-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, OkfusP9/yAk1zPekaKm5Nv48j0kUNkIYIMbB0pA+aGoHtprPA8DLWhpYpKMlH+SK hmM1wRdv4SLYizq6398Yiw== 0000891618-02-001997.txt : 20020426 0000891618-02-001997.hdr.sgml : 20020426 ACCESSION NUMBER: 0000891618-02-001997 CONFORMED SUBMISSION TYPE: DEF 14A PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 20020605 FILED AS OF DATE: 20020426 FILER: COMPANY DATA: COMPANY CONFORMED NAME: IRIDEX CORP CENTRAL INDEX KEY: 0001006045 STANDARD INDUSTRIAL CLASSIFICATION: ELECTROMEDICAL & ELECTROTHERAPEUTIC APPARATUS [3845] IRS NUMBER: 770210467 STATE OF INCORPORATION: DE FISCAL YEAR END: 0102 FILING VALUES: FORM TYPE: DEF 14A SEC ACT: 1934 Act SEC FILE NUMBER: 000-27598 FILM NUMBER: 02622562 BUSINESS ADDRESS: STREET 1: 1212 TERRA BELLA AVE CITY: MOUNTAIN VIEW STATE: CA ZIP: 95043-1824 BUSINESS PHONE: 6509404700 MAIL ADDRESS: STREET 1: 1212 TERRA BELLA AVENUE CITY: MOUNTAIN VIEW STATE: CA ZIP: 95043-1824 DEF 14A 1 f80926dedef14a.txt DEFINITIVE N&PS SCHEDULE 14A INFORMATION PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE SECURITIES EXCHANGE ACT OF 1934 (AMENDMENT NO. ) Filed by the Registrant [X] Filed by a Party other than the Registrant [ ] Check the appropriate box: [ ] Preliminary Proxy Statement [ ] CONFIDENTIAL, FOR USE OF THE COMMISSION ONLY (AS PERMITTED BY RULE 14a-6(e)(2)) [X] Definitive Proxy Statement [ ] Definitive Additional Materials [ ] Soliciting Material Pursuant to 240.14a-11(c) or 240.14a-12 IRIDEX CORPORATION - -------------------------------------------------------------------------------- (Name of Registrant as Specified In Its Charter) - -------------------------------------------------------------------------------- (Name of Person(s) Filing Proxy Statement, if other than the Registrant) Payment of Filing Fee (Check the appropriate box): [X] No fee required. [ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11. (1) Title of each class of securities to which transaction applies: --------------------------------------------------------------------- (2) Aggregate number of securities to which transaction applies: --------------------------------------------------------------------- (3) Per unit price or other underlying value of transaction computed pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the filing fee is calculated and state how it was determined): --------------------------------------------------------------------- (4) Proposed maximum aggregate value of transaction: --------------------------------------------------------------------- (5) Total fee paid: --------------------------------------------------------------------- [ ] Fee paid previously with preliminary materials. [ ] Check box if any part of the fee is offset as provided by Exchange Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee was previously. Identify the previous filing by registration statement number, or the Form or Schedule and the date of its filing. (1) Amount Previously Paid: --------------------------------------------------------------------- (2) Form, Schedule or Registration Statement No.: --------------------------------------------------------------------- (3) Filing Party: --------------------------------------------------------------------- (4) Date Filed: --------------------------------------------------------------------- IRIDEX CORPORATION -------------------- NOTICE OF ANNUAL MEETING OF STOCKHOLDERS TO BE HELD ON JUNE 5, 2002 TO THE STOCKHOLDERS: NOTICE IS HEREBY GIVEN that the Annual Meeting of Stockholders of IRIDEX Corporation, a Delaware corporation ("the Company"), will be held on June 5, 2002 at 2:00 p.m., Pacific Daylight Savings Time, at the Company's principal offices located at 1212 Terra Bella Avenue, Mountain View, California 94043 for the following purposes: 1. To elect six (6) directors to serve for the ensuing year or until their successors are elected and qualified (Proposal 1); 2. To approve the amendment of the Company's 1998 Stock Plan to increase the number of shares of Common Stock reserved for issuance thereunder by 300,000 shares, from 930,000 shares to 1,230,000 shares (Proposal 2); 3. To approve the amendment of the Company's 1995 Employee Stock Purchase Plan to increase the number of shares of Common Stock reserved for issuance thereunder by 30,000 shares, from 340,000 shares to 370,000 shares (Proposal 3); 4. To ratify the appointment of PricewaterhouseCoopers LLP as independent accountants of the Company for the fiscal year ending December 28, 2002 (Proposal 4); and 5. To transact such other business as may properly be brought before the meeting and any adjournment(s) thereof. Stockholders of record at the close of business on April 12, 2002 shall be entitled to notice of and to vote at the Annual Meeting. All stockholders are cordially invited to attend the meeting. However, to assure 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. Any stockholder attending the meeting may vote in person even if he or she has returned a proxy. Sincerely, Mountain View, California Theodore A. Boutacoff May 3, 2002 President and Chief Executive Officer - -------------------------------------------------------------------------------- YOUR VOTE IS IMPORTANT IN ORDER TO ASSURE YOUR REPRESENTATION AT THE MEETING, YOU ARE REQUESTED TO PROMPTLY COMPLETE, SIGN AND DATE THE ENCLOSED PROXY CARD AND RETURN IT IN THE ENCLOSED ENVELOPE OR VOTE BY TELEPHONE OR USING THE INTERNET AS INSTRUCTED ON THE ENCLOSED PROXY CARD. - -------------------------------------------------------------------------------- IRIDEX CORPORATION 1212 TERRA BELLA AVENUE MOUNTAIN VIEW, CA 94043 -------------------- PROXY STATEMENT -------------------- INFORMATION CONCERNING SOLICITATION AND VOTING GENERAL The enclosed Proxy is solicited on behalf of the Board of Directors (the "Board") of IRIDEX Corporation, a Delaware corporation (the "Company" or "IRIDEX"), for use at the Annual Meeting of Stockholders (the "Annual Meeting") to be held at the principal offices of the Company located at 1212 Terra Bella Avenue, Mountain View, California 94043 on Wednesday, June 5, 2002 at 2:00 p.m., Pacific Daylight Savings Time, and at any adjournment(s) thereof, for the purposes set forth herein and in the accompanying Notice of Annual Meeting of Stockholders. The Company's telephone number is (650) 940-4700. These proxy solicitation materials and the Annual Report on Form 10-K for the fiscal year ended December 29, 2001, including financial statements, were mailed on or about May 3, 2002 to all stockholders entitled to vote at the meeting. RECORD DATE AND SHARE OWNERSHIP Stockholders of record at the close of business on April 12, 2002 (the "Record Date") are entitled to notice of and to vote at the meeting and at any adjournment(s) thereof. At the Record Date, 6,862,862 shares of the Company's Common Stock, $.01 par value, were issued and outstanding and held of record by approximately 87 stockholders. REVOCABILITY OF PROXIES Any proxy given pursuant to this solicitation may be revoked by the person giving it at any time before its use by (a) delivering to the Company at its principal offices to the attention of Robert Kamenski a written notice of revocation or a duly executed proxy bearing a later date or (b) attending the meeting and voting in person. VOTING Each stockholder is entitled to one vote for each share of Common Stock held by such stockholder. Holders of the Company's Common Stock are the only securityholders of the Company entitled to vote at the Annual Meeting. The stockholders may not cumulate votes in the election of directors. SOLICITATION OF PROXIES The cost of this solicitation will be borne by the Company. The Company has retained the services of Skinner & Co., Inc. (the "Agent") to perform a search of brokers, bank nominees and other institutional owners and to solicit proxies. The Company estimates that it will pay the Agent a fee of $4,000 for its services and out-of-pocket expenses. In addition, the Company may reimburse brokerage firms and other persons representing beneficial owners of shares for their expenses in forwarding solicitation material to such beneficial owners. Proxies may also be solicited by certain of the Company's directors, officers and regular employees, without additional compensation, personally or by telephone or telegram. QUORUM; ABSTENTIONS; BROKER NON-VOTES Votes cast by proxy or in person at the Annual Meeting will be tabulated by the Inspector of Elections (the "Inspector"). The Inspector will also determine whether or not a quorum is present. Except in certain specific circumstances, the affirmative vote of a majority of shares present in person or represented by proxy at a duly held meeting at which a quorum is present is required under Delaware law and the Company's Bylaws for approval of all proposals presented to stockholders. Holders of a majority of shares entitled to vote must be present or represented by proxy at the meeting in order for a quorum to exist. When proxies are properly dated, executed and returned, the shares represented by such proxies will be voted at the Annual Meeting in accordance with the instructions of the stockholder. If no specific instructions are given, the shares will be voted (i) FOR the election of the nominees for directors set forth herein; (ii) FOR the approval of an amendment to the Company's 1998 Stock Plan to increase the number of shares reserved for issuance thereunder by 300,000 shares; (iii) FOR the approval of an amendment to the Company's 1995 Employee Stock Purchase Plan to increase the number of shares reserved for issuance thereunder by 30,000 shares; (iv) FOR the ratification of PricewaterhouseCoopers LLP as independent auditors of the Company for the fiscal year ending December 28, 2002; and (v) upon such other business as may properly come before the Annual Meeting or any adjournment thereof. Pursuant to Delaware law, the Inspector will treat shares that are voted "WITHHELD" or "ABSTAIN" as being present and entitled to vote for purposes of determining the presence of a quorum and as entitled to vote (the "Votes Cast") on the subject matter at the Annual Meeting with respect to such matter. With respect to broker non-votes, although broker non-votes will be counted for purposes of determining the presence or absence of a quorum for the transaction of business, broker non-votes will not be counted for purposes of determining the number of Votes Cast with respect to the particular proposal on which the broker has expressly not voted and, accordingly, will not affect the determination as to whether the requisite majority of Votes Cast has been obtained with respect to a particular matter. DEADLINE FOR RECEIPT OF STOCKHOLDER PROPOSALS Stockholders of the Company may submit proposals on matters appropriate for stockholder action at meetings of the Company's stockholders in accordance with Rule 14a-8 promulgated under the Securities Exchange Act of 1934, as amended. The deadline for submitting all proposals by any stockholder to be presented at the 2003 Annual Meeting of Stockholders must be received by the Company at its principal executive offices no later than January 3, 2003 and must otherwise be in compliance with applicable laws and regulations in order to be considered for inclusion in the proxy statement and form of proxy relating to that meeting. In addition, the Company's Bylaws establish an advance notice procedure with regard to certain matters, including stockholder proposals not included in the Company's proxy statement, to be brought before an annual meeting of stockholders. To be properly brought before an annual meeting of stockholders, outside the processes of Rule 14a-8, notice of nominations for the election of directors or other business proposals must be delivered in writing to the secretary of the Company at the principal executive offices