SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE SECURITIES
EXCHANGE ACT OF 1934 (AMENDMENT NO. )
Filed by the Registrant [X]
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Check the appropriate box:
[ ] Preliminary Proxy Statement [ ] Soliciting Material Pursuant to
sec.240.14a-11(c) or sec.240.14a-12
[X] Definitive Proxy Statement [ ] Confidential, for Use of the
Commission Only
[ ] Definitive Additional Materials (as permitted by Rule 14a-6(e)(2))
DIGITAL VIDEO SYSTEMS, INC.
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
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Item 22(a)(2) of Schedule 14A.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
(1) Title of each class of securities to which transaction applies:
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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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[ ] 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,
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(1) Amount Previously Paid:
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<PAGE>
DIGITAL VIDEO SYSTEMS, INC.
160 Knowles Drive
Los Gatos, CA 95032
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON THURSDAY, OCTOBER 29, 1998
NOTICE IS HEREBY GIVEN that the Annual Meeting of Stockholders of
Digital Video Systems, Inc. (the "Company") will be held at the offices
of Digital Video Systems, Inc., located at 160 Knowles Drive, Los Gatos,
California, on Thursday, October 29, 1998 at 10:00 a.m. local time for
the following purposes, as more fully described in the attached Proxy
Statement:
(1) To elect seven directors of the Company to serve until
the next annual meeting of stockholders or until their successors
are duly elected and qualified;
(2) To ratify the adoption by the Company's Board of
Directors of the Company's 1998 Stock Option Plan;
(6) To ratify the appointment by the Company's Board of
Directors of Ernst & Young LLP as the Company's independent
auditors for the fiscal year ending March 31, 1999; and
(7) To transact such other business as may properly be
brought before the Annual Meeting or any and all adjournments
thereof.
The Board of Directors has fixed the close of business on Tuesday,
September 8, 1998 as the record date for the determination of
stockholders entitled to notice of and to vote at the Annual Meeting.
Only stockholders at the close of business on such record date are
entitled to vote at the Annual Meeting.
Accompanying this Notice are a Proxy and Proxy Statement. IF YOU
WILL NOT BE ABLE TO ATTEND THE ANNUAL MEETING TO VOTE IN PERSON, PLEASE
COMPLETE, SIGN AND DATE THE ACCOMPANYING PROXY AND RETURN IT PROMPTLY IN
THE ENCLOSED POSTAGE PAID ENVELOPE. The Proxy may be revoked at any time
prior to its exercise at the Annual Meeting.
By Order of the Board of Directors,
By:/s/ Edward M. Miller, Jr.
--------------------
Edward M. Miller, Jr.
Chief Executive Officer
Los Gatos, California
September 25, 1998
DIGITAL VIDEO SYSTEMS, INC.
160 KNOWLES DRIVE
LOS GATOS, CALIFORNIA 95032
ANNUAL MEETING OF STOCKHOLDERS
OCTOBER 29, 1998
PROXY STATEMENT
INTRODUCTION
This Proxy Statement (the "Proxy Statement") is furnished to the
stockholders of Digital Video Systems, Inc., a Delaware corporation (the
"Company"), in connection with the solicitation of proxies by and on
behalf of the Company's Board of Directors (the "Board of Directors").
The proxies solicited hereby are to be voted at the Company's Annual
Meeting of Stockholders to be held on October 29, 1998, and at any and
all adjournments thereof (the "Annual Meeting").
PURPOSE OF ANNUAL MEETING
At the Annual Meeting, stockholders will be asked: (i) to elect
seven directors of the Company to serve until the next annual meeting of
stockholders or until their successors are duly elected and qualified;
(ii) to ratify the adoption of the 1998 Stock Option Plan; (iii) to
ratify the appointment by the Board of Directors of Ernst & Young LLP as
the Company's independent auditors for the fiscal year ending March 31,
1999; and (iv) to transact such other business as may properly be brought
before the Annual Meeting or any and all adjournments thereof. The Board
of Directors recommends a vote in favor of (i.e., "FOR"): (a) the
election of the seven nominees for directors of the Company listed below,
and (b) the proposals set forth in (ii) and (iii) above.
QUORUM AND VOTING RIGHTS
The presence, in person or by proxy, of the holders of a majority of
the outstanding shares of the Company's common stock, par value $.0001
("Common Stock") is necessary to constitute a quorum at the Annual
Meeting. Only stockholders of record at the close of business on
Tuesday, September 8, 1998 (the "Record Date") will be entitled to notice
of, and to vote at, the Annual Meeting. As of the Record Date, there
were 24,338,632 shares of Common Stock outstanding and entitled to vote.
Holders of Common Stock as of the Record Date are entitled to one vote
for each share held.
All shares of Common Stock represented by properly executed proxies
will, unless the proxies have previously been revoked, be voted in
accordance with the instructions indicated in the proxies. If no
instructions are indicated, the shares will be voted in favor of (i.e.,
"FOR"): (i) the election of the seven nominees for directors of the
Company listed under Proposal 1; (ii) the ratification of the adoption of
the 1998 Stock Option Plan; and (iii) the ratification of the appointment
of Ernst & Young LLP as the Company's independent auditors for the fiscal
year ending March 31, 1999. With respect to any other item of business
that may come before the Annual Meeting, the proxy holders will vote the
proxy in accordance with their best judgment.
In the election of directors, the seven candidates receiving the
highest number of votes will be elected as directors. The other matters
submitted for stockholder approval at the Annual Meeting will be decided
by the affirmative vote of the majority of the shares represented in
person or 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. Brokers holding shares of record generally are not
entitled to vote on certain matters unless they receive voting
instructions from their customers. If a broker which is the record
holder of certain shares indicates on a proxy that it does not have
discretionary authority to vote on a particular matter as to such shares,
or if shares are not voted in other circumstances in which proxy
authority is defective or has been withheld with respect to a particular
matter, these non-voted shares will be counted for quorum purposes but
are not deemed to be present or represented for purposes of determining
whether stockholder approval of that matter has been obtained. Any
stockholder executing a proxy has the power to revoke the proxy at any
time prior to its exercise. A proxy may be revoked prior to exercise by:
(a) filing with the Company a written revocation of the proxy; (b)
appearing at the Annual Meeting and casting a vote contrary to that
indicated on the proxy; or (c) submitting a duly executed proxy bearing a
later date.
The cost of preparing, printing, assembling and mailing this Proxy
Statement and other material furnished to stockholders in connection with
the solicitation of proxies will be borne by the Company. In addition to
the solicitation of proxies by use of the mails, officers, directors and
regular employees of the Company may solicit proxies by written
communications, by telephone, telegraph or personal call. These persons
are to receive no special compensation for any solicitation activities.
The Company will reimburse banks, brokers and other persons holding
Common Stock in their names, or those of their nominees, for their
expenses in forwarding proxy solicitation materials to beneficial owners
of Common Stock.
This Proxy Statement and the accompanying form of proxy are first
being mailed to stockholders on or about September 30, 1998.
PROPOSAL 1 -
ELECTION OF DIRECTORS
Nominees
At the Annual Meeting, seven directors, who will constitute the
entire Board of Directors, are to be elected to serve until the next
Annual Meeting or until their successors are duly elected and qualified.
All nominees have consented to being named herein and have agreed to
serve if elected. The names of such nominees are as follows:
Edmund Y. Sun
Edward M. Miller, Jr
Sanford C. Sigoloff
Philip B. Smith
Joseph F. Troy
Young Sam Cho
Cary S. Fitchey
Management proxies will be voted FOR the election of all of the
above-named nominees unless the stockholders indicate that the proxy
shall not be voted for all or any one of the nominees. Nominees
receiving the highest number of affirmative votes cast, up to the number
of directors to be elected, will be elected as directors. Abstentions,
broker non-votes, and instructions on the accompanying proxy card to
withhold authority to vote for one or more of the nominees will result in
the respective nominees receiving fewer votes. If for any reason any
nominee should, prior to the Annual Meeting, become unavailable for
election as a Director, an event not now anticipated, the proxies will be
voted for such substitute nominee, if any, as may be recommended by
management. In no event, however, shall the proxies be voted for a
greater number of persons than the number of nominees named.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE ELECTION OF
THE SEVEN PERSONS NOMINATED FOR DIRECTOR HEREIN.
Meetings; Attendance; Committees
During the fiscal year ended March 31, 1998, the Board of Directors
of the Company met 4 times, the audit committee met 4 times. There were
no compensation committee, risk management committee, nominating
committee or executive committee meetings held during the fiscal year.
No incumbent member who was a director during the fiscal year attended
fewer than 75% of the aggregate of all meetings of the Board of Directors
and all meetings of the committees of the Board of Directors on which he
served.
The Company's compensation committee was formed to make
recommendations to the Board concerning salaries and incentive
compensation for officers and employees of the Company. The compensation
committee currently consists of Messrs. Smith, Sigoloff and Troy. The
audit committee reviews the scope of the audit and other accounting
related matters. The Company's audit committee currently consists of
Messrs. Smith and Sigoloff. The Company's risk management committee was
formed to establish systems and policies to supervise and manage the
Company's risk of doing business outside the United States. The risk
management committee currently consists of Messrs. Smith and Sigoloff.
The nominating committee was formed to make recommendations to the Board
of Directors as to candidates to serve on the Board of Directors. The
nominating committee currently consists of Messrs. Smith and Troy. The
Board of Directors also has an executive committee, which committee is
authorized to exercise all the powers and authority of the Board of
Directors in the management of the business and affairs of the Company,
to the fullest extent permitted by law. The executive committee
currently consists of Dr. Sun, who is Chairman of the committee, and
Messrs. Smith and Troy. The Company also has a committee of "outside
directors" within the meaning of Section 162(m) of the Internal Revenue
Code of 1986, as amended, comprised of Messrs. Cho and Sigoloff, to make
grants of options to executive officers under the Company's stock option
plans. The Company has no other committees of its Board of Directors.
Management of the Company
Set forth below is certain information with respect to the directors
and executive officers of the Company as of September 24, 1998 and with
respect to the director nominees:
<TABLE>
<CAPTION>
Director
Name Age Position Since
- ----------------------- ---- ------------------------------- --------
<S> <C> <C> <C>
Dr. Edmund Y. Sun (1) 50 Chairman of the Board and 1992
Chief Technology Officer
Edward M. Miller (1) 47 Chief Executive Officer, --
President of U.S. Operations
and Director Nominee
Sung Hee Lee (1) 44 President and Chief Operating --
Officer of Asian Operations
John W. Smuda (1) 42 Chief Financial Officer --
Robert Werbicki 46 Executive Vice President, --
Computer Products
Thomas R. Parkinson (1) 52 Director 1997
Sanford C. Sigoloff 68 Director 1996
Philip B. Smith 63 Director 1995
Joseph F. Troy 60 Director 1996
Young Sam Cho 45 Director 1998
Cary S. Fitchey 43 Director Nominee --
</TABLE>
_______________
(1) Effective June 23, 1998, Dr. Sun resigned as Chief Executive
Officer, Mr. Parkinson resigned as President and Chief Operating
Officer, Mr. Miller was appointed Chief Executive Officer and
President of U.S. Operations, Mr. Lee was appointed President and
Chief Operating Officer of Asian Operations and Mr. Smuda was
appointed Chief Financial Officer.
