SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the
Securities Exchange Act of 1934 (Amendment No. )
Filed by the Registrant [X]
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
California Micro Devices Corporation
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(Name of Registrant as Specified In Its Charter)
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(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] $125 per Exchange Act Rules 0-11(c)(1)(ii), 14a-6(i)(2) or
Item 22(a)(2) of schedule 14A.
[ ] $500 per each party to the controversy pursuant to Exchange Act Rule
14a-6(i)(3).
[ ] 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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(2) Form, Schedule or Registration Statement No.:
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(4) Date Filed:
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Notes:
June 12, 1996
[LOGO OF CALIFORNIA MICRO DEVICES CORP.]
CALIFORNIA MICRO DEVICES CORPORATION
Dear Shareholders:
You are cordially invited to attend the Annual Meeting of
Shareholders on Friday, July 26, at 8:30 a.m., at the Holiday Inn San
Jose North, 777 Bellew Drive, Milpitas, California.
Since our last shareholder meeting almost a year ago, your Company
has made significant progress in its turnaround. For more information,
please see the enclosed annual report.
The Board of Directors unanimously recommends that all shareholders
vote for the election of the nominated directors, and for the other
proposals presented in this Proxy Statement. Dr. C.K.N. Patel, a
director since 1990, is not standing for re-election and in his place the
Board has nominated John Sprague, a former director and currently a
consultant to the Company. Dr. Patel has been a valued technology and
business contributor during his years of service on the Board, and we
shall miss him.
Whether or not you plan to attend the Annual Meeting, please mark,
sign, date and return your proxy card in the enclosed envelope as soon as
possible. If you intend to attend the Meeting, please mark the
appropriate box on your card and fill out the remaining sections. This
will assure that your stock will be voted in accordance with the
instructions you have given in your proxy card in the event you are
unable to attend. You may, of course, attend the Annual Meeting and vote
in person even if you have previously sent in your proxy card. It is
extremely important that every shareholder vote. PLEASE send in your
proxy card.
Very truly yours,
/S/Wade Meyercord
WADE MEYERCORD
Chairman of the Board
<PAGE>
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
The Annual Meeting of Shareholders of California Micro Devices
Corporation ("CMD") will be held on Friday, July 26,1996, at 8:30 a.m.,
at the Holiday Inn San Jose North, 777 Bellew Drive, Milpitas,
California.
The items of business are:
1. Election of six directors of the Company, to serve until the next
annual meeting of shareholders.
2. Ratification of the Appointment of Auditors.
3. Amendment to the 1995 Stock Option Plan to increase from 1,600,000
to 2,040,000 the number of shares reserved for issuance thereunder.
4. Amendment of the 1995 Non-Employee Directors' Stock Option Plan to
increase from 150,000 to 170,000 the number of shares reserved
for issuance thereunder.
5. Such other matters as may properly come before the meeting.
These items are more fully described in the following pages, which
are hereby made a part of this Notice.
Only shareholders of record at the close of business on June 12,
1996, will be entitled to vote at the meeting.
All shareholders are cordially invited to attend the meeting in
person. However, to assure your representation at the meeting, you are
urged to mark, sign and return the enclosed proxy card as promptly as
possible in the postage prepaid envelope enclosed for that purpose. Any
shareholder attending the meeting may vote in person even if he or she
returned a proxy.
Sincerely,
/S/Scott Hover-Smoot
Milpitas, California SCOTT HOVER-SMOOT
June 12, 1996 Secretary
<PAGE>
CALIFORNIA MICRO DEVICES CORPORATION
PROXY STATEMENT
I. GENERAL INFORMATION
This Proxy Statement, the accompanying proxy/voting instruction card
(the "Proxy Card") and California Micro Devices Corporation Annual Report
on Form 10-K for the fiscal year ended March 31, 1996 (the "Annual
Report"), are being distributed to shareholders commencing on or about
June 17, 1996. Whether or not you expect to attend the Company's 1996
Annual Meeting of Shareholders (the "Annual Meeting") in person, the
Board of Directors requests that you complete and return your Proxy Card
for use at the Annual Meeting and any adjournments thereof.
PROXY STATEMENT. This Proxy Statement consists of Sections I
through VII, and contains four proposals. These Sections are intended to
be read and understood together as one document. PLEASE CAREFULLY READ
EACH SECTION.
WHO CAN ATTEND THE ANNUAL MEETING. Only shareholders of record of
common stock issued by California Micro Devices Corporation ("CMD" or the
"Company") at the close of business on June 12, 1996, the Record Date for
the Annual Meeting, are entitled to notice of and to vote at the Annual
Meeting. Except as discussed herein, such shareholders are entitled to
one vote for each share on each matter to be voted upon at the Annual
Meeting.
QUORUM AT THE ANNUAL MEETING. As of the Record Date, CMD had
issued and outstanding 8,951,021 shares of voting Common Stock, not
including 1,500,000 non-voting shares held in trust in anticipation of
settlement of the pending securities class action litigation. The
holders of a majority of the outstanding shares of Common Stock, present
in person or represented by proxy, will constitute a quorum for the
transaction of business at the Annual Meeting. The specific vote
requirements for the matters being submitted to a shareholders' vote at
the Annual Meeting are provided under "Approval of Proxy Statement
Items."
SUBMISSION OF PROXY CARD. You are urged to sign and date the
Proxy Card and return it in the prepaid reply envelope provided for such
purpose. THIS WILL IN NO WAY AFFECT YOUR RIGHT TO ATTEND THE ANNUAL
MEETING AND VOTE IN PERSON. A shareholder giving a proxy has the right
to revoke it at any time before it is voted by giving notice of such
revocation to the Secretary of the Company, by attending the meeting and
voting in person, or by returning a later dated proxy.
The number of shares designated on the Proxy Card represents the
total number of shares held in your name on the Record Date.
If you receive more than one proxy card in separate mailings it is
an indication that your shares are registered differently in more than
one account. ALL Proxy Cards received by you should be signed and mailed
by you to ensure that all your shares are voted.
VOTING BY PROXY CARD. When you vote by Proxy Card, the following
procedure will apply:
If you intend to vote by Proxy Card, please cast your vote in
accordance with the instructions on the Proxy Card. Sign your Proxy Card
where indicated, and return it in the enclosed prepaid envelope. When
your Proxy Card is returned properly marked and signed, the shares
represented thereby will be voted in accordance with your directions.
Signed proxies received by California Micro Devices Corporation on
which no contrary instruction has been given will be voted FOR Proposals
1 through 4. IF YOU DO NOT VOTE FOR OR AGAINST A PROPOSAL, AND YOU
RETURN YOUR SIGNED PROXY CARD, YOU WILL HAVE VOTED FOR PROPOSALS 1
THROUGH 4. If you wish to vote in accordance with the Board of
Directors' recommendations, simply sign, date and return your proxy card
in the envelope provided.
1
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As of the date of this Proxy Statement, the Board does not intend to
present any matter for action at the Annual Meeting other than the above
items.
