<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended April 30, 1996
OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
COMMISSION FILE NUMBER 0-22366
CREDENCE SYSTEMS CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 94-2878499
(State or other jurisdiction) (I.R.S. Employer
of incorporation or organization) Identification No.)
42808 CHRISTY STREET, FREMONT, CALIFORNIA 94538
(Address of principal executive offices) (Zip Code)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE (510) 657-7400
- - --------------------------------------------------------------------------------
FORMER NAME, FORMER ADDRESS AND FORMER FISCAL YEAR,
IF CHANGED SINCE LAST REPORT.
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Sections 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [_]
APPLICABLE ONLY TO CORPORATE ISSUERS:
At April 30, 1996, there were 21,498,068 shares of the Registrant's common
stock, $0.001 par value per share outstanding.
<PAGE>
INDEX
PAGE NO.
PART I. FINANCIAL INFORMATION --------
Item 1. Financial Statements........................................ 3
Condensed Consolidated Balance Sheets....................... 3
Condensed Consolidated Income Statements.................... 4
Condensed Consolidated Statements of Cash Flows............. 5
Notes to Condensed Consolidated Financial Statements........ 6
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations................................... 8
PART II. OTHER INFORMATION
Item 1. Legal Proceedings........................................... 18
Item 2. Changes in Securities....................................... 18
Item 3. Defaults Upon Senior Securities............................. 18
Item 4. Submission of Matters to a Vote of Securityholders.......... 18
Item 5. Other Information........................................... 19
Item 6. Exhibits and Reports on Form 8-K............................ 19
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<PAGE>
PART I - FINANCIAL INFORMATION
ITEM I - FINANCIAL STATEMENTS
CREDENCE SYSTEMS CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
APRIL 30, OCTOBER 31,
1996 1995
-------- --------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................... $ 48,612 $ 54,534
Short-term investments...................... 38,687 29,045
Accounts receivable, net.................... 47,698 44,049
Inventories................................. 35,475 25,887
Other current assets........................ 6,444 9,187
-------- --------
Total current assets...................... 176,916 162,702
Long-term investments......................... 2,889 --
Property and equipment, net................... 27,744 17,770
Other assets.................................. 5,681 6,121
-------- --------
Total assets.............................. $213,230 $186,593
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable............................ $ 16,816 $ 11,271
Accrued liabilities......................... 18,948 19,681
Income taxes payable........................ 4,478 4,700
Current obligations under capital
leases..................................... 157 655
-------- --------
Total current liabilities................. 40,399 36,307
Commitments
Stockholders' equity.......................... 172,831 150,286
Total liabilities and stockholders'
equity................................... $213,230 $186,593
======== ========
</TABLE>
See accompanying notes.
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<PAGE>
CREDENCE SYSTEMS CORPORATION
CONDENSED CONSOLIDATED INCOME STATEMENTS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
APRIL 30, APRIL 30,
---------------------- --------------------
1996 1995 1996 1995
------- ------- -------- -------
<S> <C> <C> <C> <C>
Net sales................................... $66,475 $41,579 $127,386 $77,164
Cost of goods sold.......................... 26,531 16,601 50,904 30,456
------- ------- -------- -------
Gross margin................................ 39,944 24,978 76,482 46,708
Operating expenses:
Research and development................. 9,413 6,092 17,730 10,922
Selling, general and administrative...... 14,094 9,070 26,896 17,190
------- ------- -------- -------
Total operating expenses............. 23,507 15,162 44,626 28,112
------- ------- -------- -------
Operating income............................ 16,437 9,816 31,856 18,596
Interest income, net........................ 1,046 577 2,101 1,060
------- ------- -------- -------
Income before income taxes.................. 17,483 10,393 33,957 19,656
Income taxes................................ 6,154 3,596 12,084 6,880
------- ------- -------- -------
Net income.................................. $11,329 $ 6,797 $ 21,873 $12,776
======= ======= ======== =======
Net income per share........................ $0.52 $0.33 $1.00 $0.63
======= ======= ======== =======
Number of shares used in computing per
share amount............................... 21,913 20,423 21,932 20,378
======= ======= ======== =======
</TABLE>
See accompanying notes.
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<PAGE>
CREDENCE SYSTEMS CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
APRIL 30,
---------------------
1996 1995
--------- --------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income............................................... $ 21,873 $ 12,776
Adjustments to reconcile net income
to net cash provided by operating activities:
Depreciation and amortization....................... 4,753 2,879
EPRO fiscal year conversion......................... -- (632)
Deferred taxes...................................... -- 449
(Gain) loss on disposal of
property and equipment............................ -- (253)
Changes in operating assets and liabilities:
Accounts receivable, inventories and other
current assets.................................. (11,589) (17,363)
Accounts payable, accrued liabilities and
income taxes payable............................ 4,635 6,264
--------- --------
Net cash provided by operating activities...... 19,672 4,120
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of available-for-sale securities............ (104,334) --
Maturities of available-for-sale securities........... 81,284 --
Purchases of held-to-maturity securities.............. -- (16,011)
Maturities of held-to-maturity securities............. 10,519 6,306
Acquisition of property and equipment................. (12,694) (4,019)
Other assets.......................................... (498) (191)
Proceeds from sale of property and equipment.......... -- 600
--------- --------
Net cash used in investing activities.......... (25,723) (13,315)
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payments under capital lease obligations.... (498) (618)
Issuance of common stock, net of payment on
notes receivable.................................... 627 662
--------- --------
Net cash provided by financing activities...... 129 44
--------- --------
Net increase (decrease) in cash and cash equivalents..... (5,922) (9,151)
Cash and cash equivalents at beginning of period......... 54,534 39,497
--------- --------
Cash and cash equivalents at end of period............... $ 48,612 $ 30,346
========= ========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Interest paid.......................................... $ 23 $ 78
Income taxes paid...................................... $ 12,249 $ 4,506
NONCASH INVESTING ACTIVITIES:
Net transfers of inventory to property and equipment... $ 1,095 $ 805
NONCASH FINANCING ACTIVITIES:
Income tax benefit from stock option exercises......... $ 57 $ 824
</TABLE>
See accompanying notes.
-5-
<PAGE>
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. QUARTERLY FINANCIAL STATEMENTS
The condensed consolidated financial statements and related notes for the
three months and six months ended April 30, 1996 and 1995 are unaudited but
include all adjustments (consisting solely of normal recurring adjustments)
which are, in the opinion of management, necessary for a fair presentation of
financial position and results of operations of the Company for the interim
periods. The results of operations for the three months and six months ended
April 30, 1996 and 1995 are not necessarily indicative of the operating results
to be expected for the full fiscal year. The information included in this report
should be read in conjunction with the Company's audited consolidated financial
statements and notes thereto for the fiscal year ended October 31, 1995 included
in the Annual Report on Form 10-K and the additional risk factors, including,
without limitation, risks relating to fluctuations in operating results, limited
system sales, backlog, cyclicality of semiconductor industry, expansion of
operations, management of growth, sole or limited sources of supply, reliance on
subcontractors, highly competitive industry, rapid technological change,
importance of timely product introduction, risks of delays, dependence on key
customers, lengthy sales cycle, dependence on key personnel, management changes,
international sales, proprietary rights, acquisitions, future capital needs and
volatility of stock price, as set forth in this Report. Any party interested in
reviewing these publicly available documents should write to the SEC or the
Chief Financial Officer of the Company.
USE OF ESTIMATES - The preparation of the accompanying unaudited
consolidated condensed financial statements requires management to make
estimates and assumptions that affect the amounts reported in the financial
statements. Actual results could differ from those estimates.
2. INVESTMENTS CLASSIFICATIONS
The fair market value of cash and cash equivalents, short-term investments
and long-term investments is substantially equal to the carrying value. The
following is a summary of available-for-sale and held-to-maturity securities as
of April 30, 1996 (in thousands):
<TABLE>
<CAPTION>
Available-for-sale Held-to-maturity
securities securities
------------------- ----------------
<S> <C> <C>
Short-term investments:
Commercial paper............... $23,416 $ --
Treasury notes................. 7,038 --
Certificates of deposit........ 6,737 --
Other debt securities.......... 494 1,002
------- ------
Short-term investments...... 37,685 1,002
------- ------
Long-term investments:
Certificates of deposit........ 1,894 --
Treasury notes................. 995 --
------- ------
Long-term investments....... 2,889 --
------- ------
Total........................... $40,574 $1,002
======= ======
</TABLE>
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<PAGE>
3. INVENTORIES
Inventories consist of the following (in thousands):
<TABLE>
<CAPTION>
APRIL 30, OCTOBER 31,
1996 1995
------- -------
<S> <C> <C>
Raw materials......... $18,458 $11,855
Work-in-process....... 13,718 9,043
Finished goods........ 3,299 4,989
------- -------
$35,475 $25,887
======= =======
</TABLE>
4. NET INCOME PER SHARE
Net income per share is computed using the weighted average number of shares
of common stock and dilutive common stock equivalent shares from the exercise of
stock options and warrants (using the treasury stock method).
5. CONTINGENCIES
The Company filed suit against Micro Component Technology, Inc. ("MCT") in
the United States District Court for the Northern District of California on July
6, 1994. The complaint alleges that MCT is infringing United States Patent No.
4,724,378 owned by the Company for a "Calibrated Automatic Test System" (the
"Credence Patent"). The Company seeks both injunctive relief and monetary
damages. On January 4, 1995, MCT answered the complaint, denying infringement
and alleging as a defense that the Credence Patent is invalid and unenforceable.
MCT further alleged that it had sold all of its rights to the allegedly
infringing product to Megatest Corporation ("Megatest"). Accordingly, on January
30, 1995, the Company filed a motion to amend its complaint to add Megatest as a
defendant, seeking injunctive relief and monetary damages. On March 22, 1995,
the Court granted the Company's motion to amend its complaint. Megatest answered
the amended complaint on April 24, 1995, denying the claim of infringement and
asserting a counterclaim for declaratory judgment, declaring that it has not
infringed and that the Credence Patent is invalid and unenforceable. On May 25,
1995, Credence and MCT executed a settlement agreement pursuant to which MCT has
paid a royalty for past sales and agreed to the entry of an injunction against
it regarding the Credence Patent. On February 21, 1996, the Company filed a
motion to enforce the terms of a negotiated settlement between the Company and
Megatest, which motion was denied by the Court after a hearing on April 12,
1996. Accordingly, the Company is pursuing its infringement claim against
Megatest.
The Company is involved in various claims arising in the ordinary course of
business, none of which, including the above Megatest litigation, in the opinion
of management, will have a material impact on the Company's business, financial
condition or results of operations.
-7-
<PAGE>
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following discussion may contain predictions, estimates and other
forward-looking statements that may involve a number of risks and uncertainties.
While this discussion represents the Company's current judgment on the future
direction of the business, such risks and uncertainties could cause actual
results to differ materially from any future performance suggested herein.
Factors that could cause actual results to differ are identified throughout the
discussion below, as well as the section entitled "Future Operating Results" and
"Risk Factors" below. The Company undertakes no obligation to publicly release
the result of any revisions to any forward-looking statements which may be made
to reflect events or circumstances after the date hereof or to reflect the
occurrence of unanticipated events.
The following table sets forth items from the Condensed Consolidated Income
Statements as a percentage of net sales for the periods indicated:
<TABLE>
<CAPTION>
THREE MONTHS SIX MONTHS
ENDED ENDED
APRIL 30, APRIL 30,
--------------- --------------
1996 1995 1996 1995
----- ----- ----- -----
<S> <C> <C> <C> <C>
Net sales............................. 100.0% 100.0% 100.0% 100.0%
Cost of goods sold.................... 39.9 39.9 40.0 39.5
----- ----- ----- -----
Gross margin.......................... 60.1 60.1 60.0 60.5
Operating expenses
Research and development........... 14.2 14.7 13.9 14.1
Selling, general, and
administrative................... 21.2 21.8 21.1 22.3
----- ----- ----- -----
Operating expenses............ 35.4 36.5 35.0 36.4
----- ----- ----- -----
Operating income...................... 24.7 23.6 25.0 24.1
Interest income, net.................. 1.6 1.4 1.7 1.4
----- ----- ----- -----
Income before income taxes............ 26.3 25.0 26.7 25.5
Income taxes.......................... 9.3 8.7 9.5 8.9
----- ----- ----- -----
Net income............................ 17.0% 16.3% 17.2% 16.6%
===== ===== ===== =====
</TABLE>
RESULTS OF OPERATIONS
NET SALES
Net sales consist of revenues from systems and upgrades sales, spare parts
sales and maintenance contracts. Net sales were $66.5 million for the second
quarter and $127.4 million for the first six months of fiscal 1996, representing
increases of 59.9% and 65.1%, respectively, over the comparable periods of
fiscal 1995. These increases were due primarily to an increase in system unit
sales. International shipments accounted for approximately 66.5% and 67.2% of
the total net sales for the second quarter and first six months of fiscal 1996,
respectively, compared to approximately 51.4% and 58.4% for the comparable
periods a year ago. The Company's international sales of its products and spare
parts and its service revenues are denominated primarily in United States
dollars.
GROSS MARGIN
The Company's gross margin has been and is expected to continue to be
affected by a variety of factors, including manufacturing efficiencies, pricing
by competitors or suppliers, product sales mix, production volume, customization
and reconfiguration of systems, international and domestic sales mix and field
service costs. Gross margin was 60.1% for the second quarter and 60.0% for the
first six months of fiscal 1996, compared with 60.1% for the second quarter and
60.5% for the first six months of fiscal 1995. The slightly higher gross margin
in the first six months of fiscal 1995 reflected higher gross margin for the
EPRO Memory Test Products. There can be no assurance that the Company's gross
margin will remain at or above recent levels.
-8-
<PAGE>
RESEARCH AND DEVELOPMENT
Research and development expenses were $9.4 million in the second quarter and
$17.7 million in the first six months of fiscal 1996, an increase of $3.3
million or 54.5% and $6.8 million or 62.3%, respectively, over the same periods
of fiscal 1995. These increases were due primarily to increased outside
contractor costs and increased employee compensation and expenses related to
additional personnel and, to a lesser extent, increased amortization expense
relating to software and purchased technology. As a percentage of net sales,
these expenses were 14.2% for the second quarter and 13.9% for the first six
months of fiscal 1996, compared with 14.7% for the second quarter and 14.1% for
the first six months of fiscal 1995. The Company currently intends to continue
to invest significant resources in the development of new products and
enhancements for the foreseeable future. Accordingly, the Company expects these
expenses to increase significantly in absolute dollars for the remainder of
fiscal 1996 as compared to fiscal 1995. There can be no assurance, however, that
the Company will make such investments or that any such new products and
enhancements will be successfully developed and marketed.
SELLING, GENERAL AND ADMINISTRATIVE
Selling, general and administrative expenses were $14.1 million in the second
quarter and $26.9 million for the first six months of fiscal 1996, representing
increases of $5.0 million or 55.4% and $9.7 million or 56.5%, respectively, over
the comparable periods of fiscal 1995. These increases were due primarily to
increased employee compensation and expenses related to additional personnel,
increased sales commissions related to increased product sales and, to a lesser
extent, increased facility costs. As a percentage of net sales, these expenses
were 21.2% for the second quarter and 21.1% for the first six months of fiscal
1996, compared with 21.8% and 22.3%, respectively, for the corresponding periods
in fiscal 1995. The decline of these expenses as a percentage of net sales is
attributable primarily to the increase in net sales in the second quarter and
the first six months of fiscal 1996 as compared with the comparable periods of
fiscal 1995. The Company expects selling, general and administrative expenses
for the rest of fiscal 1996 to increase significantly in absolute dollars as
compared to fiscal 1995.
INTEREST INCOME, NET
The Company generated net interest income of $1.0 million for the second
quarter and $2.1 million for the first six months of fiscal 1996, compared to
$577,000 and $1.1 million, respectively, for the corresponding periods in fiscal
1995. These increases were due primarily to interest earned on higher average
cash and cash equivalents and short-term investments balances during the period
and, to a lesser extent, lower average debt outstanding during such periods. The
higher cash and cash equivalents and short-term investments balances reflected
increased cash provided by operations and the receipt of proceeds from the
Company's third public offering.
INCOME TAXES
The Company's provision for income taxes for the second quarter and for the
first six months of fiscal 1996 of 35.2% and 35.6% is computed based on the
projected annualized effective tax rate. The projected effective tax rate for
fiscal 1996 is expected to be less than the combined federal and state statutory
rate of 41% due primarily to the projected benefit of the Company's foreign
sales corporation. The effective tax rate for the second quarter and for the
first six months of fiscal 1995 of 35.0% was lower than the statutory rate due
primarily to the benefit of the Company's foreign sales corporation..
LIQUIDITY AND CAPITAL RESOURCES
Net cash provided by operating activities was $19.7 million and $4.1 million
for the six months ended April 30, 1996 and 1995, respectively. Net cash flows
provided by operating activities were primarily attributable to profitability
and adjustments for increasing levels of depreciation, amortization and income
taxes payable offset in part by increases in accounts receivable and
inventories. Investing activities used net cash of $25.7 million and $13.3
million for the six months ended April 30, 1996 and
-9-
<PAGE>
1995, respectively. In the first six months of fiscal 1996, the Company
purchased $12.7 million of property and equipment and invested a net $12.5
million in short-term and long-term investments.
As of April 30, 1996, the Company had working capital of approximately $136.5
million, including cash and short-term investments of $87.3 million, $47.7
million of accounts receivable and $35.5 million of inventories. The Company
expects accounts receivable to continue to represent a significant portion of
working capital. The Company believes that because of the relatively long
manufacturing cycles of many of its testers, investments in inventories will
also continue to represent a significant portion of working capital. Significant
investments in accounts receivable and inventories may subject the Company to
increased risks which could materially adversely affect the Company's business,
financial condition or results of operations. Total liabilities of $36.3 million
as of October 31, 1995 increased to $40.4 million as of April 30, 1996. The $4.1
million increase was due primarily to increases in accounts payable by $5.5
million, offset by decreases in income taxes payable, accrued liabilities and
current obligations under capital leases.
The Company's principal sources of liquidity as of April 30, 1996 consisted
of approximately $48.6 million of cash and cash equivalents, short-term
investments of $38.7 million and $20.0 million available under the Company's
unsecured working capital line of credit expiring on July 28, 1996. As of April
30, 1996, approximately $2.6 million was outstanding under two operating
equipment leaselines and no amounts were outstanding under the unsecured line of
credit.
FUTURE OPERATING RESULTS
The Company's operating results have in the past fluctuated significantly and
may in the future fluctuate significantly depending upon a variety of factors,
including the timing of new product announcements and releases by the Company or
its competitors; cyclicality or overcapacity in the semiconductor industry;
market acceptance of new products and enhanced versions of the Company's
products; manufacturing inefficiencies associated with the start up of new
product introductions; changes in pricing by the Company, its competitors,
customers or suppliers; manufacturing capacity; customer demand based on end-
user demand; the ability to volume produce systems and meet customer
requirements; inventory obsolescence; patterns of capital spending by customers;
delays, cancellations or reschedulings of orders due to customer financial
difficulties or otherwise; changes in overhead absorption levels due to changes
in the number of systems manufactured; the timing and shipment of orders;
availability of components, subassemblies and services; expenses associated with
acquisitions and alliances; product discounts; customization and reconfiguration
of systems; the proportion of direct sales and sales through third parties,
including distributors and original equipment manufacturers; the increased
concentration of sales to test and assembly subcontractors, which the Company
believes have a greater volatility in their demand; the mix of products sold;
the length of manufacturing and sales cycles; cyclicality or downturns in the
semiconductor market and the markets served by the Company's customers; natural
disasters; political and economic instability; regulatory changes; and outbreaks
of hostilities. While the Company's gross margin on system sales has been
relatively consistent during the last three years, it may vary in the future
based on a variety of factors, including manufacturing efficiencies, pricing by
competitors or suppliers, product sales mix, production volume, customization
and reconfiguration of systems, international and domestic sales mix and field
service margins. in addition, new and enhanced products typically have lower
gross margin in the early stages of commercial introduction and production.
While the Company has recorded and continues to record allowances for estimated
sales returns and uncollectible accounts, there can be no assurance that such
estimates regarding allowances will be adequate.
-10-
<PAGE>
RISK FACTORS
Limited System Sales; Backlog
- - -----------------------------
The Company derives a substantial portion of its net sales from the
sale of a relatively small number of systems that typically range in price from
$300,000 to $2.0 million, excluding the EPRO products which price range is
typically below $100,000. As a result, the timing of recognition of revenue from
a single transaction could have a significant impact on the Company's net sales
and operating results for a particular period. The Company's net sales and
operating results for a particular period could be materially adversely affected
if an anticipated order for even one system is not received in time to permit
shipment during that period. The Company's backlog at the beginning of a quarter
typically does not include all tester orders needed to achieve the Company's
sales objectives for that quarter. In addition, orders in backlog are subject to
cancellation, delay, deferral or rescheduling by a customer with limited or no
penalties. Consequently, the Company's net sales and operating results for a
quarter have in the past and may in the future depend upon the Company obtaining
orders for systems to be shipped in the same quarter that the order is received.
Furthermore, most of the Company's net sales continue to be shipped near the end
of each quarter. Accordingly, the failure to receive an anticipated order or a
delay or rescheduling in a shipment near the end of a particular period, due,
for example, to an order cancellation, a delay by a customer, manufacturing,
technical reliability or other difficulties, including difficulties relating to
customization and reconfiguration of systems, a delay in the supply of
components, subassemblies or services or a delay due to competitive or economic
factors, may cause net sales in a particular period to fall significantly below
the Company's expectations, which would have a material adverse effect upon the
Company's business, financial condition or results of operations. The relatively
long manufacturing cycle of many of its testers, including the Vista Logic100
and Vista DUO testers introduced in 1994, has caused and could cause shipments
of such products to be delayed from one quarter to the next, which could
materially adversely affect the Company's business, financial condition or
results of operations. Furthermore, announcements by the Company or its
competitors of new products and technologies could cause customers to defer
purchases of the Company's existing systems, which could also have a material
adverse effect on the Company's business, financial condition or results of
operations. The impact of these and other factors on the Company's sales and
operating results in any future period cannot be forecasted with certainty. In
addition, the need for continued significant expenditures for research and
development, capital equipment purchases and worldwide training and customer
service and support, among other factors, will make it difficult for the Company
to reduce significantly its fixed expenses in a particular period if the
Company's net sales goals for such period are not met. The Company has
significantly increased its expense levels to support its recent growth, and
there can be no assurance that the Company will maintain or exceed its current
level of net sales or rate of growth for any period in the future. Accordingly,
there can be no assurance that the Company will be able to remain profitable or
that it will not sustain losses in future periods. Due to all of the foregoing
factors, it is likely that in some future quarter the Company's operating
results will be below the expectations of public market analysts and investors.
In such event, the price of the Company's common stock would likely be
materially adversely affected.