of the Company no earlier than January 3, 2003 and no later than March 19, 2003. However, in the event the date of the 2003 Annual Meeting of Stockholders is more than 30 days before or after (other than as a result of -2- adjournment) the one year anniversary of the Annual Meeting, notice by the stockholder to be timely must be delivered in writing not later than (i) 60 days before the 2003 Annual Meeting of Stockholders, or (ii) 10 days after the day on which a public announcement of the date of such meeting is first made. The attached proxy card grants the proxy holders discretionary authority to vote on any matter raised at the Annual Meeting. If a stockholder intends to submit a proposal at the Company's 2003 Annual Meeting of Stockholders which is not eligible for inclusion in the proxy statement relating to the meeting, and the stockholder fails to give the Company notice in accordance with the requirements set forth in the Securities Exchange Act of 1934, as amended (the "Exchange Act"), no later than March 19, 2003, then the proxy holders will be allowed to use their discretionary authority with regard to proxies delivered in connection with the 2003 Annual Meeting of Stockholders when and if the proposal is raised at the Company's Annual Meeting in 2003. STOCKHOLDER INFORMATION A COPY OF THE COMPANY'S ANNUAL REPORT ON FORM 10-K FOR THE YEAR ENDED DECEMBER 29, 2001, INCLUDING FINANCIAL STATEMENTS AND SCHEDULES, IS ENCLOSED WITH THESE PROXY SOLICITATION MATERIALS. IN COMPLIANCE WITH RULE 14A-3 PROMULGATED UNDER THE EXCHANGE ACT, THE COMPANY HEREBY UNDERTAKES TO PROVIDE WITHOUT CHARGE TO EACH PERSON UPON WRITTEN REQUEST, A COPY OF THE COMPANY'S ANNUAL REPORT ON FORM 10-K FOR THE YEAR ENDED DECEMBER 29, 2001, INCLUDING THE FINANCIAL STATEMENTS AND FINANCIAL SCHEDULES THERETO. REQUESTS FOR SUCH COPIES SHOULD BE DIRECTED TO IRIDEX CORPORATION, 1212 TERRA BELLA AVENUE, MOUNTAIN VIEW, CALIFORNIA 94043, ATTENTION: INVESTOR RELATIONS. -3- PROPOSAL ONE ELECTION OF DIRECTORS NOMINEES A board of six directors is to be elected at the Annual Meeting. Unless otherwise instructed, the proxy holders will vote the proxies received by them for the election of the six nominees named below, all of whom are presently directors of the Company. Each nominee has consented to be named a nominee in this Proxy Statement and to continue to serve as a director if elected. Should any nominee become unable or decline to serve as a director or should additional persons be nominated at the Annual Meeting, the proxy holders intend to vote all proxies received by them in such a manner as will assure the election of as many nominees listed below as possible (or, if new nominees have been designated by the Board of Directors, in such a manner as to elect such nominees) and the specific nominees to be voted for will be determined by the proxy holders. The Company is not aware of any reason that any nominee will be unable or will decline to serve as a director. Each director elected at the Annual Meeting will serve until the next Annual Meeting of Stockholders or until such director's successor has been elected and qualified. There are no arrangements or understandings between any director or executive officer and any other person pursuant to which he is or was to be selected as a director or officer of the Company. There is no family relationship between any director or executive officer of the Company. The names of the nominees and certain information about them, are set forth below:
DIRECTOR NAME OF NOMINEE AGE PRINCIPAL OCCUPATION SINCE --------------- --- -------------------- -------- Theodore A. Boutacoff........... 55 President, Chief Executive Officer 1989 and Director of the Company James L. Donovan................ 64 Vice President, Corporate Business 1989 Development and Director of the Company John M. Nehra (1)............... 53 Chairman of the Board of the 1989 Company and Special Partner, New Enterprise Associates Donald L. Hammond, D.Sc. (3).... 75 Director of the Company 1990 Joshua Makower, M.D. (2)(3)..... 38 Director of the Company and 1997 Chairman of the Board and Chief Technical Officer of TransVascular, Inc. Robert K. Anderson (1).......... 66 Director of the Company 1999
- ---------- (1) Member of the Audit Committee. (2) Member of the Audit Committee since December 2001. (3) Member of the Compensation Committee. Theodore A. Boutacoff has served as President, Chief Executive Officer and a director of the Company since February 1989. He received a B.S. in Civil Engineering from Stanford University. James L. Donovan has been a director of the Company since 1989 and has served as the Company's Vice President, Corporate Business Development since October 1997. Mr. Donovan also served as Chief Financial Officer of the Company from February 1989 to October 1997, except during the period from June 1996 to November 1996. Mr. Donovan received a B.S. in Business Administration from Southern Oregon University. -4- John M. Nehra has served as a director of the Company since 1989 and Chairman of the Board since 1992. From November 1989 to present, Mr. Nehra has been with New Enterprise Associates, a venture capital firm, first as a General Partner and then as a Special Partner. Since November 1989, Mr. Nehra has also served as Managing General Partner of Catalyst Ventures, a venture capital firm. Mr. Nehra currently serves on the Board of Directors of Celeris Corporation, a clinical research services company, and DaVita, Inc., a provider of dialysis services. He received a B.A. in Economics from University of Michigan. Donald L. Hammond, D.Sc., has served as a director of the Company since 1990. Mr. Hammond has been retired since 1989. From 1959 to 1989, Mr. Hammond was the Director of Hewlett-Packard Laboratories, a computer and instrument company. Mr. Hammond received a B.S., an M.S. and a D.Sc. in Physics from Colorado State University. Joshua Makower, M.D., has served as a director of the Company since 1997. Since September 1995, Dr. Makower has served as Chief Executive Officer of ExploraMed, Inc., a medical device company for the treatment of incontinence and gastro-esophageal reflux. Dr. Makower also served as Chief Executive Officer of TransVascular, Inc., a medical device company for the treatment of vascular and other diseases, from March 1996 until April 2000, at which time he assumed the title of Chairman of the Board and Chief Technical Officer. He received a B.S. in Bio-Mechanical Engineering from the Massachusetts Institute of Technology, an M.D. from New York University School of Medicine and an M.B.A. from Columbia Business School. Robert K. Anderson has served as a director of the Company since 1999. Mr. Anderson co-founded Valleylab, Inc., a manufacturer of surgical equipment, in 1969 and served as its Chairman and Chief Executive Officer until 1986. In 1983, Valleylab, Inc. was acquired by Pfizer, Inc. and Mr. Anderson remained as Chairman until 1996. Mr. Anderson has been retired since 1996. Mr. Anderson received a B.E.E. in Electrical Engineering from University of Minnesota. VOTE REQUIRED Directors will be elected by a plurality vote of the shares of the Company's Common Stock present or represented and entitled to vote on this matter at the meeting. Accordingly, the six candidates receiving the highest number of affirmative votes of shares represented and voting on this proposal at the meeting will be elected directors of the Company. Votes withheld from a nominee and broker non-votes will be counted for purposes of determining the presence or absence of a quorum but because directors are elected by a plurality vote, will have no impact once a quorum is established. See "Information Concerning Solicitation and Voting -- Quorum; Abstentions; Broker Non-Votes." MANAGEMENT RECOMMENDS THAT STOCKHOLDERS VOTE "FOR" THE NOMINEES LISTED ABOVE BOARD MEETINGS AND COMMITTEES The Board of Directors of the Company held a total of six meetings during the fiscal year ended December 29, 2001. William Boeger, III, who was a director of the Company during the last fiscal year until November 2001, attended fewer than 75% of the aggregate of all meetings of the Board of Directors and the committees of the Board of Directors on which he served. No other director serving during the fiscal year attended fewer than 75% of the aggregate of all meetings of the Board of Directors and the committees of the Board upon which such director served. The Board of Directors has two standing committees, the Audit Committee and the Compensation Committee. -5- The Audit Committee of the Board of Directors consisted of Messrs. Anderson, Boeger (until November 2001), Makower (since December 2001) and Nehra, each of whom is independent as defined under the National Association of Securities Dealers listing standards, during the fiscal year ended December 29, 2001. The Audit Committee held two meetings during the last fiscal year. The Audit Committee reviews and advises the Board of Directors regarding the Company's accounting matters and is responsible for reviewing and recommending the annual appointment of the independent public accountants, reviewing the services to be performed by them, and reviewing and evaluating the accounting principles being applied to the Company's financial reports. The Audit Committee has adopted a written charter, which has been included as an appendix to the Company's proxy statement within the past three years. The Compensation Committee of the Board of Directors, which consisted of Messrs. Boeger (until November 2001), Hammond and Makower during the fiscal year ended December 29, 2001, held four meetings during the last fiscal year. The Compensation Committee reviews and advises the Board of Directors regarding all forms of compensation to be provided to the officers, employees, directors and consultants of the Company. The Board of Directors has no nominating committee or any committee performing such functions. COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION The Compensation Committee consisted of Messrs. Boeger (until November 2001), Hammond and Makower during the fiscal year ended December 29, 2001. Mr. Boutacoff also participates in discussions regarding salaries and incentive compensation for all employees (including officers) and consultants to the Company, except that Mr. Boutacoff is excluded from discussions regarding his own salary and incentive compensation. Except as set forth above, none of the members of the Compensation Committee is currently or has been, at any time since the formation of the Company, an officer or employee of the Company. No member of the Compensation Committee or executive officer of the Company serves as a member of the board of directors or compensation committee of any entity that has one or more executive officers serving as a member of the Company's Board of Directors or Compensation Committee. DIRECTOR COMPENSATION Directors are not paid any cash compensation from the Company for their services as members of the Board or any committee thereof, although they are reimbursed for reasonable out-of-pocket expenses incurred by them in attending such meetings. The Company's 1995 Director Option Plan (the "Director Plan") was adopted by the Board in October 1995 and approved by the stockholders in January 1996. A total of 180,000 shares of Common Stock are reserved for issuance thereunder. The Director Plan provides for the automatic and nondiscretionary grant of a nonstatutory stock option to purchase 11,250 shares of the Company's Common Stock to each non-employee director on the date on which such person first becomes a director (the "First Option"). The First Option becomes exercisable as to one-twelfth (1/12) of the shares subject to the option each quarter and vests over a three-year period. Thereafter, each non-employee director is automatically