<PAGE> 1
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE SECURITIES
EXCHANGE ACT OF 1934 (AMENDMENT NO. )
Filed by the Registrant [X]
Filed by a party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement [ ] Confidential, For Use of the
Commission Only (as permitted by Rule 14a-6(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
3DFX INTERACTIVE, INC.
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(Name of Registrant as Specified in its Charter)
3DFX INTERACTIVE, INC.
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(Name of Person(s) Filing Proxy Statement)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[ ] 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:
- --------------------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
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(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11:
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(4) Proposed maximum aggregate value of transaction:
(5) Total fee paid:
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[ ] Fee paid previously with preliminary materials.
- --------------------------------------------------------------------------------
[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was
paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
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(2) Form, Schedule or Registration Statement No.:
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(3) Filing Party:
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(4) Date Filed:
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<PAGE> 2
LOGO
3DFX INTERACTIVE, INC.
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD MAY 1, 1998
TO THE SHAREHOLDERS:
NOTICE IS HEREBY GIVEN that the Annual Meeting of Shareholders of 3Dfx
INTERACTIVE, INC., a California corporation (the "Company"), will be held on
Friday, May 1, 1998 at 3:30 p.m. (local time) at the Marriott Santa Clara, 2700
Mission College Boulevard, Santa Clara, California 95052 for the following
purposes:
1. To elect seven (7) directors to serve until the next Annual Meeting of
Shareholders and until their successors are duly elected and qualified;
2. To approve an amendment of the Company's 1995 Employee Stock Plan to
increase the number of shares of Common Stock reserved for issuance
thereunder by 1,700,000 shares;
3. To approve an amendment of the Company's 1997 Employee Stock Purchase
Plan to provide for annual increases to the number of shares reserved
for issuance thereunder commencing in 1999;
4. To ratify the appointment of Price Waterhouse LLP as independent
accountants of the corporation for the fiscal year ending December 31,
1998; and
5. To transact such other business as may properly come before the meeting
or any adjournment thereof.
The foregoing items of business are more fully described in the Proxy
Statement accompanying this Notice. Only shareholders of record at the close of
business on March 3, 1998 are entitled to notice of and to vote at the meeting.
All shareholders are cordially invited to attend the meeting in person. To
assure your representation at the meeting, however, you are urged to mark, sign,
date and return the enclosed Proxy as promptly as possible in the
postage-prepaid envelope enclosed for that purpose. YOU MAY REVOKE YOUR PROXY IN
THE MANNER DESCRIBED IN THE ACCOMPANYING PROXY STATEMENT AT ANY TIME BEFORE IT
HAS BEEN VOTED AT THE ANNUAL MEETING. ANY SHAREHOLDER ATTENDING THE MEETING MAY
VOTE IN PERSON EVEN IF HE OR SHE HAS RETURNED A PROXY.
Sincerely,
L. Gregory Ballard
President and Chief Executive Officer
San Jose, California
March 27, 1998
YOUR VOTE IS IMPORTANT.
IN ORDER TO ASSURE YOUR REPRESENTATION AT THE MEETING, YOU ARE REQUESTED TO
COMPLETE, SIGN AND DATE THE ENCLOSED PROXY AS PROMPTLY AS POSSIBLE AND RETURN IT
IN THE ENCLOSED ENVELOPE.
<PAGE> 3
3DFX INTERACTIVE, INC.
------------------------
PROXY STATEMENT
------------------------
1998 ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD MAY 1, 1998
------------------------
INFORMATION CONCERNING SOLICITATION AND VOTING
GENERAL
The enclosed proxy is solicited on behalf of the Board of Directors of 3Dfx
INTERACTIVE, INC. (the "Company") for use at the Annual Meeting of Shareholders
to be held Friday, May 1, 1998 at 3:30 p.m., local time (the "Annual Meeting"),
or at any adjournment or postponement thereof, for the purposes set forth herein
and in the accompanying Notice of Annual Meeting of Shareholders. The Annual
Meeting will be held at the Marriott Santa Clara, 2700 Mission College
Boulevard, Santa Clara, California 95052. The Company's principal executive
offices are located at 4435 Fortran Drive, San Jose, California 95134 and its
telephone number at that location is (408) 935-4400.
These proxy solicitation materials and the Annual Report to Shareholders
for the year ended December 31, 1997, including financial statements, were first
mailed on or about March 27, 1998 to all shareholders entitled to vote at the
Annual Meeting.
PURPOSES OF THE ANNUAL MEETING
The purposes of the Annual Meeting are: (1) to elect seven (7) directors to
serve for the ensuing year and until their successors are duly elected and
qualified; (2) to approve an amendment of the Company's 1995 Employee Stock Plan
to increase the number of shares reserved for issuance thereunder by 1,700,000
shares; (3) to approve an amendment of the Company's 1997 Employee Stock
Purchase Plan to provide for annual increases to the number of shares reserved
for issuance thereunder commencing in 1999; (4) to ratify the appointment of
Price Waterhouse LLP as independent accountants of the Company for the fiscal
year ending December 31, 1998; and (5) to transact such other business as may
properly come before the meeting or any adjournment thereof. When proxies are
properly dated, executed, and returned, the shares they represent will be voted
at the Annual Meeting in accordance with the instructions of the shareholder. If
no specific instructions are given, the shares will be voted for the election of
the nominees for directors set forth herein, for the amendment of the Company's
1995 Employee Stock Plan to increase by 1,700,000 the number of Common Shares
reserved for issuance thereunder, for the amendment of the Company's 1997
Employee Stock Purchase Plan to provide for annual increases to the number of
shares reserved for issuance thereunder commencing in 1999, for the ratification
of the appointment of Price Waterhouse LLP as independent public accountants as
set forth herein, and, at the discretion of the proxy holders, upon such other
business as may properly come before the Annual Meeting or any adjournment or
postponement thereof.
RECORD DATE AND SHARES OUTSTANDING
Shareholders of record at the close of business on March 3, 1998 (the
"Record Date") are entitled to notice of and to vote at the Annual Meeting. The
Company has one authorized class of capital stock outstanding, designated Common
Stock, no par value. At the Record Date, 12,808,482 shares of the Company's
Common Stock were issued and outstanding. The closing sale price of the
Company's Common Stock on the Nasdaq National Market on the Record Date was
$22.75 per share.
<PAGE> 4
REVOCABILITY OF PROXIES
Any proxy given pursuant to this solicitation may be revoked by the person
giving it at any time before it is voted. Proxies may be revoked by (i) filing
with the Secretary of the Company at or before the taking of the vote at the
Annual Meeting a written notice of revocation bearing a later date than the
proxy, (ii) duly executing a later dated proxy relating to the same shares and
delivering it to the Chief Financial Officer of the Company at or before the
taking of the vote at the Annual Meeting or (iii) attending the Annual Meeting
and voting in person (although attendance at the Annual Meeting will not in and
of itself constitute revocation of a proxy). Any written notice of revocation or
subsequent proxy should be delivered to 3Dfx Interactive, Inc. at 4435 Fortran
Drive, San Jose, CA 95134, Attention: Chief Financial Officer or hand-delivered
to the Chief Financial Officer of the Company at or before the taking of the
vote.
VOTING AND SOLICITATION
Each shareholder is entitled to one vote for each share of Common Stock
held by the shareholder on the Record Date. A quorum comprising the holders of a
majority of the outstanding shares of Common Stock on the Record Date must be
present or represented for the transaction of business at the Annual Meeting.
Each shareholder is entitled to one vote for each share held. Every
shareholder voting for the election of directors (Proposal One) may cumulate
such shareholder's votes and give one candidate a number of votes equal to the
number of directors to be elected multiplied by the number of shares that such
shareholder is entitled to vote, or distribute such shareholder's votes on the
same principle among as many candidates as the shareholder may select, provided
that votes cannot be cast for more than seven candidates. However, no
shareholder shall be entitled to cumulate votes unless the candidate's name has
been placed in nomination prior to the voting and the shareholder, or any other
shareholder, has given notice at the meeting, prior to the voting, of the
intention to cumulate the shareholder's votes. On all other matters, each share
of Common Stock has one vote.
This solicitation of proxies is made by the Company, and all related costs
will be borne by the Company. In addition, the Company may reimburse brokerage
firms and other persons representing beneficial owners of shares for their
expenses in forwarding solicitation material to such beneficial owners. Proxies
may also be solicited by certain of the Company's directors, officers and
regular employees, without additional compensation, personally or by telephone
or telegram.
QUORUM; ABSTENTIONS; BROKER NON-VOTES
The Company intends to include abstentions and broker non-votes as present
or represented for the purpose of establishing a quorum for the transaction of
business, to include abstentions as shares entitled to vote and to exclude
broker non-votes from the calculation of shares entitled to vote with respect to
any proposal for which authorization to vote was withheld.
PRINCIPAL SHARE OWNERSHIP
The following table sets forth certain information regarding the beneficial
ownership of Common Stock of the Company as of March 3, 1998 for the following:
(i) each person or entity known by the Company to own beneficially more than 5%
of the outstanding shares of the Company's Common Stock, (ii) each director of
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the Company, (iii) each of the executive officers named in the Summary
Compensation table below, and (iv) all directors and executive officers as a
group:
<TABLE>
<CAPTION>
FIVE PERCENT SHAREHOLDERS, SHARES BENEFICIALLY PERCENTAGE BENEFICIALLY
DIRECTORS AND EXECUTIVE OFFICERS OWNED OWNED(1)
-------------------------------- ------------------- -----------------------
<S> <C> <C>
Entities affiliated with U.S. Venture
Partners(2).................................... 884,988 6.9%
2180 Sand Hill Road, Suite 300
Menlo Park, CA 94025
Entities affiliated with Venrock Associates(3)... 945,388 7.4
755 Page Mill Road, A-230
Palo Alto, CA 94304
Norwest Equity Partners V(4)..................... 345,090 2.7
245 Lytton Avenue, Suite 250
Palo Alto, CA 94301-1426
Entities affiliated with Chase Capital
Partners(5).................................... 926,971 7.2
380 Madison Avenue, 12th Floor
New York, NY 10017
Entities affiliated with Techfarm, Inc.(6)....... 811,298 6.3
111 West Evelyn Avenue, #101
Sunnyvale, CA 94086
Intel Corporation................................ 666,667 5.2
2200 Mission College Blvd., SC-4-210
Santa Clara, CA 95052-8119
Anthony Sun(3)................................... 945,388 7.4
Philip M. Young(2)............................... 884,988 6.9
George J. Still, Jr.(4).......................... 345,090 2.7
Gordon A. Campbell(6)............................ 811,298 6.3
L. Gregory Ballard(7)............................ 65,608 *
James Whims(8)................................... 22,708 *
Scott D. Sellers(9).............................. 295,938 2.3
Gary Tarolli(10)................................. 291,428 2.3
Karl Chicca(11).................................. 26,563 *
Philip Carmack(12)............................... 7,909 *
David Bowman(13)................................. 29,033 *
All executive officers and directors as a group
(15 persons)(14)............................... 3,764,825 28.9
</TABLE>
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* Less than 1%.
(1) Applicable percentage ownership is based on 12,808,482 shares of Common
Stock outstanding as of March 3, 1998, together with applicable options for
such shareholder. Beneficial ownership is determined in accordance with the
rules of the Securities and Exchange Commission, based on factors including
voting and investment power with respect to shares, subject to the
applicable community property laws. Shares of Common Stock subject to
options or warrants currently exercisable, or exercisable within 60 days
after March 3, 1998, are deemed outstanding for the purpose of computing
the percentage ownership of the person holding such options or warrants,
but are not deemed outstanding for computing the percentage ownership of
any other person.
(2) Includes 89,170 shares held by Second Ventures, II, L.P., 43,477 shares
held by USVP Entrepreneur Partners II, L.P., 734,586 shares held by U.S.
Venture Partners IV, L.P., 12,755 shares held by Mr. Young and 5,000 shares
issuable upon exercise of stock options exercisable within 60 days of March
3, 1998 held by Mr. Young. Mr. Young, a director of the Company, is a
general partner of each of these limited partnerships. Mr. Young disclaims
beneficial ownership of the shares held by the limited partnerships except
to the extent of his proportionate partnership interest therein. In
addition to Mr. Young, the general partners of each of Second Ventures, II,
L.P., USVP Entrepreneur Partners II,
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L.P. and U.S. Venture Partners IV, L.P. are William K. Bowes, Jr., Irwin
Federman, Steven M. Krausz and Dale J. Vogel.
(3) Includes 607,194 shares held by Venrock Associates, L.P., 301,044 shares
held by Venrock Associates II, L.P., 32,150 shares held by the Anthony Sun
Family Trust as to which Mr. Sun claims beneficial ownership and 5,000
shares issuable upon exercise of stock options exercisable within 60 days
of March 3, 1998 held by Mr. Sun. Mr. Sun, a director of the Company, is a
general partner of each of these limited partnerships. Mr. Sun disclaims
beneficial ownership of the shares held by the limited partnerships except
to the extent of his proportionate partnership interest therein. In
addition to Mr. Sun, the general partners of each of Venrock Associates,
L.P. and Venrock Associates II, L.P. are Patrick F. Latterell, Ted H.
McCourtney, Anthony B. Evnin, Ph.D., Kimberley A. Rummelsburg, David R.
Hathaway, Ray A. Rothrock and Mark W. Bailey.
(4) Includes 328,834 shares held by Norwest Equity Partners V, L.P., 4,981
shares held by Mr. Still, 6,275 shares held by Still Family Partners as to
which Mr. Still claims beneficial ownership and 5,000 shares issuable upon
exercise of stock options exercisable within 60 days of March 3, 1998 held
by Mr. Still. Mr. Still, a director of the Company, is a managing general
partner of Itasca Partners V, L.L.P., the general partner of Norwest Equity
Partners V, L.P. Mr. Still disclaims beneficial ownership of the shares
held by Norwest Equity Partners V, L.P. except to the extent of his
proportionate partnership interest therein. In addition to Mr. Still, the
managing general partners of Itasca Partners V, L.L.P. are Daniel J.
Haggerty and John E. Lindahl.
(5) Based on a Form 13G filed with the Securities and Exchange Commission on
February 17, 1998, Chase Venture Capital Associates, L.P. ("CVCA") owns
926,971 shares. The general partner of CVCA is Chase Capital Partners, the
general partners of which are John R. Baron, Mitchell J. Blutt, M.D.,
Arnold L. Chavkin, Michael R. Hannon, Donald J. Hofmann, Stephen P. Murray,
John M.D. O'Connor, Brian J. Richmand, Shahan D. Soghikian, Jeffrey C.
Walker, Damion E. Wicker, M.D., Chase Capital Corporation, CCP Principals
L.P. and CCP European Principals, L.P.
(6) Includes 77,084 shares held by Techfarm, L.P., 10,834 shares held by
Techfarm II, L.P., 3,854 shares held by Techfarm Management Inc. (dba
Techfarm, Inc.), 660,360 shares held by Gordon A. Campbell and 59,166
shares issuable upon exercise of stock options exercisable within 60 days
of March 3, 1998 held by Gordon A. Campbell. Mr. Campbell, Chairman of the
Board of Directors, is President of Techfarm, Inc., the general partner of
Techfarm, L.P. and Techfarm II, L.P. Techfarm, Inc., Techfarm, L.P. and
Techfarm II, L.P. disclaim beneficial ownership of the shares held by Mr.
Campbell, and Mr. Campbell disclaims beneficial ownership of the shares
held by Techfarm, L.P. and Techfarm, II, L.P.
(7) Includes 23,108 shares of Common Stock issuable upon exercise of stock
options exercisable within 60 days of March 3, 1998 held by Mr. Ballard.
(8) Includes 22,708 shares issuable upon exercise of stock options exercisable
within 60 days of March 3, 1998 held by Mr. Whims.
(9) Includes 10,938 shares issuable upon exercise of stock options exercisable
within 60 days of March 3, 1998 held by Mr. Sellers.
(10) Includes 28,750 shares held by the Tarolli Grantor Retained Annuity Trust
as to which Mr. Tarolli claims voting and investment control, 10,938 shares
issuable upon exercise of stock options exercisable within 60 days of March
3, 1998 held by Mr. Tarolli and 30,000 shares held by Mr. Tarolli's wife.
Mr. Tarolli disclaims beneficial ownership of the shares held by his wife.
(11) Includes 3,125 shares issuable upon exercise of stock options exercisable
within 60 days of March 3, 1998 held by Mr. Chicca.
(12) Includes 7,604 shares issuable upon exercise of stock options exercisable
within 60 days of March 3, 1998 held by Mr. Carmack.
(13) Includes 25,521 shares issuable upon exercise of stock options exercisable
within 60 days of March 3, 1998 held by Mr. Bowman.
(14) Includes 198,442 shares issuable upon exercise of stock options exercisable
within 60 days of March 3, 1998 held by all executive officers and
directors as a group.
4
<PAGE> 7
DEADLINE FOR RECEIPT OF SHAREHOLDER PROPOSALS
Proposals of shareholders of the Company which are intended to be presented
by such shareholders at the Company's 1999 Annual Meeting of Shareholders must
be received by the Secretary of the Company at the Company's principal executive
offices no later than November 27, 1998 in order to be considered for inclusion
in the proxy statement and form of proxy relating to that meeting.
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PROPOSAL ONE
ELECTION OF DIRECTORS
NOMINEES
A board of seven (7) directors is to be elected at the Annual Meeting.
Unless a proxy is marked as to withhold authority to so vote, the proxy holders
will vote the proxies received by them for the Company's seven nominees named
below, all of whom are presently directors of the Company. In the event that any
nominee of the Company is unable or declines to serve as a director at the time
of the Annual Meeting, the proxies will be voted for any nominee who shall be
designated by the present Board of Directors to fill the vacancy. The Company is
not aware of any nominee who will be unable or will decline to serve as a
director. In the event that additional persons are nominated for election as
directors, the proxy holders intend to vote all proxies received by them in such
a manner (in accordance with cumulative voting) as will assure the election of
as many of the nominees listed below as possible, and, in such event, the
specific nominees to be voted for will be determined by the proxy holders. The
term of office of each person elected as a director will continue until the next
Annual Meeting of Shareholders or until a successor has been elected and
qualified.
THE COMPANY'S BOARD OF DIRECTORS RECOMMENDS VOTING "FOR" THE SEVEN NOMINEES
LISTED BELOW.
The name of and certain information regarding each nominee is set forth
below. There are no family relationships among directors or executive officers
of the Company.
<TABLE>
<CAPTION>
AGE
NAME (1) POSITIONS WITH THE COMPANY DIRECTOR SINCE
---- ------ -------------------------- --------------
<S> <C> <C> <C>
L. Gregory Ballard.... 44 President, Chief Executive Officer and December 1996
Director
Gordon A. 54 Chairman of the Board August 1994
Campbell(2).........
Scott D. Sellers...... 29 Vice President, Research and Development and March 1995
Director
George J. Still, 39 Director February 1996
Jr.(3)..............
Anthony Sun(2)........ 45 Director March 1995
James Whims(3)........ 42 Director November 1996
Philip M. Young(2).... 58 Director March 1995
</TABLE>
- ---------------
(1) As of March 3, 1998
(2) Member of the Audit Committee.
(3) Member of the Compensation Committee.
L. Gregory Ballard has served as President, Chief Executive Officer and a
director of the Company since December 1996. Prior to joining the Company, Mr.
Ballard was President at Capcom Entertainment, Inc., a video game and multimedia
entertainment company, from June 1995 through November 1996. Prior to that, Mr.
Ballard served as Chief Operating Officer and Chief Financial Officer of Digital
Pictures, Inc., a video game company, from May 1994 to June 1995. Mr. Ballard
was President and Chief Executive Officer of Warner Custom Music Corporation, a
multimedia marketing division of Time Warner, Inc., from October 1992 to May
1994, and he was President and Chief Operating Officer of Personics Corporation,
a predecessor to Warner Music, from January 1991 to October 1992. Mr. Ballard
also worked for Boston Consulting Group and as a practicing attorney in
Washington, D.C.
Gordon A. Campbell has served as the Chairman of the Board of Directors of
the Company since August 1994 when he co-founded the Company. Mr. Campbell also
served as President and Chief Executive Officer of the Company from January 1995
to December 1996. Prior to joining the Company, Mr. Campbell founded Techfarm,
Inc., a venture capital investment firm, and has served as President since
September 1993. In 1985, Mr. Campbell founded Chips and Technologies, Inc.
("CHIPS"), a semiconductor and related device company, and served as Chairman,
Chief Executive Officer and President of CHIPS until July 1993. Mr. Campbell
founded SEEQ Technology, Inc. ("SEEQ"), a semiconductor and related device
company,
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<PAGE> 9
in 1981. He served as President and Chief Executive Officer of SEEQ from 1981 to
1985. Mr. Campbell currently serves as a director of 3Com Corporation and Bell
Microproducts, Inc.
Scott D. Sellers has served as Vice President, Research and Development of
the Company since January 1995. He co-founded the Company in August 1994 and has
served as a director of the Company since March 1995. Mr. Sellers was Principal
Engineer at MediaVision Technology, Inc. ("MediaVision"), a multimedia computer
products company, from June 1993 to June 1994. Prior to that, Mr. Sellers was a
Microprocessor Engineer at Pellucid, Inc. ("Pellucid"), a developer of chip and
board products, from January 1993 to June 1993. Mr. Sellers was also a Member of
the Technical Staff at Silicon Graphics, Inc. ("SGI") from October 1990 to
January 1993.