Cyclicality of Semiconductor Industry
- - -------------------------------------
The Company's business and results of operations depend in significant
part upon the capital expenditures of manufacturers of semiconductors, including
manufacturers that are opening new or expanding existing fabrication facilities,
which in turn depend upon the current and anticipated market demand for
semiconductors and products incorporating semiconductors. Historically, the
semiconductor industry has been highly cyclical with recurring periods of
oversupply, which often have had a severe effect on the semiconductor industry's
demand for test equipment, including the systems manufactured and marketed by
the Company. The Company believes that the markets for newer generations of
semiconductors will also be subject to similar fluctuations. In recent years,
the semiconductor industry has experienced significant growth which, in turn,
has caused significant growth in the capital equipment industry in the past
three years. There can be no assurance that such growth can be sustained. The
Company anticipates that a significant portion of new orders may depend upon
demand from
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<PAGE>
semiconductor device manufacturers building or expanding large fabrication
facilities and there can be no assurance that such demand will exist. In
addition, any factor adversely affecting the semiconductor industry or
particular segments within the semiconductor industry may adversely affect the
Company's business, financial condition or results of operations. Therefore,
there can be no assurance that the Company's operating results will not be
materially adversely affected if downturns or slowdowns in the semiconductor
industry occur again in the future.
Expansion of Operations; Management of Growth
- - ---------------------------------------------
The Company has recently experienced a period of rapid growth. Since 1993, the
Company has significantly increased the scale of its operations to support
increased sales levels and has expanded its operations to address critical
infrastructure and other requirements, including the hiring of additional
personnel, significant investments in research and development to support
product development and the March 1995 acquisition of EPRO. In this regard, the
Company intends to relocate its principal office in Fremont, California and
EPRO's operations in Santa Clara, California to a larger facility in Fremont,
California. There can be no assurance that the relocation will not disrupt the
Company's operations. The Company's expansion has resulted in significantly
higher operating expenses, and the Company expects that its operating expenses,
including research and development expenses with respect to new products and
enhancements and expenses relating to facilities expansion, will continue to
increase significantly. If the Company is unable to achieve significantly
increased sales or its sales fall below expectations or the Company cannot
locate affordable or suitable space if future expansion becomes necessary, the
Company's business, financial condition or results of operations may be
materially adversely affected. Moreover, there can be no assurance that the
Company's net sales or rate of growth will increase or remain at or above recent
levels.
The recent growth in the Company's sales and expansion in the scope of
its operations has placed a considerable strain on its management, financial,
manufacturing and other resources and has required the Company to implement and
improve a variety of operating, financial and other systems, procedures and
controls. There can be no assurance that any existing or new systems, procedures
or controls will be adequate to support the Company's operations or that its
systems, procedures and controls will be designed, implemented or improved in a
cost effective and timely manner. Any failure to implement, improve and expand
such systems, procedures and controls in an efficient manner at a pace
consistent with the Company's business could have a material adverse effect on
the Company's business, financial condition or results of operations.
Sole or Limited Sources of Supply; Reliance on Subcontractors
- - -------------------------------------------------------------
Certain components, subassemblies and services necessary for the
manufacture of the Company's testers are obtained from a sole supplier or a
limited group of suppliers. In particular, the Company's Vista series testers
have two critical components that are currently available from a sole supplier.
In addition, one critical component in the Company's model SC 212 tester is
currently supplied by the same sole supplier. In addition, the Company purchases
certain components that are available solely from Tektronix for use in the Vista
series testers. The Company does not maintain any long-term supply agreements
with any of its vendors and purchases its components and subassemblies through
individual purchase orders. The manufacture of certain of the Company's
components and subassemblies is an extremely complex process. The Company is
also relying increasingly on outside vendors to manufacture certain components
and subassemblies and to provide certain services. The Company has recently
experienced and continues to experience significant reliability, quality and
timeliness problems with several critical components supplied by one of its
vendors. In addition, the Company and certain of its subcontractors are
currently experiencing significant shortages and delays in delivery of various
components and subassemblies. There can be no assurance that these or other
problems will not continue to occur in the future with these or the Company's
other suppliers or outside subcontractors. The Company's reliance on sole or a
limited group of suppliers, delays and shortages of components and
subassemblies, and the Company's increasing reliance on outside subcontractors
involves several risks, including an inability to obtain an adequate supply of
required components, subassemblies and services and reduced control over the
price, timely delivery, reliability and
-12-
<PAGE>
quality of components, subassemblies and services. Shortages, delays,
disruptions or terminations of the sources for these components and
subassemblies has delayed and could continue to delay shipments of the Company's
systems and could have a material adverse effect on the Company's business,
financial condition or results of operations. Any continuing inability to obtain
adequate yields or timely deliveries or any other circumstance that would
require the Company to seek alternative sources of supply or to manufacture such
components internally, could have a material adverse effect on the Company's
business, financial condition or results of operations. Such delays, shortages
and disruptions would also damage relationships with current and prospective
customers and could allow competitors to penetrate such customer accounts. There
can be no assurance that the Company's internal manufacturing capacity and that
of its suppliers and subcontractors will be sufficient to meet customer
requirements.
Highly Competitive Industry
- - ---------------------------
The automatic test equipment ("ATE") industry is intensely competitive.
Because of the substantial investment required to develop test application
software and interfaces, the Company believes that once a semiconductor
manufacturer has selected a particular ATE vendor's tester, the semiconductor
manufacturer is likely to use that tester for a majority of its testing
requirements for the market life of that semiconductor and, to the extent
possible, subsequent generations of similar products. As a result, once an ATE
customer chooses a system for the testing of a particular device, it is
difficult for competing vendors to achieve significant ATE sales to such
customer for similar use. The inability of the Company to achieve significant
sales to such prospective ATE customers could have a material adverse effect on
the Company's business, financial condition or results of operations.
The Company faces substantial competition throughout the world, primarily from
ATE manufacturers located in the United States, Europe and Japan, as well as
several of the Company's customers. Many of the Company's competitors have
substantially greater financial and other resources with which to pursue
engineering, manufacturing, marketing and distribution of their products.
Certain of the Company's competitors have introduced or announced new products
with certain performance or price characteristics equal or superior to certain
products currently offered by the Company. The Company believes that if the ATE
industry continues to consolidate through strategic alliances or acquisitions,
as evidenced by acquisitions in recent years of Versatest Corporation by
Hewlett-Packard Company, of a tester product line of Micro Component Technology,
Inc. by Megatest Corporation ("Megatest") and of Megatest by Teradyne, the
Company will face significant additional competition from larger competitors
that may offer more complete product lines than the Company. The Company also
expects its competitors to continue to improve the performance of their current
products and to introduce new products, enhancements and new technologies that
provide improved cost of ownership and performance characteristics. New product
introductions by the Company's competitors could cause a decline in sales or
loss of market acceptance of the Company's existing products. Moreover,
increased competitive pressure could lead to intensified price-based
competition, which could materially adversely affect the Company's business,
financial condition or results of operations. The Company has experienced and
continues to experience significant price competition in the sale of all of its
testers. In addition, at the end of a product life cycle and as competitors
introduce more technologically advanced products, pricing pressures typically
become more intense. The Company believes that to be competitive, it will
continue to require significant financial resources in order to, among other
items, invest in new product development and enhancements and to maintain
customer service and support centers worldwide. There can be no assurance that
the Company will be able to compete successfully in the future.
Rapid Technological Change, Importance of Timely Product Introduction
- - ---------------------------------------------------------------------
The ATE market is subject to rapid technological change and new product
introductions and enhancements and related software tools. The Company's ability
to be competitive in this market will depend in significant part upon its
ability to successfully develop and introduce new products and enhancements and
related software tools on a timely and cost-effective basis, including the
products and products under development acquired in the EPRO merger. The
Company's customers require testers with additional features and higher
performance and other capabilities. The Company is therefore required to
-13-
<PAGE>
enhance the performance and other capabilities of its existing systems and
related software tools. Any success by the Company in developing new and
enhanced systems and related software tools and new features to its existing
systems depends upon a variety of factors, including product selection,
development of competitive products by competitors, timely and efficient
completion of product design, timely and efficient implementation of
manufacturing and assembly processes, product performance in the field and
effective sales and marketing. Because new product development commitments must
be made well in advance of sales, new product decisions must anticipate both
future demand and the availability of technology to satisfy that demand. There
can be no assurance that the Company will be successful in selecting,
developing, manufacturing and marketing new products or enhancements and related
software tools. The inability of the Company to introduce new products and
related software tools that contribute significantly to net sales, gross margin
and net income could have a material adverse effect on the Company's business,
financial condition or results of operations. In addition, new product or
technology introductions by the Company's competitors could cause a decline in
sales or loss of market acceptance of the Company's existing products.
Significant delays can occur between a system's introduction and the
commencement by the Company of volume production of such system. The Company has
been and is experiencing significant delays in the introduction, volume
production and sales of its systems and related enhancements in the newer
product lines due to technical, manufacturing, parts shortages, component
reliability and other difficulties and may continue to experience similar delays
in the future. As a result, certain of the Company's significant customers have
been and are experiencing significant delays in receiving and using certain of
the Company's testers in production. There can be no assurance that these or
additional difficulties will not continue to arise in the future with respect to
the Company's systems and that such delays will not materially adversely affect
customer relationships and future sales. Moreover, there can be no assurance
that the Company will not encounter these or other difficulties that could delay
future introductions or volume production or sales of its systems or
enhancements and related software tools. The Company has incurred and may
continue to incur substantial unanticipated costs to ensure the functionality
and reliability of its testers. If the Company's systems continue to have
reliability, quality or other problems, reduced orders, higher manufacturing
costs, delays in collecting accounts receivable and higher service, support and
warranty expenses, among other items, could result. The Company's failure to
have a competitive tester and related software tools available when required by
a semiconductor manufacturer could make it substantially more difficult for the
Company to sell testers to that manufacturer for a number of years. The Company
believes that the continued acceptance, volume production, timely delivery and
customer satisfaction of the newer product lines are of critical importance to
its future financial results. As a result, an inability to correct any
technical, reliability, parts shortages or other difficulties associated with
the Company's systems or to manufacture and ship the Company's systems on a
timely basis to meet customer requirements could damage relationships with
current and prospective customers and would materially adversely affect the
Company's business, financial condition or results of operations.
Customer Concentration; Lengthy Sales Cycle
- - -------------------------------------------
During the six months ended April 30, 1996, sales to Spirox Holding, Inc.
accounted for 25% of the Company's net sales. In fiscal 1995, sales to Spirox
Holding, Inc. and Cirrus Logic, Inc. accounted for 17% and 11%, respectively, of
the Company's net sales. In fiscal 1994, sales to Spirox Holding, Inc. accounted
for 13% of the Company's net sales. Certain key customers have been experiencing
significant delays in receiving and using certain of the Company's testers in
production due to technical, manufacturing, parts shortages, reliability and
other difficulties relating to such testers. The loss of or any reduction in
orders by a significant customer, including losses or reductions due to
continuing or other technical, manufacturing, reliability or other difficulties
associated with the Company's products or market, economic or competitive
conditions in the semiconductor industry or in other industries that manufacture
products utilizing semiconductors could materially adversely affect the
Company's business, financial condition or results of operations. The Company's
ability to maintain or increase its sales levels in the future will depend in
significant part upon its ability to obtain orders from existing and new
customers and to manufacture systems on a timely and cost-effective basis, the
financial condition and success of its customers, general economic conditions,
and the Company's ability to meet increasingly stringent customer
-14-
<PAGE>
performance and other requirements and shipment delivery dates. There can be no
assurance that the Company will be able to maintain or continue to increase the
level of its net sales in the future or that the Company will be able to retain
existing customers or attract new ones.
Sales of the Company's systems depend in significant part upon the decision of
a semiconductor manufacturer to develop and manufacture new semiconductor
devices or to increase manufacturing capacity. As a result, sales of the
Company's testers are subject to a variety of factors outside of the Company's
control. In addition, the decision to purchase a tester generally involves a
significant commitment of capital, with the attendant delays frequently
associated with significant capital expenditures. For these and other reasons,
the Company's systems have lengthy sales cycles during which the Company may
expend substantial funds and management effort to secure a sale and subject the
Company to a number of significant risks.
Dependence on Key Personnel; Management Changes
- - -----------------------------------------------
The Company's future operating results depend in significant part upon the
continued service of its key personnel, none of whom are bound by an employment
or noncompetition agreement. The Company's future operating results also depend
in significant part upon its ability to attract and retain qualified management,
manufacturing, technical, engineering and marketing and sales and support
personnel. Competition for such personnel is intense, and there can be no
assurance that the Company will be successful in attracting or retaining such
personnel. There may be only a limited number of persons with the requisite
skills to serve in these positions and it may be increasingly difficult for the
Company to hire such personnel over time. The loss of any key employee, the
failure of any key employee to perform in his or her current position or the
Company's inability to attract and retain skilled employees, as needed, could
materially adversely affect the Company's business, financial condition or
results of operations. The Company's future operating results will depend in
significant part on its ability to attract, hire and retain skilled employees
and on the ability of its officers and key employees to expand, train and manage
its employee base. The Company's inability to attract and retain the personnel
it requires could have a material adverse effect on the Company's results of
operations.
International Sales
- - -------------------
International sales accounted for approximately 52%, 57% and 67% of total net
sales in fiscal years 1994, 1995 and for the first six months of fiscal 1996,
respectively. The Company anticipates that international sales will continue to
account for a significant portion of total net sales in the foreseeable future.
As a result, these sales will continue to be subject to certain risks, including
changes in regulatory requirements, tariffs and other barriers, political and
economic instability, an outbreak of hostilities, integration of foreign
operations of acquired businesses, foreign currency exchange rate fluctuations,
difficulties in managing distributors, original equipment manufacturers, foreign
subsidiaries and branch operations, potentially adverse tax consequences and the
possibility of difficulty in accounts receivable collection. The Company is also
subject to the risks associated with the imposition of legislation and
regulations relating to the import or export of semiconductor products. The
Company cannot predict whether quotas, duties, taxes or other charges or
restrictions will be implemented by the United States or any other country upon
the importation or exportation of the Company's products in the future. Any of
these factors or the adoption of restrictive policies could have a material
adverse effect on the Company's business, financial condition or results of
operations.
Proprietary Rights
- - ------------------
The Company attempts to protect its intellectual property rights through
patents, trade secrets and other measures, including confidentiality agreements.
There can be no assurance that others will not independently develop
substantially equivalent proprietary information and techniques or otherwise
gain access to the Company's trade secrets and other intellectual property
rights or disclose such technology or that the Company can meaningfully protect
its trade secrets or other intellectual property rights. In connection with the
Company's patent infringement litigation against Megatest, Megatest has
challenged
-15-
<PAGE>
the validity and enforceability of one of the Company's patents not relating to
its CMOS stabilization methods. There can be no assurance that this or any other
patent owned by the Company will not be invalidated, deemed unenforceable,
circumvented or challenged, that the rights granted thereunder will provide
competitive advantages to the Company or that any of the Company's pending or
future patent applications will be issued within the scope of the claims sought
by the Company, if at all. Furthermore, there can be no assurance that others
will not develop similar products, duplicate the Company's products or design
around the patents owned by the Company. In addition, there can be no assurance
that foreign intellectual property laws or the Company's agreements will protect
the Company's intellectual property rights. Failure to protect the Company's
intellectual property rights could have a material adverse effect upon the
Company's business, financial condition or results of operations.
The European patent application for one of the patented CMOS stabilization
methods owned by the Company was abandoned by the prior owner after the European
patent examiner cited prior art. This prior art was not referenced in the
corresponding United States patent application. Based upon its review to date of
the cited prior art and the European examiner's objections, and in part upon the
advice of Smith-Hill and Bedell, P.C., general patent counsel to the Company
("SHB"), the Company believes that such prior art is unlikely to affect the
validity or scope of the claims of the United States issued patent.
This prior art may, however, render invalid or significantly narrow the scope
of certain claims set forth in the United States patent covering the Company's
other patented CMOS stabilization method. The European examiner referred to this
prior art in the corresponding European patent application. The European
application was approved, but with significantly narrower claims than the United
States patent. This prior art was not referenced in the corresponding United
States patent. Based in part upon the advice of SHB, and on the Company's review
of its current products, the Company believes that this patent will continue to
be valuable to the Company in preventing imitation of the Company's products
covered by this patent. Additionally, in mid-1992, a third party suggested that
certain claims set forth in this patent might be invalid as a result of other
alleged prior art. The Company believes that, based in part upon the advice of
SHB, the prior art alleged by the third party is less relevant than the prior
art referenced by the European examiner. However, there can be no assurance that
any of the aforementioned prior art or other prior art will not be successfully
asserted and used to invalidate or narrow the scope of any claim of the United
States patents or the corresponding Japanese patent applications or any other
patents or other patent applications of the Company.
Although there are no pending lawsuits against the Company regarding
infringement claims with respect to any existing patents or any other
intellectual property rights, the Company has been involved in extensive,
expensive and time consuming litigation regarding patent infringement claims. In
addition, the Company has at times been notified of other claims that it may be
infringing intellectual property rights possessed by third parties. Certain of
the Company's customers have received notices of infringement from Jerome
Lemelson alleging that the manufacture of semiconductor products and/or the
equipment used to manufacture semiconductor products infringes certain patents
issued to such person. The Company was notified by a customer in 1990 and a
different customer in late 1994 that the Company may be obligated to defend or
settle claims that the Company's products infringe such person's patents, and,
in the event it is subsequently determined that the customer infringes such
person's patents, such customer intends to seek reimbursement from the Company
for damages and other related expenses. Furthermore, there can be no assurance
that infringement claims by third parties or other claims for indemnification
resulting from infringement claims in the future will not be asserted, or that
such assertions, if proven to be true, will not materially adversely affect the
Company's business, financial condition or results of operations, regardless of
the outcome of any litigation. With respect to any claims, the Company may seek
to obtain a license under the third party's intellectual property rights. There
can be no assurance, however, that a license will be available on reasonable
terms or at all. The Company could decide, in the alternative, to resort again
to litigation to challenge such claims. Such challenge has been and could be
extremely expensive and time consuming, and could materially adversely affect
the Company's business, financial condition or results of operations, regardless
of the outcome of any litigation.
-16-
<PAGE>
Acquisitions
- - ------------
The Company has developed in significant part through mergers and
acquisitions. The Company may in the future pursue acquisitions of complementary
product lines, technologies or businesses. Future acquisitions by the Company
could result in potentially dilutive issuances of equity securities, the
incurrence of debt and contingent liabilities, expenditures and reserves, and
amortization expenses related to goodwill and other intangible assets, which
could materially adversely affect any Company profitability. In addition,
acquisitions involve numerous risks, including difficulties in the assimilation
of the operations, technologies and products of the acquired companies, the
diversion of management's attention from other business concerns, risks of
entering markets in which the Company has no or limited direct prior experience,
and the potential loss of key employees of the acquired company. From time to
time, the Company has engaged in and may continue to engage in discussions with
third parties concerning potential acquisitions of product lines, technologies
and businesses; however, there are currently no commitments or agreements with
respect to any such acquisition. In the event that such an acquisition does
occur, however, there can be no assurance as to the effect thereof on the
Company's business, financial condition or results of operations.
Future Capital Needs
- - --------------------
The development and manufacture of new ATE systems and enhancements are highly
capital intensive. In order to be competitive, the Company must make significant
investments in capital equipment, expansion of operations, systems, procedures
and controls, research and development and worldwide training, customer service
and support, among many items. The Company expects that cash on hand, short-term
investments, its bank line of credit, anticipated cash flow from operations and
equipment lease arrangements will satisfy its financing requirements for at
least the next 12 months.
Volatility of Stock Price
- - -------------------------
The Company believes that factors such as announcements of developments
related to the Company's business, fluctuations in the Company's financial
results, general conditions or developments in the semiconductor and capital
equipment industry and the general economy, sales of the Company's common stock
into the marketplace, an outbreak of hostilities, natural disasters,
announcements of technological innovations or new products or enhancements by
the Company or its competitors, developments in patents or other intellectual
property rights, developments in the Company's relationships with its customers
and suppliers, or a shortfall or changes in revenue, gross margin or earnings or
other financial results from analysts' expectations could cause the price of the
Company's common stock to fluctuate, perhaps substantially. In recent years the
stock market in general, and the market for shares of small capitalization
stocks in particular, including the Company, have experienced extreme price
fluctuations, which have often been unrelated to the operating performance of
affected companies. There can be no assurance that the market price of the
Company's common stock will not continue to experience significant fluctuations
in the future, including fluctuations that are unrelated to the Company's
performance.
-17-
<PAGE>
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The Company filed suit against Micro Component Technology, Inc. ("MCT") in the
United States District Court for the Northern District of California on July 6,
1994. The complaint alleges that MCT is infringing United States Patent No.
4,724,378 owned by the Company for a "Calibrated Automatic Test System" (the
"Credence Patent"). The Company seeks both injunctive relief and monetary
damages. On January 4, 1995, MCT answered the complaint, denying infringement
and alleging as a defense that the Credence Patent is invalid and unenforceable.
MCT further alleged that it had sold all of its rights to the allegedly
infringing product to Megatest Corporation ("Megatest"). Accordingly, on January
30, 1995, the Company filed a motion to amend its complaint to add Megatest as a
defendant, seeking injunctive relief and monetary damages. On March 22, 1995,
the Court granted the Company's motion to amend its complaint. Megatest answered
the amended complaint on April 24, 1995, denying the claim of infringement and
asserting a counterclaim for declaratory judgment, declaring that it has not
infringed and that the Credence Patent is invalid and unenforceable. On May 25,
1995, Credence and MCT executed a settlement agreement pursuant to which MCT has
paid a royalty for past sales and agreed to the entry of an injunction against
it regarding the Credence Patent. On February 21, 1996, the Company filed a
motion to enforce the terms of a negotiated settlement between the Company and
Megatest, which motion was denied by the Court after a hearing on April 12,
1996. Accordingly, the Company is pursuing its infringement claim against
Megatest.
ITEM 2. CHANGES IN SECURITIES
None
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITYHOLDERS
The following proposals were voted upon by the Company's stockholders at the
Annual Meeting of Stockholders held on March 27, 1996:
1. The following persons were elected as directors of the Company to serve for
a term ending upon the Annual Stockholders' Meeting in 1999 or until their
successors are elected and qualified:
Votes
Votes For Withheld
---------- ---------
Wilmer R. Bottoms 17,671,414 1,005,118
James T. Healy 17,672,795 1,004,107
2. A proposal to increase the number of shares of Common Stock authorized for
issuance under the Company's Certificate of Incorporation by an additional
10,000,000 shares to a total of 40,000,000 shares of Common Stock was approved
as follows:
In Favor Opposed Withheld Broker Non-Votes
-------- ------- -------- ----------------
18,389,872 174,179 21,601 91,250
-18-
<PAGE>
3. A proposal to amend the Company's 1993 Stock Option Plan to increase the
number of shares reserved for issuance thereunder by an additional 500,000
shares and an increase in the number of shares of Common Stock for which
automatic option grants are to be made annually to continuing non-employee
Board members from 2,500 shares to 3,500 shares was approved as follows:
In Favor Opposed Withheld Broker Non-Votes
-------- ------- -------- ----------------
16,212,765 2,340,893 31,994 91,250
4. A proposal to ratify the election of Ernst & Young LLP, as the Company's
independent auditors for the fiscal year ending October 31, 1996 was approved
as follows:
In Favor Opposed Withheld
-------- ------- --------
18,575,659 80,645 20,598
ITEM 5. OTHER INFORMATION
None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) See Exhibit Index on page 22.
(b) No reports on Form 8-K have been filed during the quarter ended
April 30, 1996.
-19-
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934, as
amended, the registrant duly caused this Report to be signed on its behalf by
the undersigned thereunto duly authorized.
