def14a
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
SCHEDULE 14A
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No. )
Filed by the Registrant þ
Filed by a Party other than the Registrant o
Check the appropriate box:
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Preliminary Proxy Statement |
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Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)(2)) |
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Definitive Proxy Statement |
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Soliciting Material Pursuant to §240.14a-12 |
IPG PHOTONICS CORPORATION
(Name of Registrant as Specified In Its Charter)
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
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IPG
Photonics Corporation
50 Old Webster Road
Oxford, Massachusetts 01540
Dear IPG Photonics Stockholder:
You are cordially invited to attend the annual meeting of
stockholders of IPG Photonics Corporation to be held at
10:00 a.m. (local time) on Tuesday, June 12, 2007, at
our world headquarters at 50 Old Webster Road, Oxford,
Massachusetts 01540.
The purpose of the meeting is to consider and vote upon
proposals to (i) elect nine directors who each have been
nominated for election for a one-year term, (ii) ratify the
appointment of our independent registered public accounting firm
for 2007 and (iii) consider such other business as may
properly come before the meeting.
Whether or not you plan to attend the meeting and regardless of
the number of shares you own, it is important that your shares
be represented at the meeting. After reading the enclosed proxy
statement, please promptly mark, sign, date and return the
enclosed proxy card in the prepaid envelope, or vote by
telephone or over the Internet to assure that your shares will
be represented.
The Board of Directors and management appreciate your continued
confidence in IPG Photonics, and look forward to seeing you at
the annual meeting.
Sincerely,
Valentin P. Gapontsev, Ph.D.
Chairman of the Board and
Chief Executive Officer
May 7, 2007
TABLE OF CONTENTS
IPG
Photonics Corporation
50 Old Webster Road
Oxford, Massachusetts 01540
NOTICE OF 2007 ANNUAL MEETING OF STOCKHOLDERS
Dear Stockholder:
We invite you to attend our 2007 annual meeting of stockholders,
which is being held as follows:
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Date:
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Tuesday, June 12, 2007
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Time:
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10:00 a.m., local time
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Location:
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IPG Photonics Corporation
50 Old Webster Road
Oxford, Massachusetts 01540
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At the meeting, we will ask our stockholders to:
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elect nine directors, each for a one-year term;
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ratify the appointment of Deloitte & Touche LLP as our
independent registered public accounting firm for 2007; and
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consider any other business properly presented at the meeting.
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You may vote on these matters in person or by proxy. Whether or
not you plan to attend the meeting, we ask that you promptly
complete and return the enclosed proxy card in the enclosed
addressed, postage-paid envelope, so that your shares will be
represented and voted at the meeting in accordance with your
instructions. If you attend the meeting, you may withdraw your
proxy and vote your shares in person. Only stockholders of
record at the close of business on April 27, 2007 may vote
at the meeting.
By order of the Board of Directors,
Angelo P. Lopresti
Vice President, General Counsel
and Secretary
May 7, 2007
Your vote is important. There are three ways to vote your
shares by proxy:
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Call the toll-free number listed on your proxy card;
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Visit the Internet site address listed on your proxy
card; or
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Complete, sign, date and return the enclosed proxy card by mail
in the envelope provided.
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If you choose to vote by mail, please do so promptly to
ensure that your proxy arrives in sufficient time.
PROXY
STATEMENT FOR THE
2007 ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON JUNE 12, 2007
INFORMATION
ABOUT THE MEETING
The
Meeting
The 2007 annual meeting of stockholders of IPG Photonics
Corporation will be held at 10:00 a.m., local time, on
Tuesday, June 12, 2007 at the offices of IPG Photonics
Corporation, 50 Old Webster Road, Oxford, Massachusetts 01540.
At the meeting, stockholders of record at the close of business
on April 27, 2007 who are present or represented by proxy
will have the opportunity to vote on the following matters:
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the election of nine directors, each for a one-year term;
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the ratification of the appointment of Deloitte &
Touche LLP as our independent registered public accounting firm
for 2007; and
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any other business properly presented at the meeting.
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This
Proxy Solicitation
We have sent you this proxy statement and the enclosed proxy
card because our Board of Directors is soliciting your proxy to
vote at the meeting (including any adjournment or postponement
of the meeting).
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This proxy statement summarizes information about the
proposals to be considered at the meeting and other information
you may find useful in determining how to vote.
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The proxy card is the means by which you actually
authorize another person to vote your shares at the meeting in
accordance with your instructions.
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We will pay the cost of soliciting proxies. Our directors,
officers and employees may solicit proxies in person, by
telephone or by other means. We will reimburse brokers and other
nominee holders of shares for expenses they incur in forwarding
proxy materials to the beneficial owners of those shares. We do
not plan to retain the services of a proxy solicitation firm to
assist us in this solicitation.
We are mailing this proxy statement and the enclosed proxy card
to stockholders for the first time on or about May 7, 2007.
In this mailing, we are including a copy of our 2006 Annual
Report to Stockholders, which includes our Annual Report on
Form 10-K
for the year ended December 31, 2006 (excluding exhibits),
as filed with the Securities and Exchange Commission, or the
SEC. The 2006 Annual Report to Stockholders is not to be
regarded as proxy soliciting material or as a communication by
means of which any solicitation is to be made.
Who May
Vote
Holders of record of our common stock at the close of business
on April 27, 2007 are entitled to one vote per share of
common stock on each proposal properly brought before the annual
meeting.
A list of stockholders entitled to vote will be available at the
annual meeting. In addition, you may contact our Secretary at
our corporate offices, located at 50 Webster Road, Oxford,
Massachusetts 01540, to
make arrangements to review a copy of the stockholder list at
those offices, between the hours of 9:00 a.m. and
5:30 p.m., local time, during the ten days before the date
of the annual meeting.
How to
Vote
You are entitled to one vote at the meeting for each share of
common stock registered in your name at the close of business on
April 27, 2007, the record date for the meeting. You may
vote your shares at the meeting in person or by proxy.
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To vote in person, you must attend the meeting, and then
complete and submit the ballot provided at the meeting.
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To vote by proxy, you may:
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call the toll-free number listed on the accompanying proxy card;
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visit the Internet site address listed on the accompanying proxy
card; or
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complete, sign and date the accompanying proxy card and return
it in the envelope provided.
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The person named as proxy on the accompanying proxy card was
designated by our Board and is one of our officers. All proxies
that are properly received by us prior to the meeting, and not
revoked, will be voted in accordance with the instructions given
in the proxy. If a choice is not specified in the proxy, the
shares represented by the proxy will be voted FOR election of
the director nominees listed therein and FOR the ratification of
the appointment of Deloitte & Touche LLP as our
independent registered public accounting firm for 2007.
Management is not aware of any other matters that will be
presented for consideration at our 2007 annual meeting of
stockholders. If any other matter not mentioned in this proxy
statement is brought before the meeting, the proxy holder named
in the enclosed proxy will have discretionary authority to vote
all proxies with respect thereto in accordance with his judgment.
If you vote by proxy, you may revoke your proxy at any time
before it is exercised by taking one of the following actions:
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sending written notice to our Secretary at our address set forth
in the notice of meeting appearing on the cover of this proxy
statement;
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voting again by proxy on a later date; or
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attending the meeting, notifying our Secretary that you are
present, and then voting in person.
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Shares Held
by Brokers or Nominees
If a broker or nominee holds shares of our common stock for you
in its name as record holder, then this proxy statement may have
been forwarded to you with a voting instruction card, which
allows you to instruct the broker or nominee how to vote your
shares on the proposals described herein. To vote by proxy, you
should follow the directions provided with the voting
instruction card. If your shares are held by a broker and you do
not provide timely voting instructions, the broker may have
discretionary authority to vote your shares on matters which are
considered routine. For non-routine matters, if you do not
provide instructions, the broker will not vote your shares,
which results in a broker non-vote. To vote your
shares in person, you must obtain a properly executed legal
proxy from the record holder of the shares which identifies you
as an IPG Photonics Corporation stockholder and authorizes you
to act on behalf of the record holder with respect to a
specified number of shares.
Quorum
Required to Transact Business
At the close of business on April 27, 2007,
42,921,976 shares of our common stock were outstanding. Our
bylaws require that a majority of our common stock be
represented, in person or by proxy, at the meeting in order to
constitute the quorum we need to transact business at the
meeting. We will count abstentions and broker non-votes in
determining whether a quorum exists.
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Multiple
Stockholders Sharing the Same Address
If you and other residents at your mailing address own shares of
the Companys common stock through a broker or other
nominee, you may have elected to receive only one copy of this
proxy statement and our 2006 Annual Report to Stockholders. If
you and other residents at your mailing address own shares of
the Companys common stock in your own names, you may have
received only one copy of this proxy statement and our 2006
Annual Report to Stockholders unless you provided our transfer
agent with contrary instructions. This practice, known as
householding, is designed to reduce our printing and
postage costs. You may promptly obtain an additional copy of
this proxy statement, enclosed proxy card and our 2006 Annual
Report to Stockholders by sending a written request to IPG
Photonics Corporation, Attention: Secretary, 50 Old Webster
Road, Oxford, Massachusetts 01540, or by calling our Secretary
at
(508) 373-1100.
If you hold your shares through a broker or other nominee and
wish to discontinue householding or to change your householding
election, you may do so by calling
1-800-542-1061
or writing to ADP Investor Communication Services, Attn.:
Householding Department, 51 Mercedes Way, Edgewood, New York
11717.
PROPOSAL 1:
ELECTION OF DIRECTORS
The first proposal on the agenda for the meeting is the election
of nine persons to serve as directors, each for a one-year term
that will begin at the meeting and end at our 2008 annual
meeting of stockholders, or until his successor has been duly
qualified and elected, or until his earlier death, resignation
or removal.
Nominees
for Election
The following table sets forth certain information as of
April 27, 2007 regarding our incumbent directors, each of
whom has been nominated by the Board of Directors for
re-election at our 2007 annual meeting of stockholders.
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Name
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Age
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Position
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Valentin P.
Gapontsev, Ph.D.
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Chief Executive Officer and
Chairman of the Board
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Eugene
Shcherbakov, Ph.D.
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Managing Director of IPG Laser and
Director
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Igor Samartsev
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Acting General Manager of NTO
IRE-Polus and Director
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Robert A. Blair
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Director
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Michael C. Child
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Director
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John H. Dalton
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Director
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Henry E. Gauthier
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Director
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William S. Hurley
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Director
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William F. Krupke, Ph.D.
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Director
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Valentin P. Gapontsev, Ph.D., founded IPG in
1990 and has been our Chief Executive Officer and Chairman of
our Board of Directors since our inception. Prior to that time,
he served as senior scientist in laser material physics and head
of the laboratory at the Soviet Academy of Sciences
Institute of Radio Engineering and Electronics in Moscow. He has
over thirty years of academic research experience in the fields
of solid state laser materials, laser spectroscopy and
non-radiative energy transfer between rare earth ions and is the
author of many scientific publications and several international
patents. Dr. Gapontsev holds a Ph.D. in Physics from the
Moscow Institute of Physics and Technology. In 2006, he was
awarded the Ernst &
Young®
Entrepreneur of the Year Award for Industrial Products and
Services in New England. He is the father of Denis Gapontsev,
our Vice President-Research and Development.
Eugene Shcherbakov, Ph.D., has served as the
Managing Director of IPG Laser GmbH, our German subsidiary,
since August 2000 and has been a member of our Board of
Directors since September 2000. Dr. Shcherbakov served as
the Technical Director of IPG Laser from 1995 to August 2000.
From 1983 to 1995, Dr. Shcherbakov was a senior scientist
in fiber optics and head of the optical communications
laboratory at the General Physics Institute, Russian Academy of
Science in Moscow. Dr. Shcherbakov graduated from the
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Moscow Physics and Technology Institute with an M.S. in Physics.
In addition, Dr. Shcherbakov attended the Russian Academy
of Science in Moscow, where he received a Ph.D. in Quantum
Electronics from its Lebedev Physics Institute and a Dr.Sci.
degree in Laser Physics from its General Physics Institute.
Igor Samartsev has been the acting General Manager
of our Russian subsidiary, NTO IRE-Polus, since 2005. He served
as the Technical Director of NTO IRE-Polus from 2000 to April
2005 and, from 1993 to 2001, he was the Deputy Director of NTO
IRE-Polus. Mr. Samartsev holds an M.S. in Physics from the
Moscow Institute of Physics and Technology.
Robert A. Blair has served as a member of our
Board of Directors since September 2000. Since January 1999,
Mr. Blair has been the President of the Blair Law Firm P.C.
Mr. Blair was a senior partner at the law firm of Manatt,
Phelps & Phillips from 1995 to 1999. He was the
managing partner of the law firm of Anderson, Hibey,
Nauheim & Blair from 1981 to 1995. He is a trustee
under Winkler Trusts, previously the primary sources of equity
for, and owners of, real estate ventures developed by The Mark
Winkler Company. Mr. Blair is managing partner of several
real estate partnerships, has been a manager/principal in
cellular telephone ventures and assisted in the launch of a VoIP
business. Mr. Blair holds a B.A. in Mathematics from the
College of William & Mary, where he serves on its
governing Board of Visitors, and a J.D. from the University of
Virginia School of Law.
Michael C. Child has served as a member of our
Board of Directors since September 2000. Since July 1982,
Mr. Child has been employed by TA Associates, Inc., a
private equity investment firm, where he currently serves as a
Managing Director. Mr. Child holds a B.S. in Electrical
Engineering from the University of California at Davis and an
M.B.A. from the Stanford University Graduate School of Business.
He is on the Board of Directors of Eagle Test Systems, Inc.
John H. Dalton has served as a member of our Board
of Directors since September 2000. Since 2005, he has been
President of the Housing Policy Council of The Financial
Services Roundtable. From September 2000 to December 2004,
Mr. Dalton served as our President. He was appointed
Secretary of the Navy by President Clinton in 1993 and served in
that capacity until 1998. Mr. Dalton was nominated by
President Carter to be President of the Government National
Mortgage Association and to the Federal Home Loan Bank
Board, where he served as Chairman. He serves as Chairman of the
board of directors of Breeze-Eastern Corp. and he is a member of
the boards of directors of Fresh Del Monte Produce Inc., and
eSpeed Inc. Mr. Dalton graduated with distinction from the
United States Naval Academy and holds an M.B.A. from the Wharton
School of Finance and Commerce of the University of Pennsylvania.