Copies of proxy solicitation material will be furnished to brokerage
houses, fiduciaries, and custodians (the "Named Holders") holding shares
in their names which are beneficially owned by others to forward to such
beneficial owners. In addition, the Company may reimburse such persons
for their cost of forwarding the solicitation material to such beneficial
owners. Original solicitation of proxies by mail may be supplemented, if
deemed desirable or necessary, by one or more of telephone, telegram,
facsimile, or personal solicitation by directors, officers, or employees
of the Company or by solicitors retained by the Company. No additional
compensation will be paid to any Company employee, officer, or director
for such services. The Company reserves the right, if deemed desirable
or necessary, to retain a proxy solicitation firm to deliver soliciting
materials to Named Holders for distribution by them to their principals
and to assist the Company in collecting proxies from such holders. The
costs of these services, exclusive of out-of-pocket costs, is not
expected to exceed $12,000.
CONDUCT OF THE ANNUAL MEETING. The Annual Meeting will be
conducted in accordance with those procedures established by the Chairman
of the Board of Directors. For the purpose of assuring accurate
recording of proceedings, the Company may create an audio or audio video
tape of the Annual Meeting.
The Annual Meeting will proceed in the same order as the Proposals
set out below.
PROCEDURE FOR DIRECTOR NOMINATIONS BY SHAREHOLDERS. The By-Laws
of the Company require advance notification of the intent of any
shareholder to nominate a person for the position of Director of the
Company. The By-Laws require that the Company's Secretary must receive
written notice of the intent of any shareholder to nominate a person as a
director of the Company not less than thirty days before the date of the
Annual Meeting. Pursuant to the By-Laws, notice of the intent to
nominate must be sent in writing to: California Micro Devices
Corporation, Attn.: Scott Hover-Smoot, Secretary, 215 Topaz Street,
Milpitas, California 95035. Recommendations must be received before 5:00
p.m. on June 26, 1996 (30 days before the date set for the Company's
Annual Meeting), and must be accompanied by a statement from the nominee
indicating his or her willingness to serve if elected and disclosing his
or her principal occupations or employment during the past five years.
Nominations by shareholders of persons for the position of director may
only be made at the Annual Meeting. Any nomination made by a shareholder
whose nominee has not complied with this advance notification requirement
will be disallowed, and no nomination of such person shall be placed
before the shareholders. This requirement is not applicable to
nominations made by the Board of Directors of the Company.
APPROVAL OF PROXY STATEMENT ITEMS. Only holders of shares of the
Company's Common Stock of record as of the close of business on June 12,
1996 (the "Record Date") are entitled to vote at the Annual Meeting.
Except as otherwise provided for herein, each share of Common Stock is
entitled to one vote on all matters to be voted upon. Votes cast at the
Annual Meeting will be counted by an inspector of election, appointed by
the Company. The presence, in person or by proxy duly authorized, of the
holders of a majority of the voting shares will constitute a quorum for
the transaction of business at the Annual Meeting and any continuation or
adjournment thereof. Broker non-votes (i.e. shares held by a broker or
nominee which are represented at the Annual Meeting, but with respect to
which such broker or nominee is not empowered to vote on a particular
proposal) will be counted in determining whether a quorum is present at
the Annual Meeting, but shall not be counted in determining whether a
particular proposal has been approved for matters not voted on.
Directors are elected by a plurality of votes of the shares present in
person or represented by proxy at the Annual Meeting. Any shares not
voted (whether by abstention, broker non-votes or otherwise) will have no
impact on the election of directors, except to the extent that the
failure to vote for an individual results in another individual receiving
a larger portion of votes. Except where otherwise indicated, the
proposals submitted to the Shareholders in the enclosed proxy must be
approved by the vote of the holders of a majority of the votes of the
shares of the Company represented in person or by proxy and entitled to
vote at the Annual Meeting. In determining whether such proposals have
been approved, abstentions and broker non-votes are not counted as votes
for or against the proposal.
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II. MATTERS TO BE VOTED ON AT THE ANNUAL MEETING
ELECTION OF SIX DIRECTORS (PROPOSAL NO. 1)
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YOUR BOARD RECOMMENDS A VOTE "FOR" THE ELECTION OF
DR. ANGEL JORDAN, JEFFREY KALB, WADE MEYERCORD, DAVID SCHOON,
STUART SCHUBE, AND DR. JOHN SPRAGUE AS DIRECTORS
Six directors are to be elected to serve until the next annual
meeting of shareholders and until the election and qualification of their
successors. The Company's By-Laws provide for not less than five nor
more than nine Directors, with the current number of directors fixed at
six.
Shareholders voting for the election of directors may cumulate their
votes and give one candidate a number of votes equal to the number of
directors to be elected multiplied by the number of votes to which each
shareholder's shares are entitled, or may distribute their votes on the
same principle among as many candidates as they choose, provided that
votes cannot be cast for more than the total number of directors to be
elected at the meeting. However, no shareholder may cumulate votes until
the candidate's name has been placed in nomination at the meeting prior
to the voting and at least one shareholder at the meeting has given
notice of the intention to cumulate votes prior to the voting. If such
notice is given, every shareholder present, in person or by proxy at the
meeting, may cumulate votes. UNLESS OTHERWISE INSTRUCTED, PROXY HOLDERS
WILL VOTE THE PROXIES RECEIVED BY THEM FOR THE SIX NOMINEES NAMED BELOW.
HOWEVER, IN THE CASE OF CUMULATIVE VOTING, PROXY HOLDERS MAY CUMULATE
VOTES IN THE ELECTION OF DIRECTORS, AND MAY ALLOCATE THE VOTES AMONG ONE
OR MORE OF THE NOMINEES AS THE PROXY HOLDERS DEEM APPROPRIATE.
Five of the six nominees are current directors of the Company:
Dr. Angel Jordan, Wade Meyercord, David Schoon, Stuart Schube, and
Jeffrey Kalb. The sixth nominee, Dr. John Sprague, is a former director
of the Company and has served during the last year as a consultant to the
Board.
Brief biographies of the nominees are set out below. Additional
information regarding their stock ownership and compensation can be found
below under Sections III and IV.
3
<PAGE>
The following table sets forth the names, ages, and principal
occupations for the periods indicated and other directorships of each of
the current nominees at the 1996 Annual Meeting.
<TABLE>
<S> <C> <C> <C>
Principal Occupation for the past Five Years Director
Name Age and Other Directorships Since
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Angel G. Jordan 65 University Professor of Electrical & Computer 1983
Engineering at Carnegie-Mellon University since
1991; Provost from 1983 to 1991; Dean of
Engineering from 1979 to 1983, Carnegie-Mellon
University.
Jeffrey C. Kalb 53 President and Chief Executive Officer of the 1995
Company since December 1994. President and
Chief Operating Officer of MasPar Computer
Corporation (computer systems manufacturer),
1988 to 1993. Vice President of Digital Equipment
Corporation (computer systems manufacturer),
1983 to 1987.
Wade Meyercord 55 Chairman of the Board since October 1994. 1992
President, Meyercord & Associates, Inc. since
1987 (consulting firm). Chief Executive Officer
of Read-Rite Corp. (electronic data storage
company), 1984 to 1987.