Dr. Edmund Y. Sun founded the Company in 1992 and has served as its
Chairman of the Board since that time. In June 1998 Dr. Sun was
appointed Chief Technology Officer of the Company. From October 1992 to
June 1998, Dr. Sun served as the Company's Chief Executive Officer and
from October 1992 to May 1996, he served as the Company's President. Dr.
Sun founded C-Cube Microsystems Inc. ("C-Cube"), a public company
involved in the development of full-color still and motion picture
compression technology, and was its Chief Executive Officer from March
1989 to September 1991, and Chairman of the Board from August 1988 until
April 1993. Dr. Sun was also previously a founder, Vice President, and
Chief Technical Officer of Weitek Corporation, a public company involved
in high-speed three-dimensional shaded graphics systems and the use of
high speed chips in various computer applications. Dr. Sun is a director
of CSS Laboratories, Inc., a privately-held company involved in computer
hardware. Dr. Sun has a Ph.D. in Applied Physics and an M.S. in
Electrical Engineering from the California Institute of Technology, and a
B.S. in Electrophysics from the National Chiao-Tung University in Taiwan.
Edward M. Miller was appointed the Company's Chief Executive Officer
and President of U.S. Operations in June 1998 and is a director nominee.
Mr. Miller served as the Chief Financial Officer of the Company from
January 1998 to June 1998. Prior to joining the Company, Mr. Miller
served as Vice President of Finance for SteriGenics International, Inc.
("SteriGenics"), a provider of microorganism reduction services for the
Healthcare Industry. Mr. Miller previously worked for Quality
Technologies Corporation ("QTC"), a spin-off of General Instrument
Corporation ("GI") and an optoelectronics manufacturing company, where he
had served as Vice President of Finance. Mr. Miller worked for GI during
the 1980's, holding several positions in the areas of finance, strategic
planning and operations. During his tenure with GI, Mr. Miller served as
Assistant to the Chief Financial Officer, Financial Controller for GI's
UK operations, and Manager of Financial Analysis-Europe. Earlier in his
career at GI, Mr. Miller served as Corporate Credit Manager for 16
divisional and subsidiary operations within GI's Components Product
Group. Mr. Miller received his B.A. in Business Administration from Ohio
University.
Sung Hee Lee was appointed President and Chief Operating Officer of
the Company's Asian operations in June 1998. Mr. Lee served as a
director of the Company from March 1994 to June 1998. Prior to joining
the Company, Mr. Lee founded the Multimedia Business Division of Hyundai
Electronics Industries Co., Ltd. ("Hyundai") and served as its director
from March 1993 to June 1998. From May 1991 until March 1993, Mr. Lee
served as a Senior Manager of the Marketing Department of Hyundai's
Information Systems Business Sector, and from January 1989 until May
1991, he served as a Senior Manager of Hyundai's Computer Export
Department. Mr. Lee is a member of the Board of Directors of Wanyan
Electronics Co., Ltd., in China. He received his M.S. in Industrial
Engineering from the Korea Advanced Institute of Science & Technology.
John W. Smuda was appointed the Company's Chief Financial Officer in
June 1998. Since joining the Company in November 1997 as Vice President
for Business Development, Mr. Smuda has worked closely with senior
management to shape the Company's financial operations and programs.
Prior to joining the Company, Mr. Smuda served as a Vice President of
Spencer Trask Securities, Inc. and The Private Equity Partnership, L.P.
Mr. Smuda provided these firms with analysis of development-stage
technology and biotechnology companies. In addition, Mr. Smuda developed
the business plans for some of the companies for which these firms raised
capital. Prior to obtaining an MBA from Columbia University in 1992, Mr.
Smuda was a research scientist at the National Institutes of Health and
the Naval Research Laboratories. Mr. Smuda received his MBA in Finance
and Management from Columbia University, earned his Ph.D. in Biochemistry
from Georgetown University, and received a B.S. in Chemistry from
Monmouth College.
Thomas R. Parkinson has served as a Director of the Company since
September 1997. From April 1997 to June 1998 Mr. Parkinson served as the
Company's President and Chief Operating Officer. Mr. Parkinson currently
serves as the President of SRS Labs, Inc., an audio technology company.
From 1994 to April 1997 Mr. Parkinson served as President and Chief
Executive Officer of Shape, Inc., a manufacturer of home video
entertainment and computer related products. During 1993, Mr. Parkinson
served as a consultant for Shape, Inc. In 1992, Mr. Parkinson founded
Technology Vision, Inc., a provider of management services.
Sanford C. Sigoloff has served as a Director of the Company since
June 1996. Mr. Sigoloff has been Chairman of the Board, President and
Chief Executive Officer of Sigoloff & Associates, Inc. (a management
consulting company) since 1989. He served as Chief Executive Officer of
L.J. Hooker Corporation (a retail conglomerate) from August 1989 to June
1992. From March 1982 until 1988, Mr. Sigoloff served as Chairman of the
Board, President and Chief Executive Officer of Wickes Companies, Inc. (a
furniture retail chain). Mr. Sigoloff is a director of Sun America,
Inc., Kaufman and Broad Home Corporation, and Movie Gallery, Inc., which
are public companies. Mr. Sigoloff is an adjunct full professor at the
John E. Anderson Graduate School of Management at the University of
California at Los Angeles.
Philip B. Smith has served as a Director of the Company since
November 1995. Mr. Smith has been a Vice Chairman of the Board of
Spencer Trask Securities, Inc. since 1991. He was formerly a Managing
Director of Prudential Securities in its merchant banking division from
1985 to 1991. Mr. Smith is a founding General Partner of Lawrence
Venture Associates, a venture capital limited partnership headquartered
in New York City and was the General Partner from 1984 to 1985. From
1981 to 1984, he served as Executive Vice President and Group Executive
of the international banking and worldwide corporations group at Irving
Trust Company. Prior to joining Irving Trust Company, he was at Citibank
for 15 years, where he founded Citicorp Venture Capital and served as its
President and Chief Executive Officer. Since 1988, Mr. Smith has also
been the managing general partner of The Private Equity Partnership, L.P.
Mr. Smith is a director of Movie Gallery, Inc., and KLS Enviro
Resources, Inc., both publicly-held companies. Mr. Smith is an adjunct
professor at Columbia University Graduate School of Business. He holds a
B.S.E. from Princeton University and an MBA from Harvard University.
Joseph F. Troy has served as a director of the Company since May
1996. Mr. Troy is the founder and has been a member of the law firm of
Troy & Gould Professional Corporation since May 1970. He is a director
of Movie Gallery, Inc., a publicly-held company. Mr. Troy holds a B.A.
from Yale University and an LL.B. from Harvard University.
Young Sam Cho has served as a Director of the Company since
September 1998, when he replaced Mr. Lee as the representative of Hyundai
on the Company's Board of Directors. Mr. Cho has been the Director of
the Corporate Planning Department of Hyundai since June 1994. From March
1990 until May 1994, Mr. Cho served as General Manager of Hyundai
Electronics Europe Gmbh (Hyundai's European Sales Subsidiary). Mr. Cho
received a B.A. degree in Business Administration from Seoul National
University.
Cary S. Fitchey is a Director Nominee. Mr. Fitchey is currently the
Managing Partner of British Pacific Partners ("BPP"). BPP was formed in
June 1988 to make investments in potential industry consolidation
opportunities, and to provide a variety of advisory services in primarily
turn-around situations. Previously, Mr. Fitchey was one of five partners
with Dartford Partnership, a partnership formed to make investments in
branded products concentrating on the food and beverage categories.
While at Dartford, Mr. Fitchey also developed and managed a joint venture
in South Africa with PepsiCo, Inc., which featured Pepsi's return to that
country after its departure in the 1980s due to the international
sanctions. Before joining Dartford as a partner in 1993, Mr. Fitchey was
Managing Director of Triad Partners, Ltd., an advisory and investment
company he founded in 1985 to provide services to corporate clients in
the areas of strategic management, acquisitions, divestitures, licensing,
restructuring, and takeover defense related situations. From 1983 to
1985, Mr. Fitchey served as the Vice President of Business Planning for
PepsiCo, Inc., where he was responsible for the development of overall
corporate strategies and where his work led to the acquisition of several
major franchised bottlers and the divestiture of various non-strategic
businesses. From 1976 to 1983, Mr. Fitchey was a vice president with
A.T. Kearney and Strategic Planning Associates, both international
management consulting firms. Mr. Fitchey received an MBA from the
University of Michigan in 1976 and a BSIM degree from Purdue University
in 1974.
Robert Werbicki has served as the Company's Executive Vice
President, Computer Products since August 1997. In 1995 he founded
Synchrome Technology Inc., a development and marketing company that
integrates CD-ROM drives into finished peripheral add-on personal
computer products, and develops and markets multimedia audio software.
He served as its President from 1995 to 1997. From 1993 to 1995, Mr.
Werbicki served as General Manager and consultant to Mountain Network
Solutions and Nakamichi Peripherals Corporation. From 1990 to 1993 he
held various executive positions at Rexon Inc., including President of
Rexon/Tacmar Inc., President of Sytron, Rexon's software development and
marketing subsidiary, and General Manager of the Wangtek DAT Division.
Mr. Werbicki received his B.S.E.E. degree from the University of the
Pacific and a Bachelor of Commerce degree from the University of Toronto.
Directors serve until the next annual meeting or until their
successors are elected or appointed. Officers are elected by and serve
at the discretion of the Board of Directors. There are no family
relationships among the officers or directors of the Company.
Pursuant to the underwriting agreement entered into by the Company
in connection with the initial public offering of the Company's
securities in May 1996 (the "IPO"), the Company agreed for a period of
five years commencing on May 9, 1996, if requested by the underwriter,
D.H. Blair Investment Banking Corp. (the "Underwriter"), to nominate a
designee of the Underwriter who is reasonably acceptable to the Company
to the Company's Board of Directors. To date, the Underwriter has not
designated a director.
COMPENSATION OF DIRECTORS AND EXECUTIVE OFFICERS
Executive Compensation
The following table sets forth the compensation for the fiscal years
ended March 31, 1998 and March 31, 1997, and the twelve-month period
ended March 31, 1996, respectively, paid by the Company to its Chief
Executive Officer and the other executive officers of the Company who
earned in excess of $100,000 (collectively, the "Named Executive
Officers") based on salary and bonus for the fiscal year ended March 31,
1998:
<TABLE>
<CAPTION>
Long Term
Annual Compensation(1) Compensation
----------------------------- Awards
Other --------------
Fiscal Annual Securities
Year Compen- Underlying
Name and Principal Position Ended(2) Salary($) sation Options(#)
- ---------------------------- --------- --------- --------- --------------
<S> <C> <C> <C> <C>
Dr. Edmund Y. Sun(3) 1998 165,157 -- --
Chairman of the Board 1997 159,751 -- --
and Chief Technology 1996 131,709 -- --
Officer
Edward M. Miller(4) 1998 41,409 -- 135,000
Chief Executive Officer 1997 -- -- --
and President of U.S. 1996 -- -- --
Operations
Thomas R. Parkinson(5) 1998 393,166 -- 900,000 (6)
Director, former 1997 -- -- --
President and Chief 1996 -- -- --
Operating Officer
Robert Werbicki 1998 144,806 -- 100,000
Vice President, 1997 -- -- --
Executive Computer 1996 -- -- --
Products
Gary Franza 1998 138,439 $89,861 (7) 125,000
Executive Vice President 1997 -- -- --
New Media Division 1996 -- -- --
David Keller(8) 1998 144,806 -- 80,000
Former General Manager 1997 -- -- --
and Vice President of 1996 -- -- --
the New Media Division
</TABLE>
___________
(1) The compensation described in this table does not include medical
insurance, retirement benefits and other benefits received by the
foregoing executive officers which are available generally to all
employees of the Company and certain perquisites and other personal
benefits received by the foregoing executive officers of the
Company, the value of which did not exceed the lesser of $50,000 or
10% of the executive officer's cash compensation in the table.
