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SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [_]
Check the appropriate box:
[_] Preliminary Proxy Statement [_] Confidential, for Use of the
Commission Only (as permitted by
Rule 14a-6(e)(2))
[X] Definitive Proxy Statement
[_] Definitive Additional Materials
[_] Soliciting Material Pursuant to Section 240.14a-11(c) or Section 240.14a-12
PHOTON DYNAMICS, INC.
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
^--Enter Company Name Here--^
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[_] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
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(2) Aggregate number of securities to which transaction applies:
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(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which
the filing fee is calculated and state how it was determined):
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(4) Proposed maximum aggregate value of transaction:
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(5) Total fee paid:
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[_] Fee paid previously with preliminary materials.
[_] Check box if any part of the fee is offset as provided by Exchange
Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee
was paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
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(4) Date Filed:
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Notes:
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[LOGO]
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PHOTON DYNAMICS, INC.
January 16, 1997
To the Shareholders of Photon Dynamics, Inc.
You are cordially invited to attend the Annual Meeting of Shareholders of
Photon Dynamics, Inc. (the "Company") on February 12, 1997 at 3:00 p.m.,
California time. The Annual Meeting will be held at the Company's principal
executive offices, 6325 San Ignacio Avenue, San Jose, California 95119.
A description of the business to be conducted at the Annual Meeting is set
forth in the attached Notice of Annual Meeting and Proxy Statement. Also
enclosed is a copy of our 1996 Annual Report to Shareholders.
Whether or not you plan to attend the Annual Meeting, PLEASE MARK, SIGN,
DATE AND RETURN THE ENCLOSED PROXY CARD PROMPTLY IN THE ACCOMPANYING ENVELOPE.
If you attend the Annual Meeting and wish to change your proxy vote, you may do
so simply by voting in person at the Annual Meeting.
Vincent Sollitto, Jr.
Chief Executive Officer
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<PAGE>
PHOTON DYNAMICS, INC.
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD ON FEBRUARY 12, 1997
NOTICE IS HEREBY GIVEN that the Annual Meeting of Shareholders of Photon
Dynamics, Inc. (the "Company") will be held on February 12, 1997 at 3:00 p.m.,
California time, at the Company's principal executive offices, 6325 San Ignacio
Avenue, San Jose, California 95119, for the following purposes:
1. To elect seven directors of the Company to serve for the ensuing year
and until their successors are elected and qualified.
2. To ratify and approve the Company's 1995 Stock Option Plan as amended
(the "Option Plan") to increase the number of shares reserved for
issuance thereunder by 510,943 from 300,000 shares to 810,943 shares.
3. To ratify and approve the Option Plan as amended to increase the
maximum number of shares with respect to which options may be granted
to any individual per calendar year by 150,000 shares from 100,000 to
250,000 shares.
4. To ratify and approve the appointment of Ernst & Young LLP as the
independent auditors for the Company for the fiscal year ending
September 30, 1997.
5. To transact such other business as may properly come before the
meeting.
The foregoing items of business, including the nominees for directors, are
more fully described in the Proxy Statement which is attached and made a part
hereof.
Shareholders of record at the close of business on January 6, 1997 are
entitled to vote at the Annual Meeting.
FOR THE BOARD OF DIRECTORS
Howard M. Bailey
Chief Financial Officer
San Jose, California
January 16, 1997
YOUR VOTE IS IMPORTANT
TO ENSURE YOUR REPRESENTATION AT THE MEETING, YOU ARE URGED TO MARK, SIGN,
DATE AND RETURN THE ENCLOSED PROXY AS PROMPTLY AS POSSIBLE IN THE ACCOMPANYING
ENVELOPE. IF YOU ATTEND THE MEETING, YOU MAY VOTE IN PERSON EVEN IF YOU
RETURNED A PROXY.
PHOTON DYNAMICS, INC.
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PROXY STATEMENT
GENERAL
The enclosed proxy is solicited on behalf of the Board of Directors of
Photon Dynamics, Inc. (the "Company") for use at the Annual Meeting of
Shareholders to be held on February 12, 1997 at 3:00 p.m., California time (the
"Annual Meeting"), or at any adjournment or postponement thereof. The Annual
Meeting will be held at the Company's principal executive offices, 6325 San
Ignacio Avenue, San Jose, California 95119.
This Proxy Statement, the form of proxy, and the Company's 1996 Annual
Report to Shareholders are first being mailed to shareholders on or about
January 16, 1997.
REVOCABILITY OF PROXIES
Any proxy given pursuant to this solicitation may be revoked by the person
giving it at any time before its use by delivering to the Company (to the
attention of Howard M. Bailey) a written notice of revocation or a duly executed
proxy bearing a later date or by attending the meeting and voting in person.
RECORD DATE, SHARE OWNERSHIP AND QUORUM
Shareholders of record at the close of business on January 6, 1997 are
entitled to vote at the Annual Meeting. At the record date, 6,977,837 shares of
the Company's common stock ("Common Stock") were issued and outstanding. The
presence of a majority of these shares of Common Stock will constitute a quorum
for the transaction of business at the Annual Meeting.
VOTING AND SOLICITATION
Each share outstanding on the record date is entitled to one vote. Under
the cumulative voting provisions in the Company's Bylaws, each shareholder may
cast for a single nominee for director, or distribute among up to eight
nominees, a number of votes equal to eight multiplied by the number of shares
held by such shareholder. However, cumulative voting will not be available
unless at least one shareholder has given notice of his intention to cumulate
votes prior to the voting, and will apply only to those candidates whose names
have been placed in nomination prior to the voting.
The costs of soliciting proxies will be borne by the Company. Proxies may
be solicited by certain of the Company's directors, officers and regular
employees, without additional compensation, in person or by telephone or
telegram.
An automated system administered by the Company's transfer agent will
tabulate votes cast by proxy at the Annual Meeting and an officer of the Company
will tabulate votes cast in person. Abstentions and broker non-votes are each
included in the determination of the number of shares present and voting, and
each is tabulated separately. In determining whether a proposal has been
approved or a nominee has been elected as a director, abstentions are counted as
votes against a proposal or nominee and broker non-votes are not counted as
votes for or against a proposal or nominee.
3
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PROPOSAL NO. 1
--------------
ELECTION OF DIRECTORS
As set by the Board of Directors (the "Board" or "Board of Directors")
pursuant to the Bylaws of the Company, the authorized number of directors is set
at eight. Seven directors will be elected at the Annual Meeting. Following the
Annual Meeting there will be one vacancy due to the resignation of Mr. Chuck K.
Chan. The seven nominees receiving the highest number of affirmative votes will
be elected as directors. Unless otherwise instructed, the proxy holders will
vote the proxies they receive for the seven nominees of the Board of Directors
named below. In the event that any nominee of the Board is unable or declines
to serve as a director at the time of the Annual Meeting, the proxies will be
voted for any nominee designated by the present Board of Directors to fill the
vacancy. It is not expected that any nominee will be unable or will decline to
serve as a director. In the event that additional persons are nominated for
election as directors, the proxy holders intend to vote all proxies received by
them in such a manner in accordance with cumulative voting as will assure the
election of as many of the nominees listed below as possible, with any required
selection among such nominees to be determined by the proxy holders.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE NOMINEES LISTED BELOW.
<TABLE>
<CAPTION>
DIRECTOR
NAME OF NOMINEE AGE PRINCIPAL OCCUPATION SINCE
- --------------- --- -------------------- --------
<S> <C> <C> <C>
Vincent Sollitto, Jr. 48 Chief Executive Officer of the Company 1996
Francois J. Henley 37 Chief Technical Officer of the Company 1986
E. Floyd Kvamme 59 Chairman of the Board and General Partner of 1986
Kleiner Perkins Caufield & Byers, a venture
capital partnership
Barry L. Cox 54 Private Investor 1990
Michael J. Kim 51 Executive Director of new business 1991
development
at LG Electronics
Steven M. Krausz 42 Partner at USVP, a venture capital partnership 1994
Dr. Malcolm J. Thompson 51 Chief Executive Officer, dPIX 1992
</TABLE>
The term of office of each person elected as a director will continue until
the next Annual Meeting of Shareholders or until his successor has been elected
and qualified. There is no family relationship between any director and any
other director or executive officer of the Company.
4
<PAGE>
MR. SOLLITTO, JR. joined the Company as Chief Executive Officer in June
1996 and a became a member of the Board of Directors of the Company in July of
1996. From August 1993 to 1996, Mr. Sollitto was the General Manager of
Business Unit Operations for Fujitsu Microelectronics. From April 1991 to
August 1993, he was the Executive Vice President of Technical Operations at
Supercomputer Systems, Incorporated. Mr. Sollitto has spent 21 years in various
positions, including Director of Technology and Process at IBM before joining
Supercomputer Systems, Incorporated. Mr. Sollitto is a graduate of Tufts
College where he received a B.S.E.E. degree in 1970.
MR. HENLEY founded the Company in 1986 and became Chief Technical Officer
in July 1994 after serving in various management roles throughout the Company.
Prior to 1986, Mr. Henley held various engineering positions at Hewlett-Packard,
Intel Corporation and Spectrum Sciences. Mr. Henley received a B.S.E.E. from
Rensselaer Polytechnic Institute in 1980 and an M.S.E.E. from the University of
California, Berkeley in 1982, where he completed Ph.D. course requirements in
quantum electronics. Mr. Henley is currently on sabbatical.
