SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of
the Securities Exchange Act of 1934
(Mark One)
Filed by the Registrant [X]
Filed by a Party other than the [_]
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 of 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: ____________________
(5) Total fee paid: _____________________________________________________
[_] Fee paid previously with preliminary materials.
[_] Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a) (2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid: ______________________________________________
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(4) Dated Filed: ________________________________________________________
<PAGE>
CREDENCE SYSTEMS CORPORATION
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON MARCH 24, 1999
TO OUR 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 24, 1999, 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 approve amendments to the Company's 1993 Stock Option
Plan (the "1993 Plan") to (i) increase the number of
shares of common stock authorized for issuance over the
term of the 1993 Plan by an additional 1,000,000 shares,
(ii) increase the maximum number of shares of common stock
for which any one individual may be granted stock options
and separately exercisable stock appreciation rights over
the term of the 1993 Plan from 750,000 shares to 1,000,000
shares and (iii) increase the number of shares of common
stock for which continuing non-employee Board members are
to be granted stock options at each Annual Stockholders
Meeting, beginning with the 1999 Annual Meeting, from
3,500 shares to 5,000 shares per non-employee Board
member.
2. To approve an amendment to the Company's 1994 Employee
Stock Purchase Plan that will increase the number of
shares of common stock reserved for issuance thereunder by
an additional 300,000 shares.
3. To ratify the appointment of Ernst & Young LLP as
independent auditors of the Company for the fiscal year
ending October 31, 1999; and
4. 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
2, 1999 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,
Dr. William G. Howard, Jr.
Chairman of the Board of Directors
February 25, 1999
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.
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PROXY STATEMENT
TABLE OF CONTENTS
Page
PROXY STATEMENT ............................................................ 1
MATTERS TO BE CONSIDERED AT ANNUAL MEETING ................................. 4
PROPOSAL ONE - APPROVAL OF AMENDMENTS TO 1993 STOCK OPTION PLAN ..... 4
PROPOSAL TWO - APPROVAL OF AMENDMENT TO 1994 EMPLOYEE STOCK
PURCHASE PLAN ........................................ 12
PROPOSAL THREE - RATIFICATION OF INDEPENDENT AUDITORS ............... 16
OTHER MATTERS ....................................................... 16
OWNERSHIP OF SECURITIES .................................................... 17
EXECUTIVE COMPENSATION AND RELATED INFORMATION ............................. 19
SUMMARY COMPENSATION TABLE ................................................. 19
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS ............................. 24
COMPENSATION COMMITTEE REPORT .............................................. 24
COMPARISON OF STOCKHOLDER RETURN ........................................... 28
COMPLIANCE WITH SECTION 16(a) OF THE SECURITIES EXCHANGE ACT OF 1934 ....... 29
ANNUAL REPORT .............................................................. 29
FORM 10-K .................................................................. 29
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CREDENCE SYSTEMS CORPORATION
215 Fourier Avenue
Fremont, California 94539
PROXY STATEMENT
FOR THE ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON MARCH 24, 1999
General
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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
24, 1999 (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 25, 1999 to
all stockholders entitled to vote at the Annual Meeting.
Voting
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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 2, 1999, the record date for
determination of stockholders entitled to notice of and to vote at the Annual
Meeting, approximately 20,474,589 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 2,
1999. The matters submitted for stockholder approval at this Annual Meeting will
be decided by the affirmative vote of a majority of the 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
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If the 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 approval of
Proposals 1, 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
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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 solicitation materials furnished to stockholders.
Copies of the solicitation materials will be furnished to brokerage houses,
fiduciaries, and custodians holding shares in their names that are beneficially
owned by others so that they may forward this solicitation material to such
beneficial owners. In addition, the Company may reimburse such persons for their
costs in forwarding the solicitation materials to such beneficial owners. The
original solicitation of proxies by mail may be supplemented 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
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Proposals of stockholders of the Company that are intended to be
presented by such stockholders at the Company's 2000 Annual Meeting must be
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received no later than October 27, 1999, in order that they may be included in
the proxy statement and form of proxy relating to that meeting. In addition, the
proxy solicited by the Board for the 2000 Annual Meeting will confer
discretionary authority to vote on any stockholder proposal presented at that
meeting, unless the Company receives notice of such proposal not later than
January 10, 2000.
Election of Directors
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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
four persons. The class that would have been subject to election at the Annual
Meeting consisted only of Dr. Wilmer R. Bottoms, who resigned as director,
Chairman of the Board and Chief Executive Officer effective December 8, 1998.
Consequently, there are no nominees for the Board to be elected at the Annual
Meeting. Following is certain biographical information regarding the Company's
current directors:
Continuing Directors for Term Ending Upon the 2000 Annual Stockholders' Meeting
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Henk J. Evenhuis, 55, has served as a Director of the Company
since September 1993. Mr. Evenhuis has been a self-employed consultant to the
semiconductor capital equipment industry since April 1997 and was the Executive
Vice President and Chief Financial Officer of Lam Research Corporation ("Lam")
from July 1993 to April 1997 and Senior Vice President and Chief Financial
Officer of Lam from April 1987 to July 1993. From 1983 to 1987, Mr. Evenhuis
served as Chief Financial Officer of Ferix Corporation, Trimedia Corporation and
Corvus Systems, Inc.
Bernard V. Vonderschmitt, 75, has served as a Director of the
Company since August 1993. Mr. Vonderschmitt co-founded Xilinx, Inc. ("Xilinx"),
a supplier of field programmable gate arrays, in February 1984. Mr.
Vonderschmitt has been the Chairman of the Board of Xilinx since January 1996
and served as Chief Executive Officer of Xilinx from February 1984 to January
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.
Continuing Directors for Term Ending Upon the 2001 Annual Stockholders' Meeting
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Jos C. Henkens, 46, 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 and ObjectShare, Inc.,
semiconductor manufacturers, and various private companies.
William G. Howard, Jr., 57, has served as a Director of the
Company since February 1995 and as Chairman of the Board since December 1998.
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 and 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 Technologies, Inc., Ramtron
International Corp. and Xilinx, as well as several private companies.
Director Compensation
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As of the date of each Annual Stockholders Meeting, each
non-employee Board member who is to continue to serve as such following such
meeting will receive an annual retainer fee of $10,000. 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 non-employee director will, at the time of his or her initial
election or appointment to the Board, receive an option grant for 10,000 shares
of the Company's common stock under the 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
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is to continue to serve as a non-employee Board member, whether or not he or she
is standing for re-election at that particular meeting, will be granted an
option to purchase additional shares of common stock, provided such individual
has served as a non-employee Board member for at least six months. For annual
grants made prior to the 1999 Annual Meeting, the number of shares subject to
each such grant was 3,500 shares. If the stockholders approve Proposal One at
the 1999 Annual Meeting, then the number of shares subject to each such annual
grant will be increased to 5,000 shares, effective with the grants to be made at
the 1999 Annual Meeting. Each grant under the Automatic Option Grant Program
will have an exercise price per share equal to the fair market value per share
of 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.
Under the Automatic Option Grant Program, a stock option for 3,500
shares of Common Stock was granted on March 25, 1998, the date of the 1998
Annual Stockholders Meeting, to each of the following individuals who continued
to serve as non-employee Board members following that Annual Meeting: Mr.
Evenhuis, Mr. Henkens, Mr. Vonderschmitt and Dr. Howard. Each option has an
exercise price of $26.25 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
such option will immediately vest in full upon (i) an acquisition of the Company
by merger or asset sale, (ii) a hostile takeover of the Company or (iii) the
optionee's death or disability while continuing to serve as a Board member. For
further information concerning the terms and conditions of these option grants
and the Automatic Option Grant Program, please see the summary of the Automatic
Option Grant Program in Proposal One below.
3
<PAGE>
MATTERS TO BE CONSIDERED AT ANNUAL MEETING
PROPOSAL ONE - APPROVAL OF AMENDMENTS TO 1993 STOCK OPTION PLAN
The Company's stockholders are being asked to approve amendments
to the Company's 1993 Stock Option Plan (the "1993 Plan") which will effect the
following changes: (i) increase the number of shares of common stock authorized
for issuance over the term of the 1993 Plan by an additional 1,000,000 shares,
(ii) increase the maximum number of shares of common stock for which any one
individual may be granted stock options and separately exercisable stock
appreciation rights from 750,000 shares to 1,000,000 shares and (iii) increase
the number of shares of common stock for which continuing non-employee Board
members are to be granted stock options at each Annual Stockholders Meeting,
beginning with the 1999 Annual Meeting, from 3,500 shares to 5,000 shares per
non-employee Board member.
The amendments were adopted by the Board on January 22, 1999,
subject to stockholder approval at the Annual Meeting. The increase to the
share reserve is designed to assure that a sufficient reserve of common stock
will continue to be available under the 1993 Plan to attract and retain the
services of key individuals essential to the Company's long-term growth and
success. The increase to the limitation on the maximum number of shares for
which any one individual may be granted stock options and separately
exercisable stock appreciation rights under the 1993 Plan will provide the
Company with greater flexibility in structuring equity incentive awards for
senior management while continuing to assure that any compensation deemed paid
to the Company's executive officers in connection with their exercise of stock
options or stock appreciation rights under the 1993 Plan will qualify as
tax-deductible performance-based compensation under the federal tax laws. Such
performance-based compensation is not subject to the $1 million limitation per
covered individual on the tax deductibility of compensation paid to certain
executive officers of the Company. The increase to the number of shares
subject to the annual option grants made to the non-employee Board members
will allow the Company to provide a more meaningful equity incentive to
attract and retain highly-qualified individuals to serve as non-employee Board
members.
The following is a summary of the principal features of the 1993
Plan, together with the applicable tax and accounting implications, which will
be in effect if the amendments to the 1993 Plan are approved by the
stockholders. The summary, however, does not purport to be a complete
description of all the provisions of the 1993 Plan. Any stockholder of the
Company who wishes to obtain a copy of the actual plan document may do so upon
written request to the Corporate Secretary at the Company's principal executive
offices in Fremont, California.
Equity Incentive Programs
- -------------------------
The 1993 Plan contains two separate components: (i) a
discretionary 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 those shares on the grant date and (ii) an automatic grant program under
which options will automatically be granted at periodic intervals to the
non-employee Board members to purchase shares of common stock at an exercise
price equal to the fair market value of the option shares on the grant date.
Options may be granted under the discretionary program as 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 program will be non-statutory options.
Eligibility
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Employees (including officers), non-employee Board members and
independent consultants are eligible to participate in the discretionary 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, 1998,
approximately 625 employees (including four executive officers) and three
non-employee Board members were eligible to participate in the discretionary
program. The three non-employee Board members were also eligible to participate
in the automatic grant program.
Share Reserve
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6,032,819 shares of common stock have been reserved for issuance
over the ten (10)-year term of the 1993 Plan, assuming stockholder approval of
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the one million share increase which forms part of this Proposal. As of December
31, 1998 and prior to the approval of this share increase, options for 2,396,404
shares were outstanding under the 1993 Plan, options for 2,006,880 shares had
been exercised, and 629,535 shares were available for future option grant.
The number of shares of common stock reserved for issuance under
the 1993 Plan will automatically increase on the first trading day of each
fiscal year, from fiscal year 1999 through 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 number of shares of
common stock reserved for issuance under the 1993 Plan was increased by 407,818
shares on November 1, 1998, as a result of this automatic increase. However,
each such annual increase will be reduced to the extent necessary to assure that
the number of shares of common stock subject to the outstanding options under
the Company's stock option plans, when added to the number of shares available
for future option grant under those plans after taking the annual increase into
effect (together the "Option Shares"), will not exceed fifteen percent (15%) of
(i) the number of voting shares of the Company's capital stock outstanding at
that time plus (ii) the Option Shares.
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
grant under the 1993 Plan. Unvested shares issued under the 1993 Plan and
subsequently repurchased by the Company at the original option exercise 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.
Upon stockholder approval of this Proposal, the limitation on the
maximum number of shares for which any one participant in the 1993 Plan be
granted stock options and separately exercisable stock appreciation rights under
the 1993 Plan will be increased from 750,000 shares to 1,000,000 shares in the
aggregate, exclusive, however, of any stock options or stock appreciation rights
granted to such individual prior to January 1, 1995.
Option Grants
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The table below shows, as to the Company's Chief Executive Officer
and each of the other named executive officers in the Summary Compensation Table
and the various indicated groups, the number of shares of common stock subject
to the stock options granted under the 1993 Plan from November 1, 1997 through
December 31, 1998 and the weighted average exercise price payable per share. The
number of shares and weighted average exercise price calculations include all
options which were granted during the indicated period and subsequently
cancelled and regranted at a lower exercise price per share on December 14,
1998.
<TABLE>
<CAPTION>
====================================================================== ================ ==================
Name and Position Number of Option Weighted Average
Shares(5) Exercise Price of
Granted Options
- ---------------------------------------------------------------------- ---------------- ------------------
<S> <C> <C>
Wilmer R. Bottoms (1) .................................................. 250,000 $29.50
Chairman of the Board and Chief Executive Officer
Dennis Wolf (2)(3) ..................................................... 240,000 $20.28
Executive Vice President, Chief Financial Officer and Secretary
David A. Ranhoff (2) ................................................... 210,000 $19.76
Executive Vice President
Jerry Bruce ............................................................ 39,500 $19.59
Vice President, Treasurer and Corporate Controller
All current executive officers as a group (four persons)(4) ............ 508,000 $20.04
All current directors (other than executive officers) as a group ....... 10,500 $26.25
(three persons)
All employees eligible under the 1993 Plan, including current .......... 1,388,328 $19.86
officers who are not executive officers, as a group (625 persons)
</TABLE>
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(1) Dr. Bottoms resigned as Chairman and member of the Board and as Chief
Executive Officer on December 8, 1998.
