Exhibit 99.18
CREDENCE SYSTEMS CORPORATION
000 Xxxxxxx Xxxxxx
Xxxxxxx, XX 00000
March 31, 1999
Xx. Xxxxx X. Xxxxxxx
Dear Xxxxx:
We are pleased to inform you that the Company's Board of Directors has approved
a special severance benefit program for you. The purpose of this letter
agreement is to set forth the terms and conditions of your severance benefits
and to explain the limitations that will govern their overall value.
Your severance package will become payable should the Company terminate your
employment, or should you otherwise resign from the Company, under certain
circumstances following a substantial change in ownership or control of the
Company or upon the appointment of a new permanent Chief Executive Officer. To
understand the full scope of your benefits, you should familiarize yourself with
the definitional provisions of Part One of this letter agreement. The benefits
comprising your severance package are detailed in Part Two, and certain
restrictions applicable to your benefits are specified in Part Three. Part Four
sets forth the dollar limitation which will govern your total severance package
in the event your termination occurs in connection with a change in control or
ownership of the Company. Part Five deals with ancillary matters affecting your
severance arrangement.
Part One - DEFINITIONS
----------------------
For purposes of this letter agreement, the following definitions will be in
effect:
Average Compensation means the average of your W-2 wages from the Company for
the five (5) calendar years (or such fewer number of calendar years of
employment with the Company) completed immediately prior to the calendar year in
which a Change in Control is effected. Any W-2 wages for a partial year of
employment will be annualized, in accordance with the frequency which such wages
are paid during such partial year, before inclusion in your Average
Compensation.
Base Salary means the monthly rate of base salary in effect for you immediately
prior to the Change in Control or Change in Management (as applicable) or (if
greater) the monthly rate of base salary in effect at the time of your
Involuntary Termination.
Board means the Company's Board of Directors.
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Change in Control means a change in the ownership or control of the Company
effected through any of the following transactions:
(i) a merger or consolidation approved by the
Company's stockholders in which securities possessing more
than fifty percent (50%) of the total combined voting power of
the Company's outstanding securities are transferred to a
person or persons different from the persons holding those
securities immediately prior to such transaction;
(ii) any stockholder-approved sale, transfer or other
disposition of all or substantially all of the Company's
assets in complete liquidation or dissolution of the Company;
(iii) the acquisition, directly or indirectly, by any
person or related group of persons (other than the Company or
a person that directly or indirectly controls, is controlled
by or is under common control with, the Company) of beneficial
ownership (within the meaning of Rule 13d-3 of the Securities
Exchange Act of 1934, as amended) of securities possessing
more than fifty percent (50%) of the total combined voting
power of the Company's outstanding securities pursuant to a
tender or exchange offer made directly to the Company's
stockholders; or
(iv) 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 contested elections for Board membership, to be comprised
of individuals who either (A) have been Board members
continuously since the beginning of such period or (B) have
been elected or nominated for election as Board members during
such period by at least a majority of the Board members
described in clause (A) who were still in office at the time
the Board approved such election or nomination.
Change in Management means the appointment by the Board of a new permanent Chief
Executive Officer.
Code means the Internal Revenue Code of 1986, as amended.
Common Stock means the Company's common stock.
Company means Credence Systems Corporation, a Delaware corporation, or any
successor corporation, whether or not resulting from a Change in Control.
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Disability means your inability to perform the normal and usual duties of your
position with the Company by reason of any physical or medical impairment which
is expected to result in death or continue for a period of twelve (12)
consecutive months or more.
Fair Market Value means, with respect to the shares of Common Stock subject to
any of your Options, the closing selling price per share of Common Stock 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 closing selling
price reported for the Common Stock on the date in question, then the Fair
Market Value will be the closing selling price on the last preceding date for
which such report exists.
Health Care Coverage means the continued health care coverage to which you and
your eligible dependents may be entitled during any Salary Continuation Period
in effect for you under this letter agreement.
Involuntary Termination means (i) the involuntary termination of your employment
with the Company other than a Termination for Cause or (ii) your voluntary
resignation within ninety (90) days following (A) a material reduction in your
duties and responsibilities as an Executive Vice President of the Company or (B)
a material reduction in your level of cash compensation (rate of Base Salary
plus target bonus under any corporate-performance based bonus or incentive
programs).
