<PAGE>
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 Section 240.14a-11(c) or Section 240.14a-12
CREDENCE SYSTEMS CORPORATION
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(Name of Registrant as Specified In Its Charter)
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(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[_] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
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(2) Aggregate number of securities to which transaction applies:
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(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which
the filing fee is calculated and state how it was determined):
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(4) Proposed maximum aggregate value of transaction:
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(5) Total fee paid:
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[_] Fee paid previously with preliminary materials.
- ------------------------------------------------------------------------------
[_] Check box if any part of the fee is offset as provided by Exchange
Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee
was paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
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(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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<PAGE>
CREDENCE SYSTEMS CORPORATION
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD MARCH 25, 1998
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 25, 1998, 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
2001 or until their successors are elected and qualified;
2. To approve an amendment to the Company's 1993 Stock Option Plan that
will increase the number of shares of Common Stock reserved for issuance
thereunder by an additional 500,000 shares to a total of 4,625,001
shares.
3. To approve an amendment to the Company's 1993 Stock Option Plan that
will implement an automatic share increase feature pursuant to which the
number of shares available for issuance under the 1993 Stock Option Plan
(the "1993 Plan") will automatically increase on the first trading day
of each fiscal year (the "First Trading Day"), beginning with the 1999
fiscal year and continuing through the fiscal year 2003, by an amount
equal to two percent (2%) of the total number of shares outstanding on
the last trading day of the immediately preceding fiscal year. The 1993
Plan provides that, at the end of each First Trading Day, the number of
then outstanding options under the Company's stock option plans,
together with options in the reserve then available for future grant
under the Company's stock option plans, shall not exceed fifteen percent
(15%) of the then outstanding voting shares of capital stock of the
Company, together with all then actually outstanding stock options under
the Company's stock option plans, together with all options in the
reserve then available for future grant under the Company's stock option
plans.
4. To ratify the appointment of Ernst & Young LLP as independent auditors
of the Company for the fiscal year ending October 31, 1998; 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, 1998 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/ Dr. Wilmer R. Bottoms
----------------------------------
Dr. Wilmer R. Bottoms
Chief Executive Officer
February 17, 1998
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................................ 3
PROPOSAL ONE--ELECTION OF DIRECTORS..................................... 3
PROPOSAL TWO--APPROVAL OF AMENDMENT TO 1993 STOCK OPTION PLAN TO
INCREASE NUMBER OF AVAILABLE OPTIONS...................... 5
PROPOSAL THREE--APPROVAL OF AMENDMENT TO 1993 STOCK OPTION PLAN TO
PROVIDE FOR AUTOMATIC INCREASE IN AVAILABLE STOCK
OPTIONS IN FUTURE YEARS................................. 13
PROPOSAL FOUR--RATIFICATION OF INDEPENDENT AUDITORS..................... 14
OTHER MATTERS........................................................... 14
OWNERSHIP OF SECURITIES................................................... 15
EXECUTIVE COMPENSATION AND RELATED INFORMATION............................ 17
SUMMARY COMPENSATION TABLE................................................ 17
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS............................ 19
COMPENSATION COMMITTEE REPORT............................................. 19
COMPARISON OF STOCKHOLDER RETURN.......................................... 22
COMPLIANCE WITH SECTION 16(a) OF THE SECURITIES EXCHANGE ACT OF 1934...... 23
ANNUAL REPORT............................................................. 23
FORM 10-K................................................................. 23
</TABLE>
<PAGE>
CREDENCE SYSTEMS CORPORATION
215 FOURIER AVENUE
FREMONT, CALIFORNIA 94539
PROXY STATEMENT
FOR THE ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON MARCH 25, 1998
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
25, 1998 (the "Annual Meeting"). The Annual Meeting will be held at 10:00 a.m.
at the Company's headquarters at 215 Fourier Avenue, Fremont, California
94539. These proxy solicitation materials were mailed on or about February 17,
1998, 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, 1998, the record date for determination
of stockholders entitled to notice of and to vote at the Annual Meeting,
approximately 21,614,279 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, 1998.
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
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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 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 1999 Annual Meeting must be received no
later than October 20, 1998, in order that they may be included in the proxy
statement and form of proxy relating to that meeting.
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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 2001 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 2001 ANNUAL STOCKHOLDERS' MEETING
Jos C. Henkens, 45, 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, Accel Graphics, Inc., ObjectShare,
Inc., and various private companies.
William G. Howard, Jr., 56, 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 December 1990. 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., Ramtron International, Inc. and Xilinx, Inc. ("Xilinx"), a
supplier of field programmable gate arrays, as well as several private
companies.
CONTINUING DIRECTORS FOR TERM ENDING UPON THE 1999 ANNUAL STOCKHOLDERS'
MEETING
Wilmer R. Bottoms, 54, 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 also 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.
CONTINUING DIRECTORS FOR TERM ENDING UPON THE 2000 ANNUAL STOCKHOLDERS'
MEETING
Henk J. Evenhuis, 54, has served as a Director of the Company since
September 1993. Mr. Evenhuis has been a consultant to Lam Research Corporation
("Lam"), a semiconductor capital equipment manufacturer,
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since April 1997 and was the Executive Vice President and Chief Financial
Officer of Lam from July 1989 to April 1997. 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, 74, has served as a Director of the Company since
August 1993. Mr. Vonderschmitt co-founded Xilinx 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, International
Microelectronics Products, Inc. and Sanmina Corporation, as well as several
private companies.
