, there will be increasing demands on our people and we look forward to enhancing and strengthening our existing organization with capable and talented employees who will help us develop new technologies, new markets and better serve our customers in order to realize this growth.  Through our Company culture of quality, excellence and success, the people of Rudolph Technologies have made us what we are and will drive us to even greater success.

The Board of Directors takes our role as stewards of our stockholders’ investments seriously. Our position requires constant review of our governance practices. We research governance practices and evaluate possible improvements with respect to governing the enterprise. We review the performance of the Board annually and are always on the lookout for qualified and experienced individuals to serve on the Board of Directors. We are dedicated to making Rudolph Technologies the best that it can be.

We thank you for being our investors.

 

Sincerely,

Thomas G. Greig III
Chairman of the Board


 

 


Forward Looking Statements

 

This proxy statement contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 (the “Act”) which include Rudolph Technologies’ business momentum and future growth; the benefit to customers of Rudolph Technologies’ products and customer service; Rudolph Technologies’ ability to both deliver products and services consistent with our customers’ demands and expectations and strengthen its market position; as well as other matters that are not purely historical data. Rudolph Technologies wishes to take advantage of the “safe harbor” provided for by the Act and cautions that actual results may differ materially from those projected as a result of various factors, including risks and uncertainties, many of which are beyond Rudolph Technologies’ control.  Such factors include, but are not limited to, the Company’s ability to leverage its resources to improve its position in its core markets; its ability to weather difficult economic environments; its ability to open new market opportunities and target high-margin markets; the strength/weakness of the back-end and/or front-end semiconductor market segments; and fluctuations in customer capital spending. Additional information and considerations regarding the risks faced by Rudolph Technologies are available in the Company’s Form 10-K report for the year ended December 31, 2017 and other filings with the Securities and Exchange Commission. As the forward-looking statements are based on Rudolph Technologies’ current expectations, the Company cannot guarantee any related future results, levels of activity, performance or achievements. Rudolph Technologies does not assume any obligation to update the forward-looking information contained in this proxy statement.

 

 

 

 


 

 

 

 

 

 

NOTICE OF 2018 ANNUAL MEETING OF STOCKHOLDERS

 

 

Date:

Wednesday, May 16, 2018

Time:

10:00 a.m., Eastern Time

Place:

Company principal executive offices located at 16 Jonspin Road, Wilmington, Massachusetts, 01887

Record Date:

Only stockholders of record at the close of business on March 29, 2018 are entitled to vote at the meeting and any adjournment or postponement thereof for which no new record date is set.

Items of Business:

1.

To elect the two Class I directors named herein to serve for three-year terms expiring upon the 2021 Annual Meeting of Stockholders or until their successors are duly elected and qualified;

 

2.

To approve, on an advisory (non-binding) basis, the compensation of our named executive officers as disclosed in this proxy statement;

 

3.

To approve the Rudolph Technologies, Inc. 2018 Stock Plan;

 

4.

To approve the Rudolph Technologies, Inc. 2018 Employee Stock Purchase Plan;

 

5.

To ratify the appointment of Ernst & Young LLP as our independent registered public accounting firm for the year ending December 31, 2018; and

 

6.

To transact such other business as may properly come before the meeting and any adjournment or postponement thereof.

All stockholders as of the record date are cordially invited to attend the meeting in person. However, to ensure your representation at the meeting, you are urged to mark, sign, date and return the enclosed proxy card as promptly as possible in the postage-prepaid envelope enclosed for that purpose.

Included in the mailing of this proxy statement is a copy of our 2017 Annual Report to Stockholders.

IMPORTANT NOTICE REGARDING THE AVAILABILITY OF PROXY MATERIALS FOR THE ANNUAL MEETING OF STOCKHOLDERS TO BE HELD MAY 16, 2018:

The enclosed proxy statement and 2017 Annual Report to Stockholders are available at:

http://www.rudolphtech.com/assets/uploads/2017_annual_report.pdf.

FOR THE BOARD OF DIRECTORS

 

 

Steven R. Roth

Secretary

Wilmington, Massachusetts

April 18, 2018

 

 

 

 


PROXY SUMMARY

This summary highlights information contained elsewhere in the proxy statement. This summary does not contain all of the information that you should consider, and you should read the entire proxy statement carefully before voting.

 

Stockholder Voting Matters

 

Voting Matter

Board Vote Recommendation

Page Reference for more information

Proposal 1:   Election of Directors

FOR each nominee

15

Proposal 2:   Advisory Vote on Named Executive Officer Compensation

FOR

24

Proposal 3:   Approval of the Rudolph Technologies, Inc. 2018 Stock Plan

FOR

25

Proposal 4:   Approval of the Rudolph Technologies, Inc. 2018 Employee Stock Purchase Plan

FOR

35

Proposal 5:   Ratification of Appointment of Independent Registered Public Accounting Firm

FOR

38

 

 

Corporate Governance Highlights

 

 

 

Snapshot of Board Composition

 

The following table presents a snapshot of the expected composition of the Rudolph Technologies Board of Directors immediately following the 2018 Annual Meeting, assuming the election of all nominees named in the proxy statement.

 

Board Characteristic

 

Rudolph
Technologies

Total Number of Directors

 

7

Percentage of Independent Directors

 

85.7%

Average Age of Directors (years)

 

62.6

Average Tenure of Directors (years)

 

9.5

Separate Chairman and CEO roles

 

Yes

Independent Chairman

 

Yes

Audit Committee Financial Experts

 

2

 

1


 

Snapshot of Board Governance and Compensation Policies

 

The following table presents a snapshot of the Rudolph Technologies Board Governance and Compensation Policies currently in effect.

 

Policy

Rudolph Technologies

Majority Voting for All Directors

Yes

Regular Executive Sessions of Independent Directors

Yes

Annual Board, Committee and Director Evaluations

Yes

Risk Oversight by Full Board and Committees

Yes

Independent Audit, Compensation and Nominating & Governance Committees

Yes

Code of Business Conduct and Ethics for Employees and Directors

Yes

Financial Code of Ethics

Yes

Stock Ownership Requirements for CEO & Directors

3x annual compensation

Stock Ownership Requirements for other NEOs

1x base salary

Stock Ownership Requirements for other executives

Specified number of shares

Anti-Hedging, Anti-Short Sale & Anti-Pledging Policy

Yes

Compensation Clawback Policy

Yes

No Future Tax Gross-Up Provisions

Yes

No Poison Pill

Yes

Stock Buyback Program

Yes

Double Trigger Change-in-Control Provisions for Executives

Yes

Retirement Age of 75 Years for Director Nomination/Appointment

Yes

 


2


 

Snapshot of Board Governance and Compensation Policies Newly Implemented or Adjusted In Past Year

 

The following presents a snapshot of the Rudolph Technologies Board Governance and Compensation Policies that were newly implemented or adjusted in the past year.

 

The Company’s “Say on Frequency” proposal was placed before stockholders at its 2017 Annual Meeting and our stockholders expressed their preference for holding an annual “say on pay” vote on our named executive officers’ compensation.

 

An retirement age for Directors was implemented such that no Director shall be appointed to the Board or nominated for election to the Board in the year in which said Director attains the age of 75 years or older.

 

Further refinement and enhancement to the Board’s assessment process in the ongoing effort to improve Board performance and stockholder return.

 

In January 2018:

 

Daniel H. Berry resigned his position as Chairman of the Compensation Committee;

 

David B. Miller was elected as the new Chairman of the Compensation Committee;

 

Compensation Committee membership was revised to include David B. Miller, Jeffery A. Aukerman and Thomas G. Greig; and

 

Nominating & Governance Committee membership was revised to include Leo Berlinghieri, John R. Whitten and Daniel H. Berry.

 

The Company’s peer group for executive compensation for 2018 was revised as follows:

 

Ultratech, Inc. was removed due to its being acquired by another company;

 

MKS Instruments, Inc. was removed as a result of it no longer meeting the Company’s peer group criteria; and

 

Five (5) companies were added (Amtech Systems, Inc., DSP Group, Inc., EMCORE Corporation, Maxwell Technologies, Inc. and Sigma Designs, Inc.) to broaden the peer group in order to more accurately assess the median level of compensation for executives.

 

3


 

 

__________________________________________

PROXY STATEMENT

__________________________________________

 

 

 

 

The proxy detailed herein is solicited on behalf of the Board of Directors of Rudolph Technologies, Inc. (“Rudolph Technologies” or the “Company”) for use at the 2018 Annual Meeting of Stockholders to be held May 16, 2018 at 10:00 a.m. local time (the “Annual Meeting”), or at any adjournment or postponement thereof, for the purposes set forth herein and in the accompanying Notice of Annual Meeting of Stockholders. The Annual Meeting will be held at the Company’s principal executive offices, located at 16 Jonspin Road, Wilmington, Massachusetts, 01887. The Company’s telephone number is (978) 253-6200.

These proxy solicitation materials and the Company’s Annual Report to Stockholders for the year ended December 31, 2017, including financial statements, were mailed on or about April 18, 2018 to stockholders entitled to vote at the Annual Meeting.

 

 

QUESTIONS AND ANSWERS ABOUT THE ANNUAL MEETING

 

What Is The Purpose Of The Annual Meeting?

At the Annual Meeting, stockholders will be asked to vote upon the matters set forth in the accompanying Notice of Annual Meeting, including:

 

the election of directors;

 

an advisory resolution on named executive officer compensation;

 

approval of the Rudolph Technologies, Inc. 2018 Stock Plan;

 

approval of the Rudolph Technologies, Inc. 2018 Employee Stock Purchase Plan; and

 

the ratification of the appointment of our independent registered public accounting firm,

all of which is more fully described herein.

Will Other Matters Be Voted On At The Annual Meeting?

We are not currently aware of any other matters to be presented at the Annual Meeting other than those described in this proxy statement. If any other matters not described in the proxy statement are properly presented at the meeting, any proxies received by us will be voted in the discretion of the proxy holders.

Who Is Entitled To Vote?

If you were a stockholder of record as of the close of business on March 29, 2018, which is referred to in this proxy statement as the “record date,” you are entitled to receive notice of the Annual Meeting and to vote the shares of common stock that you held as of the close of business on the record date. Each stockholder is entitled to one (1) vote for each share of common stock held by such stockholder on the record date.


4


May I Attend The Meeting?

All stockholders of record as of the record date may attend the Annual Meeting.

To gain admission, you will need valid picture identification and proof that you are a stockholder of record of the Company as of the record date, or if you are a beneficial holder, proof from your bank, broker or other record holder of your shares that you are the beneficial owner of such shares. To obtain directions to attend the Annual Meeting and vote in person, please contact Investor Relations at 978-253-6200.

What Constitutes A Quorum?

The required quorum for the transaction of business at the Annual Meeting is a majority of the outstanding shares of Common Stock of the Company, $0.001 par value per share (“Common Stock”), present in person or by proxy and entitled to vote at the Annual Meeting.  On the record date, 31,741,645 shares of the Company’s Common Stock were issued and outstanding.  Abstentions and broker non-votes will be counted to determine whether there is a quorum present.  If a quorum is not present, the Annual Meeting may be adjourned or postponed to a later date.

What Are “Broker Non-Votes”?

A broker non-vote occurs when a bank, broker or other registered holder of record holds shares for a beneficial owner but is not empowered to vote on a particular proposal on behalf of such beneficial owner because the proposal is considered “non-routine” and the beneficial owner has not provided voting instructions on that proposal.  The election of directors, the advisory vote on named executive officer compensation, the proposal to approve the Rudolph Technologies, Inc. 2018 Stock Plan, and the proposal to approve the Rudolph Technologies, Inc. 2018 Employee Stock Purchase Plan are treated as “non-routine” proposals. This means that if a brokerage firm holds your shares on your behalf, those shares will not be voted with respect to any of these proposals unless you provide instructions to that firm by voting your proxy.  See below under “What Is the Vote Required for Election of Directors?” and “What Is the Vote Required for the Approval of Proposals Other Than Director Elections?” for a discussion of the impact of broker non-votes on each of the proposals that will be presented at the Annual Meeting.  In order to ensure that any shares held on your behalf by a bank, broker or other registered holder of record are voted in accordance with your wishes, we encourage you to provide instructions to that firm or organization by voting your proxy.

Who Bears The Cost Of Soliciting Proxies?

The Company will bear the cost of soliciting proxies. In addition, the Company may reimburse brokerage firms and other persons representing beneficial owners of shares for their expenses in forwarding solicitation material to such beneficial owners. Solicitation of proxies by mail may be supplemented by telephone, facsimile, e-mail or other electronic means or personal solicitation by directors, officers or regular employees of the Company. No additional compensation will be paid to such persons for such services.  We do not currently plan to hire a proxy solicitor to help us solicit proxies from stockholders, brokers, bank nominees or other institutions, although we reserve the right to do so.

How Do I Go About Voting?

Whether you hold your shares directly as a stockholder of record, or beneficially in street name, you may vote your shares without attending the meeting. Even if you plan to attend the meeting, we recommend that you vote your shares in advance so that your vote will be counted if you later decide not to attend the meeting.  Each stockholder of record is entitled to one (1) vote for each share of Common Stock owned by such stockholder on all matters presented at the Annual Meeting. Stockholders do not have the right to cumulate their votes in the election of directors.

If you return a signed and dated proxy but do not indicate how the shares are to be voted, those shares will be voted in accordance with Rudolph Technologies’  Board of Director’s recommendations. A valid proxy also authorizes the individuals named as proxies to vote your shares in their discretion on any other matters, which, although not described in the proxy statement, are properly presented for action at our Annual Meeting. If you indicate on your proxy that you wish to “abstain” from voting on an item, your shares will not be voted on that item.

5


Voting For Shares Registered Directly In The Name Of The Stockholder

If you hold shares in your name as a holder of record, you are considered the “stockholder of record” with respect to those shares. You can vote your shares by completing and returning the enclosed proxy that has been mailed to you, along with a postage-paid envelope.  Stockholders of record may also vote in person at the Annual Meeting.

Voting By Proxy For Shares Registered In Street Name

If your shares are held in a stock brokerage account or by a bank or other holder of record, you are considered the “beneficial owner” of shares held in “street name.”  In that case, this proxy statement has been forwarded to you by your broker, bank or other holder of record who is considered, with respect to those shares, the “stockholder of record.” As the beneficial owner, you have the right to direct your broker, bank or other holder of record on how to vote your shares by submitting voting instructions to such person in accordance with the directions outlined in your proxy.  To be clear, beneficial owners must obtain a legal proxy from the broker, bank or other holder of record authorizing the beneficial holder to vote such shares at the meeting.

May I Revoke My Proxy Instructions?

Any proxy given pursuant to this solicitation may be revoked by the person giving it at any time before it is voted. If you are a stockholder of record, you may change your vote after submitting your proxy by delivering to the Secretary of the Company at the Company’s principal executive offices, prior to the meeting, a written notice of revocation or a duly executed proxy bearing a later date or by attending the meeting and voting in person. If you are a beneficial owner of shares, please contact your bank, broker or other holder of record for specific instructions on how to change or revoke your vote.

What Is The Vote Required For Election Of Directors?

Each director is elected by the vote of the majority of the votes cast. This means that in order for a director nominee to be elected to our Board of Directors, the number of votes cast “for” a director’s election must exceed the number of votes cast “against” that director’s election (with “abstentions” and “broker non-votes” not counted as a vote cast either “for” or “against” that director’s election, although abstentions and broker non-votes count for quorum purposes). Our Bylaws provide for a majority-voting standard for uncontested elections and provide that any incumbent director nominee in an uncontested election who does not receive an affirmative majority of votes cast must promptly tender such director’s resignation to our Board of Directors. Further information regarding the process that will be followed if such an event occurs can be located under the heading “Proposal 1 — Election of Directors.”

What Is The Vote Required For The Approval Of Proposals Other Than Director Elections?

The proposal to approve, on an advisory basis, the compensation of our named executive officers, the proposal to approve the Rudolph Technologies, Inc. 2018 Stock Plan, the proposal to approve the Rudolph Technologies, Inc. 2018 Employee Stock Purchase Plan and the proposal to ratify the appointment of Ernst & Young LLP as our independent registered public accounting firm for the year ending December 31, 2018 require the affirmative vote, in person or by proxy, of a majority of the shares present or represented by proxy at the meeting and entitled to vote on the matter to constitute approval of these proposals. For such proposals, abstentions are counted for quorum purposes, but in effect count as negative votes because they are shares represented in person or by proxy that are not voted in the affirmative. Broker non-votes are counted for quorum purposes, but are not counted as part of the vote total and have no effect on the outcome of those proposals.

What Is Householding?

The Company has adopted a procedure approved by the Securities and Exchange Commission (the “SEC”) called “householding.” Under this procedure, when multiple stockholders of record share the same address, we may deliver only one (1) set of proxy materials to that address unless we have received contrary instructions from one or more of those stockholders. The same procedure applies to brokers and other nominees holding shares of our stock in “street name” for more than one (1) beneficial owner with the same address.

6


If a stockholder holds shares of stock in multiple accounts (e.g., with our transfer agent and/or banks, brokers or other registered stockholder), we may be unable to use the householding procedures and, therefore, that stockholder may receive multiple copies of the proxy and proxy statement. You should follow the instructions on each proxy that you receive in order to vote the shares you hold in different accounts.

A stockholder that shares an address with another stockholder, who has received only one (1) set of the proxy materials may write or call us as specified below:

 

(i)

To request a separate copy of such materials, which will be promptly mailed without charge; and

 

(ii)

To request that separate copies of these materials be sent to his or her home for future meetings.

Conversely, a stockholder of record who shares the same address with another stockholder of record may write or call us as specified below to request that a single set of the proxy and proxy statement be delivered to that address. Such stockholder requests may be made to our Investor Relations Department either via phone at 978-253-6200 or by mail directed to:

Investor Relations Department

Rudolph Technologies, Inc.

16 Jonspin Road

Wilmington, Massachusetts  01887

If you are a beneficial owner of shares held in street name, please contact your bank, broker or other holder of record regarding such requests.

What Are The Deadlines For Submission Of Stockholder Proposals For 2019 Annual Meeting?

Stockholders of the Company are entitled to present proposals for consideration at forthcoming stockholder meetings provided that they comply with the proxy rules promulgated by the SEC, if applicable, and the Bylaws of the Company. Stockholders wishing to present a proposal at the Company’s 2019 Annual Stockholder Meeting must submit such proposal in writing to the Company no later than December 19, 2018 in accordance with Rule 14a-8 under the Securities Exchange Act of 1934, as amended (“Exchange Act”), if they wish for it to be eligible for inclusion in the proxy statement and form of proxy relating to that meeting. In addition, under the Company’s Bylaws, a stockholder wishing to nominate a director or make a proposal at the 2019 Annual Stockholder Meeting outside of Exchange Act Rule 14a-8 must submit such nomination or proposal in writing to the Company no earlier than January 16, 2019 and no later than February 15, 2019. The Nominating & Governance Committee will also consider qualified director nominees recommended by stockholders. Our process for receiving and evaluating Board member nominations from our stockholders is described below under the caption “Nominating & Governance Committee.”

 

 

7


CORPORATE GOVERNANCE PRINCIPLES AND PRACTICES

Rudolph Technologies is committed to sound and effective corporate governance practices. Having such principles is essential to running our business efficiently and to maintaining our integrity in the marketplace. The major components of our corporate governance practices are described below.

 

Board Leadership Structure

Our Company management is led by Michael P. Plisinski, who has served as our CEO since November 2015, and Thomas G. Greig, who has served as an independent director and as Chairman of the Rudolph Technologies Board of Directors (the “Board of Directors” or the “Board”) since April 2016.  Prior to that, Mr. Greig served as Lead Director of the Board of Directors from January 2013 to March 2016.  Our Board of Directors is comprised of Mr. Plisinski, our only non-independent director, and six (6) directors each of whom has been affirmatively determined by our Board of Directors to meet the criteria for independence established by the SEC and the New York Stock Exchange (“NYSE”). The independent directors meet periodically in executive session chaired by the Chairman without the CEO or other management present. Furthermore, each director is encouraged to suggest items for the Board agenda and to raise at any Board meeting subjects that are not on the agenda for that meeting.