CREDENCE SYSTEMS CORPORATION
----------------------------
(Registrant)
June 13, 1996 RICHARD Y. OKUMOTO
- - -------------------------- ----------------------------
Date Richard Y. Okumoto
Senior Vice President,
Chief Financial Officer
and Secretary
-20-
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER PAGE
- - ------- ----
<C> <S> <C>
3.1 Amended and Restated Certificate of Incorporation of the Company....
10.1 Amendment to Loan and Security Agreement between Silicon Valley
Bank and Credence Systems Corporation dated April 10, 1996..........
10.2 Master Lease Purchase Agreement, Lease Purchase Closing Schedule
and Lease Purchase Addendum No. One between Metlife Capital
Corporation and the Company dated April 30, 1996....................
11.1 Computation of Net Income Per Share.................................
27.1 EDGAR Financial Data Schedule.......................................
99.1 1993 Stock Option Plan, as amended..................................
99.2 Form of Notice of Grant of Initial Stock Option (Non-Employee
Director) to be generally used in connection with the automatic
option grant program of the 1993 Stock Option Plan, as amended......
99.3 Form of Notice of Grant of Annual Stock Option (Non-Employee
Director) to be generally used in connection with the automatic
option grant program of the 1993 Stock Option Plan, as amended......
99.4 Form of Stock Option Agreement (Non-Employee Director) to be
generally used in connection with the automatic option grant
program of the 1993 Stock Option Plan, as amended...................
</TABLE>
-21-
<PAGE>
EXHIBIT 3.1
AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION
OF
CREDENCE SYSTEMS CORPORATION
James T. Healy and Richard Y. Okumoto certify that they are the President
and Secretary, respectively, of Credence Systems Corporation, a Delaware
corporation, and further certify that:
I. The Restated Certificate of Incorporation of this corporation is hereby
amended and restated to read in its entirety as follows:
1
-
The name of the corporation is CREDENCE SYSTEMS CORPORATION. The
corporation was incorporated in the State of Delaware on August 4, 1993.
ARTICLE 2
---------
The address of the corporation's registered office in the State of Delaware
is 32 Loockerman Square, Suite L-100, in the City of Dover, County of Kent. The
name of the corporation's registered agent at such address is The Prentice-Hall
Corporation System, Inc.
ARTICLE 3
---------
The nature of the business or purpose to be conducted or promoted of the
corporation is to engage in any lawful act or activity for which corporations
may be organized under the General Corporation Law of Delaware.
ARTICLE 4
---------
The total number of shares of stock that the corporation shall have
authority to issue is 41,000,000 shares, which shall be divided into two classes
as follows: (a) 40,000,000 shares of Common Stock, $0.001 par value per share
("Common Stock"), and (b) 1,000,000 shares of Preferred Stock, $0.001 par value
per share ("Preferred Stock").
The Preferred Stock may be issued from time to time in series. Subject to
the protective voting rights which may be granted to the Preferred Stock or
series thereof in Certificates of Determination or the corporation's Certificate
of Incorporation ("Protective Provisions"), the Board of Directors is hereby
authorized to fix or alter the rights, preferences, privileges and restrictions
granted to or imposed upon series of Preferred Stock, and the number of shares
constituting any such series and the designation thereof, or of any of them.
1.
<PAGE>
Subject to compliance with applicable Protective Provisions, but notwithstanding
any other rights of the Preferred Stock or any series thereof, the rights,
privileges, preferences and restrictions of any such series may be subordinated
to, pari passu with (including, without limitation, inclusion in provisions with
----------
respect to liquidation and acquisition preferences, redemption and/or approval
of matters by vote or written consent), or senior to any of those of any present
or future class or series of Preferred or Common Stock. Subject to compliance
with applicable Protective Provisions, the Board of Directors is also authorized
to increase or decrease the number of shares of any series, prior or subsequent
to the issue of that series, but not below the number of shares of such series
then outstanding. In case the number of shares of any series shall be so
decreased, the shares constituting such decrease shall resume the status which
they had prior to the adoption of the resolution originally fixing the number of
shares of such series.
The corporation shall not declare or pay any dividend with respect to the
Common Stock without the prior approval of the holders of a majority of the
outstanding shares of the Preferred Stock and the affirmative vote of a majority
of the corporation's Directors.
ARTICLE 5
---------
5.1.1 Limitation of Directors' Liability. A director of this corporation
-----------------------------------
shall not be personally liable to this corporation or its stockholders for
monetary damages for breach of fiduciary duty as a director, except for
liability (a) for any breach of the director's duty of loyalty to this
corporation or its stockholders, (b) for acts or omissions not in good faith or
which involve intentional misconduct or a knowing violation of law, (c) under
Section 174 of the General Corporation Law of the State of Delaware, or (d) for
any transaction from which the director derived any improper personal benefit.
5.1.2 Indemnification of Corporate Agents. To the fullest extent
------------------------------------
permitted by applicable law, this corporation is also authorized to provide
indemnification of (and advancement of expenses to) such agents (and any other
persons to which Delaware law permits this corporation to provide
indemnification) through Bylaw provisions, agreements with such agents or other
persons, vote of stockholders or disinterested directors or otherwise, in excess
of the indemnification and advancement otherwise permitted by Section 145 of the
General Corporation Law of the State of Delaware, subject only to limits created
by applicable Delaware law (statutory or non-statutory), with respect to actions
for breach of duty to this corporation, its stockholders, and others.
5.1.3 Repeal or Modification. Any repeal or modification of the
----------------------
foregoing provisions of this Article 5 shall not adversely affect any right of
indemnification or limitation of liability of an agent of this corporation
relating to the acts or omissions occurring prior to such repeal or
modification.
ARTICLE 6
---------
Except as otherwise provided in this Amended and Restated Certificate of
Incorporation, in furtherance and not in limitation of the powers conferred by
statute, the Board of Directors is expressly authorized to make, repeal, alter,
amend and rescind any or all of the Bylaws of the corporation.
2.
<PAGE>
ARTICLE 7
---------
The number of directors of the corporation shall be fixed from time to time
by a bylaw or amendment thereof duly adopted by the Board of Directors or by the
stockholders.
ARTICLE 8
---------
Elections of directors need not be by written ballot unless the Bylaws of
the corporation shall so provide. At each annual meeting of stockholders,
directors of the corporation shall be elected to hold office until the
expiration of the term for which they are elected, and until their successors
have been duly elected and qualified; except that if any such election shall not
be so held, such election shall take place at a stockholders' meeting called and
held in accordance with the Delaware General Corporation Law. The directors of
the corporation shall be divided into three classes as nearly equal in size as
is practicable, hereby designated Class I, Class II and Class III. For the
purposes hereof, the initial Class I, Class II and Class III directors shall be
those directors so designated and elected at the corporation's 1994 Annual
Meeting of Stockholders. At the first annual meeting of stockholders following
the initial election and designation of directors into classes, the term of
office of the Class I directors shall expire and Class I directors shall be
elected for a full term of three years. At the second annual meeting of
stockholders following the initial election and designation, the term of office
of the Class II directors shall expire and Class II directors shall be elected
for a full term of three years. At the third annual meeting of stockholders
following the initial election and designation, the term of office of the Class
III directors shall expire and Class III directors shall be elected for a full
term of three years. At each succeeding annual meeting of stockholders,
directors shall be elected for a full term of three years to succeed the
directors of the class whose terms expire at such annual meeting. If the number
of directors is hereafter changed, any newly created directorships or decrease
in directorships shall be so apportioned among the classes as to make all
classes as nearly equal in number as is practicable.
The number of directors which constitute the whole board of directors of
the corporation shall be designated in the bylaws of the corporation. Vacancies
occurring on the board of directors for any reason may be filled by vote of a
majority of the remaining members of the board of directors, although less than
a quorum, at any meeting of the board of directors. A person so elected by the
board of directors to fill a vacancy shall hold office until the next succeeding
annual meeting of stockholders of the corporation and until his or her successor
shall have been duly elected and qualified.
3.
<PAGE>
ARTICLE 9
---------
Stockholders of the corporation shall have no right to take any action by
written consent without a meeting. Meetings of stockholders may be held within
or without the State of Delaware, as the Bylaws may provide. The books of the
corporation may be kept (subject to any provision contained in the statutes)
outside the State of Delaware at such place or places as may be designated from
time to time by the Board of Directors or in the Bylaws of the corporation.
ARTICLE 10
----------
The corporation reserves the right to amend, alter, change or repeal any
provision contained in this Amended and Restated Certificate of Incorporation,
in the manner now or hereafter prescribed by statute, and all rights conferred
upon stockholders herein are granted subject to this reservation.
II. The foregoing Amended and Restated Certificate of Incorporation has
been duly adopted by the corporation's Board of Directors and its stockholders
in accordance with the applicable provisions of Sections 222, 242 and 245 of the
General Corporation Law of the State of Delaware.
4.
<PAGE>
IN WITNESS WHEREOF, the undersigned have executed this certificate on
March ____, 1996.
----------------------------------
James T. Healy, President
----------------------------------
Richard Y. Okumoto, Secretary
The undersigned certify under penalty of perjury that they have read the
foregoing Amended and Restated Certificate of Incorporation and know the
contents thereof, and that the statements therein are true.
Executed at Fremont, California, on March, ____ 1996.
----------------------------------
James T. Healy, President
----------------------------------
Richard Y. Okumoto, Secretary
5.
<PAGE>
EXHIBIT 10.1
AMENDMENT TO
LOAN AND SECURITY AGREEMENT
This Amendment to Loan and Security Agreement is entered into as of April
10, 1996 by and among Credence Systems Corporation ("Borrower"), Silicon Valley
Bank ("SVB") and Comerica Bank-California ("Comerica" and, together with SVB,
the "Banks").
RECITALS
Borrower and Banks are parties to that certain Loan and Security Agreement
dated as of April 28, 1995, as amended from time to time (the "Agreement"). The
parties desire to amend the Agreement in accordance with the terms of this
Amendment.
NOW, THEREFORE, the parties agree, effective as of the date of this
Amendment, as follows:
1. The following definition in Section 1.1 is amended to read as follows:
"Maturity Date" means July 28, 1996.
2. The promissory notes issued pursuant to the Agreement are amended to
provide that the entire principal amounts due under such notes shall be due and
payable on July 28, 1996.
3. As a condition to the effectiveness of this Amendment, Borrower shall
pay Banks a fee equal to Eighteen Thousand Seven Hundred Fifty Dollars ($18,750)
plus all Banks' expenses incurred in connection with the preparation of this
Amendment.
4. Unless otherwise defined, all capitalized terms in this Amendment shall
be as defined in the Agreement. Except as amended, the Agreement remains in full
force and effect.
5. Borrower represents and warrants that the Representations and
Warranties contained in the Agreement are true and correct as of the date of
this Amendment (except such representations and warranties to be expressly true
as of a specific date), and that after giving effect to the Amendment, no Event
of Default has occurred and is continuing.
6. This Amendment may be executed in two or more counterparts, each of
which shall be deemed an original, but all of which together shall constitute
one instrument.
IN WITNESS WHEREOF, the undersigned have executed this Amendment as of the
first date above written.
CREDENCE SYSTEMS CORPORATION
By: _______________________________
Title: ____________________________
COMERICA BANK-CALIFORNIA SILICON VALLEY BANK
By: _______________________________ By: _______________________________
Title: ____________________________ Title: ____________________________
<PAGE>
CORPORATE RESOLUTIONS TO BORROW
- - --------------------------------------------------------------------------------
Borrower: Credence Systems Corporation
- - --------------------------------------------------------------------------------
I, the undersigned Secretary or Assistant Secretary of Credence Systems
Corporation (the "Corporation"), HEREBY CERTIFY that the Corporation is
organized and existing under and by virtue of the laws of the State of Delaware.
I FURTHER CERTIFY that at a meeting of the Directors of the Corporation (or
by other duly authorized corporate action in lieu of a meeting), duly called and
held, at which a quorum was present and voting, the following resolutions were
adopted.
BE IT RESOLVED, that ANY ONE (1) of the following named officers,
employees, or agents of this Corporation, whose actual signatures are shown
below:
NAMES POSITIONS ACTUAL SIGNATURES
________________________ ______________________ _________________________
________________________ ______________________ _________________________
________________________ ______________________ _________________________
________________________ ______________________ _________________________
________________________ ______________________ _________________________
acting for an on behalf of this Corporation and as its act and deed be, and they
hereby are, authorized and empowered:
BORROW MONEY. To borrow from time to time from Comerica Bank-California and
Silicon Valley Bank ("Banks"), on such terms as may be agreed upon between the
officers, employees, or agents and Banks, such sum or sums of money as in their
judgment should be borrowed, without limitation, including such sums as are
specified in that certain Amendment to Loan and Security Agreement dated as of
April 10, 1996 (the "Loan Agreement").
EXECUTE NOTES. To execute and deliver to Banks the promissory note or notes
of the Corporation, on each Bank's forms, at such rates of interest and on such
terms as may be agreed upon, evidencing the sums of money so borrowed or any
indebtedness of the Corporation to Banks, and also to execute and deliver to
Lender one or more renewals, extensions, modifications, refinancings,
consolidations, or substitutions for one or more of the notes, or any portion of
the notes.
GRANT SECURITY. To grant a security interest to Banks in the Collateral
described in the Loan Agreement, which security interest shall secure all of the
Corporation's Obligations, as described in the Loan Agreement.
NEGOTIATE ITEMS. To draw, endorse, and discount with Banks all drafts,
trade acceptances, promissory notes, or other evidences of indebtedness payable
to or belonging to the Corporation or in which the Corporation may have an
interest, and either to receive cash for the same or to cause such proceeds to
be credited to the account of the Corporation with Banks, or to cause such other
disposition of the proceeds derived therefrom as they may deem advisable.
LETTERS OF CREDIT. To execute letter of credit application and other
related documents pertaining to SVB's issuance of letters of credit.
FOREIGN EXCHANGE CONTROLS. To request any Bank to enter into foreign
exchange contracts on its behalf.
<PAGE>
FURTHER ACTS. In the case of lines of credit, to designate additional or
alternate individuals as being authorized to request advances thereunder, and in
all cases, to do and perform such other acts and things, to pay any and all fees
and costs, and to execute and deliver such other documents and agreements as
they may in their discretion deem reasonably necessary or proper in order to
carry into effect the provisions of these Resolutions.
BE IT FURTHER RESOLVED, that any and all acts authorized pursuant to these
resolutions and performed prior to the passage of these resolutions are hereby
ratified and approved, that these Resolutions shall remain in full force and
effect and Banks may rely on these Resolutions until written notice of their
revocation shall have been delivered to and received by Banks. Any such notice
shall not affect any of the Corporation's agreements or commitments in effect at
the time notice is given.
I FURTHER CERTIFY that the officers, employees, and agents named above are
duly elected, appointed, or employed by or for the Corporation, as the case may
be, and occupy the positions set forth opposite their respective names; that the
foregoing Resolutions now stand of record on the books of the Corporation; and
that the Resolutions are in full force and effect and have not been modified or
revoked in any manner whatsoever.
I FURTHER CERTIFY that attached hereto are true and correct copies of the
Certificate of Incorporation and Bylaws of the Corporation.
IN WITNESS WHEREOF, I have hereunto set my hand on April __, 1996 and
attest that the signatures set opposite the names listed above are their genuine
signatures.
CERTIFIED TO AND ATTESTED BY:
X
________________________________________________________________________________
________________________________________
<PAGE>
EXHIBIT 10.2
LEASE PURCHASE CLOSING SCHEDULE
LESSEE NAME: CREDENCE SYSTEMS CORPORATION
-------------------------------
LEASE NO.: 2010096
-------------------------------
DATED: April 30, 1996
-------------------------------
SCHEDULE NO.: 001
-------------------------------
CLOSING DATE: April 30, 1996
-------------------------------
1. DESCRIPTION OF EQUIPMENT:
NEW FURNITURE, SCOPES, SHELVING, PHONE SYSTEMS AND OTHER TESTING EQUIPMENT
TOGETHER WITH ALL ACCESSIONS, ADDITIONS AND ATTACHMENTS THERETO AND
REPLACEMENTS THEREOF, MORE COMPLETELY DESCRIBED ON THE ATTACHED EXHIBIT "A"
HEREIN INCORPORATED BY THIS REFERENCE.
2. LOCATION OF EQUIPMENT: (Lessee agrees that the Equipment will at all times
remain in the possession and control of Lessee at the location(s) specified
below, and will not be removed without Lessor's prior written consent.)
42808 Christy Street 9000 SW Nimbus Ave
Fremont, CA 94538 Beaverton, OR 97008
3. TOTAL EQUIPMENT COST: 1,500,000.00
------------
4. PERIODIC RENT:
The total sum of $1,499,842.56
-------------
Dollars in THIRTY-SIX (36) installments of 31,246.72
--------------- ---------
Dollars each, payable commencing on May 30, 1996
------------
and at Monthly intervals thereafter.
-------
5. PURCHASE, SALE AND RENEWAL OPTIONS:
(a) On the last date of the Lease Term, Lessee may purchase for cash all
but not less than all of the equipment then under lease for a
price equal to 42.433% of Equipment Cost.
(b) If LESSEE elects not to purchase the Equipment pursuant to (a) above,
then LESSEE shall sell the equipment in a commercially reasonable
manner, or, at LESSOR'S option, assuming Lessee has exercised its
option to sell, the Equipment will be sold by LESSOR as agent for
LESSEE. In no event will Lessee sell the Equipment for less than
42.433% of Equipment Cost without Lessor's prior written consent. All
net proceeds of sale shall be paid to Lessor; provided however, that if
the net proceeds of sale exceed 42.433% of Equipment Cost, such excess
shall be paid to Lessee; provided further however, that if the net
proceeds of sale are less than 42.433% of Equipment Cost, Lessee shall
pay to Lessor the difference to a maximum of 29.626% Equipment Cost.
(c) If neither purchase or sale options are exercised in accordance with
Sections (a) or (b) above, then on the last date of the term the Lease
will be renewed for a period of Twelve (12) months at a rental payment
equal to 2.08311% of Equipment Cost payable monthly in ARREARS.
(d) Assuming the Lease is renewed pursuant to (c), on the last date of
renewal term, Lessee shall have the option to purchase all but not less
than all of the Equipment then under Lease for a price equal to 20% of
Equipment Cost.
(e) If Lessee does not exercise the purchase option referred to in Section
(d) above, then the Equipment will be sold by Lessee, or at Lessor's
option by Lessor as agent for Lessee, in a commercially reasonable
manner, but in no event will lessee sell the Equipment for less than
20% of Equipment Cost without Lessor's prior written consent. The net
proceeds of sale shall be paid to Lessor; provided however, that if the
net proceeds exceed 20% of Equipment Cost, then the excess shall be
paid to Lessee; provided further however, that if the net proceeds are
less than 20% of Equipment Cost, then lessee shall pay the difference
to lessor to a maximum of 6.11% of Equipment Cost.
6. INSURANCE REQUIRED (All policies to require at least 30 days' notice of
cancellation to Lessor):
a. Combined Single Limit Liability, including bodily injury and property
damage, of not less than 1,000,000.00 naming Lessor as additional
------------
insured.
b. All risk physical damage, including burglary and theft, for the full
replacement value of the equipment, based on the original cost of
1,500,000.00 and Loss Payable Endorsement naming Lessor as loss payee.
------------
7. EARLY TERMINATION:
For purposes of calculating the Prepayment Fee as defined in the Lease Purchase
Addendum No. One, the weekly average yield of Three(3) year U.S. Treasury Notes
is 5.98% as of April 4, 1996.
<PAGE>
8. STIPULATED LOSS VALUES:
First Year: 100.00%
Second Year: 82.31%
Third Year: 63.15%
Accepted and agreed this 30th day of April, 1996 as Schedule No. 001 to that
certain Master Lease Purchase Agreement dated April 30, 1996 by and between the
parties hereto.
LESSOR: LESSEE:
METLIFE CAPITAL CORPORATION CREDENCE SYSTEMS CORPORATION
----------------------------
By: By:
--------------------
Its: Vice President Its:
--------------------
By: Its:
<PAGE>
METROPOLITAN LIFE
AND AFFILIATED COMPANIES
MASTER LEASE PURCHASE AGREEMENT
METLIFE CAPITAL CORPORATION
THIS AGREEMENT is entered into the _________________________________ day of
____________________________,19__________ between METLIFE CAPITAL CORPORATION
("Lessor") whose address is 10900 N.E. 8th Street, mailing address C-97550,
Bellevue, Washington 98009 and Credence Systems Corporation ("Lessee")
----------------------------
whose address
is 42808 Christy Street, Fremont CA 94538
--------------------------------------
Lessor and Lessee from time to time may enter into written agreements in the
form of "Lease Purchase Addenda" for the leasing of equipment by Lessor to
Lessee. To facilitate such transactions, Lessor and Lessee are entering into
this Master Lease Purchase Agreement (the "Master Lease"), the terms and
provisions of which shall be incorporated by reference in each such Lease
Purchase Addendum, and they MUTUALLY AGREE AS FOLLOWS:
1. LEASE PURCHASE ADDENDUM
If Lessor agrees to lease equipment when requested by Lessee, the parties shall
sign a Lease Purchase Addendum ("Addendum") setting forth the particulars
regarding the transaction, including, without limitation, the list of items of
equipment (individually, an "Item" and, collectively, the "Equipment"), the
prices of each Item (including disclosure of all rebates, discounts and other
incentives received or receivable with respect thereto), "Related Costs",
including taxes, transportation, installation and other applicable costs, the
aggregate of the foregoing ("Total Cost"), length of the Basic Term, rental
rates, purchase and renewal options, if any, and other applicable provisions.
"Cost of an Item" shall mean the price of the Item plus its applicable portion
of Related Costs. In the absence of a signed Addendum, this Master Lease shall
not constitute a lease or a commitment by either party to enter into a lease.
2. REQUEST TO LEASE; EQUIPMENT ACCEPTANCE
(a) REQUEST; SPECIFICATIONS. Signing an Addendum shall constitute the
request from Lessee to Lessor to lease the Equipment, and the Addendum and this
Master Lease shall constitute the lease and agreement (the "Lease") regarding
the Equipment. As security for all obligations of Lessee to Lessor now existing
or hereafter arising under this Lease, Lessee grants Lessor a security interest
in all Equipment. At the time of signing the Addendum, Lessee shall furnish
Lessor detailed specifications ("Specifications") of the Items, including
descriptions, prices, delivery terms and instructions, installation provisions
and all other applicable specifications. Lessee assumes full responsibility with
respect to the selection of Items supplied for lease and the specification
thereof: the Lessor shall have no liability or responsibility with respect
thereto regardless of whether the Specifications prove inadequate for the
intended purpose or use.
(b) INSPECTION; ACCEPTANCE. It is Lessee's responsibility to receive and
promptly inspect and test each Item tendered for delivery by a supplier and the
installation thereof. Lessee shall give Lessor written notice of acceptance of
an Item as soon as it can be determined that the Item and its installation are
in compliance with Specifications. As between Lessee and Lessor, the giving of
such written notice shall constitute Lessee's irrevocable acceptance of the Item
or Items designated in the notice, whether or not such Items or their
installation are defective in any respect, and notwithstanding any failure of an
Item or its installation to conform to Specifications, without prejudice however
to rights which Lessor and Lessee, or either of them, may have against any other
person, whether with respect to design, manufacture, condition or otherwise.