granted an option to purchase 3,750 shares of Common Stock on July 1 of each year, if on such date he or she has served on the Board for at least six months (the "Subsequent Option"). The Subsequent Option becomes exercisable as to one-fourth (1/4) of the shares subject to the option for each quarter, commencing one quarter after the First Option and any previously granted Subsequent Option have become fully exercisable. The Director Plan provides that the exercise price shall be equal to the fair market value of the Company's Common Stock as of the date of grant. -6- Messrs. Nehra and Hammond were each granted initial options to purchase 11,250 shares of Common Stock at an exercise price of $2.00 per share on the effective date of the Director Plan. These directors were each granted subsequent options to purchase 3,750 shares of Common Stock on each July 1, 1996, July 1, 1997, July 1, 1998, July 1, 1999, July 1, 2000 and July 2, 2001 with a per share exercise price of $14.875, $9.125, $8.00, $4.875, $12.75 and $3.90, respectively. Dr. Makower was granted an initial option to purchase 11,250 shares of Common Stock at an exercise price of $8.75 on August 22, 1997, the date he was elected a director by the Board. Dr. Makower was granted a Subsequent Option to purchase 3,750 shares of Common Stock on each July 1, 1998, July 1, 1999, July 1, 2000 and July 2, 2001 with a per share exercise price of $8.00, $4.875, $12.75 and $3.90, respectively. Mr. Anderson was granted an initial option to purchase 11,250 shares of Common Stock at an exercise price of $5.1250 on April 28, 1999, the date he was elected as director by the Board. Mr. Anderson was granted a Subsequent Option to purchase 3,750 shares of Common Stock on each July 1, 2000 and July 2, 2001 with a per share exercise price of $12.75 and $3.90, respectively. On July 1, 2002, Messrs. Nehra, Hammond, Makower and Anderson will each automatically be granted a Subsequent Option to purchase 3,750 shares of Common Stock at an exercise price equal to the fair market value on the date of grant provided that each is a director at such time. -7- PROPOSAL TWO AMENDMENT OF THE 1998 STOCK PLAN INTRODUCTION The 1998 Stock Plan (the "1998 Plan") was adopted by the Board of Directors in February 1998 and was approved by the stockholders in June 1998. The 1998 Plan provides for the grant of options and stock purchase rights to purchase shares of the Company's Common Stock to employees and consultants of the Company. A total of 250,000 shares of Common Stock were initially reserved for issuance under the 1998 Plan. In April 1999, the Board of Directors authorized an amendment to the 1998 Plan, subject to stockholder approval, to increase the number of shares of Common Stock reserved for issuance thereunder by 150,000 shares, from 250,000 shares to 400,000 shares. This amendment to increase the number of shares reserved under the 1998 Plan was approved by the Company's stockholders at the 1999 Annual Meeting of Stockholders in June 1999. In February 2000, the Board of Directors authorized an amendment to the 1998 Plan, subject to stockholder approval, to increase the number of shares of Common Stock reserved for issuance thereunder by 240,000 shares, from 400,000 shares to an aggregate of 640,000 shares. This amendment to increase the number of shares reserved under the 1998 Plan was approved by the Company's stockholders at the 2000 Annual Meeting of Stockholders in June 2000. In April 2001, the Board of Directors authorized an amendment to the 1998 Plan, subject to stockholder approval, to increase the number of shares of Common Stock reserved for issuance thereunder by 290,000 shares, from 640,000 shares to an aggregate of 930,000 shares. This amendment to increase the number of shares reserved under the 1998 Plan was approved by the Company's Stockholders at the 2001 Annual Meeting of Stockholders in June 2001. In March 2002, the Board of Directors authorized an amendment to the 1998 Plan, subject to stockholder approval, to increase the number of shares of Common Stock reserved for issuance thereunder by 300,000 shares, from 930,000 shares to an aggregate of 1,230,000 shares. The stockholders are being asked to approve this amendment to increase the number of shares reserved under the 1998 Plan from 930,000 shares to an aggregate of 1,230,000 shares at the Annual Meeting. As of the Record Date, options to purchase an aggregate of 804,732 shares of Common Stock were outstanding under the 1998 Plan with a weighted average exercise price of $5.93 per share, options to purchase an aggregate of 13,498 shares of Common Stock had been exercised and options to purchase an aggregate of 111,776 shares of Common Stock were available for grant. On the Record Date, the closing price in the Nasdaq National Market for the Company's Common Stock was $4.19 per share. The 1998 Plan is structured to allow the Board of Directors broad discretion in creating equity incentives in order to assist the Company in attracting, retaining and motivating the best available personnel for the successful conduct of the Company's business. In addition, the Company believes that linking employee compensation to corporate performance motivates employees to improve stockholder value. The Company has, therefore, consistently included equity incentives as a significant component of compensation for its employees. In order to attract and retain the service of valuable employees as the Company continues to grow, it will be necessary to continue to offer these equity incentives, particularly in the extremely competitive job market in Silicon Valley. The Board believes that the number of shares reserved under the 1998 Plan will be inadequate to satisfy the equity needs of the Company and that the proposed increase in the number of shares of Common Stock reserved under the 1998 Plan would be in the best interests of the Company and its stockholders. The material features of the 1998 Plan are outlined below. -8- SUMMARY OF THE 1998 PLAN General. The 1998 Plan provides for the grant of options to purchase shares of the Company's Common Stock to employees (including officers and employee directors) ("Employees") and consultants. Options granted under the Plan may either be "incentive stock options" as defined in Section 422 of the Internal Revenue Code of 1986 (the "Code"), or nonstatutory stock options, as determined by the administrator at the time of grant. The administrator of the 1998 Plan also has the discretion to grant stock purchase rights to Employees and consultants. Purpose. The purposes of the 1998 Plan are to attract and retain the best available personnel and to provide incentive to key Employees and consultants to promote the success of the Company's business. Administration. The 1998 Plan is administered by the Board of Directors or one or more committees designated by the Board (the "Administrator"), as may be necessary to comply with the applicable rules, including rules governing plans intended to qualify plans under Rule 16b-3 or to qualify options as "performance-based compensation" under Section 162(m) of the Internal Revenue Code of 1986 (the "Code). The Administrator has complete authority to construe, interpret, and administer the provisions of the 1998 Plan and the provisions of the agreements governing awards granted thereunder. The Administrator has the authority to prescribe, amend and rescind rules and regulations pertaining to the 1998 Plan and to make all other determinations necessary or deemed advisable in the administration of the 1998 Plan. The determinations and interpretations made by the Administrator are final and binding. Grant Limitation. The 1998 Plan provides that no optionee may be granted options and stock purchase rights to purchase more than 150,000 shares of Common Stock in any fiscal year, except that in connection with an optionee's initial service, an optionee may be granted options to purchase an additional 100,000 shares, a total limitation of 250,000 shares. Eligibility. Nonstatutory options may be granted to Employees and consultants of the Company and its subsidiaries or successor corporation. Incentive stock options may be granted only to Employees of the Company and its subsidiaries. The Administrator selects the Employees and consultants who will be granted options and determines the number of shares to be subject to each option. In making such determination, the Administrator takes into account the duties and responsibilities of the Employee or consultant, the value of the services of such Employee or consultant, his or her present and potential contributions to the success of the Company, the anticipated years of future service of an Employee and other relevant factors. As of December 29, 2001, approximately 125 Employees were eligible to receive options under the 1998 Plan. The Company does not typically grant options under the 1998 Plan to consultants, although such grants are permitted under the 1998 Plan. The Administrator determines which eligible persons shall be granted options and stock purchase rights. Exercise of Options and Stock Purchase Rights. Options and stock purchase rights become exercisable at such times as are determined by the Administrator and set forth in the individual agreements. Generally, options vest as to one forty-eighth (1/48) of the shares for each full month of service; however, typically the options will not be exercisable until at least twelve months of service has been completed. In the case of stock purchase rights, the Company has a repurchase option exercisable upon the termination of the purchaser's employment, unless the Administrator determines otherwise at the time of grant. The Company's repurchase option lapses at a rate determined by the Administrator. The purchase price for the shares so repurchased is the original price paid by the purchaser. An option or stock purchase right is exercised by giving written notice to the Company specifying the number of full shares of Common Stock to be purchased and tendering payment of the purchase price to the -9- Company. The form of consideration for exercising an option or stock purchase right, including the method of payment, is determined by the Administrator. Exercise Price. The exercise price of options and stock purchase rights granted under the 1998 Plan is determined by the Administrator and must not be less than 100% of the fair market value of the Company's Common Stock at the time of grant; provided, however, that incentive stock options or stock purchase rights granted to stockholders owning more than 10% of the voting stock of the Company, if any, are subject to the additional restriction that the exercise price per share of each option must be at least 110% of the fair market value per share on the date of grant. The exercise price of nonstatutory options is determined by the Administrator and, in order to qualify as "performance-based compensation" within the meaning of Section 162(m) of the Code, must not be less than 100% of the fair market value of the Common Stock on the date of grant. Termination. The 1998 Plan gives the Administrator authority to vary the terms of the individual option agreements. However, generally, if the optionee ceases to be an employee or consultant, the optionee shall have the right to exercise the vested portion of an unexercised option within thirty (30) days after the date of termination, unless otherwise specified in the option agreement. If such termination is due to death or disability within the meaning of Section 422(c) of the Code, the optionee (or the optionee's legal representative) shall have the right to exercise the vested portion of an unexercised option at any time within twelve (12) months of the termination date, unless otherwise specified in the option agreement. In no event shall an option be exercisable