While previously the roles of CEO and Chairman of the Board for the Company were combined, upon the appointment of our new CEO in late 2015, the Board of Directors separated the roles of CEO and Chairman of the Board.  In accordance with our sound and effective corporate governance practice, the independent Chairman of the Board is designated by the Board of Directors.

The Board of Directors believes that at the current time the designation of an independent Chairman of the Board facilitates the functioning of the Board of Directors while leaving the CEO responsible for setting the strategic direction for the Company and for the day-to-day leadership and performance of the Company.  The independent Chairman of the Board:

 

Presides at all meetings of the stockholders and the Board of Directors at which he or she is present;

 

Establishes the agenda for each Board of Directors meeting;

 

Sets the schedule and annual agenda, to the extent foreseeable;

 

Calls and prepares the agenda for and presides over separate executive sessions of the independent directors;

 

Acts as a liaison between the independent directors and the Company’s management;

 

Serves as a point of communications with stockholders; and

 

Performs such other powers and duties as may from time to time be assigned by the Board of Directors or as may be prescribed by the Company’s Bylaws.

 

Board Meetings

The Board of Directors of the Company held a total of twenty (20) meetings during 2017. None of our incumbent directors attended fewer than 84% of the meetings of the Board of Directors and the standing committees upon which such directors served during 2017.  While the Company does not currently have a formal policy regarding the attendance of directors at the Annual Meeting of stockholders, directors are encouraged to attend. All members of the Board of Directors serving at the time attended the 2017 Annual Meeting of Stockholders.

 

Board Independence

The Board of Directors makes an annual determination as to the independence of each of our Board members under the current standards for “independence” established by the NYSE and the SEC. The Board has determined that the following members of the Board, consisting of a majority of the Board, and representing all of the current members of our Board other than Mr. Plisinski, satisfy these independence standards: Jeffrey A. Aukerman, Daniel H. Berry, Leo Berlinghieri, David B. Miller, Thomas G. Greig and John R. Whitten.  None of the independent members of our Board were a party to any transactions, relationships or arrangements that were considered by the Board to impair his independence. On four (4) occasions during 2017, our Board met in executive sessions in which the independent Board members were solely present.

8


Oversight Of Risk

Our Audit Committee is responsible for overseeing risk management and, on at least an annual basis, reviews and discusses with management policies and systems pursuant to which management addresses risk, including risks associated with our audit, financial reporting, internal control, disclosure control, legal and regulatory compliance, and investment policies. Our Audit Committee regularly reviews with our Board any issues that arise in connection with such topics and, in accordance with our Summary of Corporate Governance Guidelines, our full Board regularly engages in discussions of risk management to assess major risks facing our Company and review options for the mitigation of such risks. Each of our Board committees also considers the risk within its area of responsibilities. For example, our Compensation Committee periodically reviews enterprise risks to ensure that our compensation programs do not encourage excessive risk-taking and our Nominating & Governance Committee oversees risks related to governance issues, such as succession planning, and serves as the contact point for employees to report corporate compliance issues. As a result of the foregoing, we believe that our CEO, together with the Chairman of our Audit Committee and our full Board of Directors provide effective oversight of the Company’s risk management function.

 

Board Committees

The Board has three standing committees with separate chairs - the Audit, Compensation, and Nominating & Governance Committees. Each of the Board committees is comprised solely of independent directors. The Audit Committee, Compensation Committee and Nominating & Governance Committee have each adopted a written charter that sets forth the specific responsibilities and qualifications for membership to the respective committees. The charters of each of these committees is available on our website at www.rudolphtech.com on the Investor page.

In 2017, the composition of and number of meetings held by the Company’s Board Committees were as follows:

 

Rudolph Technologies Board Committee

Committee Chairman

Committee Members

# of Meetings

held in 20171

Audit Committee

John R. Whitten2

Jeffrey A. Aukerman2
David B. Miller

8

Nominating & Governance Committee

Leo Berlinghieri

Thomas G. Greig
John R. Whitten

5

Compensation Committee

Daniel H. Berry

Jeffrey A. Aukerman
David B. Miller

4

 

1

Each member of the respective committees attended all of the committee’s meetings held in 2017.

 

2

Our Board has determined that both Mr. Whitten and Mr. Aukerman qualify as an “Audit Committee Financial Expert” as that term is defined under SEC rules.

In January 2018, Mr. Berry resigned as Chairman of the Compensation Committee.  In light thereof, a change to the membership of the Board Committees was implemented.  Mr. Berry moved from the Compensation Committee to the Nominating & Governance Committee and Mr. Greig moved from the Nominating & Governance Committee to the Compensation Committee.  Thereafter, Mr. Miller was elected and appointed as Chairman of the Compensation Committee.

 

Audit Committee

The Audit Committee assists the Board in fulfilling its responsibilities for general oversight of the integrity of our financial statements, our accounting policies and procedures and our compliance with legal and regulatory requirements. Among its functions, the Audit Committee is responsible for:

 

The appointment, compensation, retention and oversight of the Company’s independent registered public accounting firm;

 

The approval of services performed by the Company’s independent registered public accounting firm;

 

Reviewing the responsibilities, functions and performance of the Company’s internal audit function;

9


 

Reviewing the scope and results of internal audits and ongoing assessments of the Company’s risk management processes; and

 

Evaluating the Company’s system of internal control over financial reporting and disclosure controls and procedures.

The report of our Audit Committee is found below under the caption “Audit Committee Report.”

The Board has determined that each of the Audit Committee members meet the Audit Committee membership requirements set forth by the NYSE and the SEC, including that they be “independent.”

 

Compensation Committee

The Compensation Committee is responsible for the establishment of the policies upon which compensation of and incentives for the Company’s executive officers will be based, the review and recommendation for approval by the independent members of the Board of the compensation of the Company’s executive officers, and the administration of the Company’s equity compensation plans.

In general, the Compensation Committee is responsible for reviewing and recommending for approval by the independent members of the Board of Directors the Company’s executive salary levels and variable compensation programs, both cash-based and equity-based. With respect to the compensation of the Company’s CEO, the Compensation Committee reviews and recommends for approval by the independent members of the Board the various elements of the CEO’s compensation. With respect to other executive officers, the Compensation Committee reviews the recommendations for compensation for such individuals presented to the Compensation Committee by the CEO and the reasons thereof. Each year, the CEO is responsible for proposing and establishing personal and corporate objectives for each of the Company executives other than himself. These proposed objectives are reviewed and agreed upon by the CEO and the executive subject to the approval of the Compensation Committee. In addition, as part of the annual performance review of the Company’s executives, the CEO assesses the performance of his direct reports and determines the merit increase, if any, that would be proposed for each individual. These merit increase proposals, along with each executive’s personal and corporate objectives and their bonus target levels (based on a percentage of their base salary), are then compiled by the CEO and submitted to the Compensation Committee for their review. At the Compensation Committee meeting during which the executive compensation plans (bonuses and merit increases) are to be reviewed, the CEO attends the initial session to present the proposed plans and to answer questions. Thereafter, the Compensation Committee meets without the CEO being present to review, discuss and recommend for approval by the independent members of the Board all executive compensation plans subject to any modifications made by the Compensation Committee. The CEO does not participate in decisions regarding his own compensation.

In accordance with its charter, the Compensation Committee may form and delegate its authority to subcommittees when appropriate. Further, the Compensation Committee has the authority to retain, and to terminate, any compensation consultant or other advisors to assist in the evaluation of director, CEO or executive compensation or other matters within the scope of the Compensation Committee’s responsibilities and is directly responsible for the appointment, compensation and oversight of such consultants and other advisors, including their fees and other retention terms. From time to time, the Compensation Committee engages the services of such outside compensation consultants to provide advice on compensation plans and issues related to the Company’s executive and non-executive employees. In 2017, the Compensation Committee engaged Pay Governance LLC to review the Company’s executive compensation plans, including those for incentive compensation, and provide other ad hoc assistance to the Compensation Committee. The Compensation Committee also has authority to obtain advice and assistance from internal or external legal, accounting and other advisors.

The Board has determined that each of the Compensation Committee members meets the Compensation Committee membership requirements set forth by the NYSE and the SEC, including that they be “independent”.

For further discussion of the Compensation Committee and its processes and procedures, please refer to the “Introduction/Corporate Governance” section in the Compensation Discussion and Analysis below.

 

Nominating & Governance Committee

The responsibilities of the Nominating & Governance Committee include identifying prospective director nominees and recommending to the Board director nominees for the next Annual Meeting of stockholders and replacements of a director in the event of a vacancy on the Board. The Nominating & Governance Committee also recommends to the Board the

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appointment of directors to Board Committees and is charged with developing and recommending to the Board the governance principles applicable to the Company.  Further, the Nominating & Governance Committee, together with our CEO, is responsible for overseeing our Company’s management succession planning.

The Nominating & Governance Committee also oversees the annual evaluation of the Board, the Committees of the Board and the individual directors.  Typically, this evaluation is performed during the first quarter by each of the directors and reflects an assessment of the Board, the Committees of the Board and for each individual director in the prior year.  Among other topics, the evaluation in general assesses:

 

For the Board:

 

Its structure and composition;

 

The format and content of meetings; and

 

The effectiveness of the Board.

 

For the Committees of the Board:

 

Their structure and composition;

 

The format and content of meetings; and

 

The effectiveness of the Committees.

 

For each individual director:

 

Their performance and approach to their directorship;

 

Their understanding of their role as a director;

 

Their understanding of critical aspects of the Company’s business, products and strategy; and

 

Their skills, experience and ongoing training.

In addition, the Board reviews the issues faced during the past year, assesses its response, and also makes determinations whether additional resources or approaches might be applied to further optimize the handling of the issues.  The goal of the evaluation is to identify and address any performance issues at the Board, committee or individual level, should they exist, identify potential gaps in the boardroom and to assure the maintenance of an appropriate mix of director skills and qualifications.  Upon completion of the evaluation, the Nominating & Governance Committee provides feedback to the Board, the committees and the individual directors regarding the results of the evaluation and raises any issues that have been identified which may need to be addressed.

The Board has determined that each of the Nominating & Governance Committee members meets the Nominating & Governance Committee membership requirements, including the independence requirements of the NYSE.

 

Other Committees

Our Board of Directors may from time to time establish other special or standing committees to facilitate the management of the Company or to discharge specific duties delegated to the committee by the full Board of Directors.

 

Compensation Committee Interlocks And Insider Participation

In 2017, no member of the Compensation Committee (Daniel H. Berry, Jeffrey A. Aukerman and David B. Miller) had any form of interlocking relationship as described in Item 407(e)(4) of Regulation S-K.  Further, no member of the Compensation Committee as constituted in 2018 (David B. Miller, Jeffrey A. Aukerman and Thomas G. Greig) has any form of interlocking relationship as described in Item 407(e)(4) of Regulation S-K.

 

Board Membership Criteria And Nominee Identification

The Nominating & Governance Committee of the Board determines the required selection criteria and qualifications of director nominees based upon the needs of the Company at the time nominees are considered. These criteria include the following specific, minimum qualifications that the Nominating & Governance Committee believes must be met by a nominee to be recommended by the Committee for a position on the Board:

 

The candidate must possess the ability to apply good business judgment;

 

The candidate must be in a position to properly exercise his or her duties of loyalty and care;

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The candidate must exhibit proven leadership capabilities, high integrity and experience with a high level of responsibilities within his or her chosen field; and

 

The candidate must have the ability to grasp complex principles of business, finance, international transactions and semiconductor inspection, metrology, lithography and related software technologies.

The Nominating & Governance Committee has not adopted a formal diversity policy with regard to the selection of director nominees. Diversity is one of the factors that the Nominating & Governance Committee considers in identifying nominees for director. In selecting director nominees, the Nominating & Governance Committee considers, among other factors:

 

The competencies and skills that the candidate possesses and the candidate’s areas of qualification and expertise that would enhance the composition of the Board; and

 

How the candidate would contribute to the Board’s overall balance of expertise, perspectives, backgrounds and experiences in substantive matters pertaining to the Company’s business.

In its identification of director nominees, the Nominating & Governance Committee will consider how the candidate would contribute to the Board’s overall balance of diversity of expertise, perspectives, backgrounds and experiences in substantive matters pertaining to the Company’s business. When current Board members are considered for nomination for reelection, the Nominating & Governance Committee also takes into consideration their prior contributions to and performance on the Board and their record of attendance.

The Nominating & Governance Committee will consider the above criteria for nominees identified by the Nominating & Governance Committee itself, by stockholders, or through some other source. The Nominating & Governance Committee uses the same process for evaluating all nominees, regardless of the original source of nomination. The Nominating & Governance Committee may use the services of a third party search firm to assist in the identification or evaluation of Board member candidates.

 

Consideration Of Director Nominees

The Nominating & Governance Committee has a formal policy with regard to consideration of director candidates recommended by the Company’s stockholders, which may be found on our website at:

http://www.rudolphtech.com/investors/governance/policies-procedures

In accordance with the policy, the Nominating & Governance Committee will consider recommendations for candidates to the Board of Directors from stockholders of the Company holding no less than 1% of the Company’s securities for at least twelve (12) months prior to the date of the submission of the recommendation. Stockholders wishing to recommend persons for consideration by the Nominating & Governance Committee as nominees for election to the Company’s Board of Directors can do so by writing to the Office of the General Counsel of the Company at its principal executive offices giving:

 

Candidate’s name, age, business address and residence address;

 

Candidate’s detailed biographical data and qualifications including his/her principal occupation and employment history;

 

The class and number of shares of the Company which are beneficially owned by the candidate;

 

The candidate’s written consent to being named as a nominee and to serving as a director, if elected;

 

Information regarding any relationship between the candidate and the Company in the last three (3) years;

 

Any other information relating to the candidate that is required by law to be disclosed in solicitations of proxies for election of directors;

 

The name and address of the recommending or nominating stockholder;

 

The class and number of shares of the Company which are beneficially owned by the recommending or nominating stockholder;

 

A description of all arrangements or understandings between such stockholder and each nominee and any other person or persons (naming such person or persons) relating to the nomination; and

 

Any other information specified under Section 2.5 of the Company’s Bylaws regarding advance notice.

 

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Corporate Governance Guidelines

Our Board of Directors adopted Corporate Governance Guidelines, a copy of which is available on our website at http://www.rudolphtech.com under the heading “Governance” on the Investors page.

 

Codes Of Ethics

We have adopted a Code of Business Conduct and Ethics (applicable to all employees, executive officers and directors) and a Financial Code of Ethics (applicable to our financial officers, including our CEO and Chief Financial Officer (“CFO”)) that set forth principles to guide all employees, executive officers and directors and establish procedures for reporting any violations of these principles. Copies of these codes may be found on our website at:

http://www.rudolphtech.com/investors/governance/code-of-ethics

or may be requested by writing to:

Rudolph Technologies, Inc.

Attention: Investor Relations

16 Jonspin Road

Wilmington, Massachusetts 01887

The Company will disclose any amendment to its codes of ethics or waiver of a provision of its codes of ethics applicable to its officers or directors, including the name of the officer or director to whom the waiver was granted, on our website at www.rudolphtech.com, on the Investors page.

 

Related Persons Transactions Policy

There have been no “related person transactions” since the beginning of 2017 to present, nor are there any currently proposed “related person transactions,” involving any director, director nominee or executive officer of the Company, any known 5% stockholder of the Company or any immediate family member of any of the foregoing persons (which are referred to together as “related persons”). A “related person transaction” generally means a transaction involving more than $120,000 in which the Company (including any of its subsidiaries) is a participant and in which a related person has a direct or indirect material interest. Our related person practices and policies are included in our corporate governance documents, including our Code of Business Conduct and Ethics, Audit Committee Charter and Summary of Corporate Governance Policies, each of which is available at the Investors section of our website located at http://www.rudolphtech.com/investors.

 

Pursuant to our Code of Business Conduct and Ethics, our directors, officers and employees are required to avoid any actual or apparent conflicts of interest (other than conflicts of interest that have received appropriate approval as described below), which includes taking actions or having interests that may interfere with the objective or efficient performance of such person’s duties to the Company or that may result in such person receiving improper personal benefits as a result of their position with the Company.

 

Pursuant to our Summary of Corporate Governance Policies, if a director becomes involved in any activity or interest that may result in an actual or potential conflict (or the appearance of a conflict) with the interests of the Company, that director is required to disclose such information promptly to the Board, which will determine an appropriate resolution on a case-by-case basis. This policy further reflects that all directors must recuse themselves from any discussion or decision affecting their personal, business or professional interests. Similarly, our Board will determine the appropriate resolution of any actual or potential conflict of interest involving our CEO and our CEO will determine the appropriate resolution of any conflict of interest issue involving any other officer of the Company. When necessary and appropriate, resolution of such issues may require consideration of the matter by the Audit Committee.

 

Pursuant to both the Board’s Summary of Corporate Governance Policies and the Audit Committee Charter, the Audit Committee, which consists entirely of independent directors, will review any proposed transaction in which the Company or its subsidiaries are to participate if the amount involved in the transaction exceeds $120,000 and we are aware that any related person may have a direct or indirect material interest in the transaction. The Audit Committee will consider the facts and circumstances and will approve or ratify a proposed transaction if the Audit Committee considers it appropriate and believes that such transaction will serve the long-term interests of our stockholders. The Compensation Committee of the Board reviews and approves compensation decisions for

13


 

Board members and our executive officers (and such other employees of the Company as directed by the Board) pursuant to the Compensation Committee Charter.

 

Communications With The Board Of Directors

We have a formal policy regarding communications with the Board of Directors, which is found on our website at:

http://www.rudolphtech.com/investors/governance/stockholder-communications-policy

Stockholders and other interested parties may communicate with the Chairman of the Nominating & Governance Committee by writing to:

Chairman of the Nominating & Governance Committee

c/o Rudolph Technologies, Inc.

Office of the General Counsel

550 Clark Drive

P.O. Box 860

Budd Lake, New Jersey 07828

and such communications will be forwarded to the Board of Directors to the extent appropriate. Prior to forwarding any communication, the Chairman of the Nominating & Governance Committee will review it and, in his discretion, will not forward a communication deemed to be of a commercial nature or otherwise inappropriate for review by the Board of Directors.  Stockholders and other interested parties who would like their submission directed to a member or members of the Board of Directors, including the independent members of the Board, may so specify, and the communication will be forwarded to such specific directors, as appropriate.

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PROPOSAL 1

 

ELECTION OF DIRECTORS

 

Nominees

The authorized number of directors is currently established at seven (7). The Company’s Certificate of Incorporation provides that the directors be divided into three classes, with the classes serving for staggered, three-year terms. Currently, there are two (2) directors in each of Class I and Class II and three (3) directors in Class III.  The status of the respective terms for the classes are as follows:

 

Class of Director

Election Status

End of Term

Class I

Nominated for Election in 2018

2021*

Class II

Elected in 2016

2019*

Class III

Elected in 2017

2020*

* or until their successors have been duly elected and qualified

At the Annual Meeting, directors will be elected to hold office for a three (3) year term expiring at the 2021 Annual Meeting of stockholders or until their respective successor is duly elected and qualified or until the director’s earlier death, resignation or removal. Based on the recommendation of the Nominating & Governance Committee, the two (2) Class I director nominees approved by the Board for inclusion in this proxy statement are:

 

Leo Berlinghieri          Michael P. Plisinski

Each nominee is currently serving as a director of Rudolph Technologies. In making its recommendations, the Nominating & Governance Committee considered a number of factors, including its criteria for Board membership, which include the minimum qualifications that must be possessed by a director candidate in order to be nominated for a position on our Board. Each nominee has indicated that he will serve if elected. Unless otherwise instructed, the proxy holders will vote the proxies received by them for the Company’s two (2) nominees.  In the event that any nominee of the Company becomes unable or unavailable to serve as a director at the time of the Annual Meeting (which we do not anticipate), the proxy holders will vote the proxies for any substitute nominee who is designated by the current Board of Directors to fill the vacancy.  Alternatively, the Board of Directors, in its discretion, may elect to reduce the number of directors serving on the Board.