In no event shall any of the following constitute grounds for a resignation
qualifying as an Involuntary Termination under this letter agreement:
- a change or other alteration in your duties which occurs by reason of
the Company's conversion from a public company into a subsidiary or division of
the acquiring entity in a Change in Control transaction but which does not
otherwise materially affect your day-to-day functions; or
- a general reduction in the level of base salary or target bonuses
payable to the executive officers of the Company which is applied to all or
substantially all of the Company's executive officers in connection with a cost
reduction program.
In addition, an Involuntary Termination will not be deemed to occur in the event
your employment terminates by reason of your death or Disability or a
Termination for Cause or in the event the acquiring entity in a Change in
Control transaction offers you a position comparable to your position with the
Company immediately prior to the Change in Control and at substantially the same
level of cash compensation.
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Life Insurance Coverage means the continued coverage to which you may be
entitled under the Company's group-term and executive life insurance plans
during any Salary Continuation Period in effect for you under this letter
agreement.
Option means any option granted to you under the Plan which is outstanding at
the time of the Change in Control or Change in Management (as applicable) or
upon your subsequent Involuntary Termination. In connection with a Change in
Control, your Options will be divided into two (2) separate categories as
follows:
Acquisition-Accelerated Options: any outstanding Option (or
installment thereof) which automatically accelerates, pursuant to the
acceleration provisions of the agreement evidencing that Option, upon a
Change in Control.
Severance-Accelerated Options: any outstanding Option (or installment
thereof) which, pursuant to Part Two of this letter agreement, accelerates
upon your Involuntary Termination following the Change in Control.
Option Parachute Payment means, with respect to any Acquisition-Accelerated
Option or any Severance-Accelerated Option, the portion of that Option deemed to
be a parachute payment under Code Section 280G and the Treasury Regulations
issued thereunder. The portion of such Option which is categorized as an Option
Parachute Payment will be calculated in accordance with the valuation provisions
established under Code Section 280G and the applicable Treasury Regulations and
will include an appropriate dollar adjustment to reflect the lapse of your
obligation to remain in the Company's employ as a condition to the vesting of
the accelerated installment. In no event, however, will the Option Parachute
Payment attributable to any Acquisition-Accelerated Option or
Severance-Accelerated Option (or accelerated installment) exceed the spread (the
excess of the Fair Market Value of the accelerated option shares over the option
exercise price payable for those shares) existing at the time of acceleration.
Other Parachute Payment means any payment in the nature of compensation (other
than the benefits to which you become entitled under Part Two of this letter
agreement) which are made to you in connection with the Change in Control and
which accordingly qualify as parachute payments within the meaning of Code
Section 280G(b)(2) and the Treasury Regulations issued thereunder. Your Other
Parachute Payment will include (without limitation) the Present Value, measured
as of the Change in Control, of the aggregate Option Parachute Payment
attributable to your Acquisition-Accelerated Options (if any).
Parachute Payment means any payment or benefit provided you under Part Two of
this letter agreement in connection with a Change in Control (other than the
Option Parachute Payment attributable to your Severance-Accelerated Options)
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which is deemed to constitute a parachute payment within the meaning of Code
Section 280G(b)(2) and the Treasury Regulations issued thereunder.
Plan means (i) the Company's 1993 Stock Option Plan, as amended or restated from
time to time, and (ii) any successor stock incentive plan subsequently
implemented by the Company.
Present Value means the value, determined as of the date of the Change in
Control, of any payment in the nature of compensation to which you become
entitled in connection with the Change in Control or your subsequent Involuntary
Termination, including (without limitation) the Option Parachute Payment
attributable to your Severance-Acceleration Options, the additional benefits to
which you become entitled under Part Two of this letter agreement and the Option
Parachute Payment attributable to your Acquisition-Accelerated Options. The
Present Value of each such payment will be determined in accordance with the
provisions of Code Section 280G(d)(4), utilizing a discount rate equal to one
hundred twenty percent (120%) of the applicable federal rate in effect at the
time of such determination, compounded semi-annually to the effective date of
the Change in Control.
Salary Continuation Period means the period for which the payment of your Base
Salary may, pursuant to Part Two of this letter agreement, be continued
following an Involuntary Termination of your employment within a specified
period following a Change in Control or Change in Management (as applicable).
Termination for Cause means the Company's termination of your employment for any
of the following reasons: (i) your commission of any act of fraud, embezzlement
or dishonesty, (ii) your unauthorized use or disclosure of any confidential or
proprietary information of the Company, (iii) any intentional misconduct by you
which has a materially adverse effect upon the Company's business or reputation
or (iv) your continued failure to perform the major duties, functions and
responsibilities of your position after you have received written notice from
the Company identifying the deficiencies in your performance and have been given
a reasonable opportunity to cure those deficiencies, if curable.