George J. Still, Jr. has served as a director of the Company since February
1996. Mr. Still is Vice President and Managing Partner of Norwest Venture
Capital, Inc. ("Norwest"), a venture capital investment firm, where he has been
employed since 1989. Prior to joining Norwest, Mr. Still was General Partner of
The Centennial Funds, Ltd., a venture capital investment firm, from 1984 to
1989. He currently serves on the Board of Directors of PeopleSoft, Inc. Mr.
Still is also a director of several private companies.
Anthony Sun has served as a director of the Company since March 1995. Mr.
Sun has been a General Partner at Venrock Associates, a venture capital
investment firm, since 1979. He is currently director of Award Software
International, Inc., Cognex Corporation, Inference Corporation, Komag, Inc. and
Worldtalk Communications Corporation. He is also a director of several private
companies.
James Whims has served as a director of the Company since November 1996.
Mr. Whims has been a Partner at Techfarm since November 1996. From November 1994
until July 1996, Mr. Whims was the Executive Vice President of Sony Computer
Entertainment, a video game hardware and software company. From 1990 until July
1994, Mr. Whims was Executive Vice President of the Consumer Division of The
Software Toolworks, Inc., a diversified software company. From 1985 to 1988, Mr.
Whims served as Vice President of Sales of Worlds of Wonder, Inc., a toy
products company, which he co-founded.
Philip M. Young has served as a director of the Company since March 1995.
Mr. Young has been a general partner at U.S. Venture Partners, a venture capital
firm, since April 1990. He was a managing director of Dillon, Read and Co.,
Inc., and general partner of Dillon Read's Concord Partners venture capital
activity in Palo Alto from January 1986 to April 1990. He currently serves on
the Boards of Directors of Vical, Inc., CardioThoracic Systems, Inc., FemRx,
Inc., Immune Response Corporation and Zoran Corporation. Mr. Young is also a
director of several private companies.
REQUIRED VOTE
The seven nominees receiving the highest number of affirmative votes of the
shares present or represented and entitled to be voted shall be elected as
directors. Votes withheld from any director are counted for purposes of
determining the presence or absence of a quorum for the transaction of business,
but they have no legal effect under California law.
BOARD MEETINGS AND COMMITTEES
The Board of Directors of the Company held a total of eight meetings during
the fiscal year ended December 31, 1997. Other than Anthony Sun, no director,
during the time he was a member of the Board of Directors, attended fewer than
75% of the aggregate of all meetings of the Board of Directors, or its
committees on which he served which occurred during fiscal 1997. Mr. Sun
attended five of the eight Board Meetings and all committee meetings of the
committee on which he served. The Board has an Audit Committee and a
Compensation Committee. The Board of Directors does not have a nominating
committee or a committee performing the functions of a nominating committee.
The Audit Committee is responsible for (i) recommending engagement of the
Company's independent auditors, (ii) approving the services performed by such
auditors, (iii) consulting with such auditors and reviewing with them the
results of their examination, (iv) reviewing and approving any material
accounting
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<PAGE> 10
policy changes affecting the Company's operating results, (v) reviewing the
Company's control procedures and personnel, and (vi) reviewing and evaluating
the Company's accounting principles and its system of internal accounting
controls. The Audit Committee held one meeting during fiscal 1997. The Audit
Committee currently consists of Gordon A. Campbell, Anthony Sun and Philip M.
Young.
The Compensation Committee is responsible for determining salaries,
incentives and other forms of compensation for executive officers and other
employees of the Company and administers various incentive compensation and
benefit plans. The Compensation Committee held one meeting during fiscal 1997.
The Compensation Committee currently consists of George J. Still, Jr. and James
Whims.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION.
The members of the Compensation Committee during fiscal 1997 were George J.
Still, Jr. and James Whims. Neither Mr. Still nor Mr. Whims was at any time
during the Company's 1997 fiscal year or at any other time an officer or
employee of the Company. No executive officer of the Company serves as a member
of the Board of Directors or Compensation Committee of any entity which has one
or more executive officers serving as a member of the Company's Board of
Directors or Compensation Committee.
Mr. Whims provides consulting services to the Company for which the Company
pays a fee of $5,000 per month. The Company made total payments to Mr. Whims in
fiscal 1997 of $45,000. No such payments were made prior to fiscal 1997.
COMPENSATION OF DIRECTORS
Members of the Company's Board of Directors do not receive compensation for
their services as directors. The Company's 1997 Director Option Plan provides
that options shall be granted to non-employee directors of the Company pursuant
to an automatic nondiscretionary grant mechanism.
The Company's 1997 Director Option Plan (the "Director Plan") was adopted
by the Board of Directors in March 1997 and approved by the shareholders of the
Company in April 1997. A total of 150,000 shares of Common Stock has been
reserved for issuance under the Director Plan. The option grants under the
Director Plan are automatic and non-discretionary, and the exercise price of the
options is 100% of the fair market value of the Common Stock on the grant date.
The Director Plan provides for an initial grant of options to purchase 12,500
shares of Common Stock to each new non-employee director of the Company who is
neither affiliated with nor nominated by a shareholder that owns one percent or
more of the outstanding capital stock of the Company on the later of the
effective date of the Director Plan or the date he or she first becomes a
director. In addition, each non-employee director will automatically be granted
an additional option to purchase 5,000 shares of Common Stock at the next
meeting of the Board of Directors following the annual meeting of shareholders
in each year beginning with the 1998 annual meeting of shareholders, if on such
date, such director has served on the Board of Directors for at least six
months; provided, however, if such director is elected as Chairman of the Board
of Directors, such option grant shall be 10,000 shares. In addition to these
grants, each director shall automatically be granted an option to purchase 1,000
shares at the next meeting of the Board of Directors following the annual
meeting of shareholders in each year beginning with the 1997 annual meeting of
shareholders, if such director serves on either the Audit Committee or
Compensation Committee of the Board of Directors. If such Director serves on
both such Committees, this grant shall be 2,000 shares. The term of such options
is ten years, provided that such options shall terminate three months following
the termination of the optionee's status as a director (or twelve months if the
termination is due to death or disability). 12,500 share options granted to a
director vest at a rate of 1/48th of the shares subject to the option per month
following the date of grant. 5,000 or 10,000 share options granted to a director
vest at a rate of 1/12th of the shares subject to the option per month following
the date of grant. 1,000 share options granted to a director vest at a rate of
1/12th of the shares subject to the option per month following the date of
grant. In the event of a merger of the Company with or into another corporation,
all outstanding options may either be assumed or an equivalent option may be
substituted by the surviving entity or, if such options are not assumed or
substituted, such options shall become exercisable as to all of the shares
subject to the options, including shares as to which they would not otherwise be
exercisable. In the event that options become exercisable in
8
<PAGE> 11
lieu of assumption or substitution, the Board of Directors shall notify
optionees that all options shall be fully exercisable for a period of 30 days,
after which such options shall terminate. The Director Plan will terminate in
March 2007, unless sooner terminated by the Board of Directors.
Pursuant to such automatic grant mechanism, on June 25, 1997, Gordon A.
Campbell received an option to purchase 11,000 shares of the Company's Common
Stock and each of George J. Still, Jr., Anthony Sun, Philip M. Young and James
Whims received an option to purchase 6,000 shares of the Company's Common Stock
at an exercise price of $11.00. As of March 1, 1998, no shares of Common Stock
had been issued upon the exercise of options granted under the Director Plan,
options to purchase 35,000 shares of Common Stock at a weighted average exercise
price of $11.00 per share were outstanding and 115,000 shares remain available
for future option grants under the Director Plan.
PROPOSAL TWO
AMENDMENT TO 1995 EMPLOYEE STOCK PLAN
At the Annual Meeting, the shareholders are being asked to approve the
amendment of the Company's 1995 Employee Stock Plan (the "Plan") to increase the
number of shares of Common Stock reserved for issuance thereunder by 1,700,000
shares. The amendment to the Plan was approved by the Board of Directors in
February 1998. As of March 3, 1998, options to purchase an aggregate of
2,050,115 shares of the Company's Common Stock were outstanding under the Plan
with a weighted average exercise price of $6.30 per share, and no shares
(excluding the 1,700,000 shares subject to shareholder approval at this Annual,
Meeting) were available for future grant. The Plan authorizes the Board of
Directors to grant incentive and nonstatutory stock options to eligible
employees, directors and consultants of the Company.
The Plan is structured to allow the Board of Directors broad discretion in
creating equity incentives in order to assist the Company in attracting,
retaining and motivating the best available personnel for the successful conduct
of the Company's business. Since inception, the Company has provided stock
options as an incentive to its key employees and executives as a means to
promote increased shareholder value. Management believes stock options are one
of the prime methods of attracting and retaining key personnel responsible for
the continued development and growth of the Company's business. In addition,
stock options are considered a competitive necessity in the high technology
industry.
VOTE REQUIRED
The affirmative vote of a majority of the Votes Cast will be required to
approve the amendment to the Plan. For this purpose, the "Votes Cast" are
defined to be the shares of the Company's Common Stock represented and voting at
the Annual Meeting. In addition, the affirmative votes must constitute at least
a majority of the required quorum, which quorum is a majority of the shares
outstanding at the Record Date. Votes that are cast against the proposal will be
counted for purposes of determining both (i) the presence or absence of a quorum
and (ii) the total number of Votes Cast with respect to the proposal.
Abstentions will be counted for purposes of determining both (i) the presence or
absence of a quorum and (ii) the total number of Votes Cast with respect to the
proposal. Accordingly, abstentions will have the same effect as a vote against
the proposal. Broker non-votes, if any, will be counted for purposes of
determining the presence or absence of a quorum for the transaction of business,
but will not be counted for purposes of determining the number of Votes Cast
with respect to this proposal.
THE COMPANY'S BOARD OF DIRECTORS RECOMMENDS THAT SHAREHOLDERS VOTE "FOR"
THE AMENDMENT TO THE PLAN.
The essential terms of the Plan are summarized as follows:
Purpose
The purposes of the Plan are to attract and retain the best available
personnel for positions of substantial responsibility, to provide additional
incentive to employees, directors and consultants of the Company and to promote
the success of the Company's business.
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<PAGE> 12
Administration
The Plan provides for administration by the Board of Directors of the
Company or by a committee of the Board. The Board or the committee appointed to
administer the Plan are referred to in this description as the "Administrator."
The Administrator determines the terms of options granted, including the
exercise price, number of shares subject to the option and the exercisability
thereof. All questions of interpretation are determined by the Administrator and
its decisions are final and binding upon all participants. Members of the Board
receive no additional compensation for their services in connection with the
administration of the Plan.
Eligibility
The Plan provides that either incentive or nonstatutory stock options may
be granted to employees (including officers and employee directors) of the
Company or any of its designated subsidiaries. In addition, the Plan provides
that nonstatutory stock options may be granted to non-employee directors and
consultants of the Company or any of its designated subsidiaries. The
Administrator selects the optionees and determines the number of shares to be
subject to each option. In making such determination, the Administrator takes
into account the duties and responsibilities of the optionee, the value of the
optionee's services, the optionee's present and potential contribution to the
success of the Company and other relevant factors. The Plan provides a limit of
$100,000 on the aggregate fair market value of shares subject to all incentive
options which are exercisable for the first time in any one calendar year. The
Plan provides that a maximum of 150,000 shares (250,000 shares if in connection
with initial employment) may be granted to any one individual during any fiscal
year of the Company. The Plan does not provide for a minimum number of option
shares which may be granted to any one employee. There is a limit on the
aggregate fair market value of shares subject to all incentive options which are
exercisable for the first time in any one calendar year.
Terms of Options
Each option is evidenced by a stock option agreement between the Company
and the optionee to whom such option is granted and is subject to the following
additional terms and conditions:
(1) Exercise of the Option: The Administrator determines when options
granted under the Plan may be exercised. An option is exercised by giving
written notice of exercise to the Company, specifying the number of shares
of Common Stock to be purchased and tendering payment to the Company of the
purchase price. Payment for shares issued upon exercise of an option may
consist of cash, check, delivery of already-owned shares of the Company's
Common Stock subject to certain conditions, pursuant to a cashless exercise
procedure under which the optionee provides irrevocable instructions to a
brokerage firm to sell the purchased shares and to remit to the Company,
out of the sale proceeds, an amount equal to the exercise price plus all
applicable withholding taxes, or such other consideration as determined by
the Administrator and as permitted by applicable laws. Options may be
exercised at any time on or following the date the options are first
exercisable. An option may not be exercised for a fraction of a share.
(2) Option Price: The option price of all incentive stock options
under the Plan may not be less than the fair market value of the Common
Stock on the date the option is granted. For purposes of the Plan, fair
market value is defined as the closing sale price per share of the Common
Stock on the date of grant as reported on the Nasdaq National Market. In
the case of an incentive stock option granted to an optionee who at the
time of grant owns stock representing more than 10% of the voting power of
all classes of stock of the Company, the option price must be not less than
110% of the fair market value on the date of grant. In the case of a
nonstatutory stock option intended to qualify as "performance-based
compensation" within the meaning of Section 162(m) of the Internal Revenue
Code, the exercise price shall be no less than 100% of the fair market
value on the date of grant.
(3) Termination of Employment or Consulting Relationship: The Plan
provides that if the optionee's employment or consulting relationship with
the Company is terminated for any reason, other than death, or disability,
the period of time during which an option may be exercised following such
termination is 90 days or such other period as is determined by the
Administrator may be exercised only
10
<PAGE> 13
to the extent the options were exercisable on the date of termination and
in no event later than the expiration of the term of the option.
(4) Death: If an optionee should die, options may be exercised at any
time within 12 months following the date of death (but in no event later
than the expiration date of the option) by the Optionee's estate or by a
person who acquired the right to exercise the option by bequest or
inheritance, but only to the extent the Optionee is entitled to exercise
the option on the date of death.
(5) Disability: If an optionee's employment is terminated due to a
disability, options may be exercised at any time within 12 months from the
date of such termination, but only to the extent that the options were
exercisable on the date of termination of employment and in no event later
than the expiration of the term of such option as set forth in the Notice
of Grant.
(6) Termination of Options: The term of each option is fixed by the
Administrator and may not exceed ten years from the date of grant in the
case of incentive stock options. However, incentive stock options granted
to an optionee who, immediately before the grant of such option, owned more
than 10% of the total combined voting power of all classes of stock of the
Company or a parent or subsidiary corporation, may not have a term of more
than five years. No option may be exercised by any person after such
expiration.
(7) Nontransferability of Options: Unless determined otherwise by the
Administrator, an option is nontransferable by the optionee, other than by
will or the laws of descent and distribution, and is exercisable only by
the optionee during his or her lifetime or, in the event of death, by a
person who acquires the right to exercise the option by bequest or
inheritance or by reason of the death of the optionee.
Adjustment Upon Changes in Capitalization
In the event any change, such as a stock split or dividend, is made in the
Company's capitalization which results in an increase or decrease in the number
of outstanding shares of Common Stock without receipt of consideration by the
Company, an appropriate adjustment shall be made in the option price and in the
number of shares subject to each option. In the event of a merger of the Company
with or into another corporation, all outstanding options may either be assumed
or an equivalent option may be substituted by the surviving entity or, if such
options are not assumed or substituted, such options shall become exercisable as
to all of the shares subject to the options, including shares as to which would
not otherwise be exercisable. In the event that options become exercisable in
lieu of assumption or substitution, the Administrator shall notify optionees
that all options shall be fully exercisable for a period of 15 days, after which
such options shall terminate.
Amendment and Termination
The Board of Directors may amend the Plan at any time or from time to time
or may terminate it without approval of the shareholders. However, no action by
the Board of Directors or shareholders may alter or impair any option previously
granted under the Plan without the consent of the optionee. In any event, the
Plan will terminate in May 2005.
Tax Information
Options granted under the Plan may be either "incentive stock options," as
defined in Section 422 of the Code, or nonstatutory options.
An optionee who is granted an incentive stock option will not recognize
taxable income either at the time the option is granted or upon its exercise,
although the exercise may subject the optionee to the alternative minimum tax.
Upon the sale or exchange of the shares more than two years after grant of the
option and one year after exercising the option, any gain or loss will be
treated as long-term capital gain or loss. If these holding periods are not
satisfied, the optionee will recognize ordinary income at the time of sale or
exchange equal to the difference between the exercise price and the lower of (i)
the fair market value of the shares at the date of the option exercise or (ii)
the sale price of the shares. A different rule for measuring ordinary
11
<PAGE> 14
income upon such a premature disposition may apply if the optionee is also an
officer, director, or 10% shareholder of the Company. Generally, the Company
will be entitled to a deduction in the same amount as the ordinary income
recognized by the optionee. Any gain or loss recognized on such a premature
disposition of the shares in excess of the amount treated as ordinary income
will be characterized as long-term or short-term capital gain or loss, depending
on the holding period.
All other options which do not qualify as incentive stock options are
referred to as nonstatutory options. An optionee will not recognize any taxable
income at the time he is granted a nonstatutory option. However, upon its
exercise, the optionee will recognize ordinary income generally measured as the
excess of the then fair market value of the shares purchased over the purchase
price. Any taxable income recognized in connection with an option exercise by an
optionee who is also an employee of the Company will be subject to tax
withholding by the Company. Upon resale of such shares by the optionee, any
difference between the sales price and the optionee's purchase price, to the
extent not recognized as taxable income as described above, will be treated as
long-term or short-term capital gain or loss, depending on the holding period.
Generally, the Company will be entitled to a tax deduction in the same amount as
the ordinary income recognized by the optionee with respect to shares acquired
upon exercise of a nonstatutory option.
The foregoing is only a summary of the effect of federal income taxation
upon the optionee and the Company with respect to the grant and exercise of
options under the Plan, does not purport to be complete, and does not discuss
the tax consequences of the optionee's death or the income tax laws of any
municipality, state or foreign country in which an optionee may reside.
Participation in the Plan
The grant of options under the Plan to executive officers, including the
officers named in the Summary Compensation Table below, is subject to the
discretion of the Administrator. As of the date of this proxy statement, there
has been no determination by the Administrator with respect to future awards
under the Plan. Accordingly, future awards are not determinable.
The table of option grants under "Executive Compensation and Other
Matters -- Option Grants in Last Fiscal Year" provides information with respect
to the grant of options under the Plan to the Named Executive Officers during
fiscal 1997. During fiscal 1997, all current executive officers as a group and
all other employees as a group were granted options to purchase 340,000 shares
and 931,244 shares, respectively, pursuant to all stock option plans.
Non-employee directors are not eligible to receive options under the Plan
but are, however, eligible to receive options pursuant to the 1997 Directors
Option Plan. Information regarding options granted to non-employee directors
under the 1997 Directors Option Plan during fiscal 1997 is set forth under the
heading "Proposal One -- Election of Directors -- Compensation of Directors."
PROPOSAL THREE
AMENDMENT TO 1997 EMPLOYEE STOCK PURCHASE PLAN
At the Annual Meeting, the shareholders are being asked to approve the
amendment of the Company's 1997 Employee Stock Purchase Plan (the "Purchase
Plan") to provide for annual increases to the number of shares of Common Stock
reserved for issuance thereunder commencing in 1999. The amendment to the
Purchase Plan was approved by the Board of Directors in February 1998. A total
of 550,000 shares of Common Stock has been reserved for issuance under the
Purchase Plan. As of March 3, 1998, a total of 34,742 shares had been issued to
employees at an average purchase price of $9.35 per share pursuant to one (1)
offering under the Purchase Plan and 515,258 shares remain available for future
issuance. The fair market value of the Common Stock of the Company on the first
day of the most recent offering period was $11.00 per share. See "Purchase
Price" below.
Recent accounting pronouncements have altered the accounting treatment in
the case of a shortfall of shares reserved for issuance under an employee stock
purchase plan. As a result, if a shortfall occurs during a
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<PAGE> 15
purchase period, the Company is unable to seek shareholder approval for an
increase without incurring significant compensation charges. Therefore, the
Board of Directors has approved the amendment to the Purchase Plan which would
automatically increase the shares reserved for issuance under the Purchase Plan
according to a formula and proposed that it be approved by the shareholders at
this Annual Meeting. While such an amendment minimizes the likelihood of a
shortfall and resulting compensation charge, the Purchase Plan will require
periodic monitoring to ensure that no shortfall occurs. As amended, the number
of shares reserved for issuance under the Purchase Plan would be increased
automatically each year on the date of the Annual Meeting of Shareholders
commencing in 1999 by an amount equal to the lesser of (i) 200,000 shares or
(ii) 1% of the outstanding shares of the Company on such date. If a shortfall
occurs, the Company shall make a pro rata allocation of the shares remaining
available for purchase in as uniform a manner as shall be practicable and as it
shall determine to be equitable. If the amendment to the Purchase Plan is
approved, a maximum additional 1,600,000 shares would be reserved for issuance
under the Purchase Plan and therefor the maximum number of shares which could be
issued under the Purchase Plan over its term would be 2,150,000 shares.
The purpose of the Purchase Plan is to provide employees of the Company
with an opportunity to purchase Common Stock of the Company through accumulated
payroll deductions. In connection with its initial public offering in June 1997,
the Company implemented the Purchase Plan as an incentive to its employees and
executives as a means to promote increased shareholder value. Management
believes that stock ownership is one of the prime methods of attracting and
retaining key personnel responsible for the continued development and growth of
the Company's business. In addition, an employee stock purchase plan is
considered a competitive necessity in the high technology industry.