MR. KVAMME has been a Director of the Company since its founding in 1986.
He has been a General Partner of Kleiner Perkins Caufield & Byers since March
1984. Mr. Kvamme also serves on the Board of Directors of Harmonic Lightwaves,
TriQuint Semiconductor and Prism Solutions, MiniStor Peripherals (MiniStor
Peripherals filed a petition under Title 11 of the United Stated Code in April
1995) and several privately held companies. Mr. Kvamme received a B.S.E.E. from
the University of California Berkeley and an M.S.E. from Syracuse University.
MR. COX has been a Director of the Company since 1990 and is currently a
private investor. Until 1996, he served Weitek Corporation as Chief Operating
Officer since April 1992 and Chief Executive Officer since October 1993. Mr.
Cox was a founder of ATEQ Corporation, a semiconductor capital equipment
manufacturer, and from January 1984 to April 1992, served as its President and
Chief Executive Officer. Mr. Cox received a B.S. in engineering from the U.S.
Air Force Academy and an M.B.A. from Boston University.
MR. KIM has been a Director of the Company since 1991. He has served as
Executive Director of new business development at LG Electronics, Inc. since
July 1992. From February 1988 to June 1992, Mr. Kim served as a Vice President
at Goldstar Technology, Inc., a former subsidiary of LG Electronics, Inc. Mr.
Kim received a B.S. from the University of Illinois, Chicago in 1972 and an M.S.
from the University of Santa Clara in 1981.
MR. KRAUSZ has been a Director of the Company since 1994. He has been a
partner at USVP since 1985. Mr. Krausz also serves on the Boards of Directors of
Verity, Inc. and several privately held companies. He received a B.S. in
electrical engineering from Stanford University and an M.B.A. from Stanford
Business School where he was an Arjay Miller Scholar.
DR. THOMPSON has been a Director since 1992. He was the Chief Technologist
at Xerox Corporation from 1981 to 1996. He is now the Chief Executive Officer
of dPIX. Dr. Thompson received a B.S. and a Ph.D. from Brighton Polytechnic.
He is also the Chairman of the U.S. Display Consortium.
5
<PAGE>
RELATIONSHIPS AMONG DIRECTORS OR EXECUTIVE OFFICERS
There are no family relationships among any of the directors or executive
officers of the Company.
BOARD MEETINGS AND COMMITTEES
The Board of Directors of the Company held 5 meetings during 1996. During
the last year, with the exception of Mr. Kim, no incumbent director attended
fewer than 75% of the meetings of the Board of Directors and its committees on
which he served that were held during the period in which he was a director.
The Board of Directors has an Audit Committee and a Compensation Committee. It
does not have a nominating committee or a committee performing the functions of
a nominating committee. Although there are no formal procedures for
shareholders to recommend nominations, the Board will consider shareholder
recommendations. Such recommendations should be addressed to Howard M. Bailey,
the Company's Secretary, at the Company's principal executive offices.
During 1996, Messrs. Kvamme, Thompson and Kim served on the Audit
Committee. The Audit Committee held one meeting during the last year. The
Audit Committee recommends the engagement of the Company's independent auditors
and is primarily responsible for approving the services performed by the
Company's independent auditors and for reviewing and evaluating the Company's
accounting principles and its system of internal accounting controls.
During 1996, Messrs. Kvamme, Cox and Krausz served on the Compensation
Committee. The Compensation Committee held 2 meetings during the last year.
The principal functions of the Compensation Committee are to administer the
Company's stock option and purchase plans and to review and approve the
Company's executive compensation policy.
COMPENSATION OF DIRECTORS
Upon becoming a member of the Board, non-employee directors who are not
affiliates of a five percent (5%) or greater shareholder of the Company ("Non-
Employee Directors") receive options to purchase 5,000 shares of Common Stock of
the Company, and thereafter receive an annual option grant to purchase 2,500
shares of Common Stock of the Company. Currently the Company's non-employee
directors receive no fee for their services as Board members or committee
members. All directors will be reimbursed for expenses incurred in connection
with attending Board and committee meetings. Employee directors of the Company
do not receive compensation for their services as directors.
6
<PAGE>
PROPOSAL NO. 2
--------------
RATIFICATION AND APPROVAL OF THE COMPANY'S
1995 STOCK OPTION PLAN AS AMENDED
The Company's shareholders are being asked to act upon a proposal to
approve the action of the Board of Directors amending the Company's 1995 Stock
Option Plan (the "Option Plan"). Ratification of the proposal requires the
affirmative vote of a majority of the shares of Common Stock voting on the
proposal in person or by proxy.
Subject to shareholder approval of the amended Option Plan, the Board of
Directors amended the Option Plan in July 1996 and December 1996 to increase the
number of shares reserved for issuance under the Option Plan by a total of
510,943 shares from 300,000 shares to 810,943 shares.
The Board of Directors believes that the attraction and retention of high
quality personnel are essential to the Company's continued growth and success
and that an incentive plan such as the Option Plan is necessary for the Company
to remain competitive in its compensation practices. In the absence of
shareholder approval of the amended Option Plan, no additional shares will be
available for future option grants under the Option Plan, except to the extent
that shares become available upon termination or cancellation of outstanding
options.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE RATIFICATION AND APPROVAL
OF THE COMPANY'S 1995 STOCK OPTION PLAN AS AMENDED.
GENERAL DESCRIPTION OF OPTION PLAN
The following summary of the Option Plan, including the proposed
amendments, is subject in its entirety to the specific language of the Option
Plan, a copy of which is available to any shareholder upon request.
The Option Plan was adopted by the Board of Directors in September 1995 and
approved by the shareholders in October 1995. In July 1996, the Board of
Directors approved an amendment to the Option Plan to increase the number of
shares available for granting thereunder by 477,200 shares from 300,000 shares
to 777,200 shares. In December 1996, the Board of Directors approved an
additional amendment to the Option Plan increasing the number of shares
available for granting thereunder by an additional 33,743 shares from 777,200
shares to 810,943 shares. As of December 20, 1996 options to purchase 689,634
had been granted under the option plan of which options to purchase 689,634 were
outstanding, including options to purchase 389,634 shares which were granted
subject to shareholder approval of the Option Plan as amended. In 1996 the
Company decided to discontinue granting new options under its 1987 Option Plan,
although options remain outstanding under that plan.
The purposes of the Option Plan are to give the employees and others who
perform substantial services to the Company or its designated subsidiaries
incentive, through ownership of the Company's Common Stock, to continue in their
service to the Company and to help the Company compete effectively with other
enterprises for the services of qualified individuals. The Option Plan permits
the grant of "incentive stock options" within the meaning of Section 422 of the
Internal Revenue Code of 1986, as
7
<PAGE>
amended (the "Code") to employees (including officers and directors who are
employees) and the award of nonqualified stock options to employees, officers,
directors, independent contractors and consultants of the Company. As of
December 20, 1996, the number of executive officers, employees, consultants and
directors of the Company and its subsidiaries that were eligible to receive
grants under the Option Plan was approximately 105 persons.
The Board of Directors or a committee designated by the Board (the
"Committee") is authorized to administer the Option Plan, including the
selection of persons (other than directors who are Non-Employee Directors) to
whom options may be granted and the interpretation and implementation of the
Option Plan. Options granted under the Option Plan will vest and become
exercisable as determined by the Committee at the time of the option grant. The
maximum term of an option granted under the Option Plan is ten years (five years
in the case of an incentive stock option granted to an optionee who owns stock
possessing more than 10% of the voting power of the Company's outstanding
capital stock (a "10% Shareholder")).
The exercise price of all stock options granted under the Option Plan must
equal at least the fair market value of the Common Stock of the Company on the
date of grant. The fair market value of the Common Stock on a given date is
determined by the Board of Directors based upon the last sale price of the
Common Stock on the Nasdaq National Market System as of such date. On September
30, 1996, the fair market value of the Company's Common Stock was $7.125. The
aggregate fair market value, on the date of grant, of the stock for which
incentive stock options are exercisable for the first time by an employee during
any calendar year may not exceed $100,000. The exercise price of each option
granted under the Option Plan shall not be less than the fair market value of
the Common Stock on the date of grant (or not less than 110% of fair market
value in the case of an incentive stock option granted to a 10% Shareholder).
The payment of the exercise price of an option granted pursuant to the Option
Plan may be made in cash, promissory notes (subject to certain conditions),
other shares of the Company's Common Stock, delivery on a form prescribed by the
Committee of an irrevocable direction to a securities broker approved by the
Committee to sell shares and deliver all or a portion of the proceeds to the
Company in payment for the stock or in any combination of the foregoing.
However, under the Option Plan Non-Employee Directors may not pay the exercise
price of an option in the form of a promissory note.
The Option Plan provides for automatic nonqualified stock option grants to
Non-Employee Directors who are not affiliates of a five percent (5%) or greater
shareholder of the Company of 5,000 shares at the time first elected to the
Board ("Initial Grants") and 2,500 shares annually thereafter ("Subsequent
Grants") to continuing Non-Employee Directors immediately following each annual
meeting of shareholders. The exercise price of options granted to Non-Employee
Directors must equal at least the fair market value of the Common Stock of the
Company on the date of grant. Initial Grants are fully exercisable as of the
date of grant. Subsequent Grants become exercisable at the rate of 8.33% each
month following the date of grant, so that the option will be fully exercisable
twelve months following the date of grant. Non-Employee Directors may not
receive any other option grants under the Option Plan.