beyond its term. Term of Options. Options granted under the 1998 Plan expire as determined by the Administrator, but in no event later than ten (10) years after the date of grant. However, incentive stock options granted to stockholders owning more than 10% of the Company's outstanding voting stock may not have a term of more than five years. Stock purchase rights granted under the 1998 Plan also expire as determined by the Administrator, but in no event later than ninety (90) days after the date of grant. No option or stock purchase right may be exercised by any person after its expiration. Non-Transferability of Options. Unless determined otherwise by the Administrator, options and stock purchase rights are not transferable by the optionee other than by will or the laws of descent and distribution, and stock purchase rights are exercisable during the lifetime of the optionee or grantee of the stock purchase right only by such optionee or grantee, or in the event of the optionee's or grantee's death, by a person who acquires the right by bequest or inheritance or by reason of the death of the optionee or grantee. Adjustments Upon Change in Capitalization. The number of shares covered by each outstanding option, and the exercise price thereof, shall be proportionately adjusted for any increase or decrease in the number of issued shares resulting from a change in the Company's capitalization, such as a stock dividend, stock split, reverse stock split, combination, reclassification, or like change in the capital structure of the Company. Transfer of Control. In the event the Company is a participant in any merger or consolidation, each outstanding, unexercised option or stock purchase right shall be assumed or substituted by the surviving corporation. If such options or stock purchase rights are not assumed, they become fully exercisable or the repurchase right applicable to them fully lapses, respectively, for a period of fifteen (15) days following the Administrator's notice that such option has become fully exercisable or that the repurchase option with respect to a stock purchase right has fully lapsed, respectively. Any options that are neither assumed nor exercised within 15 days of written notice from the Company terminate upon the expiration of such period. -10- Dissolution or Liquidation. In the event of a dissolution or liquidation of the Company, any outstanding option or stock purchase right shall terminate. However, the Administrator may provide that any option be fully exercisable until ten (10) days prior to such event. In addition, the Administrator may provide that the Company's repurchase option with respect to any stock purchase right shall fully lapse prior to such event. Amendment or Termination of the 1998 Plan. The Administrator may at any time amend, alter, suspend or terminate the 1998 Plan; provided that no amendment, alteration, suspension or termination may impair the rights of any optionee, unless mutually agreed otherwise. Options may be granted under the 1998 Plan until February 2008. UNITED STATES TAX INFORMATION An optionee who is granted an incentive stock option will not recognize taxable income either at the time the option is granted or upon its exercise, although the exercise may subject the optionee to the alternative minimum tax. Upon the sale or exchange of the shares more than two years after the date of grant and one year after exercising the option, any gain or loss will be treated as long-term capital gain or loss. If these holding periods are not satisfied, the optionee will recognize ordinary income at the time of sale or exchange equal to the difference between the exercise price and the lower of (i) the fair market value of the shares on the date of the option exercise or (ii) the sale price of the shares. A different rule for measuring ordinary income upon such a premature disposition may apply if the optionee is also an officer, director or 10% stockholder of the Company. The Company will be entitled to a deduction in the same amount as the ordinary income recognized by the optionee. Any gain or loss recognized on such a premature disposition of the shares in excess of the amount treated as ordinary income will be characterized as long-term or short-term capital gain or loss, depending on the holding period. All other options that do not qualify as incentive stock options are referred to as nonstatutory options. An optionee will not recognize any taxable income at the time a nonstatutory option is granted. However, upon its exercise, the optionee will recognize taxable income generally measured as the excess of the then fair market value of the shares exercised over the exercise price. A different rule may apply if the optionee is a director, officer or 10% stockholder. Any taxable income recognized in connection with an option exercise by an optionee who is also an employee of the Company will be subject to tax withholding by the Company by payment in cash or out of the current earnings paid to the optionee. Upon resale of such shares by the optionee, any difference between the sales price and the optionee's exercise price, to the extent not recognized as taxable income as described above, will be treated as long-term or short-term capital gain or loss, depending on the holding period. The Company will be entitled to a tax deduction in the same amount as the ordinary income recognized by the optionee with respect to shares acquired upon exercise of a nonstatutory option. THE FOREGOING SUMMARY OF THE EFFECT OF THE UNITED STATES FEDERAL INCOME TAXATION LAWS UPON THE OPTIONEE AND THE COMPANY IN CONNECTION WITH THE 1998 PLAN DOES NOT PURPORT TO BE COMPLETE, AND REFERENCE SHOULD BE MADE TO THE APPLICABLE PROVISIONS OF THE CODE. IN ADDITION, THIS SUMMARY DOES NOT DISCUSS THE PROVISIONS OF THE INCOME TAX LAWS OF ANY MUNICIPALITY, STATE OR FOREIGN COUNTRY IN WHICH THE PARTICIPANT MAY RESIDE. AMENDED AND NEW PLAN BENEFITS The grant of options under the 1998 Plan to directors and executive officers, including the officers named in the Summary Compensation Table below, is subject to the discretion of the Administrator. As of the date of this proxy statement, there has been no determination by the Administrator with respect to future -11- awards under the 1998 Plan. Accordingly, future awards are not determinable. The table of option grants under "Executive Compensation and Other Matters--Option Grants in Last Fiscal Year" provides information with respect to the grant of options to the named executive officers identified in that table during fiscal 2001. During fiscal 2001, executive officers as a group were granted options to purchase 38,750 shares pursuant to the 1998 Plan, and all other employees as a group were granted options to purchase 310,550 shares pursuant to the 1998 Plan. REQUIRED VOTE If a quorum is present, the affirmative vote of a majority of the Votes Cast will be required to approve the amendment of the 1998 Plan. Broker non-votes will be counted for purposes of determining the presence or absence of a quorum, but will not be counted as Votes Cast on this subject. See "Information Concerning Solicitation and Voting -- Quorum; Abstentions; Broker Non-Votes." MANAGEMENT RECOMMENDS THAT THE STOCKHOLDERS VOTE "FOR" THE AMENDMENT OF THE 1998 STOCK PLAN -12- PROPOSAL THREE AMENDMENT OF THE 1995 EMPLOYEE STOCK PURCHASE PLAN INTRODUCTION The Company's 1995 Employee Stock Purchase Plan (the "Purchase Plan") was adopted by the Board of Directors in November 1995 and was approved by the stockholders in January 1996. The Purchase Plan provides employees of the Company the opportunity to purchase Common Stock through accumulated payroll deductions at below market prices. A total of 50,000 shares of Common Stock were initially reserved for issuance under the Purchase Plan. In January 1997, the Board of Directors authorized an amendment to the Purchase Plan, subject to stockholder approval, to increase the number of shares of Common Stock reserved for issuance thereunder by 50,000 shares to an aggregate of 100,000 shares. The amendment to increase the number of shares reserved under the Purchase Plan from 50,000 to 100,000 shares was approved by the stockholders at the 1997 Annual Meeting of Stockholders in April 1997. In February 1998, the Board of Directors authorized an amendment to the Purchase Plan, subject to stockholder approval, to increase the number of shares of Common Stock reserved for issuance thereunder by 75,000 shares, from 100,000 shares to an aggregate of 175,000 shares. The amendment to increase the number of shares reserved under the Purchase Plan from 100,000 shares to 175,000 shares was approved by the stockholders at the 1998 Annual Meeting of Stockholders in June 1998. In April 1999, the Board of Directors authorized an amendment to the Purchase Plan, subject to stockholder approval, to increase the number of shares of Common Stock reserved for issuance thereunder by 75,000 shares, from 175,000 shares to an aggregate of 250,000 shares. The amendment to increase the number of shares reserved under the Purchase Plan from 175,000 shares to an aggregate of 250,000 shares was approved by the stockholders at the 1999 Annual Meeting of Stockholders in June 1999. In February 2000, the Board of Directors authorized an amendment to the Purchase Plan, subject to stockholder approval, to increase the number of shares reserved under the Purchase Plan by 50,000 shares, from 250,000 shares to an aggregate of 300,000 shares. The amendment to increase the number of shares reserved under the Purchase Plan from 250,000 shares to 300,000 shares was approved by the stockholders at the 2000 Annual Meeting of Stockholders in June 2000. In April 2001, the Board of Directors amended the Purchase Plan to increase the number of shares of Common Stock reserved for issuance thereunder by 40,000 shares, from 300,000 shares to an aggregate of 340,000 shares. The amendment to increase the number of shares reserved under the Purchase Plan from 300,000 shares to 340,000 shares was approved by the Stockholders at the 2001 Annual Meeting of Stockholders in June 2001. In March 2002, the Board of Directors authorized an amendment to the Purchase Plan, subject to stockholder approval, to increase the number of shares of Common Stock reserved for issuance thereunder by 30,000 shares, from 340,000 shares to 370,000 shares. The stockholders are being asked to approve this amendment to increase the number of shares reserved under the Purchase Plan from 340,000 shares to an aggregate of 370,000 shares at the Annual Meeting. As of the Record Date, 60,377 shares were available for purchase under the Purchase Plan. On the Record Date, the closing price on the Nasdaq National Market for the Company's Common Stock was $4.19 per share. The Board of Directors believes that the Purchase Plan is an important factor in creating equity incentives to assist the Company in attracting, retaining and motivating the best available personnel for the successful conduct of the Company's business. The Company believes that linking employee compensation to corporate performance motivates employees to improve stockholder value. The Company has, therefore, consistently included equity incentives as a significant component of compensation for its employees. In order to attract and retain the service of valuable employees as the Company continues to grow, it will be necessary to continue to provide for these equity incentives, particularly in the extremely competitive job market in Silicon Valley. -13- The Board believes that the number of shares reserved under the Purchase Plan and the other plans described above will be inadequate to satisfy the equity needs of the Company and that the proposed increase in the number of shares of Common Stock reserved under the Purchase Plan would be in the best