Henry E. Gauthier has served as a member of our
Board of Directors since April 2006. Mr. Gauthier was
President of Reliant Technologies, Inc., a manufacturer of
medical laser systems, from February to May 2005 and has served
as Chairman of the board of directors of Reliant Technologies
since May 2005. Reliant Technologies is one of our customers. He
also served as a consultant to Reliant Technologies until
December 2006. See Certain Relationships and Related Party
Transactions. He served as Vice Chairman of the board of
directors of Coherent, Inc., a manufacturer of photonic
products, from October 2002 to March 2005. He served as Chairman
of the board of directors of Coherent, Inc. from February 1997
to October 2002 and was its President from 1983 to 1996. Since
July 1996, Mr. Gauthier has served as a principal at
Gauthier Consulting. He has been a member of the board of
directors of Alara, Inc. since 1997. Mr. Gauthier attended
the United States Coast Guard Academy, San Jose State
University, and the Executive Institute of the Stanford
University Graduate Business School.
William S. Hurley has served as a member of our
Board of Directors since April 2006. Since April 2006, he has
been principal of W.S. Hurley Financial Consulting LLC, which
provides supplemental chief financial officer services. From
2002 to April 2006, he was a partner with Tatum LLC, a
nationwide executive services and consulting firm. He was Senior
Vice President and Chief Financial Officer at Applied
Science & Technology, a developer, manufacturer and
supporter of semiconductor capital equipment, from 1999 until
2001. He served as Vice President and Chief Financial Officer at
Cybex International, Inc., a designer, manufacturer and
distributor of fitness equipment, from 1996 to 1999. From 1992
to 1995, he was Vice President-Controller and Chief Accounting
Officer at BBN Corporation, formerly known as Bolt,
Beranek & Newman, Inc., a high technology company.
Mr. Hurley holds a B.S. in Accounting from Boston College
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an M.B.A. in Finance from Columbia University Graduate School of
Business. Mr. Hurley is a certified public accountant.
William F. Krupke, Ph.D., has served as a
member of our Board of Directors since February 2001. Since
1999, Dr. Krupke has been President of a laser technology
and applications consulting firm (now WFK Lasers, LLC). From
1972 to 1999, Dr. Krupke worked at the Lawrence Livermore
National Laboratory, which provides research and development
services to various U.S. government departments, serving
for the last twenty of such years as Deputy Associate Director
of the Laser Programs Directorate. He has over forty years of
experience in the fields of solid-state lasers and innovative
laser materials. Dr. Krupke holds a B.S. degree in Physics
from Rensselaer Polytechnic Institute and M.A. and Ph.D. degrees
in Physics from the University of California at Los Angeles.
The nine persons receiving the greatest number of votes cast
will be elected as directors. We will not count votes withheld
or broker non-votes when we tabulate votes cast for the election
of a director. Consequently, withheld votes or broker non-votes
or other failures to vote will have no effect on the election of
directors.
OUR BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE FOR THE
ELECTION OF MESSRS. GAPONTSEV, SHCHERBAKOV, SAMARTSEV, BLAIR,
CHILD, DALTON, GAUTHIER, HURLEY AND KRUPKE AS DIRECTORS.
Corporate
Governance
Corporate Governance Guidelines. Our
Board has adopted Corporate Governance Guidelines (the
Governance Guidelines) that outline, among other
matters, the role and functions of the Board, the
responsibilities of various Board committees and the mission of
the Board. These Governance Guidelines are available, along with
other important corporate governance materials, on our website
at www.ipgphotonics.com. We will also provide an
electronic or paper copy of these Governance Guidelines, free of
charge, upon request made to our Secretary at the address listed
on the cover of this proxy statement.
The Governance Guidelines provide, among other things, that:
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a majority of our Board of Directors must be independent;
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an independent director preside over executive sessions of
independent directors;
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the Board appoints all members of the Board committees;
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the Audit, Compensation, and Nominating and Corporate Governance
Committees consist solely of independent directors;
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the independent directors meet in executive sessions without the
presence of the non-independent directors or members of our
management periodically;
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directors may not serve on the boards of more than three other
public companies; and
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evaluations of the Board and committees are to be conducted
annually.
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The Board regularly reviews changing legal and regulatory
requirements, evolving best practices and other developments.
The Board may modify the Governance Guidelines and its other
corporate governance policies and practices from time to time,
as appropriate.
Director Nominations. The Nominating
and Corporate Governance Committee of the Board considers
candidates for director nominees proposed by directors and
stockholders. This Committee may retain recruiting professionals
to assist in identifying and evaluating candidates for director
nominees. As set forth in our Governance Guidelines, the Board
seeks members from diverse professional backgrounds with a
reputation for integrity who do not have professional
commitments that might unreasonably interfere with the demands
and duties of a board member. Candidates for director are
reviewed in the context of the current composition of the Board,
the operating requirements of the Company and the long-term
interests of the Companys stockholders. In conducting this
assessment, the Board considers diversity, age, skills and such
other factors as
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it deems appropriate given the current needs of the Board and
the Company to maintain a balance of knowledge, experience and
capability. Candidates for director should have certain minimum
qualifications, including the ability to read and understand
basic financial statements, and must be over 21 years of
age and possess the highest personal integrity and ethics. The
Committee also considers whether the nominee must be independent
for Nasdaq purposes.
All members of the Board may interview the final candidates. The
Nominating and Corporate Governance Committee has adopted a
policy under which it will consider nominations by stockholders.
The same identifying and evaluating procedures apply to all
candidates for director nomination, including candidates
submitted by stockholders. The Nominating and Corporate
Governance Committee evaluates and interviews potential board
candidates.
Director Independence. IPG follows
director independence rules under Nasdaq listing standards and
SEC rules. Also, our Governance Guidelines require that a
majority of our Board of Directors satisfy the independence
rules of Nasdaq Global Markets and the SEC. Our Board of
Directors has determined that Messrs. Blair, Child,
Gauthier and Hurley and Dr. Krupke are
independent as defined by Nasdaq
Rule 4200(a)(15). Our Board has determined that no such
member has a relationship that would interfere with the exercise
of independent judgment in carrying out his responsibilities as
a director.
Executive Sessions. Our independent
directors meet privately, without management present, at least
four times during the year. These private sessions are generally
held in conjunction with the regular quarterly Board meetings.
Other private meetings are held as often as deemed necessary by
the independent directors.
Presiding Independent Director. In
accordance with our Governance Guidelines, an independent
director is selected at each meeting of the Board of Directors
to preside over executive private meetings of the independent
directors. The presiding independent director acts as a liaison
between the independent directors and our Chief Executive
Officer, provides him with input regarding agenda items for
Board and committee meetings, and coordinates with the Chief
Executive Officer regarding information to be provided to
independent directors in performing their duties. The position
of presiding independent director rotates at each meeting based
upon years of service on the Board.
Director Meetings. It has been the
practice of our Board to hold at least four regular meetings
each year. Our Board of Directors met in person or by telephone
seven times and acted by unanimous written consent three times
in 2006. All of our directors attended at least 75% of the
aggregate of the total number of meetings held by the Board of
Directors and committees on which they served in 2006, except
for Mr. Samartsev who attended 71% of the board meetings.
Policy Regarding Board Attendance. In
accordance with our Governance Guidelines, our directors are
expected to prepare for, attend and actively participate in
meetings of the Board of Directors and meetings of committees on
which they serve. Our directors are expected to spend the time
needed at each meeting and to meet as frequently as necessary to
properly discharge their responsibilities. We encourage members
of our Board of Directors to attend annual meetings of
stockholders, but we do not have a formal policy requiring them
to do so. All of our directors attended our 2006 annual meeting
of stockholders.
Stock Ownership Guidelines. The Board
adopted stock ownership guidelines in 2007 to more closely align
the interests of our directors and named executive officers with
those of our stockholders. The guidelines provide that
non-employee directors should maintain an investment in our
stock that is at least equal to five times their annual cash
Board retainer (excluding committee retainers). The Chief
Executive Officer should maintain an investment in our stock
that is at least equal to five times his annual salary. Named
executive officers other than the Chief Executive Officer should
maintain an investment that is at least equal to two times their
annual salary. In each case, such investment levels should be
achieved within no later than five years following the
directors or executives initial election or
appointment or December 12, 2007, whichever occurs later.
Shareholder
Communications. Stockholders wishing to write
to the Board of Directors or a specified director or a committee
of the Board should send correspondence to IPG Photonics
Corporation, attention Secretary, 50 Old Webster Road, Oxford,
Massachusetts 01540. All written communications received in such
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manner from stockholders of the Company shall be forwarded to
the members or committee of the Board of Directors to whom the
communication is directed or, if the communication is not
directed to any particular member(s) or committee of the Board
of Directors, the communication shall be forwarded to all
members of the Board of Directors.
Corporate
Responsibility
Code of Business Conduct. We have adopted a
code of business conduct and ethics that applies to all of our
directors and employees, including our Chief Executive Officer,
Chief Financial Officer and other executive officers. Our code
of business conduct includes provisions covering conflicts of
interest, business gifts and entertainment, outside activities,
compliance with laws and regulations, insider trading practices,
antitrust laws, payments to government personnel, bribes or
kickbacks, corporate record keeping and accounting records. The
code of business conduct is posted on our website at
www.ipgphotonics.com.
Procedures for Submitting Complaints Regarding Accounting and
Auditing Matters. Our Audit Committee has adopted
procedures for the treatment of complaints regarding accounting,
internal accounting controls or auditing matters, including
procedures for the confidential and anonymous submission by our
directors, officers and employees of concerns regarding
questionable accounting, internal accounting controls or
auditing matters. These procedures are posted on our website at
www.ipgphotonics.com.
Committees
of the Board
Our Board has three separate standing committees: the Audit
Committee, the Compensation Committee and the Nominating and
Corporate Governance Committee. Each committee operates under a
written charter adopted by the Board. Copies of the charters of
all standing committees are available on our Internet web site
at www.ipgphotonics.com. We will also provide electronic
or paper copies of the standing committee charters free of
charge, upon request made to our Secretary.
Audit Committee. The current members of our
Audit Committee are Mr. Hurley, who serves as Chairman,
Mr. Child and Mr. Gauthier, each of whom is
independent for Audit Committee purposes under the
applicable rules of the Nasdaq Global Market and the SEC. The
Board of Directors has determined that Mr. Hurley qualifies
as an audit committee financial expert, as defined
under the Securities Exchange Act of 1934 and the applicable
rules of the Nasdaq Global Market. The Audit Committee met in
person or by telephone seven times in 2006. The Audit Committee,
among other things:
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appoints, approves the compensation of, and assesses the
independence of our independent registered public accounting
firm;
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reviews the Audit Committee charter annually and recommends any
necessary amendments to such charter to our Board of Directors;
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oversees the work of our independent registered public
accounting firm, which includes the receipt and consideration of
certain reports from the independent registered public
accounting firm;
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resolves disagreements between management and our independent
registered public accounting firm;
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pre-approves auditing and permissible non-audit services, and
the terms of such services, to be provided by our independent
registered public accounting firm;
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reviews and discusses with management and our independent
registered public accounting firm our annual and quarterly
financial statements and related disclosures;
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coordinates the oversight of our internal and external controls
over financial reporting, disclosure controls and procedures and
code of business conduct and ethics;
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establishes, reviews and updates our code of business conduct
and ethics;
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reviews and approves all related-party transactions;
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establishes procedures for the receipt of accounting-related
complaints and concerns;
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7
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meets independently with our independent registered public
accounting firm and management;
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prepares the Audit Committee report required by SEC rules to be
included in our proxy statements; and
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performs any other activities consistent with its charter, the
Companys bylaws, and governing law, as the Board deems
necessary or appropriate.
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Compensation Committee. The current members of
our Compensation Committee are Mr. Blair, who serves as
Chairman, Mr. Child and Mr. Gauthier, each of whom is
an independent director. The Compensation Committee met in
person or by telephone six times in 2006. The Compensation
Committee, among other things:
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annually reviews and approves base salary and incentive
compensation for our chief executive officer, other officers and
key executives;
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reviews and approves corporate goals and objectives relevant to
compensation of our Chief Executive Officer, other officers and
key executives;
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evaluates the performance of our chief executive officer in
light of our corporate goals and objectives and determines the
compensation of our chief executive officer;
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periodically reviews compensation practices, procedures and
policies throughout the Company; and
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reviews and recommends to the Board compensation for members of
the Board.
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Nominating and Corporate Governance
Committee. The current members of our Nominating
and Corporate Governance Committee are Dr. Krupke, who
serves as Chairman, Mr. Blair and Mr. Hurley, each of
whom is an independent director. The Nominating and Corporate
Governance Committee met in person or by telephone two times in
2006. The Nominating and Corporate Governance Committee, among
other things:
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develops and recommends to the Board criteria for board
membership;
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recommends to the Board changes that the committee believes to
be desirable with regard to the appropriate size, functions and
needs of the Board of Directors;
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identifies and evaluates director candidates, including nominees
recommended by our stockholders;
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identifies individuals qualified to fill vacancies on any
committee of the Board;
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reviews procedures for stockholders to submit recommendations
for director candidates;
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recommends to the Board the persons to be nominated for election
as directors and to each of the Boards committees;
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reviews the performance of the committee and evaluates its
charter periodically; and
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develops and recommends to the Board a set of corporate
governance guidelines.
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Compensation
Committee Interlocks and Insider Participation
None of our executive officers serves as a member of the board
of directors or compensation committee, or other committee
serving an equivalent function, of any other entity that has one
or more of its executive officers serving as a member of our
Board of Directors or Compensation Committee.
8
DIRECTOR
COMPENSATION
The following table summarizes the compensation of each of our
non-employee directors for the fiscal year ended
December 31, 2006.
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Fees Earned or
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Option
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Paid in Cash
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Awards
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Total
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Name
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($)
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($)(1)
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($)
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Robert A. Blair(2)
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46,667
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5,669
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52,336
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Michael H. Child(2)(3)
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5,669
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5,669
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John H. Dalton(2)
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32,500
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5,669
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38,169
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Henry E. Gauthier(4)
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38,958
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10,079
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49,037
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William S. Hurley(4)
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40,833
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10,079
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50,912
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William F. Krupke(2)
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35,833
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3,825
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39,658
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(1) |
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Valuation based on the dollar amount of option grants recognized
for financial statement reporting purposes pursuant to Statement
of Financial Accounting Standards No. 123(R),
Share-Based Payment
(SFAS 123(R)), with respect to 2006. The
assumptions that we used with respect to the valuation of option
grants are set forth in Note 2 to our Consolidated
Financial Statements in our Annual Report on
Form 10-K
filed with the SEC on March 29, 2007. |
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(2) |
|
As of December 31, 2006, Mr. Blair owned options to
purchase 21,667 shares, none of which were vested;
Mr. Child owned options to purchase 93,335 shares, of
which 71,668 were vested; Mr. Dalton owned options to
purchase 26,667 shares, of which 5,000 were vested; and
Dr. Krupke owned options to purchase 26,667 shares, of
which 5,000 were vested. Each director was granted options to
purchase 6,667 shares on June 21, 2006 at an exercise
price of $6.45 per share that vest over four years. The
grant date fair value of each such option award issued in 2006
is $23,535. |
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(3) |
|
Mr. Child waived his cash compensation for 2006 and prior
years. |
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(4) |
|
As of December 31, 2006, Messrs. Gauthier and Hurley
each owned options to purchase 20,000 shares, none of which
were vested. All of such options were granted on April 18,
2006 at an exercise price of $5.37 per share that vest over
four years. The grant date fair value of each such option award
issued in 2006 is $57,188. |
Director
Compensation Plan
Our non-employee director compensation plan provides for both
cash and equity compensation for our non-employee directors.