(2) Mr. Ranhoff and Mr. Wolf were named to the Office of the President on
December 8, 1998.
(3) Mr. Wolf joined Credence as Senior Vice President, Chief Financial Officer
and Secretary in March 1998. Mr. Wolf was promoted to Executive Vice
President on December 8, 1998.
(4) Includes Dr. Howard in his capacity as Chairman of the Board.
(5) Number of option shares includes those option shares which were issued as
regrants at a lower price than the options they replaced, which were
cancelled. The number of shares subject to such regrant was 80,000, 50,000
and 20,500 shares for Mr. Wolf, Mr. Ranhoff and Mr. Bruce, respectively,
150,500 shares for all current executive officers as a group and 568,212
shares for all eligible employees, respectively.
Discretionary Grant Program
---------------------------
The discretionary 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 program, the
time or times when such grants are to be made, the number of shares subject to
each such grant, the status of any granted option as either an incentive stock
option or a non-statutory option, the vesting schedule (if any) to be in effect
for the option grant and the maximum term for which any granted option is to
remain outstanding.
The exercise price per share will not be less than 100% of the
fair market value per share of common stock on the grant date. No option will
have a maximum term in excess of ten (10) years measured from the grant date,
and each option will generally become exercisable in one or more installments
over the optionee's period of service with the Company. The shares acquired upon
the exercise of one or more options may, however, be unvested and subject to
repurchase by the Company, at the exercise price paid per share, if the optionee
ceases service with the Company prior to vesting in those shares. Options are
generally not assignable or transferable other than by will or the laws of
inheritance and, during the optionee's lifetime, the option may be exercised
only by such optionee. However, the Plan Administrator may allow non-statutory
options to be transferred or assigned 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, to the extent such transfer or
assignment is in furtherance of the optionee's estate plan. No option holder
will 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 and for all
other valuation purposes under the 1993 Plan, the fair market value per share of
common stock on any relevant date will be the closing price per share on that
date, as quoted on the Nasdaq National Market. On December 31, 1998, the closing
price per share on the Nasdaq National Market was $18.50.
The exercise price may be paid 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 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 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
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the shares 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.
Except as otherwise described in this Proxy Statement, outstanding
options under the discretionary program will be subject to acceleration upon
certain changes in the ownership or control of the Company as follows:
Corporate Transaction. In the event of any one of the following
stockholder-approved transactions (a "Corporate Transaction"):
(i) a merger or c onsolidation 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 outstanding at the time will automatically 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. However, an
outstanding option will not so accelerate if and to the extent such option is to
be assumed by the successor corporation or replaced with a cash incentive
program which preserves the spread existing on the unvested option shares at the
time of the transaction. 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.
Change in Control. The Plan Administrator has full power and
authority to structure one or more options under the discretionary program so
that each of those options will, immediately prior to a 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
under the 1993 Plan in the event:
(i) a person or related group of persons (other than the Company
or its affiliates) acquires 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) a majority of the Board members ceases, by reason of one or
more contested elections for Board membership over a period of
thirty-six (36) months or less, 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.
Certain executive officers of the Company have entered into
special agreements with the Company which provide them with additional option
acceleration benefits upon a Corporate Transaction or Change in Control. Those
agreements are summarized below in the section entitled "EXECUTIVE COMPENSATION
- -Employment Contracts, Termination of Employment Arrangements and Change in
Control Agreements."
7
<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 program:
(i) 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 those shares. Such
appreciation distribution may, at the discretion of the Plan
Administrator, be made in cash or in shares of common stock.
(ii) 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 program 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 market price of the common stock at the time of the
new grant.
On December 14, 1998, the Plan Administrator implemented an option
cancellation/regrant program for all employees of the Company, including certain
executive officers and except the Chairman of the Board. Pursuant to that
program, each such employee was given the opportunity to surrender his or her
outstanding options under the 1993 Plan with exercise prices in excess of $17.00
per share in return for a new option grant for the same number of shares but
with an exercise price of $17.19 per share, the closing price per share of
common stock as reported on the Nasdaq National Market on the December 14, 1998
grant date of the new option. Options for approximately 568,212 shares with a
weighted average exercise price of $28.37 per share were surrendered for
cancellation, and new options for the same number of shares were granted with
the $17.19 per share exercise price. Each new option granted in replacement of a
standard four-year service option will become exercisable for 12.5% of the
option shares upon the optionee's continuation in service through June 14, 1999.
The option will become exercisable for the remaining option shares in a series
of fourteen successive equal quarterly installments upon the optionee's
completion of each additional three-month period of service thereafter. For each
performance vesting option cancelled and regranted in connection with the
December 14, 1998 program, the new option will become exercisable for the option
shares upon the optionee's completion of five years of service (or seven years
of service for certain of those grants) measured from the December 14, 1998
grant date, subject to earlier vesting in the event certain pre-defined
performance objectives are attained during the optionee's period of service with
the Company. The following executive officers participated in the December 14,
1998 cancellation/regrant program: Mr. Wolf with respect to options covering
80,000 shares with a weighted average exercise price of $17.19; Mr. Ranhoff with
respect to options covering 50,000 shares with a weighted average exercise price
of $17.19 per share; and Mr. Bruce with respect to options covering 20,500
shares with a weighted average exercise price of $17.19 per share.
Automatic Grant Program
-----------------------
The terms and conditions governing the option grants which may be
made under the automatic program are summarized below. All such grants will be
made in strict compliance with the express provisions of the program, and the
Plan Administrator will exercise no discretionary functions with respect to
those grants. Stockholder approval of this Proposal will also constitute
approval of each automatic option granted under the program at or after the 1999
Annual Meeting and the subsequent exercise of that option in accordance with the
terms of the program as described below.
Under the program, each individual who first joins the Board as a
non-employee director will receive at that time an automatic option grant for
10,000 shares of common stock. In addition, at each Annual Stockholders Meeting,
beginning with the 1999 Annual Meeting, each individual who is to continue to
8
<PAGE>
serve as a non-employee Board member will automatically be granted, whether or
not he or she is standing for re-election at that particular meeting, a stock
option to purchase an additional 5,000 shares, 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 5,000-share options which any one non-employee
Board member may receive over his or her period of Board service.
Each option will be subject to the following terms and conditions:
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.
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.
The initial 10,000 share grant made
to a new non-employee 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 of the option shares in a series of fourteen (14)
successive equal quarterly installments upon the individual's
completion of each additional three (3)-month period of Board service.
Each 5,000-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
continued Board service, with the first such installment to become
exercisable one (1) year after the automatic grant date.
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.
Should the optionee die or become
permanently disabled while serving as a Board member, then the option
will vest and 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.
The option will vest and become
immediately exercisable for all of the shares at the time subject to
that option in the event of a Corporate Transaction or Change in
Control (as those terms are defined above). Upon the successful
completion of a hostile tender offer for more than fifty percent (50%)
of the Company's voting securities, the optionee will have a thirty
(30)-day period in which he or she may elect to surrender each
outstanding automatic option grant to the Company in return for a cash
distribution in an amount per surrendered option share equal to the
excess of (a) the highest price paid per share of common stock paid in
such tender offer over (b) the exercise price payable for such share.
Stockholder approval of this Proposal will also constitute
pre-approval of each such option surrender right granted at or after
the 1999 Annual Meeting and the subsequent exercise of that right in
accordance with the foregoing terms and conditions.
The option may be transferred or
assigned 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, to the extent such transfer or
assignment is in furtherance of the optionee's estate plan.
9
<PAGE>
The remaining terms of the option will in general conform to the
terms described above for option grants made under the discretionary 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 1993 Plan after December 31, 1994, (iii) the
number and/or class of securities and price per share in effect under each
outstanding option 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 grant program.
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 that grant.
New Plan Benefits
- -----------------
No options have been granted to date under the 1993 Plan on the
basis of the 1,000,000-share increase which forms part of this Proposal or on
the basis of the 250,000-share increase to the maximum number of shares for
which any one individual may be granted stock options and separately exercisable
stock appreciation rights under the 1993 Plan. If the Proposal is approved by
the stockholders, then each of the following non-employee Board members will
receive an option grant at the 1999 Annual Stockholders Meeting for 5,000 shares
with an exercise price per share equal to the closing price per share of common
stock on that date: Jos C. Henkens, Henk J. Evenhuis and Bernard V.
Vonderschmitt.
Accounting Treatment
- --------------------
Under the current accounting principles in effect for equity
incentive programs such as the 1993 Plan, the 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 proforma impact those
options would have upon the Company's reported earnings were the fair 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.
Under a recently-proposed amendment to the current accounting
principles, option grants made to non-employee Board members after December 15,
1998 will result in a direct charge to the Company's reported earnings based
upon the fair value of the option measured on the vesting date of each
installment of the underlying option shares. Such charge will accordingly
include the appreciation in the value of the option shares over the period
between the grant date of the option (or, if later, the effective date of the
final amendment) and the vesting date of each installment of the option shares.
In addition, if the proposed amendment is adopted, any options which are
repriced after December 15, 1998 will also trigger a direct charge to the
Company's reported earnings measured by the appreciation in the value of the
underlying shares over the period between the grant date of the option (or, if
later, the effective date of the final amendment) and the date the option is
exercised for those shares.
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 reported 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.
10
<PAGE>
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.
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 the disqualifying
disposition of incentive stock option shares or the exercise of non-statutory
11
<PAGE>
options 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 the amendments to the 1993 Plan. Should such
stockholder approval not be obtained, then any options granted on the basis of
the 1,000,000 share increase which forms part of this Proposal will terminate
without becoming exercisable for any of the shares of common stock subject to
those options, and no further options will be granted on the basis of such share
increase. In addition, neither the 250,000-share increase to the maximum number
of shares for which any one individual may be granted stock options and
separately exercisable stock appreciation rights under the 1993 Plan nor the
increase to the number of shares subject to the annual option grants to be made
to non-employee Board members will be implemented. However, in the absence of
such stockholder approval, the 1993 Plan will continue to remain in effect in
accordance with its provisions prior to the amendments which are the subject of
this Proposal; option grants will continue to be made until the available
reserve of common stock under the 1993 Plan as last approved by the stockholders
is issued; and each of the non-employee Board members will continue to receive
annual option grants for 3,500 shares at each Annual Stockholders Meeting at
which they remain on the Board.
Recommendation of the Board of Directors
- ----------------------------------------
The Board of Directors recommends that the stockholders vote FOR
these amendments to the 1993 Plan.
PROPOSAL TWO - APPROVAL OF AMENDMENT TO 1994 EMPLOYEE STOCK PURCHASE PLAN
The Company's stockholders are being asked to approve an amendment
to the Company's 1994 Employee Stock Purchase Plan (the "Purchase Plan") which
will increase the maximum number of shares of common stock authorized for
issuance over the term of the Purchase Plan by an additional 300,000 shares. The
amendment was adopted by the Board of Directors on January 22, 1999, subject to
stockholder approval at the 1999 Annual Meeting.
The Board of Directors believes that it is in the best interests
of the Company's stockholders to increase the number of shares reserved for
issuance under the Purchase Plan so that eligible employees of the Company and
its participating affiliates will continue to have the opportunity to acquire an
equity interest in the Company and thereby further align their interests with
those of the stockholders.
The terms and provisions of the Purchase Plan as most recently
amended are summarized below. This summary, however, does not purport to be a
complete description of the Purchase Plan. Copies of the actual plan document
may be obtained by any stockholder upon written request to the Corporate
Secretary at the Company's principal offices in Fremont, California.
Purpose. The purpose of the Purchase Plan is to provide eligible
employees of the Company and its participating affiliates with the opportunity
to acquire an ownership interest in the Company through participation in a
payroll-deduction based employee stock purchase plan under Section 423 of the
Internal Revenue Code. Participating affiliates may include any parent or
subsidiary corporations of the Company, whether now existing or subsequently
established, which elect to extend the benefits of the Purchase Plan to their
eligible employees.
Administration. The Purchase Plan is administered by the
Compensation Committee of the Board. Such committee, as Plan Administrator, has
full authority to adopt administrative rules and procedures and to interpret the
provisions of the Purchase Plan. All costs and expenses incurred in plan
administration are paid by the Company without charge to participants.
Share Reserve. The maximum number of shares of common stock
authorized for issuance over the term of the Purchase Plan is limited to 800,000
shares, assuming stockholder approval of this Proposal. As of December 31, 1998,
456,403 shares had been issued under the Purchase Plan, and 343,597 shares
remained available for subsequent purchase, including the 300,000-share
increase, which is the subject of this Proposal.
12
<PAGE>
The shares of common stock issuable under the Purchase Plan may be
either shares newly issued by the Company or shares reacquired by the Company,
including shares purchased on the open market.