 

Board Composition And Refreshment

A priority of the Nominating & Governance Committee and the Board as a whole is making certain that the composition of the Board reflects the desired professional experience, skills and backgrounds in order to present an array of viewpoints and perspectives and effectively represent the long-term interests of stockholders. Further, the Board recognizes the importance of Board refreshment in order to continue to achieve an appropriate balance of tenure, turnover, diversity and skills on the Board. To this end, in the past two and a half years, two (2) directors who retired (Dr. Spanier and Mr. McLaughlin) have been replaced by two (2) new directors (Mr. Miller and Mr. Plisinski), with Mr. Plisinski being a candidate for election this year.  The Board believes that the new insights and ideas contributed by these individuals will be essential to our Board and its strategy and complement the valuable experience and familiarity that longer-serving directors bring to the Company.

 

Vote Required

Pursuant to the Company’s Bylaws, our directors are elected by the affirmative vote of the majority of the votes cast (provided, however, that if the number of nominees exceeds the number of directors to be elected, directors will be elected by a plurality voting standard). In order for a director in an uncontested election to be elected, the number of shares cast “for” his election must exceed the number of votes cast “against” his election (with “abstentions” and “broker non-votes” not counted as a vote cast either “for” or “against” that director’s election). If a nominee who is an incumbent director is not elected, our Bylaws provide that such director must promptly tender a resignation to the Board. Our Nominating and Governing Committee would then make a recommendation to the Board on whether to accept or reject the tendered

15


resignation, or whether other action should be taken. Within ninety (90) days after the date of the certification of the election results, our Board will act on any such tendered resignation and publicly disclose (in a press release, a filing with the SEC or other broadly disseminated means of communication) its decision regarding the tendered resignation and the rationale behind the decision.

 

Information About The Nominees And Continuing Directors

Our Board and its Nominating & Governance Committee believe that all of the directors and nominees are highly qualified and have demonstrated leadership skills and have experience and judgment in areas that are relevant to our business. We believe that their ability to challenge and stimulate management and their dedication to the affairs of the Company collectively serve the interests of the Company and its stockholders.

The two (2) Class I nominees for director and the current Class II and Class III directors with unexpired terms are set forth below. All information is as of the record date.

 

Name

Position

Board Tenure

Nominee Class I Directors:

 

 

Leo Berlinghieri

Former Chief Executive Officer and President, MKS Instruments, Inc.

 

9.50 years

Michael P. Plisinski

Chief Executive Officer, Rudolph Technologies, Inc.

 

2.33 years

Continuing Class II Directors:

 

 

Daniel H. Berry

Operating Partner, Riverside Partners, LLC

 

19.42 years

Thomas G. Greig

Former Senior Managing Director, Liberty Capital Partners, Inc.

 

14.17 years

Continuing Class III Directors:

 

 

Jeffrey A. Aukerman

Former Partner, Deloitte & Touche LLP

 

3.25 years

David B. Miller

Former President, DuPont Electronics & Communications

 

2.75 years

John R. Whitten

Former Chief Financial Officer, Vice President and Treasurer, Applied Industrial Technologies, Inc.

 

11.75 years

 

Except as discussed below, each nominee or incumbent director has been engaged in the principal occupation set forth above during the past five (5) years. There are no family relationships between any directors or executive officers of the Company.

 

The following reflects additional information regarding the background and qualifications of our directors, including the experience and skills that support the Board’s determination that each director should serve on our Board.

 

 

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NOMINEES FOR CLASS I DIRECTORS

 

Leo Berlinghieri

Director Since:

September 2008

Age:

64

Independent Status:

Independent Director

Board Committee(s):

Nominating & Governance (Chairman)

Other Boards Served:

Unipower, LLC (Since 2017)

MKS Instruments, Inc. (2005-2013)

Massachusetts High Technology Council, Inc. (2006-2013)

 

 

From July 2005 to December 2013, Mr. Berlinghieri served as Chief Executive Officer and President of MKS Instruments, Inc., an equipment supplier to the semiconductor industry. From April 2004 to July 2005, Mr. Berlinghieri served as President and Chief Operating Officer and prior to that served as Vice President and Chief Operating Officer from July 2003 to April 2004 for MKS Instruments, Inc.

Specific Qualifications, Attributes, Skills and Experience

High Level of Financial Experience

 

Substantial financial experience gained in roles as Chief Executive Officer, President and Vice President and Chief Operating Office with MKS Instruments, Inc.

Relevant Senior Leadership / CEO Experience

 

Served for over eight (8) years as Chief Executive Officer and President of MKS Instruments, Inc. Additional prior experience as Vice President and Chief Operating Officer of the company, among other senior management roles.

Broad International Exposure

 

Gained extensive international experience in various roles with MKS Instruments, including Chief Executive Officer, Chief Operating Officer and Vice President of Global Sales and Service.

Extensive Knowledge of Company Business/Industry

 

Over thirty-three (33) years of experience in the semiconductor industry, including eight (8) years at the helm of MKS Instruments, a public corporation. Also served on the SEMI North America Advisory Board (NAAB) including as its chairman in 2009.

Innovation/Technology Experience

 

Broad array of technological experience with MKS Instruments, Inc. including roles in manufacturing, customer support, and sales all in addition to his roles as Chief Executive Officer and Chief Operating Officer.

 

Michael P. Plisinski

Director Since:

November 2015

Age:

48

Independent Status:

Non-Independent Director

Board Committee(s):

None

Other Boards Served:

None

Mr. Plisinski has served as the Company’s Chief Executive Officer since November 2015.  Prior to his appointment as our CEO, Mr. Plisinski served as our Executive Vice President and Chief Operating Officer from October 2014 to November 2015 and as Vice President and General Manager, Data Analysis and Review Business Unit from February 2006 when the Company merged with August Technology Corporation until October 2014. From February 2004 to February 2006, Mr. Plisinski served as August Technology’s Vice President of Engineering and, from July 2003 to February 2004, as its Director of Strategic Marketing for review and analysis products. Mr. Plisinski joined August Technology as part of the

17


acquisition of Counterpoint Solutions, a supplier of optical review and automated metrology equipment to the semiconductor industry, where he was both President and sole founder from June 1999 to July 2003. Mr. Plisinski has a B.S. in Computer Science from the University of Massachusetts and has completed the Advanced Management Program from Harvard Business School.

Specific Qualifications, Attributes, Skills and Experience

High Level of Financial Experience

 

Substantial financial experience gained in roles as Chief Executive Officer, Chief Operating Officer and Vice President, General Manager with the Company.

Relevant Senior Leadership / CEO Experience

 

Serving as Chief Executive Officer of Rudolph Technologies with prior experience as Chief Operating Officer and Vice President, General Manager of the Company’s Data Analysis and Review Business Unit, among other senior management positions.

Broad International Exposure

 

Extensive experience working with Rudolph Technologies Asian and European customers through the various roles held within the Company.

Extensive Knowledge of Company Business/Industry

 

Over fourteen (14) years of dedicated experience with Rudolph Technologies and additional four (4) years as founder of an optical review and automated metrology start-up company, each serving the semiconductor industry.

Innovation/Technology Experience

 

Technological and innovative experience includes leadership roles in both engineering and software development while with Rudolph Technologies.  Prior entrepreneurial experience in the founding of optical review and automated metrology equipment company, Counterpoint Solutions.

 

 

The Company’s Board of Directors unanimously recommends voting

“FOR” each of the nominees set forth above.

 


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CONTINUING CLASS II DIRECTORS

 

Daniel H. Berry

Director Since:

October 1998

Age:

72

Independent Status:

Independent Director

Board Committee(s):

Compensation (Chairman/Member through January 2018); Nominating & Governance (beginning in January 2018)

Other Boards Served:

R&D Altanova (Since 2015)

Thinklogical (2012-2017)

NYU - Tandon School of Engineering (1999-2016)

NDS Surgical Imaging (2009-2011)

IZI Medical Products (2009-2011)

Applied Precision (2004-2007)

 

 

 

 

Since January 2002, Mr. Berry has been an Operating Partner of Riverside Partners, LLC, a private equity investment firm. From September 2010 to August 2011, Mr. Berry served as Chief Executive Officer of NDS Surgical Imaging, LLC, a supplier to the medical imaging industry.  From July 2004 to August 2007, Mr. Berry also served as Executive Vice President of Applied Precision, formerly a Riverside portfolio company. He was employed by Ultratech Stepper, Inc. (presently Ultratech, Inc.), an equipment supplier to the semiconductor industry, from 1990 to 2001 in various positions including President and Chief Operating Officer from May 1999 to November 2001. Prior to this, Mr. Berry held positions at General Signal, Perkin Elmer and Bell Laboratories. Mr. Berry holds a B.S. in Electrical Engineering from the Polytechnic Institute of Brooklyn.

Specific Qualifications, Attributes, Skills and Experience

High Level of Financial Experience

 

Substantial financial experience gained both as Operating Partner with Riverside Partners, LLC and in serving in executive management roles with various companies such as NDS Surgical Imaging, LLC, Ultratech, Inc. and Applied Precision, among others.

Relevant Senior Leadership / CEO Experience

 

Served as Chief Executive Officer for NDS Surgical Imaging and, within the semiconductor industry, as Chief Operating Officer of Ultratech, Inc. and as Executive Vice President of Applied Precision.  Further, he has served as an Operating Partner of Riverside Partners, LLC for over sixteen (16) years.

Broad International Exposure

 

Roles with global companies including Bell Laboratories, Perkin Elmer, General Signal, Applied Precision, NDS Surgical Imaging and Ultratech provide broad and deep experience in international business and customer relations.

Extensive Knowledge of Company Business/Industry

 

Over thirty-five (35) years of employment experience within an array of fields in the semiconductor industry including both lithography and probe card test and analysis.

Innovation/Technology Experience

 

Expansive scope of technological and innovative experience from over thirty-five (35) years of semiconductor industry employment.


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Thomas G. Greig, III

Director Since:

January 2003

Age:

70

Independent Status:

Independent Director

Board Committee(s):

Nominating & Governance (through January 2018); Compensation (beginning in January 2018)

Other Boards Served:

Black Box Corporation (Since 1999)

 

Mr. Greig has served as the Company’s independent Chairman since April 2016. He served as the Company’s independent Lead Director from January 2013 through March 2016.

Mr. Greig was employed by Liberty Capital Partners, Inc., a private equity investment firm, from July 1998 to June 2016 and last held the position of Senior Managing Director. From December 1985 to July 1998, Mr. Greig was a Managing Director of Donaldson, Lufkin, & Jenrette, Inc., an investment-banking firm. Mr. Greig holds a B.S. in Engineering from Princeton University, an M.S.E. in Electrical Engineering from New York University and an M.B.A. from Harvard University Graduate School of Business Administration.

Specific Qualifications, Attributes, Skills and Experience

High Level of Financial Experience

 

Wide-ranging acquisition and financial background as a result of his affiliation with Liberty Capital Partners, Inc., a private equity investment firm, for over nineteen (19) years and Donaldson, Lufkin, & Jenrette, Inc., an investment banking firm, for over twelve (12) years.

Relevant Senior Leadership / CEO Experience

 

Served as in senior management roles for over 30 years, both as Senior Managing Director of Liberty Capital Partners, Inc. and as Managing Director of Donaldson, Lufkin, & Jenrette, Inc.

 

CONTINUING CLASS III DIRECTORS

 

Jeffrey A. Aukerman

Director Since:

December 2014

Age:

52

Independent Status:

Independent Director

Board Committee(s):

Audit, Compensation

Other Boards Served:

Advisory Council to the Lariccia School of Accounting & Finance at Youngstown State University (since 2012)

 

Mr. Aukerman is a certified public accountant and has extensive public accounting and consulting experience, serving many public and private equity sponsored public reporting companies in the manufacturing, distribution and services industries.  From July 1987 to May 2014, Mr. Aukerman was employed by Deloitte & Touche LLP, which, together with its affiliates, is an audit, consulting, tax and advisory services firm, and served as an audit partner for the most recent fifteen (15) years.  He also served in various capacities for the firm, including as an audit function professional practice director for the Cleveland, Ohio office and a regional leader of internal control subject matter specialists.  Mr. Aukerman graduated magna cum laude with a B.S.B.A. in Accounting from Youngstown State University.

Specific Qualifications, Attributes, Skills and Experience

High Level of Financial Experience

 

Twenty-seven (27) years of extensive experience with a wide range of financial reporting, accounting, risk management, and compliance matters at Deloitte & Touche LLP.

Relevant Senior Leadership / CEO Experience

 

Served as Partner at Deloitte & Touche LLP.

20


David B. Miller

Director Since:

July 2015

Age:

61

Independent Status:

Independent Director

Board Committee(s):

Audit, Compensation (Chairman beginning in January 2018)

Other Boards Served:

President, University of Virginia School of Engineering & Applied Science Foundation (since 2011);

Merrimac Industries (2002-2008)

SEMI International (2011-2015)

North Carolina Chamber of Commerce (2010-2015)

 

 

 

 

From June 1981 to November 2015, Mr. Miller served in various positions, most recently as President, with DuPont Electronics & Communications, an electronic materials company.  Mr. Miller holds a B.S. in Electrical Engineering from the University of Virginia.

Specific Qualifications, Attributes, Skills and Experience

High Level of Financial Experience

 

Substantial financial experience gained in role with DuPont Electronics & Communications including as President of the company. Oversight of complex financial transactions, profit and loss responsibility and investor relations during prior operations and leadership roles with this company.

Relevant Senior Leadership / CEO Experience

 

Served as President of DuPont Electronics & Communications.

Broad International Exposure

 

Served as President of DuPont Electronics & Communications, a global electronic materials company.  Served several joint venture boards in the U.S. and Asia while with DuPont Electronics & Communications as well as the board of SEMI International.  Resided in Tokyo, Japan for three (3) years.

Extensive Knowledge of Company Business/Industry

 

Forty (40) years of experience within the electronics industry including six (6) years at the helm of DuPont Electronics & Communications, which in addition to other markets, served the semiconductor industry.

Innovation/Technology Experience

 

Significant experience and leadership roles with DuPont Electronics & Communications, overseeing the company’s technology advancement, breadth of process expertise and ongoing innovation.

 

 


21


John R. Whitten

Director Since:

July 2006

Age:

71

Independent Status:

Independent Director

Board Committee(s):

Audit (Chairman), Nominating & Governance

Other Boards Served:

American Century Investments (since 2008)

From November 1995 to December 2003, Mr. Whitten served as Chief Financial Officer, Vice President and Treasurer of Applied Industrial Technologies, Inc., an industrial supply distributor. Mr. Whitten is a C.P.A. and holds a B.B.A. in Accounting from Cleveland State University.

Specific Qualifications, Attributes, Skills and Experience

High Level of Financial Experience

 

Has public accounting firm experience and served for eight (8) years as Chief Financial Officer, Vice President and Treasurer of Applied Industrial Technologies, Inc. Currently serving as Audit Committee Chairman for the Board of American Century Investments, a registered investment company that oversees sixty-eight (68) mutual fund portfolios with over $100 billion of assets under management.

Relevant Senior Leadership / CEO Experience

 

Served as Chief Financial Officer, Vice President and Treasurer of Applied Industrial Technologies, Inc.

 


Compensation Of Directors

Directors who are employees of the Company receive no compensation for their services as members of the Board of Directors. Director compensation is a mix of cash and equity-based compensation, which is largely comprised of the equity component to align with the Company’s long-term performance and stockholder interests.  To enhance this alignment further, the Board increased the stock holding requirements for all outside directors and the CEO as discussed below.

 

The components of the compensation for directors who are not employees of the Company are as follows:

 

Board Compensation Element

 

Amount/Value

 

Annual Retainer

 

$70,000

1

Annual Equity Grant (Restricted Stock Units (RSUs))

 

$100,000

2

Committee Chairmanship

 

$15,000

1

Board Chairmanship

 

$40,000

1

Initial Equity Grant (Restricted Stock Units (RSUs))

 

$100,000

3

 

 

1

Paid in quarterly installments at the middle of each quarter

 

2

Awarded at second quarter Board meeting in an amount of shares calculated by dividing amount by the Company Common Stock closing stock price on the date of grant, rounded to the nearest 100 shares.

 

3

Awarded as of the first Board meeting following election or appointment and calculated in the same manner as the annual equity grant above, but prorated by the number of quarters between such first meeting and the date on which the next annual equity grant is scheduled to be awarded.

Any initial equity grants and/or annual equity grants typically vest on the first anniversary of the grant date. All 2017 equity awards were granted under and subject to the terms of the Rudolph Technologies, Inc. 2009 Stock Plan.

In 2017, directors were not paid to serve on the committees of the Board of Directors with the exception of those directors serving as committee chairmen. Mr. Berlinghieri, Mr. Berry and Mr. Whitten each received the cash compensation cited in the table above in 2017 for their services as the Chairman of the Nominating & Governance Committee, the Compensation Committee and the Audit Committee, respectively.  From time to time, directors may be compensated for work performed as members of special subcommittees of the Board of Directors. Notwithstanding the foregoing, no fees were paid to directors for special subcommittee work in 2017.

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In 2017, Mr. Greig received the above referenced annual retainer for the independent Chairman of the Board as compensation for his service in this role.

For the year ended December 31, 2017, the directors, excluding the directors who are named executive officers, received total compensation indicated in the table below.  There were no option awards granted to such directors and they did not earn any type of compensation during the year other than what is disclosed in the following table:

 

Name

 

Fees Earned or

Paid in Cash

 

Stock

Awards (1)

 

All Other

Compensation

 

Total

Jeffery A. Aukerman

 

$70,000

 

$100,590

 

$  —

 

$170,590

Leo Berlinghieri

 

$85,000

 

$100,590

 

$  —

 

$185,590

Daniel H. Berry

 

$85,000

 

$100,590

 

$  —

 

$185,590

Thomas G. Greig

 

$110,000

 

$100,590

 

$  —

 

$210,590

David B. Miller

 

$70,000

 

$100,590

 

$  —

 

$170,590

John R. Whitten

 

$85,000

 

$100,590

 

$  —

 

$185,590

 

 

(1)

Represents the grant date fair value for each share-based compensation award granted during the year, calculated in accordance with FASB ASC Topic 718. The assumptions used in determining the grant date fair value of these awards are set forth in Note 9 to our consolidated financial statements, which are included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2017 filed with the SEC. As of December 31, 2017, our directors had the following stock awards outstanding: Mr. Aukerman - 4,200 RSUs; Mr. Berlinghieri – 4,200 RSUs; Mr. Berry – 4,200 RSUs; Mr. Greig – 4,200 RSUs; Mr. Miller – 4,200 RSUs; and Mr. Whitten – 4,200 RSUs.

 

Stock Ownership/Retention Guidelines For Directors

The Company has established guidelines related to stock ownership and retention for its outside directors. Currently, the guidelines require that each non-employee director of the Company own at least 5,000 shares of Company Common Stock within one (1) year following the date of election or appointment to the Board and thereafter maintain such ownership status during the term of service as a director of the Company.

These guidelines, last amended in January 2017, further require that each non-employee director own shares of Company Common Stock by November 2018 valued at a minimum of three (3) times the amount of the director’s total cash compensation which includes the annual cash retainer as well as any additional fee paid to those individuals who are Committee Chairs, Lead Director or Chairman of the Board.  For a new director the stock holding requirement is to be attained within three (3) years of his or her election to the Board.

 

 

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PROPOSAL 2

ADVISORY VOTE ON EXECUTIVE COMPENSATION

The Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010, or the Dodd-Frank Act, enables our stockholders to vote to approve, on an advisory (non-binding) basis, the compensation of our named executive officers as disclosed in this proxy statement in accordance with SEC rules. Consistent with the recommendation of the Board of Directors and the preference of our stockholders as reflected in the non-binding advisory vote on the frequency of future advisory votes on named executive officer compensation held at the 2017 Annual Meeting of Stockholders, the Company currently holds an annual “say on pay” vote.

