<PAGE>
SCHEDULE 14A
(Rule 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934
Filed by the Registrant [X]
Filed by a Party other than the Registrant [_]
Check the appropriate box:
[_] Preliminary Proxy Statement [_] Confidential, for Use of the
Commission Only (as permitted by
Rule 14a-6(e)(2))
[X] Definitive Proxy Statement
[_] Definitive Additional Materials
[_] Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
CREDENCE SYSTEMS CORPORATION
- --------------------------------------------------------------------------------
(Name of Registrant as Specified in Its Charter)
CREDENCE SYSTEMS CORPORATION
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[_] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
Common Stock
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(2) Aggregate number of securities to which transaction applies:
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(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11:/1/
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(4) Proposed maximum aggregate value of transaction:
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(5) Total fee paid:
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[_] Fee paid previously with preliminary materials.
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[_] Check box if any part of the fee is offset as provided by Exchange
Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee
was paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
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(2) Form, Schedule or Registration Statement No.:
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(3) Filing Party:
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(4) Date Filed:
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/1/ Set forth the amount on which the filing fee is calculated and state how it
was determined.
<PAGE>
CREDENCE SYSTEMS CORPORATION
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD MARCH 26, 1997
TO THE STOCKHOLDERS:
NOTICE IS HEREBY GIVEN that the Annual Meeting of Stockholders of Credence
Systems Corporation (the "Company"), a Delaware corporation, will be held on
Wednesday, March 26, 1997, at 10:00 a.m. local time, at the Company's
headquarters at 215 Fourier Avenue, Fremont, California 94539, for the
following purposes, as more fully described in the Proxy Statement
accompanying this Notice:
1. To elect two directors to serve for a three-year term ending in the year
2000 or until their successors are elected and qualified;
2. To approve a series of amendments to the Company's 1993 Stock Option
Plan, including an increase to the number of shares of Common Stock
reserved for issuance thereunder by an additional 500,000 shares to a
total of 4,125,001 shares;
3. To approve an amendment to the Company's Employee Stock Purchase Plan to
increase the number of shares of Common Stock reserved for issuance
thereunder by an additional 200,000 shares to a total of 500,000 shares
and to extend the termination date of such plan from December 31, 1998
to December 31, 2003;
4. To ratify the appointment of Ernst & Young LLP as independent auditors
of the Company for the fiscal year ending October 31, 1997; and
5. To transact such other business as may properly come before the meeting
or any adjournment or postponement thereof.
Only stockholders of record at the close of business on February 3, 1997 are
entitled to notice of and to vote at the Annual Meeting. The stock transfer
books will not be closed between the record date and the date of the meeting.
A list of stockholders entitled to vote at the Annual Meeting will be
available for inspection at the executive offices of the Company for a period
of ten days before the Annual Meeting.
All stockholders are cordially invited to attend the meeting in person.
Whether or not you plan to attend, please sign and return the enclosed Proxy
as promptly as possible in the envelope enclosed for your convenience. Should
you receive more than one proxy because your shares are registered in
different names and addresses, each proxy should be signed and returned to
assure that all your shares will be voted. You may revoke your proxy at any
time prior to the Annual Meeting. If you attend the Annual Meeting and vote by
ballot, your proxy will be revoked automatically and only your vote at the
Annual Meeting will be counted.
Sincerely,
/S/ WILMER R. BOTTOMS
----------------------------------
Dr. Wilmer R. Bottoms
Chief Executive Officer
February 20, 1997
Fremont, California
YOUR VOTE IS VERY IMPORTANT, REGARDLESS OF THE NUMBER OF SHARES YOU OWN.
PLEASE READ THE ATTACHED PROXY STATEMENT CAREFULLY, AND COMPLETE, SIGN AND
DATE THE ENCLOSED PROXY CARD AS PROMPTLY AS POSSIBLE AND RETURN IT IN THE
ENCLOSED ENVELOPE.
<PAGE>
PROXY STATEMENT
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
PROXY STATEMENT........................................................... 1
MATTERS TO BE CONSIDERED AT ANNUAL MEETING................................ 2
PROPOSAL ONE--ELECTION OF DIRECTORS..................................... 3
PROPOSAL TWO--APPROVAL OF AMENDMENTS TO 1993 STOCK OPTION PLAN.......... 5
PROPOSAL THREE--APPROVAL OF AMENDMENTS TO THE 1994 EMPLOYEE STOCK
PURCHASE PLAN........................................... 13
PROPOSAL FOUR--RATIFICATION OF INDEPENDENT AUDITORS..................... 18
OTHER MATTERS........................................................... 18
OWNERSHIP OF SECURITIES................................................... 19
EXECUTIVE COMPENSATION AND RELATED INFORMATION............................ 20
SUMMARY COMPENSATION TABLE................................................ 20
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS............................ 24
COMPENSATION COMMITTEE REPORT............................................. 24
COMPARISON OF STOCKHOLDER RETURN.......................................... 27
COMPLIANCE WITH SECTION 16(a) OF THE SECURITIES EXCHANGE ACT OF 1934...... 28
ANNUAL REPORT............................................................. 28
FORM 10-K................................................................. 28
</TABLE>
<PAGE>
CREDENCE SYSTEMS CORPORATION
215 FOURIER AVENUE
FREMONT, CALIFORNIA 94539
PROXY STATEMENT
FOR THE ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON MARCH 26, 1997
GENERAL
The enclosed proxy ("Proxy") is solicited on behalf of the Board of
Directors of Credence Systems Corporation, a Delaware corporation (the
"Company"), for use at the Annual Meeting of Stockholders to be held on March
26, 1997 (the "Annual Meeting"). The Annual Meeting will be held at 10:00 a.m.
at the Company's headquarters on 215 Fourier Avenue, Fremont, California
94539. These proxy solicitation materials were mailed on or about February 20,
1997, to all stockholders entitled to vote at the Annual Meeting.
VOTING
The specific proposals to be considered and acted upon at the Annual Meeting
are summarized in the accompanying Notice and are described in more detail in
this Proxy Statement. On February 3, 1997, the record date for determination
of stockholders entitled to notice of and to vote at the Annual Meeting,
approximately 21,824,423 shares of the Company's common stock, $.001 par value
("Common Stock"), were issued and outstanding. No shares of the Company's
preferred stock were outstanding. Each stockholder is entitled to one vote for
each share of Common Stock held by such stockholder on February 3, 1997.
Stockholders may not cumulate votes in the election of directors. Directors
are elected by a plurality vote. The other matters submitted for stockholder
approval at this Annual Meeting will be decided by the affirmative vote of a
majority of shares present in person or represented by proxy and entitled to
vote on each such matter. Abstentions with respect to any matter are treated
as shares present or represented and entitled to vote on that matter and thus
have the same effect as negative votes. If shares are not voted by the broker
who is the record holder of the shares, or if shares are not voted in other
circumstances in which proxy authority is defective or has been withheld with
respect to any matter, these non-voted shares are not deemed to be present or
represented for purposes of determining whether stockholder approval of that
matter has been obtained, but are counted for quorum purposes.
PROXIES
If the enclosed form of proxy is properly signed and returned, the shares
represented thereby will be voted at the Annual Meeting in accordance with the
instructions specified thereon. If the proxy does not specify how the shares
represented thereby are to be voted, the proxy will be voted FOR the election
of the two directors proposed by the Board unless the authority to vote for
the election of directors (or for any one or more nominees) is withheld and,
if no contrary instructions are given, the proxy will be voted FOR the
approval of Proposals 2, 3 and 4 described in the accompanying Notice and
Proxy Statement. You may revoke or change your Proxy at any time before the
Annual Meeting by filing with the Secretary of the Company at the Company's
principal executive offices, a notice of revocation or another signed Proxy
with a later date. You may also revoke your Proxy by attending the Annual
Meeting and voting in person.
SOLICITATION
The Company will bear the entire cost of solicitation, including the
preparation, assembly, printing and mailing of this Proxy Statement, the Proxy
and any additional soliciting materials furnished to stockholders. Copies of
solicitation materials will be furnished to brokerage houses, fiduciaries, and
custodians holding shares in their names that are beneficially owned by others
so that they may forward this solicitation material to such beneficial owners.
In addition, the Company may reimburse such persons for their costs in
forwarding the solicitation materials to such beneficial owners. The original
solicitation of proxies by mail may be supplemented
<PAGE>
by a solicitation by telephone, telegram, or other means by directors,
officers or employees. No additional compensation will be paid to these
individuals for any such services. Except as described above, the Company does
not presently intend to solicit proxies other than by mail.
DEADLINE FOR RECEIPT OF STOCKHOLDER PROPOSALS
Proposals of stockholders of the Company that are intended to be presented
by such stockholders at the Company's 1998 Annual Meeting must be received no
later than October 21, 1997, in order that they may be included in the proxy
statement and form of proxy relating to that meeting.
2
<PAGE>
MATTERS TO BE CONSIDERED AT ANNUAL MEETING
PROPOSAL ONE--ELECTION OF DIRECTORS
GENERAL
The Company's Certificate of Incorporation provides for a classified Board
of Directors consisting of three classes of directors having staggered three-
year terms, with each class consisting, as nearly as possible, of one-third of
the total number of directors. The Board currently consists of five persons.
The class whose term of office expires at the Annual Meeting currently
consists of two directors. The directors elected to this class will serve for
a term of three years, expiring at the year 2000 annual meeting of
stockholders or until their successors have been elected and qualified. All
nominees are currently directors of the Company with terms expiring at the
Annual Meeting. If this proposal is approved, the Board will consist of five
persons, with two classes of directors consisting of two persons and one class
consisting of one person.
Both nominees for election have agreed to serve if elected, and management
has no reason to believe that either nominee will be unavailable to serve. In
the event either nominee is unable or declines to serve as a director at the
time of the Annual Meeting, the proxies will be voted for any nominee who may
be designated by the present Board of Directors to fill the vacancy. Unless
otherwise instructed, the proxy holders will vote the proxies received by them
FOR the nominees named below. The two candidates receiving the highest number
of affirmative votes of the shares represented and voting on this particular
matter at the Annual Meeting will be elected directors of the Company, to
serve their respective terms and until their successors have been elected and
qualified.
NOMINEES FOR TERM ENDING UPON THE YEAR 2000 ANNUAL STOCKHOLDERS' MEETING
Henk J. Evenhuis, 53, has served as a Director of the Company since
September 1993. Mr. Evenhuis has been the Executive Vice President and Chief
Financial Officer of Lam Research Corporation ("Lam"), a semiconductor capital
equipment manufacturer since July 1989. Mr. Evenhuis joined Lam in April 1987
as Vice President of Finance and Administration, Chief Financial Officer and
Secretary. From 1983 to 1987, Mr. Evenhuis served as Chief Financial Officer
of Ferix Corporation, Trimedia Corporation and Corvus Systems, Inc.
Bernard V. Vonderschmitt, 73, has served as a Director of the Company since
August 1993. Mr. Vonderschmitt co-founded Xilinx, Inc. ("Xilinx"), a supplier
of field programmable gate arrays, in February 1984. Mr. Vonderschmitt has
been the Chairman of the Board of Xilinx since January 22, 1996 and served as
Chief Executive Officer of Xilinx from February 1984 to January 21, 1996. From
1981 to 1984, he was Vice President of the Microprocessor Division of Zilog,
Inc., a semiconductor manufacturer. Mr. Vonderschmitt held various management
positions at RCA Corporation for 20 years, most recently as the Vice President
of the Solid State Division. Mr. Vonderschmitt serves on the boards of
directors of Xilinx, Chips and Technologies, Inc., International
Microelectronics Products, Inc. and Sanmina Corporation, as well as several
private companies.
CONTINUING DIRECTORS FOR TERM ENDING UPON THE 1998 ANNUAL STOCKHOLDERS'
MEETING
Jos C. Henkens, 44, has served as a Director of the Company since February
1985. Mr. Henkens has been a general partner of Advanced Technology Ventures,
a venture capital firm, since January 1983. Mr. Henkens also serves on the
boards of directors of Actel Corporation, a semiconductor manufacturer,
ParcPlace-Digitalk, Inc., a software company, and various private companies.
William G. Howard, Jr., 55, has served as a Director of the Company since
February 1995. Dr. Howard has been a self-employed consultant for various
semiconductor and microelectronics companies since January 1991. From October
1987 to December 1990, Dr. Howard was a senior fellow at the National Academy
of Engineering conducting studies of technology management. Dr. Howard held
various management positions at Motorola, Inc. between 1969 to 1987, most
recently as Senior Vice President and Director of Research and Development.
Dr. Howard serves on the boards of directors of VLSI Technology, Inc., BEI
Electronics, Inc., Xilinx, and Ramtron International, Inc., as well as several
private companies.
3
<PAGE>
CONTINUING DIRECTORS FOR TERM ENDING UPON THE 1999 ANNUAL STOCKHOLDERS'
MEETING
Wilmer R. Bottoms, 53, has served on the Company's Board of Directors since
1985, was appointed acting Chairman of the Board in July 1991 and became the
Chairman of the Board in May 1992. Dr. Bottoms has been the Chief Executive
Officer of the Company since June 25, 1996. From 1984 until June 1996, Dr.
Bottoms was a General Partner of APA Partners, a venture capital firm, and
Senior Vice President and General Partner of Patricof & Co. Ventures, Inc., an
investment management firm. From 1981 to 1984, Dr. Bottoms was President of
the Semiconductor Equipment Group and Vice President of Varian Associates. Dr.
Bottoms serves on the board of directors of Bolder Technologies, Inc. as well
as several private companies.
BOARD COMMITTEES AND MEETINGS
During the fiscal year ended October 31, 1996, the Board of Directors held
four meetings and acted by Unanimous Written Consent three times. The Board of
Directors has an Audit Committee and a Compensation Committee. Each of the
directors attended or participated in 75% or more of the aggregate of (i) the
total meetings of the board of directors (held during the period he served)
and (ii) the total number of meetings held by all committees on which he
served (held during the period he served) during the past fiscal year.
The Audit Committee currently consists of two directors, Mr. Henkens and Mr.
Evenhuis, and is primarily responsible for approving the services performed by
the Company's independent auditors and reviewing their reports regarding the
Company's accounting practices and systems of internal accounting controls.
The Audit Committee held four meetings during the last fiscal year. Prior to
June 1996, Dr. William R. Bottoms, a director and the current Chief Executive
Officer of the Company, served on the Audit Committee and attended the first
three meetings held in fiscal 1996.
The Compensation Committee currently consists of three directors, Mr.