VOTE REQUIRED
The affirmative vote of a majority of the Votes Cast will be required to
approve the amendment to the Purchase Plan. For this purpose, the "Votes Cast"
are defined to be the shares of the Company's Common Stock represented and
voting at the Annual Meeting. In addition, the affirmative votes must constitute
at least a majority of the required quorum, which quorum is a majority of the
shares outstanding at the Record Date. Votes that are cast against the proposal
will be counted for purposes of determining both (i) the presence or absence of
a quorum and (ii) the total number of Votes Cast with respect to the proposal.
Abstentions will be counted for purposes of determining both (i) the presence or
absence of a quorum and (ii) the total number of Votes Cast with respect to the
proposal. Accordingly, abstentions will have the same effect as a vote against
the proposal. Broker non-votes, if any, will be counted for purposes of
determining the presence or absence of a quorum for the transaction of business,
but will not be counted for purposes of determining the number of Votes Cast
with respect to this proposal.
THE COMPANY'S BOARD OF DIRECTORS RECOMMENDS THAT SHAREHOLDERS VOTE "FOR"
THE AMENDMENT TO THE PURCHASE PLAN.
The essential terms of the Purchase Plan, as amended, are summarized as
follows:
Purpose
The purpose of the Purchase Plan is to provide employees of the Company and
of any subsidiaries which are designated by the Board of Directors to
participate in the Purchase Plan with an opportunity to purchase Common Stock of
the Company through accumulated payroll deductions. The Purchase Plan is
intended to qualify under Section 423 of the Internal Revenue Code of 1986, as
amended (the "Code").
Administration
The Purchase Plan provides for administration by the Board of Directors of
the Company or a committee appointed by the Board. All questions of
interpretation or application of the Purchase Plan are determined by the Board
of Directors or its appointed committee, and its decisions are final and binding
upon all participants. No charge for administrative or other costs may be made
against the payroll deductions of a participant in the
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<PAGE> 16
Purchase Plan. Members of the Board receive no additional compensation for their
services in connection with the administration of the Purchase Plan.
Offering Periods
The Purchase Plan has offering periods of approximately twenty-four months,
each divided into four six-month purchase periods. The offering periods commence
on or after May 1 and November 1 of each year. The Board of Directors has the
power to alter the duration of the offering periods without shareholder
approval.
Eligibility
Employees (including officers and employee directors of the Company) are
eligible to participate if they are customarily employed for at least 20 hours
per week and are employed at the start of the offering period, provided that no
Employee shall be granted an option (i) to the extent that immediately after the
grant such Employee owns more than 5% of the voting power of outstanding capital
stock of the Company or (ii) to the extent such Employee's rights to purchase
stock under all employee stock purchase plans of the Company accrues at a rate
which exceeds $25,000 worth of stock for each calendar year in which such option
is outstanding at any time. Eligible employees become participants in the
Purchase Plan by delivering to the Company's payroll office a subscription
agreement authorizing payroll deductions. An employee who becomes eligible to
participate in the Purchase Plan after the commencement of an offering may not
participate in the Purchase Plan until the commencement of the next offering
period.
Purchase Price
The price at which shares are sold to participating employees is
eighty-five percent (85%) of the lesser of the fair market value per share of
the Common Stock on (i) the first day of the offering period or (ii) the last
day of the purchase period. The fair market value of the Common Stock on a given
date is determined by reference to the closing sales price of the Nasdaq
National Market. The closing sale price per share of the Company's Common Stock
on the Nasdaq National Market on March 20, 1998 was $28 3/16.
Payment of Purchase Price; Payroll Deductions
The purchase price of the shares is accumulated by payroll deductions over
the offering period. The deductions may not exceed 15% of a participant's
compensation. A participant may discontinue his or her participation in the
Purchase Plan and may increase or decrease the rate of payroll deductions at any
time during the offering period. Payroll deductions shall commence on the first
payday following the offering date and shall continue at the same rate until the
end of the offering period unless sooner terminated as provided in the Purchase
Plan.
Purchase of Stock; Exercise of Option
By executing a subscription agreement to participate in the Purchase Plan,
the employee is entitled to have shares placed under option to him or her. The
maximum number of shares placed under option to a participant in an offering is
that number arrived at by dividing the amount of his or her compensation which
he or she has elected to have withheld for the purchase period by the lesser of
(i) 85% of the fair market value of a share of Common Stock at the beginning of
the offering period, or (ii) 85% of the fair market value of a share of Common
Stock on the last day of the purchase period. Unless the employee's
participation is discontinued, the option for the purchase of shares will be
exercised automatically at the end of the purchase period at the applicable
price.
Notwithstanding the forgoing, no employee shall be permitted to subscribe
for shares under the Purchase Plan (a) if, immediately after the grant of the
option, the employee would own, and/or hold outstanding options to purchase, 5%
or more of the voting stock or value of all classes of stock of the Company or
(b) which permits his or her rights to purchase stock under all employees stock
purchase plans of the Company and its subsidiaries to accrue at a rate which
exceeds twenty-five thousand dollars ($25,000) worth of stock (determined at the
fair market value of the shares at the time such option is granted) for each
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<PAGE> 17
calendar year in which such option is outstanding at any time. Furthermore, if
the number of shares which would otherwise be placed under option at the
beginning of an offering period exceeds the number of shares then available
under the Purchase Plan, a pro rata allocation of the shares remaining shall be
made in as equitable a manner as is practicable.
Withdrawal
While each participant in the Purchase Plan is required to sign a
subscription agreement authorizing payroll deductions, the participant's
interest in a given offering may be terminated in whole, but not in part, by
signing and delivering to the Company a notice of withdrawal from the Purchase
Plan. Such withdrawal may be elected at any time prior to the end of the
applicable offering period. Any withdrawal by the employee during a given
offering automatically terminates the employee's interest in that offering.
Termination of Employment
Termination of a participant's employment for any reason, including
retirement or death, cancels his or her participation in the Purchase Plan
immediately. In such event, the payroll deductions credited to the participant's
account will be returned without interest to such participant, or, in the case
of death, to the person or persons entitled thereto as specified by the employee
in the subscription agreement.
Capital Changes
In the event of any changes in the capitalization of the Company, such as
stock splits or stock dividends, resulting in an increase or decrease in the
number of shares of Common Stock, effected without receipt of consideration by
the Company, appropriate adjustments will be made by the Company in the shares
subject to purchase and in the purchase price per share.
Nonassignability
No rights or accumulated payroll deductions of an employee under the
Purchase Plan may be pledged, assigned, or transferred for any reason and any
such attempt may be treated by the Company as an election to withdraw from the
Purchase Plan.
Shares Reserved for Issuance under the Purchase Plan
A total of 550,000 shares of Common Stock has been reserved for issuance
under the Purchase Plan. On the date of each Annual Meeting of Shareholders
(commencing in 1999), the number of shares reserved thereunder shall be
increased automatically by the lesser of (i) 200,000 shares, or (ii) 1% of the
outstanding shares of the Company on such date.
Amendment and Termination of the Purchase Plan
The Board of Directors may at any time amend or terminate the Purchase
Plan, except that such termination shall not affect options previously granted
nor may any amendment make any changes in an option granted prior thereto which
adversely affects the rights of any participant. No amendment may be made to the
Purchase Plan without prior approval of the shareholders of the Company if such
amendment would increase the number of shares reserved under the Purchase Plan,
materially modify the eligibility requirements, or materially increase the
benefits which may accrue to participants under the Purchase Plan. The Purchase
Plan will terminate in March 2007, unless sooner terminated by the Board of
Directors.
Certain United States Federal Income Tax Information
The Purchase Plan, and the right of participants to make purchases
thereunder, is intended to qualify under the provisions of Section 423 of the
Code. Under these provisions, no income will be taxable to a participant until
the shares purchased under the Purchase Plan are sold or otherwise disposed of.
Upon sale or other disposition of the shares, the participant will generally be
subject to tax and the amount of the tax will
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<PAGE> 18
depend upon the holding period. If the shares are sold or otherwise disposed of
more than two years from the first day of the offering period and more than one
year from the date the shares are purchased, the participant will recognize
ordinary income measured as the lesser of (a) the excess of the fair market
value of the shares at the time of such sale or disposition over the purchase
price, or (b) an amount equal to 15% of the fair market value of the shares as
of the first day of the offering period. Any additional gain will be treated as
long-term capital gain. If the shares are sold or otherwise disposed of before
the expiration of these holding periods, the participant will recognize ordinary
income generally measured as the excess of the fair market value of the shares
on the date the shares are purchased over the purchase price. Any additional
gain or loss of such sale or disposition will be long-term or short-term capital
gain or loss, depending on the holding period. Generally, the Company is
entitled to a deduction for ordinary income recognized by participants upon a
sale or disposition of shares prior to the expiration of the holding period(s)
described above.
The foregoing is only a summary of the effect of federal income taxation
upon the participant and the Company with respect to the shares purchased under
the Purchase Plan. Reference should be made to the applicable provisions of the
Code. In addition, the summary does not discuss the tax consequences of a
participant's death or the income tax laws of any state or foreign country in
which a participant may reside.
Participation in the Purchase Plan
Participation in the Purchase Plan is voluntary and is dependent on each
eligible employee's election to participate and such employee's determination as
to the level of payroll deductions. Accordingly, future purchases under the
Purchase Plan are not determinable. Non-employee directors are not eligible to
participate in the Purchase Plan.
The following table sets forth certain information regarding shares
purchased during the fiscal year ended December 31, 1997 by each of the
executive officers named in the Summary Compensation Table below who
participated in the Purchase Plan, all current executive officers as a group,
and all other employees who participated in the Purchase Plan as a group:
<TABLE>
<CAPTION>
NUMBER OF SHARES DOLLAR VALUE
NAME OF INDIVIDUAL OR IDENTITY OF GROUP AND POSITION PURCHASED(#) ($)(1)
---------------------------------------------------- ---------------- ------------
<S> <C> <C>
L. Gregory Ballard.......................................... 1,195 $ 9,142
Scott D. Sellers............................................ -- --
Gary Tarolli................................................ 490 3,749
Philip Carmack.............................................. 305 2,333
Karl Chicca................................................. 900 6,885
David Bowman(3)............................................. 1,012 7,742
All current executive officers as a group................... 4,360 33,354
All other employees......................................... 29,370 224,681
Non-Employee Directors as a group(2)........................ -- --
</TABLE>
- ---------------
(1) Market value of shares on date of purchase minus the purchase price under
the Purchase Plan.
(2) Not eligible to participate in the Purchase Plan.
(3) Mr. Bowman resigned as Vice President, Sales in December 1997.
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<PAGE> 19
PROPOSAL FOUR
RATIFICATION OF APPOINTMENT OF INDEPENDENT ACCOUNTANTS
The Board of Directors has selected Price Waterhouse LLP, independent
accountants, to audit the consolidated financial statements of the Company for
the fiscal year ending December 31, 1998 and recommends that shareholders vote
for ratification of such appointment. Notwithstanding the selection, the Board,
in its discretion, may direct the appointment of new independent accountants at
any time during the year if the Board feels that such a change would be in the
best interests of the Company and its shareholders. In the event of a negative
vote on ratification, the Board of Directors will reconsider its selection.
Price Waterhouse LLP has audited the Company's financial statements
annually since 1995. Representatives of Price Waterhouse LLP are expected to be
present at the meeting with the opportunity to make a statement if they desire
to do so and are expected to be available to respond to appropriate questions.
THE COMPANY'S BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE "FOR" THE
RATIFICATION OF THE APPOINTMENT OF PRICE WATERHOUSE LLP AS INDEPENDENT
ACCOUNTANTS.
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<PAGE> 20
EXECUTIVE COMPENSATION AND OTHER MATTERS
The following table sets forth information concerning the compensation
awarded to, earned by, or paid for services rendered to the Company in all
capacities during the years ended December 31, 1996 and 1997, for the Company's
Chief Executive Officer and the Company's next five most highly compensated
executive officers whose salary and bonus for the 1997 fiscal year exceeded
$100,000 (the "Named Executive Officers").
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
ANNUAL COMPENSATION -------------
----------------------------------- SECURITIES
FISCAL OTHER ANNUAL UNDERLYING
NAME AND PRINCIPAL POSITION YEAR SALARY($) BONUS($) COMPENSATION OPTIONS(#)(1)
--------------------------- ------ --------- -------- ------------ -------------
<S> <C> <C> <C> <C> <C>
L. Gregory Ballard(2)...................... 1997 $210,167 $6,220 $ -- 18,750
President, Chief Executive Officer and
Director 1996 11,538 -- -- 350,000
Scott D. Sellers........................... 1997 149,079 4,665 -- 68,750
Vice President, Research and Development
and Director 1996 116,667 1,400 -- 25,000
Gary Tarolli............................... 1997 155,000 5,000 -- 68,750
Vice President and Chief Scientist 1996 130,000 1,400 -- 25,000
Philip Carmack............................. 1997 147,619 4,665 -- 40,000
Vice President, Hardware Engineering 1996 140,000 -- -- 50,000
Karl Chicca(3)............................. 1997 147,171 5,000 -- 18,750
Vice President, Operations 1996 75,385 -- 110,003 75,000
David Bowman(4)............................ 1997 134,226 -- 84,000 18,750
Vice President, Sales 1996 96,923 -- -- 100,000
</TABLE>
- ---------------
(1) These shares are subject to exercise under stock options granted under the
Company's 1995 Employee Stock Plan.
(2) Mr. Ballard joined the Company in December 1996.
(3) Mr. Chicca joined the Company in June 1996. Other annual compensation amount
relates to relocation bonus.
(4) Other annual compensation amount relates to commissions paid. Mr. Bowman
resigned as a Vice President, Sales in December 1997.
18
<PAGE> 21
STOCK OPTION GRANTS
The following table provides information relating to stock options awarded
to each of the Named Executive Officers during the year ended December 31, 1997.
All such options were awarded under the Company's 1995 Employee Stock Plan.
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS POTENTIAL REALIZABLE
-------------------------------------------------------- VALUE AT ASSUMED ANNUAL
NUMBER OF PERCENT OF RATES OF STOCK PRICE
SECURITIES TOTAL OPTIONS APPRECIATION FOR OPTION
UNDERLYING GRANTED TO EXERCISE TERM (1)
OPTIONS EMPLOYEES IN PRICE PER EXPIRATION -----------------------
NAME GRANTED(1) FISCAL 1997 SHARE(2)(3) DATE (4) 5% 10%
---- ----------- --------------- ----------- ---------- --------- -----------
<S> <C> <C> <C> <C> <C> <C>
L. Gregory Ballard.......... 18,750 1% $12.00 3/31/07 $141,501 $ 358,592
Scott D. Sellers............ 18,750 1 12.00 3/31/07 141,501 358,592
50,000 4 15.75 10/27/07 495,255 1,255,072
Gary Tarolli................ 18,750 1 12.00 3/31/07 141,501 358,592
50,000 4 15.75 10/27/07 495,255 1,255,072
Philip Carmack.............. 6,250 * 12.00 3/31/07 47,167 119,531
33,750 2 12.00 6/13/07 254,702 645,466
Karl Chicca................. 18,750 1 12.00 3/31/07 141,501 358,592
David Bowman................ 18,750 1 12.00 3/31/07 141,501 358,592
</TABLE>
- ---------------
* Less than 1%.
(1) Potential gains are net of the exercise price but before taxes associated
with the exercise. The 5% and 10% assumed annual rates of compounded stock
appreciation based upon the exercise price per share are mandated by the
rules of the Securities and Exchange Commission and do not represent the
Company's estimate or projection of the future common stock price. Actual
gains, if any, on stock option exercises are dependent on the future
financial performance of the Company, overall market conditions and the
option holders' continued employment through the vesting period. This table
does not take into account any appreciation in the fair market value of the
Common Stock from the date of grant to the date of this Proxy, other than
the columns reflecting assumed rates of appreciation of 5% and 10%.
(2) Options were granted at an exercise price equal to the fair market value of
the Company's Common Stock on the date of grant, as determined by the Board
of Directors.
(3) Exercise price may be paid in cash, check, delivery of already-owned shares
of the Company's Common Stock subject to certain conditions, authorization
to the Company to retain from the total number of shares for which the
option is exercised that number of shares having a fair market value on the
date of exercise equal to the exercise price for the total number of shares
as to which the option is exercised, delivery of a properly executed
exercise notice together with irrevocable instructions to a broker to
promptly deliver to the Company the amount of sale or loan proceeds required
to pay the exercise price, or any combination of the foregoing methods of
payment or such other consideration or method of payment to the extent
permitted under applicable law.
(4) Options become exercisable as to 25% of the option shares on the first
anniversary of the date of grant and as to 1/48th of the option shares each
month thereafter, with full vesting occurring on the fourth anniversary of
the date of grant.
19
<PAGE> 22
AGGREGATE OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION VALUES
The following table sets forth certain information regarding exercises of
stock options by the Named Executive Officers during the year ended December 31,
1997 and the stock options held as of December 31, 1997 by the Named Executive
Officers.
<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING UNEXERCISED VALUE OF UNEXERCISED
OPTIONS AT IN-THE-MONEY OPTIONS AT
DECEMBER 31, 1997(#)(1) DECEMBER 31, 1997($)(2)
SHARES --------------------------- ---------------------------
ACQUIRED ON VALUE
NAME EXERCISE(#) REALIZED($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ----------- ----------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
L. Gregory Ballard........ 850 $16,553.75 86,650 281,250 $1,871,640 $5,866,875
Scott D. Sellers.......... -- -- 8,854 84,896 195,319 890,556
Gary Tarolli.............. -- -- 8,854 84,896 195,319 890,556
Philip Carmack............ -- -- 23,177 66,823 515,785 1,016,215
Karl Chicca............... 23,438 36,563.28 4,687 65,625 103,395 1,230,938
David Bowman.............. -- -- 16,667 77,083 367,674 1,483,701
</TABLE>
- ---------------
(1) Options granted under the Company's 1995 Employee Stock Plan may be
exercised by the holder thereof prior to vesting with the shares purchased
thereby subject to repurchase by the Company until fully vested. The table
presents options as exercisable according to the vesting schedule of the
option.
(2) Based upon the last sale price of the Common Stock on December 31, 1997,
$22.50 per share, minus the exercise price.
EMPLOYMENT AGREEMENTS AND CHANGE IN CONTROL ARRANGEMENTS
Pursuant to letter agreements entered into with each of L. Gregory Ballard,
David Bowman, Philip Carmack, Karl Chicca, Scott Sellers and Gary Tarolli, in
the event there is a change of control of the Company and such executive is
terminated other than for cause within one year following the effective date of
such change of control, (i) in the case of Messrs. Ballard, Bowman, Carmack and
Chicca, 25% (or, in the event that less than 25% of such executive's options
remain unvested, all) of such executive's options will be accelerated and become
fully vested and (ii) in the cases of Messrs. Sellers and Tarolli, 25% of the
executive's stock subject to the Company's repurchase option under a restricted
stock purchase agreement shall be released from such repurchase option (or all
of such stock if less than 25% of the executive's stock remains subject to the
Company's repurchase option). For purposes of these letter agreements a "change
of control" means the (i) the sale of all or substantially all of the Company's
assets, or (ii) a consolidation or merger of the Company with or into any other
corporation (other than a wholly-owned subsidiary of the Company) or engagement
in a transaction or series of transactions in which more than 50% of the voting
power of the Company is disposed. Termination other than for cause includes
constructive termination resulting from (i) the reduction of such employee's
rate of compensation, (ii) the reduction of such employee's scope of engagement
or (iii) the requirement that such employee provide services at a location more
than 50 miles from the employee's office location as of the date of the letter
agreement.
LIMITATIONS ON LIABILITY AND INDEMNIFICATION MATTERS
The Company has adopted provisions in its Articles of Incorporation that
eliminate to the fullest extent permissible under California law the liability
of its directors to the Company for monetary damages. Such limitation of
liability does not affect the availability of equitable remedies such as
injunctive relief or rescission. The Company's Bylaws provide that the Company
shall indemnify its directors and officers to the fullest extent permitted by
California law, including in circumstances in which indemnification is otherwise
discretionary under California law. The Company has entered into indemnification
agreements with its officers and directors containing provisions which may
require the Company, among other things, to indemnify the officers and directors
against certain liabilities that may arise by reason of their status or service
as directors or officers (other than liabilities arising from willful misconduct
of a culpable nature), and to advance their expenses incurred as a result of any
proceeding against them as to which they could be indemnified.
20
<PAGE> 23
At the present time, there is no pending litigation or proceeding involving
a director, officer, employee or other agent of the Company in which
indemnification would be required or permitted. The Company is not aware of any
threatened litigation or proceeding which may result in a claim for such
indemnification.
CERTAIN TRANSACTIONS
Private Placement of Securities
In January 1997, the Company sold 70,167 shares of its Series C Preferred
Stock in a private placement transaction for $7.50 per share. The purchasers of
Series C Preferred Stock described above included Greg Ballard, the Company's
President and Chief Executive Officer, and Dave Bowman, formerly the Company's
Vice President, Sales. Both of Messrs. Ballard and Bowman purchased 2,500 shares
of Series C Preferred Stock.
Transactions with Directors and Executive Officers
Techfarm provides management services to the Company for which the Company
pays a fee of $5,000 per month. Gordon Campbell, the Chairman of the Board of
Directors of the Company, and James Whims, a director of the Company, are each
officers of Techfarm. The Company made total payments to Techfarm for such
management services during 1995, 1996 and 1997 of $45,000, $60,000 and $60,000,
respectively.