Our executive compensation arrangements are designed to enhance stockholder value on an annual and long-term basis.  Through the use of base pay as well as annual and long-term incentives, we seek to compensate our named executive officers for their contributions to our profitability and success.  Please read the Compensation Discussion and Analysis beginning on page 42 of this proxy statement and the tabular and additional narrative disclosures on executive compensation beginning on page 66 of this proxy statement for additional details about our executive compensation arrangements, including information about the fiscal year 2017 compensation of our named executive officers.

This advisory vote addresses the overall compensation of our named executive officers as well as our philosophy and policies regarding executive compensation practices as described in this proxy statement.  We are asking our stockholders to indicate their support for our compensation arrangements as described in this proxy statement.

For the reasons discussed above, the Board recommends that stockholders vote in favor of the following resolution:

RESOLVED, that the Company’s stockholders APPROVE, on an advisory basis, the compensation paid to the Company’s named executive officers, as disclosed in this proxy statement pursuant to Item 402 of Regulation S-K, including the Compensation Discussion and Analysis, compensation tables and narrative discussion and other related tables and disclosures.”

Because your vote is advisory, it will not be binding upon or overrule any decisions of the Board, nor will it create any additional fiduciary duty on the part of the Board.  This advisory vote is not intended to address any specific item of compensation, but rather the overall compensation of our named executive officers and our compensation philosophy, policies and practices described in this proxy statement, and does not seek to have the Board or Compensation Committee take any specific action. However, the Board and the Compensation Committee value the view expressed by our stockholders in their vote on this proposal and will take into account the outcome of the vote when considering executive compensation matters in the future.

Vote Required

The affirmative vote, in person or by proxy, of a majority of the shares present or represented at the meeting and entitled to vote will be required to approve, on an advisory (non-binding) basis, the compensation of our named executive officers as disclosed in this proxy statement.

The Board recommends a vote “FOR” the approval of the compensation of

the named executive officers as disclosed in this proxy statement pursuant to Item 402 of Regulation S-K as required by Section 14A(a)(1) of the Exchange Act.

 

 

 

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PROPOSAL 3

 

APPROVAL OF RUDOLPH TECHNOLOGIES, INC. 2018 STOCK PLAN

 

The Board of Directors is requesting that our stockholders approve a new stock plan, the Rudolph Technologies, Inc. 2018 Stock Plan (the “2018 Plan”).  The Board has adopted the 2018 Plan, subject to stockholder approval at the Annual Meeting.  If approved by our stockholders, the 2018 Plan will become effective as of May 16, 2018 and will expire 10 years from such date, unless terminated earlier.

The 2018 Plan is structured to allow the Board to award equity incentives to eligible directors, officers, employees and consultants in order to assist the Company in attracting, retaining and motivating the best available personnel for the successful conduct of the Company’s business.  The Company believes that linking compensation to corporate performance motivates employees and consultants to improve stockholder value.  The Company has, therefore, consistently included equity incentives as a significant component of compensation for its officers, employees, directors and consultants.  With the high demand for highly skilled employees and consultants, especially in the technology industries, management believes it is critical to the Company’s success to maintain competitive compensation programs.  The Board believes that the approval of the 2018 Plan would be in the best interests of the Company and its stockholders.

We currently maintain the Rudolph Technologies, Inc. 2009 Stock Plan (the “2009 Plan”).  The 2009 Plan currently expires on January 27, 2019 which is before our regularly scheduled 2019 annual meeting of stockholders.  If the 2018 Plan is not approved by our stockholders at the 2018 Annual Meeting, no new awards may be granted under the Plan after January 27, 2019.  We are seeking stockholder approval of the 2018 Plan with a term that expires in May 2028 to continue to provide our officers, employees, directors and consultants with equity-based compensation that aligns their interests with the interests of our stockholders.

In addition, the number of shares remaining available under the 2009 Plan is insufficient to meet the Company’s compensation goals in future years.  To ensure that the Company has an adequate number of shares available for compensation to its directors, executive officers and other employees and consultants, we are asking our stockholders to approve the 2018 Plan with a total share reserve of 3,240,000 shares, as described below under “Share Reserve Under the 2018 Plan”.

 

Key Governance Highlights Of The 2018 Plan

 

The following are key governance highlights of the 2018 Plan:

 

Minimum Vesting Requirements.  Minimum one-year vesting period for all awards subject to certain limited carve-outs.

 

 

No Dividends on Unvested Awards.  Prohibition on payment of dividends and dividend equivalents while an award is unvested.

 

 

No Liberal Share Recycling.  Shares of common stock not issued as the result of a net settlement of options or stock appreciation rights (“SARs”) as well as shares tendered or withheld to pay the exercise price of withholding taxes relating to awards will not again be made available for issuance as awards under the 2018 Plan.

 

 

Individual Annual Award Limits for Directors.  Limitations apply to the value of awards an individual non-employee director (“outside director”) may receive in a given calendar year.

 

 

Individual Annual Award Limits for Other Participants.  Limitations apply to the value of awards an individual officer, employee or consultant may receive in a given calendar year.

 

 

No Liberal Change-in-Control Definition.  The change-in-control definition under the 2018 Plan is not considered “liberal” and, for example, is not triggered by shareholder approval of a transaction.

 

 

Clawback.  Awards are subject to potential cancellation or clawback in certain circumstances in accordance with the Company’s clawback policy.

 

 

No Repricing.  The 2018 Plan prohibits, without shareholder approval, the cancellation of underwater options or SARs for cash or other awards, the reduction of the exercise price of options or SARs, or any other action that would be treated as a repricing, without shareholder approval.

 

 

25


Share Reserve Under The 2018 Plan

Under the 2018 Plan, the number of shares of Company common stock available for issuance to eligible participants will be 3,240,000 shares, subject to stockholder approval.  As of the effective date of the 2018 Plan, no additional grants may thereafter be issued under the 2009 Plan.  As of March 29, 2018, 1,949,577 shares remained available for grant under the 2009 Plan.

The following table presents information about the number of shares that were subject to various outstanding equity awards under the 2009 Plan and the shares remaining available for issuance under the 2009 Plan.  On March 29, 2018, the total number of shares outstanding was 31,741,645 and our closing stock price was $27.70.

 

Number of outstanding stock options as of March 29, 2018.

65,000

 

Weighted average exercise price of the outstanding stock options as of March 29, 2018.

 

$12.22

 

Weighted average remaining contractual term of the outstanding stock options as of March 29, 2018.

4.7 years

 

Number of outstanding serviced-based restricted stock units(1) as of March 29, 2018.

864,759

 

Number of outstanding performance-based restricted stock units (at target) as of March 29, 2018.(1)

89,262

 

Shares remaining available under the 2009 Plan as of March 29, 2018.

1,949,577

 

Number of shares available for issuance under the 2018 Plan(2)

3,240,000

 

(1) Includes earned performance-based restricted stock units that have been earned and remain subject to service-based vesting requirements.

(2) As may be increased after the effective date of the 2018 Plan as a result of awards granted under the 2009 Plan that expire unexercised, terminate, are forfeited or repurchased by the Company, are surrendered pursuant to an exchange program, are settled in cash in lieu of stock or released from a reserve for failure to meet vesting conditions, or shares used to satisfy an exercise price or tax withholding obligation subject to the terms of the 2009 Plan.

 

In determining whether to approve the 2018 Plan, including the share reserve under the 2018 Plan, the following considerations were taken into account:

 

We expect the share reserve under the 2018 Plan to provide us with enough shares for awards for approximately 5.7 years.  However, this expectation assumes that we continue to grant awards consistent with our current practices and historical usage as reflected in our historical burn rate, and is dependent on our stock price and hiring activity during the next few years and forfeitures of outstanding awards under the 2009 Plan.  We cannot predict our future equity grant practices, the future price of our stock or future hiring activity with any degree of certainty at this time and, as a result, the share reserve under the 2018 Plan could last for a shorter or longer time.

 

 

The potential dilution to our stockholders that may result from the issuance of shares pursuant to outstanding awards:  our overhang rate as of March 29, 2018 (calculated by dividing (x) the number of shares subject to equity awards outstanding plus shares remaining available for issuance for future awards by (y) the number of common shares outstanding plus the number of shares subject to equity awards outstanding plus the remaining shares available for issuance was 8.6%.  Our overhang rate on a pro forma basis, assuming that the 3,240,000 share reserve under the 2018 Plan was authorized as of that date, would have been 12.0%.

 

 

Over the past three calendar years, our “burn rate,” or annual share usage expressed as a percentage of weighted average shares outstanding, was 7.7%, 3.5% and 2.2% (for the years ended December 31, 2015, December 31, 2016 and December 31, 2017, respectively).  Our average 3-year burn rate of 4.5% is lower than the 6.3% burn rate cap for companies in our industry, as established by certain major proxy advisory firms.

 

 

Analysis by our compensation consultant, which was based on generally accepted evaluation methodologies used by proxy advisory firms, that the number of shares to be reserved under the 2018 Plan is within generally accepted standards as measured by an analysis of the 2018 Plan cost relative to industry standards.

 


26


Summary Of The 2018 Plan

 

The following is a summary of the principal features of the 2018 Plan and its operation.  This summary is qualified in its entirety by reference to the 2018 Plan itself set forth in Appendix A.

 

General

 

The 2018 Plan provides for the grant of equity awards to employees, directors and consultants.  Options granted under the 2018 Plan may either be “incentive stock options” as defined in Code Section 422 or nonstatutory stock options, as determined by the Board.

 

Purpose

 

The general purposes of the 2018 Plan are to attract and retain the best available personnel for positions of substantial responsibility, to provide additional incentive to the employees, directors and consultants of the Company and to promote the success of the Company’s business.

 

Administration

 

The 2018 Plan will be administered by the Compensation Committee (“Committee”) or the Board, as applicable (in either case, the “Administrator”).

 

Eligibility

 

The 2018 Plan provides that nonstatutory stock options, stock appreciation rights (“SARs”), restricted stock, restricted stock units, performance units and performance shares may be granted to employees, directors and consultants of the Company and any parent or subsidiary.  Incentive stock options may be granted only to employees of the Company and any parent or subsidiary.  The Administrator will determine which eligible persons will be granted awards.

 

Shares Available Under The 2018 Plan

The maximum aggregate number of shares that may be awarded and sold under the 2018 Plan is 3,240,000 shares.  If, after the effective date of the 2018 Plan, any shares subject to awards granted under the 2009 Plan would again become available for new awards under the terms of the 2009 Plan if it were still in effect and without regard to any termination of such plan, then those shares will be available for the purpose of granting awards under the 2018 Plan. The shares issued pursuant to awards under the 2018 Plan may be authorized but unissued or reacquired Common Stock.  No awards have been granted under the 2018 Plan.

If an award terminates, expires or becomes unexercisable without having been exercised in full without being exercised in full, or, with respect to restricted stock, restricted stock units, performance units or performance shares, is terminated or forfeited in whole or in part due to failure to vest, the shares (or forfeited shares) which were subject to such terminated, expired, unexercised, surrendered or forfeited award will become available for future issuance under the 2018 Plan.  To the extent that an award under the 2018 Plan is paid out in cash, rather than shares, such cash payment will not result in reduction of the shares available for issuance under the 2018 Plan.

Shares used to pay the exercise price of an award or to satisfy the tax withholding obligations related to an award will not again become available for future grant under the 2018 Plan.  Upon exercise of a SAR settled in shares, all shares subject to the SAR (not the number of net shares actually issued pursuant to the SAR upon any exercise) will cease to be available under the 2018 Plan.

 

27


Individual Award Limits

 

For any calendar year, (i) the value of awards granted to an outside director under the 2018 Plan may not exceed $600,000 and (ii) the value of awards granted to any individual participant other than an outside director under the 2018 Plan may not exceed $5,000,000, in each case calculating the value of any such awards based on the grant date fair value of such awards for financial reporting purposes.  For purposes of applying this annual limit, any award of performance units, performance shares or any other award subject to performance-based vesting criteria will be taken into account assuming target performance achievement under the terms of such award.

 

Minimum Vesting Period

 

All awards granted to all participants under the 2018 Plan will be subject to a minimum vesting period of not less than 1 year from the date of grant; provided, the Administrator may provide for the grant of awards to participants without regard to the minimum vesting requirement with respect to a maximum of five percent (5%) of the total number of shares authorized for issuance under the 2018 Plan.

 

Substitute Awards

 

In connection with an entity’s merger or consolidation with the Company or any subsidiary or the direct or indirect acquisition by the Company or any subsidiary of an entity’s property or stock, the Committee may grant awards in substitution or exchange for any options or other stock or stock-based awards granted before such merger or consolidation by such entity or its affiliate.  Substitute awards may be granted on such terms and conditions as the Committee deems appropriate, notwithstanding any limitations on awards in the 2018 Plan.  Substitute awards will generally not count against the aggregate share reserve.  Additionally, in the event that a company acquired by the Company or any subsidiary, or with which the Company or any subsidiary otherwise combines, has shares available under a pre-existing plan approved by its stockholders and not adopted in contemplation of such acquisition or combination as determined by the Administrator, the shares available for grant pursuant to the terms of such pre-existing plan may be used under certain circumstances for awards under the 2018 Plan and shall not reduce the shares authorized for grant under the 2018 Plan.

 

Types Of Awards Under The 2018 Plan

 

Stock Options

Stock option awards may be granted to employees, directors or consultants of the Company at any time and from time to time as determined by the Administrator in its discretion, except incentive stock options may be granted only to employees of the Company.  The exercise price of options granted under the 2018 Plan is determined by the Administrator and must not be less than 100% of the fair market value of the Common Stock at the time of grant.  Options granted under the 2018 Plan expire as determined by the Administrator, but in no event later than 10 years from date of grant.  No option may be exercised by any person after its expiration.  Incentive stock options granted to stockholders owning more than 10% of the voting stock of the Company must have an exercise price per share no less than 110% of the fair market value at the time of grant and the term of such option may be no more than five years from the date of grant.  The fair market value of the Common Stock is generally determined with reference to the closing sale price for the Common Stock (or the closing bid if no sales were reported) on the day of determination.

Options become exercisable at such times as are determined by the Administrator and as set forth in the individual award agreements.  An option is exercised by giving notice to the Company in the form determined by the Administrator, specifying the number of full shares of Common Stock to be purchased and tendering payment of the purchase price.  The 2018 Plan permits payment to be made by cash, check, other shares of Common Stock, delivery of a properly executed exercise notice together with any other documentation as the Administrator and the participant’s broker (if applicable) may require to effect an exercise of the option and delivery to the Company of the sale or other proceeds (as permitted by applicable law) required to pay the exercise price, withholding shares otherwise issuable in connection with the exercise of the option, such other consideration and method of payment authorized by the Administrator in its discretion or permitted by the award agreement, or any combination thereof.

 

28


Restricted Stock

Restricted stock awards may be granted to employees, directors or consultants of the Company at any time and from time to time as determined by the Administrator in its discretion.  Each restricted stock grant will be evidenced by an award agreement that will specify the number of shares granted and such other terms and conditions as the Administrator will determine in accordance with the terms of the 2018 Plan.

Subject to the terms of the 2018 Plan, the Administrator will have complete discretion to determine (i) the number of shares subject to a restricted stock award granted to any participant, and (ii) any vesting conditions that must be satisfied.  The Administrator may provide that awards of restricted stock earn dividends paid with respect to such shares.  Any such dividends will be accumulated and credited to an account for the participant, with interest in the Administrator’s discretion, and will be subject to the same terms and conditions, including vesting restrictions, as the award with respect to which the dividends are credited.  To the extent an award of restricted stock is forfeited in whole or in part, any accrued dividends with respect to such award will be forfeited at the same time and to the same extent as such award.  No dividends or accrued interest, if any, earned with respect to an award of restricted stock may be paid before the underlying award vests.

 

Restricted Stock Units

Restricted stock units may be granted to employees, directors or consultants of the Company at any time and from time to time as determined by the Administrator.  Each restricted stock unit grant will be evidenced by an award agreement that will specify such terms and conditions as the Administrator will determine in accordance with the terms of the 2018 Plan.

Restricted stock units result in a payment to a participant only if the vesting criteria the Administrator establishes are satisfied.  The Administrator may set vesting criteria based on the achievement of Company-wide, business unit, or individual goals (including continued employment), or any other basis determined by the Administrator in its discretion.  The restricted stock units will vest at a rate determined by the Administrator.  Upon satisfying the applicable vesting criteria, the participant will be entitled to a payout as specified in the award agreement or as otherwise determined by the Administrator.  The Administrator, in its sole discretion, may pay earned restricted stock units in shares, cash, or a combination thereof.  On the date set forth in, and otherwise subject to the terms and conditions of the award agreement, or as provided by the Administrator, all unearned restricted stock units will be terminated and forfeited to the Company.  Additionally, the Administrator is authorized to grant participants dividend equivalents based on the dividends declared on shares that are subject to any outstanding restricted stock unit.  Any such dividend equivalents will be accumulated and credited to an account for the participant, with interest in the Administrator’s discretion, and will be subject to the same terms and conditions, including vesting restrictions, as the award with respect to which the dividend equivalents are credited.  To the extent an award of restricted stock units is forfeited in whole or in part, any accrued dividend equivalents with respect to such award will be forfeited at the same time and to the same extent as such award.  No dividend equivalents or accrued interest, if any, earned with respect to restricted stock units may be paid before the underlying award vests.

 

Stock Appreciation Rights

SARs may be granted to employees, directors or consultants of the Company at any time and from time to time as determined by the Administrator in its discretion.  Each SAR grant will be evidenced by an award agreement that will specify the exercise price, the term of the SAR, the conditions of exercise, and such other terms and conditions as the Administrator will determine in accordance with the terms of the 2018 Plan.

The Administrator will have discretion to determine the terms and conditions of SARs granted under the 2018 Plan; provided that no SAR may have a term of more than 10 years from the date of grant and that the exercise price of a SAR may not have an exercise price below 100% of the fair market value of the Common Stock on the grant date.  No SAR can be exercised by any person after its expiration.

Upon exercise of a SAR, the holder of the SAR will be entitled to receive payment from us in an amount determined by multiplying (i) the difference between the fair market value of a share on the date of exercise over the exercise price, times (ii) the number of shares with respect to which the SAR is exercised.

At the discretion of the Administrator and as set forth in the applicable award agreement, payment to the holder of a SAR may be in cash, shares of Common Stock or a combination thereof.

 


29


Grant Of Performance Units And/Or Performance Shares

Performance units and performance shares may be granted to employees, directors or consultants of the Company at any time and from time to time, as determined by the Administrator in its sole discretion.  The Administrator will have complete discretion in determining the number of performance units/shares granted to each participant.  The Administrator may provide that awards of performance shares and performance units earn dividends or dividend equivalents, as applicable, and accrued interest in its discretion.  To the extent an award of performance units or performance shares is terminated, cancelled or forfeited in whole or in part, due to failure to meet performance conditions or otherwise, any dividends, dividend equivalents and accrued interest will be terminated, cancelled or forfeited at the same time and to the same extent as such award. No dividends, dividend equivalents or accrued interest, if any, earned with respect to a performance unit award or a performance share award may be paid before the underlying award vests.

The Administrator will set performance objectives or other vesting provisions (including, without limitation, continued status as a service provider to the Company) in its discretion which, depending on the extent to which they are met, will determine the number or value of performance units or performance shares that will be paid out.  Each award of performance units and performance shares will be evidenced by an award agreement that will specify the time period during which the performance objectives or other vesting provisions must be met (the “performance period”), vesting period and such other terms and conditions as the Administrator will determine in its discretion in accordance with the terms of the 2018 Plan.  The Administrator may set performance objectives based upon the achievement of Company-wide, divisional, or individual goals, or any other basis determined by the Administrator in its discretion.

After the applicable performance period has ended, the holder of performance units or performance shares will be entitled to receive a payout of the number of performance units or performance shares earned by the participant over the performance period, to be determined as a function of the extent to which the corresponding performance objectives or other vesting provisions have been achieved.  The Administrator may pay earned performance units and performance shares in the form of cash, in shares, or in a combination thereof.  After the grant of performance units or performance shares, the Administrator may reduce or waive any performance objectives or other vesting provisions for such performance unit or performance share.

On the date set forth in, and otherwise subject to the terms and conditions of, the award agreement, or as otherwise provided by the Administrator, all unearned or unvested performance units and performance shares will be forfeited to the Company.