Except for the provisions relating to the grant of stock options to Non-
Employee Directors, the Option Plan may be amended at any time by the Board of
Directors, although certain amendments require shareholder approval. The Option
Plan will terminate in September 2005, unless earlier terminated by the Board.
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<PAGE>
AMENDED PLAN BENEFITS
As of December 20, 1996, the Company had granted options to purchase a
total of 389,634 shares at a weighted average exercise price of $7.124, which
options are subject to shareholder approval of the Option Plan as amended to
increase the number of shares subject to the Option Plan. Of this amount,
options to purchase shares were granted to the following executive officers:
Mr. Sollitto, 200,000 shares; Dr. Pratt, 40,000 shares; Mr. Jerome, 10,000
shares and Mr. Henley, 7,749. Options to purchase the remaining 131,885 shares
were granted to certain employees and current officers who are not executive
officers. As of the date of this Proxy Statement, no Non-Employee Directors nor
associates of any director, executive officer or nominee for director has been
granted any options subject to shareholder approval of the amended Option Plan.
The benefits to be received pursuant to the Option Plan amendment by the
Company's directors, executive officers and employees are not determinable at
this time.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The following summarizes only the federal income tax consequences of stock
options granted under the Option Plan. State and local tax consequences may
differ.
Stock Options. The grant of a nonqualified stock option under the Option
-------------
Plan will not result in any federal income tax consequences to the optionee or
to the Company. Upon exercise of a nonqualified stock option, the optionee is
subject to income taxes at the rate applicable to ordinary compensation income
on the difference between the option price and the fair market value of the
shares on the date of exercise. This income is subject to withholding for
federal income and employment tax purposes. The Company is entitled to an
income tax deduction in the amount of the income recognized by the optionee.
Any gain or loss on the optionee's subsequent disposition of the shares will
receive long or short-term capital gain or loss treatment depending on whether
the shares are held for more or not more than twelve months, respectively,
following exercise. The Company does not receive a tax deduction for any such
gain. The maximum marginal rate at which ordinary income is taxed to
individuals is currently 39.6% and the maximum rate at which long-term capital
gains are taxed is 28%. Special considerations apply to optionees who are
reporting persons for purposes of Section 16(a) of the Securities Exchange Act
of 1934 and such optionees should consult their tax advisors with respect to the
tax treatment of such options.
The grant of an incentive stock option ("ISO") under the Option Plan will
not result in any federal income tax consequences to the optionee or to the
Company. An optionee recognizes no federal taxable income upon exercising an
ISO (subject to the alternative minimum tax rules discussed below), and the
Company receives no deduction at the time of exercise. In the event of a
disposition of stock acquired upon exercise of an ISO, the tax consequences
depend upon how long the optionee has held the shares. If the optionee does not
dispose of the shares within two years after the ISO was granted, nor within one
year after the ISO was exercised and shares were purchased, the optionee will
recognize a long-term capital gain (or loss) equal to the difference between the
sale price of the shares and the exercise price. The Company is not entitled to
any deduction under these circumstances.
If the optionee fails to satisfy either of the foregoing holding periods,
he or she must recognize ordinary income in the year of the disposition
(referred to as a "disqualifying disposition"). The amount of such ordinary
income generally is the lesser of (i) the difference between the amount realized
on disposition and the exercise price, or (ii) the difference between the fair
market value of the stock on the exercise date and the exercise price.
Any gain in excess of the amount taxed as ordinary income will be treated as a
long- or
9
<PAGE>
short-term capital gain, depending on whether the stock was held for
more or not more than twelve months, respectively. The Company, in the year of
the disqualifying disposition, is entitled to a deduction equal to the amount of
ordinary income recognized by the optionee.
The "spread" under an ISO -- i.e., the difference between the fair market
value of the shares at exercise and the exercise price -- is classified as an
item of adjustment in the year of exercise for purposes of the alternative
minimum tax.
Effective January 1, 1994, the Code was amended to impose a cap on the
amount of executive compensation recognized by a corporation's Chief Executive
Officer and its four other most highly compensated executive officers that the
corporation may deduct, set at $1,000,000 per such executive per year. To
facilitate the Company's ability to continue to deduct in full all amounts of
income recognized by such executive officers of the Company upon exercise of
stock options, no employee may be granted options under the amended Option Plan
to purchase in excess of 250,000 shares per calendar year.
Payment of Withholding Taxes. The Company may withhold, or require a
----------------------------
participant to remit to the Company, an amount sufficient to satisfy any
federal, state or local withholding tax requirements associated with awards
under the Option Plan.
Special Rules. Special rules may apply to a participant who is subject to
-------------
Section 16(b) of the Securities Exchange Act of 1934 (generally directors,
executive officers and 10% Shareholders).
PROPOSAL NO. 3
--------------
RATIFICATION AND APPROVAL OF THE COMPANY'S
1995 STOCK OPTION PLAN AS AMENDED
The Company's shareholders are being asked to act upon an additional
proposal to approve the action of the Board of Directors amending the Option
Plan. Ratification of the proposal requires the affirmative vote of a majority
of the shares of Common Stock voting on the proposal in person or by proxy.
Subject to shareholder approval of the amended Option Plan, the Board of
Directors amended the Option Plan in July 1996 to increase the maximum number of
shares with respect to which options may be granted to any individual per
calendar year by 150,000 shares from 100,000 to 250,000 shares.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE RATIFICATION AND APPROVAL
OF THE COMPANY'S 1995 STOCK OPTION PLAN AS AMENDED.
GENERAL DESCRIPTION OF OPTION PLAN
For a general description of the Option Plan, please see the summary
provided under the heading for Proposal No. 2 in this Proxy Statement.
10
<PAGE>
AMENDED PLAN BENEFITS
As of December 20, 1996, the Company had granted options to purchase a
total of 200,000 shares to Mr. Vince Sollitto, Jr. of which 100,000 shares of
such options are subject to shareholder approval of this Proposal No. 3. As of
the date of this Proxy Statement, no other options have been granted subject to
the approval of this Proposal No. 3. The benefits to be received pursuant to
the Option Plan amendment by the Company's directors, executive officers and
employees are not determinable at this time.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
For a summary of the federal income tax consequences of stock options
granted under the Option Plan, please see the discussion provided under the
heading for Proposal No. 2 in this Proxy Statement.
PROPOSAL NO. 4
--------------
RATIFICATION AND APPROVAL OF APPOINTMENT OF INDEPENDENT AUDITORS
The Board of Directors has selected Ernst & Young LLP, independent
auditors, to audit the financial statements of the Company for 1997 and
recommends that the shareholders ratify such selection. In the event that a
majority of the outstanding shares are not voted in favor of ratification, the
Board will reconsider its selection. Unless otherwise instructed, the proxy
holders will vote the proxies they receive for the ratification of Ernst & Young
LLP as the independent auditors for 1997. Representatives of Ernst & Young LLP
will be present at the Annual Meeting, will have the opportunity to make a
statement if they so desire and will be available to respond to appropriate
questions.
Ernst & Young LLP has audited the Company's financial statements since the
year ended September 30, 1994.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE RATIFICATION OF ERNST &
YOUNG LLP AS THE COMPANY'S INDEPENDENT AUDITORS FOR THE FISCAL YEAR ENDING
SEPTEMBER 30, 1997.
11
<PAGE>
MANAGEMENT
EXECUTIVE OFFICERS
In addition to Messrs. Sollitto and Henley, the other executive officers of
the Company as of December 20, 1996, were as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION(S)
- --------------------------------- --- ------------------------------------
<S> <C> <C>
Howard M. Bailey 50 Chief Financial Officer, Secretary
Jeffrey Hawthorne 39 Vice President, Development
Alan Nolet 39 Senior Vice President, Sales
Donald Jerome 59 Vice President, Operations
C.J. Meurell 36 Vice President, Marketing and
Technology
Dr. William Pratt 59 Chief Technical Officer - Software
</TABLE>
MR. BAILEY joined the Company in May 1994 as a consultant and was appointed
to the position of Chief Financial Officer and Secretary in August 1994. From
1992 to 1994, Mr. Bailey was a partner in the Financial Services Division of
David Powell, Inc., where he provided high-level financial support services for
such companies as Sierra Semiconductor, Syquest, WSI, Alien Sport and Cubic
Memory. In connection with the filing by Alameda of a petition under Title 11
of the United States Code in April 1993, Mr. Bailey, who was employed by David
Powell, Inc. as a consultant to Alameda was appointed Chief Financial Officer
and debtor in possession of Alameda. From 1989 to 1991, Mr. Bailey was the
Chief Financial Officer at Plus Logic Corporation (currently part of Xilinx).
Mr. Bailey has held various other financial management positions including Chief
Financial Officer at Telmos, Controller at Intel and Financial Planning Manager
at SP Communications (currently Sprint). Mr. Bailey received a B.S. in
economics from the University of Maryland in 1969 and an M.B.A. in finance from
the University of Utah in 1974.