(2) In June 1996, the Company changed its fiscal year end from December
31 to March 31.
(3) Dr. Sun also served as President of the Company during the twelve
months ended March 31, 1996 and through May 1996 and as Chief
Executive Officer during the fiscal year ended March 31, 1996 and
through June 1998.
(4) Mr. Miller was appointed Chief Executive Officer of the Company and
President of U.S. Operations effective June 23, 1998. Mr. Miller
served as Chief Financial Officer of the Company from January 1998
to June 1998. In connection with his appointment as the Company's
Chief Executive Officer in June 1998, Mr. Miller was granted options
to purchase an additional 215,000 shares of Common Stock at an
exercise price of $1,125 per share.
(5) Mr. Parkinson resigned as President and Chief Operating Officer of
the Company effective June 23, 1998. Mr. Parkinson continues to
serve as a director of the Company.
(6) Options to acquire 900,000 shares of Common Stock were granted to
Mr. Parkinson on March 28, 1997 in connection with his employment
with the Company, which commenced on April 15, 1997. In connection
with Mr. Parkinson's resignation as the Company's President, 702,083
of such options were cancelled as of July 3, 1998.
(7) Represents payments made to Mr. Franza as a consultant prior to his
employment by the Company as Executive Vice President of the New
Media Division in August 1997.
(8) Mr. Keller's employment as General Manager and Vice President of the
New Media Division was terminated as of May 19, 1998.
The following table provides information on stock options granted
during the fiscal year ended March 31, 1998:
Options Granted in Fiscal Year Ended March 31, 1998
<TABLE>
<CAPTION>
Individual Grants
-------------------------------------------------
% of
Total
Options
Number of Granted Exercise
Securities to or Base
Underlying Employees Price Expir-
Options in Fiscal (per ation
Name Granted Year share) Date
- --------------------- ------------- --------- --------- -----------
<S> <C> <C> <C> <C>
Dr. Edmund Y. Sun -- -- -- --
Edward M. Miller 135,000 6.5% $1.44 03/17/2008
Thomas R. Parkinson 702,083 (1) 33.9% $3.75 07/03/98
197,917 (2) 9.5% $3.75 03/28/2007
Robert Werbicki 100,000 (3) 4.8% $4.69 09/17/2007
Gary Franza 125,000 (4) 6.0% $4.69 09/17/2007
David Keller 80,000 (5) 3.9% $4.69 11/11/2008
</TABLE>
____________________
(1) All of such options were cancelled effective as of July 3, 1998.
(2) Such options have been fully vested and are exercisable during the
term when Mr. Parkinson serves as a director of the Company.
(3) Pursuant to the Company's option repricing offer certain employees
(including Mr. Werbicki) were permitted to reprice their options in
exchange for agreeing to cancel options equal to 25% of their
outstanding non-escrowed options. 25,000 of such options were
cancelled as a result of the option repricing offer effective
January 1998. The balance of such options (75,000) will expire
March 17, 2007 unless earlier cancelled or terminated in accordance
with the terms of the Company's 1996 Stock Option Plan.
(4) Pursuant to the Company's option repricing offer (described in
footnote (3) above), 31,250 of such options were cancelled effective
January 1998. The balance of such options (93,750) will expire
March 17, 2007, unless earlier cancelled or terminated in accordance
with the terms of the Company's 1996 Stock Option Plan.
(5) Pursuant to the Company's option repricing offer (described in
footnote (3) above), 20,000 of such options were cancelled effective
January 1998. 46,250 options were cancelled upon Mr. Keller's
termination with the Company on August 13, 1998 and 13,750 options,
if not exercised, will expire on November 11, 1998.
Option Repricing
In January 1998, the Board of Directors approved an offer to each of
the Company's employees (other than Mr. Parkinson, who was at that time
the Company's President) who held stock options (the "Repricing Offer").
Pursuant to the terms of the Repricing Offer, employees were permitted
to trade in 25% of their outstanding options in order to reprice the
remaining 75% of their options at an exercise price of $2.16 per share.
(This offer did not include any options held in the Company's performance
escrow created in connection with its 1996 initial public offering.) The
Board's decision was based on the rationale that employees and officers
must be sufficiently incentivized to continue their employment with the
Company and to perform at a level that could enhance stockholder return.
Although most options granted during the fiscal year ended March 31,
1998 had exercise prices significantly below the offered repriced
exercise price of $2.16 per share (the closing price of the Company's
Common Stock on Nasdaq on January 14, 1998), a substantial number of
outstanding options granted in prior fiscal years had exercise prices far
above the prevailing market price in January 1998. Three of the Named
Executive Officers were offered the opportunity to participate in the
Repricing Offer because such officers had joined the Company and had
received option grants at a point in time when the fair market value of
the Common Stock (and therefore the exercise prices of their options)
were significantly higher than $2.16.
Director Compensation
Directors receive $15,000 per year (other than directors who are
employees of the Company) as compensation for serving on the Board of
Directors and are also entitled to participate in the Company's stock
option plans and from time to time to receive grants of options
thereunder to purchase shares of Common Stock. During the fiscal year
ended March 31, 1998, Mr. Parkinson received options to purchase 500,000
shares of Common Stock under the Company's 1996 Stock Option Plan (the
"1996 Plan") and options to purchase 400,000 shares of Common Stock under
the Company's 1993 Amended and Restated Stock Option Plan (the "1993
Plan"), respectively, all at an exercise price of $3.75 per share,
pursuant to his employment agreement with the Company. In connection
with Mr. Parkinson's resignation as President on June 23, 1998, 358,333
options granted to Mr. Parkinson under the Company's 1993 Plan, and
343,750 options granted to Mr. Parkinson under the Company's 1996 Plan
respectively, were cancelled. The total options cancelled of 702,083
included 266,667 Escrow Options (as herein defined). In June 1998 all
non-employee directors were granted options to purchase 100,000 shares of
Common Stock pursuant to the Company's 1998 Stock Option Plan (the "1998
Plan") at an exercise price by $1.125 per share. These options vest pro
rata over the 48-month period following the grant date, if not earlier
cancelled pursuant to the terms and conditions of the 1998 Plan.
Employment and Consulting Agreements
The Company entered into an employment agreement (the "Sun
Employment Agreement") with Dr. Sun, the Company's founder, Chairman of
the Board and then Chief Executive Officer, in March 1996. The term of
the Sun Employment Agreement commenced in May 1996 and will expire on
March 31, 2001; provided, however, that the Sun Employment Agreement can
be terminated by either party after March 31, 1999, if all of the Escrow
Securities (as defined herein) have been released.
The Sun Employment Agreement provides that in consideration for Dr.
Sun's services, he is to be paid an annual salary of $160,000, with
increases in salary and bonuses after the first year of employment as
deemed appropriate by the Board of Directors. In June 1998, Dr. Sun
resigned as Chief Executive Officer and was appointed Chief Technology
Officer. In connection with his appointment as Chief Technology Officer,
Dr. Sun was granted five-year options to purchase 400,000 shares of
Common Stock at an exercise price of $1.125 per share. Such options vest
at a monthly rate of 2.083% over a four-year period commencing on the
date of grant, subject to acceleration of this vesting schedule or
forfeiture of these options under certain circumstances. Dr. Sun's
compensation package remains otherwise unchanged.
The Company entered into a two-year employment agreement dated as of
March 28, 1997 with Thomas R. Parkinson, pursuant to which Mr. Parkinson
became the President and Chief Operating Officer of the Company
commencing on April 15, 1997. In connection with entering into such
agreement, Mr. Parkinson One-fourth of such options vested and became
exercisable after Mr. Parkinson had served as the President of the
Company for one year. The balance of such options were scheduled to vest
at a monthly rate of 2.083% over the following 36 months, subject to
acceleration of this vesting schedule or forfeiture of these options
under certain circumstances (see below). In addition, Mr. Parkinson
received five-year options to purchase 500,000 shares of Common Stock at
an exercise price of $3.75 per share under the Company's 1996 Plan. Such
options vested at a monthly rate of 2.083% over a four-year period,
commencing on April 30, 1997, subject to acceleration of this vesting
schedule or forfeiture of these options under certain circumstances.
Mr. Parkinson received an annual salary of $280,000 and was eligible
for an annual performance bonus ranging from $120,000 to $200,000. Mr.
Parkinson's salary and bonus would be mutually agreed to by Mr. Parkinson
and the Board after the first year. Mr. Parkinson's employment as
President and Chief Operating Officer was renewable at the end of the
initial two-year term by mutual agreement of the parties. Mr. Parkinson
terminated his employment as the Company's President on July 3, 1998, but
continues to serve as a Director of the Company. In connection with his
termination as President, Mr. Parkinson and the Company agreed that his
options to purchase 197,917 shares of Common Stock would vest on July 3,
1998. The remaining 702,083 options (including 266,667 Escrow Options)
were cancelled on July 3, 1998. Mr. Parkinson will receive the same
director compensation as other directors of the Company.
In December 1997 the Company entered into a fifteen-month employment
agreement with Edward M. Miller, pursuant to which Mr. Miller became the
Chief Financial Officer of the Company in January 1998. Upon entering
into such agreement, Mr. Miller received five-year options to purchase
135,000 shares of Common Stock at $1.44 per share under the Company's
1996 Plan. Such options vest at a monthly rate of 2.083% over a four
year period commencing on March 1, 1998, subject to acceleration of this
vesting schedule or forfeiture of these options under certain
circumstances. Mr. Miller receives an annual salary of $135,000 and will
be eligible for an annual performance bonus ranging from $27,000 to
$67,500. Mr. Miller's employment as Chief Financial Officer was
renewable at the end of the fifteen-month term by mutual agreement of the
parties. In June 1998, Mr. Miller was appointed Chief Executive Officer
of the Company and President of its U.S. Operations. Mr. Miller was
granted five-year options to purchase an additional 215,000 shares of
Common Stock at an exercise price of $1.125 per share under the Company's
1998 Plan in connection with such appointment. Such options vest at a
monthly rate of 2.083% over a four-year period commencing on the grant
date, subject to acceleration of this vesting schedule or forfeiture of
these options under certain circumstances.
In August 1997, the Company entered into a three-year employment
agreement with Robert Werbicki, pursuant to which Mr. Werbicki became the
Company's Executive Vice President of Computer Products. Upon entering
into such agreement, Mr. Werbicki received five-year options to purchase
100,000 shares of Common Stock at $4.69 per share under the Company's
1996 Plan. Such options vest at a monthly rate of 2.083% over a
four-year period commencing on September 1, 1997, subject to acceleration
of this vesting schedule or forfeiture of these options under certain
circumstances. Mr. Werbicki receives an annual salary of $150,000. Mr.
Werbicki is also eligible for a quarterly performance bonus equal to a
certain percentage of the gross margin from all hardware sales under the
Computer Products Division (the "Gross Margin"). The first year's bonus
is calculated based on 5% of the Gross Margin, but no less than $75,000.
