SCHEDULE 14A
(Rule 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
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
[X] Definitive Proxy Statement Commission Only (as permitted by
[ ] Definitive Additional Materials Rule 14a-6(e)(2))
[ ] Soliciting Material Pursuant to
Rule 14a-11(c) or Rule 14a-12
CALIFORNIA MICRO DEVICES CORPORATION
----------------------------------------------------------
(Name of Registrant as Specified in Its Charter)
----------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of filing fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transactions applies:
(2) Aggregate number of securities to which transactions applies:
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which the
filing fee is calculated and state how it was determined):
(4) Proposed maximum aggregate value of transaction:
(5) Total fee paid:
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by
Exchange Act Rule 0-11(a)(2) and identify the filing for which
the offsetting fee was 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:
(2) Form, Schedule or Registration Statement No.:
(3) Filing party:
(4) Date filed:
<PAGE>
June 13, 2000
[GRAPHIC OMITTED] CALIFORNIA MICRO DEVICES CORPORATION
Dear Shareholders:
You are cordially invited to attend the Annual Meeting of Shareholders on
Tuesday, August 1, 2000 at 10:00 a.m., at the Sheraton Hotel, 1801 Barber Lane,
Milpitas, California.
The Board of Directors recommends that all shareholders vote for the election of
the nominated directors, and for the other proposals presented in this Proxy
Statement.
Proposals 3 and 4 are for amendments to the Company's employee stock option plan
and the non-employee Director stock option plan to increase the amounts of
shares available under these plans. California Micro Devices operates in a
intensely competitive high tech job market where unemployment is extremely low
and where turnover can be very high. In this job market, stock options are a key
factor in both recruiting and retaining valued employees, not only in upper
management levels but also middle and first level managers as well as key
individual contributors. Please note that in fiscal 2000, only 18% of the
employee stock options granted went to executive officers .
Your support of these proposals is very important to the future success of your
Company.
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. 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 very important that every shareholder
vote. PLEASE send in your proxy card.
Very truly yours,
/s/ Wade Meyercord
WADE MEYERCORD
Chairman of the Board
<PAGE>
CALIFORNIA MICRO DEVICES CORPORATION
215 Topaz Street, Milpitas, CA 95035
Phone: (408) 263-3214
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
The Annual Meeting of Shareholders of California Micro Devices Corporation (the
"Company") will be held on Tuesday, August 1, 2000, at 10:00 a.m., at the
Sheraton Hotel, 1801 Barber Lane, Milpitas, California.
The items of business are:
1. Election of seven directors of the Company, to serve until the next
annual meeting of shareholders.
2. Ratification of the Appointment of Auditors.
3. Amendment of the 1995 Employee Stock Option Plan amended July 26, 1996,
July 18, 1997, and August 7, 1998 to increase from 2,645,000 to
3,155,000 the number of shares reserved for issuance thereunder.
4. Amendment of the 1995 Non-Employee Directors' Stock Option Plan amended
July 26, 1996, July 18, 1997, and August 7, 1998, to increase from
280,000 to 320,000 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 13, 2000
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 card.
Sincerely,
/s/ Scott Hover-Smoot
SCOTT HOVER-SMOOT
Secretary
Milpitas, California
June 13, 2000
2
<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, 2000 (the "Annual Report"), are
being distributed to shareholders commencing on or about June 15, 2000. Whether
or not you expect to attend the Company's 2000 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 ("CAMD" or the
"Company") at the close of business on June 13, 2000, the Record Date for the
Annual Meeting or their valid proxy holders, are entitled to notice of and to
vote at the Annual Meeting.
QUORUM AT THE ANNUAL MEETING. As of the Record Date, CAMD had issued
and outstanding 11,143,445 shares of voting Common Stock. 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 vote by shareholders at the Annual Meeting are provided under
"Approval of Proxy Statement Items," and the relevant proposals.
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 FOR or
AGAINST any proposal by marking the appropriate box. 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 EACH OF THE
NOMINEES FOR DIRECTORS AND FOR PROPOSALS 2 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 2 THROUGH 4 AND FOR THE NOMINEES RECOMMENDED. 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.