BOARD COMMITTEES AND MEETINGS
During the fiscal year ended October 31, 1997, the Board of Directors held
six meetings and acted by Unanimous Written Consent four 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 six meetings during the last fiscal year.
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 five meetings and acted by unanimous written
consent one time during the last fiscal year.
DIRECTOR COMPENSATION
As of the date of each Annual Stockholders 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 at the time 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.
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Under the Automatic Option Grant Program, a stock option for 3,500 shares of
Common Stock was granted on March 26, 1997 to each of the following
individuals who continued to serve as non-employee Board members following the
Annual Stockholders Meeting held on that date: Mr. Evenhuis, Mr. Henkens, Mr.
Vonderschmitt and Mr. Howard. Each option has an exercise price of $19.875 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 AMENDMENT TO 1993 STOCK OPTION PLAN
TO INCREASE NUMBER OF AVAILABLE OPTIONS
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 became effective on
October 28, 1993, and 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 an amendment to the
Company's 1993 Plan which will increase the maximum number of shares of Common
Stock authorized for issuance over the term of the 1993 Plan from 4,125,001 to
4,625,001 shares. The amendment is 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. Furthermore, in order to minimize the dilutive effect that
issuances of Common Stock upon exercise of options may have on stockholders'
percentage ownership in the Company, the Company recently repurchased 500,000
shares of its Common Stock in the open market. Thus, approval of the 500,000
share increase under the 1993 Plan at the 1998 Annual Meeting of Stockholders
is designed not to have any net effect on stockholder percentage ownership in
the Company when considered together with the recent share repurchase. The
amendment was adopted by the Board in February 1998, 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 amendment to the 1993 Plan is 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.
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
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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 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 November 1, 1996
effective date through December 31, 1997, and the weighted average exercise
price payable per share.
<TABLE>
<CAPTION>
WEIGHTED AVERAGE
NUMBER OF EXERCISE PRICE OF
NAME AND POSITION OPTION SHARES GRANTED OPTIONS
- ----------------- ------------- -----------------
<S> <C> <C>
Wilmer R. Bottoms.............................. 250,000 $ 29.50
Chairman of the Board and Chief Executive
Officer
Richard Y. Okumoto............................. -- --
Executive Vice President, Chief Financial
Officer and Secretary(1)
David A. Ranhoff............................... 50,000 $ 29.50
Executive Vice President, Sales and Marketing
All current executive officers as a group (3
persons)...................................... 310,500 $ 29.43
All current directors (other than executive
officers) as a group (4 persons).............. 14,000 $ 19.875
All employees eligible under the 1993 Plan,
including current officers who are not
executive officers, as a group (294 persons).. 512,945 $26.3128
</TABLE>
- --------
(1) Mr. Okumoto resigned from his positions as Executive Vice President, Chief
Financial Officer and Secretary effective December 3, 1997. Mr. Okumoto
will act as a consultant to the Company through July 2, 1998. Jerry Bruce
is currently serving as Acting Chief Financial Officer and Secretary of
the Company in addition to his positions as Vice President and Controller.
Mr. Bruce did not receive any option grants in connection with his
appointment as Acting Chief Financial Officer.
4,625,001 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, 1997, options for 2,051,456 shares were outstanding under the Plan,
options for 1,954,809 shares had been exercised, and 118,736 shares were
available for future option grant, to be increased to 618,736 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.
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
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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.
The 1993 Stock Option Plan was amended in 1997 so that key employees
(including officers), non-employee Board members (whether they serve on the
Compensation Committee or not), 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, 1997, approximately 668 employees
(including 3 executive officers) were eligible to participate in the
Discretionary Grant Program. Four (4) 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, 1997, the fair market
value per share of the Common Stock was $29.625 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 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.
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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.
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.
8
<PAGE>
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.
(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.
9
<PAGE>
(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.
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 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.
10
<PAGE>
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 to non-employee
Board members who serve as the Plan Administrator pursuant to the
Discretionary Option Grant Program nor have any options been granted to date
on the basis of the 500,000-share increase which forms 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 fair value of those options is
required to be disclosed in the notes to the Company's financial statements,
and the Company must also disclose, in footnotes to the Company's financial
statements, the pro-forma impact those options would have upon the Company's
reported earnings were the value of those options at the time of grant treated
as a compensation expense. In addition, the number of outstanding options may
be a factor in determining the Company's earnings per share on a fully-diluted
basis.
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 income 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.
Upon a qualifying disposition, the optionee will recognize long-term capital
gain in an amount equal to the excess of (i) the amount realized upon the sale
or other disposition of the purchased shares over (ii) the exercise price paid
for the shares. If there is a disqualifying disposition of the shares, then
the excess of (i) the fair market value of those shares on the exercise date
over (ii) the exercise price paid for the shares will be taxable as ordinary
income to the optionee. Any additional gain or loss recognized upon the
disposition will be recognized as a capital gain or loss by the optionee.