Part Two - SEVERANCE BENEFITS
-----------------------------
Should your employment with the Company terminate by reason of an Involuntary
Termination within twelve (12) months after a Change in Control or Change in
Management, then you will become entitled to receive the severance benefits
provided under this Part Two. However, those benefits will be subject to the
restrictive covenants of Part Three of this letter agreement and will be in lieu
of all other severance benefits to which you might otherwise be entitled upon
such termination of your employment. In addition, any severance benefits paid to
you in connection with an Involuntary Termination following a Change in Control
will be subject to the dollar limitation of Part Four.
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1. Accelerated Vesting.
A portion of each outstanding Option which you hold at the time of your
Involuntary Termination, to the extent not otherwise exercisable for all the
shares of Common Stock subject to that Option, will immediately become
exercisable on an accelerated basis and may be exercised for any or all of the
shares subject to that accelerated portion until the earlier of (i) the
expiration of the option term or (ii) the end of the three (3)-month period
following the date of your Involuntary Termination. The number of option shares
which shall vest and become exercisable upon such an accelerated basis in
connection with the Involuntary Termination shall be equal to the number of
shares for which the Option would have become exercisable under the Exercise
Schedule in effect for that Option had you remained in the Company's employ for
an additional twelve (12) month period after the Involuntary Termination.
However, to the extent any Option is not exercisable for one or more shares at
the time of your Involuntary Termination, after taking into account the
acceleration provided under this paragraph, the Option will immediately
terminate with respect to those shares.
2. Severance Payment.
You will be entitled to salary continuation payments at your applicable rate of
Base Salary for a Salary Continuation Period of twelve (12) months. These salary
continuation payments will be made to you in accordance with the Company's
normal payroll practices and will be subject to the Company's collection of all
applicable federal and state income and employment withholding taxes.
3. Health Care Coverage.
Should you elect continued health care coverage under the Company's medical plan
pursuant to your rights under Code Section 4980B ("COBRA"), the Company will
provide such COBRA coverage, without charge, to you and your eligible
dependents. Such Company-paid coverage will continue until the earlier of (i)
the expiration of your Salary Continuation Period or (ii) the first date on
which you are covered under another employer's health benefit program without
exclusion for any pre-existing medical condition. Any additional health care
coverage to which you and your dependents may be entitled under COBRA following
the period of such Company-paid coverage will be at your sole cost and expense.
4. Life Insurance Coverage.
You will be entitled to Life Insurance Coverage through your continued
participation in the Company's group term and executive life insurance plans
following your Involuntary Termination, and the Company will pay the entire
premium charged for such continued Life Insurance Coverage. Such Company-paid
coverage will continue until the earlier of (i) the expiration of your Salary
Continuation Period or (ii) the first date on which you are provided with
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comparable coverage under another employer's life insurance plan. However, you
will be responsible for the satisfaction of any income and employment tax
liability attributable to your Company-paid Life Insurance Coverage.
Your payments and benefits under Paragraphs 2, 3 and 4 of this Part Two will
immediately terminate in the event you fail to abide by the restrictive
covenants set forth in Part Three of this letter agreement. In addition, those
payments and benefits will be subject to the dollar limitation of Part Four of
this letter agreement in the event of your Involuntary Termination following a
Change in Control.
Part THREE -- CONSULTING SERVICES
AND SPECIAL RESTRICTIVE COVENANTS
---------------------------------
1. Consulting Services.
In consideration for the salary continuation payments to which you become
entitled under Part Two, you will make yourself available during the Salary
Continuation Period to render such consulting services to the Company within
your area of expertise as may reasonably be requested by the Company's Chief
Executive Officer, but in no event may more than ten (10) hours of such services
will be required of you per month.
2. Cessation of Benefits.
Your Salary Continuation Period will immediately terminate, and all salary
continuation payments and Company-paid Health Care Coverage and Life Insurance
Coverage will immediately cease, should you:
(a) own, manage, operate, join, control or participate in the
ownership, management, operation or control of, or be employed by or
connected in any manner with, any enterprise which is engaged in any
business competitive with or similar to that of the Company; provided,
however, that such restriction will not apply to any passive investment
representing an interest of less than one percent (1%) of an outstanding
class of publicly-traded securities of any corporation or other enterprise;
(b) encourage or solicit any of the Company's employees to leave the
Company's employ for any reason or interfere in any other manner with
employment relationships at the time existing between the Company and its
employees; or
(c) induce any of the Company's clients, customers, suppliers,
vendors, distributors, licensors or licensees to terminate their existing
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business relationships with the Company or interfere in any other manner
with any existing business relationship between the Company and any client,
customer, supplier, vendor, distributor, licensor, licensee or other third
party.