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.
3
<PAGE>
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. 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 proxy solicitors retained by the
Company, Corporate Investor Communications, Inc. ("CIC"). No additional
compensation will be paid to any Company employee, officer, or director for such
services. The cost of proxy solicitation services provided by CIC, 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.
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 requires advance notification of the intent of any shareholder to
nominate a person for the position of Director of the Company. The Nominating
Committee will consider nominees proposed by the shareholders. 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. Such notice must be received by 5:00 PM Pacific
Daylight Savings Time, June 30, 2000, 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. Any nomination made of a person 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.
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 13, 2000
(the "Record Date") are entitled to vote at the Annual Meeting. Each share of
Common Stock is entitled to one vote on all matters to be voted upon. An
inspector of election, appointed by the Company will count votes cast at the
Annual Meeting. 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.
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 withholding the authority to vote for an individual results in
another individual receiving a larger portion of votes.
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.
4
<PAGE>
II. MATTERS TO BE VOTED ON AT THE ANNUAL MEETING
ELECTION OF SEVEN DIRECTORS (PROPOSAL NO. 1)
Your Board Recommends a Vote "FOR" the Election of
Dr. Angel Jordan, Jeffrey Kalb, J. Daniel McCranie, Wade Meyercord,
Stuart Schube, Dr. John Sprague, and Donald Waite as Directors
Seven 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 seven.
Unless otherwise instructed, proxy holders will vote the proxies
received by them for the seven nominees named below.
All of the seven nominees are current directors of the Company: Dr.
Angel Jordan, Jeffrey Kalb, J. Daniel McCranie, Wade Meyercord, Stuart Schube,
Dr. John Sprague, and Donald Waite.
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.
<TABLE>
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 2000 Annual Meeting.
<CAPTION>
Principal Occupation for the past Five Years Director
Name Age And Other Directorships Since
-------------------- ------ ------------------------------------------------------------------------------- ------------
<S> <C> <C> <C>
Angel G. Jordan 69 Dr. Jordan has been University Professor of Electrical & Computer Engineering 1986
and Robotics, Emeritus, at Carnegie-Mellon University since 1999; Professor of
Electrical & Computer Engineering and Robotics from 1997 to 1999; Professor of
Electrical & Computer Engineering from 1966 to 1997; Provost from 1983 to 1991;
and Dean of Engineering from 1979 to 1983.
Jeffrey C. Kalb 57 Mr. Kalb has been President and Chief Executive Officer of the Company since 1995
December 1994. Previously he was President and Chief Executive Officer of
MasPar Computer Corporation (computer systems manufacturer) from 1988 to 1993;
and Vice President of Digital Equipment Corporation (computer systems
manufacturer) from 1983 to 1987.
J. Daniel McCranie 56 Mr. McCranie has been Executive Vice President of Marketing and Sales, Cypress 1998
Semiconductor Corporation (manufacturer and supplier of integrated circuits)
since 1993. Previously he was Chairman and Chief Executive Officer of SEEQ
Technology Incorporated (semiconductor manufacturer) from 1989 to 1993; and Vice
President of Sales and Marketing at SEEQ since 1981.
Wade Meyercord 59 Mr. Meyercord has been Chairman of the Company's Board of Directors since 1992
October 1994. Since 1999 he has been the Senior Vice President, Finance and
Administration, and Chief Financial Officer of Rioport.com, Inc. (applications
service provider for music digital distribution). Previously he was Senior Vice
President of Diamond Multimedia Systems, Inc. (multimedia and connectivity
company) from 1997 to 1999; President, Meyercord & Associates, Inc. since 1987
(consulting firm); and Chief Executive Officer of Read-Rite Corp. (electronic
data storage company) from 1984 to 1987. He has been a Director of Microchip
Technology (semiconductor corporation) since 1999.
5
<PAGE>
Stuart Schube 60 Mr. Schube has been the President of Acorn Ventures, Inc. (venture capital 1986
management company) since 1986.