The second year's bonus is 5% of the Gross Margin, with no minimum bonus
and the third year is between 2% to 5% of the Gross Margin, which will be
negotiated and mutually agreed on by Mr. Werbicki and the Company's
President. Mr. Werbicki's employment as Executive Vice President of the
Computer Products Division is renewable at the end of the initial
three-year term by mutual agreement of the parties.
In August 1997, the Company entered into a two-year employment
agreement with Gary Franza, pursuant to which Mr. Franza became the
Executive Vice President of Business Development for the Company and
Chief Operating Officer of the Company's Atlanta, Georgia operations.
Upon entering into such agreement, Mr. Franza received five-year options
to purchase 125,000 shares of Common Stock at $4.69 per share under the
Company's 1996 Plan. Such options vest at a monthly rate of 2.083% over
a four-year period commencing on September 1, 1997, subject to
acceleration of this vesting schedule or forfeiture of these options
under certain circumstances. Mr. Franza receives an annual salary of
$180,000 and will be eligible for an annual performance bonus ranging
from $40,000 to $80,000.
In August 1997 the Company entered into a two-year employment
agreement with David Keller, pursuant to which Mr. Keller became the Vice
President and General Manager of the Company's Atlanta, Georgia
operations. Upon entering into such agreement, Mr. Keller received
five-year options to purchase 80,000 shares of Common Stock at $4.69 per
share under the Company's 1996 Plan. Such options vest at a monthly rate
of 2.083% over a four-year period commencing on September 1, 1997,
subject to acceleration of this vesting schedule or forfeiture of these
options under certain circumstances. Mr. Keller received an annual
salary of $170,000 and was eligible for an annual performance bonus of up
to $51,000. Mr. Keller's employment was renewable at the end of the
initial two-year term by mutual agreement of the parties. In May 1998,
Mr. Keller's employment with the Company was terminated. Pursuant to the
termination agreement, the Company made a $42,500 severance payment to
Mr. Keller and 46,250 options to purchase shares of the Common Stock that
were not vested as of August 13, 1998 were cancelled.
Stock Option Plans
In October 1993, the Board of Directors approved the Company's
1993 Stock Option Plan, which plan was subsequently approved by the
Company's stockholders in March 1994. In April 1996, the Board of
Directors and the stockholders of the Company approved the 1993 Amended
and Restated Stock Option Plan, as amended (the "1993 Plan"), which
effected certain amendments to the 1993 Stock Option Plan. The 1993 Plan
provides for the grant of options to officers, directors, other key
employees and consultants of the Company to purchase up to an aggregate
of 3,762,532 shares of Common Stock. The 1993 Plan may be administered
by the Board of Directors or a committee thereof and is currently
administered by the Board of Directors, which has complete discretion to
select the optionees and to establish the terms and conditions of each
option, subject to the provisions of the 1993 Plan. Notwithstanding the
foregoing, grants of options to Named Executive Officers may be made only
by a committee of directors who qualify as "outside directors" within the
meaning of Section 162(m) of the Internal Revenue Code of 1986, as
amended (the "Code"). Options granted under the 1993 Plan may be
"incentive stock options" as defined in Section 422 of the Code, or
nonqualified options, and will be designated as such.
The exercise price of incentive stock options may not be less than
100% of the fair market value of the Common Stock as of the date of grant
(110% of the fair market value if the grant is to an employee who owns
more than 10% of the total combined voting power of all classes of
capital stock of the Company). The Code currently limits to $100,000 the
aggregate value of Common Stock that may be acquired in any one year
pursuant to incentive stock options under the 1993 Plan or any other
option plan adopted by the Company. Nonqualified options may be granted
under the 1993 Plan at an exercise price not less than 85% of the fair
market value of the Common Stock on the date of grant. Nonqualified
options also may be granted without regard to any restriction on the
amount of Common Stock that may be acquired pursuant to such options in
any one year.
In general, upon termination of employment of an optionee, all
options granted to such person which were not exercisable on the date of
such termination would immediately terminate, and any options that are
exercisable would terminate 90 days (six months in the case of
termination by reason of death or disability) following termination of
employment.
Options may not be exercised more than ten years after the grant
(five years after the grant if the grant is an incentive stock option to
an employee who owns more than 10% of the total combined voting power of
all classes of capital stock of the Company). Options granted under the
1993 Plan are not transferable and may be exercised only by the
respective grantees during their lifetime or by their heirs, executors or
administrators in the event of death. Under the 1993 Plan, shares
subject to options that have been cancelled or terminated are reserved
for subsequently granted options. The number of options outstanding and
the exercise price thereof are subject to adjustment in the case of
certain transactions such as mergers, recapitalizations, stock splits or
stock dividends. The 1993 Plan is effective for ten years, unless sooner
terminated or suspended.
During the fiscal year ended March 31, 1998, options to purchase
552,167 shares of Common Stock were granted under the 1993 Plan. As of
August 31, 1998 there were 795,133 options available for grant under the
1993 plan.
In September 1996, the Company's Board of Directors approved the
1996 Plan, which was subsequently approved by the Company's stockholders
in September 1997. The purpose of the 1996 Plan is to enable the Company
to attract and retain top-quality employees, officers, directors and
consultants and to provide such employees, officers, directors and
consultants with an incentive to enhance stockholder return. The 1996
Plan became effective on the first day immediately following the date on
which the 1996 Plan was approved by the stockholders.
The 1996 Plan provides for the grant of options to officers,
directors, other key employees and consultants of the Company to purchase
up to an aggregate of 1,500,000 shares of Common Stock. The 1996 Plan
may be administered by the Board of Directors or a committee thereof, and
is currently administered by the Board of Directors, which has complete
discretion to select the optionees and to establish the terms and
conditions of each option, subject to the provisions of the 1996 Plan.
Notwithstanding the foregoing, grants of options to executive officers
may be made only by a committee of directors who qualify as "outside
directors" within the meaning of Section 162(m) of the Code. Options
granted under the 1996 Plan may be "incentive stock options" as defined
in Section 422 of the Code, or nonqualified options, and will be
designated as such.
The exercise price of incentive stock options may not be less than
100% of the fair market value of the Common Stock as of the date of grant
(110% of the fair market value if the grant is to an employee who owns
more than 10% of the total combined voting power of all classes of
capital stock of the Company). The Code currently limits to $100,000 the
aggregate value of Common Stock that may be acquired in any one year
pursuant to incentive stock options under the 1996 Plan or any other
option plan adopted by the Company. Nonqualified options may be granted
under the 1996 Plan at an exercise price not less than 85% of the fair
market value of the Common Stock on the date of grant. Nonqualified
options also may be granted without regard to any restriction on the
amount of Common Stock that may be acquired pursuant to such options in
any one year.
In general, upon termination of employment of an optionee, all
options granted to such person which were not exercisable on the date of
such termination would immediately terminate, and any options that are
exercisable would terminate 90 days (six months in the case of
termination by reason of death or disability) following termination of
employment.
Options may not be exercised more than ten years after the grant
(five years after the grant if the grant is an incentive stock option to
an employee who owns more than 10% of the total combined voting power of
all classes of capital stock of the Company). Options granted under the
1996 Plan are not transferable and may be exercised only by the
respective grantees during their lifetime or by their heirs, executors or
administrators in the event of death. Under the 1996 Plan, shares
subject to cancelled or terminated options are reserved for subsequently
granted options. The number of options outstanding and the exercise
price thereof are subject to adjustment in the case of certain
transactions such as mergers, recapitalizations, stock splits or stock
dividends. The 1996 Plan is effective for ten years, unless sooner
terminated or suspended. The 1996 Plan provides that options covering no
more than 500,000 shares of Common Stock may be granted to any one
employee in any twelve month period.
During the fiscal year ended March 31, 1998, options to purchase
752,490 shares of Common Stock were granted under the 1996 Plan
(excluding 868,386 shares which were granted but then subsequently
cancelled under the Company's Repricing Offer. As of August 31, 1998
there were 392,565 options available for grant under the 1996 Plan.
1997 Employee Stock Purchase Plan
On July 31, 1997, the Company's Board of Directors adopted the 1997
Employee Stock Purchase Plan (the "1997 Plan"). The 1997 Plan was
approved by the Company's stockholders in September 1997. The 1997 Plan
is designed to provide eligible employees of the Company and its
participating subsidiaries (collectively "Participating Companies") with
added incentive to continue in the employment of the Participating
Companies by permitting them to purchase shares of Common Stock on a
discounted basis through payroll withholding. The 1997 Plan became
effective on the first day immediately following the date of its approval
by the Company's stockholders.
The 1997 Plan may be administered by the Board of Directors or a
committee thereof consisting of at least three persons (the "Committee"),
at least one of whom must be a member of the Company's Board of
Directors. The Committee has the authority to interpret the 1997 Plan
and to establish rules and regulations thereunder.
Up to 500,000 shares of Common Stock in the aggregate may be
purchased under the 1997 Plan, subject to adjustment in the event of a
stock dividend, stock split or combination of shares.
Participation under the 1997 Plan is open to all active employees of
the Participating Companies, except (i) employees who have not been
continuously employed by the Participating Companies for at least two
years, (ii) employees whose customary employment by the Participating
Companies is less than 20 hours per week, or (iii) employees whose
customary employment by the Participating Companies is five months or
less in any calendar year. Employees who, immediately upon enrollment in
the Plan, would, together with certain relatives, own more than 5% of the
total combined voting power or value of all classes of stock of the
Company or any subsidiary corporation thereof are not eligible.
Payment for shares of Common Stock is to be made in installments
through payroll deductions over the 1997 Plan's designated offering
period (the "Offering Period").
Each eligible employee may enroll in the 1997 Plan as of the first
day of the Offering Period following the date which is ten days after
such employee first becomes eligible to participate in the 1997 Plan or
as of the first day of any subsequent Offering Period (or as of the first
day of each three-month period ending on the close of a calendar quarter
during and within an Offering Period (an "Interim Offering Period")).
Each eligible employee may authorize payroll deductions under the
1997 Plan in an amount not to exceed 10% of the participant's
compensation (before withholding or other deductions). For purposes of
the 1997 Plan, "compensation" means the annual base rate of pay,
determined by the Board of Directors (including commissions, but
exclusive of bonuses and certain other fringe benefits).
As of the last day of each Interim Offering Period, funds credited
to each participant's account will be applied to the purchase of whole
shares of Common Stock. No interest will be paid on amounts held in a
participant's account. The purchase price per share of Common Stock
under the 1997 Plan for any Offering Period shall be 85% of the fair
market value of the Common Stock on the first business day or the last
business day of such Offering Period, whichever is less.
The 1997 Plan has not yet been activated.
1998 Stock Option Plan
In May 1998 the Board of Directors approved the Company's 1998 Stock
Option Plan (the "1998 Plan"). For a description of the 1998 Plan, see
"Proposal 2 - Proposal to Ratify the Company's 1998 Stock Option Plan."
CERTAIN TRANSACTIONS
In October 1996, the Company acquired all of the outstanding capital
stock of ViComp Technology, Inc. ("ViComp") for 491,253 shares (the
"Acquisition Shares") of Common Stock (the "ViComp Acquisition").
Dr. Edmund Y. Sun, the Company's Chairman of the Board and Chief
Technology Officer, was a co-founder of ViComp and owned 57.3% of the
outstanding capital stock of ViComp (for which he had paid a total of
$1,000,000 in September 1995 and January 1996) at the time of the ViComp
Acquisition. The Company issued to Dr. Sun 281,520 shares of Common
Stock for his ViComp capital stock in the ViComp Acquisition (57.3% of
the total 491,253 shares of Common Stock issued in the ViComp
Acquisition).