(c) PURCHASE CUT-OFF DATE. lf, by the "Purchase Cut-Off Date" set forth in
an Addendum, Lessee shall not have given Lessor written notice of acceptance of
an Item, Lessor shall have no obligation to lease the Item to Lessee. In such
event, Lessee shall immediately pay all accrued Interim Rental and reimburse
Lessor for all sums Lessor may have paid for with respect to the Item and for
all Lessor's costs and expenses with respect thereto, and Lessee shall indemnity
and defend Lessor against and hold Lessor harmless from any and all cost,
expense, loss, liability and damage that Lessor may suffer or that may be
asserted against Lessor by reason of Lessor's failure or refusal to lease such
Item. Any such Item shall be deemed to be deleted from the Addendum and no
longer included in the Equipment.
(d) CONDITIONS PRECEDENT. Lessee shall deliver to Lessor such further
instruments, documents and certifications as Lessor reasonably may request,
including without limitation evidences of authority (e.g., corporate
certificates, corporate resolutions, partnership documents and authorizations),
evidence of insurance, purchase orders and acceptances thereof, purchase and
sale agreements and financial information, and instruments and documents to
implement, perfect or continue the perfection of Lessor's rights and remedies as
Lessor of the Equipment, including Uniform Commercial Code forms. Lessee's
delivery of the foregoing and of the Specifications are conditions precedent to
any obligation of Lessor to make any commitments to pay for the Equipment or any
Item.
(e) SUPPLEMENTAL LEASE REQUEST. IF at any time prior to the Closing Date
Lessee requests Lessor to add further Items to the Equipment, and if Lessor so
agrees, Lessee shall execute a Lease Purchase Addendum Supplement in a form
supplied by Lessor, which shall become part of the Addendum, subject to all of
its provisions and the provisions of this Master Lease, and the Equipment
specified therein shall be Items of Equipment under the Lease.
(f) CLOSING. Following the date ("Closing Date") which is the earlier of
(i) the date Lessee gives Lessor written notice of acceptance of the last item
or (ii) the Purchase Cut-Off Date (or on such other day as is mutually agreed),
Lessor shall send Lessee a Closing Schedule ("Schedule"), setting forth any
adjustments to descriptions and Costs of Items and Total Cost and confirming the
Closing Date, amount of Periodic Rental installments, payment schedules, and
insurance requirements. Lessee's signature on any such Schedule shall signify
the Lessee's agreement that the Schedule is correct. Notwithstanding any
discrepancies or disagreements between Lessor and Lessee regarding the
Schedules, Lessee shall pay all rentals as they become due in accordance with
the terms and conditions of the Lease. If Lessee establishes an error that
affects the amount of rentals, Lessor shall give Lessee a credit for any
overpayment of rentals, and Lessee promptly shall pay Lessor any underpayments.
The Schedules are incorporated herein by reference.
3. LESSEE'S WARRANTIES
(a) Lessee represents and warrants to Lessor that it is a corporation or
partnership duly organized, validly existing and in good standing under the laws
of the jurisdiction of its organization and that it is qualified to do business
in every jurisdiction where the failure to qualify would have a materially
adverse effect on Lessor's rights hereunder; it has taken all corporate or
partnership action which may be required to authorize the execution, delivery
and performance of this Lease, and such execution, delivery and performance will
not conflict with or violate any provision of its Charter or Articles or
Certificate of Incorporation, By-laws or any provisions thereof, or in the case
of a partnership, its Certificate of Partnership or Limited Partnership and its
Partnership Agreement, or result in a default or acceleration of any obligation
under any agreement, order, decree or judgment to which it is a party or by
which it is bound, nor is it now in default under any of the same; there is no
litigation or proceeding pending or threatened against it which may have a
materially adverse effect on Lessee or which would prevent or hinder the
performance by it of its obligations hereunder; this Lease and the attendant
documents constitute valid obligations of the Lessee, binding and enforceable
against it in accordance with their respective terms; no action by or with any
commission or administrative agency is required in connection herewith; it has
the power to own its assets and to transact business in which it is engaged; it
will give to Lessor prompt notice of any change in its name, identity or
structure.
(b) Lessee's written acceptance of an Item and its installation shall
constitute a REPRESENTATION AND WARRANTY BY Lessee to Lessor that: (i) THE Item
is personal property in good order and condition; (ii) the Item conforms to
Specifications; (iii) unless otherwise specified, the Item has not been used
prior to its acceptance by Lessee; and (iv) at all times Lessee shall keep the
Equipment in Lessee's possession at the address specified in the Addendum unless
Lessor shall otherwise consent in writing. Lessee shall not cause, suffer or
permit any Item to be attached or affixed to real property or improvements
thereon (collectively, "Realty") unless Lessor first shall consent thereto in
writing and Lessee shall have obtained from all persons having any interest in
the Realty written consents which approve such attachment, waive any claims to
or encumbrances upon attached Items and consent to the detachment and removal of
such Items at any time by Lessor or Lessee. Notwithstanding attachment of any
Items to Realty, all the Equipment at all times shall be and remain personal
property. Upon termination of Lessee's right to possession of the Equipment,
whether by expiration of the Term or otherwise, Lessee at its sole cost and
expense shall detach and remove the Equipment from the Realty and save Lessor
harmless from and indemnify and defend Lessor against any claim, demand, loss,
liability and damage arising from such detachment, removal or both.
4. TERM OF LEASE
The Term of the Lease ("Term") may consist of an "Interim Term" and a "Basic
Term." The Interim Term shall begin on the date that Lessee first gives Lessor
written notice of acceptance of an Item or written approval for partial payment,
whichever is earlier, and shall continue until the time the Basic Term begins.
The Basic Term shall begin on the
<PAGE>
Closing Date and shall continue for the length of the Basic Term set forth in
the Addendum.
5. INTERIM RENTAL
During the Interim Term, if any, Lessee shall pay rent monthly ("Interim
Rental"), on a calendar month basis, in an amount determined by Lessor by
applying the "Interim Rental Rate" set forth in the Addendum to portions of the
Total Cost then or from time to time as its prime rate, whether or not such rate
is applied by said bank to any then outstanding loans, changing with each
announced change of such prime rate. Lessee shall pay Lessor each installment
of Interim Rental on the fifteenth day after the end of such calendar month.
6. PERIODIC RENTAL
Lessee shall pay rent ("Periodic Rental") for the Basic Term in an amount
calculated by multiplying the Total Cost by the Periodic Rental Rate set forth
in the Addendum multiplied by the number of months constituting the length of
the Basic Term, Lessee shall pay installments of Periodic Rental to Lessor in
accordance with the payment schedule set forth in the Addendum.
7. LATE PAYMENT
If any installment of rent or other sum owing under the Lease shall not be paid
when due and shall remain unpaid for ten (10) days, Lessee shall pay Lessor a
late charge equal to five percent (5%) of the amount delinquent, but in no event
at a rate greater than limited by any applicable law. Such late charge is in
addition to and not in lieu of other rights and remedies Lessor may have.
8. INSURANCE
Lessee shall procure and continuously maintain and pay for (a) all risk
insurance against loss or damage to the Equipment for not less than the full
replacement value thereof naming Lessor as Loss Payee and (b) combined single
limit liability insurance, insuring Lessor and Lessee, all in such amounts and
against such risks and hazards as are set forth in the Addendum, with insurance
companies and pursuant to contracts or policies satisfactory to Lessor. All
contracts and policies shall include provisions for the protection of Lessor
notwithstanding any act or neglect of or breach or default by Lessee, shall
provide that proceeds of all insurance shall be payable first to Lessor to the
extent of its liability or interest as the case may be, shall provide that they
may not be modified, terminated or cancelled unless Lessor is given at least
thirty (30) days' advance written notice thereof, and shall provide that the
coverage is "primary coverage" for the protection of Lessee and Lessor
notwithstanding any other coverage carried by Lessee or Lessor protecting
against similar risks. Lessee shall promptly notify any appropriate insurer and
Lessor of each and every occurrence which may become the basis of a claim or
cause of action against the insureds and provide Lessor with all data pertinent
to such occurrence. Lessee shall furnish Lessor with certificates of such
insurance or copies of policies upon request, and shall furnish Lessor with
renewal certificates not less than ten (10) days prior to the renewal date.
9. TAXES
Lessee shall pay all taxes, fees, assessments and other governmental charges of
whatsoever kind or character and by whomsoever payable on or relating to any
Item of Equipment or the sale, purchase, ownership, use, value, value added,
possession, shipment, transportation, delivery or operation thereof or the
exercise of any option, election or performance of any obligation by Lessee
hereunder. which may accrue or be levied, assessed or imposed during the Term
and any Renewal Term or which remain unpaid as of the date of surrender of such
Item to Lessor, and all taxes of any kind imposed by any federal, state, local
or foreign taxing authority against Lessor on or measured by any amount payable
by Lessee hereunder, including, without limitation, all license and registration
fees and all sales, use, value, ad valorem, personal property, excise, gross
receipts, stamp or other taxes, imposts, duties and charges together with any
penalties, fines or interest thereon, except taxes of Lessor on net income
imposed by the United States or any state. Lessee shall reimburse Lessor for
any payments made by Lessor which are the obligation of Lessee under the Lease,
but Lessee shall not be obligated to pay any amount under this Section so long
as it shall in good faith and by appropriate proceeding contest the validity or
the amount thereof, unless such contest would adversely affect Lessor's interest
in any Item of Equipment or would subject any Item to forfeiture or sale.
Lessee shall indemnity Lessor on an after-tax basis against any loss, claim,
demand and expense, including legal expense, resulting from such nonpayment or
contest and further agrees to indemnity Lessor against any and all taxes,
assessments and other charges imposed upon Lessor under the laws of any federal,
state, local or foreign government or taxing authority, as a result of any
payment made by Lessee pursuant to this Section. Whenever this lease terminates
as to any Item, Lessee will on request advance to Lessor the amount estimated by
Lessor to equal personal property taxes on the Item which are not yet payable
but for which Lessee will afterward become liable hereunder: Lessor will account
to Lessee for such advances, On request of either Lessor or Lessee, the other
will submit written evidence of all payments required of it under this Section.
10. MAINTENANCE, ETC.
(a) Lessee at its expense at all times shall: (i) keep the Equipment in
good and efficient working order, condition and repair, ordinary wear and tear
excepted, and make all inspections and repairs, including replacement of worn
parts, to effect the foregoing and to comply with requirements of laws,
regulations, rules and provisions and conditions of insurance policies; and (ii)
pay all costs, expenses, fees and charges incurred in connection with the use or
operation of the Equipment and of each Item, including but not limited to
repairs, maintenance, storage and servicing. Lessee shall not make any
alterations, substitutions, improvements or additions to the Equipment or Items,
except those required in order to comply with laws, regulations, rules and
insurance policies, unless Lessor first shall have consented thereto in writing.
Notwithstanding any consent by Lessor, Lessee shall pay all costs and expenses
of the foregoing. All replacements, repairs, improvements, alterations,
substitutions and additions shall constitute accessions to the Equipment and
shall be subject to Lessor's security interest.
(b) Lessor hereby transfers and assigns to Lessee, for so long during the
Term and any RenewaI Term as Lessee is not in default, Lessor's right, title,
and interest in, under and to any assignable factory and dealer warranty,
whether express or implied, with respect to the Equipment. All claims and
actions upon any warranty shall be made and prosecuted by Lessee at its sole
cost and expense. Lessor shall have no obligation to make or prosecute any claim
upon or under a warranty. So long as Lessee shall not be in default, Lessor
shall cooperate with Lessee with respect to a claim on a non-assignable
warranty, at Lessee's expense. Lessee shall have proceeds of a warranty claim or
recovery paid to Lessor. Lessor shall make such proceeds available for any
repair, restoration or replacement to correct such warranted condition. Excess
proceeds shall be used to reduce Lessee's Lease obligations.
11. USE
So long as Lessee shall not be in default, Lessee shall be entitled to the
possession, use and quiet enjoyment of the Equipment during the Term and any
Renewal Term in accordance with the terms of the Lease. Lessee warrants that
the Equipment will at all times be used and operated solely in the conduct of
Lessee's business for the purpose for which it was designed and intended and
under and in compliance with applicable laws and all lawful acts, rules,
regulations and orders of any governmental bodies or officers having power to
regulate or supervise the use of such property, except that Lessee may in good
faith and by appropriate proceedings contest the application of any such rule,
regulation or order in any reasonable manner that will not adversely affect the
interest of Lessor in any Equipment or subject the same to forfeiture or sale.
Lessee will not permit its rights or interest hereunder to be subject to any
lien, charge or encumbrance and will keep the Equipment free and clear of any
and all liens, charges, encumbrances and adverse claims (except those arising
from acts of Lessor).
12. NET LEASE; LOSS AND DAMAGE
This is a net lease. Lessee assumes all risk of and shall indemnify Lessor
against all damage to and loss of the Equipment from any cause whatsoever,
whether or not such loss or damage is or could have been covered by insurance.
Except as otherwise specifically provided herein, the Lease shall not terminate
and there shall be no abatement, reduction, suspension or deferment of Interim
or Periodic Rental for any reason, including damage to or loss of the Equipment
or any one or more Items, Lessee promptly shall give Lessor written notice of
any material loss or damage, describing completely and in detail the cause and
the extent of loss and damage. At its option, Lessee shall: (i) repair or
restore the damaged or lost Items to good condition and working order; or (ii)
replace the damaged or lost Items with similar equipment in good condition and
working order; or (iii) pay Lessor in cash the Stipulated Loss Value of the
damaged or lost Items. Upon Lessee's complying with the foregoing, Lessor shall
pay or cause to be paid over to Lessee the net proceeds of insurance, if any,
with respect to such damage or loss. "Damage" and "loss" shall include damages
and losses of any kind whatsoever including, without limitation, physical damage
and partial or complete destruction, including intentionally caused damage and
destruction, and theft.
(b) If Lessee pays Lessor the Stipulated Loss Value for an Item, then the
Lease shall terminate with respect to that Item, that Item shall no longer be
deemed part of the Equipment and Lessee shall be entitled to retain the Item.
However, it is understood that Lessor makes no representation or warranty with
respect to the Item, and further that Lessor shall have no obligation to pay any
tax with respect thereto. In the event that Lessee pays Lessor the Stipulated
Loss Value for an Item, no further Interim Rental shall be payable with respect
to the Item, and Periodic Rental for the remainder of the Term shall be reduced
by multiplying the Cost of that Item by the Periodic Rental Rate by the number
of months then remaining in the Basic Term.
13. STIPULATED LOSS VALUE
The Stipulated Loss Value" of an Item shall be a sum computed by Lessor, which
is equal to that portion of the Cost of that Item which remains outstanding
presuming that Periodic Rental payments received are first applied to earned but
unpaid interest at the rental rate as specified in the Addendum. The Stipulated
Loss Value for the Equipment shall not exceed the amount set forth in the
Closing Schedule for the Lease Year during which the loss occurs, which amount
shall be pro-rated monthly effective to the month in which payment of the
Stipulated Loss Value is received by Lessor. A "Lease Year" is a twelve-month
period beginning on the Closing Date or on any anniversary thereof.
14. SECURITY INTEREST AND MARKING
(a) This lease is one intended as security and for tax purposes, both
parties will treat this transaction as a secured loan by Lessor to Lessee.
(b) If so requested by Lessor, Lessee will affix tags, supplied by Lessor,
reflecting Lessor's security interest in the Equipment.
15. LESSEE'S INDEMNITIES
Lessee will defend, indemnify and hold harmless Lessor from and against any
claim, cause of action, damage, liability, cost or expense (including but not
limited to legal fees and costs) which may be asserted against or incurred in
any manner by or for the account of Lessor or Lessee: (i) relating to the
Equipment or any part thereof, including without limitation the manufacture,
construction, purchase, delivery, acceptance or rejection, installation,
ownership, sale, leasing, removal or return of the Equipment, or as a result of
the use, maintenance, repair, replacement operation or the condition thereof
(whether defects are latent or discoverable); (ii) by reason or as a result of
any act or omission of Lessee for itself or as agent or attorney-in-fact for
Lessor hereunder; (iii) as a result of claims for patent, trademark or copyright
infringement; or (iv) as a result of product liability claims or claims for
strict liability.
<PAGE>
16. LESSOR MAY PERFORM
If Lessee at any time shall fail to pay to any person any sum which Lessee is
required by the Lease to pay or shall fail to do or perform any other thing
Lessee is required by the Lease to do or perform, Lessor at its option may pay
such or do or perform such thing, and Lessee shall reimburse Lessor on demand
for the amount of such payment and for the cost and expense which may be
incurred by -Lessor for such acts or performance, together with interest thereon
at the Default Rate from the date of demand until paid.
17. EVENTS OF DEFAULT AND REMEDIES
(a) EVENTS OF DEFAULT. Each of the following shall constitute an event of
default: (i) failure to perform and comply with the provisions and conditions of
Section 8 hereof, or (ii) failure to pay on the date when due, any sum,
including installments of rental, owed by Lessee or any affiliate of Lessee at
anytime to Lessor; (iii) failure to perform and comply with any other provision
or condition of the Lease within thirty (30) days after Lessor shall have given
Lessee written notice of default with respect thereto; or (iv) any event of
default occurs with respect to any obligations of Lessee to Lessor (or to any
affiliate of Lessor, including without limitation, MetLife Capital, Limited
Partnership and Metropolitan Life Insurance Company and their respective
affiliates and or subsidiaries) on or with respect to any transactions, debts,
undertakings or agreements other than the lease; or (v) if any representation or
warranty made by Lessee herein or in any statement or certificate furnished by
Lessee in connection with this Lease proves untrue in any material respect as of
the date of making thereof, and shall not be made good within thirty (30) days
after written notice thereof to Lessee, or Lessee becomes insolvent or is
generally not paying its debts as they become due or makes an assignment for
benefit of creditors or (vi) proceedings are commenced by Lessee under the
Federal Bankruptcy Code or any similar Federal or State laws for the relief of
debtors are commenced against Lessee and are not dismissed within sixty (60)
days after such commencement, or a trustee or receiver is appointed for Lessee
or a major part of its property and is not discharged within thirty (30) days
after such appointment; or (vii) any item of Equipment is seized or levied on
under legal or governmental process against Lessee or against such item of
Equipment or for any reason Lessor deems itself insecure; (viii) the merger.
consolidation, reorganization, conversion to a Subchapter "S" status or
dissolution of a corporate or partnership Lessee which has a materially adverse
effect upon Lessor s position under the Lease.
(b) REMEDIES. The occurrence of an Event of Default shall terminate any
obligation of Lessor to lease Equipment or Items thereof to Lessee. When an
Event of Default has occurred and is continuing, Lessor at its option may: (i)
proceed by appropriate court action or actions, either at law or in equity, to
enforce performance by the Lessee of the applicable covenants of this Lease or
to recover damages for the breach thereof; and or (ii) without notice or demand
declare immediately due and payable the entire Stipulated Loss Value of any and
all Items of Equipment then under lease plus any and all amounts which under the
terms of the Lease may be then due; and thereupon MetLife shall have an
immediate right to pursue all remedies provided by law, including, without
limitation, the following: (a) Lessee agrees to put Lessor in possession of the
Equipment on demand (b) Lessor is authorized to enter any premises where
Equipment is situated and take possession thereof without notice or demand and
without legal proceedings: (c) at Lessor's request, Lessee will assemble the
Equipment and make it available to Lessor at a place designated by Lessor which
is reasonably convenient to both parties; (d) Lessee agrees that ten (10) days
from the time notice is sent shall be a reasonable period of notification of a
sale or other disposition of the Equipment: (e) Lessee agrees to pay on demand
the amount of all expenses reasonably incurred by Lessor in protecting or
realizing on the Equipment; (f) it Lessor disposes of the Equipment, Lessee
agrees to pay any deficiency remaining after application of the net proceeds to
the amounts due hereunder.
If upon the occurrence of an Event of Default, Lessor brings suit or
otherwise incurs expenses for protection of Lessor's rights, Lessee will pay
Lessor its legal fees, in a reasonable amount, together with Lessor's collection
expenses and court costs. In addition, from and after an Event of Default,
Lessee shall be liable for interest on amounts due Lessor hereunder at a rate
per annum computed monthly which shall be five (5) percentage points above the
prime rate, but not greater than the maximum rate, if any, limited by applicable
law ("Default Rate")-, provided however, that Lessee shall not be assessed a
late charge during such period of time that the Default Rate is accruing against
Lessee as herein stated. The remedies herein provided in favor of Lessor shall
not be deemed to be exclusive but shall be concurrent and cumulative and in
addition to all other remedies available at law or equity. The exercise or
partial exercise of any remedy shall not restrict Lessor from further exercise
of that remedy or any other remedy.
18. SURRENDER
At any time that Lessee is required to deliver the Equipment to Lessor. Lessee
shall immediately cease using the Equipment and at Lessee's expense shall
redeliver and surrender the Equipment to Lessor in good order, condition and
repair, ordinary wear and tear excepted, securely crated and safely packed, at a
place to be designated by Lessor in the State where the Equipment by the terms
of the Addendum is required to be kept, and, if Lessor so specifies, loaded FOB
a common or contract carrier designated by Lessor.
19. HOLDOVER
If Lessee shall not immediately redeliver and surrender any Item of Equipment to
Lessor when required by the terms hereof, Lessee shall pay Lessor, at such time
or times as Lessor may demand, a sum equal to a one-month installment of
Periodic Rental for each calendar month or fraction of a month during which such
failure to redeliver and surrender continues.
20. INSPECTION; REPORTS
Lessor, its agents and employees shall have the right to enter upon any premises
where the Equipment or Items are then located to inspect and examine the same
during normal business hours and at any other times if Lessor reasonably
believes any Items or Lessor's rights are in jeopardy of damage or loss. So
long as Lessee is limitation damage or loss caused by accident, the elements,
intentional acts and theft. Such notice shall set forth an itemization of the
affected Items and a detailed account of the event, including names of any
injured persons and a description of any damaged property arising from any such
event or from any use or operation of the Equipment or any Items, and of any
attempt to take, distrain, levy upon, seize or attach the Equipment or any
Items. All rights granted to Lessor herein are for the benefit of Lessor and
shall not be construed to impose any obligation on Lessor, whether or not Lessor
makes any inspections or receives any reports.
21. FINANCIAL AND OTHER DATA
During the Term and any Renewal Term, Lessee: (a) shall furnish Lessor annual
balance sheets and profit and loss statements of Lessee and any guarantor of
Lessee's obligations accompanied, at Lessor's request, by the audit report of an
independent certified public accountant acceptable to Lessor; and (b) at
Lessor's request, shall furnish Lessor all other financial information and
reports reasonably requested by Lessor at any time, including quarterly or other
interim balance sheets and profit and loss statements of Lessee and any such
guarantor. Lessee shall furnish such other information as Lessor may reasonably
request at any times concerning Lessee and its affairs.
22. WARRANTY OF INFORMATION
Lessee warrants that all information furnished and to be furnished to Lessor is
accurate and that all financial statements it has furnished and hereafter may
furnish Lessor, including operating statements and statements of condition, are
and will be prepared in accordance with generally accepted accounting
principles, consistently applied, and reasonably reflect and will reflect, as of
their respective dates, results of the operations and the financial condition of
Lessee and of any other entity they purport to cover.