John L. Sprague 70 Dr. Sprague has been the President of John L. Sprague Associates since 1988 1996
(consulting firm); President and Chief Executive Officer, Sprague Electric
Company (electronics company), 1981 to 1987; and various other executive
management positions at Sprague Electric Company from 1959 to 1981. He has been
a Director of SIPEX Corporation (semiconductor corporation) since 1993.
Donald L. Waite 67 Mr. Waite has been the Executive Vice President and Chief Administrative 1997
Officer, Seagate Technology, Inc. (manufacturer of disc drives, tape drives and
storage management software) since 1995. He joined Seagate in 1983 as Vice
President of Finance and Chief Financial Officer; promoted to Senior Vice
President, Finance in 1984. He has been the Chief Executive Officer, Dragon
Systems (voice recognition software company) since 1999. He has been a Director
of Dragon Systems since 1999 and CVC Holdings, Inc. (deposition equipment
company) since 1995.
<FN>
There are no family relationships among any of the directors and officers.
</FN>
</TABLE>
6
<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, 2001, 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.
During the Company's three most recent fiscal years and for the
subsequent interim periods, there were no disagreements or reportable events
pursuant to Item 304(a) (1) (iv) or (v) of Regulation S-K.
Shareholder ratification of the selection of Ernst & Young LLP as the
Company's independent auditors is not required by the Company's By-Laws 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.
7
<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 2,645,000 to 3,155,000, 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. Pursuant to shareholder approved
amendment in 1997 and again in 1998, a total of 2,645,000 shares of Common Stock
may be issued under the 1995 Plan. The Company did not request additional shares
for the stock option plan in 1999. Your Board recommends amending the 1995 Plan
to increase the number of shares of Common Stock reserved for issuance
thereunder by 510,000 to 3,155,000, to allow for hiring of additional key
employees and to retain presently employed key employees. Of the 1995 Plan's
2,645,000 authorized shares of Common Stock, 2,565,344 shares were issued and
outstanding as of March 31, 2000.
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 this
amendment to 1995 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. California
Micro Devices operates in an extremely competitive high tech job market where
unemployment is extremely low and where turnover can be very high. In this job
market, stock options are a key factor in both recruiting and retaining valued
employees, not only in upper management levels but also middle and first level
managers as well as key individual contributors. Please note that in fiscal
2000, only 18% of the employee stock options granted went to executive officers.
Your support of these proposals is very important to the future success of your
Company. 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 1995 Plan is set forth
below.
Purpose. 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 (the "Committee"). The Committee and the Board have 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 and the Board consider 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
non-employee director of the Company. The Committee and the Board selects the
optionees and determines the number of shares to be subject to each option
granted under the 1995 plan.
8
<PAGE>
Terms of Options. Options granted under the 1995 Plan may be either
Incentive Stock Options ("ISO's") as defined in Section 422 of 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 or the Board 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 options granted under the 1995 Plan may
not exceed ten years. The maximum term of ISO's granted to holders of more than
10% of the outstanding stock of the Company is five 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; however, the Company has not issued options lower than 100%
of the fair market value. 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 the options are nonassignable and
nontransferable, other than by will or the laws of descent and distribution, and
may vest only while the employee 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.
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 a 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 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-
9
<PAGE>
term capital gain if the sale is made earlier. Under current federal law, the
maximum long-term capital gain tax rate for individuals is 20% while the maximum
ordinary income tax rate for individuals is 40%.
All options that do not quality 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 Services 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 sale 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 the statutory holding period. 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.
10
<PAGE>
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 280,000 to 320,000, the number of
shares reserved for issuance under the previously approved 1995 Non-Employee
Directors' Stock Option Plan. The Company's 1995 Non-Employee Directors' Stock
Option Plan (the "Directors Plan") was adopted by the board on February 10, 1995
and ratified by the shareholders of the Company at the 1995 Annual Meeting. The
Director's 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. Pursuant to shareholder approved amendment in 1997 and
again in 1998, a total of 280,000 shares of Common Stock may be issued under the
Directors' Plan. The Board recommends amending the Directors' Plan to allow for
and the issuance of an additional 40,000 shares, so that the shares that may be
issued under the Directors' Plan total 320,000. Of the Plan's 280,000 authorized
shares of Common Stock, 253,125 shares were issued and outstanding as of March
31, 2000.