Directors who are also our employees receive no additional
compensation for their service as directors. The principal
features of the non-employee director compensation plan as in
effect for 2006 are described below. The Board determines
director compensation based upon the review and recommendation
of the Compensation Committee. The Board approved a compensation
plan in 2004 and adopted the compensation plan described below
in June 2006 after consideration of an independent director
compensation survey and consideration of director compensation
at certain publicly held companies in our industry or with which
the directors were familiar that are comparable in size to the
Company. In both 2004 and 2006, management of the Company
gathered director compensation information for comparable
companies and developed preliminary recommendations for
consideration by the Compensation Committee and the Board. We
plan to review director compensation on an annual basis. In
2007, the Compensation Committee retained an independent
compensation and survey firm to conduct a peer review and make
recommendations on the Companys director compensation
program going forward.
We also reimburse directors for all reasonable
out-of-pocket
expenses incurred for attending Board and committee meetings.
Non-employee directors do not receive any additional payments or
perquisites.
Our Certificate of Incorporation limits the personal liability
of our directors for breaches by them of their fiduciary duties.
Our Certificate of Incorporation requires us to indemnify our
directors to the fullest extent permitted by the Delaware
General Corporation Law. We have also entered into
indemnification agreements with all of our directors and we have
purchased directors and officers liability insurance.
9
Cash
Compensation
Our non-employee directors have the right to receive the annual
retainers from us set forth in the table below. Directors do not
receive separate fees for attending meetings of the Board,
committees or stockholders.
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Prior to
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Effective
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June 2006
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June 2006
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Board Retainer
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$
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30,000
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$
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30,000
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Audit Committee Retainers
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Chair
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$
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20,000
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Non-Chair
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$
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10,000
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Compensation Committee Retainers
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Chair
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$
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15,000
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Non-Chair
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$
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7,500
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Nominating and Corporate
Governance Committee Retainers Chair
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$
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10,000
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Non-Chair
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$
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5,000
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Equity
Compensation
Pursuant to the non-employee director compensation plan that we
adopted in 2006, non-employee directors continuing in office
after our 2007 annual meeting of stockholders will receive,
effective following the meeting, a grant of stock options to
purchase 6,667 shares of our common stock vesting in four
equal annual installments. Also pursuant to the non-employee
director compensation plan, the Board approved the grant of
options to purchase 6,667 shares of common stock to each of
Messrs. Blair, Child, Dalton and Krupke in June 2006, as
describe in Note 2 to the Director Compensation table
above. Upon initial election to the Board, each new non-employee
director receives a grant of stock options to purchase
20,000 shares of our common stock vesting in four equal
annual installments. The Board approved the grant of options to
purchase 20,000 shares of common stock to each of
Messrs. Gauthier and Hurley upon their election to the
Board in April 2006, as described in note 4 to the Director
Compensation table above. The exercise price of each of these
stock options was not less than the fair market value of our
common stock on the date of grant. Our non-employee directors
stock option plan is described under Executive
Compensation 2000 Incentive Compensation Plan, 2006
Incentive Compensation Plan and Non-Employee Directors Stock
Plan.
PROPOSAL 2:
RATIFICATION OF APPOINTMENT OF
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Deloitte & Touche LLP currently serves as our
independent registered public accounting firm and audited our
consolidated financial statements for the year ended
December 31, 2006. Our Audit Committee has appointed
Deloitte & Touche LLP to serve as our independent
registered public accounting firm for 2007, and to conduct
audits of our consolidated financial statements, of
managements assessment of internal control over financial
reporting, and of our internal control over financial reporting,
for the year ending December 31, 2007.
Our Audit Committee is responsible for selecting and appointing
our independent registered public accounting firm, and this
appointment is not required to be ratified by our stockholders.
However, our Audit Committee has recommended that the Board of
Directors submit this matter to the stockholders as a matter of
good corporate practice. If the stockholders fail to ratify the
appointment, the Audit Committee will reconsider whether to
retain Deloitte & Touche LLP, and may retain that firm
or another without re-submitting the matter to our stockholders.
Even if the appointment is ratified, the Audit Committee may, in
its discretion, direct the appointment of a different
independent registered public accounting firm at any time during
the year if it determines that such a change would be in the
best interests of IPG Photonics and our stockholders.
10
In order to pass, this proposal must receive a majority of the
votes cast with respect to this matter. We will count
abstentions but not broker non-votes when we tabulate votes cast
and, as a result, an abstention with respect to this proposal
will have the same effect as a vote against the proposal.
We expect that representatives of Deloitte & Touche LLP
will attend the meeting, will have an opportunity to make a
statement if they desire to do so, and will be available to
respond to appropriate questions.
OUR BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE FOR THE
PROPOSAL TO RATIFY THE APPOINTMENT OF DELOITTE &
TOUCHE LLP AS OUR INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
FOR 2007.
Fees Paid
to Deloitte & Touche LLP
The fees for services provided by Deloitte & Touche
LLP, member firm of Deloitte Touche Tohmatsu, and their
respective affiliates (collectively, Deloitte &
Touche), to the Company in the last two fiscal years were
as follows:
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Fees
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Fee Category
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2006
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2005
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Audit fees
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$
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1,033,375
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$
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293,185
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Tax fees
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20,671
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47,113
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|
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Total Fees
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|
$
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1,054,046
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|
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$
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340,298
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|
|
|
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Audit fees. These fees comprise fees
for professional services rendered in connection with the audit
of the Companys consolidated financial statements that are
customary under auditing standards generally accepted in the
United States. Audit fees also include fees for consents for SEC
filings. During 2006, the audit fees related to various audit
services associated with the initial public offering of our
common stock (the IPO) totaled $0.8 million.
Tax fees. Fees for tax services
consisted of fees for tax compliance services and tax planning
and advice services.
Tax compliance services are services rendered based upon facts
already in existence or transactions that have already occurred
to document, compute and obtain government approval for amounts
to be included in tax filings and consisted of (i) federal,
state and local income tax return assistance, (ii) sales
and use, property and other tax return assistance and
(iii) assistance with tax audits and appeals.
Tax planning and advice are services rendered with respect to
proposed transactions or that alter a transaction to obtain a
particular tax result. Such services consisted of tax advice
related to (i) certain internal legal restructuring actions
and other intra-group restructuring actions, (ii) transfer
pricing and (iii) other miscellaneous consultations.
The Audit Committee has concluded that the provision of the
non-audit services listed above is consistent with maintaining
the independence of Deloitte & Touche.
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 independent registered public
accounting firm. These services may include audit services,
audit-related services and tax services as well as specifically
designated non-audit services that, in the opinion of the Audit
Committee, will not impair the independence of the independent
registered public accounting firm. Pre-approval is generally
provided for each fiscal 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 our 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
11
pre-approval,
including the fees for the services performed to date. In
addition, the Audit Committee also may pre-approve particular
services on a
case-by-case
basis, as required.
AUDIT
COMMITTEE REPORT
The primary role of the Audit Committee is to assist the Board
of Directors in fulfilling its oversight responsibilities by
reviewing the financial information proposed to be provided to
stockholders and others, the adequacy of the system of internal
control over financial reporting and disclosure controls and
procedures established by management and the Board, and the
audit process and the independent auditors qualifications,
independence and performance.
Management is responsible for establishing and maintaining the
Companys system of internal controls and for preparation
of the Companys financial statements. The Companys
independent registered public accounting firm,
Deloitte & Touche LLP, is responsible for performing an
audit of the Companys consolidated financial statements in
accordance with generally accepted auditing standards and
issuing an opinion on the financial statements. The Audit
Committee has met and held discussions with management and the
Companys independent auditors, and has also met separately
with the Companys independent auditors, without management
present, to review the adequacy of the Companys internal
controls, financial reporting practices and audit process.
The Audit Committee has reviewed and discussed the
Companys audited consolidated financial statements for the
year ended December 31, 2006 with management and the
independent auditors. As part of this review, the Audit
Committee discussed with Deloitte & Touche LLP the
communications required by generally accepted auditing
standards, including those described in Statement on Auditing
Standards No. 61, as amended, Communication with
Audit Committees.
The Audit Committee has received from Deloitte & Touche
LLP a written statement describing all relationships between
that firm and the Company that might bear on the auditors
independence, consistent with Independence Standards Board
Standard No. 1, Independence Discussions with
Audit Committees. The Audit Committee has discussed
the written statement with the independent auditors and has
considered whether the independent auditors provision of
any consultation and other non-audit services to the Company is
compatible with maintaining the auditors independence.
Based on the above-mentioned reviews and discussions with
management and the independent auditors, the Audit Committee
recommended to the Board of Directors that the Companys
audited consolidated financial statements be included in its
Annual Report on
Form 10-K
for the year ended December 31, 2006, as filed with the SEC.
AUDIT COMMITTEE
William S. Hurley, Chair
Michael C. Child
Henry E. Gauthier
12
Executive
Officers
The following table sets forth certain information regarding our
executive officers as of April 27, 2007.
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Name
|
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Age
|
|
Position
|
|
Valentin P.
Gapontsev, Ph.D.
|
|
|
68
|
|
|
Chief Executive Officer and
Chairman of the Board
|
Eugene
Shcherbakov, Ph.D.
|
|
|
59
|
|
|
Managing Director of IPG Laser
|
Timothy P.V. Mammen
|
|
|
37
|
|
|
Chief Financial Officer and Vice
President
|
Angelo P. Lopresti
|
|
|
43
|
|
|
General Counsel, Secretary and
Vice President
|
Alexander
Ovtchinnikov, Ph.D.
|
|
|
46
|
|
|
Vice President-Components
|
George H. BuAbbud, Ph.D.
|
|
|
52
|
|
|
Vice President-Telecommunications
Products
|
Denis Gapontsev, Ph.D.
|
|
|
34
|
|
|
Vice President-Research and
Development
|
Igor Samartsev
|
|
|
44
|
|
|
Acting General Manager of NTO
IRE-Polus
|
William Shiner
|
|
|
60
|
|
|
Vice President-Industrial Markets
|
The biographies of Dr. Valentin P. Gapontsev,
Dr. Shcherbakov and Mr. Samartsev are presented on
pages 3 and 4. The biographies of our other executive
officers are presented below.
Timothy P.V. Mammen has served as our Chief
Financial Officer since July 2000 and a Vice President since
November 2000. Between May 1999 and July 2000, Mr. Mammen
served as the Group Finance Director and General Manager of the
United Kingdom operations for IPFD. Mr. Mammen was Finance
Director and General Manager of United Partners Plc, a
commodities trading firm, from 1995 to 1999 and prior to that he
worked in the finance department of E.I. du Pont de Nemours and
Company. Mr. Mammen holds an Upper Second B.Sc. Honours
degree in International Trade and Development from the London
School of Economics and Political Science and is a Chartered
Accountant and a member of the Institute of Chartered
Accountants of Scotland.
Angelo P. Lopresti has served as our General
Counsel and Secretary and one of our Vice Presidents since
February 2001. Prior to joining us, Mr. Lopresti was a
partner at the law firm of Winston & Strawn from 1999
to 2001. Prior to that, he was a partner at the law firm of
Hertzog, Calamari & Gleason from 1998 to 1999 and an
associate there from 1991 to 1998. Mr. Lopresti holds a
B.A. in Economics from Trinity College and a J.D. from the New
York University School of Law.
Alexander Ovtchinnikov, Ph.D., has served as
our Vice President, Components, since September 2005 and as
Director of Material Sciences from October 2001 to September
2005. Prior to joining us, Dr. Ovtchinnikov was Material
Science Manager of Lasertel, Inc., a maker of high-power
semiconductor lasers, from 1999 to 2001. For 15 years prior
to joining Lasertel, Inc., he worked on the development and
commercialization of high power diode pump technology at the
Ioffe Institute, Tampere University of Technology, Coherent,
Inc. and Spectra-Physics Corporation. He holds an M.S. in
Electrical Engineering from the Electrotechnical University of
St. Petersburg, Russia, and a Ph.D. from Ioffe Institute of the
Russian Academy of Sciences.
George H. BuAbbud, Ph.D., has served as our
Vice President, Telecommunications Products, since July 2002.
Prior to joining us, Dr. BuAbbud was Vice President and
Chief Technical Officer for the Access Network Systems division
of Marconi Communications, Inc., a maker of telecommunications
systems, from 1999 to 2002. He holds a B.E. in Electrical
Engineering from the American University of Beirut and an
M.Sc. and a Ph.D. in Electrical Engineering from the
University of Nebraska.
Denis Gapontsev, Ph.D., has served as our
Vice President of Research and Development since August 2000.
From 2000 until 2005, he was also a member of our Board of
Directors. From 1994 to 1996, Dr. Gapontsev worked as a
scientist at NTO IRE-Polus. He worked at IPFD from 1996 to 1998
and at IPG Laser from 1999 to 2000, where he researched fiber
lasers and raman fiber lasers. Dr. Gapontsev holds a
B.S. and an M.S. in Physics from the Moscow Physics and
Technology Institute and a Ph.D. from the University of London.
He is the son of Dr. Valentin P. Gapontsev.
13
William Shiner has served as our Vice
President-Industrial Markets since March 2007 and as Director of
Industrial Markets since August 2002. Prior to joining us,
Mr. Shiner was Vice President of Sales and Marketing for
Coherent Industrial from 1980 to 1995 and Chief Operating
Officer for Convergent Prima from 1995 to 2002. He is the
current President of the Laser Institute of America.
Mr. Shiner holds a B.S.E.E. and an M.B.A. from Northeastern
University.
COMPENSATION
DISCUSSION AND ANALYSIS
Overview
This compensation discussion and analysis describes the material
elements of compensation awarded to, earned by or paid to our
Chief Executive Officer, Chief Financial Officer and our three
other most highly compensated executive officers, each as named
in the tables below. We refer to all of these officers as
named executive officers. While this compensation
discussion focuses primarily on the information contained in the
following tables and related footnotes, as well as the narrative
relating to the last completed fiscal year, we also describe
compensation actions taken before or after the last completed
fiscal year to the extent that such discussion enhances the
understanding of our executive compensation disclosure.