In the event that any change is made to the Company's outstanding
common stock (whether by reason of any recapitalization, stock dividend, stock
split, exchange or combination of shares or other change in corporate structure
effected without the Company's receipt of consideration), appropriate
adjustments will be made to (i) the class and maximum number of securities
issuable over the term of the Purchase Plan, (ii) the class and maximum number
of securities purchasable per participant during any one purchase period and
(iii) the class and number of securities and the price per share in effect under
each outstanding purchase right.
Eligibility and Participation. Any individual who is regularly
scheduled to work for more than twenty (20) hours per week for more than five
(5) months per calendar year in the employ of the Company or any participating
parent or subsidiary corporation (including any corporation which subsequently
becomes such at any time during the term of the Purchase Plan) is eligible to
participate in the Purchase Plan upon completion of thirty (30) days of
continuous employment. As of December 31, 1998, the Company estimated that
approximately 621 employees, including 3 executive officers, were eligible to
participate in the Purchase Plan.
Purchase Periods and Purchase Rights. Shares of common stock will
be offered under the Purchase Plan through a series of successive purchase
periods, each with a maximum duration of six (6) months. Purchase periods run
from the first day of January to the last day of June and from the first day of
July to the last day of December each year. A new six (6)-month period began on
January 1, 1999 and will continue through June 30, 1999.
The participant will be granted a separate purchase right for each
purchase period in which he or she participates. The purchase right is granted
at the start of the purchase period and will automatically be exercised on the
last business day of that purchase period.
Purchase Price. The purchase price per share will be equal to 85%
of the lower of (i) the fair market value per share of common stock on the first
day of the purchase period or (ii) the fair market value per share of common
stock on the last day of the purchase period.
The fair market value per share of common stock on any relevant
date under the Purchase Plan will be deemed to be equal to the mean between the
high and low selling prices of the common stock on such date, as those prices
are reported on the Nasdaq National Market. On December 31, 1998, the fair
market value per share of common stock determined on such basis was $17.75.
Payroll Deductions and Stock Purchases. Each participant may
authorize periodic payroll deductions in any multiple of 1% (up to a maximum of
10%) of his or her base salary each purchase period to be applied to the
purchase of common stock at the end of that purchase period.
On the last business day of each purchase period, the payroll
deductions of each participant are automatically applied to the purchase of
shares of common stock at the purchase price in effect for that purchase period.
Any amount remaining in the participant's account after such application will,
in most instances, be carried to the next purchase period.
Special Limitations. The Purchase Plan imposes certain limitations
upon a participant's rights to acquire common stock, including the following
limitations:
(i) Purchase rights may not be granted to any individual who owns
stock (including stock purchasable under any outstanding purchase rights)
possessing 5% or more of the total combined voting power or value of all classes
of stock of the Company or any of its affiliates.
(ii) Purchase rights granted to a participant may not permit such
individual to purchase more than $25,000 of common stock (valued at the time
each purchase right is granted) per calendar year.
(iii) No participant may purchase more than 750 shares during any
one purchase period.
13
<PAGE>
Termination of Repurchase Rights. The purchase right will
immediately terminate upon (i) the Company's termination of the Purchase Plan,
(ii) the participant's election to withdraw from the Purchase Plan or (iii) the
participant's cessation of employment or loss of eligible employee status. Any
payroll deductions which the participant may have made with respect to the
terminated purchase right will be refunded and will not be applied to the
purchase of common stock.
Stockholder Rights. No participant has any stockholder rights with
respect to the shares covered by his or her purchase rights until the shares are
actually purchased on the participant's behalf. No adjustment will be made for
dividends, distributions or other rights for which the record date is prior to
the date of such purchase.
Assignability. No purchase rights are assignable or transferable
by the participant, and the purchase rights are exercisable only by the
participant.
Change in Control. In the event the Company is acquired by merger
or asset sale during a purchase period, all outstanding purchase rights will
automatically be exercised immediately prior to the effective date of such
acquisition. The purchase price will be the lesser of (i) 85% of the fair market
value per share of common stock on the start date of the purchase period in
which such acquisition occurs or (ii) 85% of the fair market value per share of
common stock immediately prior to such acquisition.
Amendment and Termination. The Purchase Plan will terminate upon
the earlier of (i) December 31, 2003 or (ii) the date on which all shares
available for issuance thereunder are sold pursuant to exercised purchase
rights.
The Board may at any time alter, suspend or discontinue the
Purchase Plan. However, the Board may not, without stockholder approval, (i)
increase the number of shares issuable under the Purchase Plan, except in
connection with certain changes in the Company's capital structure, (ii) alter
the purchase price formula so as to reduce the purchase price or (iii) modify
the requirements for eligibility to participate in the Purchase Plan.
Federal Tax Consequences. The Purchase Plan is intended to be an
"employee stock purchase plan" within the meaning of Section 423 of the Internal
Revenue Code. Under a plan which so qualifies, no taxable income is recognized
by a participant, and no deductions will be allowable to the Company, upon
either the grant or the exercise of the purchase rights. Taxable income is not
to be recognized until there is a sale or other disposition of the shares
acquired under the Purchase Plan or in the event the participant should die
while still owning the purchase shares.
If the participant sells or otherwise disposes of the purchased
shares within two (2) years after the start date of the purchase period in which
such shares were acquired, then the participant will recognize ordinary income
in the year of sale or disposition equal to the amount by which the fair market
value of the shares on the purchase date exceeded the purchase price paid for
those shares, and the Company will be entitled to an income tax deduction, for
the taxable year in which such disposition occurs, equal in amount to such
excess.
If the participant sells or disposes of the purchased shares more
than two (2) years after the start date of the purchase period in which the
shares were acquired, then the participant will recognize ordinary income in the
year of sale or disposition equal to the lesser of (i) the amount by which the
fair market value of the shares on the sale or disposition date exceeded the
purchase price paid for those shares or (ii) fifteen percent (15%) of the fair
market value of the shares on the start date of that purchase period. Any
additional gain upon the disposition will be taxed as a long-term capital gain.
The Company will not be entitled to an income tax deduction with respect to such
disposition.
If the participant still owns the purchased shares at the time of
death, the lesser of (i) the amount by which the fair market value of the shares
on the date of death exceeds the purchase price or (ii) fifteen percent (15%) of
the fair market value of the shares on the start date of the purchase period in
which those shares were acquired, will constitute ordinary income in the year of
death.
Accounting Treatment. Under current accounting rules, the issuance
of common stock under the Purchase Plan will not result in a compensation
expense chargeable against the Company's reported earnings. However, the Company
must disclose, in proforma statements to the Company's financial statements, the
impact the purchase rights granted under the Purchase Plan would have upon the
Company's reported earnings were the fair value of those purchase rights treated
as compensation expense.
14
<PAGE>
Stock Issuances. The table below shows, as to each of the
Company's executive officers named in the Summary Compensation Table and the
various indicated groups, the number of shares of common stock purchased under
the Purchase Plan over the period beginning November 1, 1997 and ending December
31, 1998, together with the weighted average purchase price paid per share.
<TABLE>
<CAPTION>
========================================================================= ============= ==================
Number of
Purchased Weighted Average
Name and Position Shares Purchase Price
- ------------------------------------------------------------------------- ------------- ------------------
<S> <C> <C>
Wilmer R. Bottoms (1) ..................................................... 1,037 $18.91
Chairman of the Board and Chief Executive Officer
Dennis Wolf (2)(3) ........................................................ 713 $15.09
Executive Vice President, Chief Financial Officer and Secretary
David A. Ranhoff (2) ...................................................... 1,421 $18.31
Executive Vice President
Jerry Bruce ............................................................... 1,311 $17.61
Vice President, Treasurer and Corporate Controller
All current executive officers as a group (four persons)(4) ............... 3,445 $17.38
All employees eligible under the Purchase Plan, including current ......... 157,300 $17.30
officers who are not executive officers, as a group (625 persons)
</TABLE>
- ---------
(1) Dr. Bottoms resigned as Chairman, member of the Board and as Chief
Executive Officer on December 8, 1998.
(2) Mr. Ranhoff and Mr. Wolf were named to the Office of the President on
December 8, 1998.
(3) Mr. Wolf joined Credence as Senior Vice President, Chief Financial
Officer and Secretary in March 1998. Mr. Wolf was promoted to
Executive Vice President on December 8, 1998.
(4) Includes Dr. Howard in his capacity as Chairman of the Board.
Dr. Howard did not participate in the Purchase Plan for the period in
question.
New Plan Benefits
- -----------------
As of December 31, 1998, no purchase rights had been granted, and
no shares of Common Stock had been issued, under the Purchase Plan on the basis
of the 300,000-share increase which forms part of this Proposal Three.
Stockholder Approval
- --------------------
The affirmative vote of a majority of the outstanding voting
shares of the company present or represented and entitled to vote at the Annual
Meeting is required for approval of the amendments to increase the share reserve
under the Purchase Plan by an additional 300,000 shares. Should such stockholder
approval not be obtained, then no purchase rights will be granted, and no shares
of Common Stock will be issued, under the Purchase Plan on the basis of such
300,000-share increase.
Recommendation of the Board of Directors
- ----------------------------------------
The Board of Directors recommends that the stockholders vote FOR
the amendments to the Purchase Plan.
15
<PAGE>
PROPOSAL THREE - RATIFICATION OF INDEPENDENT AUDITORS
The Board of Directors has appointed the firm of Ernst & Young
LLP, independent auditors for the Company during fiscal year 1998, to serve in
the same capacity for the fiscal year ending October 31, 1999, 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, will have the opportunity to make a statement if he or she
desires to do so, and will be available to respond to 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, 1999.
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
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.
16
<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, 1998, 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, (iii) the Company's former Chief Executive Officer and the
three other most highly paid current executive officers named in the Summary
Compensation Table below and (iv) all current directors and executive officers
as a group. Unless otherwise indicated, each of the stockholders has sole voting
and investment power with respect to the shares beneficially owned, subject to
community property laws, where applicable.
<TABLE>
<CAPTION>
Shares
Beneficially Percentage of Shares
Name and Address of Beneficial Owner Owned Beneficially Owned(1)
- ------------------------------------ ------------ ---------------------
<S> <C> <C>
J. & W. Seligman & Co., Inc.(2) ................................... 3,277,812 16.02%
100 Park Avenue
New York, NY 10017
Capital Guardian Trust Company (3) ................................ 2,203,000 10.77%
333 S. Hope Street
Los Angeles, CA 90071
Lazard Freres & Co. LLC(4) ....................................... 2,119,860 10.36%
30 Rockefeller Plaza
New York, NY 10020
Mellon Bank Corporation(5) ........................................ 1,279,056 6.25%
One Mellon Bank Center
Pittsburgh, PA 15258
Entities affiliated with Putnam Investments Inc.(6) ............... 1,238,199 6.05%
One Post Office Square
Boston, MA 02109
Wellington Management Company, LLP(7) ............................. 1,088,200 5.32%
75 State Street
Boston, MA 02109
Fidelity Management & Research(8) ................................. 1,072,076 5.24%
One Federal Street
Boston, MA 02109-3614
Wilmer R. Bottoms(9) .............................................. 525,410 2.57%
Henk J. Evenhuis(10) .............................................. 17,001 *
Jos C. Henkens(11) ................................................ 12,001 *
William G. Howard, Jr.(12) ........................................ 12,625 *
Bernard V. Vonderschmitt(13) ...................................... 20,001 *
Dennis P. Wolf (14) ............................................... 1,000 *
David A. Ranhoff(15) .............................................. 67,948 *
Jerry Bruce(16) ................................................... 12,283 *
All current directors and executive officers
as a group (7 persons)(17) ....................................... 142,859 *
</TABLE>
- ---------------
* Less than one percent of the outstanding Common Stock.
(1) Percentage of ownership is based on 20,462,876 shares of Common Stock
outstanding on December 31, 1998.
(2) Pursuant to a Schedule 13G/A dated February 9, 1999 and filed with the
Securities and Exchange Commission, J. & W. Seligman & Co., Inc. has
reported that as of December 31, 1998, it had shared voting power over
2,988,249 shares and shared dispositive power over 3,277,812 shares.
17
<PAGE>
(3) Pursuant to a Form 13G dated February 12, 1999 and filed with the
Securities and Exchange Commission, Capital Guardian Trust Company has
reported that as of December 31, 1998 it had sole voting power over
1,965,000 shares, sole dispositive power over 2,203,000 shares and it
has disclaimed investment discretion, sole, shared or otherwise for all
purposes other than as reported on the Form 13G.
(4) Pursuant to a Schedule 13G dated February 10, 1999 and filed with the
Securities and Exchange Commission, Lazard Freres & Co. LLC., has
reported that as of December 31, 1998, it had sole voting power over
1,809,585 shares and sole dispositive power over 2,119,860 shares.
(5) Pursuant to a Schedule 13G dated February 5, 1999 and filed with the
Securities and Exchange Commission, Mellon Bank Corporation has
reported that as of December 31, 1998, it had sole voting power over
1,130,791 shares, shared voting power over 165 shares, sole dispositive
power over 1,138,951 shares and shared dispositive power over 140,105
shares.