Henkens, Dr. Howard and Mr. Vonderschmitt, and is primarily responsible for
reviewing and approving the Company's general compensation policies and
setting compensation levels for the Company's executive officers. The
Compensation Committee also has the exclusive authority to administer the
Company's 1993 Stock Option Plan and make option grants thereunder. The
Compensation Committee held four meetings and acted by unanimous written
consent three times during the last fiscal year. Mr. Henkens has served on the
Compensation Committee since August 1996. Prior to June 25, 1996, Dr. Wilmer
R. Bottoms, a director and the current Chief Executive Officer of the Company,
served on the Compensation Committee and attended the first three meetings and
was a party to the first action by unanimous written consent held in fiscal
1996.
DIRECTOR COMPENSATION
As of the date of each Annual Stockholders Meeting, beginning with the 1996
Annual Meeting, each non-employee Board member who will continue to serve as
such following such meeting will receive a retainer fee of $5,000. In
addition, each non-employee Board member is paid $1,000 per Board and
committee meeting attended, and also is reimbursed for certain expenses in
connection with attendance at Board and committee meetings.
Each individual who first joins the Board as a non-employee director at any
time after October 28, 1993 will immediately receive an option grant for
10,000 shares of the Company's Common Stock under the special Automatic Option
Grant Program in effect for non-employee Board members under the Company's
1993 Stock Option Plan. In addition, at each Annual Stockholders' Meeting,
each individual who is to continue to serve as a non-employee Board member,
whether or not he is standing for re-election at that particular meeting, will
be granted an option to purchase 3,500 additional shares of Common Stock,
provided such individual has served as a Board member for at least six months.
Each grant under the Automatic Option Grant Program will have an exercise
price per share equal to the fair market value per share of the Company's
Common Stock on the grant date and will have a maximum term of ten years,
subject to earlier termination should the optionee cease to serve as a Board
member.
4
<PAGE>
Under the Automatic Option Grant Program, a stock option for 3,500 shares of
Common Stock was granted on March 27, 1996 to each of the following
individuals who continued to serve as non-employee Board members following the
Annual Stockholders Meeting held on that date: Dr. Bottoms, Mr. Evenhuis, Mr.
Henkens, Mr. Vonderschmitt and Mr. Howard. Each option has an exercise price
of $17.875 per share and will become exercisable in four successive equal
annual installments over the optionee's period of continued Board service,
measured from the grant date. However, the shares subject to each outstanding
option under the Automatic Option Grant Program will immediately vest in full
upon (i) an acquisition of the Company by merger or asset sale, (ii) a hostile
takeover of the Company or (ii) the optionee's death or disability while
continuing to serve as a Board member. For further information concerning the
terms and conditions of these various option grants, please see the summary of
the Automatic Option Grant Program in Proposal Two below.
RECOMMENDATION OF THE BOARD OF DIRECTORS
The Board of Directors recommends that the stockholders vote FOR the
election of each of the above nominees.
PROPOSAL TWO--APPROVAL OF AMENDMENTS TO 1993 STOCK OPTION PLAN
The Company's 1993 Stock Option Plan (the "1993 Plan") was originally
adopted by the Board of Directors on August 31, 1993 and approved by the
Company's stockholders in October 1993 in connection with the initial public
offering of the Company's Common Stock. The 1993 Plan serves as the successor
to both the Company's 1984 Incentive Stock Option Plan (the "1984 Plan") and
the ASIX Systems Corporation ("ASIX") 1989 Stock Option Plan which the Company
assumed in connection with its acquisition of ASIX on October 29, 1989. The
1984 Plan and the assumed ASIX Plan will be collectively referred to in this
Proposal as the Predecessor Plans.
The Company's stockholders are being asked to approve a series of amendments
to the 1993 Plan which will effect the following changes: (i) increase the
maximum number of shares of Common Stock authorized for issuance over the term
of the 1993 Plan from 3,625,001 to 4,125,001 shares, (ii) render the non-
employee Board members who are serving as the Plan Administrator eligible to
receive option grants under the Discretionary Option Grant Program in effect
under the 1993 Plan, (iii) allow unvested shares issued under the 1993 Plan
and subsequently repurchased by the Company at the option exercise price paid
per share to be reissued under the 1993 Plan and (iv) remove certain
restrictions on the eligibility of non-employee Board members to serve as Plan
Administrator and effect a series of additional changes to the provisions of
the 1993 Plan (including stockholder approval requirements) in order to take
advantage of the recent amendments to Rule 16b-3 of the Securities Exchange
Act of 1934, as amended (the "Exchange Act") which exempts certain officer and
director transactions under the 1993 Plan from the short-swing liability
provisions of the federal securities laws.
The amendments are designed to assure that a sufficient reserve of Common
Stock is available under the 1993 Plan to attract and retain the services of
key individuals essential to the Company's long-term growth and success. The
amendments will also enhance the Company's opportunity to provide equity
incentives to the non-employee Board members and facilitate plan
administration. The amendments were adopted by the Board on February 12, 1997,
subject to stockholder approval at the Annual Meeting.
The following is a summary of the principal features of the 1993 Plan,
together with the applicable tax and accounting implications, which will be in
effect if the amendments to the 1993 Plan are approved by the stockholders.
The summary, however, does not purport to be a complete description of all the
provisions of the 1993 Plan. Any stockholder of the Company who wishes to
obtain a copy of the actual plan document may do so upon written request to
the Corporate Secretary at the Company's principal executive offices in
Fremont, California. All share figures in this summary reflect the 1995 fiscal
year dividend paid by the Company in the form of one share of Common Stock on
every two shares of Common Stock outstanding on May 26, 1995.
5
<PAGE>
The 1993 Plan contains two separate components: (i) a Discretionary Option
Grant Program under which key employees (including officers), consultants and
non-employee Board members may be granted options to purchase shares of Common
Stock at an exercise price not less than the fair market value of such shares
on the grant date and (ii) an Automatic Option Grant Program under which
option grants will automatically be made at periodic intervals to the non-
employee Board members to purchase shares of Common Stock at an exercise price
equal to 100% of the fair market value of the option shares on the grant date.
The options granted under the Discretionary Option Grant Program may be either
incentive stock options designed to meet the requirements of Section 422 of
the Internal Revenue Code or non-statutory options not intended to satisfy
such requirements. All grants under the Automatic Option Grant Program will be
non-statutory options.
The 1993 Plan became effective on October 28, 1993. The table below shows,
as to the Company's Chief Executive Officer and each of the other named
executive officers, the non-employee members of the Board and the various
indicated groups, the number of shares of Common Stock subject to the stock
options granted under the 1993 Plan from the October 28, 1993 effective date
through December 31, 1996, and the weighted average exercise price payable per
share.
<TABLE>
<CAPTION>
NUMBER OF WEIGHTED AVERAGE
OPTION EXERCISE PRICE OF
NAME AND POSITION SHARES GRANTED OPTIONS
- ----------------- --------- -----------------
<S> <C> <C>
Wilmer R. Bottoms.................................. 458,500 $13.35
Chairman of the Board and Chief Executive Officer
James T. Healy..................................... 110,000 $26.27
President and Chief Executive Officer (1)
Richard Y. Okumoto................................. 95,926 $12.60
Senior Vice President and Chief Financial Officer
David A. Ranhoff................................... 77,670 $18.09
Senior Vice President, Sales and Marketing
All current executive officers as a group (3
persons).......................................... 632,096 $13.82
All current directors (other than executive
officers) as a group (4 persons) ................. 39,000 $18.00
All employees, including current officers who are
not executive officers,
as a group (575 persons).......................... 1,110,499 $20.02
</TABLE>
- --------
(1) Mr. Healy resigned as Chief Executive Officer in June 1996. In September
1996, he resigned as President and as a member of the Board of Directors.
Mr. Healy's unexercised options expired on December 31, 1996 in connection
with his resignation.
4,125,001 shares of Common Stock have been reserved for issuance over the
ten (10)-year term of the 1993 Plan, subject to stockholder approval of the
500,000-share increase which forms part of this Proposal Two. As of December
31, 1996, options for 1,594,190 shares were outstanding under the Plan,
options for 1,742,591 shares had been exercised, and 288,220 shares were
available for future option grant, to be increased to 788,220 shares if this
Proposal is approved. Should an outstanding option expire or terminate for any
reason prior to exercise in full (including options cancelled in accordance
with the cancellation-regrant provisions described below), the shares subject
to the portion of the option not so exercised will be available for subsequent
option grants under the 1993 Plan. Unvested shares issued under the 1993 Plan
and subsequently repurchased by the Company at the original option price paid
per share will be added back to the share reserve and will accordingly be
available for subsequent issuance under the 1993 Plan. Shares subject to any
option surrendered in accordance with the stock appreciation right provisions
of the 1993 Plan will not be available for subsequent issuance.
In no event may any one participant in the 1993 Plan be granted stock
options and separately exercisable stock appreciation rights for more than
750,000 shares in the aggregate under the 1993 Plan, exclusive, however, of
any stock options or stock appreciation rights granted to such individual
prior to January 1, 1995.
6
<PAGE>
DISCRETIONARY OPTION GRANT PROGRAM
The Discretionary Option Grant Program is administered by the Compensation
Committee of the Board of Directors. The Compensation Committee in its
capacity as the Plan Administrator has complete discretion to determine which
eligible individuals are to receive option grants under the Discretionary
Option Grant Program, the time or times when such grants are to be made, the
number of shares subject to each such grant, the status of any granted option
as either an incentive stock option or a non-statutory option, the vesting
schedule (if any) to be in effect for the option grant and the maximum term
for which any granted option is to remain outstanding.
Key employees (including officers), non-employee Board members, and
independent consultants are eligible to participate in the Discretionary
Option Grant Program, whether they are in the employ or service of the Company
or any parent or subsidiary corporation now or subsequently existing. As of
December 31, 1996, approximately 575 employees (including 3 executive
officers) and one (1) non-employee Board member were eligible to participate
in the Discretionary Grant Program. All non-employee Board members were
eligible to participate in the Automatic Option Grant Program as of that date.
The exercise price per share for stock options will not be less than 100% of
the fair market value of the Common Stock on the grant date. No option will
have a maximum term in excess of ten (10) years measured from the grant date.
Options are not assignable or transferable other than by will or by the laws
of inheritance following the optionee's death, and the option may, during the
optionee's lifetime, be exercised only by the optionee. The optionee will not
have any stockholder rights with respect to the option shares until the option
is exercised and the exercise price is paid for the purchased shares.
For purposes of establishing the option exercise price under the
Discretionary Option Grant Program and for all other valuation purposes under
the 1993 Plan, the fair market value of the Common Stock on any relevant date
will be the closing selling price of the Common Stock on the date in question,
as quoted on the Nasdaq National Market. On December 31, 1996, the fair market
value per share of the Common Stock was $20.125 per share, the closing selling
price per share on such date on the Nasdaq National Market.
Upon exercise of the option, the exercise price for the purchased shares
will become immediately payable in cash or in shares of Common Stock valued at
fair market value on the exercise date. The option may also be exercised
through a cashless exercise procedure pursuant to which the optionee provides
irrevocable written instructions to a designated brokerage firm to effect the
immediate sale of the purchased shares and remit to the Company, out of the
sale proceeds available on the settlement date, an amount equal to the
aggregate exercise price payable for the purchased shares plus all applicable
withholding taxes.
The Plan Administrator may assist any optionee (including an officer) in the
exercise of one or more outstanding options under the Discretionary Option
Grant Program by (i) authorizing a loan from the Company or (ii) permitting
such individual to pay the exercise price in installments over a period of
years. The terms and conditions of any such loan or installment payment will
be established by the Plan Administrator, but in no event will the maximum
credit extended exceed the aggregate exercise price payable for the purchased
shares plus any federal or state tax liability incurred in connection with the
option exercise.
The Plan Administrator may provide one or more holders of non-statutory
options with the right to have the Company withhold a portion of the shares of
Common Stock otherwise issuable upon the exercise of those options in order to
satisfy the federal and state income and employment tax withholding liability
incurred by such individuals in connection with the option exercise.
Alternatively, the Plan Administrator may allow such individuals to deliver
previously acquired shares of Common Stock in payment of such tax liability.
Upon cessation of service, the optionee will have a limited period of time
in which to exercise his or her outstanding options for any shares in which
the optionee is vested at that time. The Plan Administrator will have complete
discretion to extend the period following the optionee's cessation of service
during which his or her
7
<PAGE>
outstanding options may be exercised and/or to accelerate the exercisability
or vesting of such options in whole or in part. Such discretion may be
exercised at any time while the options remain outstanding, whether before or
after the optionee's actual cessation of service.
Outstanding options under the Discretionary Option Grant Program will be
subject to acceleration upon certain changes in the ownership or control of
the Company as follows:
A. Corporate Transaction. In the event of any one of the following
stockholder-approved transactions ("a Corporate Transaction"):
(i) a merger or consolidation in which the Company is not the surviving
entity,
(ii) the sale, transfer or other disposition of all or substantially
all of the Company's assets in liquidation or dissolution of the
Company, or
(iii) any reverse merger in which the Company is the surviving entity
but in which more than 50% of the Company's outstanding voting
securities are transferred to persons other than those who held
such securities immediately prior to the merger,
each option at the time outstanding under the Discretionary Option Grant
Program will automatically become exercisable, immediately prior to the
effective date of the Corporate Transaction, for all of the shares at the time
subject to that option and may be exercised for any or all of those shares as
fully vested shares. However, an outstanding option under the Discretionary
Option Grant Program will not so accelerate if and to the extent: (i) such
option is to be assumed by the successor corporation or parent thereof or (ii)
the acceleration of such option is subject to other limitations imposed by the
Plan Administrator at the time of grant. Any options assumed in connection
with the Corporate Transaction may, in the Plan Administrator's discretion, be
subject to subsequent acceleration in the event the optionee's service with
the successor entity is terminated within a specified period following the
acquisition.
Immediately following the consummation of the Corporate Transaction, all
outstanding options under the Discretionary Option Grant Program will, to the
extent not previously exercised by the optionees or assumed by the successor
corporation (or its parent company), terminate and cease to be exercisable.
B. Change in Control. The Plan Administrator has full power and authority,
exercisable either at the time the option is granted or at any time
while the option remains outstanding, to provide for the acceleration of
one or more outstanding options under the Discretionary Option Grant
Program in connection with a Change in Control so that each such option
will, immediately prior to the Change in Control, become exercisable for
all of the shares at the time subject to that option and may be
exercised for any or all of those shares as fully vested shares.