David Schoon 44 President, Stock Portfolio Management, Inc. 1995
(financial consulting firm) since 1992.
Director Sparton Corporation (electronic and
electromechanical company) since 1994.
Stuart Schube 56 President, Acorn Ventures, Inc. (venture 1986
capital management company), and General
Partner, the Genesis Fund, Ltd. (venture
capital management company) since 1986.
John L. Sprague 65 President, John L. Sprague Associates since Former
1987 (consulting firm). President and Chief Director
Executive Officer, Sprague Electric Company
(electronics company), 1981 to 1987. Various
other executive management positions at Sprague
Electric Company, 1959 to 1981. Director
Allmerica Financial Corporation (insurance
company) since 1972; Director Aerovox Corporation
(capacitor company) since 1989; Director Sipex
Corporation, (semiconductor corporation) since 1972.
</TABLE>
There are no family relationships among any of the directors and
officers.
4
<PAGE>
RATIFICATION OF ERNST & YOUNG LLP
AS THE COMPANY'S INDEPENDENT AUDITORS
-------------------------------------
(PROPOSAL NO. 2)
----------------
YOUR BOARD RECOMMENDS A VOTE "FOR" THE RATIFICATION OF
ERNST & YOUNG LLP AS THE COMPANY'S INDEPENDENT AUDITORS
The Board of Directors has selected Ernst & Young LLP as the
Company's independent auditors for the fiscal year ending March 31, 1997,
and has further directed that management submit the selection of
independent auditors for ratification by the shareholders at the Annual
Meeting. Its representatives are expected to be present at the Annual
Meeting, will have the opportunity to make a statement if they desire to
do so and will be available to respond to appropriate questions.
On January 6, 1995, the Company received a letter from Coopers &
Lybrand L.L.P. ("Coopers & Lybrand"), the Company's former independent
accountants, confirming that Coopers & Lybrand was terminating its
auditing relationship with the Company.
The Coopers & Lybrand reports on the financial statements of the
Company for the two fiscal years ended June 30, 1993 and 1994 did not
contain an adverse opinion or a disclaimer of opinion nor were they
qualified or modified as to uncertainty, audit scope, or accounting
principles. As a result of press releases issued by the Company,
notification was made to persons who are known to be relying upon or who
are likely to rely upon, the financial statements of the Company and the
report for the year ended June 30, 1994, that such financial statements
should not be relied upon. The Coopers & Lybrand resignation did not
involve a decision by the Audit Committee of the Board of Directors of
the Company or the Board as a whole.
During the Company's two most recent fiscal years, there were no
disagreements or reportable events pursuant to Item 304(a) (1) (iv) or
(v) of Regulation S-K.
On January 31, 1995, the Company received a letter from Coopers &
Lybrand confirming that it agrees with the foregoing statements.
On January 31, 1995, the Company appointed Ernst & Young LLP as its
new independent auditors.
Shareholder ratification of the selection of Ernst & Young LLP as
the Company's independent auditors is not required by the Company's
ByLaws or otherwise. The Board of Directors is submitting the selection
of Ernst & Young LLP to the shareholders for ratification as a matter of
good corporate practice. In the event the shareholders fail to ratify
the selection, the Board of Directors will reconsider whether or not to
retain that firm. Even if the selection is ratified, the Board of
Directors in its discretion may direct the appointment of a different
independent accounting firm at any time during the year if the Board of
Directors determines that such a change could be in the best interests of
the Company and its shareholders.
5
<PAGE>
AMENDMENT OF THE 1995 EMPLOYEE STOCK OPTION PLAN
------------------------------------------------
(PROPOSAL NO. 3)
----------------
YOUR BOARD RECOMMENDS A VOTE "FOR" THE AMENDMENT OF
THE 1995 EMPLOYEE STOCK OPTION PLAN
This amendment is to increase, from 1,600,000 to 2,040,000, the
number of shares reserved for issuance under the previously approved 1995
Employee Stock Option Plan. The Company's 1995 Stock Option Plan (the
"1995 Plan") was adopted by the Board on February 10, 1995, and ratified
by the shareholders of the Company at the 1995 Annual Meeting. A total
of 1,600,000 shares of Common Stock were approved for issuance under the
1995 Plan. This represented the approximate number of shares remaining
in the Company's previously approved 1981 and 1987 Option Plans that were
not subject to option grants. Thus, the net number of option shares
approved remained essentially unchanged from what had been previously
approved by the shareholders. Your Board recommends amending the Plan to
increase the number of shares of Common Stock reserved for issuance
thereunder by 420,000, to 2,020,000, to allow for the hiring of
additional key employees and to retain presently employed key employees.
The affirmative vote of the holders of the majority of the Company's
shares present or represented by proxy and entitled to vote at the
meeting will be required to amend the 1995 Plan. The Board believes that
this plan is necessary to enable the Company to provide meaningful equity
incentives to attract, motivate, and retain officers and key employees
and recommends that the shareholders vote for ratification of this plan.
Proxies solicited by the Board will be voted for this proposal unless
shareholders specify otherwise on those proxies.
A summary of the principal provisions of the 1995 Plan is set forth
below.
PURPOSES. The purpose of the Company's stock option plans is to
attract and retain talented key employees and to align their personal
financial interests with those of the Company's shareholders. Generally,
options are granted with an exercise price equal to the market price of
the Common Stock on the date of grant and generally vest over a four year
period. This approach is designed to focus key employees on sustainable
growth of the Company and the creation of shareholder value over the long
term. Stock options are a major component of the compensation package of
executive management.
ADMINISTRATION. The 1995 Plan is administered by a committee of
directors, consisting of at least two "disinterested persons" as that
term is defined in Rule 16b-3 of the Securities Exchange Act of 1934 (the
"Committee"). The Committee has the authority to determine the persons
to whom options are granted, the number of shares covered by each option,
the type of option, the times at which an option may be exercised, the
exercise price, the method of payment, and certain other terms. The
interpretations and construction of any provision of the 1995 Plan is
within the sole discretion of the Committee, whose determination is final
and binding. Eligible employees are generally granted options upon
commencement of employment and are reconsidered for additional options
periodically thereafter. In awarding stock options the Committee
considers individual performance, overall contribution to the Company,
retention, the number of unvested stock options and the total number of
stock options to be granted.
ELIGIBILITY. Options may be granted to any person, including
officers and consultants, employed by the Company or any of its
subsidiaries or its successors, but not to any person who, at the time
of the grant, is a nonemployee director of the Company. The Committee
selects the optionees and determines the number of shares to be subject
to each option granted under the 1995 Plan.
TERMS OF OPTIONS. Options granted under the 1995 Plan may be
either incentive stock options ("ISOs") as defined in Section 422 of the
Internal Revenue Code (the "Code"), or nonstatutory stock options and
become exercisable in accordance with terms established at the time of
grant. Subject to the provisions of the 1995 Plan, all options granted
are exercisable on such terms and conditions as the Committee determines.
Each option is evidenced by a stock option agreement between the Company
and the optionee setting forth the terms and conditions of the option.
The term of an option granted under the plan may not exceed ten years.