11
<PAGE>
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 shares. In no other instance will the Company be
allowed a deduction with respect to the optionee's disposition of the
purchased shares.
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, and the optionee will be required
to satisfy the tax withholding requirements applicable to such income.
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.
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 an income tax 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.
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 an
income tax deduction equal to the appreciation distribution for the taxable
year of the Company in which the ordinary income is recognized by the
optionee.
Deductibility of Executive Compensation. The Company anticipates that any
compensation deemed paid by it in connection with disqualifying dispositions
of incentive stock option shares or exercises of non-statutory options granted
with exercise prices equal to the fair market value of the option shares on
the grant date will qualify as performance-based compensation for purposes of
Code Section 162(m) and 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. Accordingly,
all compensation deemed paid with respect to those options will remain
deductible by the Company without limitation under Code Section 162(m).
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 this amendment 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 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 amendment until the available reserve of Common Stock under
the 1993 Plan as last approved by the stockholders is issued.
12
<PAGE>
RECOMMENDATIONS OF THE BOARD OF DIRECTORS
The Board of Directors recommends that the stockholders vote FOR this
amendment to the 1993 Plan.
PROPOSAL THREE--APPROVAL OF AMENDMENT TO 1993 STOCK OPTION PLAN TO
PROVIDE FOR AUTOMATIC INCREASE IN AVAILABLE STOCK OPTIONS IN FUTURE YEARS
The Company's stockholders are being asked to approve an amendment to the
Company's 1993 Plan which will implement an automatic share increase feature
pursuant to which the number of shares available for issuance under the 1993
Plan will automatically increase on the first trading day of each fiscal year
(the "First Trading Day"), beginning with the 1999 fiscal year and continuing
through the fiscal year 2003, by an amount equal to two percent (2%) of the
total number of shares outstanding on the last trading day of the immediately
preceding fiscal year. The 1993 Plan provides that, at the end of each First
Trading Day, the number of then outstanding options under the Company's stock
option plans, together with options in the reserve then available for future
grant under the Company's stock option plans, shall not exceed fifteen percent
(15%) of the then outstanding voting shares of capital stock of the Company,
together with all then actually outstanding stock options under the Company's
stock option plans, together with all options in the reserve then available
for future grant under the Company's stock option plans.
The amendment, together with Proposal Two, is designed to assure that a
sufficient reserve of Common Stock remains available for the duration of the
1993 Plan to attract and retain the services of key individuals essential to
the Company's long-term growth and success. This Proposal is also designed to
eliminate the uncertainty inherent in seeking an individual increase to the
reserve each year as to what number of shares will be available in the reserve
for option grants. Creating a certain rate of growth under the 1993 Plan will
assist the Company as it makes strategic personnel decisions in an effort to
expand its growth, as the Company will know the approximate number of shares
that will become available for issuance under the 1993 Plan. At the same time,
the Company has attempted to minimize the dilutive effect that the issuance of
Common Stock upon the exercise of options can have on stockholders' percentage
of ownership in the Company by adopting only a 2% growth rate for the 1993
Plan. This rate, while it provides room for growth in the 1993 Plan, is a rate
which the Company believes it can reasonably sustain, minimizing the risk to
stockholders that the option reserve grows faster than the Company itself. The
fifteen percent (15%) limitation discussed above further protects shareholders
by capping the size of the 1993 Plan in relation to the Company's other
securities.
Please refer to the discussion of Proposal Two for important information
regarding the 1993 Plan, as well as for 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 amendment is approved by the stockholders. The
summary in Proposal Two, however, does not purport to be a complete
description 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.
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 this amendment to the 1993 Plan. Should such
stockholder approval not be obtained, then any options granted on the basis of
the annual automatic share increases which form 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 increases. 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 amendment until the available reserve of Common Stock
under the 1993 Plan as last approved by the stockholders is issued.
RECOMMENDATIONS OF THE BOARD OF DIRECTORS
The Board of Directors recommends that the stockholders vote FOR this
amendment to the 1993 Plan.
13
<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 1997, to serve in the
same capacity for the fiscal year ending October 31, 1998, 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, 1998.
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.
14
<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, 1997, 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 Chief Executive
Officer and the two other most highly paid executive officers from the fiscal
year 1997 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)............. 4,477,389 20.50%
100 Park Avenue
New York, NY 10006
Entities affiliated with Putnam Investments
Inc.(3).................................... 3,150,591 14.42%
10 Langley Road
Newton Center, MA 02159
Fidelity Management & Research(4)........... 2,135,898 9.78%
82 Devonshire St. N4A
Boston, MA 02109-3614
Capital Guardian Trust Company(5)........... 2,133,500 9.77%
333 S. Hope Street, Floor 52
Los Angeles, CA 90071
Wilmer R. Bottoms(6)........................ 326,705 *
Henk J. Evenhuis(7)......................... 14,001 *
Jos C. Henkens(8)........................... 9,001 *
William G. Howard(9)........................ 8,375 *
Bernard V. Vonderschmitt(10)................ 17,001 *
Richard Y. Okumoto(11)...................... 6,453 *
David A. Ranhoff(12)........................ 69,114 *
All current directors and executive officers
as a group (7 persons)(13)................. 454,752 2.08%
</TABLE>
- --------
* Less than one percent of the outstanding Common Stock.