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 this
amendment to 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 is 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 interest with those of
the shareholders.
Administration. The Directors' Plan is designed to work automatically.
A director joining the Board for the first time receives an option for 15,000
shares. Each director reelected at an Annual Meeting is entitled to receive a
grant of 10,000 shares as of the date of the Annual Meeting. 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. 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.
Term 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 Committee.
11
<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. 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 or materially modify the eligibility requirements to
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 sale 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 the statutory holding period. 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.
12
<PAGE>
III. SECURITY OWNERSHIP OF MANAGEMENT
AND PRINCIPAL SHAREHOLDERS
Directors and Executive Officers of the Registrant
<TABLE>
The following table sets forth certain information concerning the
Company's current directors and executive officers:
<CAPTION>
Name Age Position
------------------------- ------------ -------------------------------------------------
<S> <C> <C>
Jeffrey C. Kalb(3) 57 President, Chief Executive Officer, Director
John E. Trewin 53 Vice President and Chief Financial Officer
Charles Bellavia 52 Vice President of Marketing and Sales
John Jorgensen 52 Vice President of Engineering
Scott Hover-Smoot 45 General Counsel and Corporate Secretary
Arieh Schifrin 62 Vice President of Operations
Angel G. Jordan(2) 69 Director
J. Daniel McCranie(1) 56 Director
Wade Meyercord(3) 59 Chairman of the Board
Stuart Schube(2)(3) 60 Director
John Sprague(1) 70 Director
Donald L. Waite(1)(2) 67 Director
<FN>
-------
(1) Member of Compensation Committee
(2) Member of Audit Committee
(3) Member of Nominating Committee
</FN>
</TABLE>
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 Executive 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.
Charles F. Bellavia has been Vice President of Marketing and Sales
since April 1999. He was Vice President of Sales for the Company from November
1998 to April 1999. He was a management consultant for high technology companies
from 1996 to 1998. He was Vice President, Sales and Marketing of Adaptive Logic,
Inc., a semiconductor manufacturing company, from 1994 to 1996, Vice President,
Sales and Marketing for IXYX Corporation, a power semiconductor company, from
1991 to 1993 and Director of Worldwide Sales for Hewlett Packard's Avantek
Division (wireless equipment and devices) from 1984 to 1991.
John Jorgensen has been Vice President of Engineering since November
1995. He held several positions at National Semiconductor Corporation from 1972
to 1995, including Director of Corporate Business Development, Director of DSP
Business Unit, and Director of Advanced Networks Division.
13
<PAGE>
Arieh Schifrin has been Vice President of 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 since 1986. Dr. Jordan has been
University Professor of Electrical & Computer Engineering and Robotics,
Emeritus, at Carnegie-Mellon University since 1999, Professor of Electrical &
Computer Engineering and Robotics from 1997 to 1999, Professor of Electrical &
Computer Engineering from 1966 to 1997, Provost from 1983 to 1991, and Dean of
Engineering from 1979 to 1983.
J. Daniel McCranie has been a director since 1998. He has been
Executive Vice President of Marketing and Sales, Cypress Semiconductor
Corporation, a manufacturer and supplier of integrated circuits, since 1993. He
was Chairman and Chief Executive Officer of SEEQ Technology Incorporated, a
semiconductor manufacturer, from 1989 to 1993. He joined SEEQ in 1981 as Vice
President of Sales and Marketing.
Wade Meyercord is Chairman of the Board of Directors and has served on
the Board of Directors since 1992. Mr. Meyercord is also President of Meyercord
& Associates, a consulting company, since 1987. He is currently a Senior Vice
President, Finance & Administration, and CFO of Rioport.com, Inc., an
applications service provider for music digital distribution. He was Senior Vice
President of e-commerce at Diamond Multimedia Systems, Inc., a multimedia and
connectivity products company from 1997 to 1999, and Chief Executive Officer of
Read-Rite Corp., an electronic data storage products company, from 1984 to 1987.