The Company has an agreement with Quantum3D, a supplier of advanced
graphics subsystems based on the Company's technology, pursuant to which the
Company will supply graphic boards and components to Quantum3D. Gordon Campbell,
Chairman of the Board of Directors of the Company, is a Director, significant
investor in and shareholder of Quantum3D. Sales to Quantum3D during 1997 totaled
$949,000. As of December 31, 1997, the Company had an outstanding trade
receivable from Quantum3D of approximately $624,500.
In connection with the termination of Gary Martin's employment with the
Company, the Company and Mr. Martin, who was Chief Financial Officer and Vice
President, Administration until January 31, 1998, entered into a Separation
Agreement pursuant to which Mr. Martin will (i) remain a temporary employee
through August 1, 2000 and (ii) continue to receive medical insurance through
December 31, 1998. In addition, all options granted to Mr. Martin pursuant to
the Company's stock plans will continue to vest through August 1, 2000. As of
January 1, 1998, Mr. Martin held vested options to purchase 83,810 shares of
Common Stock and unvested option to purchase 57,240 shares of Common Stock. In
the event of a Change of Control, the Company will (i) waive its right to
repurchase any unvested shares of Common Stock owned by Mr. Martin and (ii)
accelerate the vesting of all unvested stock options granted to Mr. Martin
pursuant to the Company's stock plans. For purposes of the separation agreement,
a "Change of Control" occurs, subject to certain conditions and exceptions, upon
(i) the acquisition, directly or indirectly, by any person (other than existing
beneficial owners) of securities of the Company representing 50% or more of the
total voting power represented by the Company's then outstanding voting
securities; (ii) the merger or consolidation of the Company with another
corporation in which the voting securities of the Company outstanding
immediately prior to such merger or consolidation ceased to represent at least
50% of the voting power represented by the voting securities of the Company
thereafter; or (iii) the liquidation of the Company or the sale or disposition
of all or substantially all of the Company's assets.
The Company believes that all of the transactions set forth above were made
on terms no less favorable to the Company than could have been obtained from
unaffiliated third parties. All future transactions, including loans, between
the Company and its officers, directors, principal shareholders and their
affiliates will be approved by a majority of the Board of Directors, including a
majority of the independent and disinterested outside directors, and will
continue to be on terms no less favorable to the Company than could be obtained
from unaffiliated third parties.
21
<PAGE> 24
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16 (a) of the Exchange Act ("Section 16 (a)") requires the
Company's officers and directors, and persons who own more than ten percent of a
registered class of the Company's equity securities, to file reports of
ownership on Form 3 and changes in ownership on Form 4 or Form 5 with the
Securities and Exchange Commission (the "SEC") and the National Association of
Securities Dealers, Inc. Such officers, directors and ten-percent shareholders
are also required by SEC rules to furnish the Company with copies of all such
forms that they file. Based solely on its review of the copies of such forms
received by the Company, or written representations from certain reporting
persons that no Forms 5 were required for such persons, the Company believes
that during fiscal 1996 all Section 16(a) filing requirements applicable to its
officers, directors and ten-percent shareholders were complied with, except that
Gary P. Martin and Gordon A. Campbell filed Forms 4 with respect to open market
purchases late.
REPORT OF THE COMPENSATION COMMITTEE OF THE
BOARD OF DIRECTORS ON EXECUTIVE COMPENSATION
Notwithstanding any statement to the contrary in any of the Company's
previous or future filings with the Securities and Exchange Commission, this
Report of the Compensation Committee of the Board of Directors shall not be
deemed "filed" with the Securities and Exchange Commission and shall not be
incorporated by reference into any such filings.
INTRODUCTION
Prior to the Company's initial public offering that was completed in June
1997, the Board of Directors was primarily responsible for establishing and
administering the Company's compensation policies. In this role, and consistent
with the Company's status as a privately held corporation, the Board determined
the Chief Executive Officer's salary directly and reviewed and approved
employment compensation matters for other management personnel.
The Compensation Committee of the Board of Directors (the "Committee") was
established in March 1997 and is composed only of outside directors. During
fiscal 1997, the Compensation Committee consisted of George J. Still, Jr. and
James Whims. In general, the Committee is responsible for reviewing and
recommending for approval by the Board of Directors the Company's compensation
practices, including executive salary levels and variable compensation programs.
With respect to the compensation of the Company's Chief Executive Officer, the
Committee reviews and submits to the Board for approval the various elements of
the Chief Executive Officer's compensation. With respect to other executive
officers, the Committee reviews the recommendations for such individuals
presented by the Chief Executive Officer and the basis therefor and approves or
modifies the compensation packages for such individuals.
The Board of Directors administers the Company's 1995 Employee Stock Plan,
the 1997 Supplementary Stock Option Plan, the Directors Option Plan and the 1997
Employee Stock Purchase Plan.
General Compensation Philosophy
The primary objectives of the Company's executive compensation policies
include the following:
- To attract, motivate and retain a highly qualified executive management
team;
- To link executive compensation to the Company's financial performance as
well as to defined individual management objectives established by the
Committee;
- To compensate competitively with the practices of similarly situated
technology companies; and
- To create management incentives designed to enhance shareholder value.
The Company competes in an aggressive and dynamic industry and, as a
result, believes that finding, motivating, and retaining quality employees,
particularly senior managers, sales personnel, and technical personnel, are key
factors to the Company's future success. The Committee's compensation philosophy
seeks
22
<PAGE> 25
to align the interests of shareholders and management by tying compensation to
the Company's financial performance, either directly in the form of salary and
bonuses paid in cash or indirectly in the form of appreciation of stock options
and stock purchase rights granted to employees through the Company's equity
incentive programs.
EXECUTIVE COMPENSATION
The Company has a compensation program which consists of two principal
components: cash-based compensation and equity-based compensation. These two
principal components are intended to attract, retain, motivate and reward
executives who are expected to manage both the short-term and long-term success
of the Company.
Cash-based compensation. Cash-based compensation consists of salary (base
pay) and incentive pay. The salaries of each of the executive officers (other
than the Chief Executive Officer) for the year ended December 31, 1997 were
approved by the Board of Directors, upon the recommendation of the Chief
Executive Officer. Although no formal incentive bonus plan was in place in 1997,
based on fourth quarter financial results, the Board of Directors approved a
year-end bonus totaling $300,000 which was allocated to all employees, including
executive officers, based on such employees' salary as a percentage of all
Company salaries, subject to management discretion. In February 1998, the Board
of Directors adopted the 1998 Bonus Plan upon the recommendation of the
Compensation Committee.
Equity Incentive Programs. Long-term equity incentives, including stock
options and stock purchase rights granted pursuant to the Company's 1995
Employee Stock Plan, the 1997 Supplementary Stock Option Plan and the 1997
Employee Stock Purchase Plan, directly align the economic interests of the
Company's management and employees with those of its shareholders. Stock options
are a particularly strong incentive because they are valuable to employees only
if the fair market value of the Company's Common Stock increases above the
exercise price, which is set at the fair market value of the Company's Common
Stock on the date the option is granted. In addition, employees must remain
employed with the Company for a fixed period of time in order for the options to
vest fully. In general, twenty-five percent of the shares issuable upon exercise
of options granted under the Company's 1995 Employee Stock Plan and the 1997
Supplementary Stock Option Plan became vested on the first anniversary of the
date of grant and vest at the rate of 1/48th of the shares for each month
thereafter. The number of options granted to each executive is determined by the
Board of Directors upon the recommendation of the Compensation Committee. In
making its determination, the Board of Directors and the Compensation Committee
consider the executive's position at the Company, his or her individual
performance, the number of options held by the executive, with particular
attention to the executive's unvested option position, and other factors.
COMPENSATION OF CHIEF EXECUTIVE OFFICER
In determining the CEO's compensation, the Committee considers comparative
financial and compensation data of selected peer companies. During fiscal 1997,
L. Gregory Ballard, the Company's President and CEO, received a salary of
$210,167. For fiscal 1998, the Company has increased Mr. Ballard's base annual
salary to $260,000, representing an approximately 24% increase over his salary
for fiscal 1997. The Committee based the increase in Mr. Ballard's salary on a
variety of factors, including the Company's improved financial performance in
fiscal 1997, an intent to raise Mr. Ballard's salary closer to the average base
salary paid by peer companies, and Mr. Ballard's contribution toward the
Company's achieving important product development and corporate milestones,
including the successful completion of the Company's initial public offering in
June 1997 and the first profitable fiscal quarter.
In 1997, Mr. Ballard received a year-end bonus of $6,220, as part of the
bonuses granted to all employees at year-end. In 1998, however, Mr. Ballard will
receive a portion of his compensation under the 1998 Bonus Plan. At the time the
Committee determines Mr. Ballard's salary, it also establishes a bonus target
and corresponding performance objectives. For fiscal 1998, the Committee has set
Mr. Ballard's target bonus at $104,000. The percentage of the target bonus that
Mr. Ballard will receive is a function of both (i) the financial performance of
the Company and (ii) Mr. Ballard's individual performance as measured against
23
<PAGE> 26
specific "management-by-objective" ("MBO") goals determined by the Committee.
The portion of the bonus attributable to MBO goals is paid in quarterly
increments based on the attainment of such objectives. The portion of the bonus
attributable to the Company's financial performance is paid in quarterly
installments, with an additional amount based on fiscal year performance earned
and payable following the announcement of year-end results.
The Company grants stock options to the Chief Executive Officer based
primarily on the Company's evaluation of his ability to influence the Company's
long-term growth and profitability. The Committee determines the size of the
option grant based on its estimate of the equity incentive value of the CEO's
existing unvested option position. Accordingly, in fiscal 1997, the Company
granted Mr. Ballard options to acquire 18,750 shares of the Company's Common
Stock.
TAX DEDUCTIBILITY OF EXECUTIVE COMPENSATION
Section 162 of the Code limits the federal income tax deductibility of
compensation paid to the Company's Chief Executive Officer and to each of the
other four most highly-compensated executive officers. The Company may deduct
such compensation only to the extent that during any fiscal year the
compensation paid to such individual does not exceed $1 million or meet certain
specified conditions (including shareholder approval). Based on the Company's
current compensation plans and policies and proposed regulations interpreting
this provision of the Code, the Company and the Committee believe that, for the
near future, there is little risk that the Company will lose any significant tax
deduction for executive compensation.
SUMMARY
The Board of Directors and the Compensation Committee intend that its
compensation program shall be fair and motivating and shall be successful in
attracting and retaining qualified employees and in linking compensation
directly to the Company's success. The Board of Directors and the Compensation
Committee intend to review this program on an ongoing basis to evaluate its
continued effectiveness.
THE COMPENSATION COMMITTEE OF
THE BOARD OF DIRECTORS
George J. Still, Jr.
James Whims
24
<PAGE> 27
COMPANY STOCK PRICE PERFORMANCE GRAPH
The following graph compares the Company's cumulative total shareholder
return with those of the Nasdaq Stock Market (U.S). Index and the Nasdaq
Electronic Components Index. The graph assumes that $100 was invested on June
25, 1997 (the effective date of the Company's initial public offering) in (i)
the Company's Common Stock, (ii) the Nasdaq Stock Market (U.S.) Index and (iii)
the Nasdaq Electronic Components Index, including reinvestment of dividends.
Note that historic stock price performance is not necessarily indicative of
future stock price performance.
The stock price performance graph set forth below under the caption
"Performance Graph" shall not be deemed to be incorporated by reference by any
general statement incorporating by reference this proxy statement into any
filing under the Securities Act or under the Exchange Act, except to the extent
that the Company specifically incorporates this information by reference, and
shall not otherwise be deemed "filed with" or "soliciting material" under such
Acts.
COMPARISON OF SIX MONTH CUMULATIVE TOTAL RETURN
AMONG 3DFX INTERACTIVE, INC., THE NASDAQ STOCK MARKET (U.S.) INDEX
AND THE NASDAQ ELECTRONIC COMPONENTS INDEX
<TABLE>
<CAPTION>
MEASUREMENT PERIOD '3DFX INTERACTIVE NASDAQ STOCK MARKET NASDAQ ELECTRONIC
(FISCAL YEAR COVERED) INC.' (U.S.) COMPONENTS
<S> <C> <C> <C>
6/25/97 100.00 100.00 100.00
9/30/97 152.00 120.00 124.00
12/31/97 205.00 113.00 93.00
</TABLE>
No dividends have been declared or paid on the Company's Common Stock. The
Company intends to return its earnings, if any, to fund its business and does
not anticipate paying any cash dividends in the foreseeable future.
25
<PAGE> 28
OTHER MATTERS
The Company knows of no other matters to be submitted at the meeting. If
any other matters properly come before the meeting, it is the intention of the
persons named in the enclosed form of Proxy to vote the shares they represent as
the Board of Directors may recommend.
THE BOARD OF DIRECTORS
Dated: March 27, 1998
26
<PAGE> 29
SKU:1645-PS-98
<PAGE> 30
3DFX INTERACTIVE, INC.
1997 EMPLOYEE STOCK PURCHASE PLAN
(Amended as of February 1998)
The following constitute the provisions of the 1997 Employee Stock
Purchase Plan of 3Dfx Interactive, Inc.
1. Purpose. The purpose of the Plan is to provide employees of the
Company and its Designated Subsidiaries with an opportunity to purchase Common
Stock of the Company through accumulated payroll deductions. It is the intention
of the Company to have the Plan qualify as an "Employee Stock Purchase Plan"
under Section 423 of the Internal Revenue Code of 1986, as amended. The
provisions of the Plan, accordingly, shall be construed so as to extend and
limit participation in a manner consistent with the requirements of that section
of the Code.
2. Definitions.
(a) "Board" shall mean the Board of Directors of the Company.
(b) "Code" shall mean the Internal Revenue Code of 1986, as
amended.
(c) "Common Stock" shall mean the Common Stock of the Company.
(d) "Company" shall mean 3Dfx Interactive, Inc. and any
Designated Subsidiary of the Company.
(e) "Compensation" shall mean all W-2 compensation of the
participant.
(f) "Designated Subsidiary" shall mean any Subsidiary which has
been designated by the Board from time to time in its sole discretion as
eligible to participate in the Plan.
(g) "Employee" shall mean any individual who is an Employee of
the Company for tax purposes whose customary employment with the Company is at
least twenty (20) hours per week and more than five (5) months in any calendar
year. For purposes of the Plan, the employment relationship shall be treated as
continuing intact while the individual is on sick leave or other leave of
absence approved by the Company. Where the period of leave exceeds 90 days and
the individual's right to reemployment is not guaranteed either by statute or by
contract, the employment relationship shall be deemed to have terminated on the
91st day of such leave.
(h) "Enrollment Date" shall mean the first day of each Offering
Period.
(i) "Exercise Date" shall mean the last day of each Purchase
Period.
<PAGE> 31
(j) "Fair Market Value" shall mean, as of any date, the value of
Common Stock determined as follows:
(1) If the Common Stock is listed on any established stock
exchange or a national market system, including without limitation the Nasdaq
National Market or The Nasdaq SmallCap Market of The Nasdaq Stock Market, its
Fair Market Value shall be the closing sales price for such stock (or the
closing bid, if no sales were reported) as quoted on such exchange or system for
the last market trading day on the date of such determination, as reported in
The Wall Street Journal or such other source as the Administrator deems
reliable, or;
(2) If the Common Stock is regularly quoted by a
recognized securities dealer but selling prices are not reported, its Fair
Market Value shall be the mean of the closing bid and asked prices for the
Common Stock on the date of such determination, as reported in The Wall Street
Journal or such other source as the Board deems reliable, or;
(3) In the absence of an established market for the Common
Stock, the Fair Market Value thereof shall be determined in good faith by the
Board, or;
(4) For purposes of the Enrollment Date of the first
Offering Period under the Plan, the Fair Market Value shall be the initial price
to the public as set forth in the final prospectus included within the
registration statement in Form S-1 filed with the Securities and Exchange
Commission for the initial public offering of the Company's Common Stock (the
"Registration Statement").
(k) "Offering Periods" shall mean the periods of approximately
twenty-four (24) months during which an option granted pursuant to the Plan may
be exercised, commencing on the first Trading Day on or after May 1 and November
1 of each year and terminating on the last Trading Day in the periods ending
twenty-four months later; provided, however, that the first Offering Period
under the Plan shall commence with the first Trading Day on or after the date on
which the Securities and Exchange Commission declares the Company's Registration
Statement effective and ending on the last Trading Day on or before April 30,
1999. The duration and timing of Offering Periods may be changed pursuant to
Section 4 of this Plan.
(l) "Plan" shall mean this Employee Stock Purchase Plan.
(m) "Purchase Price" shall mean an amount equal to 85% of the
Fair Market Value of a share of Common Stock on the Enrollment Date or on the
Exercise Date, whichever is lower.
(n) "Purchase Period" shall mean the approximately six month
period commencing after one Exercise Date and ending with the next Exercise
Date, except that the first Purchase Period of any Offering Period shall
commence on the Enrollment Date and end with the next Exercise Date.
-2-
<PAGE> 32
(o) "Reserves" shall mean the number of shares of Common Stock
covered by each option under the Plan which have not yet been exercised and the
number of shares of Common Stock which have been authorized for issuance under
the Plan but not yet placed under option.
(p) "Subsidiary" shall mean a corporation, domestic or foreign,
of which not less than 50% of the voting shares are held by the Company or a
Subsidiary, whether or not such corporation now exists or is hereafter organized
or acquired by the Company or a Subsidiary.
(q) "Trading Day" shall mean a day on which national stock
exchanges and the Nasdaq System are open for trading.
3. Eligibility.
(a) Any Employee who shall be employed by the Company on a given
Enrollment Date shall be eligible to participate in the Plan.
(b) Any provisions of the Plan to the contrary notwithstanding,
no Employee shall be granted an option under the Plan (i) to the extent that,
immediately after the grant, such Employee (or any other person whose stock
would be attributed to such Employee pursuant to Section 424(d) of the Code)
would own capital stock of the Company and/or hold outstanding options to
purchase such stock possessing five percent (5%) or more of the total combined
voting power or value of all classes of the capital stock of the Company or of
any Subsidiary, or (ii) to the extent that his or her rights to purchase stock
under all employee stock purchase plans of the Company and its subsidiaries
accrues at a rate which exceeds Twenty-Five Thousand Dollars ($25,000) worth of
stock (determined at the fair market value of the shares at the time such option
is granted) for each calendar year in which such option is outstanding at any
time.
4. Offering Periods. The Plan shall be implemented by consecutive,
overlapping Offering Periods with a new Offering Period commencing on the first
Trading Day on or after May 1 and November 1 each year, or on such other date as
the Board shall determine, and continuing thereafter until terminated in
accordance with Section 20 hereof; provided, however, that the first Offering
Period under the Plan shall commence with the first Trading Day on or after the
date on which the Securities and Exchange Commission declares the Company's
Registration Statement effective and ending on the last Trading Day on or before
April 30, 1999. The Board shall have the power to change the duration of
Offering Periods (including the commencement dates thereof) with respect to
future offerings without shareholder approval if such change is announced at
least five (5) days prior to the scheduled beginning of the first Offering
Period to be affected thereafter.
5. Participation.
(a) An eligible Employee may become a participant in the Plan by
completing a subscription agreement authorizing payroll deductions in the form
of Exhibit A to this Plan and filing it with the Company's payroll office prior
to the applicable Enrollment Date.
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<PAGE> 33
(b) Payroll deductions for a participant shall commence on the
first payroll following the Enrollment Date and shall end on the last payroll in
the Offering Period to which such authorization is applicable, unless sooner
terminated by the participant as provided in Section 10 hereof.
6. Payroll Deductions.
(a) At the time a participant files his or her subscription
agreement, he or she shall elect to have payroll deductions made on each pay day
during the Offering Period in an amount not exceeding fifteen percent (15%) of
the Compensation which he or she receives on each pay day during the Offering
Period.
(b) All payroll deductions made for a participant shall be
credited to his or her account under the Plan and shall be withheld in whole
percentages only. A participant may not make any additional payments into such
account.
(c) A participant may discontinue his or her participation in the
Plan as provided in Section 10 hereof, or may increase or decrease the rate of
his or her payroll deductions during the Offering Period by completing or filing
with the Company a new subscription agreement authorizing a change in payroll
deduction rate. The Board may, in its discretion, limit the number of
participation rate changes during any Offering Period. The change in rate shall
be effective with the first full payroll period following five (5) business days
after the Company's receipt of the new subscription agreement unless the Company
elects to process a given change in participation more quickly. A participant's
subscription agreement shall remain in effect for successive Offering Periods
unless terminated as provided in Section 10 hereof.
(d) Notwithstanding the foregoing, to the extent necessary to
comply with Section 423(b)(8) of the Code and Section 3(b) hereof, a
participant's payroll deductions may be decreased to zero percent (0%) at any
time during a Purchase Period. Payroll deductions shall recommence at the rate
provided in such participant's subscription agreement at the beginning of the
first Purchase Period which is scheduled to end in the following calendar year,
unless terminated by the participant as provided in Section 10 hereof.
(e) At the time the option is exercised, in whole or in part, or
at the time some or all of the Company's Common Stock issued under the Plan is
disposed of, the participant must make adequate provision for the Company's
federal, state, or other tax withholding obligations, if any, which arise upon
the exercise of the option or the disposition of the Common Stock. At any time,
the Company may, but shall not be obligated to, withhold from the participant's
Compensation the amount necessary for the Company to meet applicable withholding
obligations, including any withholding required to make available to the Company
any tax deductions or benefits attributable to sale or early disposition of
Common Stock by the Employee.