MR. HAWTHORNE joined the Company in November 1991 as Senior Applications
Engineer, FIS Products. He was promoted to Project Manager FIS Products and
then General Manager and Vice President Inspection Division in August 1992 and
in September 1994, respectively. From June 1990 to November 1991, he was a
consultant with Display Tech, which provided consulting services in the area of
liquid crystal displays. He received a B.S. in engineering physics from the
University of Colorado in 1987 and an M.S. in optical engineering from the
University of Rochester in 1990.
MR. NOLET became the Senior Vice President, Sales in May 1996. He joined
the Company in September 1992 as Vice President of Sales and Marketing
Communications and was appointed Vice President of U.S. Sales and then Vice
President Worldwide Sales in May 1993 and June 1994, respectively. From 1987 to
1992, Mr. Nolet was a Vice President responsible for worldwide sales, field
operations, service and marketing at LAM Research Corporation. He currently
serves on the Executive Committee for SEMI's FPD Division. Mr. Nolet received a
B.S. in chemical engineering from Clarkson University in 1978.
12
<PAGE>
MR. JEROME joined the Company in June 1995 as Vice President,
Manufacturing. From April 1995 to June 1995, Mr. Jerome was a consultant with
Bell Microproducts. From May 1994 to April 1995, Mr. Jerome was Director of
Manufacturing at Creative Insight, Inc. From July 1992 to April 1994, he was
Director of Materials at Pacific Pay Video, Ltd. From March 1989 to July 1992,
he was Director of Materials at Plus Logic Corporation. Mr. Jerome received an
A.A. from Foothill College in 1967 and an M.A. from CSU San Francisco in 1973.
MR. MEURELL joined the Company in May of 1996. From April 1995 to May
1996, he served as a director of Teradyne's Low Cost Logic Tester Line for the
Megatest division of Teradyne. From October 1993 to April 1995, Mr. Meurell was
with Catapult Software Training Centers, an IBM company, for which he served as
General Manager in the New York Metropolitan region. From December 1980 to
October 1993, he held various sales management positions at the Megatest
Corporation. Mr. Meurell received a B.S. in electrical engineering from the
University of Massachusetts and an M.B.A. degree from Union College.
DR. PRATT joined the Company in October 1996 as Chief Technical Officer for
Software. From 1988 through 1994 he was Director of Multimedia and Imaging
Technology at Sun Microsystems, Inc. In 1993, he founded Pixelsoft, Inc., a
start-up image processing software development company. Dr. Pratt received a
B.S. degree in electrical engineering from Bradley University and an M.S. and a
Ph.D. in electrical engineering the University of Southern California. Dr. Pratt
holds five patents and is the author of several books on image processing.
13
<PAGE>
EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE
The following table sets forth certain information concerning
compensation of (i) each person that served as the Company's Chief Executive
Officer during the last fiscal year of the Company, (ii) the four other most
highly compensated executive officers of the Company, and (iii) each former
executive officer of the Company who would have been one of the Company's four
most highly compensated executive officers had such executive officer been
serving as such at the end of the Company's last fiscal year (collectively, the
"named executive officers"):
<TABLE>
<CAPTION>
LONG-TERM
ANNUAL COMPENSATION COMPENSATION
------------------------ AWARDS ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY($) BONUS($) OPTIONS/SARS(#) COMPENSATION($)
- -------------------------------------- ---- --------- -------- --------------- ---------------
<S> <C> <C> <C> <C> <C>
Vincent Sollitto, Jr.(1) 1996 $ 64,048 -- 200,000 --
Chief Executive Officer and Director 1995 -- -- -- --
James M. Ellick(2) 1996 207,002 $ 50,000 -- --
Former Chief Executive Officer and 1995 180,000 -- 200,000 --
Former Director
Francois J. Henley 1996 165,638 33,863 60,000 --
Chief Technical Officer and 1995 140,000 19,744 16,667 --
Director(3)
Howard M. Bailey 1996 150,503 49,875 43,500 --
Chief Financial Officer and Secretary 1995 122,326 -- 83,334 --
Alan Nolet 1996 279,644(4) 4,000 62,000 --
Vice President, Worldwide Sales 1995 259,470(5) -- 10,000 --
Jeffrey Hawthorne 1996 126,618 3,250 20,000 --
Vice President, Development 1995 104,945 -- 44,555 --
</TABLE>
- --------------
(1) Mr. Sollitto, Jr. was appointed Chief Executive Officer of the Company on
June 10, 1996 and appointed to the Board of Directors on July 15, 1996.
Mr. Sollitto, Jr.'s total annual base salary is $225,000. Of the options
granted to Mr. Sollitto, Jr. in 1996, 200,000 shares are subject to
approval of Proposal No. 2 and 100,000 shares are subject to approval of
Proposal No. 3 by the shareholders of the Company.
(2) Mr. Ellick resigned his positions both as Chief Executive Officer and
Director with the Company on May 15, 1996.
(3) Of the options granted to Mr. Henley in 1996, 7,749 shares are subject to
approval of Proposal No. 2 by the shareholders of the Company.
(4) Includes commissions of $134,335 paid in fiscal year 1996. Mr. Nolet
earned a total of $62,197 in commissions in fiscal year 1996, of which
$9,775 was paid out to Mr. Nolet in the first quarter of fiscal year 1997.
(5) Includes commissions of $134,470 paid in fiscal year 1995. Mr. Nolet
earned a total of $181,492 in commissions in fiscal year 1995, of which
$81,913 was paid out to Mr. Nolet in the first quarter of fiscal year 1996.
14
<PAGE>
OPTION/SAR GRANTS IN LAST FISCAL YEAR
The following table provides certain information with respect to stock
options granted to the named executive officers for the fiscal year ended
September 30, 1996:
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
-----------------------------------------------------
% OF TOTAL
OPTIONS/
SARS
GRANTED TO
UNDERLYING EMPLOYEES EXERCISE
OPTIONS/SARS IN FISCAL PRICE PER EXPIRATION
NAME GRANTED (#) YEAR SHARE DATE
- -------------------------------------- ------------ ---------- --------- ----------
<S> <C> <C> <C> <C>
Vincent Sollitto, Jr.(1).............. 74,070 13.4% $6.75 07/15/06
125,930 22.8% $6.75 07/15/06
James M. Ellick....................... -- -- -- --
Francois J. Henley(2)................. 53,214 9.6% $6.75 07/15/06
6,786 1.2% $6.75 07/15/06
Howard M. Bailey...................... 4,800 0.9% $6.75 07/15/06
35,200 6.4% $6.75 07/15/06
3,500 0.6% $6.75 07/15/06
Alan Nolet............................ 8,090 1.5% $6.75 07/15/06
51,910 9.4% $6.75 07/15/06
2,000 0.4% $6.75 07/15/06
Jeffrey Hawthorne..................... 20,000 3.6% $6.75 07/15/06
- --------------
</TABLE>
(1) Of the options granted to Mr. Sollitto, Jr. in 1996, 200,000 shares are
subject to approval of Proposal No. 2 and 100,000 shares are subject to
approval of Proposal No. 3 by the shareholders of the Company.
(2) Of the options granted to Mr. Henley in 1996, 7,749 shares are subject to
approval of Proposal No. 2 by the shareholders of the Company.
15
<PAGE>
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION/SAR VALUES
The following table sets forth certain information with respect to stock
options exercised by the named executive officers during fiscal year 1996,
including the aggregate value of gains on the date of exercise. In addition, the
table sets forth the number of shares covered by stock options as of September
30, 1996, and the value of "in-the-money" stock options, which represents the
positive spread between the exercise price of a stock option and the market
price of the shares subject to such option on September 30, 1996.
<TABLE>
<CAPTION>
Number of Securities
Shares Underlying Value of Unexercised
Acquired Value Unexercised Options/SARs In-the-Money Options/SARs
On Realized at Fiscal Year End (#) at Fiscal Year End($)(2)
Name Exercise(#) ($)(1) Exercisable Unexercisable Exercisable Unexercisable
- -------------------------- ----------- --------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Vincent Sollitto, Jr. -- -- -- 200,000(3) $ -- $ 75,000
James M. Ellick -- -- 102,334 5,333 622,531 30,800
Francois J. Henley -- -- 19,133 60,000(4) 34,841 22,500
Howard M. Bailey -- -- 30,834 84,333 169,466 284,473
Alan Nolet -- -- 46,067 69,267 269,967 70,287
Jeffrey Hawthorne -- -- 16,095 45,672 94,377 155,159
</TABLE>
- --------------
(1) Calculated by determining the difference between the fair market value of
the securities underlying the option on the date of exercise and the
exercise price of the Named Executive Officers' respective options.
(2) Calculated on the basis of the last reported sale price per share for the
Company's Common Stock on the Nasdaq National Market of $7.125 on September
30, 1996.
(3) Of the options granted to Mr. Sollitto, Jr. in 1996, 200,000 shares are
subject to approval of Proposal No. 2 and 100,000 shares are subject to
approval of Proposal No. 3 by the shareholders of the Company.
(4) Of the options granted to Mr. Henley in 1996, 7,749 shares are subject to
approval of Proposal No. 2 by the shareholders of the Company.
EMPLOYMENT AGREEMENTS
Except as described below, the Company does not have employment agreements
with any of its executive officers.