 

Other Plan Provisions

 

Termination Of Employment

 

The 2018 Plan gives the Administrator the authority to vary the terms of the individual award agreements.  Under the 2018 Plan, unvested awards granted will generally be forfeited or expire upon a participant’s termination of employment unless the Committee exercises its discretion to modify the time at which stock options and SARs may be exercised or any restrictions will lapse or be removed, notwithstanding any provision of the 2018 Plan to the contrary.  Generally, with respect to stock options and SARs, if a participant ceases to provide ongoing service as an employee, director or consultant for any reason other than death or disability or termination for cause, then the participant will generally have the right to exercise his or her outstanding options and SARs for three months after the date of termination, but only to the extent that the participant was entitled to exercise such option or SAR at the date of such termination.  If such termination is due to death or disability, the participant (or the participant’s legal representative) will generally have the right to exercise any existing unexercised option or SAR at any time within 12 months following the termination date, but only to the extent that the participant was entitled to exercise such option or SAR at the date of such termination.  In no event will an option or SAR be exercisable beyond its term.  In the event of a participant’s termination for cause, then the participant’s options, whether vested or unvested, will immediately be forfeited upon termination.

 

Recoupment

 

A participant’s rights with respect to any award granted under the 2018 Plan shall in all events be subject to (i) any right that the Company may have under any clawback or recoupment policy as may be in effect from time to time or any other clawback or recoupment agreement or arrangement applicable to a participant; or (ii) any right or obligation that the Company may have regarding the recoupment of incentive-based compensation under Exchange Act Section 10D and any applicable rules and regulations issued by the SEC.

30


 

Compliance With Code Section 409A

 

Awards are intended to operate in such a manner that they are either exempt from the application of, or comply with, the requirements of Code Section 409A such that the grant, payment, settlement or deferral will not be subject to the additional tax or interest applicable under Code Section 409A, except as otherwise determined in the sole discretion of the Administrator, provided that no warranty of such exemption or compliance is made.  The 2018 Plan and each award Agreement under the 2018 Plan is intended to meet the requirements of Code Section 409A and will be construed and interpreted in accordance with such intent, except as otherwise determined in the sole discretion of the Administrator.

 

Non-Transferability Of Awards

 

Unless determined otherwise by the Administrator, an award granted under the 2018 Plan may not be sold, pledged, assigned, hypothecated, transferred, or disposed of in any manner other than by will or by the laws of descent or distribution or as otherwise permitted in the 2018 Plan and may be exercised, during the lifetime of the participant, only by the participant.  If the Administrator makes an award granted under the 2018 Plan transferable, such award shall be subject to the terms of the 2018 Plan and the award agreement and will contain such additional terms and conditions as the Administrator deems appropriate.  Notwithstanding the foregoing, under no circumstance may unvested or unexercised awards be transferred for value or consideration.

 

Adjustments

 

In the event that any dividend (other than ordinary cash dividends) or other distribution (whether in the form of cash, shares, other securities, or other property), recapitalization, stock split, reverse stock split, reorganization, merger, consolidation, split-up, spin-off, combination, repurchase, or exchange of shares or other securities of the Company, or other change in the corporate structure of the Company affecting the shares occurs, the Administrator, in order to prevent diminution or enlargement of the benefits or potential benefits intended to be made available under the 2018 Plan, will adjust, in such equitable manner as the Administrator deems appropriate, the number and class of shares issuable under the 2018 Plan and/or the number, class and, if applicable, exercise price of shares subject to each outstanding award.

 

Dissolution Or Liquidation

 

In the event of a liquidation or dissolution, the Administrator will notify each participant as soon as practicable prior to the effective date of such proposed transaction.  To the extent that an award has not been previously exercised (with respect to options and SARs) or vested (with respect to other awards), an award will terminate immediately prior to the consummation of such proposed action.

 

Change-in-Control

 

In the event of a Change-in-Control, notwithstanding any other provision of the 2018 Plan or an award, each outstanding award shall be treated as the Administrator determines in its discretion without a participant’s consent, including, without limitation, that awards may be assumed, or substantially equivalent awards may be substituted, by the acquiring or succeeding entity or an affiliate thereof (a “successor”) with appropriate adjustments as to the number and kind of shares and prices; upon written notice to a participant, the participant’s awards will terminate immediately prior to the consummation of such Change-in-Control; awards will vest and become exercisable, realizable, or payable, or restrictions applicable to an award will lapse, in whole or in part, prior to or upon consummation of such Change-in-Control, and, to the extent the Administrator determines, terminate upon the effectiveness of such Change-in-Control; awards will terminate in exchange for an amount of cash and/or property, if any, equal to the amount (if any) that would have been attained upon the exercise of such award or realization of the participant’s rights as of the date of the occurrence of the transaction; the replacement of such award with other rights or property selected by the Administrator in its sole discretion; or any combination of the foregoing.

 

31


In the event of a Change-in-Control, with respect to awards held by participants other than outside directors, if the successor elects not to assume or substitute an Award, as determined by the Administrator in accordance with the terms of the 2018 Plan, the participant will fully vest in and have the right to exercise all of his or her outstanding stock options and SARs; all restrictions on restricted stock and restricted stock units will lapse; and, with respect to performance units, performance shares and any other awards subject to performance-based vesting conditions, all performance goals or other vesting conditions will be deemed achieved at target.

With respect to awards granted to an outside director that are assumed or substituted by a successor, if, on the date of or following such assumption or substitution, the participant’s status as a Director or a director of the successor, as applicable, is terminated other than upon a voluntary resignation by the participant (unless such resignation is at the request of the successor), then the participant will fully vest in and have the right to exercise options and/or SARs as to all of the shares underlying such award for a period of one year following such termination (but in no event later than the expiration of the term of such option as set forth in the award agreement; all restrictions on restricted stock and restricted stock units will lapse; and, with respect to performance units, performance shares and any other awards subject to performance-based vesting conditions, all performance goals or other vesting conditions will be deemed achieved at target.

 

Plan Term; Amendment Or Termination Of The 2018 Plan

 

The 2018 Plan will become effective on the date approved by stockholders and will have a ten-year term commencing on that date, subject to any earlier termination by the Board.  The Board may amend, alter, suspend or terminate the 2018 Plan or any part thereof from time to time, except that stockholder approval will be required for any amendment to the 2018 Plan to the extent required by any applicable laws, regulations of the securities exchange on which the shares are then listed, or otherwise in the Board’s discretion.  The Administrator may waive any conditions or restrictions of or amend, modify or terminate outstanding awards under the 2018 Plan notwithstanding any plan provision to the contrary. As a general matter, no amendment, alteration, suspension or termination of the 2018 Plan or an outstanding award may impair the rights of any participant under any then outstanding award without the participant’s written consent, with the exception of certain compliance amendments.

 

New Plan Benefits

Future grants under the 2018 Plan will be made at the discretion of the Administrator and, accordingly, are not yet determinable.  In addition, the value of the awards granted under the 2018 Plan will depend on a number of factors, including the fair market value of our common stock on future dates and the exercise decisions made by the participants.  Consequently, it is not possible to determine the benefits that might be received by participants receiving discretionary grants under the Plan.

We granted awards under the 2009 Plan in 2017 to the named executive officers, outside directors and to other eligible employees.  The 2017 grants to our named executive officers and to our outside directors are reflected in the 2017 Grants of Plan-Based Awards Table and the 2017 Director Compensation Table, respectively, in this proxy statement.  The closing market price of a share of Company common stock as reported on the New York Stock Exchange on December 29, 2017 was $23.90.

 


32


Equity Compensation Plan Information

 

The following table sets forth, as of December 31, 2017, certain information related to our equity compensation plans.

 

 

(a)

 

(b)

 

(c)

 

 

Number of Securities

to be Issued Upon Exercise

of Outstanding Options,

Warrants and Rights (1)

 

Weighted-Average

Exercise Price of

Outstanding Options,

Warrants and Rights

 

Number of Securities

Remaining Available for

Future Issuance Under

Equity Compensation

Plans (Excluding

Securities Reflected in

Column (a)) (2)

Equity compensation plans approved by security holders

 

1,087,224

 

$0.82

 

4,299,341

Equity compensation plans not approved by security holders

 

n/a

 

n/a

 

n/a

Total

 

1,087,224

 

$0.82

 

4,299,341

 

 

(1)

Includes 1,014,224 shares issuable upon vesting of outstanding restricted stock units.

 

(2)

As of December 31, 2017, 2,048,647 of these shares were available under the 2009 Stock Plan.  As of December 31, 2017 there were 2,250,694 shares available under the 2009 Employee Stock Purchase Plan (“2009 ESPP”). Pursuant to its terms, there is an annual increase to the number of shares available under the 2009 ESPP on the first day of each fiscal year during which the 2009 ESPP is in effect equal to the lesser of (i) 300,000 shares; (ii) 2% of the outstanding shares of Common Stock on such date; or (iii) a lesser amount determined by the Board.

 

 

Federal Income Tax Information

 

Nonstatutory Sock Options

 

No taxable income is reportable by the recipient when a nonstatutory stock option with an exercise price equal to the fair market value of the underlying stock on the date of grant is granted to a participant.  Upon exercise, the participant will recognize ordinary income in an amount equal to the excess of the fair market value (on the exercise date) of the shares purchased over the exercise price of the option.  Any taxable income recognized in connection with an option exercise by an employee of the Company is subject to tax withholding by the Company.  Any additional gain or loss recognized upon any later disposition of the shares would be capital gain or loss.

 

Incentive Stock Options

 

No taxable income is generally reportable by the recipient when an incentive stock option is granted or exercised.  If the participant exercises the option and then later sells or otherwise disposes of the shares more than two years after the grant date and more than one year after the exercise date, the difference between the sale price and the exercise price will be taxed as capital gain or loss.  If the participant exercises the option and then later sells or otherwise disposes of the shares before the end of the two or one year holding periods described above, he or she generally will have ordinary income at the time of the sale equal to the fair market value of the shares on the exercise date (or the sale price, if less) minus the exercise price of the option.

 

Stock Appreciation Rights

 

No taxable income is reportable by the recipient when a stock appreciation right with an exercise price equal to the fair market value of the underlying stock on the date of grant is granted to a participant.  Upon exercise, the participant will recognize ordinary income in an amount equal to the amount of cash received and the fair market value of any shares received.  Any additional gain or loss recognized upon any later disposition of the shares would be capital gain or loss.

 

33


Restricted Stock And Restricted Stock Units

 

A participant generally will not have taxable income at the time an award of restricted stock or restricted stock units is granted.  Instead, he or she will recognize ordinary income in the first taxable year in which his or her interest in the shares underlying the Award becomes either (i) freely transferable or (ii) no longer subject to substantial risk of forfeiture.  However, the recipient of a restricted stock award may elect to recognize income at the time he or she receives the award in an amount equal to the fair market value of the shares underlying the award (less any cash paid for the shares) on the date the award is granted.

 

Performance Units And Performance Shares

 

A participant generally will not have taxable income at the time an award of performance units or performance shares is granted.  Instead, he or she will recognize ordinary income in the first taxable year in which his or her interest in the shares underlying the award becomes either (i) freely transferable or (ii) no longer subject to substantial risk of forfeiture.

 

Tax Effect For The Company

 

The Company generally will be entitled to a tax deduction in connection with an award under the 2018 Plan in an amount equal to the ordinary income realized by a participant and at the time the participant recognizes such income (for example, the exercise of a nonstatutory stock option).  Code Section 162(m) places a $1 million limit on the deductibility of compensation paid to certain covered employees.  Based on recent legislation effective for tax years commencing after December 31, 2017, this limit on deductibility now applies to the Company’s chief executive officer, its chief financial officer, its three most highly compensated executive officers included as named executive officers in the proxy statement, and any individual who was a named executive officer for fiscal 2017 or thereafter.  In addition, the recent legislation eliminates the exception to limit on deductibility for certain performance-based compensation.

 

THE FOREGOING IS ONLY A SUMMARY OF THE EFFECT OF FEDERAL INCOME TAXATION UPON THE PARTICIPANT AND THE COMPANY AS OF THE DATE HEREOF WITH RESPECT TO AWARDS UNDER THE 2018 PLAN AND DOES NOT PURPORT TO BE COMPLETE, AND REFERENCE SHOULD BE MADE TO THE APPLICABLE PROVISIONS OF THE INTERNAL REVENUE CODE. IN ADDITION, THIS SUMMARY DOES NOT DISCUSS THE TAX CONSEQUENCES OF A PARTICIPANT’S DEATH OR THE PROVISIONS OF THE INCOME TAX LAWS OF ANY MUNICIPALITY, STATE OR FOREIGN COUNTRY IN WHICH THE PARTICIPANT MAY RESIDE.

 

Vote Required

 

The affirmative vote, in person or by proxy, of a majority of the shares present or represented at the meeting and entitled to vote will be required to approve the adoption of the 2018 Stock Plan.

 

 

The Board recommends a vote “FOR” the adoption of the

Rudolph Technologies, Inc. 2018 Stock Plan.

 

 

 

 

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PROPOSAL 4

 

APPROVAL OF THE RUDOLPH TECHNOLOGIES, INC.

2018 EMPLOYEE STOCK PURCHASE PLAN

 

The Board of Directors is requesting that our stockholders approve a new employee stock purchase plan, the 2018 Employee Stock Purchase Plan, as amended (the “2018 ESPP”). The Board has adopted the 2018 ESPP, subject to stockholder approval at the Annual Meeting. If approved by our stockholders, the 2018 ESPP will become effective as of November 1, 2018 and will expire ten (10) years from such date, unless terminated earlier. The 2018 ESPP is intended to replace the Rudolph Technologies, Inc. 2009 Employee Stock Purchase Plan (the “2009 ESPP”), which otherwise expires on or about November 1, 2019; provided, however, if the stockholders approve this Proposal Four, the 2009 ESPP will expire after the final share purchase is made on or about October 31, 2018. The Board has determined that it remains in the best interests of the Company and its stockholders to have an employee stock purchase plan and is asking the Company’s stockholders to approve the 2018 ESPP.

 

Changes Being Made To The 2018 ESPP

 

Our 2009 ESPP provided for an initial share reserve of 300,000 shares with an “evergreen” provision, pursuant to which the shares authorized for issuance under the 2009 Plan were automatically replenished on an annual basis.  Our 2018 ESPP eliminates this evergreen provision and instead provides for a maximum share reserve of 1,500,000 shares, which represents 4.8% of our outstanding shares as of January 24, 2018.

 

Summary Of The 2018 Employee Stock Purchase Plan

 

The following is a summary of the principal features of the 2018 ESPP and its operation. The summary is qualified in its entirety by reference to the 2018 ESPP as set forth in Appendix B.

 

General

 

The 2018 ESPP was adopted by the Board in March 2018, subject to stockholder approval at the Annual Meeting. The purpose of the 2018 ESPP is to provide eligible employees with an opportunity to purchase shares of the Company’s common stock (“Common Stock”) through payroll deductions, to enhance the employees’ sense of participation in the Company and its participating subsidiaries, and to provide an incentive for continued employment.

 

Shares Available For Issuance

 

If the Company’s stockholders approve this proposal, the maximum number of shares of the Company’s Common Stock to be reserved for issuance under the 2018 ESPP for sale under the Plan shall be 1,500,000 shares, as may be adjusted for stock splits, stock dividends or other changes in capitalization, mergers, reorganizations and other transactions in accordance with plan terms.

 

Administration

 

The 2018 ESPP will be administered by the Board or a committee of members of the Board (in either case, the “Administrator”). Subject to the provisions of the 2018 ESPP, all questions of interpretation or application of the 2018 ESPP are determined by the Administrator and its decisions are final and binding upon all participants.

 


35


Eligibility

 

Each of the Company’s (or the Company’s participating subsidiaries’) employees who is customarily employed for at least twenty (20) hours per week and more than five months in a calendar year by the Company or a designated subsidiary, (provided that, in certain jurisdictions outside the United States employees employed for less than twenty (20) hours per week or less than five (5) months in a calendar year if so required by local laws, as determined by the Company), on the first trading day of the applicable offering period is eligible to participate in the 2018 ESPP. Notwithstanding the foregoing, no employee will be granted an option under the 2018 ESPP (i) to the extent that, immediately after the grant, such employee would own 5% or more of the total combined voting power of all classes of the Company’s capital stock or the capital stock of any Company parent or subsidiary, or (ii) to the extent that his or her rights to purchase stock under all of the Company’s employee stock purchase plans accrues at a rate which exceeds $25,000 worth of stock (determined at the fair market value of the shares at the time such option is granted) for each calendar year.

 

Offering Period & Purchase Price

 

Each offering period under the 2018 ESPP will have a duration of approximately six (6) months, commencing on the first trading day on or after May 1st and November 1st of each year of the 2018 ESPP and terminating on the last trading day of the applicable period ending six (6) months later. On the last trading day of each offering period (the exercise date), shares of Common Stock may be purchased on behalf of the participant in accordance with the terms of the 2018 ESPP.

Eligible employees may participate in the 2018 ESPP by delivering a subscription agreement as provided by the Company prior to the beginning of an offering period authorizing payroll deductions pursuant to the 2018 ESPP. Such payroll deductions may not be less than 1% or exceed 15% of a participant’s compensation during the offering.

Under the terms of the 2018 ESPP, the purchase price of shares under the 2018 ESPP is 95% of the fair market value of a share of Common Stock on the exercise date, as may be adjusted in accordance with plan terms.

 

Merger Or Asset Sale

 

In the event of a proposed sale of all or substantially all of the assets of the Company, or the merger of the Company with or into another corporation, each outstanding option under the 2018 ESPP may be assumed or an equivalent option will be substituted by the successor corporation or a parent or subsidiary of such successor corporation. In the event the successor corporation refuses to assume or substitute for the options, any offering period then in progress will be shortened by setting a new exercise date on which such offering period will end. The new exercise date will be prior to the proposed sale or merger. The Administrator will notify each participant in writing at least 10 business days prior to the new exercise date that the purchase date for the participant’s option has been changed to the new exercise date and that the participant’s option will be exercised automatically on the new exercise date unless the participant withdraws from the 2018 ESPP prior to such date.

 

Amendment And Termination Of The 2018 ESPP

 

The Administrator may amend, terminate or suspend the 2018 ESPP at any time and for any reason. Generally, no such termination can adversely affect options previously granted and stockholder approval will be sought for certain changes as required by applicable law.

Upon its approval by the stockholders, the 2018 ESPP will continue until the earlier to occur of (i) the termination of the 2018 ESPP by the Board, or (ii) November 1, 2028 (the date which is ten (10) years from the effective date of the 2018 ESPP).

 

Federal Income Tax Consequences Relating To The 2018 ESPP

 

The federal income tax consequences of an employee’s purchases under the 2018 ESPP will vary. The following discussion is only a summary of the general federal income tax rules applicable to the 2018 ESPP.  Employees should consult their own tax advisors since a taxpayer’s particular situation may be such that some variation of the rules described below will apply.

36


 

The 2018 ESPP and the right of participants to make purchases thereunder are intended to qualify under the provisions of Section 421 and 423 of the Code. Under those provisions, no income will be taxable to a participant at the time of grant of the option or purchase of shares.  However, a participant may become liable for tax upon dispositions of shares acquired under the 2018 ESPP (or if he or she dies holding such shares), and the tax consequences will depend on how long a participant has held the shares prior to disposition.

If the shares are disposed of at least one year after the shares were acquired under the 2018 ESPP and at least two years after the first day of the offering period to which the shares relate, or if the employee dies while holding the shares, the following tax consequences will apply.  The lesser of (a) the excess of fair market value of the shares at the time of such disposition over the purchase price of the shares (the “option price”) or (b) the excess of the fair market value of the shares at the time the option was granted over the option price will be treated as ordinary income to the participant. Any further gain upon disposition generally will be taxed at long-term capital gain rates. If the shares are sold and the sales price is less than the option price, there is no ordinary income and the participant has a long-term capital loss equal to the difference. No deduction in respect of the disposition of such shares will be allowed to the Company.