(6) Pursuant to a Schedule 13G/A dated February 4, 1999 and filed with the
Securities and Exchange Commission, Putnam Investments, Inc. ("PI") has
reported that as of December 31, 1998, it had sole voting power over no
shares, shared voting power over 538,224 shares, sole dispositive power
over no shares and shared dispositive power over 1,238,199 shares. PI,
which is a wholly-owned subsidiary of Marsh & McLennan Companies, Inc.
("MMC"), wholly owns two registered investment advisers: Putnam
Investment Management, Inc. ("PIM"), which is the investment adviser to
the Putnam family of mutual funds and holds 384,196 of PI's shares and
The Putnam Advisory Company, Inc. ("PAC"), which is the investment
adviser to Putnam's institutional clients who holds 854,003 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/A, 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/A.
(7) Pursuant to a Schedule 13G dated February 8, 1999 and filed with the
Securities and Exchange Commission, Wellington Management Co. LLP, has
reported that as of December 31, 1998, it had sole voting power over
zero shares, shared voting power over 1,049,100 shares, sole
dispositive power over no shares and shared dispositive power over
1,088,200 shares. Wellington Capital Management is not the owner of
record of such shares and disclaims any pecuniary interest in such
shares.
(8) Pursuant to a Schedule 13G/A dated April 13, 1999 and filed with the
Securities and Exchange Commission, Fidelity Management & Research has
reported that as of March 31, 1998, it had sole voting power over
43,100 shares and sole dispositive power over 1,072,076 shares.
(9) Includes 362,250 shares under stock options currently exercisable or
exercisable within sixty (60) days after December 31, 1998.
(10) Includes 17,000 shares under stock options currently exercisable or
exercisable within sixty (60) days after December 31, 1998.
(11) Includes 12,000 shares under stock options currently exercisable or
exercisable within sixty (60) days after December 31, 1998.
(12) Includes 12,625 shares under stock options currently exercisable or
exercisable within sixty (60) days after December 31, 1998.
(13) Includes 7,000 shares under stock options currently exercisable or
exercisable within sixty (60) days after December 31, 1998.
(14) Includes 0 shares under stock options currently exercisable or
exercisable within sixty (60) days after December 31, 1998.
(15) Includes 61,280 shares under stock options currently exercisable or
exercisable within sixty (60) days after December 31, 1998.
(16) Includes 10,187 shares under stock options currently exercisable or
exercisable within sixty (60) days after December 31, 1998.
(17) Includes 120,000 shares under stock options currently exercisable or
exercisable within sixty (60) days after December 31, 1998.
18
<PAGE>
EXECUTIVE COMPENSATION AND RELATED INFORMATION
The following table provides certain summary information
concerning the compensation earned, by the Company's former Chief Executive
Officer and each of the Company's other three most highly compensated executive
officers whose salary and bonus for the 1998 fiscal year was in excess of
$100,000, for services rendered in all capacities to the Company and its
subsidiaries for the last three fiscal years, if applicable. No other executive
officers who would have otherwise been includable in such table on the basis of
salary and bonus earned for the 1998 fiscal year have resigned or terminated
employment during that fiscal year.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Long-Term
Annual Compensation
Compensation Awards
---------------------------------------------------------------------------------
Other Securities All
Annual Underlying Other
Name and Principal Position Year Salary Bonus Compensation Options Compensation
($) ($) ($) (#) ($)(11)
=================================================================================================================
<S> <C> <C> <C> <C> <C> <C>
Wilmer R. Bottoms, ............ 1998 368,375 - - - 5,945
Chairman of the Board and 1997 304,375(3) 175,000 - 250,000 8,695
Chief Executive Officer (1) 1996 105,000(4) 160,000(4) 15,000(5) 453,500(6) 90,365(10)
Dennis P. Wolf, ............... 1998 111,539 50,000 - 80,000(7) 5,297
Executive Vice President, 1997 - - - - -
Chief Financial Officer and 1996 - - - - -
Secretary (2)
David A. Ranhoff, ............. 1998 200,000 60,000 - 50,000(8) 9,498
Executive Vice President 1997 184,000 140,000 - - 2,223
1996 150,000 150,000 - 77,670 2,070
Jerry Bruce, .................. 1998 153,700 12,000 - 11,000(9) -
Vice President, Treasurer and 1997 120,371 23,000 - 10,500 -
Corporate Controller 1996 104,866 25,000 - 2,874 -
</TABLE>
(1) Dr. Bottoms resigned as director, Chairman and Chief Executive Officer
effective December 8, 1998.
(2) Mr. Wolf joined the Company as Senior Vice President, Chief Financial
Officer and Secretary in March 1998. Mr. Wolf was promoted to Executive
Vice President on December 8, 1998. His annualized rate of base salary
for the 1998 fiscal year was $200,000.
(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 was not 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) Director fees were paid to Dr. Bottoms in his capacity as a
non-employee member of the Board for the period from November 1, 1996
through June 24, 1996 during the 1996 fiscal year.
(6) 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.
19
<PAGE>
(7) Does not include grant on November 5, 1998 of an option to purchase
40,000 shares, on December 8, 1998 to purchase 40,000 shares and the
repricing on December 14, 1998 of 80,000 shares.
(8) Does not include grant on November 5, 1998 of an option to purchase
70,000 shares and grant on December 8, 1998 of an option to purchase
40,000 shares and the repricing on December 14, 1998 of options fo
50,000 shares.
(9) Does not include grant on November 5, 1998 of an option to purchase
8,000 shares and the repricing on December 14, 1998 of options for
20,500 shares and grant on January 22, 1998 of an option to purchase
12,000 shares.
(10) Includes (i) $84,000 paid to Dr. Bottoms for consulting services
performed while Dr. Bottoms was a non-employee director plus (ii)
$6,365 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.
(11) 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
- ---------------------------------
The following table contains information concerning the stock
option grants made to each of the executive officers named in the Summary
Compensation Table for the fiscal year ended October 31, 1998. No stock
appreciation rights were granted to these individuals during such fiscal year.
<TABLE>
<CAPTION>
=================================================================================== ============================
Potential Realizable Value
At Assumed Annual Rates
of Stock Price Appreciation
for Option Term
Individual Grant $(3)
- ----------------------------------------------------------------------------------- ----------------------------
Number of
Securities
Underlying % of Total
Options Options Granted Exercise or
Granted to Employees in Base Price Expiration
Name (#) Fiscal Year ($/Share)(2) Date 5% 10%
- ----------------------------------------------------------------------------------- ------------ --------------
<S> <C> <C> <C> <C> <C> <C>
Wilmer R. Bottoms ....... 250,000(1) 36% 29.50 11/1/07 4,638,098 11,753,851
Dennis P. Wolf .......... 80,000(1) 12% 26.44 3/30/08 1,330,112 3,370,765
David A. Ranhoff ........ 50,000(1) 7% 29.50 11/1/07 927,620 2,350,770
Jerry Bruce ............. 10,000(1) 1% 29.00 2/13/08 182,379 462,185
1,000(1) 1% 14.50 8/31/08 9,119 23,109
==================================================================================================================
</TABLE>
(1) Options granted to Dr. Bottoms and Messrs. Wolf, Ranhoff and Bruce will
become exercisable for one-eighth (1/8) of the option shares upon the
completion of six months of service measured from the grant date
(11/1/97 for Dr. Bottoms and Mr. Ranhoff, 3/30/98 for Mr. Wolf and
2/13/98 and 8/31/98 for Mr. Bruce) and will become exercisable for the
balance of the option shares in a series of fourteen (14) successive
equal quarterly installments upon the completion of each additional
full quarter of service thereafter. Each option will be subject to full
and immediate acceleration should the Company be acquired by a merger
or asset sale, unless the option is assumed by the acquiring entity.
For additional information on option acceleration, please see
"Employment Contracts, Termination of Employment Arrangements and
Change in Control Agreements" below. Each option has a maximum of 10
years, subject to earlier termination in the event of the optionee's
cessation of employment with the Company.
20
<PAGE>
(2) The exercise price may be paid in cash, in shares of the Company's
common stock valued at fair market value on the exercise date or
through a cashless exercise procedure involving the same-day sale of
the purchased shares. The Company may also finance the option exercise
by loaning the optionee sufficient funds to pay the exercise price for
the purchased shares and the federal and state income tax liability
incurred by the optionee in connection with such exercise.
(3) There is no assurance provided to any executive officer or any other
holder of the Company's securities that the actual stock price
appreciation over the 10-year option term will be at the five percent
(5%) or ten percent (10%) assumed annual rates of compounded stock
price appreciation or at any other defined level. Unless the market
price of the Common Stock appreciates over the option term, no value
will be realized from the option grants made to the executive officers.
Aggregated Option Exercises and Fiscal Year-End Values
------------------------------------------------------
The table below sets forth certain information with respect to the
Company's former Chief Executive Officer and the other executive officers named
in the Summary Compensation Table concerning the exercise of options during the
1998 fiscal year and unexercised options held by them as of the end of such
fiscal year. No stock appreciation rights were exercised by such individuals
during the 1998 fiscal year, nor were any stock appreciation rights outstanding
at the end of such fiscal year.
<TABLE>
<CAPTION>
======================================================================================================================
Number of Securities Value of Unexercised
Underlying Unexercised in-the-Money Options at
Options at FY-End (#) FY-End ($)(1)
- --------------------------- --------------- ---------------- ---------------------------- ----------------------------
Shares Aggregate Value Exercisable Unexercisable Exercisable Unexercisable
Acquired Realized (2)
Name On Exercise ($)
(#)
- --------------------------- --------------- ---------------- ------------ -------------- ------------ --------------
<S> <C> <C> <C> <C> <C> <C>
Wilmer R. Bottoms(3) ....... - - 331,000 418,000 679,016 319,922
Dennis P. Wolf(4) .......... - - 10,000 70,000 - -
David A. Ranhoff ........... 13,700 394,275 58,763 81,352 204,694 48,029
Jerry Bruce ................ - - 13,407 19,592 95,041 4,039
======================================================================================================================
</TABLE>
(1) Based on the market value of the option shares at fiscal year-end
($14.88 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) Dr. Bottoms resigned as director, Chairman and Chief Executive Officer
effective December 8, 1998.
(4) Mr. Wolf joined the Company as Senior Vice President, Chief Financial
Officer and Secretary in March 1998. Mr. Wolf was promoted to Executive
Vice President on December 8, 1998.
Employment Contracts, Termination of Employment Arrangements
and Change in Control Agreements
- ---------------------------------
In connection with his resignation as Chief Executive Officer,
Chairman and a member of the Board, Dr. Bottoms and the Company entered into an
agreement pursuant to which Dr. Bottoms is to receive salary continuation
payments at the rate of $29,792 per month for twelve (12) months and twelve (12)
months of continued health coverage for himself and his spouse at the Company's
expense.
The Company entered into an employment agreement with Dr. Howard
in connection with the conversion of his position to Chairman of the Board of
Directors and to executive officer status effective as of December 8, 1998 from
non-employee director status. The agreement was entered into in January 1999 and
21
<PAGE>
will remain in effect until a new Chief Executive Officer is appointed. During
the term of the agreement, Dr. Howard will be paid a minimum base salary of
$10,000 per month commencing on December 8, 1998 and reimbursed for all
expenses. Dr. Howard was also granted an option to purchase 15,000 shares of the
Company's common stock at an exercise price of $19.81 per share, the closing
price per share on the December 8, 1998 grant date. The option will become
exercisable for all option shares upon the earlier of (i) Dr. Howard's
completion of six (6) years of service with the Company measured from the grant
date or (ii) the Company's retention of a new permanent Chief Executive Officer.
During Dr. Howard's period of employment under the agreement, he will not be
eligible to receive any compensation payable to the non-employee members of the
Board, whether in the form of annual retainer fees or automatic option grants
under the Company's 1993 Stock Option Plan. During fiscal 1998, Dr. Howard also
served as a consultant to the Company and received $12,000 in fees from the
Company. On December 8, 1998, Dr. Howard resigned as both a member and as
Chairman of the Compensation Committee.
The Company entered into an agreement with David A. Ranhoff in
January 1999 which will provide Mr. Ranhoff with severance benefits in the event
his employment with the Company or its successor is involuntarily terminated
without cause, or he otherwise resigns in connection with a material reduction
in his duties as Executive Vice President or a material reduction in his level
of cash compensation, within twelve (12) months after either (i) a change in
control of the Company or (ii) the appointment of the new Chief Executive
Officer. Those severance benefits will consist of (i) twelve (12) months of
salary continuation payments and (ii) twelve (12) months of accelerated vesting
in his outstanding stock options. However, all of Mr. Ranhoff's options will
vest in full in the event those options are not assumed or otherwise replaced
with a comparable cash incentive program in connection with a change in control
of the Company.
The Company also entered into an agreement with Dennis P. Wolf in
March 1998 and January 1999 which will provide Mr. Wolf with certain severance
benefits in the event of (i) the involuntary termination of his employment with
the Company or its successor without cause within twelve (12) months after a
change in control of the Company or (ii) his resignation within twelve (12)
months after such change in control in connection with a material reduction in
his duties as Executive Vice President and Chief Financial Officer or a material
reduction in his level of cash compensation or in the event that he is not
offered a comparable position after such change in control. Those severance
benefits will consist of (a) twelve (12) months of salary continuation payments
and (b) full and immediate vesting of all of his outstanding stock options. In
addition, all of Mr. Wolf's options will vest in full in the event those options
are not assumed or otherwise replaced with a comparable cash incentive program
in connection with a change in control of the Company. If Mr. Wolf is
involuntarily terminated without cause, or if he resigns in connection with
either a material reduction in his duties as Executive Vice President and Chief
Financial Officer of the Company or a material reduction in his level of cash
compensation, within twelve (12) months after the Company's appointment of the
new Chief Executive Officer, he will be entitled to (i) twelve (12) months of
salary continuation payments and (ii) twelve (12) months of accelerated vesting
in his outstanding stock options. Mr. Wolf's offer letter from the Company also
provided him with a minimum guaranteed bonus of $50,000 for fiscal year 1998.