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<PAGE> 34
7. Grant of Option. On the Enrollment Date of each Offering Period, each
eligible Employee participating in such Offering Period shall be granted an
option to purchase on each Exercise Date during such Offering Period (at the
applicable Purchase Price) up to a number of shares of the Company's Common
Stock determined by dividing such Employee's payroll deductions accumulated
prior to such Exercise Date and retained in the Participant's account as of the
Exercise Date by the applicable Purchase Price; provided that in no event shall
an Employee be permitted to purchase during each Purchase Period more than 7,500
shares of the Company's Common Stock (subject to any adjustment pursuant to
Section 19) on the Enrollment Date, and provided further that such purchase
shall be subject to the limitations set forth in Sections 3(b) and 12 hereof.
Exercise of the option shall occur as provided in Section 8 hereof, unless the
participant has withdrawn pursuant to Section 10 hereof. The option shall expire
on the last day of the Offering Period.
8. Exercise of Option. Unless a participant withdraws from the Plan as
provided in Section 10 hereof, his or her option for the purchase of shares
shall be exercised automatically on the Exercise Date, and the maximum number of
full shares subject to option shall be purchased for such participant at the
applicable Purchase Price with the accumulated payroll deductions in his or her
account. No fractional shares shall be purchased; any payroll deductions
accumulated in a participant's account which are not sufficient to purchase a
full share shall be retained in the participant's account for the subsequent
Purchase Period or Offering Period, subject to earlier withdrawal by the
participant as provided in Section 10 hereof. Any other monies left over in a
participant's account after the Exercise Date shall be returned to the
participant. During a participant's lifetime, a participant's option to purchase
shares hereunder is exercisable only by him or her.
9. Delivery. As promptly as practicable after each Exercise Date on
which a purchase of shares occurs, the Company shall arrange the delivery to
each participant, as appropriate, of a certificate representing the shares
purchased upon exercise of his or her option.
10. Withdrawal.
(a) A participant may withdraw all but not less than all the
payroll deductions credited to his or her account and not yet used to exercise
his or her option under the Plan at any time by giving written notice to the
Company in the form of Exhibit B to this Plan. All of the participant's payroll
deductions credited to his or her account shall be paid to such participant
promptly after receipt of notice of withdrawal and such participant's option for
the Offering Period shall be automatically terminated, and no further payroll
deductions for the purchase of shares shall be made for such Offering Period. If
a participant withdraws from an Offering Period, payroll deductions shall not
resume at the beginning of the succeeding Offering Period unless the participant
delivers to the Company a new subscription agreement.
(b) A participant's withdrawal from an Offering Period shall not
have any effect upon his or her eligibility to participate in any similar plan
which may hereafter be adopted by the Company or in succeeding Offering Periods
which commence after the termination of the Offering Period from which the
participant withdraws.
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<PAGE> 35
11. Termination of Employment.
Upon a participant's ceasing to be an Employee, for any reason,
he or she shall be deemed to have elected to withdraw from the Plan and the
payroll deductions credited to such participant's account during the Offering
Period but not yet used to exercise the option shall be returned to such
participant or, in the case of his or her death, to the person or persons
entitled thereto under Section 15 hereof, and such participant's option shall be
automatically terminated. The preceding sentence notwithstanding, a participant
who receives payment in lieu of notice of termination of employment shall be
treated as continuing to be an Employee for the participant's customary number
of hours per week of employment during the period in which the participant is
subject to such payment in lieu of notice.
12. Interest. No interest shall accrue on the payroll deductions of a
participant in the Plan.
13. Stock.
(a) Subject to Section 19, the maximum number of shares of the
Company's Common Stock which shall be made available for sale under the Plan
shall be five hundred fifty thousand (550,000) shares, together with an annual
increase to the number of shares reserved thereunder to take effect each year on
the date of the Annual Meeting of Shareholders (commencing with the 1999 Annual
Meeting of Shareholders) equal to the lesser of (i) 200,000 shares or (ii) 1% of
the outstanding shares of the Company on such date. If, on a given Exercise
Date, the number of shares with respect to which options are to be exercised
exceeds the number of shares then available under the Plan, the Company shall
make a pro rata allocation of the shares remaining available for purchase in as
uniform a manner as shall be practicable and as it shall determine to be
equitable.
(b) The participant shall have no interest or voting right in
shares covered by his option until such option has been exercised.
(c) Shares to be delivered to a participant under the Plan shall
be registered in the name of the participant or in the name of the participant
and his or her spouse.
14. Administration. The Plan shall be administered by the Board or a
committee of members of the Board appointed by the Board. The Board or its
committee shall have full and exclusive discretionary authority to construe,
interpret and apply the terms of the Plan, to determine eligibility and to
adjudicate all disputed claims filed under the Plan. Every finding, decision and
determination made by the Board or its committee shall, to the full extent
permitted by law, be final and binding upon all parties.
15. Designation of Beneficiary.
(a) A participant may file a written designation of a beneficiary
who is to receive any shares and cash, if any, from the participant's account
under the Plan in the event of such participant's death subsequent to an
Exercise Date on which the option is exercised but prior to delivery to such
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<PAGE> 36
participant of such shares and cash. In addition, a participant may file a
written designation of a beneficiary who is to receive any cash from the
participant's account under the Plan in the event of such participant's death
prior to exercise of the option. If a participant is married and the designated
beneficiary is not the spouse, spousal consent shall be required for such
designation to be effective.
(b) Such designation of beneficiary may be changed by the
participant at any time by written notice. In the event of the death of a
participant and in the absence of a beneficiary validly designated under the
Plan who is living at the time of such participant's death, the Company shall
deliver such shares and/or cash to the executor or administrator of the estate
of the participant, or if no such executor or administrator has been appointed
(to the knowledge of the Company), the Company, in its discretion, may deliver
such shares and/or cash to the spouse or to any one or more dependents or
relatives of the participant, or if no spouse, dependent or relative is known to
the Company, then to such other person as the Company may designate.
16. Transferability. Neither payroll deductions credited to a
participant's account nor any rights with regard to the exercise of an option or
to receive shares under the Plan may be assigned, transferred, pledged or
otherwise disposed of in any way (other than by will, the laws of descent and
distribution or as provided in Section 15 hereof) by the participant. Any such
attempt at assignment, transfer, pledge or other disposition shall be without
effect, except that the Company may treat such act as an election to withdraw
funds from an Offering Period in accordance with Section 10 hereof.
17. Use of Funds. All payroll deductions received or held by the Company
under the Plan may be used by the Company for any corporate purpose, and the
Company shall not be obligated to segregate such payroll deductions.
18. Reports. Individual accounts shall be maintained for each
participant in the Plan. Statements of account shall be given to participating
Employees at least annually, which statements shall set forth the amounts of
payroll deductions, the Purchase Price, the number of shares purchased and the
remaining cash balance, if any.
19. Adjustments Upon Changes in Capitalization, Dissolution,
Liquidation, Merger or Asset Sale.
(a) Changes in Capitalization. Subject to any required action by
the shareholders of the Company, the Reserves, the maximum number of shares each
participant may purchase each Purchase Period (pursuant to Section 7), as well
as the price per share and the number of shares of Common Stock covered by each
option under the Plan which has not yet been exercised shall be proportionately
adjusted for any increase or decrease in the number of issued shares of Common
Stock resulting from a stock split, reverse stock split, stock dividend,
combination or reclassification of the Common Stock, or any other increase or
decrease in the number of shares of Common Stock effected without receipt of
consideration by the Company; provided, however, that conversion of any
convertible securities of the Company shall not be deemed to have been "effected
without receipt of consideration". Such adjustment shall be made by the Board,
whose determination in that respect shall be final, binding
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<PAGE> 37
and conclusive. Except as expressly provided herein, no issuance by the Company
of shares of stock of any class, or securities convertible into shares of stock
of any class, shall affect, and no adjustment by reason thereof shall be made
with respect to, the number or price of shares of Common Stock subject to an
option.
(b) Dissolution or Liquidation. In the event of the proposed
dissolution or liquidation of the Company, the Offering Period then in progress
shall be shortened by setting a new Exercise Date (the "New Exercise Date"), and
shall terminate immediately prior to the consummation of such proposed
dissolution or liquidation, unless provided otherwise by the Board. The New
Exercise Date shall be before the date of the Company's proposed dissolution or
liquidation. The Board shall notify each participant in writing, at least ten
(10) business days prior to the New Exercise Date, that the Exercise Date for
the participant's option has been changed to the New Exercise Date and that the
participant's option shall be exercised automatically on the New Exercise Date,
unless prior to such date the participant has withdrawn from the Offering Period
as provided in Section 10 hereof.
(c) Merger or Asset Sale. In the event of a proposed sale of all
or substantially all of the assets of the Company, or the merger of the Company
with or into another corporation, each outstanding option shall be assumed or an
equivalent option substituted by the successor corporation or a Parent or
Subsidiary of the successor corporation. In the event that the successor
corporation refuses to assume or substitute for the option, any Purchase Periods
then in progress shall be shortened by setting a new Exercise Date (the "New
Exercise Date") and any Offering Periods then in progress shall end on the New
Exercise Date. The New Exercise Date shall be before the date of the Company's
proposed sale or merger. The Board shall notify each participant in writing, at
least ten (10) business days prior to the New Exercise Date, that the Exercise
Date for the participant's option has been changed to the New Exercise Date and
that the participant's option shall be exercised automatically on the New
Exercise Date, unless prior to such date the participant has withdrawn from the
Offering Period as provided in Section 10 hereof.
20. Amendment or Termination.
(a) The Board of Directors of the Company may at any time and for
any reason terminate or amend the Plan. Except as provided in Section 19 hereof,
no such termination can affect options previously granted, provided that an
Offering Period may be terminated by the Board of Directors on any Exercise Date
if the Board determines that the termination of the Plan is in the best
interests of the Company and its shareholders. Except as provided in Section 19
hereof, no amendment may make any change in any option theretofore granted which
adversely affects the rights of any participant. To the extent necessary to
comply with Section 423 of the Code (or any successor rule or provision or any
other applicable law, regulation or stock exchange rule), the Company shall
obtain shareholder approval in such a manner and to such a degree as required.
(b) Without shareholder consent and without regard to whether any
participant rights may be considered to have been "adversely affected," the
Board (or its committee) shall be entitled to change the Offering Periods, limit
the frequency and/or number of changes in the amount withheld
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<PAGE> 38
during an Offering Period, establish the exchange ratio applicable to amounts
withheld in a currency other than U.S. dollars, permit payroll withholding in
excess of the amount designated by a participant in order to adjust for delays
or mistakes in the Company's processing of properly completed withholding
elections, establish reasonable waiting and adjustment periods and/or accounting
and crediting procedures to ensure that amounts applied toward the purchase of
Common Stock for each participant properly correspond with amounts withheld from
the participant's Compensation, and establish such other limitations or
procedures as the Board (or its committee) determines in its sole discretion
advisable which are consistent with the Plan.
21. Notices. All notices or other communications by a participant to the
Company under or in connection with the Plan shall be deemed to have been duly
given when received in the form specified by the Company at the location, or by
the person, designated by the Company for the receipt thereof.
22. Conditions Upon Issuance of Shares. Shares shall not be issued with
respect to an option unless the exercise of such option and the issuance and
delivery of such shares pursuant thereto shall comply with all applicable
provisions of law, domestic or foreign, including, without limitation, the
Securities Act of 1933, as amended, the Securities Exchange Act of 1934, as
amended, the rules and regulations promulgated thereunder, and the requirements
of any stock exchange upon which the shares may then be listed, and shall be
further subject to the approval of counsel for the Company with respect to such
compliance.
As a condition to the exercise of an option, the Company may
require the person exercising such option to represent and warrant at the time
of any such exercise that the shares are being purchased only for investment and
without any present intention to sell or distribute such shares if, in the
opinion of counsel for the Company, such a representation is required by any of
the aforementioned applicable provisions of law.
23. Term of Plan. The Plan shall become effective upon the earlier to
occur of its adoption by the Board of Directors or its approval by the
shareholders of the Company. It shall continue in effect for a term of ten (10)
years unless sooner terminated under Section 20 hereof.
24. Automatic Transfer to Low Price Offering Period. To the extent
permitted by any applicable laws, regulations, or stock exchange rules if the
Fair Market Value of the Common Stock on any Exercise Date in an Offering Period
is lower than the Fair Market Value of the Common Stock on the Enrollment Date
of such Offering Period, then all participants in such Offering Period shall be
automatically withdrawn from such Offering Period immediately after the exercise
of their option on such Exercise Date and automatically re-enrolled in the
immediately following Offering Period as of the first day thereof.
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<PAGE> 39
EXHIBIT A
3DFX INTERACTIVE, INC.
1997 EMPLOYEE STOCK PURCHASE PLAN
SUBSCRIPTION AGREEMENT
_____ Original Application Enrollment Date: ___________
_____ Change in Payroll Deduction Rate
_____ Change of Beneficiary(ies)
1. _______________________________ hereby elects to participate in the 3Dfx
Interactive, Inc. 1997 Employee Stock Purchase Plan (the "Employee Stock
Purchase Plan") and subscribes to purchase shares of the Company's
Common Stock in accordance with this Subscription Agreement and the
Employee Stock Purchase Plan.
2. I hereby authorize payroll deductions from each paycheck in the amount
of ____% of my Compensation on each payday (from 1 to _____%) during the
Offering Period in accordance with the Employee Stock Purchase Plan.
(Please note that no fractional percentages are permitted.)
3. I understand that said payroll deductions shall be accumulated for the
purchase of shares of Common Stock at the applicable Purchase Price
determined in accordance with the Employee Stock Purchase Plan. I
understand that if I do not withdraw from an Offering Period, any
accumulated payroll deductions will be used to automatically exercise my
option.
4. I have received a copy of the complete Employee Stock Purchase Plan. I
understand that my par ticipation in the Employee Stock Purchase Plan is
in all respects subject to the terms of the Plan. I understand that my
ability to exercise the option under this Subscription Agreement is
subject to shareholder approval of the Employee Stock Purchase Plan.
5. Shares purchased for me under the Employee Stock Purchase Plan should be
issued in the name(s) of (Employee or Employee and Spouse only):________
________________________.
6. I understand that if I dispose of any shares received by me pursuant to
the Plan within 2 years after the Enrollment Date (the first day of the
Offering Period during which I purchased such shares) or one year after
the Exercise Date, I will be treated for federal income tax purposes as
having received ordinary income at the time of such disposition in an
amount equal to the excess of the fair market value of the shares at the
time such shares were purchased by me over the price which I paid for
the shares. I hereby agree to notify the Company in writing within 30
days after
<PAGE> 40
the date of any disposition of my shares and I will make adequate
provision for Federal, state or other tax withholding obligations, if
any, which arise upon the disposition of the Common Stock. The Company
may, but will not be obligated to, withhold from my compensation the
amount necessary to meet any applicable withholding obligation including
any withholding necessary to make available to the Company any tax
deductions or benefits attributable to sale or early disposition of
Common Stock by me. If I dispose of such shares at any time after the
expiration of the 2-year and 1-year holding periods, I understand that I
will be treated for federal income tax purposes as having received
income only at the time of such disposition, and that such income will
be taxed as ordinary income only to the extent of an amount equal to the
lesser of (1) the excess of the fair market value of the shares at the
time of such disposition over the purchase price which I paid for the
shares, or (2) 15% of the fair market value of the shares on the first
day of the Offering Period. The remainder of the gain, if any,
recognized on such disposition will be taxed as capital gain.
7. I hereby agree to be bound by the terms of the Employee Stock Purchase
Plan. The effectiveness of this Subscription Agreement is dependent upon
my eligibility to participate in the Employee Stock Purchase Plan.
8. In the event of my death, I hereby designate the following as my
beneficiary(ies) to receive all payments and shares due me under the
Employee Stock Purchase Plan:
NAME: (Please print)_____________________________________________________
(First) (Middle) (Last)
_______________________________ ____________________________________________
Relationship
____________________________________________
(Address)
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<PAGE> 41
Employee's Social
Security Number: ____________________________________
Employee's Address: ____________________________________
____________________________________
____________________________________
I UNDERSTAND THAT THIS SUBSCRIPTION AGREEMENT SHALL REMAIN IN EFFECT THROUGHOUT
SUCCESSIVE OFFERING PERIODS UNLESS TERMINATED BY ME.
Dated:_________________________ ________________________________________
Signature of Employee
________________________________________
Spouse's Signature (If beneficiary other
than spouse)
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<PAGE> 42
EXHIBIT B
3DFX INTERACTIVE, INC.
1997 EMPLOYEE STOCK PURCHASE PLAN
NOTICE OF WITHDRAWAL
The undersigned participant in the Offering Period of the 3Dfx
Interactive, Inc. 1997 Employee Stock Purchase Plan which began on ____________,
19____ (the "Enrollment Date") hereby notifies the Company that he or she hereby
withdraws from the Offering Period. He or she hereby directs the Company to pay
to the undersigned as promptly as practicable all the payroll deductions
credited to his or her account with respect to such Offering Period. The
undersigned understands and agrees that his or her option for such Offering
Period will be automatically terminated. The undersigned understands further
that no further payroll deductions will be made for the purchase of shares in
the current Offering Period and the undersigned shall be eligible to participate
in succeeding Offering Periods only by delivering to the Company a new
Subscription Agreement.
Name and Address of Participant:
________________________________
________________________________
________________________________
Signature:
________________________________
Date:__________________________
<PAGE> 43
3DFX INTERACTIVE, INC.
1995 EMPLOYEE STOCK PLAN
(As Amended May 1997 and February 1998)
1. Purposes of the Plan. The purposes of this Stock Plan are to attract
and retain the best available personnel for positions of substantial
responsibility, to provide additional incentive to Employees and Consultants of
the Company and its Subsidiaries and to promote the success of the Company's
business. Options granted under the Plan may be Incentive Stock Options or
Nonstatutory Stock Options, as determined by the Administrator at the time of
grant of an option and subject to the applicable provisions of Section 422 of
the Code, as amended, and the regulations promulgated thereunder. Stock Purchase
Rights may also be granted under the Plan.
2. Definitions. As used herein, the following definitions shall apply:
(a) "Administrator" means the Board or any of its Committees
appointed pursuant to Section 4 of the Plan.
(b) "Applicable Laws" means the requirements relating to the
administration of stock option plans under U. S. state corporate laws, U.S.
federal and state securities laws, the Code, any stock exchange or quotation
system on which the Common Stock is listed or quoted and the applicable laws of
any foreign country or jurisdiction where Options are, or will be, granted under
the Plan.
(c) "Board" means the Board of Directors of the Company.
(d) "Code" means the Internal Revenue Code of 1986, as amended.
(e) "Committee" means the committee appointed by the Board of
Directors in accordance with paragraph (a) of Section 4 of the Plan.
(f) "Common Stock" means the Common Stock of the Company.
(g) "Company" means 3Dfx Interactive, Inc., a California
corporation.
(h) "Consultant" means any person, including an advisor, who is
engaged by the Company or any Parent or Subsidiary to render services and is
compensated for such services.
(i) "Continuous Status as an Employee" means the absence of any
interruption or termination of the employment relationship by the Company or any
Subsidiary. Continuous Status as an Employee shall not be considered interrupted
in the case of: (i) sick leave, military leave or any other leave of absence
approved by the Board, provided that such leave is for a period of not more than
ninety (90) days, unless reemployment upon the expiration of such leave is
guaranteed by contract or statute, or unless provided otherwise pursuant to
Company policy
<PAGE> 44
adopted from time to time; or (ii) in the case of transfers between locations of
the Company or between the Company, its Subsidiaries or its successor.
(j) "Director" means a member of the Board.
(k) "Employee" means any person, including officers and directors,
employed by the Company or any Parent or Subsidiary of the Company. The payment
of a director's fee by the Company shall not be sufficient to constitute
"employment" by the Company.
(l) "Exchange Act" means the Securities Exchange Act of 1934, as
amended.
(m) "Fair Market Value" means, as of any date, the value of Common
Stock determined as follows:
(i) If the Common Stock is listed on any established stock
exchange or a national market system, including without limitation the Nasdaq
National Market or The Nasdaq SmallCap Market of The Nasdaq Stock Market, its
Fair Market Value shall be the closing sales price for such stock (or the
closing bid, if no sales were reported) as quoted on such exchange or system for
the last market trading day prior to the time of determination, as reported in
The Wall Street Journal or such other source as the Administrator deems
reliable;
(ii) If the Common Stock is regularly quoted by a recognized
securities dealer but selling prices are not reported, the Fair Market Value of
a Share of Common Stock shall be the mean between the high bid and low asked
prices for the Common Stock on the last market trading day prior to the day of
determination, as reported in The Wall Street Journal or such other source as
the Administrator deems reliable; or
(iii) In the absence of an established market for the Common
Stock, the Fair Market Value shall be determined in good faith by the
Administrator.
(n) "Incentive Stock Option" means an Option intended to qualify as
an incentive stock option within the meaning of Section 422 of the Code.
(o) "Nonstatutory Stock Option" means an Option not intended to
qualify as an Incentive Stock Option.
(p) "Option" means a stock option granted pursuant to the Plan.
(q) "Optioned Stock" means the Common Stock subject to an Option.
(r) "Optionee" means an Employee or Consultant who receives an
Option.
(s) "Parent" means a "parent corporation", whether now or hereafter
existing, as defined in Section 424(e) of the Code.
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<PAGE> 45
(t) "Plan" means this Employee Stock Plan, as amended from time to
time.
(u) "Share" means a share of the Common Stock, as adjusted in
accordance with Section 11 of the Plan.
(v) "Subsidiary" means a "subsidiary corporation", whether now or
hereafter existing, as defined in Section 424(f) of the Code.