Each of Messrs. Sollitto, Henley, Bailey, Hawthorne, Nolet and Jerome is
party to an agreement which provides certain severance and other benefits in the
event of a termination of such person's employment with the Company following a
change of control of the Company. In the event termination of such officer's
employment (other than a voluntary termination by the officer or a termination
for cause) that occurs within up to fifteen months of a change in control of the
Company, the officer is entitled to between six months and fifteen months of
severance payments and benefits depending upon the timing of such termination
and the officer obtaining alternative employment following termination. Upon
such change of control, each officer's option under the Company's stock option
plans become fully exercisable if his employment is to terminate as of the
closing of the change of control. If such officer's employment with the Company
is to continue
16
<PAGE>
following a change of control, vesting of his options is accelerated by two
years as of the closing of the change of control. Under these agreements,
severance benefits consist of a continuation of the officer's base salary and
non-discretionary bonuses, if any, during the applicable severance period and of
his medical, health and other insurance benefits.
CERTAIN RELATIONSHIPS AND TRANSACTIONS
In March 1994, the Company issued 6% convertible notes (the "Notes") for
$150,000, $160,000 and $250,000 to Kleiner Perkins Caufield & Byers IV
("Kleiner"), venture capital funds affiliated with U.S. Venture Partners III
("USVP") and LG Electronics, respectively. E. Floyd Kvamme, a General Partner
of Kleiner, Steven M. Krausz, a partner at USVP, and Michael J. Kim, the
Executive Director of new business development at LG Electronics, are directors
of the Company.
In May 1994, the Company issued and sold shares of its Series E Preferred
Stock to certain investors at a price of $1.80 per share. As part of this
financing, Kleiner, USVP, Aeneas Venture Corporation ("Aeneas"), LG Electronics,
AVI Management, Inc., and venture capital funds affiliated therewith ("AVI"),
Venrock Associates ("Venrock") and ML Venture Partners II, L.P. ("ML Partners")
purchased 338,625 shares, 225,560 shares, 123,915 shares, 342,622 shares, 13,889
shares, 132,823 shares and 232,298 shares of Series E Preferred Stock,
respectively (converted, at the close of the Company's Initial Public Offering,
into 112,875 shares, 75,187 shares, 41,305 shares, 114,207 shares, 4630 shares,
44,274 shares and 77,433 shares of Common Stock, respectively). In May 1994, in
connection with the cancellation of the Notes as partial consideration for the
purchase of Series E Preferred Stock, the Company issued warrants to purchase,
at an exercise price of $0.60 per share, 99,722 shares, 6,578 shares and 28.333
shares of Common stock to Kleiner, USVP and LG Electronics, respectively.
Aeneas and Venrock were beneficial owners of more than 5% of the Company's
voting securities in 1994. ML Partners is a beneficial owner of more than 5% of
the Company's voting securities. Mr. Chuck Chan, a general partner of AVI, was
a director of the Company in 1994.
In June 1995, the Company entered into an agreement with Kleiner, Venrock,
ML Partners, USVP and Aeneas under which such parties granted the Company a
$1,000,000 revolving 7% line of credit which terminated upon the closing of the
Company's initial public offering. The Company did not drawn down any amount on
this line of credit. Under such agreement, the Company also issued to such
parties warrants to purchase an aggregate of 83,333 shares of Series E Preferred
Stock (converted, at the close of the Company's Initial Public Offering, into
27,778 shares of Common Stock) at a price of $1.80 per share.
During 1994, 1995 and 1996 the Company sold approximately $187,000,
$4,482,000 and $4,651,000, respectively, of its systems to LG Electronics. LG
Electronics beneficially owns 534,375 shares of the Company's Common Stock, and
warrants to purchase 28,333 shares of Common Stock at an exercise price of $0.60
per share. The Company believes its sales to LG Electronics were made on terms
no less favorable than would have been obtained from unaffiliated parties.
In connection with the exercise of certain options to purchase Common Stock
of the Company, Francois J. Henley, Chief Technical Officer and a director of
the Company issued the Company a 6.83% five-year note for $72,520 due June 1,
2000, with interest payments due annually. In connection with such note Mr.
Henley entered into a Security Agreement pursuant to which Mr. Henley
transferred to the Company and pledged as security for payment of such note all
of the shares of Common Stock purchased upon exercise of such options.
17
<PAGE>
In connection with the purchase of Common Stock of the Company, Vincent
Sollitto, Jr., Chief Executive Officer and a director of the Company issued the
Company a 6.72% note for $56,253 on October 10, 1996. Principal and accrued but
unpaid interest is payable in installments in the amount of ten percent of Mr.
Sollitto's income received pursuant to his employment with the Company, net of
all other withholdings, per pay period commencing on the first day of November
1996 and continuing until the total principal and interest is paid in full. Any
principal and interest that has not been paid as a part of such installments
prior to the first anniversary of the note shall be payable on the anniversary
date (October 10, 1997). Should Mr. Sollitto's employment with the Company
terminate for any reason prior to the total principal and accrued interest being
paid, he will have thirty days from said termination date to pay the total
principal and accrued interest due as of his date of termination.
On May 15, 1996, Mr. James Ellick resigned as Chief Executive Officer and
Director of the Company and entered into a six month consulting contract with
the Company which terminated on November 15, 1996. Under the terms of the
consulting contract, Mr. Ellick received a total of $107,526.00. In addition,
Mr. Ellick's original options to purchase Common Stock of the Company continued
to vest at 50% of their original vesting rate until November 15, 1996, at which
time vesting ceased.
SECURITY OWNERSHIP OF
CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth the beneficial ownership of Common Stock as
of December 20, 1996 as to (i) each person who is known by the Company to
beneficially own more than 5% of the Common Stock of the Company, (ii) each of
the Company's directors, and (iii) all directors and executive officers as a
group.
<TABLE>
<CAPTION>
BENEFICIAL OWNERSHIP
PERCENT OF
NAME OF BENEFICIAL OWNER NUMBER OF SHARES TOTAL(1)
- -------------------------------------------------------------- ---------------- --------------------
<S> <C> <C>
Kleiner Perkins Caufield & Byers IV(2) 986,899 14.0
Floyd Kvamme(3) 986,899 14.0%
LG Electronics, Inc.(4) 562,708 8.1
Michael J. Kim(5) 562,708 8.1
ML Venture Partners II, L.P.(6) 431,298 6.2
Francois J. Henley(7) 286,308 4.1
Steven M. Krausz(8) 89,525 1.3
Vincent Sollitto, Jr. (9) 42,000 1.0
Barry Cox(10) 17,883 *
Malcolm Thompson(11) 17,167 *
All Current Executive Officers and Directors as a group (13
persons)(12) 2,168,172 29.5
</TABLE>
- ---------------
* Less than 1%
(1) Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission. In computing the number of shares
beneficially owned by a person and the percentage ownership of that person,
shares of Common Stock subject to options held by that person that are
currently exercisable or exercisable within 60 days of December 20, 1996
are
18
<PAGE>
deemed outstanding. Such shares, however, are not deemed outstanding for
the purposes of computing the percentage ownership of each other person.
Applicable percentages are based on 6,955,037 shares outstanding on
December 20, 1996, adjusted as required by the rules. To the Company's
knowledge, except as set forth in the footnotes to this table and subject
to applicable community property laws, each person named in the table has
sole voting and investment power with respect to the shares set forth
opposite such person's name.
(2) Includes 108,566 shares subject to warrants exercisable within 60 days of
December 20, 1996. The address of Kleiner Perkins Caufield & Byers IV is
2750 Sand Hill Road, Menlo Park, California 94025.
(3) Includes 986,889 shares beneficially owned by Kleiner Perkins Caufield &
Byers IV, of which Mr. Kvamme is a General Partner. Mr. Kvamme disclaims
beneficial ownership of such shares except for his proportional interest
therein. The address of Mr. Kvamme is c/o Kleiner Perkins Caufield & Byers
IV, 2750 Sand Hill Road, Menlo Park, California 94025.
(4) Includes 28,333 shares subject to warrants exercisable within 60 days of
December 20, 1996. The address of LG Electronics, Inc. is 20, Yoido-Dong
Youngdungpo-Gu, Yoido P.O. Box 335, Seoul 150-721 Korea.
(5) Includes 562,708 shares held by LG Electronics, Inc., of which Mr. Kim is
an Executive Director. Mr. Kim disclaims beneficial ownership of such
shares. The address of Mr. Kim is c/o LG Electronics, Inc., 20, Yoido-Dong
Youngdungpo-Gu, Yoido P.O. Box 335, Seoul 150-721 Korea.
(6) Includes 6,062 shares subject to warrants exercisable within 60 days of
December 20, 1996. The address of ML Venture Partners II, L.P. is 3000
Sand Hill Road, Menlo Park, California 94025.
(7) Includes 20,441 shares subject to options exercisable within 60 days of
December 20, 1996.
(8) Includes 87,651 shares beneficially owned by U.S. Venture Partners III and
related entities: (a) 63,909 shares owned by U.S. Venture Partners III and
10,660 shares subject to warrants held by U.S. Venture Partners exercisable
within 60 days of December 20, 1996, (b) 10,526 shares owned by Second
Ventures Partners, L.P. and 1,679 shares subject to warrants held by Second
Ventures Partners, L.P. exercisable within 60 days of December 20, 1996,
(c) 752 shares owned by U.S.V. Entrepreneur Partners and 125 shares subject
to warrants held by U.S.V. Entrepreneur Partners exercisable within 60 days
of December 20, 1996. Mr. Krausz is a general partner of each of U.S.