Mr. Meyercord is a member of the board of directors of MicroChip Technology, a
semiconductor company.
Stuart Schube has been a Director since 1986. He has been President of
Acorn Ventures, Inc., a venture capital management firm, since 1986.
John L. Sprague has been a Director since July 1996. Prior to that time
he was a Director from January 1994 until July 1995. He has been President of
John L. Sprague Associates, a consulting company, since 1988. He was President
and Chief Executive Officer of Sprague Electric Company, an electronics company,
from 1981 to 1987. Dr. Sprague is a member of the board of directors for SIPEX
Corporation, a manufacturer of analog power semiconductors. Until May of 2000,
he was on the Board of Directors for two other corporations: Allmerica Financial
(insurance company), and Aerovox Corporation (capacitor company).
Donald L. Waite has been a Director since July 1997. Mr. Waite has been
the Executive Vice President and Chief Administrative Officer, Seagate
Technology, Inc. (manufacturer of disc drives, tape drives and storage
management software) since 1995. He joined Seagate in 1983 as Vice President of
Finance and Chief Financial Officer; promoted to Senior Vice President, Finance
in 1984. He has been the Chief Executive Officer, Dragon Systems (voice
recognition software company) since 1999. He has been a Director of Dragon
Systems since 1999 and CVC Holdings, Inc. (deposition equipment company) since
1995.
14
<PAGE>
Security Ownership of Certain Beneficial Owners and Management
<TABLE>
The following table sets forth certain information with respect to the
beneficial ownership of the Company's Common Stock as of May 31, 2000, 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; (ii) each of the
Company's directors; (iii) the Named Executive Officers (as defined below under
"Executive Compensation"); 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.
<CAPTION>
Beneficial Owner (1) Shares Beneficially Percent
-------------------- ------------------- -------
Owned(2)
--------
<S> <C> <C>
Chan Desaigoudar
Shorebird, #215, 1,733,850 15.71%
101 Shell Drive
Watsonville, CA 95076
Kern Capital Management LLC
114 West 47th Street 1,213,800 11.00%
Suite 1926
New York, NY 10036
Jeffrey C. Kalb(3) 499,947 4.53%
John E. Trewin(3) 118,252 1.07%
Angel G. Jordan(3) 99,568 *
Wade Meyercord(3) 98,675 *
John Jorgensen(3) 69,672 *
Charles Bellavia(3) 64,590 *
Arieh Schifrin(3) 56,938 *
Stuart Schube(3) 53,541 *
John Sprague(3) 46,875 *
Donald L. Waite(3) 42,623 *
J. Daniel McCranie(3) 6,562 *
Directors and Executive Officers
as a group (12 persons) 1,197,459 10.85%
<FN>
------------
* 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.
(3) 215 Topaz Street, Milpitas, California 95035.
</FN>
</TABLE>
15
<PAGE>
IV. CORPORATE GOVERNANCE -- OFFICERS AND DIRECTORS
Board Meetings and Committees
During the fiscal year ended March 31, 2000 ("fiscal 2000"), the Board
of Directors of the Company had an Audit Committee, a Compensation Committee,
and a Nominating Committee.
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. The Audit Committee consisted of Angel
Jordan, Stuart Schube, and Donald Waite. That Audit Committee held three
meetings during fiscal 2000.
The Compensation Committee's principal functions are to recommend to
the Board the compensation of officers of the Company, to oversee the
administration of the Company's stock plans, and to perform such other duties
regarding compensation for employees and consultants as the Board may delegate
from time to time. In addition, the Committee reviews and approves
recommendations regarding changes in compensation of outside directors. See also
"Compensation Committee Report." The present Compensation Committee consists of
Daniel McCranie, John Sprague and Donald Waite. The Compensation Committee held
seven meetings during fiscal 2000.