3. Stock Subject to the Plan. Subject to the provisions of Section 11 of
the Plan, the maximum aggregate number of shares which may be optioned and sold
under the Plan is 4,375,000 shares of Common Stock. The shares may be
authorized, but unissued, or reacquired Common Stock.
If an Option expires or becomes unexercisable without having been
exercised in full, or is surrendered pursuant to an Option repricing or Option
exchange, the unpurchased Shares which were subject thereto shall become
available for future grant or sale under the Plan (unless the Plan has
terminated); provided, however, that Shares that have actually been issued under
the Plan upon exercise of an Option shall not be returned to the Plan and shall
not become available for future distribution under the Plan, except that if
Shares of Restricted Stock are repurchased by the Company at their original
purchase price, such Shares shall become available for future grant under the
Plan.
4. Administration of the Plan.
(a) Procedure.
(i) Multiple Administrative Bodies. The Plan may be
administered by different Committees with respect to different groups of
Employees and Consultants.
(ii) Section 162(m). To the extent that the Administrator
determines it to be desirable to qualify Options granted hereunder as
"performance-based compensation" within the meaning of Section 162(m) of the
Code, the Plan shall be administered by a Committee of two or more "outside
directors" within the meaning of Section 162(m) of the Code.
(iii) Rule 16b-3. To the extent desirable to qualify
transactions hereunder as exempt under Rule 16b-3, the transactions contemplated
hereunder shall be structured to satisfy the requirements for exemption under
Rule 16b-3.
(iv) Other Administration. Other than as provided above, the
Plan shall be administered by (A) the Board or (B) a Committee, which committee
shall be constituted to satisfy Applicable Laws.
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<PAGE> 46
(b) Powers of the Administrator. Subject to the provisions of the
Plan and in the case of a Committee, the specific duties delegated by the Board
to such Committee, the Administrator shall have the authority, in its
discretion:
(i) to determine the Fair Market Value;
(ii) to select the Employees and Consultants to whom Options
may be granted hereunder;
(iii) to determine the number of shares of Common Stock to
be covered by each Option granted hereunder;
(iv) to approve forms of agreement for use under the Plan;
(v) to determine the terms and conditions, not inconsistent
with the terms of the Plan, of any Option granted hereunder. Such terms and
conditions include, but are not limited to, the exercise price, the time or
times when Options may be exercised (which may be based on performance
criteria), any vesting acceleration or waiver of forfeiture restrictions, and
any restriction or limitation regarding any Option of the shares of Common Stock
relating thereto, based in each case on such factors as the Administrator, in
its sole discretion, shall determine;
(vi) to reduce the exercise price of any Option to the then
current Fair Market Value if the Fair Market Value of the Common Stock covered
by such Option shall have declined since the date the Option was granted;
(vii) to institute an Option repricing or Option exchange
program;
(viii)to construe and interpret the terms of the Plan and
awards granted pursuant to the Plan;
(ix) to prescribe, amend and rescind rules and regulations
relating to the Plan, including rules and regulations relating to sub-plans
established for the purpose of qualifying for preferred tax treatment under
foreign tax laws;
(x) to modify or amend each Option (subject to Section 15(c)
of the Plan), including the discretionary authority to extend the
post-termination exercisability period of Options longer than is otherwise
provided for in the Plan;
(xi) to allow Optionees to satisfy withholding tax
obligations by electing to have the Company withhold from the Shares to be
issued upon exercise of an Option that number of Shares having a Fair Market
Value equal to the amount required to be withheld. The Fair Market Value of the
Shares to be withheld shall be determined on the date that the amount of tax to
be withheld is to be determined. All elections by an Optionee to have Shares
withheld
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<PAGE> 47
for this purpose shall be made in such form and under such conditions as the
Administrator may deem necessary or advisable;
(xii) to authorize any person to execute on behalf of the
Company any instrument required to effect the grant of an Option previously
granted by the Administrator;
(xiii)to make all other determinations deemed necessary or
advisable for administering the Plan.
(c) Effect of Administrator's Decision. All decisions,
determinations and interpretations of the Administrator shall be final and
binding on all Optionees and any other holders of any Options.
5. Eligibility.
(a) Nonstatutory Stock Options may be granted to Employees and
Consultants. Incentive Stock Options may be granted only to Employees. An
Employee or Consultant who has been granted an Option may, if he or she is
otherwise eligible, be granted an additional Option or Options.
(b) Each Option shall be designated in the written option agreement
as either an Incentive Stock Option or a Nonstatutory Stock Option. However,
notwithstanding such designations, to the extent that the aggregate Fair Market
Value of the Shares with respect to which Options designated as Incentive Stock
Options are exercisable for the first time by any Optionee during any calendar
year (under all plans of the Company or any Parent or Subsidiary) exceeds
$100,000, such excess Options shall be treated as Nonstatutory Stock Options.
(c) For purposes of Section 5(b), Incentive Stock Options shall be
taken into account in the order in which they were granted, and the Fair Market
Value of the Shares shall be determined as of the time the Option with respect
to such Shares is granted.
(d) The Plan shall not confer upon any Optionee any right with
respect to continuation of the Optionee's employment or consulting relationship
with the Company, nor shall it interfere in any way with his right or the
Company's right to terminate the Optionee's employment or consulting
relationship at any time, with or without cause.
6. Term of Plan. The Plan shall become effective upon the earlier to
occur of its adoption by the Board of Directors or its approval by the
shareholders of the Company as described in Section 18 of the Plan. It shall
continue in effect for a term of ten (10) years unless sooner terminated under
Section 14 of the Plan.
7. Term of Option. The term of each Option shall be the term stated in
the Option Agreement; provided, however, that in the case of an Incentive Stock
Option, the term shall be no more than ten (10) years from the date of grant
thereof or such shorter term as may be
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<PAGE> 48
provided in the Option Agreement. However, in the case of an Option granted to
an Optionee who, at the time the Option is granted, owns stock representing more
than ten percent (10%) of the voting power of all classes of stock of the
Company or any Parent or Subsidiary, the term of the Option shall be five (5)
years from the date of grant thereof or such shorter term as may be provided in
the Option Agreement.
8. Option Exercise Price and Consideration.
(a) The per share exercise price for the Shares to be issued
pursuant to exercise of an Option shall be such price as is determined by the
Board, but shall be subject to the following:
(i) In the case of an Incentive Stock Option
(A) granted to an Employee who, at the time of the
grant of such Incentive Stock Option, owns stock representing more than
ten percent (10%) of the voting power of all classes of stock of the
Company or any Parent or Subsidiary, the per Share exercise price shall
be no less than 110% of the Fair Market Value per Share on the date of
grant.
(B) granted to any other Employee, the per Share
exercise price shall be no less than 100% of the Fair Market Value per
Share on the date of grant.
(ii) In the case of a Nonstatutory Stock Option, the per
Share exercise price shall be determined by the Administrator. In the case of a
Nonstatutory Stock Option intended to qualify as "performance-based
compensation" within the meaning of Section 162(m) of the Code, the per Share
exercise price shall be no less than 100% of the Fair Market Value per Share on
the date of grant.
(iii) Notwithstanding the foregoing, Options may be granted
with a per Share exercise price of less than 100% of the Fair Market Value per
Share on the date of grant pursuant to a merger or other corporate transaction.
(b) The consideration to be paid for the Shares to be issued upon
exercise of an Option, including the method of payment, shall be determined by
the Administrator (and, in the case of an Incentive Stock Option, shall be
determined at the time of grant) and may consist entirely of (i) cash, (ii)
check, (iii) other Shares which (x) in the case of Shares acquired upon exercise
of an Option either have been owned by the Optionee for more than six months on
the date of surrender or were not acquired, directly or indirectly, from the
Company, and (y) have a Fair Market Value on the date of surrender equal to the
aggregate exercise price of the Shares as to which said Option shall be
exercised, (iv) authorization from the Company to retain from the total number
of Shares as to which the Option is exercised that number of Shares having a
Fair Market Value on the date of exercise equal to the exercise price for the
total number of
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<PAGE> 49
Shares as to which the Option is exercised, (v) delivery of a properly executed
exercise notice together with irrevocable instructions to a broker to promptly
deliver to the Company the amount of sale or loan proceeds required to pay the
exercise price, (vi) any combination of the foregoing methods of payment, (viii)
or such other consideration and method of payment for the issuance of Shares to
the extent permitted under Applicable Laws.
9. Exercise of Option.
(a) Procedure for Exercise; Rights as a Shareholder. Any Option
granted hereunder shall be exercisable at such times and under such conditions
as determined by the Administrator, including performance criteria with respect
to the Company and/or the Optionee, and as shall be permissible under the terms
of the Plan.
An Option may not be exercised for a fraction of a Share.
An Option shall be deemed to be exercised when written notice of
such exercise has been given to the Company in accordance with the terms of the
Option by the person entitled to exercise the Option and full payment for the
Shares with respect to which the Option is exercised has been received by the
Company. Full payment may, as authorized by the Board, consist of any
consideration and method of payment allowable under Section 8(b) of the Plan.
Until the issuance (as evidenced by the appropriate entry on the books of the
Company or of a duly authorized transfer agent of the Company) of the stock
certificate evidencing such Shares, no right to vote or receive dividends or any
other rights as a shareholder shall exist with respect to the Optioned Stock,
notwithstanding the exercise of the Option. The Company shall issue (or cause to
be issued) such stock certificate promptly upon exercise of the Option. No
adjustment will be made for a dividend or other right for which the record date
is prior to the date the stock certificate is issued, except as provided in
Section 11 of the Plan.
Exercise of an Option in any manner shall result in a decrease in the
number of Shares which thereafter may be available, both for purposes of the
Plan and for sale under the Option, by the number of Shares as to which the
Option is exercised.
(b) Termination of Employment. In the event of termination of an
Optionee's consulting relationship or Continuous Status as an Employee with the
Company (but not upon a change of status from an Employee to Consultant or
Consultant to Employee), such Optionee may, but only within the period stated in
the Option Agreement (which, in the case of an Incentive Stock Option, shall be
no more than ninety (90) days after the date of such termination and, in the
case of any Option, shall be no later than the expiration date of the term of
such Option as set forth in the Option Agreement), exercise the Option to the
extent that Optionee was entitled to exercise it at the date of such
termination. To the extent that Optionee was not entitled to exercise the Option
at the date of such termination, or if Optionee does not exercise such Option to
the extent so entitled within the time specified herein, the Option shall
terminate.
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<PAGE> 50
(c) Disability of Optionee. Notwithstanding the provisions of
Section 9(b) above, in the event of termination of an Optionee's Consulting
relationship or Continuous Status as an Employee as a result of his or her total
and permanent disability (as defined in Section 22(e)(3) of the Code), Optionee
may, but only within twelve (12) months from the date of such termination (but
in no event later than the expiration date of the term of such Option as set
forth in the Option Agreement), exercise the Option to the extent otherwise
entitled to exercise it at the date of such termination. To the extent that
Optionee is not entitled to exercise the Option at the date of termination, or
if Optionee does not exercise such Option to the extent so entitled within the
time specified herein, the Option shall terminate.
(d) Death of Optionee. In the event of the death of an Optionee,
the Option may be exercised, at any time within twelve (12) months following the
date of death (but in no event later than the expiration date of the term of
such Option as set forth in the Option Agreement), by the Optionee's estate or
by a person who acquired the right to exercise the Option by bequest or
inheritance, but only to the extent the Optionee is entitled to exercise the
Option on the date of death. To the extent that Optionee is not entitled to
exercise the Option on the date of death, or if the Option is not exercised to
the extent so exercisable within the time specified herein, the Option shall
terminate.
10. Non-Transferability of Options. Unless determined otherwise by the
Administrator, an Option may not be sold, pledged, assigned, hypothecated,
transferred, or disposed of in any manner other than by will or by the laws of
descent or distribution and may be exercised, during the lifetime of the
Optionee, only by the Optionee. If the Administrator makes an Option
transferable, such Option shall contain such additional terms and conditions as
the Administrator deems appropriate.
11. Adjustments Upon Changes in Capitalization or Merger.
(a) Changes in Capitalization. Subject to any required action by
the shareholders of the Company, the number of shares of Common Stock covered by
each outstanding Option, and the number of shares of Common Stock which have
been authorized for issuance under the Plan but as to which no Options have yet
been granted or which have been returned to the Plan upon cancellation or
expiration of an Option, as well as the price per share of Common Stock covered
by each such outstanding Option, shall be proportionately adjusted for any
increase or decrease in the number of issued shares of Common Stock resulting
from a stock split, reverse stock split, stock dividend, combination or
reclassification of the Common Stock, or any other increase or decrease in the
number of issued shares of Common Stock effected without receipt of
consideration by the Company; provided, however, that conversion of any
convertible securities of the Company shall not be deemed to have been "effected
without receipt of consideration." Such adjustment shall be made by the Board,
whose determination in that respect shall be final, binding and conclusive.
Except as expressly provided herein, no issuance by the Company of shares of
stock of any class, or securities convertible into shares of stock of any class,
shall affect, and no adjustment by reason thereof
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<PAGE> 51
shall be made with respect to, the number or price of shares of Common Stock
subject to an Option.
(b) Dissolution or Liquidation. In the event of the proposed
dissolution or liquidation of the Company, the Administrator shall notify each
Optionee as soon as practicable prior to the effective date of such proposed
transaction. The Administrator in its discretion may provide for an Optionee to
have the right to exercise his or her Option until ten (10) days prior to such
transaction as to all of the Optioned Stock covered thereby, including Shares as
to which the Option would not otherwise be exercisable. In addition, the
Administrator may provide that any Company repurchase option applicable to any
Shares purchased upon exercise of an Option shall lapse as to all such Shares,
provided the proposed dissolution or liquidation takes place at the time and in
the manner contemplated. To the extent it has not been previously exercised, an
Option will terminate immediately prior to the consummation of such proposed
action.
(c) Merger or Asset Sale. In the event of a merger of the Company
with or into another corporation, or the sale of substantially all of the assets
of the Company, each outstanding Option shall be assumed or an equivalent option
or right substituted by the successor corporation or a Parent or Subsidiary of
the successor corporation. In the event that the successor corporation refuses
to assume or substitute for the Option, the Optionee shall fully vest in and
have the right to exercise the Option as to all of the Optioned Stock, including
Shares as to which it would not otherwise be vested or exercisable. If an Option
becomes fully vested and exercisable in lieu of assumption or substitution in
the event of a merger or sale of assets, the Administrator shall notify the
Optionee in writing or electronically that the Option shall be fully vested and
exercisable for a period of fifteen (15) days from the date of such notice, and
the Option shall terminate upon the expiration of such period. For the purposes
of this paragraph, the Option shall be considered assumed if, following the
merger or sale of assets, the option or right confers the right to purchase or
receive, for each Share of Optioned Stock subject to the Option immediately
prior to the merger or sale of assets, the consideration (whether stock, cash,
or other securities or property) received in the merger or sale of assets by
holders of Common Stock for each Share held on the effective date of the
transaction (and if holders were offered a choice of consideration, the type of
consideration chosen by the holders of a majority of the outstanding Shares);
provided, however, that if such consideration received in the merger or sale of
assets is not solely common stock of the successor corporation or its Parent,
the Administrator may, with the consent of the successor corporation, provide
for the consideration to be received upon the exercise of the Option, for each
Share of Optioned Stock subject to the Option, to be solely common stock of the
successor corporation or its Parent equal in fair market value to the per share
consideration received by holders of Common Stock in the merger or sale of
assets.
12. Time of Granting Options. The date of grant of an Option shall, for
all purposes, be the date on which the Administrator makes the determination
granting such Option, or such other date as is determined by the Board. Notice
of the determination shall be given to each Employee or Consultant to whom an
Option is so granted within a reasonable time after the date of such grant.
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<PAGE> 52
13. Limitations.
(a) Each Option shall be designated in the written option agreement
as either an Incentive Stock Option or a Nonstatutory Stock Option. However,
notwithstanding such designation, to the extent that the aggregate Fair Market
Value of the Shares with respect to which Incentive Stock Options are
exercisable for the first time by the Optionee during any calendar year (under
all plans of the Company and any Parent or Subsidiary) exceeds $100,000, such
Options shall be treated as Nonstatutory Stock Options. For purposes of this
Section 6(a), Incentive Stock Options shall be taken into account in the order
in which they were granted. The Fair Market Value of the Shares shall be
determined as of the time the Option with respect to such Shares is granted.
(b) Neither the Plan nor any Option shall confer upon an Optionee
any right with respect to continuing the Optionee's employment or consulting
relationship with the Company, nor shall they interfere in any way with the
Optionee's right or the Company's right to terminate such employment or
consulting relationship at any time, with or without cause.
(c) The following limitations shall apply to grants of Options to
Employees:
(i) No Employee shall be granted, in any fiscal year of the
Company, Options to purchase more than 150,000 (post-split) Shares.
(ii) In connection with his or her initial employment, an
Employee may be granted Options to purchase up to an additional 250,000
(post-split) Shares which shall not count against the limit set forth in
subsection (i) above.
(iii) The foregoing limitations shall be adjusted
proportionately in connection with any change in the Company's capitalization as
described in Section 11.
(iv) If an Option is cancelled in the same fiscal year of
the Company in which it was granted (other than in connection with a transaction
described in Section 11), the cancelled Option will be counted against the
limits set forth in subsections (i) and (ii) above. For this purpose, if the
exercise price of an Option is reduced, the transaction will be treated as a
cancellation of the Option and the grant of a new Option.
14. Amendment and Termination of the Plan.
(a) Amendment and Termination. The Board may at any time amend,
alter, suspend or terminate the Plan.
(b) Shareholder Approval. The Company shall obtain shareholder
approval of any Plan amendment to the extent necessary and desirable to comply
with Applicable Laws.
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<PAGE> 53
(c) Effect of Amendment or Termination. No amendment, alteration,
suspension or termination of the Plan shall impair the rights of any Optionee,
unless mutually agreed otherwise between the Optionee and the Administrator,
which agreement must be in writing and signed by the Optionee and the Company.
Termination of the Plan shall not affect the Administrator's ability to exercise
the powers granted to it hereunder with respect to Options granted under the
Plan prior to the date of such termination.
15. Conditions Upon Issuance of Shares. Shares 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
Applicable Laws, and shall be further subject to the approval of counsel for the
Company with respect to such compliance.
As a condition to the exercise of an Option, the Company may
require the person exercising such Option to represent and warrant at the time
of any such exercise that the Shares are being purchased only for investment and
without any present intention to sell or distribute such Shares if, in the
opinion of counsel for the Company, such a representation is required.
16. Reservation of Shares. The Company, during the term of this Plan,
will at all times reserve and keep available such number of Shares as shall be
sufficient to satisfy the requirements of the Plan.
17. The inability of the Company to obtain authority from any regulatory
body having jurisdiction, which authority is deemed by the Company's counsel to
be necessary to the lawful issuance and sale of any Shares hereunder, shall
relieve the Company of any liability in respect of the failure to issue or sell
such Shares as to which such requisite authority shall not have been obtained.
18. Shareholder Approval. Continuance of the Plan shall be subject to
approval by the shareholders of the Company within twelve (12) months before or
after the date the Plan is adopted. Such shareholder approval shall be obtained
in the degree and manner required under applicable state and federal law.
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<PAGE> 54
3DFX INTERACTIVE, INC.
EMPLOYEE STOCK PLAN
NOTICE OF STOCK OPTION GRANT
[Optionee's Name and Address]
- ---------------------------------
- ---------------------------------
You have been granted an option, consisting of the Stock Option
Agreement attached hereto as Exhibit A and this Notice of Stock Option Grant
(together, the "Option") to purchase Common Stock of 3DFX INTERACTIVE, INC. (the
"Company") as follows:
Date of Grant ________________________
Vesting Date ________________________
Option Price Per Share $_______________________
Total Number of Shares Granted ________________________
Total Price of Shares Granted ________________________
Type of Option
__ Incentive Stock Option
__ Nonqualified Stock
Option
Term/Expiration Date 10 years/_________________
Exercise Schedule:
This Option may be exercised, in whole or in part, in accordance with
the Vesting Schedule set out below;
Vesting Schedule:
<TABLE>
<CAPTION>
Date of Vesting Number of Shares
--------------- ----------------
<S> <C>
First Annual Anniversary
of Vesting Date 25%
Each Monthly Anniversary of
Vesting Date After First Annual
Anniversary of Vesting Date 1/48th of the total
Shares until fully vested
</TABLE>
<PAGE> 55
Termination Period:
Option may be exercised for 90 days after termination of employment or
consulting relationship except as set out in Sections 7 and 8 of the Stock
Option Agreement (but in no event later than the Expiration Date).
Additional Forms of Consideration:
In addition to the forms of consideration set out in Section 3 of the
Stock Option Agreement, this Option may be exercised using the following forms
of consideration:
__ No Additional Forms
__ Additional Forms as
noted: Promissory Note at
the discretion of the
Company._________________
________________________________________________________________________________
________________________________________________________________________________
Exercise of this Option shall be on a form of Exercise Notice provided by the
Company.