We believe that our success depends on the continued
contributions of our named executive officers. Our executive
compensation programs are designed with the philosophy of
attracting, motivating and retaining experienced and qualified
executive officers and directors and recognizing individual
merit and overall business results. Our policies are also
intended to support the attainment of our strategic objectives
by tying the interests of our executive officers with those of
our stockholders through financial and operational performance
goals and equity-based compensation.
The principal elements of our executive compensation programs
are base salary, annual cash incentives, long-term equity
incentives in the form of stock options, and other benefits and
perquisites. Our salary and benefits are intended to be
competitive with those of similarly situated companies and our
objective is to position the aggregate of these elements at a
level that is commensurate with our size and sustained
performance.
Compensation
Program Objectives and Philosophy
In
General
The objectives of our compensation programs are to:
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attract and retain talented and experienced executives;
|
|
|
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motivate and reward executives whose knowledge, skills and
performance are critical to achieving strategic business
objectives;
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align the interests of our executive officers and stockholders
by motivating executive officers to increase stockholder value;
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incent future contributions through both short-term and
long-term financial incentives to build a sustainable company
and foster the creation of stockholder value; and
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foster a shared commitment among executives through
establishment of uniform company goals.
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In order to be effective, we believe our executive compensation
program should meet the needs of the Company, our employees and
our stockholders. We seek to provide direct compensation that is
competitive, but believe that a portion of total compensation
should be performance-based and in the form of equity awards.
14
How We
Determine and Assess Executive Compensation
The Compensation Committee of our Board of Directors, composed
entirely of independent directors, determines and approves the
compensation of our executive officers, including our named
executive officers. Our Compensation Committee is also
responsible for making recommendations to the Board with respect
to the adoption of stock and benefit plans. The Compensation
Committee may delegate authority whenever it deems appropriate,
but it did not do so in 2006.
Our Compensation Committees policy is to set senior
executive pay in accordance with the objectives of the
Companys compensation programs as described above. In our
view, the Companys executive compensation program provides
an overall level of compensation opportunity that is competitive
with other companies in the laser source and photonics industry,
as well as with a broader group of companies of comparable size
and complexity that have similar growth rates and international
scope. Actual compensation levels may be greater or less than
average competitive levels provided by similar companies based
upon annual and long-term Company performance, as well as
individual performance, contributions, skills, experience and
responsibilities.
Prior to December 2005, the non-management members of our Board
of Directors determined and approved the compensation of our
executive officers and negotiated employment agreements to
retain key management and provide stability during our critical
periods of growth. In December 2005, the Compensation Committee
assumed the responsibilities of determining and approving
executive officer compensation in addition to the other matters
set forth in the Compensation Committee charter. The
Compensation Committee is now comprised of three independent
directors, two of whom have experience serving on the boards of
directors and compensation committees of publicly traded
companies. One such member was the president and chief executive
officer of a publicly traded laser company. The Compensation
Committee met outside the presence of all of our executive
officers to consider the appropriate compensation for our Chief
Executive Officer. For all other named executive officers, the
Compensation Committee met outside the presence of all executive
officers except for our Chief Executive Officer. In 2006, our
Chief Executive Officer reviewed the performance of our
executive officers with the Compensation Committee and made
recommendations to the Compensation Committee with respect to
those executive officers base salary, annual cash
incentive plan targets and awards, and the grant of long-term
equity incentive awards to such executive officers. Executives
of the Company assisted the Chief Executive Officer in making
recommendations to the Compensation Committee with respect to
annual cash incentive plan targets and awards. For our Chief
Executive Officer, the Compensation Committee analyzed the
performance of our Chief Executive Officer and independently
reviewed and determined his base salary, annual cash incentive
plan and the grant of long-term equity incentive awards to him.
For all other named executive officers, the Compensation
Committee approved the annual compensation package based on
recommendations by our Chief Executive Officer and the other
considerations discussed below. In 2007, the Compensation
Committee retained an independent compensation and survey firm
to conduct a peer review and make recommendations on the
Companys overall executive compensation program going
forward.
Base Salary. Our named executive officers and
other executives earn a competitive annual base salary that is
not subject to our performance risk, so that the Company is able
to attract and retain employees with an appropriate caliber of
talent for the particular position. Base salaries for our
executives are established based on the scope of their
responsibilities and their prior relevant background, training,
experience and compensation levels, taking into account
competitive market compensation and the overall market demand
for such executives at the time of hire. An executives
base salary is also evaluated from time to time together with
other components of the executives compensation to ensure
that the executives total compensation is in line with our
overall compensation philosophy.
Historically, base salaries are reviewed upon the expiration of
the executives employment agreement and for merit reasons.
In the future, base salaries will be reviewed periodically and
increased for merit reasons, based on the executives
individual performance and an assessment of whether significant
corporate goals were achieved. If necessary, we may also realign
base salaries with market levels for the same positions in
companies of similar size if we identify significant market
changes in our data analysis.
15
Based upon its review, the Compensation Committee approved
increases in the annual base salaries of the following named
executives in 2006: Dr. Shcherbakov, from $259,000 to
$280,000; Mr. Mammen, from $200,000 to $270,000;
Mr. Lopresti, from $263,000 to $270,000; and
Dr. Ovtchinnikov, from $200,000 to $240,000.
Dr. Gapontsevs base salary was not increased in 2006.
Annual Cash Incentives under our Non-Equity Incentive
Plan. We provide the opportunity for our named
executive officers and other executives to earn an annual cash
incentive award. We provide this opportunity to attract and
retain an appropriate caliber of talent for the position and to
motivate executives to achieve our financial and other business
objectives. Annual cash incentives are granted under our Senior
Executive Short-Term Incentive Plan (STIP) that was
adopted in 2005. The STIP is administered by the Compensation
Committee, which has discretion to determine the type of award,
whether cash or non-cash, granted pursuant to the terms of the
STIP. Historically, the emphasis of the STIP has been on
company-wide performance goals in order to foster a shared
commitment among executives. Generally, award levels for
executives are the same as a percentage of salary, except for
the Chief Executive Officer who generally receives awards at a
greater percentage of salary than the other officers for
achievement of the same performance goals. Within ninety days
after the start of each fiscal year, the Compensation Committee
determines who is eligible to receive awards under the STIP,
establishes performance goals and objectives for those eligible
employees, establishes target awards for each participant of up
to 200% of the participants base salary and, if
applicable, deferred compensation, for the relevant performance
period, and determines what percentage of the target award
should be allocated to the achievement of each of the chosen
performance targets.
Early in 2006, the Compensation Committee identified two
financial performance measures, net sales and earnings before
taxes (excluding equity-based compensation, bonus accruals and
non-cash charges), each as determined under the STIP, and
assigned a 50% weighting factor to each performance measure.
Consistent with our
pay-for-performance
philosophy, no payments for the financial measures would be made
if the minimum objectives established by the Compensation
Committee in 2006 were not met. The Compensation Committee
considered the chosen metrics to be the best indicators of
financial performance and creation of stockholder value.
Upon the achievement of the objectives for each performance
measure determined by the Compensation Committee, participants
could receive a cash incentive payment ranging from 45% (upon
achievement of the minimum level of performance) to 113% (upon
achievement of the maximum level of performance) of base salary
for Dr. Valentin Gapontsev, and from 30% (upon achievement
of the minimum level of performance to 75% upon achievement of
the maximum level of performance) of base salary for the other
named executive officers and other participants in the STIP.
Company-wide performance objectives were established in
recognition that the attainment of these goals is a team effort
and to ensure that the incentives were consistent with the
strategic goals set by the Board. The financial and
non-financial objectives were the same for all named executive
officers. While objectives were intended to be achievable by the
Company, a maximum bonus would require very high levels of
Company performance, which we believe are possible but very
difficult to achieve. In the two years that we have operated the
STIP, we have not paid the maximum award amount to any executive.
The Compensation Committee strove to set aggressive performance
objectives, including minimum and maximum targets for net sales
from $138 million to $180 million, representing annual
growth levels of 43% to 86% from the prior year. The minimum and
maximum earnings before taxes targets were set from
$31 million to $58 million, representing growth levels
of 120% to 311% from the prior year level. The Compensation
Committee also set a non-financial objective whereby
participants would receive a cash incentive payment of 25% of
base salary if the Company completed its IPO in 2006. After
reviewing the Companys financial performance for fiscal
year 2006 and the achievement of the non-financial objective in
2006, the Compensation Committee awarded the named executive
officers the amounts set forth in the Non-Equity Incentive
Plan Compensation column of the 2006 Summary Compensation
Table below.
16
In 2006, there were no specific individual performance
objectives for incentive awards under the STIP, but the
Compensation Committee may exercise its discretion and take into
account individual performance in determining awards.
The Compensation Committee makes adjustments to our overall
corporate performance goals and our actual performance results
that may cause differences between the numbers used for our
performance goals and the numbers reported in our financial
statements. These adjustments may exclude all or a portion of
both the positive or negative effect of external events that are
outside the control of our executives, such as natural
disasters, litigation or changes in accounting or taxation
standards. These adjustments also may exclude all or a portion
of both the positive or negative effect of unusual or
significant strategic events that are within the control of our
executives but that are undertaken with an expectation of
improving our long-term financial performance, such as
restructurings, acquisitions or divestitures.
Long-term Equity Incentives. We provide the
opportunity for our named executive officers and other
executives to earn long-term equity incentive awards. Long-term
incentive awards provide employees with the incentive to stay
with us for longer periods of time, which, in turn, provides us
with greater stability, and directly links compensation to the
long-term performance of the Company. In addition, these awards
are less costly to us in the short term than cash compensation.
We review long-term equity incentives for our named executive
officers and other executives annually. For 2006, our long-term
equity incentive program consisted of grants of stock options.
For our named executive officers, our stock option program is
based on grants that were individually negotiated in connection
with their hiring by the Company and periodic grants to our
executives. We have traditionally used stock options as equity
compensation because stock options provide a relatively
straightforward incentive for our executives, result in less
immediate dilution of existing stockholders interests and,
prior to our adoption of FAS 123(R), resulted in less
compensation expense for us relative to other types of equity
awards. Generally, our stock options vest in four equal
installments on anniversaries of the dates of grant.
Historically, our Chief Executive Officer has not received
annual grants of stock options in light of his large stock
ownership as the founder of the Company.
In 2006, the Compensation Committee approved the grant of stock
options to all of our executives, other than the Chief Executive
Officer, in order to provide incentives for them to remain at
the Company over the long term, align their interests with those
of stockholders and provide stability as the Company
transitioned from a privately held to a publicly held company.
Prior to the grant to the named executive officers in 2006, a
significant portion of their stock options were vested. In order
to promote the retention of the named executive officers for the
long term, the Committee granted options that vest over five
years, a longer vesting schedule than the typical four-year
option vesting. In April 2006, the Compensation Committee
granted options to purchase 66,666 shares of common stock
to each of Dr. Shcherbakov and Messrs. Mammen and
Lopresti and options to purchase 100,000 shares of common
stock to Dr. Ovtchinnikov. These stock options were granted
at an exercise price of $5.37 per share, the fair market value
of the Companys common stock on the date of grant.
Severance Benefits. The employment agreements
with our named executive officers have change in control
provisions, the terms of which are described below in the
section entitled Executive Compensation
Potential Payments Upon Termination or Change in Control.
We believe these severance and change in control benefits are an
essential element of our executive compensation package, are
consistent with market practices and assist us in recruiting and
retaining talented individuals.
Other Compensation. All of our executives are
eligible to participate in our employee benefit plans, including
medical, dental, vacation and life insurance. Executives in the
United States also participate in our 401(k) plan and our
non-U.S. executives
overseas participate in government-sponsored retirement
programs. These plans are available to all salaried employees
and do not discriminate in favor of executive officers. Benefits
are intended to be competitive with the overall market in order
to facilitate attraction and retention of high-quality
employees. Subject to local customs and the international nature
of our business and management, it is generally our policy not
to extend significant perquisites to our executives that are not
generally available to our employees. Dr. Gapontsev uses
Company-owned housing located on the site of our Burbach,
Germany
17
factory and is provided with an automobile leased by the Company
for Company business when he visits our German operations.
Because of the Companys multiple locations and the Chief
Executive Officers travel demands, the Company believes
that the use of Company-owned housing and a leased automobile
are cost-effective and necessary to enable the Chief Executive
Officer to perform his duties. The Company also provides
Dr. Shcherbakov with an automobile, as it does to other
high-ranking employees in Germany. We have no current plans to
make changes to levels of benefits and perquisites provided to
executives.
Other
Factors Affecting Compensation
Tax
Deductibility Under Section 162(m)
Section 162(m) of the Internal Revenue Code of 1986 as
amended, limits the deductibility for federal income tax
purposes of certain compensation paid in any year by a publicly
held corporation to its chief executive officer and its four
other most highly compensated officers to $1 million per
executive (the $1 million cap). The
$1 million cap does not apply to
performance-based compensation as defined under
Section 162(m) or to compensation paid pursuant to
certain plans that existed prior to a corporation becoming
publicly held. Historically, none of our executive
officers has received annual compensation in an amount that
would be subject to limitation under Section 162(m). Once
the transition rules are no longer available, it is intended
that stock option awards made under the Companys 2006
Incentive Compensation Plan will qualify as
performance-based compensation for purposes of
Section 162(m). We believe we can continue to preserve
related federal income tax deductions, although individual
exceptions may arise. The Compensation Committees policy
with respect to Section 162(m) is to make a reasonable
effort to cause compensation to be deductible by the Company
while simultaneously providing our executive officers with
appropriate rewards for their performance.
Accounting
Considerations
The Company considers the accounting implications of all aspects
of its executive compensation program. With the adoption of
FAS 123(R), we do not expect accounting treatment of
differing forms of equity awards to vary significantly and,
therefore, accounting treatment is not expected to have a
material effect on our selection of forms of equity
compensation. In addition, accounting treatment is just one of
many factors impacting plan design and pay determinations. Our
executive compensation program is designed to achieve the most
favorable accounting and tax treatment possible as long as doing
so does not conflict with intended plan design or program
objectives.
COMPENSATION
COMMITTEE REPORT
The Compensation Committee of the Board of Directors has
reviewed and discussed with management the Compensation
Discussion and Analysis included in this proxy statement. Based
on this review and discussion, the Committee recommended to the
Board of Directors that the Compensation Discussion and Analysis
be included in the Companys proxy statement for the
Companys 2007 annual meeting of stockholders.