interests of the Company and its stockholders. The material features of the Purchase Plan are outlined below. SUMMARY OF THE 1995 EMPLOYEE STOCK PURCHASE PLAN Purpose. The purpose of the Purchase Plan is to provide employees of the Company with an opportunity to purchase Common Stock through accumulated payroll deductions. Administration. The Purchase Plan, which is intended to qualify under Section 423 of the Code, is administered by the Board of Directors or a committee designated by the Board, as may be necessary to comply with the rules governing plans intended to qualify as discretionary grant plans under Rule 16b-3 (the "Administrator"). All questions of interpretation or application of the Purchase Plan are determined by the Administrator, and its decisions are final, conclusive and binding upon all participants. Eligibility and Participation; Withdrawal. Employees of the Company and its designated subsidiaries who are employed on a given enrollment date are eligible to participate in the Purchase Plan if they are customarily employed for at least 20 hours per week and more than five months per year, and do not own or hold options to purchase as a result of such participation, five percent or more of the total combined voting power or value of all classes of stock of the Company. Notwithstanding the foregoing, no employee may be granted the right to purchase more than $25,000 worth or more than 1,000 shares of Common Stock annually. Eligible employees become participants in the Purchase Plan by completing a subscription agreement authorizing payroll deductions of up to 10% of the employee's compensation, and filing it with the Company's Personnel Department not later than the day before an enrollment date. An employee may withdraw from the Purchase Plan at any time by giving written notice to the Company. In such a case, all payroll deductions credited to the employee's account and not yet used to purchase stock are refunded. Approximately 62 employees are currently participating in the Purchase Plan. Offering Periods. The Purchase Plan is implemented by consecutive six-month offering periods. Offering periods commence on the first trading day on or after August 14 and February 14 and terminate on the last trading day of the sixth month following such commencement date. The Administrator may change the commencement date and duration of the offering periods without stockholder approval. Purchase Price. The purchase price per share at which shares may be sold to employees under the Purchase Plan is 85% of the lower of the fair market value of the Company's Common Stock (a) on the date of commencement of the offering period or (b) on the last trading day of the six-month offering period. The fair market value of the Company's Common Stock on a given date is the closing sale price on the Nasdaq National Market. In the event the Company's Common Stock is quoted on the Nasdaq system but not on the National Market thereof, the fair market value is the mean of the closing bid and asked prices for the Company's Common Stock on the date of determination. In the absence of an established market for the Common Stock, the fair market value is established by the Board of Directors. Adjustments on Changes in Capitalization. In the event any change is made in the Company's capitalization, such as a stock split or stock dividend, which results in an increase or decrease in the number of outstanding shares of the Company's Common Stock without receipt of consideration by the Company, the number of shares remaining subject to the Purchase Plan and the purchase price per share shall be appropriately adjusted. In the event of a proposed dissolution or liquidation of the Company, the offering -14- periods will terminate immediately prior to such dissolution or liquidation, unless the Board provides otherwise. 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 option under the Purchase Plan shall be assumed or an equivalent option shall be substituted by such successor corporation or a parent or subsidiary of such successor corporation, unless the Board determines, in the exercise of its sole discretion and in lieu of such assumption or substitution, to shorten the offering period then in progress by setting a new exercise date. Transferability. No rights or accumulated payroll deductions of a participant may be assigned, transferred, pledged or otherwise disposed of in any way (other than by will or the laws of descent and distribution). Amendment and Termination of the Purchase Plan. The Board of Directors may at any time and for any reason amend or terminate the Purchase Plan, except that (i) such termination shall not affect any purchase rights previously granted (except as permitted under the terms of the Purchase Plan), and (ii) no amendment may adversely affect a purchase right previously granted under the Purchase Plan (except to the extent permitted by the terms of the Purchase Plan or as may be necessary to qualify the Purchase Plan as an employee stock purchase plan pursuant to Section 423 of the Code or to obtain qualification or registration of the shares under applicable foreign, federal or state securities laws). The Purchase Plan shall continue in effect until November 2005 unless terminated earlier by the Board or until all of the shares reserved for issuance thereunder have been issued. UNITED STATES TAX INFORMATION The Purchase Plan and the rights of participants to make purchases thereunder, is intended to qualify under the provisions of Sections 421 and 423 of the Code. Under these provisions, no income will be taxable to a participant until the shares purchased under the Purchase Plan are sold or otherwise disposed of. Upon the sale or other disposition of the shares, the participant will generally be subject to tax and the amount of the tax will depend upon the holding period. If the shares are sold or otherwise disposed of more than two years from the first day of the offering period and one year from the date the shares are purchased, the participant will recognize ordinary income measured as the lesser of (i) the excess of the fair market value of the shares on the date of such sale or disposition over the purchase price, or (ii) an amount equal to 15% of the fair market value of the shares as of the first day of the offering period. Any additional gain will be treated as long-term capital gain. If the shares are sold or otherwise disposed of before the expiration of these holding periods, the participant will recognize ordinary income generally measured as the excess of the fair market value of the shares on the date the shares are purchased over the purchase price. Any additional gain or loss on such sale or disposition will be long-term or short-term capital gain or loss, depending on the holding period. The Company is not entitled to a deduction for amounts taxed as ordinary income or capital gain to a participant except to the extent of ordinary income recognized by participants upon a sale or disposition of shares prior to the expiration of the holding periods described above. THE FOREGOING SUMMARY OF THE EFFECT OF THE UNITED STATES FEDERAL INCOME TAXATION LAWS UPON THE PARTICIPANT AND THE COMPANY IN CONNECTION WITH THE PURCHASE PLAN DOES NOT PURPORT TO BE COMPLETE, AND REFERENCE SHOULD BE MADE TO THE APPLICABLE PROVISIONS OF THE CODE. IN ADDITION, THIS SUMMARY DOES NOT DISCUSS THE PROVISIONS OF THE INCOME TAX LAWS OF ANY MUNICIPALITY, STATE OR FOREIGN COUNTRY IN WHICH THE PARTICIPANT MAY RESIDE. AMENDED AND NEW PLAN BENEFITS The Company cannot now determine the number of shares to be issued in the future pursuant to the Purchase Plan to the Company's executive officers and employees. In 2001, 63,953 shares of the Company's -15- Common Stock were issued to all employees (excluding executive officers) and 2,915 shares of the Company's Common Stock were issued to the executive officers as a group. REQUIRED VOTE If a quorum is present, the affirmative vote of a majority of the Votes Cast will be required to approve the amendment of the Purchase Plan. Broker non-votes will be counted for the purposes of determining the presence or absence of a quorum, but will not be counted as Votes Cast on the subject. See "Information Concerning Solicitation and Voting -- Quorum; Abstentions; Broker Non-Votes." MANAGEMENT RECOMMENDS THAT THE STOCKHOLDERS VOTE "FOR" THE AMENDMENT OF THE 1995 EMPLOYEE STOCK PURCHASE PLAN -16- PROPOSAL FOUR RATIFICATION OF APPOINTMENT OF INDEPENDENT ACCOUNTANTS INTRODUCTION The Board of Directors has selected PricewaterhouseCoopers LLP, independent accountants, to audit the financial statements of the Company for the fiscal year ending December 28, 2002, and recommends that stockholders vote for ratification of such appointment. PricewaterhouseCoopers LLP, previously Coopers & Lybrand, has served as the Company's independent auditors since 1989. Representatives of PricewaterhouseCoopers LLP are expected to be present at the meeting with the opportunity to make a statement if they desire to do so and are expected to be available to respond to appropriate questions. Although action by stockholders is not required by law, the Board of Directors has determined that it is desirable to request approval of this selection by the stockholders. Notwithstanding the selection, the Board of Directors, in its discretion, may direct the appointment of new independent auditors at any time during the year, if the Board of Directors feels that such a change would be in the best interest of the Company and its stockholders. In the event of a negative vote on ratification, the Board of Directors will reconsider its selection. FEES BILLED TO COMPANY BY PRICEWATERHOUSECOOPERS LLP DURING FISCAL 2001 Audit Fees Audit fees billed to the Company by PricewaterhouseCoopers LLP during the Company's 2001 fiscal year for review of the Company's annual financial statements and those financial statements included in the Company's quarterly reports on Form 10-Q totaled $104,500. Financial Information Systems Design and Implementation Fees The Company did not engage PricewaterhouseCoopers LLP to provide advice to the Company regarding financial information systems design and implementation during the fiscal year ended December 29, 2001. All Other Fees Fees billed to the Company by PricewaterhouseCoopers LLP during the Company's 2001 fiscal year for all other non-audit services rendered to the Company, which were entirely comprised of the provision of tax advice and tax services, totaled $36,175. The audit committee of the Board of Directors has determined that the tax services described above provided by PricewaterhouseCoopers LLP are compatible with maintaining PricewaterhouseCoopers LLP's independence. REQUIRED VOTE If a quorum is present, the affirmative vote of a majority of the Votes Cast will be required to approve the ratification of the appointment of PricewaterhouseCoopers LLP. Broker non-votes will be counted for the -17- purposes of determining the presence or absence of a quorum, but will not be counted as Votes Cast on the subject. See "Information Concerning Solicitation and Voting -- Quorum; Abstentions; Broker Non-Votes." MANAGEMENT RECOMMENDS THAT STOCKHOLDERS VOTE "FOR" RATIFICATION OF THE APPOINTMENT OF PRICEWATERHOUSECOOPERS LLP -18- SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The following table sets forth certain information known to the Company regarding the beneficial ownership of the Company's Common Stock as of the Record Date by (i) each person (or group of affiliated persons) who is the beneficial owner of more than 5% of the Company's Common Stock, (ii) each director and nominee for director, (iii) each of the Company's executive officers named in the Summary Compensation Table appearing herein, and (iv) all of the Company's directors and executive officers as a group.