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,
Stuart Schube, and Jeff Kalb. The Nominating Committee held one meeting during
fiscal 2000. The Nominating Committee will consider nominees proposed by the
shareholders. Any shareholder who wishes to recommend a prospective nominee for
the Board of Directors for the Nominating Committee's consideration may do so by
giving the candidate's name and qualifications in writing to the Secretary of
the Company, 215 Topaz Street, Milpitas, CA 95035. See "General Information -
Procedure for Director Nominations by Shareholders."
During fiscal 2000, the Board of Directors held 6 regular and
teleconference meetings. Each director attended at least 80% of the meetings
held during fiscal 1999, 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 2000. Each director
who served on the Audit Committee also attended all of the Committee meetings
held during fiscal 2000, which occurred on or after the initiation of his term
as a director.
Director Compensation
Non-employee 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.
The non-employee directors are entitled to stock option grants under
the provisions of the Directors' Plan. The stockholders have approved a total of
280,000 shares for this plan, of which 253,125 have been issued as of May 31,
2000. The Directors' Plan is designed to work automatically. A director joining
the Board for the first time receives an option for 15,000 shares. Each director
reelected at an Annual Meeting is entitled to receive a grant of 10,000 shares
as of the date of the Annual Meeting. 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.
16
<PAGE>
Executive Compensation
<TABLE>
The following table presents the reportable compensation for persons
who held the position of CEO and the top four executive officers that received
compensation above $100,000 during the fiscal year ended March 31, 2000 (the
"Named Executive Officers"):
<CAPTION>
Summary Compensation Table
Long-Term
Compensation
Securities
Annual Compensation All Other
Underlying Compensation
Name and Principal Position Year Salary ($) Bonus ($) Options (#) ($)(1)
----------------------------------- --------- ----------------------- ------------- -----------------
<S> <C> <C> <C> <C> <C>
Jeffrey C. Kalb(2) 2000 $263,159 $56,385 10,000 $6,429
President and Chief 1999 $258,923 $38,649 40,000 $7,462
Executive Officer, Director 1998 $264,000 $40,791 70,547 $8,855
John E. Trewin(3) 2000 $166,409 $34,807 15,000 $6,118
Vice President and 1999 $164,000 $24,694 15,000 $6,511
Chief Financial Officer 1998 $160,616 $24,621 15,000 $7,380
Charles Bellavia(3) 2000 $179,001 $68,584 7,500 $7,456
Vice President of Marketing & 1999 $ 70,040 $18,683 100,000 $6,924
Sales 1998 - - - -
John Jorgensen(3) 2000 $163,316 $35,222 16,500 $6,110
Vice President of Engineering 1999 $160,846 $24,323 15,000 $6,572
1998 $154,740 $24,464 7,500 $4,488
Arieh Schifrin(3) 2000 $157,273 $35,222 15,000 $7,847
Vice President of Operations 1999 $158,345 $24,602 15,000 $9,065
1998 $159,231 $24,621 15,000 $9,543
<FN>
-------------------------
(1) Company matching contributions to the 401k savings plan, deferred
compensation plan, and group term life.
(2) 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 $25,415 per month plus continuation
of employee benefits such as medical, dental and disability coverage.
(3) Under the terms of their employment agreements, Messrs. Bellavia,
Trewin, Jorgensen, and Schifrin in case of termination without cause,
relocation of work location of more than 50 miles, material reduction
in job duties, or an involuntary reduction in compensation, are
eligible to receive six months severance pay and continuation of
employee benefits.
</FN>
</TABLE>
17
<PAGE>
Stock Option Tables
<TABLE>
The following table shows for each of the Named Executive Officers
certain information with respect to stock options granted during the last fiscal
period.
