Exhibit 10.26

 

CREDENCE SYSTEMS CORPORATION FISCAL YEAR 2006 INCENTIVE PLAN

 

The goal of the Fiscal Year 2006 Incentive Plan (the “Plan”) is to compensate
participants for achievement of the Company’s financial and strategic
objectives. The Plan rewards financial performance above and beyond the 2006
financial plan. Awards paid under the Plan will be measured in part based on the
Company’s ability to attain certain financial targets and in part based on the
achievement of pre-determined Company objectives for the fiscal year 2006.

 

Goals

 

  •   Create a clear and transparent incentive program that aligns employee
compensation with the Company’s priorities.

 

  •   Focus all levels of the Company’s human capital on financial performance
and a common set of strategic objectives.

 

  •   Compensate achievement while driving for and rewarding exceptional
performance.

 

Eligibility; Bonus Payment Per Participant

 

Plan participants include substantially all of the Company’s non-sales
employees, including executive officers. Standard bonuses range from 5% to 100%
of any Plan participant’s salary, with such percentage varying among Plan
participants. Bonuses scale as operating income levels increase or decrease over
certain established levels. Participant’s bonus can accelerate above their
standard bonus range when operating income exceeds the Company’s 2006 financial
target.

 

Thresholds for Payments Under the Plan

 

The payment of bonuses under the Plan is dependent upon the Company achieving a
minimum operating income for the 2006 fiscal year, with the amount available for
payment of bonuses scaling up as operating income exceeds the minimum amount.
The specific amount of bonuses payable out of the amount available for bonus
award is determined based upon the achievement of Company objectives relating to
new customer orders, quality and revenue.

 

Plan Funding: Minimum Operating Income

 

The Plan will only be funded upon the achievement by the Company of a minimum
threshold of operating income, at which time the Plan will be considered 33%
funded. As the Company attains increased levels of operating income, the level
of funding for the 2006 Plan will increase up to a maximum of 200%.

 

Company Objectives

 

The following table identifies the specific Company objectives outlined under
the Plan and the percentage make-up of each objective as it relates to the total
percentage for all Company’s objectives:

 

    

% of

Total
Company
Objectives

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Company Objectives

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     25%    Obtain multiple systems orders with designated customers, with each
multiple order obtained accounting for 5% toward this objective.      25%   
Increase the level of quality in designated product lines (with particular
quarterly objectives set out for applicable product line).      50%    Achieve
profitable growth for (i) specific product lines and (ii) the Company in
general. The level of growth for specific product lines will be measured against
individually determined product line growth targets. The level of growth for the
Company in general will be measured against a pre-determined Company growth
target range. Total    100%     

 

Payment as a Function of Plan Funding and Company Objectives

 

Plan awards are a direct function of the level of funding of the Plan (as it
relates to the total operating income of the Company) multiplied by the
percentage total of the objectives that have been met. For example, if the Plan
is 100% funded and 80% of the objectives have been met, then a Plan participant
will receive 80% of his/her target incentive bonus. In the event the Company
generates a level of operating income for fiscal year 2006 causing the Plan to
be 150% funded, and 80% of the Plan objectives have been met, then a Plan
participant will receive 120% of his/her target incentive bonus. The reverse is
also true in the event the Plan is funded for a percentage less than 100%. For
example, if the Plan is only 33% funded, and 80% of the Plan objectives have
been met, then a Plan participant will only receive 26.4% of his/her target
incentive bonus.