Venture Partners III, Second Ventures Partners, L.P. and USV Entrepreneur
Partners. Mr. Krausz disclaims beneficial ownership of such shares except
his proportional interest therein. Also includes 1,874 shares subject to
options exercisable within 60 days of December 20, 1996. The address of
Mr. Krausz is c/o U.S. Venture Partners III, 2180 Sand Hill Road, Menlo
Park, California 94025.
(9) Includes 32,000 shares subject to options exercisable within 60 days of
December 20, 1996.
(10) Includes 17,833 shares subject to options exercisable within 60 days of
December 20, 1996.
(11) Includes 17,167 shares subject to options exercisable within 60 days of
December 20, 1996.
(12) Includes 1,487,895 shares held indirectly held by directors of the Company
and 390,574 shares subject to options and warrants exercisable within 60
days of December 20, 1996.
OTHER MATTERS
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Exchange Act requires the Company's executive officers
and directors, and persons who own more than ten percent of a registered class
of the Company's equity securities, to file an initial report of ownership on
Form 3 and changes in ownership on Form 4 or 5 with the Securities and Exchange
Commission (the "SEC") and the Nasdaq National Market. Such officers, directors
and ten-percent shareholders are also required by SEC rules to furnish the
Company with copies of all Section 16(a) forms they file.
Based solely on its review of the copies of such forms received by it, or
written representations from certain reporting persons the Company believes that
its executive officers, directors and ten-percent shareholders complied with all
Section 16(a) filing requirements applicable to them, except as follows: Messrs.
Sollitto and Meurell each filed his Form 3 late.
19
<PAGE>
DEADLINE FOR RECEIPT OF SHAREHOLDER PROPOSALS
Proposals of shareholders of the Company that are intended to be presented
at the Company's Annual Meeting of Shareholders to be held in 1998 must be
received by the Company no later than September 16, 1997 to be included in the
proxy statement and form of proxy relating to that meeting.
OTHER MATTERS
The Company knows of no other matters to be submitted to the meeting. If
any other matters properly come before the meeting, it is the intention of the
persons named in the enclosed form of proxy to vote the shares they represent as
the Board of Directors may recommend.
BY ORDER OF THE BOARD OF DIRECTORS
Howard M. Bailey
Chief Financial Officer
Dated: January 16, 1997
20
<PAGE>
DETACH HERE
PHO F
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
PHOTON DYNAMICS, INC.
P
R ANNUAL MEETING OF SHAREHOLDERS
O FEBRUARY 12, 1997
X
Y
The undersigned hereby appoints Vincent Sollitto, Jr. and Howard M.
Bailey and each of them, as proxies, each with the power to appoint his
substitute, and hereby authorizes them to represent and to vote as designated
below all of the shares of Common Stock of Photon Dynamics, Inc. that the
undersigned is entitled to vote at the Annual Meeting of Shareholders to be
held at 3:00 p.m., California time on February 12, 1997, at the Company's
principal executive offices, 6325 San Ignacio Avenue, San Jose, California
95119, or any adjournment or postponement thereof.
THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED AS DIRECTED BY THE
UNDERSIGNED SHAREHOLDER. IF NO SUCH DIRECTIONS ARE MADE, THIS PROXY WILL BE
VOTED FOR THE ELECTION OF THE NOMINEES LISTED ON THE REVERSE SIDE FOR THE
BOARD OF DIRECTORS AND FOR PROPOSALS 2, 3 AND 4.
____________
CONTINUED AND TO BE SIGNED ON REVERSE SIDE |SEE REVERSE|
| SIDE |
|___________|
<PAGE>
DETACH HERE
PHO F
[x] Please mark
votes as in
this example _____
|
PLEASE MARK, SIGN, DATE AND RETURN THIS PROXY CARD
PROMPTLY USING THE ENCLOSED REPLY ENVELOPE.
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
FOR AGAINST ABSTAIN
1. Election of Directors 2. Proposal to ratify and approve [ ] [ ] [ ]
NOMINEES: Vincent Sollitto, Jr., the Company's 1995 Stock Option
Francois J. Henley, E. Floyd Kvamme, Plan as amended to increase the
Barry L. Cox, Michael J. Kim, number of shares reserved for
M. Krausz and Malcolm J. Thompson issuance thereunder by 510,943
shares from 300,000 shares to
FOR WITHHELD 810,943 shares.
[ ] [ ] MARK HERE FOR AGAINST ABSTAIN
IF YOU PLAN [ ] 3. Proposal to ratify and approve [ ] [ ] [ ]
TO ATTEND the Company's 1995 Stock Option
THE MEETING Plan as amended to increase the
maximum number of shares with
MARK HERE respect to which options may be
FOR ADDRESS [ ] granted to any individual per
CHANGE AND calendar year by 150,000 shares
NOTE BELOW from 100,000 to 250,000 shares.
[ ] ______________________________________ FOR AGAINST ABSTAIN
For all nominees except as noted above 4. Proposal to ratify the appoint- [ ] [ ] [ ]
ments of Ernst & Young LLP as the
independent auditors for the
Company for the fiscal year
ending September 30, 1997.
FOR AGAINST ABSTAIN
5. Authority is hereby given to the [ ] [ ] [ ]
proxies identified on the front of
this card to vote in their discretion
upon such other business as may
properly come before the meeting.
(Please sign exactly as your name appears on this proxy card. If shares are
held jointly, each holder should sign. When signing as attorney, executor,
administrator, corporation, trustee or guardian, please give full title as
such. If a corporation, please sign in full corporate name by President or
other authorized officer. If a partnership, please sign in partnership name
by authorized person.)
Signature: _______________________________ Date: ________________ Signature: _______________________________ Date: _______________
</TABLE>
<PAGE>
PHOTON DYNAMICS, INC.
---------------------
AMENDED AND RESTATED
--------------------
1995 STOCK OPTION PLAN
----------------------
1. Establishment, Purpose, and Definitions.
---------------------------------------
(a) There is hereby adopted the 1995 Stock Option Plan (the
"Plan") of Photon Dynamics, Inc. (the "Company").
(b) The purpose of the Plan is to provide a means whereby
eligible individuals (as defined in Section 4, below) can acquire Common
Stock of the Company (the "Stock"). The Plan provides employees
(including officers and directors who are employees) of the Company and
of its Affiliates an opportunity to purchase shares of Stock pursuant to
options which may qualify as incentive stock options (referred to as
"incentive stock options") under Section 422 of the Internal Revenue Code
of 1986, as amended (the "Code"), and employees, officers, directors,
independent contractors, and consultants of the Company and of its
Affiliates an opportunity to purchase shares of Stock pursuant to options
which are not described in Sections 422 or 423 of the Code (referred to
as "nonqualified stock options").
(c) The term "Affiliates" as used in the Plan means parent or
subsidiary corporations, as defined in Sections 424(e) and (f) of the
Code (but substituting "the Company" for "employer corporation"),
including parents or subsidiaries which become such after adoption of the
Plan.
2. Administration of the Plan.
--------------------------
(a) The Plan shall be administered by the Board of Directors of
the Company (the "Board"). Subject to Section 2(e) below, the Board may
delegate the responsibility for administering the Plan to a committee,
under such terms and conditions as the Board shall determine (the
"Committee"). The Committee shall consist of two or more members of the
Board or such lesser number of members of the Board as permitted by Rule
16b-3 promulgated under the Securities Exchange Act of 1934, as amended
("Rule 16b-3"). Except as permitted by Rule 16b-3, none of the members of
the Committee shall receive, while serving on the Committee, or during
the one-year period preceding appointment to the Committee, a grant or
award of equity securities under (i) the Plan or (ii) any other plan of
the Company or its affiliates under which the participants are entitled
to acquire Stock (including restricted Stock), stock options, stock
bonuses, related rights or stock appreciation rights of the Company or
any of its affiliates, other than pursuant to the grant of automatic
options provided in Section 7 below and pursuant to transactions in any
such other plan which do not disqualify a director from being a
disinterested person under Rule 16b-3. The limitations set forth in this
Section 2(a) shall automatically incorporate any additional requirements
that may in the future be necessary for the Plan to comply with Rule 16b-
3. Members of the Committee shall serve at the pleasure of the
1
<PAGE>
Board. The Committee shall select one of its members
as chairman, and shall hold meetings at such times and places as it may
determine. A majority of the Committee shall constitute a quorum and acts
of the Committee at which a quorum is present, or acts reduced to or
approved in writing by all the members of the Committee, shall be the valid
acts of the Committee. If the Board does not delegate administration of
the Plan to the Committee, then each reference in this Plan to "the
Committee" shall be construed to refer to the Board.
(b) Except for options granted to Non-Employee Directors
pursuant to Section 7, the Committee shall determine which eligible
individuals (as defined in Section 4, below) shall be granted options
under the Plan, the timing of such grants, the terms thereof (including
any restrictions on the Stock), and the number of shares subject to such
options.
(c) Except for options granted to Non-Employee Directors pursuant
to Section 7, the Committee may amend the terms of any outstanding option
granted under this Plan, but any amendment which would adversely affect
the optionee's rights under an outstanding option shall not be made
without the optionee's written consent. The Committee may, with the
optionee's written consent, cancel any outstanding stock option or accept
any outstanding stock option in exchange for a new option.