The maximum term of ISOs granted to holders of more than 10% of the
outstanding stock of the Company is five
6
<PAGE>
years. Each option becomes exercisable in installments as approved by
the Committee, and may be exercised on a cumulative basis at any time
before expiration. The Company's current standard form of stock option
agreement provides for the vesting of the shares subject to the option
over a four-year basis with one-quarter vesting one year following the
date of grant and the remainder vesting on a quarterly basis over the
succeeding three-year period. The Company has, however, from time to
time granted options with vesting schedules that are different from the
standard vesting described above.
The exercise price for ISOs may not be less than 100% of the fair
market value of a share of the Company's common stock on the date of
grant; the exercise price for nonqualified options may be as low as 85%
of fair market value on that date. If the Optionee, at the time an ISO
is granted, owns stock possessing more than 10% of the total voting power
of all classes of stock, the exercise price may not be less than 110% of
the fair market value on the date of grant. The 1995 Plan permits the
payment of the exercise price in cash or other property acceptable to the
Committee (including shares of the Company's stock).
The 1995 Plan provides that options are nonassignable and
nontransferable, other than by will or the laws of descent and
distribution, and may be exercised only by the employee while he or she
is employed by the Company. Unless otherwise determined by the
Committee, options may be exercised only within three months after
termination of employment, or within 12 months following termination of
employment due to a permanent and total disability, or by the employee's
estate within 12 months after his or her death, provided that such
options were exercisable on the date of death or termination of
employment
CAPITAL CHANGES. The 1995 Plan provides for appropriate
adjustments of the number of shares subject to outstanding options, the
exercise price thereof, and the number of shares available for future
grants, in the event the Company's Common Stock is changed by reason of a
subdivision or consolidation of shares, stock split, or other similar
corporate transaction. If the Company merges with or into another
corporation, and is not the surviving corporation, and each outstanding
option under the 1995 Plan is not assumed by the continuing or surviving
corporation, then the vesting of all unvested options shall be
accelerated and all options will become immediately exercisable.
AMENDMENT AND TERMINATION OF THE 1995 PLAN. The 1995 Plan
terminates on February 10, 2015, or the date when all shares subject to
or which may become subject to the 1995 Plan have been purchased under
options granted under the 1995 Plan, whichever is earlier, and no further
exercise of options may be made after that date. However, all options
granted under the 1995 Plan will remain in effect until such options have
been satisfied by the issuance of shares or terminated in accordance with
the 1995 Plan.
The Board may from time to time suspend, terminate, or amend the
1995 Plan in any respect; provided, however, that the Board may not,
without the consent of the optionee, amend any outstanding option, or
without the approval of the shareholders, materially increase the
benefits accruing to participants under 1995 Plan or materially modify
the requirement as to eligibility for participation in the 1995 Plan.
FEDERAL INCOME TAX INFORMATION. If an option granted under the
1995 Plan is an ISO, the optionee will recognize no income upon grant of
the option and incur no tax liability due to the exercise of the option
unless the optionee is subject to alternative minimum tax. The Company
will not be allowed a deduction for federal income tax purposes as a
result of the exercise of an ISO regardless of the applicability of the
alternative minimum tax. Upon the sale or exchange of the shares at
least two years after grant of the option and one year after exercise of
the option, a gain will be treated as long-term capital gain. If these
holding periods are not satisfied, the optionee will recognize ordinary
income equal to the difference between the exercise price and the lower
of the fair market value of the stock at the date of the option exercise
or the sale price of the stock. A different rule for measuring ordinary
income upon such a premature disposition may apply if the optionee is an
officer, director, or 10% shareholder of the Company. The Company will
be entitled to a deduction in the same amount as the ordinary income
recognized by the optionee. Any gain recognized on such a premature
disposition of the shares in excess of the amount treated as ordinary
income will be characterized as long-term capital gain if the sale occurs
more than one year after exercise of the option or as short-term capital
gain if the sale is made earlier. Under current law, the maximum long-
term capital gain tax rate for individuals is 28% while the maximum
ordinary income tax rate for individuals is 39.6%.
8
<PAGE>
All options which do not qualify as ISOs are referred to as
nonstatutory options. An optionee will not recognize any taxable income
at the time he or she is granted a nonstatutory option. However, upon
its exercise, the optionee will recognize ordinary income for tax
purposes measured by the excess, if any, of the then fair market value of
the shares over the exercise price. In certain circumstances, where the
shares are subject to a substantial risk of forfeiture when acquired, the
date of taxation may be deferred unless the optionee files an election
with the Internal Revenue Service under Section 83(b) of the Code within
30 days after the date of exercise. The income recognized by an optionee
who is also an employee of the Company will be subject to tax withholding
by the Company by payment of cash or out of the current earnings paid to
the optionee. Upon resale of such shares by the optionee, any difference
between the sale price and the exercise price, to the extent not
recognized as ordinary income as provided above, will be treated as
capital gain or loss, and will qualify for long-term capital gain or loss
treatment if the shares have been held for more than one year. The
Company will be entitled to a deduction in the same amount as the
ordinary income recognized by the optionee.
The foregoing is only a summary of the effect of federal income
taxation upon the optionee and the Company with respect to the grant and
exercise of options under the 1995 Plan, and does not purport to be
complete. The foregoing does not discuss the income tax laws of any
municipality, state, or foreign country in which an optionee may reside.
AMENDMENT OF THE 1995 NON-EMPLOYEE DIRECTORS' STOCK OPTION PLAN
----------------------------------------------------------------
(PROPOSAL NO. 4)
--------------
YOUR BOARD RECOMMENDS A VOTE "FOR" THE AMENDMENT OF
THE 1995 NON-EMPLOYEE DIRECTORS' STOCK OPTION PLAN
This amendment is to increase, from 150,000 to 170,000, the number
of shares reserved for issuance under the previously approved 1995 Non-
Employee Directors' Stock Option Plan. The 1995 Non-Employee Directors'
Stock Option Plan (the "Directors' Plan") was adopted by the Board of
Directors on February 10, 1995, and ratified by the shareholders of the
Company at the 1995 Annual Meeting. The Directors' Plan is designed to
provide non-employee directors with an equity incentive through their
proprietary interest in the Company and to encourage them to continue to
serve as directors of the Company. Upon the adoption of this plan by
the Board on February 10, 1995, each non-employee director received a
grant of 10,000 shares. A total of 150,000 shares of Common Stock were
initially reserved for issuance under the Directors' Plan. The Board
recommends amending the Directors' Plan to allow for the issuance of an
additional 20,000 shares, so that the shares that may be issued under the
Directors' Plan shall total 170,000.
The affirmative vote of the holders of the majority of the Company's
shares present or represented by proxy and entitled to vote at the
meeting will be required to ratify this plan. The Board believes that
approval of the Directors' Plan is necessary to enable the Company to
provide meaningful equity incentives to attract, motivate and retain non-
employee directors and recommends that the shareholders vote for approval
of the Directors' Plan. PROXIES SOLICITED BY THE BOARD WILL BE VOTED FOR
THIS PROPOSAL UNLESS SHAREHOLDERS SPECIFY OTHERWISE IN THOSE PROXIES.