COMPENSATION COMMITTEE
Robert A. Blair, Chair
Michael C. Child
Henry E. Gauthier
18
EXECUTIVE
COMPENSATION
2006
Summary Compensation Table
The following table sets forth information regarding
compensation earned in 2006 by our Chief Executive Officer, our
Chief Financial Officer and our three other most highly
compensated executives:
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Non-Equity
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Option
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Incentive Plan
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All Other
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Salary
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Bonus
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Awards
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Compensation
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Compensation
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Total
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Name and Principal Position
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Year
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($)
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($)
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($)(1)
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($)(2)
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($)(3)
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($)
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Valentin P. Gapontsev, Ph.D.,
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2006
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359,287
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266,400
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38,729
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664,416
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Chief Executive Officer and
Chairman of the Board(4)
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Timothy P.V. Mammen,
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2006
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257,346
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28,302
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155,250
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7,009
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447,907
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Chief Financial Officer and Vice
President
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Eugene Shcherbakov, Ph.D.,
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2006
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291,432
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26,876
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161,027
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21,612
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500,947
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Managing Director of IPG Laser and
Director(5)
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Angelo P. Lopresti,
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2006
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268,563
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28,302
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155,250
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7,017
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459,132
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General Counsel, Secretary and
Vice President
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Alexander Ovtchinnikov, Ph.D.,
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2006
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258,922
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41,738
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138,000
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6,854
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445,514
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Vice President
Components
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(1) |
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Valuation based on the dollar amount of option grants recognized
for financial statement reporting purposes pursuant to
SFAS 123(R) with respect to 2006. The assumptions that we
used with respect to the valuation of option grants are set
forth in Note 2 to our Consolidated Financial Statements in
our Annual Report on
Form 10-K
filed with the SEC on March 29, 2007. |
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Represents amounts earned under our Senior Executive Short-Term
Incentive Plan for services rendered in 2006. |
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(3) |
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The amount for Dr. Gapontsev consists of (i) $403 in
premiums paid for group term life insurance, (ii) $5,656 in
health care premiums paid in excess of group health coverage in
the United States, (iii) $4,022 in health care premiums
paid in Germany and (iv) $12,903 in actual costs incurred
by the Company to provide Dr. Gapontsev housing in Germany
and $15,745 in actual costs incurred by the Company to lease a
car for Dr. Gapontsev in Germany, both for his use during
his periodic visits to our factory there. Amounts for
Messrs. Mammen and Lopresti and Dr. Ovtchinnikov
include matching contributions to retirement accounts under our
401(k) plan and our payment of group term life insurance
premiums. The amount for Dr. Shcherbakov includes the
expense of an automobile provided by the Company. |
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(4) |
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Portions of the amounts paid to Dr. Gapontsev were
denominated in Euros and Rubles. These were translated into
U.S. Dollars at the respective average daily exchange rates
for 2006. |
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(5) |
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A portion of the amounts paid to Dr. Shcherbakov was
denominated in Euros. This was translated into U.S. Dollars
at the average daily exchange rate for 2006. |
Employment
Agreements
On March 1, 2006, we entered into employment agreements
with Dr. Gapontsev, Dr. Shcherbakov,
Messrs. Mammen and Lopresti, and Dr. Ovtchinnikov.
These agreements are for a two-year term of employment, except
that the term of Dr. Gapontsevs agreement is three
years. All of these agreements will be automatically renewed
upon the completion of their initial terms for successive
one-year periods unless either we or the executive officer gives
180 days prior written notice of intent not to extend
the agreement. The agreements entitle these executive officers
to participate in any bonus plans, standard insurance plans,
such as life, accidental death and dismemberment, short-term
disability and long-term disability insurance, and retirement
benefits, such as the 401(k) plan and stock option plans
described above, on similar terms and on a
19
similar basis as such benefits are available to executives at
similar levels within the organization. The agreements for
Drs. Gapontsev, Shcherbakov and Ovtchinnikov require each
of them to refrain from competing with us for a period of one
year following the termination of their employment with us for
any reason and from hiring our employees or soliciting our
customers for a period ending on the later of March 1, 2008
or 18 months following the termination of their employment
with us for any reason. These employment agreements also provide
for payment of any unpaid bonus award to the respective
executive officer in the event his employment with us is
terminated as a result of his disability or to his estate if his
employment is terminated as a result of his death.
We have also entered into indemnification agreements with all of
our named executive officers, and we have purchased
directors and officers liability insurance. Our
Certificate of Incorporation limits the personal liability of
our officers for breaches by them of their fiduciary duties. Our
Certificate of Incorporation requires us to indemnify our
officers to the fullest extent permitted by the Delaware General
Corporation Law.
2006
Grants of Plan-Based Awards
The following table sets forth information regarding plan-based
awards to our named executive officers in 2006, including
potential award amounts available under our STIP for 2006, the
actual amounts of which were determined and reported in the
Summary Compensation Table above under the column entitled
Non-Equity Incentive Plan Compensation:
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All Other
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Stock
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Awards:
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Grant Date
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Number of
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Exercise or
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Fair Value
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Shares of
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Base Price
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of Stock
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Estimated Possible Payouts Under
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Stock or
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of Option
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and Option
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Grant
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Non-Equity Incentive Plan Awards ($)(1)
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Units
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Awards
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Awards
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Name
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Date
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Threshold
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Target
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Maximum
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(#)
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($/Sh)
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($)(2)
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Valentin P. Gapontsev
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3/14/2006
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252,000
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496,800
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Timothy P.V. Mammen
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3/14/2006
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148,500
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270,000
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4/18/2006
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|
|
|
|
|
|
|
|
|
|
66,667
|
|
|
|
5.37
|
|
|
|
190,628
|
|
Eugene Shcherbakov
|
|
|
3/14/2006
|
|
|
|
|
|
|
|
154,000
|
|
|
|
280,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4/18/2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
66,667
|
|
|
|
5.37
|
|
|
|
190,628
|
|
Angelo P. Lopresti
|
|
|
3/14/2006
|
|
|
|
|
|
|
|
148,500
|
|
|
|
270,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4/18/2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
66,667
|
|
|
|
5.37
|
|
|
|
190,628
|
|
Alex Ovtchinnikov
|
|
|
3/14/2006
|
|
|
|
|
|
|
|
132,500
|
|
|
|
240,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4/18/2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
100,000
|
|
|
|
5.37
|
|
|
|
285,940
|
|
|
|
|
(1) |
|
Amounts shown represent amounts that were available under the
STIP for 2006. |
|
(2) |
|
The value of an option award is based on the fair value as of
the grant date of such award determined pursuant to
SFAS 123(R). The assumptions that we used with respect to
the valuation of option grants are set forth in Note 2 to
our Consolidated Financial Statements in our Annual Report on
Form 10-K
filed with the SEC on March 29, 2007. The option exercise
price has not been deducted from the amounts indicated above.
Regardless of the value placed on a stock option on the grant
date, the actual value of the option will depend on the market
value of our common stock at such date in the future when the
option is exercised. All such options were granted under our
2006 Incentive Compensation Plan. |
20
Outstanding
Equity Awards as of December 31, 2006
The following table provides information regarding unexercised
stock options held by each of our named executive officers as of
December 31, 2006. The option awards with an expiration
date of April 18, 2016 in the table below are also reported
in the 2006 Grants of Plan-Based Awards table above:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Securities
|
|
|
Securities
|
|
|
|
|
|
|
|
|
|
|
|
|
Underlying
|
|
|
Underlying
|
|
|
|
|
|
|
|
|
|
|
|
|
Unexercised
|
|
|
Unexercised
|
|
|
Option
|
|
|
|
|
|
|
|
|
|
Options
|
|
|
Options
|
|
|
Exercise
|
|
|
Option
|
|
|
|
|
|
|
(#)
|
|
|
(#)
|
|
|
Price
|
|
|
Expiration
|
|
Name
|
|
Grant Date
|
|
|
Exercisable
|
|
|
Unexercisable
|
|
|
($)(1)
|
|
|
Date
|
|
|
Valentin P. Gapontsev
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Timothy P.V. Mammen
|
|
|
5/1/1999
|
|
|
|
66,667
|
|
|
|
|
|
|
$
|
1.50
|
|
|
|
5/1/2009
|
|
|
|
|
6/14/2002
|
|
|
|
33,334
|
|
|
|
|
|
|
$
|
1.50
|
|
|
|
6/14/2012
|
|
|
|
|
6/14/2002
|
|
|
|
14,431
|
|
|
|
|
|
|
$
|
1.50
|
|
|
|
6/14/2012
|
|
|
|
|
9/20/2002
|
|
|
|
25,000
|
|
|
|
|
|
|
$
|
1.50
|
|
|
|
9/20/2012
|
|
|
|
|
3/18/2003
|
|
|
|
16,878
|
|
|
|
|
|
|
$
|
1.50
|
|
|
|
3/18/2013
|
|
|
|
|
6/10/2003
|
|
|
|
2,308
|
|
|
|
|
|
|
$
|
1.50
|
|
|
|
6/10/2013
|
|
|
|
|
3/3/2004
|
|
|
|
11,111
|
|
|
|
5,556
|
(2)
|
|
$
|
1.50
|
|
|
|
3/3/2014
|
|
|
|
|
3/3/2004
|
|
|
|
16,667
|
|
|
|
|
|
|
$
|
1.50
|
|
|
|
3/3/2014
|
|
|
|
|
9/22/2005
|
|
|
|
3,333
|
|
|
|
10,001
|
(3)
|
|
$
|
1.88
|
|
|
|
9/22/2015
|
|
|
|
|
4/18/2006
|
|
|
|
|
|
|
|
66,667
|
(4)
|
|
$
|
5.37
|
|
|
|
4/18/2016
|
|
Eugene Shcherbakov
|
|
|
4/18/2006
|
|
|
|
|
|
|
|
66,667
|
(4)
|
|
$
|
5.37
|
|
|
|
4/18/2016
|
|
Angelo P. Lopresti
|
|
|
6/14/2002
|
|
|
|
100,000
|
|
|
|
|
|
|
$
|
1.50
|
|
|
|
6/14/2012
|
|
|
|
|
6/14/2002
|
|
|
|
18,039
|
|
|
|
|
|
|
$
|
1.50
|
|
|
|
6/14/2012
|
|
|
|
|
9/20/2002
|
|
|
|
12,500
|
|
|
|
|
|
|
$
|
1.50
|
|
|
|
9/20/2012
|
|
|
|
|
3/18/2003
|
|
|
|
16,827
|
|
|
|
|
|
|
$
|
1.50
|
|
|
|
3/18/2013
|
|
|
|
|
6/10/2003
|
|
|
|
2,885
|
|
|
|
|
|
|
$
|
1.50
|
|
|
|
6/10/2013
|
|
|
|
|
3/3/2004
|
|
|
|
11,111
|
|
|
|
5,556
|
(2)
|
|
$
|
1.50
|
|
|
|
3/3/2014
|
|
|
|
|
3/3/2004
|
|
|
|
16,667
|
|
|
|
|
|
|
$
|
1.50
|
|
|
|
3/3/2014
|
|
|
|
|
9/22/2005
|
|
|
|
3,333
|
|
|
|
10,001
|
(3)
|
|
$
|
1.88
|
|
|
|
9/22/2015
|
|
|
|
|
4/18/2006
|
|
|
|
|
|
|
|
66,667
|
(4)
|
|
$
|
5.37
|
|
|
|
4/18/2016
|
|
Alexander Ovtchinnikov
|
|
|
3/3/2004
|
|
|
|
|
|
|
|
2,222
|
(2)
|
|
$
|
1.50
|
|
|
|
3/3/2014
|
|
|
|
|
3/3/2004
|
|
|
|
|
|
|
|
16,667
|
(3)
|
|
$
|
1.50
|
|
|
|
3/3/2014
|
|
|
|
|
9/22/2005
|
|
|
|
933
|
|
|
|
10,001
|
(3)
|
|
$
|
1.88
|
|
|
|
9/22/2015
|
|
|
|
|
4/18/2006
|
|
|
|
|
|
|
|
100,000
|
(4)
|
|
$
|
5.37
|
|
|
|
4/18/2016
|
|
|
|
|
(1) |
|
Represents the fair market value of a share of our common stock
on the grant date of the option. |
|
(2) |
|
Assuming the continued service of the named executive officer,
each option vests and becomes exercisable in three equal annual
installments on each of the first three anniversaries of the
date of grant. |
|
(3) |
|
Assuming the continued service of the named executive officer,
each option vests and becomes exercisable in four equal annual
installments on each of the first four anniversaries of the date
of grant. |
|
(4) |
|
Assuming the continued service of the named executive officer,
each option vests and becomes exercisable in five equal annual
installments on each of the first five anniversaries of the date
of grant. |
2000
Incentive Compensation Plan, 2006 Incentive Compensation Plan
and Non-Employee Directors Stock Plan
In April 2000, our Board of Directors adopted our 2000 Incentive
Compensation Plan, or 2000 plan, and in February 2006, our Board
of Directors adopted our 2006 Incentive Compensation Plan, or
2006 plan. The
21
2000 plan and the 2006 plan have been approved by our
stockholders. We reserved 5,833,333 shares under the 2000
plan and 4,000,000 shares under the 2006 plan for the
issuance of awards under the plans. Other than the number of
shares reserved, the plans are substantially identical. Each
plan will terminate ten years after its adoption, unless
terminated earlier by our Board of Directors.
The 2000 plan and the 2006 plan are administered by the
Compensation Committee of our Board of Directors. The committee
approves awards under the plans, including the exercise price
and other terms of each award, subject to the provisions of the
plans and has general authority to administer the plans,
including to accelerate the vesting of awards and grant awards
in replacement of previously granted awards.
Each plan authorizes the grant of options to purchase common
stock intended to qualify as incentive stock options, as defined
in Section 422 of the Internal Revenue Code, and
nonstatutory stock options. The plans also provide for awards of
restricted stock, stock units, performance shares, performance
units, stock appreciation rights and cash awards. The 2000 plan
also provides for awards of unrestricted stock.
Our officers, directors, employees, consultants and advisors are
eligible to receive awards under the plans. No participant may
receive awards for over 1,333,333 shares of common stock in
any calendar year under the 2000 plan, or over
1,666,667 shares of common stock in any calendar year under
the 2006 plan.