OPTIONEE ACKNOWLEDGES AND AGREES THAT THE VESTING OF SHARES PURSUANT TO
THIS OPTION IS EARNED ONLY BY CONTINUING CONSULTANCY OR EMPLOYMENT AT THE WILL
OF THE COMPANY (NOT THROUGH THE ACT OF BEING HIRED, BEING GRANTED THIS OPTION OR
ACQUIRING SHARES HEREUNDER). OPTIONEE FURTHER ACKNOWLEDGES AND AGREES THAT
NOTHING IN THIS AGREEMENT, NOR IN THE COMPANY'S EMPLOYEE STOCK PLAN WHICH IS
INCORPORATED HEREIN BY REFERENCE, SHALL CONFER UPON OPTIONEE ANY RIGHT WITH
RESPECT TO CONTINUATION OF EMPLOYMENT OR CONSULTANCY BY THE COMPANY, NOR SHALL
IT INTERFERE IN ANY WAY WITH HIS RIGHT OR THE COMPANY'S RIGHT TO TERMINATE HIS
EMPLOYMENT OR CONSULTANCY AT ANY TIME, WITH OR WITHOUT CAUSE.
Optionee acknowledges receipt of a copy of the Plan and certain
information related to it and represents that he or she is familiar with the
terms and provisions of the Plan and this Option. Optionee accepts this Option
subject to all such terms and provisions. Optionee has reviewed the Plan and
this Option in their entirety, has had an opportunity to obtain the advice of
counsel prior to executing this Option and fully understands all provisions of
the Option.
By your signature and the signature of the Company's representative
below, you and the Company agree that this Option is granted under and governed
by the terms and conditions of
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<PAGE> 56
the Employee Stock Plan and the [Incentive/Nonstatutory] Stock Option Agreement,
all of which are attached and made a part of this document.
OPTIONEE: 3DFX INTERACTIVE, INC.,
a California corporation
_____________________________ By __________________________
Signature
_____________________________ Title _______________________
Print Name
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<PAGE> 57
CONSENT OF SPOUSE
The undersigned spouse of Optionee has read and hereby approves the terms
and conditions of the Plan and this Stock Option. In consideration of the
Company's granting his or her spouse the right to purchase Shares as set forth
in the Plan and this Stock Option, the undersigned hereby agrees to be
irrevocably bound by the terms and conditions of the Plan and this Stock Option
and further agrees that any community property interest shall be similarly
bound. The undersigned hereby appoints the undersigned's spouse as
attorney-in-fact for the undersigned with respect to any amendment or exercise
of rights under the Plan or this Stock Option.
______________________________________
Spouse of Purchaser
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<PAGE> 58
3DFX INTERACTIVE, INC.
EMPLOYEE STOCK PLAN
EXHIBIT A TO NOTICE OF GRANT
STOCK OPTION AGREEMENT
1. Grant of Option. 3DFX INTERACTIVE, INC., a California corporation
(the "Company"), hereby grants to the Optionee (the "Optionee") named in the
Notice of Grant, an option (the "Option") to purchase a number of Shares, as set
forth in the Notice of Grant, at the exercise price per share set forth in the
Notice of Grant (the "Exercise Price"), subject to the terms, conditions and
definitions of the Employee Stock Plan (the "Plan") adopted by the Company,
which is incorporated herein by reference. In the event of a conflict between
the terms and conditions of the Plan and the terms and conditions of this Option
Agreement, the terms and conditions of the Plan shall prevail. Unless otherwise
defined herein, the terms defined in the Plan shall have the same defined
meanings in this Option Agreement.
If designated in the Notice of Grant as an Incentive Stock Option, this
Option is intended to qualify as an Incentive Stock Option under Section 422 of
the Code.
2. Exercise of Option.
(a) Right to Exercise. This Option is exercisable during its term
in accordance with the Vesting Schedule set out in the Notice of Grant and the
applicable provisions of the Plan and this Option Agreement. In the event of
Optionee's death, Disability or other termination of Optionee's employment or
consulting relationship, the exercisability of the Option is governed by the
applicable provisions of the Plan and this Option Agreement.
(b) Method of Exercise. This Option is exercisable by delivery of
an exercise notice, in the form provided by the Company (the "Exercise Notice"),
which shall state the elec tion to exercise the Option, the number of Shares in
respect of which the Option is being exercised (the "Exercised Shares"), and
such other representations and agreements as to the holder's investment intent
with respect to the Exercised Shares as may be required by the Company pursuant
to the provisions of the Plan. The Exercise Notice shall be signed by the
Optionee and, if the Optionee is married, by the Optionee's spouse, and shall be
delivered in person or by certified mail to the Secretary of the Company. The
Exercise Notice shall be accompanied by payment of the aggregate Exercise Price
as to all Exercised Shares. This Option shall be deemed to be exercised upon
receipt by the Company of such fully executed Exercise Notice accompanied by
such aggregate Exercise Price.
No Shares shall be issued pursuant to the exercise of this Option
unless such issuance and exercise complies with all relevant provisions of law
and the requirements of any stock exchange upon which the Shares are then
listed. Assuming such compliance, for income
<PAGE> 59
tax purposes the Exercised Shares shall be considered transferred to the
Optionee on the date the Option is exercised with respect to such Exercised
Shares.
3. Method of Payment. Payment of the aggregate Exercise Price shall be
by any of the following, or a combination thereof, at the election of the
Optionee:
(a) cash;
(b) check; or
(c) such other consideration as is indicated on the Notice of
Grant.
4. Restrictions on Exercise. This Option may not be exercised until such
time as the Plan has been approved by the shareholders of the Company, or if the
issuance of such Shares upon such exercise or the method of payment of
consideration for such shares would constitute a violation of any applicable
federal or state securities or other law or regulation, including any rule under
Part 207 of Title 12 of the Code of Federal Regulations ("Regulation G") as
promulgated by the Federal Reserve Board. As a condition to the exercise of this
Option, the Company may require Optionee to make any representation and warranty
to the Company as may be required by any applicable law or regulation.
5. Termination of Relationship. In the event of termination of
Optionee's consulting relationship or Continuous Status as an Employee, Optionee
may, to the extent otherwise so entitled at the date of such termination (the
"Termination Date"), exercise this Option during the Termination Period set out
in the Notice of Grant. To the extent that Optionee is not entitled to exercise
this Option at the date of such termination, or if Optionee does not exercise
this Option within the time specified herein, the Option shall terminate.
6. Disability of Optionee. Notwithstanding the provisions of Section 5
above, in the event of termination of Optionee's Continuous Status as an
Employee as a result of his or her total and permanent disability (as defined in
Section 22(e)(3) of the Code), Optionee may, but only within twelve (12) months
from the date of termination of employment (but in no event later than the date
of expiration of the term of this Option as set forth in Section 10 below),
exercise the Option to the extent otherwise so entitled at the date of such
termination. To the extent that Optionee is not entitled to exercise the Option
at the date of termination, or if Optionee does not exercise such Option (to the
extent otherwise so entitled) within the time specified herein, the Option shall
terminate.
7. Death of Optionee. In the event of the death of Optionee, the Option
may be exercised at any time within twelve (12) months following the date of
death (but in no event later than the date of expiration of the term of this
Option as set forth in Section 10 below), by Optionee's estate or by a person
who acquired the right to exercise the Option by bequest or inheritance, but
only to the extent the Optionee could exercise the Option at the date of death.
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<PAGE> 60
8. Non-Transferability of Option. This Option may not be transferred in
any manner otherwise than by will or by the laws of descent or distribution and
may be exercised during the lifetime of Optionee only by him. The terms of this
Option shall be binding upon the executors, administrators, heirs, successors
and assigns of the Optionee.
9. Term of Option. This Option may be exercised only within the term set
out in the Notice of Grant, and may be exercised during such term only in
accordance with the Plan and the terms of this Option. The limitations set out
in Section 7 of the Plan regarding Option terms and Options granted to more than
ten percent (10%) shareholders shall apply to this Option.
10. Tax Consequences. Some of the federal and state tax consequences
relating to this Option, as of the date of this Option, are set forth below.
THIS SUMMARY IS NECESSARILY INCOMPLETE, AND THE TAX LAWS AND REGULATIONS ARE
SUBJECT TO CHANGE. THE OPTIONEE SHOULD CONSULT A TAX ADVISER BEFORE EXERCISING
THIS OPTION OR DISPOSING OF THE SHARES.
(a) Exercising the Option.
(i) Nonqualified Stock Option ("NSO"). If this Option does
not qualify as an ISO, the Optionee may incur regular federal income tax and
state income tax liability upon exercise. The Optionee will be treated as having
received compensation income (taxable at ordinary income tax rates) equal to the
excess, if any, of the fair market value of the Exercised Shares on the date of
exercise over their aggregate Exercise Price. If the Optionee is an employee,
the Company will be required to withhold from his or her compensation or collect
from Optionee and pay to the applicable taxing authorities an amount equal to a
percentage of this compensation income at the time of exercise.
(ii) Incentive Stock Option ("ISO"). If this Option qualifies
as an ISO, the Optionee will have no regular federal income tax or state income
tax liability upon its exercise, although the excess, if any, of the fair market
value of the Exercised Shares on the date of exercise over their aggregate
Exercise Price will be treated as an adjustment to the alternative minimum tax
for federal tax purposes and may subject the Optionee to alternative minimum tax
in the year of exercise.
(b) Disposition of Shares.
(i) NSO. If the Optionee holds NSO Shares for at least one
year, any gain realized on disposition of the Shares will be treated as
long-term capital gain for federal income tax purposes.
(ii) ISO. If the Optionee holds ISO Shares for at least one
year after exercise AND two years after the grant date, any gain realized on
disposition of the Shares will be treated as long-term capital gain for federal
income tax purposes. If the Optionee disposes of ISO Shares within one year
after exercise or two years after the grant date, any gain realized on such
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<PAGE> 61
disposition will be treated as compensation income (taxable at ordinary income
rates) to the extent of the excess, if any, of the LESSER OF (A) the difference
between the FAIR MARKET VALUE OF THE SHARES ACQUIRED ON THE DATE OF EXERCISE and
the aggregate Exercise Price, or (B) the difference between the SALE PRICE of
such Shares and the aggregate Exercise Price.
(c) Notice of Disqualifying Disposition of ISO Shares. If the
Optionee sells or otherwise disposes of any of the Shares acquired pursuant to
an ISO on or before the later of (iii) the date two years after the grant date,
or (iv) the date one year after the exercise date, the Optionee shall
immediately notify the Company in writing of such disposition. The Optionee
agrees that he or she may be subject to income tax withholding by the Company on
the compensation income recognized from such early disposition of ISO Shares by
payment in cash or out of the current earnings paid to the Optionee.
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<PAGE> 62
3DFX INTERACTIVE, INC.
EMPLOYEE STOCK PLAN
EXERCISE NOTICE FOR VESTED SHARES
3Dfx Interactive, Inc.
Attention: Secretary
1. Exercise of Option. Effective as of today, ___________, 19__, the
undersigned ("Optionee") hereby elects to exercise Optionee's option to purchase
_________ shares of the Common Stock (the "Shares") of 3DFX INTERACTIVE, INC.
(the "Company") under and pursuant to the Company's Employee Stock Plan, as
amended (the "Plan"), and the Notice of Grant and [ ] Incentive [ ] Nonqualified
Stock Option Agreement dated ________ (together, the "Option").
2. Representations of Optionee. Optionee acknowledges that Optionee has
received, read and understood the Plan and the Option Agreement and agrees to
abide by and be bound by their terms and conditions. Optionee represents that
Optionee is purchasing the Shares for Optionee's own account for investment and
not with a view to, or for sale in connection with, a distribution of any of
such Shares.
3. Rights as Shareholder. Subject to the terms and conditions of this
Agreement, Optionee shall have all of the rights of a shareholder of the Company
with respect to the Shares from and after the date that Optionee delivers full
payment of the Exercise Price until such time as Optionee disposes of the
Shares. Upon such disposition, Purchaser shall have no further rights as a
holder of the Shares.
4. Tax Consultation. Optionee understands that Optionee may suffer
adverse tax consequences as a result of Optionee's purchase or disposition of
the Shares. Optionee represents that Optionee has consulted with any tax
consultants Optionee deems advisable in connection with the purchase or
disposition of the Shares and that Optionee is not relying on the Company for
any tax advice.
5. Market Standoff Agreement. Optionee hereby agrees that 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
1933 Act, Optionee shall not sell or otherwise transfer any Shares or other
securities of the Company during the 180-day period following the effective date
of a registration statement of the Company filed under the 1933 Act; provided,
however, that such restriction shall only apply to the first two registration
statements of the Company to become effective under the 1933 Act which include
securities to be sold on
<PAGE> 63
behalf of the Company to the public in an underwritten public offering under the
1933 Act. The Company may impose stop-transfer instructions with respect to
securities subject to the foregoing restrictions until the end of such 180-day
period.
6. Successors and Assigns. The Company may assign any of its rights
under this Agreement to single or multiple assignees, and this Agreement shall
inure to the benefit of the successors and assigns of the Company. Subject to
the restrictions on transfer herein set forth, this Agreement shall be binding
upon Optionee and his or her heirs, executors, administrators, successors and
assigns.
7. Interpretation. Any dispute regarding the interpretation of this
Agreement shall be submitted by Optionee or by the Company forthwith to the
Company's Board of Directors or the committee thereof that administers the Plan,
which shall review such dispute at its next regular meeting. The resolution of
such a dispute by the Board or committee shall be final and binding on the
Company and on Optionee.
8. Governing Law; Severability. This Agreement shall be governed by and
construed in accordance with the laws of the State of California excluding that
body of law pertaining to conflicts of law. Should any provision of this
Agreement be determined by a court of law to be illegal or unenforceable, the
other provisions shall nevertheless remain effective and shall remain
enforceable.
9. Notices. Any notice required or permitted hereunder shall be given in
writing and shall be deemed effectively given upon personal delivery or upon
deposit in the United States mail by certified mail, with postage and fees
prepaid, addressed to the other party at its address as shown below beneath its
signature, or to such other address as such party may designate in writing from
time to time to the other party.
10. Further Instruments. The parties agree to execute such further
instruments and to take such further action as may be reasonably necessary to
carry out the purposes and intent of this Agreement.
11. Delivery of Payment. Optionee herewith delivers to the Company the
full Exercise Price for the Shares.
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<PAGE> 64
12. Entire Agreement. The Plan and Notice of Grant/Option Agreement are
incorporated herein by reference. This Agreement, the Plan and the Notice of
Grant/Option Agreement constitute the entire agreement of the parties and
supersede in their entirety all prior undertakings and agreements of the Company
and Optionee with respect to the subject matter hereof, and is governed by
California law.
Submitted by: Accepted by:
PURCHASER: 3DFX INTERACTIVE, INC..
a California corporation
_____________________________ By ______________________________
(Signature)
Its _____________________________
Address _____________________ Address _________________________
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<PAGE> 65
3DFX INTERACTIVE, INC.
EMPLOYEE STOCK PLAN
EXERCISE NOTICE FOR UNVESTED SHARES
AND RESTRICTED STOCK AGREEMENT
3DFX INTERACTIVE, INC.
Attention: Secretary
1. Exercise of Option. Effective as of today, ___________, 19__, the
undersigned ("Optionee") hereby elects to exercise Optionee's option to purchase
_________ shares of the Common Stock (the "Shares") of 3DFX INTERACTIVE, INC.
(the "Company") under and pursuant to the Company's Employee Stock Plan, as
amended (the "Plan") and the Notice of Grant and [ ] Incentive [ ] Nonqualified
Stock Option Agreement dated __________, 19__ (together, the "Option"). Of these
Shares, Optionee has elected to purchase __________ of those Shares which have
become vested under the Vesting Schedule set out in the Notice of Grant (the
"Vested Shares") and __________ Shares which have not yet vested under such
schedule (the "Unvested Shares"). The Purchase Price for the Shares shall be
$_________, as set out in the Notice of Grant, for an aggregate Purchase Price
of $_________.
2. Representations of Optionee. Optionee acknowledges that Optionee has
received, read and understood the Plan and the Option Agreement and agrees to
abide by and be bound by their terms and conditions. Optionee represents that
Optionee is purchasing the Shares for Optionee's own account for investment and
not with a view to, or for sale in connection with, a distribution of any of
such Shares.
3. Company's Repurchase Option. The Company or its assignee(s) shall
have the option to repurchase all of the Unvested Shares on the terms and
conditions set forth in this section (the "Repurchase Option") if the Optionee
should cease to be employed by the Company for any reason or no reason,
including without limitation death, disability, voluntary resignation or
termination by the Company with or without cause.
(a) Right of Termination Unaffected. Nothing in this Agreement
shall be construed to limit or otherwise affect in any manner whatsoever the
right or power of the Company to terminate Optionee's employment at any time for
any reason or no reason, with or without cause. Optionee shall be considered to
be employed by the Company if Optionee is an officer, director or full-time
employee of the Company or any Parent or Subsidiary of the Company (as defined
in the Plan) or if the Board of Directors determines that Optionee is rendering
substantial services as a part-time employee, consultant or independent
contractor to the Company or any Parent or Subsidiary of the Company (as defined
in the Plan). In case of any dispute, the Board of Directors of the Company
shall have discretion to determine (i) whether Optionee has ceased to be
employed by the Company and (ii) the date on which the employment relationship
ceases (the "Termination Date").
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<PAGE> 66
(b) Exercise of Repurchase Option. At any time within sixty (60)
days after Optionee's Termination Date, the Company or its assignee(s) may elect
to repurchase the Unvested Shares purchased pursuant to the Option Agreement by
giving Optionee (or Optionee's personal representative as the case may be)
written notice of exercise of the Repurchase Option.
(i) Repurchase Price. The Company or its assignee(s) shall
have the option to repurchase from Optionee all of the Unvested Shares
(or from Optionee's personal representative as the case may be) at the
Exercise Price (as defined in the Option Agreement), as such price may
be adjusted from time to time to reflect any subsequent stock dividend,
stock split, reverse stock split or recapitalization of the Company (the
"Repurchase Price").
(ii) Payment of Repurchase Price. The Repurchase Price shall
be payable, at the option of the Company or its assignee(s), by check or
by cancel lation of all or a portion of any outstanding indebtedness of
Optionee to the Company (or, in the case of repurchase by an assignee,
to the assignee) or any combination thereof. The Repurchase Price shall
be paid without interest within 60 days after the Termination Date.
(iii) Lapse of Repurchase Option. All Unvested Shares held by
the Optionee shall be released from the Company's Repurchase Option and
cease to be Unvested Shares according to the Vesting Schedule set out in
the Notice of Grant.
4. Escrow. As security for the faithful performance of this Agreement,
Optionee agrees, immediately upon receipt of the certificate(s) evidencing the
Shares, to deliver such certificate(s), together with a stock power in the form
of Attachment 1 attached hereto, executed by Optionee and by Optionee's spouse,
if any (with the date and number of Shares left blank), to the Secretary of the
Company or its designee ("Escrow Holder"), who is hereby appointed to hold such
certificate(s) and stock power in escrow and to take all such actions and to
effectuate all such transfers and/or releases of such Shares as are in
accordance with the terms of this Agreement. Such appointment shall be evidenced
by an executed form of Joint Escrow Instructions, attached hereto as Attachment
2. Optionee and the Company agree that Escrow Holder shall not be liable to any
party to this Agreement (or to any other party) for any actions or omissions
unless Escrow Holder is grossly negligent relative thereto. The Escrow Holder
may rely upon any letter, notice or other document executed by any signature
purported to be genuine and may rely on advice of counsel and obey any order of
any court with respect to the transactions contemplated herein. The Shares shall
be released from escrow upon termination of both the Repurchase Option and the
Right of First Refusal; provided, however, that such release shall not affect
the rights of the Company with respect to any pledge of Shares to the Company.
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<PAGE> 67
5. Rights as Shareholder. Subject to the terms and conditions of this
Agreement, Optionee shall have all of the rights of a shareholder of the Company
with respect to the Shares from and after the date that Optionee delivers full
payment of the Exercise Price until such time as Optionee disposes of the Shares
or the Company and/or its assignee(s) exercises the Repurchase Option or Right
of First Refusal hereunder. Upon such exercise, Optionee shall have no further
rights as a holder of the Shares so purchased except the right to receive
payment for the Shares so purchased in accordance with the provisions of this
Agreement, and Optionee shall forthwith cause the certificate(s) evidencing the
Shares so purchased to be surrendered to the Company for transfer or
cancellation.
6. Tax Consequences.
(a) Tax Consultation. Optionee understands that Optionee may suffer
adverse tax consequences as a result of Optionee's purchase or disposition of
the Shares. Optionee represents that Optionee has consulted with any tax
consultants Optionee deems advisable in connection with the purchase or
disposition of the Shares and that Optionee is not relying on the Company for
any tax advice.
(b) Section 83(b) Election For Nonqualified Stock Options. Optionee
hereby acknowledges that Optionee has been informed that, with respect to the
exercise of any nonqualified stock option, unless an election is filed by the
Optionee with the Internal Revenue Service and, if necessary, the proper state
taxing authorities, within thirty (30) days of the purchase of the Shares,
electing pursuant to Section 83(b) of the Internal Revenue Code of 1986, as
amended (and similar state tax provisions if applicable) to be taxed currently
on any differ ence between the purchase price of the Shares and their fair
market value on the date of purchase, there will be a recognition of taxable
income to the Optionee, measured by the excess, if any, of the fair market value
of the Shares, at the time the Company's Repurchase Option lapses over the
purchase price for such Shares. Optionee represents that Optionee has consulted
any tax consultant(s) Optionee deems advisable in connection with the purchase
of the Shares or the filing of the Election under Section 83(b) and similar tax
provisions. A form of Election Under Section 83(b) is attached hereto as
Attachment 3 for reference. OPTIONEE HEREBY ASSUMES ALL RESPONSIBILITY FOR
FILING SUCH ELECTION AND PAYING ANY TAXES RESULTING FROM SUCH ELECTION OR THE
LAPSE OF THE REPURCHASE RESTRICTIONS ON THE SHARES.