A summary of the principal provisions of the Directors' Plan are set
forth below.
PURPOSE. The purpose of the Directors' Plan is to secure for the
Company and its shareholders the benefits of the incentive inherent in
increased Common Stock ownership by the members of the Board who are not
employees of the Company or any of its subsidiaries and align directors'
interests with those of the shareholders.
ADMINISTRATION. The Directors' Plan is designed to work
automatically. Each director elected or reelected at an Annual Meeting
is entitled to receive a grant of 10,000 shares as of the date of the
Annual Meeting. A director joining the Board for the first time receives
an option for 15,000 shares. Where administration is necessary, it will
be provided by the Board of Directors, or the Board may delegate the
administration of the Plan to a committee of the Board. The Board has
not yet delegated the administration of this Plan. No discretion
concerning decisions regarding the Director's Plan is afforded to any
person who is not a "disinterested" person under Rule 16b-3 under the
Securities Exchange Act of 1934, as amended (the "Exchange Act"). The
interpretation and construction of any provision of the Directors' Plan
by the plan's administrator is final and conclusive. Members of the
Board receive no additional compensation for their services in connection
with the administration of the Directors' Plan.
ELIGIBILITY. The Directors' Plan provides for the grant of
nonstatutory stock options to non-employee directors of the Company.
TERMS OF OPTIONS. Each option is evidenced by a stock option
agreement between the Company and the optionee setting forth the terms
and conditions of the option. The term of an option granted under the
plan may not exceed ten years. The option vests as to one-fourth of the
shares at the end of the fourth full calendar quarter following the date
the option was granted, and as to one-sixteenth of the shares at the end
of each of the full calendar quarters thereafter.
The exercise price for nonstatutory options granted under the
Directors' Plan shall be the fair market value of a share of the
Company's Common Stock on the date of grant. The Directors' Plan permits
the payment of the exercise price in cash, in exchange for other shares
of the Company's stock, by promissory note or other property acceptable
to the Board.
9
<PAGE>
The Directors' Plan provides that options are nonassignable and
nontransferable, except pursuant to a qualified domestic relations order
or by will or the laws of descent and distribution, and may be exercised
only by the optionee. If the optionee ceases to be a Director for any
reason other than his or her death or disability, the optionee shall have
the right to exercise any option held at any time within six months after
the date he or she ceases to be a Director as to all or part of the
shares that the optionee was entitled to exercise at the date of such
termination. In the event of the death of an optionee, the option may be
exercised at any time within five years after death, but only to the
extent that the option would have been exercisable at the time of death.
If an optionee is unable to continue his or her service as a director of
the Company as a result of his or her total and permanent disability, the
option may be exercised at any time within one year after the date of his
or her termination, but only to the extent he or she was entitled to
exercise it at the date of such termination.
CAPITAL CHANGES. The Directors' Plan provides for appropriate
adjustments of the number of shares subject to outstanding options, the
exercise price thereof, and the number of shares available for future
grants, in the event the Company's shares are changed by reason of a
subdivision or consolidation of shares, stock split, or other similar
corporate transaction.
AMENDMENT AND TERMINATION OF THE DIRECTORS' PLAN. The Directors'
Plan terminates on February 10, 2015, or the date when all shares subject
to, or which may become subject to, the Directors' Plan have been
purchased under options granted under the Directors' Plan, whichever is
earlier and no further exercise of options may be made after that date.
However, all options granted under the Directors' Plan will remain in
effect until such options have been satisfied by the issuance of shares
or terminated in accordance with the Directors' Plan.
The Board may amend, alter, suspend or discontinue the Directors'
Plan at any time, but such amendment, alteration, suspension or
discontinuation shall not adversely affect any stock options then
outstanding under the Directors' Plan, without the optionee's consent.
Shareholder approval is required for any amendment to the Directors' Plan
which would increase the number of shares reserved under the plan,
materially modify the eligibility requirements or materially increase the
benefits which may accrue under the plan. Except as otherwise may be
required under applicable tax, securities or corporate law, other
amendments may be adopted solely with the approval of the Board.
FEDERAL INCOME TAX INFORMATION. Options granted under the
Directors' Plan are nonstatutory options. An optionee will not recognize
any taxable income at the time he or she is granted a nonstatutory
option. However, upon its exercise, the optionee will recognize ordinary
income for tax purposes measured by the excess, if any, of the then fair
market value of the shares over the exercise price. Upon resale of such
shares by the optionee, any difference between the sale price and the
exercise price, to the extent not recognized as ordinary income as
provided above, will be treated as capital gain or loss, and will qualify
for long-term capital gain or loss treatment if the shares have been held
for more than one year. The Company will be entitled to a deduction in
the same amount as the ordinary income recognized by the optionee.
The foregoing is only a summary of the effect of federal income
taxation upon the optionee and the Company with respect to the grant and
exercise of options under the Directors' Plan and does not purport to be
complete. Further, this summary does not discuss the income tax effect
of any municipality, state or foreign country in which an optionee may
reside.
10
<PAGE>
III. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The following table sets forth certain information concerning the
Company's current directors and executive officers:
Name Age Position
- - ---------------------- --- -------------------------------------
Jeffrey C. Kalb 53 President, Chief Executive Officer, Director
John E. Trewin 49 Vice President and Chief Financial Officer
Robert Filiault 53 Vice President of Sales
John Jorgensen 48 Vice President of Engineering
Scott Hover-Smoot 41 General Counsel and Secretary
Arieh Schifrin 57 Vice President, Operations
Angel G. Jordan(1)(2)(4)(6) 65 Director
Wade Meyercord(1)(5)(6) 55 Chairman of the Board
C.K.N. Patel(1)(2)(4)(6)(7) 57 Director
Stuart Schube(1)(3)(4)(5)(6) 56 Director
David Schoon(3)(4) 44 Director
- - ----------------
(1) Member of Executive Committee
(2) Member of Compensation Committee
(3) Member of Audit Committee
(4) Member of Stock Option Committee
(5) Member of Nominating Committee
(6) Member of Special Committee
(7) Is not standing for re-election as a Director.
Jeffrey C. Kalb has been President and Chief Executive Officer of
the Company since December 1994. He has been a director of the Company
since September 1995. He was President and Chief Operating Officer of
MasPar Computer Corporation, a computer systems manufacturer, from 1988
to 1993. He was Vice President with Digital Equipment Corporation, a
computer systems manufacturer, from 1983 to 1987.
John E. Trewin has been Vice President and Chief Financial Officer
since January 1995. He was Vice President and Chief Financial Officer of
The O'Brien Corporation, a coatings manufacturer, from 1990 to 1994, and
Vice President and Chief Financial Officer of Ampex Corporation, an
electronics equipment and magnetic recording media manufacturer, from
1986 to 1989.
Robert Filiault has been Vice President of Sales since August 1995.
He was Vice President of Sales for Burr-Brown Corporation for North
America and Asia Pacific area, a manufacturer of precision linear and
mixed signal integrated circuits, from 1991 to 1995, and held several
positions with North American Philips/Signetics from 1979 to 1991,
including Director of Automotive Business and President of Signetics
Japan.