(1) Percentage of ownership is based on 21,844,829 shares of Common Stock
outstanding on December 31, 1997.
(2) Pursuant to a Schedule 13G dated February 12, 1998 and filed with the
Securities and Exchange Commission, J. & W. Seligman & Co., Inc. has
reported that as of December 31, 1997 it had shared voting power over
4,267,424 shares and shared dispositive power over 4,477,389 shares.
(3) Pursuant to a Schedule 13G dated January 27, 1998 and filed with the
Securities and Exchange Commission, Putnam Investments, Inc. ("PI") has
reported that as of December 31, 1997 it had sole voting power over no
shares, shared voting power over 400,861 shares, sole dispositive power
over no shares and shared dispositive power over 3,150,591 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
15
<PAGE>
funds and holds 2,695,115 of PI's shares and The Putnam Advisory Company,
Inc. ("PAC"), which is the investment adviser to Putnam's institutional
clients who holds 455,476 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.
(4) Pursuant to a Schedule 13G dated February 14, 1998 and filed with the
Securities and Exchange Commission, Fidelity Management & Research has
reported that as of December 31, 1997, it had sole voting power over
43,000 shares and sole dispositive power over 2,135,898 shares.
(5) Pursuant to a Form 13G dated February 11, 1998 and filed with the
Securities and Exchange Commission, Capital Guardian Trust Company has
reported that as of December 31, 1997 it had sole voting power over
2,013,500 shares, no voting power over 120,000 shares and it has
disclaimed investment discretion, sole, shared or otherwise for all
purposes other than Form 13G.
(6) Includes 213,250 shares under stock options currently exercisable or
exercisable within sixty (60) days after December 31, 1997.
(7) Includes 14,000 shares under stock options currently exercisable or
exercisable within sixty (60) days after December 31, 1997.
(8) Includes 9,000 shares under stock options currently exercisable or
exercisable within sixty (60) days after December 31, 1997.
(9) Includes 8,375 shares under stock options currently exercisable or
exercisable within sixty (60) days after December 31, 1997.
(10) Includes 14,000 shares under stock options currently exercisable or
exercisable within sixty (60) days after December 31, 1997.
(11) Includes 5,192 shares under stock options currently exercisable or
exercisable within sixty (60) days after December 31, 1997.
(12) Includes 57,446 shares under stock options currently exercisable or
exercisable within sixty (60) days after December 31, 1997.
(13) Includes 325,841 shares under stock options currently exercisable or
exercisable within sixty (60) days after December 31, 1997.
16
<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 and each
of the Company's other two most highly compensated executive officers whose
salary and bonus for the 1997 fiscal year was in excess of $100,000, for
services rendered in all capacities to the Company and its subsidiaries for
the last three fiscal years. No other executive officers who would have
otherwise been includable in such table on the basis of salary and bonus
earned for the 1997 fiscal year have resigned or terminated employment during
that fiscal year.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
ANNUAL COMPENSATION COMPENSATION AWARDS
--------------------------------------- -----------------------------
SECURITIES
OTHER ANNUAL UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS COMPENSATION OPTIONS COMPENSATION(12)
- --------------------------- ---- ------- ------- ------------ ---------- ----------------
($) ($) ($) (#) ($)
<S> <C> <C> <C> <C> <C> <C>
Wilmer R. Bottoms................. 1997 304,375(3) 175,000 -- --(6) 8,695
Chairman of the Board and 1996 105,000(4) 160,000(4) 15,000(5) 453,500(7) 90,345(10)
Chief Executive Officer(1) 1995 -- -- 21,600(5) 2,500(8) 42,000(11)
Richard Y. Okumoto................ 1997 187,000 40,000 -- -- 4,239
Executive Vice President, Chief 1996 157,000 140,000 -- 43,426 2,346
Financial Officer and Secretary(2) 1995 143,000 130,000 -- -- 2,223
David A. Ranhoff.................. 1997 184,000 140,000 -- --(9) 2,223
Executive Vice President, Sales 1996 150,000 150,000 -- 77,670 2,070
and Marketing 1995 150,000 120,000 -- -- 1,887
</TABLE>
- --------
(1) Dr. Bottoms became Chief Executive Officer on June 25, 1996.
(2) Mr. Okumoto resigned from his positions as Executive Vice President,
Chief Financial Officer and Secretary effective December 3, 1997. Mr.
Okumoto will act as a consultant to the Company through July 2, 1998.
Jerry Bruce is currently serving as Acting Chief Financial Officer and
Secretary of the Company in addition to his positions as Vice President
and Controller.
(3) Represents the salary paid to Dr. Bottoms during the fiscal year as well
as $12,500 paid on January 16, 1998 as a retroactive pay increase for the
period June 18, 1997 through October 31, 1997. Effective June 18, 1997,
Dr. Bottoms' base salary was increased to $357,500 per annum. Does not
reflect $33,125 in income withheld from Dr. Bottoms at his request. Such
salary will not be paid.
(4) 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.