Alternatively, the Plan Administrator may condition such accelerated
vesting upon the optionee's cessation of service under certain
prescribed circumstances following the Change in Control.
A Change in Control will be deemed to occur:
(i) should a person or related group of persons (other than the Company
or its affiliates) acquire ownership of more than fifty percent
(50%) of the Company's outstanding voting stock pursuant to a
tender or exchange offer made directly to the Company's
stockholders; or
(ii) on the first date within any period of thirty-six (36) consecutive
months or less on which there is effected a change in the
composition of the Board of Directors such that a majority of the
Board members ceases, by reason of one or more contested elections
for Board membership, to be comprised of individuals who either
(A) have been members of the Board 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.
8
<PAGE>
Each outstanding option accelerated in connection with a Change in Control
will remain so exercisable until the expiration or sooner termination of the
option term.
The acceleration of options in the event of a Corporate Transaction or
Change in Control may be seen as an anti-takeover provision and may have the
effect of discouraging a merger proposal, a takeover attempt or other efforts
to gain control of the Company.
The Plan Administrator is authorized to issue two types of stock
appreciation rights in connection with option grants made under the
Discretionary Option Grant Program:
Tandem stock appreciation rights provide the holders with the right to
surrender their options for an appreciation distribution from the Company
equal in amount to the excess of (a) the fair market value of the vested
shares of Common Stock subject to the surrendered option over (b) the
aggregate exercise price payable for such shares. Such appreciation
distribution may, at the discretion of the Plan Administrator, be made in
cash or in shares of Common Stock.
Limited stock appreciation rights may be provided to one or more officers
of the Company as part of their option grants. Any option with such a
limited stock appreciation right may be surrendered to the Company upon the
successful completion of a hostile tender offer for more than fifty percent
(50%) of the Company's outstanding voting securities. In return for the
surrendered option, the officer will be entitled to a cash distribution
from the Company in an amount per surrendered option share equal to the
excess of (a) the highest price paid per share of Common Stock in such
tender offer over (b) the exercise price payable for such share.
The Plan Administrator has the authority to effect, on one or more separate
occasions, the cancellation of outstanding options under the Discretionary
Option Grant Program (including options incorporated from the Predecessor
Plans) which have exercise prices in excess of the then current market price
of the Common Stock and to issue replacement options with an exercise price
based on the lower market price of the Common Stock at the time of the new
grant.
AUTOMATIC GRANT PROGRAM
The terms and conditions governing the option grants which may be made under
the Automatic Option Grant Program are summarized below. All grants under the
Automatic Grant Option Program will be made in strict compliance with the
express provisions of such program, and the Plan Administrator will exercise
no discretionary functions under this particular program.
Under the Automatic Option Grant Program, each individual who first joins
the Board as a non-employee director after the October 28, 1993 effective date
of the 1993 Plan will receive at that time an automatic option grant for
10,000 shares of Common Stock. In addition, at each Annual Stockholders
Meeting, each individual who will continue to serve as a non-employee Board
member will automatically be granted at that meeting, whether or not he or she
is standing for re-election at that particular meeting, a stock option to
purchase 3,500 additional shares of Common Stock, provided such individual has
served as a non-employee Board member for at least six (6) months. There will
be no limit on the number of such 3,500-share options which any one non-
employee Board member may receive over his or her period of Board service.
Each option granted under the Automatic Option Grant Program will be subject
to the following terms and conditions:
(i) The exercise price per share will be equal to one hundred percent
(100%) of the fair market value of the option shares on the
automatic grant date.
(ii) Each option is to have a maximum term of ten (10) years measured
from the grant date, and no option may be exercised after the
expiration date of the option term.
9
<PAGE>
(iii) The initial 10,000 share grant made to a new Board member will
become exercisable for 12.5% of the option shares upon completion of
six (6) months of Board service measured from the grant date and
will become exercisable for the balance in 14 successive equal
quarterly installments upon the individual's completion of each
additional three-month period of Board service.
(iv) Each 3,500 share grant made to a continuing Board member will become
exercisable in a series of four (4) successive equal annual
installments over the optionee's period of Board service, with the
first such installment to become exercisable one (1) year after the
automatic grant date.
(v) The option will not remain exercisable for more than a six (6)-month
period following the optionee's cessation of Board service for any
reason other than death or disability. Should the optionee die
within six (6) months after cessation of Board service, then the
option will remain exercisable for up to a twelve (12)-month period
following the optionee's death and may be exercised by the personal
representative of the optionee's estate or the person to whom the
option is transferred by the optionee's will or the laws of
inheritance. During the applicable six (6)-month or (12)-month
period, the option may not be exercised in the aggregate for more
than the number of option shares for which that option is
exercisable at the time of the optionee's cessation of Board
service.
(vi) Should the optionee die or become permanently disabled while serving
as a Board member, then the option will become immediately
exercisable for all of the option shares and may be exercised for
any or all of those shares until the earlier of (a) the expiration
of the twelve (12)-month period measured from the date of the
optionee's cessation of Board service or (b) the expiration date of
the option term.
(vii) The option will become immediately exercisable for all of the shares
at the time subject to such option in the event of a Corporate
Transaction or Change in Control (as those terms are defined above).
Upon the successful completion of a hostile tender offer for more
than fifty percent (50%) of the Company's voting securities, the
optionee will have a thirty (30)-day period in which he or she may
elect to surrender each outstanding automatic option grant to the
Company in return for a cash distribution in an amount per
surrendered option share equal to the excess of (a) the highest
price paid per share of Common Stock paid in such tender offer over
(b) the exercise price payable for such share. Stockholder approval
of this Proposal shall constitute pre-approval of each such option
surrender in accordance with the terms of the 1993 Plan.
The remaining terms of the option will in general conform to the terms
described above for option grants made under the Discretionary Option Grant
Program.
GENERAL PLAN INFORMATION
In the event any change is made to the Common Stock issuable under the 1993
Plan by reason of any recapitalization, stock dividend, stock split,
combination of shares, exchange of shares or other change in corporate
structure effected without the Company's receipt of consideration, appropriate
adjustments will be made to (i) the maximum number and/or class of securities
issuable under the 1993 Plan, ((ii) the maximum number and/or class of
securities for which any one participant may be granted stock options and
separately exercisable stock appreciation rights under the Plan after December
31, 1994, (iii) the number and/or class of securities and price per share in
effect under each outstanding option (including all automatic option grants
and all option grants incorporated into the 1993 Plan from the Predecessor
Plans) and (iv) the number and/or class of securities per non-employee Board
member for which option grants will subsequently be made under the Automatic
Option Grant Program.
Option grants under the 1993 Plan will not affect the right of the Company
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.
Each stock option issued and outstanding under the Predecessor Plans
immediately prior to the effective date of the 1993 Plan was incorporated into
the 1993 Plan and treated as an outstanding stock option under the 1993 Plan,
but each such stock option continues to be governed solely by the terms and
conditions of the
10
<PAGE>
instrument evidencing such grant, and nothing in the 1993 Plan will be deemed
to affect or otherwise modify the rights or obligations of the holders of such
stock options with respect to their acquisition of shares of Common Stock
thereunder. However, the Plan Administrator has complete discretion to extend
one or more features of the 1993 Plan, including the various acceleration
provisions, to any or all of the options incorporated from the Predecessor
Plans.
The Board of Directors may amend or modify the 1993 Plan in any or all
respects whatsoever, subject to any stockholder approval required under
applicable law or regulation. The Board may terminate the 1993 Plan at any
time, and the 1993 Plan will in all events terminate on August 30, 2003. Each
stock option outstanding at the time of such termination will remain in force
in accordance with the provisions of the agreement evidencing such grant.
NEW PLAN BENEFITS
No options have been granted to date under the 1993 Plan on the basis of the
500,000-share increase which forms part of this Proposal Two for which
stockholder approval is sought.
ACCOUNTING TREATMENT
Option grants under the 1993 Plan will not result in any direct charge to
the Company's reported earnings; however, the number of outstanding options
may be a factor in determining the Company's reported earnings per share on a
fully-diluted basis. In addition, new FASB 123 will require footnote
disclosure to the Company's annual financial statements indicating the impact
that the options granted under the 1993 Plan would have upon the Company's
reported earnings were the value of those options at the time of grant treated
as compensation expense.
Should one or more optionees be granted stock appreciation rights under the
1993 Plan that have no conditions upon exercisability other than a service or
employment requirement, then such rights would result in a compensation
expense to be charged against the Company's earnings. Accordingly, at the end
of each fiscal quarter, the amount (if any) by which the fair market value of
the shares of Common Stock subject to such outstanding stock appreciation
rights has increased from the prior quarter-end would be accrued as
compensation expense, to the extent such fair market value is in excess of the
aggregate exercise price in effect for those rights.
FEDERAL TAX CONSEQUENCES
Options granted under the 1993 Plan may be either incentive stock options
that satisfy the requirements of Section 422 of the Internal Revenue Code or
non-statutory options that are not intended to meet such requirements. The
Federal income tax treatment for the two types of options differs as described
below:
Incentive Options. No taxable income is recognized by the optionee at the
time of the option grant, and no taxable income is generally recognized at the
time the option is exercised. The optionee will, however, recognize taxable
income in the year in which the purchased shares are sold or otherwise made
the subject of disposition.
For Federal tax purposes, dispositions are divided into two categories: (i)
qualifying and (ii) disqualifying. The optionee will make a qualifying
disposition of the purchased shares if the sale or other disposition of such
shares is made after the optionee has held the shares for more than two (2)
years after the grant date of the option and more than one (1) year after the
exercise date. If the optionee fails to satisfy either of these two minimum
holding periods prior to the sale or other disposition of the purchased
shares, then a disqualifying disposition will result.
If the optionee makes a disqualifying disposition of the purchased shares,
then the Company will be entitled to an income tax deduction, for the taxable
year in which such disposition occurs, equal to the excess of (i) the fair
market value of such shares on the date the option was exercised over (ii) the
exercise price paid for the
11
<PAGE>
shares. In no other instance will the Company be allowed a deduction with
respect to the optionee's disposition of the purchased shares. The Company
anticipates that any compensation deemed paid by the Company upon one or more
disqualifying dispositions of incentive stock option shares will not have to
be taken into account for purposes of the $1 million limitation per covered
individual on the deductibility of the compensation paid to certain executive
officers of the Company.
Non-statutory Options. No taxable income is recognized by an optionee upon
the grant of a non-statutory option. The optionee will in general recognize
ordinary income, in the year in which the option is exercised, equal to the
excess of the fair market value of the purchased shares on the exercise date
over the exercise price paid for the shares.
Special provisions of the Internal Revenue Code apply to the acquisition of
UNVESTED shares of Common Stock under a non-statutory option. These special
provisions may be summarized as follows:
(a) If the shares acquired upon exercise of the non-statutory option are
subject to repurchase by the Company at the original exercise price upon
the optionee's termination of service prior to vesting in such shares, then
the optionee will not recognize any taxable income at the time of exercise
but will have to report as ordinary income, as and when the Company's
repurchase right lapses, an amount equal to the excess of (i) the fair
market value of the shares on the date the Company's repurchase right
lapses with respect to those shares over (ii) the exercise price paid for
the shares.
(b) Alternatively, the optionee may elect under Section 83(b) of the
Internal Revenue Code to include as ordinary income in the year of exercise
of the non-statutory option an amount equal to the excess of (i) the fair
market value of the purchased shares on the exercise date (determined as if
the shares were not subject to the Company's repurchase right) over (ii)
the exercise price paid for such shares. If the Section 83(b) election is
made, the optionee will not recognize any additional income as and when the
Company's repurchase right lapses.
The Company will be entitled to a business expense deduction equal to the
amount of ordinary income recognized by the optionee with respect to the
exercised non-statutory option. The deduction will in general be allowed for
the taxable year of the Company in which such ordinary income is recognized by
the optionee. The Company anticipates that the compensation deemed paid by the
Company upon the exercise of non-statutory options will not have to be taken
into account for purposes of the $1 million limitation per covered individual
on the deductibility of the compensation paid to certain executive officers of
the Company.
Stock Appreciation Rights. An optionee who is granted a stock appreciation
right will recognize ordinary income in the year of exercise equal to the
amount of the appreciation distribution. The Company will be entitled to a
business expense deduction equal to the appreciation distribution for the
taxable year of the Company in which the ordinary income is recognized by the
optionee.
STOCKHOLDER APPROVAL
The affirmative vote of a majority of the outstanding voting shares of the
Company present or represented and entitled to vote at the Annual Meeting is
required for approval of the amendments to the 1993 Plan. Should such
stockholder approval not be obtained, then any options granted on the basis of
the 500,000 share increase which forms part of this Proposal will terminate
without becoming exercisable for any of the shares of Common Stock subject to
those options, and no further options will be granted on the basis of such
share increase. The 1993 Plan will, however, continue to remain in effect, and
option grants may continue to be made pursuant to the provisions of the 1993
Plan prior to the amendments until the available reserve of Common Stock under
the 1993 Plan as last approved by the stockholders is issued. In addition, the
non-employee Board members who serve as the Plan Administrator will not become
eligible to participate in the Discretionary Option Grant Program of the 1993
Plan.
RECOMMENDATION OF THE BOARD OF DIRECTORS
The Board of Directors recommends that the stockholders vote FOR the
amendments to the 1993 Plan.
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<PAGE>
PROPOSAL THREE--APPROVAL OF AMENDMENTS TO THE 1994 EMPLOYEE STOCK PURCHASE
PLAN
INTRODUCTION
The Company's stockholders are being asked to approve two amendments to the
Company's 1994 Employee Stock Purchase Plan (the "Purchase Plan") which will
effect the following changes: (i) increase the maximum number of shares of
Common Stock authorized for issuance over the term of the Purchase Plan from
300,000 to 500,000 shares and (ii) extend the termination date of the Purchase
Plan from December 31, 1998 to December 31, 2003. Both amendments were adopted
by the Board of Directors on February 12, 1997, subject to stockholder
approval at the 1997 Annual Meeting.
The Board of Directors believes that it is in the best interests of the
Company's stockholders to increase the number of shares reserved for issuance
under the Purchase Plan and to extend the term of such Plan so that eligible
employees of the Company and its participating affiliates will continue to
have the opportunity to acquire an equity interest in the Company and thereby
further align their interests with those of the stockholders.
The terms and provisions of the Purchase Plan as most recently amended are
summarized below. This summary, however, does not purport to be a complete
description of the Purchase Plan. Copies of the actual plan document may be
obtained by any stockholder upon written request to the Corporate Secretary at
the Company's principal offices in Fremont, California.