If the shares are sold or disposed of (including by way of gift) before the expiration of either the two-year or the one-year holding period described above, the following tax consequences will apply. The amount by which the fair market value of the shares on the date the option is exercised (which is the last business day of the offering period and which is hereafter referred to as the “termination date”) exceeds the option price will be treated as ordinary income to the participant. This excess will constitute ordinary income in the year of sale or other disposition even if no gain is realized on the sale or a gratuitous transfer of the shares is made. The balance of any gain will be treated as capital gain and will qualify for long-term capital gain treatment if the shares have been held for more than one year following the exercise of the option. Even if the shares are sold for less than their fair market value on the termination date, the same amount of ordinary income is attributed to a participant and a capital loss is allowed equal to the difference between the sales price and the value of such shares on such termination date. The Company, in the event of an early disposition, will be allowed a deduction for federal income tax purposes equal to the ordinary income realized by the disposing employee.

THE FOREGOING IS ONLY A SUMMARY OF THE EFFECT OF FEDERAL INCOME TAXATION UPON THE PARTICIPANT AND THE COMPANY AS OF THE DATE HEREOF WITH RESPECT TO THE 2018 ESPP AND DOES NOT PURPORT TO BE COMPLETE, AND REFERENCE SHOULD BE MADE TO THE APPLICABLE PROVISIONS OF THE INTERNAL REVENUE CODE.  IN ADDITION, THIS SUMMARY DOES NOT DISCUSS THE TAX CONSEQUENCES OF A PARTICIPANT’S DEATH OR THE PROVISIONS OF THE INCOME TAX LAWS OF ANY MUNICIPALITY, STATE OR FOREIGN COUNTRY IN WHICH THE PARTICIPANT MAY RESIDE.

 

Vote Required

 

The affirmative vote, in person or by proxy, of a majority of the shares present or represented at the meeting and entitled to vote will be required to approve the 2018 ESPP.

 

 

The Board recommends a vote “FOR” the adoption of

the Rudolph Technologies, Inc. 2018 Employee Stock Purchase Plan.

 

 

 

 

 

37


PROPOSAL 5

 

RATIFICATION OF APPOINTMENT OF INDEPENDENT

REGISTERED PUBLIC ACCOUNTING FIRM

 

Although ratification by stockholders is not required by law, the Board of Directors is submitting the Audit Committee’s selection of Ernst & Young LLP (“E&Y”) as the Company’s independent registered public accounting firm for fiscal year 2018 for ratification as a matter of good corporate governance and recommends that the stockholders vote for ratification of such appointment. In the event of a negative vote on such ratification, the Board of Directors will reconsider its selection. Even if the selection is ratified, the Audit Committee may appoint a new independent registered public accounting firm at any time during the year if the Audit Committee believes that such a change would be in the best interests of the Company and its stockholders.  Representatives of E&Y, the independent registered public accounting firm presented herein, will be in attendance at the Annual Meeting and will have the opportunity to make a statement, if they desire to do so, and to respond to appropriate questions.

 

Independent Registered Public Accounting Firm Selection Process

Ernst & Young LLP has served as the Company’s independent registered public accounting firm since March 2008. During this time, the firm has demonstrated:

 

A high degree of independence and professionalism in their audit engagement with the Company;

 

A solid record of partner and professional staff continuity;

 

A knowledge of current and emerging accounting and auditing issues affecting the Company;

 

A deep and ongoing understanding of the Company’s business model and industry; and

 

A readiness to assist the Company and the audit committee in keeping up-to-date with the latest accounting and auditing pronouncements and their application to the Company’s business.

In making its selection of an independent registered public accounting firm, the Audit Committee assesses, among other factors:

 

The performance of the independent registered public accounting firm in the prior year;

 

The anticipated needs of the Company and ability of the accounting firm to address them in the coming year;

 

The proposed fees for the coming year; and

 

The potential impact of changing auditors for the coming year.

Ultimately, the decision of the independent registered public accounting firm is made with the best interest of the Company and its stockholders in mind.

 

Factors Used To Assess Independent Registered Public Accounting Firm Quality

Members of the Audit Committee have experience in dealing with audits of other public companies as well as experience with other accounting firms. After receiving proposals and presentations from a number of firms in 2008, the Audit Committee’s basis for the selection of E&Y as the Company’s independent registered public accounting firm included, among other considerations, E&Y’s breadth of services and international footprint as well as expense considerations. On an ongoing basis, E&Y has been responsive, reliable and professional in their dealings with the Audit Committee and have appropriately assisted the Committee in its oversight of the Company’s financial processes and financial statements.  In addition, E&Y makes available to the Company specialists within their firm to assist in the audit when consultation on specific and unique issues arise. These processes appear to be effective in assisting E&Y with their audit engagement.

As a part of the Audit Committee’s review of E&Y’s qualifications, E&Y provides the Company with the firm-wide comments from the Public Company Accounting Oversight Board (PCAOB) regarding this Board’s examinations of E&Y for the prior year. E&Y also updates the Company with the quality improvements that the firm has made as a result of the PCAOB comments as well as other changes to their quality and risk assessment processes.

 

38


Audit Committee’s Involvement In The Lead Partner Selection

In keeping with their independence policy, E&Y employs a regular schedule of rotation of the both the lead engagement partner (“Lead Partner”) and the support staff. This rotation provides for sufficient overlap of the new Lead Partner with the outgoing Lead Partner. This process allows for the members of the Audit Committee and the Company management to become familiar with the new Lead Partner and new staff and to introduce them to the Company’s business.  Prior to the new Lead Partner’s full engagement, the Audit Committee and Company management meet with E&Y to review and offer feedback on the industry experience, financial acumen and anticipated fit of the new Lead Partner with the Company.

 

Policy On Audit Committee Pre-Approval Of Audit And Permissible Non-Audit Services Of Independent Registered Public Accounting Firm

The Audit Committee pre-approves all audit and permissible non-audit services provided by the Company’s independent registered public accounting firm. These services may include audit services, audit-related services, tax and other services. Pre-approval is generally provided for up to one (1) year, and any pre-approval is detailed as to the particular service or category of services and is generally subject to a specific budget. The independent registered public accounting firm and management are required to periodically report to the Audit Committee regarding the extent of services provided by the independent registered public accounting firm in accordance with this pre-approval and the fees for the services performed to date. The Audit Committee may also pre-approve particular services on a case-by-case basis. During 2017, all services provided by Ernst & Young LLP were pre-approved by the Audit Committee in accordance with this policy.

 

Fees Billed To The Company By Ernst & Young LLP For 2017 And 2016

For the years ended December 31, 2017 and 2016, aggregate fees for professional services rendered by our independent registered public accounting firm, Ernst & Young LLP, in the following categories were as follows:

 

Fees

 

2017

 

2016

Audit

 

$1,160,779

 

$965,041

Audit Related

 

31,500

 

32,243

Tax

 

111,250

 

-

All Other

 

1,995

 

1,995

Total

 

$1,305,524

 

$999,279

 

Audit Fees

Audit fees for the years ended December 31, 2017 and 2016 were for the audit of the Company’s annual financial statements and a review of those financial statements included in the Company’s quarterly reports on Form 10-Q and may include services that are normally provided by the independent registered public accounting firm in connection with regulatory filings or engagements including any comfort letters and consents for financings and filings made with the SEC.

 

Audit Related Fees

Audit related fees for the years ended December 31, 2017 and 2016 were for assurance and related services that are reasonably related to the performance of the audit or review of the Company’s annual financial statements and are not reported under “Audit Fees,” specifically fees for employee benefit plan audits.

 

Tax Fees

Tax fees may include fees for tax compliance, tax planning and tax advice. Tax fees for the year ended December 31, 2017 were for tax advice.  There were no tax fees for the year ended December 31, 2016.

 

39


All Other Fees

All other fees would consist of fees for products and services other than the services described above. For the years ended December 31, 2017 and 2016, all other fees included payments for an accounting and auditing information tool.

Negotiation of the annual independent registered public accounting firm fees is the responsibility of the Audit Committee with the support of the Company’s CFO.  All of the fees listed in the chart above were pre-approved by the Audit Committee, which concluded that the provisions of such services by Ernst & Young LLP were compatible with the maintenance of that firm’s independence in the conduct of its audit functions.

 

Vote Required

The affirmative vote, in person or by proxy, of a majority of the shares present or represented at the meeting and entitled to vote will be required to ratify Ernst & Young LLP as the Company’s independent registered public accounting firm for the year ending December 31, 2018.

 

The Company’s Board of Directors unanimously recommends voting “FOR” the

ratification of the appointment of Ernst & Young LLP as the Company’s independent registered public accounting firm for the year ending December 31, 2018.

 

 

 

40


AUDIT COMMITTEE REPORT

 

The following is the Audit Committee’s report submitted to the Board of Directors for the year ended December 31, 2017.

The Audit Committee of the Board of Directors has:

 

reviewed and discussed with management and with Ernst & Young LLP, the Company’s independent registered public accounting firm, together and separately, the Company’s audited consolidated financial statements contained in its Annual Report on Form 10-K for the year ended December 31, 2017;

 

discussed with Ernst & Young LLP, the matters required to be discussed by Statement on Auditing Standards No. 1301, Communications with Audit Committees;

 

received the written disclosures and the letter from Ernst & Young LLP required by applicable requirements of the Public Company Accounting Oversight Board regarding the independent registered public accounting firm’s communications with the Audit Committee concerning independence, and has discussed with Ernst & Young LLP its independence; and

 

discussed and reviewed with the Company’s manager - internal audit (“Mgr-IA”) and Ernst & Young LLP, with and without management present, the Company’s work in complying with the requirements of Section 404 under the Sarbanes-Oxley Act of 2002 regarding internal controls over financial reporting. In connection therewith, the Audit Committee also discussed with the Mgr-IA, with and without other members of management present, management’s assessment of the effectiveness of internal controls over financial reporting as of December 31, 2017. The Audit Committee also discussed Ernst & Young LLP’s audit report on internal controls over financial reporting as of December 31, 2017 with management and Ernst & Young LLP.

Based on the foregoing review and discussions, the Audit Committee recommended to the Board of Directors that the audited financial statements be included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2017.

 

 

THE AUDIT COMMITTEE

 

 

 

 

 

John R. Whitten (Chairman)

 

Jeffrey A. Aukerman

 

David B. Miller

 

 

 

41


EXECUTIVE COMPENSATION

COMPENSATION DISCUSSION AND ANALYSIS

This Compensation Discussion and Analysis contains a discussion of the material elements of compensation awarded to, earned by, or paid to the Company’s “Named Executive Officers” listed in the table below (“NEOs”), including our principal executive officer, the principal financial officer, and the next three most highly compensated executives of Rudolph Technologies, Inc. in 2017.

 

Name

Title

Michael Plisinski

Chief Executive Officer

Steven Roth

Senior Vice President, Finance and Administration and Chief Financial Officer

Robert Koch

Vice President and General Counsel

Richard Rogoff

Vice President and General Manager,  Lithography Systems Group

Elvino da Silveira

Vice President, Business Development

EXECUTIVE SUMMARY

Our Compensation Philosophy And Principles

Rewarding continuous improvement in financial and operating results and the creation of stockholder value are key attributes of our compensation philosophy, which serves as the framework for the Company’s executive compensation program.  Our program focuses on incentive arrangements that reward executives for improvement in the Company’s financial and operating results and appreciation in our stock value.  The Compensation Committee of the Board of Directors of the Company (referred to as the “Committee” or the “Compensation Committee”) developed the executive compensation program using a set of core objectives. The specific objectives of our executive compensation program are to:

 

Attract, retain, and motivate executive talent;

 

Align compensation with Company and individual performance; and

 

Foster an ownership mentality that aligns our executives’ interests with stockholder interests.

To underscore the importance of “pay-for-performance” in our compensation philosophy and our Company’s culture, the Compensation Committee has developed incentive arrangements based on performance standards established at levels which the Committee believes, at target achievement, will incentivize our executives to meet or exceed industry performance.  The incentive component of the Company’s executive compensation program, also referred to as the Key Executive Incentive Compensation Plan, rewards executives for achieving specific corporate, business unit and individual goals as well as strategic and operational measures depending on the executive involved.

Our long-term incentive program includes grants of performance-based stock units (“PSUs”) which are earned based on the achievement of Total Shareholder Return (“TSR”) performance relative to peers.   Our long-term incentive program also includes service-based RSUs, which also vest in equal annual increments over time. All grants are currently made under the stockholder approved Rudolph Technologies, Inc. 2009 Stock Plan and shares earned and vested are subject to the Company’s stock ownership and retention guidelines.


42


2017 Financial Highlights

In 2017, for the first time in the Company’s public company history, the Company realized its third consecutive year of record sales.  In addition, the Company attained record operating income for two consecutive years in 2016 and 2017.  Both of these achievements helped to drive strong financial performance in 2017.  The following reflects some of our financial accomplishments in 2017 as compared to 2016 and 2015:

 

*Record Year

43


 

Our Compensation Practices

The Compensation Committee has adopted the following practices and policies with respect to the Company’s executive compensation program:

 

What We Do

Committee Independence

The Compensation Committee consists of independent directors and reserves time at each meeting to meet in executive session without management present.

Independent Compensation Consultant

The Compensation Committee has engaged its own independent compensation consultant and annually assesses the consultant’s performance, independence, and whether any potential conflicts of interest exist.

Independent Legal Advisor

The Compensation Committee has engaged its own independent legal advisor specializing in corporate compensation issues, as necessary.

CEO Goal Setting and Performance
Evaluation

The Compensation Committee, with the input of the full Board, engages in formal goal setting and performance evaluation processes with the CEO.

Peer Group

The Compensation Committee has established formal criteria for the selection of peer group companies used as a competitive reference point with respect to executive and director compensation, program design and practices, and financial and stock performance.

Share Ownership Guidelines

The Company maintains rigorous share ownership guidelines, which apply to executives and directors, and serve as a risk-mitigating feature within our compensation structure.

Double Trigger
Change-in-Control

The Company has entered into employment agreements with senior executives, including the CEO, that contain change-in-control severance protection.  Executives are entitled to severance in the event of both a change-in-control of the Company and a qualifying termination of employment (“double trigger”).

Clawback Policy

The Company has adopted a policy that provides for the recovery or adjustment of amounts previously awarded or paid to a NEO in the event that financial results or other performance measures on which the award or payment were determined are restated or adjusted.

What We Don’t Do

Anti-Hedging and Pledging Policies

The Company’s insider trading policy prohibits hedging transactions related to our Common Stock.  Additionally, under the Company’s anti-pledging policy, non-employee directors and executive officers are prohibited from making any new pledges of Company securities as collateral for a loan, or otherwise making a new transfer of Company securities to a margin account.

Tax Gross-Ups on Perquisites or
Severance

The Company does not provide any tax gross-up payments to cover personal income taxes on perquisites or severance benefits related to a change-in-control.

 

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NEO Compensation Elements

Our executive compensation program is generally comprised of four parts, each intended to address different objectives: base salary, annual cash performance incentives, long-term equity incentives, which generally are in the form of both performance-based vesting and service-based vesting RSU grants, and limited perquisites.

The table below highlights the foregoing key elements of our executive compensation structure.

 

NEO Compensation Elements

Element

Form

Description

Base Salary

Fixed Cash Compensation

Competitive cash compensation that takes into consideration the scope and complexity of the role, individual qualifications, experience, and internal value to the Company.

Annual Cash

Incentive Plan

Annual Performance-Based Cash Compensation

Annual cash incentive contingent on meeting performance criteria related to corporate, business unit/department, and individual performance objectives.

Long-Term Equity Incentive Program

Performance- and Time-Based Restricted Stock
Units

A set percentage of PSUs that are earned based on TSR performance relative to peers, with remaining percentage of the RSUs vesting incrementally over a fixed period.

Executive

Perquisites

Monthly car allowance
Income tax preparation

Airline club membership

Limited perquisites, consistent with market practice, that promote efficient use of executives’ time and attract and retain executive talent.

 

The Compensation Committee aligns the Key Executive Incentive Compensation Plan, which encompasses our annual cash incentive plan and long-term incentive equity program, with the Company’s performance relative to pre-established performance goals based on the Company’s stated financial objectives, historical performance, and anticipated market and economic conditions for the performance period.

 

In adopting this design, the Compensation Committee considered a number of parameters, including the advice of its independent compensation consultant, comparable practices within the industry and the desire to achieve the goals underlying the compensation program. The Compensation Committee believes that as a result of this program the Company has been able to attract, retain and motivate executives and reward the achievement of strategic, operational and financial goals, thereby enhancing stockholder value.

Impact Of 2016 Stockholder Vote On Executive Officer Compensation & Results Of Our

2017 Stockholder Vote On Executive Compensation

Our Board recognizes the fundamental interest our stockholders have in the compensation of our executive officers.  At the Company’s 2016 Annual Meeting, our stockholders approved our say on pay proposal, with approximately 70.7% voting in favor of the compensation of the Company’s NEOs.  Based on the results of this advisory vote and our review of our compensation policies and decisions, the Compensation Committee, with the assistance of its independent compensation consultant, conducted a market-based review of incentive design practices, seeking to adopt an incentive program for 2017 that balanced both contemporary industry design with incentives that would encourage our executive officers to achieve the Company’s annual and long-term goals. We believe that the compensation program instituted in 2017 and now in place, as described below, achieves these goals.

Our stockholders also responded favorably to our revised incentive compensation program for 2017.  At our 2017 Annual Meeting, over 96% of stockholders present at the meeting voted in favor of our advisory vote on executive compensation.

 

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Compensation Plan Design And Decisions For 2017

For 2017, the Compensation Committee conducted an in-depth review of our incentive programs with the intent to align our programs more closely with our current business strategy and to enhance the pay for performance alignment of our executive compensation program.  It was determined that the 2017 NEO compensation plan would retain the same four basic elements as the prior year’s plan with some modifications.  Taking into account the Company’s 2016 performance and outlook for 2017, each NEO’s performance and responsibilities, and current market compensation rates for each NEO position, among other criteria, the Compensation Committee recommended and the Board approved the following updated program and compensation plan structure for our NEOs:

 

Base Salary

The Compensation Committee approved increases ranging between 3.0% and 6.7% for the base salaries of our NEOs for 2017.

 

Annual Cash Incentive Plan

For 2017, the target cash incentive percentages remained unchanged for each of the NEOs as compared to 2016, with the exception of Mr. Koch whose target cash incentive percentage increased from 30% to 35%.  Annual cash bonuses for 2017 performance were based on rigorous corporate revenue and non-GAAP operating income goals as well as business unit/department and individual performance goals established by the Compensation Committee in early 2017, consistent with prior years. However, in 2017, the Compensation Committee narrowed the performance ranges for each metric, and the target to achieve the maximum payout upside by exceeding the corporate performance objectives was lowered for each of the corporate financial metrics.  In addition, the payout level for threshold performance was reduced to 50% of target from 70% of target. Finally, the target to achieve the maximum payout upside by exceeding the corporate performance objectives was lowered for each of the corporate financial metrics.  Actual performance relative to our NEO’s goals was achieved within a range of 57.3% to 105.3% of target and awards were paid to each executive in early 2018.

 

Long-Term Equity Incentive Program

As a result of its in-depth review of the Company’s incentive programs, the Compensation Committee adopted significant changes to the 2017 long-term equity incentive element of our NEO compensation program. While the same metrics were used for the annual cash incentive program, the Compensation Committee determined that an alternative measure, total shareholder return (TSR), was to be employed with the long-term equity incentive program beginning in 2017.  TSR combines price appreciation and dividends paid to show the total return to a stockholder as an annualized percentage, thus directly linking executive pay to stock price changes.  In addition, the period of measurement of the long-term equity incentive element was extended from the one (1) year utilized in prior years to three (3) years in 2017.  These changes, as further outlined below, were adopted by the Compensation Committee to align our NEOs’ incentive compensation with a better measure of the long-term performance of the Company while also employing a metric that is believed to be important to stockholders.

The following changes were made to the design of the long-term equity incentive program in early 2017:

 

Performance-Based Stock Units: For 2017, forty percent (40%) of each NEO’s equity grant was comprised of performance-based stock units. A relative TSR plan design was adopted and included the following features:

 

The performance period covered a three-year period (2017 through 2020 for the awards granted in early 2017).