(5) 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 1995 and 1996 fiscal years.
(6) Does not include grant on November 1, 1997 of an option to purchase
250,000 shares.
(7) 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.
(8) An automatic option grant was made to Dr. Bottoms in his capacity as a
non-employee member of the Board of Directors during the fiscal year
ended October 31, 1995.
(9) Does not include grant on November 1, 1997 of an option to purchase
50,000 shares.
(10) Includes (i) $84,000 paid to Dr. Bottoms for consulting services
performed while Dr. Bottoms was a non-employee director plus (ii) $6,345
paid by the Company on the special life insurance policies maintained for
Dr. Bottoms, the proceeds of which are payable at death to his designated
beneficiaries.
17
<PAGE>
(11) The Company paid approximately $42,000 in 1995 to an entity with which
Dr. Bottoms was affiliated, for consulting services rendered by Dr.
Bottoms to the Company during fiscal years 1993 and 1994.
(12) Represents premiums paid by the Company on the special life insurance
policies maintained for the executive officers, the proceeds of which are
payable at death to their designated beneficiaries.
Option Grants in Last Fiscal Year
No stock option grants were made to any of the executive officers named in
the Summary Compensation Table for the fiscal year ended October 31, 1997, and
no stock appreciation rights were granted to these individuals during such
fiscal year. On November 1, 1997, however, the Company granted to Dr. Bottoms
an option to purchase 250,000 shares and granted to Mr. Ranhoff an option to
purchase 50,000 shares.
Aggregated Option Exercises and Fiscal Year-End Values
The table below sets forth certain information with respect to the Company's
Chief Executive Officer and the other executive officers named in the Summary
Compensation Table concerning the exercise of options during the 1997 fiscal
year and unexercised options held as of the end of such fiscal year. No stock
appreciation rights were exercised during the 1997 fiscal year, nor were any
stock appreciation rights outstanding at the end of such fiscal year.
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED IN-
UNDERLYING UNEXERCISED THE-MONEY OPTIONS AT
SHARES AGGREGATE OPTIONS AT FY-END (#) FY-END($)(1)
ACQUIRED VALUE ------------------------- -------------------------
NAME ON EXERCISE REALIZED(2) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---- ----------- ----------- ----------- ------------- ----------- -------------
(#) ($)
<S> <C> <C> <C> <C> <C> <C>
Wilmer R. Bottoms....... 7,000 262,500 185,125 313,875 3,188,609 5,075,620
Richard Y. Okumoto(3)... -- -- 75,044 42,483 1,618,474 668,893
David A. Ranhoff........ -- -- 48,679 55,136 966,952 664,153
</TABLE>
- --------
(1) Based on the market value of the option shares at fiscal year-end ($29.50
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.
(3) Mr. Okumoto resigned from his positions as Executive Vice President, Chief
Financial Officer and Secretary effective December 3, 1997. Mr. Okumoto
will act as a consultant to the Company through July 2, 1998. Jerry Bruce
is currently serving as Acting Chief Financial Officer and Secretary of
the Company in addition to his positions as Vice President and Controller.
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 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 fiscal year 1997, the Compensation Committee consisted of three
members: Mr. Henkens, Mr. Vonderschmitt and Dr. Howard.
18
<PAGE>
Mr. Vonderschmitt, a Director of the Company, is founder and Chairman of
Xilinx. Dr. Howard is a Director of Xilinx. For the fiscal year ended October
31, 1997, the Company sold approximately $1,356,000 of products and services
to Xilinx. The outstanding accounts receivable with respect to such sales was
approximately $2,000 as of October 31, 1997.
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.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The Company's Restated Certificate of Incorporation and Restated Bylaws
provide for indemnification of directors and officers of the Company. Each of
the current directors and executive officers of the Company has 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 fiscal year 1997, the Compensation Committee consisted of three
members: Mr. Henkens, Mr. Vonderschmitt and Dr. Howard.
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 1997 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 1997 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 1996 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
19
<PAGE>
the Compensation Committee deems appropriate. The compensation level for the
Company's executive officers for the 1997 fiscal year ranged from the fortieth
(40th) 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 1996 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 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 1997, bonuses were earned on the basis of the following factors:
(i) the increase in the Company's earnings (before interest and taxes)
compared to the prior fiscal year and (ii) the personal performance level of
the executive officer. A portion of the Company's earnings for the 1997 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 1997 fiscal year ranged from the twenty-
ninth (29th) percentile to the sixtieth (60th) percentile of the total cash
compensation paid to executive officers in comparable positions at the peer
group companies, based on the published 1996 fiscal year data for those
companies. The actual bonus paid for the year to 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 officer 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 1997 fiscal year, no stock option grants were made to Messrs.
Okumoto or Ranhoff or to Dr. Bottoms under the Company's 1993 Plan. On
November 1, 1997, however, the Company granted under the 1993 Plan options to
Mr. Ranhoff to purchase 50,000 shares and to Dr. Bottoms to purchase 250,000
shares.