PURPOSE
The purpose of the Purchase Plan is to provide eligible employees of the
Company and its participating affiliates with the opportunity to acquire a
propriety interest in the Company through participation in a payroll-deduction
based employee stock purchase plan under Section 423 of the Internal Revenue
Code. Participating affiliates may include any parent or subsidiary
corporations of the Company, whether now existing or hereafter established,
which elect to extend the benefits of the Purchase Plan to their eligible
employees.
PURCHASE PLAN HISTORY
The Purchase Plan was originally adopted by the Board of Directors on
January 20, 1994 and approved by the Company's stockholders at the 1994 Annual
Stockholders Meeting held on March 24, 1994. The maximum number of shares of
Common Stock originally authorized for issuance under the Purchase Plan was
200,000 shares. However, as a result of the dividend paid in the form of one
share of Common Stock on every two shares of Common Stock outstanding on May
26, 1995, the maximum number of shares of Common Stock issuable over the term
of the Purchase Plan had been increased to 300,000 shares in accordance with
the anti-dilution provisions of the plan document. All other share figures in
this summary also reflect the effect of such Common Stock dividend.
ADMINISTRATION
The Purchase Plan is administered by the Compensation Committee of the
Board. Such committee, as Plan Administrator, has full authority to adopt
administrative rules and procedures and to interpret the provisions of the
Purchase Plan. All costs and expenses incurred in plan administration are paid
by the Company without charge to participants.
SECURITIES SUBJECT TO THE PURCHASE PLAN
The maximum number of shares of Common Stock authorized for issuance over
the term of the Purchase Plan is limited to 500,000 shares, assuming the
stockholders approve the share increase which forms part of this Proposal. As
of December 31, 1996, 239,114 shares of Common Stock had been issued under the
Purchase Plan and, prior to the share increase which forms part of this
Proposal, 60,886 shares of Common Stock were reserved for future issuances
under the Purchase Plan, to be increased to 260,886 shares if this Proposal
Three is approved by the stockholders.
13
<PAGE>
The shares of Common Stock issuable under the Purchase Plan may be either
shares newly issued by the Company or shares reacquired by the Company,
including shares purchased on the open market.
In the event that any change is made to the Company's outstanding Common
Stock (whether by reason of recapitalization, stock dividend, stock split,
exchange or combination of shares or other change in corporate structure
effected without the Company's receipt of consideration), appropriate
adjustments will be made to (i) the class and maximum number of securities
issuable over the term of the Purchase Plan, (ii) the class and maximum number
of securities purchasable per participant during any one purchase period and
(iii) the class and number of securities and the price per share in effect
under each outstanding purchase right.
ELIGIBILITY AND PARTICIPATION
Any individual who customarily works for more than twenty (20) hours per
week for more than five (5) months per calendar year in the employ of the
Company or any participating parent or subsidiary corporation (including any
corporation which subsequently becomes such at any time during the term of the
Purchase Plan) is eligible to participate in the Purchase Plan upon completion
of thirty (30) days of continuous employment. As of December 31, 1996, the
Company estimated that approximately 564 employees, including 3 executive
officers, were eligible to participate in the Purchase Plan.
PURCHASE PERIODS AND PURCHASE RIGHTS
Shares of Common Stock are offered under the Purchase Plan through a series
of successive purchase periods, each with a maximum duration of six (6)
months. Purchase periods run from the first day of January to the last day of
June and from the first day of July to the last day of December each year. A
new six (6)-month period began on January 1, 1997 and will continue through
June 30, 1997.
The participant has a separate purchase right for each purchase period in
which he or she participates. The purchase right is granted at the start of
the purchase period and is automatically exercised on the last business day of
that purchase period.
PURCHASE PRICE
The purchase price of the Common Stock acquired at the end of each purchase
period will be equal to 85% of the lower of (i) the fair market value per
share of Common Stock on the first day of the purchase period or (ii) the fair
market value per share of Common Stock on the last day of the purchase period.
The fair market value of the Common Stock on any relevant date under the
Purchase Plan will be deemed to be equal to the mean between the high and low
selling prices of the Common Stock on such date on the Nasdaq National Market.
On December 31, 1996, the fair market value per share of Common Stock
determined on such basis was $19.06.
PAYROLL DEDUCTIONS AND STOCK PURCHASES
Each participant may authorize periodic payroll deductions in any multiple
of 1% (up to a maximum of 10%) of his or her base salary each purchase period
to be applied to the purchase of Common Stock at the end of that purchase
period.
On the last business day of each purchase period, the payroll deductions of
each participant are automatically applied to the purchase of whole shares of
Common Stock at the purchase price in effect for that purchase period. Any
amount remaining in the participant's account after such application is, in
most instances, carried to the next purchase period.
14
<PAGE>
SPECIAL LIMITATIONS
The Purchase Plan imposes certain limitations upon a participant's rights to
acquire Common Stock, including the following limitations:
(i) Purchase rights may not be granted to any individual who owns stock
(including stock purchasable under any outstanding purchase rights)
possessing 5% or more of the total combined voting power or value of
all classes of stock of the Company of any of its affiliates.
(ii) Purchase rights granted to a participant may not permit such
individual to purchase more than $25,000 of Common Stock (valued at
the time each purchase right is granted) during any one calendar year.
(iii) No participant may purchase more than 750 shares of Common Stock
during any one purchase period.
TERMINATION OF PURCHASE RIGHTS
The purchase right will immediately terminate upon (i) the Company's
termination of the Purchase Plan, (ii) the participant's election to withdraw
from the Purchase Plan or (iii) the participant's cessation of employment or
loss of eligible employee status. Any payroll deductions which the participant
may have made with respect to the terminated purchase right will be refunded
and will not be applied to the purchase of Common Stock.
STOCKHOLDER RIGHTS
No participant has any stockholder rights with respect to the shares covered
by his or her purchase rights until the shares are actually purchased on the
participant's behalf. No adjustment is made for dividends, distributions or
other rights for which the record date is prior to the date of such purchase.
ASSIGNABILITY
No purchase rights are assignable or transferable by the participant, and
the purchase rights are exercisable only by the participant.
CHANGE IN CONTROL
In the event the Company is acquired by merger or asset sale during a
purchase period, all outstanding purchase rights will automatically be
exercised immediately prior to the effective date of such acquisition. The
purchase price will be the lesser of (i) 85% of the fair market value per
share of Common Stock on the start date of the purchase period in which such
acquisition occurs or (ii) 85% of the fair market value per share of Common
Stock immediately prior to such acquisition.
AMENDMENT AND TERMINATION
The Purchase Plan will terminate upon the earlier of (i) December 31, 2003
or (ii) the date on which all shares available for issuance thereunder are
sold pursuant to exercised purchase rights.
The Board may at any time alter, suspend or discontinue the Purchase Plan.
However, the Board may not, without stockholder approval, (i) increase the
number of shares issuable under the Purchase Plan or the maximum number of
shares purchasable per participant during any one purchase period, except in
connection with certain changes in the Company's capital structure, (ii) alter
the purchase price formula so as to reduce the purchase price, (iii)
materially increase the benefits accruing to participants or (iv) materially
modify the requirements for eligibility to participate in the Purchase Plan.
FEDERAL TAX CONSEQUENCES
The Purchase Plan is intended to be an "employee stock purchase plan" within
the meaning of Section 423 of the Internal Revenue Code. Under a plan which so
qualifies, no taxable income is recognized by a participant, and no deductions
will be allowable to the Company, upon either the grant or the exercise of the
purchase rights. Taxable income will not be recognized until there is a sale
or other disposition of the shares acquired under the Purchase Plan or in the
event the participant should die while still owning the purchase shares.
15
<PAGE>
If the participant sells or otherwise disposes of the purchased shares
within two (2) years after the start date of the purchase period in which such
shares were acquired, then the participant will recognize ordinary income in
the year of sale or disposition equal to the amount by which the fair market
value of the shares on the purchase date exceeded the purchase price paid for
those shares, and the Company will be entitled to an income tax deduction, for
the taxable year in which such disposition occurs, equal in amount to such
excess.
If the participant sells or disposes of the purchased shares more than two
(2) years after the start date of the purchase period in which the shares were
acquired, then the participant will recognize ordinary income in the year of
sale or disposition equal to the lesser of (i) the amount by which the fair
market value of the shares on the sale or disposition date exceeded the
purchase price paid for those shares or (ii) fifteen percent (15%) of the fair
market value of the shares on the start date of that purchase period. Any
additional gain upon the disposition will be taxed as a long-term capital
gain. The Company will not be entitled to an income tax deduction with respect
to such disposition.
If the participant still owns the purchased shares at the time of death, the
lesser of (i) the amount by which the fair market value of the shares on the
date of death exceeds the purchase price or (ii) fifteen percent (15%) of the
fair market value of the shares on the start date of the purchase period in
which those shares were acquired will constitute ordinary income in the year
of death.
ACCOUNTING TREATMENT
Under current accounting rules, the issuance of Common Stock under the
Purchase Plan does not result in a compensation expense chargeable against the
Company's reported earnings. However, the Company must disclose, in pro-forma
notes to the Company's financial statements, the impact the purchase rights
granted under the Purchase Plan would have upon the Company's reported
earnings were the value of those purchase rights treated as compensation
expense.
STOCK ISSUANCES
The table below shows, as to each of the Company's executive officers named
in the Summary Compensation Table and the various indicated groups, the number
of shares of Common Stock purchased under the Purchase Plan over the period
beginning April 1, 1994, the start date of the initial purchase period, and
ending December 31, 1996, together with the weighted average purchase price
paid per share.
PURCHASE PLAN TRANSACTIONS
<TABLE>
<CAPTION>
NUMBER OF WEIGHTED AVERAGE
NAME PURCHASED SHARES PURCHASE PRICE
- ---- ---------------- ----------------
<S> <C> <C>
Wilmer R. Bottoms............................ -- --
Chairman of the Board and Chief Executive
Officer
James T. Healy............................... 3,053 $11.91
President and Chief Executive Officer (1)
Richard Y. Okumoto........................... 998 $11.01
Senior Vice President and Chief Financial
Officer
David A. Ranhoff............................. 3,395 $11.86
Senior Vice President, Sales and Marketing
All current executive officers as a group (3
persons).................................... 7,446 $11.77
All current directors (other than executive
officers) as a group (4 persons)............ n/a n/a
All employees, including current officers who
are not executive officers, as a group (575
persons).................................... 239,114 $11.99
</TABLE>
- --------
(1) Mr. Healy resigned as Chief Executive Officer in June 1996. In September
1996, he resigned as President and as a member of the Board of Directors.
16
<PAGE>
NEW PLAN BENEFITS
As of December 31, 1996, no purchase rights had been granted, and no shares
of Common Stock had been issued, under the Purchase Plan on the basis of the
200,000-share increase which forms part of this Proposal Three.
STOCKHOLDER APPROVAL
The affirmative vote of a majority of the outstanding voting shares of the
Company present or represented and entitled to vote at the Annual Meeting is
required for approval of the amendments to (i) increase the share reserve
under the Purchase Plan by an additional 200,000 shares and (ii) extend the
termination date of the Purchase Plan to December 31, 2003. Should such
stockholder approval not be obtained, then no purchase rights will be granted,
and no shares of Common Stock will be issued, under the Purchase Plan on the
basis of such 200,000 share increase, and the Purchase Plan will terminate no
later than December 31, 1998.
RECOMMENDATION OF THE BOARD OF DIRECTORS
The Board of Directors recommends that the stockholders vote FOR the
amendments to the Purchase Plan.
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<PAGE>
PROPOSAL FOUR--RATIFICATION OF INDEPENDENT AUDITORS
The Board of Directors has appointed the firm of Ernst & Young LLP,
independent auditors for the Company during fiscal year 1996, to serve in the
same capacity for the fiscal year ending October 31, 1997, and is asking the
stockholders to ratify this appointment. The affirmative vote of a majority of
the shares represented and voting at the Annual Meeting is required to ratify
the selection of Ernst & Young LLP.
In the event the stockholders fail to ratify the appointment, the Board of
Directors will reconsider its selection. Even if the selection is ratified,
the Board of Directors in its discretion may direct the appointment of a
different independent auditing firm at any time during the year if the Board
of Directors believes that such a change would be in the best interests of the
Company and its stockholders.
A representative of Ernst & Young LLP is expected to be present at the
Annual Meeting and, will have the opportunity to make a statement if he or she
desires to do so, and will be available to respond to appropriate questions.
RECOMMENDATION OF THE BOARD OF DIRECTORS
The Board of Directors recommends that the stockholders vote FOR the
ratification of the selection of Ernst & Young LLP to serve as the Company's
independent auditors for the fiscal year ending October 31, 1997.
OTHER MATTERS
The Company knows of no other matters that will be presented for
consideration at the Annual Meeting. If any other matters properly come before
the Annual Meeting, it is the intention of the persons named in the enclosed
form of Proxy to vote the shares they represent as the Board of Directors may
recommend. Discretionary authority with respect to such other matters is
granted by the execution of the enclosed Proxy.
18
<PAGE>
OWNERSHIP OF SECURITIES
The following table sets forth certain information known to the Company with
respect to the beneficial ownership of the Company's Common Stock as of
December 31, 1996, unless otherwise noted, by (i) all persons who are
beneficial owners of five percent (5%) or more of the Company's Common Stock,
(ii) each director and nominee, (iii) the Company's current and former Chief
Executive Officer and the two other most highly paid current executive
officers named in the Summary Compensation Table below and (iv) all current
directors and executive officers as a group. Unless otherwise indicated, each
of the stockholders has sole voting and investment power with respect to the
shares beneficially owned, subject to community property laws, where
applicable.
<TABLE>
<CAPTION>
SHARES
BENEFICIALLY PERCENTAGE OF SHARES
NAME AND ADDRESS OF BENEFICIAL OWNER OWNED BENEFICIALLY OWNED (1)
- ------------------------------------ ------------ ----------------------
<S> <C> <C>
J. & W. Seligman & Co., Inc. (2)........... 3,305,106 15.15%
100 Park Avenue
New York, NY 10006
Entities affiliated with Putnam Investments
Inc. (3).................................. 2,131,054 9.77%
10 Langley Road
Newton Center, MA 02159
Capital Group Companies, Inc.(4)........... 2,009,600 9.21%
333 S. Hope Street, Floor 52
Los Angeles, CA 90071
Wilmer R. Bottoms (5)...................... 161,187 *
Henk J. Evenhuis (6)....................... 10,626 *
Jos C. Henkens (7)......................... 5,626 *
William G. Howard (8)...................... 5,001 *
Bernard V. Vonderschmitt (9)............... 13,626 *
James T. Healy............................. 39,175 *
Richard Y. Okumoto (10).................... 56,256 *
David A. Ranhoff (11)...................... 50,642 *
All current directors and executive
officers as a group (7 persons) (12)...... 302,964 *
</TABLE>
- --------
* Less than one percent of the outstanding Common Stock.