BENEFICIAL OWNERSHIP(1) --------------------------------------- NAME AND ADDRESS NUMBER OF SHARES PERCENT OF TOTAL ---------------- ---------------- ---------------- Wasatch Advisors, Inc....................................... 942,450 13.73% 150 Social Hall Avenue Salt Lake City, UT 84111 (2) Wellington Management Company, LLP.......................... 668,000 9.73% 75 State Street Boston, MA 02109 (3) Wellington Trust Company, NA................................ 180,000 2.62% 75 State Street Boston, MA 02109 (3) Gruber and McBaine Capital Management, LLC and its 505,400 7.36% affiliates............................................... 50 Osgood Place, Penthouse San Francisco, CA 94133 (4) Dimensional Fund Advisors Inc............................... 371,800 5.42% 1299 Ocean Ave. 11th Floor Santa Monica, CA 90401(5) Milton Chang................................................ 367,020 5.35% 855 Maude Avenue Mountain View, CA 94043 (6) Theodore A. Boutacoff (7)................................... 307,445 4.42% Eduardo Arias (8)........................................... 223,325 3.23% Robert K. Anderson (9)...................................... 163,471 2.38% John M. Nehra (10).......................................... 162,608 2.36% James Donovan (11).......................................... 105,931 1.54% Timothy S. Powers (12)...................................... 82,061 1.18% Donald L. Hammond (13)...................................... 73,235 1.06% Robert Kamenski (14)........................................ 67,125 * Joshua Makower (15)......................................... 15,578 * All directors and executive officers as a group (9 persons) 1,200,779 16.50% (16).....................................................
- ---------- * Represents beneficial ownership of less than 1%. (1) Applicable percentage ownership is based on 6,862,862 shares of Common Stock outstanding as of the Record Date together with applicable options for such stockholder. Beneficial ownership is determined in accordance with the rules of the Securities and Exchange Commission (the "Commission"), and includes voting and investment power with respect to shares. Shares of Common Stock subject to options currently exercisable or exercisable within 60 days after the Record Date are deemed outstanding for computing the percentage ownership of the person holding such options, but are not deemed outstanding for computing the percentage of any other person. Except as noted in the footnotes to this table, and subject to applicable community property laws, the persons named in the table have sole voting and investment power with respect to all shares of the Company's Common Stock shown as beneficially owned by them. -19- (2) Based solely on information provided pursuant to Schedules 13G and 13G/A filed with the Commission for calendar year 2001. In its role as investment advisor, Wasatch Advisors, Inc. may be deemed to beneficially own 942,450 shares by reason of its sole voting and dispositive power with respect to these shares. (3) Based solely on information provided pursuant to Schedules 13G and 13G/A filed with the Commission for calendar year 2001. In its role as investment advisor, Wellington Management Company, LLP may be deemed to beneficially own 668,000 shares by reason of its shared voting power with respect to 570,000 shares and shared dispositive power with respect to 668,000 shares. In its role as investment advisor, Wellington Trust Company, NA may be deemed to beneficially own 180,000 shares by reason of its shared voting power and dispositive power with respect to 180,000 shares. (4) Based solely on information provided pursuant to Schedules 13G and 13G/A filed with the Commission for calendar year 2001. In its role as investment advisor, Gruber and McBaine Capital Management, LLC may be deemed to beneficially own 391,500 shares by reason of its shared voting and dispositive power. Jon D. Gruber, J. Patterson McBaine, Thomas O. Lloyd-Butler and Eric B. Swergold are deemed to beneficially own 391,500 shares by reason of their shared voting and dispositive power with respect to such shares and Mr. Gruber and Mr. McBaine additionally exercise voting and dispositive power with respect to 75,000 shares and 38,900 shares, respectively, and are deemed to beneficially own such shares. (5) Based solely on information provided pursuant to Schedules 13G and 13G/A filed with the Commission for calendar year 2001. In its role as investment advisor or manager, Dimensional Fund Advisors Inc. exercises sole voting and dispositive power with respect to 371,800 shares, but disclaims beneficial ownership of all 371,800 shares. (6) Based solely on information provided pursuant to Schedule 13G and 13G/A filed with the Commission for calendar year 2001. (7) Includes 20,000 shares held by Mr. Boutacoff as custodian for his daughter under the Uniform Transfers to Minors Act and 92,500 shares subject to stock options held by Mr. Boutacoff that are exercisable within 60 days of the Record Date. (8) Includes 163,742 shares held by the Arias Trust, dated October 19, 1994, over which Mr. Arias exercises voting and dispositive power and 59,583 shares subject to stock options held by Mr. Arias that are exercisable within 60 days of the Record Date. (9) Includes 11,971 shares subject to stock options held by Mr. Anderson that are exercisable within 60 days of the Record Date. (10) Includes 27,348 shares held by Mr. Nehra's spouse as separate property, as to which shares Mr. Nehra disclaims beneficial ownership. Also includes 31,828 shares subject to stock options held by Mr. Nehra that are exercisable within 60 days of the Record Date. (11) Includes 89,759 shares held by the Donovan Trust dated March 14, 1978, over which Mr. Donovan exercises voting and dispositive power, and 16,172 shares subject to stock options that are exercisable within 60 days of the Record Date. (12) Includes 78,625 shares subject to stock options held by Mr. Powers that are exercisable within 60 days of the Record Date. (13) Includes 12,500 shares held by the Hammond Marital Trust UA 8/30/95 and 12,500 shares held by the Hammond Survivors Trust UA 8/30/95, over which Mr. Hammond exercises voting and dispositive power. Also includes 43,078 shares subject to stock options held by Mr. Hammond that are exercisable within 60 days of the Record Date. (14) Includes 66,125 shares subject to stock options held by Mr. Kamenski that are exercisable within 60 days of the Record Date. (15) Includes 15,578 shares subject to stock options held by Dr. Makower that are exercisable within 60 days of the Record Date. (16) Includes 415,460 shares subject to stock options that are exercisable within 60 days of the Record Date. See footnotes (6) through (15) above. -20- EXECUTIVE COMPENSATION SUMMARY COMPENSATION The following table shows, as to the Company's Chief Executive Officer and each of its other three most highly compensated executive officers earning more than $100,000 in salary and bonus (the "Named Officers"), information concerning compensation awarded to, earned by or paid for their services to the Company in all capacities during 2001, 2000 and 1999. The entries under the column heading "Other Compensation" in the table represent the cost of term life insurance for each Named Officer, except as otherwise noted. SUMMARY COMPENSATION TABLE
LONG-TERM COMPENSATION ANNUAL COMPENSATION AWARDS -------------------------------------------- ------------- OTHER ANNUAL SECURITIES ALL OTHER NAME AND COMPENSATION UNDERLYING COMPENSATION PRINCIPAL POSITION YEAR SALARY($) BONUS($) ($) OPTIONS (#) ($) - --------------------------- ---- -------- --------- ------------- ------------- ------------ Theodore A. Boutacoff...... 2001 $228,462 -- -- -- $1,179 President and Chief 2000 216,654 -- -- -- 1,275 Executive Officer 1999 187,442 50,000(1) -- -- 403 Eduardo Arias.............. 2001 157,146 -- -- 10,000 1,037 Senior Vice President, 2000 153,933 -- -- -- 668 International Sales and 1999 147,871 42,356(2) -- -- 318 Business Development Robert Kamenski............ 2001 152,802 -- -- 5,000 804 Vice President, 2000 150,300 -- -- -- 1,039 Administration and 1999 141,423 5,401(1) -- -- 305 Chief Financial Officer Timothy S. Powers.......... 2001 157,862 -- -- 20,000 817 Vice President, 2000 153,093 -- -- -- 1,136 Operations 1999 142,814 5,489(1) -- -- 307
- ---------- (1) Represents bonuses earned in fiscal year 1999 and paid out in February 2000. (2) Represents sales incentives earned in fiscal year 1999 and paid out in March 2000. -21- STOCK OPTION GRANTS AND EXERCISES DURING LAST FISCAL YEAR The following table sets forth certain information for each grant of options to purchase the Company's Common Stock during fiscal 2001 to each of the Named Officers. Each of these options granted by the Company was granted under the 1998 Plan. Each option has a term of 10 years, subject to earlier termination in the event optionee's services to the Company cease. In accordance with the rules of the Commission, also shown below is the potential realizable value over the term of the option (the period from the grant date to the expiration date) based on assumed rates of stock appreciation of 5% and 10%, compounded annually. These amounts are mandated by the Commission and do not represent the Company's estimate of future stock price. Actual gains, if any, in stock option exercises, will depend on the future performance of the Company's Common Stock. OPTION GRANTS IN FISCAL 2000