20
<PAGE>
CHIEF EXECUTIVE OFFICER PERFORMANCE AND COMPENSATION
Dr. Wilmer R. Bottoms. During the 1997 fiscal year, Dr. Bottoms served as
Chief Executive Officer. In connection with Dr. Bottoms' appointment as Chief
Executive Officer in June 1996, the Committee set his annual base salary at
$325,000 per annum and increased his annual base salary to $357,500 effective
June 18, 1997. 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 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 Company paid to Dr.
Bottoms a bonus of $175,000 for the fiscal year 1997. A stock option for an
additional 250,000 shares of Common Stock was granted to Dr. Bottoms on
November 1, 1997 in recognition of his service 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.
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 1997 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 1998 will exceed that limit.
The Company's 1993 Plan is structured so that any compensation deemed paid to
an executive officer when he exercises an outstanding option under the 1993
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
21
<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 36 MONTH CUMULATIVE TOTAL RETURN*
AMONG CREDENCE SYSTEMS CORPORATION, THE NASDAQ STOCK MARKET--US MARKET
AND NASDAQ ELECTRONIC COMPONENTS INDEX
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
FYE 10/97 $377 $212 $371
</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, 1997.
(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, as amended, whether made before or after the date of
this Proxy Statement and irrespective of any general incorporation
language in any such filing.
22
<PAGE>
COMPLIANCE WITH SECTION 16(a) OF THE SECURITIES EXCHANGE ACT OF 1934
Section 16(a) of the Securities Exchange Act of 1934, as amended, 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 1997 fiscal
year that no Form 5 reports were required for such persons for the 1997 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 1997 fiscal year.
ANNUAL REPORT
A copy of the Annual Report of the Company for the fiscal year ended October
31, 1997 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, 1997 has been
mailed concurrently with this Proxy Statement to all stockholders entitled to
notice of and to vote at the Annual Meeting.
Dated: February 17, 1998
THE BOARD OF DIRECTORS OF CREDENCE
SYSTEMS CORPORATION
23
<PAGE>
[LOGO OF CREDENCE SYSTEMS]
4490-PS-98
<PAGE>
APPENDIX A
CREDENCE SYSTEMS CORPORATION
1993 STOCK OPTION PLAN
----------------------
(AS AMENDED AND RESTATED THROUGH MARCH 26, 1997)
ARTICLE ONE
GENERAL
-------
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,
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
2.
<PAGE>
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.
FIRST TRADING DAY: the first trading day of each fiscal year.
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 (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.
3.
<PAGE>
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
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
4.
<PAGE>
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.
V. OPTION GRANTS
A. The persons eligible to participate in the Discretionary Option
Grant Program under Article Two are as follows:
(i) officers and other key employees of the Corporation (or its
parent or subsidiary corporations) who render services which contribute to
the management, growth and financial success of the Corporation (or its
parent or subsidiary corporations);
(ii) non-employee Board members; and
(iii) those consultants who provide valuable services to the
Corporation (or its parent or subsidiary corporations).
5.
<PAGE>
B. 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 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, (vi) an additional
500,000-share increase authorized by the Board on February 12, 1997, and
approved by the stockholders at the 1997 Annual Stockholders Meeting, and (vii)
an additional 500,000-share increase authorized by the Board on February 13,
1998, and approved by the stockholders at the 1998 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. In
addition, the number of shares of Common Stock reserved for issuance under this
Plan will automatically be increased on each First Trading Day, beginning with
the 1999 First Trading Day and continuing through the fiscal year 2003, by an
amount equal to two percent (2%) of the total number of shares outstanding on
the last trading day of the immediately preceding fiscal year; provided,
---------
however, that each such two percent (2%) increase shall be limited, to the
- -------
extent necessary, such that following each increase the sum of the options
outstanding under the Company's stock option plans plus the shares available for
issuance under all of the Company's
6.
<PAGE>
stock option plans (together, the "Option Shares") does not exceed fifteen
percent (15%) of the sum of the outstanding voting shares of the capital stock
of the Company plus the Option Shares.
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. Unvested shares issued under the Plan and subsequently
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.
Should the option price of an outstanding option under the Plan (including any
option incorporated from the Predecessor Plans) be paid with shares of Common
Stock or should shares of Common Stock otherwise issuable under the Plan be
withheld by the Corporation in satisfaction of the withholding taxes incurred in
connection with the exercise of an outstanding stock option under the Plan, then
the number of shares of Common Stock available for issuance under the Plan shall
be reduced by the gross number of shares for which the option is exercised or
which vest under the stock issuance, and not by the net number of shares of
Common Stock actually issued.
D. Should any change be made to the Common Stock issuable under
the Plan by reason of any stock split, stock dividend, recapitalization,
combination of shares, exchange of shares or other change affecting the
outstanding Common Stock as a class without the Corporation's receipt of
consideration, then appropriate adjustments shall be made to (i) the maximum
number and/or class of securities issuable under the Plan, (ii) the number
and/or class of securities for which any one person may be granted options and
separately exercisable stock appreciation rights under the Plan from and after
January 1, 1995, (iii) the number and/or class of securities for which automatic
option grants are to be subsequently made per newly-elected or continuing non-
employee Board member under the Automatic Option Grant Program, (iv) the number
and/or class of securities and price per share in effect under each option
outstanding under either the Discretionary Option Grant or Automatic Option
Grant Program and (v) the number and/or class of securities and price per share
in effect under each outstanding option incorporated into this Plan from the
Predecessor Plans. Such adjustments to the outstanding
7.