(1) Percentage of ownership is based on 21,818,802 shares of Common Stock
outstanding on December 31, 1996.
(2) Pursuant to a Schedule 13G dated February 12, 1997 and filed with the
Securities and Exchange Commission, J. & W. Seligman & Co., Inc. has
reported that as of December 31, 1996 it had sole voting power over
3,120,274 shares and sole dispositive power over 3,305,106 shares.
(3) Pursuant to a Schedule 13G dated January 28, 1997 and filed with the
Securities and Exchange Commission, Putnam Investments, Inc. ("PI") has
reported that as of December 31, 1996 it had sole voting power over no
shares, shared voting power over 328,971 shares, sole dispositive power
over no shares and shared dispositive power over 2,131,054 shares. PI,
which is a wholly owned subsidiary of Marsh & McLennan Companies, Inc.
("MMC"), wholly owns two registered investment advisers: Putnam
Investment Management, Inc. ("PIM"), which is the investment adviser to
the Putnam family of mutual funds and holds 1,709,634 of PI's shares and
The Putnam Advisory Company, Inc. ("PAC"), which is the investment
adviser to Putnam's institutional clients who holds 421,420 of PI's
shares. Both subsidiaries have dispository power over the shares as
investment managers, but each of the mutual fund's trustees have voting
power over the shares held by each fund, and PAC has shared voting power
over the shares held by the institutional clients. PI and MMC each
disclaim beneficial ownership of the securities covered by the Schedule
13G, and each further stated that it did not have any power to vote or
dispose of, or direct the voting or disposition of, any of the securities
covered by the Schedule 13G.
19
<PAGE>
(4) Pursuant to a Form 13G dated February 12, 1997 and filed with the
Securities and Exchange Commission, The Capital Group Companies, Inc. has
reported that as of December 31, 1996 it had sole voting power over
1,529,600 shares, sole dispositive power over 2,009,600 shares and it has
disclaimed investment discretion, sole, shared or otherwise for all
purposes other than Form 13G.
(5) Includes 97,344 shares under stock options currently exercisable or
exercisable within sixty (60) days after December 31, 1996.
(6) Includes 10,625 shares under stock options currently exercisable or
exercisable within sixty (60) days after December 31, 1996.
(7) Includes 5,625 shares under stock options currently exercisable or
exercisable within sixty (60) days after December 31, 1996.
(8) Includes 5,001 shares under stock options currently exercisable or
exercisable within sixty (60) days after December 31, 1996.
(9) Includes 10,625 shares under stock options currently exercisable or
exercisable within sixty (60) days after December 31, 1996.
(10) Includes 55,257 shares under stock options currently exercisable or
exercisable within sixty (60) days after December 31, 1996.
(11) Includes 39,912 shares under stock options currently exercisable or
exercisable within sixty (60) days after December 31, 1996.
(12) Includes 224,389 shares under stock options currently exercisable or
exercisable within sixty (60) days after December 31, 1996.
20
<PAGE>
EXECUTIVE COMPENSATION AND RELATED INFORMATION
The following table provides certain summary information concerning the
compensation earned, by the Company's current Chief Executive Officer, the
Company's former Chief Executive Officer and each of the Company's other two
most highly compensated executive officers whose salary and bonus for the 1996
fiscal year was in excess of $100,000, for services rendered in all capacities
to the Company and its subsidiaries for the last three fiscal years. No other
executive officers who would have otherwise been includable in such table on
the basis of salary and bonus earned for the 1996 fiscal year have resigned or
terminated employment during that fiscal year.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL LONG-TERM
COMPENSATION COMPENSATION AWARDS
--------------------------------------- ------------------------------
SECURITIES
NAME AND PRINCIPAL OTHER ANNUAL UNDERLYING ALL OTHER
POSITION YEAR SALARY BONUS COMPENSATION OPTIONS COMPENSATION (5)
- ------------------ ---- ------- ------- ------------ ---------- ----------------
($) ($) ($) (#) ($)
<S> <C> <C> <C> <C> <C> <C>
Wilmer R. Bottoms.................... 1996 105,000(2) 160,000(2) 15,000(8) 453,500(4) 90,345(6)
Chairman of the Board 1995 -- -- 21,000(8) 2,500(7) 42,000(9)
and Chief Executive Officer (1) 1994 -- -- 16,000(8) 2,500(7) --
James T. Healy....................... 1996 225,000 99,000 -- 75,000(10) 10,259
President and Chief 1995 233,000 220,000 -- 35,000(10) 10,259
Executive Officer (1) 1994 215,000 150,500 26,588(3) -- 7,693
Richard Y. Okumoto................... 1996 157,000 140,000 -- 43,426 2,346
Senior Vice President, 1995 143,000 130,000 -- -- 2,223
Chief Financial Officer 1994 135,000 94,500 7,913(3) 52,500 2,070
and Secretary
David A. Ranhoff..................... 1996 150,000 150,000 -- 77,670 2,070
Senior Vice President, 1995 150,000 120,000 -- -- 1,887
Sales and Marketing 1994 150,000 90,000 21,675(3) -- 1,774
</TABLE>
- --------
(1) Dr. Bottoms became Chief Executive Officer on June 25, 1996. Mr. Healy
resigned as Chief Executive Officer on June 25, 1996, and subsequently
resigned as President and as a director of the Company effective September
30, 1996.
(2) Dr. Bottoms became an employee of the Company in June 1996. On an
annualized basis, his salary for the fiscal year ended October 31, 1996
would have been $325,000 and his bonus would have been $450,000.
(3) Includes the cash out of unused vacation days accrued since the
commencement of employment.
(4) Dr. Bottoms was granted an option to purchase 450,000 shares on June 25,
1996 in connection with his appointment to Chief Executive Officer. He was
also granted an option to purchase 3,500 shares on March 27, 1996 pursuant
to the Automatic Grant Program for non-employee directors.
(5) Represents premiums paid by the Company on the special life insurance
policies maintained for the executive officers, the proceeds of which are
payable at death to their designated beneficiaries.
(6) Includes (i) $84,000 paid to Dr. Bottoms for consulting services performed
while Dr. Bottoms was a non-employee director plus (ii) $6,345
attributable to the premiums described in Note 5 above.
(7) Automatic option grants were granted to Dr. Bottoms in his capacity as a
non-employee member of the Board of Directors during the fiscal years
ended October 31, 1994 and 1995.
(8) Directors fees were paid to Dr. Bottoms in his capacity as a non-employee
member of the Board of Directors for the period from November 1, 1995
through June 24, 1996 during the 1996 fiscal year and for the fiscal years
ended October 31, 1994 and 1995.
(9) The Company paid approximately $42,000 to an entity with which Dr. Bottoms
was affiliated, for consulting services rendered by Dr. Bottoms to the
Company during fiscal years 1993 and 1994.
(10) Mr. Healy's unexercised options expired on December 31, 1996 in
connection with his resignation, effective September 30, 1996.
21
<PAGE>
OPTION GRANTS IN LAST FISCAL YEAR
The following table contains information concerning the stock option grants
made to each of the executive officers named in the Summary Compensation Table
for the fiscal year ended October 31, 1996. No stock appreciation rights were
granted to these individuals during such fiscal year.
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
VALUE AT
ASSUMED ANNUAL
RATES OF STOCK
PRICE APPRECIATION
INDIVIDUAL GRANT FOR OPTION TERM
- ------------------------------------------------------------------------- ---------------------
NUMBER OF % OF TOTAL ($) (3)
SECURITIES OPTIONS
UNDERLYING GRANTED TO
OPTIONS EMPLOYEES IN EXERCISE OR
GRANTED FISCAL BASE PRICE EXPIRATION
NAME (#) YEAR ($/SH) (2) DATE 5% 10%
- ---- ---------- ------------ ----------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Wilmer R. Bottoms ...... 450,000(1) 41% $13.25 06/24/06 3,749,784 9,502,689
3,500(4) <1% 17.88 03/24/06 39,345 99,709
James T. Healy.......... 75,000(1) 7% 23.13 12/31/96(5) (5) (5)
Richard Y. Okumoto ..... 10,000(1) 1% 23.13 02/07/06 145,432 368,553
33,426(6) 3% 12.75 08/18/06 268,023 679,224
David A. Ranhoff........ 40,000(1) 4% 23.13 02/07/06 581,728 1,474,212
37,670(6) 3% 12.75 08/18/06 302,053 765,463
</TABLE>
- --------
(1) Options granted to Dr. Bottoms and Messrs. Healy, Okumoto and Ranhoff will
become exercisable for one-eighth ( 1/8) of the option shares upon the
completion of six months of service measured from the grant date (6/25/96
for Dr. Bottoms and 2/8/96 for Messrs. Okumoto and Ranhoff) and will
become exercisable for the balance of the option shares in a series of
fourteen (14) successive equal quarterly installments upon his completion
of each additional full quarter of service thereafter. Each option will be
subject to full and immediate acceleration should the Company be acquired
by a merger or asset sale, unless the option is assumed by the acquiring
entity. Each option has a maximum term of 10 years, subject to earlier
termination in the event of the optionee's cessation of employment with
the Company.
(2) The exercise price may be paid in cash, in shares of the Company's Common
Stock valued at fair market value on the exercise date or through a
cashless exercise procedure involving a same-day sale of the purchased
shares. The Company may also finance the option exercise by loaning the
optionee sufficient funds to pay the exercise price for the purchased
shares and the federal and state income tax liability incurred by the
optionee in connection with such exercise.
(3) There is no assurance provided to any executive officer or any other
holder of the Company's securities that the actual stock price
appreciation over the 10-year option term will be at the five percent (5%)
or ten percent (10%) assumed annual rates of compounded stock price
appreciation or at any other defined level. Unless the market price of the
Common Stock appreciates over the option term, no value will be realized
from the option grants made to the executive officers.
(4) The option was granted to Dr. Bottoms pursuant to the Automatic Option
Grant Program for non-employee directors and will become exercisable in
four successive equal annual installments over his period of continued
Board service measured from the March 27, 1996 grant date. However, the
shares will immediately vest in full upon (i) an acquisition of the
Company by merger or asset sale, (ii) a hostile takeover of the Company or
(iii) optionee's death or disability while continuing to serve as a Board
member.
(5) Mr. Healy's unexercised options expired on December 31, 1996 in connection
with his resignation, effective September 30, 1996.
(6) These Options granted to Messrs. Okumoto and Ranhoff will become
exercisable for ten percent (10%) of the option shares upon the completion
of six (6) months of service measured from the August 19, 1996 grant date
and will become exercisable for the balance of the option shares in a
series of eighteen (18) successive equal quarterly installments over the
optionee's continued period of service following the grant date. Each
option will be subject to full and immediate acceleration should the
Company be acquired by a merger or asset sale, unless the option is
assumed by the acquiring entity.
22
<PAGE>
AGGREGATED OPTION EXERCISES AND FISCAL YEAR-END VALUES
The table below sets forth certain information with respect to the Company's
Chief Executive Officer and the other executive officers named in the Summary
Compensation Table concerning the exercise of options during the 1996 fiscal
year and unexercised options held as of the end of such fiscal year. No stock
appreciation rights were exercised during the 1996 fiscal year, nor were any
stock appreciation rights outstanding at the end of such fiscal year.
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
SHARES UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS AT
ACQUIRED AGGREGATE OPTIONS AT FY-END (#) FY-END ($) (1)
ON VALUE ------------------------- -------------------------
NAME EXERCISE REALIZED (2) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---- -------- ------------ ----------- ------------- ----------- -------------
(#) ($)
<S> <C> <C> <C> <C> <C> <C> <C>
Wilmer R. Bottoms....... -- -- 37,500 468,500 164,766 223,672
James T. Healy.......... -- -- 93,934 -- 929,453 --
Richard Y. Okumoto...... -- -- 43,322 74,205 309,916 206,710
David A. Ranhoff........ 7,000 150,500 31,145 72,670 330,081 32,961
</TABLE>
- --------
(1) Based on the market value of the option shares at fiscal year-end ($13.625
per share) less the exercise price.
(2) Based on the market value of the shares on the date of exercise less the
exercise price paid for those shares.
EMPLOYMENT CONTRACTS, TERMINATION OF EMPLOYMENT ARRANGEMENTS AND CHANGE IN
CONTROL AGREEMENTS
None of the Company's executive officers have employment agreements with the
Company, and their employment may be terminated at any time at the discretion
of the Board of Directors. The Compensation Committee of the Board of
Directors has the authority as Plan Administrator of the 1993 Stock Option
Plan to provide for the accelerated vesting of the shares of Common Stock
subject to outstanding options held by the Chief Executive Officer and the
Company's other executive officers, whether granted under that plan or any
predecessor plan, in the event their employment were to be terminated (whether
involuntarily or through a forced resignation) following (i) an acquisition of
the Company by merger or asset sale or (ii) a change in control of the Company
effected through a successful tender offer for more than 50% of the Company's
outstanding Common Stock or through a change in the majority of the Board as a
result of one or more contested elections for Board membership.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
For the first seven months of fiscal year 1996, the Compensation Committee
consisted of three members: Dr. Bottoms, Mr. Vonderschmitt and Dr. Howard. In
June, 1996, Dr. Bottoms resigned from both the Compensation and Audit
Committees. From June 26, 1996 through August 1996, the Compensation Committee
consisted of the two remaining members. In August, 1996, Mr. Henkens was
elected to the Compensation Committee and has served on the Committee for the
remainder of fiscal 1996.
The Company paid $84,000 to Dr. Bottoms for consulting services rendered by
Dr. Bottoms to the Company during the 1996 fiscal year.
Mr. Vonderschmitt, a Director of the Company, is co-founder and Chairman of
the Board of Xilinx. For the fiscal year ended October 31, 1996, the Company
sold approximately $7,887,000 of products and services to Xilinx. The
outstanding account receivable with respect to such sales was approximately
$126,000 as of December 31, 1996.
No executive officer of the Company serves as a member of the board of
directors or compensation committee of any entity which has one or more of its
executive officers serving as members of the Company's Board of Directors or
the Compensation Committee.