In June 2006, our Board of Directors adopted our Non-Employee
Directors Stock Plan (the non-employee director plan) and in
October 2006 the non-employee director plan was approved by our
stockholders. Only our non-employee directors are eligible to
receive awards under the non-employee director plan. We reserved
166,666 shares for issuance under the non-employee director
plan. The maximum number of shares that may be issued or
transferred under the plan equals 0.75% of the number of
outstanding shares of the Company (on a fully diluted basis) at
the end of the plan year preceding the then-current plan year,
or on January 1, 2006, whichever is greater, up to a
maximum of 166,666 shares. The non-employee director plan
will terminate ten years after its adoption, unless terminated
earlier by our Board of Directors.
The non-employee director plan is administered by our
Compensation Committee. The committee approves awards under the
plan, including the exercise price and other terms of each
award, subject to the provisions of the plan and has general
authority to administer the plan, including to grant awards in
replacement of other awards. The exercise price must be at least
equal to the fair market value of our common stock on the date
of grant.
The non-employee director plan authorizes the grant of options
to purchase common stock that are not intended to qualify as
incentive stock options, as defined in Section 422 of the
Internal Revenue Code. The plan also provides for awards of
stock appreciation rights, stock units, stock awards and cash
awards.
Each of the 2000 plan and the 2006 plan provides that, upon a
change in control of the Company, the Compensation Committee
may, in its sole discretion:
|
|
|
|
|
accelerate the time for exercise or payout of all outstanding
awards;
|
|
|
|
cancel the award after notice to the holder of an outstanding
award as long as the holder receives a payment equal to the
difference between the fair market value of the award on the
date of the change in control and the exercise price per share,
if any, of such award; or
|
|
|
|
provide that all outstanding awards will be assumed by the
entity that acquires control or substituted for similar awards
by such entity.
|
In addition, in the event that the 2000 plan or 2006 plan is
terminated due to a merger or acquisition of the Company, the
Compensation Committee has the right, but not the obligation, to
direct the repurchase of outstanding stock options at a price
equal to the fair market value of the shares subject to the
repurchased options less the exercise price per share.
The non-employee director plan provides that awards become fully
vested and exercisable upon a change in control.
22
For these purposes, a change in control means the
occurrence of any of the following:
|
|
|
|
|
any person becomes a beneficial owner of our securities
representing at least 50% of the combined voting power of our
then-outstanding securities;
|
|
|
|
persons who, at the beginning of any period of two consecutive
years, were members of the Board of Directors cease to
constitute a majority of the Board of Directors unless the
election or nomination for election by the stockholders of each
new director during that two-year period is approved by at least
two-thirds of the incumbent directors then still in office;
|
|
|
|
the occurrence of a merger, sale of all or substantially all of
our assets, cash tender or exchange offer, contested election or
other business combination under circumstances in which our
stockholders immediately prior to such merger or other such
transaction do not, after such transaction, own shares
representing at least a majority of our voting power or the
surviving or resulting corporation, as the case may be; or
|
|
|
|
our stockholders approve a complete liquidation.
|
Option
Exercises and Stock Vested
The following table provides information regarding stock option
exercises by our named executive officers in 2006:
|
|
|
|
|
|
|
|
|
|
|
Option Awards
|
|
|
|
Number of Shares
|
|
|
Value Realized
|
|
|
|
Acquired on Exercise
|
|
|
on Exercise
|
|
Name
|
|
(#)
|
|
|
($)(1)
|
|
|
Valentin P. Gapontsev
|
|
|
237,252
|
|
|
$
|
3,558,780
|
|
Timothy P.V. Mammen
|
|
|
|
|
|
$
|
|
|
Eugene Shcherbakov
|
|
|
23,184
|
|
|
$
|
347,760
|
|
Angelo P. Lopresti
|
|
|
16,667
|
|
|
$
|
250,005
|
|
Alexander Ovtchinnikov
|
|
|
96,846
|
|
|
$
|
1,452,690
|
|
|
|
|
(1) |
|
There was no public trading market for our common stock on the
dates of exercise. As permitted by SEC rules, the value realized
is based upon the difference between our IPO price of
$16.50 per share and the exercise price. |
Pension
Benefits
None of our named executive officers participate in or have
account balances in qualified or nonqualified defined benefit
pension plans sponsored by us. The Compensation Committee may
elect to adopt qualified or nonqualified defined benefit pension
plans in the future if the Compensation Committee determines
that doing so is in our best interests.
Nonqualified
Deferred Compensation
None of our named executive officers participate in or have
account balances in nonqualified defined contribution plans or
other nonqualified deferred compensation plans maintained by us.
The Compensation Committee may elect to provide our officers and
other employees with nonqualified defined contribution or other
nonqualified deferred compensation benefits in the future if the
Compensation Committee determines that doing so is in our best
interests.
Potential
Payments Upon Termination or Change in Control
Pursuant to the employment agreements with the named executive
officers, each named executive officer, except
Dr. Gapontsev, would continue to receive 100% of his salary
for a period of one year from the date of termination if the
Company terminates his employment without cause or the officer
terminates employment for good reason. In the event that
Dr. Gapontsev terminates his employment for good reason, he
would receive
23
100% salary continuation for the longer of one year or the
remaining term of his agreement, but in no event longer than two
years. The definition of good reason for each named
executive officer includes the failure of the executive to
maintain his specific executive position with the Company
following a change in control, as defined in our 2006 Incentive
Compensation Plan. We are not obligated to make any cash
payments to these executives if their employment is terminated
by us for cause or by the executive not for good reason. No
severance or benefits are provided for any of the executive
officers in the event of death or disability. A change in
control does not affect the amount of these cash severance
payments.
The stock options awarded to the named executive officers do not
provide for automatic accelerated vesting if the Company
terminates employment without cause, if the employee terminates
employment for good reason or upon a change in control. Each of
the 2000 Incentive Compensation Plan and the 2006 Incentive
Compensation Plan provides that, upon a change in control of the
Company, the Compensation Committee, in its sole discretion, may
(i) accelerate the time for exercise or payout of all
outstanding awards, (ii) pay the holder equal to the
difference between the fair market value of the award on the
date of the change in control and the exercise price per share,
if any, of such award or (iii) provide that all outstanding
awards will either be assumed by the entity that acquires
control or substituted for similar awards by such entity. See
2000 Incentive Compensation Plan, 2006 Incentive
Compensation Plan and Non-Employee Directors Stock Plan
above.
The following table provides information regarding benefits to
our named executive officers upon a termination of employment or
change in control:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Termination
|
|
|
|
|
|
|
|
|
Without Cause or
|
|
|
Change in
|
|
|
|
|
|
For Good Reason
|
|
|
Control
|
|
Name
|
|
Benefit
|
|
($)
|
|
|
($)(1)
|
|
|
Valentin P. Gapontsev
|
|
Salary
|
|
|
720,000
|
|
|
|
|
|
|
|
Option acceleration
|
|
|
|
|
|
|
|
|
Eugene Shcherbakov
|
|
Salary
|
|
|
280,000
|
|
|
|
|
|
|
|
Option acceleration
|
|
|
|
|
|
|
1,242,006
|
|
Timothy P.V. Mammen
|
|
Salary
|
|
|
270,000
|
|
|
|
|
|
|
|
Option acceleration
|
|
|
|
|
|
|
1,588,238
|
|
Angelo P. Lopresti
|
|
Salary
|
|
|
270,000
|
|
|
|
|
|
|
|
Option acceleration
|
|
|
|
|
|
|
1,588,238
|
|
Alexander Ovtchinnikov
|
|
Salary
|
|
|
240,000
|
|
|
|
|
|
|
|
Option acceleration
|
|
|
|
|
|
|
2,509,225
|
|
|
|
|
(1) |
|
Option acceleration value is calculated using the aggregate
difference between the exercise prices and the last reported
closing sale price of our common stock prior to
December 31, 2006 if the Compensation Committee determines
to accelerate the vesting of stock options unvested at
December 31, 2006 upon a change in control. |
INFORMATION
ABOUT COMMON STOCK OWNERSHIP
The following table provides information about the beneficial
ownership of our common stock as of April 27, 2007, by:
|
|
|
|
|
each person or entity known by us to own beneficially more than
five percent of our common stock;
|
|
|
|
each of the named executive officers;
|
|
|
|
each of our directors; and
|
|
|
|
all of our executive officers and directors as a group.
|
In accordance with SEC rules, beneficial ownership includes any
shares for which a person or entity has sole or shared voting
power or investment power and any shares for which the person or
entity has the right to acquire beneficial ownership within
60 days after April 27, 2007 through the exercise of
any option, warrant
24
or otherwise. Except as noted below, we believe that the persons
named in the table have sole voting and investment power with
respect to the shares of common stock set forth opposite their
names. Percentage of beneficial ownership is based on
42,921,976 shares of common stock outstanding as of
April 27, 2007. All shares included in the Right to
Acquire column represent shares subject to outstanding
stock options that are exercisable within 60 days after
April 27, 2007. The address of our executive officers and
directors and IP Fibre Devices (UK) Ltd. is in care of IPG
Photonics Corporation, 50 Old Webster Road, Oxford,
Massachusetts 01540.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares Beneficially Owned
|
|
|
|
|
|
|
|
|
|
Right to
|
|
|
|
|
|
|
|
5% Stockholders, Directors and Executive Officers
|
|
Outstanding
|
|
|
Acquire
|
|
|
Total
|
|
|
Percent
|
|
|
Valentin P. Gapontsev(1)
|
|
|
19,999,243
|
|
|
|
|
|
|
|
19,999,243
|
|
|
|
46.6
|
%
|
IP Fibre Devices (UK) Ltd.
|
|
|
8,204,002
|
|
|
|
|
|
|
|
8,204,002
|
|
|
|
19.1
|
%
|
TA Associates Funds(2)
|
|
|
3,817,330
|
|
|
|
|
|
|
|
3,817,330
|
|
|
|
8.9
|
%
|
Denis Gapontsev(3)
|
|
|
1,666,666
|
|
|
|
65,791
|
|
|
|
1,732,457
|
|
|
|
4.0
|
%
|
Robert A. Blair
|
|
|
314,998
|
|
|
|
6,666
|
|
|
|
321,664
|
|
|
|
*
|
|
John H. Dalton
|
|
|
308,955
|
|
|
|
11,666
|
|
|
|
320,621
|
|
|
|
*
|
|
Igor Samartsev(4)
|
|
|
333,333
|
|
|
|
15,630
|
|
|
|
348,963
|
|
|
|
*
|
|
Eugene Shcherbakov(5)
|
|
|
259,994
|
|
|
|
13,333
|
|
|
|
273,327
|
|
|
|
*
|
|
Timothy P.V. Mammen
|
|
|
91,999
|
|
|
|
208,618
|
|
|
|
300,617
|
|
|
|
*
|
|
Angelo P. Lopresti
|
|
|
99,998
|
|
|
|
200,251
|
|
|
|
300,249
|
|
|
|
*
|
|
William F. Krupke
|
|
|
100,000
|
|
|
|
11,666
|
|
|
|
111,666
|
|
|
|
*
|
|
Michael C. Child(6)
|
|
|
3,817,330
|
|
|
|
78,334
|
|
|
|
3,895,664
|
|
|
|
9.1
|
%
|
George H. BuAbbud
|
|
|
20,000
|
|
|
|
196,666
|
|
|
|
216,666
|
|
|
|
*
|
|
Alexander Ovtchinnikov
|
|
|
96,844
|
|
|
|
31,488
|
|
|
|
128,332
|
|
|
|
*
|
|
Henry E. Gauthier
|
|
|
5,000
|
|
|
|
|
|
|
|
5,000
|
|
|
|
*
|
|
William S. Hurley
|
|
|
5,000
|
|
|
|
5,000
|
|
|
|
10,000
|
|
|
|
*
|
|
William Shiner
|
|
|
|
|
|
|
59,999
|
|
|
|
59,999
|
|
|
|
*
|
|
All executive officers and
directors as a group (15 persons)
|
|
|
27,119,360
|
|
|
|
905,108
|
|
|
|
28,024,468
|
|
|
|
65.3
|
%
|
|
|
|
* |
|
Less than 1.0%. |
|
(1) |
|
Includes shares beneficially owned by IPFD, of which
Dr. Valentin Gapontsev is the managing director.
Dr. Valentin Gapontsev has voting and investment power with
respect to the shares held of record by IPFD and is the father
of Dr. Denis Gapontsev. Dr. Valentin Gapontsev has a
53% economic interest in IPFD. |
|
(2) |
|
Amounts shown reflect the aggregate number of shares of common
stock held by TA IX L.P., TA/Atlantic and Pacific IV L.P.,
TA/Advent VIII L.P., TA Executives Fund LLC, and TA
Investors LLC (collectively, the TA Associates
Funds). Investment and voting control of the TA Associates
Funds is held by TA Associates, Inc. No stockholder,
director or officer of TA Associates, Inc. has voting or
investment power with respect to our shares of common stock held
by the TA Associates Funds. Voting and investment power with
respect to such shares is vested in a four-person investment
committee consisting of the following employees of TA
Associates: Messrs. Michael C. Child, Jonathan M.
Goldstein, C. Kevin Landry and Kenneth T. Schiciano.
Mr. Child is a Managing Director of TA Associates, Inc.,
the manager of the general partner of TA IX L.P. and TA/Advent
VIII L.P.; the manager of TA Investors LLC and TA Executives
Fund LLC; and the general partner of the general partner of
TA/Atlantic and Pacific IV L.P. Mr. Child has been a
member of our Board of Directors since November 2000. See
note 6 below. The address of TA Associates, Inc. is John
Hancock Tower, 56th Floor, 200 Clarendon Street, Boston,
Massachusetts 02116. |
25
|
|
|
(3) |
|
Does not include shares held by IPFD. Dr. Denis Gapontsev
has a 15% economic interest in IPFD but does not possess voting
or investment power with respect to such interest. |
|
(4) |
|
Does not include shares held by IPFD. Mr. Samartsev has an
8% economic interest in IPFD but does not possess voting or
investment power with respect to such interest. |
|
(5) |
|
Does not include shares held by IPFD. Dr. Shcherbakov has
an 8% economic interest in IPFD but does not possess voting or
investment power with respect to such interest. |
|
(6) |
|
Includes shares beneficially owned by TA Associates, Inc.
Mr. Child is a managing director of TA Associates, Inc. and
may be considered to have beneficial ownership of TA Associates,
Inc.s interest in us. Mr. Child has a direct
pecuniary interest in 8,800 of the 57,564 shares held by TA
Investors LLC. Mr. Child disclaims beneficial ownership of
all other shares beneficially owned by TA Associates, Inc.,
including the remaining 48,764 shares held by TA Investors
LLC in which he may be deemed to have an indirect pecuniary
interest. See Note 2. |
CERTAIN
RELATIONSHIPS AND RELATED PARTY TRANSACTIONS
Transactions
with IP Fibre Devices
We currently do not have any loans due to IPFD or due from
Dr. Valentin P. Gapontsev, our chief executive officer and
chairman of the board.