<PAGE>
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
- full payment through a broker-dealer sale and remittance
procedure pursuant to which the Optionee (I) shall provide irrevocable
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
9.
<PAGE>
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 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 the 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 (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
10.
<PAGE>
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.
(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.
11.
<PAGE>
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.
(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 under this Plan (or any other option plan of the
Corporation or its parent or subsidiary
12.
<PAGE>
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.
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.
13.
<PAGE>
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 at the time the option is granted or at any time while the option remains
outstanding, to provide (upon such terms as it may deem appropriate) for the
automatic acceleration of one or more outstanding options under this Article Two
which are assumed or replaced in the Corporate Transaction and do not otherwise
accelerate at that time, in the event the Optionee's Service should subsequently
terminate within a designated period following the effective date of such
Corporate Transaction.
E. The grant of options under this Article Two shall in no way
affect the right of the Corporation to adjust, reclassify, reorganize or
otherwise change its capital or business structure or to merge, consolidate,
dissolve, liquidate or sell or transfer all or any part of its business or
assets.
F. The Plan Administrator shall have the discretionary authority,
exercisable either at the time the option is granted or at any time while the
option is outstanding, 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
14.
<PAGE>
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 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. The Plan Administrator shall, at the time the limited stock
appreciation right is granted, pre-approve the
15.
<PAGE>
subsequent exercise of that right in accordance with the terms and conditions of
this Section V.D.. Accordingly, no additional approval of the Plan Administrator
or the Board shall be required at the time of the actual 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
10,000/1/ shares of Common Stock upon the terms and conditions of this
Article Three.
(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 3,500/2/ shares of Common Stock upon the terms and conditions of
this Article Three, provided he or she has served as a non-employee Board
member for at least six (6) months.
- --------------------------
/1/ Reflects the 3-for-2 split of the Common Stock effected by the Corporation
on June 5, 1995.
/2/ Reflects the 3-for-2 split of the Common Stock effected by the
Corporation on June 5, 1995.
17.
<PAGE>
There shall be no limit on the number of 3,500-share option grants any one
Eligible Director may receive over his or her period of Board service.
The number of shares for which the automatic grants are to be
made to each newly-elected or continuing Eligible Director shall be subject to
periodic adjustment pursuant to the applicable provisions of Section VI.D of
Article One.
B. Option Price. For each option grant made under this Automatic
------------
Option Grant Program, the option price per share shall be equal to one hundred
percent (100%) of the Fair Market Value per share of Common Stock on the
automatic grant date.
C. Payment. The option price shall be payable in one of the
-------
alternative forms specified below:
(i) full payment in cash or check made payable to the
Corporation's order; or
(ii) full payment in shares of Common Stock held for the
requisite period necessary to avoid a charge to the Corporation's reported
earnings and valued at Fair Market Value on the Exercise Date; or
(iii) full payment in a combination of shares of Common Stock
held for the requisite period necessary to avoid a charge to the
Corporation's reported earnings and valued at Fair Market Value on the
Exercise Date and cash or check payable to the Corporation's order; or
(iv) full payment through a sale and remittance procedure
pursuant to which the non-employee Board member (I) shall provide
irrevocable 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 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 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
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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
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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.
21.
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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, 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. 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 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
22.
<PAGE>
and held in escrow, together with interest (at the applicable Short Term Federal
Rate) for the period the shares were held in escrow.
III. TAX WITHHOLDING
The Corporation's obligation to deliver shares of Common Stock upon
the exercise of stock options for such shares or the vesting of such shares
under the Plan shall be subject to the satisfaction of all applicable Federal,
State and local income and employment tax withholding requirements.
The Plan Administrator may, in its discretion and in accordance with
the provisions of this Section III of Article Four and such supplemental rules
as the Plan Administrator may from time to time adopt (including the applicable
safe-harbor provisions of SEC Rule 16b-3), provide any or all holders of non-
statutory options (other than the automatic grants made pursuant to Article
Three of the Plan) or unvested shares under the Plan with the right to use
shares of the Corporation's Common Stock in satisfaction of all or part of the
Federal, State and local income and employment tax liabilities incurred by such
holders in connection with the exercise of their options or the vesting of their
shares (the "Taxes"). Such right may be provided to any such holder in either
or both of the following formats:
(a) Stock Withholding: The holder of the non-statutory option or
-----------------
unvested shares may be provided with the election to have the Corporation
withhold, from the shares of Common Stock otherwise issuable upon the
exercise of such non-statutory option or the vesting of such shares, a
portion of those shares with an aggregate Fair Market Value equal to the
percentage of the applicable Taxes (not to exceed one hundred percent
(100%)) designated by the holder.
(b) Stock Delivery: The Plan Administrator may, in its discretion,
--------------
provide the holder of the non-statutory option or unvested shares purchased
thereunder with the election to deliver to the Corporation, at the time the
non-statutory option is exercised or the shares vest, one or more shares of
Common Stock previously acquired by such individual (other than in
connection with the option exercise or share vesting triggering the Taxes)
with an aggregate Fair Market Value equal to the percentage of the Taxes
incurred in connection with such option exercise or share vesting (not to
exceed one hundred percent (100%)) designated by the holder.