For purposes of these severance agreements: (i) a change in
control will be deemed to occur upon an acquisition of the Company by merger,
asset sale, the completion of a successful tender or exchange offer for more
than 50% of the Company's outstanding common stock or a change in the majority
of the Board through one or more contested elections, and (ii) a termination of
employment will be for cause if such termination occurs by reason of the
individual's commission of fraud, embezzlement or dishonesty; the unauthorized
use or disclosure of the Company's confidential or proprietary information;
other willful misconduct that has a materially adverse effect upon the Company's
business; or the material dereliction of his principal duties following a
reasonable opportunity to cure the identified performance deficiencies.
The other executive officer, Mr. Bruce, has no employment or
severance agreement with the Company, and his 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 Company's executive officers, 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.
22
<PAGE>
Option Repricing
- ----------------
As discussed in the Compensation Committee Report on Executive
Compensation below, the Company implemented a special option
cancellation/regrant program for all of its employees, including executive
officers and except the Chairman of the Board, holding stock options with an
exercise price per share in excess of the fair market value of the Company's
common stock on the regrant date. The cancellations/regrants were effected on
December 14, 1998, and a number of outstanding options with an exercise price in
excess of $17.00 per share were surrendered for cancellation, and new options
for the same aggregate number of shares were granted with a lower exercise price
of $17.19 per share.
The following table sets forth information with respect to each of
the Company's Named Executive Officers concerning his participation in the
option cancellation/regrant program effected on December 14, 1998. Since
becoming a public reporting company, the Company has not implemented any other
option cancellation/regrant programs in which the Company's executive officers
have participated:
<TABLE>
<CAPTION>
Number of Length of
Securities Market Price Option Term
Underlying of Stock at Exercise Price Remaining at
Options Time of at Time of New Date of
Repricing Repriced or Repricing or Repricing or Exercise Repricing or
Name Date Amended Amendment Amendment Price Amendment
---- --------- ----------- ------------- -------------- -------- ------------
<S> <C> <C> <C> <C> <C> <C>
Wilmer R. Bottoms........ 12/14/98 None n/a n/a n/a n/a
Dennis Wolf.............. 12/14/98 80,000 $17.19 $26.44 $17.19 9 1/4years
David A. Ranhoff......... 12/14/98 50,000 17.19 29.50 17.19 9 years
Jerry Bruce.............. 12/14/98 2,500 17.19 20.88 17.19 8 1/2years
12/14/98 8,000 17.19 29.50 17.19 9 years
12/14/98 10,000 17.19 29.00 17.19 9 years
</TABLE>
Compensation Committee Interlocks and Insider Participation
- -----------------------------------------------------------
For the 1998 fiscal year, the Compensation Committee was comprised
of three members: Mr. Henkens, Mr. Vonderschmitt and Dr. Howard. However,
effective December 8, 1998, upon the conversion of his position as Chairman of
the Board into an executive officer position, Dr. Howard resigned as a member
and as Chairman of the Compensation Committee.
Mr. Vonderschmitt, a non-employee Board member, is the founder and
Chairman of Xilinx. Dr. Howard is also a member of the Xilinx Board of
Directors. For the fiscal year ended October 31, 1998, the Company sold
approximately $2,868,000 products and services to Xilinx. The accounts
receivable with respect to such sales were approximately $554,000 at October 31,
1998.
Dr. Howard, Chairman of the Board, has been a director of VLSI
Technology, Inc. ("VLSI") since May 31, 1996. The Company's sales to VLSI were
approximately $2,011,000 in fiscal 1998. The amounts receivable from VLSI were
approximately $568,000 at October 31, 1998. Dr. Howard also serves a director of
Ramtron International, Inc. ("Ramtron"). The Company's sales to Ramtron were
approximately $151,000 in fiscal 1998. Amounts receivable from Ramtron were
approximately $1,000 at October 31, 1998.
No other executive officer of the Company serves as a member of
the board of directors or compensation committee of any entity which has one or
more of its executive officers serving as members of the Company's Board of
Directors or the Compensation Committee.
23
<PAGE>
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The Company's Restated Certificate of Incorporation and Restated
Bylaws provide for indemnification of directors 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 fiscal year 1998, the Compensation Committee consisted of three
members: Mr. Henkens, Mr. Vonderschmitt and Dr. Howard. However, effective
December 8, 1998, upon the conversion of his position as Chairman of the Board
into an executive officer position, Dr. Howard resigned both as a member of the
Compensation Committee and as Chairman of that Committee.
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 make 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 1998 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 1998
fiscal year, the Compensation Committee has, 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 1997 fiscal year data), the experience and personal
performance of the officer and internal comparability considerations. The weight
given to each of these factors differs from individual to individual, as the
Compensation Committee deems appropriate. The compensation level for the
Company's executive officers for the 1998 fiscal year ranged from the
fifty-sixth (56th) percentile to the eightieth (80th) percentile of the base
salary levels in effect for executive officers with comparable positions at the
peer group companies, based on the published 1997 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
24
<PAGE>
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 1998, bonuses were earned on the basis of the following factors: (i)
the Company's earnings (before interest and taxes) for the fiscal year and (ii)
the personal performance level of the executive officer, although Mr. Wolf was
guaranteed a minimum bonus of $50,000 pursuant to his employment agreement. A
portion of the Company's earnings for the 1998 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 1998
fiscal year ranged from the fifty-fifth (55th) percentile to the seventy-fifth
(75th) percentile of the total cash compensation paid to executive officers in
comparable positions at the peer group companies, based on the published 1997
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 1998 fiscal year, stock options were granted to all of
the executive officers named in the Summary Compensation Table. Please refer to
the "Summary Compensation Table" and the table "Option Grants in Last Fiscal
Year."
Chief Executive Officer Performance and Compensation
- ----------------------------------------------------
Dr. Wilmer R. Bottoms. During the 1998 fiscal year, Dr. Bottoms
served as Chief Executive Officer. In connection with his appointment as Chief
Executive Officer in June 1996, the Committee set his annual base salary at
$325,000 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,
for the 1998 fiscal year, at the thirty-third (33rd) 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 for all other
officers of the Company and based upon 1997 fiscal year data. 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 became exercisable for one-eighth (1/8) of the option shares upon his
completion of six (6) months of service measured from the date of grant and was
to become exercisable for the balance of the option shares in a series of
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<PAGE>
fourteen (14) successive equal quarterly installments upon his completion of
each additional full quarter of service thereafter. However, all further vesting
of this option (and all other options) ceased upon Dr. Bottoms' resignation as
Chief Executive Officer on December 8, 1998, and he has periods ranging from
three to six months (depending upon whether Dr. Bottoms received stock options
as an employed executive officer or as a non-employee Board member) following
the date of his resignation in which to exercise his outstanding options for any
shares for which those options were vested and exercisable on his resignation
date.
In addition, the Compensation Committee, in recognition of the
services which Dr. Bottoms performed in his capacity as Chief Executive Officer
and Chairman of the Board of Directors prior to his resignation, deemed it
appropriate to provide him with an agreement consisting of twelve (12) months of
salary continuation payments at the rate of $29,792 per month and twelve (12)
months of continued health coverage for himself and his spouse at the Company's
expense.
Special Option Regrant Program
------------------------------
Following the close of the 1998 fiscal year, the Compensation
Committee felt that circumstances had made it necessary for the Company to
implement an option cancellation/regrant program. Accordingly, on November 5,
1998, all of the Company's employees, including executive officers except Dr.
Bottoms, were given the opportunity to surrender their outstanding options under
the 1993 Stock Option Plan with exercise prices in excess of $17.00 per share in
return for a new option grant for the same number of shares which was made on
December 14, 1998 with a lower exercise price of $17.19 per share, the fair
market value per share of the Company's common stock on the regrant date. Each
employee eligible for a new option grant was given the choice of accepting that
option with a new vesting schedule in cancellation of his or her higher-priced
option or rejecting the new grant and retaining the higher-priced option with
its original vesting schedule.
The Compensation Committee determined that this program was
necessary because equity incentives are a significant component of the total
compensation package of each of the Company's key employees and play a
substantial role in the Company's ability to retain the services of individuals
essential to the Company's long-term financial success. The Compensation
Committee felt that the Company's ability to retain key employees would be
significantly impaired, unless value were restored to their options in the form
of regranted options at the current market price of the Company's common stock.
However, in order for the regranted options to serve their primary purpose of
assuring the continued service of each optionee, a new vesting schedule was
imposed with respect to the option shares. The shares subject to most of the new
options will vest as follows: (i) 12.5% of the option shares will vest upon the
optionee's completion of six months of service with the Company measured from
the December 14, 1998 grant date, and (ii) the new option will vest and become
exercisable for the remaining option shares in a series of fourteen successive
equal quarterly installments upon the optionee's completion of each additional
three-month period of service thereafter. For each performance vesting option
cancelled and regranted in connection with the December 14, 1998 program, the
new option will become exercisable for the option shares upon the optionee's
completion of five years of service (or seven years of service for certain of
those grants) measured from the December 14, 1998 grant date, subject to earlier
vesting in the event certain pre-defined performance objectives are attained
during the optionee's period of service with the Company. Accordingly, each
optionee will only have the opportunity to acquire the option shares at the
lower exercise price if he or she remains in the Company's employ.
As a result of the new vesting schedules imposed on the regranted
options, the Compensation Committee believes that the program strikes an
appropriate balance between the interests of the option holders and those of the
stockholders. The lower exercise prices in effect under the regranted options
make those options valuable once again to the executive officers and key
employees critical to the Company's financial performance. However, those
individuals will enjoy the benefits of the regranted options only if they in
fact remain in the Company's employ and contribute to the Company's financial
success.
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 1998 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 1999 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
26
<PAGE>
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.
Jos C. Henkens
Chairman, Compensation Committee
Bernard V. Vonderschmitt
Member, Compensation Committee
27
<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 5 YEAR CUMULATIVE TOTAL RETURN*
AMONG CREDENCE SYSTEMS CORPORATION,
THE NASDAQ STOCK MARKET (U.S. INDEX)
AND THE NASDAQ ELECTRONIC COMPONENTS INDEX
PERFORMANCE GRAPH APPEARS HERE
------------------------------
Credence NASDAQ NASDAQ
Measurement Period Systems Stock Electronic
(Fiscal Year covered) Corporation Market Components
- -------------------- ----------- ------ ----------
FYE 10/93 $100 $100 $100
FYE 10/94 $217 $101 $110
FYE 10/95 $477 $135 $222
FYE 10/96 $174 $160 $271
FYE 10/97 $377 $210 $371
FYE 10/98 $190 $236 $383
- ----------
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, 1998.
(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.
* $100 invested on 10/31/93 in stock or index - including reinvestment of
dividends. Fiscal year ending October 31.
28
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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 1998
fiscal year that no Form 5's were required for such persons for the 1998 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 1998 fiscal year except that Mr. Ranhoff
timely filed a Form 5 in which the transaction code was not reported correctly,
and subsequently filed a corrective amendment thereto.
ANNUAL REPORT
A copy of the Annual Report of the Company for the fiscal year
ended October 31, 1998 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 for the fiscal
year ended October 31, 1998 with the SEC. A copy of the Annual Report on Form
10-K has been mailed concurrently with this Proxy Statement to all stockholders
entitled to notice of and to vote at the Annual Meeting.
Dated: February 25, 1999
THE BOARD OF DIRECTORS
OF CREDENCE SYSTEMS CORPORATION
29
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[COMPANY LOGO OMITTED]
[BACK OUTSIDE PAGE]
215 Fourier Avenue, Fremont, CA 94539,
Phone: (510) 657-7400, Fax: (510) 623-2560, www.credence.com
4490-PS-99
<PAGE>
APPENDIX A
----------
CREDENCE SYSTEMS CORPORATION
1993 STOCK OPTION PLAN
(As Amended and Restated through January 22, 1999)
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
became effective on the first date on which the shares of the Corporation's
Common Stock were 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 became effective immediately
upon the execution and final pricing of the Underwriting Agreement for the
initial public offering of the Corporation's Common Stock. The execution date of
such Underwriting Agreement is hereby designated as the Effective Date of the
Automatic Option Grant Program.