Dr. Valentin P. Gapontsev, Dr. Denis Gapontsev, our
Vice President, Research and Development, Dr. Eugene
Shcherbakov, a member of our Board of Directors and Managing
Director of IPG Laser, and Igor Samartsev, a member of our Board
of Directors and Managing Director of NTO IRE-Polus, own 53%,
15%, 8% and 8%, respectively, of IPFD, which owns
8,204,002 shares of our common stock, which represents
19.1% of our outstanding common stock. IPFD is a limited company
organized under the laws of the United Kingdom. Its primary
purpose is to hold financial and other assets and it does not
engage in any business that is competitive to ours. IPFD has
informed us that shares of our common stock comprise a majority
of the assets of IPFD.
IPFD acquired 6,666,667 shares of our common stock in 1999
in connection with the formation of IPG Photonics Corporation.
IPFD acquired an additional 766,667 shares of our common
stock in a corporate restructuring in August 2000 as part of the
consideration received by IPFD in connection with our
acquisition of a 50% ownership interest in IPG Laser. Prior to
the restructuring, IPG Photonics Corporation, IPG Laser and IPG
Fibertech S.r.l., our Italian subsidiary, were operated under
the common control of Dr. Valentin P. Gapontsev and IPFD.
We restructured the Company as a condition to the closing of our
series B preferred stock financing.
Until July 31, 2006, we maintained a revolving credit line
with available principal of up to $4.6 million with IPFD.
Borrowings under the credit facility bore interest at a rate
equal to the three-month LIBOR rate in effect on the date of
drawdown plus 2%. The weighted average annual rate was 3.4% in
2006. Interest under this credit line totaled $94,000 for 2006.
The credit facility was secured by certain of our inventory and
equipment located in the United States. The credit line was
established in August 2002 with an initial borrowing
availability of $3.0 million and increased to
$4.6 million in April 2003.
On July 31, 2006, IPFD purchased 770,670 shares of our
common stock from Dr. Valentin P. Gapontsev in exchange for
$357,000 in cash and $4.6 million in the form of the
assignment of amounts due under our credit line with IPFD.
Simultaneously, we exchanged with Dr. Valentin P. Gapontsev
the note to us due from him described below with a remaining
amount due of $5.0 million for $357,000 in cash and
$4.6 million in the form of the assignment of amounts due
under our credit line.
NTO IRE-Polus, one of our subsidiaries, borrowed $560,000 from
IPFD in January 2002 at an interest rate of 4.5% annually.
Interest on the loan was $9,000 for 2006. The loan was repaid in
full in May 2006.
26
Transactions
with NTO IRE-Polus
We own 51.0% of NTO IRE-Polus, our Russian subsidiary.
Dr. Valentin P. Gapontsev and Igor Samartsev own 26.7% and
4.9%, respectively, of NTO IRE-Polus. The remaining 17.4% of NTO
IRE-Polus is owned by certain of NTO IRE-Poluss other
current and former employees and unaffiliated third parties. NTO
IRE-Polus provides us with research and development and low-cost
contract manufacturing capacity, and sells products to customers
in Russia and neighboring countries. We acquired our majority
ownership interest directly from NTO IRE-Polus in 2001. We
invested $5.0 million in NTO IRE-Polus, of which
$2.5 million was invested in March 2007. The investment has
been used solely for equipment purchases and the development of
additional manufacturing capacity. All profits earned by NTO
IRE-Polus to date have been re-invested in NTO IRE-Polus and
there have been no distributions to stockholders of NTO
IRE-Polus since we purchased our majority interest. The charter
of NTO IRE-Polus provides that the stockholders of NTO IRE-Polus
may each quarter, once a half-year, or once a year approve net
profit distributions to the stockholders in proportion to their
shares in NTO IRE-Poluss authorized capital. In the
ordinary course of business, we sell components to NTO
IRE-Polus. NTO IRE-Polus also sells us components, tools and
equipment that we use in our production and testing.
In August 2000, we entered into an agreement regarding
intellectual property with NTO IRE-Polus. Pursuant to the
agreement, NTO IRE-Polus provides us and our subsidiaries, on an
exclusive basis, with research and development services relating
to fiber amplifiers, fiber lasers and other associated products
as well as all intellectual property incorporated in or relating
to these products. Under this agreement, we are required to pay
NTO IRE-Poluss direct and overhead costs, plus a fee of
10% for its research and development services.
Transactions between us and NTO IRE-Polus generated
approximately $12.4 million of revenues for NTO IRE-Polus
for 2006. Dr. Valentin Gapontsevs significant
ownership interest in this entity creates the possibility of a
conflict of interest since, by having an ownership interest in
both the Company and NTO IRE-Polus, his economic interests may
be affected by transactions between the two entities. To address
potential or perceived conflicts of interest, we have
implemented the following procedures:
|
|
|
|
|
we have adopted a policy that the Audit Committee of our Board
of Directors will review and approve any distributions and
dividends to stockholders of NTO IRE-Polus;
|
|
|
|
Dr. Valentin Gapontsev and Mr. Samartsev granted a
proxy to us to vote their shares with respect to NTO IRE-Polus,
giving us the ability to vote 82.6% of the total shares of
NTO IRE-Polus. We therefore have sufficient votes to elect the
general manager of NTO IRE-Polus and approve other changes that
require the approval of
662/3%
of NTO IRE-Poluss stockholders; and
|
|
|
|
Dr. Valentin Gapontsev and Mr. Samartsev granted a
right of first refusal to us with respect to any sale of their
shares of NTO IRE-Polus to existing stockholders of NTO
IRE-Polus. Pursuant to the right of first refusal, we may
purchase these shares at a price equal to the lesser of the
per-share fair value or book value of NTO IRE-Polus as of
June 30, 2006. The charter documents of NTO IRE-Polus and
applicable Russian law also provide that existing stockholders,
including us, have a right of first refusal up to their
respective pro rata interests with respect to transfers of
shares of NTO IRE-Polus to third parties.
|
Transactions
with Dr. Valentin P. Gapontsev
In March 2001, Dr. Valentin Gapontsev, our Chief Executive
Officer and Chairman of the Board, borrowed $5.8 million at
an annual interest rate of 5.86% from us to pay personal income
taxes related to a restructuring of the Company in 2000. He
pledged 464,000 shares of our common stock owned by him to
secure the loan. In April 2003, we amended the note to make it a
non-recourse note and lowered the annual interest rate to 1.46%
in consideration for Dr. Gapontsev (i) causing his
affiliate, IPFD, to increase its credit line to the Company to
$4.6 million from $3.0 million (as described above
under Transactions with IP Fibre
Devices), (ii) pledging an additional
3,402,667 shares of our common stock and
(iii) agreeing to apply any tax refunds that he received
relating to our restructuring towards prepayment of the note. In
July 2003,
27
Dr. Gapontsev repaid approximately $1.7 million in
principal and interest on the loan. In April 2005, we extended
the maturity date of the loan from December 31, 2004 to the
earlier of December 31, 2006 or one year following our IPO
. In July 2006, we exchanged with Dr. Gapontsev the note
with outstanding principal and interest totaling
$5.0 million for $357,000 in cash and $4.6 million in
the form of the assignment to Dr. Gapontsev of amounts
previously due under our credit line to IPFD. See
Transactions with IP Fibre Devices.
In November 2004, Dr. Valentin Gapontsev provided a
personal guarantee relating to a bank line of credit for us in
the principal amount of up to $3.0 million. In
consideration of the personal guarantee, we agreed to pay him a
fee equal to the interest on his loan from us (to be adjusted to
account for any adverse tax effects) for each quarter that his
loan was outstanding. We paid $71,000 in 2006 to
Dr. Gapontsev for this guarantee. His loan has been repaid
as described above. The credit line guarantee amount has
increased to $7.0 million. Dr. Gapontsev has also
provided a personal guarantee relating to a Euro-denominated
note with a principal balance of $2.1 million and our Euro
construction loan. We did not compensate Dr. Gapontsev for
these guarantees.
Director
and Officer Loans
The notes described below from Messrs. Robert A. Blair and
John H. Dalton were repaid in full in August 2006.
In 2000, Mr. Blair, one of our directors, borrowed $440,000
from us under two notes to exercise options to purchase shares
of our common stock. One of the notes, in the principal amount
of $190,000, was non-recourse and was secured by a pledge of
126,667 shares of our common stock and then bore interest
at 6.8%. The other note, in the principal amount of $250,000,
was recourse and then bore interest at 6.0%. We amended the
notes in 2003 to (i) lower the interest rate to 1.68% for
the $190,000 note and 1.52% for the $250,000 note,
(ii) extend the maturity dates to March 2005 for the
$190,000 note and November 2005 for the $250,000 note, and
(iii) convert the $250,000 note to a non-recourse
obligation. Mr. Blair also pledged an additional
200,000 shares of our common stock to secure both notes. In
April 2005, we extended the maturity dates of the notes to the
earlier of December 31, 2006 or one year following our IPO.
In 2006, Mr. Blair paid a total of $69,490 in interest on
these notes.
In April 2001, Mr. Dalton, one of our directors, borrowed
$150,000 from us under a note bearing interest at an annual rate
of 5.86%. The note was secured by a pledge of 50,000 shares
of our common stock. We amended the note in September 2003 to
lower the interest rate to 1.52% per year and to extend the
maturity date to December 31, 2004. In July 2004, we
extended the maturity date to the earlier of December 31,
2006 or one year following our IPO. In 2006, Mr. Dalton
paid a total of $30,293 in interest on the note.
In December 2004, Mr. Dalton exercised non-qualified
options to purchase 66,667 shares of our common stock at an
exercise price of $1.50 per share for a total purchase
price of $100,000. Mr. Dalton paid the exercise price in
the form of 10,000 shares of our series A preferred
stock that he owned that had an aggregate liquidation preference
of $100,000. Mr. Dalton acquired the 10,000 shares of
our series A preferred stock in March 2000, prior to his
service as a director and president of the Company, for a price
of $10.00 per share, the same price paid by each of the
other holders of the series A preferred stock at that time.
Series B
Preferred Stockholders
General. In 2000, we sold
3,800,000 shares of our series B preferred stock and
warrants to purchase common stock to a group of investors for a
total purchase price of $95.0 million. Of these investors,
TA Associates Inc., together with its affiliated entities,
purchased an aggregate of 2,000,000 shares of our
series B preferred stock and related warrants for a total
purchase price of $50.0 million. Michael C. Child, one of
our directors, is a managing director of TA Associates. Upon
completion of our IPO, all shares of series B preferred
stock, including the 2,000,000 shares of series B
preferred stock held by TA Associates and its affiliates,
converted into 7,252,927 shares of our common stock and,
pursuant to the terms of the series B preferred stock, as
amended, we issued to the holders of the series B preferred
stock subordinated notes in the principal amount of
$20.0 million, including an aggregate principal amount of
$10.5 million of such notes
28
issued to TA Associates and its affiliates. With a portion of
the proceeds of the IPO, we purchased the warrants held by the
holders of the series B preferred stock for an aggregate
purchase price of $22.1 million, including an aggregate of
$11.6 million paid for the warrants held by TA Associates
and its affiliates.
Series B Preferred Stock. In order to
provide for the automatic conversion of the series B
preferred stock at IPO prices below $37.50 per share and a
deferral of the redemption of the series B preferred stock,
we amended its terms in December 2005.
Pursuant to the December 2005 amendment, the right of the
holders of our series B preferred stock to require us to
redeem an aggregate of
331/3%
of the originally issued and outstanding series B preferred
stock then held by such holders was deferred from
August 25, 2006 to April 15, 2007. We also agreed to
automatically convert the series B preferred stock into a
combination of common stock and subordinated debt upon the
occurrence of a qualified public offering at initial offering
prices below $37.50 per share, which was the minimum
conversion price of the series B preferred stock at the
time of the amendment. Under the amended terms of the
series B preferred stock, a qualified public
offering was one: (i) that generated gross proceeds
to us of at least $75 million, (ii) that offered the
shares of our common stock at or above a price of $4.50 per
share, (iii) that was listed for trading on the New York
Stock Exchange or quoted on the Nasdaq Global Market and
(iv) in which either we repurchased all of the warrants to
purchase our common stock that were granted to the holders of
our series B preferred stock or the holders of warrants
were permitted to exercise them and sell the common stock
acquired upon exercise in the offering. We further amended the
terms of the series B preferred stock to provide that in a
qualified public offering, the holders of series B
preferred stock would receive consideration equal to the greater
of (A) what such holders would have received if we were
sold to a third party using the IPO price to compute the total
sale price, which amount would have included the liquidation
preference of the series B preferred stock plus an
additional participation amount, as set forth in our certificate
of incorporation, and (B) what such holders would have
received if the series B preferred stock were converted
upon the IPO at the following per share conversion prices:
(x) $15.00, if (as described under
Warrants below) the price to the public
was equal to or greater than $4.50 and less than $37.50;
(y) the price to the public divided by a factor of 2.5, if
the offering price per share was equal to or greater than $37.50
and less than $93.75; and (z) $37.50, if the price to the
public in the qualified public offering was equal to or greater
than $93.75.
The consideration that the holders of series B preferred
stock received upon our IPO consisted of subordinated three-year
notes totaling $20.0 million in principal amount and the
remainder in the form of our common stock, valued at the per
share offering price to the public in the IPO, or
$16.50 per share. The subordinated notes bear interest at
the greater of the short-term applicable Federal rate, as
published by the Internal Revenue Service in regular Revenue
Rulings, or 4% in the first year, 7% in the second year and 10%
in the third year. The following table shows the consideration
that the holders of the series B preferred stock, as a
class, and TA Associates received upon the conversion of their
shares of series B preferred stock upon the completion of
the IPO (dollar amounts in thousands):
|
|
|
|
|
|
|
|
|
|
|
All Holders
|
|
|
TA Associates
|
|
|
Common stock(1)
|
|
$
|
119,673
|
|
|
$
|
62,986
|
|
Subordinated notes
|
|
|
20,000
|
|
|
|
10,526
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
139,673
|
|
|
$
|
73,512
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Represents 7,252,927 and 3,817,330 shares, respectively,
for all series B preferred stockholders and TA Associates,
based upon the price per share to the public in our IPO of
$16.50 per share. |
Prior to the December 2005 amendment, a qualified public
offering was one: (i) that generated net proceeds in
excess of $100 million; (ii) that was listed for
trading on the New York Stock Exchange or quoted on the Nasdaq
Global Market; and (iii) that offered the shares of our
common stock at or above a price of $93.75 per share, after
underwriting commissions and discounts. An offering that did not
meet the minimum offering price condition could have been a
qualified public offering if the conversion price of the
series B preferred stock were to be adjusted downward to
equal the price per share in the qualified public offering
29
divided by a factor of 2.50, subject to a minimum adjusted
conversion price of $15.00 per share. Prior to the December
2005 amendment, the series B preferred stock would not have
automatically converted into common stock upon a qualified
public offering if the net offering price to the public in the
qualified public offering were less than $37.50 per share
and would have converted solely into shares of common stock if
the net offering price to the public in the qualified public
offering were $37.50 or more.