23
<PAGE>
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The Company's Restated Certificate of Incorporation and Restated Bylaws
provide for indemnification of directors, officers and certain agents of the
Company. Each of the current directors and executive offices of the Company
have entered into separate indemnification agreements with the Company.
COMPENSATION COMMITTEE REPORT
The Compensation Committee of the Board of Directors is responsible for
establishing the base salary and incentive cash bonus programs for the
Company's executive officers and other key employees and administering certain
other compensation programs for such individuals, subject in each instance to
review by the full Board. The Compensation Committee also has the exclusive
responsibility for the administration of the Company's 1993 Stock Option Plan
under which grants may be made to executive officers and other key employees.
For the first seven months of fiscal year 1996, the Compensation Committee
consisted of three members: Dr. Bottoms, Mr. Vonderschmitt and Dr. Howard. In
June, 1996, Dr. Bottoms resigned from both the Compensation and Audit
Committees upon his appointment to Chief Executive Officer. From June 26, 1996
through August 1996, the Compensation Committee consisted of the two remaining
members. In August, 1996, Mr. Henkens was elected to the Compensation
Committee and has served on the Committee for the remainder of fiscal 1996.
GENERAL COMPENSATION POLICY. The fundamental policy of the Compensation
Committee is to provide the Company's executive officers and other key
employees with competitive compensation opportunities based upon their
contribution to the financial success of the Company and their personal
performance. It is the Compensation Committee's objective to have a
substantial portion of each officer's compensation contingent upon the
Company's performance as well as upon the officer's own level of performance.
Accordingly, the compensation package for each executive officer and key
employee is comprised of three elements: (i) base salary which reflects
individual performance and is designed primarily to be competitive with salary
levels in the industry, (ii) annual variable performance awards payable in
cash and tied to the Company's achievement of financial performance targets,
and (iii) long-term stock-based incentive awards which strengthen the
mutuality of interests between the executive officers and the Company's
stockholders. As an executive officer's level of responsibility increases, it
is the intent of the Compensation Committee to have a greater portion of the
executive officer's total compensation be dependent upon Company performance
and stock price appreciation rather than base salary.
FACTORS. The principal factors which the Compensation Committee considered
in establishing the components of each executive officer's compensation
package for the 1996 fiscal year are summarized below. The Compensation
Committee may, however, in its discretion apply entirely different factors,
particularly different measures of financial performance, in setting executive
compensation for future fiscal years.
* Base Salary. For comparative compensation purposes for the 1996 fiscal
year, the Compensation Committee has, with the assistance of an independent
compensation consultant, identified a peer group of companies comparable in
size with the Company which provide manufacturing and testing equipment to the
semiconductor industry. The base salary for each officer is determined on the
basis of the following factors: the salary levels in effect for comparable
positions at the peer group companies (determined on the basis of their
published 1995 fiscal year data), the experience and personal performance of
the officer and internal comparability considerations. The weight given to
each of these factors differs from individual to individual, as the
Compensation Committee deems appropriate. The compensation level for the
Company's executive officers for the 1996 fiscal year ranged from the thirty-
third (33rd) percentile to the fiftieth (50th) percentile of the base salary
levels in effect for executive officers with comparable positions at the peer
group companies, based on the published 1995 fiscal year data for those
companies.
For purposes of the stock price performance graph which appears later in
this Proxy Statement, the Company has selected the Nasdaq Electronic
Components Index as the industry index. Twelve of the companies
24
<PAGE>
included in that index were also among the companies which the Committee
surveyed as part of the peer group for comparative compensation purposes.
However, in selecting companies to survey for such compensation purposes, the
Compensation Committee considers many factors not directly associated with
stock price performance, such as geographic location, growth rate, annual
revenue and profitability, and market capitalization. For this reason, the
number of companies surveyed for compensation data was substantially less than
the number of companies included in the Nasdaq Electronic Components Index.
* Annual Incentive Compensation. Annual bonuses are earned by each executive
officer primarily on the basis of the Company's achievement of certain
corporate financial performance targets established for each fiscal year. For
fiscal year 1996, bonuses were earned on the basis of the following factors:
(i) the increase in the Company's earnings (before interest and taxes) over
the prior fiscal year and (ii) the personal performance level of the executive
officer. A portion of the Company's earnings for the 1996 fiscal year was
accordingly set aside for distribution under the bonus pool, and each
executive officer was awarded a share of that pool on the basis of his
performance for the year, the responsibilities assigned to him and his
relative position in the Company. The total cash compensation paid to the
Company's executive officers for the 1996 fiscal year ranged from the forty-
second (42nd) percentile to the forty-ninth (49th) percentile of the total
cash compensation paid to executive officers in comparable positions at the
peer group companies, based on the published 1995 fiscal year data for those
companies. The actual bonus earned for the year by each of the current
executive officers named in the Summary Compensation Table is indicated in the
Bonus column.
* Long-Term Incentive Compensation. Long-term incentives are provided
through stock option grants. The grants are designed to align the interests of
each executive officer with those of the stockholders and provide each
individual with a significant incentive to manage the Company from the
perspective of an owner with an equity stake in the business. Each grant
allows the individual to acquire shares of the Company's common stock at a
fixed price per share (the market price on the grant date) over a specified
period of time (up to 10 years). Each option generally becomes exercisable in
installments over a four-year period, contingent upon the executive officer's
continued employment with the Company. Accordingly, the option will provide a
return to the executive officer only if the executive officer remains employed
by the Company during the four-year vesting period, and then only if the
market price of the underlying shares appreciates over the option term.
The number of shares subject to each option grant is set at a level intended
to create a meaningful opportunity for stock ownership based on the officer's
current position with the Company, the base salary associated with that
position, the size of comparable awards made to individuals in similar
positions within the industry, the individual's potential for increased
responsibility and promotion over the option term, and the individual's
personal performance in recent periods. The Compensation Committee also takes
into account the number of unvested options held by the executive offer in
order to maintain an appropriate level of equity incentive for that
individual. However, the Compensation Committee does not adhere to any
specific guidelines as to the relative option holdings of the Company's
executive officers.
During the 1996 fiscal year, stock option grants were made to Messrs. Healy,
Okumoto, Ranhoff and Dr. Bottoms under the Company's 1993 Stock Option Plan.
CHIEF EXECUTIVE OFFICER PERFORMANCE AND COMPENSATION
Dr. Wilmer R. Bottoms. During the 1996 fiscal year, Dr. Bottoms served as
Chief Executive Officer from June 25, 1996 to October 31, 1996. In connection
with Dr. Bottoms' appointment as Chief Executive Officer, the Committee set
his annual base salary at $325,000 per annum of which Dr. Bottoms earned
$105,000 in the 1996 fiscal year. In setting Dr. Bottoms' base salary as Chief
Executive Officer, the Compensation Committee sought to achieve two
objectives: (i) establish a level of base salary competitive with that paid to
other chief executive officers of the peer group companies and (ii) make a
significant percentage of the total compensation package contingent upon
Company performance and stock price appreciation. The base salary established
for Dr. Bottoms on the basis of the foregoing criteria was intended to provide
him with a level of stability and certainty each year. Accordingly, this
element of Dr. Bottoms compensation was not affected to any significant
25
<PAGE>
degree by Company performance factors and was at the fiftieth (50th)
percentile of the base salary levels in effect for other chief executive
officers at the same peer group of companies surveyed for comparative
compensation purposes. The Committee set Dr. Bottoms' incentive bonus for the
1996 fiscal year at a base bonus of $450,000 prorated for the actual number of
days of employment in fiscal 1996. Consequently, Dr. Bottoms earned a $160,000
bonus in fiscal 1996. A stock option for an additional 450,000 shares of
Common Stock was granted to Dr. Bottoms on June 25, 1996, in recognition of
his appointment as Chief Executive Officer. Such option is exercisable for
one-eighth ( 1/8) of the option shares upon completion of six (6) months of
service measured from the date of grant and is exercisable for the balance of
the option shares in a series of fourteen (14) successive equal quarterly
installments upon his completion of each additional full quarter of service
thereafter.
Mr. James Healy. During the 1996 fiscal year, Mr. James Healy served as
Chief Executive Officer from November 1, 1995 to June 25, 1996, and as
President and a director until September 30, 1996. In connection with Mr.
Healy's promotion to Chief Executive Officer on May 26, 1995, the Committee
decided to increase his annual base salary to $250,000 to reflect his
increased responsibilities. In setting Mr. Healy's base salary as Chief
Executive Officer, the Compensation Committee sought to achieve two
objectives: (i) establish a level of base salary competitive with that paid to
other chief executive officers of the peer group companies and (ii) make a
significant percentage of the total compensation package contingent upon
Company performance and stock price appreciation. The base salary established
for Mr. Healy on the basis of the foregoing criteria was intended to provide
him with a level of stability and certainty each year. Accordingly, this
element of Mr. Healy's compensation was not affected to any significant degree
by Company performance factors and was at the forty-first (41st) percentile of
the base salary levels in effect for other chief executive officers at the
same peer group of companies surveyed for comparative compensation purposes.
The remaining components of the compensation earned by Mr. Healy for the 1996
fiscal year were entirely dependent upon financial performance and provided no
dollar guarantees. The cash bonus paid to Mr. Healy for the 1996 fiscal year
was based entirely on a performance target tied to the level of the Company's
earnings before interest and taxes. A stock option for an additional 75,000
shares of Common Stock was granted to Mr. Healy on February 8, 1996. Such
option expired on December 31, 1996 in connection with Mr. Healy's resignation
from the Company.
COMPLIANCE WITH INTERNAL REVENUE CODE SECTION 162(M). Section 162(m) of the
Internal Revenue Code, enacted in 1993, generally disallows a tax deduction to
publicly held companies for compensation exceeding $1 million paid to certain
of the corporation's executive officers. The compensation to be paid to the
Company's executive officers for the 1996 fiscal year did not exceed the $1
million limit per officer, nor is it expected that the compensation to be paid
to the Company's executive officers for fiscal 1997 will exceed that limit.
The Company's 1993 Stock Option Plan is structured so that any compensation
deemed paid to an executive officer when he exercises an outstanding option
under the 1993 Stock Option Plan will qualify as performance-based
compensation which will not be subject to the $1 million limitation. Because
it is very unlikely that the cash compensation payable to any of the Company's
executive officers in the foreseeable future will approach the $1 million
limit, the Compensation Committee has decided at this time not to take any
other action to limit or restructure the elements of cash compensation payable
to the Company's executive officers. The Compensation Committee will
reconsider this decision should the individual compensation of any executive
officer ever approach the $1 million level.
Dr. William G. Howard Jr.
Member, Compensation Committee
Bernard V. Vonderschmitt
Member, Compensation Committee
Jos C. Henkens
Member, Compensation Committee
26
<PAGE>
COMPARISON OF STOCKHOLDER RETURN
The graph depicted below reflects a comparison of the cumulative total
return (change in stock price plus reinvestment dividends) of the Company's
Common Stock with the cumulative total returns of the Nasdaq Stock Market
Index and Nasdaq Electronic Components Index.
COMPARISON OF FIVE-YEAR CUMULATIVE TOTAL RETURN
AMONG CREDENCE SYSTEMS CORP., NASDAQ STOCK MARKET--US
AND NASDAQ ELECTRONIC COMPONENTS
PERFORMANCE GRAPH APPEARS HERE
<TABLE>
<CAPTION> CREDENCE NASDAQ NASDAQ
Measurement Period SYSTEMS STOCK ELECTRONIC
(Fiscal Year Covered) CORP. MARKET COMPONENTS
- ------------------- ---------- --------- ----------
<S> <C> <C> <C>
Measurement Pt-10/28/93 $100 $100 $100
FYE 10/93 $100 $101 $100
FYE 10/94 $217 $101 $111
FYE 10/95 $477 $136 $222
FYE 10/96 $174 $161 $271
</TABLE>
- --------
Notes
(1) The graph covers the period from October 28, 1993, the date the Company's
initial public offering commenced, through the fiscal year ended October
31, 1996.
(2) The graph assumes that $100 was invested on October 28, 1993 in the
Company's Common Stock and in each index and that all dividends were
reinvested. No cash dividends have been declared on the Company's Common
Stock.
(3) Stockholder returns over the indicated period should not be considered
indicative of future stockholder returns.
(4) The performance graph and all of the material in the Compensation
Committee Report is not deemed filed with the Securities and Exchange
Commission, and is not incorporated by reference to any filing of the
Company under the Securities Act of 1933, as amended or the Securities
Exchange Act of 1934, whether made before or after the date of this Proxy
Statement and irrespective of any general incorporation language in any
such filing.
27
<PAGE>
COMPLIANCE WITH SECTION 16(A) OF THE SECURITIES EXCHANGE ACT OF 1934
Section 16(a) of the Securities Exchange Act of 1934 requires the Company's
directors, executive officers and any persons holding more than ten percent of
the Company's Common Stock to file reports of ownership and changes in
ownership with the Securities and Exchange Commission ("SEC"). Directors,
executive officers and greater than ten percent stockholders are required by
SEC regulations to furnish the Company with copies of all Section 16(a) forms
they file.
Based solely on its review of the copies of such forms received by it and
written representations from certain reporting persons for the 1996 fiscal
year that no Form 5 reports were required for such persons for the 1996 fiscal
year, the Company believes that there was compliance with all Section 16(a)
filing requirements applicable to such directors, executive officers and
greater than ten percent stockholders for the 1996 fiscal year.
ANNUAL REPORT
A copy of the Annual Report of the Company for the fiscal year ended October
31, 1996, has been mailed concurrently with this Proxy Statement to all
stockholders entitled to notice of and to vote at the Annual Meeting. The
Annual Report is not incorporated into this Proxy Statement and is not
considered proxy solicitation material.
FORM 10-K
The Company filed an Annual Report on Form 10-K with the SEC. A copy of the
Annual Report on Form 10-K for the fiscal year ended October 31, 1996 has been
mailed concurrently with this Proxy Statement to all stockholders entitled to
notice of and to vote at the Annual Meeting.
Dated: February 20, 1997
THE BOARD OF DIRECTORS
OF CREDENCE SYSTEMS CORPORATION
28
<PAGE>
[LOGO OF CREDENCE SYSTEMS]
<PAGE>
EXHIBIT A
CREDENCE SYSTEMS CORPORATION
1993 STOCK OPTION PLAN
----------------------
(AS AMENDED AND RESTATED THROUGH FEBRUARY 12, 1997)
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.
<PAGE>
II. DEFINITIONS
A. For purposes of the Plan, the following definitions shall be in
effect:
BOARD: the Corporation's Board of Directors.
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; 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,
2.