INDIVIDUAL GRANTS POTENTIAL REALIZABLE VALUE ----------------------------------------------------------- OF ASSUMED ANNUAL RATES NUMBER OF % OF TOTAL OF STOCK PRICE SECURITIES OPTIONS APPRECIATION FOR OPTION UNDERLYING GRANTED TO EXERCISE TERM(5) NAME AND OPTIONS EMPLOYEES IN PRICE EXPIRATION -------------------------- PRINCIPAL POSITION GRANTED(#)(1) FISCAL YEAR(2) ($/SH)(3) DATE(4) 5%($) 10%($) - ----------------------------- ------------- -------------- ----------- ---------- -------- --------- Theodore A. Boutacoff President and Chief Executive Officer .... -- -- -- -- -- -- Eduardo Arias Senior Vice President, International Sales and Business Development ....... 10,000 2.86% $ 3.71 7/18/11 $ 23,332 $ 59,128 Robert Kamenski Vice President, Administration and Chief Financial Officer .... 5,000 1.43% $ 3.71 7/18/11 $ 11,666 $ 29,564 Timothy S. Powers Vice President, Operations.. 20,000 5.73% $ 4.10 4/23/11 $ 51,569 $130,687
- ---------- (1) The options for each of the Named Executive Officers vest at the rate of 25% after the first year, and then 1/48th of the shares subject to the option each month thereafter. (2) Based upon an aggregate of 349,300 options granted to employees and consultants, including the Named Executive Officers, in fiscal 2001. (3) Options were granted at an exercise price equal to the fair market value of the Company's Common Stock, as determined by reference to the closing price reported on the Nasdaq National Market on the date of grant. (4) Options may terminate before their expiration dates if the optionee's status as an employee is terminated or upon the optionee's death or disability. (5) The potential realizable value is net of exercise price before taxes and calculated assuming that the fair market value of the Common Stock on the date of grant appreciates at the indicated annual rate compounded annually for the entire term of the option (10 years) and that the option is exercised and sold on the last day of its term for the appreciated stock price. -22- AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND YEAR-END OPTION VALUES The following table shows, as to the individuals named in the Summary Compensation Table above, the number of options exercisable and unexercisable at December 29, 2001, information concerning stock options exercised during the fiscal year ended December 29, 2001 and the value of unexercised options at such date. AGGREGATED OPTION EXERCISES IN FISCAL 2001 AND FISCAL 2001 YEAR-END OPTION VALUES
NUMBER OF SECURITIES VALUE OF UNEXERCISED UNDERLYING IN-THE-MONEY OPTIONS AT SHARES VALUE UNEXERCISED OPTIONS AT DECEMBER 29, 2001 NAME AND ACQUIRED ON REALIZED DECEMBER 29, 2001 (#) ($)(1) PRINCIPAL POSITION EXERCISE(#) ($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE - -------------------------------- ------------ -------- ----------- ------------- ----------- ------------- Theodore A. Boutacoff ......... -- -- 89,167 5,883 $67,385 $ 1,055 President and Chief Executive Officer Eduardo Arias .................. -- -- 62,291 14,167 55,220 5,801 Senior Vice President, International Sales and Business Development Robert Kamenski ................ -- -- 64,043 8,957 1,952 3,296 Vice President, Administration and Chief Financial Officer Timothy S. Powers .............. -- -- 65,792 32,208 3,956 3,539 Vice President, Operations
- ---------- (1) Calculated by determining the difference between the fair market value of the securities underlying the options at year-end ($4.211 per share) and the exercise price of the options. EMPLOYMENT AGREEMENTS The Company has no employment contracts with any of its officers and has no compensatory plans or arrangements that are activated upon resignation, termination or retirement of any such officer upon a change in control of the Company. The 1998 Plan and the Director Plan provide for the accelerated vesting of all outstanding options upon a change in control, but, in the case of the 1998 Plan, only if the option is not assumed or substituted. In addition, because competition for talented employees is intense, the Company may in the future consider entering into severance agreements with certain of its key employees. OTHER EMPLOYEE BENEFIT PLANS 401(k) Plan The Company sponsors a 401(k) Plan under which eligible employees may contribute, on a pre-tax basis, up to 15% of the employee's total annual income from the Company, excluding bonuses, subject to certain IRS limitations. The Company matches 50% of the employee's contribution up to a maximum amount. The maximum Company match in fiscal year 2001 was $1,000 per employee and in fiscal year 2002 is $1,000 per employee. All full-time employees who have attained age 18 are eligible to participate in the -23- plan. All contributions are allocated to the employee's individual account and, at the employee's election, are invested in one or more investment funds available under the plan. Contributions are fully vested and nonforfeitable. REPORT OF THE COMPENSATION COMMITTEE OF THE BOARD OF DIRECTORS GENERAL The Compensation Committee (the "Committee") of the Board of Directors establishes the overall executive compensation strategies of the Company and approves compensation elements for the Company's Chief Executive Officer and other executive officers. The Committee is comprised of two independent, nonemployee members of the Board of Directors, neither of who has interlocking relationships as defined by the Commission. The Committee has available to it such external compensation advice and data as the Committee deems appropriate to obtain. The compensation philosophy of the Committee is to provide a comprehensive compensation package for each executive officer that is competitive with those offered by companies of similar type and size, in the same geographical area and whose executives perform similar skills to those performed by the executives of the Company. Accordingly, the Committee follows a compensation strategy that has used vesting terms to incentivize and reward executives as the Company addresses the challenges associated with growth. As the Committee applies this compensation philosophy in determining appropriate executive compensation levels and other compensation factors, the Committee reaches its decisions with a view towards the Company's overall financial performance. The Committee strives to structure each officer's overall compensation package to enable the Company to attract, retain and reward personnel who contribute to the success of the Company. EXECUTIVE OFFICER COMPENSATION The objectives of the executive officer compensation program are to attract, retain, motivate and reward key personnel who possess necessary leadership and management skills through competitive base salary, annual cash bonus incentives, long-term incentive compensation in the form of stock options, and various benefits generally available to employees of the Company. Base Salary. Base salary levels for the Company's executive officers are generally targeted to be competitive with companies in the same stage of development and in the same industry and geographic area. In determining salaries, the Committee also takes into account the Chief Executive Officer's recommendations, individual experience, contributions to corporate goals and the Company's performance. Incentive Bonuses. The Committee believes that a cash incentive bonus plan can serve to motivate the Company's executive officers and management to address annual performance goals, using more immediate measures for performance than those reflected in the appreciation in value of stock options. In 2001, the Company's goals were targeted toward profitability and longer-term objectives for corporate development. As a consequence, the Company did not have an incentive bonus plan for executive officers in fiscal 2001. Stock Option Grants. Stock options are granted to executive officers and other employees under the Company's Option Plans. Stock option grants are intended to focus the recipient on the Company's long-term performance to improve stockholder value and to retain the services of executive officers in a competitive job market by providing significant long-term earning potential. To this end, stock options -24- generally vest over a four-year period, based on continued employment. Factors considered in granting stock options to executive officers of the Company are the duties and responsibilities of each individual, such individual's contributions to the success of the Company and other relevant factors. The Company views stock options as an important component of long-term compensation for executive officers since options motivate executive officers to manage the Company in a manner that is consistent with the interests of stockholders. CEO COMPENSATION Compensation for the Chief Executive Officer is consistent with the philosophies and practices described above for executive officers in general. Mr. Boutacoff's salary was increased in 2001 commensurate with market conditions. Mr. Boutacoff was not granted any options in fiscal year 2001. COMPENSATION COMMITTEE Donald L. Hammond Joshua Makower, M.D. REPORT OF THE AUDIT COMMITTEE OF THE BOARD OF DIRECTORS The following is the report of the audit committee of the Board of Directors. The audit committee has reviewed and discussed the audited financial statements of the Company for the fiscal year ended