C. This Plan shall serve as the successor to (i) the
Corporation's 1984 Incentive Stock Option Plan (the "1984 Plan") and (ii) the
ASIX Systems Corporation 1989 Stock Option Plan (the "ASIX Plan") which the
Corporation assumed in connection with its acquisition of ASIX Systems
Corporation by merger effected October 27, 1989. The 1984 Plan and ASIX Plan
shall be collectively referred to in this document as the "Predecessor Plans",
and no further option grants or stock issuances shall be made under the
Predecessor Plans from and after the Effective Date of this Plan. All options
outstanding under the Predecessor Plans on the Effective Date of the
Discretionary Option Grant Program are hereby incorporated into this Plan and
shall accordingly be treated as outstanding options under this Plan. However,
each outstanding option so incorporated shall continue to be governed solely by
the express terms and conditions of the instrument evidencing such grant, and no
provision of this Plan shall be deemed to affect or otherwise modify the rights
or obligations of the holders of such incorporated options with respect to their
acquisition of shares of the Corporation's Common Stock thereunder.
II. DEFINITIONS
A. For purposes of the Plan, the following definitions
shall be in effect:
Board: the Corporation's Board of Directors.
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,
<PAGE>
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 ceases, by reason of one or more
proxy contests for the election of Board members, to be comprised of
individuals who either (A) have been Board members continuously since
the beginning of such period or (B) have been elected or nominated for
election as Board members during such period by at least a majority of
the Board members described in clause (A) who were still in office at
the time such election or nomination was approved by the Board.
Corporate Transaction: any of the following stockholder-
approved transactions to which the Corporation is a party:
a. a merger or consolidation in which the
Corporation is not the surviving entity, except for a transaction the
principal purpose of which is to change the State in which the
Corporation is incorporated,
b. the sale, transfer or other disposition of
all or substantially all of the assets of the Corporation in complete
liquidation or dissolution of the Corporation, or
c. any reverse merger in which the Corporation
is the surviving entity but in which securities possessing more than
fifty percent (50%) of the total combined voting power of the
Corporation's outstanding securities are transferred to a person or
persons different from those who held such securities immediately
prior to such merger.
Employee: an individual who performs services while in
the employ of the Corporation or one or more parent or subsidiary corporations,
subject to the control and 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
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. If there is no reported closing price for the Common Stock on
the date in question, then the closing 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 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 price on the exchange
on the last preceding date for which such quotation exists.
2
<PAGE>
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.
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 individuals may, at the discretion
of the Plan Administrator, be granted options to purchase shares of Common Stock
3
<PAGE>
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).
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 6,032,819 shares, subject to adjustment from
time to time in accordance with the provisions of this Section VI.
4
<PAGE>
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 the following:
(i) the number of shares which remained available for
issuance, as of the Effective Date of the Discretionary Option Grant
Program, 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 share increase (on a post-split
basis) authorized by the Board under this Plan and approved by the
stockholders prior to the Effective Date;
(iv) an additional 750,000-share increase (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.
(viii) an additional 407,818-share increase effected October
31, 1998 pursuant to the automatic share increase provisions of Section
VI.C. of this Article One.
(ix) an additional 1,000,000-share increase authorized by
the Board on January 22, 1999, subject to stockholder approval at the
1999 Annual Meeting.
B. 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.
C. 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%) annual increase shall be
limited to the extent necessary to assure that following such 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 stock option plans
(together, the "Option Shares") will not exceed fifteen percent (15%) of the sum
of the outstanding voting shares of the capital stock of the Company plus the
Option Shares.
D. No one person participating in the Plan may receive
options and separately exercisable stock appreciation rights for more than
1,000,000 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. The 250,000-share increase to such
limit effected by this January 22, 1999 restatement is subject to stockholder
approval at the 1999 Annual Meeting.
5
<PAGE>
E. 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.
F. Should any change be made to the Common Stock issuable
under the Plan by reason of any stock split, stock dividend, recapitalization,
combination of shares, exchange of shares or other change affecting the
outstanding Common Stock as a class without the Corporation's receipt of
consideration, then appropriate adjustments shall be made to (i) the maximum
number and/or class of securities issuable under the Plan, (ii) the number
and/or class of securities for which any one person may be granted options and
separately exercisable stock appreciation rights under the Plan from and after
January 1, 1995, (iii) the number and/or class of securities for which automatic
option grants are to be subsequently made per newly-elected or continuing
non-employee Board member under the Automatic Option Grant Program, (iv) the
number and/or class of securities and price per share in effect under each
option outstanding under either the Discretionary Option Grant or Automatic
Option Grant Program and (v) the number and/or class of securities and price per
share in effect under each outstanding option incorporated into this Plan from
the Predecessor Plans. Such adjustments to the outstanding options are to be
effected in a manner which shall preclude the enlargement or dilution of rights
and benefits under such options. The adjustments determined by the Plan
Administrator shall be final, binding and conclusive.
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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 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
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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 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
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<PAGE>
exercise period applicable under subparagraph (1) above, not only with respect
to the number of vested shares of Common Stock for which each such option is
exercisable at the time of the Optionee's cessation of Service but also with
respect to one or more subsequent installments of vested shares for which the
option would otherwise have become exercisable had such cessation of Service not
occurred.
(3) The Plan Administrator shall also have full
power and authority to extend the period of time for which the option is to
remain exercisable following the Optionee's cessation of Service or death from
the limited period in effect under subparagraph (1) above to such greater period
of time as the Plan Administrator shall deem appropriate. In no event, however,
shall such option be exercisable after the specified expiration date of the
option term.
E. Stockholder Rights. An Optionee shall have no
stockholder rights with respect to any shares covered by the option until such
individual shall have exercised the option and paid the option price for the
purchased shares.
F. Repurchase Rights. The shares of Common Stock acquired
upon the exercise of any Article Two option grant may be subject to repurchase
by the Corporation in accordance with the following provisions:
a. The Plan Administrator shall have the discretion
to authorize the issuance of unvested shares of Common Stock under this
Article Two. Should the Optionee cease Service while holding such
unvested shares, the Corporation shall have the right to repurchase any
or all of those unvested shares at the option price paid per share. The
terms and conditions upon which such repurchase right shall be
exercisable (including the period and procedure for exercise and the
appropriate vesting schedule for the purchased shares) shall be
established by the Plan Administrator and set forth in the instrument
evidencing such repurchase right.
b. All of the Corporation's outstanding repurchase
rights under this Article Two shall automatically terminate, and all
shares subject to such terminated rights shall immediately vest in
full, upon the occurrence of a Corporate Transaction, except to the
extent: (i) any such repurchase right is expressly assigned to the
successor corporation (or parent thereof) in connection with the
Corporate Transaction or (ii) such accelerated vesting is precluded by
other limitations imposed by the Plan Administrator at the time the
repurchase right is issued.
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 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
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<PAGE>
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.
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
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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 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
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<PAGE>
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 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.
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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. Effective Date. The terms and conditions of this
Article Three reflect the amendment to the Automatic Option Grant Program
effected by the January 22, 1999 restatement of the Plan and shall become
effective upon stockholder approval of such restatement at the 1999 Annual
Meeting. Accordingly, such stockholder approval shall also constitute approval
of each option granted under the amended Automatic Option Grant Program at or
after the date of that Annual Meeting and the subsequent exercise of that option
in accordance with the terms and conditions of this Article Three.
B. Grant Dates. Options shall be granted under the
Automatic Option Grant Program in accordance with the following provisions:
(i) Each Eligible Director shall automatically
be granted, at the time of his or her initial election or appointment as
a non-employee Board member, 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 1999 Annual Meeting, each individual who is
to continue to the time as an Eligible Director shall automatically be
granted, whether or not such individual is standing for re-election as a
Board member at that particular meeting, a non-statutory stock option to
purchase an additional 5,000/2/ 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. There shall be
no limit on the number of 5,000-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.
C. 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.
D. Payment. The option price shall be payable in one of
the alternative forms specified below:
- ----------
/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.
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(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.
E. Option Term. Each automatic grant under this Article
Three shall have a maximum term of ten (10) years measured from the automatic
grant date.
F. 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 5,000-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.
G. 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.
H. 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.
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(2) Should the Optionee die within six (6) months
after cessation of Board service, then each outstanding automatic option grant
held by the Optionee at the time of death may subsequently be exercised, for any
or all of the shares of Common Stock for which such option is exercisable at the
time of the Optionee's cessation of Board service (less any option shares
subsequently purchased by the Optionee prior to death), by the personal
representative of the Optionee's estate or by the person or persons to whom the
option is transferred pursuant to the Optionee's will or in accordance with the
laws of descent and distribution. Any such exercise must occur within twelve
(12) months after the date of the Optionee's death.
(3) Should the Optionee die or become permanently
disabled while serving as a Board member, then each automatic option grant held
by such Optionee under this Article Three shall accelerate in full, and the
Optionee (or the representative of the Optionee's estate or the person or
persons to whom the option is transferred upon the Optionee's death) shall have
a twelve (12)-month period following the date of the Optionee's cessation of
Board service in which to exercise each such option for any or all of the shares
of Common Stock subject to that option at the time of such cessation of Board
service.
(4) In no event shall any automatic grant under
this Article Three remain exercisable after the specified expiration date of the
ten (10)-year option term. Upon the expiration of the applicable post-service
exercise period under subparagraph 1, 2 or 3 above or (if earlier) upon the
expiration of the ten (10)-year option term, the automatic grant shall terminate
and cease to be outstanding for any unexercised shares for which the option was
otherwise exercisable at the time of the Optionee's cessation of Board service.
I. Stockholder Rights. The holder of an automatic option
grant under this Article Three shall have none of the rights of a stockholder
with respect to any shares subject to such option until such individual shall
have exercised the option and paid the option price for the purchased shares.
J. Remaining Terms. The remaining terms of each option
granted under the Automatic Option Grant Program shall be the same as the terms
in effect for option grants made under the Discretionary Option Grant Program.
III. CORPORATE TRANSACTION/CHANGE IN CONTROL/HOSTILE TAKE-OVER
A. In the event of any Corporate Transaction, each
automatic option grant at the time outstanding under this Article Three shall
automatically accelerate so that each such option shall, immediately prior to
the specified effective date for the Corporate Transaction, become fully
exercisable with respect to the total number of shares of Common Stock at the
time subject to such option and may be exercised for all or any portion of such
shares. Upon the consummation of the Corporate Transaction, all automatic option
grants under this Article Three shall terminate and cease to be outstanding.
B. In connection with any Change in Control of the
Corporation, each automatic option grant at the time outstanding under this
Article Three shall automatically accelerate so that each such option shall,
immediately prior to the specified effective date for the Change in Control,
become fully exercisable with respect to the total number of shares of Common
Stock at the time subject to such option and may be exercised for all or any
portion of such shares.
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 this January 22, 1999 restatement of the Plan at the
1999 Annual Meeting shall also constitute pre-approval of each such option
surrender right granted at or after the date of that Annual Meeting and the
subsequent exercise of that right in accordance with the terms and provisions of
this Section III.C. No additional approval of any Plan Administrator or the
Board shall be required at the time of the actual option surrender and cash
distribution.
15
<PAGE>
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.
16
<PAGE>
ARTICLE FOUR
MISCELLANEOUS
-------------
I. LOANS OR INSTALLMENT PAYMENTS
A. The Plan Administrator may, in its discretion, assist
any Optionee (including an Optionee who is an officer of the Corporation) in the
exercise of one or more options granted to such Optionee under the Discretionary
Option Grant Program, including the satisfaction of any Federal and State income
and employment tax obligations arising therefrom, by (i) authorizing the
extension of a loan from the Corporation to such Optionee or (ii) permitting the
Optionee to pay the option price for the purchased Common Stock in installments
over a period of years. The terms of any loan or installment method of payment
(including the interest rate and terms of repayment) shall be upon such terms as
the Plan Administrator specifies in the applicable option agreement or otherwise
deems appropriate under the circumstances. Loans or installment payments may be
authorized with or without security or collateral. However, the maximum credit
available to the Optionee may not exceed the option price of the acquired shares
plus any Federal and State income and employment tax liability incurred by the
Optionee in connection with the acquisition of such shares.
B. The Plan Administrator may, in its absolute discretion,
determine that one or more loans extended under this financial assistance
program shall be subject to forgiveness by the Corporation in whole or in part
upon such terms and conditions as the Plan Administrator may deem appropriate.
II. AMENDMENT OF THE PLAN AND AWARDS
A. The Board has complete and exclusive power and authority
to amend or modify the Plan (or any component thereof) in any or all respects
whatsoever. However, 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 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
17
<PAGE>
Corporation withhold, from the shares of Common Stock otherwise
issuable upon the exercise of such non-statutory option or the vesting
of such shares, a portion of those shares with an aggregate Fair Market
Value equal to the percentage of the applicable Taxes (not to exceed
one hundred percent (100%)) designated by the holder.
b. Stock Delivery: The Plan Administrator may, in its
discretion, provide the holder of the non-statutory option or unvested
shares purchased thereunder with the election to deliver to the
Corporation, at the time the non-statutory option is exercised or the
shares vest, one or more shares of Common Stock previously acquired by
such individual (other than in connection with the option exercise or
share vesting triggering the Taxes) with an aggregate Fair Market Value
equal to the percentage of the Taxes incurred in connection with such
option exercise or share vesting (not to exceed one hundred percent
(100%)) designated by the holder.