<PAGE>
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 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 a transaction in which 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
3.
<PAGE>
(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.
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.
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
4.
<PAGE>
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.
IV. ADMINISTRATION OF THE PLAN
A. The Discretionary Option Grant Program shall be administered by
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.
5.
<PAGE>
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).
B. 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 that may be issued over the term of the Plan shall not
exceed 4,125,001 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
6.
<PAGE>
stockholders at the 1995 Annual Stockholders Meeting, (v) an additional
500,000-share increase authorized by the Board on January 26, 1996 and approved
by the Corporation's stockholders at the 1996 Annual Stockholders Meeting, and
(vi) an additional 500,000-share increase authorized by the Board on February
12, 1997, subject to stockholder approval at the 1997 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.
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. In addition, unvested shares issued under the Plan and subsequently
cancelled or repurchased by the Corporation, at the original exercise price paid
per share, pursuant to the Corporation's repurchase rights under the Plan shall
be added back to the number of shares of Common Stock reserved for issuance
under the Plan and shall accordingly be available for reissuance through one or
more subsequent option grants under the Plan. However, shares subject to any
option or portion thereof surrendered in accordance with Section V of Article
Two or Section III of Article Three shall reduce on a share-for-share basis the
number of shares of Common Stock available for subsequent option grants under
the Plan. Additionally, 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
7.
<PAGE>
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.
8.
<PAGE>
ARTICLE TWO
DISCRETIONARY OPTION GRANT PROGRAM
----------------------------------
I. 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
9.
<PAGE>
- 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.
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.
C. Limited Transferability of Options. During the lifetime of the
----------------------------------
Optionee, Incentive Options shall be exercisable only by the Optionee and shall
not be assignable or transferable other than by will or by the laws of descent
and distribution following the Optionee's death. However, a Non-Statutory
Option may, in connection with the Optionee's estate plan, be assigned in whole
or in part during the Optionee's lifetime to one or more members of the
Optionee's immediate family or to a trust established exclusively for one or
more such family members. The assigned portion may only be exercised by the
person or persons who acquire a proprietary interest in the option pursuant to
the assignment. The terms applicable to the assigned portion shall be the same
as those in effect for the option immediately prior to such assignment and shall
be set forth in such documents issued to the assignee as the Plan Administrator
may deem appropriate.
D. 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
10.
<PAGE>
(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 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.
11.
<PAGE>
(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.
E. 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.
F. 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 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.
12.
<PAGE>
(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.
II. 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.
13.
<PAGE>
III. CORPORATE TRANSACTIONS/CHANGES IN CONTROL
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.
14.
<PAGE>
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 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.
IV. 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.
V. 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
15.
<PAGE>
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 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 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.
16.
<PAGE>
ARTICLE THREE
AUTOMATIC OPTION GRANT PROGRAM
------------------------------
I. 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.
II. 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:
(i) 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/^/
shares of Common Stock upon the terms and conditions of this Article Three.
/^/ Reflects the 3-for-2 split of the Common Stock effected by the Corporation
on June 5, 1995.
(ii) 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/^/ 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
17.
<PAGE>
six (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.
/^/ Reflects the 3-for-2 split of the Common Stock effected by the
Corporation on June 5, 1995.
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.
18.
<PAGE>
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 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. Limited Transferability of Options. Each automatic option grant
----------------------------------
may, in connection with the Optionee's estate plan, be assigned in whole or in
part during the Optionee's lifetime to one or more members of the Optionee's
immediate family or to a trust established exclusively for one or more such
family members. The assigned portion may only be exercised by the person or
persons who acquire a proprietary interest in the option pursuant to the
assignment. The terms applicable to the assigned portion shall be the same as
those in effect for the option immediately prior to such assignment and shall be
set forth in such documents issued to the assignee as the Plan Administrator may
deem appropriate.
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.
19.
<PAGE>
(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.
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 of each option granted under
---------------
the Automatic Option Grant Program shall be the same as the terms in effect for
option grants made under the Discretionary Option Grant Program.
III. 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.
20.
<PAGE>
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.
Stockholder approval of the Plan, as amended and restated on February 12, 1997,
shall constitute pre-approval of the exercise of such right in accordance with
the terms and provisions of this Section III.C. No additional approval of any
Plan Administrator or 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.
IV. AMENDMENT OF THE AUTOMATIC GRANT PROVISIONS
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.
21.
<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, certain amendments may require stockholder approval pursuant to
applicable laws or regulations.
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
22.
<PAGE>
are made, then (I) any 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.
23.
<PAGE>
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
amended by the Board on January 23, 1995 to (i) increase by 750,000/^/ 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
and in February 1996, the Board adopted an amendment to the Plan (the "February
1996 Amendment") which increased 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. Both the January 26, 1996 and February 1996 Amendments were
approved by the Corporation's stockholders at the 1996 Annual Meeting. The Plan
was subsequently amended on February 12, 1997 (the "February 1997 Amendment") to
effect the following changes: (i) increase the number of shares of Common Stock
authorized for issuance over the term of the Plan by an additional 500,000
shares, (ii) allow unvested shares issued under the Plan and subsequently
repurchased by the Corporation at the option exercise price paid per share to be
reissued under the Plan and (ii) effect a series of technical changes to the
provisions of the Plan (including stockholder approval requirements) in order to
take advantage of the recent amendments to Rule 16b-3 of the Securities Exchange
Act of 1934 which exempts certain officer and director transactions under the
Plan from the short-swing liability provisions of the federal securities laws.
The February 1997 Amendment is subject to stockholder approval at the 1997
Annual Meeting, and no option grants made on the basis of the February 1997
share increase shall become exercisable in whole or in part unless and until the
February 1997 Amendment is approved by the stockholders. Should such
stockholder approval not be obtained at the 1997 Annual Meeting, then each
option grant made pursuant to the February 1997 share increase shall terminate
and cease to remain outstanding, and no further option grants shall be made on
the basis of that share increase. However, the provisions of the Plan as in
effect immediately prior to the February 1997
24.
<PAGE>
Amendment shall automatically be reinstated, and option grants may thereafter
continue to be made pursuant to the reinstated provisions of the Plan. All
option grants made prior to the February 1997 Amendment shall remain outstanding
in accordance with the terms and conditions of the respective instruments
evidencing those options or issuances, and nothing in the February 1997
Amendment shall be deemed to modify or in any way affect those outstanding
options or issuances. Subject to the foregoing limitations, the Plan
Administrator may make option grants under the Plan at any time before the date
fixed herein for the termination of the Plan.
/^/ Reflects the 3-for-2 split of the Common Stock effected by the Corporation
on June 5, 1995.
B. 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.
C. 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 Predecessor Plans on the Effective Date of the
Discretionary Option Grant Program but which do not otherwise provide for such
acceleration.
D. 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.
25.
<PAGE>
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.
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.
26.
<PAGE>
EXHIBIT B
CREDENCE SYSTEMS CORPORATION
EMPLOYEE STOCK PURCHASE PLAN
(As Amended and Restated Through February 12, 1997)
1. Purpose Of the Plan
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The Credence Systems Corporation 1994 Employee Stock Purchase Plan (the
"Plan") is intended to provide a suitable means by which eligible employees of
the Credence Systems Corporation (the "Company") may accumulate, through
voluntary, systematic payroll deductions, amounts regularly credited to their
account to be applied to the purchase of shares of the common stock, par value
$0.001, of the Company (the "Common Stock") pursuant to the exercise of options
granted from time to time hereunder. The Plan provides employees with the
opportunities to acquire proprietary interests in the Company, and will also
provide them with additional incentives to continue their employment and promote
the best interests of the Company. Options granted under the Plan are intended
to qualify under Section 423 of the Internal Revenue Code of 1986, as amended
(the "Code").
2. Shares of Stock Subject to the Plan
-----------------------------------
Subject to the provisions of Section 12, the maximum number of Common Stock
which may be issued on the exercise of options granted under the Plan is 500,000
shares of the Company's Common Stock. Any shares subject to an option under the
Plan, which option for any reason expires or is terminated unexercised as to
such shares, shall again be available for issuance on the exercise of other
options granted under the Plan. Shares delivered on the exercise of options
may, at the election of the Board of Directors of the Company, be authorized but
previously unissued Common Stock or Common Stock reacquired by the Company, or
both.
3. Administration
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The Plan shall be administered by the Compensation Committee of the Board
of Directors of the company (the "Committee"), which shall be composed of not
less than two members of the Board of Directors of the Company, all of whom
shall be ineligible to participate in this Plan and shall otherwise qualify as
disinterested persons for purposes of Rule 16b-3 (c) (2) (i) promulgated by the
Securities and Exchange Commission. Subject to the provisions of the Plan, the
Committee shall have full discretion and exercise power (i) to determine the
terms and conditions under which the shares shall be offered and corresponding
options shall be granted under the Plan for the Purchase Period (as defined in
Section 6) consistent with the provisions of the Plan, and (ii) to resolve all
questions relating to the administration of the Plan.
The interpretation and application by the Committee of any provision of the
Plan shall be final and conclusive on all employees and other persons having, or
claiming to have, an interest
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under the Plan. The Committee may, in its discretion, establish such rules and
guidelines relating to the Plan as it may deem desirable.
The Committee may employ such legal counsel, consultant and agents as it
may deem desirable for the administration of the Plan and may rely upon any
opinion received from any such counsel or consultant and any computation
received from any such counsel or consultant or agent. The Committee shall keep
minutes of its actions under the Plan.
No member of the Board of Directors or the Committee shall be liable for
any action or determination made in good faith with respect to the Plan or any
options granted hereunder.
4. Eligibility to Participate
--------------------------
The persons eligible to participate in this Plan shall be all employees
(including officers) of the Company, or any participating affiliate, who have
been actively employed by the Company, or such affiliate, for thirty (30)
consecutive days as of the first day of any Purchase Period, but excluding
employees whose customary employment is for not more than five (5) months in any
calendar year or twenty (20) hours or less per week. An employee who is
eligible to participate in this Plan pursuant to the foregoing sentence is
hereinafter referred to as an "Employee". A participating affiliate, for
purposes of the Plan, shall include any now existing or hereafter established
parent or subsidiary corporation of the Company, as determined in accordance
with Code Sections 424(e) and 424(f), which elects, with the consent of the
Company's Board of Directors, to extend the benefits of the Plan to its eligible
employees.
Nothing contained in the Plan shall confer upon any Employee any right to
continue in the employ of the Company or any of its affiliates, or interfere in
any way with the right of the Company or any of its affiliates to terminate his
employment at any time.
5. Participation in the Plan
-------------------------
An Employee may participate in the Plan only as of the beginning of the
Purchase Period. If an employee becomes eligible to participate in the Plan
after the commencement of a Purchase Period, that Employee may not participate
in the Plan until the beginning of the next Purchase Period. A copy of the Plan
will be furnished to each Employee prior to the beginning of the first Purchase
Period during which he may participate in the Plan. To participate in the Plan,
an employee must deliver (or cause to be delivered) to the Company, within seven
(7) days prior to the commencement of the first Purchase Period during which
participation in the Plan is desired, a contingent subscription for Common Stock
and authorization for payroll deductions to effect the purchase of Common Stock
(hereinafter called a "Participation Election"). In the Participation Election
an Employee must:
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(i) authorize payroll deductions within the limits prescribed in
Sections 8 and 9 and specify the percentage to be deducted
regularly from his Compensation (as defined in Section 8);
(ii) elect and authorize the purchase by him for each Purchase Period
of a specific number of shares of Common Stock on the Exercise
Date (as defined in Section 7) with respect to the applicable
Purchase Period, provided that such specific number of shares
shall not exceed a total of five hundred shares in any Purchase
Period;
(iii) furnish the exact name or names and address or addresses in which
the stock certificates for Common Stock purchased by him under
the Plan are to be issued; and
(iv) agree to notify the company if he should dispose of Common Stock
purchased through the Plan within two (2) years of the
commencement of the Purchase Period in which he purchased the
Common Stock.
Stock certificates for shares of Common Stock purchased under the Plan may
be issued in the Employee's name or, if so designated by the Employee, in his
name and the name of another person who is a member of his family, with right of
survivorship; for this purpose the "family" of an Employee shall include only
his spouse, his ancestors and lineal descendants and his brothers and sisters.
An Employee need not, and may not, make a down payment in order to
participate in the Plan.
Participation in the Plan is entirely voluntary, and a participating
Employee may withdraw from participation, as provided in Section 15, during any
Purchase Period at any time prior to the Exercise Date for such Purchase Period.
6. Purchase Period: Grant of Options
---------------------------------
Each Purchase Period under the Plan shall commence on the first day of a
calendar half (or, for the first Purchase Period, such date established by the
Committee following the effective date specified in Section 20) and end on the
last day of such calendar half, and shall include all pay periods ending within
it. For this purpose, calendar halves begin on January 1 and July 1. During
each Purchase Period, participating employees shall accumulate credits to a
bookkeeping account maintained by the Company (hereinafter referred to As a
"Stock Purchase Account") through payroll deductions to be made at the close of
each pay period for the purchase of shares of Common stock under the Plan. For
each Purchase Period, the Company shall grant options to participating Employees
with respect to the number of shares of Common Stock (subject to the provisions
of sections 2,5,11 and-12) which shall be purchasable through the application of
the amounts credited to such Employee's Stock Purchase Account at the purchase
price per share
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determined on the Exercise Date for the Purchase Period (such number of shares
to be subject to reduction in the event of a pro rata apportionment provided for
in Section 17).
7. Exercise Dates, and Purchase Prices
-----------------------------------
The last business day of each Purchase Period shall constitute the
"Exercise Date" for such Purchase Period. Subject to the provisions of Section
12, the purchase price per share of Common Stock to be purchased on an Exercise
Date pursuant to the exercise of options granted for the Purchase Period,
through the application of amounts credited during such Purchase Period to the
Stock Purchase Accounts of participating Employees, shall be the lesser of:
(A) an amount equal to 85% of the Fair Market Value of the Common Stock at
the time such option is granted (i.e., the first day of the Purchase
Period), or
(B) an amount equal to 85% of the Fair Market Value of the Common Stock at
the time each option is exercised (i.e., the Exercise Date).
For purposes of the Plan, the Fair Market Value of a share of Common Stock
on any date shall be (i) if the Common Stock is traded on an established
securities market, the mean between the high and low prices of such Common Stock
for such date, and (ii) if the Common Stock is not so traded, an amount
determined by the committee in good faith and based upon such factors as it
deems relevant to such determination.