Of the 281,520 Acquisition Shares issued to Dr. Sun, 140,760 were
deposited into an escrow and are subject to forfeiture and cancellation
under certain circumstances and may not be publicly resold until released
from such escrow. The remaining of 140,760 Acquisition Shares issued to
Dr. Sun were subject to a performance escrow relating to ViComp and were
cancelled under that escrow because certain milestones were not reached
by July 1997.
The ViComp Acquisition was unanimously approved by the disinterested
members of the Company's Board of Directors, and the Company's Board of
Directors was advised by Sutter Securities Incorporated that the ViComp
Acquisition is fair from a financial point of view to the Company's
stockholders other than Dr. Sun.
The Company borrowed $1,000,000 from Dr. Sun in June 1998. Under
the terms of the loan agreement between the Company and Dr. Sun, the loan
from Dr. Sun was converted into 1,331,479 shares of Common Stock in July
1998 at a price of $0.7566 per share (100% of the average closing price
of the Company's common stock over the five trading days following the
Company's issuance of a press release on June 30, 1998 describing the
Company's earnings for fiscal 1998). Dr. Sun was granted registration
rights covering those shares.
In June 1998, the Company acquired an exclusive, perpetual,
worldwide, royalty-free license to DVD-ROM technology owned by Hyundai in
exchange for 2,000,000 shares of Common Stock. In addition, the Company,
through a newly-formed, wholly-owned subsidiary, DVS Korea, completed the
acquisition of DVD-ROM manufacturing capabilities, a related research and
development team and management from Hyundai for $1,000,000 in cash. The
Company obtained a fairness opinion from Houlihan Lokey Howard & Zukin
Financial Advisors, Inc., a nationally recognized independent valuation
firm, with respect to the fairness of the financial terms of the
transaction to the Company.
In March 1996, the Company entered into an employment agreement with
Dr. Sun. During the fiscal year ended March 31, 1998, the Company
entered into employment agreements with the following executive officers:
Thomas R. Parkinson, Edward M. Miller, Robert Werbicki, Gary Franza and
David Keller. See "Compensation of Directors and Executive
Officers-Employment and Consulting Agreements."
In August 1997, Mr. Werbicki sold substantially all of the assets of
Synchrome Technology, Inc. to the Company for $753,000 and became an
officer of the Company at that time. Pursuant to the purchase agreement,
Mr. Werbicki received an additional cash payment of $125,000 in February
1998, and the Company expects to make another cash payment of $125,000
when certain conditions are met pursuant to the purchase agreement.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information regarding the
beneficial ownership of the Company's Common Stock as of August 31, 1998,
by (i) each person who is known by the Company to own beneficially more
than 5% of the outstanding Common Stock; (ii) each of the Company's
directors and director nominees; (iii) each of the Named Executive
Officers; and (iv) all executive officers, directors and director
nominees of the Company as a group.
<TABLE>
<CAPTION>
Percentage
Amount and of
Nature of Outstanding
Beneficial Common Stock
Name and Address(1) Ownership(2) Owned
- ---------------------------------------------- ---------------- -----------
<S> <C> <C>
1. Dr. Edmund Y. Sun.................... 9,046,494 (3) 37.2%
2. Thomas R. Parkinson.................. 206,249 (4) *
3. Edward M. Miller..................... 42,032 (5) *
4. Sung Hee Lee......................... 20,831 (6) *
5. Philip B. Smith...................... 138,786 (7) *
6. Sanford C. Sigoloff.................. 88,018 (8) *
7. Joseph F. Troy....................... 93,711 (9) *
8. Young Sam Cho........................ 0 (10) *
9. Cary S. Fitchey...................... 0 *
10. Robert Werbicki...................... 20,312 (11) *
11. Gary Franza.......................... 25,390 (12) *
12. David Keller......................... 13,750 (13) *
Hyundai Electronics Industries Company, Ltd. 5,896,999 (14) 24.2%
10th Floor, Boram Building
705-19, Yeeksam-dong
Kongnam-Ku, Seoul, Korea
All executive officers and directors and
director nominees as a group (12 persons)..... 39.8%
</TABLE>
____________________
* Less than one percent.
(1) Except as otherwise indicated, the address of each stockholder is
c/o the Company at 160 Knowles Drive, Los Gatos, California 95032.
(2) Includes shares of Common Stock placed into an escrow by such
individual or entity in connection with the IPO. See "--Escrow
Securities." Nature of beneficial ownership of securities is direct
and arises from sole voting power and sole investment power, subject
to community property laws where applicable. Shares underlying
options to purchase Common Stock exercisable within 60 days of
August 31, 1998 are deemed to be outstanding for purposes of
calculating the number of shares owned by the holders of such
options.
(3) Includes 140,760 shares of Common Stock acquired by Dr. Sun in the
ViComp Acquisition, all of which have been deposited in escrow and
are subject to cancellation in certain circumstances. Also includes
280,334 shares owned by Dr. Sun's sons and 21,564 shares owned by
Dr. Sun's sister. Also includes options to purchase 33,332 shares
of Common Stock. Excludes options to purchase 366,668 shares of
Common Stock which are not exercisable within 60 days.
(4) Represents options to purchase 209,249 shares of Common Stock.
Excludes options to purchase 91,668 shares of Common Stock which are
not exercisable within 60 days.
(5) Includes options to purchase 37,600 shares of Common Stock.
Excludes options to purchase 312,400 shares of Common Stock which
are not exercisable within 60 days.
(6) Represents options to purchase 20,831 shares of Common Stock.
Excludes options to purchase 229,169 shares of Common Stock which
are not exercisable within 60 days.
(7) Includes options to purchase 110,786 shares of Common Stock.
Excludes options to purchase 125,822 shares of Common Stock which
are not exercisable within 60 days.
(8) Represents options to purchase 88,018 shares of Common Stock.
Excludes options to purchase 148,590 shares of Common Stock which
are not exercisable within 60 days.
(9) Represents options to purchase 93,711 shares of Common Stock.
Excludes options to purchase 142,897 shares of Common Stock which
are not exercisable within 60 days.
(10) Although Mr. Cho serves as Hyundai's representative on the Company's
Board of Directors, he does not have any right to vote or dispose of
the shares owned by Hyundai.
(11) Represents options to purchase 20,312 shares of Common Stock.
Excludes options to purchase 54,689 shares of Common Stock which are
not exercisable within 60 days.
(12) Represents options to purchase 25,390 shares of Common Stock.
Excludes options to purchase 68,360 shares of Common Stock which are
not exercisable within 60 days.
(13) Represents options to purchase 13,750 shares of Common Stock.
(14) Mong Hun Chung is the Chairman and largest individual shareholder of
Hyundai and may be considered a beneficial owner of such shares.
Escrow Securities
In connection with the IPO and through March 31, 1998, the holders
of Common Stock and options to purchase Common Stock placed 8,086,321
shares (the "Escrow Shares") and options to purchase 1,985,656 shares
(the "Escrow Options"), and the Company had placed, through March 31,
1998, options issuable under the 1993 Plan to purchase 28,023 shares of
Common Stock (together with the Escrow Options and the Escrow Shares, the
"Escrow Securities") into escrow pursuant to an escrow agreement (the
"Escrow Agreement") with American Stock Transfer & Trust Company, as
escrow agent. The Escrow Securities are not assignable or transferable;
however, the Escrow Shares may be voted by the holders thereof. Holders
of any options in escrow may exercise their options prior to their
release from escrow; however, the shares issuable upon any such exercise
will continue to be held in escrow as Escrow Shares pursuant to the
Escrow Agreement.
All or a portion of the Escrow Securities may be released from
escrow based on the Company's Minimum Pretax Income amounts (as defined
and set forth below) or the trading price of the Company's Common Stock.
The Minimum Pretax Income amounts (i) shall be calculated exclusively of
any extraordinary earnings, including, but not limited to, any charge to
income resulting from the release of the Escrow Securities; and (ii)
shall be increased from the amounts established at the time of the IPO
proportionately, with certain limitations, in the event additional shares
of Common Stock or securities convertible into, exchangeable for or
exercisable into Common Stock are issued after the IPO. The Minimum
Pretax Income amounts as originally established at the time of the IPO
are described below.
Of the Escrow Securities, one-half (representing 5,050,000 shares of
issued or issuable shares of Common Stock) will be released from escrow,
on a pro rata basis, if, and only if, one or more of the following
conditions are met (none of such conditions having been met to date):
(i) the Company's net income before provision for income taxes and
exclusive of any extraordinary earnings as audited and determined by the
Company's independent public accountants (the "Minimum Pretax Income")
amounts to at least $10.0 million for the fiscal year ended March 31,
1997;
(ii) the Minimum Pretax Income amounts to at least $15.0 million for
the fiscal year ending March 31, 1998;
(iii) the Minimum Pretax Income amounts to at least $23.0 million
for the fiscal year ending March 31, 1999;
(iv) the Minimum Pretax Income amounts to at least $31.0 million for
the fiscal year ending March 31, 2000;
(v) the Minimum Pretax Income amounts to at least $39.0 million for
the fiscal year ending March 31, 2001;
(vi) commencing on May 9, 1996 and ending 18 months thereafter, the
bid price of the Company's Common Stock averages in excess of $24.00 per
share (subject to adjustment in the event of any reverse stock splits or
other similar events) for 60 consecutive business days;
(vii) commencing November 9, 1997 and ending 36 months
thereafter, the bid price of the Company's Common Stock averages in
excess of $48.00 per share (subject to adjustment in the event of any
reverse stock splits or other similar events) for 90 consecutive business
days; or
(viii) during the periods specified in (vi) or (vii) above, the
Company is acquired by or merged into another entity in a transaction in
which the value of the per share consideration received by the
stockholders of the Company on the date of such transaction or at any
time during the applicable period set forth in (vi) or (vii),
respectively, equals or exceeds the applicable levels set forth in (vi)
or (vii), respectively.
The remaining Escrow Securities (representing 5,050,000 shares of
issued or issuable shares of Common Stock) will be released from escrow,
on a pro rata basis, if, and only if, one or more of the following
conditions is met (none of such conditions having been met to date):
(i) the Minimum Pretax Income amounts to at least $15.0 million for
the fiscal year ended March 31, 1997;
(ii) the Minimum Pretax Income amounts to at least $21.0 million for
the fiscal year ending March 31, 1998;
(iii) the Minimum Pretax Income amounts to at least $32.0 million
for the fiscal year ending March 31, 1999;
(iv) the Minimum Pretax Income amounts to at least $42.0 million for
the fiscal year ending March 31, 2000;
(v) the Minimum Pretax Income amounts to at least $53.0 million for
the fiscal year ending March 31, 2001;
(vi) commencing on May 9, 1996 and ending 18 months thereafter, the
bid price of the Company's Common Stock averages in excess of $48.00 per
share (subject to adjustment in the event of any reverse stock splits or
other similar events) for 60 consecutive business days;
(vii) commencing November 9, 1997 and ending 36 months
thereafter, the bid price of the Company's Common Stock averages in
excess of $96.00 per share (subject to adjustment in the event of any
reverse stock splits or other similar events) for 90 consecutive business
days; or
(viii) during the periods specified in (vi) or (vii) above, the
Company is acquired by or merged into another entity in a transaction in
which the value of the per share consideration received by the
stockholders of the Company on the date of such transaction or at any
time during the applicable period set forth in (vi) or (vii),
respectively, equals or exceeds the applicable levels set forth in (vi)
or (vii), respectively.