John Jorgensen has been Vice President of Engineering since November
1995. He held several positions at National Semiconductor Corporation,
including Director of Corporate Business Development, from 1972 to 1995.
11
<PAGE>
Arieh Schifrin has been Vice President, Operations since February
1995. He was a management consultant for high technology companies from
1991 to 1995. He was Executive Vice President for Catalyst
Semiconductor, a semiconductor company, from 1989 to 1991; Executive Vice
President of Xicor, Inc., a semiconductor manufacturing company, from
1980 to 1989; and Operations Manager for Data General Corp., a computer
company, from 1977 to 1980.
Scott Hover-Smoot has been Corporate Secretary and General Counsel
since July 1994. He was Associate and Senior Associate at Berliner,
Cohen, a law firm, from 1986 to 1994.
Angel G. Jordan has been a Director of the Company since 1986. He
has been a Professor of Electrical and Computer Engineering at Carnegie
Mellon University since 1966. He was Provost of the University from 1983
to 1991, Dean of Engineering from 1979 to 1983, and Head of the
Department of Electrical and Computer Engineering from 1969 to 1979. He
is now University Professor of Electrical and Computer Engineering.
Wade Meyercord is Chairman of the Board of Directors of the Company
and has served on the Board of Directors since 1992. Mr. Meyercord is
also President of Meyercord & Associates, a consulting company, since
1987. He was Chief Executive Officer of Read-Rite Corp., an electronic
data storage products company, from 1984 to 1987.
C.K.N. Patel has been a Director of the Company since 1990. Dr.
Patel has been Vice Chancellor for Research Programs at UCLA since 1993.
He was Executive Director for Research Materials Science, Engineering and
Academic Affairs Division, AT&T Bell Laboratories. He is a Director of
Newport Corp., an optical components company, and Accuwave Corporation, a
holographic devices manufacturer.
Stuart Schube has been a Director of the Company since 1986. He has
been President of Acorn Ventures, Inc., a venture capital management
firm, and General Partner of the Genesis Fund, Ltd., a venture capital
investment company, since 1986.
David Schoon has been a Director of the Company since September
1995. He is President of Stock Portfolio Management, Inc., a financial
consulting firm, since 1992. He is a Director of Sparton Corporation, an
electronic and electromechanical company, since 1994.
12
<PAGE>
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information with respect to
the beneficial ownership of the Company's Common Stock as of May 31,
1996, by (i) each person (or group of affiliated persons) who is known by
the Company to own beneficially 5% or more of the Company's Common
Stock(3); (ii) each of the Company's directors; (iii) the Named Executive
Officers; and (iv) all directors and executive officers as a group.
Except as otherwise noted, the persons or entities in this table have
sole voting and investment power with respect to all the shares of Common
Stock beneficially owned by them.
<TABLE>
<S> <C> <C>
Shares Beneficially
Beneficial Owner (1) Owned(2) Percent(3)
-------------------- ------------------ ----------
Chan Desaigoudar
490 Santa Rosa Drive
Los Gatos, CA 9503 1,581,340(4) 17.9%
Hitachi Metals, Ltd.
2-1-2 Marunouchi
Chiyod-ku, Tokyo 100 Japan 980,000 11.1%
Jeffrey C. Kalb(5) 115,000 1.3%
Stuart Schube(5) 43,125 *
Angel G. Jordan(5) 39,952 *
Wade Meyercord(5) 39,675 *
John E. Trewin(5) 27,837 *
C.K.N. Patel(5) 23,125 *
Scott Hover-Smoot(5) 5,000 *
Arieh Schifrin(5) 4,437 *
Richard Helfrich(5)(6) 4,000 *
Directors and Executive Officers
as a group (12 persons) 303,151 3.4%
</TABLE>
- - --------------------------------
* Less than 1%.
(1) Based solely upon information furnished by such individuals or
contained in filings made by such beneficial owners with the
Securities and Exchange Commission.
(2) Includes shares subject to options exercisable within 60 days
after March 31, 1996.
(3) Total shares calculation does not include the 1,500,000 shares
held in trust for class action shareholders litigation.
(4) Based solely upon information furnished by First Interstate Bank
of California, record date March 31, 1996.
(5) 215 Topaz Street, Milpitas, California 95035.
(6) As of April 26, 1996, longer an employee of the Company.
13
<PAGE>
IV. CORPORATE GOVERNANCE -- OFFICERS AND DIRECTORS
BOARD MEETINGS AND COMMITTEES
During the fiscal year ended March 31, 1996 ("fiscal 1996"), the
Board of Directors of the Company had an Executive Committee, an Audit
Committee, a Compensation Committee, a Special Committee, a Stock Option
Committee, and a Nominating Committee.
The Executive Committee consisted of Messrs. Jordan, Meyercord,
Patel, Schube, and Sprague. The Executive Committee had all of the
authority of the Board of Directors to act on any matter except with
respect to (i) the approval of any action for which shareholder approval
is required under the California Corporations Code; (ii) the filling of
vacancies on the Board of Directors or on any committee thereof; (iii)
the fixing of compensation for directors; (iv) the adoption, amendment or
repeal of any bylaw; (v) the amendment or appeal of any resolution of the
Board of Directors which by its terms is not so amendable or repealable;
(vi) any distribution to shareholders except at a rate or within a price
range determined by the Board of Directors; and (vii) the appointment of
other committees of the Board of Directors or the members thereof. The
Executive Committee held 6 meetings during fiscal 1996.
The Audit Committee oversees the Company's accounting and financial
reporting policies and internal controls, reviews annual audit reports
and management letters and makes recommendations to the Board of
Directors regarding appointment of independent auditors. Prior to
September 15, 1995, the Audit Committee consisted of Wade Meyercord and
Stuart Schube. That Audit Committee held 2 meeting during fiscal 1996.
The present Audit Committee, elected on September 15, 1996, consists of
David Schoon and Stuart Schube.
The Compensation Committee's principal functions are to recommend to
the Board the compensation of directors and officers of the Company, to
oversee the administration of the Company's stock option plans, and to
perform such other duties regarding compensation for employees and
consultants as the Board may delegate from time to time. See also
"Compensation Committee Report." The present Compensation Committee
consists of Angel Jordan and C.K.N. Patel. The Compensation Committee
held 4 meetings during fiscal 1996.
On September 15, 1995, the Board created a Special Committee for the
purpose of dealing with the past legal and accounting issues of the
Company. The Special Committee consists of Messrs. Jordan, Meyercord,
Patel, and Schube. There were 2 meetings of the special Committee during
fiscal 1996.
The Stock Option Committee was created in January 1996 to oversee
the 1995 Employee Stock Option Plan which had been approved by the
shareholders at the annual meeting in September 1995. The Stock Option
Committee consists of Angel Jordan, C.K.N. Patel, David Schoon, and
Stuart Schube. There were no meetings of the Stock Option Committee
during fiscal 1996.