Part FOUR -- LIMITATION ON BENEFITS
-----------------------------------
The benefit limitation of this Part Four shall be applicable only to the extent
the payments and benefits made to you pursuant to Paragraphs 2, 3 and 4 of Part
Two are attributable to your Involuntary Termination following a Change in
Control.
1. Benefit Limit.
The aggregate Present Value (measured as of the Change in Control) of the
benefits to which you become entitled under Part Two at the time of your
Involuntary Termination, namely, the salary continuation payments, the Option
Parachute Payment attributable to your Severance-Accelerated Options and your
Company-paid Health Care Coverage and Life Insurance Coverage, will in no event
exceed in amount the greater of the following dollar amounts (the "Benefit
Limit"):
(a) 2.99 times your Average Compensation, less the Present Value,
measured as of the Change in Control, of all Other Parachute Payments to
which you are entitled, or
(b) the amount which yields you the greatest after-tax amount of
benefits under Part Two of this letter agreement after taking into account
any excise tax imposed under Code Section 4999 on the payments and benefits
which are provided you under Part Two or which constitute Other Parachute
Payments. The Option Parachute Payment attributable to the accelerated
vesting of your Acquisition-Accelerated Options at the time of the Change
in Control shall also be subject to the Benefit Limitation. However, no
other terms or provisions of your Acquisition-Accelerated Options shall be
affected by this letter agreement.
2. Resolution Procedure.
In the event there is any disagreement between you and the Company as to whether
one or more payments to which you become entitled in connection with either the
Change in Control or your subsequent Involuntary Termination constitute
Parachute Payments, Option Parachute Payments or Other Parachute Payments or as
to the determination of the Present Value of any of those payments, such dispute
will be resolved as follows:
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(i) In the event temporary, proposed or final Treasury Regulations in
effect at the time under Code Section 280G (or applicable judicial
decisions) specifically address the status of any such payment or the
method of valuation therefor, the characterization afforded to such payment
by the Regulations (or such decisions) will, together with the applicable
valuation methodology, be controlling.
(ii) In the event Treasury Regulations (or applicable judicial
decisions) do not address the status of any payment in dispute, the matter
will be submitted for resolution to independent tax counsel mutually
acceptable to you and the Company ("Independent Counsel"). The resolution
reached by Independent Counsel will be final and controlling; provided,
however, that if in the judgment of Independent Counsel the status
of the payment in dispute can be resolved through the obtainment of a
private letter ruling from the Internal Revenue Service, a formal and
proper request for such ruling will be prepared and submitted by
Independent Counsel, and the determination made by the Internal Revenue
Service in the issued ruling will be controlling. All expenses incurred in
connection with the retention of Independent Counsel and (if applicable)
the preparation and submission of the ruling request will be shared equally
by you and the Company.
(iii) In the event Treasury Regulations (or applicable judicial
decisions) do not address the appropriate valuation methodology for any
payment in dispute, the Present Value thereof will, at the Independent
Counsel's election, be determined through an independent third-party
appraisal, and the expenses incurred in obtaining such appraisal will be
shared equally by you and the Company.
3. Status of Benefits.
A. No benefits shall be provided you under Part Two of this letter
agreement (including the accelerated vesting of your outstanding Options, the
salary continuation payments and the Company-paid Health Care Coverage and Life
Insurance Coverage) until the Present Value of the Option Parachute Payment
attributable to both your Severance-Accelerated Options and your
Acquisition-Accelerated Options has been determined and the status of any
payments in dispute under Paragraph 2 above has been resolved in accordance
therewith. The post-service exercise period in effect for your Options shall be
stayed and shall not run until the resolution process hereunder is completed.
B. Once the requisite determinations under Paragraph 2 have been made, then
to the extent the aggregate Present Value, measured as of the Change in Control,
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of (i) the Option Parachute Payment attributable to your Severance-Accelerated
Options plus (ii) the Parachute Payment attributable to your other benefit
entitlements under Part Two of this letter agreement would, when added to the
Present Value of all your Other Parachute Payments (including the Option
Parachute Payment attributable to your Acquisition-Accelerated Options), exceed
the Benefit Limit, your salary continuation payments will first be reduced, and
then the period of your Company-paid Health Care Coverage and Life Insurance
Coverage will be shortened, to the extent necessary to assure that such Benefit
Limit is not exceeded.