The bid price amounts set forth above are subject to adjustment in
the event of any stock splits, reverse stock splits or other similar
events.
Holders of Escrow Securities have agreed not to sell, transfer,
hypothecate, negotiate, pledge, assign, encumber or otherwise dispose of
any or all of the Escrow Securities unless and until (A) the Company
shall have given notice that the conditions for the release of the Escrow
Securities set forth in Paragraphs (a) and (b) above are met, or (B) such
disposition is (i) proposed in connection with an agreement by which the
Company is to be acquired by or merged into another entity in which the
consideration paid by the acquiror per share of the Company's stock is no
less than 80% of the minimum consideration required by Paragraphs (a)(vi)
and (vii) above as to a disposition of up to 50% of the Escrow Securities
or by Paragraphs (b)(vi) and (vii) above as to a disposition of up to
100% of the Escrow Securities and (ii) approved by at least 80% of the
votes cast, in person or by proxy, by holders of the Common Stock
eligible to vote on such matter excluding the shares held by the holders
of the Escrow Securities, provided that the holders of at least 50% of
the Common Stock (excluding the shares held by the holders of the Escrow
Securities) actually vote on such matter, in person or by proxy, or are
present, in person or by proxy, at the meeting at which the vote takes
place. If the Company is acquired by or merges into another company that
thereafter owns all of the outstanding stock of the Company except for
the Escrow Securities, at any time from and after the consummation of the
merger or acquisition, holders of Escrow Securities desiring to dispose
of their Escrow Securities will be permitted to do so if the acquiror
gives notice as to conditions being met in Paragraphs (a) and (b) above
or consents in writing to the disposition, but no vote or consent of the
former stockholders of the Company will be required.
Any money, securities, rights or property distributed in respect of
the Escrow Securities, including any property distributed as dividends or
pursuant to any stock split, merger, recapitalization, dissolution, or
total or partial liquidation of the Company, shall be held in escrow
until release of the Escrow Securities. If none of the applicable
Minimum Pretax Income or bid price levels set forth above have been met
by July 15, 2001, the Escrow Securities, as well as any dividends or
other distributions made with respect thereto, will be cancelled and
contributed to the capital of the Company. The Company expects that the
release of the Escrow Securities to officers, directors, employees and
consultants of the Company will be deemed compensatory and, accordingly,
will result in a substantial charge to reportable earnings, which would
equal the fair market value of such shares on the date of release. Such
charge could substantially increase the loss or reduce or eliminate the
Company's net income for financial reporting purposes for the period or
periods during which such shares are, or become probable of being,
released from escrow. Although the amount of compensation expense
recognized by the Company will not affect the Company's total
shareholders' equity, it may have a negative effect on the market price
of the Company's securities.
The Minimum Pretax Income and bid price levels set forth above were
determined by negotiation between the Company and the Underwriter of the
IPO prior to the IPO and should not be construed to imply or predict any
future earnings by the Company or any increase in the market price of its
securities.
PROPOSAL 2 -
PROPOSAL TO APPROVE COMPANY'S 1998 STOCK OPTION PLAN
In May 1998, the Board of Directors unanimously adopted the
Company's 1998 Stock Option Plan (the "1998 Plan") in order to retain the
services of qualified officers, directors, employees and consultants, and
to provide such persons with benefits comparable to those provided by
corporations similar to the corporation. The 1998 Plan provides for the
grant of options to officers, directors, other employees and consultants
of the Company to purchase up to an aggregate of 4,000,000 shares of
Common Stock. The 1998 Plan may be administered by the Board of
Directors or a committee thereof, and is currently administered by the
Board of Directors, which has complete discretion to select the optionees
and to establish the terms and conditions of each option, subject to the
provisions of the 1998 Plan. Options granted under the 1998 Plan may be
"incentive stock options" as defined in Section 422 of the Code, or
nonqualified options, and will be designated as such.
The exercise price of incentive stock options may not be less than
the fair market value of the Common Stock as of the date of grant (110%
of the fair market value if the grant is to an employee who owns more
than 10% of the total combined voting power of all classes of capital
stock of the Company). The Code currently limits to $100,000 the
aggregate value of Common Stock that may become exercisable for the first
time in any one year pursuant to incentive stock options under the 1998
Plan or any other option plan adopted by the Company. Nonqualified
options may be granted under the 1998 Stock Option Plan at an exercise
price not less than 85% of the fair market value of the Common Stock on
the date of grant. Nonqualified options also may be granted without
regard to any restriction on the amount of Common Stock that may become
exercisable pursuant to such options in any one year.
In general, upon termination of employment of an optionee, all
options granted to such person which were not exercisable on the date of
such termination would immediately terminate, and any options that are
exercisable would terminate 90 days (six months in the case of
termination by reason of death or disability) following termination of
employment.
Options may not be exercised more than ten years after the grant
(five years after the grant if the grant is an incentive stock option to
an employee who owns more than 10% of the total combined voting power of
all classes of capital stock of the Company). Options granted under the
1998 Plan are not transferable and may be exercised only by the
respective grantees during their lifetime or by their heirs, executors or
administrators in the event of death. Under the 1998 Plan, shares
subject to options that have been cancelled or terminated are available
for subsequently granted options. The number of options outstanding and
the exercise price thereof are subject to adjustment in the case of
certain transactions such as recapitalizations, stock splits or stock
dividends. The 1998 Plan is effective for ten years, unless sooner
terminated or suspended. The 1998 Plan provides that options covering no
more than 750,000 shares of Common Stock may be granted to any one
employee in any twelve month period.
The Company's Board of Directors recommends a vote "FOR" the
ratification and adoption of the 1998 Plan.
Certain Federal Income Tax Consequences 1998 Plan
Incentive stock options under the 1998 Plan are afforded favorable
federal income tax treatment under the Code. If an option is treated as
an incentive stock option, the optionee will recognize no income upon
grant or exercise of the option unless the alternative minimum tax rules
apply. Upon an optionee's sale of the shares (assuming that the sale
occurs at least two years after grant of the option and at least one year
after exercise of the option), any gain will be taxed to the optionee as
long-term capital gain. If the optionee disposes of the shares prior to
the expiration of the above holding periods, then the optionee will
recognize ordinary income in an amount generally measured as the
difference between the exercise price and the lower of the fair market
value of the shares at the exercise date or the sale price of the shares.
Any gain or loss recognized on such a premature sale of the shares in
excess of the amount treated as ordinary income will be characterized as
capital gain or loss.
All other options granted under the 1998 Plan are nonstatutory stock
options and will not qualify for any special tax benefits to the
optionee. An optionee will not recognize any taxable income at the time
he or she is granted a nonstatutory stock option. However, upon exercise
of the nonstatutory stock option, the optionee will recognize ordinary
income for federal income tax purposes in an amount generally measured as
the excess of the then fair market value of each share over its exercise
price. Upon an optionee's resale of such shares, any difference between
the sale price and the fair market value of such shares on the date of
exercise will be treated as capital gain or loss and will generally
qualify for long-term capital gain or loss treatment if the shares have
been held for more than one year. Recently enacted legislation provides
for reduced tax rates for long-term capital gains based on the taxpayer's
income and the length of the taxpayer's holding period.
Subject to the limits on deductibility of employee remuneration
under Section 162(m) of the Code, the Company will generally be entitled
to a tax deduction in the amount that an optionee recognizes as ordinary
income with respect to an option. Options granted to executive officers
under the 1998 Plan are intended to qualify as performance-based
compensation for purposes of Section 162(m) of the Code, and the Company
will generally be entitled to a tax deduction in the amount recognized by
such officers upon exercise of the options. No tax authority or court
has ruled on the applicability of Section 162(m) to the 1998 Plan and any
final determination of the deductibility of amounts realized upon
exercise of an option granted under the 1998 Plan could ultimately be
made by the Internal Revenue Service or a court having final jurisdiction
with respect to the matter. The Company retains the right to grant
options under the 1998 Plan in accordance with the terms of the 1998 Plan
regardless of any final determination as to the applicability of Section
162(m) of the Code to these grants.
The foregoing does not purport to be a complete summary of the
federal income tax considerations that may be relevant to holders of
options or to the Company. It also does not reflect provisions of the
income tax laws of any municipality, state or foreign country in which an
optionee may reside, nor does it reflect the tax consequences of an
optionee's death.
PROPOSAL 3 -
RATIFICATION OF APPOINTMENT OF INDEPENDENT AUDITORS
The Board of Directors has appointed Ernst & Young LLP as
independent auditors of the Company's financial statements for the fiscal
year ending March 31, 1999 subject to ratification by the stockholders.
Ernst & Young LLP has served as independent auditors of the Company's
financial statements for the fiscal years ended December 31, 1995, for
the three months ended March 31, 1996 and for the fiscal years ended and
March 31, 1997 and March 31, 1998. A representative of Ernst & Young LLP
will be available at the Annual Meeting to respond to appropriate
questions or make other statements such representative deems appropriate.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE RATIFICATION OF
THE APPOINTMENT OF ERNST & YOUNG LLP AS INDEPENDENT AUDITORS FOR THE
FISCAL YEAR ENDING MARCH 31, 1999.
COMPLIANCE WITH SECTION 16(A) OF THE
SECURITIES EXCHANGE ACT OF 1934
Section 16(a) of the Securities Exchange Act of 1934, as amended
(the "Exchange Act") requires the Company's directors and certain of its
officers, and persons who own more than 10% of a registered class of the
Company's equity securities, to file reports of ownership and changes in
ownership with the Securities and Exchange Commission (the "Commission").
Officers, directors and greater than 10% stockholders are required by the
Commission's regulations to furnish the Company with copies of all
Section 16(a) forms they file. Based solely upon a review of the copies
of the forms furnished to the Company and the representations made by the
reporting persons to the Company, the Company believes that during the
fiscal year ended March 31, 1998, its directors, officers and 10%
stockholders complied with all filing requirements under Section 16(a) of
the Exchange Act, with the following exceptions: Dr. Sun filed a late
Form 5 to report the cancellation of 140,760 shares of Common Stock
pursuant to the terms of an escrow agreement entered into in connection
with the Company's purchase of ViComp Technology, Inc.; Mr. Smith filed a
late Form 4 to report the acquisition of 18,738 shares of Common Stock
upon the exercise of stock options; Mr. Parkinson filed a late Form 3
reporting his appointment to the office of President and the receipt of
900,000 stock options; Mr. Franza filed a late Form 3 reporting his
appointment to the office of Executive Vice President of Business
Development for the Company and Chief Operating Officer of the Company's
Atlanta, Georgia operations and the receipt of 125,000 stock options; and
Mr. Werbicki filed a late Form 3 to report his appointment to the office
of Executive Vice President of Computer Products and the receipt of
100,000 stock options.
SUBMISSION OF STOCKHOLDER PROPOSALS
Stockholders are advised that any stockholder proposal, including
nominations to the Board of Directors, intended for consideration at the
1999 Annual Stockholders Meeting must be received by the Company no later
than February 13, 1999 to be included in the proxy material for the 1999
Annual Meeting. It is recommended that stockholders submitting proposals
direct them to Edward M. Miller, Chief Executive Officer of the Company,
and utilize certified mail, return-receipt requested in order to ensure
timely delivery.
OTHER MATTERS
The Board of Directors knows of no matter to come before the Annual
Meeting other than as specified herein. If other business should,
however, be properly brought before the Annual Meeting, the persons
voting the proxies will vote them in accordance with their best judgment.