On April 19, 1996, the Board created a Nominating Committee for the
purpose of making recommendations to the Board of Directors regarding
director nominees to the Board. The Nominating Committee consists of
Wade Meyercord and Stuart Schube. The Nominating Committee has held one
meeting.
During fiscal 1996, the Board of Directors held 8 regular meetings
and 1 special meeting. Each director attended at least 80% of the
meetings held during fiscal 1996 which occurred on or after the
initiation of their term as a director. Each director who served on the
Compensation Committee also attended all of the Committee meetings held
during fiscal 1996 which occurred on or after the initiation of his term
as a director. Each director who served on the Audit Committee also
attended all of the Committee meetings held during fiscal 1996 which
occurred on or after the initiation of his term as a director.
DIRECTOR COMPENSATION
Directors are entitled to be paid, in addition to their out-of-
pocket expenses, $500 per month plus $1,000 for each Board Meeting, and
$250 for each conference call.
14
<PAGE>
STOCK OPTION TABLES
The following table shows for each of the Named Executive Officers
certain information with respect to stock options granted during the last
fiscal period.
<TABLE>
Option Grants In Last Fiscal Year
---------------------------------
(Twelve Months Ended March 31, 1996)
------------------------------------
Potential
Realizable
Value at
Assumed
Annual
Rates of
Stock Price
Individual Grants Appreciation
for Option Term
- - ------------------------------------------------------- ---------------
Number of Percentage
Securities of Total
Underlying Options
Options Granted to Exercise
Granted Employees or Base Expir-
in Fiscal Price ation 5% 10%
Name (#) Year (S/Share) Date ($) ($)
- - -------- ---------- ---------- --------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
John E.
Trewin 15,000 1.9% $8.875 7/21/05 $216,847 $345,292
Arieh
Schifrin 15,000 1.9% $8.875 7/21/05 $216,847 $345,292
</TABLE>
The above options are exercisable over a four year period, with 25%
exercisable one year after date of grant and the balance exercisable in
quarterly installments thereafter.
The following table sets forth as to each of the Named Executive
Officers, certain information with respect to stock options exercised
during the last fiscal year (twelve months ended March 31, 1996) and
unexercised options held as of March 31, 1996.
<TABLE>
Aggregated Options Exercises In Last Fiscal Year
------------------------------------------------
and FY-End Options Values
---------------------------
Shares Number of Shares Value of
Acquired Value Underlying Unexercised
on Real- Unexercised Options In-The-Money
Exercise ized at FY-End (#) Options at FY-End
Name (#) ($) Exercis- - Unexercis- Exercis- Unexercis-
able able able able
- - ------------- ------ -------- -------- ----------- -------- ----------
<S> <C> <C> <C> <C> <C> <C>
Jeffrey C. Kalb 22,000 $179,125 78,000 300,000 $750,750 $2,887,500
John E. Trewin 0 0 18,750 71,250 $180,469 $ 685,781
Arieh Schifrin 0 0 18,750 71,250 $180,469 $ 685,781
Richard Helfrich 0 0 15,625 34,375 $150,391 $ 330,859
Scott Hover-Smoot 0 0 12,500 27,500 $120,313 $ 264,688
15
</TABLE>
<PAGE>
Executive Compensation
The following table presents the reportable compensation for persons
who held the position of CEO and the top 4 executive officers who received
compensation above $100,000 during the fiscal year ended March 31, 1996
(the "Named Executive Officers"):
SUMMARY COMPENSATION TABLE
<TABLE>
Annual Compensation
Long-Term
Annual Compensation Compensation
-------------------------- Securities All Other
NAME AND PRINCIPAL Underlying Compensation
Position Year Salary($) Bonus($) Options(#) ($)(1)
- - -----------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Jeffrey C. Kalb(2) 1996 $240,000 $72,000 None $5,145(1)
President and Chief 1995(3) $ 76,774 $20,000 400,000 $1,615(1)
Executive Officer,
Director
John E. Trewin 1996 $138,346 $39,696 15,000 $3,652(1)
Vice President and 1995(3) $ 26,796 None 75,000 None
Chief Financial
Officer
Arieh Schifrin 1996 $138,346 $35,563 15,000 $4,283(1)
Vice President, 1995(3) $ 10,615 None 75,000 None
Operations
Richard Helfrich(4) 1996 $124,027 $33,459 None $3,598(1)
Vice President, 1995(3) $ 64,615 None 50,000 $4,979(1)
Marketing
Scott Hover-Smoot(2) 1996 $114,865 $34,063 None None
Secretary and 1995(3) $ 85,154 None 40,000 None
General Counsel
</TABLE>
- - --------------------------
(1) Company matching contributions to the 401k savings plan.
(2) Mr. Kalb joined the Company in December 1994. The Company does not
have an employment agreement with its Chief Executive Officer or any
compensation plan or arrangement with the Chief Executive Officer
which results from the resignation, retirement or other termination
of employment or from a change in control of the Company other than
an agreement that if the Chief Executive Officer is terminated by
the Company without cause, he is entitled to severance pay for nine
months at the rate of $20,000 per month plus continuation of
employee benefits such as medical, dental and disability coverage.
Mr. Hover-Smoot joined the Company in June 1994. The Company does
not have an employment agreement or any compensation plan or
arrangement with Mr. Hover-Smoot which results from the resignation,
retirement or other termination of employment or from a change in
control of the Company other than an agreement that if he is
terminated by the Company without cause, he is entitled to severance
pay, at a rate equal to his then current salary, for up to twelve
months.
(3) Nine months ended March 31, 1995.
(4) As of April 26, 1996, no longer an employee of the Company.
16
<PAGE>
BOARD COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
The Compensation Committee (the "Committee") recommends compensation
of Company officers and directors to the Company's Board of Directors.
COMPENSATION PHILOSOPHY. The Company believes that the management
team it has assembled is well suited to increasing shareholder value and
contributing to the long-term success of the Company, and the Committee
intends to pursue a compensation philosophy consistent with achieving
those goals. In structuring the Company's compensation programs, the
Committee's goals are to align compensation with the Company's business
objectives and performance and to attract, retain and reward executive
officers and other key employees who contribute to the long-term success
of the Company. Consistent with these goals, the Company's compensation
programs include a mix of salary, bonus and stock options. In particular,
stock options are used to link executive incentives and the creation of
shareholder value.
BASE SALARY. The Committee annually reviews each executive
officer's base salary. When reviewing base salaries, the Committee
considers individual and corporate performance, levels of responsibility,
prior experience, breadth of knowledge and competitive pay practices. The
Committee believes current executive salaries are in general competitive
with those of comparable companies.
BONUS. The Company's bonus plan provides for bonuses to be
awarded to key employees based on specific goals achieved by the Company
and the level of contribution to achievement of the goals by the key
employees. The bonus plan is designed such that bonuses when combined
with salaries create total compensation which is comparable to the average
compensation of companies against which the Company competes in hiring and
retaining key employees. Bonus awards depend on the extent to which
Company and individual performance objectives are achieved. The Company's
performance objectives include operating, strategic and financial goals
considered critical to the Company's short and long term goals.