23. NON-WAIVER
Neither the acceptance by Lessor of any payment or any other performance, nor
any act or failure of Lessor to act or to exercise any rights, remedies or
options in any one or more instances shall constitute a waiver of any such
right, remedy or option or of any other then existing or thereafter accruing
right, remedy or option, or of any breach or default then existing or thereafter
occurring. No purported waiver by Lessor of any right, remedy, option, breach
or default shall be binding unless in writing and signed by an officer of
Lessor. A written waiver by Lessor of any right, remedy, option, breach or
default shall not constitute a waiver of any other then existing or thereafter
accruing right, remedy or option or of any other then existing or thereafter
occurring breach or default.
24. NOTICES; PAYMENTS
(a) A written notice may be given: (i) by delivering the same to a
corporate off icer of the party to whom it is directed (the "Addressee"), or to
a general partner if the Addressee is a partnership, or to the owner if the
Addressee is a sole proprietorship; or (ii) by mailing the notice to the
Addressee by first class mail, registered or certified, with postage prepaid,
addressed to the Addressee at the address following its name in the opening
paragraph of this Master Lease or to such other address as Addressee may specify
by notice in writing given in accordance with this Section. A notice so mailed
shall be deemed given on the third business day following the date of mailing, A
"business day" shall be any day that is not a Saturday or Sunday or legal
holiday.
(b) The Lessee shall make all payments to Lessor at the place where the
notice is to be mailed to Lessor pursuant to subparagraph (a). Payments are
deemed paid when received by Lessor.
25. ASSIGNMENT
(a) Lessee shall not assign the Lease or any rights in or to the Equipment
or Items. Any attempted assignment shall be of no effect, unless Lessor first
shall have consented thereto in writing. Lessor's consent to an assignment in
any one or more instances shall not impose any obligation upon Lessor to consent
to any other or further assignments. Lessor's consent to an assignment shall not
release Lessee from any obligations with respect to the Lease unless expressly
so stated in the written consent.
(b) All rights of Lessor hereunder may be assigned, pledged, mortgaged,
transferred or otherwise disposed of, either in whole or in part, without notice
to Lessee but subject always to the rights of Lessee under this Lease. If Lessee
is given notice of any such assignment, Lessee shall acknowledge receipt thereof
in writing. In the event that Lessor assigns this Lease or the rent due or to
become due hereunder or any other interest herein, whether as security for any
of its indebtedness or otherwise, no breach or default by Lessor hereunder or
pursuant to any other agreement between Lessor and Lessee, should there be one,
shall excuse performance by Lessee of any provision hereof, it being understood
that in the event of such default or breach by Lessor that Lessee shall pursue
any rights on account thereof solely against Lessor. No such assignee shall be
obligated to perform any duty, covenant or condition requested to be performed
by Lessor under the terms of this Lease.
26. SURVIVAL
The representations, warranties, indemnities and agreements of Lessee, and
Lessee's obligations under any and all provisions of the Lease, shall survive
the expiration or other termination of the Lease, shall be binding upon its
successors and assigns and are expressly made for the benefit of and shall be
enforceable by Lessor and its successors and assigns.
27. MISCELLANEOUS
(a) The term "Lessor" shall mean the Lessor named herein and its
successors and assigns.
(b) Whenever the context so requires, any pronoun gender includes all
other genders, and the singular includes the plural. If more than one person
constitute Lessee, whether as a partnership or otherwise, all such persons are
and shall be jointly and severally liable for all agreements, undertakings and
obligations of Lessee.
<PAGE>
(c) All captions and section, paragraph and other divisions and
subdivisions are for convenience of reference only and shall not affect the
construction, interpretation or meaning of the agreement or Lease or of any of
the provisions thereof.
(d) This Lease shall be governed by and construed according to the law of
the State of Washington.
(e) This Lease shall be binding upon and, except as limited in Section 25
hereof, shall inure to the benefit of Lessor and Lessee and their respective
successors and assigns.
(f) This Lease cannot be cancelled or terminated except as expressly
provided herein.
(g) Wherever Lessor's consent is required hereunder, such consent will not
be unreasonably withheld.
(h) Lessee's obligation to pay or reimburse Lessor for expenses as provided
hereunder shall be limited to reasonable expenses.
28. LESSOR'S DISCLAIMER
Lessee acknowledges and agrees that it has selected both the Equipment of the
type and quantity which is the subject of this Lease and the supplier from whom
the Equipment was purchased. LESSOR MAKES NO REPRESENTATION OR WARRANTY,
EXPRESS OR IMPLIED, AS TO THE DESIGN, COMPLIANCE WITH SPECIFICATIONS, CONDITION,
QUALITY, WORKMANSHIP, OR THE SUITABILITY, ADEQUACY, OPERATION, USE OR
PERFORMANCE OF THE EQUIPMENT OR AS TO ITS MERCHANTABILITY OR FITNESS FOR ANY
PARTICULAR PURPOSE. ANY DELAY IN DELIVERY SHALL NOT AFFECT THE VALIDITY OF THIS
LEASE. The Lessee understands and agrees that neither the supplier nor any
salesman or any agent of the supplier is an agent of Lessor. No salesman or
agent of supplier is authorized to waive or alter any term or condition of this
Lease, and no representation as to the Equipment or any other matter by the
supplier shall in any way affect Lessee's duty to pay the rent and perform its
obligations as set forth in this Lease. Lessor shall not be liable to Lessee
for any incidental, consequential, or indirect damages or for any act, neglect,
omission, breach or default by any third party.
29. NO AFFILIATION WITH SUPPLIERS
Lessee warrants that neither it nor any of its officers, directors (if a
corporation) or partners (if a partnership) has, directly or indirectly, a
substantial financial interest in the manufacturer or supplier of any Equipment
except as previously disclosed in writing to Lessor.
30. ENTIRE AGREEMENT
This Master Lease and any Lease Purchase Addenda hereto shall constitute the
entire agreement between the parties and shall not be altered or amended except
by an agreement in writing signed by the parties hereto or their successors or
assigns.
IN WITNESS WHEREOF Lessor and Lessee have signed this agreement as of the day
and year first hereinabove written.
LESSOR: LESSEE:
METLIFE CAPITAL CORPORATION Credence Systems Corporation
----------------------------
By By Richard Okumoto
------------------------------ -------------------------
Its Its Chief Financial Officer
------------------------------ -------------------------
<PAGE>
LEASE PURCHASE ADDENDUM NO. ONE
THIS ADDENDUM is entered into the 30TH day of April, 1996 between MetLife
Capital Corporation ("Lessor") whose mailing address is C-97550, Bellevue,
Washington 98009 and CREDENCE SYSTEMS CORPORATION ("Lessee") whose address is
42808 CHRISTY STREET, FREMONT, CA 94538.
Lessee has requested to lease from Lessor the following items of personal
property (individually, an "Item" and, collectively, the "Equipment") for the
prices and for delivery as follows:
<TABLE>
<CAPTION>
- - ------------------------------------------------------------------------------------------------------------------------------------
NAME AND ADDRESS
OF SUPPLIER QUANTITY COMPLETE DESCRIPTION OF EQUIPMENT PRICE
- - ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
(New unless otherwise specified) See Attached
Schedule,
[ ] check if applicable
NEW FURNITURE, SCOPES, SHELVING, PHONE SYSTEMS AND $1,500,000.00
OTHER TESTING EQUIPMENT TOGETHER WITH ALL
ACCESSIONS, ADDITIONS AND ATTACHMENTS THERETO AND
REPLACEMENTS THEREOF, MORE CLEARLY DESCRIBED ON THE
ATTACHED EXHIBIT "A" HEREIN INCORPORATED BY THIS
REFERENCE.
-------------------------------------------
TOTAL PRICE $1,500,000.00
-------------------------------------------
FED. EXCISE TAX $
--------------------------------------------
TRANSPORTATION $
--------------------------------------------
OTHER $
- - ------------------------------------------------------------------------------------------------------------------------------------
Date Delivery Expected: on or before 4/30/96 Delivery Instructions
to be as specified by TOTAL COST: $1,500,000.00
Lessee to Supplier
- - ------------------------------------------------------------------------------------------------------------------------------------
SHIP TO LESSEE AT: Street City County State
42808 Christy Street, Fremont, Alameda, CA
9000 SW Nimbus Ave Beaverton Washington OR
- - ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Lessee and Lessor AGREE that subject to the conditions and agreements herein and
in the Master Lease referred to below (i) Lessor shall lease the Equipment to
Lessee, and (ii) Lessee shall lease the Equipment from Lessor and perform and
comply with the provisions of this Agreement.
Certain Definitions and Stipulations:
Purchase Cut-Off Date: 4/30/96
-------
Particular Lease Terms:
Length of Basic Term: Thirty-six (36) months
----------------
Interim Rental Rate: EQUAL TO THE DAILY EQUIVALENT OF THE IMPLICIT LEASE
RATE.
Periodic Rental Rate (for each installment) 2.08311 percent (%) of Lessor's
Cost of the Equipment
Payment Schedule: Monthly in arrears
------------------
Purchase, Sale and Renewal Option:
(a) On the last day of the term of this Lease or any extension thereof, Lessee
shall purchase for cash all Lessor's interest in Equipment then under
lease for a price equal to 42.433% of Total Cost.
(b) If LESSEE does not exercise the purchase option referred to in Section (a)
above, then Equipment will be sold by LESSEE, or at LESSOR'S option by
LESSOR as agent for LESSEE, in a commercially reasonable manner, but in no
event will LESSEE sell the Equipment for less than 42.433% of Equipment
Cost without LESSOR'S prior written consent. The net proceeds of sale
shall be paid to LESSOR; provided however that if the net proceeds exceed
42.433% of Equipment Cost, then the excess shall be paid to LESSEE;
provided further however, that if the net proceeds are less than 42.433%
of Equipment Cost, then LESSEE shall pay the difference to LESSOR to a
maximum of 29.626% of Equipment Cost.
(c) If neither purchase or sale options are exercised in accordance with
Sections (a) or (b) above, then on the last date of the term the Lease
will be renewed for a period of TWELVE (12) months at a rental payment
equal to 2.08311% of Equipment Cost payable monthly in ARREARS.
<PAGE>
(d) Assuming the Lease is renewed pursuant to (c), on the last date of renewal
term, Lessee shall have the option to purchase all but not less than all
of the Equipment then under Lease for a price equal to 20.000% of
Equipment Cost.
(e) If Lessee does not exercise the purchase option referred to in Section
(d) above, then the Equipment will be sold by Lessee, or at Lessor's
option by Lessor as agent for Lessee, in a commercially reasonable manner,
but in no event will lessee sell the Equipment for less than 20.00% of
Equipment Cost without Lessor's prior written consent. The net proceeds of
sale shall be paid to Lessor; provided however, that if the net proceeds
exceed 20.00% of Equipment Cost, then the excess shall be paid to Lessee;
provided further however, that if the net proceeds are less than 20.00% of
Equipment Cost, then lessee shall pay the difference to lessor to a
maximum of 6.11% of Equipment Cost.
Premises where Equipment will be kept : 42808 Christy Street
-----------------------
Fremont, CA 94538
-----------------------
9000 SW Nimbus Ave
Beaverton, OR 97008
-----------------------
Insurance Required:
Liability. Not less than $1,000,000.00 Combined Single Limit
-------------
Liability insurance, including bodily injury and death and property
damage, naming Lessor as additional insured.
Physical Damage. Not less than $1,500,000.00 All risk physical
-------------
damage insurance, including loss by burglary, theft, and malicious
mischief, for full replacement value of the equipment, naming Lessor as
loss payee.
Early Termination: At any time after the Second (2) Lease Year (and so long as
Lessee is not in default), Lessee may terminate this Lease on any Periodic
Rental payment date by giving Lessor at least thirty (30) days advance written
notice, which shall be irrevocable. On the date of termination, Lessee shall
pay Lessor the total of (i) Periodic Rental due on that date and all other
amounts due hereunder, (ii) the Stipulated Loss Value, and (iii) a prepayment
premium. For purposes of this Lease, "Prepayment Premium" shall mean the
amount, if any, payable by Lessee to Lessor to offset the adverse impact to
Lessor of a downward movement in interest rates from either the Acceptance Date
(the date Debtor signed the proposal letter) for fixed rate bids or the Closing
Date for float to takedown bids to the date of termination. The Prepayment
Premium is determined by (i) calculating the decrease (expressed in basis
points) in the current weekly average yield of Three (3) U.S. Treasury Notes (as
published in Federal Reserve Statistical Release H.15[519]) from the applicable
Acceptance or Closing Date to the prepayment date, (ii) dividing the difference
by 100, (iii) multiplying the result by the applicable premium factor shown
below, and (iv) multiplying the product by the Stipulated Loss Value.
Number of Months Remaining Years Premium Factor
- - ----------------------------- ------ --------------
24-13 (2) .010
12-1 (1) .005
Master Lease: Lessor and Lessee are entering into or have entered into a Master
Lease Purchase Agreement ("Master Lease") dated April 30, 1996. All of the
terms, conditions, agreements and provisions of the Master Lease are
incorporated herein by this reference and constitute a part of this Addendum. If
there shall be any conflict between any provision of the Master Lease and a
provision of this Addendum, the provision of the Addendum shall govern.
Lessor's Disclaimer: Lessee acknowledges and agrees that it has selected both
the Equipment of the type and quantity which is the subject of this Addendum and
the supplier from whom Lessor purchased the Equipment. LESSOR MAKES NO
REPRESENTATION OR WARRANTY, EXPRESS OR IMPLIED, AS TO THE DESIGN, COMPLIANCE
WITH SPECIFICATIONS, CONDITION, QUALITY, WORKMANSHIP, OR THE SUITABILITY,
ADEQUACY, OPERATION, USE OR PERFORMANCE OF THE EQUIPMENT OR AS TO ITS
MERCHANTABILITY OR FITNESS FOR ANY PARTICULAR PURPOSE. ANY DELAY IN DELIVERY
SHALL NOT AFFECT THE VALIDITY OF THE MASTER LEASE OR THIS ADDENDUM. The Lessee
understands and agrees that neither the supplier nor any salesman nor any agent
of the supplier is authorized to waive or alter any term or condition of the
Master Lease or this Addendum, and no representation as to the Equipment or any
other matter by the supplier shall in any way affect Lessee's duty to pay the
rent and perform its obligations as set forth in the Master Lease or this
Addendum. Lessor shall not be liable to Lessee for incidental, consequential, or
indirect damages or for any act, neglect omission, breach or default by Lessor
or any third party.
LESSOR: LESSEE:
METLIFE CAPITAL CORPORATION CREDENCE SYSTEMS CORPORATION
----------------------------
By: By:
---------------------------- -------------------------
Its: Vice President Its:
---------------------------- -------------------------
<PAGE>
EXHIBIT 11.1
COMPUTATION OF NET INCOME PER SHARE
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
APRIL 30, APRIL 30,
------------------- --------------------
1996 1995 1996 1995
------- -------- -------- --------
<S> <C> <C> <C> <C>
Weighted average shares outstanding....... 21,496 19,716 21,471 19,661
Common equivalent shares from
stock options........................... 417 707 461 717
------- -------- -------- --------
Number of shares used in computing per
share amounts........................... 21,913 20,423 21,932 20,378
======= ======== ======== ========
Net income................................ $11,329 $ 6,797 $ 21,873 $ 12,776
======= ======== ======== ========
Net income per share...................... $ 0.52 $ 0.33 $ 1.00 $ 0.63
======= ======== ======== ========
</TABLE>
-22-
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND> THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONDENSED CONSOLIDATED BALANCE SHEETS AS OF APRIL 30, 1996 AND THE RELATED
CONDENSED CONSOLIDATED INCOME STATEMENTS FOR THE SIX MONTHS ENDED APRIL 30,
1996.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> OCT-31-1996
<PERIOD-START> NOV-01-1995
<PERIOD-END> APR-30-1996
<CASH> 48,612
<SECURITIES> 38,687
<RECEIVABLES> 47,698
<ALLOWANCES> 0
<INVENTORY> 35,475
<CURRENT-ASSETS> 176,916
<PP&E> 27,744
<DEPRECIATION> 0
<TOTAL-ASSETS> 213,230
<CURRENT-LIABILITIES> 40,399
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 213,230
<SALES> 0
<TOTAL-REVENUES> 127,386
<CGS> 50,904
<TOTAL-COSTS> 95,530
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (2,101)
<INCOME-PRETAX> 33,957
<INCOME-TAX> 12,084
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 21,873
<EPS-PRIMARY> $1.00
<EPS-DILUTED> $1.00
</TABLE>
<PAGE>
EXHIBIT 99.1
CREDENCE SYSTEMS CORPORATION
1993 STOCK OPTION PLAN
----------------------
(AS AMENDED THROUGH FEBRUARY 9, 1996)
ARTICLE ONE
GENERAL
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I. PURPOSE OF THE PLAN
A. This 1993 Stock Option Plan ("Plan") is intended to promote the
interests of Credence Systems Corporation, a Delaware corporation (the
"Corporation"), by providing (i) key employees (including officers) of the
Corporation (or its parent or subsidiary corporations) who are responsible for
the management, growth and financial success of the Corporation (or its parent
or subsidiary corporations), (ii) the non-employee members of the Corporation's
Board of Directors and (iii) consultants who provide valuable services to the
Corporation (or its parent or subsidiary corporations) with the opportunity to
acquire a proprietary interest, or otherwise increase their proprietary
interest, in the Corporation as an incentive for them to remain in the service
of the Corporation (or its parent or subsidiary corporations).
B. The Discretionary Option Grant Program under this Plan shall become
effective on the first date on which the shares of the Corporation's Common
Stock are registered under Section 12(g) of the Securities Exchange Act of 1934.
Such date is hereby designated as the Effective Date for that program. The
Automatic Option Grant Program under this Plan shall become effective
immediately upon the execution and final pricing of the Underwriting Agreement
for the initial public offering of the Corporation's Common Stock. The
execution date of such Underwriting Agreement is hereby designated as the
Effective Date of the Automatic Option Grant Program.
C. This Plan shall serve as the successor to (i) the Corporation's
1984 Incentive Stock Option Plan (the "1984 Plan") and (ii) the ASIX Systems
Corporation 1989 Stock Option Plan (the "ASIX Plan") which the Corporation
assumed in connection with its acquisition of ASIX Systems Corporation by merger
effected October 27, 1989. The 1984 Plan and ASIX Plan shall be collectively
referred to in this document as the "Predecessor Plans", and no further option
grants or stock issuances shall be made under the Predecessor Plans from and
after the Effective Date of this Plan. All options outstanding under the
Predecessor Plans on the Effective Date of the Discretionary Option Grant
Program are hereby incorporated into this Plan and shall accordingly be treated
as outstanding options under this Plan. However, each outstanding option so
incorporated shall continue to be governed solely by the express terms and
conditions of the instrument evidencing such grant, and no provision of this
Plan shall be deemed to affect or otherwise modify the rights or obligations of
the holders of such incorporated options with respect to their acquisition of
shares of the Corporation's Common Stock thereunder.
II. DEFINITIONS
A. For purposes of the Plan, the following definitions shall be in
effect:
BOARD: the Corporation's Board of Directors.
<PAGE>
CODE: the Internal Revenue Code of 1986, as amended.
COMMITTEE: the committee of two (2) or more non-employee Board members
appointed by the Board to administer the Plan.
COMMON STOCK: shares of the Corporation's common stock.
CHANGE IN CONTROL: a change in ownership or control of the
Corporation effected through either of the following transactions:
a. any person or related group of persons (other than the
Corporation or a person that directly or indirectly controls, is controlled
by, or is under common control with, the Corporation) directly or indirectly
acquires beneficial ownership (within the meaning of Rule 13d-3 of the 1934
Act) of securities possessing more than fifty percent (50%) of the total
combined voting power of the Corporation's outstanding securities pursuant
to a tender or exchange offer made directly to the Corporation's
stockholders which the Board does not recommend such stockholders to accept;
or
b. there is a change in the composition of the Board over a
period of thirty-six (36) consecutive months or less such that a majority of
the Board members (rounded up to the next whole number) ceases, by reason of
one or more proxy contests for the election of Board members, to be
comprised of individuals who either (A) have been Board members continuously
since the beginning of such period or (B) have been elected or nominated for
election as Board members during such period by at least a majority of the
Board members described in clause (A) who were still in office at the time
such election or nomination was approved by the Board.
CORPORATE TRANSACTION: any of the following stockholder-approved
transactions to which the Corporation is a party:
a. a merger or consolidation in which the Corporation is not the
surviving entity, except for a transaction the principal purpose of which
is to change the State in which the Corporation is incorporated,
b. the sale, transfer or other disposition of all or
substantially all of the assets of the Corporation in complete liquidation
or dissolution of the Corporation, or
c. any reverse merger in which the Corporation is the surviving
entity but in which securities possessing more than fifty percent (50%) of
the total combined voting power of the Corporation's outstanding securities
are transferred to a person or persons different from those who held such
securities immediately prior to such merger.
EMPLOYEE: an individual who performs services while in the employ of the
Corporation or one or more parent or subsidiary corporations, subject to the
control and
2.
<PAGE>
direction of the employer entity not only as to the work to be performed but
also as to the manner and method of performance.
FAIR MARKET VALUE: the fair market value per share of Common Stock
determined in accordance with the following provisions:
a. If the Common Stock is not at the time listed or admitted to
trading on any national stock exchange but is traded on the Nasdaq National
Market, the Fair Market Value shall be the closing selling price per share
on the date in question, as such price is reported by the National
Association of Securities Dealers on the Nasdaq National Market or any
successor system. If there is no reported closing selling price for the
Common Stock on the date in question, then the closing selling price on the
last preceding date for which such quotation exists shall be determinative
of Fair Market Value.
b. If the Common Stock is at the time listed or admitted to
trading on any national stock exchange, then the Fair Market Value shall be
the closing selling price per share on the date in question on the exchange
determined by the Plan Administrator to be the primary market for the
Common Stock, as such price is officially quoted in the composite tape of
transactions on such exchange. If there is no reported sale of Common
Stock on such exchange on the date in question, then the Fair Market Value
shall be the closing selling price on the exchange on the last preceding
date for which such quotation exists.
HOSTILE TAKE-OVER: a change in ownership of the Corporation effected
through the following transaction:
a. any person or related group of persons (other than the
Corporation or a person that directly or indirectly controls, is controlled
by, or is under common control with, the Corporation) directly or
indirectly acquires beneficial ownership (within the meaning of Rule 13d-3
of the 1934 Act) of securities possessing more than fifty percent (50%) of
the total combined voting power of the Corporation's outstanding securities
pursuant to a tender or exchange offer made directly to the Corporation's
stockholders which the Board does not recommend such stockholders to
accept, and
---
b. more than fifty percent (50%) of the securities so acquired
in such tender or exchange offer are accepted from holders other than the
officers and directors of the Corporation subject to the short-swing profit
restrictions of Section 16 of the 1934 Act.
1934 ACT: the Securities Exchange Act of 1934, as amended from time to
time.
OPTIONEE: any person to whom an option is granted under either the
Discretionary Option Grant or Automatic Option Grant Program in effect under the
Plan.
PLAN ADMINISTRATOR: the Committee in its capacity as the administrator of
the Plan.
3.
<PAGE>
PERMANENT DISABILITY OR PERMANENTLY DISABLED: the inability of the
Optionee to engage in any substantial gainful activity by reason of any
medically determinable physical or mental impairment expected to result in death
or to be of continuous duration of twelve (12) months or more.