THE STOCKHOLDERS ARE URGED TO COMPLETE, SIGN, AND RETURN PROMPTLY
THE ACCOMPANYING PROXY IN THE ENCLOSED ENVELOPE.
By Order of the Board of Directors
/s/ Edward M. Miller, Jr.
Edward M. Miller, Jr.
Chief Executive Officer
September 25, 1998
<PAGE>
DIGITAL VIDEO SYSTEMS, INC.
PROXY FOR ANNUAL MEETING OF STOCKHOLDERS, OCTOBER 29, 1998
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS.
The undersigned hereby appoints Edmund Y. Sun and Edward M. Miller,
and each or either of them, as proxy holders with power to appoint his
substitute and hereby authorizes the proxy holders to represent and vote,
as designated below, all the shares of Digital Video Systems, Inc. (the
"Company") held of record by the undersigned on September 8, 1998 at the
Annual Meeting of Stockholders to be held on October 29, 1998 at 10:00
a.m. or any and all adjournments thereof.
1. ELECTION OF DIRECTORS:
[_] FOR all nominees listed below (except as marked to the
contrary below).
[_] WITHHOLD AUTHORITY to vote for all nominees listed below.
(INSTRUCTION: To withhold authority to vote for any nominee, draw a line
through such nominee's name.)
Edmund Y. Sun
Edward M. Miller
Sanford C. Sigoloff
Philip B. Smith
Joseph F. Troy
Young Sam Cho
Cary S. Fitchey
2. Proposal to ratify the approval of the Company's 1998 Stock
Option Plan.
[_] FOR [_] AGAINST [_] ABSTAIN
3. Proposal to ratify the appointment of Ernst & Young LLP as independent
auditors for the fiscal year ending March 31, 1999.
[_] FOR [_] AGAINST [_] ABSTAIN
4. In their discretion, the proxy holders are authorized to vote upon such
other business as may properly be brought before the Annual Meeting or
any and all adjournments thereof.
THIS PROXY WILL BE VOTED AS SPECIFIED OR, IF NO CHOICE IS SPECIFIED, FOR
THE ELECTION OF THE NOMINEES, FOR PROPOSALS 2 AND 3 AND AS SAID PROXIES
DEEM ADVISABLE ON SUCH OTHER MATTERS AS MAY PROPERLY COME BEFORE THE
MEETING AND ANY AND ALL ADJOURNMENTS THEREOF. IN THE EVENT ANY OF THE
NOMINEES IS UNAVAILABLE FOR ELECTION OR UNABLE TO SERVE, THE SHARES
REPRESENTED BY THIS PROXY MAY BE VOTED FOR A SUBSTITUTE NOMINEE SELECTED
BY THE BOARD OF DIRECTORS.
Dated: ________________, 1998
______________________________________________
Signature
_____________________________________________
(Signature, if held jointly)
Please sign exactly as your name appears hereon.
When shares are held by joint tenants, both should
sign. When signing as attorney, executor,
administrator, trustee or guardian, please give full
title as such. If a corporation, please sign in
full corporate name by the President or other
authorized officer. If a partnership, please sign
in partnership name by an authorized partner.
PLEASE PROMPTLY MARK, SIGN, DATE, AND RETURN THIS PROXY
USING THE ENCLOSED ENVELOPE.
EXHIBIT 1
1998 STOCK OPTION PLAN
OF
DIGITAL VIDEO SYSTEMS, INC.
1. PURPOSES OF THE PLAN
The purposes of the 1998 Stock Option Plan ("Plan") of Digital
Video Systems, Inc., a Delaware corporation (the "Company"), are to:
(a) Encourage selected employees, directors and
consultants to improve operations and increase profits of the Company;
(b) Encourage selected employees, directors and
consultants to accept or continue employment or association with the
Company or its Affiliates; and
(c) Increase the interest of selected employees,
directors and consultants in the Company's welfare through participation
in the growth in value of the common stock of the Company (the "Common
Stock").
Options granted under this Plan ("Options") may be "incentive
stock options" ("ISOs") intended to satisfy the requirements of Section
422 of the Internal Revenue Code of 1986, as amended, and the
regulations thereunder (the "Code"), or "nonqualified options" ("NQOs").
2. ELIGIBLE PERSONS
Every person who at the date of grant of an Option is an employee
of the Company or of any Affiliate (as defined below) of the Company is
eligible to receive NQOs or ISOs under this Plan. Every person who at
the date of grant is a consultant to, or non-employee director of, the
Company or any Affiliate (as defined below) of the Company is eligible
to receive NQOs under this Plan. The term "Affiliate" as used in this
Plan means a parent or subsidiary corporation as defined in the
applicable provisions (currently Sections 424(e) and (f), respectively)
of the Code. The term "employee" includes an officer or director who is
an employee of the Company. The term "consultant" includes persons
employed by, or otherwise affiliated with, a consultant.
3. STOCK SUBJECT TO THIS PLAN; MAXIMUM NUMBER OF GRANTS
Subject to the provisions of Section 6.1.1 of this Plan, the total
number of shares of stock which may be issued under Options granted
pursuant to this Plan shall not exceed 4,000,000 shares of Common Stock.
The shares covered by the portion of any grant under this Plan which
expires, terminates or is cancelled unexercised shall become available
again for grants under this Plan. Where the exercise price of an Option
is paid by means of the optionee's surrender of previously owned shares
of Common Stock or the Company's withholding of shares otherwise
issuable upon exercise of the Option as permitted herein, only the net
number of shares issued and which remain outstanding in connection with
such exercise shall be deemed "issued" and no longer available for
issuance under this Plan. No eligible person shall be granted Options
during any twelve-month period covering more than 750,000 shares.
4. ADMINISTRATION
(a) This Plan shall be administered by the Board of
Directors of the Company (the "Board") or by a committee (the
"Committee") to which administration of this Plan, or of part of this
Plan, is delegated by the Board (in either case, the "Administrator").
The Board shall appoint and remove members of the Committee in its
discretion in accordance with applicable laws. If necessary in order to
comply with Rule 16b-3 under the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), and Section 162(m) of the Code, the
Committee shall, in the Board's discretion, be comprised solely of "non-
employee directors" within the meaning of said Rule 16b-3 and "outside
directors" within the meaning of Section 162(m) of the Code. The
foregoing notwithstanding, the Administrator may delegate nondiscre-
tionary administrative duties to such employees of the Company as it
deems proper and the Board, in its absolute discretion, may at any time
and from time to time exercise any and all rights and duties of the
Administrator under this Plan.
(b) Subject to the other provisions of this Plan,
the Administrator shall have the authority, in its discretion: (i) to
grant Options; (ii) to determine the fair market value of the Common
Stock subject to Options; (iii) to determine the exercise price of
Options granted; (iv) to determine the persons to whom, and the time or
times at which, Options shall be granted, and the number of shares
subject to each Option; (v) to construe and interpret the terms and
provisions of this Plan and of any option agreement and all Options
granted under this Plan; (vi) to prescribe, amend, and rescind rules and
regulations relating to this Plan; (vii) to determine the terms and
provisions of each Option granted (which need not be identical),
including but not limited to, the time or times at which Options shall
be exercisable; (viii) with the consent of the optionee, to modify or
amend any Option; (ix) to reduce the exercise price of any Option; (x)
to accelerate or defer (with the consent of the optionee) the exercise
date of any Option; (xi) to authorize any person to execute on behalf of
the Company any instrument evidencing the grant of an Option; and (xii)
to make all other determinations deemed necessary or advisable for the
administration of this Plan or any option agreement or Option. The
Administrator may delegate nondiscretionary administrative duties to
such employees of the Company, as it deems proper.
(c) All questions of interpretation, implementation,
and application of this Plan or any option agreement or Option shall be
determined by the Administrator, which determination shall be final and
binding on all persons.
5. GRANTING OF OPTIONS; OPTION AGREEMENT
(a) No Options shall be granted under this Plan
after 10 years from the date of adoption of this Plan by the Board.
(b) Each Option shall be evidenced by a written
stock option agreement, in form satisfactory to the Administrator,
executed by the Company and the person to whom such Option is granted.
In the event of a conflict between the terms or conditions of an option
agreement and the terms and conditions of this Plan, the terms and
conditions of this Plan shall govern.
(c) The stock option agreement shall specify whether
each Option it evidences is an NQO or an ISO, provided, however, all
Options granted under this Plan to non-employee directors and
consultants of the Company are intended to be NQOs.
(d) Subject to Section 6.3.3 with respect to ISOs,
the Administrator may approve the grant of Options under this Plan to
persons who are expected to become employees, directors or consultants
of the Company, but are not employees, directors or consultants at the
date of approval, and the date of approval shall be deemed to be the
date of grant unless otherwise specified by the Administrator.
6. TERMS AND CONDITIONS OF OPTIONS
Each Option granted under this Plan shall be subject to the terms
and conditions set forth in Section 6.1. NQOs shall be also subject to
the terms and conditions set forth in Section 6.2, but not those set
forth in Section 6.3. ISOs shall also be subject to the terms and
conditions set forth in Section 6.3, but not those set forth in Section
6.2.
6.1 Terms and Conditions to Which All Options Are Subject. All
Options granted under this Plan shall be subject to the following terms
and conditions:
6.1.1 Changes in Capital Structure. Subject to Section
6.1.2, if the stock of the Company is changed by reason of a stock
split, reverse stock split, stock dividend, recapitalization,
combination or reclassification, or if the Company effects a spin-off of
the Company's subsidiary, appropriate adjustments shall be made by the
Board, in its sole discretion, in (a) the number and class of shares of
stock subject to this Plan and each Option outstanding under this Plan,
and (b) the exercise price of each outstanding Option; provided,
however, that the Company shall not be required to issue fractional
shares as a result of any such adjustments.
6.1.2 Corporate Transactions. In the event of a Corporate
Transaction (as defined below), the Administrator shall notify each
optionee at least 30 days prior thereto or as soon as may be
practicable. To the extent not previously exercised, all Options shall
terminate immediately prior to the consummation of such Corporate
Transaction unless the Administrator determines otherwise in its sole
discretion; provided, however, that the Administrator, in its sole
discretion, may permit exercise of any Options prior to their
termination, even if such Options would not otherwise have been
exercisable. The Administrator may, in its sole discretion, provide
that all outstanding Options shall be assumed or an equivalent option
substituted by an applicable successor corporation or any Affiliate of
the successor corporation in the event of a Corporate Transaction. A
"Corporate Transaction" means a liquidation or dissolution of the
Company, a merger or consolidation of the Company with or into another
corporation or entity, a sale of all or substantially all of the assets
of the Company, or a purchase of more than 50 percent of the outstanding
capital stock of the Company in a single transaction or a series of
related transactions by one person or more than one person acting in
concert.
6.1.3 Time of Option Exercise. Subject to Section 5 and
Section 6.3.4, an Option granted under this Plan shall be exercisable
(a) immediately as of the effective date of the stock option agreement
granting the Option, or (b) in accordance with a schedule or performance
criteria as may be set by the Administrator and specified in the written
stock option agreement relating to such Option. In any case, no Option
shall be exercisable until a written stock option agreement in form
satisfactory to the Company is executed by the Company and the optionee.
6.1.4 Option Grant Date. The date of grant of an Option
under this Plan shall be the effective date of the stock option
agreement granting the Option.