<CAPTION>
Option Grants In Last Fiscal Year
(Twelve Months Ended March 31, 2000)
Potential Realizable
Value at Assumed Annual
Rates of Stock Price
Appreciation for Option
Individual Grants Term(1)
----------------------------------------------------------------------------- --------------------------
Number of Percent of
Securities Total Options
Underlying Granted to Exercise or
Options Employees in Base Price Expiration
Name Granted (#) Fiscal Year(2) ($/Share) Date 5% ($) 10% ($)
------------------ --------------- --------------- ------------- ------------ ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Jeffrey Kalb 10,000 2.5% $6.4375 11/11/09 $40,485 $102,597
John E. Trewin 15,000 3.8% $6.4375 11/11/09 $60,728 $153,896
Charles Bellavia 7,500 1.9% $6.4375 11/11/09 $30,364 $ 76,948
Arieh Schifrin 15,000 3.8% $6.4375 11/11/09 $60,728 $153,896
John Jorgensen 16,500 4.2% $6.4375 11/11/09 $66,800 $169,285
<FN>
-----------------
(1) Potential realizable value is disclosed in response to SEC rules that
require such disclosure for illustration only. The values disclosed are
not intended to be, and should not be, interpreted by shareholders as
representations or projections of the future value of the Company's
stock or of the stock price.
(2) Percent of total options granted calculated using fiscal 2000 grants.
</FN>
</TABLE>
The above options are exercisable over a three-year period, with 33
1/3% exercisable one year after date of grant and the balance exercisable in
quarterly installments thereafter, except for those granted to Mr. Kalb, which
are exercisable after a one year period.
<TABLE>
The following table sets forth as to each of the Named Executive
Officers, certain information with respect to stock options exercised during the
last fiscal year (twelve months ended March 31, 2000) and unexercised options
held as of March 31, 2000.
<CAPTION>
Aggregated Option Exercises In Last Fiscal Year
And FY-End Option Values
Number of Shares Underlying Value of Unexercised
Shares Value Unexercised Options at In-The-Money Options at
Acquired on Realized FY-End (#) FY-End ($) (1)
-------------------------------- -------------------------------
Name Exercise (#) ($) Exercisable Unexercisable Exercisable Unexercisable
------------------- -------------- -------------- -------------- ----------------- -------------- ----------------
<S> <C> <C> <C> <C> <C> <C>
Jeffrey C. Kalb 100,000 $1,393,888 366,047 52,500 $8,616,219 $1,246,469
John E. Trewin 54,687 $1,198,514 63,436 31,877 $1,493,982 $ 726,353
Chuck Bellavia 25,000 $ 299,938 6,250 76,250 $ 153,906 $1,850,469
Arieh Schifrin 43,435 $ 612,772 51,251 31,877 $1,205,771 $ 726,353
John Jorgensen 30,000 $ 570,375 65,622 33,378 $1,586,341 $ 757,878
<FN>
-----------------
(1) In the money options values are based on the closing market price of March 31, 2000.
</FN>
</TABLE>
18
<PAGE>
Board Compensation Committee Report on Executive Compensation
The Compensation Committee of the Board of Directors (the "Committee")
is composed entirely of outside directors appointed by the Board of Directors.
The Committee is responsible, on behalf of the Board, for reviewing and
approving compensation programs, policies, and plans designed to motivate
personnel to achieve Company objectives. One of the key responsibilities of the
Committee is to set the compensation annually of the Chief Executive Officer
(the "CEO"), upon his evaluation by the Board of Directors. Other
responsibilities include: review and approve recommendations from the CEO for
the compensation of officers, other senior managers, and key employees; review
and approve recommendations regarding stock option grants for specific employees
as provided under existing Company plans; and review and approve the concept and
design of management incentive plans and programs for Company officers, other
senior managers, and key employees. An additional responsibility of the
Committee is to review and approve recommendations regarding changes in
compensation of outside 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. Consistent with the Company's
current size, the Committee believes current executive salaries are comparable
to the average salaries offered by competitive 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 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 that 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
19
<PAGE>
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 comparable to the salaries
offered to CEOs of competitive 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.
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.
Members of the Compensation Committee
Daniel McCranie
Dr. John Sprague, chairman
Donald Waite
The foregoing report of the Committee shall not be deemed incorporated
by reference by any general statement incorporating by reference this 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, 2000, or at any other
time an officer or employee of the Company. Currently, no executive officer of
the Company serves as a member of compensation committee.