SERVICE: the performance of services on a periodic basis to the
Corporation (or any parent or subsidiary corporation) in the capacity of an
Employee, a non-employee member of the board of directors or a consultant or
advisor, except to the extent otherwise specifically provided in the applicable
stock option agreement.
TAKE-OVER PRICE: the greater of (a) the Fair Market Value per share of
-------
Common Stock on the date the option is surrendered to the Corporation in
connection with a Hostile Take-Over or (b) the highest reported price per share
of Common Stock paid by the tender offeror in effecting such Hostile Take-Over.
However, if the surrendered option is an incentive stock option under the
Federal tax laws, the Take-Over Price shall not exceed the clause (a) price per
share.
B. The following provisions shall be applicable in determining the parent
and subsidiary corporations of the Corporation:
Any corporation (other than the Corporation) in an unbroken chain of
corporations ending with the Corporation shall be considered to be a parent
of the Corporation, provided each such corporation in the unbroken chain
(other than the Corporation) owns, at the time of the determination, stock
possessing fifty percent (50%) or more of the total combined voting power
of all classes of stock in one of the other corporations in such chain.
Each corporation (other than the Corporation) in an unbroken chain of
corporations beginning with the Corporation shall be considered to be a
subsidiary of the corporation, provided each such corporation (other than
the last corporation) in the unbroken chain owns, at the time of the
determination, stock possessing fifty percent (50%) or more of the total
combined voting power of all classes of stock in one of the other
corporations in such chain.
III. STRUCTURE OF THE PLAN
A. Stock Programs. The Plan shall be divided into two separate
---------------
components: the Discretionary Option Grant Program specified in Article Two and
the Automatic Option Grant Program specified in Article Three. Under the
Discretionary Option Grant Program, eligible individuals may, at the discretion
of the Plan Administrator, be granted options to purchase shares of Common Stock
in accordance with the provisions of Article Two. Under the Automatic Option
Grant Program, non-employee members of the Corporation's Board of Directors (the
"Board") will receive periodic option grants to purchase shares of Common Stock
in accordance with the provisions of Article Three.
B. General Provisions. Unless the context clearly indicates otherwise,
------------------
the provisions of Articles One and Four shall apply to the Discretionary Option
Grant Program and the Automatic Option Grant Program and shall accordingly
govern the interests of all individuals under the Plan.
4.
<PAGE>
IV. ADMINISTRATION OF THE PLAN
A. The Discretionary Option Grant Program shall be administered by the
Committee. No Board member shall be eligible to serve on the Committee if such
individual has, within the relevant period designated below, received an option
grant under this Plan or any other stock plan of the Corporation (or any parent
or subsidiary corporation), other than pursuant to the Automatic Option Grant
Program:
(i) for each of the initial members of the Committee, the period
commencing with the Effective Date of the Discretionary Option Grant
Program and ending with the date of his or her appointment to the
Committee, or
(ii) for any successor or substitute member, the twelve (12)-
month period immediately preceding the date of his or her appointment to
the Committee or (if shorter) the period commencing with the Effective Date
of the Discretionary Option Grant Program and ending with the date of his
or her appointment to the Committee.
Members of the Committee shall serve for such period of time as
the Board may determine and shall be subject to removal by the Board at any
time.
B. The Committee as Plan Administrator shall have full power and authority
(subject to the express provisions of the Plan) to establish rules and
regulations for the proper administration of the Discretionary Option Grant
Program and to make such determinations under, and issue such interpretations
of, the provisions of such program and any outstanding option grants thereunder
as it may deem necessary or advisable. Decisions of the Plan Administrator
shall be final and binding on all parties who have an interest in the
Discretionary Option Grant Program or any outstanding option thereunder.
C. Administration of the Automatic Option Grant Program shall be
self-executing in accordance with the express terms and conditions of Article
Three, and the Committee as Plan Administrator shall exercise no discretionary
functions with respect to option grants made pursuant to that program.
V. OPTION GRANTS
A. The persons eligible to participate in the Discretionary Option Grant
Program under Article Two are as follows:
(i) officers and other key employees of the Corporation (or its
parent or subsidiary corporations) who render services which contribute to
the management, growth and financial success of the Corporation (or its
parent or subsidiary corporations);
(ii) non-employee Board members; and
(iii) those consultants who provide valuable services to the
Corporation (or its parent or subsidiary corporations).
5.
<PAGE>
B. Non-employee Board members who serve as Plan Administrator shall not be
---
eligible during such period of service to participate in the Discretionary
Option Grant Program or in any other stock option, stock purchase, stock bonus
or other stock plan of the Corporation (or its parent or subsidiary
corporations). Such non-employee Board members shall, however, be eligible to
receive automatic option grants pursuant to the provisions of Article Three.
C. The Plan Administrator shall have full authority to determine, with
respect to the option grants made under the Plan, which eligible individuals are
to receive option grants, the number of shares to be covered by each such grant,
the status of the granted option as either an incentive stock option ("Incentive
Option") which satisfies the requirements of Code Section 422 or a non-statutory
option not intended to meet such requirements, the time or times at which each
granted option is to become exercisable and the maximum term for which the
option may remain outstanding.
VI. STOCK SUBJECT TO THE PLAN
A. Shares of Common Stock shall be available for issuance under the Plan
and shall be drawn from either the Corporation's authorized but unissued shares
of Common Stock or from reacquired shares of Common Stock, including shares
repurchased by the Corporation on the open market. The maximum number of shares
of Common Stock which may be issued over the term of the Plan shall not exceed
3,625,001 shares, subject to adjustment from time to time in accordance with the
provisions of this Section VI. Such authorized share reserve reflects the 3-for-
2 split of the Corporation's outstanding Common Stock effected June 5, 1995 and
the 1-for-3 reverse stock split of the Corporation's outstanding Common Stock
effected October 7, 1993, and is comprised of (i) the number of shares which
remained available, as of the Effective Date of the Discretionary Option Grant
Program, for issuance under the 1984 Plan as last approved by the Corporation's
stockholders, including the shares subject to the outstanding options
incorporated into this Plan and any other shares which would have been available
for future option grant under the 1984 Plan as last approved by the stockholders
(estimated to be 1,931,757 shares in the aggregate on a post-split basis), (ii)
143,244 shares (on a post-split basis) subject to options outstanding under the
ASIX Plan as of the Effective Date and incorporated into this Plan, (iii) an
additional 300,000 shares (on a post-split basis) authorized by the Board under
this Plan and approved by the stockholders prior to the Effective Date, (iv)
750,000 shares (on a post-split basis) authorized by the Board on January 23,
1995 and approved by the stockholders at the 1995 Annual Stockholders Meeting,
and (v) an additional 500,000 - share increase authorized by the Board on
January 26, 1996, subject to stockholder approval at the 1996 Annual
Stockholders Meeting. To the extent one or more outstanding options under the
Predecessor Plans which have been incorporated into this Plan are subsequently
exercised, the number of shares issued with respect to each such option shall
reduce, on a share-for-share basis, the number of shares available for issuance
under this Plan.
B. No one person participating in the Plan may receive options and
separately exercisable stock appreciation rights for more than 750,000 shares
(on a post-split basis) of Common Stock in the aggregate over the remaining term
of the Plan, subject to adjustment from time to time in accordance with the
provisions of this Section VI. For purposes of such limitation, no stock options
or stock appreciation rights granted prior to January 1, 1995 shall be taken
into account.
6.
<PAGE>
C. Should one or more outstanding options under this Plan (including
outstanding options under the Predecessor Plans incorporated into this Plan)
expire or terminate for any reason prior to exercise in full (including any
option cancelled in accordance with the cancellation-regrant provisions of
Section IV of Article Two), then the shares subject to the portion of each
option not so exercised shall be available for subsequent option grants under
the Plan. Shares subject to any option or portion thereof surrendered in
accordance with Section V of Article Two or Section III of Article Three and all
share issuances under the Plan, whether or not the shares are subsequently
repurchased by the Corporation pursuant to its repurchase rights under the Plan,
shall reduce on a share-for-share basis the number of shares of Common Stock
available for subsequent option grants under the Plan. In addition, should the
option price of an outstanding option under the Plan (including any option
incorporated from the Predecessor Plans) be paid with shares of Common Stock or
should shares of Common Stock otherwise issuable under the Plan be withheld by
the Corporation in satisfaction of the withholding taxes incurred in connection
with the exercise of an outstanding stock option under the Plan, then the number
of shares of Common Stock available for issuance under the Plan shall be reduced
by the gross number of shares for which the option is exercised or which vest
under the stock issuance, and not by the net number of shares of Common Stock
actually issued.
D. Should any change be made to the Common Stock issuable under the Plan
by reason of any stock split, stock dividend, recapitalization, combination of
shares, exchange of shares or other change affecting the outstanding Common
Stock as a class without the Corporation's receipt of consideration, then
appropriate adjustments shall be made to (i) the maximum number and/or class of
securities issuable under the Plan, (ii) the number and/or class of securities
for which any one person may be granted options and separately exercisable stock
appreciation rights under the Plan from and after January 1, 1995, (iii) the
number and/or class of securities for which automatic option grants are to be
subsequently made per newly-elected or continuing non-employee Board member
under the Automatic Option Grant Program, (iv) the number and/or class of
securities and price per share in effect under each option outstanding under
either the Discretionary Option Grant or Automatic Option Grant Program and (v)
the number and/or class of securities and price per share in effect under each
outstanding option incorporated into this Plan from the Predecessor Plans. Such
adjustments to the outstanding options are to be effected in a manner which
shall preclude the enlargement or dilution of rights and benefits under such
options. The adjustments determined by the Plan Administrator shall be final,
binding and conclusive.
7.
<PAGE>
ARTICLE TWO
DISCRETIONARY OPTION GRANT PROGRAM
----------------------------------
VII. TERMS AND CONDITIONS OF OPTIONS
Options granted pursuant to the Discretionary Option Grant Program shall be
authorized by action of the Plan Administrator and may, at the Plan
Administrator's discretion, be either Incentive Options or non-statutory
options. Individuals who are not Employees of the Corporation or its parent or
subsidiary corporations may only be granted non-statutory options. Each granted
option shall be evidenced by one or more instruments in the form approved by the
Plan Administrator; provided, however, that each such instrument shall comply
---------
with the terms and conditions specified below. Each instrument evidencing an
Incentive Option shall, in addition, be subject to the applicable provisions of
Section II of this Article Two.
A. Option Price.
-------------
1. The option price per share shall be fixed by the Plan
Administrator but shall not be less than one hundred percent (100%) of the Fair
Market Value per share of Common Stock on the option grant date.
2. The option price shall become immediately due upon exercise of
the option and, subject to the provisions of Section I of Article Four and the
instrument evidencing the grant, shall be payable in one of the following
alternative forms specified below:
- full payment in shares of Common Stock held for the
requisite period necessary to avoid a charge to the Corporation's earnings
for financial reporting purposes and valued at Fair Market Value on the
Exercise Date (as such term is defined below);
- full payment in cash or check drawn to the Corporation's
order;
- full payment in a combination of shares of Common Stock held
for the requisite period necessary to avoid a charge to the Corporation's
earnings for financial reporting purposes and valued at Fair Market Value
on the Exercise Date and cash or check drawn to the Corporation's order; or
- full payment through a broker-dealer sale and remittance
procedure pursuant to which the Optionee (I) shall provide irrevocable
written instructions to a designated brokerage firm to effect the immediate
sale of the purchased shares and remit to the Corporation, out of the sale
proceeds available on the settlement date, sufficient funds to cover the
aggregate option price payable for the purchased shares plus all applicable
Federal and State income and employment taxes required to be withheld by
the Corporation in connection with such purchase and (II) shall provide
written directives to the Corporation to deliver the certificates for the
purchased shares directly to such brokerage firm in order to complete the
sale transaction.
8.
<PAGE>
For purposes of this subparagraph (2), the Exercise Date shall be the date
on which written notice of the option exercise is delivered to the Corporation.
Except to the extent the sale and remittance procedure is utilized in connection
with the exercise of the option, payment of the option price for the purchased
shares must accompany such notice.
B. Term and Exercise of Options. Each option granted under this
-----------------------------
Discretionary Option Grant Program shall be exercisable at such time or times
and during such period as is determined by the Plan Administrator and set forth
in the instrument evidencing the grant. No such option, however, shall have a
maximum term in excess of ten (10) years from the grant date. During the
lifetime of the Optionee, the option, together with any stock appreciation
rights pertaining to such option, shall be exercisable only by the Optionee and
shall not be assignable or transferable by the Optionee except for a transfer of
the option effected by will or by the laws of descent and distribution following
the Optionee's death.
C. Termination of Service.
-----------------------
1. The following provisions shall govern the exercise period
applicable to any outstanding options held by the Optionee at the time of
cessation of Service or death.
- Should an Optionee cease Service for any reason
(including death or Permanent Disability) while holding one or more
outstanding options under this Article Two, then none of those options
shall (except to the extent otherwise provided pursuant to subparagraph
C.(3) below) remain exercisable for more than a thirty-six (36)-month
period (or such shorter period determined by the Plan Administrator and set
forth in the instrument evidencing the grant) measured from the date of
such cessation of Service.
- Any option held by the Optionee under this Article
Two and exercisable in whole or in part on the date of his or her death may
be subsequently exercised by the personal representative of the Optionee's
estate or by the person or persons to whom the option is transferred
pursuant to the Optionee's will or in accordance with the laws of descent
and distribution. Such exercise, however, must occur prior to the earlier
-------
of (i) the third anniversary of the date of the Optionee's death (or such
shorter period determined by the Plan Administrator and set forth in the
instrument evidencing the grant) or (ii) the specified expiration date of
the option term. Upon the occurrence of the earlier event, the option
shall terminate and cease to be outstanding.
- During the applicable post-Service period, the
option may not be exercised in the aggregate for more than the number of
shares (if any) in which the Optionee is vested at the time of cessation of
Service. Upon the expiration of the limited post-Service exercise period
or (if earlier) upon the specified expiration date of the option term, each
such option shall terminate and cease to be outstanding with respect to any
vested shares for which it has not otherwise been exercised. However, each
outstanding option shall immediately terminate and cease to be outstanding,
at the time of the Optionee's cessation of
9.
<PAGE>
Service, with respect to any shares for which it is not otherwise at that
time exercisable or in which Optionee is not otherwise at that time vested.
- Under no circumstances, however, shall any such
option be exercisable after the specified expiration date of the option
term.
- Should (i) the Optionee's Service be terminated for
misconduct (including, but not limited to, any act of dishonesty, willful
misconduct, fraud or embezzlement) or (ii) the Optionee make any
unauthorized use or disclosure of confidential information or trade secrets
of the Corporation or its parent or subsidiary corporations, then in any
such event all outstanding options held by the Optionee under this Article
Two shall terminate immediately and cease to be outstanding.
2. The Plan Administrator shall have complete discretion, exercisable
either at the time the option is granted or at any time while the option remains
outstanding, to permit one or more options held by the Optionee under this
Article Two to be exercised, during the limited post-Service exercise period
applicable under subparagraph (1) above, not only with respect to the number of
vested shares of Common Stock for which each such option is exercisable at the
time of the Optionee's cessation of Service but also with respect to one or more
subsequent installments of vested shares for which the option would otherwise
have become exercisable had such cessation of Service not occurred.
(3) The Plan Administrator shall also have full power and authority to
extend the period of time for which the option is to remain exercisable
following the Optionee's cessation of Service or death from the limited period
in effect under subparagraph (1) above to such greater period of time as the
Plan Administrator shall deem appropriate. In no event, however, shall such
option be exercisable after the specified expiration date of the option term.
D. Stockholder Rights. An Optionee shall have no stockholder rights with
-------------------
respect to any shares covered by the option until such individual shall have
exercised the option and paid the option price for the purchased shares.
E. Repurchase Rights. The shares of Common Stock acquired upon the
-----------------
exercise of any Article Two option grant may be subject to repurchase by the
Corporation in accordance with the following provisions:
a. The Plan Administrator shall have the discretion to authorize
the issuance of unvested shares of Common Stock under this Article Two.
Should the Optionee cease Service while holding such unvested shares, the
Corporation shall have the right to repurchase any or all of those unvested
shares at the option price paid per share. The terms and conditions upon
which such repurchase right shall be exercisable (including the period and
procedure for exercise and the appropriate vesting schedule for the
purchased shares) shall be established by the Plan Administrator and set
forth in the instrument evidencing such repurchase right.
b. All of the Corporation's outstanding repurchase rights under this
Article Two shall automatically terminate, and all shares subject to such
10.
<PAGE>
terminated rights shall immediately vest in full, upon the occurrence of a
Corporate Transaction, except to the extent: (i) any such repurchase right
is expressly assigned to the successor corporation (or parent thereof) in
connection with the Corporate Transaction or (ii) such accelerated vesting
is precluded by other limitations imposed by the Plan Administrator at the
time the repurchase right is issued.
c. The Plan Administrator shall have the discretionary authority,
exercisable either before or after the Optionee's cessation of Service, to
cancel the Corporation's outstanding repurchase rights with respect to one
or more shares purchased or purchasable by the Optionee under this
Discretionary Option Grant Program and thereby accelerate the vesting of
such shares in whole or in part at any time.
VIII. INCENTIVE OPTIONS
The terms and conditions specified below shall be applicable to all
Incentive Options granted under this Article Two. Incentive Options may only be
granted to individuals who are Employees of the Corporation. Options which are
specifically designated as "non-statutory" options when issued under the Plan
shall not be subject to such terms and conditions.
A. Dollar Limitation. The aggregate Fair Market Value (determined as of
-----------------
the respective date or dates of grant) of the Common Stock for which one or more
options granted to any Employee after December 31, 1986 under this Plan (or any
other option plan of the Corporation or its parent or subsidiary corporations)
may for the first time become exercisable as incentive stock options under the
Federal tax laws during any one calendar year shall not exceed the sum of One
Hundred Thousand Dollars ($100,000). To the extent the Employee holds two (2) or
more such options which become exercisable for the first time in the same
calendar year, the foregoing limitation on the exercisability of such options as
incentive stock options under the Federal tax laws shall be applied on the basis
of the order in which such options are granted. Should the number of shares of
Common Stock for which any Incentive Option first becomes exercisable in any
calendar year exceed the applicable One Hundred Thousand Dollar ($100,000)
limitation, then that option may nevertheless be exercised in that calendar year
for the excess number of shares as a non-statutory option under the Federal tax
laws.
B. 10% Stockholder. If any individual to whom an Incentive Option is
---------------
granted is the owner of stock (as determined under Section 424(d) of the
Internal Revenue Code) possessing ten percent (10%) or more of the total
combined voting power of all classes of stock of the Corporation or any one of
its parent or subsidiary corporations, then the option price per share shall not
be less than one hundred and ten percent (110%) of the Fair Market Value per
share of Common Stock on the grant date, and the option term shall not exceed
five (5) years, measured from the grant date.
Except as modified by the preceding provisions of this Section II, the
provisions of Articles One, Two and Four of the Plan shall apply to all
Incentive Options granted hereunder.
IX. CORPORATE TRANSACTIONS/CHANGES IN CONTROL
11.
<PAGE>
A. In the event of any Corporate Transaction, each option which is at
the time outstanding under this Article Two shall automatically accelerate so
that each such option shall, immediately prior to the specified effective date
for the Corporate Transaction, become fully exercisable with respect to the
total number of shares of Common Stock at the time subject to such option and
may be exercised for all or any portion of such shares. However, an outstanding
option under this Article Two shall not so accelerate if and to the extent: (i)
such option is, in connection with the Corporate Transaction, either to be
assumed by the successor corporation or parent thereof or to be replaced with a
comparable option to purchase shares of the capital stock of the successor
corporation or parent thereof, (ii) such option is to be replaced with a cash
incentive program of the successor corporation which preserves the option spread
existing at the time of the Corporate Transaction and provides for subsequent
payout in accordance with the same vesting schedule applicable to such option,
or (iii) the acceleration of such option is subject to other limitations imposed
by the Plan Administrator at the time of the option grant. The determination of
option comparability under clause (i) above shall be made by the Plan
Administrator, and its determination shall be final, binding and conclusive.
B. Upon the consummation of the Corporate Transaction, all outstanding
options under this Article Two shall terminate and cease to be outstanding,
except to the extent assumed by the successor corporation or its parent company.
C. Each outstanding option under this Article Two which is assumed in
connection with the Corporate Transaction or is otherwise to continue in effect
shall be appropriately adjusted, immediately after such Corporate Transaction,
to apply and pertain to the number and class of securities which would have been
issued to the option holder, in consummation of such Corporate Transaction, had
such person exercised the option immediately prior to such Corporate
Transaction. Appropriate adjustments shall also be made to the option price
payable per share, provided the aggregate option price payable for such
--------
securities shall remain the same. In addition, the class and number of
securities available for issuance under the Plan following the consummation of
the Corporate Transaction shall be appropriately adjusted.
D. The Plan Administrator shall have the discretion, exercisable either in
advance of any actually-anticipated Corporate Transaction or at the time of an
actual Corporate Transaction, to provide (upon such terms as it may deem
appropriate) for the automatic acceleration of one or more outstanding options
under this Article Two which are assumed or replaced in the Corporate
Transaction and do not otherwise accelerate at that time, in the event the
Optionee's Service should subsequently terminate within a designated period
following the effective date of such Corporate Transaction.
E. The grant of options under this Article Two shall in no way affect the
right of the Corporation to adjust, reclassify, reorganize or otherwise change
its capital or business structure or to merge, consolidate, dissolve, liquidate
or sell or transfer all or any part of its business or assets.
F. The Plan Administrator shall have the discretionary authority,
exercisable either in advance of any actually-anticipated Change in Control or
at the time of an actual Change in Control, to provide for the automatic
acceleration of one or more outstanding options under this Article Two (and the
termination of one or more of the Corporation's outstanding repurchase rights
under this Article Two) upon the occurrence of the Change in Control. The Plan
Administrator shall also have full power and authority to condition any such
option
12.
<PAGE>
acceleration (and the termination of any outstanding repurchase rights) upon the
subsequent termination of the Optionee's Service within a specified period
following the Change in Control.
G. Any options accelerated in connection with the Change in Control shall
remain fully exercisable until the expiration or sooner termination of the
option term.
H. Any Incentive Options accelerated under this Section III in connection
with a Corporate Transaction or Change in Control shall remain exercisable as
incentive stock options under the Federal tax laws only to the extent the
applicable dollar limitation of Section II of this Article Two is not exceeded.
To the extent such dollar limitation is exceeded, the accelerated option shall
be exercisable as a non-statutory option under the Federal tax laws.
X. CANCELLATION AND REGRANT OF OPTIONS
The Plan Administrator shall have the authority to effect, at any time and
from time to time, with the consent of the affected optionees, the cancellation
of any or all outstanding options under this Article Two (including outstanding
options under the Predecessor Plans incorporated into this Plan) and to grant in
substitution new options under the Plan covering the same or different numbers
of shares of Common Stock but with an option price per share not less than one
hundred percent (100%) of the Fair Market Value of the Common Stock on the new
grant.
XI. STOCK APPRECIATION RIGHTS
A. Provided and only if the Plan Administrator determines in its
discretion to implement the stock appreciation right provisions of this Section
V, one or more Optionees may be granted the right, exercisable upon such terms
and conditions as the Plan Administrator may establish, to surrender all or part
of an unexercised option under this Article Two in exchange for a distribution
from the Corporation in an amount equal to the excess of (i) the Fair Market
Value (on the option surrender date) of the shares of Common Stock in which the
Optionee is at the time vested under the surrendered option (or surrendered
portion thereof) over (ii) the aggregate option price payable for such vested
shares.