6.1.5 Nontransferability of Option Rights. Except with the
express written approval of the Administrator which approval the
Administrator is authorized to give only with respect to NQOs, no Option
granted under this Plan shall be assignable or otherwise transferable by
the optionee except by will or by the laws of descent and distribution.
During the life of the optionee, an Option shall be exercisable only by
the optionee.
6.1.6 Payment. Except as provided below, payment in full,
in cash, shall be made for all stock purchased at the time written
notice of exercise of an Option is given to the Company, and proceeds of
any payment shall constitute general funds of the Company. The
Administrator, in the exercise of its absolute discretion after
considering any tax, accounting and financial consequences, may
authorize any one or more of the following additional methods of
payment:
(a) Acceptance of the optionee's full recourse
promissory note for all or part of the Option price, payable on such
terms and bearing such interest rate as determined by the Administrator
(but in no event less than the minimum interest rate specified under the
Code at which no additional interest or original issue discount would be
imputed), which promissory note may be either secured or unsecured in
such manner as the Administrator shall approve (including, without
limitation, by a security interest in the shares of the Company);
(b) Subject to the discretion of the Administrator
and the terms of the stock option agreement granting the Option,
delivery by the optionee of shares of Common Stock already owned by the
optionee for all or part of the Option price, provided the fair market
value (determined as set forth in Section 6.1.9) of such shares of
Common Stock is equal on the date of exercise to the Option price, or
such portion thereof as the optionee is authorized to pay by delivery of
such stock;
(c) Subject to the discretion of the Administrator,
through the surrender of shares of Common Stock then issuable upon
exercise of the Option, provided the fair market value (determined as
set forth in Section 6.1.9) of such shares of Common Stock is equal on
the date of exercise to the Option price, or such portion thereof as the
optionee is authorized to pay by surrender of such stock; and
(d) By means of so-called cashless exercises as
permitted under applicable rules and regulations of the Securities and
Exchange Commission and the Federal Reserve Board.
6.1.7 Withholding and Employment Taxes. In the case of an
employee exercising an NQO, at the time of exercise and as a condition
thereto, or at such other time as the amount of such obligation becomes
determinable, the optionee shall remit to the Company in cash all
applicable federal and state withholding and employment taxes. Such
obligation to remit may be satisfied, if authorized by the Administrator
in its sole discretion, after considering any tax, accounting and
financial consequences, by the optionee's (i) delivery of a promissory
note in the required amount on such terms as the Administrator deems
appropriate, (ii) tendering to the Company previously owned shares of
Common Stock or other securities of the Company with a fair market value
equal to the required amount, or (iii) agreeing to have shares of Common
Stock (with a fair market value equal to the required amount) which are
acquired upon exercise of the Option withheld by the Company.
6.1.8 Other Provisions. Each Option granted under this Plan
may contain such other terms, provisions, and conditions not
inconsistent with this Plan as may be determined by the Administrator,
and each ISO granted under this Plan shall include such provisions and
conditions as are necessary to qualify the Option as an "incentive stock
option" within the meaning of Section 422 of the Code.
6.1.9 Determination of Value. For purposes of this Plan,
the fair market value of Common Stock or other securities of the Company
shall be determined as follows:
(a) If the stock of the Company is listed on a
securities exchange or is regularly quoted by a recognized securities
dealer, and selling prices are reported, its fair market value shall be
the closing price of such stock on the date the value is to be
determined, but if selling prices are not reported, its fair market
value shall be the mean between the high bid and low asked prices for
such stock on the date the value is to be determined (or if there are no
quoted prices for the date of grant, then for the last preceding
business day on which there were quoted prices).
(b) In the absence of an established market for the
stock, the fair market value thereof shall be determined in good faith
by the Administrator, with reference to the Company's net worth,
prospective earning power, dividend-paying capacity, and other relevant
factors, including the goodwill of the Company, the economic outlook in
the Company's industry, the Company's position in the industry, the
Company's management, and the values of stock of other corporations in
the same or a similar line of business.
6.1.10 Option Term. Subject to Section 6.3.4, no
Option shall be exercisable more than 10 years after the date of grant,
or such lesser period of time as is set forth in the stock option
agreement (the end of the maximum exercise period stated in the stock
option agreement is referred to in this Plan as the "Expiration Date").
6.2 Terms and Conditions to Which Only NQOs Are Subject.
Options granted under this Plan which are designated as NQOs shall be
subject to the following terms and conditions:
6.2.1 Exercise Price. (a) The exercise price of an NQO
shall be the amount determined by the Administrator as specified in the
option agreement.
(b) To the extent required by applicable laws, rules
and regulations, the exercise price of an NQO granted to any person who
owns, directly or by attribution under the Code (currently Section
424(d)), stock possessing more than ten percent of the total combined
voting power of all classes of stock of the Company or of any Affiliate
(a "Ten Percent Stockholder") shall in no event be less than 110% of the
fair market value (determined in accordance with Section 6.1.9) of the
stock covered by the Option at the time the Option is granted.
6.2.2 Termination of Employment. Except as otherwise
provided in the stock option agreement, if for any reason an optionee
ceases to be employed by the Company or any of its Affiliates, Options
that are NQOs held at the date of termination (to the extent then
exercisable) may be exercised in whole or in part at any time within
three months of the date of such termination (but in no event after the
Expiration Date). For purposes of this Section 6.2.2, "employment"
includes service as a director or as a consultant. For purposes of this
Section 6.2.2, an optionee's employment shall not be deemed to terminate
by reason of sick leave, military leave or other leave of absence
approved by the Administrator, if the period of any such leave does not
exceed 90 days or, if longer, if the optionee's right to reemployment by
the Company or any Affiliate is guaranteed either contractually or by
statute.
6.3 Terms and Conditions to Which Only ISOs Are Subject. Options
granted under this Plan which are designated as ISOs shall be subject to
the following terms and conditions:
6.3.1 Exercise Price. (a) The exercise price of an ISO
shall be not less than the fair market value (determined in accordance
with Section 6.1.9) of the stock covered by the Option at the time the
Option is granted.
(b) The exercise price of an ISO granted to any Ten
Percent Stockholder shall in no event be less than 110% of the fair
market value (determined in accordance with Section 6.1.9) of the stock
covered by the Option at the time the Option is granted.
6.3.2 Disqualifying Dispositions. If stock acquired by
exercise of an ISO granted pursuant to this Plan is disposed of in a
"disqualifying disposition" within the meaning of Section 422 of the
Code (a disposition within two years from the date of grant of the
Option or within one year after the transfer of such stock on exercise
of the Option), the holder of the stock immediately before the
disposition shall promptly notify the Company in writing of the date and
terms of the disposition and shall provide such other information
regarding the Option as the Company may reasonably require.
6.3.3 Grant Date. If an ISO is granted in anticipation of
employment as provided in Section 5(d), the Option shall be deemed
granted, without further approval, on the date the grantee assumes the
employment relationship forming the basis for such grant, and, in
addition, satisfies all requirements of this Plan for Options granted on
that date.
6.3.4 Term. Notwithstanding Section 6.1.10, no ISO granted
to any Ten Percent Stockholder shall be exercisable more than five years
after the date of grant.
6.3.5 Termination of Employment. Except as otherwise
provided in the stock option agreement, if for any reason an optionee
ceases to be employed by the Company or any of its Affiliates, Options
that are ISOs held at the date of termination (to the extent then
exercisable) may be exercised in whole or in part at any time within
three months of the date of such termination (but in no event after the
Expiration Date). For purposes of this Section 6.3.5, an optionee's
employment shall not be deemed to terminate by reason of sick leave,
military leave or other leave of absence approved by the Administrator,
if the period of any such leave does not exceed 90 days or, if longer,
if the optionee's right to reemployment by the Company or any Affiliate
is guaranteed either contractually or by statute.
7. MANNER OF EXERCISE
(a) An optionee wishing to exercise an Option shall
give written notice to the Company at its principal executive office, to
the attention of the officer of the Company designated by the
Administrator, accompanied by payment of the exercise price and
withholding taxes as provided in Sections 6.1.6 and 6.1.7. The date the
Company receives written notice of an exercise hereunder accompanied by
payment of the exercise price will be considered as the date such Option
was exercised.
(b) Promptly after receipt of written notice of
exercise of an Option and the payments called for by Section 7(a), the
Company shall, without stock issue or transfer taxes to the optionee or
other person entitled to exercise the Option, deliver to the optionee or
such other person a certificate or certificates for the requisite number
of shares of stock. An optionee or permitted transferee of the Option
shall not have any privileges as a stockholder with respect to any
shares of stock covered by the Option until the date of issuance (as
evidenced by the appropriate entry on the books of the Company or a duly
authorized transfer agent) of such shares.
8. EMPLOYMENT OR CONSULTING RELATIONSHIP
Nothing in this Plan or any Option granted hereunder shall
interfere with or limit in any way the right of the Company or of any of
its Affiliates to terminate any optionee's employment or consulting at
any time, nor confer upon any optionee any right to continue in the
employ of, or consult with, the Company or any of its Affiliates.
9. CONDITIONS UPON ISSUANCE OF SHARES
Shares of Common Stock shall not be issued pursuant to the
exercise of an Option unless the exercise of such Option and the
issuance and delivery of such shares pursuant thereto shall comply with
all relevant provisions of law, including, without limitation, the
Securities Act of 1933, as amended (the "Securities Act").
10. NONEXCLUSIVITY OF THIS PLAN
The adoption of this Plan shall not be construed as creating any
limitations on the power of the Company to adopt such other incentive
arrangements as it may deem desirable, including, without limitation,
the granting of stock options other than under this Plan.
11. MARKET STANDOFF
Each optionee, if so requested by the Company or any
representative of the underwriters in connection with any registration
of the offering of any securities of the Company under the Securities
Act, shall not sell or otherwise transfer any shares of Common Stock
acquired upon exercise of Options during the 180-day period following
the effective date of a registration statement of the Company filed
under the Securities Act; provided, however, that such restriction shall
apply only to the first registration statement of the Company to become
effective under the Securities Act after the date of adoption of this
Plan which includes securities to be sold on behalf of the Company to
the public in an underwritten public offering under the Securities Act.
The Company may impose stop-transfer instructions with respect to
securities subject to the foregoing restriction until the end of such
180-day period.
12. AMENDMENTS TO PLAN
The Board may at any time amend, alter, suspend or discontinue
this Plan. Without the consent of an optionee, no amendment,
alteration, suspension or discontinuance may adversely affect
outstanding Options except to conform this Plan and ISOs granted under
this Plan to the requirements of federal or other tax laws relating to
incentive stock options. No amendment, alteration, suspension or
discontinuance shall require stockholder approval unless (a) stockholder
approval is required to preserve incentive stock option treatment for
federal income tax purposes or (b) the Board otherwise concludes that
stockholder approval is advisable.
13. EFFECTIVE DATE OF PLAN; TERMINATION
This Plan shall become effective upon adoption by the Board
provided, however, that no Option shall be exercisable unless and until
written consent of the stockholders of the Company, or approval of
stockholders of the Company voting at a validly called stockholders'
meeting, is obtained within twelve months after adoption by the Board.
If any Options are so granted and stockholder approval shall not have
been obtained within twelve months of the date of adoption of this Plan
by the Board, such Options shall terminate retroactively as of the date
they were granted. Options may be granted and exercised under this Plan
only after there has been compliance with all applicable federal and
state securities laws. This Plan (but not Options previously granted
under this Plan) shall terminate within ten years from the date of its
adoption by the Board.