8. Payroll Deductions - Authorization and Amount
---------------------------------------------
Employees shall authorize in their Participation Elections from 1% to 10%
(in whole percentage increments) of their Compensation to which such election
relates (subject to the limitations of Section 9). For purposes of the Plan,
the "Compensation" of an Employee for any Purchase Period shall mean the gross
amount of his base pay on the basis of his regular, straight-time hourly, weekly
or monthly rate for the number of hours normally worked, exclusive of overtime,
sales commissions, bonuses, shift premiums and other forms of compensation.
By delivering to the Company within seven (7) days prior to the
commencement of the next Purchase Period a revised Participation Election, a
participating Employee may change the amount to be deducted from his
Compensation during the next Purchase Period, subject to the limitations of
Sections 8 and 9.
A participating Employee's authorization for payroll deductions will remain
in effect for the duration of the Plan, subject to the provisions of Sections 11
and 14, unless his election to purchase Common Stock shall have been terminated
pursuant to the provisions of section 13, the amount of the deduction is
changed, as provided in this Section 8, or the Employee withdraws or is
considered to have withdrawn from the Plan under Section 15 or 16.
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All amounts credited to the Stock Purchase Accounts of participating
Employees shall be held in the general funds of the Company but shall be used
from time to time in accordance with the provisions of the Plan.
9. Limitations on the Granting of Options
--------------------------------------
Anything in the Plan to the contrary notwithstanding, no participating
employee may be granted an option which permits his rights to purchase Common
Stock under all employee stock purchase plans of the Company and its parent and
subsidiary companies (if any) to accrue at a rate which exceeds $25,000. of the
Fair Market Value of such Common Stock (determined at the time such option is
granted) f or each calendar year in which such option is outstanding at any
time. For purposes of this Section 9:
(i) the right to purchase stock under an option accrues when the
option (or any portion thereof) first becomes exercisable during
the calendar year;
(ii) the right to purchase stock under an o option accrues at the rate
provided in the option, but in no case may such rate exceed
$25,000 of the Fair Market Value of such stock (determined at the
time such option is granted) for any one calendar year; and
(iii) a right to purchase stock which has accrued under one option
granted pursuant to the Plan may not be carried over to any other
option.
No participating Employee may be granted an option hereunder if such
Employee, immediately after the option is granted, owns (within the meaning of
Section 423 (b) (3) of the Code) stock possessing five (5) percent or more of
the total combined voting power or value of all classes of stock of the Company
or of its parent or subsidiary corporations. For purposes of the Plan, the
terms "parent corporation" and "subsidiary corporation" shall have the
respective meanings set forth in section 424 of the Code.
10. Stock Purchase Amounts
----------------------
The amount deducted from the Compensation of each participating Employee
shall be credited to his individual Stock Purchase Account. Employees
participating in the Plan may not make direct cash payments to their Stock
Purchase Accounts.
Following the close of each Purchase Period, the Company will furnish to
each participating Employee a statement of that Employee's individual Stock
Purchase account. This statement shall show (i) the total amount of payroll
deductions for the Purchase Period just closed, (ii) the number of full shares
(and the purchase price per share) of Common Stock purchased, pursuant to the
provisions of Section 11, by the participating Employee for the Purchase Period,
and (iii) any remaining balance of payroll deductions which are to be refunded
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to the Employee following the close of the Purchase Period (or carried forward
to the next Purchase Period in the case of amounts representing fractional
shares).
11. Issuance and Purchase of Common Stock
-------------------------------------
Shares of Common Stock may be purchased by a participating Employee only on
the Exercise Date for each Purchase Period; and the options which the Company
grants to participating Employees for the purchase of Common Stock for a
Purchase Period may be exercised only on the Exercise Date. No fractional
shares of Common Stock may be purchased hereunder. The purchase price per share
shall be determined as set forth in Section 7.
A participating Employee who purchases Common Stock, pursuant to the
exercise of options granted under the Plan, shall purchase as many full shares
as shall be stated in the Participation Election that the Employee has
completed, subject to the limitations set forth in Sections 5, 8, 9, 12 and 17;
provided that in no event may shares be purchased other than by application of
the balance in the Stock Purchase Account on the Exercise Date and that in no
event may a participating Employee purchase a greater number of shares than
would be purchasable at the purchase price determined in accordance with Section
7 through the application of the balance in his Stock Purchase Account on the
Exercise Date for the Purchase Period to which the option relates. Any balance
remaining in such a participating Employee's Stock Purchase Account following an
Exercise Date shall be refunded to the Employee as soon as practicable
thereafter; provided, however, that the participating Employee may elect to
carry over any such balance representing a fractional share to the next
succeeding Purchase Period.
Certificates for Common Stock so purchased shall be delivered to the
employee as soon as practicable.
All rights as an owner of shares of the Common Stock purchased under the
Plan shall accrue to the participating Employee who purchased the shares
effective as of the Exercise Date on which the amounts credited to his Stock
Purchase Account were applied to the purchase of the shares; and such Employee
shall not have any rights as a shareholder prior to such Exercise Date .by
reason of his having elected to purchase such shares.
12. Dilution or Other Adjustment
----------------------------
If the Company is a party to any merger or consolidation, or undergoes any
separation, reorganization (other than a reincorporation in another state), or
liquidation, then the options outstanding under the Plan shall be exercised
immediately prior to the effective-date of such transaction, and such date shall
accordingly qualify as an Exercise Date under Section 7. In addition, in the
event of a reclassification, stock split, combination of shares, separation
(including a spin-off), dividend on shares of the Common Stock payable in stock,
or other similar change in capitalization or in the corporate structure of the
shares of the Common Stock of the Company, the Committee shall conclusively
determine the appropriate adjustment in the
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purchase price and other terms of purchase for shares subject to outstanding
Participation Elections for the Purchase Period occurring at such time, in the
number and kind of shares or other securities which may by purchased for such
Purchase Period, in the aggregate number of shares which may be purchased under
the Plan, and in the maximum number and kind of shares which may be purchased
per Employee in any Purchase Period. Any such adjustment in the shares or other
securities subject to the outstanding options granted to such Employee
(including any adjustments in the option price) shall be made in such manner as
not to constitute a modification as defined by Section 424(h)(3) of the Code and
only to the extent permitted by Sections 423 and 424 of the Code.
13. No Assignment of Plan Rights or of Purchased Stock
--------------------------------------------------
An Employee must promptly advise the Company if a disposition shall be made
of any shares of Common Stock purchased by him under the Plan if such
disposition shall have occurred within two years of the commencement of the
Purchase Period in which he purchased such shares.
A participating Employee's privilege to purchase Common Stock under the
Plan can be exercised only by him; and he cannot purchase Common Stock for
someone else, although he may designate (in accordance with the provisions of
Section 5) that stock certificates of Common Stock purchased by the Employee be
issued in the joint names of the Employee and a family member.
An Employee participating in the Plan may not sell, transfer, pledge, or
assign to any other person any interest, privilege or right under the Plan or in
any amounts credited to his Stock Purchase Account; and if this provision shall
be violated, his election to purchase Common Stock shall terminate, and the only
right remaining thereunder will be to have paid to the person entitled thereto
the amount then credited to the Employee's Stock Purchase Account.
14. Suspension of Deductions
------------------------
A participating Employee's payroll deductions under the Plan shall be
suspended if on account of a leave of absence, layoff or other reason a
participating Employee does not have sufficient Compensation in any payroll
period to permit payroll deductions authorized under the Plan to be made in
full. The suspension will last until the participating Employee again has
sufficient Compensation to permit such payroll deductions to be made in full;
but if the suspension shall not have been removed by the Exercise Date for the
Purchase Period in which it began, shares will be purchased to the extent that
the employee contributed funds prior to the suspension of deductions. In the
event of voluntary withdrawal or termination of employment, funds will be
returned to the employee as provided in Section 15.
15. Withdrawal from, and Reparticipation in the Plan
------------------------------------------------
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During any Purchase Period a participating Employee may withdraw from the
Plan at any time prior to the Exercise Date for the Purchase Period; and,
subject to, and in accordance with the provisions of Sections 5 and 8, he may
again participate in the Plan at the beginning of any Purchase Period subsequent
to the Purchase Period in which he withdrew. Withdrawal of a participating
Employee shall be effected by written notification prior to such Exercise Date
to the Company on a form which the Company shall provide for this purpose
("Notice of Withdrawal"). In the event a participating Employee shall withdraw
from the Plan, all amounts then credited to his Stock Purchase Account shall be
returned as soon as practicable after his Notice of Withdrawal shall have been
received.
If an Employee's payroll deductions shall be interrupted by any legal
process, a Notice of Withdrawal will be considered as having been received on
the day the interruption shall occur.
16. Termination of Participation
----------------------------
A participating Employee's right to continue participation in the Plan will
terminate upon the earliest to occur of (i) the Company's termination of the
Plan, (ii) the Employee's transfer to ineligible employment status, or (iii)
retirement, disability, death or other termination of employment with the
Company. Upon the termination of an Employee's right to continue participation
in the Plan on account of the occurrence of any of the foregoing events, all
amounts then credited to the individuals Stock Purchase Account not already used
for the purchase of Common Stock will be repaid as soon as practicable. Such
repayments shall be made to the participating Employee unless the termination of
participation occurred by reason of such Employee's death, in which event such
repayment shall be made to such Employee's beneficiary. For this purpose, an
Employee's beneficiary shall be the person, persons or entity designated by the
Employee on a form prescribed by and delivered to the Company or, in the absence
of an effective beneficiary designation, the Employee's estate; provided,
however, that the determination of the Employee's beneficiary hereunder shall be
subject to any applicable community property or other laws.
17. Apportionment of Stock
----------------------
If at any time shares of Common Stock authorized for purposes of the Plan
shall not be available in sufficient number to meet the purchase requirements
under all outstanding Participation elections, the Committee shall apportion the
remaining available shares among the participating Employees on a pro rata
basis. In no case shall any apportionment of shares be made with respect to a
participating Employee's election to purchase unless such election is then in
effect (subject only to any suspension provided for in the Plan). The Committee
shall give notice of such apportionment and of the method of apportionment used
to each participating Employee to whom shares shall have been apportioned.
<PAGE>
l8. Government Regulations
----------------------
The Plan, and the obligation of the Company to issue, sell and deliver
Common Stock under the Plan are subject to all applicable laws and to all
applicable rules, regulations and approvals of government agencies.
19. Amendment or Termination
------------------------
The Board of Directors of the Company may at any time amend, suspend or
terminate the Plan; provided, however, that no amendment (other than an
amendment authorized by Section 12) may be made increasing the aggregate number
of shares of Common Stock which may be issued pursuant to the Plan, reducing the
minimum purchase price at which shares may be purchase, hereunder, extending the
maximum period during which shares may be purchased hereunder or changing the
class of employees eligible to participate hereunder; without the approved of
the holders of a majority of the outstanding voting shares of the Company.
20. Effective Date
--------------
The Plan shall become effective on the later of the IPO date (as hereafter
defined) or (ii) the date of its adoption by the Board of Directors of the
Company, subject to approval of the Plan by the Company's shareholders within 12
months after the date of the Plan's adoption by said Board of Directors. In the
event of the failure to obtain such shareholder approval, the Plan shall be null
and void and the Company shall have no liability thereunder. No shares of the
Common Stock may be issued under the Plan until such shareholder approval has
been obtained. For purposes of this Section 20, the "IPO Date" shall mean the
date on which shares of Common Stock of the Company are first sold to the
public.
21. Termination
-----------
The Plan shall terminate on December 31, 2003. Any unexpired Purchase
Period that commenced prior to such termination date shall forthwith expire on
such termination date, which shall be deemed the Exercise Date for such Purchase
Period.
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CREDENCE SYSTEMS CORPORATION
PROXY
Annual Meeting of Stockholders to be held on March 26, 1997
This Proxy is Solicited on Behalf of the Board of Directors of
Credence Systems Corporation
The undersigned revokes all previous proxies, acknowledges receipt of the Notice
of the Annual Meeting of Stockholders to be held on March 26, 1997 and the Proxy
Statement and appoints Jerry Bruce and Richard Y. Okumoto and each of them, the
Proxy of the undersigned, with full power of substitution, to vote all shares of
Common Stock of Credence Systems Corporation (the "Company") which the
undersigned is entitled to vote, either on his or her own behalf or on behalf of
any entity or entities, at the Annual Meeting of Stockholders of the Company to
be held at the Company's headquarters at 215 Fourier Avenue, Fremont,
California 94539, on Wednesday, March 26, 1997 at 10:00 a.m. local time (the
"Annual Meeting"), and at any adjournment or postponement thereof, with the same
force and effect as the undersigned might or could do if personally present
thereat. The shares represented by this Proxy shall be voted in the manner set
forth on the reverse side.
CONTINUED AND TO BE SIGNED ON REVERSE SIDE
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FOLD AND DETACH HERE
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PLEASE MARK [X]
YOUR VOTES AS
INDICATED IN
THIS EXAMPLE
1. To elect the following two directors to serve for a three-year term
ending upon the year 2000 Annual Meeting of stockholders or until their
successors are elected and qualified:
WITHHOLD
AUTHORITY
FOR TO VOTE
Henk J. Evenhuis [_] [_]
Bernard V. Vonderschmitt [_] [_]
2. FOR AGAINST ABSTAIN To approve a series of amendments to
[_] [_] [_] the Company's 1993 Stock Option Plan
including an increase to the number of
shares of Common Stock reserved for
issuance thereunder by an additional
500,000 shares
3. FOR AGAINST ABSTAIN To approve an amendment to the
[_] [_] [_] Company's Employee Stock Purchase Plan
to increase the number of shares of
Common Stock reserved for issuance
thereunder by an additional 200,000
shares and to extend the termination
date of such plan to December 31, 2003.
4. FOR AGAINST ABSTAIN To ratify the appointment of Ernst &
[_] [_] [_] Young LLP as independent auditors of
the Company for the fiscal year ending
October 31, 1997.
5. FOR AGAINST ABSTAIN To transact such other business as may
[_] [_] [_] properly come before the Annual
Meeting or any adjournment or
postponement thereof.
The Board of Directors recommends a vote FOR each of the directors listed above
and a vote FOR the other proposals. This Proxy, when properly executed, will be
voted as specified above. This Proxy will be voted FOR the election of the
directors listed above and FOR the other proposals if no specification is made.
Please print the name(s) appearing on each share certificate(s) over which you
have voting authority:
- --------------------------------
(Print name(s) on certificate)
Please sign your name: Date:
--------------------------------- ------------------
(Authorized Signature(s))
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FOLD AND DETACH HERE