OPTIONS. The purpose of the Company's stock option plans is to
attract and retain talented key employees and to align their personal
financial interests with those of the Company's shareholders. Options are
generally granted with an exercise price equal to the market price of the
Common Stock on the date of grant and generally vest over a four year
period. This approach is designed to focus key employees on sustainable
growth of the Company and the creation of shareholder value over the long
term. Stock options are a major component of the compensation package of
executive management. Eligible employees are generally granted options
upon commencement of employment and are considered for additional options
periodically thereafter. In recommending stock options the Committee
considers individual performance, overall contribution to the Company,
retention, the number of unvested stock options and the total number of
stock options to be granted.
Section 162(m) of the Internal Revenue Code (the "Code") imposes a
limitations on the deductibility for federal income tax purposes of
compensation over $1 million paid to certain Named Executive Officers in a
taxable year. Compensation above $1 million is not subject to the
limitation if it is "performance-based compensation" within the meaning of
the Code. The Committee believes that at the present time it is unlikely
that the compensation paid to any Named Executive Officer in a taxable
year which is subject to the deduction limit will exceed $1 million.
Therefore, the Compensation Committee has not yet established a policy for
determining which forms of incentive compensation awarded to its Named
Executive Officers shall be designed to qualify as "performance-based
compensation." The Compensation Committee intends to continue to evaluate
the effects of the statute and any fiscal Treasury regulations and to
comply with Code Section 162(m) in the future to the extent consistent
with the best interests of the Company.
CEO COMPENSATION. The Committee uses the same procedures described
above in setting the annual salary, bonus, and making recommendations
regarding stock option awards for the CEO. The CEO's salary is determined
based on comparisons with competitive companies as described above. The
Committee believes that the CEO's salary and bonus plan is competitive
with the salaries offered to CEOs of comparable companies. In
recommending stock options, the Committee considers the CEO's performance,
overall contribution to the Company, retention, the number of unvested
options and the total number of options to be granted.
17
<PAGE>
CONCLUSION. As a significant portion of the Company's compensation
program is linked to Company performance, the Committee believes that
compensation is closely tied to increases in long-term shareholder value.
The foregoing reports of the Committee shall not be deemed
incorporated by reference by any general statement incorporating by
reference the Proxy Statement into any filing under the Securities Act of
1933 or the Securities Exchange Act of 1934, except to the extent that the
Company specifically incorporates this information by reference, and shall
not otherwise be deemed filed under the Acts.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
No member of the Compensation Committee of the Company's Board of
Directors was at any time during the year ended March 31, 1996, or at any
other time an officer or employee of the Company. Currently, no executive
officer of the Company serves as a member of the Compensation Committee.
Mr. Jeffrey C. Kalb, President and Chief Executive Officer of the Company,
was elected to the Board of Directors on September 15, 1995.
Certain Relationships and Transactions
Mr. Wade Meyercord, Chairman of the Board of Directors since October 27,
1994, has been actively involved in the management of the Company since that
date and has been compensated for his services to the extent that his efforts
have been over and above the normal duties of an outside director.
Compensation for these services totaled approximately $106,000 during the
fiscal year ended March 31, 1996.
18
<PAGE>
V. FIVE-YEAR STOCK PERFORMANCE GRAPH
The following graph compares the five-year cumulative total return
CMD Common Stock, the Standard & Poor's 500 Index ("S&P"), and the S&P
Electronics (Semiconductors) Index (excluding CMD).
The graph assumes $100 was invested on March 31, 1991, in CMD Common
Stock and $100 was invested at that same time in each of the S&P indexes.
The comparison assumes that all dividends are reinvested. (CMD Common
Stock has not paid dividends.)
<TABLE>
<CAPTION>
ANNUAL RETURN PERCENTAGES
Company/Index Mar Mar Mar Mar Mar
92 93 94 95 96
=================================================================
<S> <C> <C> <C> <C> <C>
S&P 500 INDEX 11.04 15.23 1.47 15.57 32.10
ELECTRONICS (SEMICONDUCTORS) 20.88 87.13 34.07 20.08 10.22
</TABLE>
<TABLE>
<CAPTION>
INDEXED RETURNS
Company/Index Mar Mar Mar Mar Mar Mar
91 92 93 94 95 96
==========================================================================
<S> <C> <C> <C> <C> <C> <C>
S&P 500 INDEX 100 110.04 127.95 129.84 150.05 198.22
ELECTRONICS (SEMICONDUCTORS) 100 120.88 226.20 303.25 364.16 401.36
</TABLE>
<TABLE>
<CAPTION>
PERFORMANCE GRAPH APPEARS HERE
CMD Stock Performance
- - -------------------------------------------------------------------------
Mar Mar Mar Mar Mar Mar
91 92 93 94 95 96
=========================================================================
<S> <C> <C> <C> <C> <C> <C>
Closing Price $2.50 $3.75 $7.125 $18.25 $4.375 $9.625
Annual Return % (31.03) 170.00 5.56 156.14 (76.02) 120.00
Index Return 100 270 285 730 175 385
</TABLE>
Pursuant to Securities and Exchange Commission regulations, this
chart is not "soliciting material", is not deemed filed with the
Securities and Exchange Commission, and is not to be incorporated by
reference in any filing of the Company under the Securities Act of 1933,
as amended, or the Securities Exchange Act of 1934.
COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT
Section 16(a) of the Securities Exchange Act of 1934 requires the
Company's officers and directors, and persons who own more than ten
percent of a registered class of the Company's equity securities, to file
reports of ownership and changes in ownership with the Securities and
Exchange Commission. Officers, directors and greater than ten-percent
shareholders are required by SEC regulations to furnish the Company with
copies of all Section 16(a) forms they file.
To the Company's knowledge, based solely on review of the copies of
such reports furnished to the Company and written representation that no
other reports were required, all Section 16(a) filing requirements
applicable to its officers, directors, and greater than ten percent
shareholders were complied with, with the exception of Chan Desaigoudar.
19
<PAGE>
VI. OTHER BUSINESS
The Company knows of no other matters to be submitted at the Annual
Meeting. If any other matters are properly brought before the meeting, it
is the intention of the persons named in the enclosed proxy to vote the
shares they represent in accordance with their judgment.
VII. SHAREHOLDER PROPOSALS TO BE PRESENTED AT
NEXT ANNUAL MEETING
Proposals of shareholders intended to be presented by such
shareholders at next year's Annual Meeting must be received by the Company
at its principal office no later than March 20, 1997, and must satisfy the
conditions established by the Securities and Exchange Commission for
shareholder proposals to be included in the Company's proxy statement for
that meeting.
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FORM 10-K
A copy of the Company's Annual Report on Form 10-K for the period
ended March 31, 1996, is being mailed with this proxy statement to
shareholders entitled to notice of the meeting. If exhibit copies are
requested, a copying charge of $0.20 per page will be made. Requests
should be sent to Investor Relations, California Micro Devices
Corporation, 215 Topaz Street, Milpitas, California 95035-5430.
By Order of the Board of Directors
/S/Scott Hover-Smoot
Scott Hover-Smoot, Secretary
Milpitas, California
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