Part Five -- MISCELLANEOUS
--------------------------
1. Termination for Cause.
Should your employment cease by reason of a Termination for Cause or should you
depart or voluntarily resign under circumstances which would otherwise
constitute grounds for a Termination for Cause, then the Company will only be
required to pay you (i) any unpaid compensation earned for services previously
rendered through the date of such termination and (ii) any accrued but unpaid
vacation benefits or sick days, and no benefits will be payable to you under
Part Two of this letter agreement.
2. Death.
Should you die before receipt of one or more salary continuation payments to
which you become entitled under this letter agreement, then those payments will
be made to the executors or administrators of your estate. Should you die before
you exercise all your outstanding Options as accelerated hereunder, then such
Options may be exercised, within twelve (12) months after your death, by the
executors or administrators of your estate or by persons to whom the Options are
transferred pursuant to your will or in accordance with the laws of inheritance.
In no event, however, may any such Option be exercised after the specified
expiration date of the option term.
3. General Creditor Status.
All cash payments to which you become entitled hereunder will be paid, when due,
from the general assets of the Company, and no trust fund, escrow arrangement or
other segregated account will be established as a funding vehicle for such
payment. Accordingly, your right (or the right of the personal representatives
or beneficiaries of your estate) to receive such cash payments hereunder will at
all times be that of a general creditor of the Company and will have no priority
over the claims of other general creditors.
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4. Indemnification.
To the maximum extent permitted by law, the indemnification provisions for
Officers and Directors under the Company By-Laws and Certificate of
Incorporation and pursuant to contract will be extended to you, during the
period following your Involuntary Termination, with respect to any and all
matters, events or transactions occurring or effected during your employment
with the Company.
5. Miscellaneous.
This letter agreement will be binding upon the Company, its successors and
assigns (including, without limitation, the surviving entity in any Change in
Control) and is to be construed and interpreted under the laws of the State of
California. This letter agreement supersedes all prior agreements between you
and the Company relating to the subject of severance benefits payable upon a
change in control or ownership of the Company or a change in management, and you
will not be entitled to any other severance benefits upon such a termination
other than those that are provided in this letter agreement and your stock
option agreements and the Plan. This letter may only be amended by written
instrument signed by you and an authorized officer of the Company. If any
provision of this letter agreement as applied to you or the Company or to any
circumstance should be adjudged by a court of competent jurisdiction to be void
or unenforceable for any reason, the invalidity of that provision will in no way
affect (to the maximum extent permissible by law) the application of such
provision under circumstances different from those adjudicated by the court, the
application of any other provision of this letter agreement, or the
enforceability or invalidity of this letter agreement as a whole. Should any
provision of this letter agreement become or be deemed invalid, illegal or
unenforceable in any jurisdiction by reason of the scope, extent or duration of
its coverage, then such provision will be deemed amended to the extent necessary
to conform to applicable law so as to be valid and enforceable or, if such
provision cannot be so amended without materially altering the intention of the
parties, then such provision will be stricken and the remainder of this letter
agreement will continue in full force and effect.
6. At Will Employment.
Nothing in this letter agreement is intended to provide you with any right to
continue in the employ of the Company (or any subsidiary) for any period of
specific duration or interfere with or otherwise restrict in any way your rights
or the rights of the Company (or any subsidiary), which rights are hereby
expressly reserved by each, to terminate your employment at will or as otherwise
specified in your employment contract.
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Please indicate your acceptance of the foregoing by signing the enclosed copy of
this letter and returning it to the Company.
Very truly yours,
CREDENCE SYSTEMS CORPORATION
By: /s/ Xx. Xxxxxxx Xxxxxx
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Title: Chairman
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ACCEPTANCE
I hereby agree to all the terms and provisions of the foregoing letter agreement
governing the special benefits to which I may become entitled upon an
involuntary termination of my employment, or my voluntary resignation, under
certain prescribed circumstances following a change in control or ownership of
the Company or the appointment of a new permanent Chief Executive Officer of the
Company. I also have had an opportunity to consult with my own counsel. I
acknowledge that Xxxxxxx, Xxxxxxx & Xxxxxxxx LLP serves as counsel to the
Company with respect to the foregoing letter agreement.
Signature: /s/ Xxxxx Xxxxxxx
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Dated: 3/31/99
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