B. No surrender of an option shall be effective hereunder unless it is
approved by the Plan Administrator. If the surrender is so approved, then the
distribution to which the Optionee shall accordingly become entitled under this
Section V may be made in shares of Common Stock valued at Fair Market Value on
the option surrender date, in cash, or partly in shares and partly in cash, as
the Plan Administrator deems appropriate.
C. If the surrender of an option is rejected by the Plan Administrator,
then the Optionee shall retain whatever rights the Optionee had under the
surrendered option (or surrendered portion thereof) on the option surrender date
and may exercise such rights at any time prior to the later of (i) five (5)
-----
business days after the receipt of the rejection notice or (ii) the last day on
which the option is otherwise exercisable in accordance with the terms of the
instrument evidencing such option, but in no event may such rights be exercised
more than ten (10) years after the date of the option grant.
D. One or more officers of the Corporation subject to the short-swing
profit restrictions of the Federal securities laws may, in the Plan
Administrator's sole discretion, be
13.
<PAGE>
granted limited stock appreciation rights in tandem with their outstanding
options under the Plan. Upon the occurrence of a Hostile Take-Over, the officer
will have a thirty (30)-day period in which he or she may surrender any
outstanding options with such a limited stock appreciation right in effect for
at least six (6) months to the Corporation, to the extent such options are at
the time exercisable for fully-vested shares of Common Stock. The officer shall
in return be entitled to a cash distribution from the Corporation in an amount
equal to the excess of (i) the Take-Over Price of the vested shares of Common
Stock at the time subject to each surrendered option over (ii) the aggregate
option price payable for such vested shares. The cash distribution payable upon
such option surrender shall be made within five (5) days following the
consummation of the Hostile Take-Over. Neither the approval of the Plan
Administrator nor the consent of the Board shall be required in connection with
such option surrender and cash distribution. Any unsurrendered portion of the
option shall continue to remain outstanding and become exercisable in accordance
with the terms of the instrument evidencing such grant.
E. The shares of Common Stock subject to any option surrendered for an
appreciation distribution pursuant to this Section V shall not be available for
subsequent option grant under the Plan.
14.
<PAGE>
ARTICLE THREE
AUTOMATIC OPTION GRANT PROGRAM
------------------------------
XII. ELIGIBILITY
A. Eligible Directors. The individuals eligible to receive automatic
-------------------
option grants pursuant to the provisions of this Article Three program shall be
limited to (i) those individuals who are first elected or appointed as non-
employee Board members on or after the Effective Date of this Automatic Option
Grant Program, whether through appointment by the Board or election by the
Corporation's stockholders, and (ii) those individuals who continue to serve as
non-employee Board members at one or more Annual Stockholders Meetings held
after such Effective Date, whether or not they commenced their Board service
prior to the Effective Date. Any non-employee Board member eligible to
participate in the Automatic Option Grant Program pursuant to the foregoing
criteria shall be designated an Eligible Director for purposes of this Plan.
B. Limitation. Except for the option grants to be made pursuant to the
-----------
provisions of this Automatic Option Grant Program, an Eligible Director serving
as Plan Administrator shall not be eligible during such period of service to
receive any additional option grants under this Plan or any other stock plan of
the Corporation (or its parent or subsidiaries).
XIII. TERMS AND CONDITIONS OF AUTOMATIC OPTION GRANTS
A. Grant Dates. Pursuant to the February 1996 Amendment to the Plan,
------------
the following revised option grant schedule shall be in effect under this
Article Three, effective February 9, 1996:
(1) Each Eligible Director who is first elected or appointed as a
non-employee Board member after the Effective Date of the Automatic Option
Grant Program shall automatically be granted, at the time of such initial
election or appointment, a non-statutory stock option to purchase
10,000/1/ shares of Common Stock upon the terms and conditions of this
Article Three.
(2) On the date of each Annual Stockholders Meeting, beginning with
the 1996 Annual Meeting, each individual who is at the time serving as an
Eligible Director shall automatically be granted at that meeting, whether
or not such individual is standing for re-election as a Board member at
that meeting, a non-statutory stock option to purchase an additional
3,500/1/ shares of Common Stock upon the terms and conditions of this
Article Three, provided he or she has served as a non-employee Board member
for at least six
- - ----------
/1/ Reflects the 3-for-2 split of the Common Stock effected by the Corporation
on June 5, 1995.
/2/ Reflects the 3-for-2 split of the Common Stock effected by the
Corporation on June 5, 1995.
15.
<PAGE>
(6) months. There shall be no limit on the number of 3,500-share option grants
any one Eligible Director may receive over his or her period of Board
service.
The number of shares for which the automatic grants are to be made to each
newly-elected or continuing Eligible Director shall be subject to periodic
adjustment pursuant to the applicable provisions of Section VI.D of Article One.
B. Option Price. For each option grant made under this Automatic Option
-------------
Grant Program, the option price per share shall be equal to one hundred percent
(100%) of the Fair Market Value per share of Common Stock on the automatic grant
date.
C. Payment. The option price shall be payable in one of the alternative
--------
forms specified below:
(i) full payment in cash or check made payable to the
Corporation's order; or
(ii) full payment in shares of Common Stock held for the
requisite period necessary to avoid a charge to the Corporation's reported
earnings and valued at Fair Market Value on the Exercise Date; or
(iii) full payment in a combination of shares of Common
Stock held for the requisite period necessary to avoid a charge to the
Corporation's reported earnings and valued at Fair Market Value on the
Exercise Date and cash or check payable to the Corporation's order; or
(iv) full payment through a sale and remittance procedure
pursuant to which the non-employee Board member (I) shall provide
irrevocable written instructions to a designated brokerage firm to effect
the immediate sale of the purchased shares and remit to the Corporation,
out of the sale proceeds available on the settlement date, sufficient funds
to cover the aggregate option price payable for the purchased shares and
shall (II) concurrently provide written directives to the Corporation to
deliver the certificates for the purchased shares directly to such
brokerage firm in order to complete the sale transaction.
The Exercise Date shall be the date on which written notice of the option
exercise is delivered to the Corporation. Except to the extent the sale and
remittance procedure is utilized for the exercise of the option, payment of the
option price for the purchased shares must accompany the exercise notice.
D. Option Term. Each automatic grant under this Article Three shall have
------------
a maximum term of ten (10) years measured from the automatic grant date.
E. Exercisability. The initial 10,000-share automatic option grant made
---------------
to each newly-elected or appointed Board member shall become exercisable for
twelve and one-half percent (12.5%) of the option shares upon the Optionee's
completion of six (6) months of Board service measured from the automatic grant
date and shall become exercisable for the balance of the option shares in a
series of fourteen (14) equal and successive quarterly installments upon the
Optionee's completion of each additional three (3)-month period of Board service
thereafter. Each 3,500-share automatic option grant made to a continuing Board
member shall become exercisable in a series of four (4) equal and successive
annual
16.
<PAGE>
installments over the Optionee's period of service on the Board, with the
first such installment to become exercisable one year after the automatic grant
date. The exercisability of each outstanding automatic grant shall be subject to
acceleration in accordance with the provisions of Section II.G and Section III
of this Article Three.
F. Non-Transferability. During the lifetime of the Optionee, each
--------------------
automatic option grant, together with the limited stock appreciation right
pertaining to such option, shall be exercisable only by the Optionee and shall
not be assignable or transferable by the Optionee other than a transfer of the
option effected by will or by the laws of descent and distribution following
Optionee's death.
G. Termination of Board Service.
-----------------------------
1. Should the Optionee cease service as a Board member for any
reason (other than death or Permanent Disability) while holding one or more
automatic option grants under this Article Three, then such individual shall
have a six (6)-month period following the date of such cessation of Board
service in which to exercise each such option for any or all of the shares of
Common Stock for which the option is exercisable at the time of such cessation
of Board service. Each such option shall immediately terminate and cease to be
outstanding, at the time of such cessation of Board service, with respect to any
shares for which the option is not otherwise at that time exercisable.
2. Should the Optionee die within six (6) months after cessation of
Board service, then each outstanding automatic option grant held by the Optionee
at the time of death may subsequently be exercised, for any or all of the shares
of Common Stock for which such option is exercisable at the time of the
Optionee's cessation of Board service (less any option shares subsequently
purchased by the Optionee prior to death), by the personal representative of the
Optionee's estate or by the person or persons to whom the option is transferred
pursuant to the Optionee's will or in accordance with the laws of descent and
distribution. Any such exercise must occur within twelve (12) months after the
date of the Optionee's death.
3. Should the Optionee die or become permanently disabled while
serving as a Board member, then each automatic option grant held by such
Optionee under this Article Three shall accelerate in full, and the Optionee (or
the representative of the Optionee's estate or the person or persons to whom the
option is transferred upon the Optionee's death) shall have a twelve (12)-month
period following the date of the Optionee's cessation of Board service in which
to exercise each such option for any or all of the shares of Common Stock
subject to that option at the time of such cessation of Board service.
4. In no event shall any automatic grant under this Article Three
remain exercisable after the specified expiration date of the ten (10)-year
option term. Upon the expiration of the applicable post-service exercise period
under subparagraph 1, 2 or 3 above or (if earlier) upon the expiration of the
ten (10)-year option term, the automatic grant shall terminate and cease to be
outstanding for any unexercised shares for which the option was otherwise
exercisable at the time of the Optionee's cessation of Board service.
17.
<PAGE>
H. Stockholder Rights. The holder of an automatic option grant under this
-------------------
Article Three shall have none of the rights of a stockholder with respect to any
shares subject to such option until such individual shall have exercised the
option and paid the option price for the purchased shares.
I. Remaining Terms. The remaining terms and conditions of each automatic
----------------
option grant shall be as set forth in the prototype Non-statutory Stock Option
Agreement attached as Exhibit A to the Plan.
XIV. CORPORATE TRANSACTION/CHANGE IN CONTROL/HOSTILE TAKE-OVER
A. In the event of any Corporate Transaction, each automatic option
grant at the time outstanding under this Article Three shall automatically
accelerate so that each such option shall, immediately prior to the specified
effective date for the Corporate Transaction, become fully exercisable with
respect to the total number of shares of Common Stock at the time subject to
such option and may be exercised for all or any portion of such shares. Upon the
consummation of the Corporate Transaction, all automatic option grants under
this Article Three shall terminate and cease to be outstanding.
B. In connection with any Change in Control of the Corporation, each
automatic option grant at the time outstanding under this Article Three shall
automatically accelerate so that each such option shall, immediately prior to
the specified effective date for the Change in Control, become fully exercisable
with respect to the total number of shares of Common Stock at the time subject
to such option and may be exercised for all or any portion of such shares.
C. Upon the occurrence of a Hostile Take-Over, the Optionee shall
have a thirty (30)-day period in which to surrender each option held by him or
her under this Article Three to the Corporation, to the extent such option has
been outstanding for a period of at least six (6) months. The Optionee shall in
return be entitled to a cash distribution from the Corporation in an amount
equal to the excess of (i) the Take-Over Price of the shares of Common Stock at
the time subject to the surrendered option (whether or not the option is
otherwise at the time exercisable for such shares) over (ii) the aggregate
option price payable for such shares. Such cash distribution shall be paid
within five (5) days following the consummation of the Hostile Take-Over.
Neither the approval of the Plan Administrator nor the consent of the Board
shall be required in connection with such option surrender and cash
distribution.
D. The shares of Common Stock subject to each option surrendered in
connection with the Hostile Take-Over shall not be available for subsequent
option grant under this Plan.
E. The automatic option grants outstanding under this Article Three
shall in no way affect the right of the Corporation to adjust, reclassify,
reorganize or otherwise change its capital or business structure or to merge,
consolidate, dissolve, liquidate or sell or transfer all or any part of its
business or assets.
XV. AMENDMENT OF THE AUTOMATIC GRANT PROVISIONS
18.
<PAGE>
A. Limited Amendments. The provisions of this Automatic Option Grant
-------------------
Program, together with the automatic option grants outstanding under this
Article Three, may not be amended at intervals more frequently than once every
six (6) months, other than to the extent necessary to comply with applicable
Federal income tax laws and regulations.
19.
<PAGE>
ARTICLE FOUR
MISCELLANEOUS
-------------
I. LOANS OR INSTALLMENT PAYMENTS
A. The Plan Administrator may, in its discretion, assist any Optionee
(including an Optionee who is an officer of the Corporation) in the exercise of
one or more options granted to such Optionee under the Discretionary Option
Grant Program, including the satisfaction of any Federal and State income and
employment tax obligations arising therefrom, by (i) authorizing the extension
of a loan from the Corporation to such Optionee or (ii) permitting the Optionee
to pay the option price for the purchased Common Stock in installments over a
period of years. The terms of any loan or installment method of payment
(including the interest rate and terms of repayment) shall be upon such terms as
the Plan Administrator specifies in the applicable option agreement or otherwise
deems appropriate under the circumstances. Loans or installment payments may be
authorized with or without security or collateral. However, the maximum credit
available to the Optionee may not exceed the option price of the acquired shares
plus any Federal and State income and employment tax liability incurred by the
Optionee in connection with the acquisition of such shares.
B. The Plan Administrator may, in its absolute discretion, determine
that one or more loans extended under this financial assistance program shall be
subject to forgiveness by the Corporation in whole or in part upon such terms
and conditions as the Plan Administrator may deem appropriate.
II. AMENDMENT OF THE PLAN AND AWARDS
A. The Board has complete and exclusive power and authority to amend
or modify the Plan (or any component thereof) in any or all respects whatsoever.
However, (i) no such amendment or modification shall adversely affect rights and
obligations with respect to options at the time outstanding under the Plan,
unless the Optionee consents to such amendment, and (ii) any amendment made to
the Automatic Option Grant Program (or any options outstanding thereunder) shall
be in compliance with the limitation of Section IV of Article Three. In
addition, the Board may not, without the approval of the Corporation's
stockholders, amend the Plan to (i) materially increase the maximum number of
shares issuable under the Plan, the number of shares for which any one
individual participating in the Plan may be granted stock options and separately
exercisable stock appreciation rights in the aggregate from and after January 1,
1995 or the number of shares for which options may be granted to newly-elected
or continuing Eligible Directors under Article Three of the Plan, except for
permissible adjustments under Section VI.D. of Article One, (ii) materially
modify the eligibility requirements for plan participation or (iii) materially
increase the benefits accruing to plan participants.
B. Options to purchase shares of Common Stock may be granted under
the Discretionary Option Grant Program which are in excess of the number of
shares then available for issuance under the Plan, provided any excess shares
actually issued under such program are held in escrow until stockholder approval
is obtained for a sufficient increase in the number of shares available for
issuance under the Plan. If such stockholder approval is not obtained within
twelve (12) months after the date the first such excess option grants are made,
then (I) any
20.
<PAGE>
unexercised excess options shall terminate and cease to be exercisable and (II)
the Corporation shall promptly refund the purchase price paid for any excess
shares actually issued under the Plan and held in escrow, together with interest
(at the applicable Short Term Federal Rate) for the period the shares were held
in escrow.
III. TAX WITHHOLDING
The Corporation's obligation to deliver shares of Common Stock upon
the exercise of stock options for such shares or the vesting of such shares
under the Plan shall be subject to the satisfaction of all applicable Federal,
State and local income and employment tax withholding requirements.
The Plan Administrator may, in its discretion and in accordance with
the provisions of this Section III of Article Four and such supplemental rules
as the Plan Administrator may from time to time adopt (including the applicable
safe-harbor provisions of SEC Rule 16b-3), provide any or all holders of non-
statutory options (other than the automatic grants made pursuant to Article
Three of the Plan) or unvested shares under the Plan with the right to use
shares of the Corporation's Common Stock in satisfaction of all or part of the
Federal, State and local income and employment tax liabilities incurred by such
holders in connection with the exercise of their options or the vesting of their
shares (the "Taxes"). Such right may be provided to any such holder in either or
both of the following formats:
a. Stock Withholding: The holder of the non-statutory option or
-----------------
unvested shares may be provided with the election to have the Corporation
withhold, from the shares of Common Stock otherwise issuable upon the exercise
of such non-statutory option or the vesting of such shares, a portion of those
shares with an aggregate Fair Market Value equal to the percentage of the
applicable Taxes (not to exceed one hundred percent (100%)) designated by the
holder.
b. Stock Delivery: The Plan Administrator may, in its discretion,
---------------
provide the holder of the non-statutory option or unvested shares purchased
thereunder with the election to deliver to the Corporation, at the time the non-
statutory option is exercised or the shares vest, one or more shares of Common
Stock previously acquired by such individual (other than in connection with the
option exercise or share vesting triggering the Taxes) with an aggregate Fair
Market Value equal to the percentage of the Taxes incurred in connection with
such option exercise or share vesting (not to exceed one hundred percent (100%))
designated by the holder.
IV. EFFECTIVE DATE AND TERM OF PLAN
A. The Plan was initially adopted by the Board on August 31, 1993
and approved by the stockholders in October 1993. As of the applicable Effective
Date for each of the equity incentive programs in effect hereunder, this Plan,
as successor to the Predecessor Plans, became effective for each such program,
and no further option grants or stock issuances shall be made under the
Predecessor Plans from and after such Effective Date. The Plan was subsequently
21.
<PAGE>
amended by the Board on January 23, 1995 to (i) increase by 750,000/1/ the
number of shares of Common Stock issuable under the Plan, (ii) limit the number
of shares of Common Stock for which any one participant may be granted stock
options and separately exercisable stock appreciation rights under the Plan to
750,000/2/ shares, exclusive of any stock options or stock appreciation rights
granted prior to January 1, 1995 and (iii) provide that the option price per
share for all non-statutory stock options granted from and after January 1, 1995
shall not be less than one hundred percent (100%) of the Fair Market Value of
the Common Stock on the grant date. The January 23, 1995 amendment was approved
by the stockholders at the 1995 Annual Meeting held on March 27, 1995. On
January 26, 1996, the Board authorized an additional 500,000-share increase in
the number of shares of Common Stock available for issuance under the Plan.
However, no option granted on the basis of such increase shall become
exercisable, in whole or in part, unless and until the stockholders approve the
increase. If such stockholder approval is not obtained at the 1996 Annual
Meeting, then any options previously granted on the basis of the 500,000-share
increase shall terminate, and no further options based on such increase shall be
granted. All outstanding options under the Plan which have not been granted on
the basis of the 500,000-share increase shall remain outstanding in accordance
with the terms and provisions of the agreements evidencing those grants, whether
or not stockholder approval of the share increase is obtained. Subject to the
foregoing limitations, the Plan Administrator may grant options under the Plan
at any time before the date fixed herein for the termination of the Plan.
B. In February 1996, the Board adopted, subject to stockholder
approval, an amendment to the Plan (the "February 1996 Amendment") which will
increase the number of shares of Common Stock for which option grants are to be
made annually under the Automatic Option Grant Program to continuing non-
employee Board members from 2,500 shares to 3,500 shares per individual. Should
such stockholder approval not be obtained at the 1996 Annual Meeting, then the
provisions of the Automatic Option Grant Program as in effect immediately prior
to the February 1996 Amendment shall automatically be reinstated so that the
number of shares of Common Stock subject to the automatic option grants to be
made to the continuing non-employee Board members on the date of that Annual
Meeting and each subsequent Annual Stockholders Meeting shall remain at 2,500
shares per individual, and no 3,500-share automatic option grants shall be made
on the basis of the February 1996 Amendment.
C. Each option issued and outstanding under the Predecessor Plans
immediately prior to the Effective Date of the Discretionary Option Grant
Program was incorporated into this Plan and treated as an outstanding option
under this Plan, but each such option shall continue to be governed solely by
the terms and conditions of the instrument evidencing such grant, and nothing in
this Plan shall be deemed to affect or otherwise modify the rights or
obligations of the holders of such options with respect to their acquisition of
shares of Common Stock thereunder.
D. The option/vesting acceleration provisions of Section III of
Article Two relating to Corporate Transactions and Changes in Control may, in
the Plan Administrator's discretion, be extended to one or more stock options
which are outstanding under the
- - ---------
/1/ Reflects the 3-for-2 split of the Common Stock effected by the Corporation
on June 5, 1995.
22.
<PAGE>
Predecessor Plans on the Effective Date of the Discretionary Option Grant
Program but which do not otherwise provide for such acceleration.
E. The Plan shall terminate upon the earlier of (i) August 30, 2003
or (ii) the date on which all shares available for issuance under the Plan shall
have been issued or cancelled pursuant to the exercise, surrender or cash-out of
the options granted under the Plan. Upon such plan termination, all outstanding
option grants shall continue to have force and effect in accordance with the
provisions of the instruments evidencing such grants.
V. USE OF PROCEEDS
Any cash proceeds received by the Corporation from the sale of shares
pursuant to option grants under the Plan shall be used for general corporate
purposes.
VI. REGULATORY APPROVALS
A. The implementation of the Plan, the granting of any stock option
or stock appreciation right under the Plan and the issuance of Common Stock upon
the exercise of the stock options or stock appreciation rights granted hereunder
shall be subject to the Corporation's procurement of all approvals and permits
required by regulatory authorities having jurisdiction over the Plan, the stock
options and stock appreciation rights granted under it, and the Common Stock
issued pursuant to it.
B. No shares of Common Stock or other assets shall be issued or
delivered under this Plan unless and until there shall have been compliance with
all applicable requirements of Federal and State securities laws, including the
filing and effectiveness of the Form S-8 registration statement for the shares
of Common Stock issuable under the Plan, and all applicable listing requirements
of any securities exchange on which stock of the same class is then listed.
VII. NO EMPLOYMENT/SERVICE RIGHTS
Neither the action of the Corporation in establishing the Plan, nor
any action taken by the Plan Administrator hereunder, nor any provision of the
Plan shall be construed so as to grant any individual the right to remain in the
employ or service of the Corporation (or any parent or subsidiary corporation)
for any period of specific duration, and the Corporation (or any parent or
subsidiary corporation retaining the services of such individual) may terminate
such individual's employment or service at any time and for any reason, with or
without cause.
VIII. MISCELLANEOUS PROVISIONS
A. Except to the extent otherwise expressly provided in the Plan,
the right to acquire Common Stock or other assets under the Plan may not be
assigned, encumbered or otherwise transferred by any Optionee.
B. The provisions of the Plan relating to the exercise of options
and the vesting of shares shall be governed by the laws of the State of
California without resort to that State conflict-of-laws rules.
23.
<PAGE>
C. The provisions of the Plan shall inure to the benefit of, and be
binding upon, the Corporation and its successors or assigns, whether by
Corporate Transaction or otherwise, and the Optionees, the legal representatives
of their respective estates, their respective heirs or legatees and their
permitted assignees.
24.