 

Performance will be assessed using TSR, which measures growth in stock price, plus any dividends paid during the performance period.

 

TSR performance will be compared to a performance peer group consisting of eighteen (18) companies of which ten (10) companies are from the Company’s 2017 compensation peer group and an additional eight (8) companies are from within the Company’s industry.  The formation of the performance peer group takes into consideration each of the companies in the Company’s compensation peer group currently projected to be standalone operations in three (3) years and supplements them with additional industry-specific

46


 

companies in order to produce a broader, yet relevant, base of comparative TSR performance companies.  The long-term equity incentive plan peer group companies are as follows:

Long-Term Equity Incentive Program - Peer Group Companies

Advanced Energy Industries, Inc.

Cohu, Inc.

MKS Instruments, Inc.

Applied Materials, Inc.

Electro Scientific Industries, Inc.

Nanometrics Incorporated

ASML Holding N.V.

FormFactor, Inc.

PDF Solutions, Inc.

Axcelis Technologies, Inc.

KLA-Tencor Corporation

Teradyne, Inc.

Brooks Automation, Inc.

Kulicke & Soffa Industries, Inc.

Veeco Instruments, Inc.

Camtek Ltd.

Lam Research Corporation

Xcerra Corporation

 

The performance and standards to earn the PSU equity awards are as follows:

TSR Performance Relative to Peers

RSUs Earned as % of Target

Below 30th Percentile

0%

30th Percentile

50%

55th Percentile

100%

80th Percentile and above

200%

 

The PSU award payout will be calculated on a straight-line basis between the 30th & 55th and the 55th & 80th percentile levels referenced above.

 

A negative TSR cap was instituted which limits any PSUs earned to target level if the Company’s TSR is negative over the performance period and our TSR ranks above the target performance level.

 

Earned PSUs are not subject to additional service-based vesting conditions.

 

Service Vesting Restricted Stock: For 2017, sixty percent (60%) of each NEO’s equity grant was comprised of time-based RSUs.  The time required for RSUs to fully vest was reduced from five (5) years from the date of grant to three (3) years from the date of grant.  The RSUs continue to vest in equal increments over the vesting period.

After implementing these changes for 2017, further consideration may be made in subsequent program years to increasing the percentage of PSU awards from that cited above.

For 2017, the Compensation Committee approved adjustments to the long-term incentive grant values provided to our CEO and other NEOs that ranged from +0.0% to +37.5% when compared to values granted in 2016.  As discussed above, PSUs granted in early 2017 are subject to a measure of the Company’s relative TSR measured over the three year performance period; thus the results of this measure shall be determined subsequent to February 2020.

 

Executive Perquisites

In 2017, executive base perquisites provided to the NEOs included a monthly car allowance, income tax preparation fee payment and airline club membership.  These perquisites remained unchanged from those provided to the NEOs in 2016.

Retirement Provision For Equity Awards

As part of their review of the overall compensation program for all Company employees, including the NEOs, the Compensation Committee determined that the implementation of a retirement provision related to equity awards would continue to incentivize individuals as they near the end of their employment with the Company.  Previously, upon retirement of an employee any equity grants that had not vested were forfeited. Thus, any incentive realized through the

47


service-vesting schedule for Company equity grants was diminished. As a result, the Compensation Committee assessed various retirement provision alternatives and recommended to the Board, and the Board approved, the following retirement provision:

 

An employee is “retirement eligible” if they achieve a combination of age plus years of service with the Company totaling 70, with a base minimum age of 58 years old.

 

Retirement under the provision then would occur when an employee has become retirement eligible and has formally notified the Company of his/her intention to retire from the employ of the Company on a date certain and does so retire or as otherwise approved by the Compensation Committee.

 

Upon such retirement by the employee, any equity awards granted in 2017 and onward shall vest based on:

 

The vesting schedule established for time-based equity awards; or

 

The actual performance results for performance-based equity awards.

 

For clarity, in the event of an employee’s retirement under the provision, there will be no acceleration of an award’s vesting schedule or forfeiture of unvested awards granted in or after 2017.

 

Compensation Design, Decisions And Changes For 2018

In 2017, the Compensation Committee continued their review of the executive compensation program with an eye toward further potential enhancements. The Committee determined that the 2018 NEO compensation plan would retain the same four basic elements as the 2017 plan with some modifications.  The Committee recommended this updated program to the Board and the Board approved the incentive program for 2018, which reflects the following compensation elements as compared to the 2017 plan:

 

Base Salary

For 2018, the Compensation Committee approved a 9.4% increase to the CEO’s base salary and increases ranging from 2.0% to 3.0% for the base salaries of each of our other NEOs.  The CEO’s increase was approved in order to bring the CEO’s base salary within the median of the Company’s 2018 Compensation Peer Group, as hereinafter defined in the “Peer Group” section.

 

Annual Cash Incentive Plan

For 2018, the Compensation Committee adopted an annual cash incentive plan as part of the NEO compensation program that was generally consistent with the 2017 plan.  This plan continues to employ corporate revenue and corporate Non-GAAP Operating Income as the measurement elements for the cash incentive performance objectives. The performance ranges for each metric are consistent with those utilized in 2017 including a payout level for threshold performance at 50% of target and the same target level to achieve the maximum payout by exceeding the corporate performance objectives for each of the corporate financial metrics.

 

Long-Term Equity Incentive Program

For 2018, the Compensation Committee determined to increase the portion of our NEOs’ long-term incentive awards granted in the form of PSUs to 50% (from 40% in 2017) and to reduce the portion of our long-term incentive awards granted in the form of service-vesting RSUs to 50% (from 60% in 2017), demonstrating our commitment to pay-for-performance. The Compensation Committee expects to consider further increasing the percentage of performance-based awards in future years.

As implemented in 2017, the 2018 performance-based long-term equity incentive of our NEO compensation program is based on the metric of TSR.  The performance period remains a single three (3) year period spanning 2018 through 2021.  The Compensation Committee elected to again to employ the TSR measure relative to selected peer companies in order to align our NEOs’ incentive compensation with an appropriate measure of the long-term performance of the Company while also utilizing a metric that is important to our stockholders.

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The following parameters are included in the design of the long-term equity incentive program in 2018:

 

Performance-Based Stock Units: For 2018, fifty percent (50%) of each NEO’s equity grant is comprised of PSUs. The relative TSR plan design includes the following features:

 

The performance period will cover a three-year period (2018 through 2021, for awards granted in early 2018).

 

Performance will be assessed using TSR, which measures growth in stock price, plus any dividends paid during the performance period.

 

TSR performance will be compared to the same eighteen (18) company performance peer group utilized in 2017, based on the same rationale established for 2017.

 

The performance and standards to earn the PSU equity awards are unchanged from 2017 and are as follows:

 

TSR Performance Relative to Peers

 

RSUs Earned as % of Target

Below 30th Percentile

 

0%

30th Percentile

 

50%

55th Percentile

 

100%

80th Percentile and above

 

200%

 

 

The PSU award payout will be calculated on a straight-line basis between the 30th & 55th and the 55th & 80th percentile levels referenced above.

 

A negative TSR cap has been instituted which limits any PSUs earned to target level if the Company’s TSR is negative over the performance period and our TSR ranks above the target performance level.

 

Earned PSUs are not subject to additional service-based vesting conditions.

 

Service Vesting Restricted Stock Units: For 2018, fifty percent (50%) of each NEO’s equity grant is comprised of time-based RSUs.  The time required the RSUs to fully vest is three (3) years from the date of grant.  The RSUs will continue to vest in equal annual increments over the vesting period.

 

 

Executive Perquisites

In 2018, executive base perquisites, including a monthly car allowance, income tax preparation fee payment and airline club membership remained unchanged from that provided to the NEOs in 2017.

INTRODUCTION / CORPORATE GOVERNANCE

Compensation Committee Members And Responsibilities

In 2017, the Compensation Committee was composed of Daniel H. Berry, who served as the Chairman, Jeffrey A. Aukerman and David B. Miller, each of whom are independent directors under the NYSE independence requirements.  In January 2018, Mr. Berry resigned his position as Chairman of the Compensation Committee.  A change to the membership was then made with Mr. Berry coming off the Compensation Committee and Thomas G. Greig becoming a member.  In addition, Mr. Miller was elected Chairman of the Compensation Committee at this time.  

In general, the Compensation Committee is responsible for reviewing and recommending for approval by the independent members of the Board of Directors, the Company’s compensation policies and practices, including executive salary levels and variable compensation programs, both cash-based and equity-based. The Compensation Committee reviews and recommends for approval by the independent Board members the various elements of the CEO’s compensation. With respect to other executive officers, including each of our NEOs, the Compensation Committee reviews the recommendations for compensation for such individuals provided to the Committee by the CEO, and the reasons therefore and, in its discretion, may modify the compensation packages for any such individuals.  The Committee then recommends

49


such compensation packages to the independent members of the Board of Directors for approval. The Committee holds an executive session at its meetings, whenever appropriate, without the presence of management or the CEO.

Compensation Consultant

From time to time, the Compensation Committee has engaged the services of outside compensation consultants to provide advice on compensation plans and issues related to the Company’s executive and non-executive employees. In 2017, the Committee again engaged Pay Governance LLC, an independent executive compensation consulting firm, to provide a review of the Company’s executive compensation arrangements. Pay Governance LLC does not provide any services other than those related to compensation consulting and does not provide any services to Company management.  The Committee has determined that Pay Governance LLC is independent within the meaning of the Compensation Committee Charter and NYSE listing standards, and the work of Pay Governance LLC for the Committee does not raise any conflicts of interest.

Independent Legal Counsel

The Compensation Committee has, as necessary, engaged the services of independent outside legal counsel for compensation issues.  No independent counsel was engaged for compensation issues in 2017.

Role Of Executives In Establishing Compensation

The Compensation Committee makes all determinations regarding executive compensation subject to approval by the independent members of the Board. On an annual basis, the Committee evaluates our CEO’s performance in light of the goals and objectives established for measuring his performance at the beginning of the previous fiscal year. The results of this evaluation guide the Committee in setting our CEO’s salary, cash incentive award opportunity and equity compensation. The CEO does not participate in the Compensation Committee’s or Board’s deliberations regarding his compensation.

With regard to compensation for executives other than the CEO, the Committee seeks input from the CEO. Each year, the CEO is responsible for establishing proposed personal and corporate objectives for each of the Company’s other executives, including our other NEOs. These objectives, subject to the approval of the Compensation Committee, are reviewed and agreed upon by the CEO with the executive. In addition, as part of the annual performance review of the Company’s executives, the CEO assesses the performance of his direct reports and recommends any merit increase to be proposed for each individual. These recommendations are compiled by the CEO into executive compensation plans which include any proposed merit increases, each executive’s personal and corporate objectives, proposed annual incentive award opportunities (expressed as a percentage of their base salary) and equity grant proposals, and are submitted to the Compensation Committee for review and consideration for approval. At the Compensation Committee meeting during which the executive compensation plans are reviewed, the CEO attends the initial session to present the proposed plans and to answer questions. Thereafter, the Compensation Committee meets without the CEO present to review, discuss and approve all executive compensation plans, subject to any modifications made by the Committee.

Compensation Committee Activity

During 2017, the Compensation Committee met four (4) times.  As discussed above, in early 2017 the Company’s CEO met with the Compensation Committee to present the proposed compensation plans for each of the Company’s executives as well as the proposed incentive award opportunities under the 2017 Employee Cash Bonus Program for certain non-executive employees. At each of its meetings held during 2017, the Compensation Committee met in executive session, without the presence of the CEO or any other Company executives, to review the relevant compensation matters.

In 2017, the Compensation Committee took a number of actions. These included reviewing and recommending for approval by the independent members of the Board:

 

the annual compensation of the Company’s CEO for 2017;

 

annual compensation for each of our other executive officers for 2017;

 

the Key Executive Incentive Compensation Plan and Employee Cash Bonus Programs for 2017; and

 

the service-based and performance-based equity incentive awards and related performance targets for the Company’s executives for 2017.

50


In reviewing and setting the annual compensation for each executive of the Company, the Compensation Committee considered the amounts payable under each of the elements of their respective compensation plans, including base salary, annual cash incentive awards, equity grants and perquisites. The Committee took into consideration both the Company’s internal pay equity as well as the competitive environment within which the Company operates. In each instance, the Committee determined that the base salary and annual and long-term incentive award opportunities for the individual executives were at an acceptable level for 2017 and that the perquisites were appropriate for the related positions.

As described above, under “Compensation Design, Decisions And Changes For 2018”, in late 2017, the Compensation Committee, with the assistance of the Committee’s compensation consultant, reviewed our annual- and long-term incentive programs for 2018.  At this time, measures were selected that were determined to be consistent with advancing the interests of the Company’s stockholders and aligning and supporting the Company’s business strategy.

Based on the foregoing, in early 2018, the Compensation Committee met and took a number of actions. These included the review and recommendation for approval by the independent members of the Board of:

 

the annual compensation of the Company’s CEO for 2018;

 

the annual compensation for each of our other executive officers for 2018;

 

the Key Executive Incentive Compensation Plan and Employee Cash Bonus Programs for 2018; and

 

the service-based and performance-based equity incentive awards and related performance targets for the Company’s executives for 2018.

OBJECTIVES OF COMPENSATION PROGRAMS

Compensation Philosophy And Policies

The Compensation Committee believes that the most effective executive compensation program is one that is designed to reward the achievement of specific annual, long-term and strategic and operating goals of the Company, and which aligns our executives’ interests with those of our stockholders by compensating executives based on specified financial, strategic and operating performance, with the objective of improving stockholder value. The Compensation Committee evaluates both performance and compensation to ensure that the Company maintains its ability to attract and retain superior employees in key positions and that compensation provided to key employees remains competitive relative to the compensation paid to similarly situated executives at competitor companies. The Compensation Committee believes executive compensation packages provided by the Company to its executives, including the NEOs, should include base salary, annual cash incentive opportunities, select perquisites and stock-based compensation, including equity incentive opportunities which rewards performance as measured against established goals.

The Company strives to promote an ownership mentality among its key leadership and the Board of Directors, in part through the guidelines described below under the heading “Stock Ownership/Retention Guidelines.” We believe this “skin in the game” further mitigates the incentive to take on unnecessary risks.  In early 2017, the Board of Directors reassessed the previously established stock ownership retention levels for directors and the CEO and determined that an adjustment was desired.  To that end, the Board approved an increase in director stock ownership requirements from a minimum number of shares held equivalent in value of two (2) times a director’s total annual cash compensation to three (3) times such compensation.  For the CEO, the increase was from two (2) times the CEO’s year-end base salary to three (3) times such salary.  In further support of this approach, our Board of Directors previously established an anti-pledging and anti-hedging policy to ensure that personal interests relating to the stock holdings of employees and directors do not conflict with their duties to the Company.

The Compensation Committee has developed a set of core objectives and principles that it has used to develop the executive compensation program. The specific objectives of our executive compensation program are to:

 

Attract and retain executive talent;

 

Align compensation with Company and individual performance; and

 

Foster an ownership mentality and create alignment with stockholders.

The following principles support the objectives and design of the compensation program:

 

The compensation program is designed to be fair and competitive, from an internal and external perspective, taking into account the role, unique qualifications and distinct responsibilities of each executive;

51


 

A substantial portion of an executive’s compensation is designed to be at risk and linked to the achievement of both corporate and individual goals and changes in stockholder value;

 

Retirement benefits are designed to provide financial stability following employment but will not be the focal point of why executives choose to work for the Company;

 

The use of select, limited perquisites and other executive benefits are designed to serve a business purpose; and

 

All compensation program elements taken as a whole are designed to help focus executives to achieve the Company’s financial and strategic goals.

Peer Companies

In order to meet its objective of maintaining competitive executive compensation packages, the Committee obtains third-party compensation information from time to time and reviews executive compensation programs of comparable, publicly held, high technology companies.

The Committee has engaged independent compensation consultants at various times in the development and evaluation of its compensation programs. To the extent that independent compensation consultants are not engaged to consult with the Committee with respect to compensation for a position or time period, the Committee obtains market compensation information using internal resources at the Company. The Committee reviews data related to compensation levels and programs of other similar companies prior to making its decisions, but only considers such information in a general manner in order to obtain a better understanding of the current compensation practices within our industry. In the fall of 2012 and through 2018, the Committee engaged Pay Governance LLC to provide peer group data and perform an assessment of compensation levels provided to executives.

Data representing company proxy disclosures and industry compensation surveys was used in conducting this assessment. The peer group of industry related companies that was developed was based generally on the following criteria:

 

Semiconductor equipment industry (publicly traded companies);

 

Revenues of approximately $500 million or less;

 

Market capitalization of less than $1 billion; and

 

Competitors for business and employee talent.

 

Since the initially establishing a compensation peer group with advice of our compensation consultant, our list of peer companies has evolved.  Companies have been removed over time due to being acquired or a re-evaluation of the fit with the Company’s peer group criteria, while other companies have been added.  The peer group for the 2018 and 2017 review (which was used to make decisions regarding the respective year’s compensation), as approved by the Committee, consisted of the following companies.

 

Companies Included In Compensation Peer Group For 2018

Advanced Energy Industries, Inc.

DSP Group, Inc. (1)

Nanometrics Incorporated

Amtech Systems, Inc. (1)

Electro Scientific Industries, Inc.

Sigma Designs, Inc. (1)

Axcelis Technologies Inc.

EMCORE Corporation (1)

Veeco Instruments, Inc.

Brooks Automation Inc.

FormFactor Inc.

Xcerra Corporation

Cohu, Inc.

Maxwell Technologies, Inc. (1)

 

Additional Companies Included In Compensation Peer Group For 2017 But Not In 2018

MKS Instruments, Inc. (2)

Ultratech, Inc. (3)

 

 

(1)

Company added in 2018 to broaden the peer group comparison group in order to more accurately assess median level of compensation for executives.

 

(2)

Removed in 2018 due to no longer being considered as meeting the Company’s peer group criteria.

 

(3)

Removed in 2018 due to being acquired by another company.

The pay practices of the foregoing peer group were analyzed for base salary and short-term and long-term incentives. Periodically, peer groups are used to evaluate other programs such as executive retirement, perquisites and severance policies. Our peer group data is supplemented by broader technology industry data from compensation surveys to further facilitate the evaluation of compensation levels and design. Compensation levels are generally developed at the low (25th

52


percentile), middle (50th percentile) and high (75th percentile) end of the market for each pay element (base salary and short-term and long-term incentives) and for total compensation.

While the Committee considers market data for each pay element and in total, the Committee does not specifically target any particular market compensation level. Instead, the Committee uses its discretion in setting the compensation levels as appropriate.

Compensation Program Design

The compensation program provided to the Company’s executive officers is generally comprised of four parts, each intended to address different objectives: base salary, annual cash performance incentive awards, long-term incentives that generally are in the form of both performance-based stock units and service-vesting RSU grants, and limited perquisites. Executives are also entitled to participate in benefit programs available to all Company employees, such as our ESPP and 401(k) Plan. This design was adopted for executives by the Committee taking into consideration a number of parameters including the independent compensation consultant’s advice, comparable practices within the industry and the desire to achieve the goals underlying the compensation program. The Committee believes that as a result of this program the Company can attract, retain and motivate employees and reward the achievement of strategic operational and financial goals, thereby enhancing stockholder value.

Annually, the Committee reviews the elements of the compensation package as well as the overall package afforded to the executives. At this time, the Committee, in its discretion, can recommend adjustments to the elements of the program to the independent members of the Board of Directors for review and approval. This review would typically be performed coincident with the evaluation of the individual executive’s performance in relation to their Key Executive Incentive Compensation Plan goals, salary adjustment and equity grants, if any, as discussed below.

The Committee and Board believe that each of the elements as well as the entire compensation package for Company executives is appropriate for the Company given its performance, industry, current challenges and environment.

Based on the objectives discussed in the foregoing section, the Committee seeks to structure our equity and cash incentive compensation program to motivate executives to achieve the business goals set by the Company and reward the executives for achieving such goals, which we believe aligns the financial incentives of our executives with the interests of our stockholders. The Committee primarily uses salary, perquisites and other executive benefits as a means for providing base compensation to employees for their knowledge and experience and for fulfilling their basic job responsibilities.