(c) Section 83(b) Election For Alternative Minimum Tax for
Incentive Stock Options. Optionee hereby acknowledges that Optionee has been
informed that, with respect to the exercise of any incentive stock option,
unless an election is filed by the Optionee with the Internal Revenue Service
within thirty (30) days of the purchase of the Shares, electing pursuant to
Section 83(b) of the Internal Revenue Code of 1986, as amended (and similar
state tax provisions if applicable) to be taxed currently for alternative
minimum tax purposes on any difference between the purchase price of the Shares
and their fair market value on the date of purchase, the Optionee will be
required to include (for alternative minimum tax purposes only) an amount equal
to the excess, if any, of the fair market value of the Shares, at the time the
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<PAGE> 68
Company's Repurchase Option lapses over the purchase price for such Shares.
Optionee represents that Optionee has consulted any tax consultant(s) Optionee
deems advisable in connection with the purchase of the Shares or the filing of
the Election for alternative minimum tax purposes under Section 83(b) and
similar tax provisions. A form of Election Under Section 83(b) is attached
hereto as Attachment 3A for reference. OPTIONEE HEREBY ASSUMES ALL
RESPONSIBILITY FOR FILING SUCH ELECTION AND PAYING ANY TAXES RESULTING FROM SUCH
ELECTION OR THE LAPSE OF THE REPURCHASE RESTRICTIONS ON THE SHARES.
7. Restrictive Legends and Stop-Transfer Orders.
(a) Legends. Optionee understands and agrees that the Company shall
cause the legends set forth below or legends substantially equivalent thereto,
to be placed upon any certificate(s) evidencing ownership of the Shares together
with any other legends that may be required by state or federal securities laws:
THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO CERTAIN
RIGHTS OF REPURCHASE HELD BY THE ISSUER OR ITS ASSIGNEE(S) AS SET FORTH
IN THE EXERCISE NOTICE AND RESTRICTED STOCK AGREEMENT BETWEEN THE ISSUER
AND THE ORIGINAL HOLDER OF THESE SHARES, A COPY OF WHICH MAY BE OBTAINED
AT THE PRINCIPAL OFFICE OF THE ISSUER. SUCH RIGHTS OF REPURCHASE ARE
BINDING ON TRANSFEREES OF THESE SHARES.
8. Market Standoff Agreement. Optionee hereby agrees that 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
1933 Act, Optionee shall not sell or otherwise transfer any Shares or other
securities of the Company during the one hundred eighty (180) day period
following the effective date of a registration statement of the Company filed
under the 1933 Act; provided, however, that such restriction shall only apply to
the first two registration statements of the Company to become effective under
the 1933 Act which include securities to be sold on behalf of the Company to the
public in an underwritten public offering under the 1933 Act. The Company may
impose stop-transfer instructions with respect to securi ties subject to the
foregoing restrictions until the end of such one hundred eighty (180) day
period.
9. Successors and Assigns. The Company may assign any of its rights
under this Agreement to single or multiple assignees, and this Agreement shall
inure to the benefit of the successors and assigns of the Company. Subject to
the restrictions on transfer herein set forth, this Agreement shall be binding
upon Optionee and his or her heirs, executors, administrators, successors and
assigns.
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<PAGE> 69
10. Interpretation. Any dispute regarding the interpretation of this
Agreement shall be submitted by Optionee or by the Company forthwith to the
Company's Board of Directors or the committee thereof that administers the Plan,
which shall review such dispute at its next regular meeting. The resolution of
such a dispute by the Board or committee shall be final and binding on the
Company and on Optionee.
11. Governing Law; Severability. This Agreement shall be governed by and
construed in accordance with the laws of the State of California, excluding that
body of law pertaining to conflicts of law. Should any provision of this
Agreement be determined by a court of law to be illegal or unenforceable, the
other provisions shall nevertheless remain effective and shall remain
enforceable.
12. Notices. Any notice required or permitted hereunder shall be given
in writing and shall be deemed effectively given upon personal delivery or upon
deposit in the United States mail by certified mail, with postage and fees
prepaid, addressed to the other party at its address as shown below beneath its
signature, or to such other address as such party may designate in writing from
time to time to the other party.
13. Further Instruments. The parties agree to execute such further
instruments and to take such further action as may be reasonably necessary to
carry out the purposes and intent of this Agreement.
14. Delivery of Payment. Optionee herewith delivers to the Company the
full Exercise Price for the Shares.
15. Entire Agreement. The Plan and Notice of Grant/Option Agreement are
incorporated herein by reference. This Agreement, the Plan and the Notice of
Grant/Option Agreement constitute the entire agreement of the parties and
supersede in their entirety all prior undertakings and agreements of the Company
and Optionee with respect to the subject matter hereof, and is governed by
California law except for that body of law pertaining to conflict of laws.
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<PAGE> 70
Submitted by: Accepted by:
PURCHASER: 3DFX INTERACTIVE, INC..
a California corporation
_____________________________ By ______________________________
(Signature)
Its _____________________________
Address _____________________ Address _________________________
_____________________________ _________________________________
_____________________________ _________________________________
_____________________________ _________________________________
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<PAGE> 71
3DFX INTERACTIVE, INC.
EMPLOYEE STOCK PLAN
ATTACHMENT 1 TO EXERCISE NOTICE
STOCK POWER AND ASSIGNMENT SEPARATE FROM CERTIFICATE
FOR VALUE RECEIVED and pursuant to that certain Exercise Notice and
Restricted Stock Agreement dated as of __________, 19__, the undersigned hereby
sells, assigns and transfers unto ___________________________________________,
_______________ shares of the Common Stock of 3DFX INTERACTIVE, INC., a
California corporation, standing in the undersigned's name on the books of said
corporation represented by Certificate No. __________ delivered herewith, and
does hereby irrevocably constitute the Secretary of said corporation as
attorney-in-fact, with full power of substitution, to transfer said stock on the
books of said corporation.
Dated: __________, 19__
___________________________________
(Signature)
___________________________________
(Please Print Name)
___________________________________
(Spouse's Signature, if any)
___________________________________
(Please Print Name)
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<PAGE> 72
3DFX INTERACTIVE, INC.
EMPLOYEE STOCK PLAN
ATTACHMENT 2 TO EXERCISE NOTICE
JOINT ESCROW INSTRUCTIONS
___________, 199__
Secretary
3DFX INTERACTIVE, INC.
Dear Sir:
As Escrow Agent for both 3DFX INTERACTIVE, INC., a California
corporation ("Corporation"), and the undersigned purchaser of stock of the
Corporation ("Purchaser"), you are hereby authorized and directed to hold the
documents delivered to you pursuant to the terms of that certain Restricted
Stock Agreement ("Agreement"), dated as of __________, 19__, to which a copy of
these Joint Escrow Instructions is attached, in accordance with the following
instructions:
1. In the event the Corporation and/or any assignee of the Corporation
(referred to collectively for convenience herein as the "Corporation") exercises
the Repurchase Option set forth in the Agreement, the Corporation shall give to
Purchaser and you a written notice specifying the number of shares of stock to
be purchased, the purchase price, and the time for a closing hereunder at the
principal office of the Corporation. Purchaser and the Corporation hereby
irrevocably authorize and direct you to close the transaction contemplated by
such notice in accordance with the terms of said notice.
2. At the closing, you are directed (a) to date the stock assignments
necessary for the transfer in question, (b) to fill in the number of shares
being transferred, and (c) to deliver same, together with the certificate
evidencing the shares of stock to be transferred, to the Corporation against the
simultaneous delivery to you of the purchase price (by check or by cancellation
of any debt owed by Purchaser to the Corporation) for the number of shares of
stock being purchased pursuant to the exercise of the Repurchase Option.
3. Purchaser irrevocably authorizes the Corporation to deposit with you
any certificates evidencing shares of stock to be held by you hereunder and any
additions and substitutions to said shares as defined in the Agreement.
Purchaser does hereby irrevocably constitute and appoint you as his
attorney-in-fact and agent for the term of this escrow to execute with respect
to such securities all documents necessary or appropriate to make such
securities negotiable and to complete any transaction herein contemplated.
Subject to the provisions of this paragraph 3, Purchaser shall exercise all
rights and privileges of a stockholder of the Corporation while the stock is
held by you.
<PAGE> 73
4. Upon written request of the Purchaser after each successive one-year
period from the date of the Agreement, unless the Repurchase Option has been
exercised, you will deliver to Purchaser a certificate or certificates
representing so many shares of stock as are not then subject to the Repurchase
Option. Ninety days after cessation of Purchaser's service to the Company, you
will deliver to Purchaser a certificate or certificates representing the
aggregate number of shares sold and issued pursuant to the Agreement and not
purchased by the Corporation or its assignees pursuant to exercise of the
Repurchase Option.
Notwithstanding the foregoing, none of the certificates representing the
shares of stock deposited under these escrow instructions shall be released to
the Purchaser if the Purchaser's Note given in payment for such shares has not
been paid in full. So long as any Note is outstanding, the shares shall be held
by you as collateral for the obligation under the Note. Subject to the
provisions of this paragraph 4, upon payment of the Note in full the
certificates representing the shares may be released and delivered to the
Purchaser. In the event Purchaser defaults in payment of the Note when due, you
shall, upon written request of the Corporation, deliver the certificate
evidencing the shares of stock and the stock assignments to the Corporation to
enable the Corporation to exercise its rights as a secured party under the
Commercial Code of the State of California.
5. If at the time of termination of this escrow you should have in your
possession any documents, securities, or other property belonging to Purchaser,
you shall deliver all of same to Purchaser and shall be discharged of all
further obligations hereunder.
6. Your duties hereunder may be altered, amended, modified or revoked
only by a writing signed by all of the parties hereto.
7. You shall be obligated only for the performance of such duties as are
specifically set forth herein and may rely and shall be protected in relying or
refraining from acting on any instrument reasonably believed by you to be
genuine and to have been signed or presented by the proper party or parties. You
shall not be personally liable for any act you may do or omit to do hereunder as
Escrow Agent or as attorney-in-fact for Purchaser while acting in good faith and
in the exercise of your own good judgment, and any act done or omitted by you
pursuant to the advice of your own attorneys shall be conclusive evidence of
such good faith.
8. You are hereby expressly authorized to disregard any and all warnings
given by any of the parties hereto or by any other person or corporation,
excepting only orders or process of courts of law, and are hereby expressly
authorized to comply with and obey orders, judgments or decrees of any court. In
case you obey or comply with any such order, judgment or decree, you shall not
be liable to any of the parties hereto or to any other person, firm or
corporation by reason of such compliance, notwithstanding any such order,
judgment or decree being subsequently reversed, modified, annulled, set aside,
vacated or found to have been entered without jurisdiction.
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<PAGE> 74
9. You shall not be liable in any respect on account of the identity,
authorities or rights of the parties executing or delivering or purporting to
execute or deliver the Agreement or any documents or papers deposited or called
for hereunder.
10. You shall not be liable for the outlawing of any rights under the
Statute of Limitations with respect to these Joint Escrow Instructions or any
documents deposited with you.
11. You shall be entitled to employ such legal counsel and other experts
as you may deem necessary properly to advise you in connection with your
obligations hereunder, may rely upon the advice of such counsel, and may pay
such counsel reasonable compensation therefor.
12. Your responsibilities as Escrow Agent hereunder shall terminate if
you shall cease to be Secretary of the Corporation or if you shall resign by
written notice to each party. In the event of any such termination, the
Corporation shall appoint a successor Escrow Agent.
13. If you reasonably require other or further instruments in connection
with these Joint Escrow Instructions or obligations in respect hereto, the
necessary parties hereto shall join in furnishing such instruments.
14. It is understood and agreed that should any dispute arise with
respect to the delivery and/or ownership or right of possession of the
securities held by you hereunder, you are authorized and directed to retain in
your possession without liability to anyone all or any part of said securities
until such disputes shall have been settled either by mutual written agreement
of the parties concerned or by a final order, decree or judgment of a court of
competent juris diction after the time for appeal has expired and no appeal has
been perfected, but you shall be under no duty whatsoever to institute or defend
any such proceedings.
15. Any notice required or permitted hereunder shall be given in writing
and shall be deemed effectively given upon personal delivery or upon deposit in
the United States Post Office, by registered or certified mail with postage and
fees prepaid, addressed to each of the other parties thereunto entitled at the
following addresses, or at such other addresses as a party may designate by ten
(10) days' advance written notice to each of the other parties hereto.
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<PAGE> 75
CORPORATION: 3DFX INTERACTIVE, INC.
PURCHASER: ______________________________
______________________________
______________________________
______________________________
ESCROW AGENT: Secretary
3DFX INTERACTIVE, INC.
16. By signing these Joint Escrow Instructions, you become a party
hereto only for the purpose of said Joint Escrow Instructions; you do not become
a party to the Agreement.
17. This instrument shall be binding upon and inure to the benefit of
the parties hereto, and their respective successors and permitted assigns.
Very truly yours,
3DFX INTERACTIVE, INC.,
a California corporation
By____________________________________
Title_________________________________
PURCHASER
______________________________________
ESCROW AGENT
______________________________________
Secretary
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<PAGE> 76
3DFX INTERACTIVE, INC.
EMPLOYEE STOCK PLAN
ATTACHMENT 3 TO EXERCISE NOTICE
ELECTION UNDER SECTION 83(b) OF
THE INTERNAL REVENUE CODE OF 1986
The undersigned Taxpayer hereby elects, pursuant to the provisions of
the federal income tax law noted above, to include in gross income for the
Taxpayer's current taxable year, as compensation for services, the excess, if
any, of the fair market value of the property described below at the time of
transfer over the amount paid for such property.
1. Taxpayer's Name:________________________________________________________
Taxpayer's Address:_____________________________________________________
_____________________________________________________
Social Security Number:_________________________________________________
2. The property with respect to which the election is made is described as
follows: ___________ shares of Common Stock of 3DFX INTERACTIVE, INC., a
California corporation (the "Company"), which is Taxpayer's employer or
the corporation for whom the Taxpayer has performed services.
3. The date on which the shares were transferred was ___________, 19__, and
this election is made for calendar year 19__.
4. The shares are subject to the following restrictions:
___ The Company may repurchase all or a portion of the shares at the
Taxpayer's original purchase price under certain conditions at
the time of Taxpayer's termination of employment or services.
___ A right of first refusal in the Company for vested shares at fair
market value upon termination of employment with the Company.
5. The fair market value of the shares (without regard to restrictions
other than restrictions which by their terms will never lapse) was
$_________ per share at the time of transfer.
6. The amount paid for such shares was $________ per share.
7. The Taxpayer has submitted a copy of this statement to the Company as
the Taxpayer's employer or the corporation for whom the Taxpayer has
performed services.
<PAGE> 77
THIS ELECTION MUST BE FILED WITH THE INTERNAL REVENUE SERVICE ("IRS") (AT THE
OFFICE WHERE THE TAXPAYER FILES ANNUAL INCOME TAX RETURNS) WITHIN 30 DAYS AFTER
THE DATE OF TRANSFER OF THE PROPERTY, AND MUST ALSO BE FILED WITH THE TAXPAYER'S
INCOME TAX RETURNS FOR THE CALENDAR YEAR ABOVE STATED. THE ELECTION CANNOT BE
REVOKED WITHOUT THE CONSENT OF THE IRS.
Dated: __________, 19__
_________________________________
Taxpayer's Signature
_________________________________
Spouse's Signature (if any)
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<PAGE> 78
3DFX INTERACTIVE, INC.
EMPLOYEE STOCK PLAN
ATTACHMENT 3A TO EXERCISE NOTICE
ALTERNATIVE MINIMUM TAX
ELECTION UNDER SECTION 83(b) OF
THE INTERNAL REVENUE CODE OF 1986
The undersigned Taxpayer hereby elects, pursuant to the provisions of
Sections 55-56 and 83(b) of the Internal Revenue Code of 1986. as amended, to
include in alternative minimum taxable income for the Taxpayer's current taxable
year, as compensation for services, the excess, if any, of the fair market value
of the property described below at the time of transfer over the amount paid for
such property.
1. Taxpayer's Name:________________________________________________________
Taxpayer's Address:_____________________________________________________
_____________________________________________________
Social Security Number:_________________________________________________
2. The property with respect to which the election is made is described as
follows: ___________ shares of Common Stock of 3DFX INTERACTIVE, INC., a
California corporation (the "Company"), which is Taxpayer's employer or
the corporation for whom the Taxpayer has performed services.
3. The date on which the shares were transferred was ___________, 19__, and
this election is made for calendar year 19__.
4. The shares are subject to the following restrictions:
___ The Company may repurchase all or a portion of the shares at the
Taxpayer's original purchase price under certain conditions at
the time of Taxpayer's termination of employment or services.
___ A right of first refusal in the Company for vested shares at fair
market value upon termination of employment with the Company.
5. The fair market value of the shares (without regard to restrictions
other than restrictions which by their terms will never lapse) was
$_________ per share at the time of transfer.
6. The amount paid for such shares was $________ per share.
<PAGE> 79
7. The Taxpayer has submitted a copy of this statement to the Company as
the Taxpayer's employer or the corporation for whom the Taxpayer has
performed services.
THIS ELECTION MUST BE FILED WITH THE INTERNAL REVENUE SERVICE ("IRS") (AT THE
OFFICE WHERE THE TAXPAYER FILES ANNUAL INCOME TAX RETURNS) WITHIN 30 DAYS AFTER
THE DATE OF TRANSFER OF THE PROPERTY, AND MUST ALSO BE FILED WITH THE TAXPAYER'S
INCOME TAX RETURNS FOR THE CALENDAR YEAR ABOVE STATED. THE ELECTION CANNOT BE
REVOKED WITHOUT THE CONSENT OF THE IRS.
Dated: __________, 19__
_________________________________
Taxpayer's Signature
_________________________________
Spouse's Signature (if any)
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<PAGE> 80
3DFX INTERACTIVE, INC.
PROXY FOR 1998 ANNUAL MEETING OF SHAREHOLDERS
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned shareholder of 3DFX INTERACTIVE, INC., a California
corporation, hereby acknowledges receipt of the Notice of Annual Meeting of
Shareholders and Proxy Statement, each dated March 27, 1998, and hereby appoints
L. Gregory Ballard and David Zacarias and each of them proxies and
attorneys-in-fact, with full power to each of substitution, on behalf and in the
name of the undersigned, to represent the undersigned at the 1998 Annual Meeting
of Shareholders of 3DFX INTERACTIVE, INC., to be held on Friday, May 1, 1998 at
3:30 p.m., local time, at the Marriott Santa Clara, 2700 Mission College
Boulevard, Santa Clara, California 95052 and any adjournment(s) thereof, and to
vote all shares of Common Stock which the undersigned would be entitled to vote
if then and there personally present, on the matters set forth on the reverse
side.
1. Election of directors:
Nominees: L. Gregory Ballard, Gordon A. Campbell, Scott D. Sellers,
Anthony Sun, George J. Still, Jr., James Whims,
Philip M. Young
[ ] FOR all nominees listed above (except as marked to the contrary
below)
[ ] WITHHOLD AUTHORITY to vote for all nominees listed above
------------------------------------------------------------------------
INSTRUCTION: To withhold authority to vote for any individual nominee,
write that nominee(s) name(s) on the line above.
2. Proposal to amend the Company's 1995 Employee Stock Plan to increase the
number of shares reserved for issuance thereunder by 1,700,000 shares.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
3. Proposal to amend the Company's 1997 Employee Stock Purchase Plan to
provide for annual increases to the number of shares reserved for
issuance thereunder commencing in 1999.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
4. Proposal to ratify the appointment of Price Waterhouse LLP as
independent accountants for the fiscal year ending December 31, 1998.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
In their discretion, the proxies are authorized to vote upon such other
matter(s) which may properly come before the meeting and at any adjournment(s)
thereof.
MARK HERE FOR ADDRESS CHANGE AND NOTE BELOW [ ]
THIS PROXY WILL BE VOTED AS DIRECTED OR, IF NO DIRECTION IS INDICATED, WILL BE
VOTED (1) FOR THE LISTED NOMINEES IN THE ELECTION OF DIRECTORS, (2) FOR THE
AMENDMENT OF THE 1995 EMPLOYEE STOCK PLAN TO INCREASE THE NUMBER OF SHARES
RESERVED FOR ISSUANCE THEREUNDER, (3) FOR THE AMENDMENT TO THE 1997 EMPLOYEE
STOCK PURCHASE PLAN TO PROVIDE FOR ANNUAL INCREASES TO THE NUMBER OF SHARES
RESERVED FOR ISSUANCE THEREUNDER COMMENCING IN 1999 AND (4) FOR THE RATIFICATION
OF THE APPOINTMENT OF PRICE WATERHOUSE LLP AS INDEPENDENT ACCOUNTANTS FOR THE
1998 FISCAL YEAR.
<PAGE> 81
Both of such attorneys or substitutes (if both are present and acting at said
meeting or any adjournment(s) thereof, or, if only one shall be present and
acting, then that one) shall have and may exercise all of the powers of said
attorneys-in-fact hereunder.
Dated:
---------------------------------------
- ---------------------------------------------
Signature
- ---------------------------------------------
Signature
(This Proxy should be marked, dated, signed by the shareholder(s) exactly as his
or her name appears hereon, and returned promptly in the enclosed envelope.
Persons signing in a fiduciary capacity should so indicate. If shares are held
by joint tenants or as community property, both should sign.)
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