December 29, 2001 with management. In addition, the audit committee has discussed with PricewaterhouseCoopers LLP, the Company's independent auditors, the matters required to be discussed by Statement on Auditing Standards No. 61 (Communications with Audit Committee). The audit committee also has received the written disclosures and the letter from PricewaterhouseCoopers LLP as required by the Independence Standards Board Standard No. 1 (Independence Discussions with Audit Committees) and the audit committee has discussed the independence of PricewaterhouseCoopers LLP with that firm. Based on the audit committee's review of the matters noted above and its discussions with the Company's independent auditors and the Company's management, the audit committee recommended to the Board of Directors that the financial statements be included in the Company's Annual Report on Form 10-K. This report has been provided by Robert K. Anderson, Joshua Makower, M.D. and John M. Nehra, the members of the Audit Committee. Respectfully Submitted by: Robert K. Anderson Joshua Makower, M.D. John M. Nehra -25- COMPANY STOCK PRICE PERFORMANCE The following graph demonstrates a comparison of cumulative total stockholder returns, calculated on a dividend reinvestment basis and based upon an initial investment of $100 in the Company's Common Stock as compared with the Russell 2000 Index and the Standard and Poors 500 Index. No dividends have been declared or paid on the Company's Common Stock during such period. The stock price performance shown on the graph below is not necessarily indicative of future price performance. The Company's Common Stock began trading on the Nasdaq National Market on February 15, 1996. The graph reflects the Company's stock price performance from the initial public offering through the end of fiscal year 2001. IRIDEX CORPORATION COMPANY STOCK PRICE PERFORMANCE [PERFORMANCE GRAPH]
2/16/96 3/31/1996 6/30/1996 9/30/1996 12/31/1996 3/31/1997 6/30/1997 ------- --------- --------- --------- ---------- --------- --------- IRIDEX Corporation . 100.000 113.889 166.667 91.667 83.333 75.000 101.389 Standard & Poors 500 100.000 99.617 103.495 106.073 114.315 116.843 136.600 Russell 2000 ....... 100.000 102.855 107.780 107.712 112.755 106.521 123.256 9/30/1997 12/31/1997 3/31/1998 7/4/1998 10/3/1998 1/2/1999 4/3/1999 --------- ---------- --------- -------- --------- -------- -------- IRIDEX Corporation . 131.944 84.722 92.367 87.500 41.667 47.222 47.222 Standard & Poors 500 146.190 149.762 170.028 176.922 154.727 189.702 199.654 Russell 2000 ....... 141.118 135.897 149.470 142.514 108.744 131.211 123.990 7/3/1999 10/2/1999 1/1/2000 4/1/2000 7/1/2000 9/30/2000 12/30/2000 -------- --------- -------- -------- -------- --------- ---------- IRIDEX Corporation . 50.000 47.222 95.833 130.556 141.667 121.533 54.167 Standard & Poors 500 214.701 197.971 226.743 231.269 224.482 221.690 203.753 Russell 2000 ....... 141.954 131.699 156.955 167.633 160.835 162.123 150.356 3/31/2001 6/30/2001 9/29/2001 12/29/2001 --------- --------- --------- ---------- IRIDEX Corporation . 47.567 43.333 41.667 46.789 Standard & Poors 500 179.069 188.960 160.644 179.175 Russell 2000 ....... 140.095 159.408 125.896 153.494
-26- CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS Since the beginning of the Company's last fiscal year, there has not been nor is there currently proposed any transaction or series of similar transactions to which the Company was or is to be a party in which the amount involved exceeds $60,000 and in which any director, executive officer, holder of more than 5% of the Common Stock of the Company or any member of the immediate family of any of the foregoing persons had or will have a direct or indirect material interest, other than indemnification agreements between the Company and each of its directors and officers, SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE Section 16(a) of the Exchange Act requires the Company's executive officers and directors, and persons who own more than 10% of a registered class of the Company's equity securities to file reports of ownership and changes in ownership with the Commission and the National Association of Securities Dealers, Inc. Such executive officers, directors and greater than 10% stockholders are also required by SEC rules to furnish the Company with copies of all forms that they file pursuant to Section 16(a). Specific due dates have been established by the Commission, and the Company is required to disclose in this Proxy Statement any failure to file by those dates. Based solely on its review of the copies of such forms received by it, or written representations from certain reporting persons that no filings were required for such persons, the Company believes that all reports required to be filed under Section 16(a) have been filed on a timely basis during the Company's 2001 fiscal year. OTHER MATTERS The Company knows of no other matters to be submitted to the meeting. If any other matters properly come before the meeting, it is the intention of the persons named in the enclosed form of Proxy to vote the shares they represent as the Board of Directors may recommend. THE BOARD OF DIRECTORS Dated: May 3, 2002 -27- DETACH HERE THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF IRIDEX CORPORATION 2002 ANNUAL MEETING OF STOCKHOLDERS JUNE 5, 2002 The undersigned stockholder of IRIDEX Corporation, a Delaware corporation, hereby acknowledges receipt of the Notice of Annual Meeting of Stockholders and Proxy Statement, and hereby appoints Theodore A Boutacoff and Robert Kamenski, or either of them, proxies and attorneys-in-fact, with full power to each of substitution, on behalf and in the name of the undersigned, to represent the undersigned at the 2002 Annual Meeting of Stockholders of IRIDEX Corporation to be held on June 5, 2002, at 2:00 p.m., Pacific Daylight Savings Time, at the principal offices of the Company located at 1212 Terra Bella, Mountain View, California 94043, and at any adjournment(s) thereof and to vote all shares of Common Stock which the undersigned would be entitled to vote if then and there personally present, on the matters set forth on the reverse side of this Proxy. - ----------- ----------- SEE REVERSE CONTINUED AND TO BE SIGNED ON REVERSE SIDE SEE REVERSE SIDE SIDE - ----------- ----------- IRIDEX CORPORATION C/O EQUISERVE P.O. BOX 43068 PROVIDENCE, RI 02940 - ------------------------ ------------------- VOTE BY TELEPHONE VOTE BY INTERNET - ------------------------ ------------------- It's fast, convenient, and immediate! It's fast, convenient, and your vote Call Toll-Free on a Touch-Tone Phone is immediately confirmed and posted. 1-877-PRX-VOTE (1-877-779-8683). - ----------------------------------------- ------------------------------------ FOLLOW THESE FOUR EASY STEPS: FOLLOW THESE FOUR EASY STEPS: 1. READ THE ACCOMPANYING PROXY 1. READ THE ACCOMPANYING PROXY STATEMENT AND PROXY CARD. STATEMENT AND PROXY CARD. 2. CALL THE TOLL-FREE NUMBER 2. GO TO THE WEBSITE 1-877-PRX-VOTE (1-877-779-8683). http://www.eproxyvote.com/irix 3. ENTER YOUR VOTER CONTROL NUMBER 3. ENTER YOUR VOTER CONTROL NUMBER LOCATED ON YOUR PROXY CARD ABOVE YOUR LOCATED ON YOUR PROXY CARD ABOVE NAME. YOUR NAME. 4. FOLLOW THE RECORDED INSTRUCTIONS. 4. FOLLOW THE INSTRUCTIONS PROVIDED. - ----------------------------------------- ------------------------------------ YOUR VOTE IS IMPORTANT! YOUR VOTE IS IMPORTANT! Call 1-877-PRX-VOTE anytime! Go to http://www.eproxyvote.com/irix anytime! DO NOT RETURN YOUR PROXY CARD IF YOU ARE VOTING BY TELEPHONE OR INTERNET DETACH HERE PLEASE MARK [X] VOTES AS IN THIS EXAMPLE. ----- This proxy will be voted as directed or, if no contrary direction is indicated, will be voted FOR the election of directors, FOR approval of the amendment of the 1998 Stock Plan, FOR approval of the amendment of the 1995 Employee Stock Purchase Plan, FOR ratification of the appointment of the Company's Independent Accountants, and as said proxies deem advisable on such other matters as may come before the meeting and any adjournment(s) thereof. 1. Election of Directors Nominees: (01) Theodore A. Boutacoff, (02) James L. Donovan, (03) Joshua Makower, (04) Donald L. Hammond (05) John M. Nehra, (06) Robert K. Anderson FOR ALL WITHHOLD NOMINEES AUTHORITY TO LISTED VOTE ABOVE [ ] [ ] FOR ALL (EXCEPT NOMINEES AS LISTED ABOVE INDICATED) [ ] -------------------------------------- For all nominees except as noted above Signature: Date: -------------------------------------------- -------------------- FOR AGAINST ABSTAIN 2. Proposal to approve the amendment of the 1998 [ ] [ ] [ ] Stock Plan. 3. Proposal to approve the amendment of the 1995 [ ] [ ] [ ] Employee Stock Purchase Plan. 4. Proposal to ratify the appointment of [ ] [ ] [ ] PricewaterhouseCoopers LLP as Independent accountants. In their discretion, upon such other matters which may properly come before the meeting and any adjournment(s) thereof. MARK HERE FOR ADDRESS CHANGE AND NOTE AT LEFT [ ] THIS PROXY SHOULD BE MARKED, DATED, SIGNED BY THE STOCKHOLDER(s) EXACTLY AS HIS OR HER NAME APPEARS HEREON, AND RETURNED PROMPTLY IN THE ENCLOSED ENVELOPE. PERSONS SIGNING IN A FUDICIARY CAPACITY SHOULD SO INDICATE. IF SHARES ARE HELD BY JOINT TENANTS OR AS COMMUNITY PROPERTY, BOTH SHOULD SIGN. Signature: Date: -------------------------------------------- -------------------- -----END PRIVACY-ENHANCED MESSAGE-----