In establishing these components of the executive compensation package, it is the Committee’s intention to set total executive compensation at a sufficient level to attract and retain a strong motivated leadership team, while remaining reasonable and in line with stockholder perception of overall fairness of executive compensation.

Base salary levels for executive officers of the Company have been generally established at or near the start of each year. The Company’s annual executive cash incentive bonuses are administered through its Key Executive Incentive Compensation Plan. The plan provides guidelines for the calculation of annual non-equity incentive based compensation, subject to the Committee’s oversight and the Company’s and executive’s achievement of corporate and individual goals. Generally, at its first meeting each year, the Committee determines final bonuses for executive officers earned in the preceding year based on each individual’s performance and the performance of the Company through its audited financial statements, and also reviews the incentive program to be established for the current year and approves the group of executives eligible to participate in the plan for that year.

Each of the Company’s executives, including our NEOs, is eligible to receive equity compensation, which has recently been in the form of PSU and RSU grants under the Company’s stockholder approved 2009 Stock Plan. All full-time and part-time employees are eligible for equity grants. The Committee believes that through the Company’s broad-based equity compensation plan, the economic interests of all employees, including the executives, are more closely aligned with those of our stockholders. It is also believed that this approach will allow the Company to use equity as an incentive in a balanced manner that supports the recruitment and retention of top talent.

The Committee generally recommends for approval by the independent members of the Board the grant of equity awards at the first regularly scheduled meeting of the Board or upon completion of the Committee’s review and approval process. The Committee and the Board do not generally grant equity awards at other times during the year, other than in the case of a new hire, promotion or other exceptional circumstances.

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Impact Of Performance On Compensation

The performance of the Company and of the executive has a direct impact on the compensation received by such executive from the Company. On an annual basis, the CEO reviews the performance and compensation for the Company’s executives to determine any potential salary adjustment for each individual. This assessment takes into consideration a number of factors, including the Company’s profitability; the performance of applicable business units; the executive’s individual performance and measurable contribution to the Company’s success; and pay levels of similar positions with comparable companies in the industry and within similar technology industries.

In addition, both Company and individual performance are assessed by the CEO when proposing to the Committee any annual cash incentive payout to the NEOs (other than the CEO) under the annual cash incentive component of their Key Executive Incentive Compensation Plan. The plan includes various incentive level opportunities based on the executive’s accountability and impact on Company operations, with target award opportunities that are established as a percentage of base salary. Typically, these targets range from 30% to 100% of base salary for the executives in the plan. For our NEOs, 2017 and 2018 target annual cash bonus opportunities were set as follows:

 

 

 

Target Annual Cash Incentive Percentage

  Name

 

2018

 

2017

   Michael P. Plisinski

 

100.0%

 

100.0%

   Steven R. Roth

 

60.0%

 

60.0%

   Robert A. Koch

 

35.0%

 

35.0%

   Richard Rogoff

 

45.0%

 

45.0%

   Elvino da Silveira

 

40.0%

 

40.0%

Under the annual cash incentive component of our Key Executive Incentive Compensation Plan, payout is based upon achievement of corporate and personal objectives with no payout unless the Company meets the threshold level of at least one of the Board approved corporate financial targets established as part of the plan. Personal objectives are awarded only upon clear achievement of the associated goal. Failure to meet the personal objectives thereby has a negative impact on the ultimate bonus payout.

In addition to a review of the prior year’s objectives, the CEO and each executive also confer to propose new individual performance targets for the executives (including the NEOs, other than the CEO) for the current year, which are combined with the corporate targets into an annual cash incentive opportunity proposal. The personal targets that are established are designed to result in additional incremental value to the Company if they are achieved. These personal performance targets in 2017 included goals related to additional corporate and/or business unit financial measures, operational measures and activities, transactional activities, and marketing initiatives, depending on the executive involved. The target level of the corporate component to the bonus goals was set based on the Company’s financial budget established by the Board at the beginning of the year. The determination of these goals is made annually to meet the changing nature of the Company’s business.

Upon completion of the prior year’s results and prior to implementation of the current year’s proposed Key Executive Incentive Compensation Plan, the results for each participating executive employee are submitted to, and reviewed by, the Compensation Committee, which considers the CEO’s recommendations for executives other than the CEO and determines the final bonus earned by each executive based on Company and individual performance. The Compensation Committee then establishes the Company and individual metrics applicable to the current year’s Key Executive Incentive Compensation Plan. Thereafter, the Committee’s recommendations are presented to the independent members of the Board for approval of the achieved incentive payment, if any, and of the new plan for the current year. If, during the year, there are changes to the Key Executive Incentive Compensation Plan that are proposed, such changes are presented to the Compensation Committee for its consideration. The Compensation Committee may exercise discretion in relation to its recommendation to the independent members of the Board regarding an individual’s award under the Key Executive Incentive Compensation Plan based upon its review.

An executive’s role, responsibilities, individual performance and contribution to the Company are factors considered in determining the size of any discretionary equity grant that may be recommended by the Compensation Committee to the independent members of the Board of Directors for approval as long-term incentive to the individual.

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Based upon the foregoing, the compensation that an executive may realize in the course of a year can be impacted by the positive or negative performance of such individual as well as Company performance. We intend for an individual’s compensation under the Key Executive Incentive Compensation Plan to be proportionate to the Company’s and his or her performance against established goals. Similarly, equity awards that are performance-based are intended to be proportionate to the Company’s performance under goals established for the Company. This review and evaluation is more subjective when applied to salary adjustments. In this case, an executive’s performance is evaluated by taking into consideration the executive’s contribution to the Company, the significance of the individual’s achievements in relation to the overall corporate goals and mission, and the executive’s effectiveness in his or her role within the Company and then weighed against the performance of other executives. Industry norms and reference to comparative company data are considered to the extent appropriate. Thus, there is no precise, objective formula that is applied in determining salary adjustments.

DETAILS REGARDING OUR ELEMENTS OF COMPENSATION

Base Salary

The Company provides executives and other employees with base salary to compensate them for services rendered during the fiscal year. Base salaries for executive officers are established considering a number of factors, including the executive’s:

 

Individual performance;

 

Unique qualifications;

 

Role and responsibilities;

 

Measurable contribution to the Company’s profitability and success; and

 

The base salary levels of similar positions with comparable companies in the industry.

The Compensation Committee supports the compensation philosophy of moderation for elements such as base salary and perquisites and other executive benefits. As noted above, under “Impact of Performance on Compensation,” base salary decisions are made as part of the Company’s formal annual review process and are influenced by the performance of the Company and the individual.

The CEO’s recommendations for salary adjustments (other than his own) are reviewed and modified as deemed appropriate by the Compensation Committee and presented to the independent members of the Board for approval.

Annual base salary increases for the NEOs for 2017 ranged from 3.0% to 6.7%.  There were no increases due to promotions for any NEO in 2017. In 2018, the annual base salary increase ranged from 2.0% to 3.0% for each of our other NEOs and 9.4% for our CEO.

Annual Cash Incentive Compensation

An executive’s annual cash incentive award under the Key Executive Incentive Compensation Plan generally depends on the financial performance of the Company relative to profit, revenue and other financial targets and the executive’s individual performance. The incentive opportunity is generally set at a higher percentage for more senior officers, with the result that such officers have a higher percentage of their potential total cash compensation at risk. All executive employees, including all of our NEOs, participate in the Company’s Key Executive Incentive Compensation Plan, if and when established, which is designed to generate additional incentive for maximizing the employee’s performance in realizing the corporate strategic and financial goals and mission.

The Compensation Committee may, but is not required to, establish a Key Executive Incentive Compensation Plan for any given year.

When implemented, an executive may earn an annual incentive award due to success as it relates to the executive’s individual goals, as long as the Company’s financial performance meets at least the threshold level of at least one of the corporate financial performance goals.


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Upon completion of the year, the individual’s and the Company’s results with respect to the performance targets are then assessed and presented to the Committee. The Committee reviews the proposed payouts and suggests changes to the extent it deems such action necessary. Key Executive Incentive Compensation Plan awards are paid out following completion of the annual audit by the Company’s independent registered public accounting firm. This generally occurs in the first quarter of each year.

 

2017 Key Executive Incentive Compensation Plan – Annual Cash Incentive

The annual cash incentive component of the 2017 Key Executive Incentive Compensation Plan was established such that each NEO’s potential cash award was subject to the achievement of 2017 corporate financial objectives relating to corporate revenue and non-GAAP operating income. The targets established for 2017 were of comparable difficulty compared to prior years. Had the Company not reached the both the threshold level of 80% of target for the 2017 corporate revenue goal and 70% of target for the 2017 non-GAAP operating income goal, then no payout under the plan would have been earned by the executives.

Provided that either of the corporate performance goal thresholds was met, the cash bonus potential of the plan was divided into a variable component, which in 2017 related to corporate revenue and non-GAAP operating income (“Variable Component”), and fixed components related to personal performance goals and/or Company business unit/department performance goals (“Fixed Components”).  The annual cash incentive component of the 2017 Key Executive Incentive Compensation Plan was designed and administered as follows:

 

Variable Components:

 

Cash bonuses arising from the Variable Components were proposed to be awarded starting at a 50% level at threshold and increasing linearly up to the plan target amount.

 

If the plan target was exceeded in either or both categories then the cash payout would increase as follows:

 

-

Revenue:  From 100% to 120% of target, additional cash compensation is earned linearly up to 200% of this target.

 

-

Non-GAAP Operating Income: From 100% to 130% of target, additional cash compensation is earned linearly up to 200% of this target.

 

Fixed Components:

 

Cash bonuses arising from the Fixed Components were awarded on an “each or nothing” basis.

 

Only executives associated with a particular Company business unit or department had a portion of their cash bonus potential allocated to the business unit/department performance goal aspect of the Fixed Components.

 

At corporate revenue levels or non-GAAP operating income at or above their respective thresholds, each business unit/department performance goal, if applicable, and personal performance goal could have been earned in full.

 

If neither the corporate revenue nor the non-GAAP operating income exceeded their respective thresholds, then payouts from business unit/department and personal goals automatically would have been zero.

 

The business unit/department performance goals in 2017 included targets related to additional business unit or business financial measures, operational measures and market performance depending on the executive involved.

 

The personal performance goals in 2017 included targets related to additional corporate financial measures, operational measures and activities, product development and marketing initiatives depending on the executive involved.

Of the NEOs, Mr. Rogoff had a portion of his potential cash bonus allocated to fixed business unit/department performance goal components in 2017.

 

2017 Key Executive Incentive Compensation Plan – Annual Cash Incentive Results

In each year the Company has offered the Key Executive Incentive Compensation Plan, the corporate targets have been established at levels in excess of the overall industry projections in order that the Company drive to outperform the industry.

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In 2016, the Company achieved 99.8% of the corporate revenue and 96.6% of the non-GAAP operating income goals. The Company achieved the following performance results (dollars in millions) in 2017:

 

Performance Measure

 

Threshold

 

Target

 

Maximum

 

Actual Performance Achieved

 

Actual Performance Achieved as Percentage of Target

Corporate Revenue

 

$203.2

 

$254.0

 

$304.8

 

$255.1

 

102.2%

Non-GAAP Operating Income (1)

 

$38.1

 

$54.4

 

$70.7

 

$56.5

 

113.0%

 

(1)

This non-GAAP financial measure excludes the impact of amortization of intangibles, acquisition related expenses, litigation fees, share-based compensation and patent litigation income.

 

The following tables reflect the 2017 Key Executive Incentive Compensation Plan performance component percentages at target and based on actual achievement for each NEO for 2017:

 

 

 

Corporate

Target Variable Components

 

Business Unit / Department

Target Fixed Components

 

 

Name

 

Revenue

 

Non-GAAP

Operating Income

 

Revenue /

Gross Margin

 

Operating Income /

Market Share

 

Personal Goals

Michael P. Plisinski

 

35%

 

35%

 

n/a

 

n/a

 

30%

Steven R. Roth

 

35%

 

35%

 

n/a

 

n/a

 

30%

Robert A. Koch

 

35%

 

35%

 

n/a

 

n/a

 

30%

Richard Rogoff (1)

 

15%

 

15%

 

20%

 

20%

 

30%

Elvino da Silveira

 

35%

 

35%

 

n/a

 

n/a

 

30%

 

(1)

Mr. Rogoff’s Business Unit Target Fixed Components were Business Unit Revenue and Business Unit Operating Income.

 

 

 

 

Corporate Achieved Variable

Components

 

Business Unit / Department

Achieved Fixed Components

 

 

 

 

Name

 

Revenue

 

Non-GAAP

Operating Income

 

Revenue /

Gross Margin

 

Operating Income

/ Market Share

 

Personal

Goals

 

Total

Achieved

Michael P. Plisinski

 

35.8%

 

39.5%

 

n/a

 

n/a

 

30.0%

 

105.3%

Steven R. Roth

 

35.8%

 

39.5%

 

n/a

 

n/a

 

24.3%

 

99.6%

Robert A. Koch

 

35.8%

 

39.5%

 

n/a

 

n/a

 

30.0%

 

105.3%

Richard Rogoff

 

15.3%

 

16.9%

 

0%

 

0%

 

25.0%

 

57.3%

Elvino da Silveira

 

35.8%

 

39.5%

 

n/a

 

n/a

 

20.0%

 

95.3%

 

In 2017, while the Company exceeded the target levels of the corporate revenue and non-GAAP operating income financial performance goals established under our annual and long-term incentive program, our NEOs did not meet all of their individual metrics established under our annual incentive program.  As a result, our NEOs earned cash bonus awards for 2017 under our annual cash incentive program approximately at target levels with the exception of Mr. Rogoff who earned a cash bonus awards for 2017 at below target but above threshold. Actual amounts paid to our NEOs under our 2017 annual cash incentive component of our Key Executive Incentive Compensation Plan are reported below in the Non-Equity Incentive Plan Compensation column of our Summary Compensation Table.  

 

2018 Key Executive Incentive Compensation Plan – Annual Cash Incentive

The annual cash incentive component of the 2018 Key Executive Incentive Compensation Plan has been established consistent with that for 2017. As in 2017, the 2018 cash incentive component is structured such that each NEO’s potential cash award is subject to the achievement of 2018 corporate financial objectives relating to corporate revenue and corporate non-GAAP operating income. The financial goal targets established for 2018 are of comparable difficulty as compared to prior years. The cash bonus payout is contingent on meeting at least one of the 2018 corporate revenue or corporate non-GAAP operating income goals.  Should the Company not reach the threshold level for either the 2018 corporate revenue or corporate non-GAAP operating income goal, then no payout under the plan will be made to executives.

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Provided that either of the corporate performance goal thresholds is met, the cash bonus potential of the plan is again divided into Variable Components and Fixed Components.  For 2018, business unit/department performance goals will be assessed as Variable Components.  The annual cash incentive component of the 2018 Key Executive Incentive Compensation Plan was designed and administered as follows:

 

Variable Components:

 

Fifty percent (50%) of the cash bonus arising from the corporate revenue Variable Component is proposed to be awarded starting at the goal threshold level of 80% and increasing linearly up to the plan target amount.

 

Fifty percent (50%) of the cash bonus arising from the corporate non-GAAP operating income Variable Component is proposed to be awarded starting at the goal threshold level of 70% and increasing linearly up to the plan target amount.

 

Should the Company exceed the 2018 corporate revenue goal, additional upside in the cash awarded under this component will be earned up to a maximum of 200%, on a linear basis between 100% and 120% achievement of this goal.

 

Should the Company exceed the 2018 corporate non-GAAP operating income goal, additional upside in the cash awarded under this component will be earned up to a maximum of 200%, on a linear basis between 100% and 130% achievement of this goal.

 

Only executives associated with a particular Company business unit or department had a portion of their cash bonus potential allocated to the business unit/department performance goal aspect of the Variable Components.

 

The business unit/department performance goals in 2018 include targets related to additional business unit financial measures, operational measures and market performance depending on the executive involved.

 

For business unit/department Variable Components in 2018, 50% of the cash bonus arising from the business unit revenue and from the business unit non-GAAP operating income goals are each proposed to be awarded starting at the goal threshold level of 85% and increasing linearly up to the plan target amount.

 

Fixed Components:

 

Cash bonuses arising from the Fixed Components are to be awarded on an “each or nothing” basis.

 

At corporate revenue levels or non-GAAP operating income at or above the thresholds described above, each personal performance goal can be earned in full.

 

If neither the corporate revenue nor the non-GAAP operating income exceeds the identified thresholds, then payouts from personal goals automatically will be forfeited.

 

The personal performance goals in 2018 include individual targets that, depending upon the executive, may relate to any of senior management planning, additional corporate financial measures, operational measures and activities, product development measures or marketing initiatives.

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The following table reflects a comparison of the structure of the annual cash incentive components of the 2017 and 2018 Key Executive Incentive Compensation Plans.

 

Key Executive Incentive Compensation Plan -

Annual Cash Incentive Provisions

 

2017

2018

Payout if both financial metric thresholds are not reached

 

0%

0%

Corporate revenue threshold

 

80%

80%

Corporate non-GAAP operating income threshold

 

70%

70%

Payout upon attaining corporate financial metric threshold level

 

50%

50%

Payout upon attaining corporate financial metric goal

 

100%

100%

Payout upside maximum for corporate financial metric goals

 

200%

200%

Corporate revenue metric upside range

 

100%-120%

100%-120%

Corporate non-GAAP operating income metric upside range

 

100%-130%

100%-130%

Business unit/department goal payout

 

Variable

Variable

Personal goal payout

 

Fixed

Fixed

 

Long-Term Equity Incentive Plan

The Compensation Committee currently administers the Company’s 2009 Stock Plan, which was approved by stockholder vote on May 19, 2009. At this year’s Annual Meeting, we are asking our stockholders to vote to approve a new 2018 Stock Plan.  If approved, equity awards will no longer be granted under the 2009 Stock Plan and will instead be awarded under the new 2018 Stock Plan.  See Proposal 3 in this proxy statement for additional information regarding the proposed 2018 Stock Plan.

Employees and members of management, including the Company’s NEOs, generally receive annual equity grants (collectively, “Grants”) at or about the time of their performance reviews each year from a pool of shares established under the 2009 Stock Plan. The Company’s long-term incentive compensation program seeks to align the executives’ interests with the Company’s stockholders by rewarding successes in stockholder returns. Additionally, the Committee desires to foster an ownership mentality among executives by providing stock-based incentives as a portion of compensation.

Over the past several years, the Committee has annually awarded executives with grants of performance-based and service-based RSUs.

The purpose of the Grant program is to provide incentive to executives and other key employees of the Company to work to maximize long-term return to the Company’s stockholders. The number of Grants awarded to each executive officer is initially determined on a discretionary rather than formula basis by the Compensation Committee.

In awarding Grants to the executive officers, the CEO (except in connection with his own Grants) and the Committee consider a number of subjective factors, including the executive’s position and responsibilities at the Company, the executive’s individual performance, the number of Grants held (if any) and other factors that they may deem relevant.

 

2017 Key Executive Incentive Compensation Plan – Long-Term Equity Incentive

In 2017, the Committee recommended and the independent members of the Board approved equity grants, with the long-term incentive dollar value allocated to each named executive officer determined in the manner discussed above.

The long-term equity incentive component of the 2017 Key Executive Incentive Compensation Plan was divided between PSU grants and service-based RSU grants.  Due to the changes reflected in the adjusted long-term equity component of the plan, for 2017, 40% of each NEO’s grant was subject to performance-based goals and the remaining 60% was subject to service-based vesting requirements.  After the implementation of the adjusted plan in 2017, the Committee determined to increase the percentage of PSU awards to 50% of each NEO’s long-term incentive grant, and the Committee may consider further increasing this percentage in succeeding years.  Each service-based RSU award is subject solely to service-based vesting in one-third increments over three (3) years from the grant date. See above under “Compensation Plan Design And Decisions For 2017 – Long-Term Equity Incentive Program” for more details regarding these awards.

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