IV. EFFECTIVE DATE AND TERM OF PLAN
A. The Plan was initially adopted by the Board on August
31, 1993 and approved by the stockholders in October 1993. As of the applicable
Effective Date for each of the equity incentive programs in effect hereunder,
this Plan, as successor to the Predecessor Plans, became effective for each such
program, and no further option grants or stock issuances shall be made under the
Predecessor Plans from and after such Effective Date. The Plan was subsequently
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
750,0003/ 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 (iii) 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. The Plan was subsequently amended on February 13, 1998
(the "February 1998 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, and (ii) implement an automatic share
increase feature, pursuant to which the number of shares available for issuance
over the term of the Plan shall automatically increase on the first trading day
of each fiscal year, 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 of Common Stock outstanding on the last trading day of the immediately
preceding fiscal year. The February 1998 Amendment was approved by the
stockholders at the 1998 Annual Meeting. The Plan was again amended on January
22, 1999 (the "January 1999 Amendment"), subject to stockholder approval at the
- ----------
/3/ Reflects the 3-for-2 split of the Common Stock effected by the Corporation
on June 5, 1995.
18
<PAGE>
1999 Annual Meeting, to (i) increase the number of shares of Common Stock
authorized for issuance over the term of the Plan by an additional 1,000,000
shares, (ii) increase the limit on the maximum number of shares of Common Stock
for which any one participant may be granted stock options and separately
exercisable stock appreciation rights after December 31, 1994 from 750,000 to
1,000,000 shares in the aggregate and (iii) increase the size of the annual
grants to non employee Board members under the Automatic Option Grant Program
from 3,500 to 5,000 shares. No option grants shall be made on the basis of the
January 1999 Amendment unless and until the January 1999 Amendment is approved
by the stockholders at the 1999 Annual Meeting. 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.
C. The option/vesting acceleration provisions of Section
III of Article Two relating to Corporate Transactions and Changes in Control
may, in the Plan Administrator's discretion, be extended to one or more stock
options which are outstanding under the Predecessor Plans on the Effective Date
of the Discretionary Option Grant Program but which do not otherwise provide for
such acceleration.
D. The Plan shall terminate upon the earlier of (i) August
30, 2003 or (ii) the date on which all shares available for issuance under the
Plan shall have been issued or cancelled pursuant to the exercise, surrender or
cash-out of the options granted under the Plan. Upon such plan termination, all
outstanding option grants shall continue to have force and effect in accordance
with the provisions of the instruments evidencing such grants.
V. USE OF PROCEEDS
Any cash proceeds received by the Corporation from the sale of
shares pursuant to option grants under the Plan shall be used for general
corporate purposes.
VI. REGULATORY APPROVALS
A. The implementation of the Plan, the granting of any stock
option or stock appreciation right under the Plan and the issuance of Common
Stock upon the exercise of the stock options or stock appreciation rights
granted hereunder shall be subject to the Corporation's procurement of all
approvals and permits required by regulatory authorities having jurisdiction
over the Plan, the stock options and stock appreciation rights granted under it,
and the Common Stock issued pursuant to it.
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.
19
<PAGE>
VIII. MISCELLANEOUS PROVISIONS
A. Except to the extent otherwise expressly provided in the
Plan, the right to acquire Common Stock or other assets under the Plan may not
be assigned, encumbered or otherwise transferred by any Optionee.
B. The provisions of the Plan relating to the exercise of
options and the vesting of shares shall be governed by the laws of the State of
California without resort to that State conflict-of-laws rules.
C. The provisions of the Plan shall inure to the benefit of,
and be binding upon, the Corporation and its successors or assigns, whether by
Corporate Transaction or otherwise, and the Optionees, the legal representatives
of their respective estates, their respective heirs or legatees and their
permitted assignees.
20
<PAGE>
APPENDIX B
----------
CREDENCE SYSTEMS CORPORATION
EMPLOYEE STOCK PURCHASE PLAN
(As Amended and Restated Through January 22, 1999)
1. Purpose Of the Plan
-------------------
The Credence Systems Corporation 1994 Employee Stock Purchase
Plan (the "Plan") is intended to provide a suitable mans by which eligible
employees of the Credence Systems Corporation (the "Company") may accumulate,
through voluntary, systematic payroll deductions, amounts regularly credited to
their account to be applied to the purchase of shares of the common stock, par
value $0.0001, of the Company (the "Common Stock") pursuant to the exercise of
options granted from time to time hereunder. The Plan provides employees with
the opportunities to acquire proprietary interests in the Company, and will also
provide them with additional incentives to continue their employment and promote
the best interests of the Company. Options granted under the Plan are intended
to qualify under Section 423 of the Internal Revenue Code of 1986, as amended
(the "Code").
2. Shares of Stock Subject to the Plan
-----------------------------------
Subject to the provisions of Section 12, the maximum number of
shares of Common Stock which may be issued on the exercise of options granted
under the Plan is limited to 800,000 shares of the Company's Common Stock. Such
share reserve includes (i) the initial share reserve of 300,000/1/ shares; (ii)
an additional 200,000 share increase authorized by the Board on February 12,
1997 and approved by the stockholders at the 1997 Annual Meeting; and (iii) an
additional 300,000 share increase authorized by the Board on January 22, 1999
subject to stockholder approval at the 1999 Annual Meeting.
Any shares subject to an option under the Plan, which option
for any reason expires or is terminated unexercised as to such shares, shall
again be available for issuance on the exercise of other options granted under
the Plan. Shares delivered on the exercise of options may, at the election of
the Board of Directors of the Company, be authorized but previously unissued
Common Stock or Common Stock reacquired by the Company, or both.
3. Administration
--------------
The Plan shall be administered by the Compensation Committee
of the Board of Directors of the company (the "Committee"), which shall be
composed of not less than two members of the Board of Directors of the Company,
all of whom shall be ineligible to participate in this Plan and shall otherwise
qualify as disinterested persons for purposes of Rule 16b-3 (c) (2) (i)
promulgated by the Securities and Exchange Commission. Subject to the provisions
of the Plan, the Committee shall have full discretion and exercise power (i) to
determine the terms and conditions under which the shares shall be offered and
corresponding options shall be granted under the Plan for the Purchase Period
(as defined in Section 6) consistent with the provisions of the Plan, and (ii)
to resolve all questions relating to the administration of the Plan.
The interpretation and application by the Committee of any
provision of the Plan shall be final and conclusive on all employees and others
persons having, or claiming to have, an interest under the Plan. The Committee
may, in its discretion, establish such rules and guidelines relating to the Plan
as it may deem desirable.
The Committee may employ such legal counsel, consultant and
agents as it may deem desirable for the administration of the Plan and may rely
upon any opinion received from any such counsel or consultant and any
computation received from any such counsel or consultant or agent. The Committee
shall keep minutes of its actions under the Plan.
- ----------
/1/ Reflects the 3-for-2 split of the Corporation's outstanding Common Stock
effected June 5, 1995.
<PAGE>
No member of the Board of Directors or the Committee shall be
liable for any action or determination made in good faith with respect to the
Plan or any options granted hereunder.
4. Eligibility to Participate
--------------------------
The persons eligible to participate in this Plan shall be all
employees (including officers) of the Company, or any participating affiliate,
who have been actively employed by the Company, or such affiliate, for thirty
(30) consecutive days as of the first day of any Purchase Period, but excluding
employees whose customary employment is for not more than five (5) months in any
calendar year or twenty (20) hours or less per week. An employee who is eligible
to participate in this Plan pursuant to the foregoing sentence is hereinafter
referred to as an "Employee". A participating affiliate, for purposes of the
Plan, shall include any now existing or hereafter established parent or
subsidiary corporation of the Company, as determined in accordance with Code
Sections 424(e) and 424(f), which elects with the consent of the Company's Board
of Directors, to extend the benefits of the Plan to its eligible employees.
Nothing contained in the Plan shall confer upon any Employee
any right to continue in the employ of the Company or any of its affiliates, or
interfere in any way with the right of the Company or any of its affiliates to
terminate his employment at any time.
5. Participation in the Plan
-------------------------
An Employee may participate in the Plan only as of the
beginning of the Purchase Period. If an employee becomes eligible to participate
in the Plan after the commencement of a Purchase Period, that Employee may not
participate in the Plan until the beginning of the next Purchase Period. A copy
of the Plan will be furnished to each Employee prior to the beginning of the
first Purchase Period during which he may participate in the Plan. To
participate in the Plan, an employee must deliver (or cause to be delivered) to
the Company, within seven (7) days prior to the commencement of the first
Purchase Period during which participation in the Plan is desired, a contingent
subscription for Common Stock and authorization for payroll deductions to effect
the purchase of Common Stock (hereinafter called a "Participation Election"). In
the Participation Election an Employee must:
<TABLE>
<S> <C> <C>
(i) authorize payroll deductions within the limits prescribed
in Sections 8 and 9 and specify the percentage to be
deducted regularly from his Compensation (as defined in
Section 8);
(ii) elect and authorized the purchase by him for each Purchase
Period of a specific number of shares of Common Stock on
the Exercise Date (as defined in Section 7) with respect
to the applicable Purchase Period, provided that such
specific number of shares shall not exceed a total of
seven hundred fifty shares in any Purchase Period;
(iii) furnish the exact name or names and address or addresses
in which the stock certificates for Common Stock purchased
by him under the Plan are to be issued; and
(iv) agree to notify the company if he should dispose of
Common Stock purchased through the Plan within two
(2) years of the commencement of the Purchase Period
in which he purchased the Common Stock.
</TABLE>
Stock certificates for shares of Common Stock purchased under
the Plan may be issued in the Employee's name or, if so designated by the
Employee, in his name and the name of another person who is a member of his
family, with right of survivorship; for this purpose the "family" of an Employee
shall include only his spouse, his ancestors and lineal descendants and his
brothers and sisters.
An Employee need not, and may not, make a down payment in
order to participate in the Plan.
Participation in the Plan is entirely voluntary, and a
participating Employee may withdraw from participation, as provided in Section
15, during any Purchase Period at any time prior to the Exercise Date for such
Purchase Period.
2
<PAGE>
6. Purchase Period: Grant of Options
----------------------------------
Each Purchase Period under the Plan shall commence on the
first day of a calendar half (or, for the first Purchase Period, such date
established by the Committee following the effective date specified in Section
20) and end on the last day of such calendar half, and shall include all pay
periods ending within it. For this purpose, calendar halves begin on January 1
and July 1. During each Purchase Period, participating employees shall
accumulate credits to a bookkeeping account maintained by the Company
(hereinafter referred to As a "Stock Purchase Account") through payroll
deductions to be made at the close of each pay period for the purchase of shares
of Common stock under the Plan. For each Purchase Period, the Company shall
grant options to participating Employees with respect to the number of shares of
Common Stock (subject to the provisions of sections 2, 5, 11 and 12) which shall
be purchasable through the application of the amounts credited to such
Employee's Stock Purchase Account at the purchase price per share determined on
the Exercise Date for the Purchase Period (such number of shares to be subject
to reduction in the event of a pro rata apportionment provided for in Section
17).
7. Exercise Dates, and Purchase Prices
-----------------------------------
The last business day of each Purchase Period shall constitute
the "Exercise Date" for such Purchase Period. Subject to the provisions of
Section 12, the purchase price per share of Common Stock to be purchased on an
Exercise Date pursuant to the exercise of options granted for the Purchase
Period, through the application of amounts credited during such Purchase Period
to the Stock Purchase Accounts of participating Employees, shall be the lesser
of:
(A) an amount equal to 85% of the Fair Market Value of
the Common Stock at the time such option is granted
(i.e., the first day of the Purchase Period), or
(B) an amount equal to 85% of the Fair Market Value of
the Common Stock at the time each option is exercised
(i.e., the Exercise Date).
For purposes of the Plan, the Fair Market Value of a share of
Common Stock on any date shall be (i) if the Common Stock is traded on an
established securities market, the mean between the high and low prices of such
Common Stock for such date, and (ii) if the Common Stock is not so traded, an
amount determined by the committee in good faith and based upon such factors as
it deems relevant to such determination.
8. Payroll Deductions - Authorization and Amount
---------------------------------------------
Employees shall authorize in their Participation Elections
from 1% to 10% (in whole percentage increments) of their Compensation to which
such election relates (subject to the limitations of Section 9). For purposes of
the Plan, the "Compensation" of an Employee for any Purchase Period shall mean
the gross amount of his base pay on the basis of his regular, straight-time
hourly, weekly or monthly rate for the number of hours normally worked,
exclusive of overtime, sales commissions, bonuses, shift premiums and other
forms of compensation.
By delivering to the Company within seven (7) days prior to
the commencement of the next Purchase Period a revised Participation Election, a
participating Employee may change the amount to be deducted from his
Compensation during the next Purchase Period, subject to the limitations of
Sections 8 and 9.
A participating Employee's authorization for payroll
deductions will remain in effect for the duration of the Plan, subject to the
provisions of Sections 11 and 14, unless his election to purchase Common Stock
shall have been terminated pursuant to the provisions of section 13, the amount
of the deduction is changed, as provided in this Section 8, or the Employee
withdraws or is considered to have withdrawn from the Plan under Section 15 or
16.
Prior to the split of the Common Stock effected June 5, 1996,
the maximum number of shares of Common Stock purchasable per participant on any
3
<PAGE>
one purchase date under the Purchase Plan was limited to 500 shares. To reflect
such stock split, the limit has been increased to 750 shares per participant for
each purchase date after May 26, 1995.
All amounts credited to the Stock Purchase Accounts of
participating Employees shall be held in the general funds of the Company but
shall be used from time to time in accordance with the provisions of the Plan.