As an example, prior to the 2005 amendment, in a qualified
public offering at a price of $37.50 per share, the holders
of the series B preferred stock would have received shares
of our common stock with an aggregate value of
$237.5 million. After the amendment, in a qualified public
offering at a price of $37.50 per share, the holders of the
series B preferred stock would receive shares of our common
stock with an aggregate value of $217.5 million and
subordinated promissory notes totaling $20.0 million in
principal amount. In addition, the holders of the series B
preferred stock held warrants to purchase our common stock, as
described below. Prior to the amendment, in a qualified public
offering, these holders would have received either
(a) shares of our common stock with an aggregate value of
$23.8 million in a cashless exercise of their warrants or
(b) shares of our common stock with an aggregate value of
$47.0 million in exchange for a cash payment of
$23.8 million. After the amendment, the holders of the
series B preferred stock would receive an aggregate amount
of $22.1 million in exchange for the series B warrants
that they held.
Warrants. We granted the warrants in 2000 to a
group of private investors in connection with the sale of our
series B preferred stock. We repurchased all of the
warrants upon the completion of our IPO. The warrants entitled
the holders to acquire shares of our common stock valued at
$47.5 million, or 2,878,788 shares, at an exercise
price equal to 50% of the public offering price. The warrants
were exercisable only upon the merger or liquidation of the
Company, the sale of all of our assets or stock or an
underwritten initial public offering of our common stock. In
December 2005, we extended the expiration date of all of the
warrants from August 30, 2007 to April 15, 2008. We
also obtained the option to purchase the warrants for an
aggregate price of $22.1 million at the conclusion of our
IPO.
Series D
Preferred Stockholder
In August 2003, we settled a contract dispute and related
litigation with JDS Uniphase Corporation (JDSU)
related to a claim by JDSU that we had breached an agreement to
purchase semiconductor diodes, a key component of our products,
from JDSU. Under the terms of the settlement: (i) we issued
a three-year secured promissory note in the principal amount of
$6.4 million payable to JDSU, bearing interest at a rate of
4% per year, in payment for previously shipped product;
(ii) we entered into two new supply agreements to sell
specified laser products to JDSU at discounted amounts and to
purchase from JDSU certain percentages of our external
requirements, if any, for semiconductor diodes; (iii) we
issued to JDSU (A) 2,684,211 shares of our
series D preferred stock having a liquidation preference of
$5.1 million and (B) a $5.1 million non-interest
bearing three-year note, convertible into an additional
2,684,211 shares of our series D preferred stock at a
conversion price of $1.90 per share; and (iv) we
terminated an earlier purchase agreement with JDSU. We repaid
all amounts under the interest-bearing note in May 2005 and we
repaid all amounts under the convertible note in August 2006. We
sold products to JDSU for an aggregate sale price of
$0.3 million in 2006. JDSU is not prohibited under the
settlement from competing with us through the resale of our
products. We have not purchased any semiconductor diodes from
JDSU since we entered into the settlement agreement.
Upon completion of the IPO, all 2,684,211 shares of
series D preferred stock held by JDSU automatically
converted into 1,683,168 shares of our common stock at a
rate of 0.6271 shares of common stock for each share of
series D preferred stock. JDSU beneficially owned
approximately 4.6% of our common stock prior to our IPO. JDSU
sold all but approximately 11,500 of its shares of our common
stock in the IPO.
Stockholders
Agreements
In connection with the investment in us by the holders of our
series B preferred stock, including TA Associates, we
entered into a stockholders agreement, dated as of
August 30, 2000, with the holders of the series B
preferred stock, IPFD, Drs. Valentin Gapontsev, Denis
Gapontsev and Eugene Shcherbakov, Igor Samartsev and our other
founders. The stockholders agreement contains rights of last
refusal and co-sale,
30
preemptive rights and voting rights. Under the stockholders
agreement, holders of our series B preferred stock elected
Michael C. Child to our Board of Directors prior to our IPO. The
right of the holders of our series B preferred stock to
elect one director terminated upon the closing of our IPO. JDSU
obtained pre-emptive and co-sale rights under a stockholders
agreement, dated as of August 13, 2003, in connection with
the issuance of our series D preferred stock. These
provisions of the stockholders agreements terminated upon the
closing of the IPO. We agreed to indemnify the holders of our
series B preferred stock, subject to exceptions, for
damages, expenses or losses arising out of, based upon or by
reason of any third-party or governmental claims relating to
their status as a security holder, creditor, director, agent,
representative or controlling person of us, or otherwise
relating to their involvement with us. This covenant continues
until the expiration of the applicable statute of limitations.
Registration
Rights Agreements
In connection with the issuance of our series B preferred
stock, we entered into a registration rights agreement in August
2000 with the holders of our series B preferred stock. We
also entered into a registration rights agreement in August 2003
with JDSU in connection with the issuance of our series D
preferred stock and the convertible note to JDSU. Pursuant to
these agreements, under certain circumstances these stockholders
are entitled to require us to register their shares of common
stock under the U.S. federal securities laws for resale.
Reliant
Technologies
In April 2006, Henry E. Gauthier joined our Board of Directors.
Mr. Gauthier serves as the non-executive Chairman of the
board of directors of Reliant Technologies, Inc., one of our
customers. Our total sales to Reliant were $10.4 million in
2006.
Policies
and Procedures with Respect to Related Party
Transactions
Our Audit Committee charter requires that members of the Audit
Committee, all of whom are independent directors, review and
approve all related party transactions for which such approval
is required under applicable laws and regulations, including SEC
and Nasdaq Global Market rules. Current SEC rules define a
related party transaction to include any transaction,
arrangement or relationship in which we are a participant and in
which any of the following persons has or will have a direct or
indirect interest:
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an executive officer, director or director nominee;
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any person who is known to be the beneficial owner of more than
5% percent of our common stock;
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any person who is an immediate family member (as defined under
Item 404 of
Regulation S-K)
of an executive officer, director or director nominee or
beneficial owner of more than 5% of our common stock; and
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any firm, corporation or other entity in which any of the
foregoing persons is employed or is a partner or principal or in
a similar position or in which such person, together with any
other of the foregoing persons, has a 5% or greater beneficial
ownership interest.
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Directors with a financial or other interest in a proposed
related-party transaction are asked to leave the meeting in
which the Audit Committee considers the transaction. In
addition, the Audit Committee is responsible for reviewing and
investigating any matters pertaining to the integrity of
management, including conflicts of interest and adherence to our
Code of Business Conduct. Under our Code of Business Conduct,
directors, officers and all other members of the workforce are
expected to avoid any relationship, influence or activity that
would cause or even appear to cause a conflict of interest.
Pursuant to our Governance Guidelines, we expect each of our
directors to ensure that other existing and future commitments
do not conflict with or materially interfere with his or her
service as a director. Directors are expected to avoid any
action, position or interest that conflicts with our interests
or gives the appearance of a conflict. In addition, directors
should inform the Chairman of our Nominating and Corporate
Governance
31
Committee prior to joining the board of another public company
to ensure that any potential conflicts, excessive time demands
or other issues are carefully considered.
All related party transactions are required to be disclosed in
our filings with the SEC under SEC rules.
OTHER
INFORMATION
Section 16(a)
Beneficial Ownership Reporting Compliance
Section 16(a) of the Securities Exchange Act of 1934
requires our directors and executive officers, and persons who
beneficially own more than 10% of a registered class of our
equity securities, to file reports of ownership of, and
transactions in, our securities with the SEC. These directors,
executive officers and 10% stockholders are also required to
furnish us with copies of all Section 16(a) forms that they
file. Based solely on a review of the copies of such forms
received by us, and on written representations from certain
reporting persons, we believe that during 2006 our directors,
officers and 10% stockholders complied with all applicable
Section 16(a) filing requirements.
No
Incorporation by Reference
In our filings with the SEC, information is sometimes
incorporated by reference. This means that we are
referring you to information that has previously been filed with
the SEC and the information should be considered as part of the
particular filing. As provided under SEC regulations, the
Audit Committee Report and the Compensation
Committee Report contained in this Proxy Statement
specifically are not incorporated by reference into any of our
other filings with the SEC. In addition, this Proxy Statement
includes several website addresses. These website addresses are
intended to provide inactive, textual references only. The
information on these websites is not part of this Proxy
Statement.
2008
Annual Meeting and Nominations
Stockholders may present proposals for action at a future
meeting and nominations for director if they comply with
applicable SEC rules and our bylaws. If you would like us to
consider including a proposal in our proxy statement or
nominating a director next year, it must be received by our
Secretary, at IPG Photonics Corporation, 50 Old Webster Road,
Oxford, Massachusetts 01540, on or before March 14, 2008
but not earlier than February 13, 2008. Our bylaws contain
additional specific requirements regarding a stockholders
ability to nominate a director or to submit a proposal for
consideration at an upcoming meeting. Our bylaws require that
the notice to the Company include (1) information relating
to the name, age and experience of the nominee and such other
information concerning such nominee as would be required under
the then-current rules of the SEC to be included in a proxy
statement soliciting proxies for the election of the nominee,
(2) the nominees written consent to being named in
the proxy statement and serving as a director, if elected, and
(3) the name and address of the record holder and
beneficial holder of the shares, the number of shares held of
record or beneficially owned, and representations as described
in our bylaws. If the Nominating and Corporate Governance
Committee or the Board determines that any nomination made by a
stockholder was not made in accordance with the Companys
procedures, the rules and regulations of the SEC or other
applicable laws or regulations, such nomination will be void. If
you would like a copy of the requirements contained in our
bylaws, please contact our Secretary.
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000000000.000000 ext 000000000.000000 ext |
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000000000.000000 ext 000000000.000000 ext
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MR A SAMPLE
DESIGNATION (IF ANY)
ADD 1
ADD 2
ADD 3
ADD 4
ADD 5
ADD 6
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Electronic Voting Instructions
You can vote by Internet or
telephone!
Available 24 hours a day, 7 days a week!
Instead of mailing your proxy, you may choose one of the two voting
methods outlined below to vote your proxy.
VALIDATION DETAILS ARE LOCATED BELOW IN THE TITLE BAR.
Proxies submitted by the Internet or telephone must be received by
1:00 a.m., Central Time, on June 12, 2007. |
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Vote by Internet
Log on to the Internet and go to
www.investorvote.com
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Follow the steps
outlined on the secured website. |
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Vote by telephone
Call toll free 1-800-652-VOTE (8683) within the
United
States, Canada & Puerto Rico any time on a touch tone
telephone. There is NO CHARGE to you for the call. |
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Follow the
instructions provided by the recorded message. |
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Using a black ink pen, mark your votes with an X as shown in
this example. Please do not write outside the designated areas. |
X |
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Annual Meeting Proxy
Card
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C0123456789
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12345 |
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6
IF YOU HAVE NOT VOTED VIA THE
INTERNET OR TELEPHONE, FOLD ALONG THE PERFORATION,
DETACH AND RETURN THE BOTTOM PORTION IN THE ENCLOSED ENVELOPE. 6
A
Proposals The Board of Directors recommends a vote FOR all the
nominees listed in proposal 1 and FOR proposal 2.
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1. Election of Directors The following directors have
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01 Valentin P. Gapontsev, Ph.D.
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02 Eugene Shcherbakov, Ph.D.
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03 Igor Samartsev |
been nominated for election for a one-year term.
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04 Robert A. Blair
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05 Michael C. Child
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06 John H. Dalton |
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07 Henry E. Gauthier
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08 William S. Hurley
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09 William F. Krupke, Ph.D.
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Mark here to vote FOR all nominees |
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Mark here to WITHHOLD vote from all nominees |
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For All EXCEPT To withhold a vote for one or more nominees, mark the box to the left and the
corresponding numbered box(es) to the right. |
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For
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Abstain
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2. To ratify the
appointment of Deloitte & Touche LLP as
the independent registered public accounting firm of
IPG Photonics Corporation for 2007.
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The undersigned hereby appoints Dr. Valentin P. Gapontsev as proxy, with full power of substitution, to
represent and vote as designated above all the shares of Common Stock of IPG Photonics Corporation held of record by the undersigned on April 27,
2007, at the annual meeting of stockholders to be held at IPG Photonics Corporation at 50 Old Webster Road, Oxford, Massachusetts 01540, on June
12, 2007, at 10:00 a.m. local time, or any adjournment or postponement thereof.
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B Non-Voting Items Change of Address Please print new address below.
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C
Authorized Signatures This section must be completed for your vote to be counted. Date and Sign Below |
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Please sign exactly as name(s) appears hereon. Joint owners should each sign. When signing as
attorney, executor, administrator, corporate officer, trustee, guardian, or custodian, please give full title.
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Date (mm/dd/yyyy) Please print date below. |
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Signature 1 Please keep signature within the box. |
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Signature 2 Please keep signature within the box. |
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C 1234567890
1 U P X
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J N T
0 1 3 0 2 1 1
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MR A SAMPLE (THIS AREA IS SET UP TO
ACCOMMODATE 140 CHARACTERS) MR A
SAMPLE AND MR A SAMPLE AND MR A SAMPLE
AND MR A SAMPLE AND MR A SAMPLE AND
MR A SAMPLE
AND MR A SAMPLE AND MR A SAMPLE AND
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6 IF YOU HAVE NOT VOTED VIA THE
INTERNET OR TELEPHONE, FOLD ALONG THE PERFORATION,
DETACH AND RETURN THE BOTTOM PORTION IN THE ENCLOSED ENVELOPE. 6
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®
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Proxy IPG Photonics Corporation
Notice of 2007 Annual Meeting of Stockholders
Proxy Solicited by Board of Directors for Annual Meeting June 12,
2007
THE
BOARD OF DIRECTORS RECOMMENDS A VOTE FOR ALL OF THE NOMINEES LISTED IN PROPOSAL 1 AND FOR PROPOSAL 2.
PLEASE SIGN, DATE AND
RETURN PROMPTLY IN THE ENCLOSED ENVELOPE.
In his discretion, the Proxy is are authorized to vote upon such other business as may
properly come before the meeting.
(Items to be voted appear on reverse side.)