20
<PAGE>
V. FIVE-YEAR STOCK PERFORMANCE GRAPH
The following graph compares the five-year cumulative total return on
California Micro Devices Common Stock, the Standard & Poor's 500 Index ("S&P"),
and the S&P Electronics (Semiconductors) Index (excluding the Company).
The graph assumes $100 was invested on March 31, 1995, in California
Micro Devices 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.
(California Micro Devices has not paid dividends.)
[GRAPHIC OMITTED]
[The following descriptive data is supplied in accordance with Rule 304(d) of
Regulation S-T]
1995 1996 1997 1998 1999 2000
S & P STOCK INDEX 100 153 183 271 321 327
S & P ELECTRONICS (SEMICONDUCTORS) INDEX 100 132 241 263 399 821
CALIFORNIA MICRO DEVICES COMMON STOCK 100 220 169 139 59 627
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.
21
<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, 2001, 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.
22
<PAGE>
FORM 10-K
A copy of the Company's Annual Report on Form 10-K for the period ended
March 31, 2000, 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
23
<PAGE>
APPENDIX A
PROXY CALIFORNIA MICRO DEVICES CORPORATION PROXY
Proxy for Annual Meeting of Shareholders
August 1, 2000
SOLICITED BY THE BOARD OF DIRECTORS
The undersigned shareholder of California Micro Devices Corporation,
hereby acknowledges receipt of the Notice of Annual Meeting of Shareholders and
Proxy Statement, each dated June 13, 2000, and hereby appoints Wade Meyercord,
Stuart Schube and John Trewin, and each of them, proxies and attorneys-in-fact,
with full power to each of substitution, on behalf and in the name of the
undersigned, to represent the undersigned at the Annual Meeting of Shareholders
of California Micro Devices Corporation to be held at the Sheraton Hotel, 1801
Barber Lane, Milpitas, California 95035 on August 1, 2000 at 10:00 a.m. local
time, and at any adjournments thereof, and to vote all shares of Common Stock
which the undersigned would be entitled to vote if then and there personally
present, on the matters set forth below.
(Continued, and to be signed on the other side)
<PAGE>
X Please mark
your votes
as this
1. To elect seven (7) directors to serve until the next annual meeting of
shareholders and until the election and qualification of their successors,
[ ]FOR * [ ] WITHHOLD FOR ALL
* If you wish to withhold authority to vote for any individual nominee,
strike a line through that nominee's name in the list below:
Dr. Angel Jordan, Jeffrey Kalb, J. Daniel McCranie, Wade Meyercord,
Stuart Schube, Dr. John Sprague, Donald Waite
2. To ratify the selection of the firm of Ernst & Young LLP, as independent
auditors for the fiscal year ending March 31, 2001.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
3. To approve the amendment to the 1995 Employee Stock Option Plan.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
4. To approve the amendment to the 1995 Non-Employee Directors' Stock Option
Plan.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
and, in their discretion, upon such other matters which may properly come before
the meeting or any adjournment thereof.
THIS PROXY WILL BE VOTED AS DIRECTED OR, IF NO CONTRARY DIRECTION IS INDICATED,
WILL BE VOTED FOR ALL OF THE MATTERS SET FORTH HEREIN, FOR THE ELECTION OF THE
LISTED DIRECTORS, FOR THE RATIFICATION OF ERNST & YOUNG LLP, AS INDEPENDENT
ACCOUNTANTS, FOR THE APPROVAL OF THE AMENDMENT TO THE 1995 EMPLOYEE STOCK OPTION
PLAN, FOR THE APPROVAL OF THE AMENDMENT TO THE NON-EMPLOYEE DIRECTORS' STOCK
OPTION PLAN, AND AS SAID PROXIES DEEM ADVISABLE ON SUCH OTHER MATTERS AS MAY
PROPERLY COME BEFORE THE MEETING.
Signature(s) _______________Title or Capacity_______________ Date:________, 2000
This proxy should be marked, dated and signed by the shareholder(s) exactly as
his or her name appears hereon, and returned promptly in the enclosed envelope.
Persons signing in a fiduciary capacity should so indicate. If shares are held
by joint tenants or as community property, both should sign.