(d) The Committee shall have the sole authority, in its absolute
discretion to adopt, amend, and rescind such rules and regulations as, in
its opinion, may be advisable in the administration of the Plan, to
construe and interpret the Plan, the rules and the regulations, and the
instruments evidencing options or Stock granted under the Plan and to
make all other determinations deemed necessary or advisable for the
administration of the Plan. All decisions, determinations, and
interpretations of the Committee shall be binding on all participants.
Notwithstanding the foregoing, the Committee shall not exercise any
discretionary functions with respect to options granted to Non-Employee
Directors pursuant to Section 7.
(e) Notwithstanding the foregoing provisions of this Section 2,
grants of options to any "Covered Employee," as such term is defined by
Section 162(m) of the Code shall be made only by a subcommittee of the
Committee which, in addition to meeting other applicable requirements of
this Section 2, is composed solely of two or more "outside directors,"
within the meaning of Section 162(m) of the Code and the regulations
thereunder (the "Subcommittee") to the extent necessary to qualify such
grants as "performance-based compensation" under Section 162(m). In the
case of such grants to Covered Employees, references to the "Committee"
shall be deemed to be references to the Subcommittee as specified above.
3. Stock Subject to the Plan.
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(a) The aggregate number of shares of Common Stock of the
Company available for grant of options under the Plan initially shall be
810,943 shares. If an option is surrendered (except surrender for shares
of Stock) or for any other reason ceases to be exercisable in whole or in
part, the shares which were subject to such option but as to which the
option had not been exercised shall continue to be available under the
Plan.
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(b) If there is any change in the Stock subject to any option
granted under the Plan, through merger, consolidation, reorganization,
recapitalization, reincorporation, stock split, stock dividend (in excess
of two percent), or other change in the capital structure of the Company,
appropriate adjustments shall be made by the Committee in order to
preserve but not to increase the benefits to the individual, including
adjustments to the number and kind of shares and the price per share
subject to outstanding options.
4. Eligible Individuals. The persons eligible to participate in the
--------------------
Plan (other than pursuant to Section 7) are such employees, officers,
independent contractors, and consultants of the Company or an Affiliate as the
Committee, in its discretion, shall designate from time to time.
Notwithstanding the foregoing, only employees of the Company or an Affiliate
(including officers and directors who are bona fide employees) shall be eligible
to receive incentive stock options. Except for grants pursuant to Section 7,
Eligible Individuals shall not include Non-Employee Directors.
5. The Option Price. Except as provided in Section 7, the exercise
----------------
price of the each option shall be not less than the per share fair market value
of the Stock subject to such option on the date the option is granted.
Notwithstanding the foregoing, in the case of an incentive stock option granted
to a person possessing more than ten percent of the combined voting power of the
Company or an Affiliate, the exercise price shall be not less than 110 percent
of the fair market value of the Stock on the date the option is granted. The
exercise price of an option shall be subject to adjustment to the extent
provided in Section 3(b), above.
6. Terms and Conditions of Options.
-------------------------------
(a) Each option granted pursuant to the Plan will be evidenced
by a written Stock Option Agreement executed by the Company and the
person to whom such option is granted.
(b) The Committee shall determine the term of each option
granted under the Plan; provided, however, that (i) the term of each
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option shall not be more than 10 years, (ii) in the case of an incentive
stock option granted to a person possessing more than ten percent of the
combined voting power of the Company or an Affiliate, the term of each
incentive stock option shall be no more than five years, and (iii) the
term of an option granted pursuant to Section 7 shall be as provided in
Section 7.
(c) In the case of incentive stock options, the aggregate fair
market value (determined as of the time such option is granted) of the
Stock with respect to which incentive stock options are exercisable for
the first time by an eligible employee in any calendar year (under this
Plan and any other plans of the Company or its Affiliates) shall not
exceed $100,000. If the aggregate fair market value of stock with respect
to which incentive stock options are exercisable by an optionee for the
first time during any calendar year exceeds $100,000 such options shall
be treated as nonqualified options to the extent required by Section 422
of the Code. The rule set forth in the preceding sentence shall be
applied by taking options into account in the order in which they were
granted.
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<PAGE>
(d) Except for grants to Non-Employee Directors pursuant to
Section 7, which shall be granted on the form of Stock Option Agreement
attached hereto as Exhibit A, the Stock Option Agreement may contain such
other terms, provisions, and conditions as may be determined by the
Committee not inconsistent with this Plan. If an option, or any part
thereof is intended to qualify as an incentive stock option, the Stock
Option Agreement shall contain those terms and conditions which are
necessary to so qualify it.
(e) The maximum number of Shares with respect to which options
may be granted to any individual per calendar year under the Plan shall
be 250,000 shares, subject to adjustment pursuant to Section 3(b). To the
extent required by Section 162(m) of the Code or the regulations
thereunder, in applying the foregoing limitation with respect to an
employee, if any option is canceled, the canceled option shall continue
to count against the maximum number of shares for which options may be
granted to the employee under this Section 6(e). For this purpose, the
repricing of an option shall be treated as a cancellation of the existing
option and the grant of a new option.
7. Stock Options for Non-Employee Directors.
----------------------------------------
(a) All grants of options pursuant to this Section 7 shall be
automatic and nondiscretionary and shall be made strictly in accordance
with the provisions of this Section 7. No person shall have any
discretion to select which Non-Employee Directors shall be granted
options or to determine the number of shares of Stock to be covered by
options granted to Non-Employee Directors, the timing of such option
grants or the exercise price thereof.
(b) An option to purchase 5,000 shares of Stock shall be granted
("Initial Grant") to each director who is not an officer of the Company
or an affiliate of a five percent (5%) or greater shareholder (or
shareholders) of the Company ("Non-Employee Director"), such Initial
Grant to be made to Non-Employee Directors elected or appointed to the
Board upon the date each such Non-Employee Director first becomes a Non-
Employee Director following the approval date of the plan by the
shareholders. In addition, immediately following each annual meeting of
the Company's stockholders, each Non-Employee Director who continues as a
Non-Employee Director following such annual meeting shall be granted an
option to purchase 2,500 shares of Stock ("Subsequent Grant"); provided
that no Subsequent Grant shall be made to any Non-Employee Director who
has not served as a director of the Company, as of the time of such
annual meeting, for at least one (1) year. Each such Subsequent Grant
shall be made on the date of the annual stockholders' meeting in
question. If any option ceases to be exercisable in whole or in part, the
shares which were subject to such option but as to which the option had
not been exercised shall continue to be available under the Plan. All
options granted to Non-Employee Directors shall be nonqualified stock
options.
(c) The exercise price per share of Stock covered by each option
shall be the per-share fair market value of the Stock on the date the
option is granted. The exercise price of an option granted under the Plan
shall be subject to adjustment to the extent provided in Section 3(b)
hereof. The term of each option shall be for ten years.
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<PAGE>
(d) Each Initial Grant shall be fully vested and exercisable as
to 5,000 of the shares covered thereby on the date of grant. Each
Subsequent Grant shall become vested as to 8.33% of the shares covered
thereby each month following the date of grant, so that each Subsequent
Grant will be fully execisable one (1) year after its grant date.
8. Use of Proceeds. Cash proceeds realized from the sale of Stock
---------------
under the Plan or pursuant to options granted under the Plan shall constitute
general funds of the Company.
9. Amendment, Suspension, or Termination of the Plan.
-------------------------------------------------
(a) The Board may at any time amend, suspend or terminate the
Plan as it deems advisable; provided that such amendment, suspension or
termination complies with all applicable requirements of state and
federal law, including any applicable requirement that the Plan or an
amendment to the Plan be approved by the shareholders, and provided
further that, except as provided in Section 3(b), above, the Board shall
in no event amend the Plan in the following respects without the consent
of stockholders then sufficient to approve the Plan in the first
instance:
(i) To increase the maximum number of shares subject to
stock options issued under the Plan; or
(ii) To change the designation or class of persons
eligible to receive incentive stock options under the Plan.
(b) No option may be granted nor any Stock issued under the Plan
during any suspension or after the termination of the Plan, and no
amendment, suspension, or termination of the Plan shall, without the
affected individual's consent, alter or impair any rights or obligations
under any option previously granted under the Plan. The Plan shall
terminate on the tenth anniversary of the date of adoption of the Plan,
unless previously terminated by the Board pursuant to this Section 9.
(c) Notwithstanding the provisions of Sections 9(a) and 9(b),
above, the provisions set forth in Section 7 of the Plan (and any other
sections of the Plan that affect the formula award terms of option grants
to Non-Employee Directors required to be specified in the Plan by Rule
16b-3) shall not be amended periodically and in no event more than once
every six months, other than to comport with changes to the Code, the
Employee Retirement Income Security Act of 1974, as amended, or any
applicable rules and regulations thereunder.