<PAGE>
EXHIBIT 99.2
CREDENCE SYSTEMS CORPORATION
NOTICE OF GRANT OF NON-EMPLOYEE DIRECTOR
INITIAL AUTOMATIC STOCK OPTION
Notice is hereby given of the following stock option (the "Option") to
purchase shares of the common stock of Credence Systems Corporation (the
"Corporation") which has been granted pursuant to the automatic grant program in
effect under the Corporation's 1993 Stock Option Plan ( the "Plan"):
OPTIONEE:
-------- __________________________________
GRANT DATE:
---------- ________________________________
TYPE OF OPTION: Non-Statutory Stock Option
--------------
OPTION PRICE: $_________________ per share
------------
NUMBER OF OPTION SHARES: 10,000 shares
-----------------------
EXPIRATION DATE:
--------------- ___________________________
EXERCISE SCHEDULE: The Option shall become exercisable for twelve and
-----------------
one-half percent (12.5%) of the Option Shares upon Optionee's
completion of six (6) months of service as a member of the
Corporation's Board of Directors (the "Board"), measured from the
Grant Date, and shall become exercisable for the balance of the Option
Shares in a series of fourteen (14) equal and successive quarterly
installments upon the Optionee's completion of each additional three
(3)-month period of Board service thereafter. In no event shall the
Option become exercisable for any additional Option Shares following
Optionee's cessation of Board service.
Optionee understands and agrees that the Option is granted subject to
and in accordance with the express terms and conditions of the Plan governing
automatic option grants to non-employee Board members. Optionee further agrees
to be bound by the terms and conditions of the Plan and the terms and conditions
of the Option as set forth in the Stock Option Agreement attached hereto as
Exhibit A.
Optionee hereby acknowledges receipt of a copy of the official Plan
Summary and Prospectus attached hereto as Exhibit B. A copy of the Plan is also
available upon request made to the Corporate Secretary at the Corporate Offices
at 42808 Christy Street, Fremont, CA 94538.
<PAGE>
No provision of this Notice of Grant or the attached Stock Option
Agreement shall in any way be construed or interpreted so as to affect adversely
or otherwise impair the right of the Corporation or the stockholders to remove
Optionee from the Board at any time in accordance with the provisions of
applicable law.
DATED: ____________________, 199__
CREDENCE SYSTEMS CORPORATION
By:
-----------------------------------
Title:
--------------------------------
-----------------------------------
OPTIONEE
Address:
-------------------------------
-------------------------------
ATTACHMENTS:
- - -----------
EXHIBIT A: STOCK OPTION AGREEMENT
EXHIBIT B: PLAN SUMMARY AND PROSPECTUS FOR NON-EMPLOYEE DIRECTORS
<PAGE>
EXHIBIT 99.3
CREDENCE SYSTEMS CORPORATION
NOTICE OF GRANT OF NON-EMPLOYEE DIRECTOR
ANNUAL AUTOMATIC STOCK OPTION
Notice is hereby given of the following stock option (the "Option") to
purchase shares of the common stock of Credence Systems Corporation (the
"Corporation") which has been granted pursuant to the automatic grant program in
effect under the Corporation's 1993 Stock Option Plan ( the "Plan"):
OPTIONEE:
-------- _____________________________________
GRANT DATE:
---------- ___________________________________
TYPE OF OPTION: Non-Statutory Stock Option
--------------
OPTION PRICE: $_________________ per share
------------
NUMBER OF OPTION SHARES: 3,500 shares
-----------------------
EXPIRATION DATE:
---------------
EXERCISE SCHEDULE: The Option shall become exercisable for the
-----------------
Option Shares in a series of four (4) equal and successive annual
installments over Optionee's continued service as a member of the
Corporation's Board of Directors (the "Board"), with the first
such installment to become exercisable upon Optionee's completion
of one year of Board service measured from the Grant Date. In no
event shall the Option become exercisable for any additional
Option Shares following Optionee's cessation of Board service.
Optionee understands and agrees that the Option is granted subject to
and in accordance with the express terms and conditions of the Plan governing
automatic option grants to non-employee Board members. Optionee further agrees
to be bound by the terms and conditions of the Plan and the terms and conditions
of the Option as set forth in the Stock Option Agreement attached hereto as
Exhibit A.
Optionee hereby acknowledges receipt of a copy of the official Plan
Summary and Prospectus attached hereto as Exhibit B. A copy of the Plan is also
available upon request made to the Corporate Secretary at the Corporate Offices
at 42808 Christy Street, Fremont, CA 94538.
No provision of this Notice of Grant or the attached Stock Option
Agreement shall in any way be construed or interpreted so as to affect adversely
or otherwise impair the right of the Corporation or the stockholders to remove
Optionee from the Board at any time in accordance with the provisions of
applicable law.
DATED: ____________________, 199__
CREDENCE SYSTEMS CORPORATION
<PAGE>
By:
-----------------------------------
Title:
---------------------------------
-----------------------------------
OPTIONEE
Address:
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-------------------------------
ATTACHMENTS:
- - -----------
EXHIBIT A: STOCK OPTION AGREEMENT
EXHIBIT B: PLAN SUMMARY AND PROSPECTUS FOR NON-EMPLOYEE DIRECTORS
2.
<PAGE>
EXHIBIT 99.4
CREDENCE SYSTEMS CORPORATION
NON-EMPLOYEE DIRECTOR AUTOMATIC STOCK OPTION AGREEMENT
RECITALS
- - --------
A. The Corporation has approved an automatic option grant program
under the 1993 Stock Option Plan (the "Plan") pursuant to which the non-employee
members of the Corporation's Board of Directors (the "Board") will automatically
receive periodic option grants designed to reward them for services they have
rendered to the Corporation and to encourage them to continue in the service of
the Corporation.
B. Optionee is a non-employee member of the Board and this Agreement
is executed pursuant to, and is intended to carry out the purposes of, the Plan
in connection with the automatic grant of a stock option to purchase shares of
the Corporation's common stock ("Common Stock"), under the Plan.
C. The granted option is intended to be a non-statutory option which
does not meet the requirements of Section 422 of the Internal Revenue Code and
---
is designed to provide Optionee with a meaningful incentive to continue to serve
as a member of the Board.
NOW, THEREFORE, it is hereby agreed as follows:
1. GRANT OF OPTION. Subject to and upon the terms and conditions set
---------------
forth in this Agreement, there is hereby granted to Optionee, as of the date of
grant (the "Grant Date") specified in the accompanying Notice of Grant of Non-
Employee Director Automatic Stock Option (the "Grant Notice"), a stock option to
purchase up to that number of shares of Common Stock (the "Option Shares") as is
specified in the Grant Notice. The Option Shares shall be purchasable from time
to time during the option term at the price per share (the "Option Price")
specified in the Grant Notice.
2. OPTION TERM. This option shall have a maximum term of ten (10)
------------
years measured from the Grant Date and shall expire at the close of business on
the Expiration Date specified in the Grant Notice, unless sooner terminated in
accordance with Paragraph 5, 7 or 8 of this Agreement.
3. LIMITED TRANSFERABILITY. This option, together with the special
------------------------
stock appreciation right provided under Paragraph 8(b), shall be neither
transferable nor assignable by Optionee, other than a transfer of this option
effected by will or by the laws of descent and distribution following Optionee's
death, and may be exercised, during Optionee's lifetime, only by Optionee.
4. DATES OF EXERCISE. This option shall become exercisable in a
------------------
series of installments as specified in the Grant Notice. As the option becomes
exercisable for one or more installments, those installments shall accumulate,
and the option shall remain exercisable for the accumulated installments until
the expiration or sooner termination of the option term. In no
<PAGE>
event shall this option become exercisable for any additional Option Shares
following Optionee's cessation of service as a Board member.
5. CESSATION OF BOARD SERVICE. Should Optionee's service as a Board
--------------------------
member cease while this option remains outstanding, then the option term
specified in Paragraph 2 shall terminate (and this option shall cease to be
outstanding) prior to the Expiration Date in accordance with the following
provisions:
(i) Should Optionee cease to serve as a Board member for any reason
other than death or permanent disability while holding this option, then the
period for exercising this option shall be reduced to a six (6)-month period
commencing with the date of such cessation of Board service, but in no event
shall this option be exercisable at any time after the specified Expiration
Date. During such limited period of exercisability, this option may not be
exercised for more than the number of Option Shares (if any) for which it is
exercisable on the date Optionee ceases service as a Board member. Upon the
expiration of such six (6)-month period or (if earlier) upon the Expiration
Date, the option shall terminate and cease to be exercisable.
(ii) Should Optionee die during the six (6)-month period following his
or her cessation of Board service, then the personal representative of
Optionee's estate or the person or persons to whom the option is transferred
pursuant to Optionee's will or in accordance with the laws of descent and
distribution shall have the right to exercise this option for any or all of the
Option Shares for which the option is exercisable at the time of Optionee's
cessation of Board service (less any Option Shares purchased by Optionee after
his or her cessation of Board service but prior to death). Such right of
exercise shall terminate, and this option shall accordingly cease to be
outstanding, upon the earlier of (A) the expiration of the twelve (12)-month
-------
period measured from the date of Optionee's death or (B) the specified
Expiration Date.
(iii) Should Optionee die or become permanently disabled while
serving as a Board member, then this option shall accelerate in full and
Optionee, or the personal representative of Optionee's estate or the person or
persons to whom the option is transferred pursuant to Optionee's will or in
accordance with the laws of descent and distribution following Optionee's death,
shall have the right to exercise this option for any or all of the Option Shares
subject to this option at the time of Optionee's cessation of Board service.
Such right of exercise shall terminate, and this option shall accordingly cease
to be outstanding, upon the earlier of (A) the expiration of the twelve (12)-
-------
month period measured from the date on which Optionee dies or becomes
permanently disabled or (B) the specified Expiration Date.
(iv) During the applicable post-service exercise period in effect
under subparagraphs (i) through (iii) above, this option may not be exercised in
the aggregate for more than the number of Option Shares (if any) for which such
option is, at the time of Optionee's cessation of Board service, exercisable in
accordance with the normal exercise provisions of Paragraph 4 or the special
acceleration provisions of Paragraph 7 or 8, to the extent applicable.
2.
<PAGE>
Upon Optionee's cessation of Board service for any reason other than death or
permanent disability, this option shall immediately terminate and cease to be
outstanding with respect to any and all Option Shares for which such option is
not otherwise at that time exercisable in accordance with the applicable
provisions of this Agreement.
(v) Optionee shall be deemed to be PERMANENTLY DISABLED or to have
suffered PERMANENT DISABILITY if Optionee is unable to engage in any substantial
gainful activity by reason of any medically determinable physical or mental
impairment which can be expected to result in death or which has lasted or can
be expected to last for a continuous period of not less than twelve (12) months.
6. ADJUSTMENT IN OPTION SHARES. Should any change be made to the
----------------------------
Common Stock issuable under the Plan by reason of any stock split, stock
dividend, combination of shares, exchange of shares or other change affecting
such Common Stock as a class without the Corporation's receipt of consideration,
then the number and class of securities purchasable under this option and the
Option Price payable per share shall be appropriately adjusted to prevent the
dilution or enlargement of Optionee's rights hereunder; provided, however, the
---------
aggregate Option Price shall remain the same.
7. CORPORATE TRANSACTION. In the event of any of the following
---------------------
stockholder-approved transactions to which the Corporation is a party (a
"Corporate Transaction"):
(i) a merger or consolidation in which the Corporation is not the
surviving entity, except for a transaction the principal purpose of which is to
change the State in which the Corporation is incorporated,
(ii) the sale, transfer or other disposition of all or substantially
all of the assets of the Corporation in liquidation or dissolution of the
Corporation, or
(iii) any reverse merger in which the Corporation is the surviving
entity but in which securities possessing more than fifty percent (50%) of the
total combined voting power of the Corporation's outstanding securities are
transferred to person or persons different from those who held such securities
immediately prior to such merger,
this option, to the extent outstanding at such time but not otherwise
fully exercisable, shall automatically accelerate so that such option shall,
immediately prior to the specified effective date for the Corporate Transaction,
become fully exercisable for all of the Option Shares at the time subject to
this option and may be exercised for all or any portion of such shares as fully-
vested shares of Common Stock. Upon the consummation of the Corporate
Transaction, this option shall terminate and cease to be outstanding.
3.
<PAGE>
8. CHANGE IN CONTROL/HOSTILE TAKEOVER.
----------------------------------
(a) This option, to the extent outstanding at the time of a Change in
Control (as defined below) but not otherwise fully exercisable, shall
automatically accelerate so that this option shall, immediately prior to the
effective date of such Change in Control, become fully exercisable for all of
the Option Shares at the time subject to this option and may be exercised for
all or any portion of such shares as fully-vested shares of Common Stock. This
option as so accelerated shall remain fully exercisable until the earliest to
--------
occur of (i) the specified Expiration Date of the option term, (ii) the sooner
termination of this option in accordance with Paragraph 5 or 7 or (iii) the
surrender of this option under Paragraph 8(b).
(b) Provided this option has been outstanding for at least six (6)
months prior to the occurrence of a Hostile Take-Over (as defined below),
Optionee shall have an unconditional right (exercisable during the thirty (30)-
day period immediately following the consummation of such Hostile Take-Over) to
surrender this option to the Corporation in exchange for a cash distribution
from the Corporation in an amount equal to the excess of (I) the Take-Over Price
of the Option Shares at the time subject to the surrendered option (whether or
not the option is otherwise at the time exercisable for such shares) over (II)
the aggregate Option Price payable for such shares.
To exercise this limited stock appreciation right, Optionee must,
during the applicable thirty (30)-day exercise period, provide the Corporation
with written notice of the option surrender in which there is specified the
number of Option Shares as to which the Option is being surrendered. Such
notice must be accompanied with the return of Optionee's copy of this Agreement,
together with any written amendments to such Agreement. The cash distribution
shall be paid to Optionee within five (5) days following such delivery date, and
neither the approval of the Plan Administrator nor the consent of the Board
shall be required in connection with such option surrender and cash
distribution. Upon receipt of such cash distribution, this option shall be
cancelled with respect to the shares subject to the surrendered option (or the
surrendered portion), and Optionee shall cease to have any further right to
acquire those Option Shares under this Agreement. In the event this option is
surrendered for only a portion of the Option Shares at the time subject thereto,
the Corporation shall issue a new stock option agreement (substantially in the
form of this Agreement) for the balance of the Option Shares for which this
option is not surrendered.
This limited stock appreciation right shall in all events terminate
upon the expiration or sooner termination of the option term and may not be
assigned or transferred by Optionee.
(c) Definitions: For purposes of this Agreement, the following
-----------
definitional provisions shall be in effect:
A CHANGE IN CONTROL shall be deemed to occur in the event:
(i) any person or related group of persons (other than the
Corporation or a person that directly or indirectly controls, is controlled
by, or is under common control with, the Corporation) directly or indirectly
acquires
4.
<PAGE>
beneficial ownership (within the meaning of Rule 13d-3 of the Securities
Exchange Act of 1934 -- the "1934 Act") of securities possessing more than
fifty percent (50%) of the total combined voting power of the Corporation's
outstanding securities pursuant to a tender or exchange offer made directly
to the Corporation's stockholders which the Board does not recommend such
stockholders to accept; or
(ii) there is a change in the composition of the Board over a
period of thirty-six (36) consecutive months or less such that a majority of
the Board members (rounded up to the next whole number) ceases, by reason of
one or more proxy contests for the election of Board membership, to be
comprised of individuals who either (A) have been Board members continuously
since the beginning of such period or (B) have been elected or nominated for
election as Board members during such period by at least a majority of the
Board members described in clause (A) who were still in office at the time
such election or nomination was approved by the Board.
A HOSTILE TAKE-OVER shall be deemed to occur in the event (i)
any person or related group of persons (other than the Corporation or a
person that directly or indirectly controls, is controlled by, or is under
common control with, the Corporation) directly or indirectly acquires
beneficial ownership (within the meaning of Rule 13d-3 of the 1934 Act) of
securities possessing more than fifty percent (50%) of the total combined
voting power of the Corporation's outstanding securities pursuant to a
tender or exchange offer made directly to the Corporation's stockholders
which the Board does not recommend such stockholders to accept and (ii) more
---
than fifty percent (50%) of the securities so acquired in such tender or
exchange offer are accepted from holders other than officers and directors
of the Corporation subject to the short-swing profit restrictions of Section
16 of the 1934 Act.
The TAKE-OVER PRICE per share shall be deemed to be equal to
the greater of (a) the Fair Market Value per share of Common Stock on the
-------
option surrender date, as determined in accordance with the valuation
provisions of Paragraph 9(b), or (b) the highest reported price per share of
Common Stock paid by the tender offeror in effecting the Hostile Take-Over.
9. MANNER OF EXERCISING OPTION.
---------------------------
(a) In order to exercise this option for all or any part of the
Option Shares for which the option is at the time exercisable, Optionee (or in
the case of exercise after Optionee's death, Optionee's executor, administrator,
heir or legatee, as the case may be) must take the following actions:
(i) Provide the Secretary of the Corporation with written
notice of the option exercise (the "Exercise Notice"), in substantially the
form of Exhibit I attached hereto, in which there is specified the number
of Option Shares which are to be purchased under the exercised option.
5.
<PAGE>
(ii) Pay the aggregate Option Price for the purchased shares in
one of the following alternative forms:
1. full payment in cash or check made payable to the
Corporation's order; or
2. full payment in shares of Common Stock held by Optionee
for the requisite period necessary to avoid a charge to the Corporation's
reported earnings and valued at Fair Market Value on the Exercise Date; or
3. full payment in a combination of shares of Common Stock
held for the requisite period necessary to avoid a charge to the
Corporation's earnings for financial reporting purposes and valued at Fair
Market Value on the Exercise Date and cash or check made payable to the
Corporation's order; or
4. full payment effected through a broker-dealer sale and
remittance procedure pursuant to which Optionee shall provide irrevocable
written instructions (A) to a Corporation-designated brokerage firm to
effect the immediate sale of the purchased shares and remit to the
Corporation, out of the sale proceeds available on the settlement date,
sufficient funds to cover the aggregate Option Price payable for the
purchased shares and (B) to the Corporation to deliver the certificates for
the purchased shares directly to such brokerage firm in order to complete
the sale.
(iii) Furnish to the Corporation appropriate documentation that
the person or persons exercising the option (if other than Optionee) have
the right to exercise this option.
(b) For purposes of subparagraph 9(a) above and for all other
valuation purposes under this Agreement, the Fair Market Value per share of
Common Stock on any relevant date shall be the determined in accordance with the
following provisions:
(i) If the Common Stock is not at the time listed or admitted to
trading on any national stock exchange but is traded on the Nasdaq National
Market, the Fair Market Value shall be the closing selling price per share on
the date in question, as such price is reported by the National Association of
Securities Dealers through the Nasdaq National Market or any successor system.
If there is no reported closing selling price for the Common Stock on the date
in question, then the closing selling price on the last preceding date for which
such quotation exists shall be determinative of Fair Market Value.
6.
<PAGE>
(ii) If the Common Stock is at the time listed or admitted to trading
on any national stock exchange, then the Fair Market Value shall be the closing
selling price per share on the date in question on the exchange determined by
the Plan Administrator to be the primary market for the Common Stock, as such
price is officially quoted in the composite tape of transactions on such
exchange. If there is no reported sale of Common Stock on such exchange on the
date in question, then the Fair Market Value shall be the closing selling price
on the exchange on the last preceding date for which such quotation exists.
(c) The Exercise Date shall be the date on which the Exercise Notice
is delivered to the Secretary of the Corporation. Except to the extent the sale
and remittance procedure specified above is utilized in connection with the
option exercise, payment of the Option Price for the purchased shares must
accompany such notice.
(d) As soon as practical after the Exercise Date, the Corporation
shall issue to or on behalf of Optionee (or other person or persons exercising
this option) a certificate or certificates representing the purchased Option
Shares.
(e) In no event may this option be exercised for any fractional
share.
10. STOCKHOLDER RIGHTS. The holder of this option shall not have
------------------
any of the rights of a stockholder with respect to the Option Shares until such
individual shall have exercised this option and paid the Option Price for the
purchased shares.
11. NO IMPAIRMENT OF RIGHTS. This Agreement shall not in any way
-----------------------
affect the right of the Corporation to adjust, reclassify, reorganize or
otherwise make changes in its capital or business structure or to merge,
consolidate, dissolve, liquidate or sell or transfer all or any part of its
business or assets. Nor shall this Agreement in any way be construed or
interpreted so as to affect adversely or otherwise impair the right of the
Corporation or the stockholders to remove Optionee from the Board at any time in
accordance with the provisions of applicable law.
12. COMPLIANCE WITH LAWS AND REGULATIONS. The exercise of this
------------------------------------
option and the issuance of the Option Shares upon such exercise shall be subject
to compliance by the Corporation and Optionee with all applicable requirements
of law relating thereto and with all applicable regulations of any stock
exchange on which shares of the Common Stock may be listed at the time of such
exercise and issuance.
13. SUCCESSORS AND ASSIGNS. Except to the extent otherwise provided
-----------------------
in Paragraph 3 or 7, the provisions of this Agreement shall inure to the benefit
of, and be binding upon, the successors, administrators, heirs, legal
representatives and assigns of Optionee and the successors and assigns of the
Corporation.
14. DISCHARGE OF LIABILITY. The inability of the Corporation to
----------------------
obtain approval from any regulatory body having authority deemed by the
Corporation to be necessary to the lawful issuance and sale of any Common Stock
pursuant to this option shall relieve the Corporation of any liability with
respect to the non-issuance or sale of the Common Stock as to which such
approval shall not have been obtained. However, the Corporation shall use its
best efforts to obtain all such applicable approvals.
7.
<PAGE>
15. NOTICES. Any notice required to be given or delivered to the
-------
Corporation under the terms of this Agreement shall be in writing and addressed
to the Corporation in care of the Corporate Secretary at the Corporate Offices
at 3500 West Warren Avenue, Fremont, CA 94538. Any notice required to be given
or delivered to Optionee shall be in writing and addressed to Optionee at the
address indicated below Optionee's signature line on the Grant Notice. All
notices shall be deemed to have been given or delivered upon personal delivery
or upon deposit in the U.S. mail, postage prepaid and properly addressed to the
party to be notified.
16. CONSTRUCTION/GOVERNING LAW. This Agreement and the option
--------------------------
evidenced hereby are made and granted pursuant to the Plan and are in all
respects limited by and subject to the express terms and provisions of the Plan,
including the automatic option grant provisions of Article Three of the Plan.
The interpretation, performance, and enforcement of this Agreement shall be
governed by the laws of the State of California without resort to that State's
conflict-of-laws rules.
8.
<PAGE>
EXHIBIT I
---------
NOTICE OF EXERCISE
OF
NONSTATUTORY STOCK OPTION
-------------------------
I hereby notify Credence Systems Corporation (the "Corporation") that
I elect to purchase _________ shares of Common Stock of the Corporation (the
"Purchased Shares") pursuant to that certain option (the "Option") granted to me
on ___________, 199__ to purchase up to __________ shares of the Corporation's
Common Stock at an option price of $______ per share (the "Exercise Price").
Concurrently with the delivery of this Exercise Notice to the
Secretary of the Corporation, I shall hereby pay to the Corporation the Exercise
Price for the Purchased Shares in accordance with the provisions of my agreement
with the Corporation evidencing the Option and shall deliver whatever additional
documents may be required by such agreement as a condition for exercise.
Alternatively, I may utilize the special broker/dealer sale and remittance
procedure specified in my agreement to effect payment of the Exercise Price for
the Purchased Shares.
- - -------------------------- --------------------------
Date Optionee
Address: --------------------------
--------------------------
Print name in exact manner
it is to appear on the
stock certificate:
--------------------------
Address to which certificate
is to be sent, if different
from address above:
--------------------------
--------------------------
Social Security Number:
--------------------------