9. Limitations on the Granting of Options
--------------------------------------
Anything in the Plan to the contrary notwithstanding, no
participating employee may be granted an option which permits his rights to
purchase Common Stock under all employee stock purchase plans of the Company and
its parent and subsidiary companies (if any) to accrue at a rate which exceeds
$25,000. Of the Fair Market Value of such Common Stock (determined at the time
such option is granted) for each calendar year in which such option is
outstanding at any time. For purposes of this Section 9:
(i) the right to purchase stock under an option accrues
when the option (or any portion thereof) first
becomes exercisable during the calendar year;
(ii) the right to purchase stock under an option accrues
at the rate provided in the option, but in no case
may such rate exceed $25,000 of the Fair Market Value
of such stock (determined at the time such option is
granted) for any one calendar year; and
(iii) a right to purchase stock which has accrued under one
option granted pursuant to the Plan may not be
carried over to any other option.
No participating Employee may be granted an option hereunder
if such Employee, immediately after the option is granted, owns (within the
meaning of Section 423 (b) (3) of the Code) stock possessing five (5) percent or
more of the total combined voting power or value of all classes of stock of the
Company or of its parent or subsidiary corporation. For purposes of the Plan,
the terms "parent corporation" and "subsidiary corporation" shall have the
respective meanings set forth in section 424 of the Code.
10. Stock Purchase Amounts
----------------------
The amount deducted from the Compensation of each
participating Employee shall be credited to his individual Stock Purchase
Account. Employees participating in the Plan may not make direct cash payments
to their Stock Purchase Accounts.
Following the close of each Purchase period, the Company will
furnish to each participating Employee a statement of that Employee's individual
Stock Purchase account. This statement shall show (i) the total amount of
payroll deductions for the Purchase Period just closed, (ii) the number of full
shares (and the purchase price per share) of Common Stock purchased, pursuant to
the provisions of Section 11, by the participating Employee for the Purchase
Period, and (iii) any remaining balance of payroll deductions which are to be
refunded to the Employee following the close of the Purchase Period (or carried
forward to the next Purchase Period in the case of amounts representing
fractional shares).
11. Issuance and Purchase of Common Stock
-------------------------------------
Shares of Common Stock may be purchased by a participating
Employee only on the Exercise Date for each Purchase Period; and the options
which the Company grants to participating Employees for the purchase of Common
Stock for a Purchase Period may be exercised only on the Exercise Date. No
fractional shares of Common Stock may be purchased hereunder. The purchase price
per share shall be determined as set forth in Section 7.
A participating Employee who purchased Common Stock, pursuant
to the exercise of options granted under the Plan, shall purchase as many full
shares as shall be stated in the Participation Election that the Employee has
4
<PAGE>
completed, subject to the limitations set forth in Sections 5, 8, 9, 12 and 17;
provided that in no even may shares be purchased other than by application of
the balance in the Stock Purchase Account on the Exercise Date and that in no
event may a participating Employee purchase a greater number of shares than
would be purchasable at the purchase price determined in accordance with Section
7 through the application of the balance in his Stock Purchase Account on the
Exercise Date for the Purchase Period to which the option relates. Any balance
remaining in such a participating Employee's Stock Purchase Account following an
Exercise Date shall be refunded to the Employee as soon as practicable
thereafter; provided, however, that the participating Employee may elect to
carry over any such balance representing a fractional share to the next
succeeding Purchase Period.
Certificates for Common Stock so purchased shall be delivered
to the employee as soon as practicable.
All rights as an owner of shares of the Common Stock purchased
under the Plan shall accrue to the participating Employee who purchased the
shares effective as of the Exercise Date on which the amounts credited to his
Stock Purchase Account were applied to the purchase of the shares; and such
Employee shall not have any rights as a shareholder prior to such Exercise Date
by reason of his having elected to purchase such shares.
12. Dilutions or Other Adjustment
-----------------------------
If the Company is a party to any merger or consolidation, or
undergoes any separation, reorganization (other than a reincorporation in
another state), or liquidation, then the options outstanding under the Plan
shall be exercised immediately prior to the effective date of such transaction,
and such date shall accordingly qualify as an Exercise Date under Section 7. In
addition, in the event of a reclassification, stock split, combination of
shares, separation (including a spin-off), dividend on shares of the Common
Stock payable in stock, or other similar change in capitalization or in the
corporate structure of the shares of the Common Stock of the Company, the
Committee shall conclusively determine the appropriate adjustment in the
purchase price and other terms of purchase for shares subject to outstanding
Participation Elections for the Purchase Period occurring at such time, in the
number and kind of shares or other securities which may by purchased for such
Purchase Period, in the aggregate number of shares which may be purchased under
the Plan, and in the maximum number and kind of shares which may be purchased
per Employee in any Purchase Period. Any such adjustment in the shares or other
securities subject to the outstanding options granted to such Employee
(including any adjustments in the option price) shall be made in such manner as
not to constitute a modification as defined by Section 424(h)(3) of the Code and
only to the extent permitted by Sections 423 and 424 of the Code.
13. No Assignment of Plan Rights or of Purchased Stock
--------------------------------------------------
An Employee must promptly advise the Company if a disposition
shall be made of any shares of Common Stock purchased by him under the Plan if
such disposition shall have occurred within two years of the commencement of the
Purchase Period in which he purchased such shares.
A participating Employee's privilege to purchase Common Stock
under the Plan can be exercised only by him; and he cannot purchase Common Stock
for someone else, although he may designate (in accordance with the provisions
of Section 5) that stock certificates of Common Stock purchased by the Employee
be issued in the joint names of the Employee and a family member.
An Employee participating in the Plan may not sell, transfer,
pledge, or assign to any other person any interest, privilege or right under the
Plan or in any amounts credited to his Stock Purchase Account; and if this
provision shall be violated, his election to purchase Common Stock shall
terminate, and the only right remaining thereunder will be to have paid to the
person entitled thereto the amount then credited to the Employee's Stock
Purchase Account.
14. Suspension of Deductions
------------------------
A participating Employee's payroll deductions under the Plan
shall be suspended if on account of a leave of absence, layoff or other reason a
participating Employee does not have sufficient Compensation in any payroll
5
<PAGE>
period to permit payroll deductions authorized under the Plan to be made in
full. The suspension will last until the participating Employee again has
sufficient Compensation to permit such payroll deductions to be made in full;
but if the suspension shall not have been removed by the Exercise Date for the
Purchase Period in which it began, shares will be purchased to the extent that
the employee contributed funds prior to the suspension of deductions. In the
event of voluntary withdrawal or termination of employment, funds will be
returned to the employee as provided in Section 15.
15. Withdrawal from, and Reparticipation in the Plan
------------------------------------------------
During any Purchase Period a participating Employee may
withdraw from the Plan at any time prior to the Exercise Date for the Purchase
Period; and, subject to, and in accordance with the provisions of Sections 5 and
8, he may again participate in the Plan at the beginning of any Purchase Period
subsequent to the Purchase Period in which he withdrew. Withdrawal of a
participating Employee shall be effected by written notification prior to such
Exercise Date to the Company on a form which the Company shall provide for this
purpose ("Notice of Withdrawal"). In the event a participating Employee shall
withdraw from the Plan, all amounts then credited to his Stock Purchase Account
shall be returned as soon as practicable after his Notice of Withdrawal shall
have been received.
If an Employee's payroll deductions shall be interrupted by
any legal process, a Notice of Withdrawal will be considered as having been
received on the day the interruption shall occur.
16. Termination of Participation
----------------------------
A participating Employee's right to continue participation in
the Plan will terminate upon the earliest to occur of (i) the Company's
termination of the Plan, (ii) the Employee's transfer to ineligible employment
status, or (iii) retirement, disability, death or other termination of
employment with the Company. Upon the termination of an Employee's right to
continue participation in the Plan on account of the occurrence of any of the
foregoing events, all amounts then credited to the individuals Stock Purchase
Account not already used for the purchase of Common Stock will be repaid as soon
as practicable. Such repayments shall be made to the participating Employee
unless the termination of participation occurred by reason of such Employee's
death, in which event such repayment shall be made to such Employee's
beneficiary. For this purpose, an Employee's beneficiary shall be the person,
persons or entity designated by the Employee on a form prescribed by and
delivered to the Company or, in the absence of an effective beneficiary
designation, the Employee's estate; provided, however, that the determination of
the Employee's beneficiary hereunder shall be subject to any applicable
community property or other laws.
17. Apportionment of Stock
----------------------
If at any time shares of Common Stock authorized for purposes
of the Plan shall not be available in sufficient number to meet the purchase
requirements under all outstanding Participation elections, the Committee shall
apportion the remaining available shares among the participating Employees on a
pro rata basis. In no case shall any apportionment of shares be made with
respect to a participating Employee's election to purchase unless such election
is then in effect (subject only to any suspension provided for in the Plan). The
Committee shall give notice of such apportionment and of the method of
apportionment used to each participating Employee to whom shares shall have been
apportioned.
18. Government Regulations
The Plan, and the obligation of the Company to issue, sell and
deliver Common Stock under the Plan are subject to all applicable laws and to
all applicable rules, regulations and approvals of government agencies.
19. Amendment or Termination
------------------------
The Board of Directors of the Company may at any time amend,
suspend or terminate the Plan; provided, however, that no amendment (other than
an amendment authorized by Section 12) may be made increasing the maximum number
6
<PAGE>
of shares of Common Stock which may be issued pursuant to the Plan, reducing the
minimum purchase price at which shares may be purchased hereunder, extending the
maximum period during which shares may be purchased hereunder or changing the
class of employees eligible to participate hereunder; without the approval of
the holders of a majority of the outstanding voting shares of the Company.
20. Effective Date
--------------
The Purchase Plan became effective upon adoption by the Board
on January 20, 1994, was approved by the Company's stockholders at the 1994
Annual Meeting. The Purchase Plan was subsequently amended by the Board on
February 12, 1997 to (i) increase the maximum number of shares of Common Stock
authorized for issuance over the term of the plan from 300,000 to 500,000 shares
and (ii) extend the termination date of the Purchase Plan from December 31, 1998
to December 31, 2003. The February 1997 Amendment was approved by the
stockholders at the 1997 Annual Meeting. The Purchase Plan was again amended by
the Board on January 22, 1999 to increase the maximum number of shares of Common
Stock authorized for issuance over the term of the Purchase Plan from 500,000
shares, to 800,000 shares subject to stockholder approval at the 1999 Annual
Meeting. No purchase rights shall be granted, and no shares of Common Stock
shall be issued, on the basis of such 300,000 share increase until shareholder
approval has been obtained.
21. Termination
-----------
The Plan shall terminate on December 31, 2003. Any unexpired
Purchase Period that commenced prior to such termination date shall forthwith
expire on such termination date, which shall be deemed the Exercise Date for
such Purchase Period.
7
<PAGE>
PROXY
CREDENCE SYSTEMS CORPORATION
Annual Meeting of Stockholders to be held on March 24,1999
This Proxy is Solicited on Behalf of the Board of Directors of
Credence Systems Corporation
The undersigned revokes all previous proxies, acknowledges receipt of the
Notice of Annual Meeting of Stockholders to be held on March 24, 1999 and the
Proxy Statement and appoints Dennis Wolf 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 24, 1999 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 SEE REVERSE
SIDE SIDE
- ------------- -------------
<PAGE>
CRD50A DETACH HERE
Please mark
votes as in
[X] this example.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" EACH PROPOSAL.
IF NO DIRECTION IS GIVEN, THE PROXIES WILL BE DEEMED AUTHORIZED TO VOTE FOR THE
PROPOSALS.
<TABLE>
<S> <C> <C> <C> <C>
1. To approve amendments to the Company's 1993 Stock Option Plan (the "1993 FOR AGAINST ABSTAIN
Plan") to (i) increase the number of shares of common stock authorized for
issuance over the term of the 1993 Plan by an additional 1,000,000 shares, [__] [__] [__]
(ii) increase the maximum number of shares of common stock for which any
one individual may be granted stock options and separately exercisable
Stock appreciation rights over the term of the 1003 Plan from 760,000
shares to 1,000,000 shares and (iii) increase the number of shams of common
stock for which continuing non-employee Board members arc to be granted
stock options at each Annual Stockholders Meeting, beginning with the 1999
Annual Meeting, from 3,600 shares to 5,000 shares per Board member.
2. To approve an amendment to the Company's 1994 Employee Stock Purchase Plan FOR AGAINST ABSTAIN
that will increase the number of shares of common stock reserved for
issuance thereunder by an additional 300,000 shares, [__] [__] [__]
3. To ratify the appointment of Ernst & Young LLP as independent auditors of FOR AGAINST ABSTAIN
the Company for the fiscal year ending October 31, 1999; and [__] [__] [__]
</TABLE>
<TABLE>
<S> <C> <C> <C>
4. To transact such other business as may FOR AGAINST ABSTAIN
properly come before the meeting or any [__] [__] [__]
adjournment or postponement thereof.
</TABLE>
<TABLE>
<S> <C>
MARK HERE FOR ADDRESS CHANGE AND NOTE AT LEFT [__]
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.
</TABLE>
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C>
Signature: Date: Signature: Date:
------------------------ ------------ ------------------ ------------
</TABLE>