10. Assignability. To the extent required by Rule 16b-3, no option
-------------
granted pursuant to this Plan shall be transferable by the holder except by
operation of law or by will or the laws of descent and distribution; provided,
that, if Rule 16b-3 is amended after the date of the Board's adoption of the
Plan to permit broader transferability of options under that Rule, (i) options
granted under Section 7 to Non-Employee Directors shall be transferable to the
fullest extent permitted by Rule 16b-3 as so amended, (ii) any other option
shall be transferable to the extent provided in the option agreement covering
the option, and the Committee shall have discretion to amend any such
outstanding option to provide for broader transferability of the option as the
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<PAGE>
Committee may authorize within the limitations of Rule 16b-3. Notwithstanding
the foregoing, if required by the Code, each incentive stock option under the
Plan shall be transferable by the optionee only by will or the laws of descent
and distribution, and, during the optionee's lifetime, shall be exercisable only
by the optionee. In the event of any Rule 16b-3 permitted transfer of an option
hereunder, the transferee shall be entitled to exercise the option in the same
manner and only to the same extent as the optionee (or his personal
representative or the person who would have acquired the right to exercise the
option by bequest or intestate succession) would have been entitled to exercise
the option under Sections 6, 7 and 11 had the option not been transferred.
11. Payment Upon Exercise of Options.
--------------------------------
(a) Payment of the purchase price upon exercise of any option
granted under this Plan shall be made in cash, by optionee's personal
check, a certified check, bank draft, or postal or express money order
payable to the order of the Company in lawful money of the United States
(collectively, "Cash Consideration'); provided, however, that, except for
options granted under Section 7, the Committee, in its sole discretion,
may permit an optionee to pay the option price in whole or in part (i)
with shares of Stock owned by the optionee or with shares of Stock
withheld from the shares otherwise deliverable to the optionee upon
exercise of the option; (ii) by delivery on a form prescribed by the
Committee of an irrevocable direction to a securities broker approved by
the Committee to sell shares of Stock and deliver all or a portion of the
proceeds to the Company in payment for the Stock; (iii) by delivery of
the optionee's promissory note with such recourse, interest, security,
and redemption provisions as the Committee in its discretion determines
appropriate; or (iv) in any combination of the foregoing. The exercise
price of any options granted under Section 7 shall be paid in Cash
Consideration, the consideration specified in clauses (i) or (ii) of the
preceding sentence, or in any combination thereof. Any Stock used to
exercise options shall be valued at its fair market value on the date of
the exercise of the option. In addition, the Committee, in its sole
discretion, may authorize the surrender by an optionee of all or part of
an unexercised option (excluding options granted under Section 7, above)
and authorize a payment in consideration thereof of an amount equal to
the difference between the aggregate fair market value of the Stock
subject to such option and the aggregate option price of such Stock. In
the Committee's discretion, such payment may be made in cash, shares of
Stock with a fair market value on the date of surrender equal to the
payment amount, or some combination thereof.
(b) In the event that the exercise price is satisfied by shares
withheld from the shares of Stock otherwise deliverable to the optionee,
the Committee may issue the optionee an additional option, with terms
identical to the option agreement under which the option was exercised,
entitling the optionee to purchase additional shares of Stock equal to
the number of shares so withheld but at an exercise price equal to the
fair market value of the Stock on the grant date of the new option;
provided, however, that no such additional options may be granted with
respect to options granted pursuant to Section 7, above. Any additional
option shall be subject to the provisions of Section 6(e), above.
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<PAGE>
12. Withholding Taxes.
-----------------
(a) No Stock shall be delivered under the Plan to any
participant until the participant has made arrangements acceptable to the
Committee (or in the case of exercise of options granted to Named
Executives, the Subcommittee) for the satisfaction of federal, state, and
local income and social security tax withholding obligations, including,
without limitation, obligations incident to the receipt of Stock under
the Plan or to the failure to satisfy the conditions for treatment as
incentive stock options under applicable tax law. Upon exercise of a
stock option the Company shall withhold from the optionee an amount
sufficient to satisfy federal, state and local income and social security
tax withholding obligations.
(b) In the event that such tax withholding is satisfied by the
Company or the optionee's employer withholding shares of Stock otherwise
deliverable to the optionee, the Committee may issue the optionee an
additional option, with terms identical to the option agreement under
which the option was exercised, entitling the optionee to purchase
additional shares of Stock equal to the number of shares so withheld but
at an exercise price equal to the fair market value of the Stock on the
grant date of the new option; provided, however, that no such additional
options may be granted with respect to options granted pursuant to
Section 7, above. Any additional option shall be subject to the
provisions of Section 6(e), above.
13. Change in Control.
-----------------
(a) For purposes of this Section 13, a "Change in Control" shall
be deemed to occur upon:
(i) The direct or indirect acquisition by any person or
related group of persons (other than an acquisition from or by the Company or
by a Company-sponsored employee benefit plan or by a person that directly or
indirectly controls, is controlled by, or is under common control with, the
Company) of beneficial ownership (within the meaning of Rule 13d-3 of the
Securities Exchange Act of 1934, as amended) of securities possessing more
than fifty percent (50%) of the total combined voting power of the Company's
outstanding Stock;
(ii) A change in the composition of the Board over a
period of thirty-six (36) months or less such that a majority of the Board
members cease, by reason of one or more contested elections for Board
membership or by one or more actions by written consent of stockholders, to be
comprised of individuals who either (A) have been Board members continuously
since the beginning of such period or (B) have been elected or nominated for
election as Board members during such period by at least a majority of the
Board members described in clause (A) who were still in office at the time
such election or nomination was approved by the Board;
(iii) Approval by the Company's stockholders of a merger
or consolidation in which the Company is not the surviving entity, except for
a transaction the principal purpose of which is to change the state in which
the Company is incorporated;
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<PAGE>
(iv) Approval by the Company's stockholders of (A) the
sale, transfer or other disposition of all or substantially all of the assets
of the Company (including the capital stock of the Company's subsidiary
corporations) or (B) the complete liquidation or dissolution of the Company;
or
(v) Approval by the Company's stockholders of any
reverse merger in which the Company survives as an entity but in which
securities possessing more than fifty percent (50%) of the total combined
voting power of the Company's outstanding securities are transferred to a
person or persons different from those who held such securities immediately
prior to such merger.
(vi) For the purpose of this Section 13, "Approval by
the Company's Stockholders" shall mean approval by a majority of those shares
of Stock voting at a stockholder's meeting at which a quorum is present,
excluding shares beneficially owned (within the meaning of Rule 13d-3 under
the Exchange Act) by the Non-Employee Directors.
(b) Except for options granted to Non-Employee Directors under
Section 7, the Committee may provide in any stock option agreement (or in
an amendment thereto) that, in the event of any Change in Control, any
outstanding options covered by such an agreement shall be fully vested,
nonforfeitable and become exercisable, as of the date of the Change in
Control.
(c) If the Committee determines to incorporate a Change in
Control provision in any option agreement hereunder, the agreement shall
provide that, (i) in the event of a Change in Control described in
clauses (i), (ii) and (v) of paragraph (a) above, the option shall remain
exercisable for the remaining term of the option and (ii) in the event of
a Change in Control described in clauses (iii) or (iv) of paragraph (a)
above, the option shall terminate as of the effective date of the merger,
disposition of assets, liquidation or dissolution described therein.
(d) As to any options granted under Section 7 to Non-Employee
Directors, (i) in the event of a Change in Control described in clauses
(i), (ii) or (v) of paragraph (a) above, any such outstanding options
under the Plan shall become fully vested and remain exercisable for the
remaining term of such options and (ii) in the event of a Change in
Control described in clauses (iii) or (iv) of paragraph (a) above,
outstanding options under the Plan shall terminate as of the effective
date of the merger, disposition of assets, liquidation or dissolution
described therein.
(e) Notwithstanding the foregoing provisions of this Section 13,
an outstanding option may not be accelerated under this Section 13 if and
to the extent (i) such option is, in connection with the transaction
giving rise to a Change of Control, either to be assumed by the successor
or parent thereof or to be replaced with a comparable option to purchase
shares of the capital stock of the successor corporation or parent
thereof, or (ii) such option is to be replaced with a cash incentive
program of the successor corporation that preserves the option spread
existing at the time of the corporate transaction giving rise to the
Change of Control and provides for subsequent payment in accordance with
the same vesting schedule applicable to such option.
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<PAGE>
14. Stockholder Approval. The Plan and any options granted pursuant to
--------------------
Section 7 and options granted to Covered Employees hereunder shall become
effective only upon approval by the holders of a majority of the Company's
shares voting (in person or by proxy) at a stockholders' meeting held within 12
months of the Board's adoption of the Plan. The Committee may grant stock
options under the Plan prior to the stockholders' meeting, but until stockholder
approval of the Plan is obtained, no such option shall be exercisable. In the
event that stockholder approval is not obtained within the period provided
above, all options described in this Section 14 previously granted above, shall
terminate.
15. Rule 16b-3 Compliance. Transactions under the Plan are intended to
---------------------
comply with all applicable conditions of Rule 16b-3 or its successors under the
Exchange Act. To the extent any provision of the Plan or action by the Board or
the Committee fails to so comply, it shall be deemed null and void, to the
extent permitted by law and deemed advisable by the Board or the Committee.
Moreover, in the event the Plan does not include a provision required by Rule
16b-3 to be stated therein in order to qualify the grants under Section 7 hereof
as grants under a non-discretionary formula under Rule 16b-3 such provision
(other than one relating to eligibility requirements, or the price and amount of
awards) shall be deemed automatically to be incorporated by reference into the
Plan with respect to grants of options to Non-Employee Directors.
16. Applicable Law. The law of the State of California will govern all
--------------
matters relating to this Plan except to the extent it is superseded by the laws
of the United States.
9