IV. EFFECTIVE DATE AND TERM OF PLAN
A. The Plan was initially adopted by the Board on August 31, 1993 and
approved by the stockholders in October 1993. As of the applicable Effective
Date for each of the equity incentive programs in effect hereunder, this Plan,
as successor to the Predecessor Plans, became effective for each such program,
and no further option grants or stock issuances shall be
23.
<PAGE>
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
750,000/3/ 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 was approved by the
stockholders at the 1997 Annual Meeting. 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.
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.
- ------------------------
/3/ Reflects the 3-for-2 split of the Common Stock effected by the Corporation
on June 5, 1995.
24.
<PAGE>
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
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or (ii) the date on which all shares available for issuance under the Plan shall
have been issued or cancelled pursuant to the exercise, surrender or cash-out of
the options granted under the Plan. Upon such plan termination, all outstanding
option grants shall continue to have force and effect in accordance with the
provisions of the instruments evidencing such grants.
V. USE OF PROCEEDS
Any cash proceeds received by the Corporation from the sale of shares
pursuant to option grants under the Plan shall be used for general corporate
purposes.
VI. REGULATORY APPROVALS
A. The implementation of the Plan, the granting of any stock option
or stock appreciation right under the Plan and the issuance of Common Stock upon
the exercise of the stock options or stock appreciation rights granted hereunder
shall be subject to the Corporation's procurement of all approvals and permits
required by regulatory authorities having jurisdiction over the Plan, the stock
options and stock appreciation rights granted under it, and the Common Stock
issued pursuant to it.
B. No shares of Common Stock or other assets shall be issued or
delivered under this Plan unless and until there shall have been compliance with
all applicable requirements of Federal and State securities laws, including the
filing and effectiveness of the Form S-8 registration statement for the shares
of Common Stock issuable under the Plan, and all applicable listing requirements
of any securities exchange on which stock of the same class is then listed.
VII. NO EMPLOYMENT/SERVICE RIGHTS
Neither the action of the Corporation in establishing the Plan, nor
any action taken by the Plan Administrator hereunder, nor any provision of the
Plan shall be construed so as to grant any individual the right to remain in the
employ or service of the Corporation (or any parent or subsidiary corporation)
for any period of specific duration, and the Corporation (or any parent or
subsidiary corporation retaining the services of such individual) may terminate
such individual's employment or service at any time and for any reason, with or
without cause.
VIII. MISCELLANEOUS PROVISIONS
25.
<PAGE>
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>
DETACH HERE
CREDENCE SYSTEMS CORPORATION
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD MARCH 25, 1998
The undersigned revokes all previous proxies, acknowledges receipt of the Notice
of the Annual Meeting of Stockholders to be Held March 25, 1998 and the Proxy
Statement and appoints Wilmer R. Bottoms and Jerry Bruce, 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 25, 1998 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.
-----------
SEE REVERSE
CONTINUED AND TO BE SIGNED ON REVERSE SIDE SIDE
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<PAGE>
DETACH HERE
PLEASE MARK
VOTES AS IN
[X] THIS EXAMPLE.
1. To elect two directors to serve for a three-year term ending in the year 2001
or until their successors are elected and qualified.
Nominees: Joe C. Benders and William G. Howard, Jr.
FOR WITHHELD MARK HERE
[_] [_] FOR ADDRESS
CHANGE AND
[_] ___________________________________________________ NOTE BELOW [_]
For all nominees except as noted above
2. To approve an amendment to the Company's 1993 Stock FOR AGAINST ABSTAIN
Option Plan that will increase the number of shares [_] [_] [_]
of Common Stock reserved for issuance thereunder by
an additional 500,000 shares to a total of 4,625,001 shares.
3. To approve an amendment to the Company's 1993 Stock FOR AGAINST ABSTAIN
Option Plan that will implement an automatic share [_] [_] [_]
increase feature pursuant to which the number of
shares available for issuance under the 1993 Stock Option Plan (the "1993
Plan") will automatically increase on the first trading day of each fiscal
year (the "First Trading Day"), beginning with the 1999 fiscal year and
continuing through the fiscal year 2003, by an amount equal to two percent
(2%) of the total number of shares outstanding on the last trading day of the
immediately preceding fiscal year. The 1993 Plan provides that at the end of
each First Trading Day, the number of then outstanding options under the
Company's stock option plans, together with options in the reserve then
available for future grant under the Company's stock option plans, shall not
exceed fifteen percent (15%) of the then outstanding voting shares of capital
stock of the Company, together with all then actually outstanding stock
options under the Company's stock option plans, together with all options in
the reserve then available for future grant under the Company's stock option
plans.
4. To ratify the appointment of Ernst & Young LLP as FOR AGAINST ABSTAIN
independent auditor of the Company for the fiscal [_] [_] [_]
year ending October 11, 1998.
5. To transact such other business as may properly come before the meeting or
any adjournment or postponement thereof.
Signature: _______________ Date: ______ Signature: ________________ Date: ______
